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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
J. Ray McDermott, S.A.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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J. RAY MCDERMOTT, S.A.
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R. E. Howson1 450 Poydras Street
Chairman of the Board and P.O. Box 61829
Chief Executive Officer New Orleans, Louisiana, 70161-1829
(504) 587-5300
June 26, 1996
Dear Stockholder:
You are cordially invited to the Company's Annual Meeting of Stockholders to
be held on Friday, August 2, 1996, in the Versailles Ballroom, New Orleans
Hilton Riverside, Poydras at Mississippi River, New Orleans, Louisiana,
commencing at 9:30 a.m. local time. The notice of meeting and proxy statement
following this letter describe the matters to be acted upon at the meeting.
Whether or not you personally plan to attend, please take a few minutes now to
mark, sign and date the enclosed proxy card or voting instruction form and
return it in the enclosed postage-paid envelope so that your shares are
represented and voted at the meeting.
In April 1996, Frank C. Wade resigned as Vice Chairman of the Company's
Board of Directors to pursue other interests. We want to thank Frank for his
contributions to the Company and wish him success in his future ventures.
Thank you for your interest in our Company.
Very truly yours,
R. E. HOWSON
<PAGE>
J. RAY MCDERMOTT, S.A.
1450 POYDRAS STREET
P. O. BOX 61829 NEW ORLEANS, LOUISIANA 70161-1829
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 2, 1996
To the Stockholders of
J. RAY McDERMOTT, S.A.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of J. Ray
McDermott, S.A., a Panama corporation (the "Company"), for the fiscal year
ended March 31, 1996 will be held in the Versailles Ballroom, New Orleans
Hilton Riverside, Poydras at Mississippi River, New Orleans, Louisiana, on
Friday, August 2, 1996, at 9:30 a.m. local time, for the following purposes:
(1) To elect four Directors;
(2) To approve the Company's Restated Short-Term Incentive Compensation
Plan;
(3) To approve the Company's Restated Executive Long-Term Incentive
Compensation Plan;
(4) To retain Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending March 31, 1997; 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 June 21, 1996 as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting and at any adjournment or adjournments thereof.
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD OR VOTING INSTRUCTION
FORM AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. This will ensure that your
vote is counted, whether or not you attend the meeting. If you attend the
meeting, you may revoke your proxy and vote in person at that time.
By Order of the Board of
Directors,
S. WAYNE MURPHY
Secretary
Dated: June 26, 1996
<PAGE>
J. RAY MCDERMOTT, S.A.
1450 POYDRAS STREET
P. O. BOX 61829
NEW ORLEANS, LOUISIANA 70161-1829
----------------
PROXY STATEMENT FOR ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD AUGUST 2, 1996
----------------
GENERAL INFORMATION
This Proxy Statement is being furnished and the accompanying proxy card or
voting instruction form ("Proxy") is being solicited by the Board of Directors
of J. Ray McDermott, S.A. (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
delivery of proxy materials for a fee of $1,500, plus out-of-pocket expenses.
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 June 26, 1996.
The Company was organized under the laws of the Republic of Panama in 1994
to succeed to substantially all of the operations of the Marine Construction
Services Business of McDermott International, Inc. ("McDermott
International"), which business was contributed to the Company on January 31,
1995 (the "Effective Time"). On that date, the Company also acquired Offshore
Pipelines, Inc. ("OPI") in a merger transaction (the "Merger") pursuant to an
Agreement and Plan of Merger dated as of June 2, 1994, as amended (the "Merger
Agreement").
VOTING AT MEETING
Only holders of record of the Company's Common Stock, $.01 par value per
share ("Common Stock"), and the Company's Series A $2.25 Cumulative
Convertible Preferred Stock, $.01 par value per share ("Series A Preferred
Stock"), at the close of business on June 21, 1996 (the "Record Date"), will
be entitled to notice of, and to vote at, the Annual Meeting. Each outstanding
share of Common Stock and each outstanding share of Series A Preferred Stock
is entitled to one vote per share, with all holders thereof voting as a single
class on the matters to be acted upon at the Annual Meeting. There were
outstanding on the Record Date 40,261,373 shares of Common Stock and 3,200,000
shares of Series A Preferred Stock. On the Record Date, 24,668,297 shares of
Common Stock and all of the outstanding 3,200,000 shares of Series A Preferred
Stock (or approximately 64.1% of the total votes entitled to be cast at the
meeting) were held by McDermott International with its address at 1450 Poydras
Street, New Orleans, Louisiana 70112-6050.
A majority of the voting power of the outstanding shares of Company stock
present in person or by proxy will constitute a quorum at the meeting. Each
matter submitted to the stockholders, including the election of
<PAGE>
directors, requires the affirmative vote of a majority of the voting power of
the outstanding shares of Company 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 Restated Short-Term Incentive Compensation Plan, (iii) the
approval of the Company's Restated Executive Long-Term Incentive Compensation
Plan, and (iv) the retention of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending March 31, 1997. McDermott International
has informed the Company that it will vote its shares of Common Stock and
Series A Preferred Stock representing approximately 64.1% of the total votes
entitled to be cast at the meeting in favor of each of these items.
ELECTION OF DIRECTORS
(ITEM 1)
The Company's Certificate of Incorporation provides 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.
Robert E. Howson and Mike H. Lam were elected as Class I Directors at the
Company's first annual meeting of stockholders held on August 4, 1995 at which
McDermott International voted all of its shares of Common Stock and Series A
Preferred Stock in favor of their election in accordance with the terms of the
Merger Agreement. Other than Rick L. Burdick and Lodwrick M. Cook, all other
Directors were previously elected to their respective classes as of the
Effective Time. Mr. Burdick was appointed a Class II Director by the Company's
Board of Directors on June 30, 1995, upon the recommendation of Frank C. Wade,
former Chairman of the Board of OPI and former Vice Chairman of the Company's
Board, in accordance with the terms of the Merger Agreement. Mr. Cook was
appointed a Class I Director by the Company's Board of Directors on March 13,
1996, upon the recommendation of the Company's Directors Nominating Committee.
Upon the nomination of the Board of Directors at its June 5, 1996 meeting,
Messrs. Burdick and Cook are now standing for election to their respective
classes at this year's Annual Meeting. The Board of Directors also nominated
James J. Wildasin and J. Howard Macdonald for reelection as Class II Directors
of the Company's Board. If elected, each Class II nominee will hold office
until the Company's 1999 Annual Meeting and until his successor is elected and
qualified, and Mr. Cook, as a Class I nominee, will hold office until the
Company's 1998 Annual Meeting and until his successor is elected and
qualified.
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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 under
"Continuing Class I Directors" and "Continuing Class III Directors" are the
names of the other Directors of the Company currently in office. Class I
Directors will continue to serve until the Company's Annual Meeting of
Stockholders in 1998 and Class III Directors will continue to serve until the
Company's Annual Meeting of Stockholders in 1997.
Set forth below is certain information (ages as of August 2, 1996) with
respect to each nominee for election as a director and each Director of the
Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
----------------------------- --- --------
<S> <C> <C> <C>
CLASS II NOMINEE
James J. Wildasin............................................ 61 1995
President, Europe and Subsea Development of the Company since
September 1995. Prior thereto, he was President and Chief
Operating Officer of the Company from January 31, 1995;
President and Chief Operating Officer of McDermott
International's Marine Construction Services Business from
February 1993; Senior Vice President and Group Executive,
North Sea, Middle East and West Africa Operations of
McDermott International from February 1992; Vice President
and Group Executive, North Sea, Middle East and West Africa
Operations of McDermott International from July 1991; Vice
President and General Manager, London Engineering of
McDermott International from March 1991; and prior to that,
President and Co-Chief Executive Officer of McDermott-ETPM,
Inc.
J. Howard Macdonald.......................................... 68 1995
Chairman and Chief Executive Officer of NatWest Investment
Bank from January 1989 until his retirement in April 1991.
He is also a director of McDermott International, The BOC
Group plc, and The Weir Group plc.
Rick L. Burdick.............................................. 45 1995
Sole shareholder of a professional corporation that has
served as a partner in the law firm of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., a limited liability partnership
including professional corporations, since 1988. He is also
a director of Republic Industries, Inc.
CLASS I NOMINEE
Lodwrick M. Cook............................................. 68 1996
A director of Atlantic Richfield Company ("ARCO") since 1980
and Chairman Emeritus of ARCO since June 1995, prior to
which he was Chairman of the Board of ARCO from January
1986. Mr. Cook was also ARCO's Chief Executive Officer from
October 1985 to June 1994, and Chairman of the Board of ARCO
Chemical Company from 1987 until May 1995. Mr. Cook is also
a director of Castle & Cooke, Inc. and Banc One Louisiana
Corporation, and a member of the Investment Advisory
Committee of Aurora Capital Partners, L.P.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
----------------------------- --- --------
<S> <C> <C>
CONTINUING CLASS I DIRECTORS
Robert E. Howson................................................. 64 1995
Chairman of the Board and Chief Executive Officer of the Company
since January 31, 1995 and Chairman of the Board and Chief
Executive Officer of McDermott International and McDermott
Incorporated since August 1988. Prior to assuming these
positions, he was President and Chief Operating Officer of
McDermott International and McDermott Incorporated from August
1987. He is also a director of McDermott International,
McDermott Incorporated, The Louisiana Land and Exploration
Company and Whitney Holding Corporation.
Mike H. Lam...................................................... 49 1995
President, Marine Construction Services of the Company since
September 1995. From October 1992 through the completion of the
Merger on January 31, 1995, he was Vice Chairman of the Board of
Directors and Chief Operating Officer of OPI, prior to which he
was Executive Vice President--Worldwide Operations of OPI from
April 1990. He is also a director of DeepTech International Inc.
CONTINUING CLASS III DIRECTORS
Brock A. Hattox.................................................. 48 1995
Executive Vice President and Chief Financial Officer of McDermott
International since February 1995. He also has been Executive
Vice President and Chief Financial Officer, and President of the
Engineering and Construction Group, of McDermott Incorporated
since February 1995. Prior to assuming these positions, he was
Senior Vice President and Chief Financial Officer of McDermott
International and McDermott Incorporated from March 1991; and
prior to that, Vice President, Controller and Planning, of Eaton
Corporation (a manufacturer of engineered products for
automotive, industrial, commercial and defense markets). He is
also a director of McDermott International and McDermott
Incorporated.
John F. Bookout.................................................. 73 1995
Chairman of the Board, President and Chief Executive Officer of
Kelley Oil & Gas Corporation since February 1996. Until his
retirement in June 1988, Mr. Bookout was President and Chief
Executive Officer of Shell Oil Company and served on the
Supervisory Board of Directors of Royal Dutch Shell in The
Netherlands. He is also an advisory director of The Investment
Company of America and a director of McDermott International.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
----------------------------- --- --------
<S> <C> <C>
Cedric E. Ritchie................................................ 68 1995
A director of The Bank of Nova Scotia ("BNS") since September
1972. Chairman of the Executive Committee of the Board of BNS
from January 1995 until January 1996; prior to which, he was
Chairman of the Board and Chairman of the Executive Committee of
the Board of BNS from January 1993 and Chairman of the Board and
Chief Executive Officer of BNS from December 1979. He is also a
director of Ingersoll-Rand Company, MacMillan Bloedel Limited,
Minorco, Moore Corporation Limited, NOVA Corporation of Alberta
and Canadian National Railways.
Thomas P. Tatham................................................. 50 1995
Chairman of the Board, Chief Executive Officer and a director of
DeepTech International Inc. ("DeepTech International") since
October 1989 and Chairman of the Board and a director of
Leviathan Gas Pipeline Company ("Leviathan"), which is the
general partner of Leviathan Gas Pipeline Partners, L.P., a
publicly traded master limited partnership, since February 1989.
Mr. Tatham also served as Chief Executive Officer of Leviathan
from February 1989 through June 1995. Mr. Tatham also has been
Chairman of the Board and a director of Tatham Offshore, Inc.
("Tatham Offshore") since its inception in 1988 and has served
as its Chief Executive Officer since November 1995.
</TABLE>
BOARD OF DIRECTORS AND ITS COMMITTEES
General Information. The Board of Directors of the Company has an Audit
Committee, a Directors Nominating Committee and a Compensation Committee. In
addition to several other standing committees, the Board also established an
Independent Committee in accordance with the terms of a Letter Agreement
entered into between the Company and McDermott International in connection
with the Merger (the "Letter Agreement").
Audit Committee. The Audit Committee is currently composed of Messrs.
Ritchie (Chairman), Tatham and Burdick. During the Company's fiscal year ended
March 31, 1996 ("fiscal year 1996"), the Audit Committee met twice. The
functions of the Audit Committee include reviewing the accounting principles
and practices employed by the Company and, to the extent the Audit Committee
deems appropriate, by the Company's subsidiaries; meeting with the Company's
independent auditors to review their report on their examination of the
Company's accounts, their comments on the internal controls of the Company and
the actions taken by management with regard to such comments; approving
professional services, including non-audit services, rendered by such
independent auditors; and recommending annually to the Board of Directors the
appointment of the Company's independent auditors.
Compensation Committee. The Compensation Committee is currently composed of
Messrs. Bookout (Chairman), Ritchie and Tatham. During fiscal year 1996, the
Compensation Committee met twice. The
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Compensation Committee determines the salaries of all of the Company's
officers elected to their positions by the Board, and also reviews and makes
recommendations regarding the salaries of officers of the Company's
subsidiaries; administers and makes awards under the Company's current long-
term and short-term incentive plans; and will administer and make awards under
the Company's Restated Executive Long-Term Incentive Compensation Plan and
Restated Short-Term Incentive Compensation Plan.
Directors Nominating Committee. The Directors Nominating Committee is
currently composed of Messrs. Macdonald (Chairman) and Bookout. During fiscal
year 1996, the Directors Nominating Committee met three times. The function of
the Directors Nominating Committee is to recommend nominees for election to
the Company's Board of Directors. The Directors Nominating Committee will
consider nominees recommended by stockholders for election as directors. Any
such recommendation, together with the nominee's qualifications and consent to
be considered as a nominee, should be sent to the Secretary of the Company.
Independent Committee. Under the terms of the Letter Agreement, the
Independent Committee must be comprised of each member of the Company's Board
of Directors who either (i) would qualify as an independent director within
the meaning given to such term under the rules of the New York Stock Exchange
or (ii) is not an "Affiliate" or "Associate" (as such terms are defined in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of McDermott International, the Company, or with respect to periods
ending on or prior to the Effective Time, OPI, other than solely as a result
of being a director of the Company. The Independent Committee is currently
composed of Messrs. Ritchie, Bookout, Macdonald, Tatham, Burdick and Cook.
During fiscal year 1996, the Independent Committee met twice.
