<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
J. RAY McDERMOTT, S.A.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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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. Tetrault 1450 Poydras Street
Chairman of the Board and P.O. Box 61829
[LOGO OF J. Chief Executive Officer New Orleans, Louisiana
RAY McDERMOTT, 70161-1829
S.A. APPEARS (504) 587-5300
HERE]
July 1, 1998
Dear Stockholder:
You are cordially invited to the Company's Annual Meeting of Stockholders to
be held on Friday, August 7, 1998, in Cabildo A and B of the Hyatt Regency New
Orleans, Poydras Street at Loyola Avenue, 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. Alternatively, you have the option of
voting by calling a toll-free telephone number. If you vote by telephone, a
PIN or control number has been assigned to you on the proxy card to safeguard
your vote.
Thank you for your interest in our Company.
Very truly yours,
/s/ R.E. Tetrault
-----------------------------
R. E. TETRAULT
<PAGE>
J. RAY MCDERMOTT, S.A.
1450 POYDRAS STREET
P. O. BOX 61829
NEW ORLEANS, LOUISIANA 70161-1829
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 7, 1998
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, 1998 will be held in Cabildo A and B of the Hyatt Regency New
Orleans, Poydras Street at Loyola Avenue, New Orleans, Louisiana, on Friday,
August 7, 1998, at 9:30 a.m. local time, for the following purposes:
(1) To elect three Directors; and
(2) 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 26, 1998 as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting and at any adjournment(s) thereof.
PLEASE INDICATE YOUR VOTE AS TO THE MATTERS TO BE ACTED UPON AT THE MEETING
(A) BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND PROMPTLY
RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES OR (B) BY CALLING THE TOLL-FREE TELEPHONE
NUMBER, AS DESCRIBED IN THE ENCLOSED PROXY CARD. THIS WILL ENSURE THAT YOUR
VOTE IS COUNTED, WHETHER OR NOT YOU ATTEND THE MEETING. IF YOU ATTEND THE
MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON AT THAT TIME.
By Order of the Board of Directors,
/s/ S. Wayne Murphy
-----------------------------
S. WAYNE MURPHY
Secretary
Dated: July 1, 1998
<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 7, 1998
----------------
GENERAL INFORMATION
This Proxy Statement is being furnished and the accompanying proxy card
("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. You are
urged to sign and date the enclosed Proxy and return it as promptly as
possible in the envelope enclosed for that purpose. You also have the option
of voting by calling a toll-free telephone number. The telephone voting
procedures are designed to authenticate your identity, to allow you to give
your voting instructions and to confirm that instructions have been recorded
properly. Instructions for voting by telephone are set forth in the enclosed
Proxy.
You may revoke your Proxy at any time prior to its exercise by written
notice to the Secretary of the Company, by submission of a later dated Proxy
or by voting in person at the meeting. This Proxy Statement is first being
mailed to stockholders on or about July 1, 1998.
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 26, 1998 (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 40,935,340 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 63% of the total votes entitled to be cast at the
meeting) were held by McDermott International, Inc. ("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.
Directors are elected by the affirmative vote of a majority of the voting
power of the shares of Company stock represented at the meeting. The Company's
Board of Directors has designated each of those persons named in the enclosed
Proxy, with full power of substitution, to represent and vote at the meeting
those shares represented by valid Proxies. All shares represented by valid
Proxies will be voted in accordance with the choice made by the stockholder as
to the election of Directors. If a choice is not made, the Proxy will be voted
FOR the election of Directors as described under "ELECTION OF DIRECTORS".
McDermott International has informed the Company that it will vote its shares
of Common Stock and Series A Preferred Stock representing approximately 63% of
the total votes entitled to be cast at the meeting in favor of the nominees
for Director. We do not know of any other matters to be presented at or acted
upon at 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 in accordance with their judgment.
<PAGE>
ANNUAL REPORT
Securities and Exchange Commission ("SEC") rules require that an annual
report precede or accompany proxy materials. More than one annual report need
not be sent to the same address if the recipient agrees. If more than one
annual report is being sent to your address, the mailing of duplicate copies
will be discontinued if you so request. You may so request by marking the
appropriate box on the Proxy (or by telephone) for any account for which you
do not wish to receive an annual report.
ELECTION OF DIRECTORS
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.
Since last year's Annual Meeting, Sean C. O'Keefe has been elected a
Director by the Company's Board. The term of office of the Company's Class I
Directors, William J. Johnson, Robert H. Rawle and Roger E. Tetrault, will
expire at this year's Annual Meeting. Upon the nomination of the Board of
Directors at its June 2, 1998 meeting, Messrs. Johnson, Rawle and Tetrault are
standing for re-election as Class I Directors at this year's Annual Meeting.
If elected, each of Messrs. Johnson, Rawle and Tetrault will hold office until
the Company's Annual Meeting in 2001 and until his successor is elected and
qualified.
Unless otherwise directed, the persons named as proxies in the enclosed
Proxy 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 "Class II Directors" and "Class III Directors" are the names of the
other Directors of the Company currently in office. Class II Directors will
continue to serve until the Company's Annual Meeting of Stockholders in 1999
and Class III Directors will continue to serve until the Company's Annual
Meeting of Stockholders in 2000.
Set forth below is certain information (ages as of August 7, 1998) with
respect to each nominee for election as a director and each Director of the
Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- ----------------------------- --- --------
CLASS I NOMINEES
<S> <C> <C>
William J. Johnson............................................... 64 1997
President and a director of JonLoc Inc., an oil and gas company
of which he and his family are the sole shareholders, and an
independent consultant to the oil and gas industry. From 1991 to
1994, Mr. Johnson was President and Chief Operating Officer of
Apache Corporation. Prior thereto, Mr. Johnson held various
positions in the oil and gas industry, including President and
Chief Executive Officer of Tex/Con Oil and Gas Company,
President USA of BP Exploration Company and President of
Standard Oil Production Company. Mr. Johnson is a director of
Camco International, Inc., Snyder Oil Corporation and Tesoro
Petroleum Corporation.
Robert H. Rawle.................................................. 50 1997
President and Chief Operating Officer of the Company since
January 1997. Before assuming his present position, Mr. Rawle
was Vice President and Group Executive of the Company's North,
Central and South American Operations from January 1996, prior
to which, he was Vice President, Domestic Operations of the
Company from its formation in January 1995 to January 1996.
