SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
INPUT/OUTPUT, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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INPUT/OUTPUT, INC.
12300 PARC CREST DRIVE
STAFFORD, TEXAS 77477
(281) 933-3339
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 2003
To the Stockholders of Input/Output, Inc.
The 2003 Annual Meeting of Stockholders of Input/Output, Inc. will be
held at I/O's auditorium at 12200 Parc Crest Drive, Stafford, Texas 77477, on
Wednesday, June 11, 2003, at 9:00 a.m. Central Time for the following purposes:
(1) election of two directors for a three-year term expiring in
2006;
(2) approval of the Input/Output, Inc. 2003 Stock Option Plan;
(3) ratification of the appointment of PricewaterhouseCoopers LLP
as I/O's independent auditors for 2003; and
(4) transaction of any other business that may properly come
before the Annual Meeting or any adjournment or postponement
of the meeting.
I/O's Board of Directors set April 16, 2003, as the record date for the
meeting. This means that owners of Common Stock at the close of business on that
date are entitled to:
o receive this notice of meeting; and
o vote at the meeting and any adjournments or postponements of
the meeting.
We will make available a list of stockholders as of the close of
business on April 16, 2003, for inspection during normal business hours from
June 1 through June 11, 2003, at I/O's principal place of business, 12300 Parc
Crest Drive, Stafford, Texas 77477. This list will also be available at the
meeting.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING, WE ENCOURAGE YOU TO READ THE PROXY STATEMENT. FURTHER, TO BE
SURE YOUR VOTE COUNTS AND ASSURE A QUORUM, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
By Order of the Board of Directors
Brad Eastman
Vice President, Chief Administrative Officer
and Secretary
Stafford, Texas
April 30, 2003
INPUT/OUTPUT, INC.
12300 PARC CREST DRIVE
STAFFORD, TEXAS 77477
April 30, 2003
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 11, 2003
Our Board of Directors is furnishing you this proxy statement to
solicit proxies on its behalf to be voted at the 2003 Annual Meeting of
Shareholders of Input/Output, Inc. ("I/O"). The meeting will be held at our
Auditorium at 12200 Parc Crest Drive, Stafford, Texas, on June 11, 2003, at 9:00
a.m., local time. The proxies also may be voted at any adjournments or
postponements of the meeting.
The mailing address of our principal executive offices is 12300 Parc
Crest Drive, Stafford, Texas 77477. We are first sending the proxy materials to
stockholders on April 30, 2003.
All properly executed written proxies that our stockholders deliver
pursuant to this solicitation will be voted at the meeting in accordance with
the directions given in the proxy, unless the proxy is revoked before the
meeting.
Only owners of record of our shares of Common Stock at the close of
business on April 16, 2003, are entitled to vote at the meeting, or at
adjournments or postponements of the meeting. Each owner of Common Stock on the
record date is entitled to one vote for each share of Common Stock held. On
April 16, 2003, there were 51,250,906 shares of Common Stock issued and
outstanding.
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ABOUT THE MEETING
WHAT IS A PROXY?
It is your legal designation of another person to vote the stock you
own. That other person is called a proxy. If you designate someone as your proxy
in a written document, that document also is called a proxy or a proxy card. Our
Board of Directors has designated James M. Lapeyre, Jr. and Larry E. Denver as
proxies for the 2003 Annual Meeting of Stockholders.
WHAT IS A PROXY STATEMENT?
It is a document the regulations of the Securities and Exchange
Commission require us to give you when we ask you to sign a proxy card
designating James M. Lapeyre, Jr. and Larry E. Denver each as proxies to vote on
your behalf.
WHAT IS THE DIFFERENCE BETWEEN A STOCKHOLDER OF RECORD AND A
STOCKHOLDER WHO HOLDS STOCK IN STREET NAME?
o If your shares are registered in your name, you are a
stockholder of record.
o If your shares are in the name of your broker or bank, your
shares are held in street name.
WHAT DIFFERENT METHODS CAN YOU USE TO VOTE?
(a) In Writing: All stockholders can vote by written proxy card.
(b) By Telephone and Internet. Street name holders may vote by
telephone or the Internet if their bank or broker makes those methods available,
in which case the bank or broker will enclose the instructions with the proxy
statement. The telephone and Internet voting procedures, including the use of
control numbers, are designed to authenticate stockholder's identities, to allow
stockholders to vote their shares, and to confirm that their instructions have
been properly recorded.
(c) In Person. All stockholders may vote in person at the meeting.
If you are a street name holder who wishes to vote in person, you will need to
ask your broker or bank for a legal proxy. You will need to bring the legal
proxy with you to the meeting.
DOES MY VOTE MATTER?
Absolutely! Corporations are required to obtain stockholder approval
for the election of directors and other important matters. Stockholder
participation is not a mere formality. Stockholder voting is essential for I/O
to continue to function. It is also important that you vote to assure that a
quorum is obtained so corporate business can be transacted.
WHAT IS THE EFFECT OF NOT VOTING?
It depends on how ownership of your shares is registered. If you are a
stockholder of record, your unvoted shares will not be represented at the
meeting and will not count toward the quorum requirement. Assuming a quorum is
obtained, your unvoted shares will not be treated as a vote for or against a
proposal.
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If you own your shares in street name, your broker or bank may
represent your shares at the meeting for purposes of obtaining a quorum. As
described in the answer to the following question, in the absence of your voting
instruction, your broker may or may not vote your shares.
IF I DON'T VOTE, WILL MY BROKER VOTE FOR ME?
If you own your shares in street name and you don't vote, your broker
may vote your shares in its discretion on some "routine matters." With respect
to other proposals, however, your broker may not vote your shares for you. With
respect to these proposals, the aggregate number of unvoted shares is reported
as the "broker non-vote." "Broker non-vote" shares are counted toward the quorum
requirement but they do not affect the determination of whether a matter is
approved. Except for the proposal to approve the Input/Output, Inc. 2003 Stock
Option Plan, we believe that the proposals set forth in this Proxy Statement are
routine matters on which brokers will be permitted to vote unvoted shares.
WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN?
The record date for the 2003 Annual Meeting of Stockholders is April
16, 2003. The record date is established by the Board of Directors as required
by Delaware law. Owners of Common Stock at the close of business on the record
date are entitled:
(a) to receive notice of the meeting, and
(b) to vote at the meeting and any adjournments or postponements
of the meeting.
HOW CAN YOU REVOKE A PROXY?
A stockholder can revoke a proxy by taking any one of the following
three actions:
(a) giving written notice to the Secretary of I/O.
(b) delivering a later-dated proxy, or
(c) voting in person at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of outstanding Common Stock constitutes a quorum. We need
a quorum of stockholders to hold a valid Annual Meeting. If you have signed and
returned your proxy card, your votes will be counted toward the quorum. If a
quorum is not present, the chairman may adjourn the meeting, without notice
other than an announcement at the meeting, until the required quorum is present.
WHAT ARE YOUR VOTING CHOICES WHEN VOTING FOR DIRECTOR NOMINEES, AND
WHAT VOTE IS NEEDED TO ELECT DIRECTORS?
In voting on the election of two Director nominees to serve until the
2006 Annual Meeting of Stockholders, Stockholders may vote in one of the
following ways:
(a) in favor of all nominees,
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(b) withhold votes as to all nominees, or
(c) withhold votes as to specific nominees.
Directors will be elected by a plurality vote of the shares of Common
Stock represented and voting at the meeting.
The Board recommends a vote "FOR" each of the nominees.
WHAT ARE YOUR VOTING CHOICES WHEN VOTING ON THE PROPOSAL TO APPROVE THE
INPUT/OUTPUT, INC. 2003 STOCK OPTION PLAN AND WHAT VOTE IS NEEDED TO APPROVE
THAT PLAN?
In voting on the proposal to approve this plan, stockholders may vote
in one of the following ways:
(a) in favor of the plan's approval,
(b) against the plan's approval, or
(c) abstain from voting on the plan's approval.
The proposal to approve the Input/Output, Inc. 2003 Stock Option Plan
will require the approval of a majority of the votes cast at the meeting, so
long as the total vote cast on the proposal exceeds 50% of the shares of Common
Stock outstanding.
The Board recommends a vote "FOR" this proposal.
WHAT ARE YOUR VOTING CHOICES WHEN VOTING ON THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT AUDITORS AND WHAT
VOTE IS NEEDED TO RATIFY THEIR APPOINTMENT?
In voting on the ratification of the appointment of
PricewaterhouseCoopers LLP as independent auditors, stockholders may vote in one
of the following ways:
(a) in favor of ratification,
(b) against the ratification, or
(c) abstain from voting on the ratification.
The proposal to ratify the appointment of PricewaterhouseCoopers LLP
will require approval by a majority of the votes cast by the holders of the
shares of Common Stock represented and voting at the meeting.
The Board recommends a vote "FOR" this proposal.
WILL ANY OTHER BUSINESS BE TRANSACTED AT THE MEETING? IF SO, HOW WILL
MY PROXY BE VOTED?
We do not know of any business to be transacted at the Annual Meeting
other than those matters described in this Proxy Statement. The period specified
in I/O's Bylaws for submitting proposals to be considered at the meeting has
passed and no proposals were submitted. However, should any other matters
properly come before the meeting, and any adjournments or postponements of the
meeting, shares with respect to which voting authority has been granted to the
proxies will be voted by the proxies in accordance with their judgment.
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WHAT IF A STOCKHOLDER DOES NOT SPECIFY A CHOICE FOR A MATTER WHEN
RETURNING A PROXY?
Stockholders should specify their choice for each matter on the
enclosed form of proxy. If no instructions are given, proxies which are signed
and returned will be voted FOR the election of all Director nominees, FOR the
approval of the 2003 Stock Option Plan, and FOR the proposal to ratify the
appointment of PricewaterhouseCoopers LLP.
HOW ARE ABSTENTIONS AND BROKER NON-VOTES COUNTED?
Abstentions and broker non-votes will not be included in vote totals
and will not affect the outcome of the vote.
WHAT IS THE DEADLINE FOR SUBMITTING PROPOSALS TO BE CONSIDERED FOR
INCLUSION IN THE 2004 PROXY STATEMENT?
Stockholder proposals requested to be included in I/O's 2004 Proxy
Statement must be received by I/O not later than December 30, 2003. Proposals
should be directed to Brad Eastman, Corporate Secretary, Input/Output, Inc.,
12300 Parc Crest Drive, Stafford, Texas 77477.
WHAT IS THE DEADLINE FOR SUBMITTING A NOMINATION FOR A DIRECTOR OF I/O
FOR CONSIDERATION AT THE ANNUAL STOCKHOLDER MEETING IN 2004?
A proper director nomination may be considered at I/O's 2004 annual
meeting only if the proposal or nomination is received by I/O not later than
December 30, 2003. All nominations should be directed to Brad Eastman, Corporate
Secretary, Input/Output, Inc., 12300 Parc Crest Drive, Stafford, Texas 77477.
ELECTION OF DIRECTORS
(ITEM 1)
Our stockholders elect approximately one-third of the members of the
Board of Directors annually. The Directors are divided into three classes. Each
class serves for a period of three years, although occasionally a Director may
be elected for a shorter term in order to keep the number of Directors in each
class approximately equal. The class of Directors elected at this meeting will
serve on the Board until our annual meeting in 2006.
The terms of Theodore H. Elliott, Jr. and James M. Lapeyre, Jr. will
expire at the 2003 Annual Meeting. Mr. Elliott and Mr. Lapeyre have each been
nominated to stand for reelection at the meeting to hold office until our 2006
Annual Meeting and until his successor is elected and qualified.
We have no reason to believe that any of the nominees will be unable or
unwilling to serve if elected. However, if any nominee should become unable or
unwilling to serve for any reason, proxies may be voted for another person
nominated as a substitute by the Board of Directors, or the Board of Directors
may reduce the number of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THEODORE
H. ELLIOTT, JR. AND JAMES M. LAPEYRE, JR.
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NOMINEES FOR ELECTION FOR TERM EXPIRING IN 2006
THEODORE H. ELLIOTT, JR. Director since 1987
Age 67
Mr. Elliott is Chairman of Prime Capital Management Co. Inc., a Darian,
Connecticut venture capital company.
Chairman of the Audit Committee of the Board of Directors of I/O.
JAMES M. LAPEYRE, JR. Director since 1998
Age 50
Mr. Lapeyre has been the Chairman of our Board of Directors since 1999. Mr.
Lapeyre has been President of Laitram L.L.C. ("Laitram") and its predecessors
since 1989. Laitram is a privately owned, New Orleans-based manufacturer of food
processing equipment and modular conveyor belts. We bought our marine
positioning products business from Laitram in 1998.
Chairman of the Governance Committee and a member of the Audit and Compensation
Committees of the Board of Directors.
INCUMBENT DIRECTORS - TERM EXPIRING IN 2004
TIMOTHY J. PROBERT Director since 2000
Age 51
Mr. Probert is the Senior Vice President - Drilling and Evaluation of
Halliburton Company, a leading provider of products and services to the
petroleum and energy industries. Prior to joining Halliburton in February, 2003,
Mr. Probert served as I/O's President and Chief Executive Officer from March,
2000. Mr. Probert spent 27 years with various operating units of Baker Hughes
Incorporated, a leading provider of drilling formation, evaluation, completion
and production products and services to the worldwide oil and gas industry, most
recently as president of Baker Hughes' INTEQ division, one of the leading
providers of technical solutions to the drilling and production sectors of the
energy industry.
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FRANKLIN MYERS Director since 2001
Age 50
Mr. Myers is Senior Vice President of Finance and Chief Financial Officer of
Cooper Cameron Corporation, a leading international manufacturer of oil and gas
pressure control equipment. Mr. Myers has been Senior Vice President at Cooper
Cameron since 1995 and served as General Counsel and Secretary of Cooper Cameron
from 1995 to 1999, as well as president of Cooper Cameron's Cooper Energy
Services Division from 1998 until 2002. Prior to joining Cooper Cameron, Mr.
Myers was Senior Vice President and General Counsel of Baker Hughes
Incorporated.
Chairman of the Compensation Committee and member of the Audit and Governance
Committees of the Board of Directors.
