<PAGE>
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 (S)240.14a-11(c) or (S)240.14a-12
McDermott International, Inc.
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
MCDERMOTT INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
R. E. Howson 1450 Poydras Street
Chairman of the Board and P.O. Box 61961
Chief Executive Officer New Orleans, Louisiana,
70161-1961
(504) 587-5682
July 2, 1996
Dear Stockholder:
You are cordially invited to the Company's Annual Meeting of Stockholders to
be held on Tuesday, August 6, 1996, in the Versailles Ballroom of the New
Orleans Hilton Riverside, Poydras at Mississippi River, New Orleans, Louisiana,
commencing at 9:30 a.m. local time. The notice of meeting and proxy statement
following this letter describe the matters to be acted upon at the meeting.
Whether or not you personally plan to attend, please take a few minutes now to
mark, sign and date the enclosed proxy card or voting instruction form and
return it in the enclosed postage-paid envelope so that your shares are
represented and voted at the meeting. Regardless of the number of shares you
may own, your vote is important.
Thank you for your interest in our Company.
Very truly yours,
R. E. HOWSON
<PAGE>
MCDERMOTT INTERNATIONAL, INC.
1450 POYDRAS STREET
P.O. BOX 61961
NEW ORLEANS, LOUISIANA 70112-1961
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 6, 1996
----------------
To the Stockholders of
McDERMOTT INTERNATIONAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
McDermott International, Inc., a Panama corporation (the "Company"), for the
fiscal year ended March 31, 1996 will be held in the Versailles Ballroom of
the New Orleans Hilton Riverside, Poydras at Mississippi River, New Orleans,
Louisiana, on Tuesday, August 6, 1996, at 9:30 a.m. local time, for the
following purposes:
(1) To elect four Directors;
(2) To approve the Company's 1996 Officer Long-Term Incentive Plan;
(3) To retain Ernst & Young LLP as the Company's independent auditors
for the fiscal year ending March 31, 1997; and
(4) To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on June 27, 1996 as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting and at any adjournment or adjournments thereof.
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD OR VOTING INSTRUCTION
FORM AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. This will ensure that your
vote is counted, whether or not you attend the meeting. If you attend the
meeting, you may revoke your proxy and vote in person at that time.
By Order of the Board of Directors,
S. WAYNE MURPHY
Secretary
Dated: July 2, 1996
<PAGE>
MCDERMOTT INTERNATIONAL, INC.
1450 POYDRAS STREET
P.O. BOX 61961
NEW ORLEANS, LOUISIANA 70112-1961
----------------
PROXY STATEMENT FOR ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD AUGUST 6, 1996
----------------
GENERAL INFORMATION
This Proxy Statement is being furnished and the accompanying proxy card or
voting instruction form ("Proxy") is being solicited by the Board of Directors
of McDermott International, Inc. (the "Company"). The Company will bear all
expenses incurred in connection with such solicitation, which is expected to
be primarily by mail. Morrow & Co., Inc. has been engaged to assist in the
solicitation of Proxies for a fee of $7,500, plus out-of-pocket expenses. In
addition to solicitation by mail and by such proxy soliciting firm, officers
and regular employees of the Company may solicit Proxies by personal
interview, telephone and facsimile transmission, for which they will receive
no additional compensation. Brokerage houses, banks and other custodians,
nominees and fiduciaries will be reimbursed for their customary out-of-pocket
and reasonable expenses incurred in forwarding proxy materials to their
clients who are beneficial owners of shares. Any Proxy may be revoked at any
time prior to its exercise by written notice to the Secretary of the Company,
by submission of another Proxy having a later date or by voting in person at
the meeting. This Proxy Statement is first being mailed to stockholders on or
about July 2, 1996.
VOTING AT MEETING
Only holders of record of the Company's Common Stock, par value $1.00 per
share ("Common Stock"), at the close of business on June 27, 1996 (the "Record
Date"), will be entitled to notice of, and to vote at, the Annual Meeting.
There were 54,735,302 shares of Common Stock outstanding on the Record Date,
each of which is entitled to one vote per share. On the Record Date, 100,000
shares of Common Stock were held by McDermott Incorporated, a publicly traded
subsidiary of the Company ("McDermott"), with its address at 1450 Poydras
Street, New Orleans, Louisiana 70160-0035. The Company has been informed by
McDermott that it will not vote its shares of Common Stock at the meeting.
A majority of the voting power of the outstanding shares of Common Stock
present in person or by proxy will constitute a quorum at the meeting. Each
matter submitted to the stockholders, including the election of directors,
requires the affirmative vote of a majority of the voting power of the
outstanding shares of Common Stock represented at the meeting. Abstentions are
counted for purposes of determining whether a quorum is present, but because
they are not affirmative votes for an item, they will have the same effect as
a "withheld" or
<PAGE>
an "against" vote. With respect to broker non-votes, the shares are counted
for the purpose of determining whether a quorum is present but are not
considered present at the meeting for the particular item for which the broker
lacks authority to vote.
All shares represented by valid Proxies will be voted in accordance with the
choice made by the stockholder with respect to each specific item listed
thereon. If a choice is not made, the Proxy will be voted for (i) the election
of Directors as described under "ELECTION OF DIRECTORS", (ii) the approval of
the Company's 1996 Officer Long-Term Incentive Plan and (iii) the retention of
Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending March 31, 1997.
ELECTION OF DIRECTORS
(ITEM 1)
The Company's Articles of Incorporation provide for the classification of
the Board of Directors into three classes, as nearly equal in number as
possible, with the term of office for each class expiring on the date of the
third annual stockholders' meeting for the election of directors following the
most recent election of directors for such class.
The Board of Directors at its meeting on June 4, 1996 nominated Theodore H.
Black, John F. Bookout, J. Howard Macdonald and William McCollam, Jr. for
election to Class II of the Board of Directors. All of such individuals are
currently Class II Directors of the Company. John A. Morgan, who also is
currently a Class II Director, will not stand for election at the Annual
Meeting because he has reached the maximum number of years an individual may
serve as a director under the Company's By-Laws, as amended in June 1996.
James A. Hunt, who was elected as a Class III Director with a term expiring at
the Company's 1997 Annual Meeting, also has reached the maximum number of
years of service as a director under the Company's By-laws and has voluntarily
agreed to retire prior to the upcoming Annual Meeting. If elected, each Class
II nominee will hold office until the Company's 1999 Annual Meeting and until
his successor is elected and qualified, other than Mr. Bookout, who will
retire from the Board upon his attainment of the age of 76 (the Company's
mandatory retirement age for directors) in December 1998.
The persons named as proxies in the enclosed Proxy have been designated by
the Board of Directors and, unless otherwise directed, intend to vote for the
election of the nominees. If any nominee should become unavailable for
election, the shares will be voted for such substitute nominee as may be
proposed by the Board of Directors. No circumstances are now known, however,
that would prevent any of the nominees from serving. Set forth below under
"Class I Directors" and "Class III Directors" are the names of the other
Directors of the Company currently in office. Class I Directors will continue
to serve until the Company's Annual Meeting of Stockholders in 1998 and Class
III Directors will continue to serve until the Company's Annual Meeting of
Stockholders in 1997. All Directors have been elected previously as directors
of the Company by the stockholders.
2
<PAGE>
Set forth below is certain information (ages as of August 6, 1996) with
respect to each nominee for election as a director and each Director of the
Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
----------------------------- --- --------
CLASS II NOMINEES
<S> <C> <C>
Theodore H. Black................................................ 67 1993
Chairman of the Board and Chief Executive Officer of Ingersoll-
Rand Company (a manufacturer of heavy equipment) from 1988 until
his retirement in October 1993. He is also a director of CPC
International, Inc., General Public Utilities Corporation and
Ingersoll-Rand Company.
John F. Bookout.................................................. 73 1988
Chairman of the Board, President and Chief Executive Officer of
Kelley Oil & Gas Corporation since February 1996. Until his
retirement in June 1988, Mr. Bookout was President and Chief
Executive Officer of Shell Oil Company and served on the
Supervisory Board of Directors of Royal Dutch Shell in The
Netherlands. He is also an advisory director of The Investment
Company of America and a director of J. Ray McDermott, S.A., a
publicly traded subsidiary of the Company ("J. Ray McDermott").
J. Howard Macdonald.............................................. 68 1985
Chairman and Chief Executive Officer of NatWest Investment Bank
from January 1989 until his retirement in April 1991. He is also
a director of J. Ray McDermott, The BOC Group plc and The Weir
Group plc.
William McCollam, Jr............................................. 71 1990
Energy management consultant, and President Emeritus of Edison
Electric Institute (an electric utility company association)
since May 1990. From April 1978 to May 1990, he was President of
Edison Electric Institute.
CLASS I DIRECTORS
Thomas D. Barrow................................................. 71 1985
Oil and gas exploration; he is Chairman of GX Technology
(formerly GeoQuest Technology Corporation).
Philip J. Burguieres............................................. 52 1990
Chairman of the Board since December 1992 and President and Chief
Executive Officer since April 1991 of Weatherford Enterra, Inc.
(a diversified international energy services and manufacturing
company known as Weatherford International Incorporated until
October 5, 1995, at which time it acquired Enterra Corporation
in a merger). From January 1990 until November 1990, he was
Chairman of the Board, President and Chief Executive Officer of
Panhandle Eastern Corporation (a natural gas transmission
company); and prior to that, he was Chairman of the Board,
President and Chief Executive Officer of Cameron Iron Works,
Inc. (a manufacturer of oil tools, ball valves and forged
products). He is also a director of Texas Commerce Bancshares,
Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
----------------------------- --- --------
<S> <C> <C>
Brock A. Hattox.................................................. 48 1993
Executive Vice President and Chief Financial Officer of the
Company since February 1995. He also has been Executive Vice
President and Chief Financial Officer, and President of the
Engineering and Construction Group, of McDermott since February
1995. Prior to assuming these positions, he was Senior Vice
President and Chief Financial Officer of the Company and
McDermott from March 1991; and prior to that, Vice President,
Controller and Planning of Eaton Corporation (a manufacturer of
engineered products for automotive, industrial, commercial and
defense markets). He is also a director of McDermott and J. Ray
McDermott.
John W. Johnstone, Jr............................................ 63 1995
A director and Chairman of the Executive Finance Committee of the
Board of Directors of Olin Corporation (a manufacturer and
supplier of chemicals, metals, defense related products and
services, and ammunition). Until his retirement in May 1996, he
was Chairman of the Board from 1988 and Chief Executive Officer
from 1987 of Olin Corporation, prior to which he has held
various management and executive positions with such company
from 1979. He is also a director of American Brands, Inc. and
Phoenix Home Mutual Life Insurance Company.
James L. Dutt.................................................... 71 1983*
Chairman of the Board of Stratxx Ltd. (management consultants)
since 1986, and former Chairman of the Board and Chief Executive
Officer of Beatrice Companies, Inc.
Robert E. Howson................................................. 64 1981
Chairman of the Board and Chief Executive Officer of the Company
and McDermott since August 1988 and Chairman of the Board and
Chief Executive Officer of J. Ray McDermott since January 31,
1995. Previously President and Chief Operating Officer of the
Company and McDermott from August 1987. He is also a director of
McDermott, J. Ray McDermott, The Louisiana Land and Exploration
Company and Whitney Holding Corporation.