Under the Letter Agreement, a majority of the members of the Independent
Committee must approve certain transactions between the Company, on one hand,
and McDermott International and its Affiliates and Associates, other than the
Company and its subsidiaries (the "McDermott Group"), on the other. Such
Letter Agreement provides that until the earlier of the third anniversary of
the Effective Time or the date on which McDermott International and its
Affiliates cease to own at least 30% of the outstanding voting stock of the
Company, the Company shall not take any of the following actions, among
others, without the approval of the Independent Committee: (a) repurchase,
redeem, prepay or amend the $231 million 9% Senior Subordinated Notes due 2001
issued by the Company to McDermott International or the Series A Preferred
Stock; or repurchase any of the Common Stock owned by McDermott International
or certain of its Affiliates; (b) lease, sell or otherwise provide certain
goods or services to, or lease or purchase certain goods or services from,
McDermott International or certain of its Affiliates, involving aggregate
payments in excess of $5,000,000; or (c) fill any vacancies on the Board of
Directors of the Company created by an increase in the size of such Board of
Directors with certain persons who are or were executive officers or directors
of McDermott International, the Company or OPI. The Letter Agreement also
provides that until the earlier of the third anniversary of the Effective Time
or the date on which McDermott International and its Affiliates cease to own
at least 30% of the outstanding voting stock of the Company, the Company shall
not take any of the following actions, among others, without either (i) the
affirmative vote of the holders of at least a majority of the then outstanding
voting stock of the Company owned by persons other than members of the
McDermott Group or Associates thereof or (ii) the approval of the
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<PAGE>
Independent Committee: (a) any merger or consolidation of the Company or any
subsidiary of the Company with any member of the McDermott Group; (b) certain
transfers or other dispositions of assets outside of the ordinary course of
business to any member of the McDermott Group; (c) certain issuances or
transfers by the Company or any subsidiary of the Company of equity securities
of the Company or any such subsidiary; (d) the adoption of any plan or
proposal for the liquidation or dissolution of the Company pursuant to which
any member of the McDermott Group would receive securities of the Company or
any subsidiary of the Company; (e) certain reclassifications or
recapitalizations of the Company, mergers or consolidations of the Company
with any subsidiary, or certain other transactions that have the effect of
increasing the proportionate equity interest of the Company or any subsidiary
owned by any McDermott Group member; or (f) certain loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Company or any subsidiary of the Company to any
McDermott Group member. See "CERTAIN TRANSACTIONS--McDermott International and
Affiliates".
DIRECTORS' ATTENDANCE AND COMPENSATION
Directors' Attendance and Fees. During fiscal year 1996, there were six
meetings of the Board of Directors of the Company. Each Director attended 75%
or more of the aggregate of the meetings of the Board and of the committees on
which he served, other than Mr. Ritchie. Each Director who is not an employee
of the Company or any of its affiliated companies receives an annual stipend
of $20,000 plus a fee of $1,500 for each Board meeting and $1,000 for each
telephonic Board meeting in which such Director participates, and a fee of
$1,500 for each committee meeting in which such Director participates.
Retirement Plan and Health Care. The Company maintains an unfunded
retirement plan in which all Directors who are not employees of the Company or
any of its subsidiaries participate. The Retirement Plan for Non-Management
Directors of J. Ray McDermott, S.A. provides an annual benefit equal to the
greater of (1) 50% of the "Final Average Compensation" (generally average
annual compensation for the last three consecutive years of service) received
by the Director from the Company or (2) the annual stipend (excluding meeting
and committee fees and expenses) which the Company paid non-management
Directors immediately preceding the last annual meeting held prior to the
Director's retirement. Benefits are payable quarterly, commencing upon
retirement or disability. A lump sum distribution may be requested subject to
the consent of the Company's Finance Committee. The period of time for which a
Director is due such quarterly payments equals the period of time of service
as a Director. 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.
Non-Employee Director Stock Plan. The Company has a Non-Employee Director
Stock Plan (the "Directors Plan") to encourage stock ownership by Directors,
to more closely align the interests of Directors with the Company's
stockholders and to provide the Company with an effective means of attracting
and retaining qualified individuals to serve on the Board of Directors. The
Directors Plan, which is administered by the Board of Directors, permits the
Board to grant to Directors who are not employees of the Company or any of its
7
<PAGE>
Affiliates stock options and rights to purchase restricted stock in an
aggregate of up to 100,000 shares of Common Stock. Options, which are granted
at no less than 100% of the fair market value on the date of grant, are fully
vested and exercisable on the date of grant and remain exercisable for not
more than ten years thereafter. Rights to purchase Common Stock are granted at
$1.00 per share subject to transfer restrictions and forfeiture under certain
circumstances.
Pursuant to the Directors Plan, each eligible Director is granted options to
purchase at fair market value 600 shares of Common Stock on the first day of
the first year of such Director's term, and 200 shares on the first day of
each subsequent year during such term. Also pursuant to the Directors Plan,
each eligible Director is granted the right to purchase 300 shares of
restricted stock on the first day of the first year of such Director's term,
and 100 shares of restricted stock on the first day of each subsequent year
during such term. The restrictions and forfeiture provisions generally lapse
on all shares of restricted stock purchased under grants made during a
Director's term at the end of such term. In the event of a change in control
of the Company, all such restrictions and forfeiture provisions shall lapse
and options shall remain exercisable throughout their term.
During fiscal year 1996, options to acquire 2,200 shares of Common Stock and
rights to purchase 1,100 shares of restricted stock were awarded under the
Directors Plan, of which 300 shares of restricted stock were forfeited by Mr.
Wade upon his resignation as Vice Chairman of the Board of Directors in April
1996.
Mr. Lam's Deferred Compensation Agreement. In January 1992, OPI entered into
a deferred compensation agreement with Mr. Lam. Under his deferred
compensation agreement, OPI was required to pay Mr. Lam annual cash payments
in varying amounts beginning at the end of his fifth year of service with OPI
($50,000 at the end of his fifth year of service, increasing by $10,000 for
each subsequent year through the ninth year of service), and either a cash
payment or annuity in the amount of $1,000,000, plus an additional amount
equal to all federal and state income taxes attributable to such payment, at
the end of his tenth year of service. The obligations of OPI under the
deferred compensation agreement were indirectly assumed by the Company by
operation of law upon the consummation of the Merger. The Board of Directors
of the Company on February 7, 1995 approved a resolution that Mr. Lam's
service as a member of the Board, or as an advisor to the Company, would be
treated as service as an "employee" for purposes of his deferred compensation
agreement. For purposes of his deferred compensation agreement, Mr. Lam is
considered to have commenced service with the Company in May 1990. In
accordance with his deferred compensation agreement, the Company made an
annual cash payment of $50,000 to Mr. Lam during fiscal year 1996.
If a "business combination" (as defined in the deferred compensation
agreement) not approved by the Board occurs during the term of such agreement,
Mr. Lam will be entitled to receive a fully vested and non-forfeitable benefit
under such agreement as if he completed ten years of service with the Company.
An irrevocable grantor trust was established contemporaneously with the
execution of the deferred compensation agreement, which trust has been
nominally funded. Mr. Lam's interest in any assets of the trust are that of an
unsecured general creditor of the Company.
8
<PAGE>
EXECUTIVE OFFICERS
Set forth below is the age (as of August 2, 1996), positions held with the
Company and certain other business experience information for each of the
Company's executive officers who are not Directors.
Richard R. Foreman, 48, Executive Vice President and Chief Financial Officer
of the Company since January 31, 1995. Before assuming his present position,
Mr. Foreman was President and Chief Financial Officer of OPI from October
1992; and prior to that, President and Chief Operating Officer of OPI from
December 1989.
Daniel R. Gaubert, 47, Vice President, Finance of the Company since August
1995. Prior thereto, he was Acting Controller of the Company from February
1995. Mr. Gaubert also has served as Vice President, Finance and Controller of
McDermott International and McDermott Incorporated since February 1995. Prior
thereto, he was Vice President and Controller of McDermott International and
McDermott Incorporated from February 1992; Corporate Controller of McDermott
International and McDermott Incorporated from July 1991; and prior to that,
Group Controller, Power Generation Group, of Babcock & Wilcox Investment
Company and The Babcock & Wilcox Company, which are subsidiaries of McDermott
International.
L. E. Walker, 51, Senior Vice President, Business Development and Strategic
Initiatives of the Company since February 1995. Before assuming this position,
Mr. Walker served as President of Offshore Pipelines International, Ltd.,
OPI's primary international operating subsidiary, from December 1991 and as
Executive Vice President--International Operations of OPI from October 1990
until December 1991. He has over 20 years of experience in the offshore
construction industry, including serving from 1980 until 1988 as a Vice
President and General Manager for McDermott International.
Richard E. Woolbert, 62, Executive Vice President and Chief Administrative
Officer of the Company since February 1995 and Executive Vice President and
Chief Administrative Officer of McDermott International and McDermott
Incorporated since February 1995. Before assuming his current positions, Mr.
Woolbert was Senior Vice President and Chief Administrative Officer of
McDermott International and McDermott Incorporated from August 1991. Prior
thereto, he served as Vice President and Chief Administrative Officer of
McDermott International and McDermott Incorporated from November 1988.
9
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock and
McDermott International's Common Stock, par value $1.00 per share ("McDermott
Common Stock"), beneficially owned by each Director, each Named Executive
Officer, as defined in "COMPENSATION OF EXECUTIVE OFFICERS", and all Directors
and executive officers of the Company as a group, as of June 5, 1996, except
as otherwise noted. No Director or executive officer beneficially owned, as of
June 5, 1996, any other equity security of the Company or of its parent or
subsidiaries.
<TABLE>
<CAPTION>
MCDERMOTT
COMMON COMMON
NAME STOCK STOCK
- ---- ------- ---------
<S> <C> <C>
John F. Bookout(1)(2)....................... 300 4,925
Rick L. Burdick(1).......................... 300 0
Lodwrick M. Cook............................ 1,000 0
Richard R. Foreman(3)(4)(5)(6).............. 136,796 0
Brock A. Hattox(7).......................... 1,200 120,189
Robert E. Howson(5)(7)...................... 23,014 525,747
Mike H. Lam(3)(4)(5)(6)..................... 215,283 0
J. Howard Macdonald(1)(2)................... 300 3,375
Cedric E. Ritchie(1)........................ 300 0
Thomas P. Tatham(1)......................... 300 0
L. E. Walker(3)(4)(5)(6).................... 147,786 0
James J. Wildasin(4)(5)(7).................. 23,691 92,661
Don W. Wilson(6)(8)......................... 115,251 0
All Directors and executive officers as a
group (15 persons)......................... 673,271 918,211
</TABLE>
- --------
(1) With respect to each of Messrs. Bookout, Burdick, Macdonald, Ritchie and
Tatham, includes 200 shares of Common Stock that may be acquired within 60
days of June 5, 1996 upon the exercise of stock options, and 100
restricted shares of Common Stock, as to which such individuals have sole
voting power but no dispositive power, granted under the Company's Non-
Employee Director Stock Plan.
(2) With respect to Messrs. Bookout and Macdonald, includes 1,950 and 2,250
shares, respectively, of McDermott Common Stock that may be acquired
within 60 days of June 5, 1996 upon the exercise of stock options, and 150
and 750 restricted shares, respectively, of McDermott Common Stock, as to
which such individuals have sole voting power but no dispositive power,
granted under McDermott International's 1992 Director Stock Program.
(3) With respect to Messrs. Foreman, Lam and Walker, includes 114,784, 210,000
and 133,400 shares, respectively, of Common Stock that may be acquired
within 60 days of June 5, 1996 upon the exercise of stock options, which
originally were options to acquire OPI Common Stock that became
immediately exercisable options to acquire Common Stock upon consummation
of the Merger.
10
<PAGE>
(4) With respect to Messrs. Foreman, Lam, Walker and Wildasin, includes the
equivalent of approximately 2,764, 1,118, 2,760 and 267 shares,
respectively, 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, 1996.
(5) With respect to Messrs. Foreman, Howson, Lam, Walker and Wildasin,
includes 6,337, 7,924, 600, 3,380 and 7,514 shares, respectively, of
Common Stock that may be acquired within 60 days of June 5, 1996 upon the
exercise of stock options granted under the Company's Executive Long-Term
Incentive Compensation Plan or Non-Employee Director Stock Plan. Also
includes with respect to Messrs. Foreman, Howson, Lam, Walker and
Wildasin, 8,980, 15,090, 5,020, 7,350 and 15,910 restricted shares,
respectively, of Common Stock, as to which such individuals have sole
voting power but no dispositive power, granted under the Company's
Executive Long-Term Incentive Compensation Plan or Non-Employee Director
Stock Plan.
(6) With respect to Messrs. Foreman, Lam, Walker and Wilson includes 931, 905,
896 and 175 shares, respectively, of Common Stock held as of April 18,
1996 in OPI's Employee Stock Ownership Plan, which was assumed by the
Company in connection with the Merger.
(7) With respect to Messrs. Hattox, Howson and Wildasin, includes 77,754,
307,670 and 56,787 shares, respectively, of McDermott Common Stock that
may be acquired within 60 days of June 5, 1996 upon the exercise of stock
options granted under McDermott International's 1983 and 1987 Long-Term
Performance Incentive Compensation Programs or 1992 Officer Stock
Incentive Program. Also includes with respect to Messrs. Hattox, Howson
and Wildasin, 39,410, 196,470 and 29,245 restricted shares, respectively,
of McDermott Common Stock, as to which such individuals have sole voting
power but no dispositive power, granted under McDermott International's
1987 Long-Term Performance Incentive Compensation Program or 1992 Officer
Stock Incentive Program. Also includes with respect to Messrs. Hattox,
Howson and Wildasin, the equivalent of 1,025, 1,022 and 1,327 shares,
respectively, of McDermott Common Stock held in the McDermott Thrift Plan
as of March 31, 1996.
(8) Mr. Wilson resigned as an executive officer of the Company in December
1995.
Total shares beneficially owned in all cases constituted less than one
percent of the outstanding shares of the applicable security, except that (i)
the 673,271 shares of Common Stock beneficially owned by all Directors and
executive officers as a group constituted approximately 1.65% of the
outstanding shares of Common Stock, and (ii) the 918,211 shares of McDermott
Common Stock beneficially owned by all Directors and executive officers as a
group constituted approximately 1.59% of the outstanding shares of McDermott
Common Stock. Percentage of shares beneficially owned is based upon total
shares outstanding on June 5, 1996, plus those shares deemed to be outstanding
pursuant to Rule 13d-3(d)(1) under the Exchange Act, less any shares held by
subsidiaries.
11
<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 any class of voting stock of the
Company as of June 5, 1996:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- -------------- ------------------------------------ ------------ --------
<S> <C> <C> <C>
Common Stock............ McDermott International, Inc. 24,668,29(2) 60.43%(3)
1450 Poydras Street
New Orleans, LA 70112-6050
Series A Preferred Stock
(4)..................... McDermott International, Inc. 3,200,000(5) 100.00%
1450 Poydras Street
New Orleans, LA 70112-6050
</TABLE>
- --------
(1) Sole voting and investment power unless otherwise noted.
(2) As reported on a Schedule 13D dated February 9, 1995 filed by McDermott
International.
(3) Percent of class based upon the outstanding shares of Common Stock on June
5, 1996, plus those shares deemed to be outstanding pursuant to Rule 13d-
3(d)(1) under the Exchange Act.
(4) Entitles holders thereof to one vote per share, voting as a single class
with holders of Common Stock.
(5) As footnoted on a Schedule 13D dated February 9, 1995 filed by McDermott
International with respect to its Common Stock.
REPORT ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS
The Compensation Committee, which is composed of three independent non-
employee Directors, administers the Company's executive compensation program.
The Compensation Committee's primary responsibility is to ensure the executive
compensation program supports the interests of the Company and its
stockholders.
The Company's program has four goals:
.Attract and retain a top management team;
.Motivate superior performance;
.Reward contributions toward the attainment of Company strategies; and
.Drive increases in the value of stockholders' investments in the Company.
The key elements of the executive compensation program are base salary,
short-term incentives, and long-term incentives (stock options and restricted
stock). Pay levels and opportunities under the executive
12
<PAGE>
compensation programs are targeted at the median of competitive levels,
defined by companies within the Company's industry, as well as by more general
industrial companies. The Compensation Committee and the Company have access
to outside consultants and multiple data surveys to help them determine where
the competitive median lies for various executive positions and different
types of compensation.
BASE SALARY
Salaries and salary ranges were established based upon the past practices of
OPI and McDermott International's Marine Construction Services Business (the
"Merged Companies"). Changes to salaries are determined based upon individual
performance and expectations regarding future contributions. Mr. Howson does
not receive a base salary from the Company.
