Mr. Taff’s target 2009 long-term incentive compensation exceeded the market range; however, his total direct compensation was within the market range.
Finally, as a result of Mr. Deason’s intention to retire, the Compensation Committee did not grant him a long-term incentive award for 2009. However, to retain Mr. Deason through 2009, he received a retention grant of 100,000 restricted stock units that vested on his continued employment through December 31, 2009. The number of restricted stock units was based on (1) the value of one-third of the market median long-term incentive compensation applicable to Mr. Deason and (2) an additional amount calculated, on the recommendation of Hewitt, based on Mr. Deason’s 2009 annual base salary and target annual incentive compensation, prorated for his then-remaining 2009 service term.
Sizing Equity AwardsLong-Term Incentive Compensation. The Compensation Committee generally determines the size of equity awardsequity-based grants as a percentage of a Named Executive’s annual base salary, rather than granting a targeted number of shares. The Compensation Committee determinednumber of performance shares, restricted stock units and stock options granted can be expressed through the amountfollowing formula:
value of each Named Executive’s target equity-based compensation, as a percentage of his annual base salary, based on market data provided by Hewitt. Hewitt applied a discount tolong-term incentive($)/FMV($).
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equity-based compensation data of our market in order to ensure proper comparison of awards with different terms and plan designs. The dollar value of the target equity award for each Named Executive was derived by multiplying the applicableNamed Executive’s target percentage by the Named Executive’s 2008his 2009 base salary. Once the targetThe fair market value was established, the total number of one performance shares and shares ofshare, restricted stock grantedunit and stock option was determined by dividing the target value of equity in dollars by the discounted fair market valueHewitt near the time of grant of one performance share or one share of restricted stock and rounding down to the nearest 10 shares. The value of one performance share or one share of restricted stock was determined by Hewitt and generally reflected a discount from the market price as quoted on the New York Stock Exchangeof our common stock as a result of the vesting conditions and limitationsrestrictions on transfer. Hewitt used a Black Scholes model to value stock options. For the annual equity awardslong-term incentive compensation granted in February 2008,2009, the fair market value of our common stock as of the date the grants were calculated (based on the closing price of our common stock on the New York Stock Exchange on that date)Exchange) was $47.10,$13.21, compared to the discounted value of $34.65$10.52 for one performance share, $12.177 for one restricted stock unit and $41.65$8.581 for an option to acquire one share of restrictedour common stock.
Value Because the long-term incentive compensation grants vest over three years, the number of 2008 Equity Awards. As a percentage of annual base salary, the equity-based awards granted to Mr. Taffshares calculated were equalrounded down to the median equity value, as a percentagenearest multiple of annual base salary, of equity awards to chief financial officers indicated by our benchmark. The Compensation Committee setthree. To illustrate, consider the value of Mr. Deason’s equity award at 235% of his base salary, which was approximately 11% above the median percentage value of his position based on the applicable benchmark, to make the dollar value of his award more comparable to his counterpart at B&W. Messrs. Fees, Bethards and Nesser received two equity awards in 2008, the first in connection with the annual grants made by the Compensation Committee in February 2008 and the second in connection with their respective promotions.
As a result of the second equity award, the total value of Mr. Fees’, Mr. Bethards’ and Mr. Nesser’s 2008 equity awards was approximately 49% above, 29% below and 86% above the median value of equity awards, as a percentage of annual base salary, for similar executives in our market, respectively. As a percentage of his annual base salary, Mr. Bethards’ first equity award was approximately 4% above the median value (as a percentage of annual base salary) of our market for his position. In determining the amount of Mr. Bethards’ second award, the Compensation Committee considered current market data provided by Hewitt, and120,603 performance shares granted him a second award that, in absolute numbers, was comparable to equity awards made to his counterpart at J. Ray. Based on market data provided by Hewitt in connection with Mr. Nesser’s promotion, the value of his February 2008 equity award was near the median value of equity awards (as a percentage of annual base salary) of comparable executives for both his new and former position. However, the Compensation Committee awarded Mr. Nesser additional equity-based awards in connection with his change of duties in 2008 to help drive and reward the achievement of long-term performance.
Mr. Fees’ second equity award was based on the median dollar value of equity awards for chief executive officers in our market rather than the median value as a percentage of annual base salary. Our Board considered the change in methodology for Mr. Fees’ award appropriate because Mr. Fees’ base salary was substantially below market median (as discussed under “— Annual Base Salaries” above). Our Board also considered the long-term nature of equity-based awards, which are principally designed to drive and reward long-term performance. At the time, the median value of equity-based awards to chief executive officers in our market as indicated by our benchmark was approximately $5,029,733, without regard to annual base salary. In February 2008, Mr. Fees had received an equity-based award valued at approximately $1,539,000. Accordingly, in August 2008 our Board approved an equity-based award for Mr. Fees of $3,490,733 in connection with his promotion to our Chief Executive Officer. That amount represented the difference between the median dollar value of chief executive officer equity awardsOfficer in our market and the2009. The dollar value of Mr. Fees’ February 2008 award. Astarget 2009 long-term incentive compensation was $6,344,000 ($900,000 base salary multiplied by 705% target long-term incentive). Performance shares accounted for 20% of his target long-term incentive compensation granted in 2009, or $1,268,800. At a result, in dollar amount, thefair market value of $10.52/share, 20% of Mr. Fees’ 2008 total equity award was equalFees target long-term compensation grant amounted to 120,608 shares, or, rounded down to the median valuenearest multiple of equity for chief executive officers in our market.three, 120,603 performance shares.
Performance Targets for 2008 Performance-BasedTiming of Equity. The 2008 performance shares vest between 0% and 150% Grants. To avoid timing equity grants ahead of the amountrelease of shares initially granted depending on the level of cumulative operating income obtained over the three-year period ending December 31, 2010. Cumulative operating income at the threshold level will result in vesting of 25% of the performance shares initially granted. 100% and 150% of the shares initially granted vest if our consolidated cumulative operating income over the three-year period reaches the target and maximum
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levels, respectively. The amount vesting for cumulative operating income between the threshold level and maximum level is determined by linear interpolation.
Based onmaterial nonpublic information, provided by management, the Compensation Committee set cumulative operating incomegenerally approves stock option and other equity awards effective as of the first day of the next open trading window following the meeting at which the target and maximum vesting levels at amounts that represent 6% and 10%year-over-year increases fromgrants are approved, which is generally the same adjusted 2007 operating income amounts used to set payouts under our 2008 annual bonus plan. The Compensation Committee determined to structure performance share vesting aroundthird day following the same baseline used in connection with the determinationfiling of our annual bonus,report onForm 10-K or quarterly report onForm 10-Q with the Securities and Exchange Commission. This practice was followed for all long-term incentive compensation grants to complement and leverage consolidated operating income results that may be achieved as a result of our annual bonus awards. In addition, the Compensation Committee sought to encourage consistent and profitable growth while driving the creation of significant shareholder value. Finally, consistent with our 2006 and 2007 performance share awards, the Compensation Committee concluded that, based on the levels of the performance goals established, no performance shares should vest for cumulative operating income below 85% of the target level for the three-year measurement period.Named Executives in 2009.
Perquisites
Perquisites are not generally factored into the determination of the total direct compensation of our Named Executives, because they are typically provided to Named Executives on an exception basis after the Compensation Committee has reviewed the implications of a perquisite on McDermott.basis.
We own a fractional interest in three aircraft through an aircraft management company, which we acquired and use for business purposes and which we make available to our Named Executives for limited personal use upon the approval of our Chief Executive Officer.use. When we permit the personal use of aircraft by a Named Executive, we have a choice regarding the amount of income tax imputed to the executive officer for that use. Under current Internal Revenue Service rules, we may impute to the executive officer the actual cost incurred by us for the flight or an amount based on Standard Industry Fare Level (“SIFL”) rates set by the U.S. Department of Transportation. Imputing income based on SIFL rates usually results in less income tax liability to the executive officer but higher income taxes to us due to limitations on deducting aircraft expenses that exceed the income imputed to employees. To minimize our cost of permitting the personal use of the aircraft, we impute income for personal use of aircraft to our Named Executives in an amount that results in the least amount of tax burden for McDermott.
As required by applicable Securities and Exchange Commission rules, we calculate compensation in respect of personal use of corporate aircraft based on our “incremental cost.” We compute
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incremental cost for personal use of aircraft based on the actual cost incurred by us for the flight, including:
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| • | the cost of fuel; |
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| • | a usage charge equal to the hourly rate charged by our flight operator multiplied by the flight time; |
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| • | “dead head” costs, if applicable, of flying empty aircraft without passengers to and from locations; and |
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| • | the dollar amount of increased income taxes we incur as a result of disallowed deductions under IRS rules. |
Since the aircraft are used primarily for business travel, incremental costs generally exclude fixed costs such as the purchase price of our interests in the aircraft, aircraft management fees, depreciation, maintenance and insurance. Our cost for flights, using aircraft, whether business or personal, is not affected by the number of passengers. As a result, we do not assign any amount, other than the amount of any disallowed deduction, when computing incremental costs for the presence of guests accompanying a Named Executive on such flights. While we do not generally incur any additional cost, this travel may result in imputed income to the Named Executive and disallowed deductions on our income taxes. We will reimburse the Named Executive for the travel expenses of a guest accompanying a Named Executive, including the provision of agross-up for any imputed income, when the presence of that guest is related to the underlying business purpose of the trip. We also provide our Named Executives with a taxgross-up for imputed income incurred in connection with a relocation with McDermott or one of our affiliated companies. Otherwise, it is not our practice, and we do not intend, to provide any Named Executive with a taxgross-up for imputed income resulting from executive perquisites, including personal use of corporate aircraft.
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Post-Employment Compensation
Retirement Plans
Overview. We provide retirement benefits through a combination of qualified defined benefit pension plans, which we refer to as our “Retirement Plans,” and a qualified defined contribution 401(k) Plan, which we refer to as our “Thrift Plan,” for most of our regularU.S. employees, including our Named Executives. We sponsor the following four Retirement Plans:
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| • | the McDermott Retirement Plan for the benefit of the employees of McDermott Incorporated; |
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| • | the JRM Retirement Plan for the benefit of theU.S. employees of our Offshore Oil and Gas Construction segment; |
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| • | the Government Operations Retirement Plan for the benefit of the employees of our Government Operations segment; and |
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| • | the Commercial Operations Retirement Plan for the benefit of theU.S. employees of our Power Generation Systems segment. |
In addition to the broad-based qualified plans described above, we sponsor unfunded, nonqualified or excess retirement plans. The excess plans cover a small group of highly compensated employees, including our Named Executives,Mr. Fees and Mr. Bethards, whose ultimate benefitbenefits under the applicable Retirement Plan isare reduced by Internal Revenue Code Sections 415(b)limits on the amount of benefits which may be provided under qualified plans, and 401(a)(17) limits.on the amount of compensation which may be taken into account in computing benefits under qualified plans. Benefits under the excess plans are paid from our general assets. See the Pension Benefit table under “Compensation of Executive Officers” below for more information regarding our Retirement Plans.
Recent Changes to Retirement Plans. Over the past several years, we have reassessed our retirement plans due to the volatility, cost and complexity associated with defined benefit plans and evolving employee preferences. As a result, we have taken steps to shift away from traditional defined benefit plans and toward a defined contribution approach. In 2003, we closed the JRM Retirement Plan to new participants and froze benefit accruals for existing participants. In lieu of future defined benefit plan accruals under the JRM Retirement Plan, we amended our Thrift Plan to provide affected employees with an automatic cash contribution to their Thrift Plan account equal to 3% of the employee’s base pay, plus overtime pay, expatriate pay and commissions, which we refer to collectively as “thriftable earnings.” Mr. Deason had not satisfied the JRM Retirement Plan eligibility requirements at the time that plan was closed to new participants. Therefore, he does not participate in a Retirement Plan or an excess plan. In 2006, we closed the McDermott, Commercial Operations and Government Operations Retirement Plans to new salaried participants and froze benefit accruals for existing salaried participants with less than five years of credited service as of March 31, 2006, subject to specific annualcost-of-living increases. In lieu of future defined benefit plan accruals under those plans, we further amended our Thrift Plan to provide an automatic cash contribution
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to the Thrift Plan accounts of affected employees and new hires in an amount between 3% and 8% of the employee’s thriftable earnings, based on their length of service. Mr. Taff was affected by these changes. Mr. Taff does not participate in a Retirement Plan or an Excess Plan because he had not met the McDermott Retirement Plan eligibility requirements at the time that plan was closed to new participants. In 2007, we offered salaried participants in the McDermott, Commercial Operations and Government Operations Retirement Plans with between five and 10 years of credited service as of January 1, 2007 the one-time irrevocable choice between (1) continuing to accrue future benefits under the Retirement Plan or (2) freezing their Retirement Plan accrued benefit as of March 31, 2007, subject to annualcost-of-living increases, and receiving an automatic service-based cash contribution to their Thrift Plan account instead. Based on years of service, Messrs. WilkinsonMr. Johnson’s employment with McDermott commenced after these changes and, Nesser were offered this choice. Mr. Wilkinson chose to have his McDermottas a result, he does not participate in a Retirement Plan accrued benefit frozen. Therefore, his service after March 31, 2007 is not taken into account as credited service under a Retirement Plan. Mr. Nesser chose to continue to accrue future benefits under the McDermott Retirement Plan, and he continues to be credited with service under thator an excess plan.
Supplemental Plans. In 2005, as part of our philosophydetermination to move away from defined benefit plans, our management recommended that the Board of Directors and the Compensation Committee terminate our then existingthen-existing non-qualified defined benefit supplemental executive retirement plan. In its place, our Board of Directors and
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Compensation Committee established a new defined contribution supplemental executive retirement plan, which we refer to as the “SERP,” to help maintain the competitiveness of our post-employment compensation as compared to our market. The SERP is an unfunded, nonqualified plan that provides participants with benefits based uponon the participant’s notional account balance at the time of retirement or termination. Annually, we credit a participant’s notional account with an amount equal to 5% of the participant’s priorprior-year base salary and annual bonus.bonus paid in the prior year. The Compensation Committee has designated deemed mutual fund investments to serve as indices for the purpose of determining notional investment gains and losses to theeach participant’s account. Each participant allocates the annual notional contribution among the various deemed investments. SERP benefits are based on the participant’s vested notional account balance at the time of retirement or termination. In order to take advantage of grandfathering provisions in Internal Revenue Code Section 457A, in 2009, the Compensation Committee amended the SERP to vest each participant’s account as of December 31, 2008. Of the Named Executives with a SERP account balance as of the end of 2008, only Mr. Taff’s account was not fully vested. At the time of the amendment, Mr. Taff was 80% vested in his SERP balance. As a result of Mr. Johnson’s employment commencing April 1, 2009, he did not have a SERP balance and was therefore unaffected by this amendment. Please see the Nonqualified Deferred Compensation table on page 4753 and accompanying narrative for furthermore information about the SERP and our contributions to our Named Executives’ SERP accounts.
Employment and Severance Arrangements
Employment and Separation Agreements. Except forchange-in-control agreements and a separation agreement with Mr. Wilkinson,retention agreements, we do not currently have any employment or severance agreements with any of our Named Executives. In recent years, the Compensation Committee has determined that it may be appropriate in certain circumstances for us to enter into separation agreements with key officers. Under such agreements, the officer would be retained as a consultant for a limited period to assist us in the transition to a successor. In general, under these separation agreements, the officer receives a prorated EICP award for the year in which the separation agreement commences, continued vesting in equity awards at the normal vesting schedule for the duration of the consulting period and accelerated vesting of the unvested portion of the officer’s SERP account. In September 2008, we entered into such a separation agreement with Mr. Wilkinson. In addition, in October 2008, we entered into a separate consulting agreement with Mr. Wilkinson to provide our Board and management post-transition assistance with specific matters involving customers, investors, acquisition transactions and other matters. See the Potential Payments upon Termination or Change in Control table under “Compensation of Executive Officers” below for more information regarding Mr. Wilkinson’s agreements.
Change-in-Control Agreements. In our experience,change-in-control agreements for Named Executivesnamed executive officers are common within our industry, and our Board and Compensation Committee believe that providing these agreements to our Named Executives protects shareholders’ interests by helping to assure management continuity and focus through and beyond a change in control. Accordingly, the Compensation Committee has offeredchange-in-control agreements to key senior executives, including Named Executives, since 2005. With the exception of ourchange-in-control agreement with Mr. Fees, ourOurchange-in-control agreements generally provide a cash severance payment of two (2.99 for Mr. Fees) times the sum of the Named Executive’s annual base salary and target EICP, awarda cash payment equal to two years of medical benefits and provide an additional taxgross-up in the event of any excise tax liability. Mr. Johnson received achange-in-control agreement coincident with his commencement of employment in April 2009. At that time, it was not our intention to provide for an excise taxgross-up payment in connection with any newchange-in-control agreements and, as a result, Mr. Johnson’s agreement does not contain such a taxgross-up provision.
Additionally, theseourchange-in-control agreements contain what is commonly referred to as a “double trigger,” that is, they provide benefits only upon an involuntary termination or constructive termination of the executive officer within one year following a change in control. In 2008, at the request of the Compensation Committee, Hewitt conducted a review of ourchange-in-control agreements relative to existing practices among companies in the J.Ray/Corporate Group and the Custom Peer Group and to emerging practices generally. Specifically, Hewitt consideredchange-in-control provisions relating to triggers, the definition and calculation of severance pay and treatment of payments for bonus, equity, medical and excise tax. Hewitt’s analysis indicated that ourchange-in-control agreements were generally consistent with practices in our market and in the Custom Peer Group, except with respect to calculating severance pay for chief executive officers and payments for medical benefits. Market practices generally calculated chief executive officer severance at 2.99 or 3.0 times the executive’s pay and provided an additional payment for medical benefits. Based on Hewitt’s analysis, the Compensation Committee revised ourchange-in-control agreements to include a payment for two years of medical benefits for each Named Executive and, for Mr. Fees’ agreement only, calculate severance pay at 2.99 times his annual base salary and target EICP award. No change was made in the 2008change-in-control agreements regarding the provision for an excise taxgross-up payment. However, for any futurechange-in-control agreements we may enter into, we do not intend to provide for an excise taxgross-up payment. See the Potential Payments Upon Termination or Change in Control table under “Compensation of Executive Officers” below and the accompanying disclosures for more information regarding thechange-in-control agreements with our Named Executives, as well as other plans and
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arrangements that have different trigger mechanisms that relate to a change in control.
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Retention Agreements. On December 7, 2009, we announced plans to spin off B&W into an independent, publicly traded company. In connection with that announcement, and to ensure retention of key employees and executives through the completion of the separation of B&W from McDermott, on December 10, 2009, we entered into retention agreements with 17 key members of management, including our Named Executives, other than Mr. Deason who had already announced his intention to retire.
Generally, the retention agreements provide either a retention or severance payment to the Named Executives in connection with the proposed separation. The retention agreements generally provide a retention payment in the form of a restricted stock grant made near the time of the separation, that would vest one year following the separation, equal to 100% (149.5% in the case of Mr. Fees) of the sum of the Named Executive’s annual base salary plus target annual incentive. That amount represented one-half of the severance payment that otherwise would be provided under each Named Executive’s retention agreement in the event of a qualifying termination, and discussed below. With respect to Mr. Taff, one-third of his retention payment will be payable in cash on the effective date of the separation, in recognition of his agreement to serve as the Chief Financial Officer of B&W following the separation.
Although the proposed separation would not constitute a change in control for purposes of theChange-in-Control Agreements or other Company compensation plans, the Compensation Committee determined that the need to maintain continuity of management and personnel that exists under a change in control scenario equally existed in connection with the planned separation of B&W. As a result, the retention agreements provide for severance payments that would generally be the same as the severance payments that would be made in connection with a qualifying termination on or following a change in control (other than taxgross-ups). Accordingly, the retention agreements provide for a cash severance payment of two (2.99 for Mr. Fees) times the sum of the Named Executive’s annual base salary and target EICP, prorated target annual incentive compensation and a cash payment equal to two years of medical benefits as well as the full vesting of outstanding long-term incentive grants and SERP balance. The only payment provided for under the retention agreement not otherwise payable in a change in control is the potential early vesting of the Named Executive’s Thrift Plan account. Under the terms of the Thrift Plan, unvested balances would become vested in the event a participant is involuntarily terminated in connection with a reduction in force. Because involuntary terminations for reasons other than cause in connection with the proposed separation generally would be considered to be associated with a reduction in force, the Compensation Committee determined to add the vesting of Thrift Plan accounts to the severance benefits to avoid any ambiguity on that point. The Thrift Plan normally vests after three years of service. As a result of his commencement of employment in 2009, Mr. Johnson is the only Named Executive to which this benefit may be applicable.
Mr. Fees’ retention agreement also contains restrictions on his ability to compete with McDermott (including both B&W and J. Ray), or solicit our employees, for two years following the termination of his employment.
See the Potential Payments Upon Termination or Change in Control table under “Compensation of Executive Officers — Retention Agreements” below and the accompanying disclosures for more information regarding the retention agreements with our Named Executives.
Stock Ownership Guidelines
Overview. To align the interests of directors, executive officers and shareholders, we believe our directors and executive officers should have a significant financial stake in McDermott. To further that goal, we adopted stock ownership guidelines, effective January 1, 2006, requiring generally that our nonmanagement directors and our officers maintain a minimum ownership interest in McDermott. The amount required to be retained varies depending on the executive’s position. The guidelines require our Chief Executive Officer to own and retain a minimum of 100,000 shares of our common stock and our other Named Executives to own and retain at least 35,000 shares. The guidelines require nonmanagement directors to own and retain a minimum of 6,000 shares of our common stock.
Directors and officers have five years from the effective date of the stock ownership guidelines or their initial election as a director/officer, whichever is later, to comply with the guidelines. The Compensation Committee has discretion to waive or modify the stock ownership guidelines for directors and officers.
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Compliance. We assess our Named Executives’ compliance with these guidelines annually. When calculating stock ownership for purposes of these guidelines, we do not include any stock options, even if vested but unexercised. All of our Named Executives are in compliance with these guidelines. Additionally, we have considered these guidelines and believe that the minimum levels continue to be appropriate for our officers and directors at this time.
COMPENSATION COMMITTEE REPORTCompensation Committee Report
We have reviewed and discussed the Compensation Discussion and Analysis with McDermott’s management and, based on our review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
Thomas C. Schievelbein, Chairman
Roger A. Brown
Oliver D. Kingsley, Jr.
David A. Trice
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COMPENSATION OF EXECUTIVE OFFICERSCompensation of Executive Officers
The following table summarizes the prior three years’ compensation of our current and former Chief Executive Officer, our Chief Financial Officer and our three highest paid executive officers who did not serve as our CEO and CFO during 2008, for the fiscal years ended December 31, 2006, December 31, 2007 and December 31, 2008.2009. We refer to these persons as our Named Executives. No compensation information for Mr. Taff is provided for 2006Mr. Johnson for 2007 or 2008 because he became a Named Executivejoined our company in 2007. No compensation information for Mr. Bethards is provided for 2006 or 2007 because he became a Named Executive in 2008.2009.
