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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
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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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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[ ] 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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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, 2005
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, 2005 at 9:00 a.m., Central time (the "Annual Meeting"), for
the following purposes:
(1) To elect two (2) Class I members of the Board of Directors (see
page 4);
(2) To ratify the appointment of Ernst & Young LLP as independent
accountants for the year ended December 31, 2005 (see page 19); and
(3) To approve the Oil States International, Inc. 2001 Equity
Participation Plan, as amended and restated effective as of February 16,
2005 (the "2001 Equity Participation Plan") (see page 20); and
(4) 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, 2005 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, FOR the ratification of the appointment of the
independent certified public accountants for the Company named in such Proxy
Statement and FOR the approval of the 2001 Equity Participation Plan. The list
of stockholders of record of the Company may be examined at the offices of the
Company beginning on April 8, 2005 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, 2005
OIL STATES INTERNATIONAL, INC.
THREE ALLEN CENTER
333 CLAY STREET, SUITE 4620
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, 2005, at 9:00
a.m. local time, for the following purposes:
(1) To elect two (2) Class I members of the Board of Directors;
(2) To ratify the appointment of Ernst & Young LLP as independent
accountants for the year ended December 31, 2005;
(3) To approve the Oil States International, Inc. 2001 Equity
Participation Plan, as amended and restated effective as of February 16,,
2005 (the "2001 Equity Participation Plan"); and
(4) 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," "for" the ratification of the appointment of Ernst & Young LLP as
independent accountants as set forth under "Proposal 2: Appointment of Auditors"
and "for" the approval of the 2001 Equity Participation Plan as set forth under
"Proposal 3: Approval of the 2001 Equity Participation Plan." 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 $4,000.
Oil States International, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2004, 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 20, 2005.
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," "Oil States," "we," "us," and "our" refer to Oil
States International, Inc. and its subsidiaries, including HWC, Sooner and PTI,
following 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, 2005. At the record
date, 49,979,542 shares of common stock and one Voting Share were outstanding
and entitled to be voted at the Annual Meeting. Outstanding shares include a
total of 227,183 exchangeable shares which are outstanding and are entitled to
give voting instructions to the Trustee.
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.
Approval of the amendments to the 2001 Equity Participation Plan will require
the affirmative vote of a majority of the votes cast at the Annual Meeting. An
automated system that the Company's transfer agent administers will tabulate the
votes. 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
and broker non-votes are not counted as votes with respect to the proposal. For
purposes of voting on the approval of the amendments to the 2001 Equity
Participation Plan, (i) abstentions will be counted as votes cast against the
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proposal and broker non-votes will not be counted as votes cast with respect to
the proposal and (ii) the total number of votes cast in favor of the proposal
must represent over 50% of the total number of votes entitled to vote on the
proposal. Abstentions occur when stockholders are present at the annual meeting
but choose to withhold their vote for any of the matters upon which the
stockholders are voting. Brokers who hold shares in street name for customers
are required to vote shares in accordance with instructions received from the
beneficial owners. "Broker non-votes" occur when nominees (such as banks and
brokers) that hold shares on behalf of beneficial owners do not receive voting
instructions from the beneficial owners before the meeting and do not have
discretionary authority to vote those shares under the applicable rules of the
New York Stock Exchange.
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 two 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;
FOR the approval of the 2001 Equity Participation Plan 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,
2005 and at the Annual Meeting.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors is comprised of eight members. The eight members are
divided into three classes having two members in Class I, three 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 I directors expires at the Annual
Meeting.
NOMINEES
Two directors are to be elected at the Annual Meeting. The Board of
Directors has nominated L. E. Simmons and Douglas E. Swanson to fill the two
expiring Class I positions on the Board of Directors, to hold office for
three-year terms expiring at the annual meeting of stockholders in 2008, 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 Mr. L. E. Simmons is "independent" as that term is defined by
the applicable NYSE listing standards. As an officer of the Company, Mr. Swanson
is not "independent" as that term is defined in the applicable NYSE listing
standards. See "Director Independence" below for a discussion of director
independence determinations. The enclosed proxy (unless otherwise directed,
revoked or suspended) will be voted for the election of the two 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 two nominees for
election to the Class I positions on the Board of Directors.
NAME AGE POSITION(S)
---- --- -----------
L.E. Simmons*............................. 58 Chairman of the Board
Douglas E. Swanson*....................... 66 Director, President and Chief Executive
Officer
Cindy B. Taylor........................... 43 Senior Vice President -- Chief Financial
Officer and Treasurer
Robert W. Hampton......................... 53 Vice President -- Finance and Accounting
and Secretary
Christopher E. Cragg...................... 44 Vice President -- Tubular Services
Howard Hughes............................. 62 Vice President -- Offshore Products
R.A. (Sandy) Slator....................... 60 Vice President -- Well Site Services
Martin Lambert............................ 49 Director
S. James Nelson........................... 63 Director
Mark G. Papa.............................. 58 Director
Gary L. Rosenthal......................... 55 Director
Andrew L. Waite........................... 44 Director
Stephen A. Wells.......................... 61 Director
---------------
* Nominee for election as Class I 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 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 President and Chief Executive Officer of Cliffs Drilling
Company, a contract drilling company. 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. Mr. Cragg was named President of Sooner in October 2003. 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.
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 six
other public companies: Ketch Resources Trust, Hunter Resource Ltd., Bear Ridge
Resource Ltd, Calfrac Well Services Ltd, JCMQ Resources Inc. and Zed.i
Solutions, Inc., all of which are involved in Canadian oil and gas exploration
and production or Canadian oilfield services. He has a L.L.B. degree from the
University of Alberta.
S. James Nelson has been a Director of our company since July 2004. From
1990 until May 2004, Mr. Nelson was Director of Cal Dive International, Inc.
(Cal Dive), a subsea construction company and operator of offshore oil and gas
properties and production facilities. He was named Vice Chairman of Cal Dive in
October 2000. He was Executive Vice President and Chief Financial Officer of Cal
Dive from 1990 to 2000. From 1985 to 1988, Mr. Nelson was the Senior Vice
President and Chief Financial Officer of Energies, Inc., the former parent of
Cal Dive, at which time he had corporate responsibility for Energies, Inc. From
1980 to 1985, Mr. Nelson served as Chief Financial Officer of Apache
Corporation, an oil and gas exploration and production company. From 1966 to
1980, Mr. Nelson was employed with Arthur Andersen L.L.P., and from 1976 to 1980
he was a partner serving on the firm's worldwide oil and gas industry team. He
received his B.S. degree from Holy Cross College in 1964 and a MBA degree from
Harvard University in 1966. He is also a Certified Public Accountant. Mr. Nelson
is also a Director and a member of the Audit Committee of Input/ Output, Inc., a
seismic services provider.
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.
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Gary L. Rosenthal has served as a director of our company since February
2001. Mr. Rosenthal is a principal in The Sterling Group L.P., a private equity
firm. Mr. Rosenthal served as non-executive Chairman of the Board of Hydrochem
Holdings Inc. from May 2003 until December 2004. Mr. Rosenthal has served as
President of Heaney Rosenthal Inc., a private investment company, since October
1994. From August 1998 to April 2001, he served as Chief Executive Officer of
AXIA Incorporated, a diversified manufacturing company.
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 Chairman, President and Chief Executive Officer
of Complete Energy Services, Inc., a privately held provider of workover, fluid
handling, rental and other field-based services to the oilfield and as a
director of Hornbeck Offshore Services, Inc. (NYSE: HOS), an operator of
offshore supply vessels and other marine assets. He received a M.B.A. degree
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. He is also a director of Crosstex Energy GP,
LLC, and its affiliate Crosstex Energy, Inc., which are midstream natural gas
companies.
DIRECTOR INDEPENDENCE
Our Board of Directors has determined that each of Messrs. L.E. Simmons,
Martin Lambert, S. James Nelson, Mark G. Papa, Gary L. Rosenthal, Andrew L.
Waite and Stephen A. Wells 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 the 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. Martin Lambert, who is a director, has been a partner with the
Canadian law firm Bennett Jones LLP since 1987. Our Board of Directors has
determined that Mr. Lambert is independent under the rules of the NYSE. In
making this decision, the Board considered Mr. Lambert's relationship with
Bennett Jones LLP and the transactions involving the Company and Bennett Jones
LLP. The Board determined that such relationship and transactions are not
material to the independence of Mr. Lambert. As an officer of the Company, Mr.
Swanson is not independent under the rules of the NYSE.
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, Nelson 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 available on our website, www.oilstatesintl.com, under "Corporate
Governance." The Audit Committee, which is chaired by Mr. Wells,
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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 and
Mr. Nelson have 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 and Mr. Nelson qualify as audit committee
financial experts under the applicable rules of the Exchange Act.
In addition to the Audit Committee of the Company's Board, Mr. Wells serves
on the audit committees of Pogo Producing Company and Crosstex Energy, L.P. The
charter of the Audit Committee of the Board provides that no member of the Audit
Committee may simultaneously serve on the audit committees of more than two
other public companies. The Board has waived this limitation with respect to Mr.
Wells' joining the audit committee of Crosstex Energy, Inc., which is a publicly
traded affiliate of Crosstex Energy, L.P. Prior to granting this waiver, the
Board considered the incremental time and responsibilities that such additional
service would require of Mr. Wells. Based upon the relationship of the two
Crosstex entities, the fact that the only significant assets of Crosstex Energy,
Inc. consist of the ownership interests in Crosstex Energy, L.P. and the fact
that the audit of these two entities are conducted simultaneously by the same
independent accounting firm, the Board determined that such additional service
would not negatively affect Mr. Wells' ability to fulfill his duties to the
Audit Committee.
COMPENSATION COMMITTEE
The Company's Compensation Committee consists of Messrs. Rosenthal, Papa
and Wells, each of whom is independent, as defined in the applicable NYSE
listing standards, and is 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 "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 consists of
Messrs. Papa, Lambert and Wells, 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 4620, 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
7
to the Board of Directors the Company's Corporate Governance Guidelines and
Corporate Code of Business Conduct and Ethics, which the Board adopted. Copies
of these documents are available on our website, www.oilstatesintl.com, under
"Corporate Governance."
BOARD AND COMMITTEE MEETINGS
During 2004, the entire Board of Directors held 5 meetings, the Audit
Committee held 10 meetings, the Compensation Committee held 5 meetings and the
Nominating & Corporate Governance Committee held 3 meetings. 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 sessions 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 2004, our non-management directors met
in executive session three 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.
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; and
- the person's knowledge of a major geographical area in which the Company
operates or another area of the company's operational environment.
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.
8
- 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 confidentially, 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 4620, Houston,
Texas 77002. Any such 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 furnishes an annual written affirmation to the NYSE
relating to Audit Committee membership, the independence and financial
management expertise of the Audit Committee 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, 2004 (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";
9
- 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, on
management's assessment of internal control over financial reporting and on the
effectiveness of internal control over financial reporting. 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, that the Company's internal controls over financial reporting were
effective as of December 31, 2004 and on the representations of the independent
auditors included in their report on the Company's financial statements.
The committee met 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
S. James Nelson
Gary L. Rosenthal
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.
10
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 are
performance oriented and, 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, and more recently, restricted stock awards. 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 independent compensation consultants
during 2004 to provide an update to the Committee concerning executive and
director compensation 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 comparable 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 2005 to $430,000 from $400,000. Mr. Swanson's last salary
increase was effective in the first quarter 2003.