Prior thereto, he was Vice President of the Domestic Operations
of McDermott International's Marine Construction Services
Division from March 1993 and Division Manager of its Southeast
Asia Operations from January 1992 to March 1993.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- ----------------------------- --- --------
<S> <C> <C>
Roger E. Tetrault................................................ 56 1997
Chairman of the Board since June 1997 and Chief Executive Officer
since March 1997 of the Company and McDermott International.
Before assuming his present positions, Mr. Tetrault was a Senior
Vice President of General Dynamics Corporation (a supplier of
weapons systems and services to the U.S. government and its
allies) and President of its Land Systems Division from April
1993; Vice President of General Dynamics and President of its
Electric Boat Division from August 1992 until April 1993; Vice
President and General Manager of General Dynamics' Electric Boat
Division from August 1991 until August 1992; and prior to that,
he served as a Vice President and Group Executive of McDermott
International's subsidiary The Babcock & Wilcox Company since
1990. He is also a director of McDermott International.
CLASS II DIRECTORS
Rick L. Burdick.................................................. 47 1995
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 and Century Business Services, Inc.
Richard E. Woolbert.............................................. 64 1996
Executive Vice President and Chief Administrative Officer of the
Company and McDermott International since February 1995, and
Compliance Director of McDermott International from June 1997 to
November 1997. Prior thereto, Mr. Woolbert was Senior Vice
President and Chief Administrative Officer of McDermott
International from August 1991. He is also a director of
McDermott International.
CLASS III DIRECTORS
Robert L. Howard................................................. 62 1997
Until his retirement in March 1995, he was Vice President
Domestic Operations, Exploration and Production, of Shell Oil
Company ("Shell Oil") and President of Shell Western Exploration
and Production Inc., a Shell Oil subsidiary, from 1992, and
President of Shell Offshore Inc., another Shell Oil subsidiary,
from 1985. He is also a director of McDermott International,
Camco International, Inc., Southwest Energy Company and Ocean
Energy, Inc.
Sean C. O'Keefe.................................................. 42 1997
Formerly Secretary of the Navy, Mr. O'Keefe currently holds the
Louis A. Bantle Chair in Business and Government Policy in the
Maxwell School of Citizenship and Public Affairs at Syracuse
University. He is also Director of National Securities Study at
Syracuse University and has been on the faculty of the Maxwell
School since 1996. Prior thereto, Mr. O'Keefe was a professor of
business administration and assistant to the senior vice
president for research and graduate education at Pennsylvania
State University from 1993.
Cedric E. Ritchie................................................ 70 1995
Chairman of the Executive Committee of the Board of The Bank of
Nova Scotia ("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 MacMillan Bloedel
Limited, Minorco, NOVA Corporation of Alberta and Canadian
National Railways.
</TABLE>
3
<PAGE>
BOARD OF DIRECTORS AND ITS COMMITTEES
General Information. The Board of Directors of the Company has an Audit
Committee, a Directors Nominating & Governance Committee and a Compensation
Committee. In addition to 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 its parent company McDermott
International in January 1995 (the "Letter Agreement").
Audit Committee. The Audit Committee is currently composed of Messrs.
Ritchie (Chairman), O'Keefe and Johnson. During the Company's fiscal year
ended March 31, 1998 ("fiscal year 1998"), the Audit Committee met four times.
The functions of the Audit Committee include (i) reviewing the accounting
principles and practices employed by the Company and, to the extent the Audit
Committee deems appropriate, by the Company's subsidiaries; (ii) meeting with
the Company's independent auditors to review their report on their examination
of the Company's accounts, their comments on the internal controls of the
Company and the actions taken by management with regard to such comments;
(iii) approving professional services, including non-audit services, rendered
by such independent auditors; and (iv) recommending annually to the Board of
Directors the appointment of the Company's independent auditors.
Directors Nominating & Governance Committee. The Directors Nominating &
Governance Committee is currently composed of Messrs. Burdick (Chairman),
Howard and Johnson. During fiscal year 1998, the Directors Nominating &
Governance Committee met twice. The function of such committee is to recommend
to the Company's Board of Directors (i) for approval and adoption, the
qualifications, term limits and nomination and election procedures relating to
the Company's directors, and (ii) nominees for election to the Company's Board
of Directors. The committee will also consider qualified 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.
Compensation Committee. The Compensation Committee is currently composed of
Messrs. Howard (Chairman), Burdick and Ritchie. During fiscal year 1998, the
Compensation Committee met four times. The Compensation Committee (i)
determines the salaries of all of the Company's officers elected to their
positions by the Board, and also reviews and makes recommendations regarding
the salaries of officers of the Company's subsidiaries; (ii) administers and
makes awards under the Company's stock, incentive compensation and
supplemental compensation plans and programs, and (iii) monitors and makes
recommendations with respect to the Company's and its subsidiaries' various
employee benefit plans, such as retirement and pension plans, thrift plans,
health and medical plans, and life, accident and disability insurance plans.
Independent Committee. Under the terms of the Letter Agreement, the
Independent Committee is 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 or the Company other than solely as a result of
being a director of the Company. The Independent Committee, which is currently
composed of Messrs. Burdick, Howard, Johnson, O'Keefe and Ritchie, reviews and
approves all significant transactions between the Company and McDermott
International. See "CERTAIN TRANSACTIONS--McDermott International and
Affiliates". During fiscal year 1998, the Independent Committee met three
times.
DIRECTORS' ATTENDANCE AND COMPENSATION
Directors' Attendance and Fees; Insurance. During fiscal year 1998, there
were twelve 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. No Director who is also an employee of the
Company or any of its subsidiaries is paid by the Company for his services as
a Director or as a member of any committee of the Board. All other Directors
receive an annual stipend of $20,000 plus a fee of $1,500 for each Board or
committee
4
<PAGE>
meeting attended and $1,000 for each telephonic Board or committee meeting in
which such Director participates.
The Company also provides travel accident insurance and health care benefits
to non-employee Directors 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
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 restricted Common Stock are
granted at $1.00 per share.
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. Pursuant to the Directors Plan, each
eligible Director also 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. Shares of restricted stock purchased under grants made
during a Director's term are subject to transfer restrictions and forfeiture
provisions, which generally lapse at the end of such term. In the event of a
change in control of the Company, all such restrictions and forfeiture
provisions will lapse and options will remain exercisable throughout their
term.
During fiscal year 1998, options to acquire 1,600 shares of Common Stock
were granted, and 800 shares of restricted stock were issued, under the
Directors Plan.
5
<PAGE>
EXECUTIVE OFFICERS
Set forth below is the age (as of August 7, 1998), positions held with the
Company and certain other business experience information for each of the
Company's executive officers who are not Directors.