SHORT-TERM INCENTIVES
Executives have the opportunity to earn annual cash incentives each year.
Actual payments reflect actual performance versus goals which are established
at the beginning of each fiscal year. Bonuses were awarded for the fiscal year
ended March 31, 1996. However, based upon the Company's performance versus
performance goals established at the beginning of the fiscal year, generally
bonuses were below target bonus levels. Mr. Howson is not eligible to receive
a bonus under the Company's short-term incentive plan.
LONG-TERM INCENTIVES
This program allows for various types of long-term incentive awards. Grants
of nonqualified stock options and restricted stock were made in connection
with the close of fiscal year 1996. The awards made were reflective of median
market practice and the Compensation Committee's subjective assessment of the
Company's performance.
Mr. Howson's equity grants were determined subjectively by the Compensation
Committee. Mr. Howson received a grant of Company stock options in recognition
of the services he renders as Chairman and Chief Executive Officer. Mr. Howson
was awarded options to acquire 32,560 shares of Common Stock at a per share
exercise price of $16.6875 (market value on the date of grant). He also
received 7,600 shares of restricted Common Stock for fiscal year 1996 in
recognition of the services he renders as Chairman and Chief Executive
Officer.
POLICY WITH RESPECT TO SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, enacted in August 1993,
limits the tax deduction the Company can take with respect to the compensation
of certain executive officers unless the compensation is "performance based",
and the material terms of performance goals are disclosed to and approved by
the Company's stockholders. The Company's executive compensation plans
received stockholder approval prior to the Company becoming a publicly traded
company and were drafted with the intention that incentive opportunities
(short-term, stock options and restricted stock) qualify as performance-based
compensation under
13
<PAGE>
Section 162(m). The transition period under Section 162(m) will expire during
1996. Stockholders are now being asked to approve the short-term and long-term
plans, as restated, in order to preserve tax deductibility.
J. F. Bookout, Chairman
C. E. Ritchie
T. P. Tatham
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Tatham, a member of the Compensation Committee, is Chairman of the Board
and Chief Executive Officer of DeepTech International and Tatham Offshore, and
Chairman of the Board of Leviathan. These companies and their affiliates,
either directly or indirectly, have, and will continue to be, engaged in a
number of commercial transactions with the Company, all of which have been,
and are expected to continue to be, entered into in the ordinary course of
business and on an arms-length basis. See "CERTAIN TRANSACTIONS--Thomas P.
Tatham and Affiliates".
14
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing, on a quarterly basis, the cumulative
total stockholder return on Common Stock with the cumulative total return of
the S&P 500 Index and a peer group index from January 31, 1995 (the date that
the Common Stock commenced trading on the New York Stock Exchange) until March
31, 1996 (the end of the Company's fiscal year). The Common Stock did not
become publicly traded under Section 12 of the Exchange Act until January 31,
1995; therefore, return information for earlier periods is not presented. The
peer group of companies consists of Baker-Hughes Incorporated, BJ Services
Co., Camco International, Inc., Coflexip S.A., Dresser Industries, Inc.,
Global Marine, Inc., Halliburton Company, Schlumberger Limited, Stolt Comex
Seaway, S.A., and Tidewater, Inc.
COMPARISON OF CUMULATIVE TOTAL RETURN*
J. RAY MCDERMOTT, S.A.; S&P 500; AND PEER GROUP
[P.U. WPX Chart Here]
* Assumes $100 invested on January 31, 1995 in J. Ray McDermott, S.A. common
stock; S&P 500; and the Peer Group and the reinvestment of dividends as
they are paid.
<TABLE>
<CAPTION>
1/31/95 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
J. Ray McDermott, S.A.......... $100.00 $123.42 $101.14 $102.85 $ 81.71 $ 88.57
S&P 500........................ $100.00 $107.11 $117.30 $126.59 $134.19 $141.38
Peer Group..................... $100.00 $111.61 $117.58 $125.59 $139.19 $162.18
</TABLE>
15
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation for
fiscal years 1995 and 1996 of (i) the Company's Chief Executive Officer, (ii)
the Company's four highest paid executive officers other than the Chief
Executive Officer, and (iii) Don W. Wilson, the former Executive Vice
President, Operations of the Company (collectively, the "Named Executive
Officers"). For fiscal year 1995, except as otherwise noted, such table only
reflects the compensation paid for the two month period commencing from the
Effective Time through March 31, 1995. Mr. Howson, who is an employee of
McDermott International, does not receive a salary from the Company. Under a
services agreement between the Company and McDermott International, the
Company is required to pay to McDermott International $2,000,000 annually for
the services of certain of McDermott International's executives, including the
services of Mr. Howson as Chairman and Chief Executive Officer of the Company.
The table does not provide any compensation information relating to the
services that Mr. Howson provides as an executive officer of McDermott
International.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
----------------------------- -----------------------------
AWARDS PAYOUTS
--------------------- -------
SECURITIES
OTHER UNDERLYING ALL
FISCAL ANNUAL RESTRICTED STOCK LTIP OTHER
NAME PRINCIPAL POSITION YEAR SALARY BONUS COMP.(2) STOCK(3) OPTIONS PAYOUTS COMP.(4)
- ---- -------------------- ------ -------- -------- -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R.E. Howson............ Chairman & Chief 1996 $ 0 $ 0 $ 0 $190,000 32,560 $ 0 $ 0
Executive Officer 1995 $ 0 $ 0 $ 0 $174,143 23,770 $ 0 $ 0
R.R. Foreman........... Executive VP & 1996 $309,000 $ 31,354 $ 0 $ 87,250 21,130 $ 0 $61,121
Chief Financial 1995 $ 50,750 $ 0 $ 0 $127,643 19,010 $ 0 $51,008
Officer
M.H. Lam(5)............ President, Marine 1996 $208,818 $ 41,978 $ 0 $118,000 78,640 $ 0 $55,717
Construction 1995 -- -- -- -- -- -- --
Services
L.E. Walker............ Senior VP, 1996 $219,064 $ 33,551 $ 26,886 $ 93,250 13,700 $ 0 $ 4,348
Development & 1995 $ 34,007 $ 0 $ 0 $ 84,165 10,140 $ 0 $ 340
Strategic Initiative
J.J. Wildasin.......... President, Europe 1996 $399,481 $ 68,470 $448,285 $192,500 27,250 $ 0 $15,632
& Subsea 1995 $ 63,181 $110,285(6) $ 38,222 $190,883 22,540 $ 0 $ 375
Development
D.W. Wilson(7)......... Former 1996 $200,976 $ 0 $ 78,115 $ 0 0 $ 0 $ 518
Executive VP, 1995 $ 36,867 $ 0 $ 15,701 $102,998 12,670 $ 0 $ 369
Operations
</TABLE>
16
<PAGE>
- --------
(1) Includes amounts earned in the fiscal year, whether or not deferred.
(2) With respect to all Named Executive Officers other than Messrs. Walker,
Wildasin and Wilson, the aggregate value of perquisites and other personal
benefits are not included because it did not exceed the lesser of $50,000
or 10 percent of the total amount of his annual salary and bonus. With
respect to Mr. Walker, includes expenses and tax equalization associated
with his international assignment for fiscal year 1996. With respect to
Mr. Wildasin, includes commodities, services, housing, utilities, expenses
and tax equalization associated with his international assignment for
fiscal years 1995 and 1996. With respect to Mr. Wilson, includes
commodities, services, housing, utilities, expenses and tax equalization
associated with his international assignment for fiscal year 1996, and
includes imputed income on interest free loans given to him under OPI's
Incentive Compensation Program for fiscal years 1995 and 1996.
(3) Restricted stock awards in Common Stock are valued at the closing market
price on the date of grant less any amounts paid by the executive officers
for such awards. As of March 31, 1996 (which is prior to the date of
restricted stock awards for fiscal year 1996), the total number of
restricted shares of Common Stock held by the Named Executive Officers and
their market values (based upon the closing market price on March 29, 1996
of $19.375) are as follows: Mr. Howson held 7,490 shares valued at
$137,629; Mr. Foreman held 5,490 shares valued at $100,879; Mr. Lam held
300 shares valued at $5,513; Mr. Walker held 3,620 shares valued at
$66,518; and Mr. Wildasin held 8,210 shares valued at $150,859. On such
date, Mr. Wilson did not hold any shares of restricted stock. Dividends
are not currently paid on the Common Stock. Grants of restricted stock
generally vest fifty percent in five years with the remaining fifty
percent vesting in three to ten years based on performance. In the event
of a change of control of the Company, the Compensation Committee may
cause all restrictions to lapse.
(4) Amounts include company matching contributions in Common Stock or
McDermott Common Stock made under McDermott's Thrift Plan and the value of
insurance premiums paid by the Company. With respect to Mr. Foreman, also
includes $50,000 and $60,000 paid during fiscal years 1995 and 1996,
respectively, under his deferred compensation agreement, but excludes a
$2,000,000 noncompetition payment made in fiscal year 1995 in connection
with the Merger under his employment agreement. With respect to Mr. Lam,
includes $50,000 paid under his deferred compensation agreement. With
respect to Mr. Walker, excludes a $1,280,000 deferred compensation payment
made in fiscal year 1995 in connection with the Merger as a result of the
acceleration of the amounts payable to him under, and the termination of,
a deferred compensation agreement between him and OPI, and excludes a
payment of $375,629 in fiscal year 1996 pursuant to an agreement entered
into concurrently with the termination of such deferred compensation
agreement. With respect to Mr. Wilson, excludes $1,131,250 received in
fiscal year 1995 in connection with the Merger (which amount is the market
value of 50,000 shares of Common Stock as of January 31, 1995, the date
upon which Mr. Wilson received such stock as a noncompetition payment
under his employment agreement).
(5) Reflects compensation received by Mr. Lam from September 1995, at which
time he became employed by the Company, through the end of fiscal year
1996.
17
<PAGE>
(6) Reflects the amount paid to Mr. Wildasin by the Company equal to the bonus
that Mr. Wildasin would have received for the full 12 month fiscal year
ended March 31, 1995 under McDermott International's annual cash incentive
plan as President and Chief Operating Officer of McDermott International's
Marine Construction Services Business.
(7) For fiscal year 1996, only includes compensation received by Mr. Wilson
from April 1995 through December 1995, at which time he resigned from the
Company.
OPTION GRANT TABLE
Options generally vest in equal installments of one-third beginning on the
first anniversary of the date of grant through the third anniversary of the
date of grant and expire ten years from the date of grant; provided, however,
that with respect to 50% of the options granted, they only vest on such
anniversary dates of grant if certain targeted earnings per share of the
Company are achieved for the applicable fiscal years. In general, vesting is
contingent on continuing employment with the Company. In the event of a change
in control of the Company, the Compensation Committee may accelerate the
exercisability of any options outstanding. The following table provides
information about option grants to the Named Executive Officers (other than
Mr. Wilson who forfeited all his options upon his resignation from the
Company) during fiscal year 1996. The Company did not grant any stock
appreciation rights to its executive officers during fiscal year 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(1)
------------------------------------------- --------------------------------
NUMBER OF
SECURITIES % OF TOTAL 5% 10%
UNDERLYING OPTIONS --------------- ----------------
OPTIONS GRANTED TO EXERCISE EXPIRATION DOLLAR DOLLAR
NAME GRANTED EMPLOYEES(2) PRICE(3) DATE GAINS GAINS
---- ---------- ------------ -------- ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
R. E. Howson
Common Stock........... 32,560 8.44 $16.6875 02/05/06 $341,707 $865,953
R. R. Foreman
Common Stock........... 21,130 5.48 $16.6875 02/05/06 $221,753 $561,965
M. H. Lam
Common Stock........... 50,000 12.96 $17.0000 12/07/05 $509,110 $1,314,155
Common Stock........... 28,640 7.43 $16.6875 02/05/06 $300,568 $761,698
L. E. Walker
Common Stock........... 13,700 3.55 $16.6875 02/05/06 $143,777 $364,360
J. J. Wildasin
Common Stock........... 27,250 7.06 $16.6875 02/05/06 $285,981 $724,730
All Stockholders(4)..... -- -- $16.6875 -- $421,865,384 $1,069,088,493
Named Executive Officers' gains as a % of all stockholders' gains... .43% .43%
</TABLE>
18
<PAGE>
- --------
(1) At a five percent and ten percent annual rate of appreciation, the stock
price would be approximately $27.1822 and $43.2831, respectively, if the
assumed annual rates of stock price appreciation shown were to be achieved
over a ten year option term.
(2) Based on 385,710 options granted to all employees of the Company during
fiscal year 1996.
(3) Fair market value on date of grant.
(4) Total dollar gains based on the assumed annual rates of appreciation shown
here and calculated on 40,197,946 outstanding shares of Common Stock on
March 31, 1996.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information concerning the exercise of stock
options during fiscal year 1996 by each of the Named Executive Officers (other
than Mr. Wilson who did not exercise any options during fiscal year 1996 and
forfeited all of his options upon his resignation from the Company) and the
value at March 31, 1996 of unexercised options held by such individuals. The
value of unexercised options reflects the increase in market value of the
Common Stock from the date of grant through March 31, 1996 (when the fair
market value of the Common Stock was $19.375 per share). The value actually
realized upon exercise of the options by such Named Executive Officers will
depend on the value of the Common Stock at the time of exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF TOTAL VALUE OF
SECURITIES UNDERLYING UNEXERCISED, IN-THE-MONEY
UNEXERCISED OPTIONS HELD OPTIONS HELD AT FISCAL YEAR-
AT FISCAL YEAR-END END
------------------------- --------------------------------
NUMBER OF
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. E. Howson
Common Stock........... 0 $0 7,924 48,406 $0 $87,505
R. R. Foreman
Common Stock........... 100,000 $1,375,525 121,121 33,803 $ 1,286,155 $56,787
M. H. Lam
Common Stock........... 0 $0 210,600 78,640 $ 2,808,750 $195,720
L. E. Walker
Common Stock........... 91,600 $1,827,300 136,780 20,460 $ 1,784,225 $36,819
J. J. Wildasin
Common Stock........... 0 $0 7,514 42,276 $0 $73,234
</TABLE>
EMPLOYMENT, DEFERRED COMPENSATION AND BONUS PAYMENT AGREEMENTS
Employment Agreements. In connection with the Merger, the Company entered
into an employment agreement (the "Employment Agreement") with Mr. Foreman
pursuant to which Mr. Foreman is employed as
19
<PAGE>
Chief Financial Officer of the Company. The Employment Agreement expires on
January 31, 2000 (the "Employment Term"). During the term of the Employment
Agreement, Mr. Foreman is entitled to receive an annual base salary of
$300,000, cash bonus (if any, as determined by the Compensation Committee
based upon the achievement of certain pre-established performance goals), and
to participate in all plans, policies and programs maintained or provided by
the Company for senior executives from time to time. In the event of a
termination of employment by the Company without cause, or by Mr. Foreman for
good reason, he will be entitled to receive his annual base salary through the
balance of his Employment Term. In the event of a termination of employment by
reason of death or disability, he will be entitled to continue to receive his
annual base salary through the end of the month in which his date of death
occurs or he is first eligible to receive payment of disability benefits, as
the case may be. During the Employment Term and through the fifth anniversary
of the expiration of the Employment Term, Mr. Foreman has an affirmative duty
not to compete with the Company. In consideration for such agreement not to
compete, on January 31, 1995, the Company paid Mr. Foreman $2,000,000.
Additionally, he is prohibited from disclosing proprietary information and is
subject to standard non-solicitation and confidentiality covenants.
Mr. Wilson, the former Executive Vice President, Operations of the Company,
who resigned from the Company in December 1995, also entered into a similar
employment agreement with the Company in connection with the Merger. No
payments, however, were made to Mr. Wilson under his employment agreement as a
result of his resignation.
