INPUT/OUTPUT, INC.
1996 MANAGEMENT INCENTIVE PROGRAM
PURPOSE
The purpose of the Input/Output, Inc. 1996 Management Incentive Program is
to advance the interests of Input/Output, Inc. and its stockholders by providing
certain key employees with annual incentive compensation which is tied to the
achievement of preestablished and objective performance goals. The Plan is
intended to provide Participants with annual incentive compensation which is not
subject to the deduction limitation rules prescribed under Section 162(m) of the
Code, and should be construed to the extent possible as providing for
remuneration which is "performance-based compensation" within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder.
ARTICLE I
DEFINITIONS
For the purposes of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
"BASE SALARY" means the actual base salary of a Participant (exclusive
of Bonuses and any compensation under any other employee compensation or
benefit plans of the Company) paid or to be paid, as the case may be, to a
Participant with respect to the Bonus Year in question, according to the
books and records of the Company and its Subsidiaries.
"BOARD" means the board of directors of the Company.
"BONUS" means either or both, as the context may require, of a Budget
Bonus or an PBT Bonus awarded pursuant to the Plan.
"BONUS YEAR" means the fiscal year of the Company and its Subsidiaries
with respect to which a Bonus is calculated.
"BUDGET BONUS" means the Bonus calculated in accordance with Article
V.
"BUDGETED PROFITS BEFORE TAXES" means the estimated consolidated
earnings before income taxes of the Company and its Subsidiaries for the
Bonus Year in question, as determined in accordance with GAAP and adopted
by the Company for purposes of the Company's annual operating budget for
the Bonus Year in question.
"COMMITTEE" has the meaning assigned to it in Article II.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means Input/Output, Inc., a Delaware corporation.
"CORPORATE THRESHOLD" means with respect to any Bonus Year, the
minimum level of Profits Before Taxes that must be realized by the Company
before any Budget Bonus or PBT Bonus, as the case may be, can be paid by
the Company.
"COVERED EMPLOYEE" shall have the same meaning as the term "covered
employee" (or its counterpart, as such term may be changed from time to
time) contained in the treasury regulations promulgated under Code Section
162(m), or their respective successor provision or provisions, that being
an employee for which the limitation on deductibility for compensation
pursuant to Code Section 162(m) is applicable.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of
Certified Public Accountants acting through the Accounting Principles Board
or by the Financial Accounting Standards Board or through other appropriate
boards or committees thereof and which are consistently applied for all
periods so as to properly reflect the financial condition and the results
of operations of the Company and its Subsidiaries, except that any
accounting principle or practice required to be changed by such Financial
Accounting Standards Board (or other appropriate board or committee of such
board) in order to continue as a generally accepted accounting principle or
practice may so be changed.
"GROUP" and "GROUPS" have the meanings assigned to them in Article IV.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"PARTICIPANT" means any key employee of the Company or any of its
Subsidiaries that the Committee has determined to be eligible for
participation in the Plan.
"PAYMENT DATE" means the business day selected by the Committee upon
which the Committee shall calculate and declare Bonuses in accordance with
Section 7.2, which shall be a date after the Company's independent
accounting firm issues its audit report on the Company's financial
statements with respect to the Bonus Year in question, and which in any
event shall not be later than ninety (90) days after the end of the
applicable Bonus Year.
"PBT BONUS" means the Bonus calculated in accordance with Article VI.
"PERFORMANCE GOALS" means the performance measures established by the
Committee for each Group for any Bonus Year in accordance with Articles V
and VI of the Plan, which shall be expressed as percentages; these
applicable percentages will be multiplied by the Base Salaries of
Participants in determining their Bonus amounts.
"PLAN" means the Input/Output, Inc. 1996 Management Incentive Program,
as it may be amended from time to time.
"PROFITS BEFORE TAXES" or "PBT" means the consolidated earnings before
income taxes of the Company and its Subsidiaries for the fiscal year in
question, determined by reference to the Company's audited consolidated
statement of operations for such fiscal year prepared in accordance with
GAAP.
"SUBSIDIARY" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of the
Bonus, each of the corporations other than the last
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corporation in the unbroken chain owns stock possessing more than 50% of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, and "SUBSIDIARIES" means more than one of any
such corporations.
"TOTAL BONUS" means the aggregate compensation, if any, awarded to a
Participant on the Payment Date for any Bonus Year pursuant to a Budget
Bonus and/or a PBT Bonus.
ARTICLE II
ADMINISTRATION
Subject to the terms of this Article II, the Plan shall be administered by
the Compensation Committee (the "Committee") of the Board, which shall consist
of at least two members. Any member of the Committee may be removed at any
time, with or without cause, by resolution of the Board. Any vacancy occurring
in the membership of the Committee may be filled by appointment by the Board.