Daniel R. Gaubert, 49, Senior Vice President and Chief Financial Officer of
the Company since August 1997, prior to which he was Vice President, Finance
of the Company from August 1995 and Acting Controller of the Company from
February 1995 to August 1995. Mr. Gaubert has also been Senior Vice President
and Chief Financial Officer of McDermott International since February 1997,
prior to which, he was Vice President and Chief Financial Officer of McDermott
International from September 1996, Vice President, Finance and Controller of
McDermott International from February 1995, and Vice President and Controller
of McDermott International from February 1992.
Clifford E. Bell, 53, Vice President and Area Executive, Far East
Operations, since March 1998, prior to which he was Vice President and Group
Executive, Far East Operations, from February 1997. Before assuming his
present responsibilities, he was President of McDermott Engineering Houston,
LLC, a subsidiary of the Company, from April 1996 and Vice President,
Engineering, of the Company from February 1995. From 1968 until January 1995,
Mr. Bell held various managerial and engineering positions with McDermott
International's Marine Construction Services Division.
Gary W. Drinkwater, 53, Senior Vice President and Group Executive, Eastern
Hemisphere, since March 1998, and Compliance Director of the Company since
April 1997. Before assuming his present positions, he was Senior Vice
President and General Manager, Project Services, from January 1997; and Vice
President and General Manager, Project Services, from October 1996. Prior
thereto, Mr. Drinkwater was Vice President and General Manager, Project
Management, of McDermott International from April 1995 and Vice President and
General Manager, Washington Operations, of McDermott International from March
1993.
Daniel M. Houser, 44, Vice President and Area Executive, North American
Operations, since March 1998, prior to which, he was Vice President and Group
Executive, North American Operations, from January 1997. Prior thereto, he was
General Manager, Marine, for the Company's North American Operations from
February 1995 and General Manager of McDermott International's Domestic Marine
Division from March 1993.
S. Wayne Murphy, 63, Senior Vice President, General Counsel and Corporate
Secretary since August 1997, prior to which, he was Acting General Counsel and
Acting Corporate Secretary of the Company from February 1996. He also has been
Senior Vice President, General Counsel and Corporate Secretary of McDermott
International since February 1997, prior to which, he was Vice President,
General Counsel and Corporate Secretary of McDermott International from June
1996; Acting General Counsel and Acting Corporate Secretary of McDermott
International from February 1996; and Associate General Counsel of McDermott
International from August 1993.
Kurt S. Nelson, 49, Vice President and Area Executive, Middle East
Operations, since March 1998, prior to which he was Vice President and Group
Executive, Middle East Operations, from February 1997. Before assuming his
present responsibilities, he was Vice President and Group Executive, Subsea
Development, from September 1996 and Vice President and General Manager, Sub-
Ocean, from February 1995. From March 1993 until February 1995, he was Vice
President, Marine Operations, of McDermott International's Marine Construction
Services Division.
Fred R. Oehrlein, 53, Vice President and Group Executive, Western
Hemisphere, since March 1998. Before assuming his present position, Mr.
Oehrlein was Vice President and Group Executive, European Operations, from
September 1996; Vice President and Group Executive, Project Services, of the
Company from July 1996; Vice President and Group Executive of the Company's
Southeast Asia Operations from February 1995; and Vice President and General
Manager, Southeast Asia Operations, of McDermott International's Marine
Construction Services Division from 1991.
6
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 2, 1998 (except as otherwise
noted), 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, including shares which such persons have
the right to acquire within 60 days pursuant to the exercise of stock options.
<TABLE>
<CAPTION>
MCDERMOTT
COMMON COMMON
NAME STOCK STOCK
- ---- ------- ---------
<S> <C> <C>
Rick L. Burdick(1)...... 3,660 0
Gary W. Drinkwater(2)... 3,110 53,774
Robert L. Howard(3)..... 2,000 2,965
William J. Johnson(4)... 1,420 0
Kurt S. Nelson(5)....... 15,277 16,810
Fred R. Oehrlein(6)..... 24,415 25,956
Sean C. O'Keefe......... 880 0
Robert H. Rawle(7)...... 21,902 18,656
Cedric E. Ritchie(8).... 4,150 0
Roger E. Tetrault(9).... 36,534 124,431
R. E. Woolbert(10)...... 14,066 155,843
All Directors and
executive officers as a
group (15 persons)..... 147,059 481,378
</TABLE>
- --------
(1) Shares owned by Mr. Burdick include 1,000 shares of Common Stock that may
be acquired upon the exercise of stock options as described above, and
400 restricted shares of Common Stock as to which he has sole voting
power but no dispositive power.
(2) Shares owned by Mr. Drinkwater include 2,880 shares of Common Stock and
32,380 shares of McDermott Common Stock that may be acquired upon the
exercise of stock options as described above, and 13,480 restricted
shares of McDermott Common Stock as to which he has sole voting power but
no dispositive power. Also includes 230 shares of Common Stock and 699
shares of McDermott 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, 1998.
(3) Shares owned by Mr. Howard include 600 shares of Common Stock and 950
shares of McDermott Common Stock that may be acquired upon the exercise
of stock options as described above, and 300 restricted shares of Common
Stock and 475 restricted shares of McDermott Common Stock as to which he
has sole voting power but no dispositive power.
(4) Shares owned by Mr. Johnson include 200 shares of Common Stock that may
be acquired upon the exercise of stock options as described above, and
100 restricted shares of Common Stock as to which he has sole voting
power but no dispositive power.
(5) Shares owned by Mr. Nelson include 10,519 shares of Common Stock and
12,100 shares of McDermott Common Stock that may be acquired upon the
exercise of stock options as described above, and 4,200 restricted shares
of Common Stock and 2,500 restricted shares of McDermott Common Stock as
to which he has sole voting power but no dispositive power. Also includes
558 shares of Common Stock and 495 shares of McDermott Common Stock held
in the McDermott Thrift Plan as of March 31, 1998.
(6) Shares owned by Mr. Oehrlein include 17,345 shares of Common Stock and
17,680 shares of McDermott Common Stock that may be acquired upon the
exercise of stock options as described above, and 6,510 restricted shares
of Common Stock and 4,180 restricted shares of McDermott Common Stock as
to which he has sole voting power but no dispositive power. Also includes
560 shares of Common Stock and 651 shares of McDermott Common Stock held
in the McDermott Thrift Plan as of March 31, 1998.