Mr. Foreman's Deferred Compensation Agreement. In January 1992, OPI entered
into a deferred compensation agreement with Mr. Foreman. The obligations of
OPI under the deferred compensation agreement were indirectly assumed by the
Company by operation of law upon the consummation of the Merger. For purposes
of the deferred compensation agreement, Mr. Foreman is considered to have
commenced employment with the Company in February 1990. Under the deferred
compensation agreement, he will receive annual cash payments in varying
amounts beginning at the end of his fifth year of service with the Company
($50,000 at the end of his fifth year of service, increasing by $10,000 for
each subsequent year through the ninth year of service), and either a cash
payment or annuity in the amount of $1,000,000, plus an additional amount
equal to all federal and state income taxes attributable to such payment, at
the end of his tenth year of service. If Mr. Foreman's employment with the
Company is terminated, he will receive varying payments depending upon the
type of termination. In accordance with his deferred compensation agreement,
the Company made an annual cash payment of $60,000 to Mr. Foreman during
fiscal year 1996.
If a "business combination" (as defined in the deferred compensation
agreement) not approved by the Board occurs during the term of such agreement,
Mr. Foreman will be entitled to receive a fully vested and non-forfeitable
benefit under such agreement as if he completed ten years of service with the
Company. An irrevocable grantor trust was established contemporaneously with
the execution of the deferred compensation agreement, which trust has been
nominally funded. Mr. Foreman's interest in any assets of the trust are that
of an unsecured general creditor of the Company.
20
<PAGE>
Bonus Agreement Payment to Mr. Walker. In January 1996, the Company paid to
Mr. Walker a bonus equal to $375,629, pursuant to the terms of an agreement
entered into by Mr. Walker and the Company on February 1, 1995. Such agreement
was entered into concurrently with a $1,280,000 payment under, and the
termination of, a deferred compensation agreement between him and OPI, which
was assumed by a subsidiary of the Company as a result of the Merger. No
further payments are due to Mr. Walker under any of these agreements.
RETIREMENT PLANS
Pension Plan. Officers of the Company (other than those who are also
officers of McDermott International, McDermott Incorporated or The Babcock &
Wilcox Company, including Mr. Howson) and all regular full time employees of
the Company or certain of its subsidiaries, except certain non-resident alien
employees who are not citizens of a European Community country or do not earn
income in the United States, Canada or the United Kingdom, were covered under
The Retirement Plan for Employees of J. Ray McDermott Holdings, Inc. (the "J.
Ray McDermott Retirement Plan"). Mr. Howson and other employees of McDermott
International, McDermott Incorporated or The Babcock & Wilcox Company who also
serve as officers of the Company receive their salaries from these other
companies and are covered under these companies' retirement plans, as
applicable. Employees do not contribute to the J. Ray McDermott Retirement
Plan and company contributions are determined on an actuarial basis. An
employee must be employed by the Company or a subsidiary for one year prior to
participating in the plan and must have five years of continuous service to
vest in any accrued benefits under the plan. Pension benefits will be paid
directly by the Company or a subsidiary under the terms of the unfunded excess
benefit plans maintained by them (the "Excess Plans") to the extent that
benefits payable under these qualified plans are limited by Section 415(b) or
401(a)(17) of the Internal Revenue Code.
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The following table shows the annual benefit payable under the J. Ray
McDermott Retirement Plan at age 65 (the normal retirement age) to employees
retiring in 1996 in accordance with the lifetime only method of payment and
before profit sharing plan offsets. Benefits are based on the formula of a
specified percentage (dependent on years of service) of average annual basic
earnings (exclusive of bonus and allowances) during the 60 consecutive months
out of the ten years prior to retirement in which such earnings were highest
("Final Average Earnings") less a specified percentage of anticipated social
security benefits. As of December 31, 1995 (the end of the last plan year),
Mr. Lam had Final Average Earnings of $117,453 and 19 years of credited
service and Mr. Wildasin had Final Average Earnings of $263,256 and 6 years of
credited service under the J. Ray McDermott Retirement Plan. As of such date,
Messrs. Foreman and Walker were not eligible to participate in the plan based
upon their employment term. 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.
J. RAY MCDERMOTT RETIREMENT PLAN
<TABLE>
<CAPTION>
FINAL ANNUAL BENEFITS AT AGE 65 FOR YEARS OF SERVICE INDICATED
AVERAGE -----------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
-------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
100,000 $14,171 $21,256 $28,341 $ 35,427 $ 43,354 $ 51,282 $ 58,623
125,000 18,337 27,506 36,675 45,843 55,012 64,587 73,817
150,000 22,504 33,756 45,008 56,260 67,512 78,764 90,016
200,000 30,837 46,256 61,675 77,093 92,512 107,931 123,349
250,000 39,171 58,756 78,341 97,927 117,512 137,097 156,683
300,000 47,504 71,256 95,008 118,760 142,512 166,264 190,016
</TABLE>
Supplemental Executive Retirement Plan. An unfunded supplemental retirement
plan called the Supplemental Executive Retirement Plan (the "SERP") was
established in June 1980 by McDermott Incorporated and was amended to become a
plan of McDermott International in September 1989. In March 1995, the Company
became a participating employer in the SERP, and as a result, the SERP covers
certain officers of the Company as well as officers of McDermott International
and other designated companies. Generally, retirement benefits are based upon
a specified percentage (determined by age, years of service and date of
initial participation in the SERP) of final 3-year average cash compensation
(salary plus supplemental compensation for the highest three out of the last
ten years of service) or 3-year average cash compensation prior to SERP
scheduled retirement date, whichever is greater. The maximum benefit payable
to any officer that is an employee of the Company may not exceed 60-65%
(dependent upon date of initial participation in the SERP) of such 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. Foreman and Wildasin at retirement age as stated in the SERP
is 53.75% and 31.75%, respectively, of each such person's final 3-year average
cash compensation. Mr. Howson, who receives no salary from the Company, will
not receive a benefit under the SERP
22
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as a result of his service as Chairman of the Board and Chief Executive
Officer of the Company. He will, however, receive a benefit under the SERP as
a result of his service as an executive officer of McDermott International
based upon the salary and bonus paid to him by such company.
A trust (assets of the trust constitute corporate assets) has been
established that is designed to ensure the payment of benefits arising under
the SERP, the Excess Plans and certain other contracts and arrangements
(collectively, the "Plans") in the event of an effective change in control of
the Company. Although the Company would retain primary responsibility for such
payments, the trust would provide for payments to designated participants, in
the form of lump sum distributions, if certain events occur following an
effective change in control of the Company, including but not limited to the
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 that
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 RESTATED SHORT-TERM
INCENTIVE COMPENSATION PLAN
(ITEM 2)
The Board of Directors of the Company has adopted the J. Ray McDermott, S.A.
Restated 1994 Short-Term Incentive Compensation Plan (the "Short-Term
Incentive Plan" or "STIP") and directed that the STIP be submitted to
stockholders for their approval at the Annual Meeting. The purpose of the STIP
is to provide a means to compensate managerial and other key employees,
including officers, who contribute materially to the success of the Company
and its subsidiaries and its affiliated companies. The STIP constitutes a
restatement of the Company's Short-Term Incentive Compensation Plan (the
"Original Plan"), which was adopted by the Company's Board of Directors in
December 1994 and approved by McDermott International as the Company's sole
stockholder to comply with 162(m) of the Internal Revenue Code, prior to the
Company becoming a publicly traded company. The Short-Term Incentive Plan is
substantially similar to the Original Plan. However, recently issued final
regulations concerning Section 162(m) now require that the STIP be resubmitted
to stockholders for approval at this time.
The affirmative vote of a majority of the voting power of the outstanding
shares of Company stock present in person or by proxy and entitled to vote at
the Annual Meeting on this proposal is required for adoption of the STIP. The
Board of Directors recommends that stockholders vote "FOR" this proposal.
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<PAGE>
SUMMARY DESCRIPTION OF THE SHORT-TERM INCENTIVE PLAN
The following summary of the terms of the STIP is qualified in its entirety
by reference to the text of the STIP, which is attached as Appendix A to this
Proxy Statement. If adopted by the stockholders, the STIP will be effective as
of April 1, 1996.
The STIP will be administered by the Compensation Committee of the Company's
Board of Directors. All full-time salaried employees of the Company and its
subsidiaries are eligible to participate, with an employee's participation in
the STIP determined annually by such committee.
The Compensation Committee will establish, for each fiscal year of the
Company (a "Plan Year"), performance goals and award opportunities, in
writing, corresponding to various levels of achievement of the pre-established
performance goals. The award opportunities for any Named Executive Officer who
is eligible to participate will be based on the following performance
criteria:
(i) the Named Executive Officer's target incentive award;
(ii) the potential final award corresponding to various levels of
achievement of the performance goals, established by the
Compensation Committee; and
(iii) the Company's performance in relation to the pre-established
performance goals. Performance measures that may be used to
determine award opportunities for any Named Executive Officer shall
be limited to 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 (as those terms are
defined in the STIP).
Once established, performance goals normally may not be changed during the
Plan Year. However, if it is determined that external changes or other
unanticipated business conditions have materially affected the fairness of the
goals, the Compensation Committee may approve appropriate adjustments to the
performance goals. In addition, the Compensation Committee shall have the
authority to reduce or eliminate final awards, based upon any criteria it
deems appropriate.
At the end of each Plan Year, awards are computed for each STIP participant.
Final individual awards may vary above or below the target award, based on the
level of achievement of the pre-established performance goal, and will be
payable to the recipients within seventy-five (75) days of the Compensation
Committee's determination, unless deferred by such recipients. Awards may be
deferred in accordance with such rules and procedures as may be established by
the Compensation Committee, in its sole discretion. The maximum payout with
respect to any award payable to any one participant in any given Plan Year is
one million dollars ($1,000,000).
NEW PLAN BENEFITS
The benefits, if awarded, that will be received under the STIP by particular
individuals or groups are not determinable at this time. The benefits that
were received for fiscal year 1996 by the Named Executive Officers pursuant to
the Original Plan are set forth in the Summary Compensation Table on page 16.
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<PAGE>
APPROVAL OF THE
COMPANY'S RESTATED EXECUTIVE LONG-TERM
INCENTIVE COMPENSATION PLAN
(ITEM 3)
The success of the Company depends, in large measure, on its ability to
recruit and retain executive officers and key employees with outstanding
ability and experience. The Board of Directors also believes there is a need
to align stockholder and employee interests by encouraging employee stock
ownership and to motivate employees with compensation conditioned upon
achievement of the Company's financial goals. In order to accomplish these
objectives, the Board of Directors has adopted, subject to approval by the
stockholders, the J. Ray McDermott, S.A. Restated 1994 Executive Long-Term
Incentive Compensation Plan (the "LTIP" or "Incentive Plan").
The Incentive Plan constitutes a restatement of the Company's Executive
Long-Term Incentive Compensation Plan (the "Original Plan"), which was adopted
by the Board of Directors of the Company in December 1994 and approved by
McDermott International as the Company's sole stockholder to comply with
162(m) of the Internal Revenue Code, prior to the Company becoming a publicly
traded company. The Incentive Plan is substantially similar to the Original
Plan. However, recently issued final regulations concerning Section 162(m) now
require that the LTIP be resubmitted to stockholders for approval at this
time.
The affirmative vote of a majority of the voting power of the outstanding
shares of Company stock present in person or by proxy and entitled to vote at
the Annual Meeting on this proposal is required for adoption of the Incentive
Plan. The Board of Directors recommends that stockholders vote "FOR" this
proposal.
SUMMARY DESCRIPTION OF THE LTIP
The following summary of the terms of the LTIP is qualified in its entirety
by reference to the text of the LTIP, which is attached as Appendix B to this
Proxy Statement. If adopted by the stockholders, the LTIP will be effective as
of April 1, 1996.
Administration. The LTIP will be administered by the Compensation Committee
of the Company's Board of Directors.
Eligibility. Executive officers and key employees of the Company and its
subsidiaries are eligible to participate in the LTIP. Non-employee Directors
of the Company are not eligible. Fourteen employees of the Company and its
subsidiaries currently participate in the Original Plan; however, because the
LTIP provides for broad discretion in selecting participants and in making
awards, the total number of persons who will participate and the respective
benefits to be accorded to them cannot be determined at this time.
Stock Available for Issuance Through the LTIP. The LTIP provides for a
number of forms of stock-based compensation, as further described below. Up to
four million (4,000,000) shares of the Company's Common
25
<PAGE>
Stock are authorized for issuance through the LTIP. The amount of shares
authorized for issuance under the Incentive Plan includes the number of shares
subject to awards granted under the Original Plan as of the effective date of
the Incentive Plan. Provisions in the LTIP permit the reuse or reissuance by
the plan of shares of Common Stock underlying canceled, expired, or forfeited
awards of stock-based compensation, as well as shares tendered in payment of a
stock option exercise price or withheld by the Company to pay taxes on an
award, subject to restrictions imposed under the Securities and Exchange
Commission's ("SEC") short-swing trading rules.
Stock-based compensation will typically be issued in consideration for the
performance of services to the Company, but payment of a purchase price for
each share of restricted stock equal to $1.00 per share will be required at
the time of grant. At the time of exercise, the full exercise price for a
stock option must be paid in cash or, if the Compensation Committee so
provides, in shares of Common Stock.
Description of Awards Under the Plan. The Compensation Committee may award
to eligible employees incentive and nonqualified stock options, stock
appreciation rights, restricted stock, and performance shares and performance
units, subject to satisfaction of specific performance goals. The forms of
awards are described in greater detail below.
Stock Options. The Compensation Committee will have discretion to award
incentive stock options ("ISOs"), which are intended to comply with Section
422 of the Internal Revenue Code, or nonqualified stock options ("NQSOs"),
which are not intended to comply with Section 422 of the Internal Revenue
Code. Each option issued under the LTIP must be exercised within a period of
ten years from the date of grant, and the excise price of an option may not be
less than the fair market value of the underlying shares of Common Stock on
the date of grant. Subject to the specific terms of the LTIP, the Compensation
Committee will have discretion to set such additional limitations on option
grants as it deems appropriate.
Options granted to employees under the LTIP will expire at such times as the
Compensation Committee determines at the time of the grant; provided, however,
that no option will be exercisable later than ten years from the date of
grant. Each option award agreement will set forth the extent to which the
participant will have the right to exercise the option following termination
of the participant's employment with the Company. The termination provisions
will be determined within the discretion of the Compensation Committee, may
not be uniform among all participants and may reflect distinctions based on
the reasons for termination of employment.
Upon the exercise of an option granted under the LTIP, the option price is
payable in full to the Company, either: (i) in cash or its equivalent, or (ii)
if permitted in the award agreement, by tendering shares having a fair market
value at the time of exercise equal to the total option price (provided such
shares have been held for at least six months prior to their tender), or (iii)
if permitted in the award agreement, a combination of (i) and (ii).
Stock Appreciation Rights. Under the Incentive Plan, the Compensation
Committee may grant eligible officers and key employees stock appreciation
rights, either in connection with a related option ("Tandem SAR") or
independently of any options ("Freestanding SAR"), or any combination thereof
as determined by the Compensation Committee in its sole discretion.
26
<PAGE>
The grant price of a Freestanding SAR is equal to the fair market value of a
share of Common Stock on the date of grant as reported on the New York Stock
Exchange. The grant price of a Tandem SAR is equal to the option price of the
related option.
