<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 Section 240.14a-11(c) or Section 240.14a-12
McDermott International, Inc.
- --------------------------------------------------------------------------------
(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] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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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. Tetrault 1450 Poydras Street
Chairman of the Board and P.O. Box 61961
Chief Executive Officer New Orleans, Louisiana,
70161-1961
(504) 587-5682
July 28, 1997
Dear Stockholder:
You are cordially invited to the Company's Annual Meeting of Stockholders to
be held on Tuesday, September 2, 1997, in Regency Ballrooms F, G and H, 3rd
floor, of the Hyatt Regency New Orleans, Poydras at Loyola, 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.
Sincerely yours,
/s/ ROGER E. TETRAULT
R. E. TETRAULT
<PAGE>
MCDERMOTT INTERNATIONAL, INC.
1450 POYDRAS STREET
P.O. BOX 61961
NEW ORLEANS, LOUISIANA 70161-1961
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 2, 1997
----------------
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, 1997 will be held in Regency Ballrooms F, G & H,
3rd floor, of the Hyatt Regency New Orleans, Poydras at Loyola, New Orleans,
Louisiana, on Tuesday, September 2, 1997, at 9:30 a.m. local time, for the
following purposes:
(1) To elect four Directors;
(2) To approve the Company's 1997 Director Stock Program;
(3) To approve Amendments to the Company's 1996 Officer Long-Term
Incentive Plan;
(4) To retain Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending March 31, 1998; and
(5) 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 July 24, 1997 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/ S. WAYNE MURPHY
S. WAYNE MURPHY
Secretary
Dated: July 28, 1997
<PAGE>
MCDERMOTT INTERNATIONAL, INC.
1450 POYDRAS STREET
P. O. BOX 61961
NEW ORLEANS, LOUISIANA 70161-1961
----------------
PROXY STATEMENT FOR ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 2, 1997
----------------
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 28, 1997.
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 July 24, 1997 (the "Record
Date"), will be entitled to notice of, and to vote at, the Annual Meeting.
There were 55,528,890 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.
The presence in person or by proxy of a majority of the outstanding shares
of Common Stock 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 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 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 1997 Director Stock Program, (iii) the approval of Amendments to
the Company's 1996 Officer Long-Term Incentive Plan, and (iv) the retention of
Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending March 31, 1998.
<PAGE>
ANNUAL REPORT
Securities and Exchange Commission ("SEC") rules require that an annual
report precede or accompany proxy materials. More than one annual report need
not be sent to the same address if the recipient agrees. If more than one
annual report is being sent to your address, the mailing of duplicate copies
will be discontinued if you so request. You may so indicate by marking the
appropriate box on the Proxy for any account for which you do not wish to
receive an annual report.
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 term of office of the Company's Class III Directors, Robert L. Howard,
Roger E. Tetrault, John N. Turner and Richard E. Woolbert, will expire at this
year's Annual Meeting. Messrs. Howard, Tetrault and Woolbert (together with
Bruce DeMars) were elected Directors by the Company's Board to fill vacancies
resulting from resignations or retirements since last year's Annual Meeting.
Upon the nomination of the Board of Directors at its meeting on June 6, 1997,
Messrs. Howard, Tetrault and Turner are standing for reelection as Class III
Directors and Mr. Woolbert is standing for reelection as a Class II Director
at this year's Annual Meeting. If elected, each of Messrs. Howard, Tetrault
and Turner, as Class III nominees, will hold office until the Company's Annual
Meeting in 2000 and until his successor is elected and qualified. If elected,
Mr. Woolbert, as a Class II nominee, will hold office until the Company's
Annual Meeting in 1999 and until his successor is elected and qualified.
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 II 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
II Directors will continue to serve until the Company's Annual Meeting of
Stockholders in 1999. All Directors have been elected previously as Directors
by the stockholders or are standing for election as Directors at this year's
Annual Meeting, other than Mr. DeMars whose term as a Class I Director will
expire at the Company's Annual Meeting in 1998.
2
<PAGE>
Set forth below is certain information (ages as of September 2, 1997) 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 III NOMINEES
<S> <C> <C>
Robert L. Howard................................................. 61 1997
Until his retirement in March 1995, he was Vice President
Domestic Operations, Exploration and Production, of Shell Oil
Company ("Shell Oil") and President of Shell Western Exploration
and Production Inc., a Shell Oil subsidiary, from 1992, and
President of Shell Offshore Inc., another Shell Oil subsidiary,
from 1985. He is also a director of Camco International, Inc.,
Southwest Energy Company and United Meridian Corporation.
Roger E. Tetrault................................................ 55 1997
Chairman of the Board since June 1, 1997 and Chief Executive
Officer since March 1, 1997 of the Company, McDermott and J. Ray
McDermott, S.A., a publicly traded subsidiary of the Company
("J. Ray McDermott"). Prior thereto, Mr. Tetrault was a Senior
Vice President of General Dynamics Corporation (a supplier of
weapons systems and services to the U.S. government and its
allies) and President of its Land Systems Division from April
1993; Vice President of General Dynamics Corporation and
President of its Electric Boat Division from August 1992 until
April 1993; Vice President and General Manager of General
Dynamics Corporation's Electric Boat Division from August 1991
until August 1992; and prior to that, he served as a Vice
President and Group Executive of the Company's subsidiary The
Babcock & Wilcox Company since 1990. He is also a director of
Handy & Harman.
John N. Turner................................................... 68 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.
CLASS II NOMINEE
Richard E. Woolbert.............................................. 63 1996
Executive Vice President and Chief Administrative Officer of the
Company and McDermott since February 1995 and the Company's
Compliance Director since June 1997. 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.
CLASS I DIRECTORS
Philip J. Burguieres............................................. 53 1990
A director of Weatherford Enterra, Inc. (a diversified interna-
tional energy services and manufacturing company), and its
Chairman of the Board since December 1992. From April 1991 to
October 1996, he also served as Weatherford Enterra, Inc.'s
President and Chief Executive Officer. He is also a director of
Texas Commerce Bank, TransAmerican Waste Industries, Inc. and
Drilex International, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- ----------------------------- --- --------
<S> <C> <C>
Bruce DeMars..................................................... 62 1997
Admiral, United States Navy (retired). From 1988 until his re-
tirement in October 1996, he was Director, Naval Nuclear Propul-
sion, a joint Department of the Navy/Department of Energy pro-
gram responsible for the design, construction, maintenance, op-
eration and final disposal of reactor plants for the United
States Navy. He is also a director of Unicom Corporation, Com-
monwealth Edison Corporation and Draper Laboratories.
John W. Johnstone, Jr. .......................................... 64 1995
A director and Chairman of the 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. He is also a director of American Brands,
Inc., Phoenix Home Mutual Life Insurance Company and Research
Corporation Technologies, Inc.
CLASS II DIRECTORS
Theodore H. Black................................................ 68 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.
William McCollam, Jr. ........................................... 72 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.
</TABLE>
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 &
Governance Committee and a Compensation Committee.
Audit Committee. The Audit Committee is currently composed of Messrs.
McCollam (Chairman), Black, Burguieres, Howard and Turner. During the
Company's fiscal year ended March 31, 1997 ("fiscal year 1997"), the Audit
Committee met twice. The functions of the Audit Committee include (i)
reviewing the accounting principles and practices employed by the Company and,
to the extent the Audit Committee deems appropriate, by the Company's
subsidiaries; (ii) 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; (iii) approving professional services, including non-
audit services, rendered by such independent auditors; and (iv) recommending
annually to the Board of Directors the appointment of the Company's
independent auditors.
Directors Nominating & Governance Committee. The Directors Nominating &
Governance Committee is currently composed of Messrs. Burguieres (Chairman),
Black, Johnstone, McCollam and Turner. During fiscal year 1997, the Directors
Nominating & Governance Committee met once. The function of such committee is
to recommend to the Company's Board of Directors (i) for approval and
adoption, the qualifications, term limits and nomination and election
procedures relating to the Company's directors, and (ii) nominees for election
to the Company's Board of Directors. The committee will also 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.
4
<PAGE>
Compensation Committee. The Compensation Committee is currently composed of
Messrs. Black (Chairman), Burguieres, DeMars, Howard and Johnstone. During
fiscal year 1997, the Compensation Committee met six times. The Compensation
Committee (i) 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; (ii)
administers and makes awards under the Company's stock, incentive compensation
and supplemental compensation plans and programs, including the Company's
Restated 1996 Officer Long-Term Incentive Plan, amendments to which are
proposed for stockholder approval at this year's Annual Meeting; and (iii)
monitors and makes recommendations with respect to the Company's and its
subsidiaries' various employee benefit plans, such as retirement and pension
plans, thrift plans, health and medical plans, and life, accident and
disability insurance plans.
DIRECTORS' ATTENDANCE AND COMPENSATION
Directors' Attendance and Fees. During fiscal year 1997, there were six
meetings of the Board of Directors of the Company. Each incumbent Director
attended 75% or more of the aggregate number of meetings of the Board and of
the committees on which he served, other than Mr. Burguieres. No Director who
is also an employee of the Company or any of its subsidiaries receives any
fees from the Company for his services as a Director or as a member of any
committee of the Board. All other Directors receive 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.
Additionally, 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. Furthermore, the Chairman of each of the Compensation Committee, the
Directors Nominating & Governance 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. Each committee member also receives a fee of
$1,650 for each committee meeting attended and a fee of $1,000 for each
telephonic committee meeting in which such Director participates.
Retirement Plan and Health Care. The Company maintains an unfunded
retirement plan for Directors who are not employees of the Company or any of
its subsidiaries. Generally, each such Director becomes a participant under
The Retirement Plan for Non-Management Directors of McDermott International,
Inc. after five years of service. Under such plan, each non-employee Director,
upon mandatory retirement from the Board, or earlier if approved by the
Company's Administrative Committee, receives 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 such Director
immediately preceding the last annual meeting held prior to such 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
Administrative 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
5
<PAGE>
granted rights to purchase 450, 150 and 150 restricted 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 transfer 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 will lapse and the exercisability of any outstanding
options will be accelerated.
During fiscal year 1997, options to acquire 5,400 shares of Common Stock and
2,700 shares of restricted stock were granted under the 1992 Director Stock
Program. Stockholder approval of the Company's 1997 Director Stock Program,
which will replace the 1992 Director Stock Program, is being sought at this
year's Annual Meeting. See "APPROVAL OF THE COMPANY'S 1997 DIRECTOR STOCK
PROGRAM".
6
<PAGE>
EXECUTIVE OFFICERS
Set forth below is the age (as of September 2, 1997), 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.
Daniel. R. Gaubert, 48, Senior Vice President and Chief Financial Officer of
the Company and McDermott since February 1997, prior to which, he was Vice
President and Chief Financial Officer of the Company and McDermott from
September 1996. He has also been Vice President, Finance of J. Ray McDermott
since August 1995. Prior to assuming these positions, he was Vice President,
Finance and Controller of the Company and McDermott from February 1995; Vice
President and Controller of the Company and McDermott from February 1992; and
prior thereto, Corporate Controller of the Company and McDermott from July
1991.
S. Wayne Murphy, 62, Senior Vice President, General Counsel and Corporate
Secretary of the Company and McDermott since February 1997. Before assuming
this position, he was Vice President, General Counsel and Corporate Secretary
of the Company from June 1996; Acting General Counsel and Acting Corporate
Secretary of the Company from February 1996; Associate General Counsel of the
Company from August 1993; and prior thereto, an Assistant General Counsel of
the Company from 1991. He has also been Acting General Counsel and Acting
Corporate Secretary of J. Ray McDermott since February 1996.
Robert H. Rawle, 49, President and Chief Operating Officer of J. Ray
McDermott since January 1997. Before assuming his present position, Mr. Rawle
was Vice President and Group Executive of J. Ray McDermott's North, Central
and South American Operations from January 1996; Vice President, Domestic
Operations, of J. Ray McDermott from January 1995; Vice President of the
Domestic Operations of the Company's Marine Construction Services Division
from 1993; and prior thereto, Division Manager of its Southeast Asia
Operations from 1992. Mr. Rawle is also a director of J. Ray McDermott.