7
<PAGE>
(7) Shares owned by Mr. Rawle include 14,234 shares of Common Stock and
12,820 shares of McDermott Common Stock that may be acquired upon the
exercise of stock options as described above, and 5,300 restricted shares
of Common Stock and 3,840 restricted shares of McDermott Common Stock as
to which he has sole voting power but no dispositive power. Also includes
568 shares of Common Stock and 571 shares of McDermott Common Stock held
in the McDermott Thrift Plan as of March 31, 1998.
(8) Shares owned by Mr. Ritchie include 1,000 shares of Common Stock that may
be acquired upon the exercise of stock options as described above, and
300 restricted shares of Common Stock as to which he has sole voting
power but no dispositive power.
(9) Shares owned by Mr. Tetrault include 104,747 shares of McDermott Common
Stock that may be acquired upon the exercise of stock options as
described above, and 8,100 restricted shares of Common Stock and 18,900
restricted shares of McDermott Common Stock as to which he has sole
voting power but no dispositive power. Also includes 259 shares of
McDermott Common Stock held in the McDermott Thrift Plan as of March 31,
1998.
(10) Shares owned by Mr. Woolbert include 9,616 shares of Common Stock and
101,980 shares of McDermott Common Stock that may be acquired upon the
exercise of stock options as described above, and 4,450 restricted shares
of Common Stock and 33,175 restricted shares of McDermott Common Stock as
to which he has sole voting but no dispositive power. Also includes 1,593
shares of McDermott Common Stock held in the McDermott Thrift Plan as of
March 31, 1998.
Total shares beneficially owned in all cases constituted less than one
percent of the outstanding shares of the applicable security, based upon total
shares outstanding on June 2, 1998, plus those shares deemed to be outstanding
pursuant to Rule 13d-3(d)(1) under the Exchange Act, less any shares held by
subsidiaries.
8
<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.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- ---------------------------- ---------- --------
<S> <C> <C> <C>
Common Stock.............. McDermott International, Inc. 24,668,297(1) 60.1%(2)
1450 Poydras Street
New Orleans, LA 70112-6050
Series A Preferred Stock
(3)...................... McDermott International, 3,200,000(4) 100.00%
Inc.
1450 Poydras Street
</TABLE> New Orleans, LA 70112-6050
- --------
(1) As reported on a Schedule 13D dated February 9, 1995 filed by McDermott
International.
(2) Percent of class based upon the outstanding shares of Common Stock on June
2, 1998, plus those shares deemed to be outstanding pursuant to Rule
13d-3(d)(1) under the Exchange Act.
(3) Entitles holders thereof to one vote per share, voting as a single class
with holders of Common Stock.
(4) As footnoted on a Schedule 13D dated February 9, 1995 filed by McDermott
International with respect to its ownership of Common Stock.
9
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS
The Compensation Committee is comprised of three independent nonemployee
directors who have no "interlocking" relationships with the Company. The
Compensation Committee exists to develop executive compensation policies that
support the Company's strategic business objectives and values. The duties of
this committee include:
. Review and approval of the design of executive compensation programs and all
salary arrangements that Company executives receive;
. Assessment of the effectiveness of the programs in light of compensation
policies; and
. Evaluation of executive performance.
COMPENSATION PHILOSOPHY
The Compensation Committee adheres to an executive compensation philosophy
that supports the Company's business strategies. These strategies are to:
. Maximize profits;
. Increase stockholder value;
. Strengthen cash flow; and
. Be the high tech, low cost provider of products and services within our
markets.
The Compensation Committee's philosophy for executive compensation is to:
. Emphasize at-risk compensation, while balancing short-term and long-term
compensation to support the Company's business and financial strategic
goals;
. Reflect positive, as well as negative, Company and individual performance in
pay;
. Encourage equity-based compensation to reinforce management's focus on
stockholder value; and
. Provide competitive pay opportunities that will attract, retain, and develop
executive talent.
Company executives participate in a comprehensive compensation program that
is built around this four-pronged philosophy. The key components of this
program include base salary, annual bonus opportunities, long-term incentives
(stock options and performance stock awards of restricted shares) and
benefits.
Each of these components is reviewed by the Compensation Committee as
previously described. To ensure the Company's pay is comparable to median
market practices, competitive market data is collected from multiple external
sources. The data is collected both on an industry-specific basis and an
overall industrial basis. The industry-specific comparison is collected using
a group of companies that have national and international business operations
and similar sales volumes, market capitalizations, employment levels and lines
of business. The Compensation Committee reviews and approves the selection of
companies used for this purpose and attempts to mirror the peer group
reflected in the performance graph. These comparator groups, however, are not
identical because the market data used by the Company is much more broad-based
than the companies included in the performance graph peer group. This market
information, which is reviewed annually by the Compensation Committee, is used
for assessing all components of Company executives' pay.
When setting compensation levels, the Compensation Committee considers each
component of an executive's pay. Certain quantitative formulas have been
adopted for the individual compensation plans themselves (e.g., incentive
plans). The Compensation Committee uses a combination of the results of the
performance-based compensation determiners (mathematical formulas) and
discretion, depending on the particular component involved. Each component of
pay is discussed in greater detail below.
10
<PAGE>
BASE SALARY
Generally, salaries reflect an individual's level of responsibility, prior
experience, breadth of knowledge, personal contributions, position within the
Company's executive structure, and market pay practices. Overall, salaries are
targeted at the median of the market practice, with annual adjustments based
upon performance. When making annual adjustments, a qualitative assessment of
performance is conducted, which considers many factors including individual
performance, both past and present. The factors used in making this evaluation
may vary by position.
Mr. Tetrault acts as the Company's Chief Executive Officer pursuant to an
arrangement with McDermott International, the Company's parent corporation, of
which he is also Chief Executive Officer. Mr. Tetrault, however, does not
receive a base salary from the Company. Mr. Rawle's base salary was not
increased in fiscal year 1998. No other executive officers of the Company
received increases in base salary during fiscal year 1998, except in the event
of a promotion.
ANNUAL BONUS
Annual bonuses promote the Company's compensation philosophy by providing
executives with short-term financial incentives to achieve corporate and
individual performance goals. Annual bonus opportunities allow the Company to
communicate specific goals that are of primary importance during the coming
year and motivate executives to achieve these goals.
In 1994, the Company adopted a Short-Term Incentive Compensation Plan to
support its short-term financial focus. In 1996, the Company restated its 1994
Short-Term Incentive Compensation Plan, and such plan, as restated, was
approved by the Company's stockholders. Payments under the plan are intended
to comply with the deductibility requirements set forth under Section 162(m)
of the Internal Revenue Code of 1968, as amended.
