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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
Transocean 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)
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[X] No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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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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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)
MARCH 19, 2004
Dear Shareholder:
The 2004 annual general meeting of Transocean Inc. will be
held on Thursday, May 13, 2004 at 9:00 a.m., at the Royal Pavilion Hotel, St.
James, Barbados. The Secretary's notice of annual general meeting, the proxy
statement and a proxy card are enclosed and describe the matters to be acted
upon at the meeting.
It is important that your shares be represented and voted at
the meeting. Please read the enclosed notice of annual general meeting and proxy
statement and date, sign and promptly return the proxy card in the enclosed
self-addressed envelope.
Sincerely,
/s/ J. Michael Talbert /s/ Robert L. Long
J. Michael Talbert Robert L. Long
Chairman of the Board President & Chief Executive Officer
This proxy statement and the accompanying proxy card are dated
March 19, 2004 and are first being mailed on or about March 25, 2004 to record
shareholders as of March 18, 2004.
NOTICE OF ANNUAL GENERAL MEETING OF TRANSOCEAN INC.
TO BE HELD MAY 13, 2004
The annual general meeting of Transocean Inc., a Cayman Islands
exempted company limited by shares, will be held at the Royal Pavilion Hotel,
St. James, Barbados at 9:00 a.m., Barbados time, on Thursday, May 13, 2004 for
the following purposes:
1. To elect four directors as members of our board of directors
to serve until the 2007 annual general meeting and until their
respective successors have been duly elected.
2. To approve the amendment of our Long-Term Incentive Plan to
(1) increase the number of ordinary shares reserved for
issuance to employees under the plan from 18,900,000 to
22,900,000, (2) increase the number of ordinary shares that
may be issued to employees under the plan as restricted shares
or deferred units from 2,000,000 to 6,000,000, (3) provide for
the award of deferred units, (4) replace automatic awards to
outside directors with discretionary awards that are
determined by our board, (5) restate the performance criteria
specified in the plan for certain types of awards, (6) allow
net share counting in determining the number of shares
available for issuance under the plan and (7) modify other
provisions of the plan as described in the proxy statement.
3. To approve the appointment of Ernst & Young LLP as independent
auditors for 2004.
4. To transact such other business as may properly be brought
before the meeting.
This constitutes notice of the meeting as required by Cayman Islands
law and our articles of association.
Only record holders of ordinary shares at the close of business on
Thursday, March 18, 2004 will be entitled to notice of, and to vote at, the
meeting.
The meeting may generally be adjourned from time to time without
advance notice other than announcement at the meeting, or any adjournment
thereof, and any and all business for which the meeting is hereby noticed may be
transacted at any such adjournment.
By order of the Board of Directors,
/s/ Eric B. Brown
Eric B. Brown
Secretary
Houston, Texas
March 19, 2004
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN AND PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED
RETURN ENVELOPE.
PROXY STATEMENT
FOR ANNUAL GENERAL MEETING OF TRANSOCEAN INC.
MAY 13, 2004
This proxy statement is furnished in connection with the solicitation
of proxies by Transocean Inc., on behalf of our board of directors, to be voted
at our annual general meeting to be held on Thursday, May 13, 2004 at 9:00 a.m.,
at the Royal Pavilion Hotel, St. James, Barbados.
PROPOSALS
At the annual general meeting, shareholders will be asked to vote upon
the following:
- A proposal to elect four nominees as directors to
serve three-year terms. These directors will be
members of a class of directors that will serve until
the 2007 annual general meeting and until their
respective successors have been duly elected.
- A proposal to approve the amendment of our Long-Term
Incentive Plan to (1) increase the number of ordinary
shares reserved for issuance to employees under the
plan from 18,900,000 to 22,900,000, (2) increase the
number of ordinary shares that may be issued to
employees under the plan as restricted shares or
deferred units from 2,000,000 to 6,000,000, (3)
provide for the award of deferred units, (4) replace
automatic awards to outside directors with
discretionary awards that are determined by our
board, (5) restate the performance criteria specified
in the plan for certain types of awards, (6) allow
net share counting in determining the number of
shares available for issuance under the plan and
(7) modify other provisions of the plan as
described under "Proposal to Amend Our Long-Term
Incentive Plan."
- A proposal to approve the appointment of Ernst &
Young LLP as independent auditors for 2004.
- Any other matters that may properly come before the
meeting.