INCUMBENT DIRECTORS - TERM EXPIRING IN 2005
ROBERT P. PEEBLER Director since 1999
Age 55
Mr. Peebler is I/O's President and Chief Executive Officer. Prior to joining
I/O, Mr. Peebler was President and Chief Executive Officer of Energy Virtual
Partners, a company providing asset management services for oil and gas
companies. Prior to founding Energy Virtual Partners in April, 2001, Mr. Peebler
was Vice President of e-Business Strategy and Ventures of Halliburton. Prior to
his appointment as Vice President of Halliburton in 2000, Mr. Peebler was
President and Chief Executive Officer of Halliburton's subsidiary Landmark
Graphics Corporation. Mr. Peebler continues to serve as the Chairman of the
Board of Directors of Energy Virtual Partners. Mr. Peebler also writes and
speaks about information technology trends shaping the petroleum exploration and
production industry.
SAM K. SMITH Director since 1999
Age 70
Mr. Smith served as our Chief Executive Officer from 1999 until 2000. Mr. Smith
was Chairman of the Board of Landmark Graphics Corporation from 1989 to 1996.
Prior to that time, Mr. Smith was a special limited partner at Sevin-Rosen
Management, a Texas-based venture capital firm.
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OWNERSHIP OF EQUITY SECURITIES IN I/O
The following table sets forth information as of March 30, 2003, with
respect to the number of shares of Common Stock owned by (i) each person known
by us to be a beneficial owner of more than 5% of our Common Stock, (ii) each of
our Directors, (iii) each of our executive officers named in the Summary
Compensation Table included later in this Proxy Statement and (iv) all of our
Directors and executive officers as a group.
Percentage
Common Rights to Restricted of Common
Name Stock(1) Acquire(2) Stock(3) Stock(4)
---- ---------- ---------- ---------- ----------
Royce & Associates, Inc.(5) 6,152,600 -- -- 12.1%
Laitram, L.L.C.(6) 5,794,000 -- -- 11.3%
PRIMECAP Management Company(7) 4,871,282 -- -- 9.5%
Dimensional Fund Advisors Inc.(8) 3,433,050 -- -- 6.7%
Steinberg Priest & Sloane Capital Management, LLC(9) 3,290,414 -- -- 6.4%
Daruma Asset Management, Inc.(10) 2,954,400 -- -- 5.8%
Barclays Global Investors, N.A.(11) 2,895,285 -- -- 5.7%
ICM Asset Management, Inc.(12) 2,794,345 -- -- 5.4%
SCF-IV, L.P(13) -- 2,673,517 -- 5.0%
James M. Lapeyre, Jr.(14) 6,012,666 60,000 -- 11.9%
Theodore H. Elliott, Jr 11,000 157,000 -- *
Franklin Myers 7,666 18,333 -- *
Robert P. Peebler 2,340 50,000 -- *
Timothy J. Probert 100,000 165,000 -- *
Sam K. Smith 19,840 60,000 -- *
C. Robert Bunch 35,000 101,250 164,452 *
Larry E. Denver 9,850 13,750 47,921 *
Bjarte Fageraas 4,379 21,250 32,360 *
Kenneth W. Pope 23,333 35,000 -- *
All Directors and Executive Officers as a Group (12 persons) 6,204,010 657,833 300,888 13.8%
* Less than 1%
1. Includes shares for which the named person:
o has sole voting and investment power, or
o has shared voting and investment power.
Excludes shares that:
o are restricted stock holdings, or
o may be acquired through stock option or warrant exercises.
2. Shares of Common Stock that can be acquired through stock options
exercised through June 1, 2003 and shares of Common Stock that may be
acquired upon exercise of outstanding warrants.
3. Shares subject to a vesting schedule, forfeiture risk and other
restrictions. Although these shares are subject to forfeiture
provisions, the holder has the right to vote the shares until they are
forfeited.
4. Assumes shares that such person has rights to acquire are outstanding.
5. The address for Royce & Associates, Inc. is 1414 Avenue of the
Americas, New York, New York 10019.
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6. The address for Laitram, L.L.C. is 220 Laitram Lane, Harahan, Louisiana
70123. Mr. Lapeyre is the President and a Director of Laitram, L.L.C.
Mr. Lapeyre disclaims beneficial ownership of any shares held by
Laitram, L.L.C.
7. The address for PRIMECAP Management Company is 225 S. Lake Avenue #400,
Pasadena, California 91101-3005. PRIMECAP Management Company has sole
voting power over only 2,674,582 of the shares of Common Stock.
8. The address for Dimensional Fund Advisors Inc. is 1299 Ocean Avenue,
11th Floor, Santa Monica, California 90401. The shares of Common Stock
are held by investment companies, trusts and accounts for which
Dimensional Fund Advisors Inc. serves as the investment advisor.
Dimensional Fund Advisors Inc. disclaims beneficial ownership of all
such shares.
9. The address for Steinberg Priest & Sloane Capital Management, LLC is 12
East 49th Street, New York, New York 10017. Steinberg Priest & Sloane
Capital Management, LLC has sole voting power over only 1,202,004
shares.
10. The address for Daruma Asset Management, Inc. is 80 West 40th Street,
9th Floor, New York, New York 10018. The shares reported by Daruma
Asset Management, Inc. are held by investment advisory clients whose
accounts are managed by Daruma Asset Management, Inc. Mariko O. Gordon,
who owns in excess of 50% of the outstanding voting stock and is the
President of Daruma Asset Management, Inc., may also be considered a
beneficial owner of the shares reported by Daruma Asset Management,
Inc. Daruma Asset Management, Inc. has sole voting discretion over only
1,689,900 shares.
11. The address for Barclays Global Investors, N.A. is 45 Fremont Street,
San Francisco, California 94105. The shares reported are owned by
Barclays Global Investors, N.A. (2,135,957 shares) and Barclays Global
Fund Advisors (759,328 shares) in trust accounts for the economic
beneficiaries of those accounts.
12. The address for ICM Asset Management, Inc. is W. 601 Main Avenue, Suite
600, Spokane, Washington 99201. ICM Asset Management, Inc. has shared
voting power over only 1,760,626 shares and shared dispositive power
over 2,794,345 shares. James M. Simmons is the President of ICM Asset
Management, Inc. and may also be deemed to be the beneficial owner of
the shares reported by ICM Asset Management, Inc.
13. The address for SCF-IV, L.P. is 600 Travis Street, Suite 6600, Houston,
Texas 77002. SCF-IV, L.P. may exercise their warrant to purchase Common
Stock at any time until August 5, 2005 at an exercise price per share
of $8.00.
14. The shares of Common Stock include 10,500 shares over which Mr. Lapeyre
holds joint voting and investment control with his wife, 40,500 shares
that Mr. Lapeyre holds as a custodian or trustee for the benefit of his
minor children and 5,794,000 shares owned by Laitram L.L.C., of which
Mr. Lapeyre disclaims any beneficial interest. See note 6 above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Executive officers, Directors and certain persons who own more than ten
percent of the Common Stock are required by Section 16(a) of the Securities
Exchange Act of 1934 and related regulations
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o to file reports of their ownership of Common Stock with the
Securities and Exchange Commission and The New York Stock
Exchange, and
o to furnish us with copies of the reports.
We received written representations from each such person who did not
file an annual report with the SEC on Form 5 that no Form 5 was due. Based on
our review of the reports and representations, we believe that all required
Section 16(a) reports were timely filed in 2002, except for (i) Mr. Probert, who
reported the forfeiture of certain shares of restricted stock upon his
termination of employment with us approximately one month late, and (ii) Mr.
Pope who reported the forfeiture of certain shares of restricted stock upon his
termination of employment with us approximately three weeks late.
INFORMATION ABOUT COMMITTEES, MEETINGS AND COMPENSATION OF DIRECTORS
Committees and Meetings. The Board of Directors has established an
Audit Committee, a Compensation Committee and a Governance Committee. In
addition, the Board establishes temporary special committees on an as needed
basis. All committees are composed entirely of non-employee directors. The
Directors' committee memberships are indicated on pages 6-7 of this proxy
statement.
The Audit Committee is appointed by the Board to assist the Board in
monitoring (i) the integrity of financial statements; (ii) our compliance with
legal and regulatory requirements; (iii) the independence and performance of our
external auditors; and (iv) the performance of the company's internal audit
function. In addition, the Audit Committee has the sole authority and
responsibility to select, evaluate and, if necessary, replace our independent
auditors. The Board of Directors has adopted the Charter of the Audit Committee
which is attached as Appendix A to this proxy statement. All members of the
Audit Committee are "independent" as that term is defined in The New York Stock
Exchange listing standards. The Audit Committee met seven times in 2002.
The Compensation Committee reviews and approves all salary and other
remuneration for officers. The Compensation Committee is also responsible for
the administration of the Company's profit sharing plans and stock option or
other stock-based plans. In 2002, the Compensation Committee met once.
The Governance Committee advises the Board of Directors with matters
relating to governance, Board and Committee membership, and succession. The
Governance Committee will consider recommendations for nominees for
directorships submitted by stockholders. Stockholders who wish the Governance
Committee to consider their recommendations for nominees for the position of
Director should submit their recommendations in writing to the Governance
Committee, care of the Secretary of the Company, at our principal executive
offices. The Governance Committee met four times in 2002.
In 2002, the Board of Directors held seven meetings and Committees of
the Board of Directors held a total of sixteen meetings. Overall the attendance
at such meetings was 91%. Each current Director attended more than 75% of the
aggregate of all meetings of the Board of Directors and the Committees on which
he served during 2002.
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Compensation. Officers who are also Directors do not receive any fee or
remuneration for services as members of the Board of Directors or of any
Committee of the Board of Directors. During 2002, outside Directors received an
annual retainer fee of $15,000, which each outside Director could elect to
receive in cash or shares of Common Stock. In addition, Chairmen of Committees
of the Board received an annual retainer fee of $3,000, which each Chairman
could elect to receive in cash or shares of Common Stock. Outside Directors also
receive, in cash, $1,500 for each Board meeting and $1,000 for each committee
meeting attended and $500 for each Board or committee meeting held via
teleconference. Shares issued in lieu of cash fees are valued at the closing
price per share on The New York Stock Exchange on the date of issuance, which is
the date of our annual stockholders meeting each year. Shares issued in lieu of
cash fees are granted from our available treasury shares.
In 1992, we adopted a Directors Retirement Plan which we discontinued
in 1996. Currently, Mr. Elliott is the only director entitled to receive any
benefits under the Directors Retirement Plan. This plan requires us to make a
lump sum payment to Mr. Elliott following his retirement from the Board in an
amount equal to the present value of $15,000 received for a period of ten years.
As a means to attract and recruit qualified new directors and to retain
capable directors in a manner that promotes ownership of a proprietary interest
in I/O, we adopted the Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan (the "Director Stock Option Plan"). In 1998, our
stockholders approved an increase in the total number of shares available under
the Director Stock Option Plan to 700,000 shares.
Under the Director Stock Option Plan, each of our non-employee
directors is granted an option to purchase 20,000 shares of Common Stock on the
date that service as a non-employee director commences. Additionally, each
non-employee director receives options to purchase 10,000 shares of Common Stock
on the first business day of each November following the initial grant. The
initial 20,000 share grant vests in 33.33% installments on each of the first
three anniversaries of the date of grant. The first 10,000 share grant vests in
50% installments on the first two anniversaries of the date of grant. The second
10,000 share grant is fully exercisable on the first anniversary date of grant.
Any subsequent annual grants are each fully exercisable on their dates of grant.
The Director Stock Option Plan also provides for discretionary grants of stock
options to non-employee directors as determined from time to time by the Board.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
On March 31, 2003, we announced that we had appointed Mr. Peebler as
our Chief Executive Officer. In addition, we announced that we invested $3.0
million in Series B Preferred Securities of Energy Virtual Partners, LP and its
affiliated corporation (together, "EVP"). EVP is a company formed in 2001 that
provides asset management services to large oil and gas companies to enhance the
value of their oil and gas properties. We own approximately 22% of the
outstanding ownership interests of EVP and 11% of the outstanding voting
interests in EVP. Mr. Peebler is currently the Chairman of EVP and owns 21% of
the outstanding voting interests in EVP. Mr. Peebler founded EVP in April, 2001
and, prior to his employment by us, Mr. Peebler was
11
President and Chief Executive Officer of EVP. Pursuant to Mr. Peebler's
employment agreement with us, Mr. Peebler is permitted to devote up to 20% of
his time to EVP.
Mr. Lapeyre is the Chairman, President and a significant owner of
Laitram. Mr. Lapeyre and Laitram together own 11.9% of our Common Stock as of
March 30, 2003. We acquired DigiCourse, Inc. from Laitram in 1998 and renamed it
I/O Marine Systems, Inc. In connection with that acquisition, we entered into a
Continued Services Agreement with Laitram Corporation under which Laitram agreed
to provide one of our subsidiaries accounting, software, manufacturing and
maintenance services. Manufacturing services consists primarily of machining of
parts for our marine positioning systems. This agreement expired in September
2001 but we continue to operate under its terms. In addition, when we request,
the legal staff of Laitram advises us on intellectual property matters with
regard to our marine positioning systems. In 2002, we paid Laitram Corporation a
total of $1.9 million, which consisted of $1.2 million of manufacturing
services, $0.6 million of rent and other facilities charges, and $0.1 million of
other services. In the opinion of management, the terms of such services are
fair and reasonable and as favorable to I/O as those which could have been
obtained from unrelated third parties at the time of their performance.
In March 2000, our Board established an executive "matching" program
under which we issued one share of restricted stock for each share purchased by
our senior executives in open-market transactions in March and April of 2000. We
issued 123,000 shares of restricted stock to four executives in connection with
this program. Messrs. Bunch and Pope funded their purchases through loans from a
commercial bank in the amounts of $200,000 and $125,000, respectively. We
guaranteed this indebtedness in 2000 and were liable for the entire amount
outstanding under these loans if either Mr. Bunch or Mr. Pope defaulted on their
obligations. As of December 31, 2002, Mr. Pope had completely repaid the
associated indebtedness guaranteed by I/O and our guarantee of Mr. Bunch's
indebtedness expired by its terms in March of 2003.
In January 2003, Mr. Pope, our Vice President - Marketing & Sales, left
our employment. We agreed, in exchange for a mutual release of all claims, to
pay Mr. Pope $15,000, pay certain relocation benefits, accelerate the vesting of
3,333 shares of restricted stock and provide outplacement services. In addition,
we entered into a two-year consulting agreement with Mr. Pope where we agreed to
pay him $100,000 upon completion of certain marketing and sales deliverables and
agreed to pay him $100,000 per year in 2003 and 2004, less the amount of
compensation he earns from unaffiliated parties in 2004.
