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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-12
McDermott International, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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
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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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[McDermott International, Inc. logo]
MCDERMOTT INTERNATIONAL, INC.
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Bruce W. Wilkinson 1450 Poydras Street
Chairman of the Board and P.O. Box 61961
Chief Executive Officer New Orleans, Louisiana 70161-1961
March 30, 2001
Dear Shareholder:
You are cordially invited to attend this year's annual meeting of
shareholders of McDermott International, Inc., which will be held on Friday, May
4, 2001, in the La Salle Ballroom of the Hotel Inter-Continental, 444 St.
Charles Avenue, New Orleans, Louisiana, commencing at 9:30 a.m. local time. The
notice of annual meeting and proxy statement following this letter describe the
matters to be acted on at the meeting.
If your shares are held of record with First Chicago Trust Company, a
Division of EquiServe, our transfer agent and registrar, we have enclosed a
proxy card for your use. You may vote these shares by completing and returning
the proxy card, or alternatively, calling a toll-free telephone number or using
the Internet as described on the proxy card. If your shares are held by a broker
or other nominee (i.e., in "street name"), they have enclosed a voting
instruction form, which you should use to vote those shares. Whether you have
the option to vote those shares by telephone or via the Internet is indicated on
the voting instruction form.
Your vote is important. Whether or not you plan to attend the meeting,
please take a few minutes now to vote your shares. If you attend the meeting,
you may change your vote at that time.
Thank you for your interest in our Company.
Sincerely yours,
/s/ BRUCE W. WILKINSON
BRUCE W. WILKINSON
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McDERMOTT INTERNATIONAL, INC.
1450 POYDRAS STREET
P.O. BOX 61961
NEW ORLEANS, LOUISIANA 70161-1961
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NOTICE OF 2001 ANNUAL MEETING OF SHAREHOLDERS
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The 2001 Annual Meeting of the Shareholders of McDermott International,
Inc., a Panama corporation (the "Company"), will be held in the La Salle
Ballroom of the Hotel Inter-Continental at 444 St. Charles Avenue, New Orleans,
Louisiana, on Friday, May 4, 2001, at 9:30 a.m. local time, for the following
purposes:
1. To elect four Directors;
2. To retain PricewaterhouseCoopers LLP as our independent accountants
for fiscal year 2001;
3. To consider a stockholder proposal relating to the Company's
activities in Burma, if properly presented for action at the meeting;
4. To consider a stockholder proposal on our Stockholder Rights Plan,
if properly presented for action at the meeting; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
If you were a shareholder as of the close of business on March 26, 2001,
you are entitled to vote at the meeting and at any adjournment thereof.
PLEASE INDICATE YOUR VOTE AS TO THE MATTERS TO BE ACTED ON AT THE MEETING
BY FOLLOWING THE INSTRUCTIONS PROVIDED IN THE ENCLOSED PROXY CARD OR VOTING
INSTRUCTION FORM, WHETHER OR NOT YOU PLAN ON ATTENDING THE MEETING. IF YOU
ATTEND THE MEETING, YOU MAY CHANGE YOUR VOTE AT THAT TIME.
We have enclosed a copy of the Company's 2000 Annual Report to Shareholders
with this notice and proxy statement.
By Order of the Board of Directors,
/s/ JOHN T. NESSER, III
JOHN T. NESSER, III
Secretary
Dated: March 30, 2001
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PROXY STATEMENT FOR 2001 ANNUAL
MEETING OF SHAREHOLDERS
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TABLE OF CONTENTS
PAGE
----
General Information......................................... 1
Voting Information.......................................... 1
Record Date and Who May Vote.............................. 1
How to Vote............................................... 1
How to Change Your Vote................................... 2
Quorum.................................................... 2
Proposals to Be Voted on; Vote Required and How Votes Are
Counted................................................ 2
Confidential Voting....................................... 3
Election of Directors (Item 1).............................. 4
Board of Directors and Its Committees..................... 6
Directors' Attendance and Compensation.................... 7
Executive Officers.......................................... 9
Security Ownership of Directors and Executive Officers...... 10
Security Ownership of Certain Beneficial Owners............. 12
Compensation Committee Report............................... 13
Performance Graph........................................... 19
Compensation of Executive Officers.......................... 20
Summary Compensation Table................................ 20
Option Grant Table........................................ 22
Option Exercises and Year-End Value Table................. 23
Performance Share Awards in Fiscal Year 2000.............. 23
Deferred Stock Units...................................... 24
Tetrault Severance Agreement.............................. 25
Retirement Plans.......................................... 25
Audit Committee Report...................................... 27
Approval of Retention of Independent Accountants For Fiscal
Year 2001 (Item 2)........................................ 28
Audit Fees................................................ 28
Financial Information Systems Design and Implementation
Fees................................................... 28
All Other Fees............................................ 28
Stockholder Proposal on Burma (Item 3)...................... 28
Management's Response to Stockholder Proposal on Burma.... 29
Stockholder Proposal on Rights Plan (Item 4)................ 30
Management's Response to Stockholder Proposal on Rights
Plan................................................... 31
Certain Transactions........................................ 32
Compliance with Section 16(a) of the Securities Exchange Act
of 1934................................................... 33
Shareholders' Proposals..................................... 33
Appendix A -- Audit Committee of The Board of Directors
Charter................................................... A-1
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GENERAL INFORMATION
We are mailing this proxy statement and accompanying proxy card to our
shareholders beginning on March 30, 2001. Our Board of Directors is soliciting
your proxy to vote your shares at our Annual Meeting to be held on May 4, 2001.
We will bear all expenses incurred in connection with this proxy solicitation,
which we expect to conduct primarily by mail. We have engaged Morrow & Co., Inc.
to assist in the solicitation for a fee of $12,500, plus out-of-pocket expenses.
In addition to solicitation by mail and by Morrow & Co., our officers and
regular employees may solicit your proxy by telephone, by facsimile transmission
or in person, for which they will not be compensated. If your shares are held
through a broker or other nominee (i.e., in "street name"), we have requested
that your broker or nominee forward this proxy statement to you and obtain your
voting instructions, for which we will reimburse them for reasonable
out-of-pocket expenses. If your shares are held through The Thrift Plan for
Employees of McDermott Incorporated and Participating Subsidiary and Affiliated
Companies (the "McDermott Thrift Plan") or The Thrift Plan for Salaried
Employees of Babcock & Wilcox Canada, the trustees of those plans have sent you
this proxy statement and a voting instruction form, which you can use to direct
the trustees on how to vote your plan shares.
VOTING INFORMATION
RECORD DATE AND WHO MAY VOTE
Our Board of Directors selected March 26, 2001 as the record date (the
"Record Date") for determining shareholders entitled to vote at the Annual
Meeting. This means that if you were a registered shareholder with our transfer
agent and registrar, First Chicago Trust Company, a Division of EquiServe, on
the Record Date, you may vote your shares on the matters to be considered by our
shareholders at the Annual Meeting. If your shares were held in street name on
that date, the broker or other nominee that was the record holder of your shares
has the authority to vote them at the Annual Meeting. They have forwarded to you
this proxy statement seeking your instructions on how you want your shares
voted.
On the Record Date, 61,146,665 shares of our Common Stock were outstanding.
Each outstanding share of Common Stock entitles its holder to one vote on each
matter to be acted on at the meeting. McDermott Incorporated, a subsidiary of
ours, owned 100,000 shares of our Common Stock on the Record Date, but will not
vote those shares at the Annual Meeting.
HOW TO VOTE
You can vote your shares in person at the Annual Meeting or vote now by
giving us your proxy. By giving us your proxy, you will be directing us on how
to vote your shares at the meeting. Even if you plan on attending the meeting,
we urge you to vote now by giving us your proxy. This will ensure that your vote
is represented at the meeting. If you do attend the meeting, you can change your
vote at that time. If your shares are held in street name, the broker or nominee
that holds your shares has the authority to vote them and has enclosed a voting
instruction form with this proxy statement. They will vote your shares as you
direct on their voting instruction form. You can vote by completing the enclosed
proxy card or voting instruction form and returning it in the enclosed U.S.
postage prepaid envelope. If your shares are held in street name and you want to
vote your shares in person at the Annual Meeting, you must obtain a valid proxy
from your broker or nominee.
If your shares are held of record, you also will be able to give us your
proxy by calling a toll-free telephone number or using the Internet -- 24 hours
a day, seven days a week. If your shares are held in street name, the
availability of telephone or Internet voting depends on the voting process used
by the broker or nominee that holds your shares. In either case, you should
refer to the instructions provided in the enclosed proxy card or voting
instruction form. Telephone and Internet voting procedures have been designed to
verify your identity through a personal identification or control number and to
confirm that your voting instructions have been properly recorded. If you vote
using either of these electronic means, you will save us return mail expense.
You will receive more than one proxy statement and proxy card or voting
instruction form if your shares are held through more than one account (e.g.,
through different brokers or nominees). Each proxy card or
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voting instruction form only covers those shares of Common Stock held in the
applicable account. If you hold shares in more than one account, you will have
to provide voting instructions as to all your accounts to vote all your shares.
HOW TO CHANGE YOUR VOTE
You may change your proxy voting instructions at any time prior to the
shareholder vote at the Annual Meeting. For shares held of record, you may
change your vote by written notice to our Corporate Secretary, granting a new
proxy or by voting in person at the Annual Meeting. Unless you attend the
meeting and vote your shares in person, you should change your vote using the
same method (by telephone, Internet or mail) that you first used to vote your
shares. That way, the inspectors of election for the meeting will be able to
verify your latest vote.
For shares held in street name, you should follow the instructions in the
voting instruction form provided by your broker or nominee to change your vote.
If you want to change your vote as to shares held in street name by voting in
person at the Annual Meeting, you must obtain a valid proxy from the broker or
nominee that holds such shares for you.
QUORUM
The Annual Meeting will be held only if a quorum exists. The presence at
the meeting, in person or by proxy, of holders of a majority of our outstanding
shares of Common Stock as of the Record Date will constitute a quorum. If you
attend the meeting or vote your shares using the enclosed proxy card or voting
instruction form (including any telephone or Internet voting procedures
provided), your shares will be counted toward a quorum, even if you abstain from
voting as to a particular matter. Broker non-votes (i.e., shares held by brokers
and other nominees as to which they have not received voting instructions from
the beneficial owners and lack the discretionary authority to vote on a
particular matter) also will count for quorum purposes.
PROPOSALS TO BE VOTED ON; VOTE REQUIRED AND HOW VOTES ARE COUNTED
We are asking you to vote on the following:
- the election of Philip J. Burguieres, Ronald C. Cambre, Bruce DeMars and
John W. Johnstone, Jr. to Class I of our Board of Directors, with a term
expiring at our Annual Meeting in 2004;
- to retain PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") as our
independent accountants for fiscal year 2001;
- a stockholder proposal for the Board to create a committee of independent
directors to prepare a report describing projects undertaken by our
Company or any of its subsidiaries in Burma, and to ensure that our
Company is not involved in or benefits from the use of forced labor or
other human rights abuses in Burma, if that proposal is properly
presented for action at the meeting; and
- a stockholder proposal to not extend the Company's stockholders rights
plan or adopt a new plan without shareholder approval, if that proposal
is properly presented for action at the meeting.
Each proposal, including the election of directors, requires the
affirmative vote of a majority of the shares of Common Stock present, in person
or by proxy, at the Annual Meeting and entitled to vote on the matter. In the
election of directors, you may vote "FOR" all director nominees, "AGAINST" all
director nominees or withhold your vote for any one or more of the director
nominees. For the other proposals, you may vote "FOR" or "AGAINST" or abstain
from voting. Because abstentions are counted for purposes of determining whether
a quorum is present but are not affirmative votes for a proposal, they have the
same effect as an "AGAINST" vote. Your shares will be voted as you direct,
including abstentions.
If you submit a signed proxy card without specifying your vote, your shares
will be voted "FOR" the election of all director nominees and the retention of
PricewaterhouseCoopers as our independent accountants,
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and "AGAINST" both stockholder proposals. If you hold your shares in street name
and you do not instruct your broker or nominee how to vote such shares, they may
vote your shares as they decide as to matters for which they have discretionary
authority under New York Stock Exchange rules. Shares held by a broker or other
nominee as to which they have not received voting instructions from the
beneficial owners and lack the discretionary authority to vote on a particular
matter are called "broker non-votes." While broker non-votes will be counted
toward a quorum, they are not entitled to vote on, or considered present for
purposes of, any matters for which the broker or nominee lacks the authority to
vote. Therefore, they will have no effect on the vote on any such matter.
We are not aware of any other matters that may be presented or acted on at
the meeting. If you vote by signing and returning the enclosed proxy card or
using its telephone or Internet voting procedures, the individuals named as
proxies on the card may vote your shares, in their discretion, on any other
matter requiring a shareholder vote that comes before the meeting.
CONFIDENTIAL VOTING
All voted proxies and ballots will be handled to protect your voting
privacy as a shareholder. Your vote will not be disclosed except:
- to meet any legal requirements;
- in limited circumstances such as a proxy contest in opposition to our
Board of Directors;
- to permit independent inspectors of election to tabulate and certify your
vote; or
- to adequately respond to your written comments on your proxy card.
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ELECTION OF DIRECTORS
(ITEM 1)
Our Articles of Incorporation provide for the classification of our 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
shareholders meeting for the election of directors following the most recent
election of directors for that class. Our amended and restated By-Laws also
provide that (i) beginning with the 2001 Annual Meeting, a person shall not be
nominated for election or re-election to the Company's Board of Directors if
such person shall have attained the age of 70 prior to the date of election and
(ii) any Director elected at or after that Annual Meeting who attains the age of
70 during his or her term shall be deemed to have resigned and retired at the
first Annual Meeting following his or her attainment of the age of 70.