We know of no other matters that are likely to be brought before the
annual general meeting.
QUORUM
The presence, in person or by proxy, of shareholders holding a majority
of our outstanding ordinary shares will constitute a quorum. Abstentions and
"broker non-votes" will be counted as present for purposes of determining
whether there is a quorum at the meeting.
RECORD DATE
Only shareholders of record at the close of business on Thursday, March
18, 2004 are entitled to notice of and to vote, or to grant proxies to vote, at
the meeting.
VOTES REQUIRED
Approval of the proposal to elect the four nominees as directors
requires the affirmative vote of a plurality of the votes cast. Abstentions and
"broker non-votes" will not be counted in that vote.
Approval of the proposal to amend our Long-Term Incentive Plan requires
the affirmative vote of the holders of at least a majority of votes cast on the
proposal, provided that the total number of votes cast on the proposal
represents a majority of the votes entitled to be cast. Abstentions and "broker
non-votes" on this proposal will not affect the voting on the proposal as long
as holders of a majority of ordinary shares cast votes on the proposal.
Otherwise, the effect of an abstention or "broker non-vote" is a vote against
the proposal. The New York Stock Exchange prohibits its member organizations
from giving a proxy to vote on an equity compensation plan
unless the beneficial owner of the share has given instructions. As a result,
beneficial owners are encouraged to give voting instructions to their brokers.
Approval of the proposal to appoint Ernst & Young LLP as independent
auditors requires the affirmative vote of holders of at least a majority of the
ordinary shares present in person or by proxy at the meeting and entitled to
vote on the matter. Abstentions and "broker non-votes" on the proposal have the
effect of a vote against the proposal.
As of the record date for the meeting, there were 320,751,973 ordinary
shares outstanding and entitled to notice of and to vote at the meeting. Holders
of ordinary shares on the record date are entitled to one vote for each share
held.
PROXIES
A proxy card is being sent to each shareholder as of the record date.
If you properly received a proxy card, you may grant a proxy to vote on each of
the four proposals by marking your proxy card appropriately, executing it in the
space provided, dating it and returning it to us. We may accept your proxy by
any form of communication permitted by Cayman Islands law and our articles of
association. If you hold your shares in the name of a bank, broker or other
nominee, you should follow the instructions provided by your bank, broker or
nominee when voting your shares.
If you have timely submitted a properly executed proxy card and clearly
indicated your votes, your shares will be voted as indicated. If you have timely
submitted a properly executed proxy card and have not clearly indicated your
votes, your shares will be voted "FOR" the election of all director nominees and
"FOR" each of the other two proposals.
If any other matters are properly presented at the meeting for
consideration, the persons named in the proxy card will have the discretion to
vote on these matters in accordance with their best judgment. Proxies voted
against any of the three proposals will not be voted in favor of any adjournment
of the meeting for the purpose of soliciting additional proxies.
You may revoke your proxy card at any time prior to its exercise by:
- giving written notice of the revocation to our
Secretary;
- appearing at the meeting, notifying our Secretary and
voting in person; or
- properly completing and executing a later-dated proxy
and delivering it to our Secretary at or before the
meeting.
Your presence without voting at the meeting will not automatically
revoke your proxy, and any revocation during the meeting will not affect votes
previously taken. If you hold your shares in the name of a bank, broker or other
nominee, you should follow the instructions provided by your bank, broker or
nominee in revoking your previously granted proxy.
SOLICITATION OF PROXIES
The accompanying proxy is being solicited on behalf of the board of
directors. The expenses of preparing, printing and mailing the proxy and the
materials used in the solicitation will be borne by us. We have retained D. F.
King & Co., Inc. for a fee of $6,000, plus expenses, to aid in the solicitation
of proxies. Proxies may be solicited by personal interview, telephone and
telegram by our directors, officers and employees, who will not receive
additional compensation for those services. Arrangements also may be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of ordinary shares
held by those persons, and we will reimburse them for reasonable expenses
incurred by them in connection with the forwarding of solicitation materials.
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ELECTION OF DIRECTORS
Our articles of association divide our board of directors into three
classes: Class I, Class II and Class III. Four Class II directors are to be
elected at our 2004 annual general meeting to serve for three-year terms
expiring at the annual general meeting in 2007. Our board of directors has
increased the size of the board from 10 to 11 directors to be effective at the
upcoming annual general meeting.
The board has nominated for election as Class II directors Robert L.