Joe J. Stewart, 59, Executive Vice President of the Company since February
1995 and President of BWX Technologies, Inc. (formerly the Company's Babcock &
Wilcox Government Group operations) since July 1, 1997. Mr. Stewart has also
been President, Government Group, of Babcock & Wilcox Investment Company and
The Babcock & Wilcox Company since February 1995; prior to which, he was
President and Chief Operating Officer of Babcock & Wilcox Investment Company
and The Babcock & Wilcox Company from February 1993 and 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., 54, Senior Vice President and Chief Technical Officer
of the Company and McDermott since February 1993. Also Senior Vice President
and Group Executive, Industrial Group, of McDermott since September 1996,
prior to which, he was Senior Vice President and Group Executive, Shipbuilding
and Industrial Group, of McDermott from August 1995. 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.
James F. Wood, 55, Executive Vice President of the Company and President,
Power Generation Group, of Babcock & Wilcox Investment Company and The Babcock
& Wilcox Company since October 1996, prior to which, he was Vice President and
General Manager, Global Ventures and Power, Power Generation Group, of such
companies from June 1996. Prior to joining the Company, he was President of
WTI International Energy Inc. ("WTI"), a subsidiary of Wheelabrator
Technologies, Inc., from June 1993 to December 1996 and Senior Vice President
and General Manager of Wheelabrator Environmental Systems, Inc. from May 1993
to December 1995. From 1988 to April 1993, he was Vice President of Plant
Operations of WTI. Prior to then, he worked for the Company's subsidiary The
Babcock & Wilcox Company for 24 years in various supervisory and managerial
capacities.
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 6,
1997, except as otherwise noted.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OWNED
- ---- ------------
<S> <C>
Theodore H. Black(1)............................................... 8,675
Philip J. Burguieres(2)............................................ 16,275
Bruce DeMars....................................................... 0
James L. Dutt(3)................................................... 105,750
Daniel R. Gaubert(4)............................................... 43,459
Robert L. Howard................................................... 0
Robert E. Howson(5)................................................ 500,950
John W. Johnstone, Jr.(6).......................................... 1,800
William McCollam, Jr.(7)........................................... 6,725
Joe J. Stewart(8).................................................. 179,072
Roger E. Tetrault(9)............................................... 20,988
John N. Turner(10)................................................. 2,775
E. Allen Womack(11)................................................ 88,782
Richard E. Woolbert(12)............................................ 148,878
All Directors and executive officers as a group (17 persons)....... 1,158,728
</TABLE>
- --------
(1) Includes 2,450 shares of Common Stock that may be acquired within 60 days
of June 6, 1997 upon the exercise of stock options, and 450 restricted
shares of Common Stock as to which Mr. Black has sole voting power but no
dispositive power.
(2) Includes 2,850 shares of Common Stock that may be acquired within 60 days
of June 6, 1997 upon the exercise of stock options, and 600 restricted
shares of Common Stock as to which Mr. Burguieres has sole voting power
but no dispositive power.
(3) Includes 103,150 shares of Common Stock that may be acquired within 60
days of June 6, 1997 upon the exercise of stock options. Mr. Dutt retired
as the Company's Interim Chairman of the Board effective June 1, 1997.
(4) Includes 28,324 shares of Common Stock that may be acquired within 60
days of June 6, 1997 upon the exercise of stock options, and 13,170
restricted shares of Common Stock as to which Mr. Gaubert has sole voting
power but no dispositive power. Also includes 680 shares of Common Stock
held in The Thrift Plan for Employees of McDermott Incorporated and
Participating Subsidiary and Affiliated Companies (the "McDermott Thrift
Plan") as of March 31, 1997.
(5) Includes 439,450 shares of Common Stock that may be acquired within 60
days of June 6, 1997 upon the exercise of stock options, and 50,000
restricted shares of Common Stock as to which Mr. Howson has sole voting
power but no dispositive power. Mr. Howson resigned as the Company's
Chairman of the Board and Chief Executive Officer effective September 1,
1996.
(6) Includes 1,200 shares of Common Stock that may be acquired within 60 days
of June 6, 1997 upon the exercise of stock options, and 600 restricted
shares of Common Stock as to which Mr. Johnstone has sole voting power
but no dispositive power.
(7) Includes 3,150 shares of Common Stock that may be acquired within 60 days
of June 6, 1997 upon the exercise of stock options, and 450 restricted
shares of Common Stock as to which Mr. McCollam has sole voting power but
no dispositive power.
(8) Includes 113,722 shares of Common Stock that may be acquired within 60
days of June 6, 1997 upon the exercise of stock options, and 53,235
restricted shares of Common Stock as to which Mr. Stewart has sole voting
power but no dispositive power. Also includes 1,335 shares of Common
Stock held in the McDermott Thrift Plan as of March 31, 1997.
8
<PAGE>
(9) Includes 18,900 restricted shares of Common Stock, as to which Mr.
Tetrault has sole voting power but no dispositive power. Also includes 63
shares of Common Stock held in the McDermott Thrift Plan as of March 31,
1997.
(10) Includes 1,850 shares of Common Stock that may be acquired within 60 days
of June 6, 1997 upon the exercise of stock options, and 750 restricted
shares of Common Stock as to which Mr. Turner has sole voting power but
no dispositive power.
(11) Includes 50,195 shares of Common Stock that may be acquired within 60
days of June 6, 1997 upon the exercise of stock options, and 27,625
restricted shares of Common Stock as to which Mr. Womack has sole voting
power but no dispositive power. Also includes 1,750 shares of Common
Stock held in the McDermott Thrift Plan as of March 31, 1997.
(12) Includes 95,185 shares of Common Stock that may be acquired within 60
days of June 6, 1997 upon the exercise of stock options, and 37,350
restricted shares of Common Stock as to which Mr. Woolbert has sole
voting power but no dispositive power. Also includes 1,423 shares of
Common Stock held in the McDermott Thrift Plan as of March 31, 1997.
As of June 6, 1997, (i) Mr. Womack beneficially owned 4 shares of each
McDermott's Series A $2.20 Cumulative Convertible Preferred Stock ("McDermott
Series A") and McDermott's Series B $2.60 Cumulative Preferred Stock
("McDermott Series B"), and (ii) Mr. Woolbert beneficially owned, through the
McDermott Thrift Plan, the equivalent of 171 shares of McDermott Series A and
164.673 shares of McDermott Series B. As of such date, such shares constituted
all shares of such stock beneficially owned by all Directors and executive
officers as a group.
As of June 6, 1997, Messrs. Dutt, Gaubert, Howson, Tetrault and Woolbert
also beneficially owned 25,000, 2,682, 71,420, 12,100 and 8,322 shares,
respectively, of J. Ray McDermott's Common Stock, $.01 par value per share
("JRM Common Stock"). With respect to the shares of JRM Common Stock
beneficially owned by Messrs. Dutt, Gaubert, Howson and Woolbert, 25,000, 642,
56,330 and 3,872 shares, respectively, may be acquired within 60 days of June
6, 1997 upon the exercise of stock options, and with respect to Messrs.
Gaubert, Tetrault and Woolbert, 2,040, 8,100, 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 132,618 shares of JRM Common
Stock.
Shares beneficially owned in all cases constituted less than one percent of
the outstanding shares of the applicable security, except that the 1,158,728
shares of Common Stock beneficially owned by all Directors and executive
officers as a group constituted approximately 2.0% of the outstanding Common
Stock on June 6, 1997 less shares held by McDermott, 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 BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS(1)
- -------------- ------------------------------ ---------- -----------
<S> <C> <C> <C>
Common Stock...... Soros Fund Management LLC 5,856,500(2) 10.1%
George Soros
Stanley F. Druckenmiller
888 Seventh Avenue, 33rd Floor
New York, NY 10106
Duquesne Capital Management, L.L.C.
2579 Washington Road, Suite 322
Pittsburgh, PA 15241-2591
Common Stock...... FMR Corp. 5,848,090(3) 10.1%
82 Devonshire Street
Boston, MA 02109-3614
Common Stock...... The Prudential Insurance Company 5,696,212(4) 9.8%
of America
Newark, NJ 07102-3777
Common Stock...... Norwest Corporation 3,836,164(5) 6.6%
Sixth and Marquette
Minneapolis, MN 55479-1026
</TABLE>
- --------
(1) Percent of class based upon the outstanding shares of Common Stock on June
6, 1997, less shares held by McDermott Incorporated, plus those shares
deemed to be outstanding pursuant to Rule 13d-3(d)(1) under the Exchange
Act.
(2) As reported on a Schedule 13D (Amendment No. 2) dated May 6, 1997.
According to such filing, (a) Soros Fund Management LLC ("SFM") is managed
by a management committee comprised of, among others, George Soros and
Stanley Druckenmiller, and Mr. Soros is the Chairman and Mr. Druckenmiller
is the Lead Portfolio Manager of SFM; (b) SFM has sole voting and
dispositive power over 5,228,100 shares of Common Stock, which shares are
held for the account of Quantam Partners LDC ("Quantam"); (c) Mr. Soros
has shared voting and dispositive power over the same 5,228,100 shares by
virtue of his positions with SFM and its arrangement with Quantam; (d)
Duquesne Capital Management, L.L.C. ("DCM") has sole voting and
dispositive power over 628,400 shares of Common Stock, which shares are
held for the account of DCM's clients; (e) Mr. Druckenmiller is also the
sole managing member of DCM; and (f) Mr. Druckenmiller has shared voting
and dispositive power over the 5,228,100 shares held by SFM by virtue of
his positions with SFM and its arrangement with Quantam, and sole voting
and dispositive power over the 628,400 shares held by DCM by virtue of his
position with DCM and its arrangement with its clients.
(3) As reported on a Schedule 13G (Amendment No. 6) dated March 7, 1997. Such
filing indicates that 5,810,090 shares are beneficially owned through two
wholly-owned subsidiaries of FMR Corp. While FMR Corp. has sole
dispositive power over all 5,810,090 shares, it has sole voting power over
216,663 shares and no voting power over 5,593,427 shares. Such filing also
indicates that Edward C. Johnson 3d, Chairman of FMR Corp., and Abigail P.
Johnson, a director of FMR Corp., together with other family members, may
be deemed to beneficially own the same shares. The filing also includes
38,000 shares owned directly by Mr. Johnson or trusts for his or his
family members' benefit.
10
<PAGE>
(4) As reported on a Schedule 13G (Amendment No. 2) dated March 10, 1997. Such
filing indicates that Prudential Insurance Company of America may have
shared voting and dispositive power over these shares, which are held for
the benefit of its clients through various accounts, registered investment
companies, subsidiaries and affiliates. Of the shares reported, 249,568
shares are attributable to preferred stock convertible into Common Stock
at a ratio of 1:1.
(5) As reported on a Schedule 13G (Amendment No. 7) dated January 23, 1997.
Such filing indicates that of the total shares reported, (a) Norwest
Corporation has sole voting power over 3,385,662 shares, shared voting
power over 3,725 shares, sole dispositive power over 3,822,621 shares and
shared dispositive power over 1,944 shares, (b) Norwest Bank Colorado,
National Association, may be deemed to beneficially own 3,799,424 shares,
and (c) 451 shares are issuable upon the conversion of preferred stock
into Common Stock.
11
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS
As of the date of this report, the Compensation Committee is comprised of
three independent, nonemployee 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; and
. Evaluation of executive performance.
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; and
. 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, supplemental cash incentives, long-term
incentives (stock options and restricted stock), and benefits.