For fiscal year 1998, as in the prior year, the plan was tied to net income
return on capital. The plan is formula driven and self-funded, based on a
minimum level of financial performance to be achieved each year (8.5% adjusted
net income return on capital for fiscal year 1998). Executives' opportunities
under the plan are expressed as a targeted percent of base salary. These
targets, like base salary, are set at approximately the median market levels,
as indicated by a group of similar companies. Mr. Rawle has a bonus target of
55% of base salary. The Compensation Committee believes the goals associated
with target bonus payments are achievable yet require considerable effort and
innovation on the part of each executive. Executives only receive payments
under the plan if the minimum level of financial performance is reached.
Financial performance at the minimum level results in bonuses of one-half the
targeted amounts. If the minimum level of financial performance is exceeded,
bonus payments are increased. Bonus awards are considered when the
Compensation Committee reviews the Company's financial performance after the
close of the fiscal year.
Under the arrangement between the Company and McDermott International
previously described, Mr. Tetrault is not eligible to receive a bonus under
the Company's Short-Term Incentive Compensation Plan. Mr. Rawle, as the
Company's President and Chief Operating Officer, received a bonus of $302,544
for his services for fiscal year 1998, which represents 110% of his base
salary in effect at the beginning of fiscal year 1998 (versus a 55% target).
Mr. Rawle's bonus reflects the Company's superior adjusted net income return
on capital for fiscal year 1998 (29.3%), which greatly exceeded the minimum
level of financial performance for the year. Other executives' bonuses were
determined based upon the same factors.
LONG-TERM INCENTIVES
In 1994, the Company adopted an Executive Long-Term Incentive Compensation
Plan. Subsequent thereto, the plan was amended and such amendments were
approved by the Company's stockholders. Compensation under the plan is
intended to comply with the deductibility requirements set forth under Section
162(m) of the Internal Revenue Code, as amended. The Company's Restated 1994
Executive Long-Term Incentive
11
<PAGE>
Compensation Plan, as amended, provides executives with equity-based
opportunities to earn additional compensation based upon Company and stock
performance over the mid- to long-term. Use of such incentives focuses
management on the long-term interests of stockholders.
The Compensation Committee considers the following multiple factors when
determining award sizes. Weighting between the factors listed below is
informal, not quantitative.
. Various financial performance criteria (which may include returns on capital
and assets, profitability, and stockholder return);
. Level of responsibility;
. Prior experience;
. Historical award data; and
. Market practices among similar companies.
Stock Options. Under the plan, stock options are granted at exercise prices
equal to fair market value of the underlying Common Stock on the date of
grant. Executives do not realize value unless the stock price rises above the
price on the date of grant. This reflects the Company's focus on increasing
stockholder value.
To reinforce the focus on creating stockholder value in the mid-term as well
as long term, fiscal year 1998 options were granted with a five-year term as
opposed to a ten-year term for option grants in previous years. Moreover,
fiscal year 1998 option grants vest in 50% increments on the first and second
anniversaries of the date of grant. Previous grants vested in one-third
increments on the first, second and third anniversaries of the date of the
grant.
During fiscal year 1998, Messrs. Tetrault and Rawle were granted options to
acquire 9,500 and 12,460 shares of Common Stock, respectively, at an exercise
price of $37.5313 per share.
Performance Stock Awards. Beginning in 1998, the Company modified its method
of awarding restricted stock to its officers. Previously, restricted stock
awards were granted annually to Company executives based upon the attainment
of pre-established financial goals, such as net income return on capital, for
a given year. Thereafter, 50% of the restricted stock would vest at the end of
five years, with the other 50% vesting between the third and tenth anniversary
of the date of grant based upon the Company's financial performance. Until
such restricted stock vested, it was nontransferable and subject to forfeiture
under certain circumstances. Holders of restricted stock receive dividends
paid on, and are entitled to vote, such shares prior to vesting.
For 1998, the Compensation Committee increased the "at risk" component of
the Company's restricted stock program by tying the number of restricted
shares awarded for such year, if any, to future stock performance. Under the
new program, Company executives receive a performance stock award of
restricted stock based upon salary multiples corresponding to their title and
position within the Company. Performance stock awards are made as notional
grants of restricted stock. No shares are issued by the Company at the time of
the grant. The number of restricted shares actually received by a participant,
if any, is determined on the second anniversary of the grant date by
calculating the difference between the fair market value of a share of the
Company's Common Stock (based upon the preceding 30 trading day average) and
the fair market value of the Common Stock on the grant date. The difference is
multiplied by that number of shares in an executive's notional grant and the
resulting product is divided by the fair market value of the Common Stock as
of the second anniversary of the grant date, calculated as described above.
The resulting number is added to (in the case of an increase in share price)
or subtracted from (in the case of a decrease in share price) the number of
shares in an executive's notional grant. The notional grant, as adjusted (to
the extent not reduced to zero), is then issued to the executive as restricted
stock on the second anniversary of the grant date, for which the executive is
required to pay $1.00 per share. The restricted stock vests two years
thereafter. As with previous restricted stock awards, restricted shares are
nontransferable and are subject to forfeiture under certain circumstances
prior to vesting.
12
<PAGE>
The Compensation Committee believes that the above described modification to
restricted stock awards reinforces the importance of creating stockholder
value because the ultimate size of each annual restricted stock award, if any,
is based upon the future performance of the Company's Common Stock.
During fiscal year 1998, Messrs. Tetrault and Rawle received performance
stock awards of 3,450 and 4,760 restricted shares of Common Stock,
respectively. Other officers received performance stock awards in accordance
with the method described above.
BENEFITS
Benefits offered to key executives serve a different purpose than the other
elements of compensation. In general, they provide a safety net of protection
against financial catastrophes that can result from illness, disability, or
death. Benefits offered to key executives are generally those offered to the
general employee population with some variation to promote tax efficiency and
replacement of benefit opportunities lost due to regulatory limits.
POLICY WITH RESPECT TO SECTION 162(M)
Section 162(m) of the Internal Revenue Code 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 have received
stockholder approval and were drafted with the intention that such incentive
compensation qualify as performance-based compensation under Section 162(m).
While the Compensation Committee intends to continue to rely on performance-
based compensation programs, it is cognizant of the need for flexibility in
making executive compensation decisions, based upon the relevant facts and
circumstances, so that the best interests of the Company are achieved. To the
extent consistent with this goal, the committee anticipates that such programs
will continue to satisfy the requirements of Section 162(m) with respect to
the deductibility of executive compensation paid.
CONCLUSION
The Compensation Committee believes these executive compensation policies
and programs serve the interests of stockholders and the Company effectively.