12
EXECUTIVE OFFICERS
Our current executive officers are as follows:
Name Age Position with I/O
---- --- -----------------
Robert P. Peebler.................... 55 Chief Executive Officer
C. Robert Bunch...................... 48 Former President and Chief Operating Officer
Larry E. Denver...................... 43 Vice President - Business Development
Bjarte Fageraas...................... 43 Vice President - Chief Technology Officer
Brad Eastman......................... 35 Vice President, Chief Administrative Officer and Secretary
Laura D. Guthrie..................... 44 Vice President - Human Resources
Michael L. Morrison.................. 32 Controller and Director of Accounting
For a description of the business background of Mr. Peebler, see
"Incumbent Directors -- Term Expiring in 2005" above.
Mr. Bunch has served as President and Chief Operating Officer since
January 2003. Previously, Mr. Bunch served as Vice President and Chief
Administrative Officer since November 1999. From May 1997 to October 1999, Mr.
Bunch was a partner at King and Pennington, L.L.P. of Houston, where he
practiced in several areas of business law. Previously, Mr. Bunch was an
attorney at Scott, Douglass & McConnico, L.L.P. from December 1994 to May 1997,
where he concentrated on oil and gas matters. Mr. Bunch has extensive operations
and finance experience, including serving as Executive Vice President and Chief
Financial Officer and later, Chief Operating Officer of OYO Geospace
Corporation, a manufacturer of seismic equipment; Chief Financial Officer of
Siberian American Oil Company; and Chief Financial Officer and, later, President
and Chief Operating Officer of Tescorp, Inc., a manufacturer of specialty cables
for the seismic industry which is now owned by us. Mr. Bunch serves on the Board
of Directors of Maverick Tube Corporation, a manufacturer of tubular products
used in the energy industry. Mr. Bunch recently announced that he will leave I/O
following a transition period that began upon appointment of Mr. Peebler as our
Chief Executive Officer.
Mr. Denver was appointed Vice President - Business Development in
November 2002. Mr. Denver previously had served as Vice President - Reservoir
Operations since April 2001. From April 2000 until joining I/O, Mr. Denver was a
partner at SCF Partners, a Houston-based private equity fund specializing in oil
service investments, during which time he also served as Chairman of the Board
of World Oil, an industry publication. From 1994 until joining SCF, Mr. Denver
held various positions at Schlumberger GeoQuest, a supplier of software products
and services to the exploration and production industry. Most recently, Mr.
Denver was Vice President and General Manager, Reservoir Products, for
Schlumberger GeoQuest.
Mr. Fageraas has been Vice President - Chief Technology Officer since
May 2001. Prior to joining I/O, Mr. Fageraas was president of and a stockholder
in
13
Geophysical Instruments AS, which we acquired in May 2001. From 1998 to 1999,
Mr. Fageraas was Vice President, Research & Development of Aker Geo ASA, a
manufacturer of products for offshore oil and gas exploration and production.
Previously, Mr. Fageraas was Technical Manager of PGS Reservoir, a provider of
geophysical services.
Mr. Eastman has been Chief Administrative Officer since January 2003,
Vice President and General Counsel of I/O since October 2001 and Secretary since
July 2001. As Chief Administrative Officer, Mr. Eastman's duties encompass the
traditional roles of Chief Financial Officer and General Counsel. Prior to
joining I/O, Mr. Eastman held a variety of positions at Quanta Services, Inc., a
provider of specialized contracting services to the electric power, gas,
telecommunications and cable television industries, most recently as Vice
President - Mergers & Acquisitions. Before joining Quanta Services in 1998, Mr.
Eastman was an attorney with Brobeck, Phleger & Harrison LLP where his practice
focused on companies in technology industries.
Ms. Guthrie has been Vice President - Human Resources since March 2002.
Prior to joining I/O, Ms. Guthrie had been an independent management consultant.
From July 1999 until March 2000, Ms. Guthrie served as Vice President, Human
Resources for Splitrock Services, Inc., a broadband communications company.
Before joining Splitrock, Ms. Guthrie was a management consultant with Sterling
Consulting Group, a firm specializing in strategy development for the oil and
gas industry.
Mr. Morrison has been Controller and Director of Accounting since
November 2002, and was Assistant Controller from June 2002 until he was promoted
to Controller and Director of Accounting. Prior to joining I/O, Mr. Morrison
held several positions at Enron Corp., an energy trading and pipeline company,
most recently as Director of Transaction Support. Mr. Morrison had held a
variety of positions at Deloitte & Touche, LLP, a public accounting firm, from
January 1994 until he joined Enron in June 2000. Mr. Morrison is a Certified
Public Accountant and a member of the American Institute of Certified Public
Accountants.
14
EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation paid
in fiscal 2002, 2001 and 2000, as well as the seven months ended December 31,
2000, to our Chief Executive Officer and our four other most highly compensated
executive officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- -----------------------------------------------
Shares
NAME AND PRINCIPAL Restricted Underlying All other
POSITION Year* Salary Bonus Stock Awards Options Compensation**
------------------ ----- ------------ -------- ------------ ---------- --------------
Timothy J. Probert(1)....... 2002 $ 350,000 $ -- $ -- 50,000 $ 5,250
Director, Former 2001 343,269 498,750(2) -- 60,000 7,282
President and Chief 2000SY 175,000 20,000 -- -- 5,250
Executive Officer 2000 75,000(3) -- 393,750(4) 300,000 --
C. Robert Bunch............. 2002 225,000 40,000 -- 35,000 12,462
Former President and 2001 220,673 215,719 -- 35,000 6,740
Chief Operating Officer 2000SY 110,833 -- -- -- 3,250
2000 110,833(5) 20,000 259,874(4) 100,000 --
Kenneth W. Pope(6).......... 2002 200,000 -- -- 25,000 11,539
Vice President - 2001 196,154 110,125 -- 25,000 6,964
Marketing & Sales 2000SY 100,833 20,000 -- -- 1,650
2000 127,083 -- 216,875(4)(7) 22,500 --
Larry E. Denver............. 2002 180,000 30,000(8) -- 25,000 5,400
Vice President - 2001 131,538(9) 94,500(10) 121,155(11) 15,000 1,690
Business Development
Bjarte Fageraas............. 2002 155,400 30,000(12) -- 25,000 4,662
Vice President - Chief 2001 107,656(13) 61,124(14) -- 30,000 3,751
Technology Officer
* "SY" refers to the seven months ended December 31, 2000.
** All other compensation consists of employer matching contributions to
the 401(k) plan and premiums paid for our Executive Salary Continuance
and Executive Long Term Disability Plan.
(1) Mr. Probert resigned from I/O in January 2003. In connection with his
resignation, the Company paid Mr. Probert $120,000.
(2) The bonus amount for Mr. Probert included $349,950 in cash and 18,600
shares of restricted Common Stock. We use the closing price of our
Common Stock on the date of the restricted stock grant for valuation
purposes. This award was
15
granted under our 1998 Restricted Stock Plan on February 14, 2002,
resulting in a grant value of $8.00 per share. In connection with Mr.
Probert's resignation, all 18,600 shares were cancelled in January
2003.
(3) Mr. Probert joined I/O on March 1, 2000, as President and Chief
Executive Officer.
(4) These restricted stock awards were granted under our 2000 Restricted
Stock Plan on May 5, 2000, resulting in a grant value of $7.875 per
share. Each of these awards vests one-third per year beginning three
years after the date of grant. While unvested, the holder of the
restricted stock is entitled to the same voting and dividend rights as
all other holders of Common Stock. Mr. Probert was granted 50,000
shares, Mr. Bunch was granted 33,000 shares, and Mr. Pope was granted
20,000 shares of restricted Common Stock. We cancelled all of Messrs.
Probert's and Pope's shares upon termination of their employment with
I/O in January 2003. While unvested, Mr. Bunch is entitled to the same
voting and dividend rights as all other holders of Common Stock.
(5) Mr. Bunch joined I/O on November 1, 1999, as Vice President and Chief
Administrative Officer.
(6) Mr. Pope's employment with I/O terminated in January 2003. In
connection with his termination, Mr. Pope and the Company entered into
a Separation Agreement and a Consulting Agreement as discussed above in
"Certain Transactions and Relationships."
(7) Includes 10,000 shares granted to Mr. Pope under our 1998 Restricted
Stock Plan. The 10,000 restricted shares were valued at $5.9375 per
share, the closing price on March 1, 2000, which was the date the
shares were granted to Mr. Pope. In connection with the termination of
Mr. Pope's employment, we agreed to vest 3,333 of these shares and
cancelled the rest.
(8) Mr. Denver only received only $7,500 of his bonus for 2002. The
remaining $22,500 was retained by us pursuant to arrangements with Mr.
Denver that we made when he joined I/O. We paid Mr. Denver $45,000 upon
his commencement of employment with us. We agreed with Mr. Denver that
we would set off up to $22,500 against amounts owed to him as bonus
otherwise payable for 2001 and the remainder would be set off against
any bonus otherwise payable for 2002.
(9) Mr. Denver joined I/O on April 2, 2001 as Vice President - Reservoir
Operations.
(10) This amount includes $45,000 paid to Mr. Denver upon his commencement
of employment with us. We agreed with Mr. Denver that we would set off
up to $22,500 against amounts owed to him as bonus otherwise payable
for 2001 and the remainder would be set off against any bonus otherwise
payable for 2002.
(11) Includes 9,850 shares granted to Mr. Denver under our 2000 Restricted
Stock Plan. These shares vest one-third per year beginning three years
after the date of grant. While unvested, Mr. Denver is entitled to the
same voting and dividend rights as all other holders of Common Stock.
The restricted shares were valued at
16
$12.30 per share, the closing price on June 7, 2001, which was the date
the shares were granted to Mr. Denver.
(12) Mr. Fageraas did not receive any of his bonus for 2002. Mr. Fageraas'
bonus was retained by us pursuant to arrangements with Mr. Fageraas
that we made when he joined I/O. In connection with the acquisition of
the outstanding shares of capital stock of Geophysical Instruments AS,
we agreed with Mr. Fageraas that in exchange for the consideration for
his shares, $50,000 per year for the first three years of his
employment would be deducted from bonuses otherwise payable to him. If
his bonus in any of these three years was less than $50,000, then the
balance would be carried forward and set off against any bonus
otherwise payable in the next year. If Mr. Fageraas voluntarily
terminates his employment with I/O prior to recapture of any portion of
$150,000, then he must repay us such unpaid amount.
(13) Mr. Fageraas joined I/O on May 1, 2001 as Vice President - Technology.
(14) Mr. Fageraas received only $11,124 of his bonus for 2001. The remaining
$50,000 was retained by us pursuant to arrangements with Mr. Fageraas
that we made when he joined I/O. See Note 12 above.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
PERCENTAGE POTENTIAL REALIZABLE VALUE
NUMBER OF OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED IN APPRECIATION FOR OPTION
OPTIONS FISCAL EXERCISE TERM*
GRANTED 2002 PRICE EXPIRATION -------------------------
NAME (#)(1) (%)(2) ($/SH) DATE 5% 10%
---- ---------- ---------- -------- ---------- --------- ---------
Timothy J. Probert........ 50,000 6.1% $ 9.38 05/17/12 $ 294,952 $ 747,465
C. Robert Bunch........... 35,000 4.3% 9.38 05/17/12 206,466 523,226
Kenneth W. Pope........... 25,000 3.1% 9.38 05/17/12 147,476 373,733
Larry E. Denver........... 25,000 3.1% 9.38 05/17/12 147,476 373,733
Bjarte Fageraas........... 25,000 3.1% 9.38 05/17/12 147,476 373,733
* The dollar gains under these columns result from using calculations
assuming 5% and 10% growth rates as set by the Securities and Exchange
Commission and are not intended to forecast future price appreciation of our
Common Stock. The gains reflect a future value based upon growth at these
prescribed rates. We did not use an alternative formula for a grant date
valuation, an approach which would state gains at present, and therefore lower,
value. Importantly, options have value to recipients, including the listed
executives, only if the stock price advances beyond the grant price shown in the
table during the effective option period.
(1) These awards were made under the 2000 Long Term Incentive Plan. These
options were granted at an exercise price equal to the fair market
value per share of our Common Stock on the date of grant. The fair
market value of
17
a share of our Common Stock is defined in the Long Term Incentive Plan
as the closing sales price on the immediately preceding business day of
a share of Common Stock as reported on The New York Stock Exchange. The
options vest in 25% increments on the first, second, third and fourth
anniversaries of the grant date. The plan contains provisions about the
impact of a change of control, death, disability, retirement and
termination of employment on the exercisability of options, with change
of control and retirement, with certain exceptions, causing
acceleration of vesting.
(2) Based on an aggregate of 820,500 shares subject to options granted to
our employees in the fiscal year ended December 31, 2002, including the
listed executives.
YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 2002 DECEMBER 31, 2002(1)
--------------------------------- -------------------------------
NAME* EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----- ----------- ------------- ----------- -------------
Timothy J. Probert........... 165,000 245,000 $ -- $ --
C. Robert Bunch.............. 58,750 111,250 -- --
Kenneth W. Pope.............. 35,000 52,500 -- --
Larry E. Denver.............. 3,750 36,250 -- --
Bjarte Fageraas.............. 7,500 47,500 -- --
* None of the officers listed in this table exercised options in the
year ended December 31, 2002.
(1) Based on a value of $4.25 per share, the closing price on December 31,
2002.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR(1)
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER PERFORMANCE NON-STOCK BASED PLANS(2)
OF PERIOD UNTIL --------------------------------
NAME SHARES PAYOUT THRESHOLD TARGET MAXIMUM
---- -------- ------------ --------- ------ --------
Timothy J. Probert 40,000 3 Years -- 8,000 40,000
C. Robert Bunch 25,000 3 Years -- 5,000 25,000
Kenneth W. Pope 15,000 3 Years -- 3,000 15,000
Larry E. Denver 15,000 3 Years -- 3,000 15,000
Bjarte Fageraas 15,000 3 Years -- 3,000 15,000
(1) These performance share awards were issued under our 2000 Long Term
Incentive Plan which has been approved by our stockholders. The
Compensation
18
Committee, which administers the plan, awards performance shares to
certain of our executive officers. The Committee determines the total
number of shares of our Common Stock available for each participant by
comparing our performance against our internal plan and against our
industry peers. Actual awards are determined after the end of the
three-year period and range from 0% to 100% of the performance shares
awarded. No awards are earned until performance is certified by the
Compensation Committee at the end of the three-year period. The plan is
based on total stockholder return over the three year period, with no
payout if total stockholder return is less than 20% on an annualized
basis. Upon a change in control, all awards become fully vested and
payable.