Long, Martin B. McNamara, Robert M. Sprague and J. Michael Talbert. Mr. Sprague
is not currently a director and is being nominated to fill the new board seat
resulting from the increase in board size. Messrs. Long, McNamara and Talbert
are standing for re-election. If any of the nominees becomes unavailable for any
reason, which we do not anticipate, the board of directors in its discretion may
designate a substitute nominee. If you have submitted an executed proxy card,
your vote will be cast for the substitute nominee unless contrary instructions
are given in the proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ROBERT
L. LONG, MARTIN B. MCNAMARA, ROBERT M. SPRAGUE AND J. MICHAEL TALBERT AS CLASS
II DIRECTORS.
NOMINEES FOR DIRECTOR -- CLASS II -- TERMS EXPIRING 2007
ROBERT L. LONG, age 58, is President, Chief Executive Officer and a
member of our board of directors. Mr. Long served as President from
December 2001 to October 2002, at which time he assumed the additional
position of Chief Executive Officer. Mr. Long also served as Chief
Operating Officer from June 2002 until October 2002, Chief Financial
Officer from August 1996 until December 2001, as Senior Vice President
from May 1990 until the time of the Sedco Forex merger, at which time
he assumed the position of Executive Vice President, and as Treasurer
from September 1997 until March 2001. Mr. Long has been an employee
since 1976 and was elected Vice President in 1987. Mr. Long is also a
director of TODCO, a publicly traded drilling company in which we own a
majority interest.
MARTIN B. MCNAMARA, age 56, is Partner-in-Charge of the Dallas, Texas,
office of the law firm of Gibson, Dunn & Crutcher and a member of the
firm's finance and compensation committees. He has served as one of our
directors since November 1994. During the past five years, Mr. McNamara
has been in the private practice of law.
ROBERT M. SPRAGUE, age 58, is the retired Regional Business Director of
Shell EP International BV, a position in which he served from April
1997 until June 2003. Mr. Sprague served as Director - Strategy &
Business Services for Shell EP International BV from January 1996 until
March 1997 and as Exploration & Production Coordinator of Shell
International Petroleum BV from May 1994 to December 1995. Mr. Sprague
joined the Royal Dutch / Shell group of companies in 1967 and served in
a variety of positions in the United States and Europe during his
career, including as a director of Shell Canada Limited, a publicly
traded company, from April 2000 to April 2003. Mr. Sprague is not
currently one of our directors.
J. MICHAEL TALBERT, age 57, has served as Chairman of our board of
directors since October 2002 and a member of our board of directors
since August 1994. Mr. Talbert also served as Chief Executive Officer
from August 1994 until October 2002, Chairman of our board of directors
from August 1994 until December 1999, and as President from December
1999 until December 2001. Prior to assuming his duties with us, Mr.
Talbert was President and Chief Executive Officer of Lone Star Gas
Company, a natural gas distribution company and a division of Ensearch
Corporation. He is also a director of El Paso Corporation and of TODCO.
CONTINUING DIRECTORS -- CLASS III -- TERMS EXPIRING 2005
PAUL B. LOYD, JR., age 57, has served as one of our directors since the
R&B Falcon merger. Before the merger, he served as Chairman of the
Board of R&B Falcon since January 1998 and Chief Executive Officer
since April 1999. He was CEO and Chairman of the Board of R&B Falcon
Drilling (International
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& Deepwater) Inc. (formerly Reading & Bates Corporation) from 1991
through 1997. Mr. Loyd has over 30 years of experience in the offshore
drilling industry, having joined Reading & Bates in 1970 in its
management-training program. He is also a director of Carrizo Oil &
Gas, Inc. and Frontier Oil Corporation and is on the Board of Trustees
of Southern Methodist University.
ROBERTO MONTI, age 64, is the retired Executive Vice President of
Exploration and Production for Repsol YPF. He was the President and
Chief Executive Officer of YPF Sociedad Anonima from September 1995 to
June 1999 prior to its acquisition by Repsol. From October 1993 to July
1995, he served as President of Dowell, a division of Schlumberger. He
is also a director of Pecom Energia S.A. Mr. Monti has served as one of
our directors since the Sedco Forex merger described below.
