-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4oSvci144ZEHxrxxzgxC7YqwCjPcRhe13hZfHA+Y0j+gnqHQH15WMv/5Ge/Lmxg XRK3qjeAdylYEo+QO+Q7Qw== 0000950129-95-001607.txt : 19951221 0000950129-95-001607.hdr.sgml : 19951221 ACCESSION NUMBER: 0000950129-95-001607 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960125 FILED AS OF DATE: 19951220 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES CO CENTRAL INDEX KEY: 0000864328 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 630084140 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10570 FILM NUMBER: 95602814 BUSINESS ADDRESS: STREET 1: 5500 NW CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77210 BUSINESS PHONE: 713-462-4239 MAIL ADDRESS: STREET 1: 5500 NORTHWEST CENTRAL DR STREET 2: 5500 NORTHWEST CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77092 DEF 14A 1 BJ SERVICES COMPANY - NOTICE & PROXY STATEMENT 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 BJ Services Company - -------------------------------------------------------------------------------- (Name of Registrant as Specified in its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- 2 --------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS JANUARY 25, 1996 --------------------- The Annual Meeting of the Stockholders of BJ Services Company (the "Company") will be held on Thursday, January 25, 1996, at 11:00 a.m. local time, at The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas, for the following purposes: 1. To elect three Class III directors to serve a three-year term; 2. To amend Article IV of the Company's 1995 Incentive Plan to increase to 4,000 (from 3,000 currently) the number of non-qualified stock options that are granted annually to the Company's non-employee directors; and 3. To transact such other business as may properly come before the meeting and any adjournment thereof. The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. All stockholders of record at the close of business on December 7, 1995 are entitled to notice of and to vote at said meeting or any adjournment thereof. At least a majority of the outstanding shares of the Company are required to be present at the meeting or represented by proxy to constitute a quorum. By order of the Board of Directors, /s/ J. W. STEWART --------------------- J. W. Stewart Chairman of the Board, President and Chief Executive Officer Houston, Texas December 19, 1995 YOUR VOTE IS IMPORTANT - ------------------------------------------------------------------------------- TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE. - ------------------------------------------------------------------------------- 3 BJ SERVICES COMPANY PROXY STATEMENT This proxy statement is furnished to stockholders of BJ Services Company, a Delaware corporation (the "Company"), in connection with the solicitation of proxies on behalf of the Board of Directors of the Company to be voted at the Annual Meeting of Stockholders of the Company to be held at The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas, on Thursday, January 25, 1996, at 11:00 a.m. local time, and at any and all adjournments thereof. Stockholders of record at the close of business on December 7, 1995 will be entitled to notice of and to vote at such meeting and at all adjournments thereof. When a properly executed proxy is received prior to the meeting, the shares represented thereby will be voted at the meeting in accordance with the directions noted thereon. If no specification is made, the shares will be voted FOR the election of nominees listed herein as directors and FOR the proposed amendment to the Company's 1995 Incentive Plan (the "1995 Plan"). A proxy may be revoked at any time before it is exercised by submitting a written revocation or a later dated proxy to the Secretary of the Company, or by attending the meeting in person and so notifying the meeting judges. Management does not intend to present any business for a vote at the meeting, other than the election of directors and the amendment of the 1995 Plan, and it has no information others will do so. If other matters requiring the vote of stockholders properly come before the meeting, it is the intention of the persons named in the attached proxy card to vote proxies held by them in accordance with their judgment on such matters. The complete mailing address of the Company's executive offices is 5500 Northwest Central Drive, Houston, Texas 77092. The approximate date on which this proxy statement and the accompanying proxy card were first sent or given to the stockholders of the Company is December 19, 1995. VOTING SECURITIES On December 7, 1995, the record date, there were outstanding and entitled to vote 28,011,972 shares of the Company's Common Stock, held of record by 640 persons. Stockholders are entitled to one vote, exercisable in person or by proxy, for each share of Common Stock held on the record date. Cumulative voting is not permitted under the Company's Certificate of Incorporation or Bylaws. At the record date, management knew of no person that beneficially owned more than 5% of the outstanding voting securities of the Company, other than as set forth in the following table:
TITLE OF NAME AND ADDRESS NUMBER PERCENT CLASS OF BENEFICIAL OWNERS OF SHARES OF CLASS -------- -------------------- --------- -------- Common Stock FMR Corp. 3,472,377(a) 12.4% 82 Devonshire Street Boston, Massachusetts 02109 Common Stock Prudential Insurance Company of America 2,051,800(b) 7.3% 19 Prudential Plaza Newark, New Jersey 07102 Common Stock T. Rowe Price Associates, Inc. 1,586,100(c) 5.7% 100 East Pratt Street, 9th Floor Baltimore, Maryland 21202
- --------------- (a) At November 30, 1995, based on information provided by FMR Corp., FMR Corp., through its wholly owned subsidiaries Fidelity Management & Research Company, Fidelity Management Trust Company and Fidelity International Limited, was the beneficial owner of 3,472,377 shares of Common Stock. FMR Corp. had sole voting power with respect to 664,072 shares, no voting power with respect to 2,749,005 (Footnotes continued on following page) 4 shares and sole dispositive power with respect to 3,413,077 shares. Fidelity International Limited had sole voting and dispositive power with respect to the 59,300 shares it beneficially owned. (b) At December 11, 1995, based on information provided by Prudential Insurance Company of America ("Prudential"), Prudential held 2,051,800 shares of the Company's Common Stock. Of those shares, Prudential had shared voting and dispositive power with respect to 2,016,000 shares and sole voting and dispositive power with respect to 35,800 shares. (c) At November 1, 1995, based on information provided by T. Rowe Price Associates, Inc. ("Price"), Price was the beneficial owner of 1,586,100 shares of the Company's Common Stock. Price had sole dispositive power with respect to 1,586,100 shares and sole voting power with respect to 122,100 shares. ELECTION OF DIRECTORS The Company's Bylaws provide for the Board of Directors to serve in three classes having staggered terms of three years each. Three Class III directors will be elected at the 1996 Annual Meeting of Stockholders to serve for a three-year term expiring at the 1999 Annual Meeting of Stockholders. Pursuant to the Company's Bylaws, in case of a vacancy on the Board of Directors, a majority of the remaining directors of the class in which the vacancy occurs will be empowered to elect a successor, and the person so elected will hold office for the remainder of the full term of the director whose death, retirement, resignation, disqualification or other cause created the vacancy, and thereafter until the election of a successor director. The persons whose names are set forth as proxies in the enclosed proxy card will vote all shares over which they have control "FOR" the election of the nominees named below unless otherwise directed. Although the Board of Directors of the Company does not anticipate that any of the nominees will be unable to serve, if such a situation should arise prior to the meeting, the appointed proxies will use their discretionary authority pursuant to the proxy and vote in accordance with their best judgment. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED BELOW. THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE COMMON STOCK PRESENT OR REPRESENTED BY PROXY AT THE MEETING AND ENTITLED TO VOTE IS REQUIRED TO ELECT EACH DIRECTOR NOMINEE. 2 5 The following table sets forth, for each nominee for election as a Class III director, his name, his principal occupation, his age and the year in which he first became a director of the Company. The nominees have consented to be named in this proxy statement and to serve as directors, if elected.
DIRECTOR NOMINEES PRINCIPAL OCCUPATION AGE SINCE -------- -------------------- --- ----- L. William Heiligbrodt.......... President, Chief Operating Officer and a director 54 1992 of Service Corporation International, a funeral services corporation ("SCI"). He has served in various management positions with SCI since February 1990. Prior to joining SCI, Mr. Heiligbrodt served as President of Provident Services, Inc. from March 1988 to February 1990. Prior to that, he served for five years as Vice Chairman and Chief Executive Officer of WEDGE Group, Incorporated, a multi-industry holding company. James E. McCormick..... Mr. McCormick served in various executive 68 1990 positions with ORYX Energy Company, a diversified energy company, including President, Chief Operating Officer and a director, from 1977 until his retirement on March 1, 1992. Mr. McCormick currently serves on the board of directors of Lone Star Technology, Snyder Oil Company and Texas Commerce Bank National Association. J. W. Stewart.......... Chairman of the Board, President and Chief 51 1990 Executive Officer of the Company. Mr. Stewart joined Hughes Tool Company in 1969 as Project Engineer, served as Vice President-Legal and Secretary of Hughes Tool Company and as Vice President-Operations for a predecessor of the Company prior to being named President of the Company in 1986.
INFORMATION CONCERNING OTHER DIRECTORS The following table sets forth certain information for those directors whose present terms will continue after the 1996 Annual Meeting. The terms of the Class I and Class II directors will expire at the 1997 and 1998 Annual Meetings of Stockholders, respectively.
DIRECTOR NAME PRINCIPAL OCCUPATION AGE SINCE CLASS ---- -------------------- ---- ----- ----- John R. Huff........... Chairman, President and Chief Executive 49 1992 I Officer of Oceaneering International, Inc., an oilfield services corporation. Mr. Huff has been President, Chief Executive Officer and a director of Oceaneering since 1986 and Chairman of the Board since 1990. Mr. Huff is also a director of Production Operators Corp. and Triton Energy.
(Table continued on following page) 3 6
DIRECTOR NAME PRINCIPAL OCCUPATION AGE SINCE CLASS ---- -------------------- --- -------- ----- R. A. LeBlanc.......... Mr. LeBlanc served in various executive 65 1994 I positions with Keystone International, Inc., a manufacturer of flow control products, including Chairman of the Board, Chief Executive Officer and a director, from 1959 until his retirement in July 1995. Mr. LeBlanc currently serves as an advisory member of the board of directors of Texas Commerce Bank National Association. Michael E. Patrick..... Chief Investment Officer of The Meadows 51 1995 I Foundation since December 1, 1995; consultant from 1994 to 1995; President of Lomas Information Systems, Inc., a subsidiary of Lomas Financial Corporation, from 1993 to 1994; Executive Vice President, Chief Financial Officer and a director of Lomas Financial Corporation and President and Chief Operating Officer of its Lomas Mortgage USA subsidiary, both of which are engaged in mortgage banking, real estate and information services, from 1992 until 1994; and Executive Vice Chancellor for Asset Management of the University of Texas System, where he was responsible for the investment of all endowment funds, from 1984 to 1991. William J. Johnson..... Independent oil and natural gas producer 61 1995 II and consultant, since May 1994; President and Chief Operating Officer and a director of Apache Corporation, an independent oil and gas exploration and production company, from 1991 to 1994; President, Chief Executive Officer and a director of TEX/CON Oil & Gas Company, a subsidiary of British Petroleum P.L.C., from 1989 to 1991. Mr. Johnson also serves as a director of Camco International, Inc., a provider of oil and natural gas production equipment and services, and of Snyder Oil Corporation, an independent oil and gas exploration and production company, and as an advisory member of the board of directors of Texas Commerce Bank National Association. Don D. Jordan.......... Chairman, Chief Executive Officer and a 63 1990 II director of Houston Industries Incorporated, a public utility holding company with interests in the electric utilities, cable television, coal and transportation businesses. Mr. Jordan has been employed by various subsidiaries of Houston Industries Incorporated since 1956. He currently serves as a director of Texas Commerce Bancshares, UTECH Joint Venture and AEGIS Insurance Services.
(Table continued on following page) 4 7
DIRECTOR NAME PRINCIPAL OCCUPATION AGE SINCE CLASS ---- -------------------- --- -------- ----- Michael McShane........ Vice President -- Finance and Chief 41 1990 II Financial Officer of the Company. Mr. McShane joined the Company in 1987 from Reed Tool Company, an oil field tool company, where he was employed for seven years. At Reed Tool Company, he held various financial management positions including Corporate Controller and Regional Controller of Far East Operations.
The following table sets forth the beneficial ownership of Common Stock as of November 1, 1995 by each current director and nominee, by each executive officer named in the Summary Compensation Table and by all current directors and officers as a group.
