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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
OIL STATES INTERNATIONAL, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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.
[ ] 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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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
OIL STATES INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 2004
To the Stockholders of
Oil States International, Inc.:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Stockholders of Oil
States International, Inc., a Delaware corporation (the "Company"), will be held
at The DoubleTree Hotel at Allen Center, 400 Dallas Street, Houston, Texas, on
the 18th day of May, 2004 at 9:00 a.m., local time (the "Annual Meeting"), for
the following purposes:
(1) To elect three (3) Class III members of the Board of Directors
(see page 6);
(2) To ratify the appointment of Ernst & Young LLP as independent
accountants for the year ended December 31, 2004 (see page 22); and
(3) To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The Company has fixed the close of business on April 7, 2004 as the record
date for determining stockholders entitled to notice of, and to vote at, the
Annual Meeting and any adjournments thereof. Stockholders who execute proxies
solicited by the Board of Directors of the Company retain the right to revoke
them at any time; unless so revoked, the shares of common stock represented by
such proxies will be voted at the Annual Meeting in accordance with the
directions given therein. If a stockholder does not specify a choice on such
stockholder's proxy, the proxy will be voted FOR the nominees for director named
in the attached Proxy Statement and FOR the ratification of the appointment of
the independent certified public accountants for the Company named in such Proxy
Statement. The list of stockholders of record of the Company may be examined at
the offices of the Company beginning on April 8, 2004 and at the Annual Meeting.
Further information regarding the Annual Meeting is set forth in the
attached Proxy Statement.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE, DATE, SIGN
AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. THE
PROXY IS REVOCABLE AND WILL NOT BE USED IF YOU ARE PRESENT AT THE ANNUAL MEETING
AND VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors
Sincerely,
/s/ ROBERT W. HAMPTON
Robert W. Hampton
Secretary
Houston, Texas
April 15, 2004
OIL STATES INTERNATIONAL, INC.
THREE ALLEN CENTER
333 CLAY STREET, SUITE 3460
HOUSTON, TEXAS 77002
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
The following information is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Oil States International, Inc.
(the "Company") to be voted at the annual meeting of stockholders of the Company
(the "Annual Meeting"), which will be held at The DoubleTree Hotel at Allen
Center, 400 Dallas Street, Houston, Texas, on the 18th day of May, 2004, at 9:00
a.m. local time, for the following purposes:
(1) To elect three (3) Class III members of the Board of Directors;
(2) To ratify the appointment of Ernst & Young LLP as independent
accountants for the year ended December 31, 2004; and
(3) To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
You may revoke your proxy at any time before it is exercised by: (1)
sending a written statement revoking your proxy to the Secretary of the Company;
(2) submitting a properly signed proxy with a later date; or (3) voting in
person at the Annual Meeting. If you return your signed proxy to us before the
Annual Meeting, we will vote your shares as you direct. If you do not specify on
your proxy card how you want to vote your shares, we will vote them "for" the
election of all nominees for director as set forth under "Proposal 1: Election
of Directors," and "for" the ratification of the appointment of Ernst & Young
LLP as independent accountants as set forth under "Proposal 2: Appointment of
Auditors." If any other business is brought before the meeting, any unspecified
proxies will be voted in accordance with the judgment of the persons voting
those shares.
The cost of soliciting proxies will be paid by the Company. In addition to
the use of the mails, proxies may be solicited by the directors, officers and
employees of the Company without additional compensation, by personal interview,
telephone, telegram, or other means of electronic communication. Arrangements
also may be made with brokerage firms and other custodians, dealers, banks and
trustees, or their nominees who hold the voting securities of record, for
sending proxy materials to beneficial owners. Upon request, the Company will
reimburse the brokers, custodians, dealers, banks, or their nominees for their
reasonable out-of-pocket expenses. In addition, the Company has retained Mellon
Investor Services LLC to assist in the solicitation of proxies, for which the
Company will pay an estimated fee of $3,500.
Oil States International, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2003, is being mailed with this Proxy Statement to all
stockholders entitled to vote at the Annual Meeting and does not constitute a
part of the proxy soliciting material.
This proxy statement and the enclosed form of proxy was mailed to
stockholders beginning April 16, 2004.
EXPLANATORY NOTE
Concurrently with the completion of our initial public offering in February
2001, Oil States International, Inc. combined with HWC Energy Services, Inc.
("HWC"), Sooner Inc. ("Sooner") and PTI Group, Inc. ("PTI") in a transaction
that we refer to as the "Combination." Prior to our initial public offering and
the Combination, SCF-III, L.P. owned a majority interest in Oil States, HWC and
PTI, and SCF-IV,
L.P. owned a majority interest in Sooner. SCF-III, L.P. and SCF-IV, L.P. are
private equity funds that focus on investments in the energy industry. We refer
to SCF-III, L.P. and SCF-IV, L.P. collectively as "SCF."
The terms the "Company," "we," "us," and "our" refer to Oil States
International, Inc. and its subsidiaries, including HWC, Sooner and PTI,
following the Combination. The term "Oil States" refers to Oil States
International, Inc. and its subsidiaries prior to the Combination.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Company has two outstanding classes of securities that entitle holders
to vote generally at meetings of the Company's stockholders: common stock, par
value $.01 per share; and special preferred voting stock, par value $.01 per
share. A single share (the "Voting Share") of special preferred voting stock was
issued to Computershare Trust Company of Canada (the "Trustee") as trustee under
a Voting and Exchange Trust Agreement for the benefit of holders of exchangeable
shares issued by the Company's wholly-owned subsidiary, 892489 Alberta Inc., in
connection with the Company's February 2001 acquisition of PTI Group Inc. The
common stock and the Voting Share vote together as a single class on all matters
except when Delaware law requires otherwise. Each share of common stock
outstanding on the record date is entitled to one vote. The Voting Share is
entitled to one vote for each exchangeable share outstanding on the record date.
The Trustee is required to vote the Voting Share as instructed by holders of
exchangeable shares, and to abstain from voting in proportion to the
exchangeable shares for which the Trustee does not receive instructions.
Accordingly, references to "stockholders" in this Proxy Statement include
holders of common stock, the Trustee, and holders of exchangeable shares. In
addition, unless we indicate otherwise, the number of shares outstanding,
including for purposes of calculating percentage ownership, in this proxy
statement have been calculated as if the exchangeable shares have been exchanged
for shares of our common stock. The procedures for holders of exchangeable
shares to instruct the Trustee about voting at the Annual Meeting are explained
in the "Information Statement for Holders of Exchangeable Shares of 892489
Alberta Inc." that is enclosed with this Proxy Statement only for holders of
exchangeable shares.
The record date for the stockholders entitled to notice of and to vote at
the Annual Meeting is the close of business on April 7, 2004. At the record
date, 48,876,847 shares of common stock and one Voting Share were outstanding
and entitled to be voted at the Annual Meeting. At the record date, 328,533
exchangeable shares were outstanding and entitled to give voting instructions to
the Trustee. Accordingly, 49,205,380 votes are eligible to be cast at the Annual
Meeting.
The presence, in person or by proxy, of the holders of a majority of the
votes eligible to be cast at the Annual Meeting is necessary to constitute a
quorum at the Annual Meeting. If a quorum is not present, the stockholders
entitled to vote who are present in person or by proxy at the Annual Meeting
have the power to adjourn the Annual Meeting from time to time, without notice
other than an announcement at the Annual Meeting, until a quorum is present. At
any adjourned Annual Meeting at which a quorum is present, any business may be
transacted that might have been transacted at the Annual Meeting as originally
notified.
Directors will be elected by a plurality of the votes present and entitled
to be voted at the Annual Meeting. Ratification of the selection of the
Company's auditors will require the affirmative vote of the holders of a
majority of the shares present and entitled to be voted at the Annual Meeting.
An automated system that the Company's transfer agent administers will tabulate
the votes. Brokers who hold shares in street name for customers are required to
vote shares in accordance with instructions received from the beneficial owners.
Brokers are permitted to vote on discretionary items if they have not received
instructions from the beneficial owners, but they are not permitted to vote (a
"broker non-vote") on non-discretionary items absent instructions from the
beneficial owner. Abstentions and broker non-votes will count in determining
whether a quorum is present at the Annual Meeting. Both abstentions and broker
non-votes will not have any effect on the outcome of voting on director
elections. For purposes of voting on the ratification of the selection of
auditors, abstentions will be included in the number of shares voting and will
have the effect of a vote against the proposal, and broker non-votes will not be
included in the number of shares voting and therefore will have no effect on the
outcome of the voting.
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A Proxy in the accompanying form that is properly signed and returned will
be voted at the Annual Meeting in accordance with the instructions on the Proxy.
Any properly executed Proxy on which no contrary instructions have been
indicated about a proposal will be voted as follows with respect to the
proposal: FOR the election of the three persons named in this Proxy Statement as
the Board of Directors' nominees for election to the Board of Directors; FOR the
ratification of the selection of Ernst & Young LLP as the Company's auditors;
and in accordance with the discretion of the holders of the Proxy with respect
to any other business that properly comes before the stockholders at the Annual
Meeting. The Board of Directors knows of no matters, other than those previously
stated, to be presented for consideration at the Annual Meeting. The persons
named in the accompanying Proxy may also, in their discretion, vote the Proxy to
adjourn the Annual Meeting from time to time.
A copy of the list of stockholders entitled to vote at the Annual Meeting
will be available for inspection by qualified stockholders for proper purposes
at the offices of the Company during normal business hours beginning on April 8,
2004 and at the Annual Meeting.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors is comprised of seven members. The seven members are
divided into three classes having two members in Class I, two members in Class
II and three members in Class III. Each class is elected for a term of three
years, so that the term of one class of directors expires at each annual meeting
of stockholders. The term of the Class III directors expires at the Annual
Meeting.