The term of office of our Class I Directors -- Philip J. Burguieres, Ronald
C. Cambre, Bruce DeMars and John W. Johnstone, Jr. -- will expire at this year's
Annual Meeting. On the nomination of our Board of Directors, Messrs. Burguieres,
Cambre, DeMars and Johnstone will stand for re-election as Class I Directors at
this year's Annual Meeting. If elected, each of Messrs. Burguieres, Cambre and
DeMars will hold office until our Annual Meeting in 2004 and a successor is
elected and qualified. As a result of the provision of our By-Laws we describe
above, if elected, Mr. Johnstone will hold office until our Annual Meeting in
2003, which will be the first Annual Meeting following his attainment of the age
of 70.
Unless otherwise directed, the persons named as proxies in the enclosed
proxy card 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 our Board of Directors. However, we are
not aware of any circumstances that would prevent any of the nominees from
serving. Set forth below under "Class II Directors" and "Class III Directors"
are the names of our other directors. Class II Directors will continue to serve
until our Annual Meeting of Shareholders in 2002, and Class III Directors will
continue to serve until our Annual Meeting of Shareholders in 2003. All
directors have been previously elected by the shareholders or are standing for
election as Directors at this year's Annual Meeting, other than Mr. Wilkinson,
whose term as a Class III Director will expire at the Company's Annual Meeting
in 2003.
Set forth below is certain information (ages are as of May 4, 2001) with
respect to each nominee for election as a director and each director of the
Company.
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
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CLASS I NOMINEES
Philip J. Burguieres........................................... 57 1990
Chief Executive Officer of EMC Holdings, LLC, and Vice Chairman of
the Houston Texans (a National Football League franchise). He
serves as Chairman Emeritus and as a director of Weatherford
International, Inc. (a diversified international energy services
and manufacturing company) and formerly served as its Chairman of
the Board from December 1992 to May 1998 and as its President and
Chief Executive Officer from April 1991 to October 1996. He is
also a director of Chase Bank of Texas, N.A. and Newfield
Exploration Company.
Ronald C. Cambre............................................... 62 2000
Chairman of the Board of Newmont Mining Corporation (an
international mining company) from January 1995, and its Chief
Executive Officer from November 1993, until his retirement in
December 2000. He was also President of Newmont Mining Corporation
from June 1994 to July 1999. He is also a director of
Cleveland-Cliffs Inc. and W.R. Grace & Co.
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DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
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Bruce DeMars................................................... 65 1997
Partner in the Trident Merchant Group and Chief Executive Officer
of the Non-Proliferation Trust, Inc. Admiral, United States Navy
(retired). From 1988 until his retirement from the Navy in October
1996, he was Director, Naval Nuclear Propulsion, a joint
Department of the Navy/ Department of Energy program responsible
for the design, construction, maintenance, operation and final
disposal of reactor plants for the United States Navy. He is also
a director of Exelon Corporation.
John W. Johnstone, Jr.......................................... 68 1995
Until his retirement in May 1996, he was Chairman of the Board
from 1988 and Chief Executive Officer from 1987 of Olin
Corporation (a manufacturer and supplier of chemicals, metals,
defense-related products and services, and ammunition). He is also
a director of Fortune Brands, Inc., Phoenix Home Mutual Life
Insurance Company and Arch Chemicals, Inc.
CLASS II DIRECTORS
Kathryn D. Sullivan............................................ 49 1999
President and Chief Executive Officer of the Ohio Center for
Science and Industry since 1996. Prior thereto, she was Chief
Scientist for the National Oceanic & Atmospheric Administration
from 1992 to 1996 and a NASA space shuttle astronaut from 1978 to
1992. Dr. Sullivan is also a director of American Electric Power
Company, Inc. and Abercrombie & Fitch Co.
Richard E. Woolbert............................................ 67 1996
Until his retirement in January 1999, he was Executive Vice
President and Chief Administrative Officer of the Company from
February 1995. Previously, Mr. Woolbert was Senior Vice President
and Chief Administrative Officer of the Company from August 1991.
Joe B. Foster.................................................. 66 1999
Non-executive Chairman of the Board of Newfield Exploration
Company (an oil and gas exploration company) since 1989. Chief
Executive Officer of Newfield Exploration Company from January
1989 to January 2000. From January 2000 to August 2000, he served
as Interim Chairman of the Board, President and Chief Executive
Officer of Baker Hughes Incorporated (an oilfield services
company). He was also Executive Vice President of Tenneco Inc.
from 1981 to 1988 and a director of Tenneco Inc. from 1983 to
1988. Mr. Foster is the immediate past Chairman of the National
Petroleum Council and has been a member of the Offshore Committee
of the Independent Petroleum Association of America. Mr. Foster is
also a director of New Jersey Resources Corporation and Baker
Hughes Incorporated.
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DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
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CLASS III DIRECTORS
Robert L. Howard............................................... 64 1997
Until his retirement in March 1995, he was Vice President Domestic
Operations, Exploration and Production of Shell Oil Company and
President of Shell Western Exploration and Production Inc. from
1992, and President of Shell Offshore, Inc. from 1985. He is also
a director of Southwestern Energy Company and Ocean Energy, Inc.
John N. Turner................................................. 71 1993
Partner, Miller Thomson (barristers & solicitors), Toronto, Canada
since 1990. Prior thereto, he was Prime Minister of Canada and
then Leader of Opposition of the Parliament of Canada from 1984 to
1990. He is also a director of E-L Financial Corporation, The
Loewen Group Inc. and Unique Broadband Systems, Inc.
Bruce W. Wilkinson............................................. 56 2000
Chairman of the Board and Chief Executive Officer of the Company
since August 2000, prior to which he was President and Chief
Operating Officer from April 2000; Principal of Pinnacle Equity
Partners, L.L.C. (a private equity group) from May 1999 to April
2000; Chairman and Chief Executive Officer of Chemical Logistics
Corporation (a company formed to consolidate chemical distribution
companies) from April 1998 to April 1999; President and Chief
Executive Officer of Tyler Corporation (a diversified
manufacturing and service company) from April 1997 to October
1997; Interim President and Chief Executive Officer of Proler
International, Inc. (a ferrous metals recycling company) from July
1996 to December 1996; Chairman and Chief Executive Officer of
CRSS, Inc. (a global engineering and construction services
company) from October 1989 to March 1996; and prior to that
President and Chief Executive Officer of CRSS, Inc. from 1982 to
1989.
BOARD OF DIRECTORS AND ITS COMMITTEES
Our Board of Directors maintains the following committees:
Audit Committee. Our Audit Committee is currently composed of Messrs.
Turner (Chairman), Cambre, Foster and Johnstone and Dr. Sullivan. During fiscal
year 2000, the Audit Committee met five times. The Audit Committee's role is one
of financial oversight. The Company's management is responsible for preparing
financial statements, and the Company's independent auditors are responsible for
auditing those financial statements. The Audit Committee is not providing any
expert or special assurance as to our Company's financial statements or any
professional certification as to the independent auditor's work. The following
functions are the key responsibilities of the Audit Committee in carrying out
its oversight:
- recommending the appointment of our independent auditors to the Board of
Directors;
- reviewing the scope of the independent auditors' examination and the
scope of activities of our internal audit department;
- reviewing our financial policies and accounting systems and controls and
our audited financial statements and interim financial statements;
- preparing a report for inclusion in our proxy statement regarding its
review of our audited financial statements for the last fiscal year,
which report includes a statement on whether it recommended that the
Board include those financial statements in our Annual Report on Form
10-K for such fiscal year;
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- approving and ratifying the duties and compensation of our independent
auditors, both for audit and non-audit services; and
- reviewing and assessing, on an annual basis, the adequacy of the Audit
Committee's charter and recommending revisions to the Board.
The committee also reviews our compliance with its guidelines and policies
relative to business conduct and ethics. The committee meets separately with the
independent auditors and with members of the internal audit staff, outside the
presence of Company management or other employees, to discuss matters of
concern, to receive recommendations or suggestions for change and to exchange
relevant views and information. The Audit Committee and the Board of Directors
are ultimately responsible for the selection, evaluation and replacement of the
independent auditors. Our Audit Committee's charter is attached as Appendix A to
this proxy statement.
Directors Nominating & Governance Committee. Our Directors Nominating &
Governance Committee is currently composed of Messrs. Woolbert (Chairman),
Burguieres, Howard and Johnstone. During fiscal year 2000, the Directors
Nominating & Governance Committee met four times. This committee recommends to
our Board of Directors (1) for approval and adoption, the qualifications, term
limits and nomination and election procedures relating to our directors, and (2)
nominees for election to our Board of Directors.
Compensation Committee. Our Compensation Committee is currently composed
of Messrs. Howard (Chairman), Cambre, DeMars and Johnstone and Dr. Sullivan.
During fiscal year 2000, the Compensation Committee met nine times. The
Compensation Committee (1) determines the salaries of all our officers elected
to their positions by our Board of Directors, and reviews and makes
recommendations regarding the salaries of officers of our subsidiaries; (2)
administers and makes awards under our stock, incentive compensation and
supplemental compensation plans and programs; and (3) monitors and makes
recommendations with respect to our and our subsidiaries' various employee
benefit plans, such as retirement and pension plans, thrift plans, health and
medical plans, and life, accident and disability insurance plans.
Special Committee. Our Special Committee is currently composed of Messrs.
DeMars (Chairman), Foster, Turner and Woolbert. During fiscal year 2000, the
Special Committee met five times. The Special Committee oversees and monitors
the ongoing investigations by the Company, the U.S. Department of Justice and
the Securities and Exchange Commission (the "SEC") into alleged anti-competitive
activity in our marine construction business, other possible violations of law
and related matters.
Executive Committee. Our Executive Committee is currently composed of
Messrs. Burguieres (Chairman), DeMars, Foster, Howard and Woolbert. During
fiscal year 2000, the Executive Committee met five times. The Executive
Committee has all the powers and authority of the Board of Directors in the
management of the business and affairs of the Company in its ordinary course of
business, except that it does not have the power to (i) alter or amend the
Company's By-Laws, (ii) fill vacancies on the Board of Directors, the Executive
Committee, or any other committee of the Board of Directors, (iii) recommend or
approve amendments to the Company's certificate or articles of incorporation,
(iv) adopt an agreement of merger or consolidation, (v) recommend to the
Company's stockholders the sale, lease or exchange of all or substantially all
of the Company's property and assets, or a dissolution of the Company or
revocation of a dissolution, (vi) authorize the issuance, sale, repurchase or
redemption of any of the Company's equity or debt securities, (vii) establish or
modify the investment guidelines, treasury or banking resolutions adopted by the
Board, (viii) authorize the sale or purchase of debt or equity securities or
other assets or investments having a value in excess of ten percent (10%) of the
Company's consolidated total current assets, or (ix) elect, retain or discharge
officers or other employees of the Company.
DIRECTORS' ATTENDANCE AND COMPENSATION
Directors' Attendance and Fees; Insurance. During fiscal year 2000, our
Board of Directors held thirteen meetings. Each incumbent director attended 75%
or more of the aggregate number of meetings of the Board
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and of the committees on which he served. Employee directors are not paid for
their services as a director or as a member of any committee of the Board. All
other directors are compensated as follows:
- an annual stipend of $28,000, plus a fee of $2,500 for each Board meeting
attended;
- a fee of $1,000 for each telephonic Board meeting in which such director
participates;
- the Chairman of each Board committee receives an annual fee of $3,000;
- each other member of a Board committee receives an annual fee of $2,500;
and
- each committee member also receives a fee of $1,650 for each committee
meeting attended and a fee of $1,000 for each telephonic committee
meeting in which such director participates.
We also provide travel accident insurance and health care benefits to
non-employee directors under the same terms and conditions applicable to our
employees.
Directors Stock Plan. In addition to the fees and benefits provided to our
directors described above, we have a directors stock plan under which we grant
stock options and issue restricted stock to our non-employee directors. A
maximum of 100,000 shares of our Common Stock may be issued under this plan,
which we adopted and our shareholders approved in 1997. Under the directors
stock plan:
- each non-employee director is granted options to purchase 900, 300 and
300 shares of our Common Stock on the first day of the first, second and
third years, respectively, of such director's term;
- the options are granted at the fair market value of our Common Stock
(average of high and low trading price) on the date of grant, become
exercisable in full six months after the date of grant, and remain
exercisable for ten years and one day after the date of grant;
- each non-employee director also is granted rights to purchase 450, 150
and 150 restricted shares of our Common Stock on the first day of the
first, second and third years, respectively, of such director's term at
$1.00 per share;
- shares of restricted stock are subject to transfer restrictions and
forfeiture provisions, which generally lapse at the end of a director's
term;
- if a change in control of the Company occurs, all transfer restrictions
and forfeiture provisions on restricted stock will lapse and all
outstanding stock options will become immediately exercisable; and
- we granted 3,725 options to acquire Common Stock and 1,863 shares of
restricted stock under the directors stock plan during fiscal year 2000.
Grant of Deferred Stock Units. During fiscal year 2000, the Company also
made a one-time grant of 5,000 deferred units of restricted stock ("DSUs") to
each director. Under the terms of the DSU grant, each DSU represents the right
to receive one share of Common Stock upon vesting, which is the earlier of the
third anniversary of the grant date (if the director is still serving as a
member of the Board) or the termination of the director's service as Board
member due to death, total and permanent disability, or approved retirement;
provided that the vesting of DSUs may be deferred by a director for tax reasons.
DSUs do not carry voting or cash dividend rights until vested and the underlying
shares of Common Stock are issued; provided that they will accrue dividend
equivalents in the form of additional DSUs if and when dividends are declared
and paid on the Common Stock.
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EXECUTIVE OFFICERS
Set forth below is the age (as of May 4, 2001), the principal positions
held with the Company or certain subsidiaries, and certain other business
experience information for each of our executive officers who is not a director
of the Company.
David L. Keller, 47, Executive Vice President of The Babcock & Wilcox
Company ("B&W") since March 12, 2001. Prior thereto, he was Senior Vice
President, Service Group of B&W, from February 2001 to March 2001; President of
Diamond Power International, Inc. ("DPII") from March 1998 to February 2001;
General Manager of DPII from February 1997 to March 1998; and General Manager of
Allen-Sherman-Hoff, a division of Diamond Power Specialty Company, from December
1995 to February 1997.