Each of these components is reviewed by the Compensation Committee as
previously described. To ensure the Company's pay is comparable to median
market practices, competitive market data is collected from multiple external
sources. The data is collected both on an industry-specific basis and an
overall industrial basis. The industry-specific comparison is collected using
a group of companies which 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. These comparator groups,
however, are not identical because the market data used by the Company is much
more broad-based than the companies included in the performance graph peer
group. This market information, which is reviewed annually by the Compensation
Committee, is used for assessing all components of 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). The Compensation Committee uses a combination of the results of the
12
<PAGE>
performance-based compensation determiners (mathematical formulas) and
discretion, depending on the particular component involved.
Each component 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 the market practice, with annual adjustments based upon
performance. When making annual adjustments, a qualitative assessment of
performance is conducted, which considers many factors including individual
performance, both past and present. The factors used in making this evaluation
may vary by position.
During fiscal year 1997, three different individuals served as the Company's
Chief Executive Officer.
Robert E. Howson, who had been the Company's Chairman and Chief Executive
Officer for eight years, retired effective September 1, 1996. He did not
receive a salary increase in fiscal year 1997. For the five months during
fiscal year 1997 that he was Chairman and Chief Executive Officer, Mr. Howson
received a salary of $390,775. Under the terms of an 1994 employment agreement
between Mr. Howson and the Company, as confirmed by a severance agreement
between the parties upon his retirement, Mr. Howson will continue to receive
his annual base salary through August 31, 1998. See "Employment and Severance
Agreements--Howson Agreements".
Effective September 1, 1996, James L. Dutt was named interim Chairman and
Chief Executive Officer of the Company. He served as the Company's Chief
Executive Officer through February 28, 1997, and effective March 1, 1997,
Roger E. Tetrault was named Vice Chairman and Chief Executive Officer of the
Company. Mr. Dutt continued as Chairman of the Board until June 1, 1997, at
which time, Mr. Tetrault also became the Company's Chairman of the Board.
In connection with his election as interim Chairman of the Board and Chief
Executive Officer, the Company and Mr. Dutt entered into an employment
agreement pursuant to which the Company agreed to pay Mr. Dutt a base salary
of $100,000 per month for six months and $50,000 per month thereafter, subject
to a minimum total payment of $900,000. See "Employment and Severance
Agreements--Dutt Agreements". Pursuant to such agreement, Mr. Dutt received a
salary of $693,864 as the Company's Chairman and Chief Executive Officer
during fiscal year 1997. During fiscal year 1997, he also received Director's
retainer and meeting fees of $64,750 for his services as a non-management
Director of the Company prior to becoming Chairman and Chief Executive
Officer.
Upon joining the Company on March 1, 1997, Mr. Tetrault's base salary was
established at $540,000 annually. See "Employment and Severance Agreements--
Tetrault Agreement". Thus, for the one month period during fiscal year 1997
that he was the Company's Chief Executive Officer, Mr. Tetrault received a
salary of $45,000. The Compensation Committee purposely set his base salary
substantially lower than the median base salary for comparable Chief Executive
Officer positions. The balance of Mr. Tetrault's total compensation is placed
"at risk" through incentives discussed below in this report.
Other executives' base pay increased in recognition of the factors
previously described.
SUPPLEMENTAL COMPENSATION
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, which was submitted to, and
received the approval of, the Company's stockholders. Payments under the plan
are
13
<PAGE>
intended to comply with the deductibility requirements set forth under Section
162(m) of the Internal Revenue Code of 1986.
For fiscal year 1997, the plan was tied to net income return on capital
rather than cash flow return on capital as in the prior year. The plan is
formula driven and self-funded, based on a minimum level of financial
performance to be achieved each year (8.5% net income return on capital for
the Company's corporate staff, including the Chief Executive Officer, for
fiscal year 1997). 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 a group of similar
companies. The Chief Executive Officer has a bonus target of 70% of base
salary. 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 financial performance is reached. Financial
performance at the minimum level results in bonuses of one-half the targeted
amounts. If the minimum level of financial performance is exceeded, bonus
payments are increased. Bonus awards are considered when the Compensation
Committee reviews the Company's financial performance after the close of the
fiscal year.
No bonus payments for fiscal year 1997 under this plan were paid to Messrs.
Howson, Dutt or Tetrault because the Company did not achieve the threshold
target of 8.5% net income return on capital. However, certain business units
of the Company did achieve their threshold targets and bonuses were paid to
executives of those units. Bonuses paid were generally smaller than bonuses
paid in the prior fiscal year.
In connection with his election as the Company's Vice Chairman and Chief
Executive Officer, the Company agreed to pay Mr. Tetrault a bonus of $336,000
in June 1997. The bonus was paid to compensate Mr. Tetrault for the bonus he
would have received from his former employer had he remained employed there.
See "Employment and Severance Agreements--Tetrault Agreement". Moreover, in
connection with Mr. Dutt's retirement as the Company's Chairman effective June
1, 1997, he received a performance bonus of $350,000. See "Employment and
Severance Agreements--Dutt Agreements".
LONG-TERM INCENTIVES
The 1996 Officer Long-Term Incentive Program provides executives with long-
term, equity-based opportunities to earn additional compensation based upon
performance. Use of such long-term incentives focuses management on the long-
term interests of stockholders.
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. Under the plan, 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.
Mr. Howson did not receive a grant of stock options for fiscal year 1997.
In connection with his election as the Company's interim Chairman and Chief
Executive Officer, Mr. Dutt was granted options to acquire 100,000 shares of
Common Stock at an exercise price of $21.50 per share. The
14
<PAGE>
number of options granted approximated the number of options that the
Company's Chairman and Chief Executive Officer would have received under the
Company's 1996 Officer Long-Term Incentive Plan for fiscal year 1997. Mr. Dutt
was also granted options to acquire 25,000 shares of JRM Common Stock at an
exercise price of $25.00 per share in recognition of the service that he would
provide as Chairman and Chief Executive Officer of J. Ray McDermott. As a non-
management Director of the Company, and prior to his becoming Chairman and
Chief Executive Officer, Mr. Dutt also received a grant of options to acquire
300 shares of Common Stock at an exercise price of $19.5625 per share in
accordance with the Company's 1992 Director Stock Program. See "Directors'
Attendance and Compensation--Director Stock Program".
In connection with his election as the Company's Vice Chairman of the Board
and Chief Executive Officer, Mr. Tetrault received a grant of options to
acquire 314,240 shares of Common Stock at an exercise price of $22.125 per
share. He also received a grant of options to acquire 108,100 shares of JRM
Common Stock at an exercise price of $23.375 per share in recognition of the
services that he would provide as Vice Chairman and Chief Executive Officer of
J. Ray McDermott. As discussed above, the base salary component of Mr.
Tetrault's total compensation is lower than the median for comparable Chief
Executive Officer positions. Instead, the Compensation Committee increased the
number of options granted so as to heavily weight the "at risk" component of
Mr. Tetrault's total compensation. See "Employment and Severance Agreements--
Tetrault Agreement".
Restricted Stock. Restricted stock is also awarded to certain executives to
reinforce the importance of stock ownership and to focus executives on
creating stockholder value. Restricted stock awards through fiscal year 1997
were based upon Company performance at or above a threshold target. At the
start of fiscal year 1997, the Compensation Committee established the
threshold target at 8.5% net income return on capital (the same threshold
target required under the Company's cash bonus plan), rather than the cash
flow return on capital measure used in prior years. After the close of the
fiscal year, the Compensation Committee reviews the Company's financial
performance to determine if restricted stock awards under The 1996 Officer
Long-Term Incentive Plan have been earned.
For fiscal year 1997, no officers of the Company, including Messrs. Howson
or Dutt, received restricted stock awards under the 1996 Officer Long-Term
Incentive Plan because the Company did not achieve its threshold target net
income return on capital. However, as a non-management Director of the
Company, and prior to becoming Chairman and Chief Executive Officer, Mr. Dutt
received a grant of 150 restricted shares of Common Stock for which he was
required to pay $1.00 per share in accordance with the 1992 Director Stock
Program. See "Directors' Attendance and Compensation--Director Stock Program".
Moreover, in connection with his election as the Company's Vice Chairman and
Chief Executive Officer, Mr. Tetrault received a grant of 18,900 restricted
shares of Common Stock for which he was required to pay $1.00 per share.
Additionally, Mr. Tetrault was granted 8,100 restricted shares of JRM Common
Stock in his capacity as J. Ray McDermott's Vice Chairman and Chief Executive
Officer for which he was also required to pay $1.00 per share. As discussed
above, the base salary component of Mr. Tetrault's total compensation is lower
than the median for comparable Chief Executive Officer positions. Instead, the
Compensation Committee increased the number of shares of restricted stock
granted so as to heavily weight the "at risk" component of Mr. Tetrault's
total compensation. See "Employment and Severance Agreement--Tetrault
Agreement".
Amendments. Amendments to the plan are being submitted to the Company's
stockholders for their approval at this year's Annual Meeting. Stockholder
approval of such amendments is being sought in order to comply with the
requirements of Section 162(m) of the Internal Revenue Code with respect to
the deductibility of executive compensation. See "Internal Revenue Code
Section 162(m) Considerations" and "APPROVAL OF AMENDMENTS TO THE COMPANY'S
1996 OFFICER LONG-TERM INCENTIVE PLAN".
BENEFITS
Benefits offered to key executives serve a different purpose than do the
other elements of compensation. In general, they provide a safety net of
protection against financial catastrophes that can result from illness,
15
<PAGE>
disability, or death. Benefits offered to key executives are generally those
offered to the general employee population with some variation to promote tax
efficiency and replacement of benefit opportunities lost to regulatory limits.
INTERNAL REVENUE CODE SECTION 162(M) CONSIDERATIONS
Section 162(m) of the Internal Revenue Code provides that executive
compensation in excess of $1 million will not be deductible for purposes of
corporate income taxes unless it is performance-based compensation and is paid
pursuant to a plan meeting certain requirements of such Code. The committee
believes that the compensation paid to its executives for fiscal year 1997
meets these deductibility requirements.
The Compensation Committee intends to continue to rely on performance-based
compensation programs. It, however, is cognizant of the need for flexibility
in making executive compensation decisions, based upon the relevant facts and
circumstances, so that the best interests of the Company are achieved. To the
extent consistent with this goal, the committee anticipates that such programs
will continue to satisfy the requirements of Section 162(m) with respect to
the deductibility of executive compensation paid. To maintain Section 162(m)
deductibility with respect to compensation paid to Company executives under
the Company's 1996 Officer Long-Term Incentive Plan, certain modifications
thereto approved by the Compensation Committee in June 1997 are being
submitted to Company stockholders for their approval at this year's Annual
Meeting. See "APPROVAL OF AMENDMENTS TO THE COMPANY'S 1996 OFFICER LONG-TERM
INCENTIVE PLAN".
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.
COMPENSATION COMMITTEE
(as of June 5, 1997)
Theodore H. Black, Chairman
John W. Johnstone, Jr.
William McCollam, Jr.
16
<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, Inc., Fluor Corporation, Foster Wheeler Corporation,
Halliburton Company, Raytheon Company, Schlumberger Limited, Stone & Webster
Inc., Trinity Industries, Inc., United Dominion Industries, Inc., Westinghouse
Electric Corporation, and Zurn Industries, Inc.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
MCDERMOTT INTERNATIONAL, INC; S&P 500; AND PEER GROUP
[GRAPH APPEARS HERE]
* Assumes $100 invested on March 31, 1992 in McDermott International, Inc.
common stock; S&P 500; and the Peer Group and the reinvestment of dividends
as they are paid.