NOMINEES
Three directors are to be elected at the Annual Meeting. The Board of
Directors has nominated Martin Lambert, Mark G. Papa and Stephen Wells to fill
the three expiring Class III positions on the Board of Directors, to hold office
for three-year terms expiring at the annual meeting of stockholders in 2007, and
until their respective successors have been duly elected and qualified, or until
their earlier resignation or removal. Each of the director nominees is presently
one of our directors. Stockholder nominations will not be accepted for filling
board seats at the Annual Meeting because our bylaws require advance notice for
such a nomination, the time for which has passed. Our Board of Directors has
determined that each of the director nominees is "independent" as that term is
defined by the applicable NYSE listing standards. In making this determination,
the Board of Directors considered transactions and relationships between each
director or his immediate family and the Company and its subsidiaries. The
purpose of this review was to determine whether any such relationships or
transactions were material and, therefore, inconsistent with a determination
that the director is independent. As a result of this review, the Board of
Directors affirmatively determined based on its understanding of such
transactions and relationships that all of the directors nominated for election
at the annual meeting are independent of the Company under the standards set
forth by the NYSE. The enclosed proxy (unless otherwise directed, revoked or
suspended) will be voted for the election of the three nominees for director.
Although the Company knows of no reason why any of the nominees might be
unable or refuse to accept nomination or election, if any nominee should be
unable to serve as a director, the shares represented by proxies will be voted
for the election of a substitute nominated by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES.
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EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names of, and certain information with respect to,
the Company's executive officers and directors, including the three nominees for
election to the Class III positions on the Board of Directors.
NAME AGE POSITION(S)
---- --- -----------
L.E. Simmons.............................. 57 Chairman of the Board
Douglas E. Swanson........................ 65 Director, President and Chief Executive
Officer
Cindy B. Taylor........................... 42 Senior Vice President -- Chief Financial
Officer and Treasurer
Robert W. Hampton......................... 52 Vice President -- Finance and Accounting
and Secretary
Christopher E. Cragg...................... 42 Vice President -- Tubular Services
Howard Hughes............................. 61 Vice President -- Offshore Products
R.A. (Sandy) Slator....................... 59 Vice President -- Well Site Services
Jay Trahan................................ 59 Vice President -- Well Site Services
Martin Lambert*........................... 48 Director
Mark G. Papa*............................. 57 Director
Gary L. Rosenthal......................... 54 Director
Andrew L. Waite........................... 43 Director
Stephen A. Wells*......................... 60 Director
---------------
* Nominee for election as Class III director at the Annual Meeting.
L.E. Simmons is Chairman of the Board of our company. Mr. Simmons is the
founder and President of L.E. Simmons & Associates, Incorporated, a private
equity fund manager and the ultimate general partner of SCF. Mr. Simmons has
held these positions since 1989. Prior to founding L.E. Simmons & Associates,
Incorporated, he co-founded Simmons & Company International, an investment bank
that specializes in the energy industry. Mr. Simmons also serves as a director
of Varco International, Inc., an oilfield services and equipment company, Zions
Bancorporation, a commercial banking company, and ExpressJet Holdings, Inc., a
regional airline carrier. He received a M.B.A. from the Harvard University
Graduate School of Business Administration.
Douglas E. Swanson is a director of our company and has served as President
and Chief Executive Officer since January 2000. From August 1999 to January
2000, Mr. Swanson pursued personal interests. From January 1992 to August 1999,
Mr. Swanson served as Chairman of the Board and Chief Executive Officer of
Cliffs Drilling Company, a contract drilling company. He currently serves as a
director of Varco International, Inc. He holds a B.A. degree from Cornell
College and is a Certified Public Accountant.
Cindy B. Taylor is Senior Vice President -- Chief Financial Officer and
Treasurer of our company. She has held this position since May 2000. From August
1999 to May 2000, Ms. Taylor was the Chief Financial Officer of L.E. Simmons &
Associates, Incorporated. Mrs. Taylor served as the Vice President -- Controller
of Cliffs Drilling Company from July 1992 to August 1999 and as a senior manager
with Ernst & Young LLP, a public accounting firm, from January 1984 to July
1992. She received a B.B.A. degree from Texas A&M University and is a Certified
Public Accountant.
Robert W. Hampton is Vice President -- Finance and Accounting and Secretary
of our company. He has held this position since February 2001. From February
1998 to February 2001, Mr. Hampton served as Vice President and Chief Financial
Officer of HWC. Mr. Hampton joined HWC from Tidewater Inc., an offshore service
vessel operator, where he was based in Aberdeen and was Area Manager for the
North Sea Operations from March 1996 to February 1998. He served as Vice
President, Treasurer and Chief Financial Officer of Hornbeck Offshore, an
offshore service vessel operator, from 1990 to March 1996, when it was acquired
by Tidewater. Mr. Hampton worked at Price Waterhouse, a public accounting firm,
from 1973 to 1986.
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Mr. Hampton is a Certified Public Accountant and received his B.S. degree from
the Pennsylvania State University.
Christopher E. Cragg is Vice President -- Tubular Services of our company.
He has held this position since February 2001. Mr. Cragg was Executive Vice
President -- Chief Financial Officer of Sooner from December 1999 to February
2001. From June 1999 to December 1999, Mr. Cragg pursued personal interests.
From April 1994 to June 1999, he was Vice President and Controller of Ocean
Energy, Inc., an independent oil and gas exploration and production company, and
its predecessor companies. Mr. Cragg served as Manager -- Internal Audit with
Cooper Industries, a manufacturer of diversified products, from April 1993 to
April 1994 and as a senior manager with Price Waterhouse, a public accounting
firm, from August 1983 to April 1993. He received a B.B.A. degree from
Southwestern University and is a Certified Public Accountant.
Howard Hughes is Vice President -- Offshore Products of our company. He has
held this position since February 2001. From September 1989 until February 2001,
Mr. Hughes served as President of Oil States. From April 1976 to September 1989,
Mr. Hughes served in various managerial and executive positions with Oil States.
He holds a B.S. degree from the University of Houston.
R.A. (Sandy) Slator is Vice President -- Well Site Services of our company.
He has held this position since February 2001. Mr. Slator joined PTI in November
1999 and has served as its President and Chief Executive Officer since January
2000. From February 1999 to November 1999, Mr. Slator was a founding partner of
River View Venture Partners, an Edmonton-based venture capital group. From March
1998 to January 1999, Mr. Slator was an associate of Lambridge Capital Partners,
an Edmonton-based investment banking group. From May 1996 to March 1998, Mr.
Slator participated in a number of community-related volunteer activities.
During that time, Mr. Slator was also a founding partner of NetCovergence, Inc.,
a private technology related company that was sold in the spring of 2000. From
1989 to April 1996, Mr. Slator served as President and Chief Executive Officer
of Vencap Equities Alberta Ltd., a publicly traded venture capital company. Mr.
Slator served on the board of PTI from 1984 until 1994.
Jay Trahan is Vice President -- Well Site Services of our company. He has
held this position since February 2001. Mr. Trahan was President of HWC from
January 1998 to February 2001. He has 30 years of experience in the oil and gas
industry. From 1996 to January 1998, Mr. Trahan served as President of Baker
Hughes Solutions; from 1993 to 1996, he served as President of Baker Hughes
Inteq; from 1990 to 1993, he served as President of Baker Sand Control; and from
1988 to 1990 he served as Vice President of Worldwide Operations for Baker Sand
Control. Baker Hughes Solutions, Baker Hughes Inteq and Baker Sand Control are
divisions of Baker Hughes Incorporated, a diversified oilfield services company.
Martin Lambert has served as a director of our company since February 2001.
Mr. Lambert has been a partner in the Canadian law firm Bennett Jones LLP since
1987. Mr. Lambert joined Bennett Jones LLP in 1979 and served as its Chief
Executive Officer from 1996 to 2000. Mr. Lambert currently is a director of
Harken Resources Ltd, Bear Creek Energy Ltd and Ex Alta Energy Ltd, Canadian oil
and gas exploration and production companies, and Calfrac Well Services Ltd and
zed.i solutions inc., oilfield service companies. He has a L.L.B. degree from
the University of Alberta.
Mark G. Papa has served as a director of our company since February 2001.
Mr. Papa has served as Chairman of the Board and Chief Executive Officer of EOG
Resources, Inc., an oil and gas exploration and production company, since August
1999. From February 1994 to August 1999, he held a number of management
positions with EOG Resources, Inc. He has a petroleum engineering degree from
the University of Pittsburgh and a M.B.A. degree from the University of Houston.
Mr. Papa currently is a Director of Magellan Midstream Partners, LP.
Gary L. Rosenthal has served as a director of our company since February
2001. Mr. Rosenthal is co-founder and President of Heaney Rosenthal Inc., a
private investment company, a position he has held since October 1994. From
September 2000 to April 2001, he served as Chief Executive Officer of AXIA
Incorporated, a diversified manufacturing company. Since May 2003, Mr. Rosenthal
has served as non-executive Chairman of the Board of HydroChem Holdings, Inc. He
currently serves as a director of Dresser, Inc., and Pioneer Companies, Inc. He
holds J.D. and A.B. degrees from Harvard University.
5
Andrew L. Waite has served as a director of our company since March 1996.
Mr. Waite is a Managing Director of L.E. Simmons & Associates, Incorporated and
has been an officer of that company since October 1995. He was previously Vice
President of Simmons & Company International, where he served from August 1993
to September 1995. From 1984 to 1991, Mr. Waite held a number of engineering and
management positions with the Royal Dutch/Shell Group, an integrated energy
company. He currently serves as a director of Hornbeck Offshore Services, Inc.,
an operator of offshore supply vessels and other marine assets. He received a
M.B.A. from the Harvard University Graduate School of Business Administration
and a M.S. degree from the California Institute of Technology.
Stephen A. Wells has served as a director of our company since April 1996.
Mr. Wells is the president of Wells Resources, Inc., a privately owned oil, gas
and ranching company, and has served in that position since 1983. From April
1999 to October 1999, Mr. Wells served as a director and Chief Executive Officer
of Avista Resources, Inc., an oil recycling technology company. From October
1993 to February 1996, he was a director and Chief Executive Officer of
Coastwide Energy Services, Inc., a Gulf Coast marine terminal operator. From
March 1992 to September 1994, he was a director and Chief Executive Officer of
Grasso Corporation, an oil and gas production management services company. Mr.
