-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LxHOSDhWjgyqrkPUy6sY5ycS08KPB7IBsTrEK10CV+NYvAG6NynsRZC8vynuUYOk f6JybmbVLAtvBGfX9FQBGQ== 0000950129-02-003792.txt : 20020731 0000950129-02-003792.hdr.sgml : 20020731 20020731114440 ACCESSION NUMBER: 0000950129-02-003792 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCEANEERING INTERNATIONAL INC CENTRAL INDEX KEY: 0000073756 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 952628227 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10945 FILM NUMBER: 02715568 BUSINESS ADDRESS: STREET 1: 11911 FM 529 CITY: HOUSTON STATE: TX ZIP: 77041 BUSINESS PHONE: 713-329-4500 MAIL ADDRESS: STREET 1: 11911 FM 529 CITY: HOUSTON STATE: TX ZIP: 77041 10-Q 1 h98549e10vq.txt OCEANEERING INTERNATIONAL, INC.- JUNE 30, 2002 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ Commission File Number 1-10945 OCEANEERING INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-2628227 - ---------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11911 FM 529 Houston, Texas 77041 ----------------------------------- (Address of principal executive offices) (Zip Code) (713) 329-4500 ----------------------------------- (Registrant's telephone number, including area code) Not Applicable ----------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at July 26, 2002 - ----------------------------- ---------------------------- Common Stock, $.25 Par Value 24,760,487 shares
PAGE 1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, Dec. 31, 2002 2001 --------- --------- ASSETS Current Assets: Cash and cash equivalents $ 26,454 $ 10,474 Accounts receivable, net of allowance for doubtful accounts of $1,305 and $1,349 143,868 154,364 Prepaid expenses and other 45,251 40,380 --------- --------- Total current assets 215,573 205,218 --------- --------- Property and Equipment, at cost 577,839 573,738 Less: accumulated depreciation (249,651) (231,402) --------- --------- Net property and equipment 328,188 342,336 --------- --------- Goodwill, net of amortization of $9,225 and $9,221 14,282 13,884 --------- --------- Other Assets 19,910 18,173 --------- --------- TOTAL ASSETS $ 577,953 $ 579,611 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 26,764 $ 28,902 Accrued liabilities 71,444 74,193 Income taxes payable 15,223 10,739 --------- --------- Total current liabilities 113,431 113,834 --------- --------- Long-term Debt, net of current portion 120,000 170,000 --------- --------- Other Long-term Liabilities 43,889 44,344 --------- --------- Commitments and Contingencies Shareholders' Equity 300,633 251,433 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 577,953 $ 579,611 ========= =========
See Notes to Consolidated Financial Statements. PAGE 2 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Six Months Ended June 30, June 30, -------------------------- -------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- (in thousands, except per share amounts) Revenue $ 141,549 $ 132,223 $ 280,398 $ 236,477 Cost of Services and Products 110,782 107,482 220,888 190,932 ---------- ---------- ---------- ---------- Gross margin 30,767 24,741 59,510 45,545 Selling, General and Administrative Expenses 11,488 10,619 22,399 21,135 ---------- ---------- ---------- ---------- Income from operations 19,279 14,122 37,111 24,410 Interest Income 134 124 204 205 Interest Expense, net of capitalized interest of $585 and $1,930 in the three- and six-month periods in 2001 (2,355) (2,624) (4,682) (4,503) Other Income (Expense), Net (883) 251 (770) (233) ---------- ---------- ---------- ---------- Income before income taxes 16,175 11,873 31,863 19,879 Provision for Income Taxes (5,661) (4,156) (11,152) (6,958) ---------- ---------- ---------- ---------- Net Income $ 10,514 $ 7,717 $ 20,711 $ 12,921 ========== ========== ========== ========== Basic Earnings per Share $ 0.43 $ 0.33 $ 0.85 $ 0.55 Diluted Earnings per Share $ 0.42 $ 0.32 $ 0.84 $ 0.54 Weighted average number of common shares 24,667 23,464 24,347 23,313 Incremental shares from stock options 393 558 407 523 Weighted average number of common shares and equivalents 25,060 24,022 24,754 23,836
See Notes to Consolidated Financial Statements. PAGE 3 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, -------------------------- 2002 2001 ---------- ---------- (in thousands) Cash Flows from Operating Activities: Net Income $ 20,711 $ 12,921 ---------- ---------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 25,243 20,993 Currency translation adjustments and other 5,812 (834) Increase (decrease) in cash from: Accounts receivable 10,496 (31,183) Prepaid expenses and other current assets (4,596) (7,033) Other assets (379) (137) Current liabilities 437 15,215 Other long-term liabilities 1,695 1,350 ---------- ---------- Total adjustments to net income 38,708 (1,629) ---------- ---------- Net Cash Provided by Operating Activities 59,419 11,292 ---------- ---------- Cash Flows from Investing Activities: Purchases of property and equipment and other (8,836) (27,829) ---------- ---------- Net Cash Used in Investing Activities (8,836) (27,829) ---------- ---------- Cash Flows from Financing Activities: Net proceeds from (payments of) revolving credit and other long-term debt (50,000) 9,927 Proceeds from issuance of common stock 15,397 7,612 ---------- ---------- Net Cash Provided by (Used in) Financing Activities (34,603) 17,539 ---------- ---------- Net Increase in Cash and Cash Equivalents 15,980 1,002 Cash and Cash Equivalents - Beginning of Year 10,474 9,911 ---------- ---------- Cash and Cash Equivalents - End of Period $ 26,454 $ 10,913 ========== ==========