(2) At the target level of performance, participants receive 20% of the
performance shares awarded. No shares are issued for performance below
the target level. The maximum number of shares is earned if an
over-achievement target is reached. The over-achievement target is
total stockholder return of 25% on an annualized basis for the
three-year period.
EMPLOYMENT AGREEMENTS
Our employment agreement with Mr. Peebler dated March 31, 2003,
provides that Mr. Peebler will serve as president and chief executive officer
for a 5-year term, unless sooner terminated. Under the agreement, Mr. Peebler is
entitled to an annual base salary of at least $400,000, and to participate in
all of our employee benefit plans available to senior executives at a level
commensurate with his position. The agreement acknowledges Mr. Peebler's
continuing involvement as chairman of Energy Venture Partners, and provides that
he can devote approximately 20% of his time to that company. In the event that
Mr. Peebler's employment is terminated by us without cause, or if he resigns for
"good reason" (defined as a reduction in his status, pay or benefits; a demotion
to a lesser position with I/O or reduction of his duties and responsibilities;
or a change of his principal place of employment by more than 30 miles), then we
are obligated to pay Mr. Peebler over a 3-year period a termination payment
equal to three times his annual base salary. In addition, subject to approval of
Item 2, we granted Mr. Peebler and option to purchase 1,325,000 shares at $6.00
per share.
The employment agreement contains provisions relating to protection of
our confidential information and intellectual property and restricts Mr. Peebler
from soliciting our employees and customers or competing with us during the term
of his employment and for a period of two years following termination. If he
violates these covenants, we can suspend making his termination payment. In the
event of a change of control, if Mr. Peebler remains with us or with our
successor for a period of 18 months following the change of control, he can then
voluntarily resign for any reason or no reason at all, and be entitled to
receive the termination payment referred to above. If any payment or benefit
under this employment agreement is determined to be subject to the excise tax
for "excess parachute payments" under U.S. federal income tax rules, we have
agreed to pay to Mr. Peebler an additional amount to adjust for the incremental
tax costs to Mr. Peebler of those payments. We also agreed to indemnify Mr.
Peebler to the fullest extent permitted by our certificate of incorporation and
bylaws, and to provide him coverage under our directors' and officers' liability
insurance policies to the same extent as our other executives.
19
We have also entered into employment agreements with Messrs. Bunch,
Denver, Fageraas and Eastman and Ms. Guthrie, each dated as of February 4, 2003
and each filed as an exhibit to our Annual Report on Form 10-K for the year
ended December 31, 2002.
Our employment agreement with Mr. Bunch provides for Mr. Bunch to serve
as our President and Chief Operating Officer for an initial term of two years
and, thereafter, for additional successive terms of one year each unless
terminated by us or Mr. Bunch at the end of the initial term or any additional
term. Under the agreement, Mr. Bunch is entitled to an annual base salary of at
least $250,000 and is eligible to receive a bonus based on objective criteria
established by the Board. Mr. Bunch is entitled to participate in all of our
employee benefit plans available to senior executives at a level commensurate
with his position. In the event Mr. Bunch's employment is terminated by us other
than for cause, by Mr. Bunch for good reason, or by Mr. Bunch after a transition
period if we appoint someone else as Chief Executive Officer, then provided that
Mr. Bunch executes a general release in our favor in the form provided in the
agreement, I/O is obligated to pay Mr. Bunch in monthly payments over a 12-month
period a sum equal to one-and-one-half times his base salary as well as a pro
rata portion of any annual bonus for the year in which such termination occurs
and to offer him continued participation in our health and welfare plans for a
period of eighteen months. In addition, under those circumstances we would be
required to vest the 33,000 shares of restricted stock granted to Mr. Bunch in
May 2000. The agreement restricts Mr. Bunch from soliciting our employees and
customers or competing with I/O during the term of his employment and for a
period of one year following termination. We have also agreed to indemnify Mr.
Bunch to the fullest extent permitted by I/O's Certificate of Incorporation and
Bylaws.
Our employment agreement with Mr. Denver provides for Mr. Denver to
serve as our Vice President of Business Development for an initial term of two
years and, thereafter, for additional successive terms of one year each unless
terminated by us or Mr. Denver at the end of the initial term or any additional
term. Under the agreement, Mr. Denver is entitled to an annual base salary of at
least $200,000 and is eligible to receive a bonus based on objective criteria
established by the Board. Mr. Denver is entitled to participate in all of our
employee benefit plans available to senior executives at a level commensurate
with his position. In the event Mr. Denver's employment is terminated by us
other than for cause or by Mr. Denver for good reason, then provided that Mr.
Denver executes a general release in our favor in the form provided in the
agreement, I/O is obligated to pay Mr. Denver in monthly payments over a
12-month period a sum equal to his base salary as well as a pro rata portion of
any annual bonus for the year in which such termination occurs and to offer him
continued participation in our health and welfare plans for a period of twelve
months. In addition, upon termination of Mr. Denver's employment for any reason,
we are obligated to purchase certain shares of our common stock and 9,850 shares
of restricted stock issued to Mr. Denver in June 2001 such that Mr. Denver's net
after-tax proceeds from that sale is $120,000, less any after-tax proceeds Mr.
Denver receives from other disposals of those shares. The agreement restricts
Mr. Denver from soliciting I/O's employees and customers or competing with I/O
during the term of his employment and for a period of one year following
termination. We have also agreed to indemnify Mr. Denver to the fullest extent
permitted by I/O's Certificate of Incorporation and Bylaws.
20
Our employment agreement with Mr. Fageraas provides for Mr. Fageraas to
serve as our Vice President - Chief Technology Officer for an initial term of
two years and, thereafter, for additional successive terms of one year each
unless terminated by us or Mr. Fageraas at the end of the initial term or any
additional term. Under the agreement, Mr. Fageraas is entitled to an annual base
salary of at least $170,000 and is eligible to receive a bonus based on
objective criteria established by the Board. Mr. Fageraas is entitled to
participate in all of our employee benefit plans available to senior executives
at a level commensurate with his position. In the event Mr. Fageraas' employment
is terminated by us other than for cause or by Mr. Fageraas for good reason,
then provided that Mr. Fageraas executes a general release in our favor in the
form provided in the agreement, I/O is obligated to pay Mr. Fageraas in monthly
payments over a 12-month period a sum equal to his base salary as well as a pro
rata portion of any annual bonus for the year in which such termination occurs
and to offer him continued participation in our health and welfare plans for a
period of twelve months. In addition, under such circumstances we would be
required to reimburse Mr. Fageraas for certain excise taxes he may incur under
the laws of Norway. The agreement restricts Mr. Fageraas from soliciting I/O's
employees and customers or competing with I/O during the term of his employment
and for a period of one year following termination. I/O has also agreed pursuant
to this agreement to indemnify Mr. Fageraas to the fullest extent permitted by
I/O's Certificate of Incorporation and Bylaws.
Our employment agreement with Mr. Eastman provides for Mr. Eastman to
serve as our Vice President and Chief Administrative Officer for an initial term
of two years and, thereafter, for additional successive terms of one year each
unless terminated by us or Mr. Eastman at the end of the initial term or any
additional term. Under the agreement, Mr. Eastman is entitled to an annual base
salary of at least $160,000 and is eligible to receive a bonus based on
objective criteria established by the Board. Mr. Eastman is entitled to
participate in all of our employee benefit plans available to senior executives
at a level commensurate with his position. In the event Mr. Eastman's employment
is terminated by us other than for cause or by Mr. Eastman for good reason, then
provided that Mr. Eastman executes a general release in favor of I/O in the form
provided in the agreement, I/O is obligated to pay Mr. Eastman in monthly
payments over a year a sum equal to his base salary as well as a pro rata
portion of any annual bonus for the year in which such termination occurs and to
offer him continued participation in our health and welfare plans for a period
of twelve months. The agreement restricts Mr. Eastman from soliciting I/O's
employees and customers or competing with I/O during the term of his employment
and for a period of one year following termination. I/O has also agreed pursuant
to this agreement to indemnify Mr. Eastman to the fullest extent permitted by
I/O's Certificate of Incorporation and Bylaws.
Our employment agreement with Ms. Guthrie provides for Ms. Guthrie to
serve as our Vice President - Human Resources for an initial term of two years
and, thereafter, for additional successive terms of one year each unless
terminated by us or Ms. Guthrie at the end of the initial term or any additional
term. Under the agreement, Ms. Guthrie is entitled to an annual base salary of
at least $135,000 and is eligible to receive a bonus based on objective criteria
established by the Board. Ms. Guthrie is entitled to participate in all of our
employee benefit plans available to senior executives at a level commensurate
with her position. In the event Ms. Guthrie's employment is terminated
21
by us
other than for cause or by Ms. Guthrie for good reason, then provided that Ms.
Guthrie executes a general release in favor of I/O in the form provided in the
agreement, I/O is obligated to pay Ms. Guthrie in monthly payments over a year a
sum equal to her base salary as well as a pro rata portion of any annual bonus
for the year in which such termination occurs and to offer her continued
participation in our health and welfare plans for a period of twelve months. The
agreement restricts Ms. Guthrie from soliciting I/O's employees and customers or
competing with I/O during the term of her employment and for a period of one
year following termination. I/O has also agreed pursuant to this agreement to
indemnify Ms. Guthrie to the fullest extent permitted by I/O's Certificate of
Incorporation and Bylaws.
CHANGE OF CONTROL AND SEVERANCE AGREEMENTS
We have entered into a severance and change of control agreement with
Mr. Bunch. Under the terms of this agreement, Mr. Bunch will be entitled to
receive certain severance payments and benefits in the event his employment is
terminated during the 18-month period following a change of control of I/O,
unless his employment is terminated for cause (as defined in the agreement), by
voluntary resignation or by reason of death or disability. If Mr. Bunch
voluntarily resigns following a change in duties after a change in control, then
he will also be entitled to severance benefits.
The severance payable under this change in control agreement must be
paid in one lump sum within 30 days of a qualifying termination. The severance
payment will be equal to two times the greater of Mr. Bunch's base salary on the
date of termination or the date of the change in control and two times his
target bonus under any incentive program then in effect. Additionally, Mr. Bunch
will be entitled to receive continued benefits for up to one year following
termination. If his stock options and restricted stock have not fully vested,
then the unvested options and restricted stock will accelerate and immediately
become fully vested. In the event that any payment would constitute an excess
parachute payment under Section 280G of the Internal Revenue Code, the severance
amounts and other benefits will be reduced to an amount that would not be
taxable subject to the effects of Section 280G and related excise taxes.
The term of this change in control agreement is three years, but the
agreement automatically renews for additional three-year terms absent prior
written notice from us or Mr. Bunch. The agreement also amends the terms of any
stock option agreement or restricted stock award held by Mr. Bunch to provide
that in the event of a change of control in which our successor fully assumes
the options or restricted stock awards, the options and restricted stock awards
will not accelerate upon the change in control event.
22
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2002 with
respect to I/O's common stock issuable under our equity compensation plans:
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected
Plan Category warrants and rights warrants and rights in column (a))
------------- (a) (b) (c)
-------------------- -------------------- --------------------
Equity compensation plans approved by
security holders
Amended and Restated 1990 Stock 2,795,543 $ 10.80 --
Option Plan
Amended and Restated 1991 Directors 230,000 $ 21.07 --
Stock Option Plan
Amended and Restated 1996 514,000 $ 11.57 159,333
Non-Employee Director Stock Option
Plan
1998 Restricted Stock Plan 28,600 53,900
2000 Long-Term Incentive Plan 1,458,500 $ 10.13 650,775
Employee Stock Purchase Plan -- 315,085
-------------------- --------------------
Subtotal 5,026,643 1,179,093
-------------------- --------------------
Equity compensation plans not
approved by security holders
2000 Restricted Stock Plan 112,850 87,150
==================== ====================
Total 5,139,493 1,266,243
2000 Restricted Stock Plan. During 2000, our Board approved the
Input/Output, Inc. 2000 Restricted Stock Plan. This plan grants our Compensation
Committee the authority to make awards of restricted stock of up to 200,000
shares of our Common Stock in order to attract and retain key employees of I/O
and our subsidiaries. Awards may be made from authorized and unissued shares or
treasury shares, but the plan provides that shares delivered under the initial
grants under the plan must be made only from treasury shares or Common Stock
repurchased by I/O.
Under the terms of this plan, I/O enters into individual award
agreements with participants designated by the Compensation Committee specifying
the number of shares of common stock granted under the award, the price (if any)
to be paid by the grantee for
23
the restricted stock, the restriction period during which the award is subject
to forfeiture, and any performance objectives specified by the Committee.
Participants are not permitted to sell, transfer or pledge their restricted
stock during their restriction period.
Upon termination of a participant's employment with us for any reason
other than death, disability or retirement, all nonvested shares of restricted
stock will be forfeited. In addition, in the event of a "change in control" of
the Company, all shares of restricted stock will become fully vested. Unless
sooner terminated, the 2000 Restricted Stock Plan will expire on March 10, 2010.
24
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
INPUT/OUTPUT, S&P 500 INDEX AND PEER GROUP INDEX
We have made previous filings under the Securities Act of 1933, as
amended , or the Securities Exchange Act of 1934, as amended, that incorporate
future filings, including this proxy statement, in whole or in part. However,
the following Performance Graph and the Report of the Compensation Committee of
the Board of Directors of Input/Output, Inc. shall not be incorporated by
reference into any such filings.
1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------
INPUT/OUTPUT, INC. 100.00 24.63 17.05 34.32 27.65 14.32
PEER GROUP INDEX 100.00 45.36 40.64 61.43 30.95 18.51
S&P 500 INDEX 100.00 128.58 155.64 141.46 124.65 97.10
The Performance Graph is presented for the period beginning December
31, 1997 and ending on December 31, 2002. The Peer Group Index consists of OYO
Geospace Corporation, Bolt Technology Corp. and Compagne Generale de Geophysics.
Historical stock performance during this period may not be indicative of future
stock performance.
25
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF INPUT/OUTPUT, INC.
The Compensation Committee of the Board of Directors of Input/Output,
Inc. offers this report regarding compensation policies for executive officers
and the Chief Executive Officer of the Company.
The Committee has three principal goals:
o provide competitive compensation opportunities to attract and retain
qualified and productive executive employees;
o motivate executives to meet and exceed corporate financial goals; and
o create meaningful links between corporate performance, individual
performance and rewards.