IAN C. STRACHAN, age 60, is Chairman of the Board of Instinet Group
Incorporated and a director of Reuters Group PLC, Xstrata plc, Rolls
Royce Group plc and Johnson Matthey plc. He served as Deputy Chairman
of Invensys plc from 1999 to 2000. He served as CEO of BTR plc from
1996 until its merger with Siebe plc in 1999, when it changed its name
to Invensys plc. From 1987 to 1995, Mr. Strachan was with Rio Tinto
plc, serving as CFO from 1987 to 1991 and as Deputy CEO from 1991 to
1995. He was employed by Exxon Corporation from 1970 to 1986. Mr.
Strachan has served as one of our directors since the Sedco Forex
merger.
CONTINUING DIRECTORS -- CLASS I -- TERMS EXPIRING 2006
VICTOR E. GRIJALVA, age 65, is Chairman of the Board of Hanover
Compressor Company. Mr. Grijalva has been a director since the Sedco
Forex merger and served as Chairman of our board of directors until
October 2002. He is the retired Vice Chairman of Schlumberger Limited.
Before serving as Vice Chairman, he served as Executive Vice President
of Schlumberger's Oilfield Services division from 1994 to January 1999
and as Executive Vice President of Schlumberger's Wireline, Testing &
Anadrill division from 1992 to 1994. Mr. Grijalva is also an advisory
director of Tenaris S.A.
ARTHUR LINDENAUER, age 66, became Chairman of the Board of Schlumberger
Technology Corporation, the principal U.S. subsidiary of Schlumberger
Limited, in December 1998 and served in that position through February
2004. He previously served as Executive Vice President-Finance and
Chief Financial Officer of Schlumberger from January 1980 to December
1998. Mr. Lindenauer was a partner with the accounting firm of Price
Waterhouse from 1972 to 1980. Mr. Lindenauer is also a director of
TODCO and the New York Chapter of the Cystic Fibrosis Foundation, a
Trustee of the American University in Cairo and a member of the Board
of Overseers of the Tuck School of Business at Dartmouth College. Mr.
Lindenauer has served as one of our directors since the Sedco Forex
merger.
RICHARD A. PATTAROZZI, age 60, served at Shell Oil Company as President
and CEO of Shell Deepwater Development Inc. and Shell Deepwater
Production Inc. from 1996 to 1999. In early 1999, he was promoted to
Vice President of Shell Oil Company, responsible for Shell Deepwater
Development Inc., Shell Deepwater Production Inc. and the company's
Shallow Water Gulf of Mexico exploration and production business and
retired in January 2000. Mr. Pattarozzi joined Shell in 1966 in its
offshore engineering organization and has more than 33 years of
experience in the petroleum industry. Mr. Pattarozzi has served as one
of our directors since the merger with R&B Falcon Corporation described
below. Before the merger, he had served as a director of R&B Falcon
since February 2000. He is also a director of Superior Energy Services,
Inc., FMC Technologies, Inc., Global Industries, Ltd., Stone Energy
Company and Tidewater, Inc., all of which are publicly traded.
KRISTIAN SIEM, age 55, is Chairman and Chief Executive Officer of Siem
Industries, Inc., an industrial holding company that owns offshore oil
and gas drilling and subsea construction services businesses, a fleet
of reefer vessels and a fleet of car carrying vessels through
subsidiaries in Bermuda, the U.K. and Norway. Mr. Siem has served as
one of our directors since September 1996 and was Chairman of
Transocean ASA prior to its acquisition by us in 1996. Mr. Siem is also
chairman of DSND Inc., Subsea 7 Inc., Star Reefers Inc. and Four
Seasons Capital A.B. During the past five years, Mr. Siem has served as
an executive officer with Siem Industries, Inc. and as Chairman of
Wilrig AS, and on the boards of Kvaerner ASA, Norwegian
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Cruise Line, Lambert Fenchurch Group Holdings plc and Oslo Reinsurance
ASA. He was also a member of the board of directors of Saga Petroleum
ASA until its merger with Norsk Hydro in September 1999.
MERGER WITH R&B FALCON AND DESIGNATION OF BOARD MEMBERS
On January 31, 2001, we completed a merger transaction with R&B Falcon
Corporation ("R&B Falcon") in which common shareholders of R&B Falcon received
0.5 newly issued ordinary shares for each R&B Falcon share and R&B Falcon became
our indirect wholly owned subsidiary. Pursuant to the merger agreement, our
board elected three new members who were designated by R&B Falcon in
consultation with us and had previously served on the R&B Falcon board of
directors. Two of those directors, Messrs. Loyd and Pattarozzi, continue to
serve on our board of directors. On December 12, 2002, R&B Falcon changed its
name to TODCO. On February 10, 2004, TODCO completed an initial public offering
in which we sold a minority interest in TODCO to the public.