Wells currently is a director of Pogo Producing Company, an oil and gas
exploration and production company and a director of Crosstex Energy GP, LLC, a
midstream natural gas company.
COMMITTEES AND MEETINGS
The Board of Directors has established three standing committees: the Audit
Committee, the Compensation Committee and the Nominating & Corporate Governance
Committee. These committees are comprised of directors who are not officers or
employees of the Company.
AUDIT COMMITTEE
The Company's Audit Committee consists of Messrs. Wells, Rosenthal and
Waite. Mr. Waite has indicated that he intends to resign from the Audit
Committee immediately prior to the Annual Meeting. The Nominating & Corporate
Governance Committee of the Board of Directors has recommended that the Board of
Directors appoint Mr. Lambert to fill the vacancy to be created by Mr. Waite's
resignation. Effective immediately following the Annual Meeting and assuming
that Messrs. Wells and Lambert are elected to serve another term, the Company's
Audit Committee will consist of Messrs. Wells, Lambert and Rosenthal each of
whom is independent, as such term is defined in Section 10A of the Securities
Exchange Act of 1934, as amended, and in the applicable New York Stock Exchange
listing standards. The Audit Committee operates under a written charter adopted
by the Board of Directors on May 13, 2003. A copy of the charter is attached to
this Proxy Statement as Annex A and is also available on our website,
www.oilstatesintl.com, under "Corporate Governance." The Audit Committee, which
is chaired by Mr. Wells, meets separately with representatives of the Company's
independent auditors, the Company's internal audit personnel and with
representatives of senior management in performing its functions. The Audit
Committee reviews the general scope of audit coverages, the fees charged by the
independent auditors, matters relating to internal control systems and other
matters related to accounting and reporting functions. The Board of Directors
has determined that all of the members of the Audit Committee are financially
literate and that Mr. Wells has accounting or related financial management
expertise, each as required by the applicable NYSE listing standards. The Board
of Directors has also determined that Mr. Wells qualifies as an audit committee
financial expert under the applicable rules of the Exchange Act.
COMPENSATION COMMITTEE
The Company's Compensation Committee currently consists of Messrs.
Rosenthal, Papa and Wells. Effective immediately following the Annual Meeting
and assuming that Messrs. Papa and Wells are elected to serve another term, the
Company's Compensation Committee will continue to consist of Messrs. Rosenthal,
Papa and Wells, each of whom is independent, as defined in the applicable NYSE
listing standards, and a non-employee director. The Compensation Committee
operates under a written charter adopted by the Board of Directors on May 13,
2003. A copy of the charter is available on our website, www.oilstatesintl.com,
under
6
"Corporate Governance." The Compensation Committee, which is chaired by Mr.
Rosenthal, administers the 2001 Equity Participation Plan (as amended and
restated), and in this capacity makes a recommendation to the full board
concerning all option grants or stock awards to employees, including executive
officers, under the plan. In addition, the Compensation Committee is responsible
for making recommendations to the Board with respect to the compensation of the
Company's chief executive officer and its other executive officers and for
establishing compensation and employee benefit policies.
NOMINATING & CORPORATE GOVERNANCE COMMITTEE
The Company's Nominating & Corporate Governance Committee currently
consists of Messrs. Papa, Wells and Lambert. Effective immediately following the
Annual Meeting and assuming that Messrs. Papa, Wells and Lambert are elected to
serve another term, the Company's Nominating & Corporate Governance Committee
will continue to consist of Messrs. Papa, Wells and Lambert, each of whom is
independent, as such term is defined in the applicable NYSE listing standards.
The Nominating & Corporate Governance Committee operates under a written charter
adopted by the Board of Directors on March 31, 2004. A copy of the charter is
available on our website, www.oilstatesintl.com, under "Corporate Governance."
The Nominating & Corporate Governance Committee, which is chaired by Mr. Papa,
makes proposals to the Board for candidates to be nominated by the Board to fill
vacancies or for new directorship positions, if any, which many be created from
time to time. The Nominating & Corporate Governance Committee will consider
suggestions from any source, particularly from stockholders, regarding possible
candidates for director. To submit a recommendation to the committee, a
stockholder should send a written request to the attention of the Company's
Secretary at Oil States International, Inc., Three Allen Center, 333 Clay
Street, Suite 3460, Houston, Texas 77002. The written request must include the
nominee's name, contact information, biographical information and
qualifications, as well as the nominee's written consent to serve if elected.
The request must also disclose the number of shares of common stock beneficially
owned by the person or group making the request and the period of time such
person or group has owned those shares. The request must be received by the
Company no earlier than the 150th day and no later than the 120th day before the
anniversary of the date of the prior year's proxy statement. These procedures do
not preclude a stockholder from making nominations in accordance with the
process described below under "Stockholder Proposals." The Nominating &
Corporate Governance Committee developed and recommended to the Board of
Directors the Company's Corporate Governance Guidelines and Corporate Code of
Business Conduct and Ethics, copies of which are available on our website,
www.oilstatesintl.com, under "Corporate Governance."
BOARD AND COMMITTEE MEETINGS
During 2003, the entire Board of Directors held 5 meetings, the Audit
Committee held 8 meetings, the Compensation Committee held 3 meetings and the
Nominating & Corporate Governance Committee held 1 meeting. Each of the
directors attended at least 75 percent of the meetings of the Board and the
committees of the Board on which they served. All of our directors attended last
year's annual meeting. While the Company understands that scheduling conflicts
may arise, it expects directors to make reasonable efforts to attend the annual
meeting of stockholders and meetings of the Board of Directors and the
committees on which they serve.
Our Corporate Governance Guidelines provide that our non-management
directors shall meet separately in executive session at least annually. The
director who presides at these session is the Chairman of the Board, assuming
such person is a non-management director. Otherwise, the presiding director will
be chosen by a vote of the non-management directors. In addition to the
executive sessions of our non-management directors, our independent directors
(as defined in the applicable NYSE listing standards) are required to meet in
executive session at least annually. In 2003, our non-management directors met
in executive session two times. The Chairman of the Board, L.E. Simmons,
presided at these sessions. There were no separate executive sessions for our
independent directors as each of our non-management directors is also
independent.
7
QUALIFICATIONS OF DIRECTORS
When identifying director nominees, the Nominating & Corporate Governance
Committee will consider the following:
- the person's reputation, integrity and independence;
- the person's skills and business, government or other professional
experience and acumen, bearing in mind the composition of the board and
the current state of the Company and the oilfield services industry
generally at the time of determination;
- the number of other public companies for which the person serves as a
director and the availability of the person's time and commitment to the
Company;
- the person's knowledge of a major geographical area in which the Company
operates or another area of the company's operational environment; and
- the person's age.
In the case of current directors being considered for renomination, the
Nominating & Corporate Governance Committee will also take into account the
director's history of attendance at Board of Directors and committee meetings,
the director's tenure as a member of the Board of Directors and the director's
preparation for and participation in such meetings.
DIRECTOR NOMINATION PROCESS
Our director nomination process for new board members is as follows:
- The Nominating & Corporate Governance Committee, the Chairman of the
Board, or another board member identifies a need to add a new board
member who meets specific criteria or to fill a vacancy on the Board of
Directors.
- The Nominating & Corporate Governance Committee initiates a search by
working with staff support, seeking input from board members and senior
management and hiring a search firm, if necessary.
- The Nominating & Corporate Governance Committee considers recommendations
for nominees for directorships submitted by stockholders.
- The initial slate of candidates that will satisfy specific criteria and
otherwise qualify for membership on the Board of Directors are identified
and presented to the Nominating & Corporate Governance Committee, which
ranks the candidates.
- The Chairman of the Board and at least one member of the Nominating &
Corporate Governance Committee interviews prospective candidate(s).
- The full Board of Directors is kept informed of progress.
- The Nominating & Corporate Governance Committee offers other board
members the opportunity to interview the candidate(s) and then meets to
consider and approve the final candidate(s).
- The Nominating & Corporate Governance Committee seeks the endorsement of
the Board of Directors of the final candidate(s).
The final candidate(s) are nominated by the Board of Directors or elected to
fill a vacancy.
COMMUNICATIONS WITH DIRECTORS
Stockholders or other interested parties may send communications, directly
and confidentiality, to the Board of Directors, to any committee of the Board of
Directors, to non-management directors or any director in particular, by sending
an envelope marked "confidential" to such person or persons c/o Oil Sates
International, Inc., Three Allen Center, 333 Clay Street, Suite 3460, Houston,
Texas 77002. Any such
8
correspondence will be forwarded by the Secretary of the Company to the
addressee without review by management.
AUDIT COMMITTEE REPORT
The Board of Directors appointed the undersigned directors as members of
the committee and adopted a written charter setting forth the procedures and
responsibilities of the committee. Each year, the committee reviews the charter
and reports to the Board on its adequacy in light of applicable NYSE rules. In
addition, the Company will furnish an annual written affirmation to the NYSE
relating to, among other things, clauses (1) - (3) of the first paragraph of
this report and the adequacy of the committee charter.