In 2001 the Committee, with the assistance of a third-party consultant,
undertook a comprehensive review of I/O's total compensation philosophy to
maximize achievement of the Committee's goals. As a result of this review, the
Committee clarified governing principles in establishing executive compensation:
Executive Compensation Should Have a Long-Term and At-Risk
Focus. Premium compensation opportunities should be composed of
long-term, at-risk pay to focus management on the long-term interests
of I/O. While base salary, annual incentives and employee benefits
should be at competitive levels, exceptional long-term returns to the
stockholders should generate above-average compensation for executives.
Executive Compensation Should Have an Equity Orientation.
Equity-based plans should comprise a major part of the at-risk portion
of total compensation to instill ownership thinking and to link
compensation to corporate performance and stockholder interests.
Consistent with this philosophy, the Committee periodically has offered
to match open market purchases of I/O's Common Stock by executives with
grants of restricted stock.
Executive Compensation Should be Competitive with
Opportunities for Above-Average Total Compensation. The Committee
emphasizes total compensation opportunities consistent with the 50th
percentile of a peer group of companies, with the opportunity to reach
the 75th percentile if I/O meets certain stockholder return targets.
Competitiveness of base pay and annual incentives is independent of
stock performance. However, overall competitiveness of total
compensation is contingent on long-term, stock-based compensation
programs.
These principles apply to compensation policies for all executive
officers. The Committee does not follow the principles in a mechanistic fashion;
rather, the Committee uses experience and judgment in determining the
appropriate mix of compensation for each individual.
COMPONENTS OF EXECUTIVE COMPENSATION
The primary components of executive compensation are:
26
o ANNUAL CASH COMPENSATION, including base salary and annual
incentives.
o LONG-TERM INCENTIVE COMPENSATION, including stock options,
performance shares and restricted stock.
The companies selected for comparison of total compensation differ
from those included in the Performance Graph to take into account our size and
our specific sub-segment of the oilfield services sector.
ANNUAL CASH COMPENSATION
Base Salary. The purpose of base salary is to create a base of cash
compensation for executive officers that is in the 50th percentile of our
comparator group of companies. We exercise discretion in making salary decisions
and rely to a large extent on the Chief Executive Officer's evaluations of
individual executive officer performance after reviewing their performance with
him. Salary increases for executive officers do not follow a preset schedule or
formula.
Base salary is designed to provide an income level that is sufficient
to minimize day-to-day distractions of executives from their focus on long-term
business growth. However, base pay levels are not intended to be the vehicle for
significant long-term capital and wealth accumulation for executives.
Annual Incentives. The Committee implements an annual incentive program
each year to provide cash compensation that is at-risk on an annual basis and is
contingent on achievement of annual business and operating objectives. Annual
incentives measure overall corporate performance, achievement of individual
goals, and, where appropriate, business unit performance. The annual incentive
plan is the primary program for measuring individual performance. Annual
incentives are expressed as a percentage of the recipients' base salary with
higher upside opportunity for high performance and no payment for
below-acceptable performance. The annual cash incentive provides income levels
that are sufficient to allow for modest wealth accumulation for executive
officers in the presence of high levels of business performance.
In 2002 we elected to pay modest discretionary cash bonuses to our
continuing executives, despite our financial performance which did not qualify
for bonus compensation under our plan. We paid these bonuses after considering
the overall industry environment, the progress made in restructuring our
operations and the significant progress made in commercializing our
VectorSeis(R) platform.
LONG-TERM INCENTIVE COMPENSATION
Long-term incentives comprise the largest portion of the total
compensation package for executive officers. There are three forms of long-term
incentives utilized for executive officers: stock options, performance shares
and restricted stock. In any given year, an executive officer may be offered a
combination of long-term incentives or only one form of long-term incentive. In
the presence of high levels of business performance, long-term incentives will
provide income levels that are sufficient to allow for wealth accumulation for
executive officers.
27
Stock Options. The purpose of stock options is to provide equity
compensation whose value has been traditionally treated as entirely at-risk,
based on the increase in our stock price and the creation of stockholder value.
Stock options also allow executive officers to have equity ownership and to
share in the appreciation of the value of the stock in I/O. Stock options only
have value if the stock price appreciates in value from the date options are
granted.
Stock option awards are based on business performance in the previous
fiscal year. Approximately 170 employees received option awards covering 820,500
shares of Common Stock in 2002. The officers discussed in the compensation
tables received option awards for 160,000 shares in 2002.
Performance Shares. We made awards of performance shares under the 2000
Long-Term Incentive Plan. The awards made in 2002 are based on total stockholder
return, which includes stock appreciation and dividends. Awards are made for a
three-year performance period. Below a threshold level of performance in the
period, no awards are earned. Based on Input/Output's financial performance in
2001 and 2002, no accruals for financial accounting purposes have been made for
any payout of any awards granted under this plan.
Restricted Stock. We use restricted stock to focus executives on the
long-term performance of I/O. Restricted stock is not used as a guaranteed
element of any executive's total compensation, but as a special compensation
tool. Vesting of restricted stock is not dependent on performance measurement
targets, but rather continued employment. Previously, we have matched
significant open market purchases by certain executives with restricted stock
awards. We did not make awards of restricted stock in 2002 except that a portion
of Mr. Probert's bonus for 2001 was paid in the form of 18,600 shares of
restricted Common Stock. This award was granted on February 14, 2002, resulting
in a grant value of $8.00 per share. This award was to vest in two equal annual
installments. These shares of restricted stock were cancelled in January 2003
when Mr. Probert resigned his position as our Chief Executive Officer.
ADDITIONAL INFORMATION
Benefits. Benefits offered to executive officers are largely those
offered to the general employee population. Executive officers are also offered
the opportunity to participate in a non-qualified deferred compensation plan
which is only available to senior officers and managers, and who also are
provided a Salary Continuance and Long Term Disability Plan.
Tax Compliance Policy. The federal tax code imposes a limitation on the
deduction for certain executive officers' compensation unless certain
requirements are met. While our goal is to have all compensation fully
deductible, we reserve the right to pay compensation that is not deductible if
it is in the best interests of I/O. To maintain flexibility in compensating
executive officers in a manner designed to promote varying corporate goals, we
have not adopted a policy that all compensation must be deductible.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The year 2002 was a difficult year for I/O. The seismic industry
suffered a severe downturn despite rising commodity prices toward the end of the
year. Mr. Probert,
28
despite these industry challenges, made great progress in optimizing our core
analog business and commercializing our new VectorSeis technology.
Annual Cash Compensation. Mr. Probert's annual base salary remained at
$350,000 in 2002. Annual incentive targets were developed for Mr. Probert based
on a combination of earnings per share goals, working capital management goals
and personal objectives. Based on I/O's performance in 2002, the Committee did
not award Mr. Probert a bonus in 2002. The Committee awarded Mr. Probert a
special bonus of $120,000 upon his resignation from the Company in January 2003.
Long-Term Incentive Compensation. The Committee granted Mr. Probert in
2002 an option to purchase 50,000 shares of Common Stock that would have vested
25% per year from the date of grant. In addition, the Committee granted Mr.
Probert a performance share award for a maximum of 40,000 shares of Common
Stock. The actual shares issued to Mr. Probert would have been determined after
a three year performance period and would have been based on total stockholder
return in the period. No shares would have been issued under the performance
share award unless I/O had an annualized 20% total stockholder return through
the period. The full amount of performance shares awarded would have been issued
to Mr. Probert if the annualized total stockholder return in the performance
period met or exceeded 25%. Both of these awards were cancelled in January 2003
when Mr. Probert resigned from the Company.
RETENTION PACKAGES
In order to provide incentives for I/O's executive team to remain
employed with the Company and to assure these executives of their continued
employment after the appointment of a new Chief Executive Officer, we entered
into employment agreements with each of Messrs. Bunch, Denver, Fageraas and
Eastman and Ms. Guthrie. In addition, we issued a total of 190,038 shares of
restricted Common Stock on February 4, 2003, resulting in a grant value per
share of $3.94. Each of these awards of restricted Common Stock vests in two
equal installments on the first two anniversaries of grant. In addition, if any
of the recipients is terminated without cause (as defined in the recipient's
employment agreement) or if the recipient terminates their employment with I/O
for good reason (as defined in the recipient's employment agreement) within 90
days prior to the next vesting date, then the shares that would have vested on
the next vesting date will automatically vest on the date of termination.
COMPENSATION ARRANGEMENTS FOR ROBERT PEEBLER
The compensation arrangements for Mr. Peebler were negotiated by our
Compensation Committee members (except for Mr. Peebler, who removed himself from
all discussions and deliberations). Mr. Myers and Mr. Lapeyre drew on input from
our directors to address the terms of Mr. Peebler's proposed compensation. In
determining his overall compensation, the Committee took into account Mr.
Peebler's unique experience, expertise, and capabilities in the energy
technology sectors that I/O presently serves, as well as future market
opportunities for our company. Mr. Peebler's technical and industry know-how in
applying advanced technologies to oil and gas prospect analysis and reservoir
management techniques were viewed as positive factors in the Board's choice of
him to lead I/O in bettering its competitive position.
29
In structuring Mr. Peebler's compensation package, no cash bonus is
planned. Although Mr. Peebler is eligible for discretionary bonuses in the
future, the Committee and Mr. Peebler decided that the bulk of his compensation
should be weighted toward equity compensation, and that any grants of stock
options should reflect an exercise price in excess of prevailing market prices
for our Common Stock at the time our agreement in principle was reached on his
compensation terms. The compensation arrangements for Mr. Peebler were arrived
at independently of the Board's determination of the terms and conditions of
I/O's investment in Energy Venture Partners, where he was the former president
and chief executive officer.
As a result of these negotiations and deliberations, the Committee
members (other than Mr. Peebler) felt that the three basic components of Mr.
Peebler's compensation arrangements,
o an annual base salary of $400,000,
o no guaranteed bonus, and
o stock options for 1,325,000 shares of Common Stock exercisable at
$6.00 per share (representing a premium of approximately 67% over
average prevailing market prices at the time of his agreement),
were consistent with the Board's objectives of retaining a chief executive
officer who could capitalize on opportunities in future technology trends
affecting the oil and gas exploration and production industry.
SUMMARY
The Committee believes the executive compensation policies and programs
described in this report serve the interests of the stockholders and I/O. Pay
delivered to executives is intended to be linked to, and commensurate with,
I/O's performance and with stockholder expectations. We caution you that the
practice and performance results of the compensation philosophy described in
this report should be measured over a period sufficiently long to determine
whether strategy development and implementation are in line with, and responsive
to, stockholder expectations.
Franklin Myers, Chairman
James M. Lapeyre, Jr.
PROPOSAL TO APPROVE THE INPUT/OUTPUT, INC.
2003 STOCK OPTION PLAN
ITEM 2
GENERAL
Our 2000 Long-Term Incentive Plan authorized our Compensation Committee
to issue awards and options for up to 2,109,275 shares of our Common Stock. As
of March 1, 2003, only about 800,000 shares remained available for future grants
and awards. None of our other equity compensation plans have shares reserved and
available for stock
30
option grants to our employees. Of our stock options outstanding on March 31,
2003, to purchase a total of 4,478,325 shares, no options were "in the money."
In connection with our Board's negotiations with Mr. Peebler on his
joining I/O as our chief executive officer, we agreed to grant Mr. Peebler stock
options for 1,325,000 shares of Common Stock, exercisable over a ten-year
period, at an exercise price of $6.00 per share. On March 31, 2003 (the date of
our agreement with Mr. Peebler), the closing price per share of the Common Stock
on the New York Stock Exchange was $3.60. In connection with our negotiations
with Mr. Peebler, and following a review by the Compensation Committee of our
need for additional stock options available to attract and retain key employees,
on March 27, 2003, the Board adopted the Input/Output, Inc. 2003 Stock Option
Plan and granted Mr. Peebler his stock options, both subject to stockholder
approval.
If the 2003 Stock Option Plan is not approved by our stockholders, the
Board will consider other alternatives with respect to long-term equity
incentive compensation arrangements for Mr. Peebler and our key employees. Mr.
Peebler's stock options under the plan would be cancelled.
The principal features of the 2003 Stock Option Plan are summarized
below. The summary does not contain all information that may be important to
you. The complete text of the 2003 Stock Option Plan is set forth at Appendix B
attached to this proxy statement.
TERMS OF THE 2003 STOCK OPTION PLAN
SHARES SUBJECT TO THE 2003 STOCK OPTION PLAN. The 2003 Stock Option
Plan authorizes the issuance of up to 1,500,000 shares of Common Stock
(including the 1,325,000 shares under the options granted to Mr. Peebler). If
the stockholders approve the plan, 175,000 shares would be available for future
grants. If an option terminates or expires unexercised, the shares covered by
that option will again be available for grants of options under the plan. The
shares to be issued under the 2003 Stock Option Plan may consist, in whole or in
part, of authorized but unissued shares or treasury shares.
ELIGIBILITY. Any of our employees or majority-owned subsidiaries'
employees, including any executive officer of I/O, selected by the Compensation
Committee is eligible for grants of options under the 2003 Stock Option Plan. In
addition, the plan provides that grants may be made to potential key employees
in connection with their hiring or retention. The selection of participants and
the size and nature of the grants will be within the sole discretion of our
Compensation Committee. We estimate that approximately 550 of our employees are
eligible to participate in the 2003 Stock Option Plan.
ADMINISTRATION. The Compensation Committee of our Board will govern the
2003 Stock Option Plan. All of the members of the Compensation Committee meet
current NYSE standards for director independence. The Compensation Committee has
the sole authority to, among other things,
o construe and interpret the 2003 Stock Option Plan,
31
o make rules and regulations relating to the administration of the 2003
Stock Option Plan,
o select optionees and make awards, and
o establish the terms and conditions of grants.
OPTIONS. The exercise price of a stock option under the 2003 Stock
Option Plan may not be less than the fair market value of a share of our Common
Stock on the date the option is granted. Fair market value means the average of
the high and low sale prices per share of Common Stock on the NYSE on the date
of determination. The exercise price may be paid in cash or in shares of our
Common Stock valued at their fair market value on the date of exercise (or in
any combination of cash and shares having a fair market value equal to the
exercise price). The Compensation Committee is authorized to prescribe the time
or times at which a stock option granted under the 2003 Stock Option Plan may be
exercised. The Compensation Committee may provide in an option agreement for
automatic acceleration of the vesting of any options.