John N. Turner................................................... 67 1993
Partner, Miller Thomson (barristers & solicitors), Toronto,
Canada since 1990. Prior thereto, he was Leader of Opposition of
the Parliament of Canada from 1984. He is also a director of E-L
Financial Corporation, The Loewen Group Inc. and Noranda Forest
Inc.
</TABLE>
- --------
* Mr. Dutt served as a director of McDermott (the former parent corporation of
the Company) from 1982 until he was elected a Director of the Company.
4
<PAGE>
BOARD OF DIRECTORS AND ITS COMMITTEES
General Information. The Board of Directors of the Company has several
standing committees, including an Audit Committee, a Directors Nominating
Committee and a Compensation Committee.
Audit Committee. The Audit Committee is currently composed of Messrs.
Macdonald (Chairman), Barrow, Black, Burguieres, Hunt and McCollam. During the
Company's fiscal year ended March 31, 1996 ("fiscal year 1996"), the Audit
Committee met twice. The functions of the Audit Committee include reviewing
the accounting principles and practices employed by the Company and, to the
extent the Audit Committee deems appropriate, by the Company's subsidiaries;
meeting with the Company's independent auditors to review their report on
their examination of the Company's accounts, their comments on the internal
controls of the Company and the actions taken by management with regard to
such comments; approving professional services, including non-audit services,
rendered by such independent auditors; and recommending annually to the Board
of Directors the appointment of the Company's independent auditors.
Compensation Committee. The Compensation Committee is currently composed of
Messrs. Black (Chairman), Bookout, Hunt, Macdonald and Johnstone. During
fiscal year 1996, the Compensation Committee met five times. The Compensation
Committee determines the salaries of all of the Company's officers elected to
their positions by the Board, and also reviews and makes recommendations
regarding the salaries of officers of the Company's subsidiaries; administers
and makes awards under the Company's 1994 Variable Supplemental Compensation
Plan and 1992 Officer Stock Incentive Program; and will administer and make
awards under the 1996 Officer Long-Term Incentive Plan proposed for
stockholder approval at this year's Annual Meeting.
Directors Nominating Committee. The Directors Nominating Committee is
currently composed of Messrs. Hunt (Chairman), Dutt, McCollam, Morgan and
Turner. During fiscal year 1996, the Directors Nominating Committee met twice.
The function of the Directors Nominating Committee is to recommend nominees
for election to the Company's Board of Directors. The Directors Nominating
Committee will consider nominees recommended by stockholders for election as
directors. Any such recommendation, together with the nominee's qualifications
and consent to be considered as a nominee, should be sent to the Secretary of
the Company.
DIRECTORS' ATTENDANCE AND COMPENSATION
Directors' Attendance and Fees. During fiscal year 1996, there were eight
meetings of the Board of Directors of the Company. Each incumbent Director
attended 75% or more of the aggregate of the meetings of the Board and of the
committees on which he served, other than Mr. Black. Each Director who is not
an employee of the Company or any of its subsidiaries receives an annual
stipend of $28,000 plus a fee of $2,500 for each Board meeting attended and a
fee of $1,000 for each telephonic Board meeting in which such Director
participates.
The Chairman of the Audit Committee receives an annual fee of $3,000 and
each other member of the Audit Committee receives an annual fee of $2,000.
Each member of such committee also receives a fee of $1,650 for each committee
meeting attended. The Chairman of each of the Compensation Committee, the
Directors
5
<PAGE>
Nominating Committee and other committees of the Board receives an annual fee
of $2,500 and each other member of such committees receives an annual fee of
$1,750, provided that they are not employees of the Company or any of its
subsidiaries. Each such member also receives a fee of $1,650 for each
committee meeting attended.
Retirement Plan and Health Care. The Company maintains an unfunded
retirement plan in which all Directors who are not employees of the Company or
any of its subsidiaries participate. The Retirement Plan for Non-Management
Directors of McDermott International, Inc. provides an annual benefit equal to
the greater of (i) 50% of the "Final Average Compensation" received (generally
average annual compensation for the last three consecutive years of service)
by the Director from the Company or (ii) the annual stipend (excluding meeting
and committee fees and expenses) which the Company paid non-management
Directors immediately preceding the last annual meeting held prior to the
Director's retirement. Benefits are payable quarterly, commencing upon
retirement or disability. The period of time for which a Director is due such
quarterly payments equals the period of time of service as a Director. A lump
sum distribution may be requested subject to the consent of the Company's
Finance Committee. A death benefit is also provided in the event that the
Director dies prior to the last quarterly payment due under the plan. The
Directors also participate in the Company's health care plan under the same
terms and conditions applicable to employees.
Director Stock Program. The Company has a 1992 Director Stock Program, which
is administered by a committee comprised of those members of the Board of
Directors that are employees of the Company (the "Committee"). Under the
program, the Committee may grant to Directors who are not employees of the
Company or any of its subsidiaries stock options and rights to purchase
restricted stock in an aggregate of up to 50,000 shares of Common Stock.
Pursuant to the program, each eligible Director is granted options to
purchase at fair market value 900, 300 and 300 shares of Common Stock on the
first day of the first, second and third years, respectively, of such
Director's term. The options are granted at no less than 100% of the fair
market value on the date of grant. Generally, options become exercisable in
full six months after the date of grant, and remain exercisable for not more
than ten years and one day after the date of grant. Also pursuant to the
program, each eligible Director is granted rights to purchase 450, 150 and 150
shares of Common Stock on the first day of the first, second and third years,
respectively, of such Director's term at a purchase price per share equal to
the par value of the Common Stock ($1.00 per share). Shares of restricted
stock purchased under grants made during a Director's term are subject to
restrictions and forfeiture provisions, which generally lapse at the end of
such term. In the event of a change in control of the Company, all such
restrictions and forfeiture provisions shall lapse and the exercisability of
any outstanding options will be accelerated.
During fiscal year 1996, options to acquire 5,100 shares of Common Stock and
rights to purchase 2,550 shares of restricted stock were granted under the
1992 Director Stock Program.
6
<PAGE>
EXECUTIVE OFFICERS
Set forth below is the age (as of August 6, 1996), positions held with the
Company and certain subsidiaries, and certain other business experience
information for each of the Company's executive officers who are not
Directors.
Walter E. Boomer, 57, President, Babcock & Wilcox Power Generation Group, of
Babcock & Wilcox Investment Company and The Babcock & Wilcox Company and
Executive Vice President of the Company since February 1995. Before assuming
his present position, Mr. Boomer was Senior Vice President and Chief Project
Management Officer of the Company from August 1994; and prior to that, he was
a General of the U. S. Marine Corps from 1986.
Daniel R. Gaubert, 47, Vice President, Finance and Controller of the Company
and McDermott since February 1995. He also has been Vice President, Finance of
J. Ray McDermott since August 1995. Before assuming these positions, he was
Vice President and Controller of the Company and McDermott from February 1992;
Corporate Controller of the Company and McDermott from July 1991; and prior to
that, Group Controller, Power Generation Group, of Babcock & Wilcox Investment
Company and The Babcock & Wilcox Company.
S. Wayne Murphy, 61, Vice President, General Counsel and Corporate Secretary
of the Company since June 1996. Before assuming this position, he was Acting
General Counsel and Acting Corporate Secretary of the Company from February
1996; prior to which, he was Associate General Counsel of the Company from
August 1993, an Assistant General Counsel of the Company from 1991 and a
Senior Counsel of the Company from 1987.
Joe J. Stewart, 58, President, Babcock & Wilcox Government Group, of Babcock
& Wilcox Investment Company and The Babcock & Wilcox Company, and Executive
Vice President and Chief Project Management Officer of the Company since
February 1995. Before assuming his present position, Mr. Stewart was President
and Chief Operating Officer of Babcock & Wilcox Investment Company and The
Babcock & Wilcox Company from February 1993; and prior to that, Executive Vice
President and Group Executive, Power Generation Group, of Babcock & Wilcox
Investment Company and The Babcock & Wilcox Company from August 1990.
E. Allen Womack, Jr., 53, Senior Vice President, Shipbuilding and Industrial
Group, of McDermott since August 1995, and Senior Vice President and Chief
Technical Officer of the Company and McDermott since February 1993. Before
assuming these positions, Mr. Womack was Senior Vice President, Research and
Development and Contract Research Divisions, of Babcock & Wilcox Investment
Company and The Babcock & Wilcox Company from August 1991; and prior to that,
Vice President, Research and Development and Contract Research Divisions, of
Babcock & Wilcox Investment Company and The Babcock & Wilcox Company.
Richard E. Woolbert, 62, Executive Vice President and Chief Administrative
Officer of the Company and McDermott since February 1995. He also has been
Executive Vice President and Chief Administrative Officer of J. Ray McDermott
since February 1995. Before assuming these positions, Mr. Woolbert was Senior
Vice President and Chief Administrative Officer of the Company and McDermott
from August 1991; and prior to that, Vice President and Chief Administrative
Officer of the Company and McDermott from November 1988.
7
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock
beneficially owned by each Director or nominee as a Director, each Named
Executive Officer, as defined in "COMPENSATION OF EXECUTIVE OFFICERS", and all
Directors and executive officers of the Company as a group, as of June 5,
1996, except as otherwise noted.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OWNED
- ---- ------------
<S> <C>
Thomas D. Barrow(1)(2)............................................. 24,825
Theodore H. Black(2)............................................... 7,325
John F. Bookout(2)................................................. 4,925
Walter E. Boomer(3)(4)............................................. 27,660
Philip J. Burguieres(2)............................................ 5,825
James L. Dutt(2)................................................... 5,275
Brock A. Hattox(3)(4).............................................. 120,189
Robert E. Howson(3)(4)............................................. 525,747
James A. Hunt(2)................................................... 4,425
John W. Johnstone, Jr(2)........................................... 1,350
J. Howard Macdonald(2)............................................. 3,375
William McCollam, Jr.(2)........................................... 5,375
John A. Morgan(2).................................................. 5,375
Joe J. Stewart(3)(4)............................................... 161,524
John N. Turner(2).................................................. 2,325
Richard E. Woolbert(3)(4).......................................... 133,960
All Directors and executive officers as a group (19 persons)....... 1,169,627
</TABLE>
- --------
(1) Does not include 5,000 shares as to which Mr. Barrow disclaims beneficial
ownership.
(2) With respect to Mr. Bookout, includes 1,950 shares of Common Stock; with
respect to Mr. Dutt, includes 2,850 shares of Common Stock; with respect
to Mr. Johnstone, includes 900 shares of Common Stock; with respect to
each of Messrs. Black and Turner, includes 1,550 shares of Common Stock;
with respect to each of Messrs. Barrow, Burguieres and Hunt, includes
2,550 shares of Common Stock; with respect to each of Messrs. Macdonald,
McCollam and Morgan, includes 2,250 shares of Common Stock; all of which
may be acquired within 60 days of June 5, 1996 upon the exercise of stock
options granted under the Company's 1992 Director Stock Program. With
respect to Mr. Bookout, includes 150 shares of Common Stock; with respect
to Mr. Dutt, includes 1,050 shares of Common Stock; with respect to each
of Messrs. Hunt and Turner, includes 600 shares of Common Stock; with
respect to each of Messrs. Barrow, Burguieres and Johnstone, includes 450
shares of Common Stock; with respect to each of Messrs. Black, Macdonald,
McCollam and Morgan, includes 750 shares of Common Stock; all of which are
shares of restricted stock awarded under the Company's 1992 Director Stock
Program as to which such individuals have sole voting power but no
dispositive power.