During the last year, and earlier this year in preparation for the filing
with the SEC of the Company's Annual Report on Form 10-K for the year ended
December 31, 2003 (the "10-K"), the committee:
- reviewed and discussed the audited financial statements with management
and the Company's independent auditors;
- reviewed the overall scope and plans for the audit and the results of the
independent auditors' examinations;
- met with management periodically during the year to consider the adequacy
of the Company's internal controls and the quality of its financial
reporting and discussed these matters with the Company's independent
auditors and with appropriate Company financial personnel and internal
auditors;
- discussed with the Company's senior management, independent auditors and
internal auditors the process used for the Company's chief executive
officer and chief financial officer to make the certifications required
by the SEC and the Sarbanes-Oxley Act of 2002 in connection with the 10-K
and other periodic filings with the SEC;
- reviewed and discussed with the independent auditors (1) their judgments
as to the quality (and not just the acceptability) of the Company's
accounting policies, (2) the written communication required by
Independence Standards Board Standard No. 1, "Independence Discussions
with Audit Committees" and the independence of the independent auditors,
and (3) the matters required to be discussed with the committee under
auditing standards generally accepted in the United States, including
Statement on Auditing Standards No. 61, "Communication with Audit
Committees";
- based on these reviews and discussions, as well as private discussions
with the independent auditors and the Company's internal auditors,
recommended to the Board of Directors the inclusion of the audited
financial statements of the Company and its subsidiaries in the 10-K; and
- determined that the non-audit services provided to the Company by the
independent auditors (discussed below under the Proposal to Ratify the
Selection of Independent Auditors (Proposal 2) are compatible with
maintaining the independence of the independent auditors. The committee's
pre-approval policies and procedures are discussed below under Proposal
2.
Notwithstanding the foregoing actions and the responsibilities set forth in
the committee charter, the charter clarifies that it is not the duty of the
committee to plan or conduct audits or to determine that the Company's financial
statements are complete and accurate and in accordance with generally accepted
accounting principles. Management is responsible for the Company's financial
reporting process including its system of internal controls, and for the
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States. The independent auditors are
responsible for expressing an opinion on those financial statements. Committee
members are not employees of the Company or accountants or auditors by
profession or experts in the fields of accounting or auditing. Therefore, the
committee has 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 and on the representations of the independent auditors
included in their report on the Company's financial statements.
9
The committee meets regularly with management and the independent and
internal auditors, including private discussions with the independent auditors
and the Company's internal auditors and received the communications described
above. The committee has also established procedures for (a) the receipt,
retention and treatment of complaints received by the Company regarding
accounting, internal accounting controls or auditing matters, and (b) the
confidential, anonymous submission by the Company's employees of concerns
regarding questionable accounting or auditing matters. However, this oversight
does not provide us with an independent basis to determine that management has
maintained appropriate accounting and financial reporting principles or
policies, or appropriate internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations.
Furthermore, our considerations and discussions with management and the
independent auditors do not assure that the Company's financial statements are
presented in accordance with generally accepted accounting principles or that
the audit of the Company's financial statements has been carried out in
accordance with generally accepted auditing standards.
The information contained in this report shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filings with the Securities and Exchange Commission, or subject to the
liabilities of Section 18 of the Exchange Act, except to the extent that the
Company specifically incorporates it by reference into a document filed under
the Securities Act of 1933, as amended, or the Exchange Act.
Respectfully submitted,
Audit Committee
Stephen A. Wells, Chairman
Gary L. Rosenthal
Andrew L. Waite
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors consists of three
directors who are not employees of the Company. The Committee reviews the
Company's executive compensation program and policies each year and determines
the compensation of the executive officers.
The Compensation Committee's philosophy regarding the Company's executive
compensation program has been to design a compensation package that provides
competitive salary levels and compensation incentives that (i) attract and
retain individuals of outstanding ability in these key positions, (ii) recognize
individual performance relative to established goals and the performance of the
Company relative to the performance of other companies of comparable size,
complexity and quality and against budgeted goals, and (iii) support both the
short-term and long-term strategic goals of the Company. The Compensation
Committee believes this approach closely links the compensation of the Company's
executives to the execution of the Company's strategy and the accomplishment of
company goals that coincide with stockholder objectives.
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
establishes specific compensation levels for executive officers and other key
personnel and administers the Company's 2001 Equity Participation Plan and
Deferred Compensation Plan. The Committee considers the anticipated tax
treatment of the Company's executive compensation program.
The executive compensation program includes three primary elements that,
taken together, constitute a flexible and balanced method of establishing total
compensation for the Company's executive officers. These elements are (i) base
salary, (ii) annual bonus plan awards under the Annual Incentive Plan, and (iii)
long-term incentive awards, including principally stock option grants. In order
to assist in its evaluation of each element of the Company's overall executive
compensation program, the Committee periodically obtains independent
compensation surveys. The Committee engaged an independent compensation
consultant in the fourth quarter of 2003 to provide an update to the Committee
concerning executive and director compensation
10
trends and to address long-term equity compensation practices. The Committee
takes these surveys and the factors noted below into consideration when making
its decisions.
Base Salaries. Executive officer base salaries, including Mr. Swanson's,
are based on an evaluation that considers data from other similarly sized
companies in businesses similar to the Company's, the Company's and the
executive's performance, the executive's potential, and any significant changes
in the executive's responsibilities. The Compensation Committee considers all
those factors together and makes a subjective determination with respect to
executive compensation. The Compensation Committee increased the base salary of
Mr. Swanson in 2003 to $400,000 from $375,000.
The Annual Incentive Plan. Annual bonus awards are linked to the
achievement of Company-wide and divisional performance goals and are designed to
put a significant portion of total compensation at risk. Under the bonus plan, a
bonus target is established for each executive officer based upon a review of
the competitive data for that position, level of responsibility and ability to
impact the Company's success. In 2003, individual executive officer bonus
targets ranged from 40% to 60% of base salary. The actual amount of the bonus
award can range from 0% to 200% of target and in 2003 was based exclusively on
the Company's and/or divisional achievement of these performance goals. For
2003, bonus targets for executive officers were based upon objectives set at the
beginning of 2003 for earnings before interest, taxes, and depreciation (EBITDA)
for the Company and/or for particular business divisions. In addition, a portion
of the bonus potential for one segment, was based on return on investment. The
bonus target for Mr. Swanson was based upon EBITDA for the Company. Seven of
eight executive officers, including Mr. Swanson, received bonuses for 2003
performance. Certain of the Company's divisions exceeded their 2003 EBITDA
objectives, resulting in certain of the Company's officers receiving bonuses for
2003 in excess of target. On a consolidated basis, the Company attained 100% of
its EBITDA bonus target for 2003 and Mr. Swanson was paid a bonus at the target
level. Other executives received bonuses less than target or no bonus as a
result of their divisions not achieving targeted EBITDA objectives.
Stock Options. The Company makes certain stock-based awards under the 2001
Equity Participation Plan to align better the interests of executive officers
with those of stockholders. In determining appropriate stock grants, the
Compensation Committee periodically reviews competitive market data and each
executive's long-term performance, ability to contribute to the future success
of the Company, history of prior grants, and time in the current job. The
Company takes into account the risk of losing the executive to other employment
opportunities and the value and potential for appreciation in the Company's
stock. The Committee considers the foregoing factors together and makes a
subjective determination with respect to awarding stock options to its executive
officers. Under the 2001 Equity Participation Plan, the Company has granted
stock options, which vest over multiple years, at the fair market value of the
common stock on the date of grant. Although, the Committee generally prefers to
grant stock options, it has in the past granted a restricted stock award.
The Compensation Committee
Gary L. Rosenthal (Chairman)
Mark G. Papa
Stephen A. Wells
11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2003, the Company's compensation committee consisted of Messrs.
Rosenthal, Papa and Wells, each of whom is an independent, non-employee
director. There were no compensation committee interlock relationships or
insider participation in compensation arrangements for the year ended December
31, 2003.
DIRECTOR COMPENSATION
Directors who are also our employees do not receive a retainer or fees for
service on our Board of Directors or any committees. For the year ended December
31, 2003, directors who were not employees received an annual retainer of
$30,000 and fees of $1,500 for attendance at each Board or committee meeting. In
addition, each non-employee director who serves as the chairman of the
Compensation Committee or the Nominating & Corporate Governance Committee
receives an annual fee of $10,000. The chairman of the Audit Committee receives
an annual fee of $15,000. Newly elected directors receive options to purchase
5,000 shares of our common stock upon their initial election. Directors receive
additional options to purchase 5,000 shares at each annual meeting after which
they continue to serve. These options are granted under the 2001 Equity
Participation Plan, vest in four equal annual installments and expire ten years
from the date of grant. In the event of a change in control, the options vest in
accordance with the terms of the grant agreements. The exercise price of these
options is the fair market value at the date of grant. All of our directors are
reimbursed for reasonable out-of-pocket expenses incurred in attending meetings
of our Board of Directors or committees and for other reasonable expenses
related to the performance of their duties as directors.
EXECUTIVE COMPENSATION
The following table presents information regarding the compensation of our
Chief Executive Officer and our four other most highly compensated executive
officers during 2003. These five persons are collectively referred to as the
"named executive officers."
LONG-TERM
COMPENSATION AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------- STOCK UNDERLYING ALL OTHER
NAMES AND FISCAL SALARY BONUS(1) AWARDS OPTIONS COMPENSATION(2)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
------------------ ------ -------- --------- ---------- ---------- ---------------
Douglas E. Swanson.............. 2003 400,000 239,369 -- 165,000 39,566
President and 2002 375,000 398,716 -- 167,000 33,737
Chief Executive Officer 2001 375,000 299,739 900,000(3) -- 15,990
Cindy B. Taylor................. 2003 300,000 142,831 -- 100,000 22,995
Senior Vice President, Chief 2002 200,000 177,207 -- 65,000 16,661
Financial Officer and
Treasurer 2001 190,603 133,217 -- 100,000 8,165
Howard Hughes................... 2003 250,000 105,322 -- 40,000 23,891
Vice President -- 2002 231,600 229,870 -- 32,500 13,996
Offshore Products 2001 225,000 48,320 -- 40,000 9,346
Jay Trahan...................... 2003 250,000 101,438 40,000 16,105
Vice President -- 2002 224,047 72,101 -- 32,500 21,202
Well Site Services 2001 200,000 200,000 -- 50,000 5,250
R.A. (Sandy) Slator............. 2003 208,104 208,104 30,000 --
Vice President -- 2002 179,699 156,788 -- 32,500 --
Well Site Services 2001 177,568 170,500 -- 50,000 --
---------------
(1) Bonus includes amounts earned in the fiscal year indicated but paid in the
following calendar year.