The various pay vehicles offered are appropriately balanced to provide
increased motivation for executives to contribute to the Company's overall
future success, thereby enhancing the value of the Company for the
stockholders' benefit.
We will continue to monitor the effectiveness of the Company's total
compensation programs to meet the current needs of the Company.
COMPENSATION COMMITTEE
R.L. Howard, Chairman
R.L. Burdick
C.E. Ritchie
13
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing 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 through March 31, 1998 (the end of the
Company's last 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
[Performance Graph appears 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 3/31/96 3/31/97 3/31/98
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
J. Ray McDermott, S.A............ $100.00 $123.42 $ 88.57 $110.85 $192.56
S&P 500.......................... $100.00 $107.11 $141.38 $169.37 $250.46
Peer Group....................... $100.00 $111.61 $163.11 $216.74 $301.13
</TABLE>
14
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation for
fiscal years 1998, 1997 and 1996 of the Company's Chief Executive Officer
("CEO") and four highest paid executive officers other than the CEO
(collectively, the "Named Executive Officers"). Mr. Tetrault received his
salary from McDermott International. 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 who also serve as officers of the
Company, including the services of Mr. Tetrault as the Company's Chairman and
CEO. See "CERTAIN TRANSACTIONS--McDermott International and Affiliates". The
table does not provide any compensation information relating to the services
that Mr. Tetrault provided 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. Tetrault.......... Chairman & 1998 $ 0 $ 0 $ 0 $ 0 9,500 $ 0 $ 0
Chief Executive Officer 1997 $ 0 $ 0 $ 0 $181,238 108,100 $ 0 $ 0
G.W. Drinkwater(5)..... Senior VP & 1998 $215,520 $193,968 $ -- $ 0 8,610 $ 0 $5,292
Group Executive 1997 $ 92,810 $ 0 $ 18,238 $ 0 8,640 $ 0 $2,453
K.S. Nelson............ VP & Area 1998 $176,280 $141,024 $165,786 $ 0 6,110 $ 0 $5,139
Executive 1997 $154,595 $ 0 $261,506 $ 0 4,450 $ 0 $4,566
1996 $141,210 $ 19,606 $159,934 $ 52,320 9,570 $ 0 $4,839
F.R. Oehrlein.......... VP & Group 1998 $196,620 $176,958 $364,130 $ 0 6,810 $ 0 $5,292
Executive 1997 $177,255 $ 0 $300,455 $ 0 7,590 $ 0 $5,360
1996 $151,670 $ 21,340 $156,093 $ 82,080 12,170 $ 0 $4,500
R.H. Rawle............. President & 1998 $275,040 $302,544 $ --- $ 0 12,460 $ 0 $5,228
Chief Operating Officer 1997 $192,540 $ 0 $107,334 $ 0 10,090 $ 0 $4,614
1996 $157,540 $ 27,412 $ -- $ 73,200 9,660 $ 0 $4,850
</TABLE>
- -------
(1) Includes amounts earned in the fiscal year, whether or not deferred.
(2) The aggregate value of perquisites and other personal benefits are not
included if they do not exceed the lesser of $50,000 or 10 percent of the
total amount of annual salary and bonus for the applicable fiscal year.
With respect to Messrs. Nelson and Oehrlein, includes commodities,
services, housing, utilities, expenses and tax equalization associated
with their international assignments for fiscal years 1998, 1997 and 1996.
With respect to Messrs. Drinkwater and Rawle, includes relocation expenses
of $16,438 and $104,465, respectively, during fiscal year 1997.
(3) Restricted stock awards were not granted to officers of the Company for
fiscal years 1998 and 1997, except for Mr. Tetrault, who received a grant
of 8,100 restricted shares of Common Stock in fiscal year 1997 in
connection with his joining the Company. Restricted stock awards in Common
Stock are valued at the closing market price of the Common Stock on the
date of grant less any amounts paid by the executive officers for such
awards ($1.00 per share). As of March 31, 1998, 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 31, 1998
of $42.125) are as follows: Mr. Tetrault held 8,100 shares valued at
$333,113; Mr. Drinkwater held 0 shares; Mr. Nelson held 4,200 shares
valued at $172,725; Mr. Oehrlein held 6,510 shares valued at $267,724; and
Mr. Rawle held 5,300 shares valued at $217,963. 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. In fiscal year 1998, instead of granting restricted
stock awards, the Company granted performance stock awards, which are more
fully described in the table entitled "Long-Term Incentive Plan--
Performance Stock Awards in Fiscal Year 1998".
(4) Amounts shown for fiscal year 1998 include company matching contributions
to the McDermott Thrift Plan in the amount of $4,800 for each of Messrs.
Drinkwater, Nelson, Oehrlein and Rawle and the value of insurance premiums
paid by the Company for Messrs. Drinkwater, Nelson, Oehrlein and Rawle in
the amounts of $492, $339, $492 and $428, respectively.
(5) Prior to October 1996, Mr. Drinkwater was employed by McDermott
International. Compensation information for fiscal year 1997 only reflects
amounts received by him from the Company for the six month period between
October 1996 and March 1997.
15
<PAGE>
OPTION GRANT TABLE
Options granted in fiscal year 1998 vest in equal installments of one-half
on the first and second anniversaries of the date of grant and expire five
years from the date of grant. In general, vesting is contingent on continuing
employment with the Company. In the event of a change in control of the
Company, the Compensation Committee may accelerate the exercisability of any
options outstanding. The following table provides information about option
grants to the Named Executive Officers during fiscal year 1998. The Company
did not grant any stock appreciation rights to its executive officers during
fiscal year 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(1)
------------------------------------------- -------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS 5% 10%
OPTIONS GRANTED TO EXERCISE EXPIRATION ------------ ------------
NAME GRANTED EMPLOYEES(2) PRICE(3) DATE DOLLAR GAINS DOLLAR GAINS
- ---- ---------- ------------ -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Tetrault
Common Stock........... 9,500 5.43 $37.5313 02/03/03 $ 98,507 $ 217,676
G.W. Drinkwater
Common Stock........... 8,610 4.93 $37.5313 02/03/03 $ 89,279 $ 197,283
K.S. Nelson
Common Stock........... 6,110 3.5 $37.5313 02/03/03 $ 63,356 $ 140,000
F.R. Oehrlein
Common Stock........... 6,810 3.9 $37.5313 02/03/03 $ 70,614 $ 156,039
R.H. Rawle
Common Stock........... 12,460 7.13 $37.5313 02/03/03 $ 129,200 $ 285,499
All Stockholders(4)..... 40,767,828 -- $37.5313 -- $422,730,015 $934,122,781
</TABLE>
- --------
(1) Potential Realizable Value is based on the assumed annual growth rates for
each of the grants shown over their five-year option term. For example, if
the exercise price is $37.5313, a 5% annual growth rate over five years
results in a stock price of $47.90 per share and a 10% rate results in a
price of $60.45 per share. Actual gains, if any, on stock option exercises
are dependent on the future performance of the stock. Zero percent
appreciation in stock price will result in no gain.