MERGER WITH SEDCO FOREX, DESIGNATION OF BOARD MEMBERS AND APPOINTMENT OF MR.
GRIJALVA
On December 31, 1999, we completed a merger with Sedco Forex Holdings
Limited following the spin-off of Sedco Forex to Schlumberger stockholders on
December 30, 1999. As a result of the merger, Schlumberger stockholders
exchanged all of the Sedco Forex shares distributed to them by Schlumberger in
the Sedco Forex spin-off for our ordinary shares, and Sedco Forex became our
wholly owned subsidiary. Pursuant to the merger agreement, Transocean's board of
directors designated Messrs. McNamara, Siem and Talbert as directors and
Schlumberger's board of directors designated Messrs. Grijalva, Lindenauer, Monti
and Strachan as directors. In the merger agreement, we agreed to nominate Mr.
Grijalva to our board of directors to serve as Chairman until his 65th birthday
(in July 2003). In October 2002, Mr. Grijalva resigned his position as Chairman
but agreed to remain as a director.
CORPORATE GOVERNANCE
We believe that we have long had good corporate governance practices,
including having had written corporate governance guidelines, committee charters
and a code of conduct for employees in place before enactment of the
Sarbanes-Oxley Act and revisions to the corporate governance rules of the New
York Stock Exchange (NYSE). Furthermore, the board has held separate meetings of
the non-management directors for several years.
In connection with the changing governance environment and in
accordance with the Sarbanes-Oxley Act and new NYSE rules, however, we have
re-examined and strengthened our corporate governance guidelines, committee
charters and code of conduct and ethics. Our committee charters require, among
other things, that the Committees and the board evaluate their own performance.
We adopted our new corporate governance guidelines, committee charters and code
of conduct and ethics during 2003 and further revised them in early 2004. These
governance documents may be found on our website at www.deepwater.com under
"Corporate Governance." Information contained on our website is not part of this
proxy statement.
We will continue to monitor our governance practices in order to
maintain our high standards. Some specific governance issues are addressed
below.
Independence of Board Members/Committee Structure. Our corporate
governance guidelines require that at least a majority of the directors meet the
independence requirements of the NYSE. The board has carefully considered the
criteria of the NYSE and believes that Arthur Lindenauer, Martin McNamara,
Roberto Monti, Richard Pattarozzi, Ian Strachan and Robert Sprague are
independent. In particular, the board reviewed the relationships that these
directors (or director candidate, in the case of Mr. Sprague) had with our
company and found that none are affiliated with any material customer or
supplier of our company or are part of any charitable organization that received
any significant contribution from our company and no director received any
compensation other than the director compensation set forth in this proxy
statement. In addition, the board believes that Kristian Siem is also
independent, although we have requested clarification from the NYSE on the
application of its per se independence disqualification rules to Mr. Siem in
connection with the transactions described under "Certain Transactions." The
board based this belief on its view that the transactions did not materially
affect Mr. Siem's relationship with us due to the size of those transactions in
comparison with the size of DSND Inc.
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The board also determined that our contribution to a scholarship fund for
American University in Cairo, of which Mr. Lindenauer serves as a Trustee, was
not a material relationship based on the insignificant amount of our
contribution and the fact that Mr. Lindenauer did not request us to make that
contribution. We have restructured our Executive Compensation, Audit and
Corporate Governance Committees so that, going forward, they are composed solely
of independent directors under the new standards.
Presiding Director for Executive Sessions. The nonmanagement directors
met in executive session at each regularly scheduled board meeting in 2003.
During 2004, they are scheduled to meet in executive session without management
at each regularly scheduled board meeting as well. The board has designated Ian
Strachan as the presiding director for their meetings of nonmanagement
directors. Shareholders or other interested persons may send communications to
the presiding director by writing to him c/o Mr. Eric B. Brown, Corporate
Secretary, P.O. Box 2765, Houston, TX 77252-2765.
Director Nomination Process. The board has designated the Corporate
Governance Committee as the committee authorized to consider and recommend
nominees for the board. We believe that all members of the Committee met the
NYSE independence requirements at the time of its recommendation of candidates
to the board. The Committee has since been restructured so that, going forward,
all members of the Committee will be independent under the revised NYSE
standards.