(2) Reflects payments made to the Oil States or HWC 401(k) plans on behalf of
Messrs. Swanson, Hughes and Trahan and Ms. Taylor to fund base retirement
contributions, 401(k) matching contributions and discretionary profit
sharing contributions.
12
(3) The forfeiture restrictions with respect to the restricted stock award
reported in this table lapsed with respect to 33,334 of the shares in
February 2002, 33,333 of the shares in February 2003 and 33,333 of the
shares in February 2004. The dollar value of the restricted stock reported
in the table represents the value of such restricted stock award on the date
of grant. At December 31, 2003, the aggregate restricted stock holdings for
Mr. Swanson were 33,333 shares valued at $464,662.
OPTION GRANTS DURING 2003
The following table presents information concerning the grant of options to
acquire the Company's common stock during 2003 to the named executive officers
under the 2001 Equity Participation Plan. No stock appreciation rights were
granted during 2003.
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- --------------- --------- ---------- ------------ ------------
Douglas E. Swanson... 165,000 17.3% $11.49 2/25/2013 $1,192,290 $3,021,497
Cindy B. Taylor...... 100,000 10.5% $11.49 2/25/2013 $ 722,600 $1,831,210
Howard Hughes........ 40,000 4.2% $11.49 2/25/2013 $ 289,040 $ 732,484
Jay Trahan........... 40,000 4.2% $11.49 2/25/2013 $ 289,040 $ 732,484
R.A. (Sandy)
Slator............. 30,000 3.1% $11.49 2/25/2013 $ 216,780 $ 549,363
---------------
(1) The grant-date market value of the securities used for purposes of this
calculation is equivalent to the exercise price of the options. Appreciation
was calculated based on assumed rates of return and is not intended to
represent expected appreciation of the Company's common stock.
AGGREGATED OPTION EXERCISES IN 2003 AND FISCAL YEAR-END OPTION VALUES
The following table presents information concerning stock option exercises
for 2003 and unexercised stock options held by the named executive officers as
of December 31, 2003.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Douglas E. Swanson..... -- $ -- 41,750 290,250 $247,995 $1,148,235
Cindy B. Taylor........ -- $ -- 66,250 198,750 $343,525 $ 781,575
Howard Hughes.......... -- $ -- 46,459 84,375 $147,063 $ 341,588
Jay Trahan............. 241,148 $1,915,979 -- 89,375 $ -- $ 366,288
R.A. (Sandy) Slator.... -- $ -- 127,453 98,240 $684,327 $ 357,891
---------------
(1) Represents the market value of the underlying shares of the Company's common
stock at the date of exercise less the option exercise price.
(2) Represents the market value of the underlying shares of the Company's common
stock based on the December 31, 2003 closing price of $13.94 per share minus
the exercise price.
13
EQUITY COMPENSATION PLANS
The table below provides information relating to our equity compensation
plans as of December 31, 2003:
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS FIRST COLUMN)
------------- -------------------- -------------------- -----------------------
Equity compensation plans 2,680,743 $9.78 2,014,044
approved by security holders...
Equity compensation plans not N/A N/A N/A
approved by security holders...
--------- ----- ---------
Total............................ 2,680,743 $9.78 2,014,044
========= ===== =========
The Company does not have any equity compensation plans not approved by the
stockholders.
2001 EQUITY PARTICIPATION PLAN
We have adopted an Equity Participation Plan, as amended and restated. The
plan provides for the grant of any combination of:
- stock options, which include both incentive stock options and
nonqualified stock options;
- restricted stock;
- performance awards;
- dividend equivalents;
- deferred stock; and
- stock payments.
The purpose of the plan is to strengthen our ability to attract, motivate and
retain directors and employees. The principal features of the plan are described
below.
Reservation of Shares. We have reserved 5,700,000 shares of common stock
for issuance under the plan. The shares available under the plan may be either
previously unissued shares or treasury shares. In the event of stock splits,
reorganizations, recapitalizations or other specified corporate transactions
affecting us or our common stock, proportionate adjustments may be made to the
number of shares available for grant under the plan, the applicable maximum
share limitations under the plan, and the number of shares and prices under
outstanding awards at the time of the event. If any portion of an award expires,
lapses or is canceled without being fully exercised, the shares which were
subject to the unexercised portion of the award will continue to be available
for issuance under the plan. The maximum number of shares which may be subject
to options, restricted stock or deferred stock granted under the plan to any
individual in any calendar year is 400,000. The maximum value of any performance
awards which may be granted under the plan to any individual in any calendar
year is $2,500,000. As of December 31, 2003, options to purchase 2,680,743
shares at a weighted average exercise price of $9.78 per share and awards
covering an aggregate of 100,000 shares of restricted stock were outstanding (of
which 66,667 shares were then vested and 33,333 shares were then subject to
forfeiture restrictions).
Administration. The plan is administered by the Compensation Committee.
Subject to limitations, the Compensation Committee has the authority to
determine:
- the persons to whom awards are granted,
- the types of awards to be granted,
- the time at which awards will be granted,
14
- the number of shares, units or other rights subject to each award,
- the exercise, base or purchase price of an award, if any,
- the time or times at which the award will become vested, exercisable or
payable, and
- the duration of the award.
The Compensation Committee also has the power to interpret the plan and make
factual determinations and may provide for the acceleration of the vesting or
exercise period of an award at any time prior to its termination or upon the
occurrence of specified events.
Change of Control. Unless otherwise provided in a particular award
agreement, in the event of a "change of control," as defined in the plan:
- all outstanding awards automatically will become fully vested immediately
prior to the change of control, or at an earlier time set by the
committee;
- all restrictions, if any, with respect to all outstanding awards will
lapse; and
- all performance criteria, if any, with respect to all outstanding awards
will be deemed to have been met at their target level.
Amendment. Stockholder approval is required to amend the plan to increase
the number of shares as to which awards may be granted, except for adjustments
resulting from stock splits and the like. At the 2002 annual meeting of
stockholders, the stockholders of the Company approved the amendment and
restatement of the plan to increase the number of shares that may be issued
under the plan from 3,700,000 to 5,700,000. The Compensation Committee can
amend, modify, suspend or terminate the plan in all other respects, unless the
action would otherwise require stockholder approval. Amendments of the plan will
not, without the consent of the participant, materially affect a participant's
rights under an award previously granted, unless the award itself otherwise
expressly so provides. The plan expires in 2011.
DEFERRED COMPENSATION PLAN
We have adopted a nonqualified deferred compensation plan that permits our
directors and selected key employees to elect to defer all or a part of their
cash compensation from us until the termination of their status as a director or
employee. The plan is administered by the Compensation Committee. Participating
employees are eligible to receive from us a matching deferral under the
nonqualified deferred compensation plan that compensates them for contributions
they could not receive from us under our 401(k) plan due to the various limits
imposed on 401(k) plans by the U.S. federal income tax laws.
Participants in our nonqualified deferred compensation plan are able to
invest contributions made to the nonqualified deferred compensation plan in
investment funds selected by the Compensation Committee. We have established a
grantor trust to hold the amounts deferred under the plan by our officers and
directors. All amounts deferred under the plan remain subject to the claims of
our creditors.
Each participant will receive, at the participant's election, a lump sum
distribution or installment payments only upon termination of the participant's
service with us and our affiliates. The Compensation Committee may, however,
approve in-service withdrawals by participants to cover an unforeseen financial
emergency of the participant.
ANNUAL INCENTIVE COMPENSATION PLAN
We have adopted an annual incentive compensation plan effective January 1,
2001. The annual incentive compensation plan is administered by the Compensation
Committee and is available to our executive officers and key members of
management. Awards under the plan are based on meeting annual objective
performance standards relating to our performance or, in some cases, to the
performance of a particular business segment or individual performance. The
performance standards for our executive officers are based, principally, on
15
earnings before interest, taxes, depreciation and amortization for our company
or a particular business segment.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our directors
and executive officers, including the named executive officers. Those agreements
require us to indemnify the directors and officers and to advance expenses in
connection with certain claims against directors and officers. The
indemnification provisions contained in these agreements are in some respects
broader than the specific indemnification provisions contained in the Delaware
General Corporation Law. We expect to enter into similar agreements with persons
selected to be directors and executive officers in the future.
EXECUTIVE AGREEMENTS
These agreements provide protection in the event of a qualified
termination, which is defined as an involuntary termination of the executive
officer by us other than for cause or a voluntary termination by the executive
for good reason after a change of control of our company. If the qualified
termination occurs during the 24-month period following a change of control, the
agreements provide for a lump sum payment to the executive officer based on the
executive officer's base salary and target annual bonus amount. In addition,
with respect to such a qualified termination, the agreements provide that all
restricted stock awards will become vested, that all restrictions on such awards
will lapse and that outstanding stock options will vest and, except for
incentive stock options granted prior to the completion of our initial public
offering, remain exercisable for the remainder of their terms. The executive
officer will also be entitled to health benefits, vesting of all deferred
compensation amounts, outplacement services and to be made whole for any excise
taxes incurred with respect to severance payments that are excess parachute
payments under the Internal Revenue Code. If a qualified termination occurs
other than during the 24-month period following a change of control, the
executive agreements provide for payments based on the executive officer's base
salary and target annual bonus amount, that all restrictions on restricted stock
awards will lapse and for continued health benefits.
The executive agreements have an initial term of three years and will be
extended automatically for one additional day on a daily basis for a maximum
additional period of three years, unless notice of non-extension is given, in
which case the agreement will terminate on the third anniversary of the date
notice is given. To receive benefits under the executive agreement, the
executive officer will be required to execute a release of certain
employment-related claims against us. Certain terms of the executive agreements
are summarized below.
Douglas E. Swanson. Under the terms of Mr. Swanson's executive agreement,
he will be entitled to receive a lump sum payment equal to three times his base
salary and target annual bonus amount if a qualified termination occurs during
the 24-month period following a change of control. If a qualified termination
occurs other than during the 24-month period following a change of control, Mr.