<TABLE>
<CAPTION>
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
McDermott International, Inc.... $100.00 $131.99 $ 99.84 $142.05 $104.71 $119.64
S&P............................. $100.00 $115.19 $116.89 $135.06 $178.28 $213.57
Peer Group...................... $100.00 $110.25 $107.45 $119.77 $164.12 $177.10
</TABLE>
17
<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 ("CEO"), two former CEOs and the four
highest paid executive officers other than CEOs (collectively, the "Named
Executive Officers") for fiscal years 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
------------------------------ --------------------------------------
AWARDS PAYOUTS
--------------------- -------
SECURITIES
OTHER UNDERLYING ALL
PRINCIPAL FISCAL ANNUAL RESTRICTED STOCK OTHER
NAME POSITION YEAR SALARY BONUS COMP.(2) STOCK(3) OPTIONS(4) LTIP COMP.(5)
- ---- ----------------- ------ -------- -------- -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J.L. Dutt(6) Interim Chairman 1997 $693,864 $350,000(7) $ -- $ 2,869 125,300 $ 0 $ 64,750
& Chief Executive
Officer (retired)
D.R. Gaubert Senior VP & 1997 $242,280 $ 0 $ -- $ 0 18,290 $ 0 $ 4,614
Chief Financial 1996 $190,150 $ 27,488 $ -- $ 98,078 13,950 $ 0 $ 4,974
Officer 1995 $165,305 $ 35,504 $ -- $ 87,589 6,840 $ 0 $ 4,850
R.E. Howson(8) Chairman & Chief 1997 $390,775 $ 0 $ 99,665 $ 0 0 $ 0 $628,179
Executive Officer 1996 $902,335 $218,388 $123,656 $ 746,515 133,030 $ 0 $ 30,705
(retired) 1995 $814,301 $294,977 $ 48,630 $1,870,833 385,450 $ 0 $ 27,078
J.J. Stewart Executive VP 1997 $408,360 $285,852 $ -- $ 0 34,390 $ 0 $ 6,930
1996 $383,885 $ 77,663 $ 39,143 $ 218,705 23,710 $ 0 $ 9,162
1995 $364,995 $ 93,868 $ -- $ 172,358 15,870 $ 0 $ 9,162
R.E. Tetrault(9) Chairman & Chief 1997 $ 45,000 $336,000(10) $ -- $ 582,863 422,340 $ 0 $ 1,413
Executive Officer
E.A. Womack, Jr Senior VP & Chief 1997 $300,315 $ 0 $ 32,530 $ 0 17,290 $ 0 $ 5,594
Technical Officer 1996 $265,820 $ 47,096 $ -- $ 126,203 16,410 $ 0 $ 4,619
1995 $223,690 $ 56,820 $ 31,534 $ 104,520 12,300 $ 0 $ 4,850
R.E. Woolbert Executive VP & 1997 $373,410 $ 0 $ -- $ 0 26,120 $ 0 $ 7,956
Chief Adminis- 1996 $344,945 $ 59,559 $ 44,724 $ 224,910 32,615 $ 0 $ 9,905
trative Officer 1995 $301,685 $ 76,948 $ -- $ 191,674 14,400 $ 0 $ 9,905
</TABLE>
- --------
(1) Includes amounts earned in the fiscal year, whether or not deferred.
(2) The aggregate value of perquisites and other personal benefits are not
included if they do not exceed the lesser of $50,000 or 10 percent of the
total amount of annual salary and bonus for the applicable fiscal year.
For fiscal year 1997, with respect to Mr. Howson, includes $58,604 for
cost of personal use of Company aircraft; with respect to Mr. Womack,
includes $20,439 for cost of personal use of Company aircraft. For fiscal
year 1996, with respect to Mr. Howson, includes $78,551 for cost of
personal use of Company aircraft; 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. For fiscal
year 1995, with respect to Mr. Womack, includes $13,782 for relocation
expenses and $17,752 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. For the fiscal
years indicated, restricted stock awards, if any, were granted in June of
the following fiscal year. No restricted stock awards were granted to
officers of the Company for fiscal year 1997. Mr. Tetrault, however,
received a grant of 18,900 shares of Common Stock and 8,100 shares of JRM
Common Stock in connection with his election as Vice Chairman of the
Board and CEO of the Company and J. Ray McDermott in accordance with the
terms of his employment agreement. Additionally, Mr. Dutt received a
grant of 150 shares in his capacity as a Director prior to his election
as interim Chairman and CEO. As of March 31, 1997, 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 31, 1997 of $21.375
18
<PAGE>
and $24.25, respectively) are as follows: Mr. Dutt held 750 shares of
Common Stock valued at $16,031; Mr. Gaubert held 13,170 shares of Common
Stock valued at $281,509 and 2,040 shares of JRM Common Stock valued at
$49,470; Mr. Howson held 50,000 shares of Common Stock valued at
$1,068,750; Mr. Stewart held 52,235 shares of Common Stock valued at
$1,116,523; Mr. Tetrault held 18,900 shares of Common Stock valued at
$403,988 and 8,100 shares of JRM Common Stock valued at $196,425; Mr.
Womack held 27,625 shares of Common Stock valued at $582,789; Mr. Woolbert
held 37,350 shares of Common Stock valued at $798,356 and 4,450 shares of
JRM Common Stock valued at $107,913. 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) With respect to Mr. Dutt, includes 300 options to purchase Common Stock
granted to him in his capacity as a Director during fiscal year 1997
prior to his election as interim Chairman and CEO. Also includes for
services rendered in their capacity as officers of J. Ray McDermott (a)
25,000, 3,740, 108,100 and 5,340 options to purchase JRM Common Stock
granted to Messrs. Dutt, Gaubert, Tetrault and Woolbert, respectively,
during fiscal year 1997, and (b) 3,850, 32,560 and 8,110 options to
purchase JRM Common Stock granted to Messrs. Gaubert, Howson and
Woolbert, respectively, during fiscal year 1996. Excludes, however,
23,770 and 3,780 options to purchase JRM Common Stock granted to Messrs.
Howson and Woolbert, respectively, during fiscal year 1995.
(5) Amounts shown for fiscal year 1997 include (a) company matching
contributions to the McDermott Thrift Plan in the amount of (i) $4,500
for each of Messers. Gaubert, Stewart, Womack and Woolbert, (ii) $1,875
for Mr. Howson and (iii) $1,350 for Mr. Tetrault; (b) the value of
insurance premiums paid by the Company for Messrs. Gaubert, Howson,
Stewart, Tetrault, Womack and Woolbert in the amounts of $114, $39,540,
$2,430, $63, $1,094 and $3,456, respectively; and (c) $64,750 in
Director's retainer and meeting fees paid to Mr. Dutt prior to his
election as the Company's interim Chairman and CEO. With respect to Mr.
Howson, also includes a $39,679 payment at termination of employment for
untaken vacation time and monthly payments totalling $547,085 paid during
fiscal year 1997 pursuant to his severance agreement. See "Employment and
Severance Agreements--Howson Agreements".
(6) Mr. Dutt served, on an interim basis, as the Company's Chairman of the
Board and CEO from September 1, 1996 until February 28, 1997, after which
he served as Chairman of the Board until May 31, 1997.
(7) Performance bonus paid to Mr. Dutt in June 1997 based upon service during
fiscal year 1997, pursuant to the terms of a settlement agreement. See
"Employment and Severance Agreements--Dutt Agreements".
(8) Mr. Howson, who had been the Company's Chairman of the Board and CEO for
eight years, retired effective September 1, 1996.
(9) Mr. Tetrault was elected as the Company's Vice Chairman of the Board and
CEO on March 1, 1997. Effective June 1, 1997, he was also elected as the
Company's Chairman of the Board.
(10) Bonus paid in June 1997 to Mr. Tetrault in connection with his election
as the Company's Vice Chairman of the Board and CEO on March 1, 1997. See
"Employment and Severance Agreements--Tetrault Agreement".
19
<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. 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 1997. The Company did not grant any stock appreciation rights to its
executive officers during fiscal year 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS 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>
J.L. Dutt
Common Stock.......... 100,000(4) 11.06 $ 21.50 09/12/06 $ 1,352,000 $ 3,427,000
Common Stock.......... 300(5) .03 $19.5625 08/06/06 $ 3,691 $ 9,353
JRM Stock............. 25,000(4) 9.14 $ 25.00 09/12/06 $ 393,000 $ 996,000
D.R. Gaubert
Common Stock.......... 14,550 1.61 $ 21.375 02/07/07 $ 195,625 $ 495,646
JRM Common Stock...... 3,740 1.37 $24.9375 02/10/07 $ 58,653 $ 148,637
R.E. Howson
Common Stock.......... 0 0 $ -- -- $ -- $ --
JRM Common Stock...... 0 0 $ -- -- $ -- $ --
J.J. Stewart
Common Stock.......... 34,390 3.8 $ 21.375 02/07/07 $ 462,374 $ 1,171,495
R.E. Tetrault
Common Stock.......... 314,240 34.77 $ 22.125 03/03/07 $ 4,372,650 $ 11,080,417
JRM Stock............. 108,100 39.5 $ 23.375 03/03/07 $ 1,589,070 $ 4,027,266
E.A. Womack, Jr.
Common Stock.......... 17,290 1.91 $ 21.375 02/07/07 $ 232,464 $ 588,984
R.E. Woolbert
Common Stock.......... 20,780 2.3 $ 21.375 02/07/07 $ 279,387 $ 707,871
JRM Common Stock...... 5,340 1.95 $24.9375 02/10/07 $ 83,745 $ 212,225
All Stockholders (6)
Common Stock.......... -- -- $ 21.375 -- $ 739,971,873 $ 1,874,833,906
JRM Common Stock...... -- -- $24.9375 -- $ 636,988,523 $ 1,614,252,599
</TABLE>
- --------
(1) Potential Realizable Value is based on the assumed annual growth rates for
each of the grants shown over their ten-year option term. For example, if
the exercise price is $21.375, a 5% annual growth rate over ten years
results in a stock price of $34.82 per share and a 10% rate results in a
price of $55.44 per share. Actual gains, if any, on stock option exercises
are dependent on the future performance of the stock. Zero percent
appreciation in stock price will result in no gain.
(2) Based on options to acquire 903,870 and 273,660 shares of Common Stock and
JRM Common Stock granted to all employees of the Company and JRM,
respectively, during fiscal year 1997.
(3) Fair market value on date of grant.
(4) Vested and became exercisable on June 1, 1997. See "Employment and
Severance Agreements--Dutt Agreements".
20
<PAGE>
(5) These shares were granted to Mr. Dutt in his capacity as a Director and
became exercisable in February 1997, six months after the date of grant.
(6) Total dollar gains based on the assumed annual rates of appreciation shown
here and calculated on 55,036,956 outstanding shares of Common Stock and
40,617,792 outstanding shares of JRM Common Stock on March 31, 1997. The
Named Executive Officers' gains as a percentage of the total dollar gains
shown for all stockholders are .93% for Common Stock and .33% for JRM
Common Stock.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information concerning the exercise of stock
options during fiscal year 1997 by each of the Named Executive Officers and
the value at March 31, 1997 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,
1997 (when the fair market value of Common Stock and JRM Common Stock was
$21.375 and $24.25, respectively, per share). The value actually realized upon
exercise of the options by the Named Executive Officers will depend on the
value of the Common Stock or JRM Common Stock at the time of exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF TOTAL NUMBER OF TOTAL VALUE OF UNEXERCISED,
SHARES UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD
ACQUIRED AT FISCAL YEAR-END AT FISCAL YEAR-END
ON VALUE -------------------------- -------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- -------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
J.L. Dutt
Common Stock.......... 0 -- 3,150 125,000(1) $ 825 $ 0
JRM Common Stock...... 0 -- 0 25,000(1) $ 0 $ 0
D.R. Gaubert
Common Stock.......... 0 -- 28,324 25,255 $ 9,839 $ 17,377
JRM Common Stock...... 0 -- 642 6,948 $ 4,855 $ 24,261
R.E. Howson
Common Stock.......... 0 -- 470,380(2) 325,000 $ 473,045 $ 0
JRM Stock............. 0 -- 56,330 0 $ 284,861 $ 0
J.J. Stewart
Common Stock.......... 0 -- 113,722 34,390 $ 71,299 $ 40,751
R.E. Tetrault
Common Stock.......... 0 -- 0 314,240 $ 0 $ 0
JRM Stock............. 0 -- 0 108,100 $ 0 $ 94,588
E.A. Womack, Jr.