See Notes to Consolidated Financial Statements. PAGE 4 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Significant Accounting Policies These consolidated financial statements are unaudited, have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission and do not include all information and footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles. These financial statements reflect all adjustments that Oceaneering's management believes are necessary to present fairly Oceaneering's financial position at June 30, 2002 and its results of operations and cash flows for the periods presented. All such adjustments are of a normal and recurring nature. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Oceaneering's Annual Report on Form 10-K for the year ended December 31, 2001. The results for interim periods are not necessarily indicative of annual results. 2. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following:
June 30, Dec. 31, 2002 2001 -------- -------- (in thousands) Spare parts for remotely operated vehicles $ 13,408 $ 14,316 Inventories, primarily raw materials 15,944 9,385 Deferred taxes 10,634 10,359 Other 5,265 6,320 -------- -------- Total $ 45,251 $ 40,380 ======== ========
3. Debt Long-term Debt consisted of the following:
June 30, Dec. 31, 2002 2001 -------- -------- (in thousands) 6.72% Senior Notes $100,000 $100,000 Revolving credit facility -- 23,000 Term Loan agreement 20,000 47,000 -------- -------- Total $120,000 $170,000 ======== ========
During the quarter ended June 30, 2002, Oceaneering prepaid $21 million of the principal owed under its Term Loan agreement. As a result of the prepayment, the remaining scheduled maturities of the Term Loan changed. Oceaneering had an interest rate hedge in place that effectively fixed LIBOR at 3.24% for the Term Loan. Oceaneering revised the hedge to match the rescheduled maturities of the Term Loan. Oceaneering charged $118,000 to interest expense in the three- and six-month periods ended June 30, 2002 as a result of this change. Scheduled maturities of Long-term Debt as of June 30, 2002 were as follows:
Revolving (in thousands) 6.72% Notes Credit Facility Term Loan Total -------------- ----------- --------------- --------- -------- Remainder of 2002 $ -- $ -- $ 2,400 $ 2,400 2003 -- -- 4,800 4,800 2004 -- -- 12,800 12,800 2005 -- -- -- -- 2006 20,000 -- -- 20,000 Thereafter 80,000 -- -- 80,000 ----------- -------- --------- -------- Total $ 100,000 $ -- $ 20,000 $120,000 =========== ======== ========= ========
Maturities before June 2003 are not classified as current as of June 30, 2002 since Oceaneering can extend the maturity by borrowing under the revolving credit facility with a maturity date after one year. PAGE 5 4. Shareholders' Equity Shareholders' Equity consisted of the following:
June 30, Dec. 31, 2002 2001 -------- -------- (in thousands) Common Stock, par value $0.25; 90,000,000 shares authorized; 24,756,737 and 24,017,046 shares issued $ 6,189 $ 6,004 Additional paid-in capital 100,443 84,105 Treasury stock; 249,872 shares in 2001, at average cost -- (3,353) Retained earnings 205,626 184,915 Other comprehensive income (11,625) (20,238) -------- -------- Total shareholders' equity $300,633 $251,433 ======== ========
5. Income Taxes Cash taxes paid were $5.9 million and $5.4 million for the six months ended June 30, 2002 and 2001, respectively. 6. Business Segment Information Oceaneering supplies a comprehensive range of technical services and specialty products to customers in a variety of industries. Oceaneering's Offshore Oil and Gas business consists of four business segments: Remotely Operated Vehicles ("ROVs"), Subsea Products, Mobile Offshore Production Systems and Other Services. Oceaneering's Advanced Technologies business is a separate segment that provides project management, engineering services and equipment for applications outside the oil and gas industry. There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from those used in Oceaneering's consolidated financial statements for the year ended December 31, 2001. The following summarizes certain financial data by business segment:
For the Three Months Ended For the Six Months Ended ---------------------------------------- ------------------------- June 30, June 30, March 31, June 30, June 30, 2002 2001 2002 2002 2001 ---------- ---------- ---------- ---------- ---------- (in thousands) Revenue Offshore Oil and Gas ROVs $ 37,616 $ 40,584 $ 36,136 $ 73,752 $ 72,818 Subsea Products 36,458 27,194 32,558 69,016 49,355 Mobile Offshore Production Systems 12,474 11,130 12,227 24,701 18,109 Other Services 32,440 27,722 31,121 63,561 47,489 ---------- ---------- ---------- ---------- ---------- Total Offshore Oil and Gas 118,988 106,630 112,042 231,030 187,771 Advanced Technologies 22,561 25,593 26,807 49,368 48,706 ---------- ---------- ---------- ---------- ---------- Total $ 141,549 $ 132,223 $ 138,849 $ 280,398 $ 236,477 ========== ========== ========== ========== ========== Gross Margins Offshore Oil and Gas ROVs $ 9,852 $ 12,544 $ 8,553 $ 18,405 $ 22,376 Subsea Products 7,832 259 6,223 14,055 3,287 Mobile Offshore Production Systems 4,419 2,591 5,443 9,862 4,445 Other Services 4,870 4,659 5,018 9,888 6,731 ---------- ---------- ---------- ---------- ---------- Total Offshore Oil and Gas 26,973 20,053 25,237 52,210 36,839 Advanced Technologies 3,794 4,688 3,506 7,300 8,706 ---------- ---------- ---------- ---------- ---------- Total $ 30,767 $ 24,741 $ 28,743 $ 59,510 $ 45,545 ========== ========== ========== ========== ==========
PAGE 6 7. Comprehensive Income Comprehensive income is the total of net income and all nonowner changes in equity. The amounts of comprehensive income for the three- and six-month periods ended June 30, 2002 and 2001 are as follows:
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- (in thousands) Net Income per Consolidated Statements of Income $ 10,514 $ 7,717 $ 20,711 $ 12,921 Foreign Currency Translation Gains (Losses) 9,838 (2,090) 8,796 (5,329) Change in Fair Value of Interest Rate Hedge (442) -- (183) -- -------- -------- -------- -------- Comprehensive Income $ 19,910 $ 5,627 $ 29,324 $ 7,592 ======== ======== ======== ========