Summary Compensation Table
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| | | | | | | | | | | | | | Pension
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| | | | | | | | | | | | | | Nonqualified
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| | | | | | | | | | | | Non-Equity
| | Deferred
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| | | | | | | | Stock
| | Option
| | Incentive Plan
| | Compensation
| | All Other
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Name and Principal Position | | Year | | Salary | | Bonus | | Awards | | Awards | | Compensation | | Earnings | | Compensation | | Total |
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J.A. Fees | | | 2008 | | | $ | 592,500 | | | $ | 270,223 | | | $ | 2,013,812 | | | $ | 53,131 | | | $ | 570,803 | | | $ | 143,028 | | | $ | 148,310 | | | $ | 3,791,807 | |
Chief Executive Officer | | | 2007 | | | $ | 515,000 | | | $ | 0 | | | $ | 1,685,149 | | | $ | 169,616 | | | $ | 702,975 | | | $ | 333,153 | | | $ | 57,679 | | | $ | 3,463,572 | |
| | | 2006 | | | $ | 460,000 | | | $ | 0 | | | $ | 722,379 | | | $ | 262,030 | | | $ | 568,100 | | | $ | 367,828 | | | $ | 56,307 | | | $ | 2,436,644 | |
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B.W. Wilkinson | | | 2008 | | | $ | 562,500 | | | $ | 0 | | | $ | 2,299,144 | | | $ | 122,340 | | | $ | 323,550 | | | $ | 69,867 | | | $ | 2,259,830 | | | $ | 5,637,231 | |
Former Chairman & | | | 2007 | | | $ | 750,000 | | | $ | 0 | | | $ | 2,472,448 | | | $ | 392,293 | | | $ | 1,462,500 | | | $ | 107,004 | | | $ | 105,050 | | | $ | 5,289,295 | |
Chief Executive Officer | | | 2006 | | | $ | 750,000 | | | $ | 0 | | | $ | 1,694,958 | | | $ | 620,566 | | | $ | 1,140,000 | | | $ | 158,853 | | | $ | 116,687 | | | $ | 4,481,064 | |
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M.S. Taff | | | 2008 | | | $ | 440,000 | | | $ | 110,000 | | | $ | 914,569 | | | $ | 30,220 | | | $ | 141,207 | | | | N/A | | | $ | 45,757 | | | $ | 1,681,753 | |
Senior Vice President & | | | 2007 | | | $ | 374,999 | | | $ | 0 | | | $ | 648,095 | | | $ | 69,458 | | | $ | 387,563 | | | | N/A | | | $ | 34,211 | | | $ | 1,514,326 | |
Chief Financial Officer | | | 2006 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
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B.C. Bethards | | | 2008 | | | $ | 438,675 | | | $ | 10,000 | | | $ | 842,624 | | | $ | 0 | | | $ | 509,298 | | | $ | 158,014 | | | $ | 54,831 | | | $ | 2,013,442 | |
President & Chief | | | 2007 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Executive Officer, The Babcock & Wilcox Company | | | 2006 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
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R.A. Deason | | | 2008 | | | $ | 540,000 | | | $ | 0 | | | $ | 1,456,797 | | | $ | 47,766 | | | $ | 0 | | | | N/A | | | $ | 117,077 | | | $ | 2,161,640 | |
President & Chief Executive | | | 2007 | | | $ | 485,000 | | | $ | 0 | | | $ | 1,236,539 | | | $ | 152,977 | | | $ | 679,000 | | | | N/A | | | $ | 59,375 | | | $ | 2,612,891 | |
Officer, J. Ray McDermott | | | 2006 | | | $ | 440,000 | | | $ | 0 | | | $ | 478,188 | | | $ | 247,814 | | | $ | 543,400 | | | | N/A | | | $ | 55,751 | | | $ | 1,765,153 | |
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J.T. Nesser, III | | | 2008 | | | $ | 500,000 | | | $ | 100,000 | | | $ | 1,295,766 | | | $ | 37,115 | | | $ | 136,122 | | | $ | 104,864 | | | $ | 74,933 | | | $ | 2,248,800 | |
Executive Vice President & | | | 2007 | | | $ | 475,013 | | | $ | 0 | | | $ | 1,011,166 | | | $ | 120,551 | | | $ | 602,079 | | | $ | 95,660 | | | $ | 46,078 | | | $ | 2,350,547 | |
Chief Operating Officer, J. Ray McDermott | | | 2006 | | | $ | 385,000 | | | $ | 0 | | | $ | 594,535 | | | $ | 196,653 | | | $ | 423,500 | | | $ | 55,341 | | | $ | 42,818 | | | $ | 1,697,847 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Change in
| | | | |
| | | | | | | | | | | | | | Pension
| | | | |
| | | | | | | | | | | | | | Value and
| | | | |
| | | | | | | | | | | | | | Nonqualified
| | | | |
| | | | | | | | | | | | Non-Equity
| | Deferred
| | | | |
| | | | | | | | Stock
| | Option
| | Incentive Plan
| | Compensation
| | All Other
| | |
Name and Principal Position | | Year | | Salary | | Bonus(1) | | Awards(2) | | Awards(3) | | Compensation(4) | | Earnings(5) | | Compensation(6) | | Total |
J.A. Fees | | | 2009 | | | $ | 900,000 | | | $ | 0 | | | $ | 3,543,276 | | | $ | 1,995,846 | | | $ | 1,665,000 | | | $ | 399,782 | | | $ | 111,407 | | | $ | 8,615,311 | |
Chief Executive Officer | | | 2008 | | | $ | 592,500 | | | $ | 270,223 | | | $ | 6,835,450 | | | $ | 0 | | | $ | 570,803 | | | $ | 143,028 | | | $ | 148,310 | | | $ | 8,560,314 | |
| | | 2007 | | | $ | 515,000 | | | $ | 0 | | | $ | 1,431,212 | | | $ | 0 | | | $ | 702,975 | | | $ | 333,153 | | | $ | 57,679 | | | $ | 3,040,019 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
M.S. Taff | | | 2009 | | | $ | 505,000 | | | $ | 0 | | | $ | 980,544 | | | $ | 552,314 | | | $ | 707,000 | | | | N/A | | | $ | 59,315 | | | $ | 2,804,173 | |
Senior Vice President & | | | 2008 | | | $ | 440,000 | | | $ | 110,000 | | | $ | 1,671,638 | | | $ | 0 | | | $ | 141,207 | | | | N/A | | | $ | 45,757 | | | $ | 2,408,602 | |
Chief Financial Officer | | | 2007 | | | $ | 374,999 | | | $ | 0 | | | $ | 742,610 | | | $ | 0 | | | $ | 387,563 | | | | N/A | | | $ | 34,211 | | | $ | 1,539,383 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
B.C. Bethards | | | 2009 | | | $ | 526,200 | | | $ | 0 | | | $ | 840,544 | | | $ | 473,450 | | | $ | 663,012 | | | $ | 305,160 | | | $ | 65,693 | | | $ | 2,874,059 | |
President & Chief | | | 2008 | | | $ | 438,675 | | | $ | 10,000 | | | $ | 1,207,512 | | | $ | 0 | | | $ | 509,298 | | | $ | 158,014 | | | $ | 54,831 | | | $ | 2,378,330 | |
Executive Officer, B&W | | | 2007 | | | $ | 390,000 | | | $ | 0 | | | $ | 999,148 | | | $ | 0 | | | $ | 460,278 | | | $ | 186,071 | | | $ | 43,249 | | | $ | 2,078,746 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
S.M. Johnson | | | 2009 | | | $ | 562,500 | | | $ | 0 | | | $ | 2,664,402 | | | $ | 1,435,394 | | | $ | 1,131,563 | | | | N/A | | | $ | 83,929 | | | $ | 5,877,788 | |
President & Chief | | | 2008 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
Executive Officer, J. Ray | | | 2007 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
R.A. Deason | | | 2009 | | | $ | 555,000 | | | $ | 0 | | | $ | 1,077,000 | | | $ | 0 | | | $ | 777,000 | | | | N/A | | | $ | 124,847 | | | $ | 2,533,847 | |
Former President & Chief | | | 2008 | | | $ | 540,000 | | | $ | 0 | | | $ | 1,847,489 | | | $ | 0 | | | $ | 0 | | | | N/A | | | $ | 117,077 | | | $ | 2,504,566 | |
Executive Officer, J. Ray | | | 2007 | | | $ | 485,000 | | | $ | 0 | | | $ | 1,242,184 | | | $ | 0 | | | $ | 679,000 | | | | N/A | | | $ | 59,375 | | | $ | 2,465,559 | |
| |
(1) | See “Bonus” below for a discussion of the amounts included in this column. |
(2) | See “Stock Awards” below for a discussion of the amounts included in this column. |
(3) | See “Option Awards” below for a discussion of the amounts included in this column. |
(4) | See “Non-Equity Incentive Plan Compensation” below for a discussion of the amounts included in this column. |
(5) | See “Change in Pension Value and Nonqualified Deferred Compensation Earnings” below for a discussion of the amounts included in this column. |
(6) | See “All Other Compensation” below for a discussion of the amounts included in this column. |
Bonus. The amounts reported in the “Bonus” column are attributable to discretionary bonus awards earned in 2008 but paid in 2009. For more information regarding discretionary bonuses, see “Compensation Discussion and Analysis — Annual Bonus — Analysis of 2008 Discretionary Awards” above.awards.
Stock and Option Awards. The amounts reported in the “Stock Awards” column represents the aggregate grant date fair value of stock awards granted in 2009 and “Option Awards” columns representcomputed in accordance with FASB ASC Topic 718. The amounts previously reported for 2007 and 2008 have been recomputed under the associated dollar amounts we recognizedsame standard in the applicable year for financial statement reporting purposes under SFAS No. 123R.accordance with SEC rules. Under SFAS No. 123R,FASB ASC Topic 718, the fair value of equity-classifiedthe stock awards such as restricted stock, performance shares and stock options, is determined on the date of grant and is not remeasured. Grant date fair values are determined using the closing price of our common stock on the date of grant for restricted stock, restricted stock units and performance shares. The grant date fair value of performance shares orincluded in the stock awards is based on target-level performance, which we determined was the probable outcome of performance conditions at the time of grant. Assuming the maximum performance levels were probable, the aggregate grant date fair values of the stock awards would be as follows:
42
Grant Date Fair Value Assuming
Maximum Performance
| | | | | | |
| | | | Grant Date Fair
|
| | | | Value Assuming
|
| | | | Maximum
|
Name | | Year | | Performance Level |
J.A. Fees | | | 2009 | | | $4,842,171 |
| | | 2008 | | | $9,511,135 |
| | | 2007 | | | $2,146,818 |
M.S. Taff | | | 2009 | | | $1,339,993 |
| | | 2008 | | | $2,326,078 |
| | | 2007 | | | $1,113,915 |
| | | | | | |
B.C. Bethards | | | 2009 | | | $1,148,685 |
| | | 2008 | | | $1,580,801 |
| | | 2007 | | | $1,498,722 |
| | | | | | |
S.M. Johnson | | | 2009 | | | $3,641,126 |
| | | 2008 | | | N/A |
| | | 2007 | | | N/A |
R.A. Deason | | | 2009 | | | N/A |
| | | 2008 | | | $2,570,636 |
| | | 2007 | | | $1,863,276 |
See the “Grants of Plan-Based Awards” table for more information regarding the stock awards we granted in 2009.
Option Awards. The amounts reported in the “Option Awards” column represent the aggregate grant date fair value of all option awards granted in 2009 computed in accordance with FASB ASC Topic 718. Under FASB ASC Topic 718, the fair value of stock options is determined on the date of grant using an option-pricing model for stock options.and is not remeasured. We use thea Black-Scholes option-pricing model for measuring the fair value of stock options granted.options. The determination of the fair value of an award on the date of grant using an option-pricing model requires various assumptions, such as the expected life of the award and stock price volatility. For a discussion of the valuation assumptions, see Note 109 to our consolidated financial statements included in our annual report onForm 10-K for the year ended December 31, 2008. For liability-classified awards, such as cash-settled deferred stock units, fair values are determined based on the closing price of our common stock on the grant date and are remeasured based on the closing price of our common stock at the end of each reporting period through the date of settlement. 2009.
See the “Grants of Plan-Based Awards” table for more information regarding the stockoption awards we granted in 2008.2009.
35
Non-Equity Incentive Plan Compensation. The amounts reported in the “Non-Equity Incentive Plan Compensation” column are attributable to the EICPannual incentive awards earned in fiscal years 2006, 2007 and 2008, but paid in 2007, 2008 and 2009, but paid in 2008, 2009 and 2010, respectively. See the “Grants of Plan-Based Awards” table for more information regarding the annual incentive awards earned in 2009.
Change in Pension Value and Nonqualified Deferred Compensation Earnings. The amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column represent the changes in actuarial present values of the accumulated benefits under defined benefit plans: at December 31, 2006, as compared to December 31, 2005, forplans, determined by comparing the prior completed fiscal year 2006; at December 31, 2007, as comparedend amount to December 31, 2006, forthe covered fiscal year 2007; and at December 31, 2008, as compared to December 31, 2007, for fiscal year 2008.end amount.
All Other Compensation. The amounts reported for 20082009 in the “All Other Compensation” column are attributable to the following:
All Other Compensation
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Service-Based
| | | | | | | | | | |
| | SERP
| | | Thrift
| | | Thrift
| | | Tax
| | | | | | | |
| | Contribution | | | Match | | | Contribution | | | Gross-Ups | | | Perquisites | | | Other | |
|
J.A. Fees | | $ | 54,155 | | | $ | 10,601 | | | | — | | | $ | 15,280 | | | $ | 68,274 | | | | — | |
B.W. Wilkinson | | $ | 94,500 | | | $ | 4,688 | | | $ | 9,200 | | | | — | | | | — | | | $ | 2,151,442 | |
M.S. Taff | | $ | 31,125 | | | $ | 6,902 | | | $ | 6,904 | | | $ | 826 | | | | — | | | | — | |
B.C. Bethards | | $ | 31,042 | | | $ | 4,603 | | | | — | | | $ | 1,020 | | | $ | 18,166 | | | | — | |
R.A. Deason | | $ | 51,400 | | | $ | 4,691 | | | | — | | | $ | 25,220 | | | $ | 35,766 | | | | — | |
J.T. Nesser, III | | $ | 44,926 | | | $ | 6,629 | | | | — | | | $ | 8,213 | | | $ | 15,165 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Service-Based
| | | | |
| | | | | | Thrift
| | | | |
| | SERP Contribution | | Thrift Match | | Contribution | | Tax Gross-Ups | | Perquisites |
J.A. Fees | | $ | 64,774 | | | $ | 7,350 | | | | — | | | $ | 11,501 | | | $ | 27,782 | |
| | | | | | | | | | | | | | | | | | | | |
M.S. Taff | | $ | 41,378 | | | $ | 7,358 | | | $ | 7,358 | | | $ | 3,221 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
B.C. Bethards | | $ | 44,948 | | | $ | 4,906 | | | | — | | | $ | 1,144 | | | $ | 14,695 | |
| | | | | | | | | | | | | | | | | | | | |
S.M. Johnson | | | — | | | $ | 6,342 | | | $ | 7,280 | | | $ | 17,111 | | | $ | 53,196 | |
| | | | | | | | | | | | | | | | | | | | |
R.A. Deason | | $ | 60,950 | | | $ | 4,968 | | | $ | 7,353 | | | $ | 18,620 | | | $ | 32,956 | |
SERP. See the “Nonqualified Deferred Compensation” table for more information regarding the SERP contributions made in 2009.
Thrift Match and Service-Based Thrift Contribution. We refer to our defined contribution plan as our Thrift Plan. For information regarding our Thrift Plan matching contributions and service-based Thrift Plan contributions, see “Compensation Discussion and Analysis — PostemploymentPost-employment Compensation — Retirement Plans” above.
43
TaxGross-Ups. The taxgross-ups reported for 20082009 under “All Other Compensation” are attributable to the following:
| | |
| • | Mr. Fees: Mr. Fees received taxgross-ups of $14,587 associated with income imputed to him as a result of his relocation from Virginia to Texas, following his appointment as Chief Executive Officer of McDermott. In addition, Mr. Fees received a taxgross-up of $693 attributable to income imputed to him as a result of his spouse accompanying him on business travel. |
|
| • | Mr. Taff: Mr. Taff received a taxgross-upgross-ups associated with income imputed to him as a result of his spouse accompanying him on business travel. |
|
| • | Mr. Bethards: Mr. Bethards received taxgross-ups associated with income imputed to him as a result of his spouse accompanying him on business travel and as a result of a gift received at a management meeting. |
|
• | Mr. Johnson: Mr. Johnson received taxgross-ups associated with income imputed to him as a result of his relocation from OhioIdaho to Virginia,Texas, following his appointment as Chief ExecutiveOperating Officer of The Babcock & Wilcox Company.McDermott. |
|
| • | Mr. Deason: Mr. Deason received taxgross-ups associated with income imputed to him as a result of his spouse accompanying him on business travel. |
|
| • | Mr. Nesser: Mr. Nesser received taxgross-ups associated with income imputed to him as a result of his spouse accompanying him on business travel. |
Perquisites. Perquisites and other personal benefits received by a Named Executive are not included if their aggregate value does not exceed $10,000. For Messrs. Fees, Bethards, Deason and Deason,Johnson, the values of the perquisites and other personal benefits reported for 20082009 are as follows:
| | |
| • | Mr. Fees: $60,475$22,577 is attributable to the costs of providing him relocation assistance in connection with his move from Virginia to Texas. The remainder is attributable to the cost of a club membership anddues, the costs resulting from his spouse accompanying him on business travel. |
36
| | travel and the cost of promotional merchandise in connection with a board of directors meeting. |
|
• | Mr. Bethards: $17,070$12,474 is attributable to the costs of providing him relocation assistance in connection with his move from Ohio to Virginia.Virginia following his appointment as Chief Executive Officer of B&W. The remainder is attributable to the cost of club dues and the cost of promotional merchandise in connection with a board of directors meeting. |
|
• | Mr. Johnson: $52,936 is attributable to the costs of providing him relocation assistance in connection with his move from Idaho to Texas. The remainder is attributable to the cost of promotional merchandise in connection with a board of directors meeting. |
|
• | Mr. Deason: $32,696 is attributable to the costs resulting from his spouse accompanying him on business travel. |
|
| • | Mr. Deason: This amount The remainder is attributable to the costs resulting from his spouse accompanying him on business travel. |
|
| • | Mr. Nesser: This amount is attributable to the costs resulting from his spouse accompanying him on business travel.cost of promotional merchandise in connection with a board of directors meeting. |
Other. The amounts reported for Mr. Wilkinson include $57,692 of accrued but unused vacation and $2,093,750 paid by us for consulting services pursuant to a Consultancy Agreement. For more information regarding Mr. Wilkinson’s Consultancy Agreement, see “Potential Payments Upon Termination or Change in Control” below.
3744
Grants of Plan-Based Awards
The following Grants of Plan-Based Awards table provides additional information about stock awards and equity and non-equity incentive plan awards granted to our Named Executives during the year ended December 31, 2008.2009.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | All Other
| | | All Other
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Stock
| | | Option
| | | | | | Grant
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | Awards:
| | | Awards:
| | | Exercise
| | | Date Fair
| |
| | | | | | | | Estimated Possible Payouts Under
| | | Estimated Future Payouts Under
| | | Number of
| | | Number of
| | | or Base
| | | Value of
| |
| | | | | Committee
| | | Non-Equity Incentive Plan Awards | | | Equity Incentive Plan Awards | | | Shares of
| | | Securities
| | | Price of
| | | Stock and
| |
| | Grant
| | | Action
| | | | | | | | | | | | Threshold
| | | Target
| | | Maximum
| | | Stock
| | | Underlying
| | | Option
| | | Option
| |
Name | | Date | | | Date | | | Threshold | | | Target | | | Maximum | | | (#) | | | (#) | | | (#) | | | or Units | | | Options | | | Awards | | | Awards | |
|
J.A. Fees | | | 02/25/08 | | | | 02/25/08 | | | $ | 100,088 | | | $ | 471,000 | | | $ | 942,000 | | | | 8,327 | | | | 33,310 | | | | 49,965 | | | | — | | | | — | | | | — | | | $ | 1,753,772 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 9,240 | | | | — | | | | — | | | $ | 486,486 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | 36,135 | | | | 144,540 | | | | 216,810 | | | | — | | | | — | | | | — | | | $ | 3,597,601 | |
| | | 10/01/08 | | | | 09/03/08 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 40,080 | | | | — | | | | — | | | $ | 997,591 | |
| | | 10/01/08 | | | | 09/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
B.W. Wilkinson | | | 02/25/08 | | | | 02/25/08 | | | $ | 159,375 | | | $ | 750,000 | | | $ | 1,500,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
M.S. Taff | | | 02/25/08 | | | | 02/25/08 | | | $ | 51,425 | | | $ | 242,000 | | | $ | 484,000 | | | | 6,215 | | | | 24,860 | | | | 37,290 | | | | — | | | | — | | | | — | | | $ | 1,308,879 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 6,890 | | | | — | | | | — | | | $ | 362,759 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
B.C. Bethards | | | 02/25/08 | | | | 02/25/08 | | | $ | 58,727 | | | $ | 276,360 | | | $ | 552,720 | | | | 3,545 | | | | 14,180 | | | | 21,270 | | | | — | | | | — | | | | — | | | $ | 746,577 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 3,930 | | | | — | | | | — | | | $ | 206,915 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 26,000 | | | | — | | | | — | | | $ | 254,020 | |
| | | 11/10/08 | | | | 11/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
R.A. Deason | | | 02/25/08 | | | | 02/25/08 | | | $ | 80,325 | | | $ | 378,000 | | | $ | 756,000 | | | | 6,867 | | | | 27,470 | | | | 41,205 | | | | — | | | | — | | | | — | | | $ | 1,446,296 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 7,620 | | | | — | | | | — | | | $ | 401,193 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
J.T. Nesser, III | | | 02/25/08 | | | | 02/25/08 | | | $ | 70,391 | | | $ | 331,250 | | | $ | 662,500 | | | | 6,492 | | | | 25,970 | | | | 38,955 | | | | — | | | | — | | | | — | | | $ | 1,367,321 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 7,200 | | | | — | | | | — | | | $ | 379,080 | |
| | | 03/03/08 | | | | 02/25/08 | | | | | | | | | | | | | | | | 5,232 | | | | 20,930 | | | | 31,395 | | | | — | | | | — | | | | — | | | $ | 744,062 | |
| | | 08/14/08 | | | | 08/07/08 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 5,810 | | | | — | | | | — | | | $ | 206,546 | |
| | | 08/14/08 | | | | 08/07/08 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | All Other
| | | All Other
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Stock
| | | Option
| | | | | | | |
| | | | | | | | Estimated Possible Payouts Under
| | | Estimated Future Payouts Under
| | | Awards:
| | | Awards:
| | | Exercise
| | | Grant Date
| |
| | | | | | | | Non-Equity Incentive Plan Awards
| | | Equity Incentive Plan Awards
| | | Number of
| | | Number of
| | | or Base
| | | Fair Value
| |
| | | | | Committee
| | | (1) | | | (2) | | | Shares of
| | | Securities
| | | Price of
| | | of Stock and
| |
| | | | | Action
| | | | | | | | | | | | Threshold
| | | Target
| | | Maximum
| | | Stock
| | | Underlying
| | | Option
| | | Option
| |
Name | | Grant Date | | | Date | | | Threshold | | | Target | | | Maximum | | | (#) | | | (#) | | | (#) | | | or Units(3) | | | Options(4) | | | Awards | | | Awards(5) | |
J.A. Fees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 02/26/09 | | | | 02/26/09 | | | $ | 157,500 | | | $ | 900,000 | | | $ | 1,800,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | 30,150 | | | | 120,603 | | | | 241,206 | | | | — | | | | — | | | | — | | | $ | 1,298,894 | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 208,392 | | | | — | | | | — | | | $ | 2,244,382 | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 295,716 | | | $ | 10.93 | | | $ | 1,995,846 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
M.S. Taff | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 02/26/09 | | | | 02/26/09 | | | $ | 61,863 | | | $ | 353,500 | | | $ | 707,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | 8,343 | | | | 33,375 | | | | 66,750 | | | | — | | | | — | | | | — | | | $ | 359,449 | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 57,669 | | | | — | | | | — | | | $ | 621,095 | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 81,834 | | | $ | 10.93 | | | $ | 552,314 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
B.C. Bethards | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 02/26/09 | | | | 02/26/09 | | | $ | 64,460 | | | $ | 368,340 | | | $ | 736,680 | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | 7,152 | | | | 28,611 | | | | 57,222 | | | | — | | | | — | | | | — | | | $ | 308,140 | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 49,434 | | | | — | | | | — | | | $ | 532,404 | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 70,149 | | | $ | 10.93 | | | $ | 473,450 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
S.M. Johnson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 05/07/09 | | | | 05/07/09 | | | $ | 111,563 | | | $ | 637,500 | | | $ | 1,275,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| | | 05/14/09 | | | | 05/07/09 | | | | | | | | | | | | | | | | 13,453 | | | | 53,814 | | | | 107,628 | | | | — | | | | — | | | | — | | | $ | 976,724 | |
| | | 05/14/09 | | | | 05/07/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 92,985 | | | | — | | | | — | | | $ | 1,687,678 | |
| | | 05/14/09 | | | | 05/07/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 131,949 | | | $ | 18.15 | | | $ | 1,435,394 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
R.A. Deason | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 02/26/09 | | | | 02/26/09 | | | $ | 67,988 | | | $ | 388,500 | | | $ | 777,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| | | 03/05/09 | | | | 02/26/09 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 100,000 | | | | — | | | | — | | | $ | 1,077,000 | |
| |
(1) | See “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” below for a discussion of the amounts included in this column. |
(2) | See “Estimated Future Payouts Under Equity Incentive Plan Awards” below for a discussion of the amounts included in this column. |
(3) | See “All Other Stock Awards” below for a discussion of the amounts included in this column. |
(4) | See “All Other Option Awards” below for a discussion of the amounts included in this column. |
(5) | See “Grant Date Fair Value of Stock and Option Awards” below for a discussion of the amounts included in this column. |
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards
Our Compensation Committee administers the Executive Incentive Compensation Plan, aan annual cash bonus incentive program, which we refer to as the EICP. The payment amount, if any, of an EICP award is determined based on: (1) the attainment of short-term financial goals; (2) the attainment of short-term individual goals; and (3) the exercise of the Compensation Committee’s discretionary authority. Each year, our Compensation Committee establishes financial goals and, with respect to our Chief Executive Officer, individual goals. Our Chief Executive Officer establishes individual goals for the other Named Executives.
The financial goals contain threshold, target and maximum performance levels which, if achieved, result in payments of 25%, 100% and 200% of the financial component, respectively. If the threshold financial goal is not achieved, no amount is paid on an EICP award under the financial component. For purposes of evaluating McDermott’s performance under the financial performance component, our Compensation Committee may adjust our results prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for unusual, nonrecurring or
45
other items in the Committee’s discretion. Payment is made on an EICP award under the individual component based on the attainment of the Named Executive’s individual goals as determined and evaluated by our Chief Executive Officer.Officer or, with respect to our Chief Executive Officer, by our Governance Committee. In addition, our Compensation Committee may increase or decrease an EICP award in its discretion. The maximum EICP award a Named Executive can earn is 200% of his target EICP award.
The amounts shown reflect grants of 20082009 EICP awards. In February 2008, ourOur Compensation Committee established target EICP awards expressed as a percentage of the Named Executive’s 20082009 base salary. The amount shown in the “target” column represents the value of the target EICP award determined by multiplying the target percentage established for each Named Executive by the Named Executive’s 20082009 base salary. For 2008,2009, the target
38
percentage of base salary for each Named Executive was as follows: 79%100% for Mr. Fees, 100% for Mr. Wilkinson, 55%70% for Mr. Taff, 63%70% for Mr. Bethards, 85% for Mr. Johnson and 70% for Mr. Deason and 66% for Mr. Nesser. Effective October 1, 2008, Messrs. Fees, Bethards and Nesser were promoted to new positions within our organization. As a result, their respective target EICP awards represent composites of their respective EICP target awards under their former and current positions, prorated based on the length of service in each position during 2008. Based upon this formula, Mr. Fees’ 2008 EICP target amount represents the combined prorated target award of his EICP target as President and Chief Executive Officer of The Babcock & Wilcox Company (three-fourths of 70% of $540,000) and as Chief Executive Officer of McDermott (one-fourth of 100% of $750,000). Mr. Bethard’s 2008 EICP target amount represents the combined prorated target award of his EICP target as President of Babcock & Wilcox Power Generation Group, Inc. (three-fourths of 60% of $409,500) and as President and Chief Executive Officer of The Babcock & Wilcox Company (one-fourth of 70% of $526,200). Mr. Nesser’s 2008 EICP target amount represents the combined prorated target award of his EICP target as Executive Vice President, Chief Administrative and Legal Officer of McDermott (three-fourths of 65% of $500,000) and Executive Vice President and Chief Operating Officer of J. Ray McDermott, S.A. (one-fourth of 70% of $500,000).Deason. The amount shown in the “maximum” column represents the maximum amount payable under the EICP, which is 200% of the target amount shown. The amount shown in the “threshold” column represents the amount payable under the EICP assuming the threshold level of the financial goals, but no individual goal, is attained and our Compensation Committee did not exercise any discretion over the EICP award. The financial goal represents 85%70% of the target EICP award. Attaining only the threshold level, or 25%, of the financial goal results in an EICP payment of 21.25%17.50% of the target EICP award. See “Compensation Discussion and Analysis — Annual Bonus” on page 23Incentive Compensation” above for more information about the 20082009 EICP awards and performance goals.
On September 30, 2008, Mr. Wilkinson entered into a Separation Agreement. Under the terms of that agreement, Mr. Wilkinson is only entitled to receive a prorated EICP award based on his 2008 employment. As a result, his threshold, target and maximum award are three fourths of the amounts show in the table. See “Potential Payments Upon Termination or Change in Control” below for more information regarding Mr. Wilkinson’s Separation Agreement.
Estimated Future Payouts Under Equity Incentive Plan Awards
The amounts shown reflect grants of Performance Sharesperformance shares under our 2001 D&O Plan.Plan, with the exception of grants made to Mr. Johnson, which were made under the 2009 LTIP, which was approved by stockholders on May 8, 2009. Each grant represents a right to receive one share of McDermott common stock for each vested performance share. The amount of performance shares that vest, if any, willis scheduled to be determined on the third anniversary of the date of grant based (1) one-half on our cumulative operating income between January 1, 20082009 and December 31, 2010.2011, and (2) one-half on our total shareholder return relative to the Custom Peer Group described in “Compensation Discussion and Analysis — Overview of Compensation Programs and Objectives — Defining Market Range Compensation — Benchmarking” during the same period. For purposes of evaluating McDermott’s cumulative operating income, our Compensation Committee may adjust our results prepared in accordance with GAAP for unusual, non-recurring or other items in the Committee’s discretion. The amounts shown in the “target” column represent the number of performance shares granted, which will vest under each grant if both the target level of cumulative operating income is attained.attained and our total shareholder return ranks in the 50th percentile relative to the Custom Peer Group. The amounts shown in the “maximum” column represent the number of performance shares that will vest, under each grant, which is 150%200% of the amount granted, if both the maximum level of cumulative operating income is attained.attained and our total shareholder return ranks first or second in total shareholder return relative to the Custom Peer Group. The amounts shown in the “threshold” column represent the number of performance shares that will vest, under each grant, which is 25% of the amount granted, if both the minimum level of cumulative operating income is attained.attained and our total shareholder return ranks in the 25th percentile relative to the Custom Peer Group. No amount of performance shares will vest if the cumulative operating income achieved is less than the minimum performance level.level and our total shareholder return ranks in less than the 25th percentile relative to the Custom Peer Group. See “Compensation Discussion and Analysis — Equity-BasedLong-Term Incentive Compensation” on page 29above for more information regarding the 2008 Performance Shares and threshold, target and maximum operating income2009 performance levels.shares.