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 2004, 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 the targeted bonus and in 2004 was based
exclusively on the Company's and/or divisional achievement of these performance
goals. For 2004, bonus targets for executive officers were based upon objectives
set at the beginning of 2004 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 was based on return on investment
and other strategic goals and objectives outlined at the beginning of 2004. The
other strategic goals and objectives included measures for safety performance,
growth through acquisitions, expansionary efforts and other goals that were
determined to enhance shareholder value. The bonus target for Mr. Swanson was
based upon a combination of those referenced goals and objectives set for the
Company. All executive officers, including Mr. Swanson, received bonuses for
2004 performance. However, the bonuses varied substantially based upon Company
and divisional achievement of the related goals and objectives. Certain of the
Company's divisions exceeded their 2004 objectives, resulting in certain of the
Company's officers receiving bonuses for 2004 in excess of target. On a
consolidated basis, the Company overachieved its targets for 2004 and Mr.
Swanson was paid a bonus in excess of the target level. Mr. Swanson was paid a
bonus of $462,000 which represented 192.5% of his bonus target. Other executives
received bonuses
11
above or below target depending upon achievement of performance objectives. For
the top 13 executives, bonus payments totaled $1,808,705 for 2004 performance
compared to targets totaling $1,295,843.
Stock Options and Restricted Stock Awards. 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
equity based compensation 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. The Committee has generally granted stock options in the past. However,
it granted one restricted stock award to Mr. Swanson in 2001 and granted
additional restricted stock awards to 14 executives in February 2005. In 2004,
awards under the 2001 Equity Participation Plan were granted to eighty
executives and key managers and totaled 876,000 stock options. No restricted
stock was granted during 2004. During February 2005, the Compensation Committee
recommended, and the Board approved, the award of 606,875 stock options, to
sixty-five executive and key managers. A total of 26,900 shares of restricted
stock were awarded to fourteen executives and key managers. An additional 6,000
shares of restricted stock were awarded in connection with an acquisition.
The Compensation Committee
Gary L. Rosenthal (Chairman)
Mark G. Papa
Stephen A. Wells
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2004, 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, 2004.
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, 2004, 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. Effective October 1, 2004, members of the Nominating
and Corporate Governance Committee and the Compensation Committee, other than
the Committee Chairmen, receive an additional annual retainer of $5,000 and
members of the Audit Committee, other than the Committee Chairman, receive an
additional annual retainer of $7,500. 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. Since our initial public offering in
February 2001, newly elected directors have received options to purchase 5,000
shares of our common stock upon their initial election. Directors received
additional options to purchase 5,000 shares at each annual meeting after which
they continue to serve. Prior to the February 16, 2005 Plan Amendment, these
options were automatically granted under the 2001 Equity Participation Plan,
vested in four equal annual installments and expired ten years from the date of
grant. In the event of a change in control, the options vested in accordance
with the terms of the grant agreement. The exercise price of these options was
the fair market value at the date of grant. The automatic grants of options to
Directors and the related option terms were previously specified in the plan
document.
12
During 2004, the Compensation Committee engaged independent compensation
consultants to provide an update to the Committee concerning director
compensation trends and to address long-term equity compensation practices. The
Committee considered these survey results and determined that it should have
more flexibility and discretion available to it when awarding equity-based
compensation to Directors. As a result, the Company has amended the 2001 Equity
Participation Plan to provide greater flexibility for the award of equity-based
compensation to directors. See Proposal 3 "Approval of the 2001 Equity
Participation Plan." Assuming the proposal is approved by shareholders at the
Annual Meeting, the Compensation Committee intends to reconsider the practice of
making automatic grants of options to purchase 5,000 shares of stock to
directors following the Annual Meeting. The Compensation Committee will consider
alternatives to such automatic grants including the use of restricted stock,
changes in vesting terms, changes in the number of shares awarded, stock
ownership requirements, and any other matters that the Committee believes are
appropriate in order to offer compensation packages to directors that are
competitive in the marketplace and will attract and retain skilled individuals
to the Board.
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 2004. 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(1) BONUS(2) AWARDS OPTIONS COMPENSATION(3)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
------------------ ------ --------- -------- ---------- ---------- ---------------
Douglas E. Swanson(4).............. 2004 400,000 462,000 -- 150,000 31,661
President and 2003 400,000 239,369 -- 165,000 39,566
Chief Executive Officer 2002 375,000 398,716 -- 167,000 33,737
Cindy B. Taylor.................... 2004 300,000 288,750 -- 75,000 22,141
Senior Vice President, Chief 2003 300,000 142,831 -- 100,000 22,995
Financial Officer and Treasurer 2002 200,000 177,207 -- 65,000 16,661
Howard Hughes...................... 2004 250,000 37,500 -- 37,500 17,776
Vice President -- 2003 250,000 105,322 -- 40,000 23,891
Offshore Products 2002 231,600 229,870 -- 32,500 13,996
Christopher Cragg.................. 2004 180,000 180,000 -- 25,000 9,000
Vice President -- 2003 180,000 -- -- 20,000 --
Tubular Services 2002 154,600 134,502 -- 15,000 --
R.A. (Sandy) Slator(5)(6).......... 2004 243,693 168,696 30,000 --
Vice President -- 2003 208,104 208,104 30,000 --
Well Site Services 2002 179,699 156,788 -- 32,500 --
---------------
(1) In March 2005, the Compensation Committee of the Board of Directors approved
certain increases in salaries for the following named executive officers in
the following amounts: Mr. Swanson, $30,000; Ms. Taylor, $30,000; Mr.
Hughes, $8,750; Mr. Cragg, $20,000; and in the case of Mr. Slator, who is
paid in Canadian dollars, a 3.5% increase.
(2) Bonus includes amounts earned in the fiscal year indicated but paid in the
following calendar year.
(3) Reflects Company matching contributions to the Oil States 401(k) and
Deferred Compensation plans on behalf of Messrs. Swanson, Hughes and Cragg
and Ms. Taylor allowed under the terms of the respective plans.
(4) The forfeiture restrictions with respect to a 2001 restricted stock award
totaling 100,000 shares lapsed with respect to 33,334 shares in February
2002, 33,333 shares in February 2003 and 33,333 shares in February 2004.
13
(5) In March 2005, the Company paid R.A. Slator $225,000 in exchange for his
release and waiver of any and all claims related to certain unexercised
options to purchase shares of our common stock.
(6) Mr. Slator is paid in Canadian dollars and reported U.S. dollar compensation
is based on average U.S. dollar and Canadian dollar exchange rates.
OPTION GRANTS DURING 2004
The following table presents information concerning the grant of options to
acquire the Company's common stock during 2004 to the named executive officers
under the 2001 Equity Participation Plan. No stock appreciation rights were
granted during 2004.
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES OF STOCK PRICE APPRECIATION
UNDERLYING % OF TOTAL EXERCISE FOR OPTION TERM(1)
OPTIONS OPTIONS GRANTED PRICE EXPIRATION ---------------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- --------------- --------- ---------- ----------- -------------
Douglas E. Swanson.... 150,000 16.5% $13.70 2/25/2010 $698,897 $1,585,558
Cindy B. Taylor....... 75,000 8.2% $13.70 2/25/2010 $349,448 $ 792,779
Howard Hughes......... 37,500 4.1% $13.70 2/25/2010 $174,724 $ 396,389
Christopher E. Cragg.. 25,000 2.7% $13.70 2/25/2010 $116,482 $ 264,260
R.A. (Sandy) Slator... 30,000 3.3% $13.70 2/25/2010 $139,779 $ 317,112
---------------
(1) The grant-date market value of the securities used for purposes of this
calculation is equivalent to the exercise price of the options. Theoretical
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 2004 AND FISCAL YEAR-END OPTION VALUES
The following table presents information concerning stock option exercises
for 2004 and unexercised stock options held by the named executive officers as
of December 31, 2004.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Douglas E. Swanson....... -- $ -- 124,750 357,250 $1,264,465 $2,746,465
Cindy B. Taylor.......... -- $ -- 132,500 207,500 $1,333,675 $1,628,425
Howard Hughes............ -- $ -- 56,250 93,750 $ 570,163 $ 729,988
Christopher E. Cragg..... -- $ -- 61,474 55,000 $ 715,884 $ 418,600
R.A. (Sandy) Slator...... -- $ -- 149,289 81,250 $1,623,058 $ 655,288
---------------
(1) Represents the market value of the underlying shares of the Company's common
stock based on the December 31, 2004 closing price of $19.29 per share minus
the exercise price.
14
EQUITY COMPENSATION PLANS
The table below provides information relating to our equity compensation
plans as of December 31, 2004:
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
approved by security
holders*...................... 2,938,798 $10.93 1,329,802
Equity compensation plans not
approved by security
holders**..................... N/A N/A N/A
--------- ------ ---------
Total........................... 2,938,798 $10.93 1,329,802
========= ====== =========
---------------
* Relates to the Oil States International, Inc. 2001 Equity Participation Plan,
as amended and restated. Our Board of Directors has approved an amendment to
this plan to increase the number of shares authorized for issuance thereunder
from 5,700,000 to 7,700,000. This increase, which is subject to stockholder
approval, will be considered by our stockholders at the Annual Meeting.
** The Company does not have any equity compensation plans not approved by its
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. A more detailed description of the plan is set
forth under "PROPOSAL THREE: APPROVAL OF 2001 EQUITY PARTICIPATION PLAN" below.
DEFERRED COMPENSATION PLAN
We have 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
15
Committee may, however, approve in-service withdrawals by participants to cover
an unforeseen financial emergency of the participant.
ANNUAL INCENTIVE COMPENSATION PLAN
We have an annual incentive compensation plan which 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 goals
and objectives relating to our performance or, in some cases, to the performance
of a particular business segment or individual performance. The plan is flexible
and provides the Compensation Committee the discretion to set goals and
objectives that it believes are consistent with creating shareholder value
including financial measures, operating objectives, safety goals, growth goals
and other measures. The performance standards for our executive officers in past
years have been heavily weighted on goals set for earnings before interest,
taxes, depreciation and amortization (EBITDA) 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
The Company maintains executive agreements with six executive officers
including each of the named executive officers in this proxy statement. 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-
16
vested portion of Mr. Swanson's restricted stock awards 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.
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, 2004. 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 47 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. Fiscal year ending December 31.
---------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------------------
-------------------------------------------------------------------
2/8/01 12/01 12/02 12/03 12/04
---------------------------------------------------------------------------------------------------------
OIL STATES INTERNATIONAL, INC. .... 100.00 101.11 143.33 154.89 214.33
---------------------------------------------------------------------------------------------------------
S&P 500............................ 100.00 85.10 66.29 85.30 94.59
---------------------------------------------------------------------------------------------------------
OSX................................ 100.00 65.61 59.96 69.55 93.90
---------------------------------------------------------------------------------------------------------
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 under the
Securities Act of 1933, as amended, pursuant to 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.
OTHER
In March 2005, the Company paid Mr. R.A. Slator, the Vice President -- Well
Site Services, $225,000 in exchange for his release and waiver of any and all
claims related to certain unexercised options to purchase shares of our common
stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 22, 2005, 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)............................................ 5,902,322 11.8%
600 Travis, Suite 6600
Houston, Texas 77002
FMR Corp.(3)................................................ 6,441,060 12.9%
82 Devonshire Street
Boson, Massachusetts 02109
Barclays Global Investors, NA(4)............................ 3,310,974 6.6%
45 Freemont Street
San Francisco, CA 94105
Franklin Resources, Inc.(5)................................. 2,587,633 5.2%
One Franklin Parkway
San Mateo, California 94403
L.E. Simmons(2)(6).......................................... 8,447,878 16.9
Douglas E. Swanson(6)....................................... 144,650 *
Cindy B. Taylor(6).......................................... 226,343 *
Howard Hughes(6)............................................ 94,850 *
Christopher E. Cragg(6)..................................... 85,774 *
R.A. (Sandy) Slator(6)...................................... 186,364 *
Martin Lambert(6)........................................... 20,478 *
S. James Nelson(6).......................................... 2,500 *
Mark G. Papa(6)............................................. 14,500 *
Gary L. Rosenthal(6)........................................ 29,219 *
Andrew L. Waite(6)(7)....................................... 25,445 *
Stephen A. Wells(6)......................................... 35,133 *
All directors and executive officers as a group (13
persons)(2)(6)(7)......................................... 9,374,234 18.5%
---------------
* 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 4620,
Houston, Texas 77002.