Amounts comprising other elements of comprehensive income in Shareholders' Equity:
June 30, 2002 December 31, 2001 ------------- ----------------- (in thousands) Accumulated Net Foreign Currency Translation Adjustments $(11,506) $(20,302) Fair Value of Interest Rate Hedge (119) 64 -------- -------- $(11,625) $(20,238) ======== ========
8. New Accounting Standards In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for all business combinations entered into after June 30, 2001. SFAS No. 141 also specifies criteria intangible assets must meet to be recognized and reported apart from goodwill. SFAS No. 142 changes the accounting method for goodwill from an amortization to an impairment-only approach. SFAS No. 142 was effective for Oceaneering's quarter ended March 31, 2002, and early adoption of this statement was not permitted. Oceaneering completed the impairment tests of goodwill as of January 1, 2002 and determined that its goodwill is not impaired. Goodwill amortization expense was $316,000 and $633,000 for the three- and six-month periods ended June 30, 2001. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. All statements in this Form 10-Q, other than statements of historical facts, including, without limitation, statements regarding our business strategy, plans for future operations and industry conditions, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we refer to under the headings "Business -- Risks and Insurance" and "Cautionary Statement Concerning Forward-Looking Statements" in Part I of our Annual Report on Form 10-K for the year ended December 31, 2001. Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to be correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information. Material Changes in Financial Condition We consider our liquidity and capital resources adequate to support our operations and capital commitments. At June 30, 2002, we had working capital of $102 million. Additionally, we had $80 million of borrowing capacity available under our revolving credit facility. Our capital expenditures were $12 million during the six months ended June 30, 2002, as compared to $28 million during the corresponding period of last year. Capital expenditures in the current year consisted of expenditures relating to the addition of units to our fleet of ROVs to replace older units we retired. Prior-year expenditures consisted of final costs related to the conversion of a jackup drilling rig to a mobile production unit, the Ocean Legend, and additions to our fleet of ROVs. We had no material commitments for capital expenditures at June 30, 2002. PAGE 7 At June 30, 2002, we had long-term debt of $120 million and a 29% debt-to-total capitalization ratio. We have $100 million of Senior Notes outstanding, to be repaid from 2006 through 2010. We have an $80 million revolving credit facility, under which we had no outstanding borrowings and $80 million available for future borrowings at June 30, 2002. This facility is scheduled to expire in October 2003. We also have a term loan facility that is to be repaid through April 2004. At June 30, 2002, we had $20 million in outstanding borrowings under the term loan facility. Both the revolving credit and term loan facilities have short-term interest rates that float with market rates, plus applicable spreads. We have effectively fixed the interest rate on the term loan at approximately 4% through an interest rate swap. We have no off balance sheet debt and have not guaranteed any debt not reflected on our consolidated balance sheets. Results of Operations We operate in five business segments. The segments are contained within two businesses - services and products provided to the offshore oil and gas industry ("Offshore Oil and Gas") and all other services and products ("Advanced Technologies"). Our segments within the Offshore Oil and Gas business are Remotely Operated Vehicles ("ROVs"), Subsea Products, Mobile Offshore Production Systems and Other Services. We report our Advanced Technologies business as one segment. Consolidated revenue and margin information is as follows:
For the Three Months Ended For the Six Months Ended ---------------------------------------- ------------------------- June 30, June 30, March 31, June 30, June 30, 2002 2001 2002 2002 2001 ---------- ---------- ---------- ---------- ---------- (in thousands) Revenue $ 141,549 $ 132,223 $ 138,849 $ 280,398 $ 236,477 Gross margin 30,767 24,741 28,743 59,510 45,545 Gross margin % 22% 19% 21% 21% 19% Operating margin % 14% 11% 13% 13% 10%
Our Offshore Oil and Gas business results are influenced by the level of capital spending by oil and gas companies in the offshore sector, particularly in deepwater, that is, at water depths of 1,000 feet or more. In the first half of 2002, we have seen a decrease in deepwater exploration activity, particularly in the Gulf of Mexico. We expect this trend to reverse later in 2002 or 2003. We generate a material amount of our consolidated revenue from contracts for marine services in the Gulf of Mexico and North Sea, which are usually more active from April through November compared to the rest of the year. However, our exit from the diving sector in the North Sea in early 1998 and the substantial number of multiyear ROV contracts that we entered into since calendar year 1997 have reduced the seasonality of our Other Services and ROV operations. Revenues in our Mobile Offshore Production Systems, Subsea Products and Advanced Technologies segments are generally not seasonal. PAGE 8 OFFSHORE OIL AND GAS The table below sets forth our revenues and gross margins for our Offshore Oil and Gas business for the periods indicated.