Common Stock.......... 0 -- 55,007(2) 35,065 $ 35,539 $ 28,205
R.E. Woolbert
Common Stock.......... 0 -- 95,185 46,000 $ 102,042 $ 19,429
JRM Common Stock...... 0 -- 3,872 13,358 $ 14,320 $ 53,155
</TABLE>
- --------
(1) These options vested and became exercisable on June 1, 1997. See
"Employment and Severance Agreements--Dutt Agreements".
(2) Messrs. Howson and Womack exercised options for 30,930 and 4,812 shares of
Common Stock, respectively, during the period from March 31, 1997 to June
6, 1997.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Tetrault Agreement. The Company entered into an employment agreement with
Mr. Tetrault effective as of March 1, 1997, whereby he agreed to serve as the
Company's Vice Chairman of the Board and CEO through February 28, 2000,
subject to earlier termination as described below. On June 1, 1997, he also
became the Company's Chairman of the Board. The employment agreement provides
Mr. Tetrault with an annual base salary
21
<PAGE>
of $540,000 subject to increase by the Compensation Committee in accordance
with Company practices based upon Mr. Tetrault's performance. Under the
employment agreement, Mr. Tetrault was also granted options to purchase
314,240 shares of Common Stock and 108,100 shares of JRM Common Stock, both of
which will vest in equal installments of one-third on the first, second and
third anniversaries of the date of grant. In addition, Mr. Tetrault was
granted 18,900 restricted shares of Common Stock and 8,100 restricted shares
of JRM Common Stock for which he paid $1.00 per share. He also received a cash
bonus of $336,000 in June 1997 in accordance with the terms of the agreement,
and is entitled to annual cash bonuses (if any, as determined by the
Compensation Committee based upon the Company's achievement of certain pre-
established performance goals) and to participate in all retirement or other
benefit plans, policies and programs maintained or provided by the Company for
its officers. Under the agreement, the Company also purchased Mr. Tetrault's
home and agreed to pay his reasonable relocation expenses according to the
Company's relocation policy.
The employment agreement may be terminated prior to February 28, 2000 under
certain circumstances, including death, disability and voluntary retirement.
However, in the event of termination by the Board without cause, Mr. Tetrault
will continue to receive his annual base salary and other benefits and rights
under the agreement during the remaining term thereof and all stock options
and restricted stock will vest 100% on February 28, 2000. 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, Mr. Tetrault may not engage, directly or indirectly, in any
business or enterprise which is in competition with the Company or induce any
employee of the Company to accept employment with any competitor of the
Company.
Dutt Agreements. In connection with Mr. Dutt's election as the Company's
interim Chairman of the Board and CEO, he entered into an employment agreement
with the Company. Under the agreement (i) the Company agreed to pay him a base
salary of $100,000 per month for six months and $50,000 per month thereafter,
subject to a minimum payment of $900,000 under such agreement, and (ii) the
Company granted to him options to purchase 100,000 shares of Common Stock, at
an exercise price of $21.50 per share, and options to purchase 25,000 shares
of JRM Common Stock, at an exercise price of $25.00 per share. The exercise
prices reflect the fair market value of the applicable stock on the date of
grant. Under the agreement, the options vested in equal installments of one-
third on the first, second and third anniversaries of the date of grant. In
connection with Mr. Dutt's retirement as the Company's Chairman of the Board
effective June 1, 1997, Mr. Dutt and the Company entered into a settlement
agreement pursuant to which Mr. Dutt also received a $350,000 performance
bonus, and the options granted to him under the employment agreement and 750
restricted shares of Common Stock granted to him under the Company's Directors
Stock Program became fully vested.
Howson Agreements. In connection with Mr. Howson's retirement as the
Company's Chairman of the Board and CEO on September 1, 1996, he entered into
a severance agreement with the Company. The severance agreement provides Mr.
Howson with those rights and benefits that he would have been entitled to
under the terms of the employment agreement that he entered into with the
Company in September 1994, in the event that his employment with the Company
was terminated with "excuse from the Board" prior to August 31, 1998 (the
termination date of the employment agreement). Such rights and benefits
include (i) monthly payments totalling $937,860 per year (Howson's base salary
at retirement) from September 1, 1996 until August 31, 1998, (ii) eligibility
to receive annual bonuses for fiscal years 1997 and 1998, to the extent earned
by the corporate staff of the Company, under the Company's Variable
Supplemental Compensation Plan, with a maximum award of 70% of his base
salary, (iii) the vesting on September 1, 1996 of all stock options and
restricted stock previously granted to Mr. Howson by the Company or J. Ray
McDermott, except for options to purchase 325,000 shares of Common Stock and
50,000 restricted shares of Common Stock, which will vest on September 1,
1998, and (iv) life and medical insurance coverage until September 1, 1998. In
addition to such rights and benefits, the Company paid to Mr. Howson on
November 1, 1996 a significant portion of the lump sum distribution that he
otherwise would have been entitled to receive on September 1, 1998 under the
Company's Supplemental Executive Retirement Plan. See "Retirement Plans--
Supplemental Executive Retirement Plan".
Furthermore, the Company provides office space to Mr. Howson pursuant to an
office lease agreement (the "Office Lease") the Company entered into on his
behalf. The annual rental under the Office Lease, which commenced on December
1, 1996 and terminates on November 30, 1999, is $15,649.
22
<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"). Officers who are
employed by J. Ray McDermott or certain of its subsidiaries or affiliates 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 applicable 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. 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, 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").
The following table shows the annual benefit payable under the McDermott
Retirement Plan at age 65 (the normal retirement age) to employees retiring in
1997 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. As of March 31, 1997, Mr. Gaubert had Final Average Earnings of
$178,390 and 25.5 years of credited service under the McDermott Retirement
Plan. As of the date of his retirement, Mr. Dutt had not accrued enough years
of service to vest under the plan; therefore, he is not entitled to any
benefits under such plan. He, however, is entitled to benefits under the
Company's Retirement Plan for Non-Management Directors. See "Directors'
Attendance and Fees--Retirement Plan and Health Care". At the time of his
retirement on September 1, 1996, Mr. Howson had Final Average Earnings of
$772,608 and 24.6 years of credited service under the plan. 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 $ 14,057 $ 21,085 $ 28,113 $ 35,142 $ 42,170 $ 49,198 $ 56,227
150,000 22,390 33,585 44,780 55,975 67,170 78,365 89,560
200,000 30,723 46,085 61,447 76,808 92,170 107,532 122,893
250,000 39,057 58,585 78,113 97,642 117,170 136,698 156,227
300,000 47,390 71,085 94,780 118,475 142,170 165,865 189,560
400,000 64,057 96,085 128,113 160,142 192,170 224,198 256,227
500,000 80,723 121,085 161,447 201,808 242,170 282,532 322,893
600,000 97,390 146,085 194,780 243,475 292,170 340,865 389,560
700,000 114,057 171,085 228,113 285,142 342,170 399,198 456,227
800,000 130,723 196,085 261,447 326,808 392,170 457,532 522,893
</TABLE>
23
<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
1997 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 March 31, 1997 for Messrs.
Stewart, Tetrault, Womack and Woolbert were $505,576 and 25 years, $134,738
and 21.5 years, $301,227 and 21.5 years, and $416,563 and 41.7 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 $ 11,765 $ 17,648 $ 23,530 $ 29,413 $ 35,295 $ 41,178 $ 47,060
125,000 14,890 22,335 29,780 37,225 44,670 52,115 59,560
150,000 18,015 27,023 36,030 45,038 54,045 63,053 72,060
200,000 24,265 36,398 48,530 60,663 72,795 84,928 97,060
250,000 30,515 45,773 61,030 76,288 91,545 106,803 122,060
300,000 36,765 55,148 73,530 91,913 110,295 128,678 147,060
400,000 49,265 73,898 98,530 123,163 147,795 172,428 197,060
500,000 61,765 92,648 123,530 154,413 185,295 216,178 247,060
550,000 68,015 102,023 136,030 170,038 204,045 238,053 272,060
</TABLE>
Supplemental Executive Retirement Plan. The Company maintains an unfunded
Supplemental Executive Retirement Plan (the "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 the SERP scheduled
retirement date, whichever is greater. Except for the benefit payable to Mr.
Howson, the maximum benefit may 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. 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. Gaubert, Stewart, Tetrault and Womack at
retirement age as stated in the SERP is 60% of each such person's final 3-year
average cash compensation. At such retirement age, Mr. Woolbert would receive
an annual benefit of 65% of his final 3-year average cash compensation. As a
result of his retirement on September 1, 1996, Mr. Howson was eligible to
receive, beginning September 1, 1998, an annual benefit equal to 73% of his
final 3-year average cash compensation or a lump sum distribution equivalent
to such benefits. Pursuant to a severance agreement that he entered into with
the Company, the Company agreed to pay him approximately two-thirds of such
lump sum distribution, on an actuarially discounted basis, on November 1,
1996. Mr. Howson will receive all remaining amounts due to him under the SERP
on September 1, 1998. Mr. Dutt is not entitled to any benefits under the SERP.
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
24
<PAGE>
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 1997 DIRECTOR STOCK PROGRAM
(ITEM 2)
On June 6, 1997, the Board of Directors adopted, subject to stockholder
approval, the 1997 Director Stock Program (the "1997 Program") in order to
provide the Company with an effective means of attracting qualified
individuals to serve on the Board of Directors and to increase the propriety
interest of the Company's directors in the Company.
The 1992 Director Stock Program (the "1992 Program"), which was approved by
Company stockholders, authorized the award of 50,000 shares of Common Stock.
At June 6, 1997, 2,825 shares remained available for award under the 1992
Program. The Board of Directors believes that the 1992 Program has enhanced
the Company's ability to attract qualified candidates to serve on the Board of
Directors, and that in order to continue to do so, the 1997 Program should be
implemented.
The Board of Directors recommends a vote "FOR" the proposal to approve the
1997 Director Stock Program. The affirmative vote of a majority of the Common
Stock present in person or by proxy and entitled to vote at the Annual Meeting
is required to approve this proposal.
SUMMARY DESCRIPTION OF THE PROGRAM
The following summary of the terms of the 1997 Program is qualified in its
entirety by reference to the text of the 1997 Program, which is attached as
Appendix A to this Proxy Statement. If adopted by Company stockholders, the
1997 Program will be effective as of June 6, 1997.
The 1997 Program provides for the grant of options and rights to purchase
restricted shares of Common Stock to Directors who are not employees of the
Company and its subsidiary and affiliated companies. Subject to the
adjustments described below under the heading "Adjustments", 100,000 shares of
Common Stock will be subject to the 1997 Program and will be registered at the
Company's expense pursuant to the Securities Act of 1933, as amended. Such
shares may be either authorized and unissued shares or issued shares held in
the treasury or otherwise, including shares purchased in the open market. In
addition, shares authorized for issuance under the 1992 Program which, as of
the effective date of the 1997 Program, have not been awarded shall be
available for grant under the 1997 Program. The 1997 Program will be
administered by a committee comprised of Directors who are employees of the
Company and its subsidiary and affiliated companies (the "Committee"). No
member of the Committee will be eligible to participate in the 1997 Program
while he is such a member, and no person may become a member who has been
eligible to participate in the 1997 Program during the preceding year. The
Committee shall make determinations under and interpretations of the 1997
Program and the options and restricted stock rights granted thereunder. The
Committee will have no discretion with respect to the
25
<PAGE>
selection of Directors to receive grants, the number of shares subject to any
options or restricted stock awards, the exercise price or purchase price
thereunder, or the term of an option or the period during which restrictions
are applicable. The 1997 Program will expire on June 6, 2007, except with
respect to options and rights to purchase restricted stock then outstanding.
STOCK OPTIONS
Options to purchase shares of Common Stock will be automatically granted to
eligible Directors. On the first day of the first year of a Director's term,
such Director will be granted options to acquire 900 shares of Common Stock,
and on the first day of each subsequent year of a Director's term, such
Director will be granted options to acquire 300 shares of Common Stock. Shares
subject to the unexercised portion of any terminated or expired options may be
used again in the 1997 Program.