(2) Of the shares indicated as being beneficially owned by Mr. Simmons,
5,902,322 shares are owned directly by SCF-III, L.P., 2,338,038 shares are
owned directly by SCF-IV, L.P., 70,114 shares are owned directly by SCF-II,
L.P., 15,886 shares are owned directly by SCF-IV, GP Limited Partnership,
14,793 shares are owned directly by SCF-IV3i, L.P. and 22,085 shares are
owned directly by SCF-IV, Management Partners, L.P. Mr. Simmons serves as
Chairman of the Board and President of L.E. Simmons & Associates,
Incorporated, the ultimate general partner of all of such partnerships. As
such, Mr. Simmons may be deemed to have voting and dispositive power over
the shares owned by all of such partnerships.
(3) According to a Schedule 13G filed with the SEC pursuant to the Exchange Act
in February 2005, the shares reported represent the aggregated beneficial
ownership by FMR Corp. ("FMR") (together with its wholly owned
subsidiaries). FMR may be deemed to have sole voting power with respect to
427,700 shares and sole dispositive power with respect to 6,441,060 shares.
FMR has no 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.
(4) According to a Schedule 13G filed with the SEC pursuant to the Exchange Act
in February 2005, the
20
shares reported represent the aggregate beneficial ownership by Barclays
Global Investors, NA ("Barclays") and certain of its affiliates. Barclays
may be deemed to have sole voting power with respect to 2,665,588 shares and
sole dispositive power with respect to 2,787,100 shares. Barclays Global
Fund Investors ("BGFI") may be deemed to have sole voting power with respect
to 332,284 shares and sole dispositive power with respect to 334,174 shares.
Barclays Bank PLC ("BB") may be deemed to have sole voting power with
respect to 134,800 shares and sole dispositive power with respect to 134,800
shares. Palomino Limited ("PL") may be deemed to have sole voting power with
respect to 54,900 shares and sole dispositive power with respect to 54,900
shares. Barclays reported that neither it nor BGFI, BB, or PL has shared
voting or dispositive power with respect to any of the shares shown.
(5) According to a Schedule 13G filed with the SEC pursuant to the Exchange Act
in February 2005, the shares reported represent the aggregated beneficial
ownership by one or more open or closed-end 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 such shares and
that Franklin Advisers, Inc. ("FAI"), Franklin Templeton Portfolio Advisors,
Inc. ("FTPA") and Franklin Advisory Services, LLC ("FAS") have sole voting
and dispositive power with respect to 1,483,900, 614,533 and 489,200,
respectively, of such shares. FRI reported that neither it nor FAI, FTPA or
FAS has shared voting or dispositive power with respect to any of the shares
shown.
(6) 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 -- 12,500; Mr. Swanson -- 37,500; Ms. Taylor -- 217,500; Mr.
Hughes -- 93,750; Mr. Cragg -- 83,974; Mr. Slator -- 184,914; Mr.
Lambert -- 12,500; Mr. Papa -- 12,500; Mr. Rosenthal -- 12,500; Mr.
Waite -- 12,500; Mr. Wells -- 12,500 and all directors and executive
officers combined -- 752,638.
(7) 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, 2005. 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, 2004 and 2003, were $1,742,000 and $621,000,
respectively. Audit fees consist primarily of the audit and quarterly
reviews of the consolidated financial statements, the audit of internal
controls over financial reporting (in 2004 only), 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, 2004 and 2003, were $27,000 and $46,000,
respectively. Audit-related fees consist primarily of attestation services
not required by statute or regulation.
21
Tax Fees. Fees for professional services provided during the years
ended December 31, 2004 and 2003, were $231,000 and $149,000, 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. None.
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 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 2004 were subject to
the applicable current pre-approval policy.
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.
PROPOSAL 3:
APPROVAL OF THE 2001 EQUITY PARTICIPATION PLAN
The Board of Directors recommends that the stockholders approve the Oil
States International, Inc. 2001 Equity Participation Plan (the "Plan"), as
amended and restated effective February 16, 2005.
Our Board of Directors has approved an amendment to the Plan. The Plan, as
amended and restated, provides for a 2,000,000 share increase in the number of
shares authorized for issuance thereunder from 5,700,000 shares to 7,700,000
shares. In addition, the Plan has been amended to provide greater flexibility
for the award of equity-based compensation to our directors. This amendment,
which is subject to stockholder approval, will be considered by our stockholders
at the Annual Meeting.
Assuming the amendment is approved by stockholders at the Annual Meeting,
the Compensation Committee intends to reconsider the practice of making
automatic grants of options to purchase 5,000 shares of common stock to
directors following the Annual Meeting. The Compensation Committee will consider
alternatives to such automatic grants, including the use of restricted stock,
changes in vesting terms, changes in the number of shares awarded, stock
ownership requirements, and any other matters that the Committee believes are
appropriate in order to offer compensation packages to directors that are
competitive in the marketplace and will attract and retain skilled executives to
our Board of Directors. If the amendment is not approved by stockholders, our
directors will continue to receive automatic annual grants of options to
purchase 5,000 shares of common stock.
As of March 31, 2005, there were 3,197,350 stock options and 32,900
restricted stock awards outstanding under the plan. The weighted average
exercise price of the outstanding options at March 31, 2005 was 10.07 and such
options had a weighted average remaining contractual life of 5.99 years. Shares
available for future grant totaled 704,025 before considering the proposed
amendment and would total 2,704,025 if the amendment is approved by the
stockholders.
22
The Plan is our only equity compensation plan. It plays an important role
in our efforts to attract and retain employees and directors of outstanding
ability on a basis competitive with market practices, and to align the interests
of employees and directors with those of stockholders through an increased
equity stake in the Company. Approval of the Plan is being sought in order that
compensation resulting from awards under the Plan will be fully deductible by
the Company under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code") until 2010.
Although this discussion summarizes the principal terms and conditions of
the Plan, it does not purport to be complete and is qualified in its entirety by
reference to the Plan which is attached as Annex A to this Proxy Statement.
PURPOSE
The purpose of the Plan is to provide a means whereby certain employees,
directors, consultants, and advisors of the Company and its subsidiaries or
affiliates may acquire and maintain stock ownership in the Company, thereby
strengthening their concern for the financial welfare of the Company and its
subsidiaries.
ADMINISTRATION
The Plan is administered by the Compensation Committee or any successor
committee appointed by the Board of Directors to administer the Plan (the
"Committee"). Subject to the express terms of the Plan, the Committee has the
authority, subject to Board approval, to determine which individuals will be
granted awards, make awards, set the terms of awards (including price, exercise,
vesting and other rights), and upon the occurrence of certain events specified
in the Plan, terminate the restrictions imposed on a deferred stock award or
restricted stock award, and make adjustments to awards. Further, the Committee
is authorized to interpret the Plan and the agreements entered into under the
Plan and adopt such rules and regulations, consistent with the provisions of the
Plan, to implement and carry out the Plan. All actions taken and interpretations
and determinations made by the Committee in good faith are conclusive and
binding on the Company and all persons having an interest in the Plan or any
award issued under it. The Board of Directors may exercise any of the
Committee's rights and duties under the Plan at any time, except with respect to
matters governed by the Exchange Act and by the Internal Revenue Code or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
ELIGIBILITY
Awards may be granted to any individuals who, at the time of the grant, are
officers or other employees of, directors of, or consultants to, the Company or
its subsidiaries or affiliates ("Eligible Individuals"). Eligibility to
participate is determined by the Committee in its sole discretion.
SHARES SUBJECT TO THE PLAN
Initially, up to 3,700,000 shares of common stock were authorized for
issuance under the Plan. In 2002, the Board of Directors and stockholders
approved an amendment and restatement of the Plan that increased the number of
shares of common stock that may be issued under the Plan to 5,700,000.
The Board of Directors has approved an amendment and restatement of the
Plan that, subject to stockholder approval, would increase by 2,000,000 the
number of shares of common stock that may be issued under the Plan to 7,700,000.
If stockholder approval is not obtained, the Plan will continue as in effect
immediately prior to the amendment and restatement.
The number of shares subject to awards under the Plan is subject to
adjustment by the Committee in the event of changes in the outstanding common
stock by reason of stock dividends, stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges and certain
other changes in capitalization. If any option, or other right to acquire shares
of common stock issued under any other award under the Plan, expires or is
cancelled without having been fully exercised, or if shares of common stock are
surrendered for payment of the exercise price or purchase price of an award, or
if shares of common stock are withheld for
23
payment of applicable employment and/or withholding taxes respecting an award,
the shares subject to the award but as to which such award was not exercised
prior to its expiration or cancellation or the shares so surrendered or withheld
will again be available for the grant of an award under the Plan. Approval of
the Plan amendment will permit the re-granting of shares issued under the
original 2001 Equity Participation Plan which have expired, were cancelled, or
otherwise were not fully exercised. Any such re-grants of expired or cancelled
awards or shares surrendered or withheld from payment from the original
3,700,000 shares authorized under the Plan will not be granted if stockholder
approval of the restated Plan is not obtained.
AWARDS
Under the terms of the Plan, the Committee may grant options, restricted
stock awards, deferred stock awards, performance awards, dividend equivalents or
stock payments. Options may consist of either "incentive stock options," as
defined in Section 422 of the Code, or nonqualified stock options. The maximum
number of shares of common stock that may be subject to options, restricted
stock or deferred stock granted to any one individual in any calendar year may
not exceed 400,000 shares of common stock (subject to certain adjustment for
mergers, recapitalizations, stock splits and other changes in the common stock).
The maximum value of performance awards granted under the Plan to any individual
in any calendar year may not exceed $2.5 million.
Options. Options are evidenced by option agreements, which provide the
terms and conditions upon which options are granted and may be exercised. The
Committee sets the term of each option at the time of the grant and includes
other provisions in the option agreement which it approves and which are not
inconsistent with the provisions of the Plan. An option may be exercisable in
whole or in installments, as determined by the Committee. The Committee may
require that a partial exercise must be with respect to a minimum number of
shares. The term of an option is set by the Committee in its discretion;
however, the term of incentive stock options cannot exceed 10 years (or 5 years,
in the case of incentive stock options granted to an individual owning 10% of
the combined voting power of all classes of stock of the Company and any
subsidiary). Each option agreement specifies the time that the option vests. At
any time after the grant of any option, the Committee may, in its sole
discretion and subject to whatever terms and conditions it selects, accelerate
the period during which an option vests. Options granted may include provisions
governing the exercise of options subsequent to termination of employment,
directorship or consultancy, in the Committee's discretion.
The Committee determines the price at which a share of common stock may be
purchased upon exercise of an option, but such price may not be less than the
fair market value of a share of common stock on the date the option is granted.
The option price is subject to certain adjustment for mergers,
recapitalizations, stock splits and other changes in the common stock. Upon
exercise, the purchase price for the option or the portion thereof being
exercised must be paid in full in the manner prescribed by the Committee. An
option agreement may provide for the payment of the option price, in whole or in
part, by the delivery of a number of shares of common stock, or the surrender of
shares of common stock then issuable on the exercise of the option (plus cash if
necessary), having a fair market value equal to the option price. The option
agreement may also provide for payment in whole or in part through the delivery
of any property that constitutes good and valuable consideration, or through the
delivery of a full recourse promissory note bearing interest and payable upon
such terms as determined by the Committee. However, the option may not be
exercised by delivery of a promissory note where prohibited by law. The terms
and conditions of the respective option agreements need not be identical.