For the Three Months Ended For the Six Months Ended ------------------------------------- ------------------------ June 30, June 30, March 31, June 30, June 30, 2002 2001 2002 2002 2001 -------- -------- --------- -------- -------- (in thousands, except for percentages) ROVs Revenue $ 37,616 $ 40,584 $ 36,136 $ 73,752 $ 72,818 Gross margin 9,852 12,544 8,553 18,405 22,376 Gross margin % 26% 31% 24% 25% 31% Work class utilization % 70% 79% 70% 70% 75% Subsea Products Revenue $ 36,458 $ 27,194 $ 32,558 $ 69,016 $ 49,355 Gross margin 7,832 259 6,223 14,055 3,287 Gross margin % 21% 1% 19% 20% 7% Mobile Offshore Production Systems Revenue $ 12,474 $ 11,130 $ 12,227 $ 24,701 $ 18,109 Gross margin 4,419 2,591 5,443 9,862 4,445 Gross margin % 35% 23% 45% 40% 25% Other Services Revenue $ 32,440 $ 27,722 $ 31,121 $ 63,561 $ 47,489 Gross margin 4,870 4,659 5,018 9,888 6,731 Gross margin % 15% 17% 16% 16% 14% Total Offshore Oil and Gas Revenue $118,988 $106,630 $ 112,042 $231,030 $187,771 Gross margin 26,973 20,053 25,237 52,210 36,839 Gross margin % 23% 19% 23% 23% 20%
ROV segment gross margin had been increasing over the past several years due to both additional units available for service and higher utilization rates. The higher utilization rates had resulted from the return to service of more floating drilling rigs and a rise in offshore construction-related activities. This trend reversed in the first quarter of 2002 as there was weakness in the semi-submersible drilling market, particularly in the Gulf of Mexico where we have a large market share of ROV drill support. Our ROV revenues and margins slightly improved in the second quarter over the first quarter, although not to the levels of the second quarter of 2001. The improvement was primarily achieved in our foreign operations. We are forecasting ROV results similar to those of the second quarter for each of the third and fourth quarters of 2002. Our Subsea Products results improved over the corresponding periods of the prior year because our umbilical plants are now producing under contracts that were awarded in improved market conditions. During the first half of 2001, we were producing a large steel tube umbilical order, the largest umbilical contract we had ever undertaken, at a loss. It was bid and undertaken during a period of reduced demand. The completion of this project in the first half of 2001 freed up capacity at our U.K. plant for profitable work. Our Subsea Products gross margin percentage increased from the immediately preceding quarter, as our U.K. plant had more thermoplastic umbilical work on which we generally earn higher margin percentages, as compared to steel tube umbilicals, due to lower subcontractor content. While our outlook for the Subsea Products segment is highly positive based on the projected growth in subsea wellhead completions, we anticipate this segment's results will be slightly lower in the second half of 2002 as compared to the first half based on our reduced level of backlog of $45 million at June 30, 2002 as compared to $61 million at December 31, 2001. Our Mobile Offshore Production Systems gross margins were higher than the corresponding periods of 2001. The Ocean Producer began operations in the fourth quarter of 2001 under a new seven-year contract, which has been providing higher revenues and margins than its prior contract. The Ocean Legend began receiving partial dayrate in the first quarter of 2001 and began receiving full dayrate mid-second quarter of 2001. As a result of brief operating problems during the third and fourth quarters of 2001, the first quarter of 2002 was the first quarter in which we achieved full dayrate for an entire quarter from the Ocean Legend. We feel we are entitled to a portion of the third and fourth quarter 2001 dayrate that we have not recognized as revenue, and we are negotiating a settlement with our customer. During the second quarter of 2002, our customer exercised its option to extend PAGE 9 the Ocean Legend contract for an additional two years. As a result, our revenue and margin on this contract decreased by approximately $19,000 per day, for four years from mid-May 2002, as compared to the first quarter of 2002. As a result of the Ocean Legend contract change, gross margin was less than the first quarter of 2002 and we anticipate lower revenue and gross margin for the balance of 2002 as compared to the first half. Because we performed a low margin project management contract in the second quarter, revenue was relatively flat as compared to the first quarter of 2002. For our Other Services segment, the three- and six-month periods of 2001 included $2.3 million and $3.1 million, respectively, of gross margin related to the wind-up of our foreign vessel and diving operations. From our current operations, a significant improvement in offshore activity in the Gulf of Mexico contributed to the increase in Other Services gross margins for the three- and six-month periods ended June 30, 2002. We experienced an increase in utilization of and profitability from our two Gulf of Mexico Ocean Intervention multi-service vessels in the three- and six-month periods of 2002 compared to the corresponding periods of 2001. Additionally, gross margin improved as a result of a significant engineering and specialized diving contract, and, to a lesser extent, from topside inspection services. We believe that for 2002 our Other Services segment will earn more revenue at higher margins than it did in 2001. Currently, we project this segment's results for the second half of 2002 to be lower than achieved in the first half as a result of a soft vessel market in the Gulf of Mexico due to the low level of offshore industry activity being experienced at this time. ADVANCED TECHNOLOGIES Revenue and gross margin information is as follows:
For the Three Months Ended For the Six Months Ended ------------------------------------- ------------------------ June 30, June 30, March 31, June 30, June 30, 2002 2001 2002 2002 2001 -------- -------- --------- -------- -------- (in thousands, except for percentages) Revenue $ 22,561 $ 25,593 $ 26,807 $ 49,368 $ 48,706 Gross margin 3,794 4,688 3,506 7,300 8,706 Gross margin % 17% 18% 13% 15% 18%
Advanced Technologies revenues and margins were down in the three- and six-month periods of 2002 as compared to the corresponding periods of 2001 from lower levels of activities from our telecommunications cable ROV services and from our space division as a result of lower NASA spending. Gross margin was higher than the immediately preceding quarter from lower repair and maintenance expenses in our ROV cable operations. We expect further improvement in this segment's results for the second half of 2002 based on new orders received from the U.S. Navy and from the theme park industry. OTHER Our equity in the earnings (loss) of our telecommunications joint venture was $(429,000) and $(37,000) for the three and six months ended June 30, 2002, compared to $345,000 and $722,000 for the three and six months ended June 30, 2001. The telecommunications cable lay and burial market is suffering from reduced demand for services, and weak market conditions are expected to continue at least through the balance of 2002. Interest expense for the six months ended June 30, 2002 increased compared to the corresponding period of the prior year as interest on the construction of the Ocean Legend was capitalized until it was placed in service during the second quarter of 2001. Our debt had been incurred to fund the acquisition of additional equipment, including the Ocean Legend, and expansion of our Subsea Products production capacity. Interest expense for the quarter ended June 30, 2002 was lower than that of the quarter ended June 30, 2001 as a result of lower debt levels. Interest expense of $2,624,000 and $4,503,000 for the three and six months ended June 30, 2001 was net of capitalized interest of $585,000 and $1,930,000. Other expense in the first half of 2001 included the first quarter write-off of $600,000 related to the shares of Friede Goldman Halter, Inc. we received as proceeds for the sale of an out-of-service jackup rig in the fourth quarter of 1999. Friede Goldman Halter, Inc. filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code on April 19, 2001. Friede Goldman Halter, Inc. was delisted from the New York Stock Exchange on April 19, 2001. The provisions for income taxes were related to U.S. income taxes that we provided at estimated annual effective rates using assumptions as to earnings and other factors that would affect the tax calculation for the remainder of the year and to the operations of foreign branches and subsidiaries that were subject to local income and withholding taxes. PAGE 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There are no material changes from the information provided in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2001. For a discussion of a change we implemented relating to our interest rate swap for our term loan, see Note 3 to the Consolidated Financial Statements in this report. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) Oceaneering International, Inc. held its Annual Meeting of Shareholders on June 7, 2002. The following matters were voted upon at the Annual Meeting, with the voting results as follows: (1) Election of Class III Directors
Nominee Shares Voted For Votes Withheld ----------------- ---------------- -------------- T. Jay Collins 19,890,398 2,676,200 D. Michael Hughes 19,881,689 2,684,909
Messrs. Charles B. Evans, John R. Huff, David S. Hooker and Harris J. Pappas also continued as directors immediately following the Annual Meeting. (2) Approval of the 2002 Incentive Plan
Broker Shares Voted For Shares Voted Against Shares Abstaining Non-Votes ---------------- -------------------- ----------------- --------- 13,548,640 6,720,147 109,856 2,187,955
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits.