Swanson will be entitled to receive a lump sum payment equal to two times his
base salary and target annual bonus amount. In addition, the non-vested portion
of Mr. Swanson's restricted stock award will vest upon Mr. Swanson's death, if
there is a change in control of our company or if Mr. Swanson's employment is
terminated for a reason that entitles him to receive benefits under any of our
long term disability plans or if Mr. Swanson experiences a qualified termination
in the absence of a change of control.
Cindy B. Taylor. Under the terms of Ms. Taylor's executive agreement, she
will be entitled to receive a lump sum payment equal to two and a half times her
base salary and target annual bonus amount if a qualified termination occurs
during the 24-month period following a change of control. If a qualified
termination occurs other than during the 24-month period following a change of
control, Ms. Taylor will be entitled to receive a lump sum payment equal to one
and a half times her base salary and target annual bonus amount.
16
All Other Named Executive Officers. Under the terms of each other named
executive officer's executive agreement, the named executive officer will be
entitled to receive a lump sum payment equal to two times his base salary and
target annual bonus amount if a qualified termination occurs during the 24-month
period following a change of control. If a qualified termination occurs other
than during the 24-month period following a change of control, the executive
officer will be entitled to receive a lump sum payment equal to his base salary
and target annual bonus amount.
17
PERFORMANCE GRAPH
The following performance graph and chart compare the cumulative total
stockholder return on the Company's common stock to the cumulative total return
on the Standard & Poor's 500 Stock Index and Philadelphia OSX Index, an index of
oil and gas related companies which represent an industry composite of the
Company's peer group, for the period from February 8, 2001 (the date of our
initial public offering) to December 31, 2003. The graph and chart show the
value at the dates indicated of $100 invested at February 8, 2001 and assume the
reinvestment of all dividends.
COMPARISON OF 35 MONTH CUMULATIVE TOTAL RETURN*
AMONG OIL STATES INTERNATIONAL, INC.,
THE S&P 500 INDEX AND THE PHILADELPHIA STOCK EXCHANGE OIL SERVICE INDEX (OSX)
(PERFORMANCE GRAPH)
Copyright(C) 2002, Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved www.researchdatagroup.com/S&P htm
* $100 invested on 2/8/01 in stock or on 1/31/01 in index (including
reinvestment of dividends).
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INVESTMENT VALUES 02/08/01 03/31/01 06/30/01 09/30/01 12/31/01 03/31/02 06/30/02 09/30/02 12/31/02 03/31/03
-----------------------------------------------------------------------------------------------------------------------------------
Company............. $100.00 $125.00 $102.44 $73.33 $101.11 $120.00 $132.22 $111.11 $143.33 $133.33
-----------------------------------------------------------------------------------------------------------------------------------
S&P 500............. 100.00 85.12 90.11 76.88 85.10 85.33 73.90 61.13 66.29 64.20
-----------------------------------------------------------------------------------------------------------------------------------
OSX................. 100.00 83.09 74.71 53.77 65.81 73.85 64.20 52.77 60.13 57.70
-----------------------------------------------------------------------------------------------------------------------------------
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INVESTMENT VALUES 06/30/03 09/30/03 12/31/03
------------------------------------------------------
Company............. $134.44 $141.00 $154.89
------------------------------------------------------
S&P 500............. 74.08 76.04 85.30
------------------------------------------------------
OSX................. 65.25 63.60 69.67
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18
RELATED PARTY TRANSACTIONS
REGISTRATION RIGHTS
We have entered into an amended and restated registration rights agreement
as amended, with SCF and other stockholders of Oil States. This agreement gives
SCF the right, on five occasions, to demand that we register all or any portion
of their shares of our common stock for sale under the Securities Act. The
shares to be included in any demand registration by SCF must have an estimated
aggregate gross offering price of at least $50.0 million. Further, if we propose
to register any of our common stock under the Securities Act, except for shares
of common stock issued in connection with acquisitions and benefits plans, or if
SCF exercises a demand, the other holders of registration rights under the
registration rights agreement will have the right to include their shares of
common stock in the registration, subject to limitations. To date, one of the
five demand registration rights has been utilized as discussed below.
The agreement provides customary registration procedures. We have agreed to
pay all costs and expenses, other than fees, discounts and commissions of
underwriters, brokers and dealers and capital gains, income and transfer taxes,
if any, related to the registration and sale of shares of our common stock by
any holder of registration rights under the registration rights agreement in any
registered offering. The demand rights held by SCF terminate in February 2011.
The registration rights agreement contains customary indemnification and
contribution provisions by us for the benefit of the selling stockholders and
any underwriters. Each selling stockholder has agreed to indemnify us and any
underwriter solely with respect to information provided by the stockholder, with
such indemnification being limited to the net proceeds from the offering
received by the stockholder.
In May 2002, pursuant to a registration demand, we filed a registration
statement with the Securities and Exchange Commission relating to the sale of
certain of our shares by SCF-III, L.P. and SCF-IV, L.P. On February 20, 2003,
SCF-III, L.P. and SCF-IV, L.P. completed the sale of 7,000,000 shares of our
common stock pursuant to an underwritten offering registered with the Securities
Act of 1933, as amended, under such registration statement for a total of
$72,954,000. On February 25, 2003, the underwriters involved in the offering
exercised the option granted to them by SCF-III, L.P. and SCF-IV, L.P. to
purchase an additional 1,050,000 shares of our common stock for a total of
$10,943,100. Pursuant to the registration rights agreement, discussed above, we
paid costs and expenses of approximately $544,000 related to this offering. We
received no proceeds from the offering or the exercise of the underwriter's
option.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 2004, information regarding
shares beneficially owned by:
- each person who we know to be the beneficial owner of more than five
percent of our outstanding shares of common stock;
- each of the named executive officers;
- each of our directors; and
- all current directors and executive officers as a group.
19
To our knowledge, except as indicated in the footnotes to this table or as
provided by applicable community property laws, the persons named in the table
have sole voting and investment power with respect to the shares of common stock
indicated.
BENEFICIAL OWNERSHIP
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) SHARES PERCENTAGE
---------------------------------------- ---------- ----------
SCF-III, L.P.(2)............................................ 13,831,601 28.1%
600 Travis, Suite 6600
Houston, Texas 77002
SCF-IV, L.P.(2)............................................. 5,478,759 11.1%
600 Travis, Suite 6600
Houston, Texas 77002
Franklin Resources, Inc.(4)................................. 3,766,303 7.7%
One Franklin Parkway
San Mateo, California 94403
FMR Corp.(3)................................................ 2,777,900 5.5%
82 Devonshire Street
Boson, Massachusetts 02109
L.E. Simmons(2)(5).......................................... 19,338,913 39.3
Douglas E. Swanson(5)....................................... 224,750 *
Cindy B. Taylor(5).......................................... 135,593 *
Howard Hughes(5)............................................ 56,250 *
Jay Trahan(5)............................................... 30,625 *
R.A. (Sandy) Slator(5)...................................... 155,578 *
Martin Lambert(5)........................................... 25,478 *
Mark G. Papa(5)............................................. 9,500 *
Gary L. Rosenthal(5)........................................ 23,368 *
Andrew L. Waite(5)(6)....................................... 15,068 *
Stephen A. Wells(5)......................................... 30,133 *
All directors and executive officers as a group (13
persons)(2)(5)(6)......................................... 20,182,307 41.0%
---------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each beneficial owner is c/o Oil
States International, Inc., Three Allen Center, 333 Clay Street, Suite 3460,
Houston, Texas 77002.
(2) Of the shares indicated as being beneficially owned by Mr. Simmons,
19,310,360 of such shares are owned directly by SCF-III, L.P. and SCF-IV,
L.P. Mr. Simmons serves as Chairman of the Board and President of L.E.
Simmons & Associates, Incorporated, the ultimate general partner of both
SCF-III, L.P. and SCF-IV, L.P. As such, Mr. Simmons may be deemed to have
voting and dispositive power over the shares owned by SCF-III, L.P. and
SCF-IV, L.P.
(3) According to a Schedule 13G filed with the SEC pursuant to the Exchange Act
in February 2004, the shares reported represent the aggregated beneficial
ownership by FMR Corp. ("FMR") (together with its wholly owned subsidiaries)
and Fidelity International Limited ("Fidelity") (as investment adviser to
various funds and accounts). FMR may be deemed to have sole voting power
with respect to 326,400 shares and sole dispositive power with respect to
2,777,900 shares. Fidelity may be deemed to have sole voting and dispositive
power with respect to 76,800 shares. Neither FMR nor Fidelity has shared
voting or dispositive power with respect to any of the shares shown. Members
of the Edward D. Johnson 3d family own approximately 49% of the voting power
of FMR and, through a partnership controlled by Mr. Johnson and members of
his family, approximately 40% of the voting power of Fidelity.
(4) According to a Schedule 13G filed with the SEC pursuant to the Exchange Act
in February 2004, the shares reported represent the aggregated beneficial
ownership by one or more open or closed-end
20
investment companies or other managed accounts which are advised by direct
and indirect investment advisory subsidiaries of Franklin Resources, Inc.
("FRI"). FRI reported that it has sole voting and dispositive power with
respect to none of such shares and that Franklin Advisers, Inc. ("FAI"),
Franklin Private Client Group, Inc. ("FPCG") and Franklin Advisory Services,
LLC ("FAS") have sole voting and dispositive power with respect to
2,859,300, 354,503 and 552,500, respectively, of such shares. FRI reported
that neither it nor FAI, FPCG or FAS has shared voting or dispositive power
with respect to any of the shares shown.
(5) Includes shares that may be acquired within 60 days through the exercise of
options to purchase shares of our common stock as follows: Mr.
Simmons -- 7,500; Mr. Swanson -- 124,750; Ms. Taylor -- 132,500; Mr.
Hughes -- 56,250; Mr. Trahan -- 30,625; Mr. Slator -- 155,578; Mr.
Lambert -- 7,500; Mr. Papa -- 7,500; Mr. Rosenthal -- 7,500; Mr.