The 2003 Stock Option Plan prohibits the repricing of stock options
without the approval of the stockholders. This provision applies to both direct
repricings - lowering the exercise price of a stock option - and indirect
repricings - canceling an outstanding stock option and granting a replacement
option with a lower exercise price.
TERMINATION OF EMPLOYMENT OR SERVICE. The 2003 Stock Option Plan
provides that on the termination of an optionee's employment with us, his option
will be exercisable for a period of time following his termination as provided
by the Compensation Committee in his option agreement. If no time period is
specified, his option will expire one day less 3 months after his termination.
However, if he terminates employment by reason of his death, total disability or
retirement, then his option will be exercisable for a period of one year after
his date of termination.
CHANGE OF CONTROL. The Compensation Committee may provide in an option
agreement that upon a "change of control" of I/O, all options will be
automatically accelerated and become fully exercisable and vested, regardless of
provisions under option agreements requiring exercises in installments. Change
of control means, with certain exceptions, (i) the acquisition of beneficial
ownership of 51% of our voting stock or voting power, (ii) a change in
composition of the Board such that the individuals who presently constitute the
Board, together with other individuals selected by the incumbent directors,
cease to constitute a majority of the Board, (iii) the consummation of a merger,
consolidation of sale of substantially all of our assets under certain
circumstances, and (iv) approval by our stockholders of a complete liquidation
or dissolution of I/O.
ADJUSTMENTS. In the event of a merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock split, spin-off or
similar transaction or other change in corporate structure affecting I/O Common
Stock, adjustments and other substitutions will be made to the 2003 Stock Option
Plan, including the maximum number of shares subject to the 2003 Plan. Similar
adjustments will also be made to option grants under the 2003 Stock Option Plan
as the Compensation Committee determines is equitable or appropriate.
32
TERM AND AMENDMENT OF THE 2003 STOCK OPTION PLAN
Unless sooner terminated by action of the Board, the 2003 Stock Option
Plan will expire on March 27, 2013. After that date, no options may be granted
under the plan. The Board may at any time discontinue or amend the 2003 Stock
Option Plan without the consent of optionees or our stockholders, except for
amendments that would adversely affect optionees with respect to options
previously granted without their consent.
CERTAIN FEDERAL INCOME TAX ASPECTS
We believe that under present law, the following are the principal U.S.
federal income tax consequences associated with stock options under the 2003
Stock Option Plan.
NONQUALIFIED STOCK OPTIONS. The 2003 Stock Option Plan does not permit
grants of statutory "incentive" stock options under the Internal Revenue Code.
The granting of a nonqualified stock option under the 2003 Stock Option Plan
will not result in federal income tax consequences to either I/O or the
optionee. Upon exercising a nonqualified stock option, the optionee must
recognize ordinary income in an amount equal to the difference between the fair
market value of the shares on the date of exercise and the exercise price.
Generally speaking, we will be entitled to a deduction for the same amount.
For purposes of determining gain or loss realized upon a subsequent
sale of the shares acquired through the exercise of an option, the optionee's
tax basis will be the sum of the exercise price paid and the amount of ordinary
income, if any, recognized by the optionee. Any gain or loss realized by an
optionee on the disposition of those shares generally will be a long-term
capital gain or loss (if the shares are held as a capital asset for at least one
year). Generally, there will be no tax consequences to I/O in connection with an
optionee's disposition of the shares acquired on exercise.
WITHHOLDING. Withholding of federal income taxes at applicable rates
will be required in connection with any ordinary income realized by a
participant by reason of the exercise of stock options granted under the 2003
Stock Option Plan. An optionee must pay those taxes to us in cash or in Common
Stock.
MR. PEEBLER'S MARCH 2003 GRANT
Options to purchase 1,325,000 shares of Common Stock were granted to
Mr. Peebler in connection with his being appointed our new chief executive
officer. The term of the option is for 10 years, and the exercise price is $6.00
per share. On the date of grant of Mr. Peebler's option, the average of the
highest and lowest prices per share of our Common Stock on the NYSE was $3.80.
The option grant is subject to stockholder approval, and his option agreement
provides that the options will be terminated if stockholder approval is not
obtained.
The options vest as to one-quarter of the shares on the first
anniversary of the date of grant they vest monthly in 1/36th increments until it
is fully vested on the fourth anniversary of the date of grant. However, if Mr.
Peebler's employment is terminated by I/O without cause, or is terminated by
reason of his death or disability or he resigns for "good reason" then his
options will be deemed to vest monthly in 1/48th increments over a four year
period beginning on the date of grant. His options will automatically
33
accelerate and be fully vested upon a change of control. Upon his termination,
he will have a period of one year after termination to exercise his vested
options, unless the 10-year term of his options first expires.
NEW PLAN BENEFITS
The following table sets forth the aggregate number of shares subject
to options to purchase Common Stock granted to Mr. Peebler on March 31, 2003,
but subject to shareholder approval. Except for Mr. Peebler's grant, no grants
have been made under the 2003 Stock Option Plan. Because awards under the 2003
Stock Option Plan are discretionary, no awards are determinable at this time,
other than Mr. Peebler's grant.
NUMBER OF SHARES
SUBJECT TO
NAME AND POSITION DOLLAR VALUE ($) OPTIONS GRANTED
----------------- --------------- ----------------
Robert B. Peebler Not applicable 1,325,000 shares
Executive Group Not applicable 1,325,000 shares
Non-Executive Director Group -0- -0-
Non-Executive Officer Employee Group -0- -0-
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
AMENDMENTS TO THE INPUT/OUTPUT, INC. 2003 STOCK OPTION PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 3)
We have appointed PricewaterhouseCoopers LLP as our independent
accountants for the fiscal year ending December 31, 2003. Services provided to
I/O in 2002 included the examination of our consolidated financial statements,
review of our quarterly financial statement, statutory audits of our foreign
subsidiaries, audit of our 401(k) plan and consultations on various tax and
accounting matters.
Representatives of PricewaterhouseCoopers LLP will be present at the
annual meeting to respond to appropriate questions and to make such statements
as they desire.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT
ACCOUNTANTS FOR FISCAL 2003.
In the event stockholders do not ratify the appointment, the
appointment will be reconsidered by the Audit Committee.
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute
soliciting material and shall not be deemed filed or incorporated by reference
into any other Company filings under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent we specifically
incorporate this Report by reference therein.
34
The Audit Committee acts under a written charter adopted and approved
by the Board of Directors. A copy of the charter is attached to this Proxy
Statement as Appendix A.
The Audit Committee has met and held discussions with management and
the independent accountants. Management represented to us that I/O's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and we reviewed and discussed the consolidated
financial statements with management and the independent accountants. We
discussed with the independent accountants matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication With Audit Committees).
In addition, we have discussed with the independent accountants the
auditors' independence from I/O and its management, including the matters in the
written disclosures required by the Independence Standards Board Standard No. 1
(Independence Discussions With Audit Committees). We have also considered
whether the independent auditors' provision of non-audit services to I/O is
compatible with the auditors' independence.
In reliance on the reviews and discussions referred to above, we
recommended to the Board of Directors, and the Board approved, that the audited
financial statements be included in I/O's Annual Report on Form 10-K for the
year ended December 31, 2002, for filing with the Securities and Exchange
Commission.
Management is responsible for I/O's financial reporting process
including its system of internal control, and for the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States. I/O's independent accountants are
responsible for auditing those financial statements. Our responsibility is to
monitor and review these processes. It is not our duty or our responsibility to
conduct auditing or accounting reviews or procedures. We are not employees of
I/O and we are not accountants or auditors by profession or experts in the
fields of accounting or auditing. Therefore, we have relied, without independent
verification, on management's representation that the financial statements have
been prepared with integrity and objectivity and in conformity with accounting
principles generally accepted in the United States of America and on the
representations of the independent auditors included in their report on I/O's
financial statements.
Theodore H. Elliott, Jr., Chairman
James M. Lapeyre, Jr.
Franklin Myers
35
AUDIT AND NON-AUDIT FEES
The following table presents fees for professional audit services
rendered by PricewaterhouseCoopers LLP for the audit of our annual financial
statements for 2002, and fees billed for other services rendered by
PricewaterhouseCoopers LLP for 2002:
(IN THOUSANDS)
--------------
Audit Fees................................................................ $ 329
Financial information systems design and implementation................... --
All other fees:
Other audit-related fees and tax matters(a).......................... $ 314
Other information system design and process improvements ............ --
---------
Total all other fees $ 314
(a) Other audit related services consist principally of audits of employee
benefit plans. Tax related services comprise tax compliance (including
U.S. federal and international returns) and tax examination assistance.
All non-audit services were reviewed with the Audit Committee, which
concluded that the provision of such services by PricewaterhouseCoopers LLP was
compatible with the maintenance of that firm's independence in the conduct of
its auditing functions.
OTHER MATTERS
We bear all expenses incurred in connection with the solicitation of
proxies. We will reimburse brokers, fiduciaries and custodians for their costs
in forwarding proxy materials to beneficial owners of Common Stock held in their
names.
Our directors and officers and employees may also solicit proxies by
mail, telephone and personal contact. They will not receive any additional
compensation for these activities.
The form of this proxy statement has been approved by the Board of
Directors and is being mailed and delivered to stockholders by its authority.
BRAD EASTMAN
Vice President, Chief Administrative
Officer and Secretary
Stafford, Texas
April 30, 2003
THE 2002 ANNUAL REPORT TO STOCKHOLDERS INCLUDES OUR FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002. WE HAVE MAILED THE 2002
ANNUAL REPORT TO ALL STOCKHOLDERS. THE 2002 ANNUAL REPORT DOES NOT FORM ANY PART
OF THE MATERIAL FOR THE SOLICITATION OF PROXIES.
36
APPENDIX A
INPUT/OUTPUT, INC.
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board to assist the Board in monitoring
(1) the integrity of the financial statements of the Company; (2) the compliance
by the Company with legal and regulatory requirements; (3) the independence and
performance of the Company's external auditors, and (4) the performance of the
Company's internal audit function.
The Audit Committee shall consist of a minimum of three directors. The members
of the Audit Committee shall meet the independence and experience requirements
of the New York Stock Exchange or a valid exemption thereto. All members of
shall have sufficient financial experience and ability to enable them to
discharge their responsibilities and at least one member shall be a financial
expert, as defined under relevant law. Committee members shall not
simultaneously serve on the audit committees of more than three public
companies. The members of the Audit Committee shall be appointed by the Board.
The Audit Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee. The Audit Committee may request
any officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval.
2. Review the annual audited financial statements with management
and the independent auditor, including major issues regarding
accounting and auditing principles and practices, the adequacy
of internal controls that could significantly affect the
Company's financial statements, as well as matters required to
be reviewed under applicable legal, regulatory or New York
Stock Exchange requirements.
3. Review an analysis prepared by management and the independent
auditor of significant financial reporting issues and
judgments made in connection with the preparation of the
Company's financial statements.
4. Review with management and the independent auditor of the
Company's earnings press releases and financial information
and
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earnings guidance prior to the release of such statements to
the public and the filing of its Form 10-Q.
5. Meet periodically with management and the independent auditor
to review the Company's major financial risk exposures and the
steps management has taken to monitor and control such
exposures.
6. Meet periodically with management and any consultants the
Audit Committee or Management shall deem necessary to review
the Company's major risk exposures to the security of the
Company's employees, physical assets or information systems.
7. Review Company's financial reporting and accounting
principles, significant changes in such principles or in their
application and key accounting decisions affecting the
Company's financial statements, including alternatives to, and
the rationale for, the decisions made.
8. Exercise the sole authority and responsibility to select,
evaluate and, if necessary, replace the independent auditor.
9. Exercise the sole authority to approve the fees to be paid to
the independent auditor and the terms of the engagement and
the Committee or a member must pre-approve any non-audit
service provided to the Company by the independent auditor.
10. Receive written periodic reports from the independent auditor
regarding the auditor's independence, discuss such reports
with the auditor, and if so determined by the Audit Committee,
take appropriate action to satisfy itself of the independence
of the auditor.
11. Review written periodic reports from the independent auditor
regarding the auditing firm's internal quality-control
procedures, any material issues raised within the preceding
five years by the auditing firm's internal quality-control
reviews, by peer reviews of the firm, or by any governmental
or other inquiry or investigation relating to any audit
conducted by the firm.
12. Meet with the independent auditor prior to the audit to review
the planning and staffing of the audit.
13. Obtain reports from management and the independent auditor
that the Company's subsidiary/foreign affiliated entities are
in conformity with applicable legal requirements and the
Company's Code of Ethics.
14. Discuss with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit.
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15. Review with the independent auditor any problems or
difficulties the auditor may have encountered and any
management letter provided by the auditor and the Company's
response to that letter. Such review should include any
difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or
access to required information.
16. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual
proxy statement.
17. Review and investigate any matters pertaining to the integrity
of management, including conflicts of interest, or adherence
to standards of business conduct as required in the policies
of the Company, including a regular review of the compliance
process in general.
18. Review with the Company's General Counsel legal matters that
may have a material impact on the financial statements, the
Company's compliance policies and any material reports or
inquiries received from regulators or governmental agencies.
19. Meet at least quarterly with the Chief Financial Officer and
the independent auditor in separate sessions.
20. Review with management or such others as the Committee deems
appropriate, the Company's internal system of audit and
financial controls and the results of internal audits.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations and the Company's Code of Ethics.
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INPUT/OUTPUT, INC.
2003 EMPLOYEE STOCK OPTION PLAN
ARTICLE 1
PLAN
1.1 PURPOSE. This Plan is a plan for key Employees (including
officers and Employee directors) of the Company and its Affiliates and is
intended to advance the best interests of the Company, its Affiliates, and its
stockholders by providing those persons who have substantial responsibility for
the management and growth of the Company and its Affiliates with additional
incentives and an opportunity to obtain or increase their proprietary interest
in the Company, thereby encouraging them to continue in the employ of the
Company or any of its Affiliates.
1.2 EFFECTIVE DATE OF PLAN. This Plan is effective March 27,
2003, so long as within one year of that date it shall have been approved by at
least a majority vote of stockholders casting a vote in person or by proxy at a
duly held stockholders' meeting, or if the provisions of the corporate charter,
by-laws or applicable state law prescribes a greater degree of stockholder
approval for this action, the approval by the holders of that percentage, at a
duly held meeting of stockholders. No Option shall be granted pursuant to this
Plan after March 27, 2013.