Bruce F. Longaker, Jr., 47, Executive Vice President and Chief Financial
Officer of the Company since January 31, 2001. Prior thereto, he was Executive
Vice President and President of Weatherford Global Compression Services, a
division of Weatherford International, Inc., from March 2000 and Senior Vice
President and Chief Financial Officer of Weatherford International, Inc. from
April 1999 to March 2000. From 1981 to 1998, he was Vice President, Finance and
Corporate Controller of Camco International, Inc., which was acquired by
Schlumberger Limited in August 1998, where he remained until February 1999.
John T. Nesser, III, 52, Executive Vice President, General Counsel and
Corporate Secretary since February 2001. Senior Vice President, General Counsel
and Corporate Secretary from January 2000 to February 2001, prior to which he
was Vice President and Associate General Counsel from June 1999 and Associate
General Counsel from October 1998. Prior thereto, he served as managing partner
of Nesser, King & LeBlanc, a New Orleans law firm, which he co-founded in 1985.
Louis J. Sannino, 52, Senior Vice President, Human Resources and Corporate
Compliance Officer of the Company since October 2000; Vice President, Human
Resources from November 1998 to October 2000, prior to which he was Director,
Human Resources, of the Company from April 1989.
Robert H. Rawle, 53, President of the Company's subsidiary J. Ray
McDermott, S.A. ("J. Ray McDermott") since January 1997. Previously, he was Vice
President and Group Executive of J. Ray McDermott's North, Central and South
America Operations from January 1996, prior to which he was Vice President,
Domestic Operations, of J. Ray McDermott from January 1995. From March 1993 to
January 1995, he was Vice President of the Domestic Operations of the Company's
Marine Construction Services Division.
E. Allen Womack, Jr., 58, President of the Company's subsidiaries McDermott
Incorporated, BWX Technologies, Inc. and McDermott Technology, Inc. He was also
an Executive Vice President of the Company from April 1998 until August 1999.
Previously, he was Senior Vice President and Group Executive, Industrial Group,
from September 1996; Senior Vice President and Group Executive, Shipbuilding and
Industrial Group, from August 1995; and Senior Vice President, Research and
Development and Contract Research Divisions, of B&W from February 1993.
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of our Common Stock
beneficially owned as of December 31, 2000 (except as otherwise noted) by each
director or nominee as a director, and each Named Executive Officer (as that
term is defined under the caption "COMPENSATION OF EXECUTIVE OFFICERS") and all
our directors and executive officers as a group as of January 31, 2001,
including shares which those persons have the right to acquire within 60 days of
December 31, 2000 on the exercise of stock options.
SHARES
BENEFICIALLY
NAME OWNED
- ---- ------------
Philip J. Burguieres(1)..................................... 49,450
Ronald C. Cambre(2)......................................... 63
Bruce DeMars(3)............................................. 5,234
Joe B. Foster(4)............................................ 3,875
Robert L. Howard(5)......................................... 11,160
John W. Johnstone, Jr.(6)................................... 9,505
John T. Nesser(7)........................................... 4,979
Robert H. Rawle(8).......................................... 43,155
Kathryn D. Sullivan(9)...................................... 2,225
John N. Turner(10).......................................... 14,560
Bruce W. Wilkinson.......................................... 46,000
E. A. Womack, Jr.(11)....................................... 40,272
James F. Wood(12)........................................... 1,377
Richard E. Woolbert(13)..................................... 250,894
All directors and executive officers as a group (16
persons).................................................. 536,395
- ---------------
(1) Shares owned by Mr. Burguieres include 4,650 shares of Common Stock that he
may acquire on the exercise of stock options as described above, and 750
restricted shares of Common Stock as to which he has sole voting power but
no dispositive power.
(2) Shares owned by Mr. Cambre include 63 restricted shares of Common Stock as
to which he has sole voting power but no dispositive power.
(3) Shares owned by Mr. DeMars include 2,150 shares of Common Stock that he may
acquire on the exercise of stock options as described above, and 750
restricted shares of Common Stock as to which he has sole voting power but
no dispositive power.
(4) Shares owned by Mr. Foster include 1,250 restricted shares of Common Stock
that he may acquire on the exercise of stock options as described above,
and 600 restricted shares of Common Stock as to which he has sole voting
power but no dispositive power.
(5) Shares owned by Mr. Howard include 3,477 shares of Common Stock that he may
acquire on the exercise of stock options as described above, and 450
restricted shares of Common Stock as to which he has sole voting power but
no dispositive power.
(6) Shares owned by Mr. Johnstone include 3,000 shares of Common Stock that he
may acquire on the exercise of stock options as described above, and 750
restricted shares of Common Stock as to which he has sole voting power but
no dispositive power.
(7) Shares owned by Mr. Nesser include 979 shares of Common Stock held in the
McDermott Thrift Plan.
(8) Shares owned by Mr. Rawle include 25,037 restricted shares of Common Stock
as to which he has sole voting power but no dispositive power. Also
includes 2,278 shares of Common Stock held in the McDermott Thrift Plan.
(9) Shares owned by Dr. Sullivan include 1,350 shares of Common Stock that she
may acquire on the exercise of stock options as described above, and 600
restricted shares of Common Stock as to which she has sole voting power but
no dispositive power.
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(10) Shares owned by Mr. Turner include 4,250 shares of Common Stock that he may
acquire on the exercise of stock options as described above, and 450
restricted shares of Common Stock as to which he has sole voting power but
no dispositive power.
(11) Shares owned by Mr. Womack include 12,595 restricted shares of Common Stock
as to which he has sole voting power but no dispositive power. Also
includes 2,952 shares of Common Stock held in the McDermott Thrift Plan.
(12) Shares owned by Mr. Wood include 1,352 shares of Common Stock held in the
McDermott Thrift Plan.
(13) Shares owned by Mr. Woolbert include 180,572 shares of Common Stock that he
may acquire on the exercise of stock options as described above, and 600
restricted shares of Common Stock as to which he has sole voting power but
no dispositive power. Also includes 5 shares of Common Stock held in a
custodial account for an immediate family member under the Uniform Gifts to
Minors Act as to which Mr. Woolbert disclaims beneficial ownership.
Shares beneficially owned in all cases constituted less than one percent of
the outstanding shares of Common Stock, except that the 536,395 shares of Common
Stock beneficially owned by all directors and executive officers as a group
constituted approximately 0.88% of the outstanding shares of Common Stock on
December 31, 2000, less shares held by McDermott Incorporated, plus those shares
deemed to be outstanding pursuant to Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table furnishes information concerning all persons known by
us to beneficially own 5% or more of our outstanding shares of Common Stock,
which is our only class of voting stock outstanding:
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
- -------------- ------------------------------------ ---------- -----------
Common Stock................ The Prudential Insurance Company 5,416,934(2) 8.90%
of America
751 Broad Street
Newark, NJ 07102-3777
Common Stock................ Jennison Associates LLC(3) 5,156,300(4) 8.47%
466 Lexington Avenue
New York, NY 10017
Common Stock................ ICM Asset Management 3,265,569(5) 5.36%
601 W. Main Avenue
Spokane, WA 99201
Common Stock................ Alton Anthony Gonsoulin, Jr. 3,200,000(6) 5.26%
3417 West Admiral Doyle Drive
New Iberia, LA 70560
- ---------------
(1) Percent of class based on the outstanding shares of our Common Stock on
February 28, 2001, less shares held by McDermott Incorporated, plus those
shares deemed to be outstanding pursuant to Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934.
(2) As reported on a Schedule 13G dated February 12, 2001. Includes 500 shares
of Common Stock held in its general account and 5,416,434 shares of Common
Stock held for its own benefit or for the benefit of its clients in separate
accounts or externally managed accounts, or by registered investment
companies, subsidiaries and/or affiliates.
(3) The Prudential Insurance Company of America ("Prudential") owns 100% of the
equity interests of Jennison Associates LLC ("Jennison"). Prudential may be
deemed to have the power to exercise or to direct the exercise of voting or
dispositive power over the shares of Common Stock reported in Jennison's
Schedule 13G. Jennison does not jointly report its holdings with Prudential.
We believe the shares of Common Stock reported on Jennison's Schedule 13G
are included in the Schedule 13G filed by Prudential.
(4) As reported on a Schedule 13G dated September 7, 2000.
(5) As reported on a Schedule 13G dated February 7, 2001.
(6) As reported on a Schedule 13G dated August 28, 2000.
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COMPENSATION COMMITTEE REPORT
TO OUR SHAREHOLDERS
The Compensation Committee is comprised of five independent, non-employee
directors who have no "interlocking" relationships with the Company. This
Committee exists to develop executive compensation policies that support the
Company's strategic business objectives and values. Our duties include:
- Reviewing and approving the design of the Company's executive
compensation programs and all salary arrangements that its executives
receive;
- Assessing the effectiveness of the Company's executive compensation
programs in light of its compensation policies; and
- Evaluating executive performance.
COMPENSATION PHILOSOPHY
We adhere to an executive compensation philosophy that supports the
Company's business strategies. These strategies are to:
- Maximize profits;
- Increase shareholder value;
- Strengthen cash flow and liquidity;
- Resolve B&W's asbestos-related Chapter 11 reorganization proceeding in a
timely and effective manner;
- Reinforce operating discipline and excellence in each of its operating
groups; and
- Pursue internal and external initiatives for growth.
Our philosophy for executive compensation is to:
- Manage compensation opportunities from a total compensation perspective
that emphasizes at-risk compensation, while balancing short-term and
long-term compensation to support the Company's business and financial
strategic goals;
- Structure compensation opportunities, to the extent possible, to be fully
competitive to the marketplace so that compensation is contingent on
performance measures that drive growth;
- Reflect positive, as well as negative, Company and individual performance
in pay;
- Emphasize equity-based compensation for Company executives to reinforce
management's focus on shareholder value;
- Structure compensation programs to be flexible and focus on issues that
are unique to business groups; and
- Provide competitive pay opportunities that will attract, retain and
develop executive talent.
The Company's executives participate in a comprehensive compensation
program built around this philosophy. The key components of this program include
base salary, annual bonus opportunities, long-term equity-based incentives
(stock options and restricted stock) and benefits.
To ensure that its executive compensation levels are comparable to the
practices of other similar companies, the Company collects compensation data
from several external sources. The data collected covers both specific
industries in which the Company competes and general industry. The
industry-specific comparison is collected using a group of companies that have
national and international business operations and sales volumes, market
capitalizations, employment levels, and one or more lines of business that are
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similar to the Company's. We review and approve the selection of companies used
for this purpose. The general industry comparison group includes more companies
than the peer groups used in the performance graph included in this proxy
statement. We collect and review data annually to assess all components of
executive compensation. Our annual review was completed with the assistance of
The Hay Consulting Group and the Management Compensation Group ("MCG"),
executive compensation consulting firms. During the last quarter of fiscal year
2000, MCG helped us revise our executive compensation program to more clearly
reflect a total compensation approach. Under this approach, the Company's
executive compensation programs should give us greater discretion (and approval
authority) relative to performance thresholds, performance measurements, and
bonus pools. We believe that, taken as a whole, the Company's executive
compensation program is competitive within its industries.
When setting compensation levels, we consider each component of an
executive's pay. Depending on the particular component involved, we use a
combination of performance-based compensation formulas and discretion. Each
component of the Company's executive compensation program and approved changes
for fiscal year 2001 are discussed in greater detail below.
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 on
performance. When making annual adjustments, a qualitative assessment of
performance is conducted, which considers many factors, including individual
performance, both past and present. The factors used in making this evaluation
may vary by position.
During fiscal year 2000, two individuals served as the Company's Chief
Executive Officer. Roger E. Tetrault, who had been the Company's Chairman and
Chief Executive Officer since March 1997, retired effective August 1, 2000. In
fiscal year 2000 prior to his retirement, he received an 8.1% increase to his
base salary. For the seven months during fiscal year 2000 that he was Chairman
and Chief Executive Officer, Mr. Tetrault received a salary of $456,673. Under
the terms of a severance agreement, the Company will continue to pay Mr.
Tetrault his base salary of $800,000 a year until October 1, 2001. See
"COMPENSATION OF EXECUTIVE OFFICERS -- Tetrault Severance Agreement."
Bruce W. Wilkinson joined the Company as its President and Chief Operating
Officer on April 27, 2000, at a base salary of $500,000 annually. Upon Mr.
Tetrault's retirement on August 1, 2000, Mr. Wilkinson was named Chairman and
Chief Executive Officer of the Company. For the eight-month period during fiscal
year 2000 that he was an executive officer, including the Company's Chief
Executive Officer, Mr. Wilkinson received a salary of $337,502.
As part of the review conducted by MCG, a thorough analysis was performed
to compare current executive salaries with comparable industry benchmarks.
Generally speaking, salaries within 10% of the market median were considered to
be fully competitive. Based on salary data alone, we do not intend to grant
across-the-board salary increases for Company executives for 2001. Instead, we
intend to focus on a new structure for annual cash incentives and an aggressive
approach to long-term incentives.
ANNUAL BONUS
As part of the short-term component of the Company's overall executive
compensation program for fiscal year 2000, we provided annual bonus
opportunities under the Company's Variable Supplemental Compensation Plan.
Payments under the plan are intended to comply with the tax deductibility
requirements under Section 162(m) of the Internal Revenue Code. The Company's
shareholders initially approved the current version of this plan in 1994, and in
accordance with the requirements of Section 162(m), the shareholders reapproved
the plan in 1999.
For fiscal year 2000, as in the prior fiscal year, the bonuses under the
plan were tied to net income return on capital. The plan was formula-driven and
self-funded, based on a minimum level of financial performance
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to be achieved each year (8% adjusted net income return on capital for the
corporate staff, including the Chief Executive Officer). Each executive's bonus
opportunities under the plan were expressed as a targeted percent of base salary
based on his or her title and position within the Company or its subsidiaries.