Our Corporate Governance Guidelines require that the Governance
Committee assess the needs of our company and the board so as to recommend
candidates who will further our goals. In making that assessment, the Committee
has determined that a candidate must have the following minimum qualifications:
- high professional and personal ethics and values;
- a record of professional accomplishment in his/her chosen
field;
- relevant expertise and experience; and
- a reputation, both personal and professional, consistent with
our core values.
In addition to these minimum qualities, the Committee considers other
qualities that may be desirable. In particular, the board is committed to having
a majority of independent directors and, accordingly, the Committee evaluates
the independence status of any potential director. The Committee evaluates
whether or not a candidate contributes to the board's overall diversity and
whether or not the candidate can contribute positively to the existing chemistry
and culture among the board members. Also, the Committee considers whether or
not the candidate may have professional or personal experiences and expertise
relevant to our business and position as the leading international provider of
offshore drilling services.
The Committee has several methods of identifying candidates. First, the
Committee considers and evaluates whether or not the existing directors whose
terms are expiring remain appropriate candidates for the board. Second, the
Committee requests from time to time that its members and the other board
members identify possible candidates. Third, the Committee has the authority to
retain one or more search firms to aid in its search. Robert Sprague was
initially identified by a board member and then included in a group of
candidates to be reviewed by a search firm retained by the Committee. The search
firm assisted us in identifying potential board candidates, interviewing those
candidates and conducting investigations relative to their background and
qualifications.
The corporate governance committee will consider nominees for director
recommended by shareholders. Please submit your recommendations in writing,
along with:
- a resume of the nominee's qualifications and business
experience;
- a signed statement of the proposed candidate consenting to be
named as a candidate and, if nominated and elected, to serve
as a director;
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- a statement that the writer is a shareholder and is proposing
a candidate for consideration by the Committee;
- the name of and contact information for the candidate;
- a statement detailing the candidate's business and educational
experience;
- information regarding the qualifications and qualities
described under "Director Nomination Process" above;
- a statement detailing any relationship between the candidate
and any customer, supplier or competitor of ours;
- financial and accounting background, to enable the Committee
to determine whether the candidate would be suitable for audit
committee membership; and
- detailed information about any relationship or understanding
between the proposing shareholder and the candidate.
Submit nominations to Eric B. Brown, Corporate Secretary, Transocean
Inc., 4 Greenway Plaza, Houston, Texas 77046. The extent to which the Committee
dedicates time and resources to the consideration and evaluation of any
potential nominee brought to its attention depends on the information available
to the Committee about the qualifications and suitability of the individual,
viewed in light of the needs of the board, and is at the Committee's discretion.
The Committee evaluates the desirability for incumbent directors to continue on
the board following the expiration of their respective terms, taking into
account their contributions as board members and the benefit that results from
increasing insight and experience developed over a period of time. Although the
corporate governance committee will consider candidates for director recommended
by shareholders, it may determine not to recommend that the board, and the board
may determine not to, nominate those candidates for election to our board.
In addition to recommending director nominees to the Committee, any
shareholder may nominate directors at an annual general meeting. For more
information on this topic, see "Proposals of Shareholders."
Process for Shareholder Communications with the Board. The board has
established a process whereby interested parties may communicate with the board
and/or with any individual director. Shareholders may send communications in
writing, addressed to the board or an individual director, c/o Mr. Eric B.
Brown, Corporate Secretary, P.O. Box 2765, Houston, TX 77252-2765. The Corporate
Secretary will forward these communications to the addressee.
Director Attendance at Annual Meeting. We expect all our directors to
attend our annual general meeting of shareholders. At the 2003 meeting, all
directors were in attendance.
COMPENSATION OF DIRECTORS
We are proposing to amend our Long-Term Incentive Plan to replace
automatic awards to outside directors as described below with discretionary
awards that are determined by our board as described under "Proposal to Amend
Our Long-Term Incentive Plan." The board believes that directors should receive
deferred units rather than options or share appreciation rights, commonly
referred to as SARs. The board intends for such units to vest equally over a
three-year period but be required to be held by a director until the director
leaves the board. If the plan is approved by shareholders, the board intends to
grant deferred units following the annual meeting to outside directors equal in
value to $62,000, based upon the average price of our ordinary shares for the 10
trading days prior to the annual meeting. This grant would be in lieu of the
current grants of stock options/stock appreciation rights discussed below. If
the amendment of the plan is not approved, the board may review the fees and
retainers currently paid to the directors. The board may grant directors joining
our board after the annual meeting an award but it has not yet made a
determination. The current overall compensation of directors is described below.