Registration or File Form or Report Exhibit Number Report Date Number ------ ------ ---- ------ * 3.01 Restated Certificate of Incorporation 1-10945 10-K Dec. 2000 3.01 * 3.02 Amended and Restated By-Laws 1-10945 10-K Dec. 2001 3.02 10.01 2002 Incentive Plan
- ---------- * Indicates exhibit previously filed with the Securities and Exchange Commission as indicated and incorporated herein by reference. (b) Oceaneering filed the following reports on Form 8-K during the quarter for which this report is filed.
Date Description ---- ----------- April 8, 2002 Information furnished under Item 9 regarding the posting of a presentation on Oceaneering's Web site. April 15, 2002 Information furnished under Item 9 regarding the posting of a presentation on Oceaneering's Web site.
PAGE 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OCEANEERING INTERNATIONAL, INC. (Registrant) Date: July 31, 2002 By: /s/ JOHN R. HUFF ----------------- John R. Huff Chairman and Chief Executive Officer Date: July 31, 2002 By: /s/ MARVIN J. MIGURA --------------------- Marvin J. Migura Senior Vice President and Chief Financial Officer Date: July 31, 2002 By: /s/ JOHN L. ZACHARY -------------------- John L. Zachary Controller and Chief Accounting Officer PAGE 12 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.01 2002 Incentive Plan
EX-10.1 3 h98549exv10w1.txt 2002 INCENTIVE PLAN EXHIBIT 10.01 2002 INCENTIVE PLAN OF OCEANEERING INTERNATIONAL, INC. 1. Plan. This 2002 Incentive Plan of Oceaneering International, Inc. (the "Plan") was adopted by Oceaneering International, Inc. (the "Company") to reward certain corporate officers and key employees of the Company and certain independent consultants by enabling them to acquire shares of common stock of the Company and/or through the provision of cash payments. 2. Objectives. This Plan is designed to attract and retain key employees of the Company and its Subsidiaries, to attract and retain qualified directors of the Company, to attract and retain consultants and other independent contractors, to encourage the sense of proprietorship of such employees, directors and independent contractors and to stimulate the active interest of such persons in the development and financial success of the Company and its Subsidiaries. These objectives are to be accomplished by making Awards under this Plan and thereby providing Participants with a proprietary interest in the growth and performance of the Company and its Subsidiaries. 3. Definitions. As used herein, the terms set forth below shall have the following respective meanings: "Annual Director Award Date" means the first business day of the month next succeeding the date upon which the annual meeting of stockholders of the Company is held in such year. "Authorized Officer" means the Chairman of the Board or the Chief Executive Officer of the Company (or any other senior officer of the Company to whom either of them shall delegate the authority to execute any Award Agreement). "Award" means the grant of any Option, SAR, Stock Award or Cash Award, whether granted singly, in combination or in tandem, to a Participant pursuant to such applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. "Award Agreement" means any written agreement between the Company and a Participant setting forth the terms, conditions and limitations applicable to an Award. "Board" means the Board of Directors of the Company. "Cash Award" means an award denominated in cash. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Compensation Committee of the Board or such other committee of the Board as is designated by the Board to administer the Plan. 1 "Common Stock" means the Common Stock, par value $0.25 per share, of the Company. "Company" means Oceaneering International, Inc., a Delaware corporation. "Director" means an individual serving as a member of the Board. "Dividend Equivalents" means, with respect to shares of Restricted Stock that are to be issued at the end of the Restriction Period, an amount equal to all dividends and other distributions (or the economic equivalent thereof) that are payable to stockholders of record during the Restriction Period on a like number of shares of Common Stock. "Employee" means an employee of the Company or any of its Subsidiaries and an individual who has agreed to become an employee of the Company or any of its Subsidiaries and actually becomes such an employee within the following six months. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" of a share of Common Stock means, as of a particular date, (i) if shares of Common Stock are listed on a national securities exchange, the mean between the highest and lowest sales price per share of Common Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, or, at the discretion of the Committee, the price prevailing on the exchange at the time of exercise, (ii) if shares of Common Stock are not so listed but are quoted on the Nasdaq National Market, the mean between the highest and lowest sales price per share of Common Stock reported by the Nasdaq National Market on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (iii) if the Common Stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by the Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the National Quotation Bureau Incorporated or (iv) if shares of Common Stock are not publicly traded, the most recent value determined by an independent appraiser appointed by the Company for such purpose. "Incentive Option" means an Option that is intended to comply with the requirements set forth in Section 422 of the Code. "Independent Contractor" means a person providing services to the Company or any of its Subsidiaries, except an Employee or Nonemployee Director, who is eligible to receive such Awards as could be made to an Employee, other than Incentive Options. "Option" means a right to purchase a specified number of shares of Common Stock at a specified price. "Nonqualified Option" means an Option that is not intended to comply with the requirements set forth in Section 422 of the Code. 2 "Participant" means an Employee, Director or Independent Contractor to whom an Award has been made under this Plan. "Performance Award" means an award made pursuant to this Plan to a Participant who is an Employee or Independent Contractor, which Award is subject to the attainment of one or more Performance Goals. "Performance Goal" means a standard established by the Committee, to determine in whole or in part whether a Performance Award shall be earned. "Restricted Stock" means any Common Stock that is restricted or subject to forfeiture provisions. "Restriction Period" means a period of time beginning as of the date upon which an Award of Restricted Stock is made pursuant to this Plan and ending as of the date upon which the Common Stock subject to such Award is no longer restricted or subject to forfeiture provisions. "SAR" means a right to receive a payment, in cash or Common Stock, equal to the excess of the Fair Market Value or other specified valuation of a specified number of shares of Common Stock on the date the right is exercised over a specified strike price, in each case, as determined by the Committee. "Stock Award" means an award in the form of shares of Common Stock or units denominated in shares of Common Stock. "Subsidiary" means (i) in the case of a corporation, any corporation of which the Company directly or indirectly owns shares representing more than 50% of the combined voting power of the shares of all classes or series of capital stock of such corporation which have the right to vote generally on matters submitted to a vote of the stockholders of such corporation and (ii) in the case of a partnership or other business entity not organized as a corporation, any such business entity of which the Company directly or indirectly owns more than 50% of the voting, capital or profits interests (whether in the form of partnership interests, membership interests or otherwise). 