8
<PAGE>
(3) With respect to Messrs. Boomer, Hattox, Howson, Stewart and Woolbert,
includes 9,957, 77,754, 307,670, 94,460 and 80,557 shares, respectively,
of Common Stock that may be acquired within 60 days of June 5, 1996 upon
the exercise of stock options granted under the Company's 1983 and 1987
Long-Term Performance Incentive Compensation Programs or 1992 Officer
Stock Incentive Program. With respect to Messrs. Boomer, Hattox, Howson,
Stewart and Woolbert, includes 17,460, 39,410, 196,470, 57,955 and 40,430
restricted shares, respectively, of Common Stock, as to which such
individuals have sole voting power but no dispositive power, granted under
the Company's 1987 Long-Term Performance Incentive Compensation Program or
1992 Officer Stock Incentive Program.
(4) With respect to Messrs. Boomer, Hattox, Howson, Stewart and Woolbert,
includes the equivalent of 243, 1,025, 1,022, 1,074 and 1,158 shares,
respectively, of Common Stock held for such individuals' accounts in The
Thrift Plan for Employees of McDermott Incorporated and Participating
Subsidiary and Affiliated Companies (the "McDermott Thrift Plan") as of
March 31, 1996.
As of June 5, 1996, Mr. Woolbert also beneficially owned, through the
McDermott Thrift Plan, the equivalent of 171 shares of McDermott's Series A
$2.20 Cumulative Convertible Preferred Stock ("McDermott Series A") and
164.673 shares of McDermott's Series B $2.60 Cumulative Preferred Stock
("McDermott Series B"). As of such date, all Directors and executive officers
as a group beneficially owned the equivalent of 175 shares of McDermott Series
A and 168.673 shares of McDermott Series B.
As of June 5, 1996, Messrs. Hattox, Howson and Woolbert also beneficially
owned 1,200, 23,014, and 5,710 shares, respectively, of J. Ray McDermott's
Common Stock, $.01 par value per share ("JRM Common Stock"), all of which
shares, other than the 1,200 shares owned by Mr. Hattox, may be or were
acquired under J. Ray McDermott's Executive Long-Term Incentive Compensation
Plan. With respect to the shares of JRM Common Stock beneficially owned by
Messrs. Howson and Woolbert, 7,924 and 1,260 shares, respectively, may be
acquired within 60 days of June 5, 1996 upon the exercise of stock options,
and 15,090 and 4,450 shares, respectively, are restricted stock awards with
respect to which such individuals have sole voting power but no dispositive
power. As of such date, all Directors and executive officers as a group
beneficially owned 33,314 shares of JRM Common Stock.
Total shares beneficially owned in all cases constituted less than one
percent of the outstanding shares of the applicable security, except that the
1,169,627 shares of Common Stock beneficially owned by all Directors and
executive officers as a group constituted approximately 2.02% of the
outstanding Common Stock on June 5, 1996, less shares held by McDermott
Incorporated, plus those shares deemed to be outstanding pursuant to Rule 13d-
3(d)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table furnishes information concerning all persons known to
the Company to beneficially own 5% or more of the Common Stock, which is the
only class of voting stock of the Company:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
- -------------- -------------------------- ------------ -----------
<S> <C> <C> <C>
Common Stock............... FMR Corp. 5,624,710(3) 9.76%
82 Devonshire Street
Boston, MA 02109-3614
Common Stock............... Norwest Corporation 5,567,110(4) 9.66%
Sixth and Marquette
Minneapolis, MN 55479-1026
</TABLE>
- --------
(1) Sole voting and investment power unless otherwise noted.
(2) Percent of class based upon the outstanding shares of Common Stock on June
5, 1996, less shares held by McDermott Incorporated, plus those shares
deemed to be outstanding pursuant to Rule 13d-3(d)(1) under the Exchange
Act.
(3) As reported on a Schedule 13-G dated January 10, 1996.
(4) As reported on a Schedule 13-G dated February 8, 1996.
10
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS
The Compensation Committee is comprised of five independent, non-employee
directors who have no "interlocking" relationships with the Company. The
Compensation Committee exists to develop executive compensation policies that
support the Company's strategic business objectives and values. The duties of
this Committee include:
. Review and approval of the design of executive compensation programs and
all salary arrangements that Company executives receive;
. Assessment of the effectiveness of the programs in light of compensation
policies;
. Evaluation of executive performance; and
. Assistance in succession planning.
COMPENSATION PHILOSOPHY
The Compensation Committee adheres to an executive compensation philosophy
which supports the Company's business strategies. These strategies are to:
. Generate profits;
. Maximize stockholder value over the long term;
. Strengthen cash flow; and
. Provide products and services of the highest value.
The Compensation Committee's philosophy for executive compensation is to:
. Emphasize at-risk compensation, while balancing short-term and long-term
compensation to support the Company's business and financial strategic
goals.
. Reflect positive, as well as negative, Company and individual performance
in pay.
. Encourage equity-based compensation to reinforce management's focus on
stockholder value.
. Provide adequate, fair, and competitive pay opportunities which will
attract, retain, and develop executive talent.
Company executives participate in a comprehensive compensation program which
is built around this four-pronged philosophy. The key components of this
program include base salary, annual cash incentives, long-term incentives
(stock options and restricted stock) and benefits.
11
<PAGE>
Each of these components is reviewed by the Compensation Committee as
described previously. To ensure the Company's pay is comparable to median
market practices, competitive market data is collected from multiple external
sources. The data collected is both on an industry-specific basis and an
overall industrial basis. The industry-specific comparison is collected using
a group of companies who tend to have national and international business
operations and similar sales volumes, market capitalizations, employment
levels, and lines of business. The Compensation Committee reviews and approves
the selection of companies used for this purpose and attempts to mirror the
peer group reflected in the performance graph. However, the comparator groups
are not identical because the market data used by the Company is much broader
based than the companies included in the performance graph peer group. This
market information is reviewed annually by the members of the Compensation
Committee. The same market basis is used for assessing all components of the
Company executives' pay.
When setting compensation levels, the Compensation Committee considers each
component of an executive's pay. Certain quantitative formulas have been
adopted for the individual compensation plans themselves (e.g., incentive
plans). However, specific weights are not used in setting each component of
pay relative to another. Instead, the Compensation Committee uses a
combination of the results of the performance-based compensation determiners
(mathematical formulas) and discretion, depending on the particular component
involved.
Each of the components of pay is discussed in greater detail below.
BASE SALARY
Salaries reflect an individual's level of responsibility, prior experience,
breadth of knowledge, personal contributions, position within the Company's
executive structure, and market pay practices. Overall, salaries are targeted
at the median of market practice.
A qualitative assessment of performance is considered when making annual
adjustments. Many factors are taken into account, including individual
performance, both past and present. The factors used in making this evaluation
may vary by position.
Mr. Howson received a 10 percent increase in base salary during fiscal year
1996 ($85,260). This increase reflects the Compensation Committee's evaluation
of Mr. Howson's individual contributions to the Company's strategy and market
positioning, both short-term and long-term. In addition, his base salary was
reviewed in light of competitive data for chief executive officers for
relevant companies (see earlier discussion regarding type of companies
considered). Mr. Howson's salary is reflective of the median of these peers
and his years of service with the Company. Other executives' base pay
increased in recognition of the factors described previously.
ANNUAL INCENTIVES
The Company established a Variable Supplemental Compensation Plan in 1987 to
support its short-term financial focus. In 1994, the Company's Board adopted
the 1994 Variable Supplemental Compensation Plan,
12
<PAGE>
which was submitted to, and received the approval of, the Company's
stockholders. Payments under the plan are intended to comply with the
deductibility requirements set forth under Section 162(m) of the Internal
Revenue Code of 1986. For fiscal year 1996, the plan was tied to cash flow
return on capital. The plan is formula driven and self-funded, based on a
minimum level of financial performance to be achieved each year. Executives'
opportunities under the plan are expressed as a targeted percent of base
salary. These targets, like base salary, are set at approximately the median
market levels, as indicated by the group of similar companies. The
Compensation Committee believes the goals associated with target bonus
payments are achievable yet require considerable effort and innovation on the
part of each executive. Executives only receive payments under the plan if the
minimum level of performance is reached.
Mr. Howson's fiscal year 1996 bonus payment was $218,388, which represents
25.6 percent of his base salary in effect at the beginning of fiscal year 1996
(versus a 70% target). This reflects the Company's audited performance
relative to cash flow return on capital. Mr. Howson's payout is less than the
targeted amount and was calculated in light of Company performance which
exceeded the minimum required level but did not exceed the previous year's
performance. Other executives' bonuses decreased in comparison with fiscal
year 1995 for the same reasons.
LONG-TERM INCENTIVES
The 1992 Officer Stock Incentive Program provided executives with long-term,
equity-based opportunities. This program provided performance-based
compensation. However, revisions are necessary to ensure continued compliance
with Section 162(m). A new plan is being submitted to the Company's
stockholders for approval at this year's Annual Meeting.
The Compensation Committee considers multiple factors when determining award
sizes. Weightings between the factors (listed below) are informal, not
quantitative.
. Various financial performance criteria (which may include returns on
capital and assets, profitability, and stockholder return);
. Level of responsibility;
. Prior experience;
. Historical award data; and
. Market practices among similar companies.
Stock Options. At the Company, stock options are granted at prices equal to
fair market value on the date of grant. Executives do not realize value unless
the stock price rises above the price on the date of grant. This, in turn,
creates value for stockholders (a primary focus at the Company). In addition,
stock options encourage accumulation of stock ownership among executives.
13
<PAGE>
Mr. Howson was granted options to acquire 100,470 shares of Common Stock in
fiscal year 1996 at a per share exercise price of $19.3125 (fair market
value). This option grant is reflective of market practice and Mr. Howson's
ability to influence the Company's long-term success. In accordance with Mr.
Howson's employment agreement, this is the last year of his eligibility for
annual option grants. The terms of his agreement state he will not receive
long-term incentive awards in the last two years of his employment. Any
further grants of options will be limited to the recognition of extraordinary
achievements.
Mr. Howson also received a grant of options to acquire JRM Common Stock in
recognition of the services he renders as Chairman and Chief Executive Officer
of J. Ray McDermott, a publicly traded subsidiary of the Company. The award
was for options to acquire 32,560 shares of JRM Common Stock at a per share
exercise price of $16.6875 (market value on the date of grant).
Restricted Stock. Restricted stock is also granted to certain executives to
reinforce the importance of stock ownership and to focus executives on
creating stockholder value. The ability to receive restricted stock is based
upon Company performance. One-half of each grant vests with performance; the
other one-half vests at the end of five years. Performance vesting allows
restrictions to lapse between the third and tenth anniversary of the date of
grant. The specific vesting dates are determined based upon the Company's
average return on capital versus a group of peer companies.
The peer companies are selected by the Compensation Committee based upon
industry relevance and market capitalization, as well as other factors. This
group has remained fairly constant for the past six years, mirroring as
closely as possible the companies used in determining market pay levels. For
awards made in fiscal year 1996, the peer group is the same as those companies
represented in the performance graph.