These targets, like base salary, were set at approximately the median market
levels, as indicated by a survey of a group of similar companies, and capped at
two times the targeted percentage. For fiscal year 2000, the Chief Executive
Officer had a bonus target of 80% of base salary. We believed the goals
associated with fiscal year 2000 target bonus payments were achievable yet
required 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 amount. If the minimum level of
financial performance is exceeded, bonus payments are increased. We consider
annual bonus awards when we review the Company's financial performance after the
close of each fiscal year. Adjustments to net income for determination of bonus
awards usually exclude the negative impact of any changes in accounting
principles, any unusual or nonrecurring events and extraordinary items. For
fiscal year 2000, as a retention measure, B&W executives were guaranteed a bonus
equal to their targeted bonus amounts, regardless of B&W's financial performance
due to its ongoing asbestos-related bankruptcy proceeding.
For fiscal year 2000, the Company's corporate executive staff (including
Mr. Tetrault) and J. Ray McDermott executives did not earn and were not paid any
bonuses under this plan because they did not achieve their minimum level of
financial performance. Although B&W's executives did not achieve their minimum
level of financial performance for fiscal 2000, they were paid bonuses as
described above. Executives at the Company's Government and Industrial Group
earned and received bonuses equal to 1.4 times their targeted bonus amounts
under the plan. Moreover, we approved and paid special retention bonuses to
corporate staff and J. Ray McDermott executives, who under the terms of the 2000
bonus plan would not have otherwise received incentive compensation. The awards
were recommended as a result of our assessment that these individuals performed
commendably in 2000 and their contributions merited recognition. Under this
special retention bonus arrangement, Mr. Wilkinson received a $250,000 bonus for
fiscal year 2000. Mr. Wilkinson also received a sign-on bonus of $100,000 upon
the commencement of his employment.
As approved by the Compensation Committee, the Variable Supplemental
Compensation Plan has been amended and renamed as the Company's Executive
Incentive Compensation Plan (the "EICP"). For fiscal year 2001, we have
determined to provide annual bonus opportunities that focus on objectives that
drive earnings and growth. Key employees at the Company's corporate headquarters
and business groups whose effective performance can have a reasonable impact on
the Company's tactical and strategic initiatives will participate in the EICP.
Each participant will have a target award, expressed as a percentage (or
multiplier) of their base annual salary. Under the EICP, we will define business
plan performance measures and individual performance measures at the beginning
of each year. To reflect the Company's commitment to reward performance that
drives growth, bonus payments are capped at a maximum of 200% of the individual
target award amount. If, at year's end, we determine that the threshold measure
was achieved, individual bonuses will be determined by and paid based on
performance under business plan measures and by individual measures.
A minimum, target and maximum level of performance will be defined for each
business plan measure. Target performance results in eligibility for payment of
100% of the targeted amount. Performance below the target, but above the
threshold amount, and performance above the target will result in a decreased or
increased payout, respectively.
LONG-TERM INCENTIVES
The Company's 1996 Officer Long-Term Incentive Plan provides executives
with equity-based opportunities to earn additional compensation based on Company
and stock performance over the mid- to long-term. We believe that use of these
incentives focuses management on the best interests of shareholders.
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We consider the following factors when determining award sizes:
- Various financial performance criteria (which may include return on
capital or assets, profitability and shareholder return);
- Level of responsibility;
- Prior experience;
- Historical award data; and
- Market practices among similar companies.
Weighting between the factors listed above is informal, not quantitative.
Stock Options. Stock options are granted to the Company's executives to
provide an equity-based incentive component to their compensation. Under the
1996 Officer Long-Term Incentive Plan, the Company grants stock options at
exercise prices equal to the 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.
During fiscal year 2000 and prior to his retirement, the Company granted
Mr. Tetrault options to acquire 267,490 shares of Common Stock at an exercise
price of $9.4063 per share. Under the terms of his severance agreement, Mr.
Tetrault retained all of his vested and unvested stock options, all of his
unvested stock options will vest on October 1, 2001, and all of such options are
otherwise exercisable in accordance with their terms of grant. See "COMPENSATION
OF EXECUTIVE OFFICERS -- Tetrault Severance Agreement."
Upon his employment as the Company's President and Chief Operating Officer
on April 27, 2000, the Company granted to Mr. Wilkinson options to acquire
153,500 shares of Common Stock at an exercise price of $8.4688 per share. On
August 1, 2000, the Company also granted to Mr. Wilkinson options to acquire an
additional 150,000 shares of Common Stock at an exercise price of $7.7188 per
share, in connection with his election as the Company's Chairman of the Board
and Chief Executive Officer.
Performance Shares. During fiscal year 2000, we granted to Company
executives performance stock awards of restricted stock ("Performance Shares")
based on salary multiples corresponding to their titles and positions with the
Company and its subsidiaries. Performance Shares are made as notional grants of
restricted stock. No shares are issued by the Company at the time of the grant.
The number of shares of restricted stock 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 our Common Stock
(based on the preceding 30-trading-day average) and the fair market value on the
grant date. The difference is multiplied by the 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. Until then, the restricted shares are
nontransferable and are subject to forfeiture under certain circumstances.
During fiscal year 2000, Mr. Tetrault received 98,340 Performance Shares
with a measurement price (fair market value on the date of grant) of $9.4063 per
share and Mr. Wilkinson received 59,040 Performance Shares with a measurement
price (fair market value on the date of grant) of $8.4688 per share.
No shares of Company restricted stock were issued during fiscal year 2000
as a payout under any past Performance Share awards.
Additionally, in fiscal year 2000, we provided officers and other key
employees of the Company and its subsidiaries (including B&W and its
subsidiaries) the opportunity to exchange their outstanding "out-of-the-money"
stock options for DSUs (deferred units of restricted stock) of an equivalent
economic value based on a Black-Scholes valuation conducted by an outside
executive compensation consulting firm. Under the terms
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of the exchange, 50% of the DSUs will vest on the judicial confirmation of a B&W
plan of reorganization with the other 50% vesting a year later, subject to all
of the DSUs vesting no later than on the fifth anniversary of the grant date.
Mr. Tetrault received 100,353 DSUs, which will vest no later than March 20,
2005, in exchange for: (1) stock options covering 289,240 shares with an
exercise price of $22.1250 per share; (2) stock options covering 12,194 shares
with an exercise price of $29.2390 per share; (3) stock options covering 40,000
shares with an exercise price of $34.00 per share; (4) stock options covering
34,478 shares with an exercise price of $25.2707 per share; and (5) stock
options covering 98,860 shares with an exercise price of $29.3750 per share.
Under the terms of his severance agreement, Mr. Tetrault retained all of his
restricted stock, Performance Shares and DSUs, all of his restricted stock will
vest on October 1, 2001, and all of his Performance Shares and DSU grants will
be earned and released in accordance with their terms of grant. See
"COMPENSATION OF EXECUTIVE OFFICERS -- Tetrault Severance Agreement."
For fiscal year 2001, we intend to make grants of restricted stock instead
of Performance Shares, the vesting of which will occur upon the earlier of the
fifth anniversary of the award date or the achievement of pre-determined
individual performance measures. The actual shares of stock will be issued at
the time of grant. Until such restricted stock vests, it is nontransferable and
subject to forfeiture under certain circumstances. Holders of this restricted
stock are entitled to vote and receive dividends paid, if any, on such shares
prior to vesting.
BENEFITS
Benefits offered to key executives serve a different purpose than the other
elements of the Company's compensation program. 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
the same as 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 Company's tax
deductions relating to the compensation paid to certain executive officers,
unless the compensation is performance-based and the material terms of the
applicable performance goals are disclosed to and approved by the shareholders.
All of the Company's past executive compensation plans have received shareholder
approval and were prepared with the intention that the Company's incentive
compensation would qualify as performance-based compensation under Section
162(m).
While we intend to continue to rely on performance-based compensation
programs, we are cognizant of the need for flexibility in making executive
compensation decisions, based on the relevant facts and circumstances, so that
the best interests of the Company are achieved. To the extent consistent with
this goal, we will attempt to satisfy the requirements of Section 162(m) in the
future.
Under the current circumstances, we have decided to make special bonus
awards for retention purposes under the Company's Variable Supplemental
Compensation Plan for fiscal year 2000, which will not qualify as
performance-based compensation under Section 162(m). Moreover, we do not intend
to seek shareholder approval of the amendments to the annual cash bonus plan,
now named the EICP. To the extent that compensation paid under that plan,
together with other non-Section 162(m) qualified compensation, exceeds $1
million for any "named executive officer" in the compensation table for a given
year, such amount may not be tax deductible by McDermott Incorporated.
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CONCLUSION
We believe the Company's executive compensation policies and programs serve
the interests of its shareholders and the Company effectively, and that the
various pay vehicles offered are appropriately balanced to provide appropriate
motivation for executives to contribute to the Company's overall future success,
thereby enhancing the value of the Company for its shareholders' benefit.
We will continue to monitor the effectiveness of the Company's total
compensation programs to meet the current needs of the Company.
THE COMPENSATION COMMITTEE
R. L. Howard, Chairman
R. C. Cambre
B. DeMars
J. W. Johnstone, Jr.
K. D. Sullivan
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PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total return on its Common Stock over the preceding five-year period
with the cumulative total return of the Standard & Poor's 500 Stock Index ("S&P
500 Index") and with two peer groups of publicly traded companies over the same
period. The first peer group (the "1999 Peer Group") is the peer group the
Company used in the presentation of the performance graph we included in the
proxy soliciting material for its 1998 and 1999 annual meetings and consists of
the following companies: Chicago Bridge & Iron Company N.V., Fluor Corporation,
Foster Wheeler Corporation, Halliburton Company, Ingersoll-Rand Company, Jacobs
Engineering Group, Inc., Schlumberger Limited, Stone & Webster Inc. and
Weatherford International, Inc. The second peer group (the "2000 Peer Group") is
a new group of peer issuers the Company selected in order to provide a better
comparison to companies in the oilfield services sector of the energy industry.
The 2000 Peer Group consists of Cal Dive International, Inc., Coflexip, S.A.,
Fluor Corporation, Foster Wheeler Corporation, Global Industries, Ltd., Gulf
Island Fabrication, Inc., Halliburton Company, Jacobs Engineering Group, Inc.,
Oceaneering International, Inc., and Stolt Offshore S.A. In accordance with SEC
rules, we are presenting the 1999 Peer Group along with the 2000 Peer Group in
this year of transition.
COMPARISON OF CUMULATIVE TOTAL RETURN*
MCDERMOTT INTERNATIONAL, INC.; S&P 500; AND PEER GROUPS
[PERFORMANCE GRAPH]
* Assumes $100 invested on December 31, 1995 in our Common Stock, S&P 500
Index, and the Peer Groups and the reinvestment of dividends as they are
paid.
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- --------
McDermott International............. $100.00 $ 79.77 $174.31 $118.27 $ 43.92 $ 52.69
S&P 500 Index....................... $100.00 $122.90 $163.85 $210.58 $254.83 $231.62
1999 Peer Group..................... $100.00 $129.88 $191.76 $127.26 $168.61 $200.67
2000 Peer Group..................... $100.00 $107.55 $ 93.89 $ 60.99 $ 78.40 $ 78.03
19
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COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes the annual and long-term compensation of our
Chief Executive Officer ("CEO"), a former CEO and the four highest paid
executive officers other than our CEO (collectively, the "Named Executive
Officers") for our fiscal year ended December 31, 2000, the nine-month
transition period ended December 31, 1999 and our fiscal years ended March 31,
1999 and March 31, 1998.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
-------------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
SECURITIES
UNDERLYING
PERIOD OTHER ANNUAL RESTRICTED STOCK LTIP ALL OTHER
NAME PRINCIPAL POSITION ENDED SALARY BONUS COMPENSATION(2) STOCK(3) OPTIONS(4) PAYOUT COMP.(5)
- ---- ------------------ ------ -------- -------- --------------- ---------- ---------- ------- ---------
B.W.
Wilkinson(6)... Chairman & 12/00 $337,503 $350,000(7) $ 54,212 $0 303,500 $0 $ 0
Chief
Executive Officer
R.E.
Tetrault.... Former 12/00 $456,673 $ 0 $ 6,503 $0 267,490 $0 $363,433
Chairman & 12/99 $555,030 $293,056 $ 11,446 $0 0 $0 $ 3,858
Chief Executive 3/99 $666,670 $924,000 $-- $0 125,720 $0 $ 5,709
Officer 3/98 $550,000 $756,000 $122,031 $0 49,500 $0 $ 5,550
J.T. Nesser... Exec. Vice 12/00 $275,640 $100,000 $-- $0 36,100 $0 $ 7,177
President, 12/99 $181,935 $ 54,035 $-- $0 0 $0 $ 1,216
General 3/99(8) $107,520 $ 86,016 $-- $0 8,420 $0 $ 0
Counsel &
Corporate
Secretary
R.H. Rawle.... President, J. Ray 12/00 $365,200 $100,000 $-- $0 64,270 $0 $ 5,106
McDermott 12/99 $266,715 $ 44,339 $-- $0 0 $0 $ 3,762
3/99 $343,800 $378,180 $-- $0 36,040 $0 $ 5,508
3/98 $275,040 $302,544 $-- $0 12,460 $0 $ 5,228
E.A. Womack,
Jr. ........ President, 12/00 $382,940 $296,789 $-- $0 66,950 $0 $ 5,107
McDermott 12/99 $277,830 $244,490 $-- $0 0 $0 $ 4,314
Incorporated, 3/99 $359,640 $359,640 $-- $0 26,930 $0 $ 7,230
BWX 3/98 $332,140 $329,640 $-- $0 14,540 $0 $ 7,230
Technologies,
McDermott
Technology
J.F.
Wood(9)..... President, B&W 12/00 $348,380 $192,984 $-- $0 60,700 $0 $ 5,105
12/99 $251,910 $164,875 $-- $0 0 $0 $ 3,788
3/99 $305,040 $305,040 $-- $0 22,850 $0 $ 5,550
3/98 $275,040 $275,040 $-- $0 12,130 $0 $ 5,550
- ---------------
(1) Includes salary and bonus earned in a fiscal period, whether or not
deferred. Bonuses are paid after the fiscal period during which they are
earned. Salaries and bonuses for the nine-month transition period ended
December 31, 1999 (resulting from a change in the Company's fiscal year from
a March 31 to December 31 year end) reflect only the amounts paid to the
Named Executive Officers for that nine-month period.