Each member of the Committee, at the time of his appointment to the Committee
and while he is a member thereof, must be an "outside director" as such term is
used in Code Section 162(m).
The Board shall select one of its members to act as the Chairman of the
Committee, and the Committee shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee shall constitute
a quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee. Subject
to the terms hereof, the Committee shall interpret the Plan, prescribe, amend,
and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, and make such other determinations and take such
other action as it deems necessary or advisable.
The Committee shall have full authority to select the key employees who
will participate in the Plan, to designate the Groups in which they will
participate, to establish Performance Goals with respect to each Group and
certify the extent of their achievement, establish and certify the achievement
of the Corporate Thresholds, and generally to administer the Plan, including
authority to interpret and construe any provision of the Plan. Except as
provided below, any interpretation, determination, or other action made or taken
by the Committee shall be final, binding, and conclusive on all interested
parties, including the Company and all Participants.
ARTICLE III
ELIGIBILITY
The Committee shall, on a date within the first ninety (90) days of the
Bonus Year in question, select the particular key members of management of the
Company and the particular key employees of the Company and its Subsidiaries to
whom Bonuses under the Plan may be granted. Except as otherwise provided in
Article IV, employees who participate in the Plan may also participate in other
incentive or benefit plans of the Company or any Subsidiary. As used herein, the
term "employee" shall mean any person employed full-time by the Company or a
Subsidiary on a salaried basis, and the term "employment" shall mean full-time
salaried employment by the Company or a Subsidiary.
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ARTICLE IV
INCENTIVE PLAN GROUPS
Each Participant in the Plan shall be designated as a member of a Group by
the Committee in accordance with the terms of the Plan. The initial Groups of
Participants under the Plan shall be constituted as follows:
Group I: Chief Executive Officer and Chief Operating Officer of the
Company
Group II: Vice Presidents and Controller of the Company
Group III: Tier One key employees of the Company and its Subsidiaries,
as determined by the Committee
Group IV: Tier Two key employees of the Company and its Subsidiaries as
determined by the Committee
The Committee may hereafter establish different Groups or classes of Groups with
respect to any Bonus Year if such designation is accomplished within the first
90 days of such Bonus Year.
In addition, certain officers and key employees may participate in similar
Subsidiary-only management incentive plans adopted by that Subsidiary and, by
reason of such participation, as determined by the Committee, may not be
eligible for participation in this Plan.
ARTICLE V
BUDGET BONUS
Prior to that date which is 90 days after the commencement of the Bonus
Year in question, the Board shall have reviewed and approved the operations
budget for such Bonus Year, which shall reflect the Budgeted Profits Before
Taxes for such Bonus Year. Not later than the 90th day of the Bonus Year in
question, the Committee shall set forth in writing the key employees designated
as Participants for the Bonus Year and their appropriate Group, whether that
Group will participate in the Budget Bonus, the Corporate Threshold with respect
to the Budget Bonus for such Bonus Year, and the Performance Goals with respect
to each participating Group. The Corporate Threshold with respect to the Budget
Bonus for any particular Bonus Year shall be an amount equal to (i) the Budgeted
Profits Before Taxes, multiplied by (ii) a percentage determined by the
Committee; provided that such Corporate Threshold shall not be less than an
amount equal to 80% of Budgeted Profits Before Taxes. The actual percentage
amounts of the Performance Goals to apply with respect to the Base Salaries of
Participants in each Group will be determined by reference to the extent of the
amount that the Profits Before Taxes exceeds the Corporate Threshold for the
Budget Bonus for that Bonus Year; provided that the maximum Budget Bonus that
may be received by a Participant may not exceed twenty-five percent (25%) of
such Participant's Base Salary for such Bonus Year.
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ARTICLE VI
PBT BONUS
Not later than the 90th day of the Bonus Year in question, the Committee
shall set forth in writing the key employees designated as Participants for the
Bonus Year and their appropriate Group, whether that Group will participate in
the PBT Bonus, the Corporate Threshold with respect to the PBT Bonus for such
Bonus Year, and the Performance Goals with respect to each participating Group.
The Corporate Threshold with respect to the PBT Bonus for any particular Bonus
Year shall be not less than the amount of the Profits Before Taxes for the
immediately preceding Bonus Year in question. The actual percentage amounts of
the Performance Goals to apply with respect to the Base Salaries of Participants
in each Group for purposes of determining a PBT Bonus will be determined by
reference to the extent of the amount that the Profits Before Taxes exceeds the
Corporate Threshold for the PBT Bonus for that Bonus Year.