NUMBER OF NAME OR GROUP SHARES(1)(2) ------------- ------------ David A.B. Brown(3)............................................. 0 L. William Heiligbrodt.......................................... 9,000 John R. Huff.................................................... 7,000 William J. Johnson.............................................. 1,406 Don D. Jordan................................................... 8,500 R. A. LeBlanc................................................... 3,435 James E. McCormick.............................................. 9,000 Michael E. Patrick.............................................. 0 J. W. Stewart................................................... 261,341 Michael McShane................................................. 117,121 G. R. Goodarzi(4)............................................... 77,548 Thomas H. Koops................................................. 81,393 Margaret B. Shannon............................................. 22,466 All current directors and officers as a group (17 persons)(5)... 787,541
- --------------- (1) The persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. As of November 1, 1995, no officer or director owned in excess of 1% of the Company's Common Stock. (2) Includes the following shares subject to options granted pursuant to the Company's 1990 Stock Incentive Plan and exercisable within 60 days: Mr. Brown -- 0 shares; Mr. Heiligbrodt -- 7,000 shares; Mr. Huff -- 7,000 shares; Mr. Johnson -- 0 shares; Mr. Jordan -- 8,000 shares; Mr. LeBlanc -- 3,000 shares; Mr. McCormick -- 8,000 shares; Mr. Patrick -- 0 shares; Mr. Stewart -- 200,355 shares; Mr. McShane -- 85,157 shares; Mr. Goodarzi -- 58,361 shares; Mr. Koops -- 61,571 shares; Ms. Shannon -- 7,487 shares. (3) As of January 25, 1996, Mr. Brown will no longer be a director of the Company. (4) Mr. Goodarzi has not been an officer of the Company since October 17, 1995. (5) All current directors and officers as a group owned beneficially an aggregate of approximately 3% of the Company's Common Stock. BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD During fiscal 1995, the Board of Directors held eight meetings of the full Board and eight meetings of committees. During such fiscal year, or such portion of such year during which such director served, each director attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of committees of the Board on which he served. During fiscal 1995, directors who were not employees of the Company were paid a monthly retainer of $2,000 for service on the Board, an attendance fee of $1,250 for the 5 8 first meeting of the Board or any of its committees attended in one day, and $800 for each additional meeting attended in the same day. Committee chairmen who are not Company employees receive an additional 50% of the meeting fee. In addition, pursuant to the terms of the Company's 1990 Stock Incentive Plan and 1995 Plan, the non-employee directors receive annual automatic grants of options to purchase 3,000 shares of Common Stock effective the fourth Thursday of October each year. The proposed amendment to the 1995 Plan would increase such automatic grants to options to purchase 4,000 shares, beginning in October 1996. See "Amendment to the BJ Services Company 1995 Incentive Plan" below. Employees of the Company are not paid any directors' fees. No member of the Board of Directors was paid any compensation in the Company's 1995 fiscal year for his service as a director of the Company other than pursuant to the standard compensation arrangement for directors and expenses. On January 26, 1995, the Board of Directors appointed members to serve on the Audit Committee, the Executive Compensation Committee and the Nominating Committee. The Nominating Committee held one meeting during fiscal 1995. The Executive Compensation Committee met five times and the Audit Committee met two times during that period. On May 25, 1995, in connection with the merger of The Western Company of North America ("Western") with and into the Company (the "Merger"), the Board of Directors increased the number of directors, appointed additional members to serve on the Audit Committee, the Executive Compensation Committee and the Nominating Committee, and appointed members to serve on the Special Committee of the Board of Directors of the Company established pursuant to the Agreement and Plan of Merger between the Company and Western (the "Merger Agreement"). The Special Committee did not meet during fiscal 1995. The responsibilities of the Audit Committee, comprised of Messrs. McCormick (Chairman), Jordan, Huff, LeBlanc and Brown, include reviewing the scope and results of the annual audit of the Company's consolidated financial statements with the independent auditors, internal auditors and management; reviewing the independence of the independent auditors and the internal auditors; reviewing actions by management on the independent and internal auditors' recommendations; and meeting with management, the internal auditors and the independent auditors to review the effectiveness of the Company's system of internal control and internal audit procedures. To promote the independence of the audit, the Audit Committee consults separately and jointly with the independent auditors, the internal auditors and management. The responsibilities of the Executive Compensation Committee, comprised of Messrs. Jordan (Chairman), McCormick, Heiligbrodt, Huff and Patrick, include reviewing the Company's executive salary and bonus structure; reviewing the Company's employee stock incentive plans, thrift plan and employee stock purchase plan as well as other incentive alternatives; reviewing the Company's perquisite program; and recommending directors' fees. The responsibilities of the Nominating Committee, comprised of Messrs. Heiligbrodt (Chairman), McCormick, LeBlanc and Johnson, include selecting candidates to fill vacancies on the Board of Directors; reviewing the structure and composition of the Board; and considering qualifications required for continued Board service. The Committee also considers nominees recommended by stockholders. Stockholders desiring to make such recommendations should submit the candidate's name, together with biographical information and the candidate's written consent to be nominated and, if elected, to serve to: Chairman, Nominating Committee of the Board of Directors of BJ Services Company, P.O. Box 4442, Houston, Texas 77210-4442. The responsibilities of the Special Committee, comprised of Messrs. McCormick (Chairman), LeBlanc, Johnson and Patrick, include administering the provisions of the Merger Agreement relating to employee arrangements. 6 9 AMENDMENT TO THE BJ SERVICES COMPANY 1995 INCENTIVE PLAN The Board of Directors recommends the approval of an amendment to the 1995 Plan to increase the number of shares for which automatic annual option grants are made to the Company's non-employee directors. The 1995 Plan was adopted by the Board of Directors on January 26, 1995 and was submitted to and approved by the stockholders at a special meeting of stockholders held on April 13, 1995. Key employees, officers and non-employee directors of the Company, its subsidiaries and affiliated entities are eligible to participate in the 1995 Plan. As of November 1, 1995, there were 117 employees and eight non-employee directors eligible to participate in the 1995 Plan. The 1995 Plan provides for the issuance of up to an aggregate of 1,500,000 shares of Common Stock. The 1995 Plan will terminate on December 31, 2004, if not sooner terminated pursuant to the terms thereof. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE 1995 PLAN. THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE COMMON STOCK PRESENT OR REPRESENTED BY PROXY AT THE MEETING AND ENTITLED TO VOTE IS REQUIRED TO APPROVE THE PROPOSED AMENDMENT. The 1995 Plan provides that each non-employee director who is first elected to the Board of Directors on or after the date director options may no longer be granted under the terms of the BJ Services Company 1990 Stock Incentive Plan (the "1990 Plan Termination") will be granted, as of the date of his initial election, a Nonqualified Option (hereinafter defined) under the 1995 Plan to purchase 1,000 shares of Common Stock. In addition, annually, beginning on the fourth Thursday of October of 1995 and each year thereafter until the expiration of the 1995 Plan, each person who is a non-employee director on such date will receive a grant of a Nonqualified Option to purchase 1,000 shares of Common Stock (increased to 3,000 shares after the 1990 Plan Termination). The Board of Directors has recommended a revision to this provision of the 1995 Plan which would result in annual grants of Nonqualified Options to purchase 2,000 shares of Common Stock (increased to 4,000 shares after the 1990 Plan Termination). The Board of Directors believes such increase is necessary to provide competitive compensation levels for the Company's non-employee directors. The following summary describes briefly other principal features of the 1995 Plan, and is qualified in its entirety by reference to the full text of the 1995 Plan as amended by the proposed Amendment One, the full text of which amendment is provided as Appendix A to this Proxy Statement. The 1995 Plan permits the granting of the following types of awards: stock options ("Options") to purchase shares of Common Stock to key employees, officers and non-employee directors ("Optionees"), which may be either incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options that do not constitute Incentive Stock Options ("Nonqualified Options"); stock based awards ("Performance Stock," "Performance Units" and "Bonus Stock") to key employees and officers ("Employee Grantees"); and cash awards ("Tandem Cash Tax Rights," "Performance Cash Awards" or "Bonus Cash Awards," collectively referred to as "Cash Awards") to Employee Grantees. Options, Performance Stock, Performance Units, Bonus Stock and Cash Awards are collectively referred to herein as "Awards." Incentive Stock Options may be granted only to individuals who are key employees and officers (whether or not they are directors) of the Company or any "Parent Corporation" or any "Subsidiary Corporation" (as defined in Section 424 of the Code) of the Company, and Nonqualified Options, Performance Stock, Performance Units, Bonus Stock and Cash Awards may be granted to individuals who are key employees and officers (whether or not they are directors) of the Company, its subsidiaries and affiliated entities. Options granted to non-employee directors must be Nonqualified Options, and nonemployee directors are not eligible to receive any other Award. The 1995 Plan is administered by the Executive Compensation Committee of the Board of Directors. Each member of the Executive Compensation Committee must be a "disinterested person" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if and as then in effect, and also an "outside director" within the meaning of Section 162(m) of the Code. Subject to the terms and conditions of the 1995 Plan, the Executive Compensation Committee has authority to 7 10 determine the employees who are to be granted Awards, the number of shares to be issued pursuant to such Awards, and, to a limited extent, the exercise price of Options (other than Options granted to non-employee directors), to interpret the 1995 Plan and all Options and other Awards, and to administer the 1995 Plan. The Executive Compensation Committee has the authority to grant to the Employee Optionees, prior to the termination of and subject to the terms and conditions of the 1995 Plan, Options that will be in such form as the Executive Compensation Committee may from time to time approve. Subject to certain exceptions, no Option granted under the 1995 Plan is exercisable earlier than the date which is six months from the date of grant nor later than the date which is ten years after the date of grant. The price at which shares of Common Stock may be purchased upon the exercise of a Nonqualified Option is determined by the Executive Compensation Committee at the time the Option is granted; provided, however, that the exercise price of a Nonqualified Option may not be less than the lesser of (i) the per share price of the last sale of Common Stock on the trading day prior to the grant of such Option, based on the composite transactions in the Common Stock as reported by The Wall Street Journal, and (ii) the arithmetic average of the closing prices per share of Common Stock on all days on which such stock was traded during the 90-day period before the date of grant, based on the composite transactions in the Common Stock as reported by The Wall Street Journal. In the case of Options granted to non-employee directors, the exercise price of each Option shall be equal to the lesser of (i) and (ii) above. In the case of the exercise of an Incentive Stock Option, subject to the certain limitations, the purchase price per share of Common Stock will be equal to the fair market value per share of Common Stock at the time the Incentive Stock Option is granted as determined by the Executive Compensation Committee, based on the composite transactions in the Common Stock as reported by The Wall Street Journal, and shall not be less than the per share price of the last sale of Common Stock on the trading day prior to the date of grant. The per share price of the last sale of Common Stock as of December 15, 1995, based on the composite transactions in the Common Stock as reported by The Wall Street Journal, was $28.00. The Executive Compensation Committee has the authority to grant Performance Stock (which will be shares of Common Stock subject to a Performance Period (as defined below)), Performance Units (which will represent phantom shares of Common Stock subject to a Performance Period) and Bonus Stock (which will be shares of Common Stock that are not subject to a Performance Period). To the extent not prohibited by other provisions of the 1995 Plan, each share of Performance Stock and each Performance Unit shall be subject to becoming vested upon the achievement of such performance goals (Company and/or individual) over such Performance Period (which generally shall be not less than six months and not more than ten years after the date of grant) as the Executive Compensation Committee in its discretion may determine at or prior to the grant of such Award. With respect to a Performance Stock or Performance Unit Award, the Executive Compensation Committee may grant a Tandem Cash Tax Right that will entitle a recipient to receive a cash amount sufficient to gross up the value of such Award to equal its value before any federal, state and other taxes payable thereon. Cash Awards may also include Performance Cash Awards, which shall not vest prior to six months from the date of grant or after ten years from the date of grant, subject to achievement of certain performance goals, as determined by the Executive Compensation Committee in its discretion. The Executive Compensation Committee may, from time to time and subject to the provisions of the 1995 Plan, grant Bonus Cash Awards to key employees and officers (whether or not they are directors) of the Company, its subsidiaries and affiliated entities. Bonus Cash Awards are cash payments that are not subject to a Performance Period. Upon the occurrence of a Change of Control (defined generally as certain acquisitions by a person, entity or group of 25% or more of the Company's Common Stock or 25% of the combined voting power of the then outstanding voting securities of the Company or certain reorganizations, mergers or consolidations), each Option that is not then immediately exercisable in full shall be immediately exercisable in full. In addition, upon the occurrence of a Change of Control, each share of Performance Stock and each Performance Unit 8 11 that was previously granted under the 1995 Plan and that is not then immediately vested in full will be immediately vested in full. Other than the automatic annual Option grants to non-employee directors described above (which are subject to the limitation of the number of shares of Common Stock available under the 1995 Plan), it is not possible to determine at this time the number of shares of Common Stock covered by Awards that may be granted in the future to any employee, director or group thereof. The following table sets forth, for the executive officers of the Company named in the Summary Compensation Table, all current executive officers as a group, all current directors who are not executive officers as a group, each nominee for election as a director, and all other (non-executive) employees as a group, the number of shares of Common Stock covered by Awards granted under the 1995 Plan for fiscal 1995. 1995 PLAN BENEFITS BJ SERVICES COMPANY 1995 INCENTIVE PLAN
NUMBER OF SHARES NAME POSITION COVERED BY AWARDS ----- -------- ---------------- J. W. Stewart............ President and Chief Executive Officer; Nominee.... 165,865 Vice President -- Finance and Chief Financial Michael McShane.......... Officer........................................... 61,749 G. R. Goodarzi(1)........ Vice President -- International Operations........ 33,231 Thomas H. Koops.......... Vice President -- Technology and Logistics........ 41,934 Margaret B. Shannon...... Vice President and General Counsel................ 40,962 EXECUTIVE GROUP (9 persons)............................................................... 484,194 NON-EMPLOYEE DIRECTOR GROUP (8 persons)............................................................... 8,000 L. William Heiligbrodt... Nominee........................................... 1,000 James E. McCormick....... Nominee........................................... 1,000 NON-EXECUTIVE EMPLOYEE GROUP (108 persons)............................................................. 236,000