4. Eligibility. (a) Employees. Key Employees eligible for Awards under this Plan are those who hold positions of responsibility and whose performance, in the judgment of the Committee, can have a significant effect on the success of the Company and its Subsidiaries. (b) Directors. Directors eligible for Director Awards under this Plan are those who are not employees of the Company or any of its Subsidiaries ("Nonemployee Directors"). 3 (c) Independent Contractors. Independent Contractors eligible for Awards under this Plan are those Independent Contractors providing services to, or who will provide services to, the Company or any of its Subsidiaries. 5. Common Stock Available for Awards. Subject to the provisions of paragraph 15 hereof, there shall be available for Awards under this Plan granted wholly or partly in Common Stock (including rights or options that may be exercised for or settled in Common Stock) an aggregate of 1,325,000 shares of Common Stock. No more than 975,000 shares of Common Stock shall be available under this Plan for Incentive Options. No more than 350,000 shares of Common Stock shall be available under this Plan for Awards other than Options or SARs. Shares of Common Stock awarded pursuant to the 1996 Incentive Plan, the 1999 Incentive Plan or the 2000 Non-Executive Incentive Plan (the "Prior Plans") which are cancelled, terminated, forfeited, expire unexercised, are settled in cash in lieu of Common Stock, or are exchanged for a consideration that does not involve Common Stock will immediately become available for Awards under this Plan. Effective as of March 28, 2002, no further awards shall be made under the Prior Plans. Additionally, the number of shares of Common Stock that are the subject of Awards under this Plan, that are forfeited or terminated, expire unexercised, are settled in cash in lieu of Common Stock or in a manner such that all or some of the shares covered by an Award are not issued to a Participant or are exchanged for Awards that do not involve Common Stock, shall again immediately become available for Awards hereunder. The Committee may from time to time adopt and observe such procedures concerning the counting of shares against the Plan maximum as it may deem appropriate. The Board and the appropriate officers of the Company shall from time to time take whatever actions are necessary to file any required documents with governmental authorities, stock exchanges and transaction reporting systems to ensure that shares of Common Stock are available for issuance pursuant to Awards . 6. Administration. 6. Administration. (a) Authority of the Committee. This Plan shall be administered by the Committee. Subject to the provisions hereof, the Committee shall have full and exclusive power and authority to administer this Plan and to take all actions that are specifically contemplated hereby or are necessary or appropriate in connection with the administration hereof. The Committee shall also have full and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as it may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan. Subject to paragraph 6(c) hereof, the Committee may, in its discretion, provide for the extension of the exercisability of an Award, 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 an Award or otherwise amend or modify an Award in any manner that is (i) not adverse to the Participant to whom such Award was granted, (ii) consented to by such Participant or (iii) authorized by paragraph 15(c) hereof; provided, however, that no such action shall permit the term of any Option to be greater than five years from the applicable grant date. The Committee may make an Award to an individual who it expects to become an employee of the Company or any of its Subsidiaries within the 4 next six months, with such Award being subject to the individual's actually becoming an employee within such time period, and subject to such other terms and conditions as may be established by the Committee. 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 the Plan purposes. Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned. (b) Indemnity. No member of the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of paragraph 7 of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute. (c) Prohibition on Repricing of Awards. No Award may be repriced, replaced, regranted through cancellation or modified without shareholder approval (except in connection with a change in the Company's capitalization), if the effect would be to reduce the exercise price for the shares underlying such Award. 7. Delegation of Authority. 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. 8. Awards. (a) Except as otherwise provided in paragraph 9 hereof pertaining to Awards to Directors, the Committee shall determine the type or types of Awards to be made under this Plan and shall designate from time to time the Participants who are to be the recipients of such Awards. Each Award may be embodied in an Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee in its sole discretion and shall be signed by the Participant to whom the Award is made and by an Authorized Officer for and on behalf of the Company. Awards may consist of those listed in this paragraph 8(a) hereof and may be granted singly, in combination or in tandem. Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under this Plan or any other plan of the Company or any of its Subsidiaries, including the plan of any acquired entity; provided that, except as contemplated in paragraph 15 hereof, no Option may be issued in exchange for the cancellation of an Option with a higher exercise price nor may the exercise price of any Option be reduced. All or part of an Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Company and its Subsidiaries, achievement of specific business objectives, increases in specified indices, attainment of specified growth rates and other comparable measurements of performance. Upon the termination of employment by a Participant who is an Employee, any unexercised, deferred, unvested or unpaid Awards shall be treated as set forth in the applicable Award Agreement. 5 (i) Option. An Award may be in the form of an Option. An Option awarded pursuant to this Plan may consist of an Incentive Option or a Nonqualified Option. The price at which shares of Common Stock may be purchased upon the exercise of an Option shall be not less than the Fair Market Value of the Common Stock on the date of grant. The term of an Option shall not exceed five years from the date of grant. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Options awarded pursuant to this Plan, including the term of any Options and the date or dates upon which they become exercisable, shall be determined by the Committee. (ii) Stock Appreciation Right. An Award may be in the form of a SAR. The strike price for a SAR shall not be less than the Fair Market Value of the Common Stock on the date on which the SAR is granted. The term of a SAR shall not exceed five years from the date of grant. Subject to the foregoing limitations, the terms, conditions and limitations applicable to any SARs awarded pursuant to this Plan, including the term of any SARs and the date or dates upon which they become exercisable, shall be determined by the Committee. (iii) Stock Award. An Award may be in the form of a Stock Award. The terms, conditions and limitations applicable to any Stock Awards granted pursuant to this Plan shall be determined by the Committee. (iv) Cash Award. An Award may be in the form of a Cash Award. The terms, conditions and limitations applicable to any Cash Awards granted pursuant to this Plan shall be determined by the Committee. (v) Performance Award. Without limiting the type or number of Awards that may be made under the other provisions of this Plan, an Award may be in the form of a Performance Award. A Performance Award shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective Performance Goals established by the Committee prior to the earlier to occur of (x) 90 days after the commencement of the period of service to which the Performance Goal relates and (y) the lapse of 25% of the period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain. A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met. Such a Performance Goal may be based on one or more business criteria that apply to the individual, one or more business units of the Company, or the Company as a whole, and may include one or more of the following: revenues, income from operations, net income, stock price, market share, earnings per share, return on equity, assets or invested capital, economic value added, market value added, decrease in costs or achievement of balance sheet, income statement or cash flow objectives. Unless otherwise stated, such a Performance Goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria). In interpreting Plan provisions applicable to Performance Goals and Performance Awards, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and Treasury 6 Regulation Section 1.162-27(e)(2)(i), and the Committee in establishing such goals and interpreting the Plan shall be guided by such provisions. Prior to the payment of any compensation based on the achievement of Performance Goals, the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Performance Awards made pursuant to this Plan shall be determined by the Committee. (b) Notwithstanding anything to the contrary contained in this Plan, the following limitations shall apply to any Awards made hereunder: (i) no Participant may be granted, during any one-year period, Awards consisting of Options or SARs that are exercisable for more than 300,000 shares of Common Stock; (ii) no Participant may be granted, during any one-year period, Stock Awards covering or relating to more than 300,000 shares of Common Stock (the limitation set forth in this clause (ii), together with the limitation set forth in clause (i) above, being hereinafter collectively referred to as the "Stock Based Awards Limitations"); and (iii) no Participant may be granted Awards consisting of cash or in any other form permitted under this Plan (other than Awards consisting of Options or SARs or otherwise consisting of shares of Common Stock or units denominated in such shares) in respect of any one-year period having a value determined on the date of grant in excess of $3,000,000. (c) The Committee shall have the sole responsibility and authority to determine the type or types of Awards to an Independent Contractor to be made under this Plan and may make any such Awards as could be made to an Employee, other than Incentive Options; provided that the limitations described in paragraph 8(b) hereof shall be inapplicable to Awards to an Independent Contractor. 9. Awards to Directors. Each Nonemployee Director of the Company shall be granted Director Awards in accordance with this paragraph 9 and subject to the applicable terms, conditions and limitations set forth in this Plan and the applicable Award Agreement. Notwithstanding anything to the contrary contained herein, Awards to Directors shall not be made in any year in which a sufficient number of shares of Common Stock are not available to make such Awards under this Plan. On or after the effective date of his or her first appointment or election to the Board of Directors, a Nonemployee Director shall automatically be granted an Option that provides for the purchase of 10,000 shares of Common Stock. In addition, on each Annual Director Award Date, each Nonemployee Director shall automatically be granted an Option that provides for the purchase of 10,000 shares of Common Stock. Each Option granted to a Director shall have a term of five years from the date of grant, notwithstanding any earlier termination of 7 the status of the holder as a Nonemployee Director. The purchase price of each share of Common Stock subject to an Option granted to a Director shall be equal to the Fair Market Value of the Common Stock on the date of grant. No Option granted to a Director may be issued in exchange for the cancellation of an Option with a higher exercise price, nor may the exercise price of any Option granted to a Director be reduced. All Options granted to a Director shall become fully exercisable six months following the date of grant. All Options granted to a Director that have not previously become exercisable shall be forfeited if the Nonemployee Director resigns as a Director without the consent of a majority of the other Directors. Any Award of Options granted to a Director shall be embodied in an Award Agreement, which shall contain the terms, conditions and limitations set forth above and shall be signed by the Participant to whom the Options are granted and by an Authorized Officer for and on behalf of the Company. 10. Award Payment; Dividends; Substitution. (a) General. Payment of Awards may be made in the form of cash or Common Stock, or a combination thereof, and may include such restrictions as the Committee shall determine, including, in the case of Common Stock, restrictions on transfer and forfeiture provisions. If payment of an Award is made in the form of Restricted Stock, the applicable Award Agreement relating to such shares shall specify whether they are to be issued at the beginning or end of the Restriction Period. In the event that shares of Restricted Stock are to be issued at the beginning of the Restriction Period, the certificates evidencing such shares (to the extent that such shares are so evidenced) shall contain appropriate legends and restrictions that describe the terms and conditions of the restrictions applicable thereto. In the event that shares of Restricted Stock are to be issued at the end of the Restricted Period, the right to receive such shares shall be evidenced by book entry registration or in such other manner as the Committee may determine. (b) Deferral. With the approval of the Committee, amounts payable in respect of Awards may be deferred and paid either in the form of installments or as a lump-sum payment. The Committee may permit selected Participants to elect to defer payments of some or all types of Awards in accordance with procedures established by the Committee. Any deferred payment of an Award, whether elected by the Participant or specified by the Award Agreement or by the Committee, may be forfeited if and to the extent that the Award Agreement so provides. (c) Dividends and Interest. Rights to dividends or Dividend Equivalents may be extended to and made part of any Award consisting of shares of Common Stock or units denominated in shares of Common Stock, subject to such terms, conditions and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and Dividend Equivalents for Awards consisting of shares of Common Stock or units denominated in shares of Common Stock. 