All Other Stock Awards
The amounts shown reflect grants of Restricted Stockrestricted stock units under our 2001 D&O Plan. The sharesPlan, with the exception of Restricted Stock willthe grant to Mr. Johnson, which was made under the 2009 LTIP. Each restricted stock unit represents the right to receive one share of McDermott common stock and are generally scheduled to vest in one-third increments on the first, second and third anniversaries of the date of grant. Upon vesting, the restricted stock units are converted into shares of Restricted Stock are released and the restrictions on the stock are removed.McDermott common stock. See “Compensation Discussion and Analysis — Equity-BasedLong-Term Incentive Compensation” on page 29above for more information regarding the 2008 Restricted Stock.2009 restricted stock units.
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All Other Option Awards
The amounts shown reflect grants of stock options under our 2001 D&O Plan, with the exception of the grant to Mr. Johnson, which was made under the 2009 LTIP. Each grant represents the right to purchase at the exercise price shares of McDermott common stock over a period of seven years. The stock options are generally scheduled to vest and become exercisable in one-third increments on the first, second and third anniversaries of the date of grant. See “Compensation Discussion and Analysis — Long-Term Incentive Compensation” above for more information regarding the 2009 stock options.
Grant Date Fair Value of Stock and Option Awards
The amounts included in the “Grant Date Fair Value of Stock and Option Awards” column represent the full grant date fair values of the equity awards computed in accordance with SFAS No. 123R.FASB ASC Topic 718. Under SFAS No. 123R,FASB ASC Topic 718, the fair value of equity awards such as performance shares, is determined on the date of grant and is not remeasured. Grant date fair values are determined using the closing price of our common stock on the date of grant.grant for restricted stock, restricted stock units and performance shares, and an option-pricing model for stock options. We use a Black-Scholes option-pricing model for measuring the fair value of stock options granted. The determination of the fair value of an award on the date of grant using an option-pricing model requires various assumptions, such as the expected life of the award and stock price volatility. For more information regarding the compensation expense related to 2008 performance shares2009 awards, and other awards,a discussion of valuation assumptions utilized in option pricing, see Note 109 to our consolidated financial statements included in our annual report onForm 10-K for the year ended December 31, 2008.2009.
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Outstanding Equity Awards at Fiscal Year-End
The following Outstanding Equity Awards at Fiscal Year-End table summarizes the equity awards we have made to our Named Executives which were outstanding as of December 31, 2008.2009.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | | Stock Awards |
| | | | | | | | | | | | | | | | | Equity
| | Equity
|
| | | | | | Equity
| | | | | | | | | | | Incentive
| | Incentive
|
| | | | | | Incentive
| | | | | | | | | | | Plan Awards:
| | Plan Awards:
|
| | | | | | Plan Awards:
| | | | | | | | | | | Number of
| | Market or
|
| | Number of
| | Number of
| | Number of
| | | | | | | Number of
| | | | Unearned
| | Payout Value
|
| | Securities
| | Securities
| | Securities
| | | | | | | Shares or
| | | | Shares, Units
| | of Unearned
|
| | Underlying
| | Underlying
| | Underlying
| | | | | | | Units of
| | Market Value of
| | or Other
| | Shares, Units
|
| | Unexercised
| | Unexercised
| | Unexercised
| | Option
| | Option
| | | Stock that
| | Shares or Units of
| | Rights that
| | or Other
|
| | Options
| | Options
| | Unearned
| | Exercise
| | Expiration
| | | have not
| | Stock that have
| | have not
| | Rights that
|
Name | | Exercisable | | Unexercisable | | Options | | Price | | Date | | | Vested | | not Vested | | Vested | | have not Vested |
J.A. Fees | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 58,500 | | | $ | 577,980.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 36,000 | | | $ | 355,680.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 9,240 | | | $ | 91,291.20 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 40,080 | | | $ | 395,990.40 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 18,300 | | | $ | 180,804.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 42,400 | | | $ | 418,912.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,327 | | | $ | 82,270.76 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 36,135 | | | $ | 357,013.80 | |
B.W. Wilkinson | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 90,000 | | | $ | 889,200.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 42,132 | | | $ | 416,264.16 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 56,000 | | | $ | 553,280.00 | |
M.S. Taff | | | 23,000 | | | | — | | | | — | | | $ | 7.1933 | | | | 06/08/15 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 24,750 | | | $ | 244,530.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 6,890 | | | $ | 68,073.20 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 9,000 | | | $ | 88,920.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 22,000 | | | $ | 217,360.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,215 | | | $ | 61,404.20 | |
B.C. Bethards | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 22,500 | | | $ | 222,300.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 3,930 | | | $ | 38,828.40 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 26,000 | | | $ | 256,880.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,600 | | | $ | 292,448.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,545 | | | $ | 35,024.60 | |
R.A. Deason | | | 30,540 | | | | — | | | | — | | | $ | 6.7267 | | | | 05/12/15 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 54,000 | | | $ | 533,520.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 7,620 | | | $ | 75,285.60 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 16,452 | | | $ | 162,545.76 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 36,800 | | | $ | 363,584.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,867 | | | $ | 67,845.96 | |
J.T. Nesser, III | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 40,500 | | | $ | 400,140.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 7,200 | | | $ | 71,136.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 5,810 | | | $ | 57,402.80 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | 12,780 | | | $ | 126,266.40 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 35,000 | | | $ | 345,800.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,492 | | | $ | 64,140.96 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,232 | | | $ | 51,692.16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | Option Awards (1) | | | | Stock Awards (2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incentive
| |
| | | | | | | | | | | | | Equity
| | | | | | | | | | | | | | | | Equity
| | | Plan Awards:
| |
| | | | | | | | | | | | | Incentive
| | | | | | | | | | | | | | | | Incentive
| | | Market or
| |
| | | | | | | | | | | | | Plan
| | | | | | | | | | | | | | | | Plan Awards:
| | | Payout Value
| |
| | | | | | | | | | | | | Awards:
| | | | | | | | | | | | | | | | Number of
| | | of Unearned
| |
| | | | | | | Number of
| | | Number of
| | | Number of
| | | | | | | | | | Number of
| | | | | | Unearned
| | | Shares, Units
| |
| | | | | | | Securities
| | | Securities
| | | Securities
| | | | | | | | | | Shares or
| | | Market Value of
| | | Shares, Units
| | | or Other
| |
| | | | | | | Underlying
| | | Underlying
| | | Underlying
| | | | | | | | | | Units of
| | | Shares or Units of
| | | or Other
| | | Rights That
| |
| | | | | | | Unexercised
| | | Unexercised
| | | Unexercised
| | | Option
| | | Option
| | | | Stock That
| | | Stock That Have
| | | Rights That
| | | Have Not
| |
| | | | | | | Options
| | | Options
| | | Unearned
| | | Exercise
| | | Expiration
| | | | Have Not
| | | Not Vested
| | | Have Not
| | | Vested
| |
Name | | | Grant Date | | | | Exercisable | | | Unexercisable | | | Options | | | Price | | | Date | | | | Vested | | | (3) | | | Vested | | | (3) | |
J.A. Fees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options | | | | 03/05/09 | | | | | — | | | | 295,716 | | | | — | | | $ | 10.9300 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | |
DSU | | | | 05/12/05 | | | | | | | | | | | | | | | | | | | | | | | | | | 9,150 | | | $ | 219,692 | | | | | | | | | |
Performance Shares | | | | 05/10/07 | | | | | | | | | | | | | | | | | | | | | | | | | | 63,600 | | | $ | 1,527,036 | | | | | | | | | |
Restricted Stock | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 6,160 | | | $ | 147,902 | | | | | | | | | |
Performance Shares | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 8,327 | | | $ | 199,931 | |
Restricted Stock | | | | 10/01/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 26,720 | | | $ | 641,547 | | | | — | | | | — | |
Performance Shares | | | | 10/01/08 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 36,135 | | | $ | 867,601 | |
RSU | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 208,392 | | | $ | 5,003,492 | | | | — | | | | — | |
Performance Shares | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 241,206 | | | $ | 5,791,356 | |
M.S. Taff | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options | | | | 06/08/05 | | | | | 23,000 | | | | — | | | | | | | $ | 7.1933 | | | | 06/08/15 | | | | | | | | | | | | | | | | | | |
Stock Options | | | | 03/05/09 | | | | | — | | | | 81,834 | | | | — | | | $ | 10.9300 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | |
DSU | | | | 06/08/05 | | | | | | | | | | | | | | | | | | | | | | | | | | 4,500 | | | $ | 108,045 | | | | | | | | | |
Performance Shares | | | | 05/10/07 | | | | | | | | | | | | | | | | | | | | | | | | | | 33,000 | | | $ | 792,330 | | | | | | | | | |
Restricted Stock | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 4,593 | | | $ | 110,278 | | | | | | | | | |
Performance Shares | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 6,215 | | | $ | 149,222 | |
RSU | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 57,669 | | | $ | 1,384,633 | | | | — | | | | — | |
Performance Shares | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 66,750 | | | $ | 1,602,668 | |
B.C. Bethards | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options | | | | 03/05/09 | | | | | — | | | | 70,149 | | | | — | | | $ | 10.9300 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | |
Performance Shares | | | | 05/10/07 | | | | | | | | | | | | | | | | | | | | | | | | | | 44,400 | | | $ | 1,066,044 | | | | | | | | | |
Restricted Stock | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 2,620 | | | $ | 62,906 | | | | | | | | | |
Performance Shares | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 3,545 | | | $ | 85,115 | |
Restricted Stock | | | | 11/10/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 17,333 | | | $ | 416,165 | | | | — | | | | — | |
RSU | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 49,434 | | | $ | 1,186,910 | | | | — | | | | — | |
Performance Shares | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 57,222 | | | $ | 1,373,900 | |
S.M. Johnson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options | | | | 05/14/09 | | | | | — | | | | 131,949 | | | | — | | | $ | 18.1500 | | | | 05/14/16 | | | | | | | | | | | | | | | | | | |
RSU | | | | 05/14/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 92,985 | | | $ | 2,232,570 | | | | | | | | | |
Performance Shares | | | | 05/14/09 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 107,628 | | | $ | 2,584,148 | |
R.A. Deason | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options | | | | 05/12/05 | | | | | 30,540 | | | | — | | | | — | | | $ | 6.7267 | | | | 05/12/15 | | | | | | | | | | | | | | | | | | |
DSU | | | | 05/12/05 | | | | | | | | | | | | | | | | | | | | | | | | | | 8,226 | | | $ | 197,506 | | | | | | | | | |
Performance Shares | | | | 05/10/07 | | | | | | | | | | | | | | | | | | | | | | | | | | 55,200 | | | $ | 1,325,352 | | | | | | | | | |
Restricted Stock | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 5,080 | | | $ | 121,971 | | | | | | | | | |
Performance Shares | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,867 | | | $ | 164,877 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | See “Option Awards” below for a discussion of the amounts reported in this column including the vesting dates of unexercisable option awards. |
|
(2) | | See “Stock Awards” below for a discussion of the amounts reported in this column including the vesting dates of outstanding stock awards. |
|
(3) | | Market values in these columns are based on the closing price of our common stock as of December 31, 2009 ($24.01), as reported on the New York Stock Exchange. |
48
Option Awards. Information presented in the “Option Awards” columns relates to options to purchase shares of our common stock held by our Named Executives as of December 31, 2008.2009. All unexercisable options were granted ten years prior to the option expiration date reported andgenerally vest in three equal installments on the first, second and third anniversaries of the grant date. All options held by our Named Executives are fully vested. As of December 31, 2008, we had not granted any options to our Named Executives since 2005.date, as follows:
| | |
Grant Date | | One-third of Grant Vests on: |
|
|
03/05/09 | | March 5, 2010, 2011 and 2012 |
05/14/09 | | May 14, 2010, 2011 and 2012 |
Stock Awards. Information presented in the Stock Awards columns relates to awards of restricted stock, restricted stock units, deferred stock units and performance shares held by our Named Executives as of December 31, 2008.2009. The awards reported in the “Equity Incentive Plan Awards” columns consist entirely of performance shares. Performance shares
41
where the performancestock awards subject to performance-based conditions have been satisfied, restricted stock and deferred stock units areas of December 31, 2009. The awards reported in the “Number of Shares or Units of Stock that have not Vested” column.column reflect stock awards subject to service-based vesting, including performance shares whose performance conditions have been satisfied as of December 31, 2009.
Restricted Stock.Stock Awards. Shares of restricted stock willare generally scheduled to vest in one-third increments on the first, second and third anniversaries of the dategrant date. The vesting schedule of grant. The market value ofthe restricted stock reported in the Stock Awards column is based on the closing price of our common stockoutstanding as of December 31, 2008 ($9.88), as reported on the New York Stock Exchange. The shares reported in the Stock Awards column attributable to restricted stock are2009 is as follows:
Restricted Stock Awards
| | |
Grant Date | | One-third of Grant Vests on: |
|
|
03/03/08 | | March 3, 2010 and 2011 |
10/01/08 | | October 1, 2010 and 2011 |
11/10/08 | | November 10, 2010 and 2011 |
Restricted Stock Units. Restricted stock units represent the right to receive one share of our common stock for each vested restricted stock unit. Restricted stock units outstanding as of December 31, 2009 are generally scheduled to vest in one-third increments on the first, second and third anniversaries of the grant date, as follows:
| | |
Grant Date | | NumberOne-third of
| | | |
| | Unvested Shares of
| | | |
Name
| | Restricted Stock | | | Vesting Date Grant Vests on: |
|
J.A. Fees |
03/05/09 | | March 5, 2010, 2011 and 2012 |
9,24005/14/09 | | | 3,080 shares vest each year on
March 3, 2009,May 14, 2010, 2011 and 2011 |
| | | 40,080 | | | 13,360 shares vest each year on
Oct. 1, 2009, 2010 and 2011 |
B.W. Wilkinson | | | — | | | — |
M.S. Taff | | | 6,890 | | | 2,296 shares vest on March 3, 2009;
2,297 shares vest on March 3, 2010;
2,296 shares vest on March 3, 2011 |
B.C. Bethards | | | 3,930 | | | 1,310 shares vest each year on
March 3, 2009, 2010 and 2011 |
| | | 26,000 | | | 8,667 shares vest on Nov. 10, 2009;
8,666 shares vest on Nov. 10, 2010;
8,667 shares vest on Nov. 10, 2011 |
R.A. Deason | | | 7,620 | | | 2,540 shares vest each year on
March 3, 2009, 2010 and 2011 |
J.T. Nesser, III | | | 7,200 | | | 2,400 shares vest each year on
March 3, 2009, 2010 and 2011 |
| | | 5,810 | | | 1,937 shares vest on Aug. 14, 2009;
1,936 shares vest on Aug. 14, 2010;
1,937 shares vest on Aug. 14, 20112012 |
Deferred Stock Units. Deferred stock units are settled in cash in an amount equal to the number of vested units multiplied by the average of the highest and lowest price of our common stock on the date of vesting. Deferred stock units are generally scheduled to vest in five equal installments on each anniversary of the date of grant. The market valuevesting schedule of the deferred stock units reported in the Stock Awards column is based on the closing price of our common stockoutstanding as of December 31, 2008 ($9.88), as reported on the New York Stock Exchange. The amounts of Stock Awards reported in the Stock Awards column attributable to deferred stock units are2009 is as follows:
Deferred Stock Units
| | |
Grant Date | | | |
| | NumberOne-fifth of
| | | |
| | Unvested Deferred
| | | |
Name
| | Stock Units | | | Vesting Date Grant Vests on: |
|
J.A. Fees |
05/12/05 | | May 12, 2010 |
18,30006/08/05 | | | 9,150 units vest each year on
May 12, 2009 and 2010 |
B.W. Wilkinson | | | 42,132 | | | 21,066 units vest each year on
May 12, 2009 and 2010 |
M.S. Taff | | | 9,000 | | | 4,500 units vest each year on
May 12, 2009 and 2010 |
B.C. Bethards | | | — | | | — |
R.A. Deason | | | 16,452 | | | 8,226 units vest each year on
May 12, 2009 and 2010 |
J.T. Nesser III | | | 12,780 | | | 6,390 units vest each year on
May 12, 2009 andJune 8, 2010 |
42
Performance Shares. Performance share awardsshares represent the right to receive one share of our common stock for each performance share that becomes vested on the third anniversary of the date of grant.vests. The number of performance shares that vest depends on the attainment of specified performance levels.goals. The number and value reported under the Stock Awards column for the 2006of performance shares reported is based on achieving threshold performance levels, unless the previous year’s performance level exceeds threshold, in which case the number and value of performance shares reported is based on attaining the next higher performance level. The number and value of the 2007 performance shares reported are based on attaining the maximum performance level, or 150% of the performance shares granted. The number and value reported underof the Stock Awards column for the 20072008 performance shares reported are based on attaining the targetthreshold performance level, or 100%25% of the performance shares granted. The number and value reported underof the Stock Awards column for the 20082009 performance shares reported are based on attaining the thresholdmaximum performance level, or 25%200% of the performance shares granted. See the “Grants of Plan-Based Awards” table for more information about performance shares. The amount and vestingPerformance shares are generally scheduled to vest on the third anniversary of performance shares reported in the Stock Awards column aredate of grant, as follows:
Performance Shares
| | |
Grant Date | | Vests per Attainment of Performance Levels on: |
|
|
05/10/07 | | May 10, 2010 |
03/03/08 | | March 3, 2011 |
10/01/08 | | October 1, 2011 |
03/05/09 | | March 5, 2012 |
05/14/09 | | May 14, 2012 |
| | | | | | | | | | | | |
| | | | | Number of
| | | | |
| | Performance Share
| | | Unvested
| | | | |
Name | | Grant Year | | | Performance Shares | | | Vesting Date | |
|
J.A. Fees | | | 2006 | | | | 58,500 | | | | 05/08/09 | |
| | | | | | | 36,000 | | | | 11/07/09 | |
| | | 2007 | | | | 42,400 | | | | 05/10/10 | |
| | | 2008 | | | | 8,327 | | | | 03/03/11 | |
| | | | | | | 36,135 | | | | 10/01/11 | |
B.W. Wilkinson | | | 2006 | | | | 90,000 | | | | 05/08/09 | |
| | | 2007 | | | | 56,000 | | | | 05/10/10 | |
M.S. Taff | | | 2006 | | | | 24,750 | | | | 05/08/09 | |
| | | 2007 | | | | 22,000 | | | | 05/10/10 | |
| | | 2008 | | | | 6,215 | | | | 03/03/11 | |
B.C. Bethards | | | 2006 | | | | 22,500 | | | | 05/08/09 | |
| | | 2007 | | | | 29,600 | | | | 05/10/10 | |
| | | 2008 | | | | 3,545 | | | | 03/03/11 | |
R.A. Deason | | | 2006 | | | | 54,000 | | | | 05/08/09 | |
| | | 2007 | | | | 36,800 | | | | 05/10/10 | |
| | | 2008 | | | | 6,867 | | | | 03/03/11 | |
J.T. Nesser, III | | | 2006 | | | | 40,500 | | | | 05/08/09 | |
| | | 2007 | | | | 35,000 | | | | 05/10/10 | |
| | | 2008 | | | | 6,492 | | | | 03/03/11 | |
| | | | | | | 5,232 | | | | 08/14/11 | |
4349
Option Exercises and Stock Vested
The following Option Exercises and Stock Vested table provides additional information about the value realized by our Named Executives on exercises of option awards and vesting of stock awards during the year ended December 31, 2008.2009.
| | | | | | | | | | | | | | | | |
| | Option Awards | | | Stock Awards | |
| | Number of
| | | | | | Number of
| | | | |
| | Shares
| | | | | | Shares
| | | | |
| | Acquired
| | | Value Realized
| | | Acquired
| | | Value Realized
| |
Name | | on Exercise | | | on Exercise | | | on Vesting | | | on Vesting | |
|
J.A. Fees | | | 76,605 | | | $ | 3,841,524.01 | | | | 9,150 | | | $ | 486,276.75 | |
B.W. Wilkinson | | | 812,760 | | | $ | 32,032,855.06 | | | | 103,266 | | | $ | 5,878,110.57 | |
M.S. Taff | | | 22,000 | | | $ | 1,186,303.23 | | | | 4,500 | | | $ | 295,571.25 | |
B.C. Bethards | | | 4,120 | | | $ | 172,311.60 | | | | 0 | | | | N/A | |
R.A. Deason | | | 0 | | | | N/A | | | | 83,226 | | | $ | 4,778,920.77 | |
J.T. Nesser, III | | | 186,390 | | | $ | 9,483,852.09 | | | | 34,590 | | | $ | 1,972,094.55 | |
| | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| | |
| | Shares
| | | | Shares
| | |
| | Acquired
| | Value Realized
| | Acquired
| | Value Realized
|
Name | | on Exercise (#) | | on Exercise | | on Vesting (#) | | on Vesting |
J.A. Fees | | | 0 | | | | N/A | | | | 120,090 | | | $ | 2,458,148.70 | |
M.S. Taff | | | 0 | | | | N/A | | | | 31,547 | | | $ | 567,563.97 | |
B.C. Bethards | | | 0 | | | | N/A | | | | 32,477 | | | $ | 631,050.07 | |
S.M. Johnson | | | 0 | | | | N/A | | | | 0 | | | | N/A | |
R.A. Deason | | | 0 | | | | N/A | | | | 164,766 | | | $ | 3,576,229.68 | |
Option Awards. EachNo stock option exercise reported inawards were exercised by any Named Executive during the Option Exercises and Stock Vested table was effected as a simultaneous exercise and sale, with the exception of one stock option exercise and hold (representing 174,560 shares) by Mr. Wilkinson. For simultaneous exercise and sales, the value realized on exercise was calculated based on the difference between the exercise prices of the stock options and the prices at which the shares were sold. For the exercise of options for 174,560 shares by Mr. Wilkinson, the value realized on exercise was calculated based on the difference between the exercise price of the stock options and the average of the highest and lowest price of our common stock on the date of exercise. Three of the exercises of Mr. Fees (representing 12,000 shares) and all of the stock option exercises of Mr. Wilkinson that were effected through simultaneous exercise and sale were made pursuant to a 10b5-1 trading plan.year ended December 31, 2009.
Stock Awards. For each Named Executive, the number of shares acquired on vesting reported in the Option Exercises and Stock Vested table represents the aggregate number of shares that vested during 20082009 in connection with awards of performance shares, restricted stock, restricted stock unitsand/or deferred stock units. AwardsThe awards of deferred stock units reflected in this table are payable entirely in cash. As a result, no shares of stock were actually acquired upon the vesting of thethese deferred stock units. See the Outstanding“Outstanding Equity Awards at Fiscal Year-End” table for more information on the settlement of deferred stock unit awards. The following table sets forth the amount of shares attributable to performance shares, restricted stock, restricted stock units and deferred stock units, for each Named Executive:
| | | | | | | | | | | | | | | | |
| | Restricted Stock | | | Deferred Stock Units | |
| | Number of
| | | | | | Number of
| | | | |
| | Shares
| | | | | | Shares
| | | | |
| | Acquired
| | | Value Realized
| | | Acquired
| | | Value Realized
| |
Name | | on Vesting | | | on Vesting | | | on Vesting | | | on Vesting | |
|
J.A. Fees | | | 0 | | | | N/A | | | | 9,150 | | | $ | 486,276.75 | |
B.W. Wilkinson | | | 82,200 | | | $ | 4,758,558.00 | | | | 21,066 | | | $ | 1,119,552.57 | |
M.S. Taff | | | 0 | | | | N/A | | | | 4,500 | | | $ | 295,571.25 | |
B.C. Bethards | | | 0 | | | | N/A | | | | 0 | | | | N/A | |
R.A. Deason | | | 75,000 | | | $ | 4,341,750.00 | | | | 8,226 | | | $ | 437,170.77 | |
J.T. Nesser,III | | | 28,200 | | | $ | 1,632,498.00 | | | | 6,390 | | | $ | 339,596.55 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Performance Shares | | Restricted Stock | | Restricted Stock Units | | Deferred Stock Units |
| | | | |
| | Number of
| | | | Number of
| | | | Number of
| | | | Number of
| | |
| | Shares
| | Value
| | Shares
| | Value
| | Shares
| | Value
| | Shares
| | Value
|
| | Acquired on
| | Realized
| | Acquired
| | Realized
| | Acquired
| | Realized
| | Acquired
| | Realized
|
Name | | Vesting | | on Vesting | | on Vesting | | on Vesting | | on Vesting | | on Vesting | | on Vesting | | on Vesting |
J.A. Fees | | | 94,500 | | | $ | 1,919,655 | | | | 16,440 | | | $ | 363,454 | | | | 0 | | | | N/A | | | | 9,150 | | | $ | 175,040 | |
M.S. Taff | | | 24,750 | | | $ | 447,728 | | | | 2,297 | | | $ | 22,614 | | | | 0 | | | | N/A | | | | 4,500 | | | $ | 97,223 | |
B.C. Bethards | | | 22,500 | | | $ | 407,025 | | | | 9,977 | | | $ | 224,025 | | | | 0 | | | | N/A | | | | 0 | | | | N/A | |
S.M. Johnson | | | 0 | | | | N/A | | | | 0 | | | | N/A | | | | 0 | | | | N/A | | | | 0 | | | | N/A | |
R.A. Deason | | | 54,000 | | | $ | 976,860 | | | | 2,540 | | | $ | 25,006 | | | | 100,000 | | | $ | 2,417,000 | | | | 8,226 | | | $ | 157,363 | |
The number of shares acquired in connection with the vesting of performance shares, restricted stock awards and restricted stock units includes 29,962, 27,33839,418, 7,298, 11,160 and 10,27951,416 shares withheld by us at the election of Messrs. Wilkinson,Fees, Taff, Bethards and Deason, and Nesser, respectively, to paysatisfy the minimum statutory withholding tax due upon vesting. For more information on the withholding of shares to cover taxes due upon vesting, see the “Certain Relationships and Related Transactions” section of this proxy statement.