- --------------- (1) Mr. Goodarzi has not been an officer of the Company since October 17, 1995; accordingly, the Awards shown in this table for Mr. Goodarzi lapsed on October 17, 1995 in accordance with their terms. FEDERAL INCOME TAX CONSEQUENCES WITH RESPECT TO OPTIONS The following summary is based on the applicable provisions of the Code as currently in effect and the income tax regulations and proposed income tax regulations thereunder. The 1995 Plan is not qualified under Section 401(a) of the Code. Nonqualified Options. No federal income tax is imposed on the Optionee upon the grant of a Nonqualified Option. Upon the exercise of a Nonqualified Option, the Optionee will generally be treated as receiving compensation taxable as ordinary income in the year of exercise, in an amount equal to the excess of the fair market value of the shares of Common Stock at the time of exercise over the exercise price paid for such shares of Common Stock. Upon a subsequent disposition of the shares of Common Stock received upon exercise of a Nonqualified Option, any difference between the fair market value of the shares of Common Stock at the time of exercise and the amount realized on the disposition would be treated as long-term or short-term capital gain or loss, depending on the holding period of the shares. Upon an Optionee's exercise of a Nonqualified Option, the Company may claim a deduction for compensation paid at the same time and in the same amount as income is recognized by the Optionee, if and to the extent that the amount is an ordinary expense and satisfies the test of reasonable compensation. 9 12 Incentive Stock Options. No federal income tax is imposed on the Optionee upon the grant of an Incentive Stock Option. If the Optionee does not dispose of shares acquired pursuant to his exercise of an Incentive Stock Option within two years from the date the Option was granted or within one year after the shares were transferred to him (the "Holding Period"), except for the item of tax adjustment described below under "Alternative Minimum Tax," no income would be recognized by the Optionee by reason of his exercise of the Option, and the difference between the Option price and the amount realized upon a subsequent disposition of the shares of Common Stock would be treated as a long-term capital gain or loss. In such event, the Company would not be entitled to any deduction in connection with the grant or exercise of the Option or the disposition of the shares of Common Stock so acquired. If, however, an Optionee disposes of shares of Common Stock acquired pursuant to his exercise of an Incentive Stock Option before the Holding Period has expired, the Optionee would be treated as having received, at the time of disposition, compensation taxable as ordinary income. In such event the Company may claim a deduction for compensation paid at the same time and in the same amount as compensation is treated as being received by the Optionee. The amount treated as compensation is the excess of the fair market value of the shares of Common Stock at the time of exercise (or, in the case of a sale in which a loss, if sustained, would be recognized, the amount realized on the sale, if less) over the Option price; any amount realized in excess of the fair market value of the shares of Common Stock at the time of exercise would be treated as long-term or short-term capital gain, depending on the holding period of the shares of Common Stock. Alternative Minimum Tax. The excess of the fair market value of shares of Common Stock acquired upon exercise of an Incentive Stock Option over the exercise price paid for such shares is an adjustment to alternative minimum taxable income for the Optionee's taxable year in which such exercise occurs (unless the shares of Common Stock are disposed of in the same taxable year). Payment of Option Price in Shares. In the case of a Nonqualified Option, if the Option price is paid by the delivery of shares of Common Stock previously acquired by the Optionee having a fair market value equal to the Option price ("Previously Acquired Shares"), gain or loss would not be recognized on the exchange of the Previously Acquired Shares for a like number of shares of Common Stock pursuant to such an exercise of the Option, and the Optionee's basis in the number of shares of Common Stock received equal to the Previously Acquired Shares would be the same as his basis in the Previously Acquired Shares. In addition, the Optionee would be treated as receiving compensation taxable as ordinary income equal to fair market value at the time of exercise of the shares of Common Stock received in excess of the number of Previously Acquired Shares, and the Optionee's basis in such excess shares of Common Stock would generally be equal to their fair market value at the time of exercise. In the case of an Incentive Stock Option, the federal income tax consequences to the Optionee of the payment of the Option price with Previously Acquired Shares will depend on the nature of the Previously Acquired Shares. If the Previously Acquired Shares were acquired through the exercise of a qualified stock option, an Incentive Stock Option or an option granted under an employee stock purchase plan ("Statutory Option") and if such Previously Acquired Shares are being transferred prior to the expiration of the applicable minimum statutory holding period, the transfer would be treated as a disqualifying disposition of the Previously Acquired Shares. If the Previously Acquired Shares were acquired other than pursuant to the exercise of a Statutory Option, or were acquired pursuant to the exercise of a Statutory Option but have been held for the applicable minimum statutory holding period, no gain or loss should be recognized on the exchange of the Previously Acquired Shares. In either case, (i) the Optionee's basis in the number of shares of Common Stock acquired equal to the number of Previously Acquired Shares would be the same as his basis in the Previously Acquired Shares, increased by any income recognized to the Optionee upon the disqualifying disposition of the Previously Acquired Shares, (ii) the Optionee's basis in the shares of Common Stock acquired in excess of the number of Previously Acquired shares would be zero and (iii) the other incentive stock option rules would apply. Upon a subsequent disqualifying disposition of the shares of Common Stock so received, the shares of Common Stock with the lowest basis would be treated as disposed of first. 10 13 Additional Tax Consequences. In the event that the acceleration of vesting or any payment, distribution or issuance of stock is subject to the golden parachute 20% excise tax pursuant to Section 4999(a) of the Code, the participant whose benefit is subject to such tax is entitled to receive a gross-up payment from the Company so that the amount of the "net" benefit received by such participant shall equal the amount of the benefit that would have been received in the absence of a golden parachute tax. Section 280G of the Code prevents the deductibility by the Company of amounts subject to the excise tax under Code Section 4999. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION COMMITTEE REPORT The Executive Compensation Committee of the Company's Board of Directors consists of five directors who are not employees of the Company. The Committee reviews the Company's executive compensation program and policies each year and determines the compensation of the executive officers. The Committee's overall policy regarding compensation of the Company's executive officers is to provide competitive salary levels and compensation incentives that (i) attract and retain individuals of outstanding ability in these key positions, (ii) recognize individual performance and the performance of the Company relative to the performance of other companies of comparable size, complexity and quality, and (iii) support both the short-term and long-term goals of the Company. The Executive Compensation Committee believes this approach closely links the compensation of the Company's executives to the accomplishment of Company goals which coincide with shareholder objectives. In addition, the Executive Compensation Committee considers the anticipated tax treatment of the Company's executive compensation program. Section 162(m) of the Internal Revenue Code generally limits the corporate tax deduction for compensation paid to executive officers named in the Summary Compensation Table to $1 million, unless certain conditions are met. The Company's policy is to qualify all executive compensation for deduction under applicable tax laws to the maximum extent possible. As the current and projected compensation subject to the $1 million threshold of Section 162(m) for each of the named executive officers is below such threshold, the Committee believes that the requirements of Section 162(m) will not affect the tax deductions available to the Company in connection with its executive compensation for the 1995 or 1996 fiscal years. The executive compensation program includes four elements that, taken together, constitute a flexible and balanced method of establishing total compensation for the Company's executive officers. These elements are (i) base salary, (ii) annual bonus plan awards, (iii) long-term incentive awards, and (iv) stock option grants. These elements are further discussed below. Providing Competitive Levels of Compensation. The Committee attempts to provide the Company's executives with a total compensation package that is targeted at the 75th percentile of the market for executives holding comparable positions when the Company's performance justifies the payment of compensation at such levels. The Committee determines a competitive level of compensation for each executive based on information drawn from a variety of sources, including proxy statements of other companies and surveys conducted by compensation consultants. An independent consultant periodically reviews and provides survey data to the Committee on the compensation of the chief executive officer and other executives in comparison with compensation levels at companies in an industry peer group. The industry peer companies covered by the performance graph are not the same as the group of companies referenced for compensation purposes, which included additional companies within the industry. While the targeted value of an executive's compensation package may be competitive, its actual value may exceed or fall below competitive levels depending on performance, as discussed below. Base Salaries. The Committee periodically reviews and establishes executive base salaries. Generally, base salaries are determined according to the following factors: the individual's experience level, scope and complexity of the position held and annual performance of the individual. In addition, although the Committee did not obtain a survey for purposes of determining 1995 base salaries, an independent consultant 11 14 periodically reviews and provides survey data to the Committee on the salaries being paid for similar positions at companies in an industry peer group. Notwithstanding the above criteria, based on the Company's performance for 1994 and upon Mr. Stewart's recommendation, his base salary for 1995 was maintained at the same level as in 1994. The Annual Bonus Plan. The purpose of the Annual Bonus Plan is to provide motivation toward and reward the accomplishment of corporate annual objectives and to provide a competitive compensation package which will attract, reward and retain individuals of the highest quality. As a pay-for-performance plan, cash bonus awards are paid based upon the achievement of corporate performance objectives established for the fiscal year. Targeted bonus award levels for the Company's executive officers are established by the Committee each year. The Company's annual performance measures are established jointly by the Committee and management. For 1995, bonus targets for the Company's Chief Executive Officer and its other executive officers were based on earnings per share objectives. These objectives are established at three levels: entry level, expected value (target level) and over achievement level. In addition, the bonus for the Company's Vice President of International Operations was based on operating profit objectives relating to his area of responsibility. The Committee chooses not to disclose the specific earnings per share and operating profit objectives because it believes such disclosure would be detrimental to the Company's position with respect to the industry. Since the Company's 1995 earnings per share exceeded the over achievement level, each of the named executive officers, including Mr. Stewart, received the maximum eligible bonus. Long-Term Incentive Program. The long-term incentive program was introduced in fiscal 1993 to focus management attention on Company performance over a period of time longer than one year in recognition of the long-term horizons for return on investments and strategic decisions in the energy services industry. The program is designed to motivate management to assist the Company in achieving a high level of long-term performance and serves to link this portion of executive compensation to long-term stockholder value. Pursuant to the long-term incentive program, the Executive Compensation Committee may award performance awards to executive officers on an annual basis. The numbers of shares represented by such awards are designed to place the Chief Executive Officer and other executive officers at the 75th percentile of the market for total compensation when expected performance is met. Aggregate stock or option holdings of the executive have no bearing on the size of a performance award. The awards generally vest over a three-year period of time, based on Company performance over such time period measured against pre-established objectives. For fiscal 1995, awards under the long-term incentive program consisted of performance units granted under the Company's 1990 Stock Incentive Plan. These awards will vest at the end of three years according to the Company's three year stock price performance as compared to an industry peer group index. Such performance must exceed peer group performance by predetermined percentages in order for the performance units to vest in full. Notwithstanding the foregoing, the Executive Compensation Committee is permitted by the terms of the 1990 Stock Incentive Plan to amend the performance objectives or the vesting period for any performance award with the consent of the employee grantee. In addition, the performance awards will vest in full upon the occurrence of a "change of control". For fiscal 1995, Mr. Stewart was awarded performance units, based on the criteria described above. In addition, during fiscal 1995, in connection with the Merger, previously granted performance awards were vested or cancelled. See "Awards to Officers of the Company in Connection with the Merger" below. Stock Option Grants. Pursuant to the Company's 1990 Stock Incentive Plan and the 1995 Plan, the Committee may make grants of stock options to the Company's executive officers. The plans allow the Committee to promote the interests of the Company and its stockholders by encouraging the executive officers to increase their equity interest in the Company, thereby giving them added incentive to work toward the continued growth and success of the Company. In addition to those described below under "Awards to Officers of the Company in Connection with the Merger," stock option grants to each executive for 1995 were made under the 1995 Plan and were primarily based on the executive's degree of responsibility for and 12 15 contribution to the growth and success of the Company, as well as on survey data provided by an independent consultant to the Committee regarding stock option grants at companies in an industry peer group. Aggregate stock or option holdings of the executive officer have not been considered in determining the size of the option grants. For fiscal 1995, Mr. Stewart was granted options to purchase shares of Common Stock, based on the criteria described above. For a discussion of certain option grants to officers of the Company made under the 1995 Plan in connection with the Merger and not based on the foregoing criteria, see "Awards to Officers of the Company in Connection with the Merger" below. Awards to Officers of the Company in Connection with the Merger. Pursuant to the terms of the Company's 1990 Stock Incentive Plan, a "change in control" resulted from the Merger when Western stockholders acquired more than 40% of the Company's outstanding Common Stock. At the time of the Merger, as a result of such change in control, under the terms of the 1990 Stock Incentive Plan, the vesting of all outstanding nonvested stock options granted under such plan before November 1994 was accelerated, and all performance awards granted under such plan became payable in full in shares of the Company's Common Stock. In consideration for the stock option grants and the performance award changes described below and the amendments to the severance agreements described below, each officer of the Company who held stock options or performance awards granted prior to November 1994 agreed to waive the accelerated vesting of the stock options and a portion of the performance awards that would have otherwise occurred upon consummation of the Merger and the resulting "change in control." In connection with the Merger and conditioned upon its consummation, the Board of Directors of the Company approved cash bonus awards aggregating $450,000 payable to Mr. Stewart and three of the Company's other executive officers. Also, vesting of a portion of the performance awards granted to the Company's officers under the Company's 1990 Stock Incentive Plan occurred upon consummation of the Merger, rather than at the end of their three-year performance period. The percentage of outstanding awards to vest was determined by the Company's Executive Compensation Committee based on: (i) the Company's actual financial results for 1993 and 1994 compared to an industry peer group index, (ii) the performance criteria for the fiscal years ending in 1995, 1996 and 1997 being deemed to have been fully satisfied upon consummation of the Merger, (iii) execution of waivers with regard to change in control acceleration rights in the Company's 1990 Stock Incentive Plan and (iv) successful completion of the Merger. As a result, 168,547 of the 220,316 performance awards outstanding under the Company's 1990 Stock Incentive Plan vested and 168,547 shares of the Company's Common Stock were issued to officers (including the executive officers) of the Company, plus $2.6 million in the aggregate in cash, based upon a price of $22.50 per share of the Company's Common Stock on the date of issuance, to offset the federal income tax payable by the recipients in respect of such issuance. Mr. Stewart's awards were based on the foregoing criteria. Upon consummation of the Merger, all rights with respect to the remaining 51,769 performance awards outstanding at the time of the Merger were cancelled. In addition, in consideration for the waivers previously described, a total of 368,157 stock options were authorized for issuance under the Company's 1995 Plan on February 15, 1995 to a total of nine officers (including Mr. Stewart and all of the Company's other executive officers). Such options will vest in whole or in part at the end of the two-year period commencing on the date of the Merger if the Company achieves specified consolidation benefits from combining Western's operations with those of the Company over such two-year period. If an employee voluntarily leaves the Company or is terminated by the Company prior to the end of such two-year period, all such options granted to such employee will be forfeited. All such options will become fully vested upon a future "change in control" as defined in the Company's 1995 Plan. 13 16 This report of the Executive Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such acts. Don D. Jordan, Chairman L. William Heiligbrodt John R. Huff James E. McCormick Michael E. Patrick 14 17 PERFORMANCE GRAPH -- TOTAL STOCKHOLDER RETURN SEPTEMBER 1990 THROUGH SEPTEMBER 1995 Set forth below is a graph comparing the cumulative total stockholder return on the Company's Common Stock with the cumulative total return of the Standard & Poor's 500 Stock Index and a peer group index consisting of Nowsco Well Service Limited, Smith International, Inc., Energy Ventures, Inc., Enterra Corporation, Weatherford International Incorporated, Pool Energy Services Co., Varco International, Inc., Oceaneering International, Inc. and Tuboscope Vetco International Corporation (the "Comparator Group"). The graph assumes investments of $100 on September 30, 1990, and reinvestment of all dividends. The returns of each company in the Comparator Group have been weighted according to the market capitalization of each such company at the beginning of each period for which a return is indicated. This performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such acts. INDEXED TOTAL SHAREHOLDER RETURN SEPTEMBER 1990 -- SEPTEMBER 1995