Tandem SARs may be exercised for all or part of the shares subject to the
related option upon the surrender of the right to exercise the equivalent
option, provided the related option is then exercisable. With respect to
Tandem SARs granted in connection with an ISO, (i) the Tandem SAR will expire
no later than the expiration of the underlying ISO; (ii) the value of the
payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the option price of the underlying
option and the fair market value of the shares subject to the underlying
option at the time the SAR is exercised; and (iii) the Tandem SAR may be
exercised only when the fair market value of the shares subject to the option
exceeds the option price. Freestanding SAR's will become exercisable at such
time or times as the Compensation Committee shall determine. No SAR granted
under the plan may be exercisable more than ten years after the date of grant.
The Compensation Committee shall determine the exercisability of any SAR in
the event of termination of employment for any reason. SARs are not
transferable except by will or by the laws of descent an distribution and
pursuant to certain qualified domestic relations orders.
Performance Shares and Performance Units. Performance Units and Performance
Shares my be granted by the Compensation Committee, at any time, in such
amounts and upon such terms as the Compensation Committee determines. Each
Performance Unit shall have an initial value that is established by the
Compensation Committee at the time of grant. Each Performance Share shall have
an initial value equal to the fair market value of a share on the date of
grant as reported on the New York Stock Exchange. The Compensation Committee
in its discretion shall determine the applicable performance period and shall
establish performance goals for any given performance period. The extent to
which the performance goals are met during the applicable performance period
determines the number and/or value of Performance Shares and/or Performance
Units that are paid out to participants. Upon expiration of the performance
period, the holder of Performance Shares or Performance Units is entitled to
receive a payout on the units and/or shares earned over the performance
period. The amount of the payout is a function of the extent to which the
performance goals have been achieved.
Awards will be payable to recipients in a single lump sum within 75 days
following the close of the applicable performance period, unless deferred by
such recipient prior to the beginning of the applicable performance period.
Payment may be made in cash or in shares of Common Stock that have an
aggregate fair market value equal to the earned Performance Units or
Performance Shares on the last day of the applicable performance period as
reported on the New York Stock Exchange.
In the event the employment of a participant is terminated by reason of
death, disability, or retirement during a performance period, the participant
shall receive a pro-rated payout, determined by the Compensation Committee in
its sole discretion, based on the length of time Performance Shares or Units
were held and the level of achievement of the performance goals. In the event
a participant's employment is terminated under any other circumstances, all
Performance Shares or Units shall be forfeited. Performance Shares and Units
are not transferable except by will or by the laws of descent and distribution
and pursuant to certain qualified domestic relations orders.
27
<PAGE>
Restricted Stock. The Compensation Committee also will be authorized to
award restricted shares of Common Stock under the LTIP upon such terms and
conditions as it shall establish. Participants will be required to pay a
purchase price for each share of restricted stock granted equal to $1.00 per
share. The award agreement will specify the period(s) of restriction, the
number of restricted shares of Common Stock granted, restrictions based upon
achievement of specific performance objectives and/or restrictions under
applicable federal or state securities laws. Although recipients will have the
right to vote these shares from the date of grant, they will not have the
right to sell or otherwise transfer the shares during the applicable period of
restriction or until earlier satisfaction of other conditions imposed by the
Compensation Committee in its sole discretion. Participants shall receive
dividends on their shares of restricted stock and the Compensation Committee,
in its discretion, will determine how dividends on restricted shares are to be
paid.
Each award agreement for restricted stock will set forth the extent to which
the participant will have the right to retain unvested restricted stock
following termination of the participant's employment with the Company. These
provisions will be determined in the sole discretion of the Compensation
Committee, need not be uniform among all shares of restricted stock issued
pursuant to the LTIP and may reflect distinctions based on reasons for
termination of employment. Except in the case of terminations connected with a
change in control and terminations by reason of death or disability, the
vesting of restricted stock, which qualifies for performance-based
compensation under Section 162(m) and which are held by "covered employees"
under Section 162(m), shall occur at the time it otherwise would have, but for
the employment termination.
Performance Measures. The Compensation Committee may grant awards under the
LTIP to eligible employees subject to the attainment of certain specified
performance measures. The number of performance-based awards granted to an
executive officer or key employee in any year is determined by the
Compensation Committee in its sole discretion. The value of each performance-
based award shall be determined solely upon the achievement of certain
preestablished objective performance goals during each performance period (the
"Performance Period"). The duration of a Performance Period is set by the
Compensation Committee. A new Performance Period may begin every year, or at
more frequent or less frequent intervals, as determined by the Compensation
Committee. The Compensation Committee shall establish, in writing, the
objective performance goals applicable to the valuation of performance-based
awards granted in each Performance Period, the performance measures which
shall be used to determine the achievement of those performance goals, and any
formulas or methods to be used to determine the value of the performance-based
awards.
The value of performance-based awards may be based on absolute measures or
on a comparison of the Company's financial measures during a Performance
Period to the financial measures of a group of competitors. Finance measures
selected by the Compensation Committee shall be one or more of the following:
Cash Flow, Cash Flow Return on Capital, Cash Flow Return on Assets, Cash Flow
Return on Equity, Net Income, Return on Capital, Return on Assets, and Return
on Equity. Following the end of a Performance Period, the Compensation
Committee shall determine the value of the performance-based awards granted
for the period based on the attainment of the preestablished objective
performance goals. The Compensation Committee shall also have discretion to
reduce (but not to increase) the value of a performance-based award. The
Compensation
28
<PAGE>
Committee will certify, in writing, that the award is based on the degree of
attainment of the preestablished objective performance goals. As soon as
practicable thereafter, payment of the awards to employees, if any, shall be
made in the form of shares of Common Stock.
Change in Control. In the event of a Change in Control (as defined in the
LTIP) of the Company, the exercisability of any option or SAR shall
accelerate, restrictions on restricted stock shall lapse and the target payout
opportunities under all outstanding awards of any kind shall be deemed to have
been fully earned for the entire Performance Period(s) as of the effective
date of the Change in Control. The holder of any outstanding cash based award
will be entitled to a cash payment within 30 days following the effective date
of the Change in Control equal to the pro-rata portion of all targeted cash
payout opportunities associated with such awards based on the number of
complete and partial calendar months within the Performance Period that had
elapsed as of the effective date of the Change in Control. A determination of
whether a Change in Control has occurred shall be made by a majority vote of
the members of the Compensation Committee as constituted immediately prior to
such Change in Control.
Adjustment and Amendments. The LTIP provides for appropriate adjustments in
the number of shares of Common Stock subject to awards and available for
future awards in the event of changes in outstanding Common Stock by reason of
a merger, stock split, or certain other events. In case of a pending change of
control of the Company, outstanding options granted under the LTIP will become
immediately exercisable and will remain exercisable throughout their entire
term and restriction periods and restrictions imposed on shares of restricted
stock shall immediately lapse. The LTIP may be modified or amended by the
Board of Directors at any time and for any purpose which the Board of
Directors deems appropriate. However, no such amendment shall adversely affect
any outstanding awards without the affected holder's consent. Stockholder
approval of an amendment will be sought if necessary or desirable under
Internal Revenue Service or SEC regulations, the rules of the New York Stock
Exchange or any applicable law.
Nontransferability. No derivative security (including, without limitation,
options) granted pursuant to, and no right to payment under, the LTIP shall be
assignable or transferable by a plan participant except by will or by the laws
of descent and distribution, and any option or similar right shall be
exercisable during a participant's lifetime only by the participant or by the
participant's guardian or legal representative. These limitations may be
waived by the Compensation Committee in the award agreement, subject to
restrictions imposed under the SEC's short-swing trading rules and federal tax
requirements relating to ISOs.
Duration of the Plan. The LTIP will remain in effect until all options and
rights granted thereunder have been satisfied or terminated pursuant to the
terms of the plan, and all Performance Periods for performance-based awards
granted thereunder have been completed. However, in no event will any award be
granted under the LTIP on or after April 1, 2006.
FEDERAL INCOME TAX CONSEQUENCES
Options. With respect to options which qualify as ISOs, a LTIP participant
will not recognize income for federal income tax purposes at the time options
are granted or exercised. If the participant disposes of shares
29
<PAGE>
acquired by exercise of an ISO either before the expiration of two years from
the date the options are granted or within one year after the issuance of
shares upon exercise of the ISO (the "holding periods"), the participant 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.
Stock Appreciation Rights. A participant who is granted a stock appreciation
right recognizes no income upon grant of the stock appreciation right. At the
time of exercise, however, the participant shall recognize compensation income
equal to any cash received and the fair market value of any Common Stock
received. This income is subject to withholding. The Company is entitled to an
income tax deduction corresponding to the ordinary income recognized by the
participant.
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.
Performance Share or Performance Unit Awards. The grant of a Performance
Share or a Performance Unit award does not generate taxable income to the
participant or an income tax deduction to the Company. Any cash and the fair
market value of any Common Stock received as payment in respect of a
Performance Share or Performance Unit award will constitute ordinary income to
the participant (in the case of a participant who is an insider, the fair
market value of the shares six months after receipt will be used to measure
income, unless a Section 83(b) election is filed). The participant's income is
subject to income and employment tax withholding.
30
<PAGE>
The Company will be entitled to an income tax deduction corresponding to the
ordinary income tax deduction corresponding to the ordinary income recognized
by the participant.
Section 162(m). Under Section 162(m) of the Internal Revenue Code,
compensation paid by the Company in excess of $1 million for any taxable year
to "Covered Employees" generally is deductible by the Company or its
affiliates for federal income tax purposes if it is based on the performance
of the Company, is paid pursuant to a plan approved by stockholders of the
Company, and meets certain other requirements. Generally, "Covered Employee"
under Section 162(m) means the chief executive officer and the four other
highest paid executive officers of the Company of the last day of the taxable
year.
It is presently anticipated that the Compensation Committee will at all
times consist of "outside directors" as required for purposes of Section
162(m), and that the Compensation Committee will take the effect of Section
162(m) into consideration in structuring Incentive Plan awards.
NEW PLAN BENEFITS
The benefits that will be received under the LTIP by particular individuals
or groups are not determinable at this time. The benefits that were received
for fiscal year 1996 by the Named Executive Officers pursuant to the Original
Plan are summarized in tables on pages 16-19.
RETENTION OF
INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING MARCH 31, 1997
(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, 1997. Although not required to do so, the Board of Directors
considers it advisable that such retention be submitted to the stockholders
for their approval. Ernst & Young served as independent auditors of the
Company and its subsidiaries during fiscal year 1996. During such fiscal year,
Ernst & Young performed audit and tax services for the Company and its
subsidiaries for which they have received or will receive, in the aggregate,
approximately $2,800,000 in fees. Representatives of Ernst & Young will be
present at the Annual Meeting and will have an opportunity to make a statement
if they desire to do so and to respond to appropriate questions.
The affirmative vote of majority of the voting power of the outstanding
shares of Company 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.
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CERTAIN TRANSACTIONS
MCDERMOTT INTERNATIONAL AND AFFILIATES
McDermott International owns approximately 61% of the outstanding shares of
Common Stock and all of the 3,200,000 outstanding shares of Series A Preferred
Stock of the Company, which represents approximately 64% of the voting stock
of the Company. As a result, McDermott International (either directly or
through members of the McDermott Group) has provided and, subject to the
continuing approval of the Independent Committee, will continue to provide
various services to the Company and its subsidiaries in an effort to reduce
duplicative costs, overhead and resources.
Reimbursement of Health Care Costs. For a period of several months after the
Effective Time, McDermott International provided health care benefits to the
Company's employees or former employees for which the Company reimbursed
McDermott International approximately $1.9 million for the costs or expenses
incurred by McDermott International in providing such benefits.
Services Agreements. In connection with the Merger, McDermott International
and the Company entered into a Transition Services Agreement (the "Transition
Services Agreement") and a Services Agreement (the "Services Agreement") under
which McDermott International agreed to provide certain services to the
Company and the Company agreed to purchase such services. Under the terms of
the Transition Services Agreement, McDermott International agreed, for a
period of one year after the Effective Time (which has been extended through
fiscal year 1997), to provide certain services, including (i) certain
accounting, employee benefit, salary, business planning and office support
services to the Company, for which the Company agreed to pay based on the
amount of services used and the actual cost thereof to McDermott
International. Under the terms of the Services Agreement, McDermott
International agreed to provide certain services to the Company, based
primarily upon a predetermined annual fee for each such service, until such
time as McDermott International no longer owns a majority of the Company's
outstanding Common Stock. Such services include accounting and financial
reporting, treasury and financing, corporate tax administration and research,
human relations policies and procedures, safety, health and environmental
administration, public and investor relations, executive officer, corporate
secretary, electronic information, and telecommunications network maintenance
and administration services. From the Effective Time through fiscal year 1996,
the Company paid to McDermott International approximately $14.1 million under
the Transition Services Agreement and the Services Agreement.
During the same time period, McDermott International also provided other
services, resources and products to the Company under an arrangement similar
to the services agreements, including marine systems and automation,
technology development and research, legal, aviation, investment portfolio
management, reproduction, international marketing and lobbying services and
office space, for which the Company paid to McDermott International
approximately $10 million.
The Independent Committee of the Board reviews the services provided by
McDermott International and other members of the McDermott Group to the
Company and its subsidiaries on an annual basis. After
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consultation with McDermott International and giving due consideration to the
legal obligations of McDermott International, the Company may seek the
provision of any of the above described services from third parties if the
Board of Directors of the Company, after receiving the recommendation of the
Independent Committee of the Board, determines that obtaining such services
from third parties is in the best interests of the Company.
Other Arrangements and Transactions. From the Effective Time through fiscal
year 1996, McDermott International and other members of the McDermott Group
provided other services, on an as requested basis, to the Company and its
subsidiaries, the costs of which were based on reference to charges to
unrelated parties for similar work. A significant portion of such services
related to subcontracts for fabrication and procurement of materials. During
this time period, McDermott International recognized revenue in the amount of
approximately $16.2 million with respect to the provision of these services, a
portion of which will be billed to and paid by the Company and its
subsidiaries after fiscal year 1996. During the same time period, the Company
and its subsidiaries provided services to McDermott International and other
members of the McDermott Group for requested services on the same basis for
which the Company recognized revenue in the amount of approximately $10.2
million.
From the Effective Time through fiscal year 1996, the Company also purchased
engineering services from McDermott International in the amount of
approximately $25.6 million based on reference to charges to unrelated parties
for similar work. Effective April 1, 1996, the Company and McDermott
International, through subsidiaries, created an equally owned engineering
joint venture. In connection therewith, McDermott International contributed
assets totalling approximately $7.9 million, subject to adjustment, and the
Company agreed to make capital contributions to the engineering joint venture
in an amount up to the value of the contributed assets. The engineering joint
venture is a preferred (but not exclusive) provider of services to the Delta
Hudson International subsidiaries of McDermott International for onshore-
related work and to the Company for offshore-related work. The charges for
such services will also be based on charges to unrelated parties for similar
work. Arrangements for pricing these services will be reviewed from time to
time by the parties.
While the Company's employee liability, comprehensive general liability,
property, marine and other insurance programs are placed through commercial
insurance carriers, substantially all of such employee liability exposure is
reinsured, and significant deductibles under the Company's other insurance
programs are insured, by wholly owned insurance subsidiaries of McDermott
International. The premiums charged by such insurance subsidiaries of
McDermott International for such insurance are primarily based on claims
experience and forecasted future activities of the Company and its
subsidiaries. Management believes that this approach is more cost-effective as
there is generally no commercial market for insurance on the same economic
terms for these types of exposures.
From the Effective Time through fiscal year 1996, the Company paid
approximately $5.2 million to McDermott International for the charter or lease
of certain diving support equipment and systems used by the Company or its
joint ventures in offshore installation and pipelaying activities. In June
1996, McDermott International agreed to sell substantially all of such diving
support equipment and systems to the Company for
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approximately $3.6 million in connection with the Company's proposed sale of
certain diving support assets to a third party in exchange for an equity
interest in such third party.