4450
Pension Benefits
The following Pension Benefits table shows the present value of accumulated benefits payable to each of our Named Executives under our qualified and nonqualified pension plans.
| | | | | | | | | | | | | | |
| | | | Number of
| | | Present Value
| | | | |
| | | | Years Credited
| | | of Accumulated
| | | Payments
| |
Name | | Plan Name | | Service | | | Benefit | | | During 2008 | |
|
J.A. Fees | | McDermott Qualified Retirement Plan | | | 29.583 | | | $ | 1,073,502 | | | $ | 0 | |
| | McDermott Excess Plan | | | 29.583 | | | $ | 2,592,577 | | | $ | 0 | |
B.W. Wilkinson | | McDermott Qualified Retirement Plan | | | 7.00 | | | $ | 242,631 | | | $ | 0 | |
| | McDermott Excess Plan | | | 7.00 | | | $ | 605,736 | | | $ | 0 | |
M.S. Taff | | N/A | | | N/A | | | | N/A | | | | N/A | |
| | N/A | | | N/A | | | | N/A | | | | N/A | |
B.C. Bethards | | B&W Governmental Operations Qualified Retirement Plan | | | 35.00 | | | $ | 1,077,317 | | | $ | 0 | |
| | B&W Governmental Operations Excess Plan | | | 35.00 | | | $ | 1,073,755 | | | $ | 0 | |
R.A. Deason | | N/A | | | N/A | | | | N/A | | | | N/A | |
| | N/A | | | N/A | | | | N/A | | | | N/A | |
J.T. Nesser, III | | McDermott Qualified Retirement Plan | | | 10.250 | | | $ | 261,707 | | | $ | 0 | |
| | McDermott Excess Plan | | | 10.250 | | | $ | 254,102 | | | $ | 0 | |
| | | | | | | | |
| | | | | | Present Value
| | Payments
|
| | | | Number of Years
| | of Accumulated
| | During
|
Name | | Plan Name | | Credited Service | | Benefit | | 2009 |
J.A. Fees | | McDermott Qualified Retirement Plan | | 30.583 | | $1,165,113 | | $0 |
| | McDermott Excess Plan | | 30.583 | | $2,900,748 | | $0 |
M.S. Taff | | N/A | | N/A | | N/A | | N/A |
| | N/A | | N/A | | N/A | | N/A |
B.C. Bethards | | B&W Governmental Operations Qualified Retirement Plan | | 36.00 | | $1,148,331 | | $0 |
| | B&W Governmental Operations Excess Plan | | 36.00 | | $1,307,901 | | $0 |
S.M. Johnson | | N/A | | N/A | | N/A | | N/A |
| | N/A | | N/A | | N/A | | N/A |
R.A. Deason | | N/A | | N/A | | N/A | | N/A |
| | N/A | | N/A | | N/A | | N/A |
Overview of Qualified Plans. We maintain retirement plans that are funded by trusts and cover certain eligible regular full-time employees of McDermott and its subsidiaries, described below in the section entitled “Participation and Eligibility,” except certain nonresident 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.
| | |
| • | Messrs.Mr. Fees and Wilkinson participateparticipates in the Retirement Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies (the “McDermott Qualified Retirement Plan”) for the benefit of the eligible employees of McDermott Incorporated and specific subsidiaries; |
|
| • | Mr. Bethards participates in the Retirement Plan for Employees of Babcock & Wilcox Government Operations (the “B&W Government Operations Qualified Retirement Plan”) for the benefit of the eligible employees of The Babcock & Wilcox CompanyB&W and our Governmental Operations segment; and |
|
| • | Due to their respective employment dates, Messrs. DeasonTaff, Johnson and TaffDeason do not participate in our defined benefit plans. Mr. Nesser remains an employee of McDermott Incorporated and, as a result, he continues to participate in the McDermott Qualified Retirement Plan. For more information on our retirement plans, see “Compensation Discussion and Analysis — PostemploymentPost-employment Compensation — Retirement Plans.” |
Participation and Eligibility. Generally, employees over the age of 21 years, who were hired before April 1, 2005, are eligible to participate in the McDermott Qualified Retirement Plan B&W Governmental Operations Qualified Retirement Plan or B&W CommercialGovernmental Operations Qualified Retirement Plan.
| | |
| • | For participants with less than five years of service as of March 31, 2006 — Benefit accruals were frozen as of that date. Affected employees now receive annual service-based company cash contributions to their Thrift Plan account. |
|
| • | For participants with more than five but less than ten years of service as of January 1, 2007 — If a participant made an election to do so, benefit accruals were frozen as of March 31, 2007, with the electing participants now receiving annual service-based company cash contributions to their Thrift Plan accounts. |
|
| • | Frozen accrued benefits of affected employees under these plans will increase annually in line with increases in the Consumer Price Index, up to a maximum of 8% and a minimum of 1%, for each year the employee remains employed. For |
45
| | |
| | further discussion on the service-based company cash contributions under the Thrift Plan, see the “Compensation Discussion and Analysis — PostemploymentPost-employment Compensation — Retirement Plans” on page 32.Plans.” |
51
Benefits. Benefits under these plans are calculated under one of two formulas:as follows:
| | |
| (1)• | For participating employees originally hired by our Power Generation Systems or Government Operations segment (“Tenured Employees”) before April 1, 1998 — benefits are based on years of credited service and final average cash compensation (including bonuses and commissions); and |
|
| (2) | For participating employees hired before April 1, 1998 who are not Tenured Employees, and for participating employees hired on or after April 1, 1998 — benefits are based on years of credited service, final average cash compensation (excluding bonuses and commissions) and anticipated social security benefits. Final average cash compensation is based on each employee’s average annual earnings during the 60 successive months out of the 120 successive months before retirement in which such earnings were highest.. |
The present value of accumulated benefits reflected in the Pension Benefit Table above is based on a 6.25%6.00% discount rate and the 1994 Group Annuity Mortality Table projected to 2005.
Retirement and Early Retirement. Under each of these plans, normal retirement is age 65. The normal form of payment is a single lifesingle-life annuity or a 50% joint and survivor annuity, depending on the employee’s marital status when payments are scheduled to begin. Early retirement eligibility and benefits under these plans depend on the employee’s date of hire. Mr. Fees and Mr. Bethards are the only Named Executiveseach currently eligible for early retirement.
For Tenured Employees hired before April 1, 1998 (which includes Messrs. Fees and Bethards):
| | |
| • | an employee is eligible for early retirement if the employee has completed at least 15 years of credited service and attained the age of 50; and |
|
| • | early retirement benefits are based on the same formula as normal retirement, but the pension benefit is unreduced if the sum of the employee’s age and years of service equals 75 or greater at the date benefits commence; otherwise the pension benefit is reduced 4% for each “point” less than 75. |
For employees hired on or after April 1, 1998 (which includes Messrs. Wilkinson and Nesser):1998:
| | |
| • | an employee is eligible for early retirement after completing at least 15 years of credited service and attaining the age of 55; and |
|
| • | early retirement benefits are based on the same formula as normal retirement, but the pension benefit is generally reduced 0.4% for each month that benefits commence before age 62. |
Overview of Nonqualified 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 our applicable subsidiaries under the terms of unfunded excess benefit plans (the “Excess Plans”) maintained by them. Effective January 1, 2006, the Excess Plans were amended to limit the annual bonus payments taken into account in calculating the Tenured Employees’ Excess Plan benefits to the lesser of the actual bonus paid or 25% of the prior year’s base salary.
| | |
| • | Messrs.Mr. Fees Wilkinson and Nesser participateparticipates in the Restoration of Retirement Income Plan for Certain Participants in the Retirement Plan for Employees of McDermott Incorporated; and |
|
| • | Mr. Bethards participates in the Restoration of Retirement Income Plan for Certain Participants in the Retirement Plan for Employees of Babcock & Wilcox Governmental Operations. |
4652
Nonqualified Deferred Compensation
The following Nonqualified Deferred Compensation table summarizes our Named Executives’ compensation under our nonqualified supplemental retirement plan. The compensation shown in the this table is entirely attributable to ourthe McDermott International, Inc. New Supplemental Employee Retirement Plan, or SERP, established January 1, 2005.
| | | | | | | | | | | | | | | | | | | | |
| | Executive
| | | Registrant
| | | Aggregate
| | | Aggregate
| | | Aggregate
| |
| | Contributions in
| | | Contributions in
| | | Earnings in
| | | Withdrawals/
| | | Balance at
| |
Name | | 2008 | | | 2008 | | | 2008 | | | Distributions | | | 12/31/08 | |
|
J.A. Fees | | $ | 0 | | | $ | 54,155.00 | | | $ | (86,635.87 | ) | | $ | 0 | | | $ | 175,326.47 | |
B.W. Wilkinson | | $ | 0 | | | $ | 94,500.00 | | | $ | (432,591.48 | ) | | $ | 0 | | | $ | 735,346.17 | |
M.S. Taff | | $ | 0 | | | $ | 31,125.00 | | | $ | (37,495.49 | ) | | $ | 0 | | | $ | 64,599.18 | |
B.C. Bethards | | $ | 0 | | | $ | 31,042.00 | | | $ | (87,741.63 | ) | | $ | 0 | | | $ | 349,864.81 | |
R.A. Deason | | $ | 0 | | | $ | 51,400.00 | | | $ | (94,174.12 | ) | | $ | 0 | | | $ | 204,249.36 | |
J.T. Nesser, III | | $ | 0 | | | $ | 44,926.00 | | | $ | (268,068.06 | ) | | $ | 0 | | | $ | 410,903.14 | |
| | | | | | | | | | |
| | Executive
| | Registrant
| | Aggregate
| | Aggregate
| | Aggregate
|
| | Contributions in
| | Contributions in
| | Earnings
| | Withdrawals/
| | Balance
|
Name | | 2009 | | 2009 | | in 2009 | | Distributions | | at 12/31/09 |
J.A. Fees | | $0 | | $64,774.00 | | $45,581.95 | | $0 | | $285,682.42 |
M.S. Taff | | $0 | | $41,378.00 | | $34,000.95 | | $0 | | $139,978.13 |
B.C. Bethards | | $0 | | $44,948.00 | | $51,718.71 | | $0 | | $446,531.52 |
S.M. Johnson(1) | | N/A | | N/A | | N/A | | N/A | | N/A |
R.A. Deason | | $0 | | $60,950.00 | | $69,928.57 | | $0 | | $335,127.93 |
| | |
(1) | | No information is provided for Mr. Johnson because he is not a participant in the SERP. |
Our SERP is an unfunded, defined contribution retirement plan for officers of McDermott and our operating segments selected to participate by our Compensation Committee. Benefits under the SERP are based on the participating officer’s vested percentage in his notional account balance at the time of retirement or termination. An officer generally vests in his SERP account 20% each year, subject to accelerated vesting for death, disability and termination without cause or termination within 24 months following a change in control. A participating officer’s vested account balance will be distributed to his designated beneficiary on the officer’s death.
Executive Contributions in 2008.2009. Employee contributions are not permitted under our SERP.
Registrant Contributions in 2008.2009. We make annual contributions to participating employees’ notional accounts equal to a percentage of the employee’s prior-year compensation. Under the terms of the SERP, the contribution percentage does not need to be the same for each participant. Additionally, our Compensation Committee may make a discretionary contribution to a participant’s account at any time.
For 2008,2009, our contributions equaled 5% of the Named Executives’ base salaries and EICPannual incentive compensation awards paid in 2007.2008. No discretionary contributions were made in 2008.
2009. All our 20082009 contributions are included in the Summary Compensation Table above as “All Other Compensation.”
Aggregate Earnings in 2008.2009. The amount reported in this table as earnings represents hypothetical accrued lossesgains during 20082009 on each Named Executive’s account. The accounts are “participant-directed” in that each participating officer personally directs the investment of contributions made on his behalf. As a result, any accrued gains or losses are attributable to the performance of the Named Executive’s notional mutual fund investments.
No amount of the earnings shown is reported as compensation in the Summary Compensation Table.
Aggregate Balance at12/31/08.09. The balance of a participating officer’s account consists of contributions made by us and hypothetical accrued gains or losses. The balances shown represent the accumulated account values (including gains and losses) for each Named Executive as of December 31, 2008.2009.
47
The balances shown include contributions from previous years which have been reported as compensation to the Named Executives in the Summary Compensation Table for those years — to the extent a Named Executive was included in the Summary Compensation Table during those years. The amounts and years reported are as follows:
| | | | | | | | |
Named Executive(1) | | Year | | | Amount Reported | |
|
J.A. Fees | | | 2007 | | | $ | 48,311.00 | |
| | | 2006 | | | $ | 48,650.00 | |
B.W. Wilkinson | | | 2007 | | | $ | 89,300.00 | |
| | | 2006 | | | $ | 85,700.00 | |
M.S. Taff | | | 2007 | | | $ | 20,705.85 | |
| | | 2006 | | | | N/A | |
R.A. Deason | | | 2007 | | | $ | 46,651.25 | |
| | | 2006 | | | $ | 43,648.44 | |
J.T. Nesser, III | | | 2007 | | | $ | 39,325.00 | |
| | | 2006 | | | $ | 36,214.40 | |
| | | | | | | | |
| | | | Amount
|
Named Executive | | Year | | Reported |
J.A. Fees | | | 2008 | | | $ | 54,155.00 | |
| | | 2007 | | | $ | 48,311.00 | |
M.S. Taff | | | 2008 | | | $ | 31,125.00 | |
| | | 2007 | | | $ | 20,705.85 | |
B.C. Bethards | | | 2008 | | | $ | 31,042.00 | |
| | | 2007 | | | | N/A | |
R.A. Deason | | | 2008 | | | $ | 51,400.00 | |
| | | 2007 | | | $ | 46,651.25 | |
| | |
(1) | | Mr. Bethards is not included because he did not become a Named Executive until 2008. |
53
AsIn May 2009, our Compensation Committee amended the SERP to vest SERP balances unvested on December 31, 2008 (including future gains and losses thereon). Amounts allocated on or after January 1, 2009 vest pursuant to the participant’s vested percentage based upon years of service. Accordingly, as of January 1, 2009,2010, each Named Executive is 80% vestedwho participates in histhe SERP balance shown, except Mr. Wilkinson and Mr. Taff. Mr. Wilkinson, who retired on September 30, 2008, is 100% vested in his SERP balance shown, pursuant to the terms of his Separation Agreement.except Mr. Taff, who did not begin participating in our SERP until 2006,2006. He is 60%92.19% vested in his SERP balance shown.shown (100% vested in amounts allocated to his SERP account as of December 31, 2008 and 80% vested in amounts allocated to his account during 2009).
4854
Potential Payments Upon Termination or Change in Control
The following tables show potential payments to our Named Executives except Mr. Wilkinson, under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios under which a payment would be due (assuming each is applicable) involving a change in control or termination of employment of each of our Named Executives, assuming a December 31, 20082009 termination date and, where applicable, using the closing price of our common stock of $9.88$24.01 (as reported on the New York Stock Exchange) as of December 31, 2008.2009. These tables do not reflect amounts that would be payable to the Named Executives pursuant to benefits or awards that are already vested.
Mr. Wilkinson retired from McDermott on September 30, 2008. In connection with his retirement, we entered into a Separation Agreement providing that Mr. Wilkinson receive (1) a conditional prorated bonus payment for 2008 in an amount that will depend on the 2008 bonus generally paid to other employees under our EICP; (2) continued vesting of his outstanding equity awards through September 30, 2010; and (3) accelerated vesting of the unvested portion of his SERP account. Based on the vesting schedule of Mr. Wilkinson’s existing equity awards, his awards will vestThe amounts reported in the following amounts through September 30, 2010: 42,132 shares ofbelow tables for stock options, restricted stock, restricted stock units, deferred stock units and depending onperformance shares represent the performance of the company, between 90,000 and 174,000 performance shares. The value of unvested and accelerated shares or units, as applicable, calculated by:
| | |
| • | for stock options: multiplying the number of accelerated options by the difference between the exercise price and $24.01 (the closing price of our common stock on December 31, 2009, as reported on the New York Stock Exchange); |
|
| • | for restricted stock, restricted stock units and performance shares: multiplying the number of accelerated shares or units by $24.01 (the closing price of our common stock on December 31, 2009, as reported on the New York Stock Exchange); and |
|
| • | for deferred stock units (which represent a right to receive a cash payment equal to the product of the number of vested units and the average of the highest and lowest sales price of our common stock on the vesting date): multiplying the number of accelerated units by $24.17 (the average price of the highest and lowest price of our common stock on December 31, 2009, as reported on the New York Stock Exchange). |
Estimated Value of Benefits to Be Received Upon Termination under the 40% unvested portionRestructuring Transaction Retention Agreements
The following table shows the estimated value of his SERP accountpayments and other benefits due the Named Executives assuming termination under the Restructuring Transaction Retention Agreements, which we refer to as the Retention Agreements, as of December 31, 2009.
| | | | | | | | | | | | | | | | | | | | |
| | J.A. Fees | | M.S. Taff | | B.C. Bethards | | S.M. Johnson | | R.A. Deason |
Severance Payments | | $ | 5,382,000.00 | | | $ | 1,717,000.00 | | | $ | 1,789,080.00 | | | $ | 2,775,000.00 | | | $ | 42,692.31 | |
EICP | | $ | 900,000.00 | | | $ | 353,500.00 | | | $ | 368,340.00 | | | $ | 637,500.00 | | | | — | |
Supplemental Executive Retirement Plan (SERP) | | | — | | | $ | 10,934.53 | | | | — | | | | — | | | | — | |
Benefits | | $ | 26,781.12 | | | $ | 35,837.50 | | | $ | 21,738.24 | | | $ | 8,230.80 | | | | — | |
Thrift Plan | | | — | | | | — | | | | — | | | $ | 16,398.89 | | | | — | |
Stock Options (unvested and accelerated) | | $ | 3,867,965.28 | | | $ | 1,070,388.72 | | | $ | 917,548.92 | | | $ | 773,221.14 | | | | — | |
Restricted Stock (unvested and accelerated) | | $ | 789,448.80 | | | $ | 110,277.93 | | | $ | 479,071.53 | | | | — | | | | — | |
Restricted Stock Units (unvested and accelerated) | | $ | 5,003,491.92 | | | $ | 1,384,632.69 | | | $ | 1,186,910.34 | | | $ | 2,232,569.85 | | | | — | |
Deferred Stock Units (unvested and accelerated) | | | — | | | | — | | | | — | | | | — | | | | — | |
Performance Shares (unvested and accelerated) | | $ | 7,165,856.53 | | | $ | 1,398,222.35 | | | $ | 1,027,411.91 | | | $ | 1,292,074.14 | | | | — | |
TaxGross-Up | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 23,135,543.65 | | | $ | 6,080,793.72 | | | $ | 5,790,100.94 | | | $ | 7,734,994.82 | | | $ | 42,692.31 | |
This table assumes the Named Executive was terminated on December 31, 2008 was equal to $294,138.2009 in connection with the proposed spin-off of B&W, as announced on December 7, 2009. In addition, in October 2008,contemplation of the proposed spin-off, on December 10, 2009, we entered into Retention Agreements with certain key members of our management, including each of our Named Executives (with the exception of Mr. Deason, who had previously announced his retirement). The Retention Agreements provide either a separate Consultancy Agreementretention or severance payment to these employees in connection with Mr. Wilkinson providing that Mr. Wilkinson receivethe disposition of all or substantially all of the stock or assets of B&W or J. Ray McDermott, S.A. (whether by a lump-sum paymentspin-off, sale or otherwise), which we have referred to as a “restructuring transaction” in the Retention Agreements. In the event the applicable employee is terminated prior to the first anniversary of $2 million and a seriesthe effective date of consulting payments. As of December 31, 2008, Mr. Wilkinson has received $2,093,750 under this Consultancy Agreement.
JOHN A. FEES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Involuntary
| | | Involuntary
| | | | | | | | | | |
Executive Payments
| | Voluntary
| | | Early
| | | Normal
| | | not for Cause
| | | for Cause
| | | Change in
| | | | | | | |
Upon Termination | | Termination | | | Retirement | | | Retirement | | | Termination | | | Termination | | | Control | | | Death | | | Disability | |
|
Severance Payments | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 201,923.08 | | | $ | 0 | | | $ | 3,650,790.00 | | | $ | 0 | | | $ | 0 | |
Executive Incentive Compensation Plan (EICP) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 471,000.00 | | | $ | 0 | | | $ | 0 | |
Supplemental Executive Retirement Plan (SERP) | | $ | 0 | | | $ | 0 | | | $ | 70,130.59 | | | $ | 70,130.59 | | | $ | 0 | | | $ | 70,130.59 | | | $ | 70,130.59 | | | $ | 70,130.59 | |
Stock Options (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Restricted Stock (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 487,281.60 | | | $ | 0 | | | $ | 0 | | | $ | 487,281.60 | | | $ | 487,281.60 | | | $ | 487,281.60 | |
Deferred Stock Units (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 179,157.00 | | | $ | 0 | | | $ | 0 | | | $ | 179,157.00 | | | $ | 179,157.00 | | | $ | 179,157.00 | |
Performance Shares (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,197,765.00 | | | $ | 0 | | | $ | 0 | |
TaxGross-Up | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
|
|
TOTAL | | $ | 0 | | | $ | 0 | | | $ | 736,569.19 | | | $ | 272,053.67 | | | $ | 0 | | | $ | 9,056,124.19 | | | $ | 736,569.19 | | | $ | 736,569.19 | |
|
|
MICHAEL S. TAFF
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Involuntary
| | | Involuntary
| | | | | | | | | | |
Executive Payments
| | Voluntary
| | | Early
| | | Normal
| | | not for Cause
| | | for Cause
| | | Change in
| | | | | | | |
Upon Termination | | Termination | | | Retirement | | | Retirement | | | Termination | | | Termination | | | Control | | | Death | | | Disability | |
|
Severance Payments | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 21,153.85 | | | $ | 0 | | | $ | 1,364,000.00 | | | $ | 0 | | | $ | 0 | |
Executive Incentive Compensation Plan (EICP) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 242,000.00 | | | $ | 0 | | | $ | 0 | |
Supplemental Executive Retirement Plan (SERP) | | $ | 0 | | | $ | 0 | | | $ | 38,759.51 | | | $ | 38,759.51 | | | $ | 0 | | | $ | 38,759.51 | | | $ | 38,759.51 | | | $ | 38,759.51 | |
Stock Options (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Restricted Stock (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 68,073.20 | | | $ | 0 | | | $ | 0 | | | $ | 68,073.20 | | | $ | 68,073.20 | | | $ | 68,073.20 | |
Deferred Stock Units (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 88,110.00 | | | $ | 0 | | | $ | 0 | | | $ | 88,110.00 | | | $ | 88,110.00 | | | $ | 88,110.00 | |
Performance Shares (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 938,995.20 | | | $ | 0 | | | $ | 0 | |
TaxGross-Up | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 830,242.43 | | | $ | 0 | | | $ | 0 | |
|
|
TOTAL | | $ | 0 | | | $ | 0 | | | $ | 194,942.71 | | | $ | 59,913.36 | | | $ | 0 | | | $ | 3,570,180.34 | | | $ | 194,942.71 | | | $ | 194,942.71 | |
|
|
the restructuring transaction, either (1) by the employer company for any reason other than cause or disability or (2) by the employee for good reason, the
4955
employer company is required to pay the Named Executive a cash severance payment, an EICP payment, 200% of the annual cost of coverage for medical, dental and vision benefits, and an amount equal to the unvested portion of the Named Executive’s Thrift Plan account. The Named Executive will also receive accelerated vesting with respect to his outstanding equity awards. In the event the restructuring transaction turns out to be a sale, if the Named Executive is subject to an excise tax, then he may be entitled to receive a taxBRANDON C. BETHARDSgross-up
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Involuntary
| | | Involuntary
| | | | | | | | | | |
Executive Payments
| | Voluntary
| | | Early
| | | Normal
| | | not for Cause
| | | for Cause
| | | Change in
| | | | | | | |
Upon Termination | | Termination | | | Retirement | | | Retirement | | | Termination | | | Termination | | | Control | | | Death | | | Disability | |
|
Severance Payments | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 70,834.62 | | | $ | 0 | | | $ | 1,605,120.00 | | | $ | 0 | | | $ | 0 | |
Executive Incentive Compensation Plan (EICP) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 276,360.00 | | | $ | 0 | | | $ | 0 | |
Supplemental Executive Retirement Plan (SERP) | | $ | 0 | | | $ | 0 | | | $ | 139,945.92 | | | $ | 139,945.92 | | | $ | 0 | | | $ | 139,945.92 | | | $ | 139,945.92 | | | $ | 139,945.92 | |
Stock Options (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Restricted Stock (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 295,708.40 | | | $ | 0 | | | $ | 0 | | | $ | 295,708.40 | | | $ | 295,708.40 | | | $ | 295,708.40 | |
Deferred Stock Units (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Performance Shares (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 871,119.60 | | | $ | 0 | | | $ | 0 | |
TaxGross-Up | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
|
|
TOTAL | | $ | 0 | | | $ | 0 | | | $ | 435,654.32 | | | $ | 210,780.54 | | | $ | 0 | | | $ | 3,188,253.92 | | | $ | 435,654.32 | | | $ | 435,654.32 | |
|
|
to the extent provided by the terms of hischange-in-control agreement. For more information, see “Estimated Value of Benefits to be Received Upon Change in Control” below.