The Committee may set forth in each option agreement such restrictions on
the ownership and transferability of shares purchased pursuant to options as it
deems appropriate. These restrictions may impose on the optionee a duty to
notify the Company of the disposition of shares of common stock acquired
pursuant to incentive stock options within certain time frames specified in the
Plan.
Incentive stock options may only be granted to individuals who are
employees of the Company or any parent or subsidiary corporation (as defined in
Section 424 of the Code) of the Company at the time the option is granted. To
the extent that the aggregate fair market value (determined at the time the
respective
24
Incentive Stock option is granted) of common stock with respect to which
incentive stock options are exercisable for the first time by an individual
during any calendar year under all incentive stock option plans of the Company
and its parent and subsidiary corporations exceeds $100,000, such incentive
stock options shall be treated as nonqualified stock options. An incentive stock
option may not be granted to an individual if, at the time the option is
granted, the individual owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its parent or
subsidiary corporation, within the meaning of Section 422(b)(6) of the Code,
unless such incentive stock option conforms to the applicable provisions of
Section 422 of the Code. Any option granted as an incentive stock option under
the Plan may be modified by the Committee to disqualify such option from
treatment as an "incentive stock option" under Section 422 of the Code.
Restricted Stock Awards. Under the Plan, the Company may grant Eligible
Individuals awards of restricted stock consisting of shares of common stock that
are issued but subject to such restrictions as the Committee may provide,
including, without limitation, restrictions concerning voting rights and
transferability and forfeiture restrictions based on duration of employment with
the Company, and Company and individual performance. The Committee determines
the other terms and conditions that will apply to any restricted stock award,
which may include the achievement of Performance Objectives (as described
below). The terms, conditions, and restrictions applicable to a restricted stock
award will be set forth in a restricted stock agreement made in conjunction with
the award and, subject to the provisions of the Plan, are determined by the
Committee in its sole discretion. The terms of restricted stock awards under the
Plan need not be identical. After the restricted stock is issued, the Committee
may, on such terms and conditions as it deems appropriate, remove any or all of
such restrictions, provided the award is not intended to "qualify" as
performance-based compensation under Section 162(m) of the Code.
Unless otherwise provided by the Committee, holders of common stock subject
to a restricted stock award have the right to receive dividends with respect to
such stock, to vote the stock, and to exercise all other rights of a stockholder
with respect thereto, except that shares of restricted stock may not be sold,
transferred, pledged or otherwise assigned until all restrictions are terminated
or expire. Further, any shares of common stock issued as a distribution on
shares of restricted stock shall be subject to the terms set forth in the
restricted stock agreement under which such shares of restricted stock were
issued.
Stock certificates reflecting shares of restricted stock cannot be
delivered until the applicable restrictions have expired or been removed, and
the Secretary of the Company or such other escrow holder as the Committee may
appoint will retain custody of such stock certificates until such time.
Performance Awards. The Company may grant performance awards to Eligible
Individuals selected by the Committee. The value of such performance awards may
be linked to the achievement of such specific Performance Objectives (as
described below) determined to be appropriate by the Committee over any period
or periods determined by the Committee. In making such determinations, the
Committee will consider (among such other factors as it deems relevant in light
of the specific type of award) the contributions, responsibilities and other
compensation of the particular employee or consultant.
Dividend Equivalents. The Company may grant dividend equivalents to any
Eligible Individuals selected by the Committee based on the dividends declared
on the common stock, to be credited as of dividend payment dates, during the
period between the date an option, deferred stock award or performance award is
granted, and the date such option, deferred stock award or performance award is
exercised, vests or expires, as determined by the Committee. Such dividend
equivalents shall be converted to cash or additional shares of common stock by
such formula and at such time and subject to such limitations as may be
determined by the Committee.
Stock Payments. The Company may make stock payments to any Eligible
Individuals selected by the Committee in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the fair market value, book value, net profits or other
measure of the value of common stock or other specific performance criteria
determined appropriate by the Committee, determined on the date such stock
payment is made or on any date thereafter.
25
Deferred Stock Award. The Company may grant a deferred stock award to any
Eligible Individuals selected by the Committee in the manner determined from
time to time by the Committee. The number of shares of deferred stock shall be
determined by the Committee and may be linked to the achievement of such
specific performance objectives determined to be appropriate by the Committee
over any period or periods determined by the Committee. Common stock underlying
a deferred stock award will not be issued until the deferred stock award has
vested, pursuant to a vesting schedule or Performance Objectives (as described
below) set by the Committee, as the case may be. Unless otherwise provided by
the Committee, a recipient of deferred stock shall have no rights as a Company
stockholder with respect to such deferred stock until such time as the award has
vested and the common stock underlying the award has been issued.
Each performance award, dividend equivalent, and deferred stock award,
and/or stock payment will be evidenced by an agreement setting forth the terms
and conditions that apply to such award. Such awards are exercisable or payable
only while the recipient is an Eligible Individual. However, the Committee may
determine that any such award may be exercised or paid subsequent to termination
without cause, or following a change in control of the Company, or because of
the recipient's retirement, death or disability, or otherwise. Payment of
dividend equivalents or stock payments may be made in cash, common stock or a
combination of both so long as any payment in common stock is made in accordance
with the Plan's general requirements relating to issuance of shares of common
stock pursuant to the exercise of options.
PERFORMANCE OBJECTIVES
Awards under the Plan intended to qualify as performance based compensation
under Section 162(m)(4)(C) of the Code will be subject to any additional
limitations set forth in Section 162(m) of the Code and any applicable
regulations or rulings thereunder that are requirements for such awards to so
qualify. Specifically, but not by way of limitation, awards under the Plan,
other than stock options, may be linked to the achievement of objectives (the
"Performance Objectives"), if any, established by the Committee, which may be
described in terms of Company-wide objectives, in terms of objectives that are
related to performance of a division, subsidiary, department or function within
the Company or an affiliate in which the Plan participant receiving the award is
employed or in individual or other terms, and which will relate to the period of
time determined by the Committee. The Performance Objectives intended to qualify
under Section 162(m) of the Code will be with respect to one or more of the
following: (i) net income; (ii) pre-tax income; (iii) operating income; (iv)
cash flow; (v) earnings per share; (vi) earnings before any one or more of the
following items: interest, taxes, depreciation or amortization; (vii) return on
equity; (viii) return on invested capital or assets; (ix) cost reductions or
savings; (x) funds from operations and (xi) appreciation in the fair market
value of the Company's common stock. The Committee shall determine, in its
discretion at the time of an award, which objectives to use with respect to an
award, the weighting of the objectives if more than one is used, and whether the
objective is to be measured against a Company-established budget or target, an
index or a peer group of companies. A Performance Objective need not be based on
an increase or a positive result and may include, for example, maintaining the
status quo or limiting economic losses.
ADJUSTMENTS ON CHANGES IN CAPITALIZATION, MERGER OR SALE OF ASSETS
If the Company pays a stock dividend or other distribution on common stock,
or if the Company recapitalizes, reclassifies its capital stock, effects a stock
split, merger, consolidation or otherwise changes its capital structure or if
the Company sells, transfers, exchanges or otherwise disposes of all or
substantially all of the assets of the Company or engages in any similar
corporate transaction or event (a "Corporate Transaction"), the Committee has
discretion to take any or all of the following actions, if it determines that
such action is appropriate to prevent dilution or enlargement of the benefits or
potential benefits to be made available under the Plan or with respect to an
award previously made under the Plan: (a) adjust the number and kind of shares
of common stock (or other securities or property) with respect to which awards
may be made under the Plan, adjust the limits on the number of shares of common
stock issuable under the Plan, and/or adjust the award limits applicable to
grants of awards to individuals; (b) adjust the number and kind of
26
shares of common stock subject to outstanding awards, and/or (c) adjust the
grant or exercise price with respect to any option, performance award, dividend
equivalent or stock payment.
If any Corporate Transaction results in shares of common stock being
exchanged for or converted into cash, securities (including securities of
another corporation) or other property, the Committee may terminate the Plan as
of the date of such transaction and all awards will become the right to receive
such cash, securities or other property, net of any exercise price.
In the event of any Corporate Transaction or any unusual or nonrecurring
transactions or events affecting the Company, any of its affiliates, or the
financial statements of the Company or any of its affiliates, or any changes in
applicable laws, regulations or accounting principles, the Committee has
discretion to take any or all of the following actions, in its discretion and on
terms and conditions it deems appropriate, if it determines that such action is
appropriate to prevent dilution or enlargement of the benefits or potential
benefits to be made available under the Plan or with respect to an award
previously made under the Plan: (i) provide automatically, or on the optionee's
or grantee's request, for the purchase of any such award for an amount of cash
that could have been attained upon the exercise of such award or realization of
the optionee's or grantee's rights thereunder had the award been currently
exercisable or payable, or the replacement of the award with other rights or
property selected by the Committee in its discretion; (ii) provide either in the
terms of an award or by action taken prior to such transaction or event, that it
cannot be exercised after such transaction or event; (iii) provide either in the
terms of an award or by action taken prior to such transaction or event, that
for a specified period of time prior to such transaction or event, the award
will be exercisable as to all shares covered thereby notwithstanding anything to
the contrary in the award agreement or the Plan; (iv) provide either in the
terms of an award or by action taken prior to such transaction or event, that
upon such transaction or event, such award will be assumed by the successor
corporation or parent or subsidiary thereof or will be substituted by similar
options, rights or awards covering stock of the successor corporation or parent
or subsidiary thereof, with appropriate adjustments to the number and kind of
shares and prices; (v) adjust the number and type of shares of common stock
subject to outstanding awards and the terms and conditions of future awards;
(vi) provide either in the terms of an award of restricted stock or deferred
stock or by action taken prior to such transaction or event, that for a
specified period of time prior to such event, the restrictions imposed on such
an award or on some or all shares of restricted stock or deferred stock may be
terminated; and (vii) make adjustments to the Performance Objectives of any
outstanding award.
Notwithstanding any of the powers described above, except to the extent
that an award agreement specifies to the contrary, in the event of a change of
control of the Company, all outstanding awards will automatically become fully
vested immediately prior to such change of control (or such earlier time as set
by the Committee), and all restrictions, if any, applicable to such awards will
lapse, and all performance criteria, if any, with respect to such awards will be
deemed to have been met at their target level.
If an award is intended to qualify as performance based compensation under
Section 162(m) of the Code, except for any actions required to be taken in the
event of a change of control of the Company, as described above, no action may
be taken or adjustment made to the extent it would cause such award to fail to
qualify under Section 162(m) of the Code or any successor thereto.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors or the Committee may amend the Plan at any time,
except it may not change any award previously granted under the Plan in a manner
that would impair the rights of an optionee or grantee without the optionee's or
grantee's consent (unless the award agreement specifies otherwise). Further, the
Committee may not, without approval of the Company's stockholders (but subject
to the Committee's right to make adjustments in the event of changes in the
outstanding common stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, and certain other changes in
capitalization), amend the Plan to increase the maximum aggregate number of
shares of common stock issuable under the Plan or reduce the exercise price of
an option or take action that would otherwise require stockholder approval.
No awards may be granted after the Plan has terminated or while the Plan is
suspended. No incentive stock option may be granted under the Plan after
February 7, 2011.