The option price under each option will be equal to the fair market value of
the shares on the date of grant as reported on the New York Stock Exchange.
Upon exercise of an option, the option price must be paid in full. Payments
must be in cash or may be made in Common Stock valued at its fair market value
on the date immediately preceding the date of exercise, or in a combination of
cash and Common Stock.
Options are exercisable in full six months after the date of grant. No
option granted under the 1997 Program will be exercisable more than ten years
after the date of grant. Options are not transferable except by will or the
laws of descent and distribution and pursuant to certain qualified domestic
relations orders.
Except for termination for cause (as defined in the 1997 Program), if
service as a Director terminates for any reason other than death, retirement
or disability, any options which are then exercisable terminate upon the
earlier of their expiration or the expiration of three months after such
termination of service. If an optionee's service as a Director terminates by
reason of retirement or disability, the options held by such optionee will
remain so exercisable until their expiration. If an optionee's service as a
Director terminates by reason of death, any options granted to such Director
remain exercisable until the earlier of their expiration or three years after
death.
RESTRICTED STOCK
On the first day of the first year of a Director's term, such Director will
be awarded the right to purchase 450 shares of restricted stock and, on the
first day of each of the second and third years of a Director's term, such
Director will be awarded the right to purchase 150 shares of restricted stock.
The purchase price per share is equal to the par value of the Common Stock
($1.00 per share). Such restricted stock, when awarded, is subject to
restrictions on transfer and forfeiture upon certain circumstances. These
restrictions shall lapse on all restricted stock purchased under grants made
during a Director's term at the end of such term.
In the event of the termination of service as a Director by reason of death,
disability or retirement at the end of the Director's term, stock as to which
the restrictions have not lapsed at the time of such termination of service
shall lapse upon such termination of service. Upon the termination of service
by reason of retirement before the end of a Director's term or a termination
at any time for a reason other than death, disability or retirement, all
shares which still have restrictions shall be forfeited to the Company.
REORGANIZATION OR CHANGE IN CONTROL
If, in the event of a merger, consolidation, sale of all or substantially
all of the Company's assets, or other corporate reorganization in which the
Company is not the surviving corporation or any merger in which the Company is
the surviving corporation but the holders of its shares receive cash or
securities of another corporation or different securities of the corporation,
or a dissolution or a liquidation of the Company, provision is not made for
substitution of new stock options and restricted stock of equivalent value to
those held under the 1997 Program, the holder of such options and/or
restricted stock will be entitled to a cash payment representing
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the value of such options and/or restricted stock based on the highest value
of the Common Stock during the 30 days preceding such event, without regard to
the exercisability of such options or the restrictions on such restricted
stock.
In the event of a "change in control" of the Company (as defined in the 1997
Program), restrictions on restricted stock shall lapse.
PARTICIPANTS
As of the date hereof, all Directors and nominees for election as Directors,
except Roger E. Tetrault and Richard E. Woolbert, who are also officers of the
Company, are eligible to receive grants of options or restricted stock under
the 1997 Program.
ADJUSTMENTS
The total number of shares subject to the 1997 Program, the number of shares
which may be acquired by any one participant, the number of shares subject to
restrictions and outstanding options and the related option and purchase
prices shall be adjusted by the Committee in the event of a merger,
reorganization, consolidation, recapitalization, stock dividend or other
change in the corporate structure affecting the Common Stock.
TERMINATION, AMENDMENT AND MODIFICATION
The Committee may terminate, amend or modify the 1997 Program, with the
approval of the stockholders, provided that (i) such action does not adversely
affect any award previously granted thereunder or any such award-holder
adversely affected consents in writing to the termination, amendment or
modification, and (ii) amendments or modifications shall not be made more than
once every six months except to comply with applicable tax or securities laws,
regulations or rulings.
TAX CONSEQUENCES
In general, under current federal income tax laws, a participant will not
recognize income upon the grant of a stock option or upon the grant or
exercise of a right to purchase restricted stock under the 1997 Program.
However, a participant will recognize income upon exercise of a stock option
and upon termination of restrictions on restricted stock, in an amount which
is equal to the difference between the fair market value of the stock on the
date of exercise of the option or upon termination of restrictions and the
aggregate option or purchase price. Participants who surrender Common Stock in
payment of all or a part of the aggregate option price will not recognize
income with respect to the surrendered shares.
A participant's tax basis in shares acquired pursuant to the exercise of a
stock option or restricted stock rights for which the option or purchase price
is paid solely in cash will be equal to the sum of the amount of cash paid and
the amount of income recognized pursuant to such exercise or the termination
of such restrictions. As to shares acquired pursuant to the exercise of a
stock option for which the participant surrenders shares of Common Stock in
payment of all or a part of the option price, the shares received which are
equal in number to the shares surrendered will have the same tax basis and
holding period as the shares so surrendered. As to the balance of the shares
so received, the participant's tax basis in such shares will be equal to the
sum of the amount of cash, if any, paid upon the exercise of the option and
the amount of income recognized pursuant to such exercise. Upon the subsequent
sale or disposition of shares acquired pursuant to the exercise of a stock
option or restricted stock rights, the difference between the sale price and
the participant's tax basis in such shares will be treated as capital gain or
loss.
Alternatively, a participant who purchases restricted shares under the 1997
Program may elect, within 30 days of such purchase, to recognize the excess of
the fair market value of the restricted shares, determined as of the purchase
date, over the purchase price as income at the time of the purchase of the
shares, even though such
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shares remain subject to restrictions. In the event such an election is made,
any subsequent appreciation in value of the shares is not taxable as income
until the shares are sold, at which time the difference between the sale price
and the participant's tax basis in such shares will be treated as a capital
gain or loss. However, if such shares are subsequently forfeited and returned
to the Company, the employee will not be entitled to a deduction with respect
to such forfeiture.
APPROVAL OF AMENDMENTS TO
THE COMPANY'S 1996 OFFICER LONG-TERM INCENTIVE PLAN
(ITEM 3)
As part of the Company's overall effort to increase shareholder value, the
Board of Directors adopted amendments (the "Amendments") to the 1996 Officer
Long-Term Incentive Plan (the "Plan"). The Amendments have been adopted to
more closely align the interests of officers and key employees with those of
Company stockholders by encouraging employee stock ownership and by tying
officer compensation to the performance of the Company's Common Stock.
The Amendments (i) limit the application of the performance measures set
forth in Article 8 of the Plan to grants of restricted stock and (ii) provide
for (a) the inclusion of the market price of Common Stock to the list of
permissible performance criteria to be used by the Compensation Committee for
grants of restricted stock, and (b) the addition of a "Restricted Stock
Performance Formula". See the description below, as well as Article 8 of the
Plan, as amended.
Stockholder approval of such Amendments is required for executive
compensation to any "Covered Employee" under the Plan, as amended, in excess
of $1 million per year to be deductible for corporate income tax purposes
pursuant to Section 162(m) of the Internal Revenue Code of 1986. The
affirmative vote of a majority of the Common Stock present in person or by
proxy and entitled to vote at the Annual Meeting on this proposal is required
for approval of the Amendments and the Plan, as amended, to comply with
Section 162(m) of the Internal Revenue Code. The Board of Directors recommends
that stockholders vote "FOR" this proposal.
SUMMARY DESCRIPTION OF THE PLAN, AS AMENDED
The following summary of the terms of the Plan, as modified by the
Amendments, is qualified in its entirety by reference to the text of the Plan,
as amended and restated, which is attached as Appendix B to this Proxy
Statement. The Amendments, which are shown in italics, are effective as of
April 1, 1997.
Administration. The Plan, as amended, will continue to 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 Plan. Non-employee Directors of the Company
are not eligible. Approximately twenty five employees of the Company and its
subsidiaries participate in the Plan; however, because the Plan provides for
broad discretion in selecting participants and in making awards, the total
number of persons who actually participate and the respective benefits to be
accorded to them can vary from time to time. The Amendments do not change
these terms of the Plan.
Stock Available for Issuance Through the Plan. The Plan provides for a
number of forms of stock-based compensation, as described below. Up to
2,500,000 shares of the Common Stock are authorized for issuance through the
Plan. Provisions in the Plan 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 SEC's short-swing trading rules.
The Amendments do not change the Plan in this respect.
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Description of Awards Under the Plan. The Compensation Committee may award
to eligible employees incentive and non-qualified stock options and may award
restricted stock, subject to the satisfaction of specific performance goals.
The forms of awards are described below.
Stock Options. The Compensation Committee has discretion to award incentive
stock options ("ISOs"), which are intended to comply with Section 422 of the
Internal Revenue Code, or non-qualified stock options ("NQSOs"), which are not
intended to comply with Section 422 of the Internal Revenue Code. Each option
issued under the Plan must be exercised within the period specified by the
Compensation Committee at the time of grant, but not later than 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 Plan, the Compensation Committee
has the discretion to set such additional limitations on option grants as it
deems appropriate.
Each option award agreement sets forth the extent to which the participant
has the right to exercise the option following termination of the
participant's employment with the Company. Termination provisions, which are
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 Plan, the option price is
payable in full to the Company, either: (i) in cash or its equivalent, (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).
The Amendments do not change the foregoing terms of the Plan.
Restricted Stock. The Compensation Committee is also authorized to award
restricted shares of Common Stock under the Plan upon such terms and
conditions as it shall establish. Participants are required to pay a purchase
price for each share of restricted stock granted equal to the par value of the
Common Stock ($1.00 per share). Awards of restricted stock to any one
participant during a fiscal year are limited to 200,000 shares. Award
agreements 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 have the right to vote these
shares from the date of grant, they do 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 receive dividends on their shares of
restricted stock and the Compensation Committee, in its discretion, determines
how dividends on restricted shares are to be paid.
Each award agreement for restricted stock sets 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
are determined in the sole discretion of the Compensation Committee, need not
be uniform among all shares of restricted stock issued pursuant to the Plan
and may reflect distinctions based on reasons for termination of employment.
The Amendments do not change the foregoing terms of the Plan, except that
restricted stock grants under the "Restricted Stock Performance Formula"
described below to a single participant for a fiscal year are only limited to
an Initial Grant (as defined below) of 200,000 shares.
Performance Measures. Under the Plan, the Compensation Committee may
establish restricted stock performance goals based on the attainment over a
specified period of time (the "Performance Period") of individual performance,
specified targets or other parameters relating to one or more of the following
business criteria: 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 determines the value of the performance-based awards
granted for the
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period based on the attainment of the pre-established objective performance
goals. The Compensation Committee also has the 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 pre-established objective performance goals. As soon as
practicable thereafter, payment of the awards to employees, if any, are made
in the form of shares of restricted stock.
Under the Plan, as amended, the market price of Common Stock has been added
as a performance criterion. In addition, the Plan, as amended, allows awards
of restricted stock to be granted based on the following "Restricted Stock
Performance Formula".
(i) The Compensation Committee may make an initial grant of shares of
restricted stock (the "Initial Grant"). At the end of a specified
Performance Period (pre-established by the Compensation Committee), the
number of shares in the Initial Grant shall be increased or decreased based
on the increase or decrease in the market value of the Common Stock over
the Performance Period.
(ii) The increase or decrease in the number of shares in the Initial
Grant shall be determined by calculating the difference between the market
value per share of Common Stock at the end of the Performance Period and
the market value per share on the grant date. This difference is multiplied
by the number of shares of restricted stock in the Initial Grant and the
resulting product is divided by the market value at the end of the
Performance Period. The number so determined is added to (in the case of an
increase in market value) or subtracted from (in the case of a decrease in
market value) the number of shares of restricted stock in the Initial
Grant. Once the number of shares of restricted stock has been adjusted in
the manner described above, restrictions will continue to be imposed for a
period of time.
Adjustment and Amendments. The Plan 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 Plan 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 Plan 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. The Amendments do not change the foregoing
terms of the Plan.