(2) The aggregate value of perquisites and other personal benefits received by a
Named Executive Officer during a fiscal period is not included if it does
not exceed the lesser of $50,000 or 10 percent of the total amount of such
officer's annual salary and bonus for that period. For the fiscal year ended
December 31, 2000, the amount shown for Mr. Tetrault is attributable to
reimbursement for taxes relating to his personal use of Company aircraft,
and the amount shown for Mr. Wilkinson is attributable to relocation
expenses. For the nine-month period ended December 31, 1999, the amount
shown for Mr. Tetrault is attributable to reimbursement for taxes relating
to his personal use of Company aircraft. Fiscal year 1998 includes
relocation expenses of $111,754 for Mr. Tetrault.
(3) No shares of restricted stock were granted to any Named Executive Officer
for any of the fiscal periods reported. Instead, we granted Performance
Shares, except that we did not grant any Performance Shares to our officers
during the nine-month period ended December 31, 1999. As of December 29,
2000, the
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25
total number of shares of restricted stock held by the Named Executive
Officers (other than Messrs. Wilkinson, Nesser and Wood, who hold no such
shares) and their market values (based on a closing market price on December
29, 2000 of $10.815, less a $1.00 per share purchase price) are as follows:
SHARES OF MARKET
NAME RESTRICTED STOCK VALUE
---- ---------------- --------
Tetrault........................... 33,122 $325,092
Rawle.............................. 25,037 $245,738
Womack............................. 13,365 $131,177
Dividends are paid on restricted stock at the same time and at the same
rate as dividends paid to all shareholders. Grants of restricted stock
generally vest 50% in five years with the remaining 50% vesting in three to
ten years based on Company financial performance. In the event of a change
of control of the Company, the Compensation Committee may cause all
restrictions to lapse.
(4) Stock option grants for fiscal years 1999 and 1998 include options to
acquire J. Ray McDermott common stock ("JRM Common Stock") granted to
Messrs. Tetrault and Rawle in their capacities as officers of J. Ray
McDermott as follows:
FISCAL YEAR FISCAL YEAR
NAME 1999 1998
---- ----------- -----------
Tetrault........................... 26,860 9,500
Rawle.............................. 36,040 12,460
In connection with our acquisition of the outstanding minority public
interest in J. Ray McDermott in July 1999 (the "JRM Merger"), all
unexercised options to acquire JRM Common Stock ("JRM stock options")
became vested options to purchase shares of our Common Stock. As a result
of the JRM Merger, Messrs. Tetrault and Rawle received Company stock
options for JRM stock options as follows:
JRM COMPANY
NAME STOCK OPTIONS STOCK OPTIONS
---- ------------- -------------
Tetrault............................ 36,360 46,672
Rawle............................... 48,500 62,255
(5) Amounts shown for each Named Executive Officer for the fiscal year ended
December 31, 2000 are attributable to our matching contributions to such
officer's contribution under the McDermott Thrift Plan, except that with
respect to Mr. Tetrault the amount shown includes $358,333 in salary
continuation payments under his severance agreement with the Company. See
"Tetrault Severance Agreement."
(6) Reflects only the compensation paid to Mr. Wilkinson since he joined the
Company in April 2000.
(7) Includes a $100,000 signing bonus.
(8) Reflects only the compensation paid to Mr. Nesser from the time he joined
the Company in October 1998 through March 1999.
(9) Mr. Wood resigned as President of B&W effective March 31, 2001.
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26
OPTION GRANT TABLE
The following table provides information about option grants to the Named
Executive Officers during fiscal year 2000. Options granted in fiscal year 2000
vest in equal installments of one-third on the first, second and third
anniversaries of the date of grant and expire ten years from the date of grant.
In general, vesting is contingent on continuing employment with the Company. In
the event of a "change in control" of the Company, all options vest and become
immediately exercisable.
OPTION GRANTS IN FISCAL YEAR 2000
INDIVIDUAL GRANTS
-------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SECURITIES % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR OPTION
OPTIONS GRANTED TO TERM(1)
GRANTED IN EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME 2000 2000(2) (PER SHARE)(3) DATE 5% 10%
- ---- ---------- ------------ -------------- ---------- ------------- -------------
B.W. Wilkinson
Common Stock....................... 150,000 6.05 $7.7188 08/01/10 $ 728,147 $ 1,845,267
Common Stock....................... 153,500 6.19 $8.4688 04/27/10 $ 817,538 $ 2,071,803
R.E. Tetrault
Common Stock....................... 267,490 10.79 $9.4063 03/20/10 $ 1,582,356 $ 4,010,001
J.T. Nesser
Common Stock....................... 36,100 1.46 $9.4063 03/20/10 $ 213,552 $ 541,183
R.H. Rawle
Common Stock....................... 64,270 2.59 $9.4063 03/20/10 $ 380,194 $ 963,486
E.A. Womack, Jr.
Common Stock....................... 66,950 2.70 $9.4063 03/20/10 $ 396,048 $ 1,003,662
J.F. Wood
Common Stock....................... 60,700 2.45 $9.4063 03/20/10 $ 359,075 $ 909,967
All Shareholders(4)
Common Stock....................... -- -- $9.4063 -- $358,827,586 $909,777,833
- ---------------
(1) Potential Realizable Value is based on the assumed annual growth rates for
each of the grants shown over their ten-year option term. For example, if
the exercise price is $9.4063, a 5% annual growth rate over ten years
results in a stock price of $15.32 per share, and a 10% rate results in a
price of $24.40 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 2,426,440 shares of Common Stock granted to all
employees of the Company during fiscal year 2000.
(3) Fair market value on date of grant.
(4) Total dollar gains based on the assumed annual rates of appreciation shown
here and calculated on 60,677,340 outstanding shares of Common Stock on
December 29, 2000. The Named Executive Officers gains as a percentage of the
total dollar gains shown for all shareholders are 1.25%.
22
27
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information concerning the exercise of stock
options during fiscal year 2000 by each of the Named Executive Officers and the
value at December 29, 2000 of unexercised options held by those persons. The
value of unexercised options reflects the increase in market value of our Common
Stock from the date of grant through December 29, 2000 (when the fair market
value of our Common Stock was $10.815 per share). The actual value realized on
option exercise will depend on the value of our Common Stock at the time of
exercise.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF TOTAL NUMBER OF TOTAL VALUE OF UNEXERCISED,
SHARES UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD
ACQUIRED AT FISCAL YEAR-END AT FISCAL YEAR-END
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- -------- ----------- ------------- ----------- -------------
B.W. Wilkinson
Common Stock............. 0 $-- 0 303,500 $0 $824,572
R.E. Tetrault
Common Stock............. 0 $-- 0 267,490 $0 $376,813
J.T. Nesser
Common Stock............. 0 $-- 0 36,100 $0 $ 50,854
R.H. Rawle
Common Stock............. 0 $-- 0 64,270 $0 $ 90,537
E.A. Womack, Jr.
Common Stock............. 0 $-- 0 66,950 $0 $ 94,312
J.F. Wood
Common Stock............. 0 $-- 0 60,700 $0 $ 85,508
PERFORMANCE SHARE AWARDS IN FISCAL YEAR 2000
The following table provides information concerning awards of Performance
Shares made to each of the Named Executive Officers during fiscal year 2000.
LONG-TERM INCENTIVE PLANS -- PERFORMANCE SHARE AWARDS IN FISCAL YEAR 2000*
NUMBER OF
PERFORMANCE PERFORMANCE
NAME SHARES PERIOD
- ---- ----------- -----------
B. W. Wilkinson
Common Stock.............................................. 59,040 2 years
R. E. Tetrault
Common Stock.............................................. 98,340 2 years
J. T. Nesser
Common Stock.............................................. 14,180 2 years
R. H. Rawle
Common Stock.............................................. 24,570 2 years
E. A. Womack, Jr.
Common Stock.............................................. 25,600 2 years
J. F. Wood
Common Stock.............................................. 23,210 2 years
- ---------------
* No shares are issued at the time of the award. All Performance Shares were
awarded on March 20, 2000, other than for Mr. Wilkinson, whose shares were
awarded on April 27, 2000. The actual number of shares
23
28
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 stock (based upon the preceding 30-trading-day average) and the fair
market value of the stock on the award date. The difference is multiplied by
the number of shares in an executive's award, and the resulting product is
divided by the fair market value of the 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.
DEFERRED STOCK UNITS
During fiscal year 2000, we provided officers and other key employees of
the Company and its subsidiaries (including B&W and its subsidiaries) the
opportunity to exchange their outstanding "out-of-the-money" stock options for
DSUs (deferred units of restricted stock) of an equivalent economic value based
on a Black-Scholes valuation conducted by an executive compensation consulting
firm. Each DSU entitles its holder to receive one share of Common Stock upon
vesting. Under the terms of the exchange, 50% of the DSUs will vest on the
judicial confirmation of a B&W plan of reorganization, with the other 50%
vesting a year later, subject to all of the DSUs vesting no later than on the
fifth anniversary of the grant date (March 20, 2005). Prior to vesting, DSUs
carry no voting or dividend rights and no shares of Common Stock are issued. The
table below shows the number of stock options (including their exercise prices
and expiration dates) forfeited and the number of DSUs received by each Named
Executive Officer in connection with such exchange.
OPTIONS EXERCISE EXPIRATION DSUS
NAME FORFEITED PRICE DATE RECEIVED
- ---- --------- -------- ---------- --------
B.W. Wilkinson.................. -0- -- -- -0-
R.E. Tetrault................... 289,240 $22.1250 03/03/07 82,154
12,194 $29.2390 02/03/03 816
40,000 $34.0000 02/07/03 1,982
34,478 $25.2707 11/11/03 4,634
98,860 $29.3750 11/12/03 10,767
J.T. Nesser..................... 8,420 $29.3750 11/12/03 917
R.H. Rawle...................... 1,660 $24.6875 02/13/01 69
2,350 $20.3125 02/12/02 156
4,990 $24.1250 02/07/04 714
15,994 $29.2390 02/03/03 1,070
46,261 $25.2707 11/11/03 6,217
E.A. Womack, Jr. ............... 4,300 $20.3125 02/12/02 286
9,970 $23.6875 02/10/03 978
12,060 $24.1250 02/07/04 1,725
12,300 $25.5000 02/06/05 2,180
13,675 $19.3125 02/07/06 3,772
17,290 $21.3750 02/07/07 5,034
14,540 $34.0000 02/07/03 720
26,930 $29.3750 11/12/03 2,933
J.F. Wood....................... 15,440 $21.3750 02/07/07 4,496
12,130 $34.0000 02/07/03 601
22,850 $29.3750 11/12/03 2,489
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TETRAULT SEVERANCE AGREEMENT
In connection with his retirement as the Company's Chairman and Chief
Executive Officer on August 1, 2000, Mr. Tetrault entered into a severance
agreement with the Company pursuant to which he will continue to receive his
annual salary of $800,000 until October 1, 2001 and be entitled to receive any
bonuses earned under the Company's cash bonus plans through such date. Under the
terms of his severance agreement, Mr. Tetrault retained all of his vested and
unvested stock options, restricted stock grants, Performance Share awards and
DSUs; all of his unvested stock options and restricted stock will vest on
October 1, 2001; and his stock options, Performance Share awards and DSUs will
continue to be exercisable or earned or to vest in accordance with their
respective terms of grant. Additionally, on October 1, 2001, the Company is
obligated to pay Mr. Tetrault a lump sum payment under the Company's
Supplemental Executive Retirement Plan based on a service date of September 3,
1986 and the interest rate and mortality table in effect on October 1, 2001. See
"Retirement Plans -- Supplemental Executive Retirement Plan."
RETIREMENT PLANS
Pension Plans. We maintain funded retirement plans covering substantially
all our regular full-time employees, except certain non-resident alien employees
who are not citizens of a European Community country or who do not earn income
in the United States, Canada or the United Kingdom. Officers who are employees
of the Company or certain of its subsidiaries, including McDermott Incorporated
and B&W, are covered under The Retirement Plan for Employees of McDermott
Incorporated and Participating Subsidiary and Affiliated Companies (the
"McDermott Retirement Plan"). Under the McDermott Retirement Plan, B&W employees
and Company employees that began their career with B&W (collectively, the "B&W
tenured employees") receive different benefit amounts than other employees.
Officers who are employed by J. Ray McDermott or certain of its subsidiaries or
affiliates are covered under The Retirement Plan of Employees of J. Ray
McDermott Holdings, Inc. (the "J. Ray McDermott Plan"). Employees do not
contribute to either of these plans, and company contributions are determined on
an actuarial basis. An employee must be employed by the applicable company or a
subsidiary for one year prior to participating in the plans and must have five
years of continuous service to vest in any accrued benefits under the plans. To
the extent benefits payable under these qualified plans are limited by Section
415(b) or 401(a)(17) of the Internal Revenue Code, pension benefits will be paid
directly by the applicable company or a subsidiary under the terms of unfunded
excess benefit plans maintained by them (the "Excess Plans").
The benefit amounts payable under the McDermott Retirement Plan to
participants who are not B&W tenured employees are the same as those payable to
employees covered under the J. Ray McDermott Retirement Plan. The following
table shows the annual benefit payable to non-B&W tenured employees under the
McDermott Retirement Plan and to J. Ray McDermott employees under the J. Ray
McDermott Retirement Plan, at age 65 (the normal retirement age), who retire in
2001 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 successive months out of the
120 successive months before retirement in which such earnings were highest
("Final Average Earnings"), less a specified percentage of anticipated social
security benefits. As of December 31, 2000, Mr. Rawle had Final Average Earnings
of $296,994 and 22.25 years of credited service under the J. Ray McDermott
Retirement Plan; and Messrs. Nesser and Wilkinson had not vested in any accrued
benefits under the McDermott Retirement Plan. Unless elected
25
30
otherwise by the employee, payment will be made in the form of a joint and
survivor annuity of equivalent actuarial value to the amount shown below.