ROBERT A. DEASONUnder the Retention Agreements, “cause” is defined as:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Involuntary
| | | Involuntary
| | | | | | | | | | |
Executive Payments
| | Voluntary
| | | Early
| | | Normal
| | | not for Cause
| | | for Cause
| | | Change in
| | | | | | | |
Upon Termination | | Termination | | | Retirement | | | Retirement | | | Termination | | | Termination | | | Control | | | Death | | | Disability | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Severance Payments | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 36,346.15 | | | $ | 0 | | | $ | 1,836,000.00 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Executive Incentive Compensation Plan (EICP) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 378,000.00 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Supplemental Executive Retirement Plan (SERP) | | $ | 0 | | | $ | 0 | | | $ | 81,699.74 | | | $ | 81,699.74 | | | $ | 0 | | | $ | 81,699.74 | | | $ | 81,699.74 | | | $ | 81,699.74 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 75,285.60 | | | $ | 0 | | | $ | 0 | | | $ | 75,285.60 | | | $ | 75,285.60 | | | $ | 75,285.60 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred Stock Units (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 161,065.08 | | | $ | 0 | | | $ | 0 | | | $ | 161,065.08 | | | $ | 161,065.08 | | | $ | 161,065.08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Performance Shares (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,486,001,40 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TaxGross-Up | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL | | $ | 0 | | | $ | 0 | | | $ | 318,050.42 | | | $ | 118,045.89 | | | $ | 0 | | | $ | 4,018,051.82 | | | $ | 318,050.42 | | | $ | 318,050.42 | |
|
|
JOHN T. NESSER, III
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Involuntary
| | | Involuntary
| | | | | | | | | | |
Executive Payments
| | Voluntary
| | | Early
| | | Normal
| | | not for Cause
| | | for Cause
| | | Change in
| | | | | | | |
Upon Termination | | Termination | | | Retirement | | | Retirement | | | Termination | | | Termination | | | Control | | | Death | | | Disability | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Severance Payments | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 57,692.31 | | | $ | 0 | | | $ | 1,662,500.00 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Executive Incentive Compensation Plan (EICP) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 331,250.00 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Supplemental Executive Retirement Plan (SERP) | | $ | 0 | | | $ | 0 | | | $ | 164,361.25 | | | $ | 164,361.25 | | | $ | 0 | | | $ | 164,361.25 | | | $ | 164,361.25 | | | $ | 164,361.25 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 128,538.80 | | | $ | 0 | | | $ | 0 | | | $ | 128,538.80 | | | $ | 128,538.80 | | | $ | 128,538.80 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred Stock Units (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 125,116.20 | | | $ | 0 | | | $ | 0 | | | $ | 125,116.20 | | | $ | 125,116.20 | | | $ | 125,116.20 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Performance Shares (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,613,898.00 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TaxGross-Up | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL | | $ | 0 | | | $ | 0 | | | $ | 418,016.25 | | | $ | 222,053.56 | | | $ | 0 | | | $ | 4,025,664.25 | | | $ | 418,016.25 | | | $ | 418,016.25 | |
|
|
| | |
| • | the willful and continued failure of the employee to perform substantially the employee’s duties (occasioned by reason other than physical or mental illness or disability of the employee) after a written demand for substantial performance is delivered to the employee by the Compensation Committee of the Board or the Chief Executive Officer which specifically identifies the manner in which the Compensation Committee of the Board or the Chief Executive Officer believes that the employee has not substantially performed his or her duties, after which the employee will have 30 days to defend or remedy such failure to substantially perform his or her duties; |
|
| • | the willful engaging by employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the employer; or |
|
| • | the conviction of the employee with no further possibility of appeal, or plea ofnolo contendereby the employee to, any felony or crime of falsehood. |
Severance PaymentsPayment. The severance payment that may be made to each Named Executive in connection with his termination of employment following a restructuring transaction is a cash payment equal to 200% (299% in the case of Mr. Fees) of the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs. For a hypothetical termination as of December 31, 2009, the severance payment under a restructuring transaction would have been calculated in the same manner as a severance payment under a change in control. For more information, see “Estimated Value of Benefits to be Received Upon Change in Control — Involuntary Not-For-Cause Termination.Severance Payment.” Severance payments under a restructuring transaction are in lieu of any payment under any severance policy generally applicable to the salaried employees of McDermott.
Because of his previously mentioned retirement, Mr. Deason did not enter into a Retention Agreement. However Mr. Deason would be due a severance payment in the event he was involuntarily terminated without cause. Under our Severance Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies, full-time employees of McDermott and participating subsidiaries are entitled to receive a severance benefit in the event their employment is terminated because of the elimination of a previously required position or previously required service, or due to the consolidation of departments, abandonment of plants or offices, or technological change or declining business activities, where such termination is intended to be permanent. The amount of severance benefit is determined based on the length of service and the employee’s base salary. In general, an eligible employee is entitled to a severance benefit of one half week of base salary for each year of service, subject to a maximum of 14 weeks of pay.
EICP Payment. The EICP Payment that may be made to each Named Executive in connection with his termination of employment following a restructuring transaction is calculated in the same manner as an EICP Payment under a change in control. For more information, see “Estimated Value of Benefits to be Received Upon Change in Control — EICP Payment” below.
Benefits. The amounts reported represent two times the full annual cost of coverage for medical, dental and vision benefits provided to the Named Executive and the Named Executive’s covered dependents for the year ended December 31, 2009.
Thrift Plan. The amounts reported represent the unvested portion of the Named Executive’s Thrift Plan account balance as of December 31, 2009.
Equity Awards. The amounts reported for stock options, restricted stock, restricted stock units and performance shares represent the value of unvested and accelerated shares or units, as applicable, for the 2008 and 2009 grants of such awards. The amounts reported for the 2008 and 2009 performance share grants represent the value of such grants calculated as to the initial grant of the shares.
5056
Estimated Value of Benefits to Be Received Upon Normal Retirement
The following table shows the estimated value of payments and other benefits due the Named Executives assuming their retirement as of December 31, 2009. This table does not reflect amounts that would be payable to the Named Executives pursuant to benefits or awards that are already vested; for example, pension benefits. See the “Pension Benefits” table above for more information on pension benefits.
| | | | | | | | | | | | | | | | | | | | |
| | J.A. Fees | | M.S. Taff | | B.C. Bethards | | S.M. Johnson | | R.A. Deason |
Severance Payments | | | — | | | | — | | | | — | | | | — | | | | — | |
EICP | | | — | | | | — | | | | — | | | | — | | | | — | |
Supplemental Executive Retirement Plan (SERP) | | | — | | | | — | | | | — | | | | — | | | | — | |
Stock Options (unvested and accelerated) | | | — | | | | — | | | | — | | | | — | | | | — | |
Restricted Stock (unvested and accelerated) | | | — | | | | — | | | $ | 119,767.88 | | | | — | | | | — | |
Restricted Stock Units (unvested and accelerated) | | | — | | | | — | | | | — | | | | — | | | | — | |
Deferred Stock Units (unvested and accelerated) | | | — | | | | — | | | | — | | | | — | | | | — | |
Performance Shares (unvested and accelerated) | | | — | | | | — | | | $ | 467,700.39 | | | | — | | | | — | |
TaxGross-Up | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 0.00 | | | $ | 0.00 | | | $ | 587,468.27 | | | $ | 0.00 | | | $ | 0.00 | |
Change-in-Control Agreements.SERP. Under the terms of the SERP, participants are eligible for retirement upon attaining age 65. None of the Named Executives are eligible for retirement under the terms of the SERP.
Equity Awards. Generally, the terms of our stock and option award grants define retirement as a voluntary termination of employment after attaining age 60 and completing 10 years of service with McDermott. Under this definition, the only Named Executive eligible for retirement as of a December 31, 2009 is Mr. Bethards. The outstanding grants of restricted stock, restricted stock units and performance shares and the unvested grants of stock options provide for accelerated vesting of a percentage of the Named Executive’s outstanding shares and units if his retirement date is on or after the first anniversary of the grant date, and a greater percentage of accelerated vesting if his retirement date is on or after the second anniversary of the grant date. The amounts shown for performance shares are based on the number of shares initially granted. The number of shares that will ultimately vest may be more or less than the initial grant, based upon the performance level attained. The outstanding grants of deferred stock units vest 100% upon termination due to normal retirement under a funded or unfunded retirement plan of McDermott or any subsidiary. None of the Named Executives are eligible for accelerated vesting of deferred stock units.
57
Estimated Value of Benefits to Be Received Upon Termination Due to Death or Disability
The following table shows the value of payments and other benefits due the Named Executives assuming their death or disability as of December 31, 2009.
| | | | | | | | | | | | | | | | | | | | |
| | J.A. Fees | | | M.S. Taff | | | B.C. Bethards | | | S.M. Johnson | | | R.A. Deason | |
Severance Payments | | | — | | | | — | | | | — | | | | — | | | | — | |
EICP | | | — | | | | — | | | | — | | | | — | | | | — | |
Supplemental Executive Retirement Plan (SERP) | | | — | | | $ | 10,934.53 | | | | — | | | | — | | | | — | |
Stock Options (unvested and accelerated) | | $ | 3,867,965.28 | | | $ | 1,070,388.72 | | | $ | 917,548.92 | | | $ | 773,221.14 | | | | — | |
Restricted Stock (unvested and accelerated) | | $ | 789,448.80 | | | $ | 110,277.93 | | | $ | 479,071.53 | | | | — | | | $ | 121,970.80 | |
Restricted Stock Units (unvested and accelerated) | | $ | 5,003,491.92 | | | $ | 1,384,632.69 | | | $ | 1,186,910.34 | | | $ | 2,232,569.85 | | | | — | |
Deferred Stock Units (unvested and accelerated) | | $ | 221,155.50 | | | $ | 108,765.00 | | | | — | | | | — | | | $ | 198,822.42 | |
Performance Shares (unvested and accelerated) | | $ | 8,183,880.53 | | | $ | 1,926,442.35 | | | $ | 1,738,107.91 | | | $ | 1,292,074.14 | | | $ | 1,543,122.70 | |
TaxGross-Up | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 18,065,942.03 | | | $ | 4,611,441.22 | | | $ | 4,321,638.70 | | | $ | 4,297,865.13 | | | $ | 1,863,915.92 | |
SERP. The amount reported represents Mr. Taff’s SERP balance as of December 31, 2009 that becomes vested on death and disability. All other Named Executives, with the exception of Mr. Johnson, were 100% vested in their SERP balance as of December 31, 2009. Mr. Johnson does not participate in the SERP.
Equity Awards. Under the terms of the awards outstanding for each Named Executive as of December 31, 2009, all unvested stock awards become vested and all unvested option awards become vested and exercisable on death or disability.
58
Estimated Value of Benefits to Be Received Upon Change in Control
The following table shows the estimated value of payments and other benefits due the Named Executives assuming a change in control and termination as of December 31, 2009.
| | | | | | | | | | | | | | | | | | | | |
| | J.A. Fees | | | M.S. Taff | | | B.C. Bethards | | | S.M. Johnson | | | R.A. Deason | |
Severance Payments | | $ | 5,382,000.00 | | | $ | 1,717,000.00 | | | $ | 1,789,080.00 | | | $ | 2,775,000.00 | | | $ | 1,887,000.00 | |
EICP | | $ | 900,000.00 | | | $ | 353,500.00 | | | $ | 368,340.00 | | | $ | 637,500.00 | | | $ | 388,500.00 | |
Supplemental Executive Retirement Plan (SERP) | | | — | | | $ | 10,934.53 | | | | — | | | | N/A | | | | — | |
Benefits | | $ | 26,781.12 | | | $ | 35,837.50 | | | $ | 21,738.24 | | | $ | 8,230.80 | | | $ | 26,728.98 | |
Stock Options (unvested and accelerated) | | $ | 3,867,965.28 | | | $ | 1,070,388.72 | | | $ | 917,548.92 | | | $ | 773,221.14 | | | | — | |
Restricted Stock (unvested and accelerated) | | $ | 789,448.80 | | | $ | 110,277.93 | | | $ | 479,071.53 | | | | — | | | $ | 121,970.80 | |
Restricted Stock Units (unvested and accelerated) | | $ | 5,003,491.92 | | | $ | 1,384,632.69 | | | $ | 1,186,910.34 | | | $ | 2,232,569.85 | | | | — | |
Deferred Stock Units (unvested and accelerated) | | $ | 221,155.50 | | | $ | 108,765.00 | | | | — �� | | | | — | | | $ | 198,822.42 | |
Performance Shares (unvested and accelerated) | | $ | 13,323,773.26 | | | $ | 2,991,886.10 | | | $ | 2,780,406.02 | | | $ | 2,584,148.28 | | | $ | 1,984,906.70 | |
TaxGross-Up | | $ | 7,357,321.56 | | | $ | 2,002,180.42 | | | $ | 2,164,376.03 | | | | N/A | | | $ | 0.00 | |
|
Total | | $ | 36,871,937.44 | | | $ | 9,785,402.89 | | | $ | 9,707,471.08 | | | $ | 9,010,670.07 | | | $ | 4,607,928.90 | |
We havechange-in-control agreements with various officers, including each of our Named Executives. Generally, under these agreements, if a Named Executive is terminated within one year following a change in control either (1) by the company for any reason other than cause or death or disability; or (2) by the Named Executive for good reason, the company is required to pay the Named Executive a cash severance payment, an EICP payment and, if applicable, a taxgross-up payment. In addition to these payments, the Named Executive would be entitled to various accrued benefits earned through the date of termination, such as earned but unpaid salary, earned but unused vacation and reimbursements.
Severance Payment. The severance payment made to each Named Executive, with the exception of Mr. Fees, in connection with a change in control is a cash payment equal to 200% of the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs. The severance payment made to Mr. Fees in connection with a change in control is a cash payment equal to 299% of the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs. For a hypothetical termination as of December 31, 2008, the severance payment under achange-in-control would have been calculated based on the following base salary and target EICP awards:
| | |
| • | Mr. Fees: $750,000 base salary and $471,000 target EICP (prorated between 100% of $750,000 and 70% of $540,000); |
|
| • | Mr. Taff: $440,000 base salary and $242,000 target EICP (55% of his base salary); |
|
| • | Mr. Bethards: $526,200 base salary and $276,360 target EICP (prorated between 70% of $526,200 and 60% of $409,500); |
|
| • | Mr. Deason: $540,000 base salary and $378,000 target EICP (70% of his base salary); and |
|
| • | Mr. Nesser: $500,000 base salary and $331,250 target EICP (prorated between 70% of $500,000 and 65% of $500,000). |
EICP Payment. The EICP is an annual cash-based performance incentive plan under which payments are made in the year following the year in which performance is measured. For example, 2008 EICP awards are paid in 2009 for performance achieved during 2008. As a result, depending on the timing of the termination relative to the payment of an EICP award, a Named Executive could receive up to two EICP payments in connection with a change in control, as follows:
| | |
| • | If an EICP award for the year prior to termination is paid to other EICP participants after the date of the Named Executive’s termination, the Named Executive would be entitled to a cash payment equal to the product of the Named Executive’s EICP target percentage and the Named Executive’s annual base salary for the applicable period. No such payment would have been due a Named Executive on a December 31, 2008 termination, because the 2007 EICP awards had already been paid prior to the Named Executive’s termination date. |
|
| • | The Named Executive would be entitled to a prorated EICP payment based upon the Named Executive’s target award for the year in which the termination occurs and the number of days in which the executive was employed with us during that year. Based on a hypothetical December 31, 2008 termination, each Named Executive would have been entitled to an EICP payment equal to 100% of his 2008 target EICP. See the schedule of target EICP amounts for each Named Executive in “Severance Payment” above. |
TaxGross-Up. If any payment is subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended, we would reimburse the affected Named Executive for all excise taxes imposed under section 4999 and any income and excise taxes that are payable as a result of such reimbursement. The calculation of thesection 4999 gross-up amount in the above tables is based upon a section 4999 excise tax rate of 20%, a 35% federal income tax rate, a 1.45% Medicare tax rate and a state income tax rate of 5.75% for Mr. Fees and 6.24% for Mr. Bethards. Based on the amounts reported in the “Change in Control” column, Messrs. Fees, Bethards, Deason and Nesser would not have an excise tax liability.
51
Definition of “Change in Control.” Under these agreements, a “change in control” occurs if:
| | |
| • | a person (other than a McDermott employee benefit plan or a corporation owned by McDermott stockholders in substantially the same proportion as their ownership of McDermott voting shares) becomes the beneficial owner of 30% or more of the combined voting power of McDermott’s then outstanding voting stock; |
|
| • | during any period of two consecutive years, individuals who at the beginning of such period constitute McDermott’s Board of Directors, and any new director whose election or nomination by McDermott’s Board was approved by at least two-thirds of the directors of McDermott’s Board then still in office who either were directors at the beginning of the period or whose election or nomination was previously approved, cease to constitute a majority of McDermott’s Board; |
|
| • | McDermott’s stockholders approve: (1) a merger or consolidation of McDermott with another company, other than a merger or consolidation which would result in McDermott’s voting securities outstanding immediately prior thereto continuing to represent at least 50% of the voting stock of McDermott or such surviving entity outstanding immediately after such merger or consolidation; (2) a plan of complete liquidation of McDermott; or (3) an agreement for the sale or disposition by McDermott of all or substantially all of McDermott’s assets; or |
|
| • | any other set of circumstances as may beis deemed by the Board in its sole discretion to constitute a change in control. |
For a discussion of additional amounts payableSeverance Payment. The severance payment made to a Named Executive, see the “Stock Options, Restricted Stock, Deferred Stock Units and Performance Shares” and “SERP” sections below.
Stock Options, Restricted Stock, Deferred Stock Units and Performance Shares. Under the terms of the awards outstanding for each Named Executive, with the exception of Mr. Fees, in connection with a change in control is a cash payment equal to 200% of the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs. The severance payment made to Mr. Fees in connection with a change in control is a cash payment equal to 299% of the sum of his annual base salary
59
prior to termination and his EICP target award applicable to the year in which the termination occurs. For a hypothetical termination as of December 31, 2008, all unvested stock options, restricted stock and deferred stock units become vested on normal retirement, death, disability and, without regard to2009, the lack of any subsequent termination, a change in control.
Performance shares are subject to accelerated vesting onseverance payment under a change in control without regard towould have been calculated based on the lack of any subsequent termination. Otherwise, performance shares vest in accordance with the original vesting schedule on deathfollowing base salary and disability and may vest at a percentage of the original vesting schedule in the event of termination due to retirement or a reduction in force.
Valuation of Unvested and Accelerated Equity. The amounts reported in the above tables for stock options, restricted stock, deferred stock units and performance shares represent the value of unvested and accelerated shares or units, as applicable, calculated by:target EICP awards:
| | |
| • | for stock options: multiplying the numberMr. Fees: $900,000 base salary and $900,000 target EICP (100% of accelerated options by the difference between the exercise price and the closing price of our common stock on December 31, 2008, as reported on the New York Stock Exchange ($9.88)$900,000); |
|
| • | for restricted stockMr. Taff: $505,000 base salary and performance units: multiplying the number$353,500 target EICP (70% of accelerated shares by the closing price$505,000); |
|
| • | Mr. Bethards: $526,200 base salary and $368,340 target EICP (70% of our common stock on December 31, 2008, as reported on the New York Stock Exchange ($9.88)$526,200); |
|
| • | Mr. Johnson: $750,000 base salary and $637,500 target EICP (85% of $750,000); and |
|
| • | Mr. Deason: $555,000 base salary and $388,500 target EICP (70% of $555,000). |
EICP Payment. The EICP is an annual cash-based performance incentive plan under which payments are made in the year following the year in which performance is measured. For example, 2009 EICP awards are paid in 2010 for performance achieved during 2009. As a result, depending on the timing of the termination relative to the payment of an EICP award, a Named Executive could receive up to two EICP payments in connection with a change in control, as follows:
| | |
| • | If an EICP award for deferred stock units (which represent a rightthe year prior to receivetermination is paid to other EICP participants after the date of the Named Executive’s termination, the Named Executive would be entitled to a cash payment equal to the product of the number of vested unitsNamed Executive’s EICP target percentage and the average ofNamed Executive’s annual base salary for the highestapplicable period. No such payment would have been due a Named Executive on a December 31, 2009 termination, because the 2008 EICP awards had already been paid prior to the Named Executive’s termination date. |
| | |
| • | The Named Executive would be entitled to a prorated EICP payment based upon the Named Executive’s target award for the year in which the termination occurs and lowest sales price of our common stock on the vesting date): multiplying the number of accelerated units bydays in which the average price of the highest and lowest price of our common stockexecutive was employed with us during that year. Based on a hypothetical December 31, 2008, as reported on2009 termination, each Named Executive would have been entitled to an EICP payment equal to 100% of his 2009 target EICP. See the New York Stock Exchange ($9.79).schedule of target EICP amounts for each Named Executive under “Severance Payment” above. |
Definition of “Change in Control.” Under our 2001 D&O Plan, a “change in control” occurs under the same circumstances described above with respect to our change in control agreements.
SERP. The amountsamount reported in the above tables represent 60% ofrepresents Mr. Taff’s SERP balance as of December 31, 20082009 that would become vested in connection with a termination of employment following a change in control. As discussed under “Compensation Discussion and 40% of the other Named Executives’ SERP balancesAnalysis — Post-employment Compensation — Retirement Plans — Supplemental Plans,” Mr. Taff was 100% vested in amounts allocated to his account as of December 31, 2008 that become vested under the various scenarios. Mr. Taff became 60% vested on January 1, 2009 and the other Named Executives becamewas 80% vested on January 1,in amounts allocated to his account during 2009. With respect to a change in control, theThe amount shown would be
52
due to the Named ExecutiveMr. Taff if he is terminated without cause within one year after a change in control. SeeAll other Named Executives, with the “Nonqualified Deferred Compensation” table above for more information regardingexception of Mr. Johnson, are 100% vested in their SERP balance. Mr. Johnson does not participate in the SERP.
Definition of “Change in Control.” Under the SERP, a “change in control” occurs under the same circumstances described above with respect to our change in control agreements.
DefinitionBenefits. The amounts reported represent two times the full annual cost of “Cause.” coverage for medical, dental and vision benefits provided to the Named Executive and the Named Executive’s covered dependents for the year ended December 31, 2009.
TaxGross-Up. If any payment is subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended, we would reimburse the affected Named Executive for all excise taxes imposed under section 4999 and any income and excise taxes that are payable as a result of such reimbursement. The calculation of thesection 4999 gross-up amount in the above table is based upon a section 4999 excise tax rate of 20%, a 35% federal income tax rate, a 1.45% Medicare tax rate and a state income tax rate of 7.75% for Mr. Bethards. Based on the amounts reported, Mr. Deason would not have an excise tax liability. Mr. Johnson’s change in control agreement does not contain a taxgross-up provision.
Equity Awards.Under the SERP,terms of the awards outstanding, all unvested restricted stock, restricted stock units and deferred stock units would become vested on a change in control, regardless of whether there is a subsequent termination for “cause” means:of employment. All unvested stock options would become vested and exercisable on a change in control, regardless of whether there is a subsequent termination of employment. Performance shares are subject to accelerated vesting on a change in control, regardless of whether there is a subsequent termination of employment. Under our 2001 D&O Plan and 2009 LTIP, a “change in control” occurs under the same circumstances described above with respect to ourchange-in-control agreements.
| | |
| • | the overt and willful disobedience of orders or directives issued to a person who participates in the SERP (a “Participant”) that are within the scope of his duties, or any other willful and continued failure of a Participant to perform substantially his duties with McDermott (occasioned by reason other than physical or mental illness or disability) after a written demand for substantial performance is delivered to the Participant by the Compensation Committee or the Chief Executive Officer of McDermott which specifically identifies the manner in which the Compensation Committee or Chief Executive Officer believes that the Participant has not substantially performed his or her duties, after which the Participant shall have 30 days to defend or remedy such failure to substantially perform his or her duties; |
|
| • | the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to McDermott; or |
|
| • | the conviction of the Participant with no further possibility of appeal, or plea ofnolo contendereby the Participant to, any felony or crime of falsehood. |
5360
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERSSecurity Ownership of Directors and Executive Officers
The following table sets forth the number of shares of our common stock beneficially owned as of March 2, 20091, 2010 by each director or nominee as a director, and each Named Executive and all our directors and executive officers as a group, including shares that those persons have the right to acquire within 60 days on the vesting of restricted stock units or the exercise of stock options.
| | | | |
| | Shares
| |
| | Beneficially
| |
Name | | Owned | |
|
Brandon C. Bethards(1) | | | 36,19087,667 | |
John F. Bookout III(2) | | | 20,98627,046 | |
Roger A. Brown(3) | | | 40,16646,226 | |
Ronald C. Cambre(4) | | | 23,63029,690 | |
Robert A. Deason(5) | | | 109,021211,902 | |
John A. Fees(6) | | | 150,261373,722 | |
Robert W. Goldman(7) | | | 15,53621,596 | |
Robert L. Howard(8) Stephen G. Hanks | | | 141,5896,335 | |
Oliver D. Kingsley, Jr.(9) Stephen M. Johnson (8) | | | 34,61618,849 | |
Oliver D. Bradley McWilliams(10) Kingsley, Jr. (9) | | | 54,50640,676 | |
D. Bradley McWilliams (10) | | | 60,566 | |
Adm. Richard W. Mies | | | 1,7827,842 | |
John T. Nesser, IIIThomas C. Schievelbein (11)
| | | 346,62357,891 | |
Thomas C. SchievelbeinMichael S. Taff (12)
| | | 51,83197,439 | |
Michael S. Taff(13) David A. Trice | | | 33,0726,060 | |
Bruce W. Wilkinson(14)
| | | 666,991 | |
All directors and executive officers as a group (20(21 persons)(15) (13) | | | 1,804,7991,655,781 | |
| | |
(1) | | Shares owned by Mr. Bethards include 29,93023,383 shares of common stock that he may acquire on the exercise of stock options, as described above, 19,953 restricted shares of common stock as to which he has sole voting power but no dispositive power, 16,478 shares of common stock that he will acquire on the vesting of restricted stock units, as described above, and 140416 shares of common stock held in the McDermott Thrift Plan. |
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(2) | | Shares owned by Mr. Bookout include 3,150 shares of common stock that he may acquire on the exercise of stock options, as described above, and 1,350 restricted shares of common stock as to which he has sole voting power but no dispositive power. |
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(3) | | Shares owned by Mr. Brown include 19,650 shares of common stock that he may acquire on the exercise of stock options, as described above. |
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(4) | | Shares owned by Mr. Cambre include 1,350 restricted shares of common stock as to which he has sole voting power but no dispositive power. |
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(5) | | Shares owned by Mr. Deason include 30,540 shares of common stock that he may acquire on the exercise of stock options, as described above, 7,6205,080 restricted shares of common stock as to which he has sole voting power but no dispositive power and 271568 shares of common stock held in the McDermott Thrift Plan. |
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(6) | | Shares owned by Mr. Fees include 49,32098,572 shares of common stock that he may acquire on the exercise of stock options, as described above, 32,880 restricted shares of common stock as to which he has sole voting power but no dispositive power, 69,464 shares of common stock that he will acquire on the vesting of restricted stock units, as described above, and 17,34717,690 shares of common stock held in the McDermott Thrift Plan. |
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(7) | | Shares owned by Mr. Goldman include 4,950 shares of common stock that he may acquire on the exercise of stock options, as described above, and 1,350 restricted shares of common stock as to which he has sole voting power but no dispositive power. |
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(8) | | Shares owned by Mr. HowardJohnson include 84,900449 shares of common stock that he may acquire onheld in the exercise of stock options, as described above, and 1,800 restricted shares of common stock as to which he has sole voting power but no dispositive power.McDermott Thrift Plan. |
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| | |
(9) | | Shares owned by Mr. Kingsley include 19,950 shares of common stock that he may acquire on the exercise of stock options, as described above. |
54
| | |
(10) | | Shares owned by Mr. McWilliams include 37,876 shares of common stock that he may acquire on the exercise of stock options, as described above, and 1,800 restricted shares of common stock as to which he has sole voting power but no dispositive power.above. |
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(11) | | Shares owned by Mr. Nesser include 13,010 restricted shares of common stock as to which he has sole voting power but no dispositive power and 13,992 shares of common stock held in the McDermott Thrift Plan. |
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(12) | | Shares owned by Mr. Schievelbein include 37,426 shares of common stock that he may acquire on the exercise of stock options, as described above, and 1,800 restricted shares of common stock as to which he has sole voting power but no dispositive power.above. |
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(13)(12) | | Shares owned by Mr. Taff include 23,00050,278 shares of common stock that he may acquire on the exercise of stock options, as described above, 6,8904,593 restricted shares of common stock as to which he has sole voting power but no dispositive power, 19,223 shares of common stock that he will acquire on the vesting of restricted stock units, as described above, and 1,1821,596 shares of common stock held in the McDermott Thrift Plan. |
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(14) | | Shares owned by Mr. Wilkinson include 10,333 shares of common stock held in the McDermott Thrift Plan. |
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(15)(13) | | Shares owned by all directors and executive officers as a group include 287,842382,755 shares of common stock that may be acquired on the exercise of stock options, as described above, 140,69091,541 restricted shares of common stock as to which they have sole voting power but no dispositive power, 145,319 shares of common stock that will be acquired on the vesting of restricted stock units, as described above, and 49,05542,506 shares of common stock held in the McDermott Thrift Plan. |
Shares beneficially owned in all cases constituted less than one percent of the outstanding shares of common stock on March 2, 2009,1, 2010, as determined in accordance withRule 13d-3(d)(1) under the Securities Exchange Act of 1934.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSSecurity 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 | | ClearBridge Advisors, LLC | | | 15,707,341 | (2) | | | 6.89 | % |
| | 620 8th Avenue New York, NY 10018 | | | | | | | | |
Common Stock | | PRIMECAP Management Company | | | 11,658,622 | (3) | | | 5.10 | % |
| | 225 South Lake Ave., #400 Pasadena, CA 91101 | | | | | | | | |
| | | | | | | | | | |
| | | | Amount and
| | |
| | | | Nature of
| | |
| | | | Beneficial
| | Percent of
|
Title of Class | | Name and Address of Beneficial Owner | | Ownership | | Class(1) |
Common Stock | | T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, MD 21202 | | | 28,706,971 | (2) | | | 12.44 | % |
| | | | | | | | | | |
Common Stock | | PRIMECAP Management Company 225 South Lake Ave., #400, Pasadena, CA 91101 | | | 13,114,160 | (3) | | | 5.68 | % |
| | | | | | | | | | |
Common Stock | | BlackRock Inc. 40 East 52nd Street New York, NY 10022 | | | 11,944,038 | (4) | | | 5.17 | % |
| | |
(1) | | Percent is based on outstanding shares of our common stock on March 2, 2009.1, 2010. |
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(2) | | As reported on Schedule 13G filed with the SEC on February 13, 2009.12, 2010. The Schedule 13G reports beneficial ownership of 15,707,34128,706,971 shares of our common stock, sole voting power over 14,462,1707,314,005 shares and sole dispositive power over 15,707,34128,706,971 shares. |
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(3) | | As reported on Schedule 13G/A filed with the SEC on February 12, 2009.11, 2010. The Schedule 13G/A reports beneficial ownership of 11,658,62213,114,160 shares of our common stock and sole voting power over 6,867,6227,472,760 shares and sole dispositive power over 11,658,62213,114,160 shares. |
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(4) | | As reported on Schedule 13G filed with the SEC on January 29, 2010. The Schedule 13G reports beneficial ownership of 11,944,038 shares of our common stock and sole voting power and sole dispositive power over 11,944,038 shares. |
5562
AUDIT COMMITTEE REPORTAudit Committee Report
The Board of Directors appoints an Audit Committee to review McDermott International, Inc.’s financial matters. Each member of the Audit Committee meets the independence requirements established by the New York Stock Exchange. The Audit Committee is responsible for the appointment, compensation, retention and oversight of McDermott’s independent registered public accounting firm. We are also responsible for recommending to the Board that McDermott’s audited financial statements be included in its Annual Report onForm 10-K for the fiscal year.