(2) Based on options to acquire 174,800 shares of Common Stock granted to all
employees of the Company during fiscal year 1998.
(3) Fair market value on date of grant.
(4) Total dollar gains based on the assumed annual rates of appreciation
indicated in the table and calculated on 40,767,828 outstanding shares of
Common Stock on March 31, 1998. The Named Executive Officers' gains as a
percentage of the total dollar gains shown for all stockholders is .11%
16
<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information concerning the exercise of stock
options during fiscal year 1998 by each of the Named Executive Officers and
the value at March 31, 1998 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, 1998 (when the fair
market value of the Common Stock was $42.125 per share). The actual value
realized upon option exercise 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
NUMBER OF UNEXERCISED OPTIONS HELD OPTIONS
SHARES AT FISCAL YEAR-END HELD AT FISCAL YEAR-END
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Tetrault
Common Stock........... 0 $-- 36,034* 81,566 $675,638 $1,394,878
G.W. Drinkwater
Common Stock........... 0 $-- 2,880 14,370 $ 49,500 $ 138,552
K.S. Nelson
Common Stock........... 0 $-- 8,924 15,456 $189,527 $ 241,337
F.R. Oehrlein
Common Stock........... 0 $-- 15,317 19,983 $316,919 $ 324,626
R.H. Rawle
Common Stock........... 0 $-- 12,624 25,626 $257,508 $ 336,658
</TABLE>
- --------
* Mr. Tetrault exercised options to acquire 36,034 shares of Common Stock
after March 31, 1998 and prior to the date of this Proxy Statement.
17
<PAGE>
PERFORMANCE STOCK AWARDS IN FISCAL YEAR 1998
The following table provides information concerning performance stock awards
of restricted shares made to each of the Named Executive Officers during
fiscal year 1998.
LONG-TERM INCENTIVE PLAN--PERFORMANCE STOCK AWARDS
IN FISCAL YEAR 1998*
<TABLE>
<CAPTION>
NUMBER OF
PERFORMANCE PERFORMANCE
NAME SHARES PERIOD
- ---- ----------- -----------
<S> <C> <C>
R.E. Tetrault........................................... 3,450 2 years
G.W. Drinkwater......................................... 3,450 2 years
K.S. Nelson............................................. 2,350 2 years
F.R. Oehrlein........................................... 2,620 2 years
R.H. Rawle.............................................. 4,760 2 years
</TABLE>
- --------
* No shares are issued by the Company at the time of the performance stock
award (2/3/98). Actual number of shares issued to an executive will be based
on the change in the market price of the Common Stock two years after the
date of the award. The number of shares to be received by an executive, if
any, is determined on the second anniversary of the award date by
calculating the difference between the fair market value of the Common Stock
(based upon the preceding 30 trading day average) and the fair market value
of the Common Stock on the award date. The difference is multiplied by that
number of shares in an executive's award, and the resulting product is
divided by the fair market value of the Common Stock as of the second
anniversary of the award date, calculated as described above. The resulting
number is added to (in the case of an increase in share price) or subtracted
from (in the case of a decrease in share price) the number of shares in an
executive's applicable award. The award, as adjusted (to the extent not
reduced to zero), is then issued to the executive as restricted stock as of
the second anniversary of the award date, for which the executive is
required to pay $1.00 per share. The restricted stock vests two years
thereafter. Prior to vesting, such restricted stock is nontransferable and
subject to forfeiture under certain circumstances.
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, such as Mr. Tetrault) 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. Tetrault 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. Employees
do not contribute to the J. Ray McDermott Retirement Plan and company
contributions are determined on an actuarial basis. Generally, 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. To the extent that benefits
payable under these qualified plans are limited by Section 415(b) or
401(a)(17) of the Internal Revenue Code, pension benefits will be paid
directly by the Company or a subsidiary under the terms of the unfunded excess
benefit plans maintained by them (the "Excess Plans").
The following table shows the annual benefit payable under the J. Ray
McDermott Retirement Plan at age 65 (the normal retirement age) to employees
retiring prior to April 1, 1998 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
18
<PAGE>
("Final Average Earnings") less a specified percentage of anticipated social
security benefits, plus a fixed pension supplement. As of March 31, 1998,
Messrs. Drinkwater, Nelson, Oehrlein and Rawle had Final Average Earnings and
years of credited service as follows: $173,108 and 24.2 years, $142,617 and
26.11 years, $158,450 and 26.3 years, and $176,101 and 19.6 years,
respectively, under the J. Ray McDermott Retirement Plan. Unless elected
otherwise by the employee, payment will be made in the form of a joint and
survivor annuity of equivalent actuarial value to the amount shown below.
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 $14,106 $21,097 $28,088 $35,080 $42,071 $49,062 $56,054
125,000 18,272 27,347 36,422 45,496 54,571 63,646 72,720
150,000 22,439 33,597 44,755 55,913 67,071 78,229 89,387
175,000 30,772 46,097 61,422 76,746 92,071 107,396 122,720
200,000 30,772 46,097 61,422 76,746 92,071 107,396 122,720
</TABLE>
Supplemental Executive Retirement Plan. The Company is a participating
employer in McDermott International's Supplemental Executive Retirement Plan
(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. Drinkwater,
Nelson, Oehrlein and Rawle at retirement age as stated in the SERP is 60% of
each such person's final 3-year average cash compensation. No officer of
McDermott International who also served as an officer of the Company during
fiscal year 1998, including Mr. Tetrault, will receive a benefit under the
SERP as a result of his service as an officer of the Company. Such officers,
however, may receive a benefit under the SERP as a result of their service as
executive officers of McDermott International based upon the salary and bonus
paid to them by such company.
A trust (the assets of which constitute corporate assets) has been
established, which is designed to ensure the payment of benefits arising under
the SERP, the Excess Plans and certain other contracts and arrangements
(collectively, the "Plans") in the event of an effective change in control of
the Company. Although the Company would retain primary responsibility for such
payments, the trust would provide for payments to designated participants, in
the form of lump sum distributions, if certain events occur following an
effective change in control of the Company, including but not limited to 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.