Shares are forfeited in the event of a termination not caused by death,
disability, retirement or a change in control. Executives receive voting and
dividend rights at the time of the grant.
For fiscal year 1996, Mr. Howson received awards of 26,820 restricted shares
of Common Stock as determined by the 1992 Officer Stock Incentive Program and
actual performance. Under the terms of his employment agreement, he will not
receive grants of restricted stock in the last two years of employment. Mr.
Howson also received 7,600 restricted shares of JRM Common Stock for fiscal
year 1996 in recognition of the services he renders as Chairman and Chief
Executive Officer of this subsidiary.
CONCLUSION
These programs have been designed to support the Company and the
stockholders, while remaining fair and equitable to the Company's management
team. We monitor these programs and their effectiveness on an ongoing basis;
this responsibility remains a critical part of our charter.
Theodore H. Black, Chairman
John F. Bookout
James A. Hunt
J. W. Johnstone, Jr.
J. Howard Macdonald
14
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total stockholder return
on the Common Stock for the last five fiscal years with the cumulative total
return of the S&P 500 Index and a peer group index, which reflects the
Company's primary business segments, composed of Cooper Industries, Inc.,
Dresser Industries, Fluor Corporation, Foster Wheeler Corporation, Halliburton
Company, Raytheon Company, Schlumberger Limited, Stone & Webster Inc., Trinity
Industries, United Dominion Industries, Inc., Westinghouse Electric
Corporation, and Zurn Industries, Inc. CBI, Inc. is no longer included in the
peer group due to the merger between Praxair, Inc. and CBI, Inc. effective as
of March 12, 1996.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
MCDERMOTT INTERNATIONAL, INC; S&P 500; AND PEER GROUP
[Performance Graph appears here]
* Assumes $100 invested on March 31, 1991 in McDermott International, Inc.
common stock; S&P 500; and the Peer Group and the reinvestment of dividends
as they are paid.
<TABLE>
<CAPTION>
3/31/91 3/31/92 3/31/93 3/31/94 3/31/95 3/31/96
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
McDermott International,
Inc.................... $100.00 $ 93.17 $122.97 $ 93.01 $132.34 $ 97.55
S&P..................... $100.00 $110.99 $127.85 $129.74 $149.91 $197.88
Peer Group.............. $100.00 $ 87.49 $ 96.46 $ 94.02 $104.79 $143.60
</TABLE>
15
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation of the
Company's Chief Executive Officer and four highest paid executive officers
(collectively, the "Named Executive Officers") for fiscal years 1996, 1995 and
1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
-------------------------- ----------------------------------
AWARDS PAYOUTS
------------------------ -------
SECURITIES
OTHER UNDERLYING ALL
PRINCIPAL FISCAL ANNUAL RESTRICTED STOCK LTIP OTHER
NAME POSITION YEAR SALARY BONUS COMP.(2) STOCK(3) OPTIONS PAYOUTS COMP.(4)
---- ----------------- ------ -------- -------- -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R.E. Howson............. Chairman & Chief 1996 $902,335 $218,388 $123,656 $ 746,515 133,030(5) $ 0 $30,705
Executive Officer 1995 $814,301 $294,977 $ 48,630 $1,870,833(6) 385,450(7) $ 0 $27,078
1994 $729,210 $325,264 $ 41,496 $ 567,025 65,820 $ 0 $29,652
W. E. Boomer(8)......... Executive VP 1996 $302,000 $ 53,355 $ 62,003 $ 150,230 18,640 $ 0 $10,650
1995 $130,114 $ 64,562 $ 3,160 $ 250,590 29,870 $ 0 $ 2,525
1994 -- -- -- -- -- -- --
B.A. Hattox............. Executive VP & 1996 $364,335 $ 26,677 $ 68,158 $ 75,115 22,490 $ 0 $ 5,622
Chief Financial 1995 $326,335 $ 83,440 $ 10,549 $ 199,241 15,870 $ 0 $ 5,424
Officer 1994 $306,325 $ 92,008 $ 5,126 $ 178,756 18,860 $ 0 $27,980(9)
J.J. Stewart............ Executive VP & 1996 $383,885 $ 77,663 $ 39,143 $ 218,705 23,710 $ 0 $ 9,162
Chief Project 1995 $364,995 $ 93,868 $ 10,772 $ 172,358 15,870 $ 0 $ 9,162
Management 1994 $344,615 $119,849 $ 4,487 $ 217,838 24,060 $ 0 $ 9,913
Officer
R. E. Woolbert.......... Executive VP & 1996 $344,945 $ 59,559 $ 44,724 $ 224,910 32,615(5) $ 0 $ 9,905
Chief Adminis- 1995 $301,685 $ 76,948 $ 4,335 $ 191,674 14,400(7) $ 0 $ 9,905
trative Officer 1994 $280,085 $ 84,848 $ 13,569 $ 163,262 17,230 $ 0 $10,605
</TABLE>
- --------
(1) Includes amounts earned in the fiscal year, whether or not deferred.
(2) For fiscal year 1996, with respect to Mr. Howson, includes $78,551 for
cost of personal use of Company aircraft; with respect to Mr. Boomer,
includes $44,527 for relocation expenses; with respect to Mr. Hattox,
includes $51,855 for relocation expenses; with respect to Mr. Stewart,
includes $31,805 for relocation expenses; and with respect to Mr.
Woolbert, includes $43,584 for cost of personal use of Company aircraft.
(3) Restricted stock awards are valued at the closing market price of Common
Stock or JRM Common Stock, as applicable, on the date of grant less any
amounts paid by the executive officers for such awards. As of March 31,
1996 (which is prior to the date of restricted stock awards for fiscal
year 1996), the total number of restricted shares of Common Stock and JRM
Common Stock held by the Named Executive Officers and their market values
(based upon closing market prices on March 29, 1996 of $19.25 and $19.375,
16
<PAGE>
respectively) are as follows: Mr. Howson held 169,650 shares of Common
Stock valued at $3,096,113 and 7,490 shares of JRM Common Stock valued at
$137,629; Mr. Hattox held 35,790 shares of Common Stock valued at $653,168;
Mr. Stewart held 47,415 shares of Common Stock valued at $865,324; Mr.
Boomer held 10,220 shares of Common Stock valued at $186,515; Mr. Woolbert
held 32,350 shares of Common Stock valued at $590,388 and 2,160 shares of
JRM Common Stock valued at $39,690. Dividends are paid on restricted shares
at the same time and at the same rate as dividends paid to all
stockholders. Grants of restricted stock generally vest fifty percent in
five years with the remaining fifty percent vesting in three to ten years
based on performance. In the event of a change of control of the Company,
the Compensation Committee may cause all restrictions to lapse.
(4) Amounts shown for fiscal year 1996 relate to company matching
contributions to the McDermott Thrift Plan for each of the Named Executive
Officers in the amount of $4,500, and the value of insurance premiums paid
by the Company for Messrs. Howson, Boomer, Hattox, Stewart and Woolbert in
the amounts of $26,205, $6,150, $1,122, $4,662 and $5,405, respectively.
(5) Includes 32,560 and 8,110 options to purchase JRM Common Stock granted to
Messrs. Howson and Woolbert, respectively, during fiscal year 1996.
(6) Includes 50,000 restricted shares of Common Stock awarded under his
employment agreement that will vest less than three years from the date of
grant if the Board of Directors approves a successor to Mr. Howson during
such time.
(7) Excludes 23,770 and 3,780 options to purchase JRM Common Stock granted to
Messrs. Howson and Woolbert, respectively, during fiscal year 1995.
(8) Mr. Boomer became employed as an executive officer of the Company in
August 1994.
(9) Includes $20,000 for fiscal year 1994 representing amounts paid to Mr.
Hattox as a signing bonus.
17
<PAGE>
OPTION GRANT TABLE
Options generally vest in equal installments of one-third beginning on the
first anniversary of the date of grant through the third anniversary of the
date of grant and expire ten years from the date of grant; provided, however,
that with respect to half of the options granted, they only vest on such
anniversary dates of grant if certain targeted earnings per share of the
Company are achieved for the applicable fiscal years. In general, vesting is
contingent on continuing employment with the Company. In the event of a change
in control of the Company, the Compensation Committee may accelerate the
exercisability of any outstanding options. The following table provides
information about option grants to the Named Executive Officers during fiscal
year 1996. The Company did not grant any stock appreciation rights to its
executive officers during fiscal year 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
------------------------------------------- ----------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS 5% 10%
OPTIONS GRANTED TO EXERCISE EXPIRATION ------------ --------------
NAME GRANTED EMPLOYEES(2) PRICE(3) DATE DOLLAR GAINS DOLLAR GAINS
- ---- ---------- ------------ -------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Howson
Common Stock........... 100,470 14.34 $19.3125 02/07/06 $1,220,258 $3,092,386
JRM Common Stock....... 32,560 8.44 $16.6875 02/05/06 $341,707 $865,953
W.E. Boomer
Common Stock........... 18,640 2.66 $19.3125 02/07/06 $226,392 $573,724
B.A. Hattox
Common Stock........... 22,490 3.21 $19.3125 02/07/06 $273,152 $692,224
J.J. Stewart
Common Stock........... 23,710 3.38 $19.3125 02/07/06 $287,970 $729,775
R.E. Woolbert
Common Stock........... 24,505 3.50 $19.3125 02/07/06 $297,626 $754,244
JRM Common Stock....... 8,110 2.10 $16.6875 02/05/06 $85,112 $215,690
All Stockholders (4)
Common Stock........... -- -- $19.3125 -- $662,364,838 $1,678,569,003
JRM Common Stock....... -- -- $16.6875 -- $421,865,384 $1,069,088,493
Named Executive Officers' gains as a % of all stockholders' gains
for the Company.................................................... .35% .35%
JRM................................................................ .10% .10%
</TABLE>
- --------
(1) At a five percent and ten percent annual rate of appreciation, the stock
price would be approximately $31.4580 and $50.0917 per share of Common
Stock, respectively, and approximately $27.1822 and $43.2831 per share of
JRM Common Stock, respectively, if the assumed annual rates of stock price
appreciation shown were to be achieved over a ten year option term.
18
<PAGE>
(2) Based on 700,745 and 385,710 options granted to all employees of the
Company and JRM, respectively, during fiscal year 1996.
(3) Fair market value on date of grant.
(4) Total dollar gains based on the assumed annual rates of appreciation shown
here and calculated on 54,535,823 outstanding shares of Common Stock and
40,197,946 outstanding shares of JRM Common Stock on March 31, 1996.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information concerning the exercise of stock
options during fiscal year 1996 by each of the Named Executive Officers and
the value at March 31, 1996 of unexercised options held by such individuals.
The value of unexercised options reflects the increase in market value of
Common Stock and JRM Common Stock from the date of grant through March 31,
1996 (when the fair market value of Common Stock and JRM Common Stock was
$19.25 and $19.375, respectively, per share). The value actually realized upon
exercise of the options by the Named Executive Officers will depend on the
value of Common Stock and JRM Common Stock at the time of exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SECURITIES UNDERLYING TOTAL VALUE OF
NUMBER OF UNEXERCISED OPTIONS HELD UNEXERCISED, IN-THE-MONEY
SHARES AT OPTIONS HELD AT FISCAL
ACQUIRED FISCAL YEAR-END YEAR-END
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Howson
Common Stock........... 0 $ 0 307,670 487,710 $97,953 $0
JRM Common Stock....... 0 $ 0 7,924 48,406 $0 $87,505
W.E. Boomer
Common Stock........... 0 $ 0 9,957 38,553 $0 $0
B.A. Hattox
Common Stock........... 0 $ 0 77,754 39,356 $0 $0
J.J. Stewart
Common Stock........... 0 $ 0 96,460 42,310 $17,306 $0
R.E. Woolbert
Common Stock........... 0 $ 0 80,557 39,848 $41,952 $0
JRM Common Stock....... 0 $ 0 1,260 10,630 $0 $21,796
</TABLE>
19
<PAGE>
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement (the "Agreement") with Mr.