ARTICLE 2
DEFINITIONS
Except as defined elsewhere herein, the words and phrases defined in
this Article shall have the meaning set out in these definitions throughout this
Plan, unless the context in which any such word or phrase appears reasonably
requires a broader, narrower, or different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50 percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain. The term "subsidiary corporation" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of the action or transaction, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in the chain.
2.2 "BOARD OF DIRECTORS" means the board of directors of the
Company.
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2.3 "CHANGE IN CONTROL OF THE COMPANY" shall mean the occurrence
of any of the following, after the Effective Date:
(a) the acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, or any successor statute) (a "Covered Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 51 percent (51%) or more of either (i) the
then outstanding shares of Common Stock (the "Outstanding Company
Common Stock"), or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this Section 2.3,
the following acquisitions shall not constitute a Change in Control:
(i) any acquisition directly from the Company, (ii) any acquisition by
the Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any entity
controlled by the Company, or (iv) any acquisition by any corporation
pursuant to a transaction which complies with Section 2.3(c)(i), (ii)
or (iii); or
(b) individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Effective Date
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or
on behalf of a Covered Person other than the Board; or
(c) consummation of (xx) a reorganization,
merger, amalgamation, consolidation, sale or other form of business
combination of the Company or any subsidiary of the Company, or (yy) a
sale, lease, exchange, disposition or other transfer of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60 percent (60%) of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation or entity resulting from such Business
Combination (including, without limitation, a corporation or entity
which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Covered Person (excluding any
employee benefit plan (or
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related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 51
percent (51%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation, except to the extent that such
ownership existed prior to the Business Combination, and (iii) at least
a majority of the members of the board of directors of the corporation
resulting from such Business Combination, were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board of Directors, providing for such Business
Combination; or
(d) approval by the stockholders of the Company
of a complete liquidation or dissolution of the Company.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall be comprised solely of members who are both Non-Employee
Directors and Outside Directors.
2.6 "COMPANY" means Input/Output, Inc.
2.7 "DISABILITY" means a mental or physical disability as
determined under the then-established policies of the Company.
2.8 "EFFECTIVE DATE" means March 27, 2003.
2.9 "EXCHANGE ACT" means the Securities and Exchange Act of 1934,
as amended from time to time.
2.10 "EMPLOYEE" means a person employed by the Company or any
Affiliate to whom an Option is granted. For purposes of the foregoing sentence,
"Employees" shall include consultants. "Employees" shall also include
prospective consultants and Employees to whom Options are granted in connection
with written offers of service and employment; provided however, that no such
Options may become vested or exercisable until the person commences service or
employment.
2.11 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
average of the high and low sale prices of the Stock on that date on the New
York Stock Exchange; or (b) if the Stock is not listed on the New York Stock
Exchange, the average of the high and low sale prices of the Stock on that date
as reported on the principal securities exchange on which the Stock is listed;
or (c) if the Stock is not listed on a securities exchange, the average of the
high and low sale prices of the Stock on that date as reported on the NASDAQ
National Market System; or (d) if the Stock is not listed on the NASDAQ National
Market System, the average of the high and low bid quotations for the Stock on
that date as reported by the National Quotation Bureau Incorporated; or (e) if
none of the foregoing is applicable, an amount at the election of the Committee
equal to the (x) the average between the closing bid and ask prices per Share of
Stock
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on the last preceding date on which those prices were reported or (y) that
amount as determined by the Committee in its sole discretion.
2.12 "MATURE SHARES" means shares of Stock that the Employee has
held for at least six months.
2.13 "NON-EMPLOYEE DIRECTOR" means a `non-employee director" as
that term is defined in Rule 16b-3 under the Exchange Act.
2.14 "OPTION" means an Option granted under this Plan to purchase
shares of Stock.
2.15 "OPTION AGREEMENT" means the written agreement which sets out
the terms of an Option.
2.16 "OPTIONEE" means a person who is granted an Option under the
Plan.
2.17 "OUTSIDE DIRECTOR" means a member of the Board of Directors
serving on the Committee who satisfies the criteria of section 162(m) of the
Code.
2.18 "PLAN" means the Input/Output, Inc. 2003 Employee Stock Option
Plan, as set out in this document and as it may be amended from time to time.
2.19 "RETIRE" or "RETIREMENT" means retirement in good standing
from the employ of the Company and all Affiliates for reason of age under
then-established policies of the Company and the Affiliates.
2.20 "STOCK" means the common stock of the Company, $0.01 par value
or, in the event that the outstanding shares of common stock are later changed
into or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.
ARTICLE 3
ELIGIBILITY
The individuals who shall be eligible to receive Options shall be those
key Employees of the Company or any of its Affiliates as the Committee shall
determine from time to time. However, no member of the Committee shall be
eligible to receive any Option or to receive stock, stock options, or stock
appreciation rights under any other plan of the Company or any of its
Affiliates, if to do so would cause the individual not to be a Non-Employee
Director or Outside Director. The Board of Directors may designate one or more
individuals who shall not be eligible to receive any Option under this Plan or
under other similar plans of the Company.
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ARTICLE 4
GENERAL PROVISIONS RELATING TO OPTIONS
4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those
key Employees of the Company or any of its Affiliates, as it shall from time to
time determine, Options under the terms and conditions of this Plan. Subject
only to any applicable limitations set out in this Plan, the number of shares of
Stock to be covered by any Option to be granted to an Employee of the Company or
any of its Affiliates shall be as determined by the Committee.
4.2 DEDICATED SHARES. The total number of shares of Stock with
respect to which Options may be granted under the Plan shall be 1,500,000
shares. The maximum number of shares subject to Options which may be issued to
any Employee under the Plan during each Plan Year is 1,350,000 shares. The
shares may be treasury shares or authorized but unissued shares. The number of
shares stated in this Section 4.2 shall be subject to adjustment in accordance
with the provisions of Section 4.5.
In the event that any outstanding Option shall expire or terminate for
any reason or any Option is surrendered, the shares of Stock allocable to the
unexercised portion of that Option may again be subject to an Option under the
Plan.
4.3 NON-TRANSFERABILITY. Options shall not be transferable by the
Optionee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during the Optionee's lifetime, only by him.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to
sell or issue any Stock under any Option if issuing that Stock would constitute
or result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by this
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option is not
registered, the Company may imprint on the certificate evidencing the Stock the
following legend or any other legend that counsel for the Company considers
necessary or advisable to comply with applicable law:
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THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT
UPON SUCH REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED FOR
SUCH SALE OR TRANSFER.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended), and in the event any shares are so registered,
the Company may remove any legend on certificates representing such shares. The
Company shall not be obligated to take any other affirmative action in order to
cause the exercise of an Option and the issuance of shares thereunder, to comply
with any law or regulation of any governmental authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
The existence of outstanding Options shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any and
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or its rights, 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, whether of a
similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation for it in money, services or property, then (i) the number, class,
and per share price of shares of Stock subject to outstanding Options under the
Plan shall be appropriately adjusted in such a manner so as to entitle an
Optionee to receive upon exercise of an Option, for the same aggregate cash
consideration, the equivalent total number and class of shares such Optionee
would have received had such Optionee exercised his or her Option in full
immediately prior to the event requiring the adjustment, and (ii) the number and
class of shares of Stock then reserved to be issued under the Plan shall be
adjusted by substituting for the total number and class of shares of Stock then
reserved, that number and class of shares of Stock that would have been received
by the owner of an equal number of outstanding shares of each class of Stock as
the result of the event requiring the adjustment.
If while unexercised Options remain outstanding under the Plan (i) the
Company shall not be the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity other than an
entity that was wholly-owned by the Company immediately prior to such merger,
consolidation or other reorganization), (ii) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any other person or entity (other than an entity that is wholly-owned
by the Company), (iii) the Company is to be dissolved, or (iv) the Company is a
party to any other corporate transaction (as
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defined under section 424(a) of the Code and applicable Treasury Regulations)
that is not described in clauses (i), (ii) or (iii) of this sentence (each such
event is referred to herein as a "Corporate Change"), then (x) except as
otherwise provided in an Option Agreement or as a result of the effectuation of
one or more of the alternatives described below, there shall be no acceleration
of the time at which any Option then outstanding may be exercised, and (y) no
later than ten days after the approval by the stockholders of the Company of
such Corporate Change, the Board of Directors or the Committee, acting in their
sole and absolute discretion without the consent or approval of any Optionee,
shall act to effect one or more of the following alternatives, which may vary
among individual Optionees and which may vary among Options held by any
individual Optionee:
(1) accelerate the time at which some or all of the
Options then outstanding may be exercised so that such Options may be
exercised in full for a limited period of time on or before a specified
date (before or after such Corporate Change) fixed by the Committee or
the Board of Directors, after which specified date all such Options
that remain unexercised and all rights of Optionees thereunder shall
terminate;
(2) require the mandatory surrender to the Company by
all or selected Optionees of some or all of the then-outstanding
Options held by such Optionees (regardless of whether such Options are
then exercisable under the provisions of the Plan or the Option
Agreements evidencing such Options) as of a date, before or after such
Corporate Change, specified by the Committee or the Board of Directors,
in which event the Committee or the Board of Directors shall thereupon
cancel such Options and the Company shall pay to each such Optionee an
amount of cash per share equal to the excess, if any, of the per share
price offered to stockholders of the Company in connection with such
Corporate Change over the exercise price(s) under such Options for such
shares;
(3) with respect to all or selected Optionees, have
some or all of their then-outstanding Options (whether vested or
unvested) assumed or have a new Option substituted for some or all of
their then-outstanding Options (whether vested or unvested) by an
entity that is a party to the transaction resulting in such Corporate
Change and that is then employing him, or a parent or subsidiary of
such entity, provided that (A) such assumption or substitution is on a
basis in which the excess of the aggregate fair market value of the
shares subject to the Option immediately after the assumption or
substitution over the aggregate exercise price of such shares is equal
to the excess of the aggregate fair market value of all shares subject
to the Option immediately before such assumption or substitution over
the aggregate exercise price of such shares, and (B) the assumed rights
under such existing Option or the substituted rights under such new
Option, as the case may be, will have the same terms and conditions as
the rights under the existing Option assumed or substituted for, as the
case may be;
(4) provide that the number and class of shares of
Stock covered by an Option (whether vested or unvested) theretofore
granted shall be adjusted so that such Option when exercised shall
thereafter cover the number and class of shares of stock or
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other securities or property (including, without limitation, cash) to
which the Optionee would have been entitled pursuant to the terms of
the agreement or plan (or both) relating to such Corporate Change if,
immediately prior to such Corporate Change, the Optionee had been the
holder of record of the number of shares of Stock then covered by such
Option; or
(5) make such adjustments to Options then outstanding
as the Committee or the Board of Directors deems appropriate to reflect
such Corporate Change (provided, however, that the Committee or the
Board of Directors may determine in their sole and absolute discretion
that no such adjustment is necessary).
In effecting one or more of alternatives (3), (4) or (5) above and
except as otherwise may be provided in an Option Agreement, the Committee or the
Board of Directors, in their sole and absolute discretion and without the
consent or approval of any Optionee, may accelerate the time at which some or
all Options then outstanding may be exercised.
If changes occur in the outstanding Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Option and not otherwise provided for by this Section 4.5,
then any outstanding Options and any agreements evidencing such Options shall be
subject to adjustment by the Committee or the Board of Directors in their sole
and absolute discretion as to the number and price of shares of stock or other
consideration subject to such Options. If any such change occurs in the
outstanding Stock, then the aggregate number of shares available under the Plan
may be appropriately adjusted by the Committee or the Board of Directors, whose
determination shall be conclusive.
The issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe for them, or upon conversion of shares or obligations of
the Company convertible into shares or other securities, shall not affect, and
no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options.
4.6 ACCELERATION. The Committee may, in its discretion, provide
for the automatic acceleration upon a Change of Control of the Company, of the
time at which any Option will become exercisable and/or vested, by including a
provision to such effect in an Optionee's Option Agreement. The Committee may
also accelerate exercisability and/or vesting at such other times as it may
determine in its sole discretion.
4.7 ELECTION UNDER SECTION 83(B) OF THE CODE. No Optionee shall
exercise the election permitted under section 83(b) of the Code without written
approval of the Committee. Any Optionee doing so shall forfeit all Options
issued to him under this Plan.
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ARTICLE 5
OPTIONS
5.1 TYPE OF OPTION. Options granted under the Plan are not
intended to be governed by section 422 of the Code.
5.2 OPTION PRICE. The price at which Stock may be purchased under
an Option shall not be less than the greater of: (a) 100 percent (100%) of the
Fair Market Value of the shares of Stock on the date the Option is granted or
(b) the aggregate par value of the shares of Stock on the date the Option is
granted. The Committee in its discretion may provide that the price at which
shares of Stock may be purchased under an Option shall be more than 100 percent
(100%) of Fair Market Value.
5.3 DURATION OF OPTIONS. No Option shall be exercisable after the
expiration of ten (10) years from the date the Option is granted.
5.4 AMOUNT EXERCISABLE. Each Option may be exercised from time to
time, in whole or in part, in the manner and subject to the conditions the
Committee, in its sole discretion, may provide in the Option Agreement, as long
as the Option is valid and outstanding.
5.5 EXERCISE OF OPTIONS.
(a) Forms of Consideration Authorized. The
exercise of an Option shall be made only by a written notice delivered
in person, by telecopy or by mail to the Secretary of the Company at
the Company's principal executive office, specifying the number of
shares of Stock to be purchased and accompanied by payment therefor and
otherwise in accordance with the Agreement pursuant to which the Option
was granted. The purchase price for any shares of Stock purchased
pursuant to the exercise of an Option shall be paid in full upon such
exercise by any one or a combination of the following: (i) by payment
in cash, certified check, bank draft or postal or express money order
payable to the order of the Company for an amount equal to the exercise
price under the Option, (ii) by tender to the Company of Mature Shares
with a Fair Market Value on the date of exercise equal to the exercise
price under the Option, (iii) by delivery of a properly executed notice
of exercise together with irrevocable instructions to a broker or
dealer providing for the assignment to the Company of the proceeds of a
sale or loan with respect to some or all of the shares being acquired
upon the exercise of the Option (a "Cashless Exercise"), or (iv) by
such other terms and conditions as may be approved by the Committee to
the extent permitted by applicable law.
(b) Limitations on Forms of Consideration.
(i) General Restrictions. The Committee
shall not permit an Optionee to pay his exercise price upon the
exercise of an Option by having the Company reduce the number of shares
of Stock that will be delivered to the Optionee pursuant to the
exercise of the Option. In addition, the Committee shall not permit an
Optionee to
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pay his exercise price upon the exercise of an Option by using shares
of Stock other than Mature Shares.