MEASUREMENT PERIOD BJ SERVICES COMPARATOR (FISCAL YEAR COVERED) COMPANY S&P 500 GROUP 9/90 100 100 100 9/91 76 131 70 9/92 72 145 70 9/93 90 164 91 9/94 81 170 91 9/95 104 221 96
15 18 The following information relates to compensation paid by the Company for fiscal 1993, 1994 and 1995 to the Company's Chief Executive Officer and each of the other four (4) most highly compensated executive officers in 1995: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ---------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ---------------------------- --------------------- ---------- (A) (B) (C) (D) (E) (F) (G) (H) (I) OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING ALL OTHER COMPENSA- STOCK OPTIONS/ LTIP COMPENSA- NAME AND SALARY BONUS(1) TION(2)(3) AWARDS(4) SARS(5) PAYOUTS(6) TION(2)(7) PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($) ------------------ ---- ------- ------- --------- --------- ---------- ---------- ---------- J. W. Stewart................ 1995 400,008 560,000 165,865 1,803,511 27,500 President and Chief 1994 395,840 0 41,026 0 Executive Officer 1993 365,834 283,500 35,714 0 Michael McShane.............. 1995 213,338 229,000 61,749 986,070 11,684 Vice President -- Finance 1994 202,508 0 15,795 0 and Chief Financial Officer 1993 184,674 95,764 14,476 0 G.R. Goodarzi(8)............. 1995 180,504 81,900 33,231 541,489 11,684 Vice President -- 1994 169,170 11,198 11,077 0 International Operations 1993 147,002 56,700 10,000 0 Thomas H. Koops.............. 1995 171,504 152,850 41,934 589,466 11,099 Vice President -- 1994 162,504 0 10,769 0 Technology and Logistics 1993 150,838 58,592 9,226 0 Margaret B. Shannon.......... 1995 169,668 151,950 40,962 547,786 10,781 Vice President -- General 1994 103,134 0 10,462 0 Counsel 1993 0 0 0 0
- --------------- (1) Includes bonuses earned in the reported fiscal year and paid in the following fiscal year, including special bonuses of $200,000, $100,000, $75,000 and $75,000 paid to Mr. Stewart, Mr. McShane, Ms. Shannon and Mr. Koops, respectively, in connection with the Merger. (2) In accordance with SEC regulations, information for prior years is not required to be disclosed in this column. (3) Perquisites and other personal benefits paid or distributed during 1995 to the persons listed in the compensation table above did not exceed, with respect to any individual, the lesser of $50,000 or 10 percent of such individual's total salary and bonus. (4) See table entitled "Long-Term Incentive Plans -- Awards in Last Fiscal Year" for information regarding performance units granted for 1995. (5) Includes options earned in the reported fiscal year and granted subsequent to the end of the fiscal year. (6) Reflects payments in respect of performance awards granted under the 1990 Stock Incentive Plan. A portion of the outstanding performance awards granted under the 1990 Stock Incentive Plan became vested upon consummation of the Merger. The percentage of outstanding awards to vest was determined by the Compensation Committee based upon (i) actual results for 1993 and 1994 as compared with the results for companies in an industry peer group, (ii) deemed satisfaction of performance criteria for fiscal years 1995, 1996 and 1997, (iii) execution by such officers of waivers with regard to change in control acceleration rights in the 1990 Stock Incentive Plan and (iv) successful completion of the Merger. Also includes cash awards to offset the federal income tax payable by the recipients of such payments in respect of performance awards. (7) The amount shown in this column is the annual Company contribution to the Company's 401(k) defined contributions plan on behalf of each executive officer. (8) Mr. Goodarzi has not been an officer of the Company since October 17, 1995. 16 19 OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM - ----------------------------------------------------------------------------- -------------------- (a) (b) (c) (d) (e) (f) (g) % OF NUMBER TOTAL OF OPTIONS/ SECURITIES SARS UNDERLYING GRANTED OPTIONS/ TO EXERCISE SARS EMPLOYEES OR BASE GRANTED IN FISCAL PRICE EXPIRATION NAME (#)(1) YEAR ($/SH) DATE 5%($) 10%($) ---- ---------- --------- --------- --------- -------- -------- J.W. Stewart................... 42,787(2) 7.1% 24.54 12/07/05 660,335 1,673,418 123,078(3) 20.3% 16.89 02/15/05 1,307,338 3,313,052 Michael McShane................ 14,364(2) 2.4% 24.54 12/07/05 221,681 561,782 47,385(3) 7.8% 16.89 02/15/05 503,325 1,275,524 G.R. Goodarzi(4)............... 33,231(3) 5.5% 16.89 02/15/05 352,981 894,522 Thomas H. Koops................ 9,627(2) 1.6% 24.54 12/07/05 148,574 376,516 32,307(3) 5.3% 16.89 02/15/05 343,166 869,650 Margaret B. Shannon............ 9,576(2) 1.6% 24.54 12/07/05 147,787 374,522 31,386(3) 5.2% 16.89 02/15/05 333,383 844,858
- --------------- (1) All options reflected in this table were earned in fiscal 1995. The options reflected in this table do not include options earned in fiscal 1994 and granted on November 22, 1994. No stock appreciation rights ("SARs") or other instruments were granted in tandem with the options reflected in this table. (2) Represents options granted under the 1995 Plan on December 7, 1995. Such options will become exercisable ratably over a three period, with one-third of each grant vesting on each of the first, second and third anniversaries of the date of grant. (3) Represents options granted under the 1995 Plan on February 15, 1995 in connection with the Western acquisition. Such options shall become vested only to the extent the target consolidation benefits of the Western acquisition are achieved as of April 13, 1997. The nonvested portion of the options shall be automatically cancelled as of the vesting date. For additional information regarding these awards, see "Executive Compensation Committee Report -- Awards to Officers of the Company in Connection with the Merger." (4) Mr. Goodarzi has not been an officer of the Company since October 17, 1995; accordingly, the options shown in this table for Mr. Goodarzi lapsed on October 17, 1995 in accordance with their terms. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e) NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS SHARES AT FY-END(#) AT FY-END($) ACQUIRED VALUE ------------------------------ --------------------------------- NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE(1)(2) ---- ----------- ----------- ----------- ---------------- ----------- ------------------- J.W. Stewart.......... -0- -0- 162,109 243,367 1,191,542 1,955,186 Michael McShane....... -0- -0- 70,400 91,862 510,075 748,413 G.R. Goodarzi(3)...... -0- -0- 51,465 54,308 371,882 500,082 Thomas H. Koops....... -0- -0- 51,573 62,188 372,541 508,750 Margaret B. Shannon... -0- -0- 4,000 59,424 29,480 480,910
- --------------- (1) Includes options earned in fiscal 1995 and granted on December 7, 1995. (2) As disclosed in footnote (1) above, options granted on December 7, 1995 we redeemed compensation for the fiscal year ended September 30, 1995. Because the market value of the Common Stock was lower on December 7, 1995 than on September 30, 1995, these options are in-the-money for purposes of this table although such options were not in-the-money on the grant date. (3) Mr. Goodarzi has not been an officer of the Company since October 17, 1995. 17 20 LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS -------------------------------- (A) (B) (C) (D) (E) (F) NUMBER OF PERFORMANCE SHARES, UNITS OR OTHER OR OTHER PERIOD UNTIL RIGHTS MATURATION THRESHOLD TARGET MAXIMUM NAME (#)(1)(2) OR PAYOUT(3) (#) (#) (#) ---- ------------ ------------ --------- ------ ------- J.W. Stewart.......................... 30,434 3 Years 4,869 20,086 30,434 Michael McShane....................... 13,623 3 Years 2,180 8,991 13,623 G.R. Goodarzi(4)...................... 0 3 Years 0 0 0 Thomas H. Koops....................... 10,937 3 Years 1,750 7,218 10,937 Margaret B. Shannon................... 10,899 3 Years 1,744 7,193 10,899
- --------------- (1) Awards reflected in this table represent performance units awarded under the Company's 1990 Stock Incentive Plan. These awards were earned during fiscal1995 and granted on December 7, 1995. For additional information regarding these awards, see the Executive Compensation Committee Report -- Long Term Incentive Program elsewhere in this Proxy Statement. (2) Excludes the following awards earned during fiscal 1994 and granted on November 22, 1994; Mr. Stewart -- 10,256 units; Mr. McShane -- 5,282 units; Mr. Goodarzi -- 4,462 units; Mr. Koops -- 4,308 units; Ms. Shannon -- 4,205 units. (3) Under the terms of the grant, the performance period is deemed to begin on October 1, 1995. The performance period is three fiscal years unless a change of control occurs, in which case the performance units would vest immediately. (4) Mr. Goodarzi has not been an officer of the Company since October 17, 1995. SEVERANCE AGREEMENTS The Company entered into severance agreements with certain executive officers, including each of the named executive officers shown in the Summary Compensation Table, as well as with Matthew D. Fitzgerald, Taylor M. Whichard III, Kenneth A. Williams and Stephen A. Wright. The severance agreements were effective August 27, 1993, except for Ms. Shannon's agreement, which was effective February 14, 1994. The agreements have initial terms of approximately three years and are automatically extended for an additional year at the end of each year of the agreements unless the Company has given one year's prior notice of termination. These agreements are intended to provide for continuity of management in the event of a change in control of the Company. The agreements provide that covered executive officers could be entitled to certain severance benefits following a change in control of the Company. If, following a change in control, the executive is terminated by the Company for any reason, other than for death, disability or for cause, or if such executive officer terminates his or her employment for good reason (as this term is defined in the agreements), then the executive officer is entitled to a severance payment that will be three times the sum of the executive officer's base salary and bonus amount, as defined in the agreements. The severance payment is generally made in the form of a lump sum. For a period of up to one year, the Company would also provide life, disability, accident and health insurance coverage substantially similar to the benefits provided before termination. If a change in control occurs, the severance agreements are effective for a period of two years from the date of such change in control. Under the severance agreements, a change in control would generally include any of the following events: (i) any "person" as defined in the Securities Exchange Act of 1934, as amended, acquires 25 percent or more of the Company's voting securities; (ii) a majority of the Company's directors are replaced during a two-year period; (iii) stockholders approve a merger, resulting in (a) 60% or less of the common stock and voting securities of the surviving corporation being owned by the same persons that owned the common stock of the Company immediately prior to such merger, (b) a person owning 25% or more of the surviving corporation's common stock or voting securities, or (c) replacement of a majority of the members of 18 21 the Company's board of directors; or (iv) the Company's stockholders approve a liquidation or sale of the Company's assets. In the event that any payments made in connection with a change in control would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, the Company would pay an additional payment (a "gross-up" payment) sufficient to satisfy such excise tax obligations and any additional taxes imposed with respect to such gross-up payment. A change in control (as defined in the agreements) resulted from the Merger, but no payments will be made unless a covered employee's employment with the Company is terminated under circumstances described below during the two-year period following the Merger. Prior to the Merger, when it was not known whether a "change in control" would result from the Merger, and as consideration for executing waivers with regard to change in control acceleration rights in the 1990 Stock Incentive Plan, each executive officer of the Company who was a party to a severance agreement entered into an agreement modifying such agreement (i) to stipulate that consummation of the Merger constituted a "change in control" under the terms of such agreement and (ii) to permit a greater change in such person's responsibilities without constituting "good reason" under such agreement. Pursuant to such modification, if any such person's employment with the Company is terminated by the Company (other than for "cause") or by such person for "good reason" within 24 months following the consummation of the Merger, the vesting of stock options granted to such person prior to 1995 will be accelerated and such officer will receive (i) a cash payment with respect to all of such person's awards granted under the Company's 1990 Stock Incentive Plan after 1994 (other than stock options granted in February 1995, which will then terminate), which will be deemed fully vested or earned, and (ii) a lump sum cash payment equal to three times such person's salary and bonus. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Based solely upon a review of reports on Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year and reports on Form 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and written representations from reporting persons that no Form 5 was required, the Company believes that all filing requirements applicable to its officers, directors and beneficial owners under Section 16(a) of the Exchange Act were complied with during fiscal 1995, except that the initial Form 3 for each of David A.B. Brown, William J. Johnson and Michael E. Patrick, the former directors of Western who became directors of the Company following the Merger, was inadvertently filed three days after the due date. SOLICITATION The Company will bear the cost of the solicitation of proxies. In addition to solicitation by mail, certain of the directors, officers or regular employees of the Company may, without extra compensation, solicit the return of proxies by telephone or telegram. Arrangements will be made with brokerage houses, custodians and other fiduciaries to send proxy material to their principals, and they will be reimbursed by the Company for any out-of-pocket expenses. VOTING PROCEDURES A majority of the outstanding shares of Common Stock present or represented by proxy at the meeting constitutes a quorum for the transaction of business. The inspector of elections appointed by the Company will count all votes cast, in person or by submission of a properly executed proxy, before the closing of the polls at the meeting. The affirmative vote of holders of a majority of the Common Stock present or represented by proxy at the meeting and entitled to vote is required for the election of each director nominee and for the approval of the amendment to the 1995 Plan. Therefore, abstentions have the effect of a negative vote. In accordance with Delaware law, broker non-votes will not be treated as entitled to vote with respect to the election of directors or the amendment of the 1995 Plan. 19 22 INDEPENDENT AUDITORS Deloitte & Touche LLP, independent public accountants, audited the Company's consolidated financial statements for fiscal 1995, and have advised the Company that they will have a representative available at the 1996 Annual Meeting to respond to appropriate questions. Such representative will be permitted to make a statement if he desires to do so. The Company has not yet selected independent public accountants to audit its 1996 consolidated financial statements; however, the Company intends to engage its accountants for such purpose in May 1996. PROPOSALS OF STOCKHOLDERS Proposals of stockholders intended to be presented at the 1997 Annual Meeting of Stockholders must be received by the Secretary of the Company by August 21, 1996 to be considered for inclusion in the proxy statement and form of proxy relating to the 1997 Annual Meeting. The Annual Report of the Company for the year ended September 30, 1995, including audited financial statements, is enclosed with this proxy statement but does not constitute a part of the proxy soliciting material. Additional copies of the Annual Report are available without charge, upon request. BJ SERVICES COMPANY WILL FURNISH A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1995, WITHOUT EXHIBITS, WITHOUT CHARGE TO EACH PERSON WHO FORWARDS A WRITTEN REQUEST TO ROBERT C. COONS, CORPORATE COMMUNICATIONS MANAGER, BJ SERVICES COMPANY, 5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092-2036. 