Howson effective as of September 1, 1994, whereby he will continue to serve as
Chairman of the Board and Chief Executive Officer of the Company through
August 31, 1998, subject to earlier termination as described below. The
Agreement provides Mr. Howson with an annual base salary of $852,000, subject
to increase by the Compensation Committee in accordance with Company practices
based upon Mr. Howson's performance. In addition, Mr. Howson was granted the
right to purchase 50,000 restricted shares of Common Stock for $1.00 per share
and options to purchase 325,000 shares of Common Stock, both of which will
vest at the earlier of (i) such time as the Board approves a successor to Mr.
Howson or (ii) the expiration of the Agreement. He is also entitled to receive
an annual cash bonus (if any, as determined by the Compensation Committee
based upon the achievement of certain pre-established performance goals) and
to participate in all plans, policies and programs maintained or provided by
the Company for its officers, except that Mr. Howson only will be entitled to
receive stock option and restricted stock grants under the Company's 1992
Officer Stock Incentive Program for fiscal years 1995 and 1996. The Agreement
also provides for (i) the vesting of all of Mr. Howson's unvested stock
options (other than the 325,000 stock options described above) on September 1,
1996, (ii) the accelerated vesting of Mr. Howson's restricted stock grants
upon his attainment of age 65 at the discretion of the Board of Directors, and
(iii) amendments to the Company's Supplemental Executive Retirement Plan for
purposes of determining Mr. Howson's retirement benefit under such plan,
including increasing Mr. Howson's maximum benefit thereunder to 73% of his
final 3-year average cash compensation (based upon his highest three years,
consecutive or nonconsecutive, of base salary and bonus during the last ten
years of his employment).
The Agreement may be terminated prior to August 31, 1998 under certain
circumstances, including death, disability and voluntary retirement. However,
in the event of termination due to a change in control of the Company or
"excuse by the Board", as defined in the Agreement, Mr. Howson will continue
to receive his annual base salary and other benefits and rights under the
Agreement during the remaining term thereof. In the event of termination by
the Board for reasons other than a change in control or "excuse by the Board"
prior to attainment of age 65, Mr. Howson's severance benefits will be the
greater of the benefits due under the Agreement through age 65 or one year of
benefits under the Agreement; and for such termination after age 65 and prior
to the end of the Agreement's term, Mr. Howson's severance benefits will be
the greater of the remaining benefits due under the Agreement or one
additional year of benefits that he would receive pursuant to the Agreement's
terms. Upon such termination, all shares of restricted stock and options to
purchase Common Stock awarded to Mr. Howson will vest.
Under the Agreement, Mr. Howson may not associate himself with any business
or entity which is in competition with the Company or induce any employee of
the Company to accept employment with any competitor of the Company during the
term of the Agreement, and for the greater of 24 months following the
expiration of the Agreement or any other period during which amounts are paid
to him under the Agreement.
20
<PAGE>
RETIREMENT PLANS
Pension Plans. The Company maintains several funded retirement plans
covering substantially all regular full-time employees, except certain non-
resident alien employees who are not citizens of a European Community country
or who do not earn income in the United States, Canada or the United Kingdom.
All officers who are employees of the Company or certain of its subsidiaries,
including McDermott, are covered under The Retirement Plan for Employees of
McDermott Incorporated (the "McDermott Retirement Plan"). Officers who are
employed by The Babcock & Wilcox Company ("B&W") or certain of its
subsidiaries or affiliates are covered under The Employee Retirement Plan of
The Babcock & Wilcox Company (the "B&W Retirement Plan"). Effective April 1,
1995, officers who are employed by J. Ray McDermott Holdings, Inc. or certain
of its subsidiaries or affiliates, including J. Ray McDermott, are covered
under The Retirement Plan of Employees of J. Ray McDermott Holdings, Inc.
Employees do not contribute to any of these plans and company contributions
are determined on an actuarial basis. An employee must be employed by the
Company or a subsidiary for one year prior to participating in the plans and
must have five years of continuous service to vest in any accrued benefits
under the plans. Pension benefits will be paid directly by the applicable
company or a subsidiary under the terms of the unfunded excess benefit plans
maintained by them (the "Excess Plans") to the extent that benefits payable
under these qualified plans are limited by Section 415(b) or 401(a)(17) of the
Internal Revenue Code.
The following table shows the annual benefit payable under the McDermott
Retirement Plan at age 65 (the normal retirement age) to employees retiring in
1996 in accordance with the lifetime only method of payment and before profit
sharing plan offsets. Benefits are based on the formula of a specified
percentage (dependent on years of service) of average annual basic earnings
(exclusive of bonus and allowances) during the 60 consecutive months out of
the ten years prior to retirement in which such earnings were highest ("Final
Average Earnings") less a specified percentage of anticipated social security
benefits. Final Average Earnings and credited service under the McDermott
Retirement Plan at December 31, 1995 (the end of the last plan year) for
Messers. Howson, Boomer and Hattox were $726,060 and 24 years, $280,566 and 1
year, and $304,060 and 4 years, respectively. Unless elected otherwise by the
employee, payment will be made in the form of a joint and survivor annuity of
equivalent actuarial value to the amount shown below.
MCDERMOTT RETIREMENT PLAN
<TABLE>
<CAPTION>
FINAL ANNUAL BENEFITS AT AGE 65 FOR YEARS OF SERVICE INDICATED
AVERAGE --------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
100,000 $ 14,171 $ 21,256 $ 28,341 $ 35,427 $ 43,354 $ 51,282 $ 58,623
150,000 22,504 33,756 45,008 56,260 67,512 78,764 90,016
200,000 30,837 46,256 61,675 77,093 92,512 107,931 123,349
250,000 39,171 58,756 78,341 97,927 117,512 137,097 156,683
300,000 47,504 71,256 95,008 118,760 142,512 166,264 190,016
400,000 64,171 96,256 128,341 160,427 192,512 224,597 256,683
500,000 80,837 121,256 161,675 202,093 242,512 282,931 323,349
600,000 97,504 146,256 195,008 243,760 292,512 341,264 390,016
700,000 114,171 171,256 228,341 285,427 342,512 399,597 456,683
800,000 130,837 196,256 261,675 327,093 392,512 457,931 523,349
</TABLE>
21
<PAGE>
The following table shows the annual benefit payable under the B&W
Retirement Plan at age 65 (the normal retirement age) to employees retiring in
1996 in accordance with the lifetime only method of payment. Benefits are
based on the formula of a specified percentage (dependent on the level of
wages subject to social security taxes during the employee's career) of
average annual earnings (inclusive of bonuses) during the 60 consecutive
months out of the ten years prior to retirement in which such earnings were
highest ("B&W Final Average Earnings"). B&W Final Average Earnings and
credited service under the B&W Retirement Plan at December 31, 1995 (the end
of the last plan year) for Messrs. Stewart and Woolbert were $457,008 and 23
years, and $367,652 and 40 years, respectively. Unless elected otherwise by
the employee, payment will be made in the form of a joint and survivor annuity
of equivalent actuarial value to the amount shown below.
BABCOCK & WILCOX RETIREMENT PLAN
<TABLE>
<CAPTION>
B&W
FINAL ANNUAL BENEFITS AT AGE 65 FOR YEARS OF SERVICE INDICATED
AVERAGE -------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
-------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
100,000 $11,810 $ 17,715 $ 23,620 $ 29,525 $ 35,430 $ 41,335 $ 47,240
150,000 18,060 27,090 36,120 45,150 54,180 63,210 72,240
200,000 24,310 36,465 48,620 60,775 72,930 85,085 97,240
250,000 30,560 45,840 61,120 76,400 91,680 106,960 122,240
300,000 36,810 55,215 73,620 92,025 110,430 128,835 147,240
400,000 49,310 73,965 98,620 123,275 147,930 172,585 197,240
500,000 61,810 92,715 123,620 154,525 185,430 216,335 247,240
600,000 74,310 111,465 148,620 185,775 222,930 260,085 297,240
</TABLE>
Supplemental Executive Retirement Plan. An unfunded supplemental retirement
plan called the Supplemental Executive Retirement Plan (the "SERP") was
established in June 1980 by McDermott and was amended to become a plan of the
Company in September 1989. In March 1995, J. Ray McDermott became a
participating employer in SERP. The SERP covers certain officers of the
Company and other designated companies, including McDermott, J. Ray McDermott
and B&W. Generally, benefits are based upon a specified percentage (determined
by age, years of service and date of initial participation in the SERP) of
final 3-year average cash compensation (salary plus supplemental compensation
for the highest three out of the last ten years of service) or 3-year average
cash compensation prior to SERP scheduled retirement date, whichever is
greater. Except for the benefit payable to Mr. Howson, the maximum benefit
shall not exceed 60-65% (dependent upon date of initial participation in the
SERP) of such 3-year average cash compensation. Under Mr. Howson's employment
agreement, the maximum benefit payable to Mr. Howson is 73% of his final 3-
year average cash compensation as described under "Employment Agreement"
above. Payments under the SERP will be reduced by an amount equal to pension
benefits payable under any other retirement plan maintained by the Company,
any of its subsidiary companies or any previous employer. A death benefit is
also provided under the SERP. Before giving effect to such reductions, the
approximate annual benefit payable under the SERP to Messrs. Boomer, Hattox,
Howson, Stewart and Woolbert at retirement age as stated in the SERP is
27.25%, 60.0%, 73.0%, 60.0% and 65.0%, respectively, of each such person's
final 3-year average cash compensation.
22
<PAGE>
A trust (assets of the trust constitute corporate assets) has been
established which is designed to ensure the payment of benefits arising under
the SERP, the Excess Plans and certain other contracts and arrangements
(collectively, the "Plans") in the event of an effective change in control of
the Company. Although the Company would retain primary responsibility for such
payments, the trust would provide for payments to designated participants, in
the form of lump sum distributions, if certain events occur following an
effective change in control of the Company, including but not limited to
failure by the Company to make such payments and the termination of a
participant's employment under certain specified circumstances. In addition,
with respect to benefits which otherwise would have been paid in the form of
an annuity, the trust provides for certain lump sum equalization payments
which, when added to the basic lump sum payments described above, would be
sufficient, after payment of all applicable taxes, to enable each active
participant receiving a lump sum distribution to purchase an annuity which
would provide such participant with the same net after-tax stream of annuity
benefits that such participant would have realized had he retired as of the
date of the lump sum distribution and commenced to receive annuity payments at
that time under the terms of the applicable Plan, based on salary and service
factors at the time of the effective change in control. With respect to
designated participants who retire prior to an effective change in control and
who receive a basic lump sum distribution under the circumstances described
above, the trust provides for similar lump sum equalization payments, based on
salary and service factors at the time of actual retirement.