In making our recommendation that McDermott’s financial statements be included in its Annual Report onForm 10-K for the year ended December 31, 2008,2009, we have taken the following steps:
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| • | We discussed with Deloitte & Touche LLP (“D&T”), McDermott’s independent registered public accounting firm for the year ended December 31, 2008,2009, those matters required to be discussed by Statements on Auditing Standards Nos. 61 and 90, each as amended, issued by the Auditing Standards Board of the American Institute of Certified Public Accountants, 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. |
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| • | We conducted periodic executive sessions with D&T, with no members of McDermott management present during those discussions. D&T did not identify any material audit issues, questions or discrepancies, other than those previously discussed with management, which were resolved to the satisfaction of all parties. |
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| • | We conducted periodic executive sessions with McDermott’s internal audit department and regularly received reports regarding McDermott’s internal control procedures. |
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| • | We reviewed, and discussed with McDermott’s management and D&T, management’s report and D&T’s report and attestation on internal control over financial reporting, each of which was prepared in accordance with Section 404 of the Sarbanes-Oxley Act. |
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| • | We received and reviewed the written disclosures and the letter from D&T required by applicable requirements of the Public Company Accounting Oversight Board regarding D&T’s communications with the audit committee concerning D&T’s independence from McDermott, and have discussed with D&T their independence from McDermott. We also considered whether the provision of nonaudit services to McDermott is compatible with D&T’s independence. |
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| • | We determined that there were no former D&T employees, who previously participated in the McDermott audit, engaged in a financial reporting oversight role at McDermott. |
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| • | We reviewed, and discussed with McDermott’s management and D&T, McDermott’s audited consolidated balance sheet at December 31, 2008,2009, and consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for the year ended December 31, 2008.2009. |
Based on the reviews and actions described above, we recommended to the Board that McDermott’s audited financial statements be included in its Annual Report onForm 10-K for the year ended December 31, 20082009 for filing with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
D. Bradley McWilliams, Chairman
John F. Bookout, III
Robert W. Goldman
Stephen G. Hanks
Richard W. Mies
David A. Trice
5663
APPROVAL OF THE 2009 McDERMOTT INTERNATIONAL, INC.Ratification of Appointment of Independent Registered Public Accounting Firm
LONG-TERM INCENTIVE PLANfor Year Ending December 31, 2010
(ITEMItem 2)
We are asking our stockholders to approve the 2009 McDermott International, Inc. Long-Term Incentive Plan (the “2009 LTI Plan”). Our current equity incentive plan, the McDermott International, Inc. 2001 Directors & Officers Long-Term Incentive Plan (the “2001 D&O Plan”), will expire in 2011. If our stockholders approve the 2009 LTI Plan, the shares that would be available for issuance under the 2001 D&O Plan would become available for issuance under the 2009 LTI Plan. Accordingly, we do not anticipate making any new awards under the 2001 D&O Plan following stockholder approval of the 2009 LTI Plan.
On February 27, 2009, our Board of Directors adopted, subject to stockholder approval, the 2009 LTI Plan. If approved by stockholders, 9,000,000 shares, plus the shares that would have been available for issuance under the 2001 D&O Plan, will be reserved for issuance under the 2009 LTI Plan.
We believe strongly that the approval of the 2009 LTI Plan is important to our ability to recruit and retain executive officers, directors and key employees with outstanding ability and experience essential to our long-term growth and financial success. We also believe that utilization of the 2009 LTI Plan will promote the alignment of the interests of 2009 LTI Plan participants with those of our stockholders and provide Plan participants with further incentives for outstanding performance.
A summary of the 2009 LTI Plan is set forth below. This summary is, however, qualified in its entirety to the text of the 2009 LTI Plan, which is attached as Appendix A to this proxy statement.
SUMMARY DESCRIPTION OF THE 2009 LTI PLAN
Administration. The 2009 LTI Plan will be administered by the Compensation Committee of our Board of Directors. The Compensation Committee will select the participants and determine the type or types of awards and the number of shares or units to be optioned or granted to each participant under the 2009 LTI Plan. All or part of the award may be subject to conditions established by the Compensation Committee, which may include continued service with our company, achievement of specific business objectives, increases in specified indices, attainment of specified growth rates or other comparable measures of performance. The Compensation Committee will have full and final authority to implement the 2009 LTI Plan and may, from time to time, adopt rules and regulations in order to carry out the terms of the 2009 LTI Plan. As permitted by law, the Compensation Committee may generally delegate its duties under the 2009 LTI Plan to our chief executive officer and other senior officers.
Eligibility. Members of the Board of Directors, executive officers and employees of our company and its subsidiaries, as well as consultants, are eligible to participate in the 2009 LTI Plan. The Compensation Committee will select the participants for the 2009 LTI Plan. Any participant may receive more than one award under the 2009 LTI Plan. Presently, 228 current and former employees and 10 current and former members of the Board of Directors participate in the 2001 D&O Plan. Because the 2009 LTI Plan provides for broad discretion in selecting participants and in making awards, however, the total number of persons who will participate going forward and the respective benefits to be awarded to them cannot be determined at this time.
Shares Available for Issuance through the 2009 LTI Plan. Shares approved under the 2001 D&O Plan which have not been awarded as of the date the 2009 LTI Plan is approved by stockholders, or are subject to awards that are cancelled, terminated, forfeited, expired or settled in cash in lieu of shares, will become available for issuance under the 2009 LTI Plan. As of March 6, 2009, 3,222,073 shares remained available for issuance under the 2001 D&O Plan. By this proposal, we are asking stockholders for authorization to reserve an additional 9,000,000 shares for issuance under the 2009 LTI Plan. No awards will be made under the 2009 LTI Plan until stockholders have approved the 2009 LTI Plan.
The 2009 LTI Plan provides for a number of forms of stock-based compensation, as further described below. The 2009 LTI Plan also permits the reuse or reissuance by the 2009 LTI Plan of shares of common stock underlying canceled, expired, terminated or forfeited awards of stock-based compensation granted under the 2009 LTI Plan.
The Compensation Committee shall make appropriate adjustments in the number and kind of shares that may be issued, the number and kind of shares subject to outstanding awards, the exercise or other applicable price and other value determinations applicable to outstanding awards under the 2009 LTI Plan to reflect any amendment to
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the 2009 LTI Plan, stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event.
Types of Awards Under the 2009 LTI Plan. The Compensation Committee may award to participants incentive and nonqualified stock options, restricted stock, restricted stock units and performance shares and performance units. The forms of awards are described in greater detail below.
Stock Options. The Compensation Committee will have discretion to award incentive stock options and nonqualified stock options. A stock option is a right to purchase a specified number of shares of common stock at a specified grant price. An incentive stock option is intended to qualify as such under Section 422 of the Internal Revenue Code (which we refer to as the “Code”). Under the 2009 LTI Plan, no participant may be granted options during any fiscal year that are exercisable for more than 1,200,000 shares of our common stock. The exercise price of an option may not be less than the fair market value of the underlying shares of common stock on the date of grant. Subject to the specific terms of the 2009 LTI Plan, the Compensation Committee will have discretion to determine the number of shares, the exercise price, the terms and conditions of exercise, whether an option will qualify as an incentive stock option under the Code and set such additional limitations on and terms of option grants as it deems appropriate.
Options granted to participants under the 2009 LTI Plan will expire at such times as the Compensation Committee determines at the time of the grant, but no option will be exercisable later than seven years from the date of grant. Each option award agreement will set forth the extent to which the participant will have the right to exercise the option following termination of the participant’s employment. The termination provisions will be determined within the discretion of the Compensation Committee, may not be uniform among all participants and may reflect distinctions based on the reasons for termination of employment. Dividend equivalents do not attach to stock options.
Upon the exercise of an option granted under the 2009 LTI Plan, the option price is payable in full to us (1) in cash; (2) if permitted in the award agreement, by tendering shares having a fair market value at the time of exercise equal to the total option price (provided such shares have been held for at least six months prior to their tender); (3) if permitted in the award agreement, by a combination of (1) and (2); or (4) by any other method approved by the Compensation Committee in its sole discretion at the time of the grant and as set forth in the related award agreement.
Restricted Stock. The Compensation Committee also will be authorized to award restricted shares of common stock under the 2009 LTI Plan on such terms and conditions as it shall establish. Although recipients will have the right to vote restricted shares from the date of grant, they will not have the right to sell or otherwise transfer the shares during the applicable period of restriction or until earlier satisfaction of other conditions imposed by the Compensation Committee in its sole discretion. The award agreement will specify the periods of restriction, restrictions based on achievement of specific performance objectives, restrictions under applicable federal or state securities laws and such other terms it deems appropriate. Unless the Compensation Committee otherwise determines, participants will receive dividends on their shares of restricted stock. The Compensation Committee in its discretion may apply any restrictions to the dividends that it deems appropriate.
Each award agreement for restricted stock will set forth the extent to which the participant will have the right to retain unvested shares of restricted stock following termination of the participant’s employment. These provisions will be determined in the sole discretion of the Compensation Committee, need not be uniform among all shares of restricted stock issued pursuant to the 2009 LTI Plan and may reflect distinctions based on reasons for termination of employment.
Restricted Stock Units. An award of a restricted stock unit constitutes an agreement by us to deliver shares of our common stock or to pay an amount equal to the fair market value of a share of common stock for each restricted stock unit to a participant in the future in consideration of the performance of services. Restricted stock units may be granted by the Compensation Committee on such terms and conditions as it may establish. The restricted stock unit award agreement will specify the vesting period or periods, the specific performance objectives and such other conditions as may apply to the award. During the applicable vesting period, participants will have no voting rights with respect to the shares of common stock underlying a restricted stock unit grant. However, participants shall, unless the Compensation Committee otherwise determines, receive dividend equivalents on the shares underlying
58
their restricted stock unit grant in the form of cash or additional restricted stock units if a dividend is paid with respect to shares of our common stock.
Each award agreement for restricted stock units will set forth the extent to which the participant will have the right to retain unvested restricted stock units following termination of employment. These provisions will be determined in the sole discretion of the Compensation Committee, need not be uniform among all participants and may reflect distinctions based on reasons for termination of employment.
No more than 1,200,000 shares of common stock may be granted in the form of awards of restricted stock and restricted stock units to any participant in any fiscal year.
Performance Shares and Performance Units. Performance units and performance shares are forms of performance awards that are subject to the attainment of one or more pre-established performance goals during a designated performance period. Performance units and performance shares may be granted by the Compensation Committee at any time in such amounts and on such terms as the Compensation Committee determines. Each performance unit will have an initial value that is established by the Compensation Committee at the time of grant. Each performance share will have an initial value equal to the fair market value of a share of our common stock on the date of grant. The Compensation Committee in its discretion will determine the applicable performance period and will establish performance goals for any given performance period. When the performance period expires, the holder of performance shares or performance units will be entitled to receive a payout on the unitsand/or shares earned over the performance period based on the extent to which the performance goals have been achieved. Participants holding performance sharesand/or performance units are not entitled to receive dividend units for dividends declared with respect to shares of our common stock.
Payments may be made in cash or in shares of common stock that have an aggregate fair market value equal to the earned performance units or performance shares on the last day of the applicable performance period. Each award agreement will set forth the extent to which the participant will have the right to receive a payout of these performance sharesand/or performance units following termination of the participant’s employment. The termination provisions will be determined by the Compensation Committee in its sole discretion, may not be uniform among all participants and may reflect distinctions based on the reasons for termination of employment.
No more than 1,200,000 shares of common stock may be granted in the form of awards of performance shares to any participant in any fiscal year. No more than $6,000,000 may be paid in cash to any participant with respect to performance units granted in any fiscal year, as valued on the date of each grant.
Performance Measures. The Compensation Committee may grant awards under the 2009 LTI Plan to eligible employees subject to the attainment of specified performance measures. The number of performance-based awards granted to an officer or employee in any year will be determined by the Compensation Committee in its sole discretion, subject to the limitations set forth in the 2009 LTI Plan. The value of each performance-based award will be determined based on the achievement of the pre-established, objective performance goals during each performance period. The duration of a performance period is set by the Compensation Committee. A new performance period may begin every year, or at more frequent or less frequent intervals, as determined by the Compensation Committee. The Compensation Committee will establish, in writing, the objective performance goals applicable to the valuation of performance-based awards granted in each performance period, the performance measures that will be used to determine the achievement of those performance goals and any formulas or methods to be used to determine the value of the performance-based awards.
Performance measures will be defined by the Compensation Committee on a consolidated, group or division basisand/or in comparison to one or more peer groups or indices. Performance measures selected by the Compensation Committee will be one or more of the following: cash flow, cash flow return on capital, cash flow return on assets, cash flow return on equity, net income, return on capital, return on assets, return on equity, share price, earnings per share, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, total return to stockholders, operating income and return on net assets. Following the end of a performance period, the Compensation Committee will determine the value of the performance-based awards granted for the period based on its determination of the degree of attainment of the pre-established objective
59
performance goals. The Compensation Committee will also have discretion to reduce (but not to increase) the value of a performance-based award to “Covered Employees,” as defined in Section 162(m) of the Code.
Deferrals. The Compensation Committee will have the discretion to provide for the deferral of an award or to permit participants to elect to defer payment of some or all types of awards in a manner consistent with the requirements of Section 409A of the Code.
Change in Control. The treatment of outstanding awards upon the occurrence of a change in control (as defined in the 2009 LTI Plan) will be determined in the sole discretion of the Compensation Committee and will be described in the applicable award agreements and need not be uniform among all awards granted under the 2009 LTI Plan.
Adjustment and Amendments. The 2009 LTI Plan provides for appropriate adjustments in the number of shares of our common stock subject to awards and available for future awards, as well as the maximum award limitations under the 2009 LTI Plan, in the event of changes in our outstanding common stock by reason of a merger, stock split, or certain other events. The 2009 LTI Plan may be modified, altered, suspended or terminated by the Board of Directors at any time and for any purpose that the Board of Directors deems appropriate, but no amendment to the 2009 LTI Plan shall adversely affect any outstanding awards without the affected participant’s consent, and stockholder approval is required if an amendment will materially modify the 2009 LTI Plan or is otherwise required by applicable law.
Transferability. Except as otherwise specified in a participant’s award agreement, no award granted pursuant to, and no right to payment under, the 2009 LTI Plan will be assignable or transferable by a 2009 LTI Plan participant except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order, and any right granted under the 2009 LTI Plan will be exercisable during a participant’s lifetime only by the participant or by the participant’s guardian or legal representative.
Duration of the 2009 LTI Plan. The 2009 LTI Plan will remain in effect until all options and rights granted thereunder have been satisfied or terminated pursuant to the terms of the 2009 LTI Plan and all performance periods for performance-based awards granted thereunder have been completed. However, in no event will any award be granted under the 2009 LTI Plan on or after May 8, 2019.
United States Federal Income Tax Consequences
The following summary is based on current interpretations of existing federal income tax laws. The discussion below is not purported to be complete, and it does not discuss the tax consequences arising in the context of the participant’s death or the income tax laws of any local, state or foreign country in which the participant’s income or gain may be taxable.
Stock Options. Some of the options issuable under the 2009 LTI Plan may constitute incentive stock options within the meaning of Section 422 of the Code, while other options granted under the 2009 LTI Plan may be nonqualified stock options. The Code provides for tax treatment of stock options qualifying as incentive stock options that may be more favorable to employees than the tax treatment accorded nonqualified stock options.
Generally, upon the grant or exercise of an incentive stock option, the optionee will recognize no income for United States federal income tax purposes. The difference between the exercise price of the incentive stock option and the fair market value of the stock at the time of exercise is, however, an item of tax preference that may require payment of an alternative minimum tax. If the participant disposes of shares acquired by exercise of an incentive stock option either before the expiration of two years from the date the options are granted or within one year after the issuance of shares upon exercise of the incentive stock option (the “holding periods”), the participant will recognize in the year of disposition: (1) ordinary income to the extent that the lesser of either (a) the fair market value of the shares on the date of option exercise or (b) the amount realized upon disposition exceeds the option price and (2) capital gain to the extent the amount realized upon disposition exceeds the fair market value of the shares on the date of option exercise. If the shares are sold after expiration of the holding periods, the participant generally will recognize capital gain or loss equal to the difference between the amount realized upon disposition and the option price.
An optionee will recognize no income on the grant of a nonqualified stock option. Upon the exercise of a nonqualified stock option, the optionee will recognize ordinary taxable income (subject to withholding) in an
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amount equal to the difference between the fair market value of the shares on the date of exercise and the exercise price. Upon any sale of such shares by the optionee, any difference between the sale price and the fair market value of the shares on the date of exercise of the nonqualified option will be treated generally as capital gain or loss.
No deduction is available to us upon the grant or exercise of an incentive stock option (although a deduction may be available if the employee sells the shares so purchased before the applicable holding period expires), whereas upon exercise of a nonqualified stock option, we are entitled to a deduction in an amount equal to the income recognized by the optionee. Except with respect to death or disability of an optionee, an optionee has three months after termination of employment in which to exercise an incentive stock option and retain favorable tax treatment at exercise. An option exercised more than three months after an optionee’s termination of employment (other than upon death or disability) cannot qualify for the tax treatment accorded incentive stock options; such options would be treated as nonqualified stock options instead.
Restricted Stock. A participant generally recognizes no taxable income at the time of an award of restricted stock. A participant may, however, make an election under Section 83(b) of the Code to have the grant taxed as compensation income at the date of receipt, with the result that any future appreciation or depreciation in the value of the shares of stock granted may be taxed as capital gain or loss on a subsequent sale of the shares. If the participant does not make a Section 83(b) election, the grant will be taxed as compensation income at the full fair market value on the date the restrictions imposed on the shares expire. Unless a participant makes a Section 83(b) election, any dividends paid to the participant on the shares of restricted stock will generally be compensation income to the participant and deductible by us as compensation expense. In general, we will receive an income tax deduction for any compensation income taxed to the participant. To the extent a participant realizes capital gains, as described above, we will not be entitled to any deduction for federal income tax purposes.
Restricted Stock Units. A participant who is granted a restricted stock unit will recognize no income upon grant of the restricted stock unit. At the time the underlying shares of common stock (or cash in lieu thereof) are delivered to a participant, the participant will realize compensation income equal to the full fair market value of the shares received. We will be entitled to an income tax deduction corresponding to the compensation income recognized by the participant.
Performance Share or Performance Unit Awards. A participant who is granted a performance share or a performance unit award will recognize no income upon grant of the performance share or a performance unit award. At the time the common stock is received as payment in respect of a performance share or performance unit award, the participant will realize compensation income equal to the fair market value of the shares received. We will be entitled to an income tax deduction corresponding to the compensation income recognized by the participant.
Section 162(m). Under Section 162(m) of the Code, compensation we pay in excess of $1 million for any taxable year to “Covered Employees” generally is deductible by us or our affiliates for federal income tax purposes if it is based on our performance, is paid pursuant to a plan approved by our stockholders and meets certain other requirements. Generally, “Covered Employee” under Section 162(m) of the Code means the chief executive officer and our three highest paid executive officers other than our chief financial officer on the last day of the taxable year.
Section 409A. Section 409A of the Code generally provides that any deferred compensation arrangement must satisfy specific requirements, both in operation and in form, regarding (1) the timing of payment, (2) the election of deferrals, and (3) restrictions on the acceleration of payment. Failure to comply with Section 409A of the Code may result in the early taxation (plus interest) to the participant of deferred compensation and the imposition of a 20% penalty on the participant on such deferred amounts included in the participant’s income. The Company intends to structure awards under the Plan in a manner that is designed to be exempt from or comply with Section 409A of the Code.
Change in Control. The acceleration of the exercisability or the vesting of a grant or award upon the occurrence of a change in control may result in an “excess parachute payment” within the meaning of Section 280G of the Code. A “parachute payment” occurs when an employee receives payments contingent upon a change in control that exceed an amount equal to three times his or her “base amount.” The term “base amount” generally means the average annual compensation paid to such employee during the five-year period preceding the change in control. An “excess parachute payment” is the excess of all parachute payments made to the employee on account of a change in control over the employee’s base amount. If any amount received by an employee is characterized as an
61
excess parachute payment, the employee is subject to a 20% excise tax on the amount of the excess, and the company is denied a deduction with respect to such excess payment.
We currently anticipate that the Compensation Committee will at all times consist of “outside directors” as required for purposes of Section 162(m) of the Code, and that the Compensation Committee will take the effect of Section 162(m) of the Code into consideration in structuring 2009 LTI Plan awards.
New Plan Benefits
The benefits that will be received under the 2009 LTI Plan by particular individuals or groups are not determinable at this time. Although not necessarily indicative of future grants that may be made under the 2009 LTI Plan, the following table sets forth with respect to each individual and group listed (1) the number of shares of restricted stock granted under the 2001 D&O Plan, and (2) the number of performance shares granted under the 2001 D&O Plan in each case during the last fiscal year. No other types of awards were granted under the 2001 D&O Plan during 2008.
| | | | | | | | |
| | Performance
| | | Restricted
| |
Name | | Shares | | | Stock | |
|
John A. Fees | | | 177,850 | | | | 49,320 | |
Michael S. Taff | | | 24,860 | | | | 6,890 | |
Brandon C. Bethards | | | 14,180 | | | | 29,930 | |
Robert A. Deason | | | 27,470 | | | | 7,620 | |
John T. Nesser, III | | | 46,900 | | | | 13,010 | |
All executive officers as a group (10 persons) | | | 332,700 | | | | 131,240 | |
All non-employee directors as a group (9 persons) | | | 0 | | | | 17,046 | |
All employees other than executive officers as a group | | | 300,080 | | | | 207,610 | |
Equity Compensation Plan Information
| | | | | | | | | | | | |
| | Number of
| | | | | | | |
| | Securities to be
| | | | | | Number of
| |
| | Issued Upon
| | | Weighted-Average
| | | Securities
| |
| | Exercise of
| | | Exercise Price of
| | | Remaining
| |
| | Outstanding
| | | Outstanding
| | | Available for
| |
Plan Category | | Options and Rights | | | Options and Rights | | | Future Issuance | |
|
Equity compensation plans approved by security holders | | | 756,164 | | | $ | 5.37 | | | | 6,465,314 | |
Equity compensation plans not approved by security holders(1) | | | 563,870 | | | $ | 3.38 | | | | — | |
Total | | | 1,320,034 | | | $ | 4.52 | | | | 6,465,314 | |
| | |
(1) | | Reflects information on our 1992 Senior Management Stock Plan, which is our only equity compensation plan that has not been approved by our stockholders and that has any outstanding awards that have not been exercised. We are no longer authorized to grant new awards under our 1992 Senior Management Stock Plan. |
Recommendation and Vote Required
Our Board of Directors unanimously recommends a vote “FOR” approval of this proposal. The proxy holders will vote all proxies received for approval of this proposal unless instructed otherwise. Our directors have an interest in and may benefit from the adoption of this proposal because they are eligible to receive awards under the 2009 LTI Plan. Approval of this proposal requires the affirmative vote of a majority of the outstanding shares of common stock present in person or represented by proxy and entitled to vote on this proposal at the Annual Meeting, provided that the total number of votes cast on the proposal represents a majority of the shares outstanding on the Record Date. 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. In general, brokers do not have discretionary authority on proposals relating to equity compensation plans. Therefore, absent instructions from you, your broker may not vote your shares on this proposal. Broker non-votes will have no effect on the vote, as long as the total number of votes cast on the proposal represents a majority of the shares entitled to vote.
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RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR YEAR ENDING DECEMBER 31, 2009
(ITEM 3)
Our Board of Directors has ratified the decision of the Audit Committee to appoint Deloitte & Touche LLP to serve as the independent registered public accounting firm to audit our financial statements for the year ending December 31, 2009.2010. Although we are not required to seek stockholder approval of this appointment, it has been our practice to do so. No determination has been made as to what action the Audit Committee and the Board of Directors would take if our stockholders fail to ratify the appointment. Even if the appointment is ratified, the Audit Committee retains discretion to appoint a new independent registered public accounting firm at any time if the Audit Committee concludes such a change would be in the best interests of McDermott. We expect that representatives of Deloitte & Touche LLP 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.