In June 1996, McDermott International and the Company also agreed that the
Company will purchase from McDermott International nine cranes to be used in
the Company's fabrication and construction activities for approximately $9
million.
All of these transactions were negotiated at arms length by the parties, and
to the extent required, approved by the Independent Committee of the Board.
Working Capital Facility. In connection with the Merger, the Company and
McDermott International entered into a Loan Agreement and Note (the "Working
Capital Note") pursuant to which McDermott International provided working
capital to the Company and its subsidiaries of up to $50 million through June
1995. During fiscal year 1996, the largest principal balance outstanding under
the Working Capital Note was $44.8 million and interest payments in the amount
of $364,600 were paid by the Company to McDermott International under such
note.
9% Notes and Floating Rate Note. As a part of the consideration received in
connection with the Merger and the related contribution of its Marine
Construction Services Business to the Company, McDermott International
received $231 million of 9% Senior Subordinated Notes due 2001 (the "9%
Notes") and a floating rate (3 month London Interbank Offered Rate plus 1.25%)
demand note (the "Floating Rate Note") from the Company. During fiscal year
1996, interest payments in the amount of $20.79 million and $1.47 million were
paid by the Company to McDermott International under the 9% Notes and the
Floating Rate Note, respectively, and on March 28, 1996, the Company repaid
the remaining $20.5 million principal amount outstanding on the Floating Rate
Note.
Series A Preferred Stock. During fiscal year 1996, McDermott International
as the sole holder of all of the outstanding Series A Preferred Stock of the
Company received quarterly dividend payments totalling $7.2 million from the
Company.
FRANK C. WADE AND AFFILIATES
Wade Noncompetition Agreement Payments. During fiscal year 1996, the Company
and a subsidiary made payments to Frank C. Wade totalling $1.5 million
pursuant to certain noncompetition agreements entered into in connection with
the Merger, which prohibit Mr. Wade from competing with the Company for a five
year period after the Merger. Under such agreements, Mr. Wade is also subject
to standard non-solicitation and confidentiality covenants. Mr. Wade was
Chairman of the Board of Directors and Chief Executive Officer of OPI from
December 1988 until the Merger and thereafter served as Vice Chairman of the
Board of Directors of the Company until his resignation in April 1996.
Wade Resignation. On April 22, 1996, Mr. Wade resigned as the Vice Chairman
of the Board of Directors of the Company and the Company entered into an
agreement with Mr. Wade with respect to certain matters.
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Under the agreement, (i) the Company and Mr. Wade terminated a Lease and
Sublease (the "Lease") entered into between a subsidiary of the Company and
Resort Equities, Ltd. ("Resort Equities"), an affiliate of Mr. Wade, pursuant
to which the Company caused its subsidiary to release its claims and rights
under the Lease against Resort Equities and Mr. Wade, including a claim for
$120,000 in unpaid rent and the right to receive an additional $150,000 in
rent if the Lease had not been terminated, and (ii) Mr. Wade caused Resort
Equities to release its claims and rights under the Lease against the Company
and its subsidiary, and caused another of his affiliates to waive and
surrender its right to acquire a 15% interest in certain property owned by the
Company's subsidiary. Prior to the termination of the Lease, Resort Equities
paid to the Company's subsidiary $90,000 in rent. The agreement between the
Company and Mr. Wade also called for the payment of $29,529 to the Company in
settlement of all amounts owed by F-W Global Aviation, Inc. ("F-W Global
Aviation"), another affiliate of Mr. Wade, to the Company. Such settlement
payment was net of amounts payable by the Company to F-W Global Aviation for
aircraft usage by Company personnel.
Other Transactions with an Affiliate of Mr. Wade. Effective May 1, 1995, a
subsidiary of the Company entered into an Office Sublease with F-W Oil
Interests, Inc. ("F-W Oil"), an affiliate of Mr. Wade, pursuant to which such
subsidiary subleased a portion of its leased space in Houston, Texas to F-W
Oil. Under the sublease, which expires no later than March 14, 1997, F-W Oil
is required to make monthly rental payments of approximately $17,900 to such
subsidiary. During fiscal year 1996, F-W Oil paid such subsidiary of the
Company approximately $185,000 under the sublease.
Effective April 1, 1995, a subsidiary of the Company entered into a
Production Management and Operation Agreement with F-W Oil pursuant to which
F-W Oil manages and operates an offshore producing oil and gas property for
such subsidiary of the Company. Under this agreement, such subsidiary is
required to pay F-W Oil a monthly fee of $48,000 for F-W Oil's management and
operation of such property (the "Operating Fee"), together with certain third
party costs incurred by F-W Oil not covered by the Operating Fee, plus, in
certain cases, a 15% mark-up. Under this agreement, such payment terms are
applicable until December 31, 1996, at which time if the parties fail to agree
to new payment terms, either party may terminate the agreement. During fiscal
year 1996, the Company paid $576,000 to F-W Oil and reimbursed F-W Oil for
out-of-pocket expenses (without mark-up) under the agreement.
During fiscal year 1996, a subsidiary of the Company refurbished,
transported and installed an offshore jacket and deck (and certain related
equipment) for F-W Oil that such subsidiary sold to F-W Oil for approximately
$1.1 million in 1995. In connection therewith, F-W Oil paid such subsidiary
approximately $2 million for such services. During fiscal year 1996, such
subsidiary of the Company also fabricated a caisson for F-W Oil for $84,000.
Mike H. Lam was an officer of F-W Oil until November 1995. The above
described transactions with F-W Oil were entered into in the Company's
ordinary course of business and were negotiated on an arms-length basis. The
Company believes the terms thereof to be no more or less favorable to either
of the parties than those customary and standard in the industry.
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THOMAS P. TATHAM AND AFFILIATES
Tatham Farmout and Sale. In anticipation of the Merger, on October 1, 1994,
J. Ray McDermott Properties, Inc., a subsidiary of the Company ("JRM
Properties"), OPI International, Inc. (a subsidiary of OPI prior to the Merger
that became a subsidiary of the Company under the name J. Ray McDermott, Inc.
("JRMI") as a result of the Merger), F-W Oil and Tatham Offshore, a company of
which Thomas P. Tatham (one of the Company's directors) is Chairman of the
Board and Chief Executive Officer, entered into a Farmout Agreement, a Unit
Operating Agreement and other documents, pursuant to which Tatham Offshore, as
the operator and 100% working interest owner of a certain offshore oil and gas
property, assigned to the other parties an aggregate 25% working interest in
such property. The Company, through JRM Properties and JRMI, acquired a 12.5%
working interest and a related net revenue interest with respect to such
property for an initial investment of approximately $1.45 million, and
subsequent thereto, has paid approximately an additional $3.8 million in joint
interest billing costs. On September 25, 1995, JRM Properties and JRMI sold
its aggregate 12.5% working interest and net revenue interest in the property
to Tatham Offshore in exchange for a $8 million convertible production payment
relating to such property. Pursuant to the terms of the agreements entered
into in connection with such sale, these subsidiaries received a right to a
production payment that allows them to share in up to $8 million of the net
proceeds of any production from the property based upon a percentage of their
original 12.5% working interest without incurring any additional development
and production costs, including their pro rata portion of approximately $10.4
million in such costs that was called for by the operator of the property at
that time. In December 1995, this property was placed on production, and at
March 31, 1996, an aggregate of approximately 90,000 mcf of natural gas per
day was being produced from the first three wells. Through such date, the
Company has earned approximately $179,000 as a result of this production
payment. Such $8 million production payment or any unpaid portion thereof is
also convertible into Tatham Offshore common stock at $8.00 per share (with
registration rights), and under certain circumstances, exchangeable for cash
payments from DeepTech International, another company of which Mr. Tatham is
Chairman of the Board and Chief Executive Officer, equaling 50% of the $8
million production payment or any unpaid portion thereof, if the Company
provides project financing to DeepTech International or an affiliate thereof
in the future.
Tatham Offshore Note. On June 30, 1995, Tatham Offshore paid in full the
remaining principal balance of approximately $7.1 million, plus accrued
interest, on a note payable to a subsidiary of the Company. The note, which
was in the original principal amount of approximately $11.4 million with 9.5%
interest per annum (subsequently amended to 10.5% per annum), was issued by
Tatham Offshore to such subsidiary when it was a subsidiary of OPI, in
connection with such subsidiary's acquisition, fabrication and installation of
an offshore platform for Tatham Offshore pursuant to a Construction and
Financing Agreement.
Design, Fabrication and Installation Contracts with Affiliates of Mr.
Tatham. A subsidiary of the Company has entered into agreements to design,
fabricate or install several offshore pipelines or structures for affiliates
of Mr. Tatham (primarily Leviathan Gas Pipeline Partners, L.P. and its
affiliates). The value of these agreements exceeds $80 million. As of March
31, 1996, Leviathan Gas Pipeline Partners, L.P. and its affiliates and Tatham
Offshore have paid to such subsidiary of the Company approximately $58.2
million and $0.8 million, respectively, for work completed under such
agreements, and Leviathan Gas Pipeline Partners, L.P. and its
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affiliates and Tatham Offshore have been invoiced for an additional $3.0
million and $0.3 million, respectively. The Company expects that the amounts
invoiced will be paid in the ordinary course of business.
The transactions described above were entered into in the Company's ordinary
course of business, were negotiated on an arm's-length basis and, in certain
cases, were approved by the Company's Board of Directors. The Company believes
the terms thereof to be no more or less favorable to either of the parties
than those customary and standard in the industry.
Tatham Interests. The Company, through one of its subsidiaries, owns 140,000
shares of Tatham Offshore Common Stock and 20,000 units of Leviathan Gas
Pipeline Partners, L.P.
DON W. WILSON
Under the terms of OPI's Incentive Compensation Program, OPI, prior to the
Merger, and the Company, after the Merger and as a result of its indirect
assumption of such program, advanced, on an interest free basis, to the
participants of such program amounts sufficient to satisfy their federal tax
liability in connection with the vesting of restricted stock awards made under
such program. In 1995, the Company advanced to Don W. Wilson (the former
Executive Vice President, Operations of the Company) approximately $253,000 to
satisfy federal tax withholding liability as a result of the vesting of all
his unvested restricted stock awards under such program. As of March 31, 1996,
the principal balance outstanding on all advances made to Mr. Wilson under
this program was approximately $408,000.
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 stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of such forms furnished to the
Company, or written representations that no forms were required, the Company
believes that its directors, executive officers and 10% or more beneficial
owners complied with all Section 16(a) filing requirements during fiscal year
1996.
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.
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Proposals by stockholders intended to be presented at the 1997 Annual
Meeting must be received by the Corporate Secretary of the Company no later
than February 26, 1997, in order to be qualified for inclusion in the
Company's Proxy Statement and form of proxy for such meeting. Concurrently
therewith, proponents shall provide the Company in writing with his or her
name, address, the number of shares of Common Stock held of record or
beneficially, the date or dates upon which such Common Stock was acquired and
documentary support for a claim of beneficial ownership.
By Order of the Board of Directors,
S. WAYNE MURPHY
Secretary
Dated: June 26, 1996
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APPENDIX A
J. RAY MCDERMOTT, S.A. RESTATED 1994
SHORT-TERM INCENTIVE COMPENSATION PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT OF THE PLAN. J. Ray McDermott, S.A. (the "Company"),
hereby establishes an incentive compensation plan to be known as the J. Ray
McDermott, S.A. Restated 1994 Short-Term Incentive Compensation Plan (the
"Plan"), as set forth in this document. The Plan constitutes a restatement of
the J. Ray McDermott, S.A. Short-Term Incentive Compensation Plan (the
"Original Plan"). The Plan permits the awarding of annual cash bonuses to
Employees of the Company, based on the achievement of preestablished
performance goals.
1.2 PURPOSE OF THE PLAN. The primary purposes of the Plan are to: (a)
motivate Participants toward achieving annual goals that are within group
and/or individual control, and are considered key to the Company's success;
(b) encourage teamwork among Participants in various segments of the Company;
and (c) reward performance with pay that varies in relation to the extent to
which the preestablished goals are achieved.
1.3 DURATION OF THE PLAN. The Original Plan was effective January 1, 1995.
Upon approval by the Board of Directors of the Company, the Plan shall become
effective as of April 1, 1996 (the "Effective Date") and shall remain in
effect until terminated by the Board pursuant to Article 12 herein.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the defined meaning is intended, the term is
capitalized:
2.1 "AWARD OPPORTUNITY" means the various levels of incentive award payouts
which a Participant may earn under the Plan, as established by the Committee
pursuant to Sections 5.1 and 5.2 herein.
2.2 "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.
2.3 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.4 "CAUSE" means: (a) willful misconduct on the part of a Participant that
is materially detrimental to the Company; or (b) the conviction of a
Participant for the commission of a felony or crime involving moral turpitude;
provided, however, that if the Participant has entered into an employment
agreement that is binding as the date of employment termination, and if such
employment agreement defines "Cause," such definition of "Cause" shall apply.
"Cause" under either (a) or (b) shall be determined in good faith by the
Committee, unless an applicable employment agreement provides otherwise.
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2.5 "CHANGE IN CONTROL" means the Company shall be deemed to have occurred
(as of a particular day, as specified by the Board) upon the occurrence of any
event described in this Section 2.5 as constituting a Change in Control.
A Change in Control will be deemed to have occurred as of the first day any
one (1) or more of the following paragraphs shall have been satisfied:
(a) Any person as described in Section 3(a)(9) of the Securities Exchange
Act of 1934 (other than a person in control of the Company on the
Effective Date, or other than a trustee or other fiduciary holding
securities under an Employee benefit plan of the Company, or a
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of
Shares of voting securities of the Company) is or becomes the
Beneficial Owner, directly or indirectly, of voting securities of the
Company representing thirty percent (30%) or more of the combined
voting power of the Company's then outstanding securities.
(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.
2.7 "COMMITTEE" means a committee of two (2) or more individuals, appointed
by the Board to administer the Plan, pursuant to Article 3 herein.
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2.8 "COMPANY" means J. Ray McDermott, S.A., a Panama corporation (including
any and all Subsidiaries), and any successor thereto.
2.9 "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan.
2.10 "EFFECTIVE DATE" means the date the Plan becomes effective, as set
forth in Section 1.1 herein.
2.11 "EMPLOYEE" means a nonunion, full-time, salaried employee of the
Company.
2.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.13 "FINAL AWARD" means the actual award earned during a Plan Year by a
Participant, as determined by the Committee following the end of the Plan
Year.
2.14 "NAMED EXECUTIVE OFFICER" means a Participant who, as of the date of a
Final Award is earned, is one of the group of "covered employees," as defined
in the Regulations promulgated under Code Section 162(m), or any successor
statute.
2.15 "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.
2.16 "PARTICIPANT" means an Employee who is actively participating in the
Plan.
2.17 "PLAN" means the J. Ray McDermott, S.A. Restated Short-Term Incentive
Compensation Plan, as set forth herein.
2.18 "PLAN YEAR" means the Company's fiscal year.
2.19 "RETIREMENT" shall have the meaning ascribed to such term in the
Company's tax-qualified retirement pension plan.
2.20 "SUBSIDIARY" means any corporation, partnership, joint venture,
affiliate, or other entity in which the Company has a majority voting
interest, and which the Committee designates as a particular entity in the
Plan.
2.21 "TARGET INCENTIVE AWARD" means the award to be paid to Participants
when the Company meets "targeted" performance results, as established by the
Committee.
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ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall initially be administered by the
Compensation Committee of the Board. Subject to the terms of this Plan, the
Board may appoint a successor Committee to administer the Plan. The members of
the Committee shall be appointed by, and shall serve at the discretion of, the
Board.