MCDERMOTT RETIREMENT PLAN BENEFITS FOR NON-B&W TENURED EMPLOYEES
AND J. RAY MCDERMOTT RETIREMENT PLAN BENEFITS
FINAL ANNUAL BENEFITS AT AGE 65 FOR YEARS OF SERVICE INDICATED
AVERAGE ----------------------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
- -------- ------ ------ ------ ------- ------- ------- -------
200,000 31,490 47,235 62,980 78,725 94,470 110,215 125,961
250,000 39,823 59,735 79,647 99,559 119,470 139,382 159,294
300,000 48,157 72,235 96,314 120,392 144,470 168,549 192,627
The following table shows the annual benefit payable under the McDermott
Retirement Plan at age 65 (the normal retirement age) to B&W tenured employees
who retire in 2001 in accordance with the lifetime-only method of payment. B&W
benefits are based on the formula of a specified percentage (dependent on the
level of wages subject to social security taxes during the employee's career) of
average annual earnings (inclusive of bonuses) during the 60 successive months
out of the 120 successive months prior to retirement in which such earnings were
highest ("B&W Final Average Earnings"). B&W Final Average Earnings and credited
service under the McDermott Retirement Plan at December 31, 2000 for Messrs.
Tetrault, Womack and Wood were $974,362 and 24.92 years, $540,301 and 25.25
years and $428,924 and 28.33 years, respectively. Unless elected otherwise by
the employee, payment will be made in the form of a joint and survivor annuity
of equivalent actuarial value to the amount shown below.
MCDERMOTT RETIREMENT PLAN BENEFITS FOR B&W TENURED EMPLOYEES
B&W
FINAL ANNUAL BENEFITS AT AGE 65 FOR YEARS OF SERVICE INDICATED
AVERAGE -------------------------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
- -------- ------- ------- ------- ------- ------- ------- -------
400,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000
500,000 62,500 93,750 125,000 156,250 187,500 218,750 250,000
600,000 75,000 112,500 150,000 187,500 225,000 262,500 300,000
700,000 87,500 131,250 175,000 218,750 262,500 306,250 350,000
800,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000
900,000 112,500 168,750 225,000 281,250 337,500 393,750 450,000
1,000,000 125,000 187,500 250,000 312,500 375,000 437,500 500,000
Supplemental Executive Retirement Plan. The Company maintains an unfunded
Supplemental Executive Retirement Plan (the "SERP"). The SERP covers certain
officers of the Company and other designated companies, including McDermott
Incorporated, J. Ray McDermott and B&W. Generally, benefits are based on a
specified percentage (determined by age, years of service and date of initial
participation in the SERP) of final three-year average cash compensation (salary
plus supplemental compensation for the highest three out of the last ten fiscal
years of service) or three-year average cash compensation prior to the SERP
scheduled retirement date, whichever is greater. The maximum benefit may not
exceed 60-65% (depending on the date of initial participation in the SERP) of
such three-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 or any of its subsidiary companies.
The SERP also provides a surviving spouse death benefit. Before giving effect to
such reductions, the approximate annual benefit payable under the SERP to
Messrs. Nesser, Rawle, Tetrault, Wilkinson, Womack and Wood at retirement age as
stated in the SERP is 60% of each such person's final three-year average cash
compensation.
We have established a trust (the assets of which constitute corporate
assets) designed to ensure the payment of benefits arising under the SERP, the
Excess Plans and certain other contracts and arrangements
26
31
(collectively, the "Plans") in the event of an effective change in control of
the Company. Although we 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 our failure to make such
payments and the termination of a participant's employment under certain
specified circumstances. In addition, with respect to benefits that 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 began receiving 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 before 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.
AUDIT COMMITTEE REPORT
Each year, the Board of Directors appoints an Audit Committee to review the
Company's financial matters. Each member of the Audit Committee meets the
independence requirements established by the New York Stock Exchange. Our
responsibilities as members of the Audit Committee include recommending to the
Board an accounting firm to be hired as the Company's independent accountants.
We are also responsible for recommending to the Board that the Company's
financial statements be included in its Annual Report on Form 10-K for the
fiscal year.
We have taken the following steps in making our recommendation that the
Company's financial statements be included in its Annual Report on Form 10-K for
fiscal year 2000:
- First, we discussed with PricewaterhouseCoopers, the Company's
independent accountants for fiscal year 2000, those matters required to
be discussed by Statements on Auditing Standards No. 61 and 90, including
information regarding the scope and results of the audit. These
communications and discussions are intended to assist us in overseeing
the financial reporting and disclosure process.
- Second, we discussed with PricewaterhouseCoopers its independence and
received from PricewaterhouseCoopers a letter concerning its independence
as required under applicable independence standards for auditors of
public companies. This discussion and disclosure helped us in evaluating
such independence. We also considered whether the provision of non-audit
services to the Company is compatible with the auditor's independence.
- Finally, we reviewed and discussed, with the Company's management and
PricewaterhouseCoopers, the Company's audited consolidated balance sheet
at December 31, 2000, and consolidated statements of loss, comprehensive
loss, cash flows, and stockholders' equity for the fiscal year ended
December 31, 2000.
Based on the reviews and discussions explained above, we recommended to the
Board that the Company's financial statements be included in its Annual Report
on Form 10-K for its fiscal year ended December 31, 2000.
THE AUDIT COMMITTEE
John N. Turner (Chairman)
Ronald C. Cambre
Joe B. Foster
John W. Johnstone, Jr.
Kathryn D. Sullivan
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32
APPROVAL OF RETENTION OF
INDEPENDENT ACCOUNTANTS FOR
FISCAL YEAR 2001
(ITEM 2)
Upon the recommendation of the Audit Committee, our Board of Directors has
approved the retention of PricewaterhouseCoopers to serve as independent
accountants to audit our accounts for fiscal year 2001. Although not required to
do so, our Board of Directors is submitting the retention of
PricewaterhouseCoopers to our shareholders for their approval.
PricewaterhouseCoopers served as our independent accountants for fiscal year
2000. Representatives of PricewaterhouseCoopers will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do so
and to respond to appropriate questions.
AUDIT FEES
PricewaterhouseCoopers' fees for our 2000 audit were $2,800,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
We did not incur any fees to PricewaterhouseCoopers in 2000 with respect to
financial information systems design and implementation services.
ALL OTHER FEES
PricewaterhouseCoopers' fees for all other professional services rendered
to us during 2000 were $4,715,540.
The affirmative vote of a majority of the outstanding shares of Common
Stock present, in person or by proxy, at the Annual Meeting and entitled to vote
on the matter is required to approve this proposal. Our Board of Directors
recommends that shareholders vote "FOR" the retention of PricewaterhouseCoopers
as our independent accountants.
STOCKHOLDER PROPOSAL ON BURMA
(ITEM 3)
The Amalgamated Bank of New York LongView Collective Investment Fund of
11-15 Union Square, New York, New York 10003, the beneficial owner of 18,072
shares of our Common Stock, has advised the Company that it intends to present
the following resolution at the Annual Meeting. In accordance with applicable
proxy regulations, the proposed resolution and supporting statement, for which
the Company and our Board of Directors accept no responsibility, are set forth
below.
"RESOLVED that the shareholders of McDermott International
("McDermott" or the "Company") urge the Board of Directors to create a
committee of independent directors to prepare a report describing projects
undertaken by the Company or any subsidiary in Burma, including the steps
that McDermott is taking to ensure that neither the Company nor any of its
subsidiaries is involved in or appears to benefit from the use of forced
labor or other human rights abuses in Burma."
The stockholder has submitted the following statement in support of this
resolution:
"Burma has been ruled for over a decade by a military dictatorship
widely condemned for human rights abuses. The United Nations, the U.S.
Department of Labor, the International Labor Organization, and various
human rights groups have published detailed reports on forced labor and
other human rights violations in Burma, with particular reference to the
Yadana gas pipeline, a project associated with human rights abuses
including forced labor. The U.S. government has banned new investment in
Burma,
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and many U.S. companies, including Texaco and Atlantic Richfield, have
voluntarily withdrawn from the country.
McDermott has participated in the construction of the Yadana pipeline.
According to The Wall Street Journal, McDermott subsidiary J. Ray
McDermott, S.A. built much of the offshore infrastructure for the Yadana
project. These projects generated $162 million in 1997 and 1998, making
Burma J. Ray McDermott's fifth-largest revenue source in that period.
A report by the United Nations Special Rapporteur on Burma found that
Burmese villagers were forced to work on offshore portions of the Yadana
project. EarthRights International, a human rights organization, reported
that 'thousands of villagers in Burma were forced to work in support of
these pipelines and related infrastructure, were raped, tortured and killed
by soldiers hired by the companies as security guards for the pipeline.'
At least one U.S. company doing business in Burma was sued by victims
of forced labor. In a case filed against Unocal involving the Yadana
project, a federal judge found that 'the evidence does suggest that Unocal
knew that forced labor was being utilized and that the Joint Venturers
[including Unocal] benefited from the practice.' The lawsuit was dismissed
for failure to meet the requirements of the Alien Tort Claims Act. Even so,
a judicial finding that a company knew forced labor was being used can
damage corporate reputation.
Fifty years after World War II, companies still face litigation by
victims of forced labor under the Nazi regime. The German government
recently established a $4.6 billion compensation fund with funding to come
from companies that benefited from forced labor, including U.S.-based
companies Ford and General Motors. Any involvement in human rights abuses
can thus come back to haunt companies years later.
We believe that McDermott shareholders are entitled to an independent
assessment of the Company's activities in Burma insofar as they relate to
human rights issues there.
We urge our fellow shareholders to vote FOR this resolution."
MANAGEMENT'S RESPONSE TO STOCKHOLDER PROPOSAL ON BURMA
As a worldwide energy services company, the Company and its subsidiaries,
including J. Ray McDermott, operate under a wide variety of societies and legal
regimes. Notwithstanding those differences, we adhere to a consistent set of
corporate policies and procedures that underscore our commitment to ethical
business standards and worker human rights. These policies and procedures were
built on our core values of honesty and integrity, through compliance with both
the letter and spirit of the law and regulations that govern our operations and
build trust and respect with customers, suppliers, employees, shareholders and
the communities where we operate. Our subsidiary J. Ray McDermott adhered to
these policies and procedures in performing its work on the Yadana project in
Burma.
We believe that worker human rights begin with respect for the individual.
Every employee deserves respect and is entitled to dignified treatment. Our
employment policies reflect this commitment to respect for the individual. Our
company provides equal opportunity for all employees and all qualified
applicants for employment, without regard to race, color, religion, gender, age,
sexual orientation, national origin, citizenship status, disability or veteran
status. We strictly prohibit all forms of discrimination and harassment in the
work environment.
Our policies against discrimination and harassment apply to all employees
and to all third parties with whom we have business relationships (e.g., outside
vendors, customers, consultants, temporary labor, etc.). Pursuant to these
policies, we promptly and thoroughly investigate and address all complaints of
harassment, discrimination or retaliation.
We believe that our adoption and enforcement of our corporate policies and
procedures effectively address all of our workplace practices, including any
work activities undertaken by J. Ray McDermott on the Yadana project in Burma.
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Therefore, management and the Board of Directors recommend a vote "AGAINST"
this proposal. The proxy holders will vote all proxies received against this
proposal unless instructed otherwise. Approval of this proposal requires the
affirmative vote of a majority of the outstanding shares of Common Stock present
in person or by proxy and entitled to vote on this matter at the Annual Meeting.
Because abstentions are counted as present for purposes of the vote on this
matter but are not votes "FOR" this proposal, they have the same effect as votes
"AGAINST" this proposal. Broker non-votes will have no effect on the vote.
STOCKHOLDER PROPOSAL ON RIGHTS PLAN
(ITEM 4)
The American Federation of State, County and Municipal Employees, AFL-CIO
of 1625 L Street, NW, Washington, D.C. 20036-5687, the beneficial owner of 800
shares of Common Stock, has advised the Company that it intends to present the
following resolution at the Annual Meeting. In accordance with applicable proxy
regulations, the proposed resolution and supporting statement, for which the
Board of Directors and the Company accept no responsibility, are set forth
below:
"RESOLVED: The stockholders of McDermott International ("McDermott" or
the "Company") request that the Board of Directors (the "Board") not extend
the Final Expiration Date of the preferred stock purchase rights
distributed pursuant to the Rights Agreement dated as of December 5, 1995
(amended and restated as of July 31, 1997 and April 15, 1999), nor enter
into a new agreement providing for the distribution of preferred stock
purchase or similar rights, unless such extension or new agreement is
approved by the affirmative vote of stockholders, to be held as soon as may
be practicable."
The stockholder has submitted the following statement in support of this
resolution:
"As of November 17, 2000, McDermott's share price stood at $10.625, a
drop of over 60% since May 7, 1999, when the stock closed at over $29.
Reporting results for the quarter ended September 30, 2000, McDermott
projected that the Marine Construction segment will continue to generate
losses through the March 2001 quarter and that net results will be no
better than breakeven in each of the next two quarters.
Our Company's Board and executives must accept responsibility for
these results. To that end, we believe this is an appropriate time for our
Board to begin to eliminate management-entrenching corporate governance
structures, particularly McDermott's poison pill. The Board created
McDermott's current poison pill rights plan in December 1995 with the
distribution of preferred stock purchase rights to common stockholders. The
rights will expire on January 2, 2001.
We do not share the Board's view that our Company should have put a
poison pill rights plan into effect without stockholder approval. We
believe the terms of the rights are designed to discourage or thwart an
unwanted takeover of our Company. While management and the Board should
have appropriate tools to ensure that all shareholders benefit from any
proposal to buy the Company, we do not believe that the future possibility
of an unsolicited bid justifies the unilateral implementation of such a
poison pill type device. We urge the Board not to renew the rights plan or
adopt a new plan without shareholder approval.
Rights plans like ours have become increasingly unpopular in recent
years. In 2000, a majority of stockholders of seventeen companies,
including Quaker Oats, Dun & Bradstreet, and WorldCom, voted in favor of
stockholder proposals asking management to redeem or repeal poison pills.