For the years ended December 31, 20082009 and 2007,2008, McDermott paid Deloitte & Touche fees, including expenses and taxes, totaling $8,097,071$8,649,858 and $7,250,318,$8,097,071, which can be categorized as follows:
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Audit | | | | | | | | |
The Audit fees for the years ended December 31, 2008 and 2007 were for professional services rendered for the audits of the consolidated financial statements of McDermott, the audit of McDermott’s internal control over financial reporting, statutory and subsidiary audits, reviews of the quarterly consolidated financial statements of McDermott and assistance with review of documents filed with the SEC | | $ | 7,208,475 | | | $ | 6,770,200 | |
Audit-Related | | | | | | | | |
The Audit-Related fees for the years ended December 31, 2008 and 2007 were for assurance and related services, employee benefit plan audits and advisory services related to Sarbanes-Oxley Section 404 compliance | | $ | 12,300 | | | $ | 10,118 | |
Tax | | | | | | | | |
The Tax fees for the years ended December 31, 2008 and 2007 were for professional services rendered for consultations on various U.S. federal, state and international tax matters, international tax compliance and tax planning, and assistance with tax examinations | | $ | 807,046 | | | $ | 468,500 | |
All Other | | | | | | | | |
The fees for All Other services for the years ended December 31, 2008 and 2007 were for professional services rendered for translation services and other advisory or consultation services not related to audit or tax | | $ | 69,250 | | | $ | 1,500 | |
Total | | $ | 8,097,071 | | | $ | 7,250,318 | |
| | | | | | | | |
| | 2009 | | | 2008 | |
Audit | | | | | | | | |
The Audit fees for the years ended December 31, 2009 and 2008 were for professional services rendered for the audits of the consolidated financial statements of McDermott, the audit of McDermott’s internal control over financial reporting, statutory and subsidiary audits, reviews of the quarterly consolidated financial statements of McDermott and assistance with review of documents filed with the SEC. | | $ | 7,195,103 | | | $ | 7,208,475 | |
Audit-Related | | | | | | | | |
The Audit-Related fees for the years ended December 31, 2009 and 2008 were for assurance and related services, employee benefit plan audits and advisory services related to Sarbanes-Oxley Section 404 compliance. | | $ | 271,405 | | | $ | 12,300 | |
Tax | | | | | | | | |
The Tax fees for the years ended December 31, 2009 and 2008 were for professional services rendered for consultations on various U.S. federal, state and international tax matters, international tax compliance and tax planning, and assistance with tax examinations. | | $ | 916,131 | | | $ | 807,046 | |
All Other | | | | | | | | |
The fees for All Other services for the years ended December 31, 2009 and 2008 were for professional services rendered for translation services and other advisory or consultation services not related to audit or tax. | | $ | 267,219 | | | $ | 69,250 | |
Total | | $ | 8,649,858 | | | $ | 8,097,071 | |
It is the policy of our Audit Committee to preapprove all audit, review or attest engagements and permissible non-audit services to be performed by our independent registered public accounting firm, subject to, and in compliance with, thede minimisexception for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 and the applicable rules and regulations of the SEC. Our Audit Committee did not rely on thede minimisexception for any of the fees disclosed above.
Recommendation and Vote Required
Our Board of Directors recommends that stockholders vote “FOR” the ratification of the decision of our Audit Committee to appoint Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2009.2010. The proxy holders will vote all proxies received for approval of 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 represented by proxy and entitled to vote on this proposal at the Annual
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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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSCertain Relationships and Related Transactions
Pursuant to our Code of Business Conduct, all employees (including our Named Executives) who have, or whose immediate family members have, any direct or indirect financial or other participation in any business that competes with, supplies goods or services to, or is a customer, of McDermott, are required to disclose to us and receive written approval from our Corporate Ethics and Compliance department prior to transacting such business. Our employees are expected to make reasoned and impartial decisions in the workplace. As a result, approval of the business is denied if we believe that the employee’s interest in such business could influence decisions relative to our business, or have the potential to adversely affect our business or the objective performance of the employee’s work. Our Corporate Ethics and Compliance department implements our Code of Business Conduct and related policies and the Governance Committee of our Board is responsible for overseeing our Ethics and Compliance Program, including compliance with our Code of Business Conduct. Our Board members are also responsible for complying with our Code of Business Conduct. Additionally, our Governance Committee is responsible for reviewing the professional occupations and associations of our Board members and reviews transactions between McDermott and other companies with which our Board members are affiliated. To obtain a copy of our Code of Business Conduct, please see the “Corporate Governance” section above in this proxy statement.
Each of Messrs. Fees, Taff, Bethards, Deason, Nesser,S. Johnson, Baldwin, P. Johnson, and Lewis, Nesser and Ms. Hinrichs has irrevocably elected to satisfy withholding obligations relating to all or a portion of any applicable federal, state or other taxes that may be due on the vesting in the year ending December 31, 20092010 of certain shares of restricted stock, restricted stock units and performance shares awarded under various long-term incentive plans by returning to us the number of such vested shares having a fair market value equal to the amount of such taxes. These elections, which apply to an aggregate of 110,940149,504 shares held by Mr. Fees, 27,04754,519 shares held by Mr. Taff, 32,47770,854 shares held by Mr. Bethards, 56,54030,995 shares held by Mr. S. Johnson, 57,740 shares held by Mr. Deason, 44,837 shares held by Mr. Nesser, 70021,270 shares held by Mr. Baldwin, 90048,366 shares held by Ms. Hinrichs, 9,297 shares held by Mr. P. Johnson, 18,66416,712 shares held by Mr. Lewis and 23,17765,048 shares held by Ms. Hinrichs,Mr. Nesser, are subject to approval of the Compensation Committee of our Board, which approval was granted. In the year ended December 31, 2008, each of Messrs. Wilkinson, Deason and Nesser and our former officers James R. Easter, Francis S. Kalman and Louis J. Sannino made2009, a similar election was made which applied to an aggregate of 82,200, 75,000, 28,200, 11,700, 43,500110,940 shares held by Mr. Fees, 27,047 shares held by Mr. Taff, 32,477 shares held by Mr. Bethards, 156,540 shares held by Mr. Deason, 700 shares held by Mr. Baldwin, 23,177 shares held by Ms. Hinrichs, 900 shares held by Mr. P. Johnson, 18,664 shares held by Mr. Lewis and 18,30044,837 shares respectively,held by Mr. Nesser, that vested in the year ended December 31, 2008.2009. Those elections were also approved by the Compensation Committee. We expect any transfers reflecting shares of restricted stock returned to us will be reported in the SEC filings made by those transferring holders who are obligated to report transactions in our securities under Section 16 of the Securities Exchange Act of 1934.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESection 16(a) Beneficial Ownership Compliance
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, 2008, with the exception of John A. Fees, Chief Executive Officer of McDermott, and Robert W. Goldman, Director. Mr. Fees underreported shares from two transactions in a timely filed Form 4, which was amended two days later to reflect the correct number of shares. Mr. Goldman was late filing a Form 4 to report open market purchases occurring in six broker directed transactions.2009.
65
STOCKHOLDERS’ PROPOSALSStockholders’ Proposals
Any stockholder who wishes to have a qualified proposal considered for inclusion in our proxy statement for our 20102011 Annual Meeting must send notice of the proposal to our Corporate Secretary at our principal executive office no later than November 27, 2009.26, 2010. If you make such a proposal, you must provide your name, address, the number of shares of common stock you hold of record or beneficially, the date or dates on which such common stock was acquired and documentary support for any claim of beneficial ownership.
64
In addition, any stockholder who intends to submit a proposal for consideration at our 20102011 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 November 9, 20098, 2010 or later than January 8, 20107, 2011 and (2) satisfy specified requirements. A copy of the pertinent By-Law provisions can be found on our Web site atwww.mcdermott.comat “Corporate Governance — Governance Policies.”
By Order of the Board of Directors,
LIANE K. HINRICHS
Secretary
Dated: March 27, 200926, 2010
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APPENDIX A
2009 MCDERMOTT INTERNATIONAL, INC.
LONG-TERM INCENTIVE PLAN
ARTICLE I
Establishment, Objectives and Duration
1.1 Establishment of the Plan. McDermott International, Inc., a corporation organized and existing under the laws of the Republic of Panama (hereinafter referred to as the “Company”), hereby establishes an incentive compensation plan to be known as the 2009 McDermott International, Inc. Long-Term Incentive Plan (hereinafter referred to as this “Plan”), as set forth in this document. This Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units (each as hereinafter defined).
Subject to approval by the Company’s stockholders, this Plan shall become effective as of May 8, 2009 (the “Effective Date”) and shall remain in effect as provided in Section 1.3 hereof.
1.2 Objectives. This Plan is designed to promote the success and enhance the value of the Company by linking the personal interests of Participants (as hereinafter defined) to those of the Company’s stockholders, and by providing Participants with an incentive for outstanding performance. This Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the employmentand/or services of Participants.
1.3 Duration. This Plan, as amended and restated, shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board of Directors (as hereinafter defined) to amend or terminate this Plan at any time pursuant to Article 15 hereof, until all Shares (as hereinafter defined) subject to it shall have been purchased or acquired according to this Plan’s provisions; provided, however, that in no event may an Award (as hereinafter defined) be granted under this Plan on or after May 8, 2019.
ARTICLE 2
Definitions
As used in this Plan, the following terms shall have the respective meanings set forth below:
2.1 “Award”means a grant under this Plan of any Nonqualified Stock Option, Incentive Stock Option, Restricted Stock, Restricted Stock Unit, Performance Share or Performance Unit.
2.2 “Award Agreement”means an agreement entered into by the Company and a Participant, setting forth the terms and provisions applicable to an Award granted under this Plan.
2.3 “Award Limitations”has the meaning ascribed to such term in Section 4.2.
2.4 “Beneficial Owner”or“Beneficial Ownership”shall have the meaning ascribed to such term inRule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.5 “Board”or“Board of Directors”means the Board of Directors of the Company.
2.6 “Change in Control”means the occurrence or existence of any of the following facts or circumstances after the Effective Date:
(a) Any person (other than a trustee or other fiduciary holding securities under an Employee benefit plan of the Company or a corporation or other entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company’s then outstanding voting securities;
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APPENDIX A
(b) Within any period of two (2) consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new Directors (other than a Director designated by a Person who has entered into an agreement with the Company to effect any transaction described in Clause (a), (c), (d) or (e) of this Section 2.6) whose election by the Board or nomination for election by the stockholders of the Company, was approved by a vote of at least two-thirds (2/3) of the Directors, then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;
(c) A merger or consolidation of the Company, with any other corporation or other entity has been consummated, other than a merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company or the surviving entity outstanding immediately after such merger or consolidation;
(d) The shareholders of the Company approve: (i) a plan of complete liquidation of the Company; or (ii) an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or
(e) Within one year following the consummation of a merger or consolidation transaction involving the Company (whether as a constituent corporation, the acquiror, the direct or indirect parent entity of the acquiror, the entity being acquired, or the direct or indirect parent entity of the entity being acquired): (i) individuals who, at the time of the execution and delivery of the definitive agreement pursuant to which such transaction has been consummated by the parties thereto (a “Definitive Transaction Agreement”) (or, if there are multiple such agreements relating to such transaction, the first time of execution and delivery by the parties to any such agreement) (the “Execution Time”), constituted the Board cease, for any reason (excluding death, disability or voluntary resignation but including any such voluntary resignation effected in accordance with any Definitive Transaction Agreement), to constitute a majority of the Board; or (ii) either individual who, at the Execution Time, served as the Chief Executive Officer or Chief Financial Officer of the Company does not, for any reason (excluding as a result of death, disability or voluntary termination but including any such voluntary termination effected in accordance with any Definitive Transaction Agreement), serve as the Chief Executive Officer or Chief Financial Officer, as applicable, of the Company or, if the Company does not continue as a registrant with a class of equity securities registered pursuant to Section 12(b) of the Exchange Act, as the Chief Executive Officer or Chief Financial Officer, as applicable, of a corporation or other entity that is (A) a registrant with a class of equity securities registered pursuant to Section 12(b) of the Exchange Act and (B) the surviving entity in such transaction or a direct or indirect parent entity of the surviving entity or the Company following the consummation of such transaction; provided, however, that a Change in Control shall not be deemed to have occurred pursuant to this clause (e) in the case of a merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 55% of the combined voting power of the voting securities of the Company or the surviving entity outstanding immediately after such merger or consolidation.
However, in no event shall a “Change in Control” be deemed to have occurred with respect to a Participant if the Participant is part of the purchasing group which consummates a transaction resulting in aChange-in-Control. A Participant shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the non-employee continuing Directors).
2.7 “Code”means the Internal Revenue Code of 1986, as amended from time to time.
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APPENDIX A
2.8 “Committee”means the Compensation Committee of the Board, or such other committee of the Board appointed by the Board to administer this Plan (or the entire Board if so designated by the Board by written resolution), as specified in Article 3 hereof.
2.9 “Company”means McDermott International, Inc., a corporation organized and existing under the laws of the Republic of Panama, and, except where the context otherwise indicates, shall include the Company’s Subsidiaries and, except with respect to the definition of “Change in Control” set forth above and the application of any defined terms used in such definition, any successor to any of such entities as provided in Article 18 hereof.
2.10 “Consultant”means a natural person who is neither an Employee nor a Director and who performs services for the Company or a Subsidiary pursuant to a contract, provided that those services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.
2.11 “Director”means any individual who is a member of the Board of Directors;provided, however, that any member of the Board of Directors who is employed by the Company shall be considered an Employee under this Plan.
2.12 “Disability”in the case of an Employee, shall have the meaning ascribed to such term in the Participant’s governing long-term disability plan and, in the case of a Director or Consultant, shall mean a permanent and total disability within the meaning of Section 22 (e)(3) of the Code, as determined by the Committee in good faith, upon receipt of medical advice that the Committee deems sufficient and competent, from one or more individuals selected by the Committee who are qualified to provide professional medical advice.
2.13 “Effective Date”shall have the meaning ascribed to such term in Section 1.1 hereof.
2.14 “Employee”means any person who is employed by the Company.
2.15 “Exchange Act”means the Securities Exchange Act of 1934, as amended from time to time.
2.16 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
2.17 “Fair Market Value”of a Share shall mean, as of a particular date, (a) if Shares are listed on a national securities exchange, the closing sales price per Share on the consolidated transaction reporting system for the principal national securities exchange on which Shares are listed on that date, or, if no such sale is so reported on that date, on the last preceding date on which such a sale was so reported, (b) if no Shares are so listed but are traded on an over-the-counter market, the mean between the closing bid and asked prices for Shares on that date, or, if there are no such quotations available for that date, on the last preceding date for which such quotations are available, as reported by the National Quotation Bureau Incorporated, or (c) if no Shares are publicly traded, the most recent value determined by an independent appraiser appointed by the Company for that purpose.
2.18 “Fiscal Year”means the year commencing January 1 and ending December 31.
2.19 “Incentive Stock Option”or“ISO”means an Option to purchase Shares granted under Article 6 hereof and which is designated as an Incentive Stock Option and is intended to meet the requirements of Code Section 422, or any successor provision.
2.20 “Named Executive Officer”means a Participant who, as of the date of vestingand/or payout of an award is one of the group of “covered employees” as defined in Section 162(m) of the Code and the regulations promulgated thereunder.
2.21 “Nonqualified Stock Option”or“NQSO”means an option to purchase Shares granted under Article 6 hereof and which is not an Incentive Stock Option.
2.22 “Officer”means an Employee of the Company included in the definition of “Officer” under Section 16 of the Exchange Act and rules and regulations promulgated thereunder or such other Employees who are designated as “Officers” by the Board.
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APPENDIX A
2.23 “Option”means an Incentive Stock Option or a Nonqualified Stock Option.
2.24 “Option Price”means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee.
2.25 “Participant”means an eligible Officer, Director, Consultant or Employee who has been selected for participation in this Plan in accordance with Section 5.2.
2.26 “Performance-Based Award”means an Award that is designed to qualify for the Performance-Based Exception.
2.27 “Performance-Based Exception”means the performance-based exception from the deductibility limitations of Code Section 162(m).
2.28 “Performance Period”means, with respect to a Performance-Based Award, the period of time during which the performance goals specified in such Award must be met in order to determine the degree of payoutand/or vesting with respect to that Performance-Based Award.
2.29 “Performance Share”means an Award designated as such and granted to an Employee, as described in Article 8 hereof.
2.30 “Performance Unit”means an Award designated as such and granted to an Employee, as described in Article 8 herein.
2.31 “Period of Restriction”means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, in its sole discretion) as set forth in the related Award Agreement,and/or the Shares are subject to a substantial risk of forfeiture, as provided in Article 7 hereof.
2.32 “Person”shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Section 13(d) and 14(d) thereof, including a “group” (as that term is used in Section 13(d)(3) thereof).
2.33 “Restricted Stock”means an Award designated as such and granted to a Participant pursuant to Article 7 hereof.
2.34 “Restricted Stock Unit”or“RSU”means a contractual promise to distribute to a Participant one Share or cash equal to the Fair Market Value of one Share, determined in the sole discretion of the Committee, which shall be delivered to the Participant upon satisfaction of the vesting and any other requirements set forth in the related Award Agreement.
2.35 “Retirement”shall have the meaning ascribed to such term by the Committee, as set forth in the applicable Award Agreement.
2.36 “Shares”means the common stock, par value $1.00 per share, of the Company.
2.37 “Subsidiary”means any corporation, partnership, joint venture, affiliate or other entity in which the Company has a majority voting interest and which the Committee designates as a participating entity in this plan.
2.38 “Vesting Period”means the period during which an Award granted hereunder is subject to a service or performance-related restriction, as set forth in the related Award Agreement.
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APPENDIX A
ARTICLE 3
Administration
3.1 The Committee. This Plan shall be administered by the Committee. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors.
3.2 Authority of the Committee. Except as limited by law or by the Articles of Incorporation or Amended and Restated By-Laws of the Company (each as amended from time to time), the Committee shall have full and exclusive power and authority to take all actions specifically contemplated by this Plan or that are necessary or appropriate in connection with the administration hereof and shall also have full and exclusive power and authority to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as the Committee may deem necessary or proper. The Committee shall have full power and sole discretion to: select Officers, Directors, Consultants and Employees who shall be granted Awards under this Plan; determine the sizes and types of Awards; determine the time when Awards are to be granted and any conditions that must be satisfied before an Award is granted; determine the terms and conditions of Awards in a manner consistent with this Plan; determine whether the conditions for earning an Award have been met and whether a Performance-Based Award will be paid at the end of an applicable performance period; determine the guidelinesand/or procedures for the payment or exercise of Awards; and determine whether a Performance-Based Award should qualify, regardless of its amount, as deductible in its entirety for federal income tax purposes, including whether a Performance-Based Award granted to an Officer should qualify as performance-based compensation. The Committee may, in its sole discretion, accelerate the vesting or exercisability of an Award, eliminate or make less restrictive any restrictions contained in an Award, waive any restriction or other provision of this Plan or any Award or otherwise amend or modify any Award in any manner that is either (a) not adverse to the Participant to whom such Award was granted or (b) consented to in writing by such Participant, and (c) consistent with the requirements of Code Section 409A, if applicable. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to further this Plan’s objectives. Further, the Committee shall make all other determinations that may be necessary or advisable for the administration of this Plan. As permitted by law and the terms of this Plan, the Committee may delegate its authority as identified herein.
3.3 Delegation of Authority. To the extent permitted under applicable law, the Committee may delegate to the Chief Executive Officer and to other senior officers of the Company its duties under this Plan pursuant to such conditions or limitations as the Committee may establish; provided however, the Committee may not delegate any authority to grant Awards to a Director.
3.4 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of this Plan and all related orders and resolutions of the Committee shall be final, conclusive and binding on all persons concerned, including the Company, its stockholders, Officers, Directors, Employees, Consultants, Participants and their estates and beneficiaries.
ARTICLE 4
Shares Subject to this Plan
4.1 Number of Shares Available for Grants of Awards. Subject to adjustment as provided in Section 4.3 hereof, there is reserved for issuance of Awards under this Plan nine million (9,000,000) Shares. Shares subject to Awards under this Plan that are cancelled, forfeited, terminated or expire unexercised, shall immediately become available for the granting of Awards under this Plan. Additionally, Shares approved pursuant to the 2001 Directors and Officers Long Term Incentive Plan which have not been awarded as of the Effective Date, or are subject to awards that are canceled, terminated, forfeited, expire unexercised, are settled in cash in lieu of Shares, or are exchanged for consideration that does not involve Shares will immediately become available for Awards. The Committee may from time to time adopt and observe such procedures concerning the counting of Shares against this Plan maximum as it may deem appropriate.
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APPENDIX A
4.2 Limits on Grants in Any Fiscal Year. The following rules (“Award Limitations”) shall apply to grants of Awards under this Plan:
(a) Options. The maximum aggregate number of Shares issuable pursuant to Awards of Options that may be granted in any one Fiscal Year of the Company to any one Participant shall be one million two hundred thousand (1,200,000).
(b) Restricted Stock and Restricted Stock Units. The maximum aggregate number of Shares subject to Awards of Restricted Stock and RSUs that may be granted in any one Fiscal Year to any one Participant shall be one million two hundred thousand (1,200,000).
(c) Performance Shares. The maximum aggregate number of Shares subject to Awards of Performance Shares that may be granted in any one Fiscal Year to any one Participant shall be one million two hundred thousand (1,200,000).
(d) Performance Units. The maximum aggregate cash payout with respect to Performance Units granted in any one Fiscal Year to any one Participant shall be six million dollars ($6,000,000), with such cash value determined as of the date of each grant.
4.3 Adjustments in Authorized Shares. The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Shares) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above.
If there shall be any change in the Shares of the Company or the capitalization of the Company through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split,split-up, spin-off, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution (other than normal cash dividends) to stockholders of the Company, the Committee, in its sole discretion, in order to prevent dilution or enlargement of Participants’ rights under this Plan, shall adjust, in such manner as it deems equitable, as applicable, the number and kind of Shares that may be granted as Awards under this Plan, the number and kind of Shares subject to outstanding Awards, the exercise or other price applicable to outstanding Awards, the Awards Limitations, the Fair Market Value of the Shares and other value determinations applicable to outstanding Awards;provided, however, that the number of Shares subject to any Award shall always be a whole number. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Committee shall be authorized, in its sole discretion, to: (a) grant or assume Awards by means of substitution of new Awards, as appropriate, for previously granted Awards or to assume previously granted Awards as part of such adjustment; (b) make provision, prior to the transaction, for the acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, Awards and the termination of Options that remain unexercised at the time of such transaction; (c) provide for the acceleration of the vesting and exercisability of Options and the cancellation thereof in exchange for such payment as the Committee, in its sole discretion, determines is a reasonable approximation of the value thereof; (d) cancel any Awards and direct the Company to deliver to the Participants who are the holders of such Awards cash in an amount that the Committee shall determine in its sole discretion is equal to the fair market value of such Awards as of the date of such event, which, in the case of any Option, shall be the amount equal to the excess of the Fair Market Value of a Share as of such date over the per-share exercise price for such Option (for the avoidance of doubt, if such exercise price is less than such Fair Market Value, the Option may be canceled for no consideration); or (e) cancel Awards that are Options and give the Participants who are the holders of such Awards notice and opportunity to exercise prior to such cancellation.
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ARTICLE 5
Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in this Plan include all Officers, Directors, Employees and Consultants, as determined in the sole discretion of the Committee.
5.2 Actual Participation. Subject to the provisions of this Plan, the Committee may, from time to time, select from all Officers, Directors, Employees and Consultants, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Officer, Director, Employee or Consultant shall have the right to be selected for Participation in this Plan, or, having been so selected, to be selected to receive a future award.
ARTICLE 6
Options
6.1 Grant of Options. Subject to the terms and provisions of this Plan, Options may be granted to Participants in such number, upon such terms, at any time, and from time to time, as shall be determined by the Committee;provided, however,that ISOs may be awarded only to Employees. Subject to the terms of this Plan, the Committee shall have discretion in determining the number of Shares subject to Options granted to each Participant.
6.2 Option Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine that are not inconsistent with the terms of this Plan. The Award Agreement also shall specify whether the Option is intended to be an ISO or an NQSO (provided that, in the absence of such specification, the Option shall be an NQSO).
6.3 Option Price. The Option Price for each grant of an Option under this Plan shall be as determined by the Committee;provided, however, that, subject to any subsequent adjustment that may be made pursuant to the provisions of Section 4.3 hereof, the Option Price shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted. Except as otherwise provided in Section 4.3 hereof, without prior stockholder approval no repricing of Options awarded under this Plan shall be permitted such that the terms of outstanding Options may not be amended to reduce the Option Price and further Options may not be replaced or regranted through cancellation, in exchange for cash, other Awards, or if the effect of the replacement or regrant would be to reduce the Option Price of the Options or would constitute a repricing under generally accepted accounting principles in the United States (as applicable to the Company’s public reporting).
6.4 Duration of Options. Subject to any earlier expiration that may be effected pursuant to the provisions of Section 4.3 hereof, each Option shall expire at such time as the Committee shall determine at the time of grant;provided, however, that an Option shall not be exercisable later than the seventh (7th) anniversary date of its grant.
6.5 Exercise of Options. Options granted under this Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
6.6 Payment. Any Option granted under this Article 6 shall be exercised by the delivery of a notice of exercise to the Company in the manner prescribed in the related Award Agreement, setting forth the number of Shares with respect to which the Option is to be exercised, and either (i) accompanied by full payment of the Option Price for the Shares issuable on such exercise or (ii) exercised in a manner that is in accordance with applicable law and the “cashless exercise” procedures (if any) approved by the Committee involving a broker or dealer.
The Option Price upon exercise of any Option shall be payable to the Company in full: (a) in cash; (b) by tendering previously acquired Shares valued at their Fair Market Value per Share at the time of exercise (provided that the Shares which are tendered must have been held by the Participant for at least six (6) months prior to their tender); (c) by a combination of (a) and (b); or (d) any other method approved by the Committee, in its sole discretion.
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Subject to any governing rules or regulations, as soon as practicable after receipt of a notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option.
6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Plan as it may deem advisable, including, without limitation, restrictions under applicable U.S. federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listedand/or traded, and under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment, Service or Directorship. Each Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s employment, service or directorship with the Companyand/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in each Award Agreement entered into with a Participant with respect to an Option Award, need not be uniform among all Options granted pursuant to this Article 6 and may reflect distinctions based on the reasons for termination.
6.9 Transferability of Options.
(a) Incentive Stock Options. No ISO granted under this Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA, or the regulations thereunder. Further, all ISOs granted to a Participant under this Plan shall be exercisable during his or her lifetime only by such Participant.
(b) Nonqualified Stock Options. Except as otherwise provided in a Participant’s Award Agreement, NQSOs granted under this Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA, or the regulations thereunder. Further, except as otherwise provided in a Participant’s Award Agreement, all NQSOs granted to a Participant under this Plan shall be exercisable during his or her lifetime only by such Participant.
ARTICLE 7
Restricted Stock
7.1 Grant of Restricted Stock. Subject to the terms and provisions of this Plan, the Committee at any time, and from time to time, may grant Shares as Restricted Stock (“Shares of Restricted Stock”) to Participants in such amounts as the Committee shall determine.