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 size and types of Award
Opportunities and Final Awards; determine the terms and conditions of Award
Opportunities 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 8 herein) amend the terms and conditions
of any outstanding Award Opportunity 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 authorities as identified hereunder.
3.3 DECISIONS BINDING. All determinations and decisions of the Committee as
to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding, and conclusive upon
all parties.
3.4 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 judgment 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 Certificate 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 4. ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. All Employees shall be eligible to participate in the Plan
for such Plan Year.
4.2 PARTICIPATION. Participation in the Plan shall be determined annually by
the Committee.
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4.3 PARTIAL PLAN YEAR PARTICIPATION. Except as provided in Article 8 herein,
an Employee who becomes eligible after the beginning of a Plan Year may
participate in the Plan for that Plan Year. Such situations may include, but
are not limited to (a) new hires; (b) when an Employee is promoted from a
position which did not previously meet the eligibility criteria; or (c) when
an Employee is transferred from an affiliate which does not participate in the
Plan.
The Committee, in its sole discretion, retains the right to prohibit or
allow participation in the initial Plan Year of eligibility for any of the
aforementioned Employees.
4.4 NO RIGHT TO PARTICIPATE. No Participant or other Employee shall at any
time have a right to be selected for participation in the Plan for any Plan
Year despite having previously participated in the Plan.
ARTICLE 5. AWARD DETERMINATION
5.1 PERFORMANCE MEASURES AND PERFORMANCE GOALS. Prior to the beginning of
each Plan Year, or as soon as practicable thereafter, the Committee shall
select performance measures and shall establish performance goals for the Plan
Year. Except as provided in Article 8 herein, the performance measures may be
based on any combination of corporate, divisional, and/or individual goals.
For each Plan Year, the Committee shall establish ranges of performance
goals which will correspond to various levels of Award Opportunities. Each
performance goal range shall include a level of performance at which one
hundred percent (100%) of the Target Incentive Award shall be earned. In
addition, each range shall include levels of performance above and below the
one hundred percent (100%) performance level.
After the performance goals are established, the Committee will align the
achievement of the performance goals with the Award Opportunities (as
described in Section 5.2 herein), such that the level of achievement of the
preestablished performance goals at the end of the Plan Year will determine
the Final Awards. Except as provided in Article 8 herein, the Committee shall
have the authority to exercise subjective discretion in the determination of
Final Awards, as well as the authority to delegate the ability to exercise
subjective discretion in this respect.
The Committee may establish one or more Company-wide performance measures
which must be achieved for any Participant to receive a Final Award payment
for that Plan Year.
5.2 AWARD OPPORTUNITIES. Prior to the beginning of each Plan Year, the
Committee shall establish, in writing, Award Opportunities which correspond to
various levels of achievement of the preestablished performance goals. The
established Award Opportunities shall vary in relation to the job
classification of each Participant. Except as provided in Article 8 herein, in
the event a Participant changes job levels during a Plan Year, the
Participant's Award Opportunity may be adjusted to reflect the amount of time
at each job level during the Plan Year.
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5.3 ADJUSTMENT OF PERFORMANCE GOALS AND AWARD OPPORTUNITIES. Once
established, performance goals normally shall not be changed during the Plan
Year. However, except as provided in Article 8 herein, if the Committee
determines that external changes or other unanticipated business conditions
have materially affected the fairness of the goals, then the Committee may
approve appropriate adjustments to the performance goals (either up or down)
during the Plan Year as such goals apply to the Award Opportunities of
specified Participants. In addition, the Committee shall have the authority to
reduce or eliminate the Final Award determination, based upon any objective or
subjective criteria it deems appropriate.
Notwithstanding any other provision of this Plan, in the event of any change
in corporate capitalization, such as 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 Award Opportunities and/or the performance
measures or performance goals related to then-current performance periods, 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 subject to Article 8 herein, any such adjustment shall not be
made if it would eliminate the ability of Award Opportunities held by Named
Executive Officers to qualify for the "performance-based" exception under Code
Section 162(m).
5.4 FINAL AWARD DETERMINATIONS. At the end of each Plan Year, Final Awards
shall be computed for each Participant as determined by the Committee. Subject
to the terms of Article 8 herein, Final Award amounts may vary above or below
the Target Incentive Award, based on the level of achievement of the
preestablished corporate, divisional, and/or individual performance goals.
5.5 AWARD LIMIT. The Committee may establish guidelines governing the
maximum Final Awards that may be earned by Participants (either in the
aggregate, by Employee class, or among individual Participants) in each Plan
Year. The guidelines may be expressed as a percentage of Company-wide goals or
financial measures, or such other measures as the Committee shall from time to
time determine; provided, however, that the maximum payout with respect to a
Final Award payable to any one Participant in connection with performance in
any one Plan Year shall be one million dollars ($1,000,000).
5.6 THRESHOLD LEVELS OF PERFORMANCE. The Committee may establish minimum
levels of performance goal achievement, below which no payouts of Final Awards
shall be made to any Participant.
ARTICLE 6. PAYMENT OF FINAL AWARDS
6.1 FORM AND TIMING OF PAYMENT. Unless a deferral election is made by a
Participant pursuant to Section 6.2 herein, each Participant's Final Award
shall be paid in cash, in one lump sum, within seventy-five (75) calendar days
after the end of each Plan Year.
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6.2 DEFERRAL OF FINAL AWARD PAYOUTS. The Committee may permit a Participant
to defer such Participant's receipt of the payment of cash that would
otherwise be due pursuant to his or her Final Award. If any such deferral
election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals,
including but not limited to rules and procedures for the accrual of interest
on such deferrals.
6.3 UNSECURED INTEREST. No participant or any other party claiming an
interest in amounts earned under the Plan shall have any interest whatsoever
in any specific asset of the Company. To the extent that any party acquires a
right to receive payments under the Plan, such right shall be equivalent to
that of an unsecured general creditor of the Company.
ARTICLE 7. TERMINATION OF EMPLOYMENT
7.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the event a Participant's employment is terminated by reason of death,
Disability, or Retirement, the Final Award determined in accordance with
Section 5.4 herein shall be a prorated amount of the portion of the Plan Year
that the Participant was employed by the Company, computed as determined by
the Committee. In the case of a Participant's Disability, the employment
termination shall be deemed to have occurred on the date that the Committee
determines the definition of Disability to have been satisfied.
The Final Award thus determined shall be paid within seventy-five (75)
calendar days following the end of the Plan Year in which employment
termination occurs.
7.2 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event a
Participant's employment is terminated for any reason other than death,
Disability, or Retirement (of which the Committee shall be the sole judge),
all of the Participant's rights to a Final Award for the Plan Year then in
progress shall be forfeited. However, except in the event of an involuntary
employment termination for Cause, the Committee, in its sole discretion, may
pay a prorated award for the portion of the Plan Year that the Participant was
employed by the Company, computed as determined by the Committee.
ARTICLE 8. NAMED EXECUTIVE OFFICERS
8.1 APPLICABILITY OF ARTICLE 8. The provisions of this Article 8 shall apply
only to Named Executive Officers. In the event of any inconsistencies between
this Article 8 and the other Plan provisions as they pertain to Named
Executive Officers, the provision of this Article 8 shall control.
8.2 ESTABLISHMENT OF AWARD OPPORTUNITIES. Except as provided in Section 8.8
herein, Award Opportunities for Named Executive Officers shall be established
as a function of each Named Executive Officer's Base Salary (as defined
below). Prior to the beginning of each Plan Year, the Committee shall
establish, in writing, various levels of Final Awards which will be paid with
respect to specified levels of attainment of the preestablished performance
goals.
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For purposes of the Article 8, "Base Salary" shall mean, as to any specific
Plan Year, a Participant's regular annual salary rate as of the first day of
the Plan Year. Regular salary shall not be reduced by any salary reduction
contributions made to any defined contribution plan or other deferred
compensation plans of the Company, but shall not include any payments under
this Plan or any other bonuses, incentive pay, or special awards.
8.3 COMPONENTS OF AWARD OPPORTUNITIES. Each Named Executive Officer's Award
Opportunity shall be based on: (i) the Named Executive Officer's Target
Incentive Award; (ii) the potential Final Awards corresponding to various
levels of achievement of the preestablished performance goals, as established
by the Committee; and (iii) Company performance in relation to the
preestablished performance goals. Except as provided in Section 8.7 herein,
performance measures which may serve as determinants of Named Executive
Officers' Award Opportunities shall be limited to:
(a) Cash Flow, defined for this purpose with respect to each fiscal year
of the Company, as the sum of (i) Net Income, (ii) Depreciation and
Amortization, (iii) Minority Interest Dividends on Preferred Stock of
Subsidiary, as applicable, (iv) Interest Expense, all as reported in the
Company's Consolidated Statement of Income and Retained Earnings, and (v)
the difference between Deferred and Noncurrent Income Taxes as at the end
of such fiscal year and the Deferred and Noncurrent Income Taxes as at the
end of the immediately preceding fiscal year, as reported in or determined
from the Company's Consolidated Balance Sheet at the end of such year.
Group and division Cash Flow, as applicable, is further adjusted to remove
all financing elements (including, but not limited to, debt and interest
income).
(b) Cash Flow Return on Capital, defined for this purpose with respect to
each fiscal year of the Company, as that fraction, stated as a percentage,
the numerator of which is "Cash Flow" and the denominator of which is
"Capital."
(c) Cash Flow Return on Assets, defined for this purpose with respect to
each fiscal year of the Company, as that fraction, stated as a percentage,
the numerator of which is "Cash Flow" and the denominator of which is
"Assets."
(d) Cash Flow Return on Equity, defined for this purpose with respect to
each fiscal year of the Company, as that fraction, stated as a percentage,
the numerator of which is "Cash Flow" and the denominator of which if
"Equity."
(e) Net Income, defined for this purpose as after-tax net income, as
reported in the Company's Consolidated Statement of Income, and after-tax
net income attributable to a specific business unit or group and divisional
income, as applicable.
(f) Return on Capital, as defined for this purpose with respect to each
fiscal year of the Company, as that fraction stated as a percentage, the
numerator of which is "Net Income" and the denominator which is "Capital."
(g) Return on Assets, as defined for this purpose with respect to each
fiscal year of the Company, as that fraction stated as a percentage the
numerator of which is "Net Income" and the denominator of which is
"Assets."
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(h) Return on Equity, as defined for this purpose with respect to each
fiscal year of the Company, as that fraction stated as a percentage, the
numerator of which is "Net Income" and the denominator of which is
"Equity."
For purposes of the foregoing, "Assets" are defined as "total assets" as
reported in the Company's Consolidated Balance Sheet and group and division
assets, as applicable, are defined as "total assets" attributable to the group
or division averaged over each of the four quarters in the Plan Year,
excluding cash, long-term notes payable, interest payable, and interest
receivable; and "Capital" is defined, with respect to each fiscal year of the
Company, as the sum of (a) Notes Payable and Current Maturities of Long-Term
Debt (cumulatively also known as "Short-Term Debt"), (b) Long-Term Debt, (c)
Deferred and Noncurrent Income Taxes, (d) Total Minority Interest, and (e)
Stockholders' Equity, all as reported in or determined from the Company's
Consolidated Balance Sheet at the end of such year.
8.4 NO MID-YEAR CHANGE IN AWARD OPPORTUNITIES. Except as provided in Section
8.7 herein, each Named Executive Officer's Final Award shall be based
exclusively on the Award Opportunity levels established by the Committee
before the first day of each Plan Year.
8.5 NONADJUSTMENT OF PERFORMANCE GOALS. Except as provided in Section 8.7
herein, performance goals shall not be changed following their establishment,
and Named Executive Officers shall not receive any payout when the minimum
performance goals are not met or exceeded.
8.6 INDIVIDUAL PERFORMANCE AND DISCRETIONARY ADJUSTMENTS. Except as provided
in Section 8.7 herein, subjective evaluations of individual performance of
Named Executive Officers shall not be reflected in their Final Awards.
However, the Committee shall have the discretion to decrease or eliminate the
amount of the Final Award otherwise payable to a Named Executive Officer.
8.7 POSSIBLE MODIFICATIONS. If, on the advice of the Company's tax counsel,
the Committee determines that Code Section 162(m) and the Regulations
thereunder will not adversely affect the deductibility for federal income tax
purposes of any amount paid under the Plan by permitting greater discretion
and/or flexibility with respect to Award Opportunities granted to Named
Executive Officers pursuant to this Article 8, then the Committee may, in its
sole discretion, apply such greater discretion and/or flexibility to such
Award Opportunities as is consistent with the terms of this Plan, and without
regard to the restrictive provisions of this Article 8.
In the event the Committee determines that compliance with Code Section
162(m) is not required or desired with respect to any Award Opportunities
granted or to be granted under the Plan, then compliance with Code Section
162(m) may 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
Opportunities under the Plan, the Committee may, subject to this Article 8,
make any adjustments it deems appropriate.
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ARTICLE 9. RIGHTS OF PARTICIPANT
9.1 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.
9.2 NONTRANSFERABILITY. No right or interest of any Participant in the Plan
shall be assignable or transferable, or subject to any lien, directly, by
operation of law or otherwise, including, but not limited to, execution, levy,
garnishment, attachment, pledge, and bankruptcy.
ARTICLE 10. 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 designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by
the Committee, and will be effective only when filed by the Participant in
writing with the Committee during his or her lifetime. In the absence of any
such designation, benefits remaining unpaid at the Participant's death shall
be paid to the Participant's estate.
ARTICLE 11. CHANGE IN CONTROL
In the event of a Change In Control, each Participant shall be entitled to a
pro-rata payment of his or her Target Incentive Award for the Plan Year during
which such Change In Control occurs. Such proration shall be determined as a
function of the number of days within the Plan Year prior to the effective
date of the Change In Control, in relation to three hundred sixty-five (365).
Such amount shall be paid, in cash, to each Participant within thirty (30)
days after the effective date of the Change In Control.
ARTICLE 12. AMENDMENT, MODIFICATION, AND TERMINATION
The Board, in its sole discretion, without notice, at any time and from time
to time, may modify or amend, in whole or in part, any or all of the
provisions of the Plan, or suspend or terminate it entirely; provided,
however, that no such modification, amendment, suspension, or termination may,
without the consent of a Participant (or his or her beneficiary in the case of
the death of the Participant), materially reduce the right of a Participant
(or his or her beneficiary as the case may be) to a payment or distribution
hereunder to which he or she is entitled. No amendment shall be made without
shareholder approval if such approval is necessary to comply with any tax or
regulatory requirement, including for this purpose any approval requirement
which is a prerequisite for qualification for the performance based
compensation exception to the limitations of Section 162(m) of the Code, with
which the Committee has determined it is necessary or desirable to have the
Company comply.
ARTICLE 13. MISCELLANEOUS
13.1 WITHHOLDING TAXES. The Company shall have the right to deduct from all
payments under the Plan any Federal, state, local, or other governmental taxes
required by law to be withheld with respect to such payments.
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13.2 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.
13.3 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.
13.4 COSTS OF THE PLAN. All cost of implementing and administering the Plan
shall be borne by the Company.
13.5 SUCCESSORS. All obligations of the Company under the Plan shall be
binding upon and inure to the benefit of any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
13.6 REQUIREMENTS OF LAW. The granting of Award Opportunities 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.
13.7 GOVERNING LAW. To the extent not preempted by the United States Federal
Law, the Plan, and all agreements hereunder, shall be governed by and
construed in accordance with the laws of Louisiana.
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APPENDIX B
J. RAY MCDERMOTT, S.A. RESTATED 1994
EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. J. Ray McDermott, S.A. , a Panamanian
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "J. Ray McDermott, S.A.