ARTICLE VII
PAYMENT OF BONUSES AND GENERAL PROVISIONS
7.1 LIMITATION ON TOTAL BONUS. Notwithstanding any provision to the
contrary contained herein, the maximum Total Bonus payable to any Participant
with respect to any Bonus Year shall not exceed $750,000. The Bonus amounts
calculated in accordance with Articles V and/or VI hereof for any Participant
who is a Covered Employee with respect to the Bonus Year in question may be
reduced by an amount of up to 50% by the Committee in its sole discretion;
PROVIDED, HOWEVER, that under no circumstances may the amount of a Bonus
determined under Articles V and/or VI of this Plan with respect to any
Participant who is a Covered Employee with respect to the Bonus Year in question
be increased. Bonus amounts calculated hereunder with respect to any
Participant who is not a Covered Employee for the Bonus Year in question may be
reduced or increased by the Committee in its sole discretion.
7.2 PAYMENT. As a condition to eligibility for payment of a Bonus with
respect to any particular Bonus Year, a Participant shall be required to be in
the employ of the Company or one of its Subsidiaries through the applicable
Payment Date, UNLESS (i) such Participant terminated his or her employment
during such period due to retirement from the Company and its Subsidiaries in
accordance with standard retirement policies of the Company and its Subsidiaries
then in effect, or (ii) the Participant, while in the employ of the Company or
one of its Subsidiaries, became totally and permanently disabled (as that term
is defined in Section 22(e) of the Code) or died during such period. In the
event of such retirement, death or disability, the Participant (or, in the case
of death or disability, the Participant's estate or legal representative, as the
case may be, or a designated beneficiary in accordance with Section 11.6) shall
receive a prorated portion of his Bonus based on the portion of the Bonus Year
that the Participant was in the employ of the Company or one of its
Subsidiaries.
In the event that a person becomes an employee of the Company or one of its
Subsidiaries during a Bonus Year and the Committee determines to designate such
person as a member of Group III or Group IV (or their successor Group(s), if
subsequently designated by the Committee in accordance with Article IV), such
person will become a Participant as of the date of each designation, and shall
be entitled to receive a prorated portion of his Bonus based on the portion of
the Bonus Year that the Participant was in the employ of the Company or one of
its Subsidiaries. If a Participant that is a member of Group I or Group II (or
their successor Group(s), if designated by the Committee) ceases to be employed
by the Company or such Participant's status with the Company as an officer
changes as a result of a reassignment of duties, any person who succeeds the
Participant in the same or a comparable position within the Company, may be
designated
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by the Committee as a Participant and a member of Group I or Group II (or
their successor(s)), as may be applicable, for the duration of the applicable
Bonus Year, effective as of the date such person assumes such position.
Following the verification by the Company's independent accountants of the
Company's financial results for any Bonus Year, the Committee shall certify (i)
whether the Profits Before Taxes exceeded the Corporate Thresholds for the
Budget Bonus and the PBT Bonus; (ii) whether and the extent to which PBT Bonuses
and Budget Bonuses are payable to the Participants in each Group by applying
their applicable Performance Goals to their respective Base Salaries; and (iii)
the amounts of the Bonuses, if any, to be paid to the Participants in accordance
with Articles V and VI, as may be applicable (and Section 7.1, if applicable).
The Committee shall instruct the Company, or instruct the Company to cause any
Subsidiary, as applicable, to pay to each Participant his Bonus in accordance
with this Article, as promptly as reasonably practicable after such Payment
Date.
7.3 PARTIAL FISCAL YEARS. In the event that the Company and its
Subsidiaries adopt any different fiscal year which results in a fiscal year
having less than twelve months, the Committee shall, in its sole discretion,
award Bonuses computed as provided in Articles V and VI (and Section 7.1, if
applicable) but reduced by the Committee for such shortened fiscal year, or
defer any awards of Bonuses for such fiscal period until a Payment Date
following such full twelve-month fiscal year.
7.4 NO RIGHTS TO BONUS. The prospective recipient of a Bonus shall not
have any rights with respect to any Bonus, or any portion thereof, until the
award thereof on the Payment Date to which the particular Bonus amount relates.
ARTICLE VIII
AMENDMENT OR DISCONTINUANCE
The Committee may at any time and from time to time, without the consent of
the Participants, alter, amend, revise, suspend, or discontinue the Plan in
whole or in part; provided that any amendment that modifies any preestablished
performance goal for Participants in Group I or Group II (or their successor(s),
as may be applicable) under this Plan with respect to any particular Bonus Year
may only be effected on or prior to that date which is 90 days following the
commencement of such Bonus Year. In addition, the Board shall have the power to
amend the Plan in any manner advisable in order for Bonuses granted under the
Plan to qualify as "performance-based" compensation under Section 162(m) of the
Code (including amendments as a result of changes to Section 162(m) or the
regulations thereunder to permit greater flexibility with respect to Bonuses
granted under the Plan).