APPROVAL OF THE
COMPANY'S 1996 OFFICER LONG-TERM
INCENTIVE PLAN
(ITEM 2)
The success of the Company depends, in large measure, on its ability to
recruit and retain officers and key employees with outstanding ability and
experience. The Board of Directors also believes there is a need to align
stockholders and employee interests by encouraging employee stock ownership
and to motivate employees with compensation conditioned upon achievement of
the Company's financial goals. In order to accomplish these objectives, the
Board of Directors has adopted, subject to approval by the Company's
stockholders, the McDermott International, Inc. 1996 Officer Long-Term
Incentive Plan (the "LTIP" or "Incentive Plan"). The Incentive Plan is
intended to supplement and eventually replace the Company's 1987 Long Term
Incentive Compensation Program (the "1987 Program") and 1992 Officer Stock
Incentive Program (the "1992 Program") as shares of Common Stock available for
issuance under the 1987 Program and 1992 Program will be largely exhausted by
1997.
The affirmative vote of a majority of the voting power of the outstanding
shares of Common Stock present in person or by proxy and entitled to vote at
the Annual Meeting on this proposal is required for adoption of the Incentive
Plan. The Board of Directors recommends that stockholders vote "FOR" this
proposal.
23
<PAGE>
SUMMARY DESCRIPTION OF THE LTIP
The following summary of the terms of the LTIP is qualified in its entirety
by reference to the text of the plan, which is attached as Appendix A to this
Proxy Statement. If adopted by the stockholders, the LTIP will be effective as
of April 1, 1996.
Administration. The LTIP will be administered by the Compensation Committee
of the Company's Board of Directors.
Eligibility. Officers and key employees of the Company and its subsidiaries
are eligible to participate in the LTIP. Non-employee Directors of the Company
are not eligible. Thirty-five employees of the Company and its subsidiaries
currently participate in the 1992 Program; however, because the LTIP provides
for broad discretion in selecting participants and in making awards, the total
number of persons who will participate and the respective benefits to be
accorded to them cannot be determined at this time.
Stock Available for Issuance Through the LTIP. The LTIP provides for a
number of forms of stock-based compensation, as described below. Up to
2,500,000 shares of the Company's Common Stock are authorized for issuance
through the LTIP. Provisions in the LTIP permit the reuse or reissuance by the
plan of shares of Common Stock underlying canceled, expired or forfeited
awards of stock-based compensation, as well as shares tendered in payment of a
stock option exercise price or withheld by the Company to pay taxes on an
award, subject to the restrictions imposed under the Securities and Exchange
Commission's ("SEC") short-swing trading rules.
Stock-based compensation will typically be issued in consideration for the
performance of services to the Company, but payment of a purchase price for
each share of restricted stock equal to the par value of the Common Stock
($1.00 per share) will be required at the time of grant. At the time of
exercise, the full exercise price for a stock option must be paid in cash or,
if the Compensation Committee so provides, in shares of Common Stock.
Description of Awards Under the Plan. The Compensation Committee may award
to eligible employees incentive and nonqualified stock options and restricted
stock, subject to satisfaction of specific performance goals. The forms of
awards are described below.
Stock Options. The Compensation Committee will have discretion to award
incentive stock options ("ISOs"), which are intended to comply with Section
422 of the Internal Revenue Code, or nonqualified stock options ("NQSOs"),
which are not intended to comply with Section 422 of the Internal Revenue
Code. Each option issued under the LTIP must be exercised within a period of
ten years from the date of grant, and the excise price of an option may not be
less than the fair market value of the underlying shares of Common Stock on
the date of grant. Subject to the specific terms of the LTIP, the Compensation
Committee will have discretion to set such additional limitations on option
grants as it deems appropriate.
24
<PAGE>
Options granted to employees under the LTIP will expire at such times as the
Compensation Committee determines at the time of the grant; provided, however,
that no option will be exercisable later than ten years from the date of
grant. Each option award agreement will set forth the extent to which the
participant will have the right to exercise the option following termination
of the participant's employment with the Company. The termination provisions
will be determined within the discretion of the Compensation Committee, may
not be uniform among all participants and may reflect distinctions based on
the reasons for termination of employment.
Upon the exercise of an option granted under the LTIP, the option price is
payable in full to the Company, either: (i) in cash or its equivalent, or (ii)
if permitted in the award agreement, by tendering shares having a fair market
value at the time of exercise equal to the total option price (provided such
shares have been held for at least six months prior to their tender), or (iii)
if permitted in the award agreement, a combination of (i) and (ii).
Restricted Stock. The Compensation Committee also will be authorized to
award restricted shares of Common Stock under the LTIP upon such terms and
conditions as it shall establish. Participants will be required to pay a
purchase price for each share of restricted stock granted equal to the par
value of the Company's Common Stock ($1.00 per share). The award agreement
will specify the period(s) of restriction, the number of restricted shares of
Common Stock granted, restrictions based upon achievement of specific
performance objectives and/or restrictions under applicable federal or state
securities laws. Although recipients will have the right to vote these shares
from the date of grant, they will not have the right to sell or otherwise
transfer the shares during the applicable period of restriction or until
earlier satisfaction of other conditions imposed by the Compensation Committee
in its sole discretion. Participants shall receive dividends on their shares
of restricted stock and the Compensation Committee, in its discretion, will
determine how dividends on restricted shares are to be paid.
Each award agreement for restricted stock will set forth the extent to which
the participant will have the right to retain unvested restricted stock
following termination of the participant's employment with the Company. These
provisions will be determined in the sole discretion of the Compensation
Committee, need not be uniform among all shares of restricted stock issued
pursuant to the LTIP and may reflect distinctions based on reasons for
termination of employment.
Performance Measures. The Compensation Committee may grant awards under the
LTIP to eligible employees subject to the attainment of certain specified
performance measures. The number of performance-based awards granted to an
officer or key employee in any year is determined by the Compensation
Committee in its sole discretion. The value of each performance-based award
shall be determined solely upon the achievement of certain preestablished
objective performance goals during each performance period (the "Performance
Period"). The duration of a Performance Period is set by the Compensation
Committee. A new Performance Period may begin every year, or at more frequent
or less frequent intervals, as determined by the Compensation Committee. The
Compensation Committee shall establish, in writing, the objective performance
goals applicable to the valuation of performance-based awards granted in each
Performance Period, the performance measures which shall be used to determine
the achievement of those performance goals, and any formulas or methods to be
used to determine the value of the performance-based awards.
25
<PAGE>
The value of performance-based awards may be based on absolute measures or
on a comparison of the Company's financial measures during a Performance
Period to the financial measures of a group of competitors. Finance measures
selected by the Compensation Committee shall be one or more of the following:
Cash Flow, Cash Flow Return on Capital, Cash Flow Return on Assets, Cash Flow
Return on Equity, Net Income, Return on Capital, Return on Assets, and Return
on Equity. Following the end of a Performance Period, the Compensation
Committee shall determine the value of the performance-based awards granted
for the period based on the attainment of the preestablished objective
performance goals. The Compensation Committee shall also have discretion to
reduce (but not to increase) the value of a performance-based award. The
Compensation Committee will certify, in writing, that the award is based on
the degree of attainment of the preestablished objective performance goals. As
soon as practicable thereafter, payment of the awards to employees, if any,
shall be made in the form of shares of Common Stock.
Adjustment and Amendments. The LTIP provides for appropriate adjustments in
the number of shares of Common Stock subject to awards and available for
future awards in the event of changes in outstanding Common Stock by reason of
a merger, stock split, or certain other events. In case of a pending change of
control of the Company, outstanding options granted under the LTIP will become
immediately exercisable and will remain exercisable throughout their entire
term and restriction periods and restrictions imposed on shares of restricted
stock shall immediately lapse. The LTIP may be modified or amended by the
Board of Directors at any time and for any purpose which the Board of
Directors deems appropriate. However, no such amendment shall adversely affect
any outstanding awards without the affected holder's consent. Stockholder
approval of an amendment will be sought if necessary or desirable under
Internal Revenue Service or SEC regulations, the rules of the New York Stock
Exchange or any applicable law.
Nontransferability. No derivative security (including, without limitation,
options) granted pursuant to, and no right to payment under, the LTIP shall be
assignable or transferable by a plan participant except by will or by the laws
of descent and distribution, and any option or similar right shall be
exercisable during a participant's lifetime only by the participant or by the
participant's guardian or legal representative. These limitations may be
waived by the Compensation Committee in the award agreement, subject to
restrictions imposed under the SEC's short-swing trading rules and federal tax
requirements relating to ISOs.
Duration of the Plan. The LTIP will remain in effect until all options and
rights granted thereunder have been satisfied or terminated pursuant to the
terms of the plan, and all Performance Periods for performance-based awards
granted thereunder have been completed. However, in no event will an awards be
granted under the LTIP on or after April 1, 2006.
FEDERAL INCOME TAX CONSEQUENCES
Options. With respect to options which qualify as ISOs, a LTIP participant
will not recognize income for federal income tax purposes at the time options
are granted or exercised. If the participant disposes of shares acquired by
exercise of an ISO either before the expiration of two years from the date the
options are granted or within one year after the issuance of shares upon
exercise of the ISO (the "holding periods"), the participant
26
<PAGE>
will recognize in the year of disposition: (i) ordinary income, to the extent
that the lesser of either (a) the fair market value of the shares on the date
of option exercise, or (b) the amount realized on disposition, exceeds the
option price; and (ii) capital gain, to the extent the amount realized on
disposition exceeds the fair market value of the shares on the date of option
exercise. If the shares are sold after expiration of the holding periods, the
participant generally will recognize capital gain or loss equal to the
difference between the amount realized on disposition and the option price.
With respect to NQSOs, the participant will recognize no income upon grant
of the option, and, upon exercise, will recognize ordinary income to the
extent of the excess of the fair market value of the shares on the date of
option exercise over the amount paid by the participant for the shares. Upon a
subsequent disposition of the shares received under the option, the
participant generally will recognize capital gain or loss to the extent of the
difference between the fair market value of the shares at the time of exercise
and the amount realized on the disposition.
Restricted Stock. A participant holding restricted stock will, at the time
the shares vest, realize ordinary income in an amount equal to the fair market
value of the shares (less any amount the participant paid for such shares) and
any cash received at the time of vesting, and the Company will be entitled to
a corresponding deduction for federal income tax purposes. Alternatively, the
participant may elect within 30 days of the grant of restricted stock to
recognize ordinary income equal to the then fair market value of the shares
(less any amount the participant paid for such shares). Dividends paid to the
participant on the restricted stock during the restriction period will
generally be ordinary income to the participant and deductible as such by the
Company. In general, the Company will receive an income tax deduction at the
same time and in the same amount which is taxable to the employee as
compensation, except as provided below under "Section 162(m)". To the extent a
participant realizes capital gains, as described above, the Company will not
be entitled to any deduction for federal income tax purposes.
Section 162(m). Under Section 162(m) of the Internal Revenue Code,
compensation paid by the Company in excess of $1 million for any taxable year
to "Covered Employees" generally is deductible by the Company or its
affiliates for federal income tax purposes if it is based on the performance
of the Company, is paid pursuant to a plan approved by stockholders of the
Company, and meets certain other requirements. Generally, "Covered Employee"
under Section 162(m) means the chief executive officer and the four other
highest paid executive officers of the Company of the last day of the taxable
year.