19
<PAGE>
INDEPENDENT AUDITORS
Ernst & Young LLP ("Ernst & Young") served as the Company's independent
auditors during fiscal year 1998. Representatives of Ernst & Young are
expected to 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.
No decision has been made as to the selection of the Company's independent
auditors for the fiscal year ended March 31, 1999. The Audit Committee of the
Board has considered the possibility of making a change in the Company's
independent auditors but has not submitted a formal recommendation to the
Board of Directors for approval. A decision as to the selection of the
Company's independent auditors for fiscal year 1999 is expected to be made
prior to the Annual Meeting.
During the Company's two most recently completed fiscal years and the
current interim period, there have been no disagreements with Ernst & Young on
any matters of accounting principles or practice, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of Ernst & Young, would have caused it to make a reference to the
subject matter of the disagreement in connection with its report. Ernst &
Young's reports on the Company's financial statements for the past two years
did not contain an adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
CERTAIN TRANSACTIONS
MCDERMOTT INTERNATIONAL AND AFFILIATES
McDermott International owns approximately 60% 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 63% of the voting stock
of the Company. As a result, McDermott International, either directly or
through its subsidiaries and affiliates other than the Company and its
subsidiaries (collectively, 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.
Services Agreement and other Administrative Charges. Under the terms of a
Services Agreement, McDermott International provides certain services to the
Company, based primarily upon a predetermined annual fee for each such
service. Such services include accounting and financial reporting, treasury
and financing, tax administration and research, human resources, risk
management, public and investor relations, executive officer, legal and
corporate secretary, business planning and analysis, purchasing and
procurement, and project management services. For fiscal year 1998, the
Company paid to McDermott International approximately $13.1 million under the
Services Agreement.
During the same period, McDermott International and other members of the
McDermott Group also provided other administrative services, including
investment portfolio management, data processing development,
telecommunication and lobbying services, and shared office space to the
Company for which it paid to McDermott International approximately $5.2
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 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. During fiscal year 1998, the Company
and its subsidiaries purchased from McDermott International and other members
of the McDermott Group approximately $8.9 million of other
20
<PAGE>
services, on an as requested basis, the costs of which were based on charges
to unrelated parties for similar work. Such services relate primarily to
technology development and research, and engineering, procurement and
construction services on a power plant project. During the same time period,
the Company and its subsidiaries provided marine construction and engineering
services to McDermott International and other members of the McDermott Group,
on the same basis, for which the Company recognized revenue in the amount of
approximately $22 million.
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
than other alternatives as there is generally no commercial market for
insurance on the same economic terms for these types of exposures.
Effective November 30, 1997, the Company acquired from McDermott
International its 60% interest in Tallares Navales del Golfo S.A. de C.V.,
which operates a shipbuilding and repair business in Vera Cruz, Mexico, for
approximately $19.7 million.
Effective December 31, 1997, the Company also acquired from McDermott
International (a) its 50% interest in McDermott Engineering Houston, LLC (an
offshore and onshore engineering and design company) for approximately $2.9
million and (b) Menck GmbH (a manufacturer of marine and onshore pile-driving
hammers and associated equipment) for approximately $5.6 million and the
assumption of $6.7 million in liabilities.
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.
Series A Preferred Stock. During fiscal year 1998, 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.
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
1998, except that R. H. Rawle, an executive officer of the Company,
inadvertently reported 21 days late the purchase of 800 shares of the
Company's Common Stock on a Form 4.
21
<PAGE>
STOCKHOLDERS' PROPOSALS
Proposals by stockholders intended to be presented at the 1999 Annual
Meeting must be received by the Corporate Secretary of the Company no later
than March 3, 1999, in order to be qualified for inclusion in the Company's
Proxy Statement and form of proxy for such meeting. Concurrently therewith,
proponents shall provide the Company in writing with his or her name, address,
the number of shares of Common Stock held of record or beneficially, the date
or dates upon which such Common Stock was acquired and documentary support for
a claim of beneficial ownership.
By Order of the Board of Directors,
/s/ S. Wayne Murphy
--------------------------
S. Wayne Murphy
Secretary
Dated: July 1, 1998
22
<PAGE>
J. RAY McDERMOTT, S.A.
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints S. Wayne Murphy and Daniel R. Gaubert or either
of them, as attorneys, agents and proxies of the undersigned, with full power of
substitution, to vote all the shares of common stock of J. Ray McDermott, S.A.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on Friday, August 7, 1998, 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 J. Ray McDermott, S.A.'s Annual Report
for the fiscal year ended March 31, 1998 and Notice of Annual Meeting of
Stockholders and related Proxy Statement.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
J. RAY McDERMOTT, S.A.
ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, AUGUST 7, 1998
9:30 a.m.
HYATT REGENCY, NEW ORLEANS
CABILDO A AND B
POYDRAS STREET AT LOYOLA AVENUE
NEW ORLEANS, LOUISIANA
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Please mark
your vote as
indicated in
this example [X]
<S> <C>
1. The election of 01 William J. Johnson, 02 Robert H. Rawle Every properly signed Proxy will be voted in accordance with the
and 03 Rober E. Tetrault as Class I Directors. specifications made thereon. If not otherwise specified, this
Proxy will be voted FOR the election of Directors. The proxy
FOR WITHHOLD AUTHORITY holders named above also will vote in their discretion on any
all nominees from all nominees other matter that may properly come before the meeting.
[_] [_]
(INSTRUCTION: To withhold authority to vote for any individual ================================================================
nominee, write that nominee's name in the space provided below.) *** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ
THE INSTRUCTIONS BELOW***
_____________________________________________________________ =================================================================
------------------------------------------
ANNUAL REPORT
------------------------------------------
_____ Mark here to discontinue annual report
| mailing for the account (for multiple
| account holders only) [_]
------------------------------------------
------------------------------------------
Signature(s)
------------------------------------------
Date
(Signature(s) should agree with name(s) on
stock certificates as specified hereon.
Executors, administrators, trustees, etc.,
should indicate when signing).
- ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your
proxy card.
. You will be asked to enter a Control Number which is located in the box in the lower right hand corner of this form.
OPTION #1: To vote as the board of Directors recommends on ALL proposals, Press 1
When asked, please confirm your vote by Pressing 1.
OPTION #2: If you choose to vote on each proposal separately, press 0. You will hear these instructions:
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to the instructions.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY PHONE.
CALL ** TOLL FREE ** ON A TOUCH TONE TELEPHONE
1-800-840-1208-ANYTIME
There is NO CHARGE to you for this call.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