Non-transferability. No derivative security (including, without limitation,
options) granted pursuant to, and no right to payment under, the Plan is
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. The Amendments do not change the Plan in this
respect.
Duration of the Plan. The Plan 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 award be
granted under the Plan on or after April 1, 2006. The Amendments do not change
the duration of the Plan.
FEDERAL INCOME TAX CONSEQUENCES
Options. With respect to options which qualify as ISOs, a Plan 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
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within one year after the issuance of shares upon exercise of the ISO (the
"holding periods"), the participant 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 administered by a committee of "outside directors", 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 on the last day of the taxable year.
The Compensation Committee has taken the effect of Section 162(m) into
consideration in structuring awards under the Plan. This is not expected to
change with respect to the Plan, as amended.
PLAN BENEFITS
The benefits that will be received under the Plan, as amended, by particular
individuals or groups are not determinable at this time. The benefits that
were received for fiscal year 1997 by the Named Executive Officers pursuant to
the Plan are summarized in tables on pages 18-21.
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RETENTION OF
INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING MARCH 31, 1998
(ITEM 4)
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, 1998. 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 1997. 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 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 1997, except
that Philip Burguieres, a Director of the Company, inadvertently filed a Form
4, reporting the purchase of 10,000 shares of the Company's Common Stock,
approximately 25 days late.
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 1998 Annual
Meeting must be received by the Corporate Secretary of the Company no later
than March 30, 1998, 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/ S. W. MURPHY
S. WAYNE MURPHY
Secretary
Dated: July 28, 1997
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APPENDIX A
MCDERMOTT INTERNATIONAL, INC.
1997 DIRECTOR STOCK PROGRAM
ARTICLE I--ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT OF THE PROGRAM
McDermott International, Inc., a Panamanian corporation (hereinafter
referred to as the "Company"), hereby establishes a stock compensation plan to
be known as the "McDermott International, Inc. 1997 Director Stock Program"
(hereinafter referred to as the "Program"), as set forth in this document. The
Program permits the grant of Options and Restricted Stock to Directors (as
hereinafter defined) of the Company who are not Employees of the Company or
its subsidiaries and affiliates.
The Program shall become effective upon approval by the Board of Directors
(the "Effective Date"), subject to ratification by the Company's shareholders,
and shall remain in effect as provided in Section 1.3 herein.
1.2 PURPOSE OF THE PROGRAM
The purpose of the Program is to promote the success, and enhance the value
of the Company by linking the personal interests of Participants to those of
Company shareholders.
The Program is further intended to provide flexibility to the Company in its
ability to attract and retain the services of Participants.
1.3 DURATION OF THE PROGRAM
The Program shall commence on the Effective Date, as described in Section
1.1 herein, and shall remain in effect, subject to the right of the Committee
to terminate the Program at any time pursuant to Article XI herein, until all
Shares subject to Awards granted under it shall have been purchased or
acquired according to the Program's provisions. However, in no event may an
Award be granted under the Program on or after June 6, 2007.
ARTICLE II--DEFINITIONS
2.1 DEFINITIONS
Whenever used in the Program, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
(A) "AWARD" means a grant under the Program of Options or Restricted Stock.
(B) "BENEFICIAL OWNER" shall have the meaning ascribed to such term in
Section 13(d) of the Securities Exchange Act of 1934 and the rules thereunder,
without regard, however, to the 60-day period referred to in such Section.
(C) "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
(D) "CAUSE" means: (i) willful and gross misconduct on the part of a
Participant that is materially and demonstrably detrimental to the Company; or
(ii) the commission by a Participant of one or more acts which constitute an
indictable crime under United States federal, state or local law. "Cause"
under either (i) or (ii) shall be determined in good faith by a written
resolution duly adopted by the affirmative vote of not less than
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two-thirds of all the Directors at a meeting duly called and held for that
purpose, after reasonable notice to the Participant and opportunity for the
Participant and his legal counsel to be heard.
(E)"CHANGE IN CONTROL" of the Company shall be deemed to have occurred if
the conditions set forth in any one or more of the following paragraphs shall
have been satisfied:
(1) 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
(2) During any period of two consecutive years (not including any period
prior tot he execution of the Program), 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 or whose
election or Directors at the beginning of the period or whose election or
nomination for election was previously so approved), cease for any reason
to constitute a majority thereof; or
(3) 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 that 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 purposes of a 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 purchasing company
or group which is otherwise not deemed to be significant, as determined prior
tot he Change in Control by a majority of the disinterested Directors).
(F) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
(G) "COMMITTEE" means the Director Compensation Committee of the Board of
Directors, as specified in Article III herein.
(H) "COMPANY" means McDermott International, Inc., a Panamanian corporation,
or any successor thereto as provided in Section 12.3 herein.
(I) "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
(J) "DISABILITY" means a permanent and total Disability, within the meaning
of Code Section 22(e)(3), as determined by the Committee in good faith, upon
receipt of sufficient competent medical advice from one or more individuals,
selected by the Committee, who are qualified to give professional medical
advice.
(K) "EMPLOYEE" means any part-time or full-time Employee of the Company.
Directors who are not otherwise employed by the Company shall not be
considered Employees under the Program.
(L) "FAIR MARKET VALUE" shall mean the average of the highest and lowest
quoted selling prices for Shares on the relevant date, or (if there were no
sales on such date) the weighted average of the means between the
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highest and lowest quoted selling prices on the nearest day before and the
nearest day after the relevant date as reported in The Wall Street Journal or
a similar publication selected by the Committee.
(M) "OPTION" means a non-qualified Option to purchase Shares, granted under
Article VI herein. The Options granted are not intended to qualify as
"Incentive Stock Options" as defined in Section 422 of the Code.
(N) "OPTION PRICE" means the price at which a share may be purchased by a
Participant pursuant to an Option.
(O) "PARTICIPANT" means a non-Employee Director of the Company who has
outstanding an Award granted under the Program.
(P) "REORGANIZATION" means a merger, consolidation, sale of all or
substantially all of the Company's assets; or other corporate Reorganization
in which the Company is not the surviving corporation (other than any such
transaction the effect of which is merely to change the jurisdiction of
incorporation of the Company); or any merger in which the Company is the
surviving corporation but the holders of its Shares receive cash or securities
of another corporation; or different securities of the surviving corporation,
or a dissolution or liquidation of the Company.
(R) "RESTRICTED STOCK" means Shares subject to restrictions as described in
Article VII.
(S) "RETIREMENT" shall have the meaning ascribed to such term in the
Company's Retirement Plan for Non-Management Directors.
(T) "SHARES" means the Shares of common stock, $1 par value, of the Company.
ARTICLE III--ADMINISTRATION
3.1 COMMITTEE
The Program shall be administered by the Committee. This Committee will be
made up of all Employees serving on the Board of Directors.
3.2 AUTHORITY OF THE COMPANY
The Committee shall have full power, except as limited by law or by the
articles of incorporation or bylaws of the Company, and subject to the
provisions herein, to construe and interpret the Program and any agreement or
instrument entered into under the Program, and make all determinations which
may be necessary or advisable for the administration of the Program.
3.3 DECISIONS BINDING
All determinations and decisions made by the Committee pursuant to the
provisions of the Program and all related orders or resolutions of the Board
of Directors shall be final, conclusive, and binding on all persons, including
the Company, its stockholders, Employees, Participants, and their estates and
beneficiaries.
ARTICLE IV--SHARES SUBJECT TO THE PROGRAM
4.1 NUMBER OF SHARES
Subject to adjustment as provided in Section 4.3 herein, the total number of
Shares available for grant under the Program may not exceed one hundred
thousand (100,000). Additionally, Shares approved pursuant to the 1992
Director Stock Program which, as of the Effective Date of this Program have
not been awarded shall become available for grant under the Program. Shares
available for grant under the Program may be either authorized, but unissued,
or reacquired Shares.
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4.2 LAPSED AWARDS
If any Option granted under this Program 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 Program.
If any Restricted Stock granted under this Program is canceled, terminates
or lapses for any reason, any Shares subject to such Award again shall be
available for grant of an Award under the Program to the extent permitted by
the rules promulgated under Section 16 of the Securities Exchange Act of 1934.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES
In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split-up. Share combination, or other
change in the corporate structure of the Company affecting the Shares, such
adjustment shall be made in the number and class of Shares which may be
delivered under the Program, and in the number and class of and/or price of
Shares subject to outstanding Awards, as may be determined to be appropriate
and equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; and provided that the number of Shares subject to any
Award shall always be a whole number.
ARTICLE V--ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY AND PARTICIPATION
All Directors of the Company who are not Employees will participate in this
Program. Directors are not Employees if at the time of Award they are not an
Employee of the Corporation or any of its subsidiaries or affiliates.
ARTICLE VI--STOCK OPTIONS
6.1 GRANT OF OPTIONS
Subject to the terms and provisions of the Program, Options shall be granted
to Participants on the first day of each year of their term. In the first year
of a Participant's term, they shall receive a grant of 900 Options. In each of
the second and third years of the Participant's term, the Participant shall
receive a grant of 300 Options.
In the event that a new non-Employee Director joins the Board during an
ongoing term, he will receive a supplemental grant of Options equal to the
number of Options granted in the second year of a Director's term divided by
twelve (12) months, multiplied by the number of months remaining in the
Director's term.
6.2 OPTION PRICE
The Option Price for each grant of an Option shall be equal to the Fair
Market Value of such Share on the date the Option is granted.
6.3 DURATION OF OPTIONS
Each Option shall expire ten (10) years from the date of its grant.
6.4 EXERCISE OF OPTIONS
Options granted under the Program shall be fully exercisable six (6) months
from the date of grant.
6.5 PAYMENT
Options shall be exercised by the delivery of a written notice of exercise
to the Committee, setting forth the number of Shares with respect to which the
Option is to be exercised, accompanied by full payment for the Shares.
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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) by tendering previously
acquired Shares having a Fair Market Value at the time of exercise equal to
the total Option Price; or (c) by a combination of (a) and (b).
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).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law
restrictions, or any other means which the Committee determines to be
consistent with the Program's purpose and applicable law.
6.6 RESTRICTIONS ON SHARE TRANSFERABILITY
The Committee shall impose such restrictions on any Shares acquired pursuant
to the exercise of an Option under the Program, 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.
6.7 TERMINATION OF SERVICE DUE TO DEATH, DISABILITY OR RETIREMENT
(a) Termination by Death. In the event the service of a Participant is
terminated by reason of death, all outstanding Options shall remain
exercisable at any time prior to their expiration date, or for three (3) years
after the date that service was terminated, whichever period is shorter, by
such person or persons as shall have been named as the Participant's
beneficiary(s), or by such persons that have acquired the Participant's rights
under the Option by will or by the laws of descent and distribution.
(b) Termination by Disability. In the event the service of a Participant is
terminated by reason of Disability, all outstanding Options granted to that
Participant shall remain exercisable for the remaining Option term.
(c) Termination by Retirement. In the event the service of a Participant is
terminated by reason of Retirement, all outstanding Options granted to that
Participant shall remain exercisable for the remaining Option term.
6.8 TERMINATION OF SERVICE FOR OTHER REASONS
If the service of a Participant shall terminate for any reason (other than
the reasons set forth in Section 6.7 herein), all Options held by the
Participant which are not currently exercisable immediately shall be forfeited
to the Company (and shall once again become available for grant under the
Program).
Options which are exercisable as of the effective date of service
termination may be exercised by the Participant within the period beginning on
the effective date of termination, and ending three (3) months after such
date.
If the service of a Participant shall terminate for Cause, all outstanding
Options held by the Participant immediately shall be forfeited to the Company,
and no additional exercise period shall be allowed, regardless of whether or
not Options are currently exercisable.
6.9 NON-TRANSFERABILITY OF OPTIONS
No Option granted under the Program may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution or pursuant to a Qualified Domestic Relations
Order.