It is presently anticipated that the Compensation Committee will at all
times consist of "outside directors" as required for purposes of Section
162(m), and that the committee will take the effect of Section 162(m) into
consideration in structuring Incentive Plan awards.
NEW PLAN BENEFITS
The benefits that will be received under the LTIP by particular individuals
or groups are not determinable at this time. The benefits that were received
for fiscal year 1996 by the Named Executive Officers pursuant to the 1987 Plan
and the 1992 Plan (which the LTIP is intended to replace) are summarized in
tables on pages 16-19.
27
<PAGE>
RETENTION OF
INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING MARCH 31, 1997
(ITEM 3)
Upon the recommendation of the Audit Committee, the Board of Directors has
approved the retention of Ernst & Young LLP ("Ernst & Young") to serve as
independent auditors to audit the accounts of the Company for the fiscal year
ending March 31, 1997. Although not required to do so, the Board of Directors
considers it advisable that such retention be submitted to the stockholders
for their approval. Ernst & Young served as independent auditors of the
Company and its subsidiaries during fiscal year 1996. During such fiscal year,
Ernst & Young performed audit and tax services for the Company and its
subsidiaries for which they have received or will receive, in the aggregate,
approximately $5,500,000 in fees. Representatives of Ernst & Young will be
present at the Annual Meeting and will have an opportunity to make a statement
if they desire to do so and to respond to appropriate questions.
The affirmative vote of a majority of the voting power of the outstanding
shares of Common Stock present in person or by proxy at the Annual Meeting is
required to approve this proposal. The Board of Directors recommends that
stockholders vote "FOR" the retention of Ernst & Young as the Company's
independent auditors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's Directors and
executive officers, and persons who own 10% or more of the Company's voting
stock, to file reports of ownership and changes in ownership of the Company's
equity securities with the SEC and the New York Stock Exchange. Directors,
executive officers and 10% or more holders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms furnished to the Company, or
written representations that no forms were required, the Company believes that
its Directors, executive officers and 10% or more beneficial owners complied
with all Section 16(a) filing requirements during fiscal year 1996.
28
<PAGE>
STOCKHOLDERS' PROPOSALS AND OTHER MATTERS
No business other than that set forth in the accompanying Notice of Annual
Meeting of Stockholders is expected to come before the meeting, but should any
other matters requiring a vote arise, including a question of adjourning the
meeting, the persons named as proxies in the enclosed Proxy will vote thereon
according to their judgment in the best interests of the Company.
Proposals by stockholders intended to be presented at the 1997 Annual
Meeting must be received by the Corporate Secretary of the Company no later
than March 4, 1997, in order to be qualified for inclusion in the Company's
Proxy Statement and form of proxy for such meeting. Concurrently therewith,
proponents shall provide the Company in writing with his or her name, address,
the number of shares of Common Stock held of record or beneficially, the date
or dates upon which such Common Stock was acquired and documentary support for
a claim of beneficial ownership.
By Order of the Board of Directors,
S. WAYNE MURPHY
Secretary
Dated: July 2, 1996
29
<PAGE>
APPENDIX A
MCDERMOTT INTERNATIONAL, INC.
1996 OFFICER LONG-TERM INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. McDermott International, Inc., a Panamanian
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "McDermott International, Inc.
1996 Officer Long-Term Incentive Plan" (hereinafter referred to as the
"Plan"), as set forth in this document. The Plan permits the grant of
Nonqualified Stock Options, Incentive Stock Options, and Restricted Stock.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of April 1, 1996 (the "Effective Date") and shall remain in
effect as provided in Section 1.3 hereof.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
profitability and growth of the Company through incentives which are
consistent with the Company's objectives and which link the interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants
to share in the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 13 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after April 1, 2006.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "AWARD" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, and Restricted Stock.
2.2 "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
A-1
<PAGE>
2.3 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.4 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.5 "CHANGE IN CONTROL" of the Company shall be deemed to have occurred (as
of a particular day, as specified by the Board) upon the occurrence of any
event described in this Section 2.5 as constituting a Change in Control.
A Change in Control will be deemed to have occurred as of the first day any
one (1) or more of the following paragraphs shall have been satisfied:
(a) Any person as described in Section 3(a)(9) of the Securities Exchange
Act of 1934, (other than a person in control of the Company on the
Effective Date, or other than a trustee or other fiduciary holding
securities under an Employee benefit plan of the Company, or a
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of
Shares of voting securities of the Company), is or becomes the
Beneficial Owner, directly or indirectly, of voting securities of the
Company representing thirty percent (30%) or more of the combined
voting power of the Company's then outstanding securities, excluding
for these purposes the Series A Participating Preferred Stock of the
Company; or
(b) During any period of two consecutive years (not including any period
prior to the execution of the Plan), individuals who at the beginning
of such period constitute the Board (and any new Director, whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
Directors then still in office who either were Directors at the
beginning of the period of whose election or nomination for election
was previously so approved), cease for any reason to constitute a
majority thereof; or
(c) The stockholders of the Company approve: (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or
disposition of all or substantially all the Company's assets; or (c) a
merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), at least
50.1 percent of the combined voting securities of the Company (or such
surviving entity) outstanding immediately after such merger or
consolidation.
However, in no event shall a Change in Control be deemed to have occurred,
with respect to a Participant if the Participant is part of a purchasing group
which consummates the Change-in-Control transaction. A Participant shall be
deemed "part of a purchasing group" for purpose of the preceding sentence if
the Participant is an equity participant, has been identified as a potential
equity participant or has agreed to become an equity participant in the
purchasing company or group (except for: (i) passive ownership of less than
three percent (3%) of the shares of voting securities of the purchasing
company; or (ii) ownership of equity participation in the
A-2
<PAGE>
purchasing company or group which is otherwise not deemed to be significant,
as determined prior to the Change in Control by a majority of the
disinterested Directors).
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.7 "COMMITTEE" means the Compensation Committee of the Board, as specified
in Article 3 herein, or such other Committee appointed by the Board to
administer the Plan with respect to grants of Awards.
2.8 "COMPANY" means McDermott International, Inc., a Panamanian corporation,
together with any and all Subsidiaries, and any successor thereto as provided
in Article 16 herein.
2.9 "COVERED EMPLOYEE" means a Participant who, as of the date of vesting
and/or payout of an Award, as applicable, is one of the group of "covered
employees," as defined in the regulations promulgated under Code Section
162(m), or any successor statute.
2.10 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.11 "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan.
2.12 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.13 "EMPLOYEE" means any full-time, active employee of the Company.
Directors who are not employed by the Company shall not be considered
Employees under this Plan.
2.14 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.15 "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined in accordance with procedures established by the Committee.
2.16 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.17 "INSIDER" shall mean an individual who is subject to Section 16 of the
Exchange Act.
2.18 "NONEMPLOYEE DIRECTOR" means an individual who is a member of the Board
of Directors of the Company but who is not an Employee of the Company.
2.19 "NONQUALIFIED STOCK OPTION" OR "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
A-3
<PAGE>
2.20 "OFFICER" means an Employee of the Company included in the definition
of officer under Section 16 of the Exchange Act and the rules promulgated
thereunder or other Employees designated as Officers by the Board of
Directors.
2.21 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.22 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.23 "PARTICIPANT" means an Employee who has outstanding an Award granted
under the Plan. The term "Participant" shall not include Nonemployee
Directors.
2.24 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.25 "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance objectives, or upon the occurrence of
other events as determined by the Committee, at its discretion), and the
Shares are subject to a substantial risk of forfeiture, as provided in Article
7 herein.
2.26 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.27 "QUALIFIED DOMESTIC RELATIONS ORDER" shall mean a valid and effective
domestic relations order, as determined by the Committee.
2.28 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Article 7 herein.
2.29 "RETIREMENT" shall have the meaning ascribed to such term in the
Company's tax-qualified defined benefit retirement plan.
2.30 "SHARES" means the shares of Common Stock of the Company.
2.31 "SUBSIDIARY" means any corporation, partnership, joint venture or other
entity in which the Company has a majority voting interest, except for J. Ray
McDermott, S.A. and any of its subsidiaries.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Committee, which
Committee shall satisfy the "disinterested administration" provisions of Rule
16b-3 under the Exchange Act, or any successor provision. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors.
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3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees who
shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan; establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 13 herein)
amend the terms and conditions of any outstanding Award to the extent such
terms and conditions are within the discretion of the Committee as provided in
the Plan. Further, the Committee shall make all other determinations which may
be necessary or advisable for the administration of the Plan. As permitted by
law, the Committee may delegate its authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all
persons, including the Company, its stockholders, Employees, Officers,
Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as provided
in Section 4.3 herein, the number of Shares hereby reserved for issuance to
Participants under the Plan shall be two million five hundred thousand
(2,500,000). Additionally, Shares approved pursuant to the 1987 Long-Term
Incentive Compensation Program and the 1992 Officer Stock Incentive Program
which, as of the effective date of this Plan, have not been awarded and Shares
subject to any Award that is canceled, terminates, expires, or lapses for any
reason shall become available for grant under the Plan to the extent permitted
by the rules promulgated under Section 16 of the Exchange Act.
The maximum number of such Shares which may be granted in the form of
Restricted Stock pursuant to Article 7 herein shall be an amount equal to
thirty percent (30%) of the total number of Shares reserved for issuance under
the Plan.
The following rules shall apply to grants of Awards under the Plan:
(a) STOCK OPTIONS: The maximum aggregate number of Shares that may be
granted in the form of Stock Options, pursuant to any Award granted in
any one fiscal year to any single Participant shall be four hundred
thousand (400,000).
(b) RESTRICTED STOCK: The maximum aggregate grant with respect to Awards of
Restricted Stock granted in any one fiscal year to any single
Participant shall be two hundred thousand (200,000) Shares.
(c) INCENTIVE STOCK OPTIONS: The maximum aggregate number of Shares that
may be granted in the form of Incentive Stock Options shall be two
million five hundred thousand (2,500,000) Shares.
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason, any Shares subject to such
Award again shall be available for the grant of an Award under the Plan.
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4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares which may be
delivered under Section 4.1, in the number and class of and/or price of Shares
subject to outstanding Awards granted under the Plan, and in the Award limits
set forth in subsections 4.1(a) and 4.1(b), as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of
Shares subject to any Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include
Officers of the Company. Pursuant to Section 3.2, the Committee shall have
full power to select Officers who shall participate in the Plan.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms,
and at any time and from time to time as shall be determined by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as
the Committee shall determine. The Award Agreement also shall specify whether
the Option is intended to be an ISO within the meaning of Code Section 422, or
an NQSO whose grant is intended not to fall under the provisions of Code
Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option granted to a Participant, shall expire
at such time as the Committee shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions
as the Committee shall in each instance approve, which need not be the same
for each grant or for each Participant.
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6.6 PAYMENT. Options granted under this Article 6 shall be exercised by the
delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company
in full either: (a) in cash or its equivalent, or (b) if permitted in the
governing Award Agreement, by tendering previously acquired Shares having an
aggregate Fair Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered must have been held by the
Participant for at least six (6) months prior to their tender to satisfy the
Option Price), or (c) if permitted in the governing Award Agreement, by a
combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT. Each Participant's Option Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of the Participant's employment with
the Company. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with each
Participant, need not be uniform among all Options issued pursuant to this
Article 6, and may reflect distinctions based on the reasons for termination
of employment.