ARTICLE IX
EFFECT OF THE PLAN
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any Participant any right to be granted a
Bonus or any other rights. In addition, nothing contained in this Plan and no
action taken pursuant to its provisions shall be construed to (a) give any
Participant any right to any compensation, except as expressly provided herein;
(b) be evidence of any agreement, contract or understanding, express or implied,
that the Company will employ a Participant in any particular position; (c) give
any Participant any right, title, or interest whatsoever in or to any
investments which the Company may
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make to aid it in meeting its obligations hereunder; or (d) create a trust of
any kind or a fiduciary relationship between the Company and a Participant or
any other person.
ARTICLE X
TERM
The effective date of this Plan shall be as of July 12, 1996, subject to
stockholder approval. This Plan and any benefits granted hereunder shall be
null and void if stockholder approval is not obtained at the next annual meeting
of stockholders of the Company. Unless sooner terminated by action of the
Board, the Plan will terminate on the 12th day of July, 2001.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan confers upon any
Participant the right to continue in the employ of the Company or interferes
with or restricts in any way the right of the Company to discharge any employee
at any time (subject to any contract rights of such employee).
11.2 TAX REQUIREMENTS. The Company (and, where applicable, its
Subsidiaries) 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
applicable taxes required by law to be withheld with respect to any payment of
any Bonus to a Participant.
11.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Committee,
nor any officer, employee or agent of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and each and every officer, employee or agent of the
Company acting on their behalf shall, to the fullest extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation. Each member of the Committee shall, in the
performance of his or her duties under the Plan, be fully protected in relying
in good faith upon the financial statements of the Company as contemplated by
the terms of the Plan.
11.4 EFFECT ON PARTICIPATION. The award of a Bonus to a Participant shall
not by itself be deemed either to entitle the Participant to, or to disqualify
the Participant from, as the case may be, participation in any other future
grant of Bonuses under the Plan or otherwise, or in any other compensation or
benefit plan of the Company or any of its Subsidiaries currently existing or
hereafter established.
11.5 OTHER COMPENSATION AGREEMENTS. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
11.6 APPLICABILITY TO SUCCESSORS. The Plan shall be binding upon and inure
to the benefit of the Company and each Participant, the successors and assigns
of the Company, and the beneficiaries, personal representatives and heirs of
each Participant. Any interests of Participants under the Plan may not be
voluntarily sold, transferred, alienated, assigned or encumbered, other than by
will or pursuant to the laws
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of descent and distribution; provided however, that a Participant may designate
a beneficiary or beneficiaries to receive payments after the Participant's
death, by written notice to the Committee. If the Company becomes a party to
any merger, consolidation or reorganization, the Plan shall remain in full
force and effect as an obligation of the Company or its successors in interest.
11.7 REORGANIZATION, MERGER OR CONSOLIDATION. In the event of a merger,
consolidation, sale of assets, reorganization or other business combination in
which the Company is not the surviving or continuing corporation, or pursuant to
which shares of the Company's Common Stock would be converted into cash,
securities or other property (other than a merger of the Company in which the
holders of the Company's Common Stock immediately prior to the merger have the
same proportionate ownership of Common Stock of the surviving corporation
immediately after the merger), the Bonus Year will be deemed to have ended on
the date such transaction is consummated. PBT Bonus calculations will be
determined based on the Bonus Year-to-date profits before taxes and will be
determined based on a comparison of (i) profits before taxes for such Bonus Year
to the date of the event, to (ii) profits before taxes for the immediately
preceding fiscal year to the same date of such preceding year. The Budget Bonus
calculations will be determined based on a comparison of (x) profits before
taxes for such Bonus Year to the date the transaction is consummated, to (y)
Budgeted Profits Before Taxes for such Bonus Year, pro-rated to the date the
transaction is consummated. Such calculations will be based upon the Company's
consolidated statement of earnings for the month ended immediately prior to the
date of consummation of the sale, merger, reorganization or business
combination.
11.8 GENDER AND NUMBER. Where the context permits, words in the masculine
gender shall include the feminine and neuter genders, the plural form of a word
shall include the singular form, and the singular form of a word shall include
the plural form.
11.9 STOCKHOLDER VOTE. The material terms of this Plan shall be disclosed
to the stockholders of the Company for approval in accordance with Section
162(m) of the Code. No award or payment of any Bonus under this Plan shall
made unless such stockholder approval is obtained.
ARTICLE XII
UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any Bonuses granted but not yet paid to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general unsecured
creditor of the Company.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
pursuant to prior action taken by the Board.
INPUT/OUTPUT, INC.
By: /s/ GARY D. OWENS
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Name: GARY D. OWENS
Title: PRESIDENT
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