8 11. Stock Option Exercise. The price at which shares of Common Stock may be purchased under an Option shall be paid in full at the time of exercise in cash or, if elected by the Participant, the Participant may purchase such shares by means of tendering Common Stock or surrendering another Award, including Restricted Stock, valued at Fair Market Value on the date of exercise, or any combination thereof. The Committee shall determine acceptable methods for Participants to tender Common Stock or other Awards; provided that any Common Stock that is or was the subject of an Award may be so tendered only if it has been held by the Participant for six months. The Committee may provide for procedures to permit the exercise or purchase of such Awards by use of the proceeds to be received from the sale of Common Stock issuable pursuant to an Award. Unless otherwise provided in the applicable Award Agreement, in the event shares of Restricted Stock are tendered as consideration for the exercise of an Option, a number of the shares issued upon the exercise of the Option, equal to the number of shares of Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock so submitted as well as any additional restrictions that may be imposed by the Committee. 12. Taxes. 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 of Common Stock under this Plan, an appropriate amount of cash or number of shares of Common Stock 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 also permit withholding to be satisfied by the transfer to the Company of shares of Common Stock theretofore owned by the holder of the Award with respect to which withholding is required. If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made. The Committee may provide for loans, on either a short-term or demand basis, from the Company to a Participant to permit the payment of taxes required by law. 13. Amendment, Modification, Suspension or Termination. The Board may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that (i) 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 and (ii) no amendment or alteration shall be effective prior to its approval by the stockholders of the Company to the extent stockholder approval is otherwise required by applicable legal requirements. 14. Assignability. Unless otherwise determined by the Committee and provided in the Award Agreement, no Award or any other benefit under this Plan shall be assignable or otherwise transferable. Any attempted assignment of an Award or any other benefit under this Plan in violation of this paragraph 14 shall be null and void. 9 15. Adjustments. (a) 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 Common Stock) 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. (b) In the event of any subdivision or consolidation of outstanding shares of Common Stock, declaration of a dividend payable in shares of Common Stock or other stock split, then (i) the number of shares of Common Stock reserved under this Plan, (ii) the number of shares of Common Stock covered by outstanding Awards in the form of Common Stock or units denominated in Common Stock, (iii) the exercise or other price in respect of such Awards, (iv) the Stock Based Award Limitations described in paragraph 8(b) hereof, (v) the number of shares of Common Stock covered by Awards to Directors automatically granted pursuant to paragraph 9 hereof and (vi) the appropriate Fair Market Value and other price determinations for such Awards shall each be proportionately adjusted by the Board to reflect such transaction. In the event of any other recapitalization or capital reorganization of the Company, any consolidation or merger of the Company with another corporation or entity, the adoption by the Company of any plan of exchange affecting the Common Stock or any distribution to holders of Common Stock of securities or property (other than normal cash dividends or dividends payable in Common Stock), the Board shall make appropriate adjustments to (i) the number of shares of Common Stock covered by Awards in the form of Common Stock or units denominated in Common Stock, (ii) the exercise or other price in respect of such Awards, (iii) the appropriate Fair Market Value and other price determinations for such Awards, (iv) the number of shares of Common Stock covered by Awards to Directors automatically granted pursuant to paragraph 9 hereof and (v) the Stock Based Award Limitations described in paragraph 8(b) hereof, to give effect to such transaction shall each be proportionately adjusted by the Board to reflect such transaction; provided that such adjustments shall only be such as are necessary to maintain the proportionate interest of the holders of the Awards and preserve, without exceeding, the value of such Awards. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board shall be authorized to issue or assume Awards by means of substitution of new Awards, as appropriate, for previously issued Awards or to assume previously issued Awards as part of such adjustment. 10 (c) In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board may make such adjustments to Awards or other provisions for the disposition of Awards as it deems equitable, and shall be authorized, in its discretion, (i) to provide for the substitution of a new Award or other arrangement (which, if applicable, may be exercisable for such property or stock as the Board determines) for an Award or the assumption of the Award, regardless of whether in a transaction to which Section 424(a) of the Code applies, (ii) to provide, prior to the transaction, for the acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, the Award and, if the transaction is a cash merger, provide for the termination of any portion of the Award that remains unexercised at the time of such transaction or (iii) to provide for the acceleration of the vesting and exercisability of an Award and the cancellation thereof in exchange for such payment as shall be mutually agreeable to the Participant and the Board. 16. Restrictions. No Common Stock or other form of payment shall be issued with respect to any Award unless the Company shall be satisfied based on the advice of its counsel that such issuance will be in compliance with applicable federal and state securities laws. Certificates evidencing shares of Common Stock 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 Common Stock is then listed or to which it is admitted for quotation and any applicable federal or state securities law. The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions. 17. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights thereto under this Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto, nor shall this Plan be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to an Award of cash, Common Stock or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan. 18. 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, shall be governed by and construed in accordance with the laws of the State of Delaware. 11 19. Effectiveness. This Plan shall be effective as of March 28, 2002 (the "Effective Date"), as approved by the Board of Directors of the Company. Notwithstanding the foregoing, the adoption of this Plan is expressly conditioned upon the approval by the holders of a majority of shares of Common Stock present, or represented, and entitled to vote at a meeting of the Company Stockholders held on or before December 31, 2002. If the Stockholders of the Company should fail to so approve this Plan prior to such date, this Plan shall terminate and cease to be of any further force or effect, and all grants of Awards hereunder shall be null and void. 12 -----END PRIVACY-ENHANCED MESSAGE-----