Waite -- 7,500; Mr. Wells -- 7,500 and all directors and executive
officers -- 643,677.
(6) Mr. Waite serves as Managing Director of L.E. Simmons & Associates,
Incorporated, the ultimate general partner of both SCF-III, L.P. and SCF-IV,
L.P. As such, Mr. Waite may be deemed to have voting and dispositive power
over the shares beneficially owned by SCF-III, L.P. and SCF-IV, L.P. Mr.
Waite disclaims beneficial ownership of the shares owned by SCF-III, L.P.
and SCF-IV, L.P.
PROPOSAL 2:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Pursuant to the recommendation of the Audit Committee, the Board of
Directors appointed Ernst & Young LLP, independent public accountants, to audit
the consolidated financial statements of the Company for the year ending
December 31, 2004. Ernst & Young LLP has audited the Company's consolidated
financial statements since May 2000. In the event the appointment is not
ratified, the Board of Directors will consider the appointment of other
independent auditors. Fees paid to Ernst & Young LLP during the past two fiscal
years were as follows:
Audit Fees. Fees for professional services provided for the years
ended December 31, 2003 and 2002, were $621,000 and $537,000, respectively.
Audit fees consist primarily of the audit and quarterly reviews of the
consolidated financial statements, audits of subsidiaries, statutory audits
of subsidiaries required by governmental or regulatory bodies, attestation
services required by statute or regulation, comfort letters, consents,
assistance with and review of documents filed with the SEC, work performed
by tax professionals in connection with the audit and quarterly reviews,
and accounting and financial reporting consultations and research work
necessary to comply with generally accepted auditing standards.
Audit-Related Fees. Fees for professional services provided during
the years ended December 31, 2003 and 2002, were $46,000 and $65,000,
respectively. Audit-related fees consist primarily of attestation services
not required by statute or regulation.
Tax Fees. Fees for professional services provided during the years
ended December 31, 2003 and 2002, were $149,000 and $205,000, respectively.
Tax fees include professional services provided for tax compliance, tax
advice, and tax planning, except those rendered in connection with the
audit.
All Other Fees. Ernst & Young LLP provided acquisition due diligence
assistance to the Company in the year ended December 31, 2002 and received
fees totaling $32,000.
The charter of the Audit Committee provides that the Audit Committee is
responsible for the pre-approval of all auditing services and permitted
non-audit services to be performed for the Company by the independent auditors
in order to ensure that the provision of such services does not impair the
independent auditor's independence. The Audit Committee has adopted the Audit
Committee Pre-Approval Policy, effective as of March 1, 2004, pursuant to which
the Audit Committee has granted general pre-approval of the specified audit,
audit-related, tax and other services for a period of 12 months from the date of
such pre-approval. The pre-approval policy provides that the Audit Committee
must be promptly informed of the
21
provision of any pre-approved services. Services to be provided by the
independent auditor that have not received general pre-approval as set forth in
the pre-approval policy require specific pre-approval by the Audit Committee and
must be submitted to the Audit Committee by the Chief Financial Officer or the
Vice President-Finance and Accounting. Any such submission must include a
statement as to whether, in such officer's view, the request or application is
consistent with maintaining the independence of the independent auditor in
accordance with the SEC's rules on auditor independence. All services rendered
by Ernst & Young LLP in 2003 were subject to the applicable current pre-approval
policy which was in effect from May 6, 2003.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will be offered the opportunity to make a statement if such
representatives desire to do so. The representatives of Ernst & Young LLP will
also be available to answer questions and discuss matters pertaining to the
Report of Independent Auditors contained in the financial statements in the
Company's Annual Report on Form 10-K.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THIS APPOINTMENT.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
executive officers and directors and persons who own more than 10% of our common
stock to file initial reports of ownership and changes in ownership with the
Securities and Exchange Commission and the NYSE. Such persons are also required
to furnish the Company with copies of all Section 16(a) reports they file. Based
solely on our review of the copies of such reports received by us and
representations from certain reporting persons, we believe that during 2003, all
of our directors, executive officers and beneficial owners of more than 10% of
our common stock complied with all applicable Section 16(a) filing requirements
applicable to them, except as disclosed in this paragraph. A Form 4 was not
timely filed to reflect an acquisition of phantom stock made pursuant to the
Company's deferred compensation plan on one occasion for each of the following
reporting persons: Mr. Andrew Waite, Mr. Stephen Wells, Mr. Martin Lambert, and
Mr. L.E. Simmons. A Form 4 was not timely filed to reflect the Company's grant
of options to Messrs. Cragg, Hampton, Hughes, Slator, Swanson, Trahan and Mrs.
Taylor to purchase a total of 512,000 shares of our common stock. A Form 4 was
not timely filed to reflect the sale of 5,000 shares by Mr. Slator. In each of
the above instances, the Company had undertaken to file the respective Form 4s
on behalf of each reporting person pursuant to a power of attorney granted by
each such reporting person to the Company.
OTHER BUSINESS
We have no knowledge of any business to be presented for consideration at
the Annual Meeting other than that described above. If any other business should
properly come before the Annual Meeting or any adjournments thereof, it is
intended that the shares represented by proxies will be voted in accordance with
the judgment of the persons named in the proxies.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2005 annual
meeting of stockholders must be received by the Company at its principal
executive office by December 16, 2004 in order for such proposals to be included
in the Company's proxy statement and form of proxy for such meeting.
Stockholders submitting such proposals are requested to address them to the
Secretary, Oil States International, Inc., Three Allen Center, 333 Clay Street,
Suite 3460, Houston, Texas 77002.
In addition, the Company's Bylaws provide that only such business as is
properly brought before the 2005 annual meeting of stockholders will be
conducted. For business to be properly brought before the meeting or nominations
of persons for election to the Board of Directors to be properly made at the
annual meeting by a stockholder, notice must be received by the Secretary at the
Company's offices not later than the close of
22
business on December 16, 2004. The notice to the Company must also provide
certain information set forth in the Bylaws. A copy of the Bylaws may be
obtained upon written request to the Secretary.
By Order of the Board of Directors,
/s/ ROBERT W. HAMPTON
Robert W. Hampton
Secretary
Houston, Texas
April 15, 2004
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU EXPECT TO
ATTEND THE MEETING IN PERSON, YOU ARE URGED TO COMPLETE, SIGN, AND RETURN THE
PROXY IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE.
23
ANNEX A
OIL STATES INTERNATIONAL, INC.
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
EFFECTIVE AS OF MAY 13, 2003
The Board of Directors (the "Board") of Oil States International, Inc. (the
"Company") established an Audit Committee of the Board on February 7, 2001. The
existing Charter of the Audit Committee is amended and restated as set forth
herein as of the effective date set forth above.
PURPOSE
The Audit Committee is appointed by the Board of Directors (the "Board") of
Oil States International, Inc. (the "Company") to assist the Board in
monitoring:
- the integrity of the financial statements of the Company;
- the independent accountants' qualifications and independence;
- the performance of the Company's internal audit function and independent
accountants; and
- the compliance by the Company with legal and regulatory requirements.
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission (the "SEC") to be included in the Company's
annual proxy statement.
COMPOSITION
The Audit Committee shall consist of at least three members, all of whom
must be members of the Board. One of the members shall serve as the chairperson
of the Audit Committee. The members of the Audit Committee shall meet the
independence, qualification and experience requirements of the New York Stock
Exchange, the Securities Exchange Act of 1934 (the "Exchange Act") and the rules
and regulations of the SEC. Audit committee members shall not simultaneously
serve on the audit committees of more than two other public companies.
The Board shall appoint the members of the Audit Committee based on the
recommendation of the Nominating & Corporate Governance Committee. The
chairperson of the Audit Committee shall be designated by the Board or, if no
such designation is made, shall be selected by the affirmative vote of the
majority of the Audit Committee. The Board may remove or replace the chairperson
and any other member of the Audit Committee at any time by the affirmative vote
of the majority of the Board.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to appoint, retain and
terminate the Company's independent accountants (subject, if applicable, to
stockholder ratification). The Audit Committee shall be directly responsible for
the compensation, oversight and evaluation of the work of the independent
accountants (including resolution of disagreements between management and the
independent accountants regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work. The independent
accountants shall report directly to the Audit Committee. The Audit Committee
may consult with management in the performance of these duties but shall not
delegate these duties to management.
The Audit Committee shall pre-approve all auditing services and permitted
non-audit services to be performed for the Company by its independent
accountants, subject to the de minimus exceptions for non-audit services
described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the
Audit Committee prior to the completion of the audit. Such pre-approval may be
accomplished by engagement arrangements entered into pursuant to pre-approval
policies and procedures previously established by the
A-1
Audit Committee, but only if the policies are detailed as to the particular
services that are pre-approved, the Audit Committee is informed of each such
service provided and the policies do not delegate the Audit Committee's
responsibilities to management. The Audit Committee shall have sole authority to
approve all audit engagement fees and terms and non-audit engagements with the
Company's independent accountants. The Audit Committee may form and delegate
authority to subcommittees consisting of one or more members when appropriate,
including the authority to grant preapprovals of audit and permitted non-audit
services, provided that the decisions of such subcommittee to grant preapprovals
shall be presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisors without the approval of the Board. The Company shall provide for
appropriate funding, as determined by the Audit Committee, for payment of
compensation to the independent accountants for the purpose of rendering or
issuing an audit report and to any advisors employed by the Audit Committee.
Without limiting the generality of the preceding statement, the Audit
Committee, to the extent it deems necessary or appropriate, shall:
FINANCIAL STATEMENT AND DISCLOSURE MATTERS
1. Review and discuss with management and the independent accountants the
Company's annual audited financial statements prior to the filing of its Form
10-K, including disclosures made under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Form 10-K, and recommend
to the Board whether the audited financial statements should be included in the
Form 10-K.
2. Review and discuss with management and the independent accountants the
Company's quarterly financial statements prior to the filing of its Form 10-Q,
including disclosures made under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Form 10-Q and the results
of the independent accountants' review of the quarterly financial statements.