20 23 APPENDIX A AMENDMENT ONE TO THE BJ SERVICES COMPANY 1995 INCENTIVE PLAN WHEREAS, BJ Services Company (the "Company") and the stockholders of the Company have heretofore adopted and approved the BJ Services Company 1995 Incentive Plan (the "1995 Plan"); and WHEREAS, the Company desires to amend the 1995 Plan, subject to stockholder approval, to increase the number of option shares that are automatically granted to Non-Employee Directors; NOW, THEREFORE, effective as of the date this amendment is approved by the stockholders of the Company, Paragraph 3 of Article IV of the 1995 Plan is amended to read in its entirety as follows: "3. Annual Granting of Options to Non-Employee Directors. Subject to the limitation of the number of shares of Common Stock set forth in Article I, Paragraph 2, a nonqualified option to purchase 2,000 (increased to 4,000 after the 1990 Plan Termination) shares of Common Stock (subject to adjustment in the same manner provided in Article IV, Paragraph 5(e) with respect to shares of Common Stock subject to options then outstanding) is hereby granted, effective the fourth Thursday of October of 1996 and each year thereafter until the expiration of the Plan, to each person who is a Non-Employee Director on each such date (which date shall be the date of grant for purposes hereof)." All terms used herein that are defined in the 1995 Plan shall have the same meanings given to such terms in the 1995 Plan. Except as amended hereby, the 1995 Plan shall continue in full force and effect without interruption or change and the 1995 Plan and this amendment shall be read, taken and construed as one and the same instrument. 24 BJ SERVICES COMPANY P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS ON JANUARY 25, 1996 R The undersigned hereby constitutes and appoints J.W. Stewart, Michael O McShane, and Margaret B. Shannon, or any of them, true and lawful agents and proxies with power of substitution in each to represent and to vote X all of the shares of Common Stock owned of record on December 7, 1995 by the undersigned at the Annual Meeting of Stockholders of BJ Services Y Company to be held on January 25, 1996, at 11:00 a.m., at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas, and at any and all adjournments thereof, hereby revoking any instruction previously given. COMMENTS: CHANGE OF ADDRESS: -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------------------------- (If you have written in the above space, please mark the corresponding box on the reverse side of this card) You are encouraged to specify your choices by marking the appropriate boxes (SEE REVERSE SIDE) but need not mark any boxes if you wish to vote in accordance with the Board of Directors' recommendations. This proxy cannot be voted unless you sign and return it. ----------- SEE REVERSE SIDE ----------- 25 2087 /X/ Please mark your votes as in this example. This proxy when properly executed will be voted in the manner directed herein. If no direction is made, this proxy will be voted FOR the election of the nominees for Directors and FOR Approval of the Amendment to the 1995 Incentive Plan. - ------------------------------------------------------------------------------- The Board of Directors recommends a vote FOR Proposals 1 and 2 - ------------------------------------------------------------------------------- FOR WITHHOLD AUTHORITY 1. Election of Nominees / / / / Nominees for election as Class III directors: J.E. McCormick, L.W. Heiligbrodt, and J.W. Stewart For, except authority to vote is withheld for the following nominees: ____________________________________________________________________ FOR AGAINST ABSTAIN 2. Approval of Amendment to 1995 Incentive Plan. / / / / / / 3. To vote upon such other business as may properly come before the meeting and any adjournment thereof. Change of Address Comments on Reverse Side NOTE: Please sign, date and return your instruction promptly in the enclosed envelope. Sign exactly as name(s) appear(s) hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian or other fiduciary, please give full title as such. ___________________________________ ___________________________________ SIGNATURE(S) DATE 26 INDEX TO EXHIBITS EXHIBIT NO. DISCRIPTION - ------------ ---------------------------------------- 99.1 BJ Services Company 1995 Incentive Plan EX-99.1 2 BJ SERVICES CO. 1995 INCENTIVE PLAN 1 EXHIBIT 99.1 BJ SERVICES COMPANY 1995 INCENTIVE PLAN ARTICLE I INTRODUCTION 1. Purpose. The BJ SERVICES COMPANY 1995 INCENTIVE PLAN (the "PLAN") is intended to promote the interests of BJ SERVICES COMPANY (the "COMPANY") and its stockholders by encouraging employees of the Company, its subsidiaries and affiliated entities and non-employee directors of the Company to acquire or increase their equity interest in the Company and, with respect to employees, to be able to relate cash bonuses to Company performance goals, thereby giving them an added incentive to work toward the continued growth and success of the Company. The Board of Directors of the Company (the "BOARD") also contemplates that through the Plan, the Company, its subsidiaries and affiliated entities will be better able to compete for the services of personnel needed for the continued growth and success of the Company. However, nothing in this Plan shall operate or be construed to prevent the Company from granting bonuses and other stock awards outside of this Plan. 2. Shares Subject to the Plan. The aggregate number of shares of Common Stock, $.10 par value per share, of the Company ("COMMON STOCK") that may be issued under the Plan shall not exceed 1,500,000 shares; provided, however, that in the event that at any time after the effective date of the Plan the outstanding shares of Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares or the like, the aggregate number and class of securities available under the Plan shall be ratably adjusted by the Committee (as hereinafter defined), whose determination shall be final and binding upon the Company and all other interested persons. In the event the number of shares to be delivered upon the exercise in full of any option granted under the Plan is reduced for any reason whatsoever or in the event any option granted under the Plan can no longer under any circumstances be exercised, the number of shares no longer subject to such option shall thereupon be released from such option and shall thereafter be available under the Plan. If shares of Performance Stock (as hereinafter defined) awarded under the Plan are forfeited to the Company, such shares shall thereafter be available for new grants and awards under the Plan unless the Employee Grantee (as hereinafter defined) has received benefits of ownership with respect to such shares of Performance Stock, such as dividends (but not including voting rights). Shares issued pursuant to the Plan shall be fully paid and nonassessable. 3. Administration of the Plan. The Plan shall be administered by a committee (the "COMMITTEE") of two or more directors of the Company appointed by the Board. Subject to the provisions of the Plan, the Committee shall interpret the Plan and all awards under the Plan, shall make such rules as it deems necessary for the proper administration of the Plan, shall make all other determinations necessary or advisable for the administration of the Plan and shall correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any award under the Plan in the manner and to the extent that the Committee deems desirable to effectuate the Plan. Any action taken or determination made by the Committee pursuant to this and the other 2 paragraphs of the Plan shall be binding on all parties. The act or determination of a majority of the Committee shall be deemed to be the act or determination of the Committee. Notwithstanding any provision in the Plan to the contrary, other than options granted to Non-Employee Directors (as hereinafter defined) pursuant to Article IV, no options, Performance Stock, Performance Units, Bonus Stock or Cash Awards (collectively, "AWARDS") may be granted under the Plan to any member of the Committee during the term of his membership on the Committee. No person shall be eligible to serve on the Committee unless he is then a "DISINTERESTED PERSON" within the meaning of Rule 16b-3 ("RULE 16B-3") promulgated under the Securities Exchange Act of 1934, as amended (the "ACT"), if and as such rule is then in effect and also an "OUTSIDE DIRECTOR" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "CODE"). 4. Amendment and Discontinuance of the Plan. The Board may amend, suspend or terminate the Plan; provided, however, that each such amendment of the Plan (a) extending the period within which Awards may be made under the Plan, (b) increasing the number of shares of Common Stock to be awarded under the Plan, except as provided in Article I, Paragraph 2, (c) reducing the option exercise prices per share provided in the Plan, (d) changing the class of persons to whom Awards may be made under the Plan, (e) modifying the provisions of Article IV, or (f) granting options to Non-Employee Directors other than pursuant to Article IV, shall, in each case, be subject to approval by the stockholders of the Company; provided, further, however, that no amendment, suspension or termination of the Plan may cause the Plan to fail to meet the requirements of Rule 16b-3 or may, without the consent of the holder of an Award, terminate such Award or adversely affect such person's rights in any material respect; provided, further, that the provisions of Article IV may not be amended more than once every six months other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, unless otherwise permitted by Rule 16b-3. 5. Granting of Awards to Employees. The Committee shall have the authority to grant, prior to the expiration date of the Plan, to such eligible key employees and officers as may be selected by it (with respect to options, "EMPLOYEE OPTIONEES" and, with respect to Performance Stock, Performance Units, Bonus Stock and Cash Awards, "EMPLOYEE GRANTEES"), options to purchase shares of Common Stock and awards of Performance Stock, Performance Units, Bonus Stock and/or Cash Awards on the terms and conditions hereinafter set forth. Stock issued with respect to an Award under the Plan may be authorized but unissued, or reacquired, shares of Common Stock. The Committee shall also have the authority to determine whether options granted to Employee Optionees are granted pursuant to Article II or Article III, as hereinafter set forth. Options granted to Employee Optionees under Article III shall be "INCENTIVE STOCK OPTIONS" as defined in Section 422 of the Code, and are hereinafter referred to as "INCENTIVE STOCK OPTIONS." All other options granted to Employee Optionees under the Plan shall be granted pursuant to Article II and shall be options which do not constitute incentive stock options ("NONQUALIFIED OPTIONS"). In selecting Employee Optionees and Employee Grantees, and in determining the number of shares to be covered by each Award granted to such employee, the Committee may consider the office or position held by the employee, the employee's degree of responsibility for and contribution to the growth and success of the Company, the employee's length of service, age, promotions, potential and any other factors which it may consider relevant. 3 6. Granting of Options to Non-Employee Directors. All options granted to Non-Employee Directors shall be options to purchase, on the terms and conditions hereinafter set forth in Article IV, authorized but unissued, or reacquired, shares of Common Stock and shall be nonqualified options. Non-Employee Directors shall not be eligible to receive any other Award. 7. Term of Plan. This Plan shall be effective upon the date of its adoption by the Board, provided the Plan is approved by the stockholders of the Company within twelve months after the date of such adoption. In the event that the Plan is not approved by the stockholders of the Company within twelve months after the date of its adoption by the Board, the Plan shall be null and void. No Award shall be exercisable or payable under the Plan prior to its approval by the stockholders and, if the Plan is not approved by the stockholders of the Company within such twelve month period, all Awards granted under the Plan shall be automatically cancelled. Except with respect to Awards then outstanding, if not sooner terminated under the provisions of Article I, Paragraph 4, the Plan shall terminate upon and no further Awards shall be made after December 31, 2004. 8. Miscellaneous. All references in the Plan to "ARTICLES," "PARAGRAPHS" and other subdivisions refer to the corresponding Articles, Paragraphs, and subdivisions of the Plan. 9. Rule 16b-3 Compliance. The Company intends: (a) that the Plan meet the requirements of Rule 16b-3; (b) that participation by Non-Employee Directors under Article IV of the Plan will not prohibit them from being "DISINTERESTED PERSONS" within the meaning of Rule 16b-3 with respect to administration of the Plan or with respect to administration of any other plan of the Company; (c) that transactions of the type specified in Rule 16b-3 by Non-Employee Directors pursuant to Article IV of the Plan will be exempt from the operation of Section 16(b) of the Act; and (d) that transactions of the type specified in Rule 16b-3 by officers of the Company (whether or not they are directors) pursuant to the Plan will be exempt from the operation of Section 16(b) of the Act. In all cases, the terms, provisions, conditions and limitations of the Plan shall be construed and interpreted consistent with the Company's intent as stated in this Article I, Paragraph 9. 10. Definition of the Term "Change of Control". As used in the Plan, a "CHANGE OF CONTROL" shall be deemed to have occurred upon, and shall mean (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Act) (a "PERSON") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 25% or more of either (i) the then outstanding shares of Common Stock of the Company (the "OUTSTANDING COMPANY COMMON STOCK") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "OUTSTANDING COMPANY VOTING SECURITIES"); provided, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by the 4 Company, (C) any acquisition by any employee benefit plan(s) (or related trust(s)) sponsored or maintained by the Company or any corporation controlled by the Company (D) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, immediately following such reorganization, merger or consolidation, the conditions described in clause (i), (ii) and (iii) of clause (b) of this Paragraph 10 are satisfied, or (E) any acquisition by the stockholders of The Western Corporation of North America ("Western") in conjunction with the merger of Western into the Company or one of its subsidiaries pursuant to the Agreement and Plan of Merger dated as of November 17, 1994, as amended (the "Western Merger"); or (b) the approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless immediately following such reorganization, merger or consolidation (other than the Western Merger) (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan(s) (or related trust(s)) of the Company and/or its subsidiaries or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 25% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board (as defined below) at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation. The "INCUMBENT BOARD" shall mean individuals who, as of the date the Plan is adopted by the Board, constitute the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either (1) an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act), or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (2) a plan or agreement to replace a majority of the members of the Board then comprising the Incumbent Board. ARTICLE II NONQUALIFIED STOCK OPTIONS 1. Eligible Employees. Key employees and officers (whether or not they are directors) of the Company, its subsidiaries and affiliated entities shall be eligible to receive nonqualified options under this Article II; provided, however, no such person may 5 receive more than 250,000 nonqualified options and/or incentive stock options hereunder during any calendar year. 2. Calculation of Exercise Price. The exercise price to be paid for each share of Common Stock deliverable upon exercise of each nonqualified option granted under Article II shall be determined by the Committee but shall not be less than the lesser of (a) the per share price of the last sale of Common Stock on the trading day prior to the grant of such option, based on the composite transactions in the Common Stock as reported by The Wall Street Journal, and (b) the arithmetic average of the closing prices per share of Common Stock on all days on which such stock was traded during the 90-day period before the date of grant, based on the composite transactions in the Common Stock as reported by The Wall Street Journal. The exercise price for each nonqualified option granted under Article II shall be subject to adjustment as provided in Article II, Paragraph 3(e). 