27
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax consequences
generally arising with respect to awards under the Plan and is intended for the
information of stockholders to consider with respect to their vote on the Plan
and not as tax guidance to participants under the Plan. Participants under the
Plan should consult their own tax advisors regarding the specific tax
consequences of participation in the Plan, including the application of any
state and local tax laws which may differ from federal tax treatment and the
effect of other state and local laws, including community property laws.
Nonqualified Stock Options. As a general rule, no federal income tax is
imposed on the optionee upon the grant of a nonqualified stock option. Except as
described below under the caption "Potential Income Tax Consequences of Section
16(b) Liability," upon the exercise of a nonqualified stock option, the optionee
will be treated as receiving compensation taxable as ordinary income in the year
of exercise in an amount equal to the excess of the fair market value of the
shares of common stock at the time of exercise over the option price paid for
those shares of common stock. There is no item of tax preference upon such
exercise. Upon a subsequent taxable disposition of the shares received upon
exercise of a nonqualified stock option, any difference between the fair market
value of the shares at the time of exercise and the amount realized on the
disposition would be treated as capital gain or loss. Upon an optionee's
exercise of a nonqualified stock option, the Company may claim a deduction for
compensation paid at the same time and in the same amount as compensation income
is recognized to the optionee provided the Company timely satisfies any federal
income tax reporting requirements.
Incentive Stock Options. No federal income tax is imposed on the optionee
upon the grant or exercise of an incentive stock option, except as described
below under the caption "Alternative Minimum Tax." If the optionee does not
dispose of shares acquired pursuant to the exercise of an incentive stock option
within the later of two years after the date the option was granted or within
one year after exercise, the difference between the option price and the amount
realized on a subsequent taxable disposition of the shares would be treated as
capital gain or loss. In this event, the Company would not be entitled to any
deduction in connection with the grant or exercise of the option or the
disposition of the shares so acquired.
If, however, an optionee disposes of shares acquired pursuant to his
exercise of an incentive stock option prior to the end of the two-year or
one-year holding period noted above, the disposition would be treated as a
disqualifying disposition. The optionee would be treated as having received, at
the time of disposition, compensation taxable as ordinary income equal to the
excess of the fair market value of the shares at the time of exercise (or, in
the case of a sale in which a loss would be recognized, the amount realized on
such sale) over the option price, and any amount realized in excess of the fair
market value of the shares at the time of exercise would be treated as capital
gain. In such event, the Company may claim a deduction for compensation paid at
the same time and in the same amount as compensation is treated as received by
the optionee provided the Company timely satisfies any federal income tax
reporting requirements.
Alternative Minimum Tax. The excess of the fair market value of a share of
common stock acquired upon the exercise of an incentive stock option over the
option price paid for those shares of common stock must be included in the
optionee's alternative minimum taxable income for the year in which the exercise
occurs. If, however, the optionee exercises the incentive stock option and
disposes of the shares of common stock acquired upon that exercise in the same
taxable year and the amount realized is less than the fair market value of the
shares on the exercise date, the amount included in the optionee's alternative
minimum taxable income will not exceed the amount realized over the adjusted
basis of the common stock.
Payment of Option Price in Stock. In the case of a nonqualified stock
option, if the option price is paid by the delivery of shares of common stock
previously acquired by the optionee having a fair market value equal to the
option price ("Previously Acquired Stock"), gain or loss would not be recognized
on the exchange of the Previously Acquired Stock for a like number of shares
pursuant to the exercise of the option. The optionee's basis and holding period
in the number of shares of common stock received equal to the Previously
Acquired Stock would be the same as his basis and holding period in the
Previously Acquired Stock. The optionee would, however, be treated as receiving
compensation taxable as ordinary income equal to the fair market value on the
date of exercise of the shares of common stock received in excess of the number
28
of shares of Previously Acquired Stock, and the optionee's basis in such excess
shares would be equal to their fair market value at the time of exercise, and
his holding period would begin on the date of exercise except as described below
under the caption "Potential Income Tax Consequences of Section 16(b)
Liability."
In the case of an incentive stock option, the federal income tax
consequences to the optionee of the payment of the option price with Previously
Acquired Stock will depend on the nature of the Previously Acquired Stock. If
the Previously Acquired Stock was acquired through the exercise of an incentive
stock option or an option granted under a qualified employee stock purchase plan
(a "Statutory Option") and if the Previously Acquired Stock is being transferred
prior to the expiration of the applicable minimum statutory holding period, the
transfer would be treated as a disqualifying disposition of the Previously
Acquired Stock. If the Previously Acquired Stock was acquired other than
pursuant to the exercise of a Statutory Option, or was acquired pursuant to the
exercise of a Statutory Option but has been held for the applicable minimum
statutory holding period, no gain or loss would be recognized on the exchange.
In either case, (i) the optionee's basis and holding period in the number of
shares received equal to the number of shares of Previously Acquired Stock
exchanged is the same as his basis and holding period in the Previously Acquired
Stock, with such basis increased by any income recognized upon the disqualifying
disposition of the Previously Acquired Stock, (ii) the optionee's basis in the
shares received in excess of the number of Previously Acquired Stock is zero and
his holding period begins on the date of exercise, and (iii) the other incentive
stock option rules would apply.
Payment of Withholding in Stock. In the case of a nonqualified stock
option, if the federal or state income tax withholding required with respect to
the exercise of an option is paid by the surrender of shares of Previously
Acquired Stock having a fair market value equal to the amount of such
withholding, any difference between the fair market value of the Previously
Acquired Stock at the time of surrender and the adjusted basis of the Previously
Acquired Stock would generally be treated as a capital gain or loss. If the
Previously Acquired Stock was acquired through the exercise of a Statutory
Option and if the Previously Acquired Stock is being surrendered prior to the
expiration of the applicable minimum statutory holding period, the surrender
would be treated as a disqualifying disposition of the Previously Acquired
Stock. If the federal or state income tax withholding required with respect to
the exercise of a nonqualified stock option is paid instead by withholding from
the total number of shares of common stock exercised a number of shares of
common stock having a fair market value equal to the amount of such withholding,
although there is no clear authority at this time, it is likely that the
optionee would be treated as having fully exercised the option with the same tax
treatment as described above with respect to the exercise of an option for cash
and having subsequently sold the withheld shares to the Company with no gain or
loss recognized on such sale.
Potential Income Tax Consequences of Section 16(b) Liability. If shares of
common stock are received upon the exercise of a nonqualified stock option by an
optionee who is subject to liability under Section 16(b) of the 1934 Act,
recognition of the compensation attributable to such exercise may under certain
circumstances be postponed so long as a sale at a profit of the shares so
acquired could subject the optionee to suit under Section 16(b) of the 1934 Act,
but not for more than six months. One effect of any postponement would be to
measure the amount of compensation taxable to the optionee as ordinary income by
reference to the fair market value of such shares at the time such liability to
suit under Section 16(b) of the 1934 Act no longer exists (rather than at the
earlier date of exercise of the option). Similarly, the fair market value of the
shares at that time would become the optionee's basis in the shares for purposes
of computing gain or loss upon a subsequent disposition, and the optionee's
holding period for the shares would date from that time. An optionee may,
however, elect with respect to such shares, pursuant to Section 83(b) of the
Code, to recognize the compensation attributable to such exercise at the time of
such exercise, in which case his tax treatment would be as described above under
the caption "Nonqualified Stock Options." Such election must be made not later
than 30 days after the date such shares are transferred to the optionee and is
irrevocable.
Restricted Stock Awards. A grantee of a restricted stock award who does
not elect to be taxed at the time of the grant will not recognize taxable income
at the time of grant, and the Company will not be entitled to a deduction until
the termination of the forfeiture restrictions with respect to the restricted
stock. Upon termination of the forfeiture restrictions, the grantee will
recognize ordinary income in an amount equal to the fair market value of the
shares at such time, and the Company, subject to Section 162(m) of the Code,
will be
29
entitled to a corresponding deduction, provided the Company timely satisfies any
federal income tax reporting requirements. Dividends and distributions (or the
cash equivalent thereof) with respect to a grant of restricted stock paid to the
grantee before the termination of the forfeiture restrictions will also be
compensation income to the grantee when paid and, subject to Section 162(m) of
the Code, deductible as such by the Company, provided, if paid in the form of
Company Stock, the Company timely satisfies any federal income tax reporting
requirements. The grantee of a restricted stock award may elect under Section
83(b) of the Code to be taxed at the time of grant of the restricted stock award
on the market value of the shares of common stock, in which case the Company
will be entitled to a deduction at the same time and in the same amount,
provided the Company timely satisfies any federal income tax reporting
requirements, and there will be no further federal income tax consequences with
respect to the grant of the restricted stock when the forfeiture restrictions
terminate and any gain or loss upon subsequent disposition of the common stock
will be capital gain or loss. All dividends or distributions with respect to
restricted stock for which such an election has been made and which are paid to
the grantee before the termination of the forfeiture restrictions will be
taxable as dividend income to the grantee when paid and not deductible by the
Company. Upon making this election, these tax consequences are irreversible.
Thus, if a forfeiture subsequently occurs, the grantee is not entitled to a
deduction as a consequence of the forfeiture and the Company must include as
ordinary income the amount it previously deducted in the year of the grant with
respect to such shares.
Performance Awards. Grantees receiving performance awards do not realize
taxable income at the time of the grant or during the performance period. A
performance award, whether paid in cash or common stock, will constitute
ordinary income during the year of payment. Such taxable income will be based on
the fair market value of the common stock at the payment date. The Company is
not entitled to a deduction at the time of grant. When the award is paid,
subject to Section 162(m) of the Code, the Company is entitled to a compensation
deduction, provided, with respect to an award paid in common stock, the Company
timely satisfies any federal income tax reporting requirements.
Dividend Equivalents. A dividend equivalent paid with respect to an
option, deferred stock or performance award will be taxed to the grantee as
compensation income and, subject to Section 162(m) of the Code, deductible as
such by the Company.
Stock Payments. If a stock payment is made, the grantee will realize
ordinary income during the year of payment. Such taxable income will be based on
the fair market value of the stock payment at the payment date. When the stock
payment is made, subject to Section 162(m) of the Code, the Company is also
entitled to a compensation deduction, provided the Company timely satisfies any
federal income tax reporting requirements.
Deferred Stock Award. The tax treatment will be as described above for
"Stock Payments" applicable to the year in which the deferred stock award vests
and the common stock underlying the award is issued.
Section 162(m) of the Code. Section 162(m) of the Code precludes the
Company, as a public corporation, from taking a deduction for compensation in
excess of $1 million paid in a taxable year to its chief executive officer or
any of its four other highest paid officers. However, compensation that
qualifies under Section 162(m) as "performance-based" is specifically exempt
from the deduction limit. Based on current interpretive authority and assuming
that the Plan is approved by the stockholders, the Company's ability to deduct
compensation income generated in connection with the exercise of options granted
under the Plan should not be limited by Section 162(m) provided that (1) the
purchase price per share of common stock subject to such option is not less than
the fair market value of a share of common stock at the time such option is
granted, and (2) all grants of options under the Plan are made by a committee of
the Board comprised solely of non-employee directors. The Plan has been designed
to provide flexibility with respect to whether restricted stock awards,
performance awards and deferred stock awards will qualify as performance-based
compensation under Section 162(m) and, therefore, be exempt from the deduction
limit. Assuming that the Plan is approved by the stockholders, if the forfeiture
restrictions relating to an award are based solely upon the satisfaction of one
of the specifically enumerated performance criteria for qualification under
Section 162(m) set forth in the Plan (see "Performance Objectives" above), all
grants of such awards are made by a committee of the Board comprised solely of
non-employee directors, and all performance criteria
30
reflected in such awards are established by such committee, then the
compensation expense relating to that award should be deductible by the Company
if the award becomes vested. However, compensation expense deductions relating
to a restricted stock award, performance award or deferred stock award will be
subject to the Section 162(m) deduction limitation if the award becomes vested
based upon any criteria other than such performance criteria, such as the
occurrence of a change of control or vesting based upon continued employment
with the Company.