3. Discuss with management and the independent accountants any analyses
prepared by management and/or the independent accountants setting forth
significant financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including analyses of the
effects of alternative treatments of the financial statements within generally
accepted accounting principles ("GAAP").
4. Discuss with management and the independent accountants major issues
regarding accounting principles and financial statement presentations, including
any significant changes in the Company's selection or application of accounting
principles, any major issues as to the adequacy of the Company's internal
controls and any special audit steps adopted in light of material control
deficiencies.
5. Review and discuss regular reports from the independent accountants on:
- All critical accounting policies and practices to be used.
- All alternative treatments of financial information within GAAP that have
been discussed with management, the ramifications of the use of such
alternative disclosures and treatments, and the treatment preferred by
the independent accountants.
- Any accounting adjustments that were noted or proposed by the independent
accountants but were "passed" as immaterial or otherwise.
- Other material written communications between the independent accountants
and management, such as any management letter, internal control letter or
schedule of unadjusted differences.
6. Discuss with management the type and presentation of information to be
included in the Company's earnings press releases prior to public release,
including the use of "pro forma" or "adjusted" non-GAAP information, and the
type and presentation of any financial information and earnings guidance to be
provided to analysts and rating agencies. Such discussion may be done generally
(consisting of discussing the types of
A-2
information to be disclosed and the types of presentations to be made) and need
not precede each earnings release or each instance in which the Company provides
guidance.
7. Discuss with management and the independent accountants the effect of
regulatory and accounting initiatives as well as off-balance sheet structures on
the Company's financial statements.
8. Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures, including
the Company's risk assessment and risk management policies.
9. Discuss with the independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the conduct of
the audit, including any problems or difficulties encountered in the course of
the audit work and management's response, any restrictions on the scope of
activities or access to requested information, and any significant disagreements
with management.
10. Review disclosures made to the Audit Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form 10-Q about any
significant deficiencies in the design or operation of internal controls or
material weaknesses therein and any fraud involving management or other
employees who have a significant role in the Company's internal controls.
OVERSIGHT OF THE COMPANY'S RELATIONSHIP WITH THE INDEPENDENT ACCOUNTANTS
11. Review and evaluate the lead partner of the independent accountants
team.
12. Obtain and review a report from the independent accountants at least
annually regarding (a) the independent accountants' internal quality-control
procedures, (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities within the preceding
five years respecting one or more independent audits carried out by the firm,
(c) any steps taken to deal with any such issues, and (d) all relationships
between the independent accountants and the Company. Based on this report and
the independent auditor's work throughout the year, evaluate the qualifications,
performance and independence of the independent accountants, including
considering whether the provision of permitted non-audit services is compatible
with maintaining the auditor's independence, and taking into account the
opinions of management and the internal auditing department (or outside auditor
performing the function of an internal auditing department). The Audit Committee
shall present its conclusions with respect to the independent accountants to the
Board.
13. Ensure the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit, the concurring (or reviewing) audit
partner responsible for reviewing the audit and other audit partners performing
services for the Company and/or its subsidiaries as required by law. Consider
whether, in order to assure continuing auditor independence, it is appropriate
to adopt a policy of rotating the independent auditing firm on a regular basis.
14. Recommend to the Board policies for the Company's hiring of employees
or former employees of the independent accountants.
15. Discuss with the independent accountants any communications between the
audit team and the national office of the independent accountant with respect to
auditing or accounting issues presented by the engagement.
16. Meet with the independent accountants prior to the audit to discuss the
planning and staffing of the audit.
OVERSIGHT OF THE COMPANY'S INTERNAL AUDIT FUNCTION
17. Review any decision by management to appoint or replace the senior
internal auditing executive or, if a decision is made to outsource this
function, review management's selection and engagement of an outside auditor
(other than the Company's independent accountants) to perform the function of an
internal auditing department. The senior internal auditing executive (or any
outside auditor performing the function of an
A-3
internal auditing department) shall report directly to management, with
oversight provided by the Audit Committee. The Audit Committee shall review the
scope and duties of the internal audit function with the senior internal
auditing executive (or any outside auditor performing the function of an
internal auditing department) during at least one Audit Committee meeting
annually. Despite this delegation of authority to management, the senior
internal auditing executive (or any outside auditor performing the function of
an internal auditing department) shall have full and direct access to the Audit
Committee.
18. Review the executive summary reports to management prepared by the
internal auditing department (or any outside auditor performing the function of
an internal auditing department).
19. Discuss with the independent accountants and management the
responsibilities, budget and staffing of the internal auditing department (or
any outside auditor performing the function of an internal auditing department),
and any recommended changes in the planned scope of the internal audit.
COMPLIANCE OVERSIGHT RESPONSIBILITIES
20. Obtain from the independent accountants assurance that Section 10A(b)
of the Exchange Act has not been implicated.
21. Obtain and review any reports from management and the Company's senior
internal auditing executive (or any outside auditor performing the function of
an internal auditing department) that the Company and its subsidiaries are in
material violation of applicable laws and regulations, the Company's Code of
Business Conduct and Ethics, the Company's Financial Code of Ethics for Senior
Officers and the Company's other codes, policies and procedures relating to
compliance with applicable laws and regulations. Review reports and disclosures
of insider and affiliated party transactions. Advise the Board with respect to
the Company's policies and procedures regarding compliance with applicable laws
and regulations and with the Company's Code of Business Conduct and Ethics, the
Company's Financial Code of Ethics for Senior Officers and the Company's other
codes, policies and procedures relating to compliance with applicable laws and
regulations.
22. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
23. Discuss with management and the independent accountants any
correspondence with regulators or governmental agencies and any published
reports which raise material issues regarding the Company's financial statements
or accounting policies.
24. Discuss with the Company's internal or outside legal counsel legal
matters that may have a material impact on the financial statements or the
Company's compliance policies.
GENERAL
25. Perform any other activities consistent with this Charter, the
Company's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws (each as may be amended), the rules of the New York Stock
Exchange applicable to domestic listed companies, and governing law as the Audit
Committee or the Board deems necessary or appropriate.
LIMITATION OF AUDIT COMMITTEE'S ROLE
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 and disclosures
are complete and accurate and are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are the
responsibilities of management and the independent accountants.
A-4
COMMITTEE PROCEDURES
1. Meetings. The Audit Committee shall meet at the call of its
chairperson, two or more members of the Audit Committee, or the Chairman of the
Board. The Audit Committee shall meet as often as it determines, but not less
frequently than quarterly. The Audit Committee shall meet periodically with
management, the internal auditing department (or any outside auditor performing
the function of an internal auditing department) and the independent accountants
in separate executive sessions. The Audit Committee may request any officer or
employee of the Company or the Company's outside counsel or the internal
auditing department (or any outside auditor performing the function of an
internal auditing department) to attend a meeting of the Audit Committee or to
meet with any members of, or consultants to, the Audit Committee. The Audit
Committee may meet in person, by telephone conference call, or in any other
manner in which the Board is permitted to meet under law or the Company's
Bylaws.
2. Quorum and Approval. A majority of the members of the Audit Committee
shall constitute a quorum. The Audit Committee shall act on the affirmative vote
of a majority of members present at a meeting at which a quorum is present. The
Audit Committee may also act by unanimous written consent in lieu of a meeting.
3. Rules. The Audit Committee may determine additional rules and
procedures, including designation of a chairperson pro tempore in the absence of
the chairperson, and designation of a secretary of the Audit Committee or any
meeting thereof.
4. Reports. The Audit Committee shall make regular reports of its actions
and any recommendations to the Board, directly or through the chairperson.
5. Review of Charter. Each year the Audit Committee shall review the
adequacy of this Charter and recommend any proposed changes to the Board for
approval.
6. Performance Review. Each year the Audit Committee shall review and
evaluate its own performance and shall submit itself to the review and
evaluation of the Board.
7. Fees; Reimbursement of Expenses. Each member of the Audit Committee
shall be paid the fee set by the Board for his or her services as a member or
chairperson of the Audit Committee. Subject to the Company's corporate
governance guidelines and other policies, members of the Audit Committee will be
reimbursed by the Company for all reasonable expenses incurred in connection
with their duties as members of the Audit Committee.
A-5
OIL STATES INTERNATIONAL, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 18, 2004
The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of Oil States International, Inc. (the "Company") to be
held on May 18, 2004, and the Proxy Statement in connection therewith, each
dated April 15, 2004, and (2) constitutes and appoints Douglas E. Swanson and
Cindy B. Taylor, and each of them, his attorneys and proxies, with full power of
substitution to each, for and in the name, place, and stead of the undersigned,
to vote, and to act with respect to, all of the shares of common stock of the
Company standing in the name of the undersigned or with respect to which the
undersigned is entitled to vote and act at that meeting and at any meeting(s)
("Adjournment(s)") to which that meeting is adjourned, as indicated on reverse:
PLEASE SIGN BELOW, DATE, AND RETURN PROMPTLY.
Dated: , 2004
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Signed:
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IMPORTANT: Please sign exactly as name appears to the left. When signing on
behalf of a corporation, partnership, estate, trust, or in other representative
capacity, please sign name and title. For joint accounts, each joint owner must
sign.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE OF THIS CARD. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS
AND FOR THE RATIFICATION OF THE SELECTION OF AUDITORS. IN ORDER FOR THIS PROXY
TO BE VALID, IT MUST BE SIGNED ON THE REVERSE SIDE OF THIS CARD.
PROXY
1. ELECTION OF DIRECTORS:
FOR all nominees listed below except
as marked to the contrary below [ ]
(1) Martin Lambert WITHHOLD AUTHORITY to vote for all
(2) Mark G. Papa nominees listed to the left. [ ]
(3) Stephen A. Wells
INSTRUCTION: To withhold authority
to vote for any individual nominee,
write the number of the nominee in
the space provided.
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2. RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE AUDITORS OF THE
COMPANY FOR THE CURRENT YEAR:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT(S) THEREOF.
If you plan to attend the Annual Meeting, check this box: [ ]