3. Terms and Conditions of Options. Nonqualified options granted under Article II shall be in such form as the Committee may from time to time approve. Options granted under Article II shall be subject to the following terms and conditions and may contain such additional terms and conditions, not inconsistent with Article II, as the Committee shall deem desirable: (a) Option Period and Conditions and Limitations on Exercise. Subject to Article II, Paragraphs 4 and 5, no nonqualified option granted under Article II shall be exercisable with respect to any of the shares subject to the option earlier than the date which is six months from the date of grant nor later than the date which is ten years after the date of grant (the "NONQUALIFIED OPTION EXPIRATION DATE"). To the extent not prohibited by other provisions of the Plan, each nonqualified option granted under Article II shall be exercisable at such time or times as the Committee in its discretion may determine at or prior to the time such option is granted; provided, however, that unless the Committee determines otherwise, each nonqualified option granted under Article II shall be exercisable from time to time, in whole or in part, at any time after six months from the date of grant and prior to the Nonqualified Option Expiration Date. (b) Termination of Employment and Death. For purposes of Article II and each nonqualified option granted under Article II, an Employee Optionee's employment shall be deemed to have terminated at the close of business on the day preceding the first date on which he is no longer for any reason whatsoever (including his death) employed by the Company or a subsidiary or affiliated entity of the Company. Except as provided below, if an Employee Optionee's employment is terminated for any reason whatsoever (including his death), each nonqualified option granted to him under Article II and all of his rights thereunder shall wholly and completely terminate: (i) At the time the Employee Optionee's employment is terminated if termination occurs within the six-month period following the date of grant; or (ii) At the time the Employee Optionee's employment is terminated if his employment is terminated because he is discharged for fraud, theft or embezzlement committed against the Company or a subsidiary, affiliated entity or customer of the Company (collectively CAUSE); or 6 (iii) At the expiration of a period of one year after the Employee Optionee's death (but in no event later than the Nonqualified Option Expiration Date) if the Employee Optionee's employment is terminated after the six-month period following the date of grant by reason of his death. To the extent exercisable, a nonqualified option granted under Article II may be exercised by the Employee Optionee's estate or by the person or persons who acquire the right to exercise his option by bequest or inheritance with respect to any or all of the shares remaining subject to his option at the time of his death; or (iv) Unless it is otherwise provided in the option agreement, at the expiration of a period of three years after the Employee Optionee's employment is terminated if the Employee Optionee's employment is terminated after the six-month period following the date of grant because of retirement or disability (but in no event later than the Nonqualified Option Expiration Date); or (v) Unless it is otherwise provided in the option agreement (but in no event longer than one year after the Employee Optionee's employment is terminated), at the expiration of a period of three months after the Employee Optionee's employment is terminated (but in no event later than the Nonqualified Option Expiration Date) if the Employee Optionee's employment is terminated after the six-month period following the date of grant for any reason other than his death, retirement, disability or Cause; or (vi) Notwithstanding the above, with respect to all options outstanding at the date of a Change of Control, if the Employee Optionee's employment is terminated within the one-year period following such Change of Control other than for Cause, at the expiration of one year following the Employee Optionee's date of termination, unless subparagraph (iii), (iv), (v) or (vii) provides a longer period for the exercise of such options (but in no event later than the Nonqualified Option Expiration Date); or (vii) Notwithstanding the foregoing, the Committee, in its discretion, may extend the period for exercise of any option upon an Employee Optionee's termination, but in no event later than the Nonqualified Option Expiration Date. As used in this Plan the term "RETIREMENT" means the termination of an employee's employment with the Company, its subsidiaries and affiliated entities (i) on or after reaching age 65 or (ii) on or after reaching age 55 with the consent of the Board, for reasons other than death, disability or Cause, and the term "DISABILITY" shall mean an employee is suffering from a mental or physical disability, which, in the opinion of the Board, prevents the employee from performing his regular duties and is expected to be of long continued duration or to result in death. (c) Manner of Exercise. In order to exercise a nonqualified option granted under Article II, the person or persons entitled to exercise it shall deliver to the Company payment in full for the shares being purchased, together with any required withholding tax as provided in Article VIII. The payment of the exercise price for each option granted under Article II shall be (i) in cash or check payable and acceptable to the Company, (ii) through tendering to the Company shares of Common Stock already owned by the person (provided that the Company may, upon confirming that the person owns the number of shares being tendered, issue a new 7 certificate for the number of shares being acquired pursuant to the exercise of the option less the number of shares being tendered upon the exercise and return to the person (or not require surrender of) the certificate for the shares being tendered upon the exercise), (iii) by the person delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option exercise price and any applicable withholding taxes; provided that in the event the person chooses to pay the option exercise price as provided in (iii) above, the person and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure or (iv) by any combination of the above. The value of each share of Common Stock tendered pursuant to (ii) above shall be deemed to be equal to the per share price of the last sale of Common Stock on the trading day prior to the date the option is exercised, based on the composite transactions in the Common Stock as reported in The Wall Street Journal. The date of sale of the shares by the broker pursuant to a "cashless exercise" under (iii) above shall be the date of exercise of the option. If the Committee so requires, such person or persons shall also deliver a written representation that all shares being purchased are being acquired for investment and not with a view to, or for resale in connection with, any distribution of such shares. (d) Options not Transferable. No nonqualified option granted under Article II shall be transferable otherwise than by will or by the laws of descent and distribution and, during the lifetime of the Employee Optionee to whom any such option is granted, it shall be exercisable only by the Employee Optionee. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject to execution, attachment or similar process, any nonqualified option granted under Article II, or any right thereunder, contrary to the provisions hereof, shall be void and ineffective, shall give no right to the purported transferee, and shall, at the sole discretion of the Committee, result in forfeiture of the option with respect to the shares involved in such attempt. (e) Adjustment of Shares. In the event that at any time after the effective date of the Plan the outstanding shares of Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares or the like, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which all outstanding nonqualified options granted under Article II, or portions thereof then unexercised, shall be exercisable, and with any necessary corresponding adjustment in exercise price per share, to the end that after such event the shares subject to Article II of the Plan and each Employee Optionee's proportionate interest shall be maintained as before the occurrence of such event. Any such adjustment made by the Committee shall be final and binding upon all Employee Optionees, the Company, and all other interested persons. (f) Listing and Registration of Shares. Each nonqualified option granted under Article II shall be subject to the requirement that if at any time the Committee determines, in its discretion, that the listing, registration, or qualification of the shares subject to such option under any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the issue or purchase of shares thereunder, such option may not be exercised in 8 whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained and the same shall have been free of any conditions not acceptable to the Committee. 4. Amendment. The Committee may, with the consent of the person or persons entitled to exercise any outstanding nonqualified option granted under Article II, amend such nonqualified option; provided, however, that any such amendment increasing the number of shares of Common Stock subject to such option (except as provided in Article II, Paragraph 3(e)) or reducing the exercise price per share of such option (except as provided in Article II, Paragraph 3(e)) shall in each case be subject to approval by the stockholders of the Company. The Committee may at any time or from time to time, in its discretion, in the case of any nonqualified option previously granted under Article II which is not then immediately exercisable in full, accelerate the time or times at which such option may be exercised to any earlier time or times. The Committee, in its absolute discretion, may grant to holders of outstanding nonqualified options granted under Article II, in exchange for the surrender and cancellation of such options, new options having exercise prices lower (or higher) than the exercise price provided in the options so surrendered and canceled and containing such other terms and conditions as the Committee may deem appropriate. 5. Acceleration upon a Change of Control. Notwithstanding any provision in Article II or in any document or instrument evidencing a nonqualified option granted under Article II, upon the occurrence of a Change of Control each nonqualified option previously granted under Article II which is not then immediately exercisable in full shall be immediately exercisable in full. 6. Other Provisions. (a) The person or persons entitled to exercise, or who have exercised, a nonqualified option granted under Article II shall not be entitled to any rights as a stockholder of the Company with respect to any shares subject to such option until he shall have become the holder of record of such shares. (b) No nonqualified option granted under Article II shall be construed as limiting any right which the Company or any subsidiary or affiliated entity of the Company may have to terminate at any time, with or without cause, the employment of any person to whom such option has been granted. (c) Notwithstanding any provision of the Plan or the terms of any nonqualified option granted under Article II, the Company shall not be required to issue any shares hereunder if such issuance would, in the judgment of the Committee, constitute a violation of any state or federal law or of the rules or regulations of any governmental regulatory body. ARTICLE III INCENTIVE STOCK OPTIONS 1. Eligible Employees. Key employees and officers (whether or not they are directors) of the Company or its Parent Corporation or any Subsidiary Corporation of the Company shall be eligible to receive incentive stock options under this Article III; provided, however, no such person may receive more than 250,000 incentive stock options and/or nonqualified options hereunder during any calendar year. As used in 9 Article III, the terms "PARENT CORPORATION" and "SUBSIDIARY CORPORATION" shall have the meanings ascribed to them in Section 424 of the Code. 2. Calculation of Exercise Price. The exercise price to be paid for each share of Common Stock deliverable upon exercise of each incentive stock option granted under Article III shall be equal to the fair market value per share of Common Stock at the time of grant as determined by the Committee, based on the composite transactions in the Common Stock as reported by The Wall Street Journal, and shall not be less than the per share price of the last sale of Common Stock on the trading day prior to the grant of such option; provided, however, than in the case of an Employee Optionee who, at the time such option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of its Parent Corporation or any Subsidiary Corporation, then the exercise price per share shall be at least 110% of the fair market value per share of Common Stock at the time of grant. The exercise price for each incentive stock option shall be subject to adjustment as provided in Article III, Paragraph 3(e). 3. Terms and Conditions of Options. Incentive stock options granted under Article III shall be in such form as the Committee may from time to time approve. Options granted under Article III shall be subject to the following terms and conditions and may contain such additional terms and conditions, not inconsistent with Article III, as the Committee shall deem desirable: (a) Option Period and Conditions and Limitations on Exercise. Subject to Article III, Paragraphs 4 and 5, no incentive stock option granted under Article III shall be exercisable with respect to any of the shares subject to such option earlier than the date which is six months from the date of grant nor later than the date which is ten years after the date of grant; provided, however, that in the case of an Employee Optionee who, at the time such option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of its Parent Corporation or any Subsidiary Corporation, then such option shall not be exercisable with respect to any of the shares subject to such option later than the date which is five years after the date of grant. The date on which an incentive stock option ultimately becomes unexercisable under the previous sentence is hereinafter referred to as the "ISO EXPIRATION DATE." To the extent not prohibited by other provisions of the Plan, each incentive stock option granted under Article III shall be exercisable at such time or times as the Committee in its discretion may determine at or prior to the time such option is granted; provided, however, that unless the Committee determines otherwise, each incentive stock option granted under Article III shall be exercisable from time to time, in whole or in part, at any time after six months from the date of grant and prior to the ISO Expiration Date. (b) Termination of Employment and Death. For purposes of Article III and each incentive stock option granted under Article III, an Employee Optionee's employment shall be deemed to have terminated at the close of business on the day preceding the first date on which he is no longer for any reason whatsoever (including his death) employed by the Company or a subsidiary or affiliated entity of the Company. Except as provided below, if an Employee Optionee's employment is terminated by any reason whatsoever (including his death), each incentive stock option granted to him and all of his rights thereunder shall wholly and completely terminate: 10 (i) At the time the Employee Optionee's employment is terminated if termination occurs within the six-month period following the date of grant; or (ii) At the time the Employee Optionee's employment is terminated if his employment is terminated due to Cause; or (iii) At the expiration of a period of one year after the Employee Optionee's death (but in no event later than the ISO Expiration Date) if the Employee Optionee's employment is terminated after the six-month period following the date of grant by reason of his death. To the extent exercisable, an incentive stock option granted under Article III of the Plan may be exercised by the Employee Optionee's estate or by the person or persons who acquire the right to exercise his option by bequest or inheritance with respect to any or all of the shares remaining subject to his option at the time of his death; or (iv) Unless it is otherwise provided in the option agreement, at the expiration of a period of three years after the Employee Optionee's employment is terminated if the Employee Optionee's employment is terminated after the six-month period following the date of grant because of retirement or disability (but in no event later than the ISO Expiration Date); or (v) Unless it is otherwise provided in the option agreement (but in no event longer than one year after the Employee Optionee's employment is terminated), at the expiration of a period of three months after the Employee Optionee's employment is terminated (but in no event later than the ISO Expiration Date) if the Employee Optionee's employment is terminated after the six-month period following the date of grant for any other reason than his death, retirement, disability or Cause; or (vi) Notwithstanding the above, with respect to all options outstanding at the date of a Change of Control, if the Employee Optionee's employment is terminated within the one-year period following such Change of Control other than for Cause, at the expiration of one year following the Employee Optionee's date of termination, unless subparagraph (iii), (iv), (v) or (vii) provides a longer period for the exercise of such options (but in no event later than the ISO Expiration Date); or (vii) Notwithstanding the foregoing, the Committee, in its discretion, may extend the period for exercise of any option upon an Employee Optionee's termination, but in no event later than the ISO Expiration Date. In the event and to the extent that an incentive stock option granted under Article III is not exercised (A) within three months after the Employee Optionee's employment is terminated because of retirement or a disability not within the meaning of Section 22(e)(3) of the Code or (B) within one year after the Employee Optionee's employment is terminated because of disability within the meaning of Section 22(e)(3) of the Code, such option shall be taxed as a nonqualified option and shall be subject to the manner of exercise provisions described in Article II, Paragraph 3(c). Further, in the event that an Employee Optionee's employment is not terminated in accordance with the first sentence of Article III, Paragraph 3(b), but such Employee Optionee ceases to be employed by the Company, its Parent 11 Corporation or any Subsidiary Corporation, then, to the extent an incentive stock option granted under Article III is not exercised within three months after the date of such cessation, such option shall be taxed as a nonqualified option and shall be subject to the manner of exercise provisions described in Article II, Paragraph 3(c). (c) Manner of Exercise. In order to exercise an incentive stock option granted under Article III, the person or persons entitled to exercise it shall deliver to the Company payment in full for the shares being purchased. The payment of the exercise price for each option granted under Article III shall be in (i) cash or check payable and acceptable to the Company, (ii) through tendering to the Company shares of Common Stock already owned by the person (provided that the Company may, upon confirming that the person owns the number of shares being tendered, issue a new certificate for the number of shares being acquired pursuant to the exercise of the option less the number of shares being tendered upon the exercise and return to the person (or not require surrender of) the certificate for the shares being tendered upon the exercise), (iii) by the person delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option exercise price; provided that in the event the person chooses to pay the option exercise price as provided in (iii) above, the person and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure or (iv) by any combination of the above. The value of each share of Common Stock tendered pursuant to (ii) above shall be deemed to be equal to the per share price of the last sale of Common Stock on the trading day prior to the date the option is exercised, based on the composite transactions in the Common Stock as reported in The Wall Street Journal. The date of sale of the shares by the broker pursuant to a "cashless exercise" under (iii) above, shall be the date of exercise of the option. If the Committee so requires, such person or persons shall also deliver a written representation that all shares being purchased are being acquired for investment and not with a view to, or for resale in connection with, any distribution of such shares. (d) Options not Transferable. No incentive stock option granted under Article III shall be transferable otherwise than by will or by the laws of descent and distribution and, during the lifetime of the Employee Optionee to whom any option is granted, it shall be exercisable only by such Employee Optionee. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject to execution, attachment or similar process, any incentive stock option granted under Article III, or any right thereunder, contrary to the provisions hereof, shall be void and ineffective, shall give no right to the purported transferee, and shall, at the sole discretion of the Committee, result in forfeiture of the option with respect to the shares involved in such attempt. (e) Adjustment of Shares. In the event that at any time after the effective date of the Plan the outstanding shares of Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares or the like, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which all outstanding incentive stock options granted under Article III, or portions thereof then unexercised, shall be exercisable, and with any necessary corresponding adjustment in exercise price per share, to the end that after such 12 event the shares subject to Article III of the Plan and each Employee Optionee's proportionate interest shall be maintained as before the occurrence of such event. Any such adjustment made by the Committee shall be final and binding upon all Employee Optionees, the Company, and all other interested persons. Any adjustment of an incentive stock option under this paragraph shall be made in such manner as not to constitute a "MODIFICATION" within the meaning of Section 424(h)(3) of the Code. (f) Listing and Registration of Shares. Each incentive stock option granted under Article III shall be subject to the requirement that if at any time the Committee determines, in its discretion, that the listing, registration, or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the issue or purchase of shares thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained and the same shall have been free of any conditions not acceptable to the Committee. (g) Limitation on Amount. Notwithstanding any other provision of the Plan, to the extent that the aggregate fair market value (determined as of the time the respective incentive stock option is granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by an Employee Optionee during any calendar year under all incentive stock option plans of the Company and its Parent Corporation and Subsidiary Corporations exceeds $100,000, such incentive stock options shall be taxed as nonqualified options and shall be subject to the manner of exercise provisions described in Article II, Paragraph 3(c). The Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations and other administrative pronouncements, which of an Employee Optionee's incentive stock options will be treated as nonqualified options because of such limitation and shall notify the Employee Optionee of such determination as soon as practicable after such determination. 4. Amendment. The Committee may, with the consent of the person or persons entitled to exercise any outstanding incentive stock option granted under Article III, amend such incentive stock option; provided, however, that any such amendment increasing the number of shares of Common Stock subject to such option (except as provided in Article III, Paragraph 3(e)) or reducing the exercise price per share of such option (except as provided in Article III, Paragraph 3(e)) shall in each case be subject to approval by the stockholders of the Company. Subject to Article III, Paragraph 3(g), the Committee may at any time or from time to time, in its discretion, in the case of any incentive stock option previously granted under Article III which is not then immediately exercisable in full, accelerate the time or times at which such option may be exercised to any earlier time or times. 5. Acceleration upon a Change of Control. Notwithstanding any provision in Article III or in any document or instrument evidencing an incentive stock option granted under Article III, but subject to the provisions of Article III, Paragraph 3(g), upon the occurrence of a Change of Control, each incentive stock option previously granted under Article III which is not then immediately exercisable in full shall be immediately exercisable in full. 13 6. Other Provisions. (a) The person or persons entitled to exercise, or who have exercised, an incentive stock option granted under Article III shall not be entitled to any rights as a stockholder of the Company with respect to any shares subject to such option until he shall have become the holder of record of such shares. (b) No incentive stock option granted under Article III shall be construed as limiting any right which the Company or any subsidiary or affiliated entity of the Company may have to terminate at any time, with or without cause, the employment of any person to whom such option has been granted. (c) Notwithstanding any provision of the Plan or the terms of any incentive stock option granted under Article III, the Company shall not be required to issue any shares hereunder if such issuance would, in the judgment of the Committee, constitute a violation of any state or federal law or of the rules or regulations of any governmental regulatory body. (d) The Committee may require any person who exercises an incentive stock option to give prompt notice to the Company of any disposition of shares of Common Stock acquired upon exercise of an incentive stock option within two years after the date of grant of such option or within one year after the transfer of shares to such person. ARTICLE IV NON-EMPLOYEE DIRECTOR STOCK OPTIONS 1. Eligible Persons. Persons who are members of the Board but are neither employees nor officers of the Company, its subsidiaries or affiliated entities ("NON-EMPLOYEES DIRECTORS") shall receive options under, and solely under, this Article IV. 2. Initial Granting of Options to Non-Employee Directors After the 1990 Plan Termination. Subject to stockholder approval of the Plan pursuant to Article I, Paragraph 7, and to the limitation of the number of shares of Common Stock set forth in Article I, Paragraph 2, each Non-Employee Director who is first elected to the Board on or after the date director options may no longer be granted under the terms of the Company's 1990 Stock Incentive Plan (the "1990 PLAN TERMINATION"), is hereby granted, effective on the date of his initial election (which date shall be the date of grant for purposes hereof), a nonqualified option to purchase 1,000 shares of Common Stock (subject to adjustment in the same manner provided in Article IV, Paragraph 5(e) with respect to shares of Common Stock subject to options then outstanding). 3. Annual Granting of Options to Non-Employee Directors. Subject to stockholder approval of the Plan pursuant to Article I, Paragraph 7, and to the limitation of the number of shares of Common Stock set forth in Article I, Paragraph 2, a nonqualified option to purchase 1,000 (increased to 3,000 after the 1990 Plan Termination) shares of Common Stock (subject to adjustment in the same manner provided in Article IV, Paragraph 5(e) with respect to shares of Common Stock subject to options then outstanding) is hereby granted, effective the fourth Thursday of October of 1995 and each year thereafter until the expiration of the Plan, to each person who is a Non-Employee Director on each such date (which date shall be the date of grant for purposes hereof). 14 4. Calculation of Exercise Price. The exercise price to be paid for each share of Common Stock deliverable upon exercise of each option granted under Article IV shall be equal to the lesser of (a) the per share price of the last sale of Common Stock on the trading day prior to the date of grant relating to such option, based on the composite transactions in the Common Stock as reported by The Wall Street Journal, and (b) the arithmetic average of the closing price per share of Common Stock on all days in which such stock was traded during the 90-day period before the date of grant, based on the composite transactions in the Common Stock as reported by The Wall Street Journal. The exercise price for each option granted under Article IV shall be subject to adjustment as provided in Article IV, Paragraph 5(e). 5. Terms and Conditions of Options. Options granted under Article IV shall be subject to the following terms and conditions: (a) Option Period and Conditions and Limitations on Exercise. Each option granted under Article IV shall be exercisable from time to time, in whole or in part, at any time after six months from the date of grant and prior to the date which is ten years after the date of grant (the "OPTION EXPIRATION DATE"). Notwithstanding the foregoing or any provision in any document or instrument evidencing an option granted under Article IV, upon the occurrence of a Change of Control, each option previously granted under Article IV which is not then immediately exercisable in full shall be immediately exercisable in full. (b) Termination of Directorship and Death. For purposes of Article IV and each option granted under Article IV, a Non-Employee Director's directorship shall be deemed to have terminated at the close of business on the day preceding the first date on which he ceases to be a member of the Board for any reason whatsoever (including his death). If a Non-Employee Director's directorship is terminated for any reason whatsoever (including his death), each option granted to him under Article IV and all of his rights thereunder shall wholly and completely terminate: (i) At the time the Non-Employee Director's directorship is terminated if termination occurs within the six-month period following the date of grant; or (ii) At the time the Non-Employee Director's directorship is terminated if his directorship is terminated as a result of his removal from the Board for cause (other than disability or in accordance with the provisions of the Company's Bylaws regarding automatic termination of directors' terms of office); or (iii) At the expiration of a period of one year after the Non-Employee Director's death (but in no event later than the Option Expiration Date) if the Non-Employee Director's directorship is terminated after the six-month period following the date of grant by reason of his death. To the extent exercisable, an option granted under Article IV may be exercised by the Non-Employee Director's estate or by the person or persons who acquire the right to exercise his option by bequest or inheritance with respect to any or all of the shares remaining subject to his option at the time of his death; or (iv) At the expiration of a period of three years after the Non-Employee Director's directorship is terminated if such person's directorship is 15 terminated after the six-month period following the date of grant as a result of such person's resignation or removal from the Board because of disability or in accordance with the provisions of the Company's Bylaws regarding automatic termination of directors' terms of office (but in no event later than the Option Expiration Date); or (v) At the expiration of a period of three months after the Non-Employee Director's directorship is terminated (but in no event later than the Option Expiration Date) if the Non-Employee Director's directorship is terminated after the six-month period following the date of grant for any reason other than the reasons specified in Article IV, Paragraphs 5(b)(ii) through 5(b)(iv). (c) Manner of Exercise. In order to exercise a nonqualified option granted under Article II, the person or persons entitled to exercise it shall deliver to the Company payment in full for the shares being purchased, together with any required withholding tax as provided in Article VII. The payment of the exercise price for each option granted under Article II shall be (i) in cash or check payable and acceptable to the Company, (ii) through tendering to the Company shares of Common Stock already owned by the person (provided that the Company may, upon confirming that the person owns the number of shares being tendered, issuef a new certificate for the number of shares being acquired pursuant to the exercise of the option less the number of shares being tendered upon the exercise and return to the person (or not require surrender of) the certificate for the shares being tendered upon the exercise), (iii) by the person delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option exercise price and any applicable withholding taxes; provided that in the event the person chooses to pay the option exercise price as provided in (iii) above, the person and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure or (iv) by any combination of the above. The value of each share of Common Stock tendered pursuant to (ii) above shall be deemed to be equal to the per share price of the last sale of Common Stock on the trading day prior to the date the option is exercised, based on the composite transactions in the Common Stock as reported in The Wall Street Journal. The date of sale of the shares by the broker pursuant to a "cashless exercise" under (iii) above shall be the date of exercise of the option. If the Committee so requires, such person or persons shall also deliver a written representation that all shares being purchased are being acquired for investment and not with a view to, or for resale in connection with, any distribution of such shares. (d) Options Not Transferable. No option granted under Article IV shall be transferable otherwise than by will or by the laws of descent and distribution and, during the lifetime of the Non-Employee Director to whom any such option is granted, it shall be exercisable only by such Non-Employee Director. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject to execution, attachment or similar process, any option granted under Article IV, or any right thereunder, contrary to the provisions hereof, shall be void and ineffective and shall give no right to the purported transferee. (e) Adjustment of Shares. In the event that at any time after the effective date of the Plan the outstanding shares of Common Stock are changed into or 16 exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares or the like, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which all outstanding nonqualified options granted under Article II, or portions thereof then unexercised, shall be exercisable, and with any necessary corresponding adjustment in exercise price per share, to the end that after such event the shares subject to Article II of the Plan and each Non-Employee Director's proportionate interest shall be maintained as before the occurrence of such event. Any adjustment provided for in the preceding provisions of this Paragraph 5(e) shall be subject to any required stockholder action. (f) Listing and Registration of Shares. Each option granted under Article IV shall be subject to the requirement that if at any time the Committee determines, in its discretion, that the listing, registration, or qualification of the shares subject to such option under any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the issue or purchase of shares thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained and the same shall have been free of any conditions not acceptable to the Committee. 6. Other Provisions. (a) The person or persons entitled to exercise, or who have exercised, an option granted under Article IV shall not be entitled to any rights as a stockholder of the Company with respect to any shares subject to such option until he shall have become the holder of record of such shares. (b) No option granted under Article IV shall be construed as limiting any right which either the stockholders of the Company or the Board may have to remove at any time, with or without cause, any person to whom such option has been granted from the Board. (c) Notwithstanding any provision of the Plan or the terms of any option granted under Article IV, the Company shall not be required to issue any shares hereunder if such issuance would, in the judgment of the Committee, constitute a violation of any state or federal law or of the rule or regulations of any governmental regulatory body. (d) If, as of any date that the Plan is in effect, there are not sufficient shares of Common Stock available under the Plan to allow for the grant to each Non-Employee Director of an option for the number of shares provided for in Article IV, each Non-Employee Director shall receive an option for his pro-rata share of the total number of shares of Common Stock then available under the Plan. ARTICLE V PERFORMANCE STOCK AND PERFORMANCE UNITS 1. Eligible Employees. Key employees and officers (whether or not they are directors) of the Company, its subsidiaries and affiliated entities shall be eligible to receive awards of Performance Stock and/or Performance Units (as hereinafter defined) 17 under this Article V; provided, however, no such individual may receive more than 250,000 Performance Stock and/or Performance Unit awards hereunder during any calendar year. 2. Terms and Conditions of Performance Awards. Shares of Performance Stock and Performance Units granted under Article V to an eligible employee (an "EMPLOYEE GRANTEE") shall be, with respect to Performance Stock, shares of Common Stock and, with respect to Performance Units, a unit shall represent a phantom share of Common Stock. Both types of Awards shall be subject to the following terms and conditions and may contain such additional terms and conditions, not inconsistent with Article V, as the Committee shall deem desirable: (a) Performance Period and Vesting. Subject to Article V, Paragraphs 3 and 4, no shares of Performance Stock or Performance Units granted under Article V shall be subject to becoming vested; i.e., earned and nonforfeitable, earlier than the date which is six months from the date of grant nor later than the date which is ten years after the date of grant (the "PERFORMANCE PERIOD"). To the extent not prohibited by other provisions of the Plan, each share of Performance Stock and each Performance Unit granted under Article V shall be subject to becoming vested upon the achievement of such performance goals (Company and/or individual) over such Performance Period as the Committee in its discretion may determine at or prior to the grant of such performance Award. The Committee shall also designate, at the date of grant, whether a performance Award is intended to meet the requirements of Section 162(m) of the Code. With respect to any Performance Stock or Performance Unit grant that is intended to meet the requirements of Section 162(m) of the Code, the performance goal or goals for such Award shall be with respect to one or more of the following: earnings per share; earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"); earnings before interest and taxes ("EBIT"); EBITDA, EBIT or earnings before taxes and unusual or nonrecurring items as measured either against the annual budget or as a ratio to revenue; market share; sales; costs; return on equity; operating cash flow; return on net capital employed ("RONCE") and/or stock price performance. The goals can be applied, where appropriate, with respect to an individual, a business unit or the Company as a whole and need not be based on increases or positive results, but can be based on maintaining the status quo or limiting economic losses, for example. Which goals to use with respect to a performance Award, the weighting of the goals if more than one is used, and whether the goal is to be measured against a Company-established budget or target, an index or a peer group of companies, shall also be determined by the Committee at the time of grant of the Award. (b) Termination of Employment and Death. For purposes of Article V, and each share of Performance Stock and each Performance Unit granted hereunder, an Employee Grantee's employment shall be deemed to have terminated at the close of business on the day preceding the first date on which he is no longer for any reason whatsoever (including his death) employed by the Company or a subsidiary or an affiliated entity of the Company. If an Employee Grantee's employment is terminated for any reason whatsoever (including his death), all of his rights with respect to each share of Performance Stock and each Performance Unit granted to him under Article V which is not then vested shall wholly and completely terminate: (i) At the time the Employee Grantee's employment is terminated if termination is for any reason other than retirement, disability or death; or 18 (ii) If the Employee Grantee's employment is terminated due to retirement, disability or death, at the time of such termination but only with respect to that portion of the Award which is equal to the fraction, the numerator of which is the number of full calendar months remaining in the Performance Period and the denominator of which is the total number of calendar months in the Performance Period; provided, however, the remaining, nonforfeited portion of the Award shall continue to be subject to the terms and conditions of the Performance Period and at the end of such Performance Period shall be forfeited and/or paid as unrestricted stock to the Employee Grantee depending on the achievement of the goals for such Performance Period; provided further, however, with respect to any performance Award not intended on its date of grant to meet the requirements of Section 162(m) of the Code, the Committee may, in its sole discretion, deem the terms and conditions have been met at the date of such termination for all or part of such remaining, nonforfeited portion of the Performance Stock award or Performance Unit award. (c) Performance Awards not Transferable. No shares of Performance Stock or Performance Units granted under Article V shall be transferable during a Performance Period otherwise than by will or by the laws of descent and distribution. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject to execution, attachment or similar process, any shares of Performance Stock or Performance Units granted under Article V, or any right thereunder, contrary to the provisions hereof, shall be void and ineffective, shall give no right to the purported transferee, and shall, at the sole discretion of the Committee, result in forfeiture of the shares of the Performance Stock or Performance Units involved in such attempt. 3. Amendment. With respect to any outstanding Performance Stock or Performance Unit that does not qualify as performance based compensation under Section 162(m) of the Code, the Committee may, at any time or times, amend the performance objectives and/or the Performance Period for earning such Award. However, with respect to any Performance Stock or Performance Unit Award that is intended on its date of grant to qualify as performance based compensation under Section 162(m) of the Code, the Committee, in its sole discretion and without the consent of the Employee-Grantee, may amend the Award only to reflect a change in corporate capitalization, such as a stock split or dividend, or a corporate transaction, such as a corporate merger, a corporate consolidation, any corporate separation (including a spinoff or other distribution of stock or property by a corporation), any corporate reorganization (whether or not such reorganization comes within the definition of such term in section 368), or any partial or complete corporate liquidation. 4. Acceleration upon a Change of Control. Notwithstanding any provision in Article V or in any document or instrument evidencing Performance Stock or Performance Units granted under Article V, upon the occurrence of a Change of Control each share of Performance Stock and each Performance Unit previously granted under Article V which is not then immediately vested in full shall be immediately vested in full, all performance goals shall be deemed to have been met to the fullest extent under the terms of such grant, and the Performance Periods shall immediately end. 19 5. Other Provisions. (a) No grant of Performance Stock or Performance Units under Article V shall be construed as limiting any right which the Company or any subsidiary or affiliated entity of the Company may have to terminate at any time, with or without cause, the employment of any person to whom such Award has been granted. (b) Each certificate representing Performance Stock awarded under the Plan shall be registered in the name of the Employee Grantee and, during the Performance Period, shall be left in deposit with the Company and a stock power endorsed in blank. The grantee of Performance Stock shall have all the rights of a stockholder with respect to such shares including the right to vote and the right to receive dividends or other distributions paid or made with respect to such shares. Any certificate or certificates representing shares of Performance Stock shall bear a legend similar to the following: The shares represented by this certificate have been issued pursuant to the terms of the BJ Services Company 1995 Incentive Plan and may not be sold, pledged, transferred, assigned or otherwise encumbered in any manner except as is set forth in the terms of such award dated ____________. After certification by the Committee as to the satisfaction of the terms and conditions set by the Committee with respect to an Award of (i) Performance Stock, a certificate, without the legend set forth above, for the number of shares of Common Stock that are no longer subject to such restrictions, terms and conditions shall be delivered to the employee and (ii) Performance Units, a certificate for the number of shares of Common Stock equal to the number of Performance Units vested shall be delivered to the employee. The remaining unearned shares of Performance Stock issued with respect to such Award, if any, or unearned Performance Units, as the case may be, shall either be forfeited back to the Company or, if appropriate under the terms of the Award applicable to such shares or units, shall continue to be subject to the restrictions, terms and conditions set by the Committee with respect to such Award. ARTICLE VI BONUS STOCK The Committee may, from time to time and subject to the provisions of the Plan, grant shares of Bonus Stock to key employees and officers (whether or not they are directors) of the Company, its subsidiaries and affiliated entities. Bonus Stock shall be shares of Common Stock that are not subject to a Performance Period under Article V. ARTICLE VII CASH AWARDS 1. Eligible Employees. Officers (whether or not they are directors) of the Company, its subsidiaries and affiliated entities shall be eligible to receive Cash Awards, which may be Tandem Cash Tax Rights, Performance Cash Awards or Bonus Cash Awards (as hereinafter defined) under this Article VII. 20 2. Tandem Cash Tax Rights. The Committee may grant a Tandem Cash Tax Right with respect to a Performance Stock or Performance Unit Award that, subject to the further provisions hereof, entitles the Employee Grantee to receive from the Company, upon the later of the vesting of the Performance Stock or Performance Unit Award or the date such Performance Stock or Performance Unit Award is taxable to the Employee Grantee, an amount of cash such that the "net" benefit received by the Employee Grantee, after paying all applicable federal, state and other taxes (assuming for this purpose, the highest marginal income tax rate for individuals applies) on the Performance Stock or Performance Unit Award and this Tandem Cash Tax Right, shall be equal to the value of the Performance Stock or Performance Unit Award payment received by the Employee Grantee before any such taxes thereon. 3. Terms and Conditions of Performance Cash Awards. Performance Cash Awards granted an Employee Grantee shall be subject to the following terms and conditions and may contain such additional terms and conditions, not inconsistent with Article VII, as the Committee shall deem desirable: (a) Performance Period and Vesting. Subject to Article VII, Paragraphs 4 and 5, no Performance Cash Awards granted under Article VII shall be subject to becoming vested; i.e., earned and nonforfeitable, earlier than the date which is six months from the date of grant nor later than the date which is ten years after the date of grant (the "PERFORMANCE PERIOD"). To the extent not prohibited by other provisions of the Plan, each Performance Cash Award granted under Article VII shall be subject to becoming vested upon the achievement of such performance goals (Company and/or individual) over such Performance Period as the Committee in its discretion may determine at or prior to the grant of such Performance Cash Award. The Committee shall also designate, at the date of grant, whether a Performance Cash Award is intended to meet the requirements of Section 162(m) of the Code. With respect to any Performance Cash Award grant that is intended to meet the requirements of Section 162(m) of the Code, the performance goal or goals for such Award shall be with respect to one or more of the following: earnings per share; earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"); earnings before interest and taxes ("EBIT"); EBITDA, EBIT or earnings before taxes and unusual or nonrecurring items as measured either against the annual budget or as a ratio to revenue; market share; sales; costs; return on equity; operating cash flow; return on net capital employed ("RONCE") and/or stock price performance. The goals can be applied, where appropriate, with respect to an individual, a business unit or the Company as a whole and need not be based on increases or positive results, but can be based on maintaining the status quo or limiting economic losses, for example. Which goals to use with respect to a Performance Cash Award, the weighting of the goals if more than one is used, and whether the goal is to be measured against a Company-established budget or target, an index or a peer group of companies, shall also be determined by the Committee at the time of grant of the Award. (b) Termination of Employment and Death. For purposes of Article VII and each Performance Cash Award granted hereunder, an Employee Grantee's employment shall be deemed to have terminated at the close of business on the day preceding the first date on which he is no longer for any reason whatsoever (including his death) employed by the Company or a subsidiary or an affiliated entity of the Company. If an Employee Grantee's employment is terminated for any reason whatsoever (including his death), all of his rights with respect to each Performance Cash Award granted to him under Article VII which is not then vested shall wholly and completely terminate: 21 (i) At the time the Employee Grantee's employment is terminated if termination is for any reason other than retirement, disability or death; or (ii) If the Employee Grantee's employment is terminated due to retirement, disability or death, at the time of such termination but only with respect to that portion of the Award which is equal to the fraction, the numerator of which is the number of full calendar months remaining in the Performance Period and the denominator of which is the total number of calendar months in the Performance Period; provided, however, the remaining, nonforfeited portion of the Award shall continue to be subject to the terms and conditions of the Performance Period and at the end of such Performance Period shall be forfeited and/or paid in cash to the Employee Grantee depending on the achievement of the goals for such Performance Period; provided, however, notwithstanding the foregoing, with respect to any Performance Cash Award not intended on its date of grant to meet the requirements of Section 162(m) of the Code, the Committee may, in its sole discretion, deem the terms and conditions of an Employee Grantee's Performance Cash Award(s) to have been met in full or in part on the date of such Employee Grantee's termination of employment, regardless of the reason for such termination of employment. (c) Performance Cash Awards not Transferable. No Performance Cash Awards granted under Article VII shall be transferable during a Performance Period otherwise than by will or by the laws of descent and distribution. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject to execution, attachment or similar process, any Performance Cash Awards granted under Article VII, or any right thereunder, contrary to the provisions hereof, shall be void and ineffective, shall give no right to the purported transferee, and shall, at the sole discretion of the Committee, result in forfeiture of the Performance Cash Awards involved in such attempt. (d) Maximum Award. With respect to a Performance Cash Award that is intended to qualify as performance based compensation under Section 162(m) of the Code, the maximum aggregate of such awards that may be granted to any one Employee Grantee during any calendar year shall not exceed $2 million. 4. Amendment. With respect to any outstanding Performance Cash Awards that does not qualify as performance based compensation under Section 162(m) of the Code, the Committee may, at any time or times, amend the performance objectives and/or the Performance Period for earning such Award. However, with respect to any Performance Cash Award that is intended on its date of grant to qualify as performance based compensation under Section 162(m) of the Code, the Committee, in its sole discretion and without the consent of the Employee-Grantee, may amend the Award only to reflect a change in corporate capitalization, such as a stock split or dividend, or a corporate transaction, such as a corporate merger, a corporate consolidation, any corporate separation (including a spinoff or other distribution of stock or property by a corporation), any corporate reorganization (whether or not such reorganization comes within the definition of such term in section 368), or any partial or complete corporate liquidation. 5. Acceleration upon a Change of Control. Notwithstanding any provision in Article VII or in any document or instrument evidencing Performance Cash Awards 22 granted under Article VII, upon the occurrence of a Change of Control each Performance Cash Award previously granted under Article VII which is not then immediately vested in full shall be immediately vested and payable in cash in full, all performance goals shall be deemed to have been met to the fullest extent under the terms of such grant, and the Performance Periods shall immediately end. 6. Other Provisions. (a) No grant of a Performance Cash Award under Article VIII shall be construed as limiting any right which the Company or any subsidiary or affiliated entity of the Company may have to terminate at any time, with or without cause, the employment of any person to whom such Award has been granted. (b) After certification by the Committee as to the satisfaction of the terms and conditions set by the Committee with respect to a Performance Cash Award, the portion of such Award that is no longer subject to such restrictions, terms and conditions shall be paid (in cash) to the Employee Grantee. The remaining unearned portion of such Performance Award, if any, shall either be forfeited or, if appropriate under the terms applicable to such Award, shall continue to be subject to the restrictions, terms and conditions set by the Committee with respect to such Award. 7. Bonus Cash Awards. The Committee may, from time to time and subject to the provisions of the Plan, grant Bonus Cash Awards to key employees and officers (whether or not they are directors) of the Company, its subsidiaries and affiliated entities. Bonus Cash Awards shall be cash payments that are not subject to a Performance Period under Article VII. ARTICLE VIII WITHHOLDING FOR TAXES Notwithstanding anything in the Plan to the contrary, any issuance of Common Stock pursuant to the exercise of an option or payment of any other Award under the Plan shall not be made until appropriate arrangements satisfactory to the Company have been made for the payment of any tax amounts (federal, state, local or other) that may be required to be withheld or paid by the Company with respect thereto. Such arrangements may, at the discretion of the Committee, include allowing the optionee or grantee to tender to the Company shares of Common Stock owned by the optionee or grantee, or to request the Company to withhold a portion of the shares of Common Stock being acquired pursuant to the Award, whether through the exercise of an option or as a distribution of earned Performance Stock, payment of earned Performance Units or as Bonus Stock, which have a fair market value per share as of the date of such withholding that is not greater than the sum of all tax amounts to be withheld with respect thereto, together with payment of any remaining portion of such tax amounts in cash or by check payable and acceptable to the Company; provided, however, with respect to any Employee Optionee or Employee Grantee who is subject to Rule 16b-3 at the time withholding is required with respect to an Award payable in Common Stock, the Company shall automatically withhold from such Award, to the extent such withholding is not satisfied by a Tandem Cash Tax Right, a number of shares of Common Stock having an aggregate fair market value per share equal to the amount of tax required to be withheld. 23 ARTICLE IX PARACHUTE TAX GROSS-UP To the extent that the grant, payment, or acceleration of vesting or payment, whether in cash or stock, of any Award made to a participant under the Plan (a "Benefit") is subject to a golden parachute excise tax under Section 4999(a) of the Code (a "Parachute Tax"), the Company shall pay such person an amount of cash (the "Gross-up Amount") such that the 'net' Benefit received by the person under this Plan, after paying all applicable Parachute Taxes (including those on the Gross-up Amount) and any federal or state income taxes on the Gross-up Amount, shall be equal to the Benefit that such person would have received if such Parachute Tax had not been applicable. -----END PRIVACY-ENHANCED MESSAGE-----