6.9 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further,
all ISOs granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, by the laws of descent and
distribution, or pursuant to a Qualified
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Domestic Relations Order. Further, except as otherwise provided in a
Participant's Award Agreement, all NQSOs granted to a Participant under
this Article 6 shall be exercisable during his or her lifetime only by
such Participant.
ARTICLE 7. RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
7.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted,
and such other provisions as the Committee shall determine.
7.3 RESTRICTED STOCK PRICE. The price for each Share of Restricted Stock
shall be equal to the par value of a Share of Common Stock of the Company.
Payment of the purchase price shall be required within thirty (30) days of the
date of grant and shall be nonrefundable.
7.4 TRANSFERABILITY. Except as provided in this Article 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Committee and specified in
the Restricted Stock Award Agreement, or upon earlier satisfaction of any
other conditions, as specified by the Committee in its sole discretion and set
forth in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
7.5 OTHER RESTRICTIONS. Subject to Article 9 herein, the Committee shall
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price
for each Share of Restricted Stock, restrictions based upon the achievement of
specific performance objectives (Company-wide, business unit, and/or
individual), time-based restrictions on vesting following the attainment of
the performance objectives, and/or restrictions under applicable federal or
state securities laws.
The Company shall retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
7.6 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
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7.7 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall be
credited with regular cash dividends paid with respect to the underlying
Shares while they are so held. Such dividends may be paid currently, accrued
as contingent cash obligations, or converted into additional shares of
Restricted Stock, upon such terms as the Compensation Committee establishes.
The Committee may apply any restrictions to the dividends that the Committee
deems appropriate. Without limiting the generality of the preceding sentence,
if the grant or vesting of Restricted Shares granted to a Covered Employee is
designed to comply with the requirements of the Performance-Based Exception,
the Committee may apply any restrictions it deems appropriate to the payment
of dividends declared with respect to such Restricted Shares, such that the
dividends and/or the Restricted Shares maintain eligibility for the
Performance-Based Exception.
In the event that any dividend constitutes a "derivative security" or an
"equity security" pursuant to Rule 16(a) under the Exchange Act, such dividend
shall be subject to a vesting period equal to the remaining vesting period of
the Shares of Restricted Stock with respect to which the dividend is paid.
7.8 TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement shall
set forth the extent to which the Participant shall have the right to retain
unvested Restricted Shares following termination of the Participant's
employment with the Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Shares of Restricted
Stock issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination of employment.
ARTICLE 8. PERFORMANCE MEASURES
Unless and until the Committee proposes for shareholder vote and
shareholders approve a change in the general performance measures set forth in
this Article 8, the attainment of which may determine the degree of payout
with respect to Awards to Covered Employees which are designed to qualify for
the Performance-Based Exception, the performance measure(s) to be used for
purposes of such grants shall be chosen from among the following alternatives:
(a) Cash Flow;
(b) Cash Flow Return on Capital;
(c) Cash Flow Return on Assets;
(d) Cash Flow Return on Equity;
(e) Net Income;
(f) Return on Capital;
(g) Return on Assets;
(h) Return on Equity;
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Subject to the terms of the Plan, each of these measures shall be defined by
the Committee on a corporation, group, or division basis or in comparison with
peer group performance, and may include or exclude specified extraordinary
items, as defined by the corporation's auditors.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance objectives; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are held by Covered Employees, may not be adjusted upward
(the Committee shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
ARTICLE 9. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke
all prior designations by the same Participant, shall be in a form prescribed
by the Company, and will be effective only when filed by the Participant in
writing with the Company during the Participant's lifetime. In the absence of
any such designation, benefits remaining unpaid at the Participant's death
shall be paid to the Participant's estate.
ARTICLE 10. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or the lapse or waiver of restrictions with respect to Restricted
Stock. If any such deferral election is required or permitted, the Committee
shall, in its sole discretion, establish rules and procedures for such payment
deferrals.
ARTICLE 11. RIGHTS OF EMPLOYEES
11.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of
the Company.
11.2 PARTICIPATION. No Employee or Officer shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to
be selected to receive a future Award.
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ARTICLE 12. CHANGE IN CONTROL
12.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options granted hereunder shall become immediately
exercisable, and shall remain exercisable throughout their entire term;
and
(b) Any restriction periods and restrictions imposed on Restricted Shares
shall lapse; provided, however, that the degree of vesting associated
with Restricted Stock which has been conditioned upon the achievement
of performance conditions pursuant to Section 7 herein shall be
determined in the manner set forth in Section 12.1(c) herein.
(c) The vesting of Restricted Stock which has been conditioned upon the
achievement of performance conditions pursuant to Section 7.5 herein
shall be accelerated as of the effective date of the Change in Control,
and there shall be paid out in cash to Participants within thirty (30)
days following the effective date of the Change in Control a pro rata
amount based upon an assumed achievement of relevant performance
objectives at target levels, and upon the length of time within the
Performance Period which has elapsed prior to the Change in Control;
provided, however, that in the event the Committee determines that
actual performance to the date of the Change in Control exceeds
targeted levels, the prorated payouts shall be made at levels
commensurate with such actual performance (determined by extrapolating
such actual performance to the end of the Performance Period), based
upon the length of time within the Performance Period which has elapsed
prior to the Change in Control; and provided further, that there shall
not be an accelerated payout with respect to Awards which qualify as
"derivative securities" under Section 16 of the Exchange Act which were
granted less than six (6) months prior to the effective date of the
Change in Control.
12.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 12 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior
written consent of the Participant with respect to said Participant's
outstanding Awards.
ARTICLE 13. AMENDMENT, MODIFICATION, AND TERMINATION
13.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 13.2
herein, the Board may at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part; provided, however, that no
amendment shall be made without shareholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for
these purposes any approval requirement which is a prerequisite for exemptive
relief under Section 16(b) of the Exchange Act, with which the Committee has
determined it is necessary or desirable to have the Company comply.
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The Committee shall not have the authority to cancel outstanding Awards and
issue substitute Awards in replacement thereof.
13.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. Subject to the restriction set forth in Article 8 herein
on the exercise of upward discretion with respect to Awards which have been
designed to comply with the Performance-Based Exception, the Committee may
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4.3 hereof) affecting the Company
or the financial statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan.
13.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.
13.4 COMPLIANCE WITH CODE SECTION 162(M). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes
are made to Code Section 162(m) to permit greater flexibility with respect to
any Award or Awards available under the Plan, the Committee may, subject to
this Article 13, make any adjustments it deems appropriate.
ARTICLE 14. WITHHOLDING
14.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan.
14.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or upon the lapse of restrictions on Restricted Stock, or
upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be withheld on
the transaction. All such elections shall be irrevocable, made in writing,
signed by the Participant, and shall be subject to any restrictions or
limitations that the Committee, in its sole discretion, deems appropriate.
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ARTICLE 15. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him or her in settlement
thereof, with the Company's approval, or paid by him or her in satisfaction of
any judgement in any such action, suit, or proceeding against him or her,
provided he or she shall give the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which such persons may
be entitled under the Company's Articles of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
ARTICLE 16. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, of
all or substantially all of the business and/or assets of the Company, or a
merger, consolidation, or otherwise.
ARTICLE 17. LEGAL CONSTRUCTION
17.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
17.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
17.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
17.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3
or its successors under the Exchange Act. To the extent any provision of the
plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
Committee.
17.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Louisiana.
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MCDERMOTT INTERNATIONAL, INC.
THRIFT PLAN FOR EMPLOYEES OF MCDERMOTT INCORPORATED
AND PARTICIPATING SUBSIDIARY AND AFFILIATED COMPANIES
July 2, 1996
To those individuals ("Plan Participants") who have an interest in McDermott
International, Inc. Common Stock, par value $1.00 per share (the "Common
Stock"), under the Thrift Plan for Employees of McDermott Incorporated and
Participating Subsidiary and Affiliated Companies (the "Thrift Plan"):
We would like to give Plan Participants having an interest in shares of
Common Stock through the Thrift Plan the right to instruct the Trustee how to
vote the shares of Common Stock representing their interest in the Thrift
Plan.
In order that you may have the same information as a stockholder outside the
Thrift Plan, we have enclosed a copy of the Notice of McDermott International,
Inc.'s Annual Meeting of Stockholders and the related Proxy Statement. This
information is being mailed to all stockholders of record as of June 27, 1996.
This material is for your information only and need not be returned.
Also enclosed is a voting instruction form with which you may instruct the
Trustee how to vote your interest in shares of Common Stock in the Thrift
Plan. Please return this voting instruction form in the envelope provided as
soon as possible.
If the trustee does not receive your instructions by August 6, 1996, the
Trustee will vote your interest, in its discretion, in a manner consistent
with its fiduciary responsibility.
This letter and the enclosed material relate only to your interest in shares
of Common Stock under the Thrift Plan. It has no reference to other shares of
Common Stock which you may own. If you own other shares of Common Stock, you
will receive proxy materials in a separate mailing, which should be returned
in the envelope provided for that purpose.
Very truly yours,
R. E. Howson
Chairman of the Board and
Chief Executive Officer
<PAGE>
IMPORTANT--PLEASE MARK APPROPRIATE BOXES ONLY IN BLUE OR BLACK INK AS SHOWN:
1. Election of Theodore H. Black, John F. Bookout, J. Howard Macdonald and
William McCollam, Jr. as Class II Directors.
. FOR . WITHHOLD AUTHORITY
all nominees from all nominees
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
. ______________________________________
2. Approving the Company's 1996 Officer Long-Term Incentive Plan (the Directors
favor a vote "FOR").
FOR AGAINST ABSTAIN
. . .
3. The retention of Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending March 31, 1997 (the Directors favor a vote "FOR").
4. Upon such other matters as may properly come before the meeting.
(Signature(s) should agree with name(s) on stock certificates as specified
hereon. Executors, administrators, trustees, etc., should indicate when
signing).
Signature _______________________________ Date ________________________
<PAGE>
MCDERMOTT INTERNATIONAL, INC. SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of McDermott International Inc., a Panama
corporation, hereby appoint S.W. Murphy and R. E. Woolbert, and each of them,
attorneys, agents and proxies of the undersigned, with full power of
substitution to each of them to vote all the shares of Common Stock which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of the
Company for the fiscal year ended March 31, 1996 to be held in the Versailles
Ballroom of the New Orleans Hilton Riverside, Poydras at Mississippi River, New
Orleans, Louisiana, on Tuesday, August 6, 1996, at 9:30 a.m. local time and at
any adjournment(s) of such meeting, with all powers which the undersigned would
possess if personally present.
PLEASE MARK, SIGN AND DATE THE
REVERSE SIDE OF THIS PROXY CARD
AND PROMPTLY RETURN IT IN THE
ENCLOSED ENVELOPE.
The undersigned acknowledges
receipt of the Annual Report for
the fiscal year ended March 31, 1996
and the Notice of Annual Meeting of
Stockholders and Proxy Statement of
the Company for the above-mentioned
Annual Meeting of Stockholders.
Every properly signed Proxy will be voted in accordance with the specifications
made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS AND IN THE MANNER FAVORED BY THE DIRECTORS AS INDICATED ON
THE REVERSE SIDE.
(over)