Parachute Payment Sanctions. Certain provisions in the Plan or that may be
included in an agreement with respect to an award under the Plan may give an
employee special protections or payments that are contingent on a change in the
ownership or effective control of the Company or in the ownership of a
substantial portion of the Company's assets. To the extent triggered by the
occurrence of any such event, these special protections or payments may
constitute "parachute payments" which, when aggregated with other parachute
payments received by the employee, may result in the employee's receiving
"excess parachute payments," as defined by the Code (a portion of which would be
allocated to those protections or payments derived from the Plan). The Company
would not be allowed a deduction for any of these excess parachute payments, and
the employee would be subject to a nondeductible 20% excise tax in addition to
income tax otherwise owed with respect to these payments. The Company has
entered into agreements (See "Executive Agreements" above) with certain of its
executives that provide that if any such executive becomes subject to these
additional taxes, then the Company will pay the executive an additional amount
equal to the amount the executive would have received absent the 20% excise tax.
Section 409A of the Code. Section 409A of the Code applies new
requirements to certain types of nonqualified deferred compensation
arrangements. While the new requirements should not apply to stock options or
restricted stock awards under the Plan, they may apply to other awards under the
Plan depending upon how such other awards are structured. Failure to comply with
the technical requirements of Section 409A of the Code where applicable will
result in affected grantees being assessed an additional 20% tax on deferred
compensation when recognized as income for tax purposes, potential acceleration
of such income recognition and additional interest. The Company currently
intends to structure such other awards to avoid application of Section 409A of
the Code, although it is not required to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE PLAN.
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 2004, 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 the cancellation of stock options at the end of the
option's life on one occasion each for Messrs. Slator and Hughes. A Form 4 was
not timely filed on one occasion to reflect the surrender of 10,000 shares by
Mr. Swanson in payment of taxes due upon the vesting of restricted stock awards.
In each of the above instances, the Company had undertaken to file the
respective Form 4's on behalf of each reporting person pursuant to a power of
attorney granted by each such reporting person to the Company.
31
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2006 annual
meeting of stockholders must be received by the Company at its principal
executive office by December 16, 2005 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 4620, Houston, Texas 77002.
In addition, the Company's Bylaws provide that only such business as is
properly brought before the 2006 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 business on December 16, 2005. 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, 2005
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.
32
ANNEX A
OIL STATES INTERNATIONAL, INC.
2001 EQUITY PARTICIPATION PLAN,
AS AMENDED AND RESTATED
EFFECTIVE FEBRUARY 16, 2005
THE 2001 EQUITY PARTICIPATION PLAN
OF
OIL STATES INTERNATIONAL, INC.
OIL STATES INTERNATIONAL, INC., a Delaware corporation, adopted The 2001
Equity Participation Plan of Oil States International, Inc. (the "Plan"),
effective February 19, 2001 (the "Effective Date"), for the benefit of its
eligible employees, consultants and directors. This Plan was an amendment and
restatement of the 1996 Equity Participation Plan of CE Holdings, Inc.
("ConEmsco Plan").
The Plan was amended and restated, effective February 19, 2002, to increase
the number of shares of Common Stock (as defined below) subject to Options (as
defined below) and all other Awards (as defined below) under the Plan. The Plan
is hereby being amended and restated, effective February 16, 2005 (the
"Restatement Date"), to again increase the number of shares of Common Stock
subject to Options and all other Awards under the plan, to be effective as
provided in Section 10.4, to condition upon stockholder approval
post-Restatement Date re-grants of expired or cancelled Awards or shares
surrendered or withheld for payment from the original 3,700,000 shares of Common
Stock under the Plan, to be effective as provided in Section 10.4, and to allow
for Awards to Directors (as defined below) on the same basis as currently
permitted to Employees (as defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for Directors, Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock
and/or rights which recognize such growth, development and financial
success.
(2) To enable the Company to obtain and retain the services of
Directors, Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and
financial success of the Company.
ARTICLE I
DEFINITIONS
1.1 General. All references to share numbers and dollar amounts in this
Plan shall be deemed to give effect to the concurrent reverse three-for-one
split of the Common Stock to be effected on or before the Effective Date.
Wherever the following terms are used in this Plan they shall have the meaning
specified below, unless the context clearly indicates otherwise.
1.2 Affiliate. "Affiliate" shall mean any entity that, directly or through
one or more intermediaries, is controlled by the Company or controls the Company
as determined by the Committee.
1.3 Award Limit. "Award Limit" shall mean 400,000 shares of Common Stock.
1.4 Board. "Board" shall mean the Board of Directors of the Company.
A-1
1.5 Change of Control. "Change of Control" shall mean any of the
following:
(a) any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
(other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any affiliate, SCF III, L.P., SCF
IV, L.P., or any affiliate of SCF-III, L.P. or SCF-IV, L.P. or any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company), acquires "beneficial ownership" (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of the Company
representing 35% or more of the combined voting power of the Company's then
outstanding securities; provided, however, that if the Company engages in a
merger or consolidation in which the Company or surviving entity in such
merger or consolidation becomes a subsidiary of another entity, then
references to the Company's then outstanding securities shall be deemed to
refer to the outstanding securities of such parent entity;
(b) a change in the composition of the Board, as a result of which
fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (i) are directors of the Company
as of the Effective Date, or (ii) are elected, or nominated for election,
to the Board with the affirmative votes of at least two-thirds of the
Incumbent Directors at the time of such election or nomination, but
Incumbent Director shall not include an individual whose election or
nomination occurs as a result of either (1) an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or (2) an actual or threatened
solicitation of proxies or consents by or on behalf of a person other than
the Board;
(c) the consummation of a merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity (or if
the surviving entity is or shall become a subsidiary of another entity,
then such parent entity)) more than 50% of the combined voting power of the
voting securities of the Company (or such surviving entity or parent
entity, as the case may be) outstanding immediately after such merger or
consolidation;
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company; or
(e) the sale or disposition (other than a pledge or similar
encumbrance) by the Company of all or substantially all of the assets of
the Company other than to a subsidiary or subsidiaries of the Company.
1.6 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.7 Committee. "Committee" shall mean the Board or a subcommittee of the
Board appointed as provided in Section 9.1.
1.8 Common Stock. "Common Stock" shall mean the common stock of the
Company, par value $0.01 per share.
1.9 Company. "Company" shall mean Oil States International, Inc., a
Delaware corporation.
1.10 Deferred Stock. "Deferred Stock" shall mean Common Stock awarded
under Article VII of this Plan.
1.11 Director. "Director" shall mean a member of the Board who is not an
Employee.
1.12 Dividend Equivalent. "Dividend Equivalent" shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VII of this Plan.
1.13 Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company or of any
Affiliate or Subsidiary.
1.14 Exchange Act. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
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1.15 Fair Market Value. "Fair Market Value" of a share of Common Stock as
of a given date shall be (i) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (as
reported in any reporting service approved by the Committee), on the trading day
previous to such date, or if shares were not traded on the trading day previous
to such date, then on the next preceding date on which a trade occurred, or (ii)
if Common Stock is not traded on an exchange but is quoted on Nasdaq or a
successor quotation system, the mean between the closing representative bid and
asked prices for the Common Stock on the trading day previous to such date as
reported by Nasdaq or such successor quotation system; or (iii) if Common Stock
is not publicly traded on an exchange and not quoted on Nasdaq or a successor
quotation system, the Fair Market Value of a share of Common Stock as
established by the Committee acting in good faith. Notwithstanding the
foregoing, the Fair Market Value of a share of Common Stock on the date of an
initial public offering of Common Stock shall be the offering price under such
initial public offering.
1.16 Grantee. "Grantee" shall mean an Employee or consultant granted a
Performance Award, Dividend Equivalent, or Stock Payment, or an award of
Deferred Stock, under this Plan.
1.17 Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the Committee.
1.18 Option. "Option" shall mean a stock option granted under Article III
of this Plan). An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
provided, however, that Options granted to Directors, consultants and Employees
employed by an Affiliate that is not a Subsidiary shall be Non-Qualified Stock
Options.
1.19 Optionee. "Optionee" shall mean an Employee, consultant or Director
granted an Option under this Plan.
1.20 Performance Award. "Performance Award" shall mean a performance or
incentive award, other than an Option, Restricted Stock, Deferred Stock or Stock
Payments, that is paid in cash, Common Stock or a combination of both, awarded
under Article VII of this Plan.
1.21 Performance Objectives. "Performance Objectives" means the
objectives, if any, established by the Committee that are to be achieved with
respect to an Award granted under this Plan, which may be described in terms of
Company-wide objectives, in terms of objectives that are related to performance
of a division, subsidiary, department or function within the Company or an
Affiliate in which the Participant receiving the Award is employed or in
individual or other terms, and which will relate to the period of time
determined by the Committee. The Performance Objectives intended to qualify
under Section 162(m) of the Code shall be with respect to one or more of the
following: (i) net income; (ii) pre-tax income; (iii) operating income; (iv)
cash flow; (v) earnings per share; (vi) earnings before any one or more of the
following items: interest, taxes, depreciation or amortization; (vii) return on
equity; (viii) return on invested capital or assets; (ix) cost reductions or
savings; (x) funds from operations and (xi) appreciation in the fair market
value of the Company's common stock. Which objectives to use with respect to an
Award, the weighting of the objectives if more than one is used, and whether the
objective is to be measured against a Company-established budget or target, an
index or a peer group of companies, shall be determined by the Committee in its
discretion at the time of grant of the Award. A Performance Objective need not
be based on an increase or a positive result and may include, for example,
maintaining the status quo or limiting economic losses.
1.22 Plan. "Plan" shall mean The 2001 Equity Participation Plan of Oil
States International, Inc.
1.23 QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
1.24 Restricted Stock. "Restricted Stock" shall mean Common Stock awarded
under Article VI of this Plan.
1.25 Restricted Stockholder. "Restricted Stockholder" shall mean an
Employee or consultant granted an award of Restricted Stock under Article VI of
this Plan.
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1.26 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.27 Stock Payment. "Stock Payment" shall mean (i) a payment in the form
of shares of Common Stock, or (ii) an option or other right to purchase shares
of Common Stock, as part of a deferred compensation arrangement, made in lieu of
all or any portion of the compensation, including without limitation, salary,
bonuses and commissions, that would otherwise become payable to an Employee or
consultant in cash, awarded under Article VII of this Plan.
1.28 Subsidiary. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50 percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan.
(a) The shares of stock subject to Options, awards of Restricted Stock,
Performance Awards, Dividend Equivalents, awards of Deferred Stock, or Stock
Payments shall be Common Stock. The aggregate number of such shares which may be
issued upon exercise of such options or rights or upon any such awards under the
Plan shall not exceed seven million seven hundred thousand (7,700,000), subject
to the requirements of Section 10.4. The shares of Common Stock issuable upon
exercise of such options or rights or upon any such awards may be either
previously authorized but unissued shares or treasury shares.
(b) 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 shall not exceed the Award Limit. The maximum value of
Performance Awards granted under the Plan to any individual in any calendar year
shall not exceed $2.5 million.
2.2 Add-back Options and Other Rights. If any Option, or other right to
acquire shares of Common Stock under any other award under this Plan, expires or
is canceled without having been fully exercised, if shares of Common Stock are
surrendered for payment of the exercise price or purchase price of an Award of
if shares of Common Stock are withheld for payment of applicable employment
and/or withholding taxes respecting an Award, the number of shares subject to
such Option or other right but as to which such Option or other right was not
exercised prior to its expiration or cancellation or the number of shares so
surrendered or withheld for payment may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1. If any share of Restricted
Stock is forfeited by the Grantee, such share may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Any
post-Restatement Date re-grant of expired or cancelled awards or shares
surrendered or withheld for payment from the original 3,700,000 shares of Common
Stock under the Plan shall be subject to the requirements of Section 10.4.
ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee, Director or consultant selected by the
Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted an
Option.
3.2 Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code,
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3.3 Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted unless such Option, when granted, qualifies as an "incentive
stock option" under Section 422 of the Code. No Incentive Stock Option shall be
granted to any person who is not an employee of the Company or a Subsidiary.
3.4 Granting of Options
(a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of this Plan:
(i) Select from among the Employees, Directors or consultants
(including Employees, Directors or consultants who have previously received
Options or other awards under this Plan) such of them as in its opinion
should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected Employees, Directors or
consultants;
(iii) Determine whether such Options are to be Incentive Stock Options
or Non-Qualified Stock Options; and
(iv) Determine the terms and conditions of such Options, consistent
with this Plan.
(b) Upon the selection of an Employee, Director or consultant to be granted
an Option, the Committee shall instruct the Secretary of the Company to issue
the Option and may impose such conditions on the grant of the Option as it deems
appropriate.
(c) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a Stock Option
Agreement, which shall be executed by the Optionee and an authorized officer of
the Company and which shall contain such terms and conditions as the Committee
shall determine, consistent with this Plan.
4.2 Option Price. The price per share of the shares subject to each Option
shall be set by the Committee; provided, however, that, except as provided in
Section 8.1 with respect to assumed options, such price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted.
4.3 Option Term. The term of an Option shall be set by the Committee in
its discretion; provided, however, that in the case of Incentive Stock Options,
the term shall not be more than ten (10) years from the date the Incentive Stock
Option is granted, or five (5) years from such date if the Incentive Stock
Option is granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary).
4.4 Option Vesting
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee and the Committee may
determine that an Option may not be exercised in whole or in part for a
specified period after it is granted. At any time after grant of an Option, the
Committee may, in its sole and absolute discretion and subject to whatever terms
and conditions it selects, accelerate the period during which an Option vests.
(b) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any parent or Subsidiary)
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth
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in the preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4(b), the Fair
Market Value of stock shall be determined as of the time the Option with respect
to such stock is granted.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in whole or
in part; however, an Option shall not be exercisable with respect to fractional
shares and the Committee may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his office:
(a) A written notice complying with the applicable rules established
by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act of 1933, as amended, and
any other federal or state securities laws or regulations. The Committee or
Board may, in its absolute discretion, also take whatever additional
actions it deems appropriate to effect such compliance including, without
limitation, placing legends on share certificates and issuing stop-transfer
notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 10.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised.
However, the Committee may in its discretion or provide in the grant
agreement (i) that payment may be made, in whole or in part, through the
delivery of shares of Common Stock owned by the Optionee, duly endorsed for
transfer to the Company, with a Fair Market Value on the date of delivery
not in excess of the aggregate exercise price of the Option or exercised
portion thereof and subject to such other limitations as the Committee may
impose thereon, (ii) allow payment, in whole or in part, through the
surrender of shares of Common Stock then issuable upon exercise of the
Option having a Fair Market Value on the date of Option exercise equal to
the aggregate exercise price of the Option or exercised portion thereof,
(iii) allow payment, in whole or in part, through the delivery of property
of any kind which constitutes good and valuable consideration; (iv) allow
payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such
terms as may be prescribed by the Committee, (v) allow payment through a
cashless-broker procedure approved by the Company, or (vi) allow payment
through any combination of the consideration provided above. In the case of
a promissory note, the Committee may also prescribe the form of such note
and the security to be given for such note. The Option may not be
exercised, however, by delivery of a promissory note or by a loan from the
Company when or where such loan or other extension of credit is prohibited
by law.
5.3 Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
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(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body which the Committee shall, in its absolute discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Committee may establish from time to time for reasons
of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not be, nor have
any of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
5.5 Ownership and Transfer Restrictions. The Committee, in its absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Stock Option Agreement
and may be referred to on the certificates evidencing such shares. The Committee
may require the Optionee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting such Option to such Optionee or (ii) one
year after the transfer of such shares to such Optionee. The Committee may
direct that the certificates evidencing shares acquired by exercise of an Option
refer to such requirement to give prompt notice of disposition.
ARTICLE VI
AWARD OF RESTRICTED STOCK
6.1 Award of Restricted Stock
(a) The Committee shall from time to time, in its absolute discretion:
(i) Select from among the Employees or consultants (including
Employees or consultants who have previously received other awards under
this Plan) such of them as in its opinion should be awarded Restricted
Stock; and
(ii) Determine the terms and conditions applicable to such Restricted
Stock, consistent with this Plan, which may include the achievement of
Performance Objectives.
(b) Upon the selection of an Employee or consultant to be awarded
Restricted Stock, the Committee shall instruct the Secretary of the Company to
issue such Restricted Stock and may impose such conditions on the issuance of
such Restricted Stock as it deems appropriate.
6.2 Restricted Stock Agreement. Restricted Stock shall be issued only
pursuant to a Restricted Stock Agreement, which shall be executed by the
selected Employee or consultant and an authorized officer of the Company and
which shall contain such terms and conditions as the Committee shall determine,
consistent with this Plan.
6.3 Rights as Stockholders. Upon delivery of the shares of Restricted
Stock to the escrow holder, the Restricted Stockholder shall have, unless
otherwise provided by the Committee, all the rights of a stockholder with
respect to said shares, subject to the restrictions in his Restricted Stock
Agreement, including the right to receive all dividends and other distributions
paid or made with respect to the shares; provided, however, that in the
discretion of the Committee, any extraordinary distributions with respect to the
Common Stock shall be subject to the restrictions set forth in Section 6.4.
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6.4 Restriction. All shares of Restricted Stock issued under this Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; provided, however,
that, by action taken after the Restricted Stock is issued, the Committee may,
on such terms and conditions as it may determine to be appropriate, remove any
or all of the restrictions imposed by the terms of the Restricted Stock
Agreement. Restricted Stock may not be sold or encumbered until all restrictions
are terminated or expire.
6.5 Escrow. The Secretary of the Company or such other escrow holder as
the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
6.6 Legend. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to be
placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Restricted Stock Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
ARTICLE VII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1 Performance Awards. Any Employee or consultant selected by the
Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to the achievement of such specific Performance
Objectives determined appropriate by the Committee over any period or periods
determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific
type of award) the contributions, responsibilities and other compensation of the
particular Employee or consultant.
7.2 Dividend Equivalents. Any Employee or consultant selected by the
Committee may be granted Dividend Equivalents based on the dividends declared on
Common Stock, to be credited as of dividend payment dates, during the period
between the date an Option, Deferred Stock or Performance Award is granted, and
the date such Option, Deferred Stock or Performance Award is exercised, vests or
expires, as determined by the Committee. Such Dividend Equivalents shall be
converted to cash or additional shares of Common Stock by such formula and at
such time and subject to such limitations as may be determined by the Committee.
7.3 Stock Payments. Any Employee or consultant selected by the Committee
may receive Stock Payments in the manner determined from time to time by the
Committee. The number of shares shall be determined by the Committee and may be
based upon the Fair Market Value, book value, net profits or other measure of
the value of Common Stock or other specific performance criteria determined
appropriate by the Committee, determined on the date such Stock Payment is made
or on any date thereafter.
7.4 Deferred Stock. Any Employee or consultant selected by the Committee
may be granted an award of Deferred Stock in the manner determined from time to
time by the Committee. The number of shares of Deferred Stock shall be
determined by the Committee and may be linked to the achievement of such
specific Performance Objectives determined to be appropriate by the Committee
over any period or periods determined by the Committee. Common Stock underlying
a Deferred Stock award will not be issued until the Deferred Stock award has
vested, pursuant to a vesting schedule or Performance Objectives set by the
Committee, as the case may be. Unless otherwise provided by the Committee, a
Grantee of Deferred Stock shall have no rights as a Company stockholder with
respect to such Deferred Stock until such time as the award has vested and the
Common Stock underlying the award has been issued.
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7.5 Performance Award Agreement, Dividend Equivalent Agreement, Deferred
Stock Agreement, Stock Payment Agreement. Each Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment shall be evidenced by
an agreement, which shall be executed by the Grantee and an authorized Officer
of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with this Plan.
7.6 Term. The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be set by the Committee in its
discretion.
7.7 Exercise Upon Termination of Employment. A Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or
payable only while the Grantee is an Employee or consultant; provided that the
Committee may determine that the Performance Award, Dividend Equivalent, award
of Deferred Stock and/or Stock Payment may be exercised or paid subsequent to
termination of employment or termination of consultancy without cause, or
following a change in control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
7.8 Payment. Payment of the amount determined under Section 7.1 or 7.2
above shall be in cash, in Common Stock or a combination of both, as determined
by the Committee. To the extent any payment under this Article VII is effected
in Common Stock, it shall be made subject to satisfaction of all provisions of
Section 5.3.
ARTICLE VIII
MERGED PLANS/REPLACEMENT AWARDS
8.1 The following plans have been merged into this Plan: the Sooner, Inc.
1998 Stock Option Plan and the HWC Energy Services, Inc. 1997 Stock Option Plan,
and all stock options and other stock-based awards granted under such plans are
converted into options and awards under this Plan with respect to Common Stock.
In addition, the individual stock option grants made outside of a plan by
Sooner, Inc. and PTI Group, Inc. to their respective employees and outstanding
on the date of their respective mergers with the Company or a Company Subsidiary
also are hereby assumed and converted into Company options. The number of shares
and the exercise price of each assumed award shall be made pursuant to the
applicable merger agreement between the Company and the stockholders of such
entities.
ARTICLE IX
ADMINISTRATION
9.1 Committee. The Committee members shall be appointed by and hold office
at the pleasure of the Board. Appointment of Committee members shall be
effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee may
be filled by the Board.
9.2 Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and the
agreements pursuant to which Options, awards of Restricted Stock or Deferred
Stock, Performance Awards, Dividend Equivalents or Stock Payments are granted or
awarded, and to adopt such rules for the administration, interpretation, and
application of this Plan as are consistent therewith and to interpret, amend or
revoke any such rules. Any such grant or award under this Plan need not be the
same with respect to each Optionee, Grantee or Restricted Stockholder. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
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9.3 Majority Rule; Unanimous Written Consent. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.
9.4 Compensation; Professional Assistance, Good Faith Actions. Members of
the Committee shall receive such compensation for their services as members as
may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of this Plan shall be
borne by the Company. The Committee may employ attorneys, consultants,
accountants, appraisers, brokers, or other persons. The Committee, the Company
and the Company's officers and Directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Optionees, Grantees, Restricted
Stockholders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan, Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Dividend Equivalents or
Stock Payments, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Not Transferable. Except as provided below, Options, Restricted Stock
awards, Deferred Stock awards, Performance Awards, Dividend Equivalents or Stock
Payments under this Plan may not be sold, pledged, assigned, or transferred in
any manner other than by will or the laws of descent and distribution or
pursuant to a QDRO, unless and until such rights or awards have been exercised,
or the shares underlying such rights or awards have been issued, and all
restrictions applicable to such shares have lapsed. No Option, Restricted Stock
award, Deferred Stock award, Performance Award, Dividend Equivalent or Stock
Payment or interest or right therein shall be liable for the debts, contracts or
engagements of the Optionee, Grantee or Restricted Stockholder or his successors
in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect, except to the extent that such disposition is permitted
by the preceding sentence. An Optionee may, with the consent of the Committee,
transfer a Nonqualified Stock Option to such family members and persons as may
be permitted by this Committee, subject to such restrictions and limitations, if
any, that the Committee, in its discretion, may impose on such transfer.