The effect of poison pill rights plans on the value of companies'
stock has been the subject of extensive research. A 1986 study by the
Office of the Chief Economist of the Securities and Exchange Commission on
the economics of rights plans states, 'The stock-returns evidence suggests
that the effect of poison pills to deter prospective hostile takeover bids
outweighs the beneficial effects that might come from increased bargaining
leverage of the target management.' A 1992 study by Professor John Pound of
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35
Harvard University's Corporate Research Project and Lilli A. Gordon of the
Gordon Group found a correlation between high corporate performance and the
absence of poison pills.
We urge stockholders to vote for this resolution!"
MANAGEMENT'S RESPONSE TO STOCKHOLDER PROPOSAL ON RIGHTS PLAN
Following careful review of comprehensive materials prepared for our Board
of Directors, including materials prepared by outside counsel, our Board of
Directors adopted a stockholder rights plan in January 1995. In 1997, the Board
of Directors amended this rights plan to shorten its term by five years to
January 2, 2001. In December 2000, the Board then extended the plan's expiration
date to May 3, 2001, because it determined that the rights plan and the
extension were in the best interest of our Company and its shareholders. This
proposal requests that our Board of Directors not extend the "Final Expiration
Date" (May 3, 2001) of our amended and restated rights plan (the "Rights Plan"),
nor enter into a new stockholder rights plan without first receiving shareholder
approval. While the Board of Directors has not determined whether it will extend
the term of the existing Rights Plan or adopt a new plan, it urges you to vote
against this proposal.
The Board of Directors opposes this proposal for the following reasons:
- We should retain the flexibility to maintain or timely implement a
stockholder rights plan, particularly during B&W's reorganization
proceeding.
- Independent studies indicate that any premium paid by an acquiring
company is likely to be higher if the acquired company has a stockholder
rights plan.
- We believe stockholder rights plans do not block or deter fair and
equitable offers.
- Our Board of Directors unanimously adopted our existing Rights Plan; of
the ten current Board members, only the Chairman is also a member of
management.
- Stockholder rights plans are a widely accepted device for the benefit of
all shareholders.
We should retain the flexibility to maintain or timely implement a
stockholder rights plan, particularly during B&W's reorganization
proceeding. On February 22, 2000, B&W and certain of its subsidiaries filed a
voluntary petition in U.S. Bankruptcy Court to reorganize under Chapter 11 of
the U.S. Bankruptcy Code as a means to determine and comprehensively resolve
their asbestos liability. While we believe that this filing was in the best
interests of B&W and our shareholders, it has had a negative effect on our
Common Stock price. The Board of Directors believes that its flexibility to
extend the existing Rights Plan or adopt a new plan serves the best interests of
the Company and its shareholders during B&W's asbestos-related bankruptcy
reorganization. Stockholder rights plans are designed to protect shareholders
against, among other things, potential abuses during the acquisition and bidding
process. In this regard, it is important to remember that hostile acquirors are
interested in buying a company as cheaply as they can, and, in attempting to do
so, may try to use coercive tactics that do not treat all shareholders fairly
and equally. The Board of Directors believes that a stockholder rights plan
provides it with an additional degree of leverage in a takeover situation by
allowing the Board sufficient time to evaluate any potential buyer and takeover
proposal, and, if necessary, to explore alternatives. The Board of Directors
believes that the flexibility to maintain or timely implement a stockholder
rights plan is particularly critical to the Company during B&W's reorganization
proceeding.
Independent studies indicate that premiums paid by acquiring companies are
likely to increase if the acquired company has a stockholder rights
plan. Independent studies indicate that companies with stockholder rights plans
receive higher takeover premiums than those without such plans. These studies
also conclude that stockholder rights plans do not decrease the likelihood that
takeover bids will be made or completed for companies that have implemented such
plans.
We believe stockholder rights plans do not block or deter fair and
equitable offers. Stockholder rights plans are not intended to prevent a
takeover on terms that are fair and equitable to all shareholders or deter a
proxy contest for control of the Company. In recent years, a number of companies
with stockholder rights
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plans have received unsolicited offers, and these offers were successfully
completed after the directors of these companies were satisfied that the
transaction, as negotiated, was fair to and in the best interest of all
shareholders. Thus, in the view of the Board of Directors, other companies'
experiences indicate that rights plans neither prevent unsolicited offers from
occurring nor prevent companies from being acquired at prices that are fair to
all shareholders.
Our Board of Directors unanimously adopted our existing Rights Plan; of the
ten current Board members, only the Chairman is also a member of
management. The existing Rights Plan was not designed or intended to entrench
management. Of the Board's ten current members, nine are outside directors,
i.e., they are not employees or consultants of the Company. When the Rights Plan
was adopted, only two of the directors were insiders. The Board is well aware of
the concerns that some shareholders have expressed about the possible abuse of
rights plans by other companies. The Rights Plan is not intended to prevent a
takeover on terms that are fair and equitable to all our shareholders, nor is it
a deterrent to a proxy contest initiated by any of our shareholders. The Board
is aware of its fiduciary duties and will properly consider the interests of all
shareholders should we receive a takeover proposal.
Stockholder rights plans are widely accepted as a device for the benefit of
all shareholders. We believe our Rights Plan is similar to those adopted by
well over 2,000 other corporations, including a number of other companies
engaged in businesses similar to ours. Virtually all these plans were adopted
without shareholder approval. The overriding objective of our Board in adopting
our Rights Plan was, and continues to be, the preservation and maximization of
the Company's long-term value for all shareholders.
For these reasons, the Board of Directors unanimously recommends a vote
"AGAINST" this proposal. The proxy holders will vote all proxies received
against this proposal unless instructed otherwise. Approval of this proposal
would require the affirmative vote of a majority of the outstanding shares of
Common Stock present in person or by proxy and entitled to vote on this matter
at the Annual Meeting. Because abstentions are counted as present for purposes
of the vote on this matter but are not votes "FOR" this proposal, they have the
same effect as votes "AGAINST" this proposal. Broker non-votes will have no
effect on the vote.
CERTAIN TRANSACTIONS
Newfield Exploration Company ("Newfield"), a company of which Joe B. Foster
(one of our directors) is the Non-executive Chairman of the Board and Philip J.
Burguieres (another of our directors) is also a member of the Board of
Directors, manages and operates an offshore producing oil and gas property for
one of J. Ray McDermott's subsidiaries under a production and operation
agreement. Under the agreement, this subsidiary is required to pay Newfield (i)
an operations management fee of $10,530 per month, (ii) a marketing services fee
at a rate of $.01/MMBTU with a minimum monthly fee of $1,500, (iii) a minimum
accounting and property supervision fee of $5,000 per month and (iv) certain
other costs incurred by Newfield in connection with the agreement. During fiscal
year 2000, this subsidiary paid approximately $943,000 to Newfield under the
agreement. We estimate that this subsidiary will pay approximately $954,000
under the agreement during fiscal year 2001. These J. Ray McDermott subsidiaries
also sold natural gas at established market prices to Newfield. During fiscal
year 2000, such natural gas sales were approximately $2.96 million.
Another subsidiary of J. Ray McDermott also periodically enters into
agreements to design, fabricate or install offshore pipelines or structures for
Newfield. Newfield paid that subsidiary approximately $2.03 million for the work
performed under these agreements during fiscal year 2000.
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own 10% or more of our voting stock, to
file reports of ownership and changes in ownership of our equity securities with
the SEC and the New York Stock Exchange. Directors, executive officers and 10%
or more holders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of those
forms furnished to us, or written representations that no forms were required,
we believe that our directors, executive officers and 10% or more beneficial
owners complied with all Section 16(a) filing requirements during the year ended
December 31, 2000.
SHAREHOLDERS' PROPOSALS
Any shareholder who wishes to have a qualified proposal considered for
inclusion in our 2002 proxy statement must send notice of the proposal to our
Corporate Secretary at our principal executive office no later than November 30,
2001. With such proposal, you must provide your 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 any claim of
beneficial ownership.
Moreover, any shareholder who intends to submit a proposal for
consideration at our 2002 Annual Meeting, but not for inclusion in our proxy
materials, or who intends to submit nominees for election as directors at the
meeting must notify our Corporate Secretary. Under our by-laws, such notice must
(1) be received at our executive offices no earlier than January 4, 2002 or
later than February 3, 2002 and (2) satisfy certain requirements. A copy of the
pertinent by-law provisions can be obtained from our Corporate Secretary on
written request.
By Order of the Board of Directors,
/s/ JOHN T. NESSER, III
JOHN T. NESSER, III
Secretary
Dated: March 30, 2001
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APPENDIX A
MCDERMOTT INTERNATIONAL, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The primary function of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") in fulfilling its oversight
responsibilities by carrying out the following duties:
- Serve as an independent and objective party to monitor McDermott's
financial reporting process and internal control system.
- Review and appraise the audit efforts of McDermott's outside auditors and
the internal auditing department.
- Provide an open avenue of communication among the outside auditors,
financial and senior management, the internal audit department and the
Board.
II. COMMITTEE COMPOSITION
The Committee will be composed of not less than three members of the Board.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices, and at least one member shall have accounting or
related financial management expertise.
The Committee membership shall meet the independence requirements of the
New York Stock Exchange (NYSE), as defined in the NYSE Listed Company Manual.
Accordingly, all of the members will be directors independent of management and
free from any relationship that, in the opinion of the Board, would interfere
with the exercise of independent judgment as a Committee member.
The members of the Committee shall be elected by the Board at each annual
organizational meeting and serve until the Board's next annual organizational
meeting and their successors are duly elected and qualified. Unless a chair is
elected by the full Board, the members of the Committee may designate a chair by
majority vote of the full Committee membership.
III. MEETINGS
The Committee shall meet at least four times annually or more frequently as
circumstances dictate. A detailed written agenda shall be prepared and
distributed in advance.
The Committee shall meet at least annually with management, the internal
audit director and the outside auditors, in separate executive sessions, to
discuss any matters that the Committee or any of these individuals or groups
believe should be discussed privately.
The Committee will maintain written minutes of all its meetings, which will
be available to every member of the Board.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
Disclosure and Reporting
1. Review this charter periodically, as conditions dictate, but at least
annually, and update the charter if necessary or appropriate. McDermott
will state in its annual proxy statement that a written charter has been
adopted and include a copy of the charter as an appendix to the proxy
statement once every three years.
A-1
39
2. Include a report in its annual proxy statement, with the names of all
Committee members, stating whether the Committee:
(1) reviewed and discussed the audited financial statements with
management;
(2) discussed with the outside auditors matters requiring discussions
by the Statement on Audit Standards (SAS) No. 61, Communication
with Audit Committees;
(3) received the written disclosures and letter from the outside
auditors required by Independence Standards Board No. 1, and
discussed with the outside auditors their independence; and
(4) based on that review and discussion, recommended to the full Board
that the audited financial statements be included in McDermott's
Form 10-K.
3. Ensure that McDermott provides the NYSE written confirmation regarding:
(1) any determination the Board made regarding the independence of
directors;
(2) financial literacy of Committee members;
(3) the determination that at least one of the Committee members has
accounting or related financial management expertise; and
(4) the annual review and reassessment of the adequacy of the Audit
Committee charter.
Documents/Reports Review
4. Review McDermott's annual financial statements and any other significant
reports or other financial information submitted to the Securities and
Exchange Commission or to the public.
5. Review significant internal audit reports and management's responses
with the internal audit director.
6. Review interim results with financial management and the outside
auditor, including any matters of the type described in SAS No. 61,
prior to the filing of McDermott's Form 10-Q. The chair of the Committee
may represent the entire Committee for purposes of this review.
Outside auditors
7. Recommend to the Board each year, a firm of independent certified public
accountants to serve as McDermott's principal independent auditors. The
outside auditor is accountable to the Board and the Committee which have
the ultimate authority and responsibility to select, evaluate and
nominate the outside auditor to be proposed for shareholder approval or
ratification.
8. Annually approve the fees and other compensation to be paid to the
outside auditor.
9. Require a formal written statement from the outside auditor consistent
with Independence Standards Board Standard No. 1. The Committee is
responsible for oversight of auditor independence and shall discuss
annually with the outside auditor any relationships or services that may
impact the auditor's independence, and take, or recommend to the full
Board, actions to ensure that independence.
10. Discuss with the outside auditor the auditor's judgment about the
quality of McDermott's accounting principles and the underlying
estimates as required by SAS No. 90, Audit Committee Communications.
11. Require that the outside auditor communicates to the Committee (or be
satisfied that management has communicated) with regard to their
quarterly reviews any matters of the types described in SAS No. 61.
A-2
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Internal Audit Function
12. Review and approve the appointment, replacement, reassignment or
dismissal of the internal audit director.
13. Annually review and approve the internal audit plan and discuss any
subsequent changes in the scope of the audit plan.
14. Review the results of the internal audit process with management and
the internal audit director including significant findings,
management's responses thereto, and the status of corrective actions or
implementation of recommendations.
15. Evaluate the activities, organizational structure, and qualifications
of the internal audit department.
Ethical and Legal Compliance
16. Review with McDermott's General Counsel any legal matter that could
have a significant impact on the financial statements.
17. Review management's monitoring of compliance with McDermott's Code of
Business Ethics and Conduct, and ensure that management has the proper
review system in place to ensure that McDermott's financial statements,
reports and other financial information disseminated to the public
satisfy legal requirements.
18. Perform any other activities consistent with this charter, McDermott's
articles of incorporation, by-laws and governing documents, as the
Committee or the Board deems necessary or appropriate.
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[McDermott International, Inc. logo]
42
COMMAND FINANCIAL PRESS CORP. -- NEW YORK (212) 274-0070 REV 8.0 16:20 03/28/01 BK 20321 PROXY, 1
FIRST CHICAGO TRUST COMPANY -- MCDERMOTT
- --------------------------------------------------------------------------------------------------------------------
MCDERMOTT INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P The undersigned hereby appoints John T. Nesser, III and Bruce F. Longaker, and
R each of them individually, as attorneys, agents and proxies of the undersigned,
O with full power of substitution and resubstitution, to vote all the shares of
X common stock of McDermott International, Inc. (the "Company") that the
Y undersigned may be entitled to vote at the Company's Annual Meeting of
Shareholders to be held on May 4, 2001, and at any adjournment or postponement
of such meeting, as indicated on the reverse side hereof, with all powers which
the undersigned would possess if personally present.