7.2 Restricted Stock Award Agreement. Each Award of Restricted Stock shall be evidenced by an Award Agreement that shall specify the Period of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine.
7.3 Transferability. Except as provided in the Participant’s related Award Agreementand/or this Article 7, the Shares of Restricted Stock granted to a Participant under this Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the related Award Agreement entered into with that Participant, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Award Agreement. During the applicable Period of Restriction, all rights with respect to the Restricted Stock granted to a Participant under this Plan shall be available during his or her lifetime only to such Participant. Any attempted assignment of Restricted Stock in violation of this Section 7.3 shall be null and void.
7.4 Other Restrictions. The Committee may impose such other conditionsand/or restrictions on any Shares of Restricted Stock granted pursuant to this Plan as it may deem advisable, including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based
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upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goalsand/or restrictions under applicable U.S. federal or state securities laws.
To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditionsand/or restrictions applicable to such Shares have been satisfied or have lapsed.
7.5 Removal of Restrictions. Except as otherwise provided in this Article 7, Shares of Restricted Stock covered by each Restricted Stock Award made under this Plan shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or have lapsed.
7.6 Voting Rights. To the extent permitted by the Committee or required by law, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares during the applicable Period of Restriction.
7.7 Dividends. During the applicable Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder shall, unless the Committee otherwise determines, be credited with cash dividends paid with respect to the Shares, in a manner determined by the Committee in its sole discretion. The Committee may apply any restrictions to the dividends that it deems appropriate.
7.8 Termination of Employment, Service or Directorship. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested Shares of Restricted Stock following termination of the Participant’s employment, service or directorship with the Companyand/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in each Award Agreement entered into with a Participant with respect to Shares of Restricted Stock, need not be uniform among all Shares of Restricted Stock granted pursuant to this Article 7 and may reflect distinctions based on the reasons for termination.
ARTICLE 8
Performance Units and Performance Shares
8.1 Grant of Performance Units/Shares. Subject to the terms of this Plan, Performance Units and Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
8.2 Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to one hundred percent (100%) of the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in its discretion that, depending on the extent to which they are met, will determine the numberand/or value of Performance Units/Shares which will be paid out to the Participant.
8.3 Earning of Performance Units/Shares. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payment of the number and value of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved.
8.4 Form and Timing of Payment of Performance Units/Shares. Subject to the provisions of Article 12 hereof, Payment of earned Performance Units/Shares to a Participant shall be made no later than March 15 following the end of the calendar year in which such Performance Units/Shares vest, or as soon as administratively practicable thereafter if payment is delayed due to unforeseeable events. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Units/Shares in the form of cash or in Shares (or in a combination thereof) that have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period. Any Shares issued or transferred to a Participant for this purpose may be granted subject to any restrictions that are deemed appropriate by the Committee.
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8.5 Termination of Employment, Service or Directorship. Each Award Agreement providing for a Performance Unit/Share shall set forth the extent to which the Participant shall have the right to receive a payout of cash or Shares with respect to unvested Performance Unit/Shares following termination of the Participant’s employment, service or directorship with the Companyand/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with the Participant, need not be uniform among all Awards of Performance Units/Shares granted pursuant to this Article 8 and may reflect distinctions based on the reasons for termination.
8.6 Transferability. Except as otherwise provided in a Participant’s related Award Agreement, Performance Units/Shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA, or the regulations thereunder. Further, except as otherwise provided in a Participant’s related Award Agreement, a Participant’s rights with respect to Performance Units/Shares granted to that Participant under this Plan shall be exercisable during the Participant’s lifetime only by the Participant. Any attempted assignment of Performance Units/Shares in violation of this Section 8.6 shall be null and void.
ARTICLE 9
Restricted Stock Units
9.1 Grant of RSUs. Subject to the terms and provisions of this Plan, the Committee at any time, and from time to time, may grant RSUs to eligible Participants in such amounts as the Committee shall determine.
9.2 RSU Award Agreement. Each RSU Award to a Participant shall be evidenced by an RSU Award Agreement entered into with that Participant, which shall specify the Vesting Period, the number of RSUs granted, and such other provisions as the Committee shall determine in its sole discretion.
9.3 Transferability. Except as provided in a Participant’s related Award Agreement, RSUs granted hereunder may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA, or the regulations thereunder. Further, except as otherwise provided in a Participant’s related Award Agreement, a Participant’s rights with respect to an RSU Award granted to that Participant under this Plan shall be available during his or her lifetime only to such Participant. Any attempted assignment of an RSU Award in violation of this Section 9.3 shall be null and void.
9.4 Form and Timing of Delivery. If a Participant’s RSU Award Agreement provides for payment in cash, payment equal to the Fair Market Value of the Shares underlying the RSU Award, calculated as of the last day of the applicable Vesting Period, shall be made in a single lump-sum payment. If a Participant’s RSU Award Agreement provides for payment in Shares, the Shares underlying the RSU Award shall be delivered to the Participant. Such payment of cash or Shares shall be made no later than March 15 following the end of the calendar year during which the RSU Award vests, or as soon as practicable thereafter if payment is delayed due to unforeseeable events. Such delivered Shares shall be freely transferable by the Participant.
9.5 Voting Rights and Dividends. During the applicable Vesting Period, Participants holding RSUs shall not have voting rights with respect to the Shares underlying such RSUs. During the applicable Vesting Period, Participants holding RSUs granted hereunder shall, unless the Committee otherwise determines, be credited with dividend equivalents, in the form of cash or additional RSUs (as determined by the Committee in its sole discretion), if a cash dividend is paid with respect to the Shares. The extent to which dividend equivalents shall be credited shall be determined in the sole discretion of the Committee. Such dividend equivalents shall be subject to a Vesting Period equal to the remaining Vesting Period of the RSUs with respect to which the dividend equivalents are paid.
9.6 Termination of Employment, Service or Directorship. Each RSU Award Agreement shall set forth the extent to which the applicable Participant shall have the right to receive a payout of cash or Shares with respect to unvested RSUs following termination of the Participant’s employment, service or directorship with the Companyand/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be
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included in each Award Agreement entered into with a Participant with respect to RSUs, need not be uniform among all RSUs granted pursuant to this Article 9 and may reflect distinctions based on the reasons for termination.
ARTICLE 10
Performance Measures
10.1 Performance Measures. Unless and until the Committee proposes and shareholders approve a change in the general performance measures set forth in this Article 10, the attainment of which may determine the degree of payoutand/or vesting with respect to Awards to Named Executive Officers which are designed to qualify for the Performance-Based Exception, the performance measure(s) to be used for purposes of such grants shall be chosen from among the following alternatives:
(a) Cash Flow;
(b) Cash Flow Return on Capital;
(c) Cash Flow Return on Assets;
(d) Cash Flow Return on Equity;
(e) Net Income;
(f) Return on Capital;
(g) Return on Assets;
(h) Return on Equity;
(i) Share Price;
(j) Earnings Per Share;
(k) Earnings Before Interest and Taxes;
(l) Earnings Before Interest, Taxes, Depreciation and Amortization;
(m) Total Return to Shareholders;
(n) Operating Income; and
(o) Return on Net Assets.
Subject to the terms of this Plan, each of these measures shall be defined by the Committee on a consolidated, group or division basis or in comparison to one or more peer group companies or indices, and may include or exclude specified extraordinary items as defined by the Company’s auditors.
10.2 Adjustments. The Committee shall have the sole discretion to adjust determinations of the degree of attainment of the pre-established performance goals; provided, however, that Awards which are designed to qualify for the Performance-Based Exception and which are held by Named Executive Officers may not be adjusted upwards on a discretionary basis. The Committee shall retain the discretion to adjust such Awards downward.
10.3 Compliance with Code Section 162(m). In the event that applicable taxand/or securities laws or regulations change to permit Committee discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards to Named Executive Officers which shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements of Code Section 162(m) and the regulations issued thereunder. Any performance-based Awards granted to Officers or Directors that are not intended to qualify as qualified performance-based compensation under Section 162(m) of the Code shall be based on achievement of
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such performance measure(s) and be subject to such terms, conditions and restrictions as the Committee shall determine.
ARTICLE 11
Beneficiary Designation
Each Participant under this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Plan is to be paid in case of the Participant’s death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.
ARTICLE 12
Deferrals
The Committee may, in its sole discretion, permit selected Participants to elect to defer payment of some or all types of Awards, or may provide for the deferral of an Award in an Award Agreement; provided, however, that the timing of any such election and payment of any such deferral shall be specified in the Award Agreement and shall conform to the requirements of Code Section 409A(a)(2), (3) and (4) and the regulations and rulings issued thereunder. Any deferred payment, whether elected by a Participant or specified in an Award Agreement or by the Committee, may be forfeited if and to the extent that the applicable Award Agreement so provides.
ARTICLE 13
Rights of Employees, Directors and Consultants
13.1 Employment or Service. Nothing in this Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment or service at any time, nor confer upon any Participant any right to continue in the employ or service of the Company.
13.2 No Contract of Employment. Neither an Award nor any benefits arising under this Plan shall constitute part of a Participant’s employment contract with the Company or any Subsidiary, and accordingly, subject to the provisions of Article 15 hereof, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Board without giving rise to liability on the part of the Company or any Subsidiary for severance payments.
13.3 Transfers Between Participating Entities. For purposes of this Plan, a transfer of a Participant’s employment between the Company and a Subsidiary, or between Subsidiaries, shall not be deemed to be a termination of employment. Upon such a transfer, the Committee may make such adjustments to outstanding Awards as it deems appropriate to reflect the change in reporting relationships.
ARTICLE 14
Change in Control
The treatment of outstanding Awards upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges shall be determined in the sole discretion of the Committee and shall be described in the Award Agreements and need not be uniform among all Awards granted pursuant to this Plan.
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ARTICLE 15
Amendment, Modification and Termination
15.1 Amendment, Modification, and Termination. The Board may at any time and from time to time, alter, amend, suspend or terminate this Plan in whole or in part,provided, however,that shareholder approval shall be required for any amendment that materially alters the terms of this Plan or is otherwise required by applicable legal requirements. No amendment or alteration that would adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant.
15.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.3 hereof) affecting the Company or the financial statements of the Company or in recognition of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan.
ARTICLE 16
Withholding
The Company shall have the right to deduct applicable taxes from any Award payment and withhold, at the time of delivery or vesting of cash or Shares under this Plan, or at the time applicable law otherwise requires, an appropriate amount of cash or number of Shares or a combination thereof for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee may permit withholding to be satisfied by the transfer to the Company of Shares theretofore owned by the holder of the Award with respect to which withholding is required. If Shares are used to satisfy tax withholding, such Shares shall be valued at their Fair Market Value on the date when the tax withholding is required to be made.
ARTICLE 17
Indemnification
Each person who is or shall have been a member of the Committee, or of the Board, or an officer of the Company to whom the Committee has delegated authority in accordance with Article 3 hereof, shall be indemnified and held harmless by the Company against and from: (a) any loss, cost, liability, or expense that may be imposed upon or reasonable incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan, except for any such action or failure to act that constitutes willful misconduct on the part of such person or as to which any applicable statute prohibits the Company from providing indemnification; and (b) any and all amounts paid by him or her in settlement of any claim, action, suit or proceeding as to which indemnification is provided pursuant to clause (a) of this sentence, with the Company’s approval, or paid by him or her in satisfaction of any judgment or award in any such action, suit or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.
The foregoing right of indemnification shall be in addition to any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or Amended and Restated By-Laws (each, as amended from time to time), as a matter of law, or otherwise.
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ARTICLE 18
Successors
All obligations of the Company under this Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the direct or indirect result of a merger, consolidation, purchase of all or substantially all of the businessand/or assets of the Company or other transaction.
ARTICLE 19
General Provisions
19.1 Restrictions and Legends. No Shares or other form of payment shall be issued or transferred with respect to any Award unless the Company shall be satisfied that such issuance or transfer will be in compliance with applicable U.S. federal and state securities laws. The Committee may require each person receiving Shares pursuant to an Award under this Plan to represent to and agree with the Company in writing that the Participant is acquiring the Shares for investment without a view to distribution thereof. Any certificates evidencing Shares delivered under this Plan (to the extent that such Shares are so evidenced) may be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Shares are then listed or to which they are admitted for quotation and any applicable U.S. federal or state securities law. In addition to any other legend required by this Plan, any certificates for such Shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer of such Shares.
19.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular and the singular shall include the plural.
19.3 Severability. If any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
19.4 Requirements of Law. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
19.5 Uncertificated Shares. To the extent that this Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange or transaction reporting system on which the Shares are listed or to which the Shares are admitted for quotation.
19.6 Unfunded Plan. Insofar as this Plan provides for Awards of cash, Shares or rights thereto, it will be unfunded. Although the Company may establish bookkeeping accounts with respect to Participants who are entitled to cash, Shares or rights thereto under this Plan, it will use any such accounts merely as a bookkeeping convenience. Participants shall have no right, title or interest whatsoever in or to any investments that the Company may make to aid it in meeting its obligations under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts, except as expressly set forth in this Plan. This Plan is not intended to be subject to ERISA.
19.7 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to this Plan or any Award. The Committee shall determine whether cash, Awards or other property shall be delivered or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
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19.8 Governing Law. This Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, will be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any conflicts of laws provisions thereof that would result in the application of the laws of any other jurisdiction.
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VOTE*** Exercise Your Right to Vote *** IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS Meeting Information MCDERMOTT INTERNATIONAL, INC. Meeting Type: Annual Meeting Date: May 7, 2010 Time: 9:30 a.m. CDT For holders as of: March 8, 2010 Location: McDermott International, Inc. 757 N. Eldridge Parkway 14th Floor Houston, Texas 77079 You are receiving this communication because you hold shares in the above named company. This is not a ballot. You cannot use this notice to vote MCDERMOTT INTERNATIONAL, INC. these shares. This communication presents only an 777 NORTH ELDRIDGE PARKWAY HOUSTON, TX 77079 overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. See the reverse side of |
Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: NOTICE AND PROXY STATEMENT ANNUAL REPORT How to View Online: Have the 12-Digit Control Number available (located in the box on the following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET — www.proxyvote.comUseINTERNET: www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the 12-Digit Control Number (located in the box on the following page) in the subject line. Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before April 25, 2010 to facilitate timely delivery. How To Vote Please Choose One of the Following Voting Methods Vote In Person: Please check the meeting materials for any special requirements for meeting attendance. At the Meeting you will need to request a ballot to vote these shares. Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M.p.m. Eastern Time on May 7, 20096, 2010 (May 5, 20094, 2010 for participants in McDermott’s Thrift Plan). Have the 12 Digit Control Number (located in the box on M21026-P91520 the following page) available and follow the instructions. Vote By Mail or Telephone: You can vote by mail or telephone by requesting a paper copy of the materials, which will include a proxy card with further instructions. |
Voting Items The Board of Directors recommends that you vote FOR the following: 1. Election of Directors Nominees: 01) John F. Bookout, III 07) Oliver D. Kingsley, Jr. 02) Roger A. Brown 08) D. Bradley McWilliams 03) Ronald C. Cambre 09) Richard W. Mies 04) John A. Fees 10) Thomas C. Schievelbein 05) Robert W. Goldman 11) David A. Trice 06) Stephen G. Hanks The Board of Directors recommends you vote FOR the following proposal: 2. Ratification of appointment of McDermott’s independent registered public accounting firm for the year ending December 31, 2010. P91520 -M21027 |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date MCDERMOTT INTERNATIONAL, INC. M20989-P91520 MCDERMOTT INTERNATIONAL, INC. 777 NORTH ELDRIDGE PARKWAY HOUSTON, TX 77079 To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. Please indicate if you plan to attend this meeting. For Against Abstain 2. Ratification of appointment of McDermott’s independent registered public accounting firm for the year ending December 31, 2010. For address changes and/or comments, please check this box and write them on the back where indicated. For All Withhold All For All Except 0 0 0 0 0 0 Yes No 0 0 0 Vote on Directors 01) John F. Bookout, III 02) Roger A. Brown 03) Ronald C. Cambre 04) John A. Fees 05) Robert W. Goldman 06) Stephen G. Hanks 1. Election of Directors Nominees: Vote on Proposal VOTE BY INTERNET — www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on May 6, 2010 (May 4, 2010 for participants in McDermott’s Thrift Plan). Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and MCDERMOTT INTERNATIONAL, INC.toto create an electronic voting instruction form.777 N. ELDRIDGE PARKWAYVOTEform. VOTE BY PHONE — 1-800-690-6903HOUSTON, TX 77079Use1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M.p.m. Eastern Time on May 7, 20096, 2010 (May 5, 20094, 2010 for participants in McDermott’s Thrift Plan). Have your proxy card in hand when you call and then follow the instructions.VOTEinstructions. VOTE BY MAILMark,MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717, so that it is received prior to the Annual Meeting on May 8, 2009.ELECTRONIC11717. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALSIfMATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receivereceiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK:MCDMI1KEEP THIS TOP PORTION FOR YOUR RECORDSTHIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.DETACH AND RETURN THIS PORTION ONLYMCDERMOTT INTERNATIONAL, INC.For Withhold For All To withhold authority to vote for any individual All All Except nominee(s), mark “For All Except” and write theThe Board of Directors recommends a vote “FOR“number(s) of the nominee(s) on the line below. Items 1, 2 and 3.Vote On Directors0 0 01.Election of DirectorsNominees as Class I Directors:01) Roger A. Brown 02) John A. Fees 03) Oliver D. Kingsley, Jr.Nominees as Class II Directors:04) D. Bradley McWilliams 05) Richard W. Mies 06) Thomas C. SchievelbeinFor Against AbstainVote On Proposals2.Approve the 2009 McDermott International, Inc. Long-Term Incentive Plan.0 0 03.Ratification of appointment of McDermott’s independent registered public accounting firm for the year ending December 31, 2009.0 0 0Theyears. The shares represented by this proxy when properly executed will be voted in the manner directed herein by the undersigned Stockholder(s).If. If no direction is made, this proxy will be voted FOR items 1 2 and 3.2. If any other matters properly come before the meeting, the person named in this proxy will vote in their discretion.For address changes and/or comments, please check this0 box and write them ondiscretion. The Board of Directors recommends that you vote FOR the back where indicated.Yes Nofollowing: The Board of Directors recommends you vote FOR the following proposal: 07) Oliver D. Kingsley, Jr. 08) D. Bradley McWilliams 09) Richard W. Mies 10) Thomas C. Schievelbein 11) David A. Trice Please indicate if you plan to attend this meeting.0 0Please sign your name exactly as it appears hereon. When signing as attorney, executor, administrator, trustee, guardian or guardian,other fiduciary, please add yourgive full title as such. When signing as joint tenants, all parties in the joint tenancy must sign. If a signer is a corporation or partnership, please sign in full corporate or partnership name, by duly authorized officer.Signature [PLEASE SIGN WITHIN BOX]DateSignature (Joint Owners)Dateofficer. |
McDermott International, Inc.AnnualAddress Changes/Comments: (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) McDERMOTT INTERNATIONAL, INC. This proxy is solicited on behalf of the Board of Directors Annual Meeting of Stockholders — Friday, May 8, 2009 at7, 2010 9:30 a.m. 757 N. Eldridge Parkway, 14thFl.Houston, TX, 77079Dear Stockholder:McDermott International, Inc. encourages you to vote the shares electronically through the Internet or the telephone, which are available 24 hours a day, 7 days a week. This eliminates the need to return the proxy card.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 the shares electronically, there is no need for you to mail back the proxy card.Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Notice and Proxy Statement, 10-K and Shareholder Letter are available at www.proxyvote.com.IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPEMCDMI2McDermott International, Inc.THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSANNUAL MEETING OF STOCKHOLDERS - Friday, May 8, 2009The undersigned hereby appoints John A. Fees and Liane K. Hinrichs, and each of them individually as proxies, each with the power to appoint (his/her) substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of McDermott International, Inc.MCDERMOTT INTERNATIONAL, INC. (“McDermott”), that the stockholder(s) is/are entitled to vote at the Annual Meeting of StockholdersStockholder(s) to be held at 9:30 a.m., CDT, on Friday, May 8, 2009,7, 2010, at 757 N. Eldridge Parkway, 14th Floor, Houston, TX, 77079, and any adjournment or postponement thereof.THISthereof. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS AND FOR EACH PROPOSAL.THETHE PROPOSAL. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF MCDERMOTT’S ANNUAL REPORT FOR YEAR ENDED DECEMBER 31, 20082009 AND ITSNOTICEITS NOTICE OF 20092010 ANNUAL MEETING AND RELATED PROXY STATEMENT.ATTENTIONSTATEMENT. ATTENTION PARTICIPANTS IN MCDERMOTT’S THRIFT PLAN: If you hold shares of McDermott common stock through The Thrift Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies (the “Thrift Plan”), this proxy covers all shares for which the undersigned has the right to give voting instructions to Vanguard Fiduciary Trust Company (“Vanguard”), Trustee of the McDermott Thrift Plan. Your proxy must be received no later than 11:59 P.M.p.m. Eastern Time on May 5, 2009.4, 2010. Any shares of McDermott common stock held in the Thrift Plan that are not voted or for which Vanguard does not receive timely voting instructions, will be voted in the same proportion as the shares for which Vanguard receives timely voting instructions from other participants in the Thrift Plan.PLEASEPlan. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPEAddress Changes/Comments: (If you noted any Address Changes/Comments above, please mark corresponding box onCARD ENVELOPE Important Notice Regarding the reverse side.)Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. CONTINUED AND TO BE SIGNED ON REVERSE SIDE |
MCDERMOTT INTERNATIONAL, INC. Shareholder Meeting to be held on 5/8/2009 ** IMPORTANT NOTICE ** Proxy Materials Available Regarding the Availability of Proxy Materials• Notice and Proxy Statement• Form 10-K You are receiving this communication because you hold shares in the• Shareholder Letter above company, and the materials you should review before you cast your vote are now available. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting. PROXY MATERIALS — VIEW OR RECEIVE You can choose to view the materials online or receive a paper or e-mail copy. There is NO charge for requesting a copy. To facilitate timely delivery please make the request as instructed below on or before 4/24/09. MCDERMOTT INTERNATIONAL, INC. HOW TO VIEW MATERIALS M20990-P91520 IF YOU HAVE NOT VOTED VIA THE INTERNET 777 N. ELDRIDGE PARKWAY HOUSTON, TX 77079 HaveOR TELEPHONE, FOLD ALONG PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE Dear Stockholder: McDermott International, Inc. encourages you to vote the 12 Digit Control Numbershares electronically through the Internet or the telephone, which are available and visit: www.proxyvote.com HOW TO REQUEST A COPY OF MATERIALS 1) BY INTERNET — www.proxyvote.com 2) BY TELEPHONE — 1-800-579-1639 3) BY E-MAIL* — sendmaterial@proxyvote.com *If requesting materials by e-mail, please send24 hours a blank e-mail withday, 7 days a week. This eliminates the 12 Digit Control Number (located onneed to return the following page)proxy card. Your electronic vote authorizes the named proxies in the subject line. R1MDI1 Seesame manner as if you marked, signed, dated and returned the Reverse Sideproxy card. If you choose to vote the shares electronically, there is no need for you to mail back the proxy card. McDermott International, Inc. Annual Meeting Information and Instructions on How to Vote |
Meeting Information How To Vote Meeting Type: Annual Vote In Person Meeting Date: 5/8/2009 Please check the meeting materials for any special Meeting Time:Friday, May 7, 2010 at 9:30 a.m. requirements for meeting attendance. At the meeting, you For holders as of: 3/9/09 will need to request a ballot to vote these shares. Meeting Location: McDermott International, Inc. 757 N. Eldridge Parkway, 14th Fl. Houston, TX 77079 Vote By Internet To vote now by Internet, go to WWW.PROXYVOTE.COM. Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on May 7, 2009 (May 5, 2009 for participants in McDermott’s Thrift Plan). Have your notice in hand when you access the web site and follow the instructions. R1MDI2 |
Voting items The Board of Directors recommends a vote “FOR” Items 1, 2 and 3. 1. Election of Directors Nominees as Class I Directors: 01) Roger A. Brown 02) John A. Fees 03) Oliver D. Kingsley, Jr. Nominees as Class II Directors: 04) D. Bradley McWilliams 05) Richard W. Mies 06) Thomas C. Schievelbein 2. Approve the 2009 McDermott International, Inc. Long-Term Incentive Plan. 3. Ratification of appointment of McDermott’s independent registered public accounting firm for the year ending December 31, 2009. R1MDI3 |
MCDERMOTT INTERNATIONAL, INC. Shareholder Meeting to be held on 5/8/2009 ** IMPORTANT NOTICE ** Proxy Materials Available Regarding the Availability of Proxy Materials• Notice and Proxy Statement• Form 10-K You are receiving this communication because you hold shares in the above company, and the materials you should review before you cast your• Shareholder Letter vote are now available. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting. PROXY MATERIALS — VIEW OR RECEIVE You can choose to view the materials online or receive a paper or e-mail copy. There is NO charge for requesting a copy. Requests, instructions and other inquiries will NOT be forwarded to your investment advisor. To facilitate timely delivery please make the request as instructed below on or before 4/24/09. HOW TO VIEW MATERIALS VIA THE INTERNET Have the 12 Digit Control Number available and visit: www.proxyvote.com HOW TO REQUEST A COPY OF MATERIALS 1) BY INTERNET — www.proxyvote.com 2) BY TELEPHONE — 1-800-579-1639 3) BY E-MAIL* — sendmaterial@proxyvote.com *If requesting materials by e-mail, please send a blank e-mail with the 12 Digit Control Number (located on the following page) in the subject line. B1MDI1 See the Reverse Side for Meeting Information and Instructions on How to Vote |
Meeting Information How To Vote Vote In Person Meeting Type: Annual Meeting Date: 5/8/2009 Should you choose to vote these shares in person at the meeting you must request a “legal proxy.” To request a Meeting Time: 9:30 a.m. legal proxy please follow the instructions at For holders as of: 3/9/09 www.proxyvote.com or request a paper copy of the materials. Many shareholder meetings have attendance Meeting Location: requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the McDermott International, Inc. meeting. Please check the meeting materials for any special requirements for meeting attendance. 757 N. Eldridge Parkway, 14th Fl. Houston, TX 77079 Vote By Internet To vote now by Internet, go to WWW.PROXYVOTE.COM. Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your notice in hand when you access the web site and follow the instructions. B1MDI2 |
Voting items The Board of Directors recommends a vote “FOR” Items 1, 2 and 3. 1. Election of Directors Nominees as Class I Directors: 01) Roger A. Brown 02) John A. Fees 03) Oliver D. Kingsley, Jr. Nominees as Class II Directors: 04) D. Bradley McWilliams 05) Richard W. Mies 06) Thomas C. Schievelbein 2. Approve the 2009 McDermott International, Inc. Long-Term Incentive Plan. 3. Ratification of appointment of McDermott’s independent registered public accounting firm for the year ending December 31, 2009. B1MDI3 |
Voting items Continued Voting Instructions B1MDI4 |