Restated 1994 Executive Long-Term Incentive Compensation Plan" (hereinafter
referred to as the "Plan"), as set forth in this document. The Plan
constitutes a restatement of the J. Ray McDermott Executive Long-Term
Incentive Compensation Program (the "Original Plan"). The Plan permits the
grant of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Units, and Performance
Shares.
The Original Plan was effective January 1, 1995. 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 15 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 January 1, 2005.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "AWARD" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Units and Performance Shares.
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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.
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.
(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
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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 J. Ray McDermott, S.A., a Panamanian corporation,
together with any and all Subsidiaries, and any successor thereto as provided
in Article 18 herein.
2.9 "COVERED EMPLOYEE" means a Participant who, as of the date of vesting
and/or payout of an Award, as applicable, is one of the group of "covered
employees," as defined in the regulations promulgated under Code Section
162(m), or any successor statute.
2.10 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.11 "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan.
2.12 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.13 "EMPLOYEE" means any full-time, active employee of the Company.
Directors who are not employed by the Company shall not be considered
Employees under this Plan.
2.14 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.15 "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined in accordance with procedures established by the Committee.
2.16 "FREESTANDING SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
2.17 "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.
2.18 "INSIDER" shall mean an individual who is subject to Section 16 of the
Exchange Act.
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2.19 "NONEMPLOYEE DIRECTOR" means an individual who is a member of the Board
of Directors of the Company but who is not an Employee of the Company.
2.20 "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.
2.21 "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.
2.22 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.23 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.24 "ORIGINAL PROGRAM" means the J. Ray McDermott Executive Long-Term
Incentive Compensation Program.
2.25 "PARTICIPANT" means an Employee who has outstanding an Award granted
under the Plan. The term "Participant" shall not include Nonemployee
Directors.
2.26 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.28 "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 9 herein.
2.29 "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 herein.
2.30 "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.
2.31 "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.
2.32 "QUALIFIED DOMESTIC RELATIONS ORDER" shall mean a valid and effective
domestic relations order, as determined by the Committee.
2.33 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Article 8 herein.
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2.34 "RETIREMENT" shall have the meaning ascribed to such term in the
Company's tax-qualified defined benefit retirement plan.
2.35 "SHARES" means the shares of Common Stock of the Company.
2.36 "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone or in
connection with a related Option, designated s an SAR, pursuant to the terms
of Article 7 herein.
2.37 "SUBSIDIARY" means any corporation, partnership, joint venture or other
entity in which the Company has a majority voting interest.
2.38 "TANDEM SAR" means an SAR that is granted in connection with a related
Option pursuant to Article 7 herein, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option (and when
a Share is purchased under the Option, the Tandem SAR shall similarly be
canceled).
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 Officers 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 as they apply to Officers; establish, amend, or waive
rules and regulations for the Plan's administration as they apply to Officers;
and (subject to the provisions of Article 15 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 the Plan applies to Officers.
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.
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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 four million (4,000,000) (which number
shall include the number of Shares underlying Awards granted under the
Original Program). 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 8 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 or may vest, pursuant to any Stock Option Award in any one
fiscal year to any single Participant shall be one hundred thousand
(100,000).
(b) RESTRICTED STOCK: The maximum aggregate number of Shares Restricted
Stock that may be granted or may vest in any one fiscal year to any
single Participant shall be fifty thousand (50,000).
(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.
(d) CASH PAYOUT: The maximum aggregate cash payout with respect to any
Award granted in any one fiscal year of the Company is one million five
hundred thousand dollars ($1,500,000).
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.
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5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms,
and at any time and from time to time as shall be determined by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as
the Committee shall determine. The Award Agreement also shall specify whether
the Option is intended to be an ISO within the meaning of Code Section 422, or
an NQSO whose grant is intended not to fall under the provisions of Code
Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option granted to a Participant, shall expire
at such time as the Committee shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions
as the Committee shall in each instance approve, which need not be the same
for each grant or for each Participant.
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.
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As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT. Each Participant's Option Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of the Participant's employment with
the Company. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with each
Participant, need not be uniform among all Options issued pursuant to this
Article 6, and may reflect distinctions based on the reasons for termination
of employment.
6.9 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further,
all ISOs granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, by the laws of descent and
distribution, or pursuant to a Qualified 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. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs may
be granted to Participants at any time and from time to time as shall be
determined by the Committee. The Committee may grant Freestanding SARs, Tandem
SARs, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number of
SARs granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs.
The grant price of a Freestanding SAR shall equal the Fair Market Value of a
Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
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7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part of
the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
7.3 EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised upon
whatever terms and conditions the Committee, in its sole discretion, imposes
upon them.
7.4 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Committee shall determine.
7.5 TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed ten (10) years.
7.6 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Corporation in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date of
exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
7.7 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on exercise of an SAR
(including, without limitation, the right of the Committee to limit the time
of exercise to specified periods) as may be required to satisfy the
requirements of Section 16 of the Exchange Act (or any successor rule).
7.8 TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth the
extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Corporation.
Such provisions shall be determined in the sole discretion of the Committee,
shall be included in the Award Agreement entered into with Participants, need
not be uniform among all SARs issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment.
7.9 NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's Award Agreement, no SAR 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, except as
otherwise provided in a Participant's Award Agreement, all SARs granted to a
Participant under the Plan shall be exercisable during his or her lifetime
only by such Participant.
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ARTICLE 8. RESTRICTED STOCK
8.1 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.
8.2 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.
8.3 RESTRICTED STOCK PRICE. The price for each Share of Restricted Stock
shall be equal to $1.00 per share. Payment of the purchase price shall be
required within thirty (30) days of the date of grant and shall be
nonrefundable.
8.4 TRANSFERABILITY. Except as provided in this Article 8, 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.
8.5 OTHER RESTRICTIONS. Subject to Article 10 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 8, 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.
8.6 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.
8.7 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.
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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.
8.8 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 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Participants in
such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee.
9.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have an
initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value
of a Share on the date of grant. The Committee shall set performance
objectives in its discretion which, depending on the extent to which they are
met, will determine the number and/or value of Performance Units/Shares that
will be paid out to the Participant. For purposes of this Article 9, the time
period during which the performance objectives must be met shall be called a
"Performance Period."
9.3 EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of this Plan,
after the applicable Performance Period has ended, the holder of Performance
Units/Shares shall be entitled to receive payout on the number and value of
Performance Units/Shares earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the
corresponding performance objectives have been achieved.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of
earned Performance Units/Shares shall be made as soon as practicable following
the close of the applicable Performance Period in a manner designated by the
Committee, in its sole discretion. Subject to the terms of this Plan, the
Committee, in
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its sole discretion, may pay earned Performance Units/Shares in the form of
cash or in Shares (or in a combination thereof) which have an aggregate Fair
Market Value equal to the value of the earned Performance Units/Shares at the
close of the applicable Performance Period. Such Shares may be granted subject
to any restrictions deemed appropriate by the Committee.
At the discretion of the Committee, Participants may be entitled to receive
any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares which
have been earned, but not yet distributed to Participants (such dividends
shall be subject to the same accrual, forfeiture, and payout restrictions as
apply to dividends earned with respect to Shares of Restricted Stock, as set
forth in Section 8.7 herein). In addition, Participants may, at the discretion
of the Committee, be entitled to exercise their voting rights with respect to
such Shares.
9.5 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
Unless determined otherwise by the Committee and set forth in the
Participant's Award Agreement, in the event the employment of a Participant is
terminated by reason of death, Disability, or Retirement during a Performance
Period, the Participant shall receive a payout of the Performance Units/Shares
which is prorated, as specified by the Committee in its discretion.
Payment of earned Performance Units/Shares shall be made at a time specified
by the Committee in its sole discretion and set forth in the Participant's
Award Agreement. Notwithstanding the foregoing, with respect to Covered
Employees who retire during a Performance Period, payments shall be made at
the same time as payments are made to Participants who did not terminate
employment during the applicable Performance Period.
9.6 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant's employment terminates for any reason other than those reasons
set forth in Section 9.5 herein, all Performance Units/Shares shall be
forfeited by the Participant to the Corporation unless determined otherwise by
the Committee, as set forth in the Participant's Award Agreement.
9.7 NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution. Further, except as otherwise
provided in a Participant's Award Agreement, a Participant's rights under the
Plan shall be exercisable during the Participant's lifetime only by the
Participant or the Participant's legal representative.
ARTICLE 10. 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 10, the attainment of which may determine the degree of payout
with respect to Awards to Covered Employees which are designed to qualify for
the Performance-Based Exception, the performance measure(s) to be used for
purposes of such grants shall be chosen from among the following alternatives:
(a) Cash Flow;
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(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;
Subject to the terms of the Plan, each of these measures shall be defined by
the Committee on a corporation, group, or division basis or in comparison with
peer group performance, and may include or exclude specified extraordinary
items, as defined by the corporation's auditors.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance objectives; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are held by Covered Employees, may not be adjusted upward
(the Committee shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke
all prior designations by the same Participant, shall be in a form prescribed
by the Company, and will be effective only when filed by the Participant in
writing with the Company during the Participant's lifetime. In the absence of
any such designation, benefits remaining unpaid at the Participant's death
shall be paid to the Participant's estate.
ARTICLE 12. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or the lapse or waiver of restrictions with respect to Restricted
Stock. If any such deferral election is required or permitted, the Committee
shall, in its sole discretion, establish rules and procedures for such payment
deferrals.
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ARTICLE 13. RIGHTS OF EMPLOYEES
13.1 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.
13.2 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 14. CHANGE IN CONTROL
14.1 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 and SARs 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 10 herein shall be
determined in the manner set forth in Section 14.1(c) herein.
(c) The vesting of all Performance Units and Performance Shares and
Restricted Stock which has been conditioned upon the achievement of
performance conditions pursuant to Section 10 herein shall be
accelerated as of the effective date of the Change in Control, and
there shall be paid out in cash to Participants within thirty (30) days
following the effective date of the Change in Control a pro rata amount
based upon an assumed achievement of relevant performance objectives at
target levels, and upon the length of time within the Performance
Period which has elapsed prior to the Change in Control; provided,
however, that in the event the Committee determines that actual
performance to the date of the Change in Control exceeds targeted
levels, the prorated payouts shall be made at levels commensurate with
such actual performance (determined by extrapolating such actual
performance to the end of the Performance Period), based upon the
length of time within the Performance Period which has elapsed prior to
the Change in Control; and provided further, that there shall not be an
accelerated payout with respect to Awards which qualify as "derivative
securities" under Section 16 of the Exchange Act which were granted
less than six (6) months prior to the effective date of the Change in
Control.
14.2 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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ARTICLE 15. AMENDMENT, MODIFICATION, AND TERMINATION
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 15.2
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 this
purpose any approval requirement which is a prerequisite for exemptive relief
under Section 16(b) of the Exchange Act, with which the Committee has
determined it is necessary or desirable to have the Company comply.
The Committee shall not have the authority to cancel outstanding Awards and
issue substitute Awards in replacement thereof.
15.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. Subject to the restriction set forth in Article 10 herein
on the exercise of upward discretion with respect to Awards which have been
designed to comply with the Performance-Based Exception, the Committee may
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4.3 hereof) affecting the Company
or the financial statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan.
15.3 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.
15.4 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 15, make any adjustments it deems appropriate.
ARTICLE 16. WITHHOLDING
16.1 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.
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16.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or upon the lapse of restrictions on Restricted Stock, or
upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be withheld on
the transaction. All such elections shall be irrevocable, made in writing,
signed by the Participant, and shall be subject to any restrictions or
limitations that the Committee, in its sole discretion, deems appropriate.
ARTICLE 17. 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 18. 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 19. LEGAL CONSTRUCTION
19.1 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.
19.2 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.
19.3 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.
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19.4 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.
19.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Louisiana.
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J. RAY MCDERMOTT, S.A.
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of J. Ray McDermott, S.A., a Panama corporation,
hereby appoint S. Wayne Murphy and R. E. Woolbert and each of them, attorneys,
agents and proxies of the undersigned, with full power of substitution to each
of them to vote all the shares of Common Stock which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of the Company for the
fiscal year ended March 31, 1996 to be held in the Versailles Ballroom of the
New Orleans Hilton Riverside, Poydras at Mississippi River, New Orleans,
Louisiana, on Friday, August 2, 1995, at 9:30 a.m. local time and at any
adjournment(s) of such meeting, with all powers which the undersigned would
possess if personally present.
PLEASE MARK, SIGN AND DATE THE
REVERSE SIDE OF THIS PROXY CARD
AND PROMPTLY RETURN IT IN THE
ENCLOSED ENVELOPE.
The undersigned acknowledges
receipt of the Annual Report for
the fiscal year ended March 31, 1996
and the Notice of Annual Meeting of
Stockholders and Proxy Statement of
the Company for the above-mentioned
Annual Meeting of Stockholders.
Every properly signed Proxy will be voted in accordance with the specifications
made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS AND IN THE MANNER FAVORED BY THE DIRECTORS AS INDICATED ON
THE REVERSE SIDE.
(over)
<PAGE>
IMPORTANT--PLEASE MARK APPROPRIATE BOXES ONLY IN BLUE OR BLACK INK AS SHOWN:
1. (a) Election of James J. Wildasin, J. Howard Macdonald and Rick L. Burdick as
Class II Directors.
(b) Election of Lodwrick M. Cook as a Class I Director.
. FOR . WITHHOLD AUTHORITY
all nominees from all nominees
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
. ______________________________________
2. Approving the Company's Restated Short-Term Incentive Compensation Plan (the
Directors favor a vote "FOR");
FOR AGAINST ABSTAIN
. . .
3. Approving the Company's Restated Executive Long-Term Incentive Compensation
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, 1997 (the Directors favor a vote "FOR");
FOR AGAINST ABSTAIN
. . .
5. Upon such other matters as may properly come before the meeting.
(Signature(s) should agree with name(s) on stock certificates as specified
hereon. Executors, administrators, trustees, etc., should indicated when
signing).
Signature _______________________________ Date ________________________
<PAGE>
J. RAY MCDERMOTT, S.A.
THE THRIFT PLAN FOR EMPLOYEES OF MCDERMOTT INCORPORATED
AND PARTICIPATING SUBSIDIARY AND AFFILIATED COMPANIES
June 26, 1996
To those individuals ("Plan Participants") who have an interest in J. Ray
McDermott, S.A. Common Stock, par value $.01 per share (the "Common Stock"),
under The Thrift Plan for Employees of McDermott Incorporated and
Participating Subsidiary and Affiliated Companies (the "Thrift Plan"):
We would like to give Plan Participants having an interest in shares of
Common Stock through the Thrift Plan the right to instruct the Trustee how to
vote the shares of Common Stock representing their interest in the Thrift
Plan.
In order that you may have the same information as a stockholder outside
the Thrift Plan, we have enclosed a copy of the Notice of J. Ray McDermott,
S.A.'s Annual Meeting of Stockholders and the related Proxy Statement. This
information is being mailed to stockholders of record as of June 21, 1996.
This material is for your information only and need not be returned.
Also enclosed is a voting instruction form with which you may instruct the
Trustee how to vote your interest in shares of Common Stock in the Plan.
Please return this voting instruction form in the envelope provided as soon as
possible.
If the Trustee does not receive your instructions by August 2, 1996, the
Trustee will vote your interest, in its discretion, in a manner consistent
with its fiduciary responsibility.
This letter and the enclosed material relate only to your interest in
shares of Common Stock under the Thrift Plan. It has no reference to other
shares of Common Stock which you may own. If you own other shares of Common
Stock, you will receive proxy materials in a separate mailing, which should be
returned in the envelope provided for that purpose.
Very truly yours,
R. E. Howson
Chairman of the Board and
Chief Executive Officer