The undersigned acknowledges receipt of the Company's Annual Report for the
fiscal year ended December 31, 2000 and its Notice of 2001 Annual Meeting of
Shareholders and related Proxy Statement.
PLEASE MARK, SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD AND PROMPTLY
RETURN IT IN THE ENCLOSED ENVELOPE.
-----------
SEE REVERSE
SIDE
-----------
- --------------------------------------------------------------------------------------------------------------------
* PLEASE FOLD AND DETACH HERE IF YOU ARE NOT VOTING BY INTERNET OR TELEPHONE *
MCDERMOTT INTERNATIONAL, INC.
ANNUAL MEETING OF SHAREHOLDERS
FRIDAY, MAY 4, 2001
9:30 A.M.
HOTEL INTER-CONTINENTAL
LA SALLE BALLROOM
444 ST. CHARLES AVENUE
NEW ORLEANS, LOUISIANA
- --------------------------------------------------------------------------------------------------------------------
43
COMMAND FINANCIAL PRESS CORP. -- NEW YORK (212) 274-0070 REV 8.0 16:20 03/28/01 BK 20321 PROXY, 2
FIRST CHICAGO TRUST COMPANY -- MCDERMOTT
- --------------------------------------------------------------------------------------------------------------------
[X] PLEASE MARK YOUR 1317
VOTES AS IN THIS
EXAMPLE.
IMPORTANT - PLEASE MARK APPROPRIATE BOXES ONLY IN BLUE OR BLACK INK AS SHOWN:
1. Nominees as Class I Directors:01.Philip J.Burguieres,02.Ronald C.Cambre,03.Bruce DeMars and 04.John W.Johnstone,Jr.
FOR ALL NOMINEES, WITHHOLD AUTHORITY
EXCEPT AS SPECIFIED FOR ALL NOMINEES FOR AGAINST ABSTAIN
[ ] [ ] 2. Retention of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as the
INSTRUCTION: To withhold authority to vote for Company's independent accountants
any nominee, write that nominee's name below: for fiscal year 2001 (the Directors
favor a vote "FOR").
- ----------------------------------------
3. Stockholder proposal to create an [ ] [ ] [ ]
independent Board committee to
prepare a report on the Company's
activities in Burma (the Directors
favor a vote "AGAINST").
4. Stockholder proposal not to [ ] [ ] [ ]
extend the Company's Stockholder
Rights Plan or adopt a new Plan
without shareholder approval (the
Directors favor a vote "AGAINST").
-----------------------------------------
ANNUAL REPORT
-----------------------------------------
Mark here to discontinue annual
report mailing for the account [ ]
(for multiple-account holders only).
-----------------------------------------
Every properly signed Proxy will be voted
in accordance with the specifications
made thereon. IF NOT OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE ELECTION
OF DIRECTORS AND THE RETENTION OF THE
SIGNATURE(S) DATE COMPANY'S INDEPENDENT AUDITORS, AND
--------------------------------------- ---------- AGAINST THE TWO STOCKHOLDER PROPOSALS.
NOTE: Signature(s)should agree with name(s)on stock certificates as THE PROXY HOLDERS NAMED ON THE REVERSE
specified hereon. Executors, administrators, trustees, etc., SIDE ALSO WILL VOTE IN THEIR DISCRETION
should indicate when signing. All proxies heretofore given by ON ANY OTHER MATTER THAT MAY PROPERLY
the signatory to vote at such meeting or any adjournment or COME BEFORE THE MEETING.
postponement thereof are hereby revoked.
- --------------------------------------------------------------------------------------------------------------------
* FOLD AND DETACH HERE IF YOU ARE NOT VOTING BY INTERNET OR TELEPHONE *
MCDERMOTT INTERNATIONAL, INC.
Dear Shareholder:
McDermott International, Inc. encourages you to vote your shares electronically
through the Internet or the telephone 24 hours a day, 7 days a week. This eliminates
the need to return the proxy card.
To vote your shares electronically you must use the voter control number printed in
the box above, just below the perforation. The series of numbers that appear in the
box above must be used to access the system.
1. To vote over the Internet:
o Log on the Internet and go to the web site http://www.eproxyvote.com/mdr
2. To vote over the telephone:
o On a touch-tone telephone call 1-877-PRX-VOTE (1-877-779-8683)
o Outside of the U.S. and Canada call 201-536-8073.
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, there is no need for you to mail
back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
- --------------------------------------------------------------------------------------------------------------------
44
McDERMOTT INTERNATIONAL, INC.
THE THRIFT PLAN FOR EMPLOYEES OF MCDERMOTT INCORPORATED
AND PARTICIPATING SUBSIDIARY AND AFFILIATED COMPANIES
MARCH 30, 2001
To those individuals ("Plan Participants") who have an interest in McDermott
International, Inc. Common Stock, par value $1.00 per share (the "Common
Stock"), under The Thrift Plan for Employees of McDermott Incorporated and
Participating Subsidiary and Affiliated Companies (the "Thrift Plan"):
We would like to give Plan Participants having an interest in shares of
Common Stock through the Thrift Plan the right to instruct The Vanguard Group,
the trustee for the Thrift Plan (the "Trustee"), how to vote the shares of
Common Stock representing their interest in the Thrift Plan.
In order that you may have the same information as a shareholder outside
the Thrift Plan, we have enclosed a copy of the Notice of McDermott
International, Inc.'s Annual Meeting of Shareholders and the related Proxy
Statement. This information is being mailed to all shareholders of record as of
March 26, 2001. This material is for your information only and need not be
returned.
Also enclosed is a voting instruction form with which you may instruct the
Trustee how to vote your interest in shares of Common Stock in the Thrift Plan.
Please return this voting instruction form in the envelope provided as soon as
possible.
If the Trustee does not receive your instructions by April 30, 2001, the
Trustee will vote your interest, in its discretion, in a manner consistent with
its fiduciary responsibility under the Employee Retirement Income Security Act
of 1974 or other applicable legal requirements.
This letter and the enclosed material relate only to your interest in
shares of Common Stock under the Thrift Plan. It does not relate to any other
shares of Common Stock which you may own. If you own other shares of Common
Stock, you will receive proxy materials in a separate mailing, which should be
returned in the envelope provided for that purpose.
Very truly yours,
/s/ Bruce W. Wilkinson
Bruce W. Wilkinson
Chairman of the Board and
Chief Executive Officer
45
o Please fold and detach card at perforation before mailing o
CONFIDENTIAL VOTING INSTRUCTIONS
TO: THE VANGUARD GROUP, TRUSTEE UNDER THE THRIFT PLAN FOR EMPLOYEES OF
MCDERMOTT INCORPORATED AND PARTICIPATING SUBSIDIARY AND AFFILIATED COMPANIES
The undersigned participant in The Thrift Plan for Employees of McDermott
Incorporated and Participating Subsidiary and Affiliated Companies (the "Thrift
Plan") hereby directs The Vanguard Group, the trustee of the Thrift Plan (the
"Trustee"), to vote all the shares of common stock (the "Common Stock") of
McDermott International, Inc. (the "Company") held in the undersigned's Thrift
Plan account at the Company's Annual Meeting of Shareholders to be held in the
La Salle Ballroom of the Hotel Inter-Continental, 444 St. Charles Avenue, New
Orleans, Louisiana, on Friday, May 4, 2001, at 9:30 a.m. local time, and at any
adjournment or postponement of such meeting, as indicated on the reverse side
of this voting instruction form.
Every properly signed voting instruction form will be voted in accordance with
the specifications made thereon. If not otherwise specified, this voting
instruction form will be voted FOR the election of Directors and the retention
of the Company's independent auditors, and AGAINST the two stockholder
proposals.
The undersigned acknowledges receipt of the Company's Annual Report for the
fiscal year ended December 31, 2000 and its Notice of 2001 Annual Meeting of
Shareholders and related Proxy Statement.
Dated , 2001
----------------------
SIGNATURE
---------------------------------
NOTE: Signature should be the same as
the name on your Thrift Plan account.
When signing as attorney, executor,
administrator, trustee, guardian or
similar capacity, please give full
title as such. The person signing
below hereby revokes all instructions
heretofore given by such person
voting the shares of Common Stock
held in such person's Thrift Plan
account at such meeting or any
adjournment or postponement thereof.
46
o Please fold and detach card at perforation before mailing o
PLEASE FILL IN BOX(ES) AS SHOWN USING BLACK OR BLUE INK OR A NUMBER 2 PENCIL. [X]
PLEASE DO NOT USE FINE POINT PENS.
1. NOMINEES AS CLASS I DIRECTORS: FOR ALL WITHHOLD
NOMINEES, AUTHORITY
01. Philip J. Burguieres, 02. Ronald C. Cambre, 03. Bruce DeMars and EXCEPT AS FOR ALL
04. John W. Johnstone, Jr. SPECIFIED NOMINEES
[ ] [ ]
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW:
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Retention of PricewaterhouseCoopers LLP as the Company's independent [ ] [ ] [ ]
accountants for fiscal year 2001 (the Directors favor a vote "FOR").
3. Stockholder proposal to create an independent Board committee to prepare a [ ] [ ] [ ]
report on the Company's activities in Burma (the Directors favor a vote
"AGAINST").
4. Stockholder proposal not to extend the Company's Stockholder Rights Plan or [ ] [ ] [ ]
adopt a new Plan without shareholder approval (the Directors favor a vote
"AGAINST").
PLEASE SIGN AND DATE THE REVERSE SIDE OF THIS VOTING INSTRUCTION FORM
AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.
47
MCDERMOTT INTERNATIONAL, INC.
THE THRIFT PLAN FOR SALARIED EMPLOYEES OF BABCOCK & WILCOX CANADA
MARCH 30, 2001
To those individuals ("Plan Participants") who have an interest in McDermott
International, Inc. Common Stock, par value $1.00 per share (the "Common
Stock"), under The Thrift Plan for Salaried Employees of Babcock & Wilcox Canada
(the "Thrift Plan"):
We would like to give Plan Participants having an interest in shares of
Common Stock through the Thrift Plan the right to instruct The Trust Company of
Bank of Montreal, the trustee of the Thrift Plan (the "Trustee"), how to vote
the shares of Common Stock representing their interest in the Thrift Plan.
In order that you may have the same information as a shareholder
outside the Thrift Plan, we have enclosed a copy of the Notice of McDermott
International, Inc.'s Annual Meeting of Shareholders and the related Proxy
Statement. This information is being mailed to all shareholders of record as of
March 26, 2001. This material is for your information only and need not be
returned.
Also enclosed is a voting instruction form with which you may instruct
the Trustee how to vote your interest in shares of Common Stock in the Thrift
Plan. Please return this voting instruction form in the envelope provided as
soon as possible.
If the Trustee does not receive your instructions by April 20, 2001,
the Trustee will not vote your shares.
This letter and the enclosed material relate only to your interest in
shares of Common Stock under the Thrift Plan. It does not relate to any other
shares of Common Stock which you may own. If you own other shares of Common
Stock, you will receive proxy materials in a separate mailing, which should be
returned in the envelope provided for that purpose.
Very truly yours,
/s/ BRUCE W. WILKINSON
Bruce W. Wilkinson
Chairman of the Board and
Chief Executive Officer
48
CONFIDENTIAL VOTING INSTRUCTIONS
TO: THE TRUST COMPANY OF BANK OF MONTREAL, TRUSTEE
UNDER THE THRIFT PLAN FOR SALARIED EMPLOYEES OF BABCOCK & WILCOX CANADA
The undersigned participant in The Thrift Plan for Salaried Employees of Babcock
& Wilcox Canada (the "Thrift Plan") hereby directs The Trust Company of Bank of
Montreal, the trustee of the Thrift Plan (the "Trustee"), to vote all the shares
of common stock (the "Common Stock") of McDermott International, Inc. (the
"Company") held in the undersigned's Thrift Plan account at the Company's Annual
Meeting of Shareholders to be held in the La Salle Ballroom of the Hotel
Inter-Continental, 444 Charles Avenue, New Orleans, Louisiana, on Friday, May 4,
2001, at 9:30 a.m. local time, and at any adjournment or postponement of such
meeting.
Every properly signed voting instruction form will be voted in accordance with
the specifications made thereon. If not otherwise specified, this voting
instruction form will be voted FOR the election of Directors and the retention
of the Company's independent auditors, and AGAINST the two stockholder
proposals.
The undersigned acknowledges receipt of the Company's Annual Report for the
fiscal year ended December 31, 2000 and its Notice of 2001 Annual Meeting of
Shareholders and related Proxy Statement.
PLEASE MARK APPROPRIATE BOXES ([ ]) IN BLACK OR BLUE INK AND SIGN AND DATE
WHERE INDICATED BELOW AND PROMPTLY RETURN THIS VOTING INSTRUCTION FORM IN THE
ENCLOSED ENVELOPE.
1. Nominees as Class I Directors: 1. Philip J. Burguieres, 2. Ronald C. Cambre,
3. Bruce DeMars and 4. John W. Johnstone, Jr.
[ ] FOR [ ] WITHHOLD AUTHORITY
all nominees, except for all nominees
as specified below
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
[ ]
---------------------------------------
2. Retention of PricewaterhouseCoopers LLP as the Company's independent
accountants for fiscal year 2001 (the Directors favor a vote "FOR").
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Stockholder proposal to create an independent Board committee to prepare a
report on the Company's activities in Burma (the Directors favor a vote
"AGAINST").
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Stockholder proposal not to extend the Company's Stockholder Rights Plan
or adopt a new Plan without shareholder approval (the Directors favor a vote
"AGAINST").
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
NOTE: Signature should be the same as the name on
your Thrift Plan account. When signing as
attorney, executor, administrator, trustee,
guardian or other similar capacity, please give
full title as such. The person signing below
hereby revokes all instructions heretofore given
by such person voting the shares of Common Stock
held in such person's Thrift Plan account at such
meeting or any adjournment or postponement
thereof.
, 2001
---------------------- ----------------
SIGNATURE DATE