No fractional shares of Stock (or cash in
lieu thereof) shall be issued upon exercise of an Option and the
number of shares that may be purchased upon exercise shall be rounded
to the nearest number of whole shares.
(ii) Mature Shares. If Mature Shares are
used for payment by the Optionee, the aggregate Fair Market Value of
the Mature Shares tendered must be equal to or less than the aggregate
exercise price of the shares being purchased upon exercise of the
Option, and any difference must be paid by cash, certified check, bank
draft or postal or express money order payable to the order of the
Company. Delivery of the shares shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the
Optionee or to the Optionee's designated broker or dealer, at the
address specified by the Optionee.
Whenever an Option is exercised by
exchanging Mature Shares owned by the Optionee, the Optionee shall
deliver to the Company certificates registered in the name of the
Optionee representing a number of shares of Stock legally and
beneficially owned by the Optionee, free of all liens, claims and
encumbrances of every kind, accompanied by stock powers duly endorsed
in blank by the record holder of the shares represented by the
certificates (with signature guaranteed by a commercial bank or trust
company or by a brokerage firm having a membership on a registered
national stock exchange). The delivery of certificates upon the
exercise of Options is subject to the condition that the person
exercising the Option provide the Company with the information the
Company might reasonably request pertaining to exercise, sale or other
disposition. If requested by the Secretary of the Company, the Optionee
shall deliver the Agreement evidencing the Option to the Secretary of
the Company who shall endorse thereon a notation of such exercise and
return such Agreement to the Optionee.
(iii) Cashless Exercise. The Company
reserves, at any and all times, the right, in the Company's sole and
absolute discretion, to establish, decline to approve or terminate any
program or procedures for the exercise of Options by means of a
Cashless Exercise.
5.6 EXERCISE ON TERMINATION OF EMPLOYMENT. Unless it is expressly
provided otherwise in the Option Agreement, Options shall (a) terminate one day
less than three months after severance of employment of the Employee from the
Company and all Affiliates for any reason, with or without cause, other than
death, Retirement under the then established rules of the Company, or severance
for Disability, and (b) be exercisable only to the extent such Options are
exercisable at the time of the Employee's severance of employment. Whether
authorized leave of absence or absence on military or government service shall
constitute severance of the employment of the Employee shall be determined by
the Committee at that time.
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In determining the employment relationship between the Company and the
Employee, employment by any Affiliate shall be considered employment by the
Company, as shall employment by a corporation issuing or assuming a stock option
in a transaction to which section 424(a) of the Code applies, or by a parent
corporation or subsidiary corporation of the corporation issuing or assuming a
stock option (and for this purpose, the phrase "corporation issuing or assuming
a stock option" shall be substituted for the word "Company" in the definitions
of parent corporation and subsidiary corporation in Section 2.1, and the
parent-subsidiary relationship shall be determined at the time of the corporate
action described in section 424(a) of the Code).
5.7 DEATH. If, before the expiration of an Option, the Employee,
whether in the employ of the Company or after he has Retired or was severed for
Disability, dies, the Option shall continue until the earlier of the Option's
expiration date or one year following the date of his death, unless it is
expressly provided otherwise in the Option Agreement. After the death of the
Employee, his executors, administrators or any persons to whom his Option may be
transferred by will or by the laws of descent and distribution shall have the
right, at any time prior to the Option's expiration or termination, whichever is
earlier, to exercise it, to the extent to which he was entitled to exercise it
immediately prior to his death, unless it is expressly provided otherwise in the
Option Agreement.
5.8 RETIREMENT. Unless it is expressly provided otherwise in the
Option Agreement, if before the expiration of an Option, the Employee shall be
Retired in good standing from the employ of the Company under the then
established rules of the Company, the Option shall terminate on the earlier of
the Option's expiration date or one day less than one year after his Retirement.
In the event of Retirement, the Employee shall have the right prior to the
termination of the Option to exercise the Option, to the extent to which he was
entitled to exercise it immediately prior to his Retirement, unless it is
expressly provided otherwise in the Option Agreement.
5.9 DISABILITY. If, before the expiration of an Option, the
Employee shall be severed from the employ of the Company for Disability, the
Option shall terminate on the earlier of the Option's expiration date or one day
less than one year after the date he was severed because of Disability, unless
it is expressly provided otherwise in the Option Agreement. In the event that
the Employee shall be severed from the employ of the Company for Disability, the
Employee shall have the right prior to the termination of the Option to exercise
the Option, to the extent to which he was entitled to exercise it immediately
prior to his Retirement or severance of employment for Disability, unless it is
expressly provided otherwise in the Option Agreement.
5.10 SUBSTITUTION OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by employees of other
corporations who are about to become Employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options
B-11
granted may vary from the terms and conditions set out in this Plan to the
extent the Committee, at the time of grant, may deem appropriate to conform, in
whole or in part, to the provisions of the stock options in substitution for
which they are granted.
5.11 NO RIGHTS AS STOCKHOLDER. No Employee shall have any rights
as a stockholder with respect to Stock covered by his Option until the date a
stock certificate is issued for the Stock.
ARTICLE 6
ADMINISTRATION
6.1 COMMITTEE. This Plan shall be administered by the Committee.
All questions of interpretation and application of this Plan and Options shall
be subject to the determination of the Committee. A majority of the members of
the Committee shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or determination
reduced to writing and signed by a majority of the members shall be as effective
as if it had been made by a majority vote at a meeting properly called and held.
In carrying out its authority under this Plan, the Committee shall have full and
final authority and discretion, including but not limited to the following
rights, powers and authorities, to:
(a) determine the Employees to whom and the time or times
at which Options will be made,
(b) determine the number of shares and the exercise price
of Stock covered in each Option, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of
each Option, which need not be identical,
(d) accelerate the time at which any outstanding Option
may be exercise,
(e) define the effect, if any, on an Option of the death,
Disability, Retirement, or termination of employment of the Employee,
(f) prescribe, amend and rescind rules and regulations
relating to administration of this Plan, and
(g) make all other determinations and take all other actions
deemed necessary, appropriate, or advisable for the proper
administration of this Plan.
The actions of the Committee in exercising all of the rights, powers,
and authorities set out in this Article and all other Articles of this Plan,
when performed in good faith and in its sole judgment, shall be final,
conclusive and binding on all parties.
B-12
ARTICLE 7
AMENDMENT OR TERMINATION OF PLAN
7.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors
of the Company may amend, terminate or suspend this Plan at any time, in its
sole and absolute discretion; provided, however, that (a) no plan or program
providing for either (a) the amendment of outstanding Options to reduce the
exercise price thereof or (b) the cancellation of outstanding Options and the
grant in substitution therefore of new Options having an exercise price that is
less than the original exercise price (as adjusted pursuant to Section 4.5)
shall be approved or adopted without the approval of the Company's stockholders,
and (b) no amendment to this Plan will have the effect of adversely modifying
the terms of any outstanding Option without the written consent of the
particular affected Optionee.
7.2 AMENDMENT OF OPTIONS. The Committee may at any time or times
amend any outstanding Option or Options for the purpose of satisfying the
requirements of changes in applicable laws or regulations or the rules of any
national securities exchange or interdealer quotation service on which the Stock
is then listed or approved for quotation. Further, the Committee may, with the
consent of the holder of an Option, make such modifications or amendments to
such Option as it shall deem advisable. Notwithstanding the foregoing, except
for adjustments pursuant to Section 4.5, the Committee may not modify or amend
outstanding Options to reduce the exercise price thereof, or cancel outstanding
Options and grant substitute Options having an exercise price that is less than
the original exercise price (as it may be adjusted pursuant to Section 4.5)
therefor for the purpose of repricing, replacing or regranting such Options
without the approval of the Company's stockholders.
ARTICLE 8
MISCELLANEOUS
8.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set
aside nor shall a trust fund of any kind be established to secure the rights of
any Employee under this Plan.
8.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option has been granted to him.
8.3 FORFEITURE. Notwithstanding any other provisions of this Plan,
if the Committee finds by a majority vote after full consideration of the facts
that the Employee, before or after termination of his employment with the
Company or an Affiliate for any reason committed or engaged in fraud,
embezzlement, theft, commission of a felony, or proven dishonesty in the course
of his employment by the Company or an Affiliate, which conduct has demonstrably
damaged the Company or Affiliate, the Employee shall forfeit all outstanding
Options, including all exercised Options pursuant to which the Company has not
yet delivered a stock certificate.
B-13
The decision of the Committee as to the cause of the Employee's
discharge, and the damage done to the Company or an Affiliate, shall be final.
No decision of the Committee, however, shall affect the finality of the
discharge of the Employee by the Company or an Affiliate in any manner.
8.4 TAX WITHHOLDING.
(a) The Company or any Affiliate shall be
entitled to deduct from other compensation payable to each Employee any
sums required by federal, state, or local tax law to be withheld with
respect to the grant or exercise of an Option. In the alternative, the
Company may require the Employee (or other person exercising the
Option) to pay the sum directly to the employer corporation. If the
Employee (or other person exercising the Option) is required to pay the
sum directly, payment in cash or by check of such sums for taxes shall
be delivered within ten days after the date of exercise. In
satisfaction of the payment of such sum to the Company or any
Affiliate, the Employee may make a written election, which may be
accepted or rejected in the discretion of the Chief Financial Officer
of the Company, to have withheld a portion of the shares of Stock
issuable to him or her upon exercise of the Option having an aggregate
Fair Market Value, on the date of exercise, equal to or less than the
amount required to be withheld, provided that the Fair Market Value of
the shares held back shall not exceed the Company's or Affiliate's
minimum statutory withholding tax obligations.
(b) The Company and its Affiliates shall have no
obligation upon exercise of any Option to issue any shares of Stock
until the Company has received payment sufficient to cover all sums due
with respect to that exercise. The Company and its Affiliates shall not
be obligated to advise an Employee of the existence of the tax or the
amount which the employer corporation will be required to withhold.
8.5 WRITTEN AGREEMENT. Each Option shall be embodied in a written
Option Agreement which shall be subject to the terms and conditions of this Plan
and shall be signed by the Employee and by a member of the Committee on behalf
of the Committee and an executive officer of the Company other than the
Employee, on behalf of the Company. The Option Agreement may contain any other
provisions that the Committee in its discretion shall deem advisable which are
not inconsistent with the terms of this Plan.
8.6 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS.
With respect to administration of this Plan, the Company shall indemnify each
present and future member of the Committee and the Board of Directors against,
and each member of the Committee and the Board of Directors shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of the
Committee and/or the Board of Directors at the time of incurring the expenses.
However, this indemnity shall not include any expenses incurred by any
B-14
member of the Committee and/or the Board of Directors in respect of matters as
to which he shall be finally adjudged in any action, suit or proceeding to have
been guilty of gross negligence or willful misconduct in the performance of his
duty as a member of the Committee or the Board of Directors. In addition, no
right of indemnification under this Plan shall be available to or enforceable by
any member of the Committee and the Board of Directors unless, within 60 days
after institution of any action, suit or proceeding, he shall have offered the
Company, in writing, the opportunity to handle and defend same at its own
expense. This right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each member of the Committee and the Board of
Directors and shall be in addition to all other rights to which a member of the
Committee and/or the Board of Directors may be entitled as a matter of law,
contract, or otherwise.
8.7 GENDER. If the context requires, words of one gender when
used in this Plan shall include the others and words used in the singular or
plural shall include the other.
8.8 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.
8.9 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall this Plan preclude the
Company from establishing any other forms of incentive or other compensation for
Employees of the Company or any Affiliate.
8.10 OTHER OPTIONS. The grant of an Option shall not confer upon
the Employee the right to receive any future or other Options under this Plan,
whether or not Options may be granted to similarly situated Employees, or the
right to receive future Options upon the same terms or conditions as previously
granted.
8.11 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.
B-15
[ ] Mark this box with an X if you have made
changes to your name or address details
above.
ANNUAL MEETING PROXY CARD
A ELECTION OF DIRECTORS
1. A vote FOR the following nominees is recommended by the Board of
Directors:
A. To elect the following two (2) members Board of to the Directors to serve
until the 2006 Annual Meeting of Stockholders or until their respective
successors are elected and qualify:
FOR WITHHOLD
01 - Theodore H. Elliott, Jr. [ ] [ ]
02 - James M. Lapeyre, Jr. [ ] [ ]
B ISSUES
A vote FOR the following proposals is recommended by the Board of Directors:
For Against Abstain
2. To approve the Input/Output, Inc. 2003
Stock Option Plan. [ ] [ ] [ ]
3. To ratify the appointment of
PricewaterhouseCoopers LLP as I/O's
independent auditors for 2003. [ ] [ ] [ ]
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
The undersigned hereby revokes all previous proxies given. This Proxy may be
revoked at any time Receipt of the accompanying Proxy Statement and prior to a
vote thereon. Annual Report of the Company for the fiscal year ended December
31, 2002 is hereby acknowledged.
Please sign exactly as your name(s) appears on If shares stand of record in the
names of two or more persons or in the name of husband and this card. wife,
whether as joint tenants or otherwise, both or all of such persons should sign
this Proxy. If shares are held of record by a corporation, this Proxy should be
executed by the President or Vice President and the Secretary or Assistant
Secretary, and the corporate seal should be affixed thereto. Executors or
administrators or other fiduciaries who execute this Proxy for a deceased
stockholder should give their full title. Please date the Proxy.
Signature 1 - Please keep signature within the box
---------------------------------------------------------
Signature 2 - Please keep signature within the box
---------------------------------------------------------
Date (mm/dd/yyyy)
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================================================================================
PROXY - INPUT/OUTPUT, INC.
================================================================================
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 11, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James M. Lapeyre, Jr. and Larry E. Denver, and
each of them, with full power of substitution to represent the undersigned and
to vote all of the shares of Common Stock in Input/Output, Inc., a Delaware
corporation (the "Company"), that the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Company to be held on June 11, 2003, and
at any adjournment or postponement thereof (1) as hereinafter specified upon the
proposals listed on the reverse side and as more particularly described in the
Proxy Statement of the Company dated April 30, 2003 (the "Proxy Statement") and
(2) in their discretion upon such other matters as may properly come before the
meeting.
ALL SHARES OF COMMON STOCK REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES WILL BE VOTED FOR THE NOMINEES LISTED IN
PROPOSAL NO. 1 AND FOR PROPOSALS NO. 2 AND NO. 3.
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS
POSSIBLE!