During the lifetime of the Optionee or Grantee, only he may exercise an
Option or other right or award (or any portion thereof) granted to him under the
Plan unless it has been disposed of pursuant to a QDRO. After the death of the
Optionee or Grantee, any exercisable portion of an Option or other right or
award may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Stock Option Agreement or other agreement, be exercised
by his personal representative or by any person empowered to do so under the
deceased Optionee's or Grantee's will or under the then applicable laws of
descent and distribution.
10.2 Amendment, Suspension or Termination of this Plan. This Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board or the Committee. However, without
approval of the Company's stockholders given within twelve months before or
after the action by the Committee, no action of the Committee may, except as
provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or reduce the
exercise price of an Option, and no action of the Committee may be taken that
would otherwise require stockholder approval as a matter of applicable law,
regulation or rule. No amendment, suspension or termination of this Plan shall,
without the consent of the holder of Options, Restricted Stock awards, Deferred
Stock awards, Performance Awards, Dividend Equivalents or Stock Payments,
materially
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alter or impair any rights or obligations under any Options, Restricted Stock
awards, Deferred Stock awards, Performance Awards, Dividend Equivalents or Stock
Payments theretofore granted or awarded, unless the award itself otherwise
expressly so provides. No Options, Restricted Stock, Deferred Stock, Performance
Awards, Dividend Equivalents or Stock Payments may be granted or awarded during
any period of suspension or after termination of this Plan, and in no event may
any Incentive Stock Option be granted under this Plan after the first to occur
of the following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under Section 10.4.
10.3 Changes in Common Stock or Assets of the Company; Acquisition or
Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 10.3(e), in the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization, reclassification,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company, or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Committee's sole discretion, affects the Common Stock such that an
adjustment is determined by the, Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to an Option, Restricted Stock
award, Performance Award, Dividend Equivalent, Deferred Stock award or Stock
Payment, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of
(i) the number and kind of shares of Common Stock (or other securities
or property) with respect to which Options, Performance Awards, Dividend
Equivalents or Stock Payments may be granted under the Plan, or which may
be granted as Restricted Stock or Deferred Stock (including, but not
limited to, adjustments of the limitations in Section 2.1 on the maximum
number and kind of shares which may be issued and adjustments of the Award
Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, Performance Awards,
Dividend Equivalents, or Stock Payments, and in the number and kind of
shares of outstanding Restricted Stock or Deferred Stock, and
(iii) the grant or exercise price with respect to any Option,
Performance Award, Dividend Equivalent or Stock Payment.
(b) Subject to Section 10.3(e), in the event of any corporate transaction
or other event described in Section 10.3(a) which results in shares of Common
Stock being exchanged for or converted into cash, securities (including
securities of another corporation) or other property, the Committee will have
the right to terminate this Plan as of the date of the event or transaction, in
which case all options, rights and other awards granted under this Plan shall
become the right to receive such cash, securities or other property, net of any
applicable exercise price.
(c) Subject to Section 10.3(e), in the event of any corporate transaction
or other event described in Section 10.3(a) or any unusual or nonrecurring
transactions or events affecting the Company, any affiliate of the Company, or
the financial statements of the Company or any affiliate, or of changes in
applicable laws, regulations, or accounting principles, the Committee in its
discretion is hereby authorized to take any one or more of the following actions
whenever the Committee determines that such action is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to any option, right or
other award under this Plan, to facilitate such transactions or events or to
give effect to such changes in laws, regulations or principles:
(i) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide, either automatically or upon the
Optionee's request, for either the purchase of any such Option,
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Performance Award, Dividend Equivalent, or Stock Payment, or any Restricted
Stock or Deferred Stock for an amount of cash equal to the amount that
could have been attained upon the exercise of such option, right or award
or realization of the Optionee's rights had such option, right or award
been currently exercisable or payable or the replacement of such option,
right or award with other rights or property selected by the Committee in
its sole discretion;
(ii) In its sole and absolute discretion, the Committee may provide,
either by the terms of such Option, Performance Award, Dividend Equivalent,
or Stock Payment, or Restricted Stock or Deferred Stock or by action taken
prior to the occurrence of such transaction or event that it cannot be
exercised after such event;
(iii) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide, either by
the terms of such Option, Performance Award, Dividend Equivalent, or Stock
Payment, or Restricted Stock or Deferred Stock or by action taken prior to
the occurrence of such transaction or event, that, for a specified period
of time prior to such transaction or event, such option, right or award
shall be exercisable as to all shares covered thereby, notwithstanding
anything to the contrary in (1) Section 4.4 or (2) the provisions of such
Option, Performance Award, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock;
(iv) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide, either by the terms of such Option,
Performance Award, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of such
transaction or event, that upon such event, such option, right or award be
assumed by the successor corporation, or a parent or subsidiary thereof, or
shall be substituted for by similar options, rights or awards covering the
stock of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices;
(v) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may make adjustments in the number and type of
shares of Common Stock (or other securities or property) subject to
outstanding Options, Performance Awards, Dividend Equivalents, or Stock
Payments, and in the number and kind of outstanding Restricted Stock or
Deferred Stock and/or in the terms and conditions of (including the grant
or exercise price), and the criteria included in, outstanding options,
rights and awards and options, rights and awards which may be granted in
the future;
(vi) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide either by the terms of a Restricted
Stock award or Deferred Stock award or by action taken prior to the
occurrence of such event that, for a specified period of time prior to such
event, the restrictions imposed under a Restricted Stock Agreement or a
Deferred Stock Agreement upon some or all shares of Restricted Stock or
Deferred Stock may be terminated; and
(vii) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may make adjustments to the Performance
Objectives of any outstanding award.
(d) Notwithstanding anything in Sections 10.3(a), 10.3(c) or 10.3(e) to the
contrary, except to the extent an award agreement expressly provides to the
contrary, in the event of a Change of Control of the Company all outstanding
awards automatically shall become fully vested immediately prior to such Change
in Control (or such earlier time as set by the Committee), all restrictions, if
any, with respect to such awards shall lapse, all performance criteria, if any,
with respect to such awards shall be deemed to have been met at their target
level.
(e) With respect to an award intended to qualify as performance-based
compensation under Section 162(m), no adjustment or action described in this
Section 10.3, other than as provided in Section 10.3(d), shall be taken by the
Committee to the extent that such adjustment or action would cause such award to
fail to so qualify under Section 162(m) or any successor provisions thereto.
10.4 Approval of Amended and Restated Plan by Stockholders. The amendment
and restatement of this Plan will be submitted for the approval of the Company's
stockholders within twelve months after the
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Restatement Date. Options, Performance Awards, Dividend Equivalents or Stock
Payments may be granted and Restricted Stock or Deferred Stock may be awarded
prior to such stockholder approval with respect to the additional two million
shares of Common Stock authorized for awards under Section 2.1 of this amendment
and restatement (the "Additional Shares"), and with respect to post-Restatement
Date re-grants of expired or cancelled Awards or shares of Common Stock
surrendered or withheld for payment from the original 3,700,000 shares of Common
Stock under the Plan pursuant to Section 2.2 (the "Re-Granted Shares"), provided
that such Options, Performance Awards, Dividend Equivalents or Stock Payments
shall not be exercisable and such Restricted Stock or Deferred Stock shall not
vest prior to the time when this amendment and restatement of the Plan is
approved by the stockholders, and provided further that if such approval has not
been obtained at the end of said twelve-month period, all such Options,
Performance Awards, Dividend Equivalents or Stock Payments previously granted
and all Restricted Stock or Deferred Stock previously awarded under this Plan,
to the extent made with respect to the Additional Shares or Re-Granted Shares,
shall thereupon be canceled and become null and void.
10.5 Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Optionee, Grantee or
Restricted Stockholder of any sums required by applicable tax law to be withheld
with respect to the issuance, vesting or exercise of any Option, Restricted
Stock, Deferred Stock, Performance Award, Dividend Equivalent or Stock Payment.
Subject to the timing requirements of Section 5.3, the Committee may, in its
discretion and in satisfaction of the foregoing requirement, allow such
Optionee, Grantee or Restricted Stockholder to elect to have the Company
withhold shares of Common Stock otherwise issuable under such Option or
afterward (or allow the return of shares of Common Stock) having a Fair Market
Value equal to the minimum tax sums required to be withheld by the Company.
Notwithstanding the foregoing, any such person who is subject to Section 16b
with respect to Company Stock may direct that the Company's tax withholding
obligation be satisfied by withholding the appropriate number of shares from
such award and/or the "constructive" tender already-owned shares of Common
Stock.
10.6 Loans. The Committee may, in its discretion, extend one or more loans
to Employees in connection with the exercise or receipt of an Option,
Performance Award, Dividend Equivalent or Stock Payment granted under this Plan,
or the issuance of Restricted Stock or Deferred Stock awarded under this Plan,
The terms and conditions of any such loan shall be set by the Committee.
10.7 Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and
any Option, Performance Award, Dividend Equivalent or Stock Payment granted, or
Restricted Stock or Deferred Stock awarded, to any individual who is then
subject to Section 16 of the Exchange Act, shall be subject to any limitations
set forth in any applicable exemptive rule under Section 16 of the Exchange Act
(including any amendment to Rule 16b-3 of the Exchange Act) that are
requirements for the application of such exemptive rule. To the extent permitted
by applicable law, the Plan, Options, Performance Awards, Dividend Equivalents,
Stock Payments, Restricted Stock and Deferred Stock granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of this Plan,
any award intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional limitations
set forth in Section 162(m) of the Code (including any amendment to Section
162(m) of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code.
10.8 Effect of Plan Upon Options and Compensation Plans. Except as
provided in Section 8.1, this Plan amendment and restatement shall not affect
any other compensation or incentive plans in effect for the Company or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
Employees, Directors or consultants of the Company or any Subsidiary or (ii) to
grant or assume options or other rights otherwise than under this Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, entity or
association.
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10.9 Compliance with Laws. This Plan, the granting and vesting of Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Dividend
Equivalents or Stock Payments under this Plan and the issuance and delivery of
shares of Common Stock and the payment of money under this Plan or under
Options, Performance Awards, Dividend Equivalents or Stock Payments granted or
Restricted Stock or Deferred Stock awarded hereunder are subject to compliance
with all applicable federal and state laws, rules and regulations (including but
not limited to state and federal securities law and federal margin requirements)
and to such approvals by any listing, regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan, Options, Restricted Stock awards, Deferred Stock awards, Performance
Awards, Dividend Equivalents or Stock Payments granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
10.10 Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Plan.
10.11 Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Texas without regard to conflicts of laws thereof.
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OIL STATES INTERNATIONAL, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 18, 2005
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, 2005, and the Proxy Statement in connection therewith, each
dated April 15, 2005, 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: ________________________________, 2005
Signed: _____________________________________
_____________________________________________
_____________________________________________
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,
FOR THE RATIFICATION OF THE SELECTION OF AUDITORS AND FOR THE APPROVAL OF THE
2001 EQUITY PARTICIPATION PLAN, AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 16,
2005. 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) L.E. Simmons WITHHOLD AUTHORITY to vote for all
(2) Douglas E. Swanson nominees listed to the left. [ ]
INSTRUCTION: To withhold authority to vote
for any individual nominee, write the number of
the nominee in the space provided.
________________________________ __________________________________
2. RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE AUDITORS OF THE
COMPANY FOR THE CURRENT YEAR:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF THE OIL STATES INTERNATIONAL, INC. 2001 EQUITY PARTICIPATION
PLAN, AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 16, 2005.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. 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: [ ]