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ARTICLE VII--RESTRICTED STOCK
7.1 GRANTS OF RESTRICTED STOCK
Subject to the terms and provisions of the Program, Restricted Stock shall
be granted to Participants on the first day of each year of their term. In the
first year of a Participant's term, they shall receive a grant of 450 Shares
of Restricted Stock. In each of the second and third years of the
Participant's term, the Participant shall receive a grant of 150 Shares of
Restricted Stock.
In the event that a new non-Employee Director joins the Board during an
ongoing term, he will be eligible to receive a supplemental grant of
Restricted Stock in addition to future grants. The supplemental grant will be
equal to the number of Restricted Stock granted in the second year of a
Director's term divided by twelve (12) months, multiplied by the number of
months remaining in the Director's term.
7.2 RESTRICTED STOCK PRICE
The price for each Share of Restricted Stock shall be equal to the par value
of the Company's common stock.
7.3 RESTRICTIONS AND RIGHTS OF OWNERSHIP
Restrictions on Restricted Stock granted under the Program shall lapse at
the end of the Participant's term in which they were granted. All rights of
ownership with respect to the Shares shall transfer to the Participant at the
date of grant, including voting and dividend rights.
7.4 PAYMENT
Payment of the Restricted Stock price shall be due and payable in cash to
the Company at the time at which they are granted.
As soon as practicable after receipt of the payment of the Restricted Stock
price, the Company shall deliver to the Participant, in the Participant's
name, Share certificates in an appropriate amount based upon the number of
Shares granted and purchased.
7.5 RESTRICTIONS ON SHARE TRANSFERABILITY
The Committee shall impose such restrictions on any shares acquired pursuant
to the grant of Restricted Stock under the Program, 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 on
state securities laws applicable to such Shares.
7.6 TERMINATION OF SERVICE DUE TO DEATH, DISABILITY, OR RETIREMENT AT THE END
OF A TERM
(a) Termination by Death. In the event the service of a Participant is
terminated by reason of death, all restrictions on Shares of Restricted Stock
shall immediately lapse.
(b) Termination by Disability. In the event the service of a Participant is
terminated by reason of disability, all restrictions on Shares of Restricted
Stock granted to that Participant shall lapse as of the date the Committee
determines the definition of Disability to have been satisfied.
(c) Termination by Retirement. In the event the service of a Participant is
terminated by reason of Retirement at the end of a Participant's term, all
restrictions on Shares of Restricted Stock granted to that Participant
immediately shall lapse. In the event the service of a Participant is
terminated by reason of Retirement during a Participant's term, all Shares of
Restricted Stock granted to that Participant which still bear restrictions
immediately shall be forfeited.
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7.7 TERMINATION OF SERVICE FOR OTHER REASONS
If the service of a Participant shall terminate for any reason (other than
the reasons set forth in Section 7.6 herein), all Shares of Restricted Stock
held by the Participant which still bear restrictions shall be immediately
forfeited to the Company.
7.8 NON-TRANSFERABILITY OF RESTRICTED STOCK
Shares of Restricted Stock granted under the Program may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution or pursuant to a
Qualified Domestic Relations Order until permitted under the terms of the
applicable Award.
ARTICLE VIII--BENEFICIARY DESIGNATION
8.1 BENEFICIARY DESIGNATION
Each Participant under the Program may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Program is to be paid in case of his death
before he receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant. In the absence of any
such designation, benefits remaining unpaid at the Participant's death shall
be paid to the Participant's estate. In the event that any question arises as
to any beneficiary designation, the Company may, in its sole discretion, elect
to pay any benefits remaining at the Participant's death to the Participant's
estate.
ARTICLE IX--RIGHTS OF PARTICIPANTS
9.1 SERVICE
Nothing in the Program shall confer upon any Participant any right to serve
as a Director for any period of time or to continue his present or any other
rate of compensation.
ARTICLE X--REORGANIZATION OR CHANGE IN CONTROL
10.1 REORGANIZATION
If, in the event of a Reorganization, provision has not been made for
substitution of new stock Options and Restricted Stock by the surviving
corporation for and having a value equal to the stock Options and Restricted
Stock held under the Program at the date of such Reorganization, the owner of
such Options and/or Restricted Stock shall receive within thirty (30) days
after such Reorganization in full satisfaction of such unexpired stock Options
and Restricted Stock, (a) in the case of an Option, cash representing the
excess, if any, of the value of stock subject to such Option, valued with
reference to the highest sale price at which the common stock of the Company
is traded as reported for consolidated trading for issues listed on the New
York Stock Exchange (or if not so listed, then as reported on any other
national securities exchange) during the thirty (30) days preceding the date
on which the Reorganization is consummated, over the applicable Option
purchase price for such stock, or (b) in the case of Restricted Stock, such
highest sale price over the applicable purchase price for such stock, without
regard to the exercise dates provided in such stock Options under Section 6.4
of the Program or in respect of such Restricted Stock under Section 7.3 of the
Program.
10.2 CHANGE IN CONTROL
In the event of a Change in Control, notwithstanding any other provision of
the Program to the contrary, (i) all outstanding Options granted under the
Program shall immediately become exercisable; and (ii) all restrictions
applicable to any shares subject to an Award of Restricted Stock shall
immediately lapse.
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ARTICLE XI--AMENDMENT, MODIFICATION AND TERMINATION
11.1 AMENDMENT, MODIFICATION AND TERMINATION
With the approval of the shareholders, at any time and from time to time,
the Committee may terminate, amend, or modify the Program, except that no
termination, amendment, or modification of the Program shall in any manner
adversely affect any Award previously granted under the Program, without the
written consent of the Participant holding such Award. However, the Program
shall not be amended more than once every six (6) months except to comply with
any applicable tax or securities laws or regulations and rulings issued
thereunder.
ARTICLE XII--MISCELLANEOUS
12.1 GENDER AND NUMBER
Except where otherwise indicated by the context, and masculine term used
herein also shall include the feminine; the plural shall include the singular
and the singular shall include the plural.
12.2 SEVERABILITY
In the event any provision of the Program shall be held illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining
parts of the Program, and the Program shall be construed and enforced as if
the illegal or invalid provision had not been included.
12.3 SUCCESSORS
All obligations of the Company under the Program 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, merger, consolidation or otherwise.
12.4 REQUIREMENTS OF LAW
The granting of Awards and the issuance of Shares under the Program 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.
12.5 GOVERNING LAW
To the extent not preempted by Federal Law, the Program and all agreements
hereunder shall be governed by and construed in accordance with the laws of
the State of Louisiana.
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APPENDIX B
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
Non-qualified 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.
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.
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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 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 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.
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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 "NON-EMPLOYEE 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.
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 direct or indirect majority voting interest,
except for J. Ray McDermott, S.A. and any of its subsidiaries.
2.32 "RESTRICTED STOCK PERFORMANCE FORMULA" shall have the meaning ascribed
to such term in Section 8.3 hereof.
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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.
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. Notwithstanding
the foregoing sentence, Restricted Stock granted under the Restricted Stock
Performance Formula shall be limited to an Initial Grant (as defined in
Section 8.3) of 200,000 Shares awarded in any one fiscal year to any single
Participant.
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(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.
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.
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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.
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 NON-TRANSFERABILITY 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.
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(B) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, non 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 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 non-
refundable.
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 8 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
8.1 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 of Restricted Stock 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; and
(i) Share Price.
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.
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8.2 ADJUSTMENTS
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established 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
on a discretionary basis (the Committee shall retain the discretion to adjust
such Awards downward).
8.3 RESTRICTED STOCK PERFORMANCE FORMULA
Awards of Restricted Stock may be granted pursuant to the formula described
in this Section (hereinafter referred to as the "Restricted Stock Performance
Formula"). The Committee shall make an initial grant of Shares of Restricted
Stock (the "Initial Grant"). At the end of a specified, pre-established
performance period (determined by the Committee), the number of Shares in the
Initial Grant shall be increased or decreased based on the increase or
decrease in the value of the Shares over the applicable performance period.
The increase or decrease described in the preceding paragraph shall be
determined as follows:
(a) At the end of each performance period, the Market Value (as defined
in paragraph (c) below) of a Share shall be compared to the Market Value
per Share on the date the Initial Grant was awarded.
(b) The Committee shall calculate the difference in the Market Value of a
Share on the last day of the applicable performance period and the Market
Value of a Share on the date of Initial Grant. That difference shall be
multiplied by the number of Shares in the Initial Grant available to be
earned at the end of the applicable performance period, and the resulting
product shall be divided by the Market Value of a Share on the last day of
the performance period. The number of Shares so determined shall be added
to (in the case of an increase in Market Value) or subtracted from (in the
case of a decrease in Market Value) the number of Shares in the Initial
Grant available to be earned at the end of the applicable performance
period.
(c) For purposes of this Section 8.3, the "Market Value" of a Share on
the Initial Grant date shall mean the average of the highest and lowest
quoted selling price of a Share on the New York Stock Exchange on the date
of Initial Grant, and the "Market Value" of a Share on the last day of the
applicable performance period shall mean the average of the highest and
lowest quoted selling price of a Share on the New York Stock Exchange over
the last thirty (30) trading days of the applicable performance period.
8.4 COMPLIANCE WITH CODE SECTION 162(M)
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. 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
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<PAGE>
Option or 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.
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 tot he 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 pro-rated 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.
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<PAGE>
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
pre-requisite 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.
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 NON-
RECURRING 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 non-recurring 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
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<PAGE>
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.
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 pre-empted 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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<PAGE>
MCDERMOTT INTERNATIONAL, INC.
THRIFT PLAN FOR EMPLOYEES OF MCDERMOTT INCORPORATED
AND PARTICIPATING SUBSIDIARY AND AFFILIATED COMPANIES
JULY 28, 1997
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 as to
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 July 24, 1997.
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 September 1, 1997, 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,
/s/ ROGER E. TETRAULT
R.E. Tetrault
Chairman of the Board andChief
Executive Officer
<PAGE>
MCDERMOTT INTERNATIONAL, INC.
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of McDermott International, Inc., a Panama
corporation (the "Company"), hereby appoints S. Wayne Murphy and Daniel R.
Gaubert, 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, $1.00 par value per share, of the Company which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of the Company for the
fiscal year ended March 31, 1997 to be held in Regency Ballrooms F, G & H, 3rd
Floor, of the Hyatt Regency New Orleans, Poydras at Loyola, New Orleans,
Louisiana, on Tuesday, September 2, 1997, 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.
The undersigned acknowledges receipt of the Annual Report for the fiscal year
ended March 31, 1997 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 VOTED FOR THE ELECTION
OF DIRECTORS AND IN THE MANNER FAVORED BY THE DIRECTORS AS INDICATED ON THE
REVERSE SIDE.
PLEASE MARK, SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD AND PROMPTLY
RETURN IT IN THE ENCLOSED ENVELOPE.
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
IMPORTANT--PLEASE MARK APPROPRIATE BOXES ONLY IN BLUE OR BLACK INK AS SHOWN:
1. The election of Robert L. Howard, Roger E. Tetrault and John N. Turner as
Class III Directors, and Richard E. Woolbert as a Class II Director.
FOR WITHHELD AUTHORITY
all nominees for all nominees
[_] [_]
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- ----------------------------------------------------------
2. The approval of the Company's 1997 Director Stock Program (the Directors
favor a vote "FOR").
FOR AGAINST ABSTAIN
[_] [_] [_]
3. The approval of Amendments to the Company's 1996 Officer Long-Term Incentive
Plan (the Directors favor a vote "FOR").
FOR AGAINST ABSTAIN
[_] [_] [_]
4. The retention of Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending March 31, 1998 (the Directors favor a vote "FOR").
FOR AGAINST ABSTAIN
[_] [_] [_]
5. Upon such other matters as may properly come before the meeting.
ANNUAL REPORT
Mark here to discontinue annual report mailing for the account (for
multiple-account holders only). [_]
SIGNATURE(S) DATE
----------------------------------------- ---------------
(Signature(s) should agree with name(s) on stock certificates as specified
hereon. Executors, administrators, trustees, etc., should indicate when
signing).