7
Fees and Retainers. Our employees receive no extra pay for serving as
directors. Each director who is not one of our officers or employees receives an
annual retainer of $40,000, although Mr. Grijalva did not receive this retainer
during a portion of 2003 because he was a party to a consulting agreement with
us that terminated in July 2003. The audit committee chairman receives an
additional $20,000 annual retainer, and the other committee chairmen each
receive an additional $10,000 annual retainer. Nonemployee directors also
receive a fee of $2,000 for each board meeting and $1,500 for each board
committee meeting attended, plus incurred expenses where appropriate. Directors
are eligible to participate in our deferred compensation plan. The director may
defer any fees or retainer by investing those amounts in Transocean ordinary
share equivalents or in other investments selected by the administrative
committee of that plan.
Stock Options/Stock Appreciation Rights. When elected, each outside
director is currently granted an option to purchase 4,000 ordinary shares at the
fair market value of those shares on the date of grant. Following the initial
grant, if the outside director remains in office, the director is currently
granted an additional option to purchase 6,000 ordinary shares after each annual
general meeting at the fair market value of those shares on the date of grant.
Directors residing in certain countries may receive SARs instead of options.
Each stock option and SAR granted to a director has a ten-year term and
becomes exercisable in equal annual installments on the first, second and third
anniversaries of the date of grant assuming continued service on the board. In
the event of an outside director's retirement in accordance with the board's
retirement policy or his earlier death or disability, or in the event of a
change of control of our company as described under "Compensation of Executive
Officers -- Compensation Upon Change of Control," options and SARs will become
immediately exercisable and will remain exercisable for the remainder of their
ten-year term. Options and SARs will terminate 60 days after an outside director
leaves the board for any other reason. However, if that person ceases to be a
director for our convenience, as determined by the board, the board may at its
discretion accelerate the exercisability and retain the original term of those
options and SARs. This treatment was afforded the options of Alain Roger in
connection with his retirement from the board in 2003. In connection with Ronald
L. Kuehn, Jr.'s resignation from the board in 2003, the board determined that
his previously vested options would remain exercisable for the remainder of
their ten-year terms.
We have reserved an aggregate of 600,000 ordinary shares for issuance
to outside directors under our Long-Term Incentive Plan, of which 205,481
remained available for grant as of March 1, 2004.
BOARD MEETINGS AND COMMITTEES
During 2003, the board of directors held five regular meetings. Each of
our directors attended at least 75% of the meetings during the year, including
meetings of committees on which the director served.
The board has standing executive compensation, finance and benefits,
corporate governance and audit committees. In addition, the board may from time
to time form special committees to consider particular matters that arise.
Executive Compensation Committee. The executive compensation committee
reviews and approves the compensation of our officers, administers our executive
compensation programs, makes awards under the Long-Term Incentive Plan and the
Performance Award and Cash Bonus Plan and establishes performance goals for our
Chief Executive Officer and reviews his performance. The current members of the
executive compensation committee are Mr. Pattarozzi, Chairman, and Messrs. Monti
and Strachan. The executive compensation committee met five times during 2003.
Finance and Benefits Committee. The finance and benefits committee
approves our long-term financial policies and annual financial plans, insurance
programs and investment policies. It also makes recommendations to the board
concerning dividend policy, the issuance and terms of debt and equity securities
and the establishment of bank lines of credit. In addition, the finance and
benefits committee approves the creation, termination and amendment of certain
of our employee benefit programs and periodically reviews the status of these
programs and the performance of the managers of the funded programs. The current
members of the finance and benefits committee are Mr. Siem, Chairman, and
Messrs. Lindenauer, Loyd and Grijalva. The finance and benefits committee met
four times during 2003.
8
Corporate Governance Committee. The corporate governance committee
makes recommendations to the board with respect to the selection and
compensation of the board, how the board functions and how the board should
interact with shareholders and management. It reviews the qualifications of
potential candidates for the board of directors, coordinates the self-evaluation
of the board and committees and recommends to the board nominees to be elected
at the annual meeting of shareholders. The current members of the corporate
governance committee are Mr. McNamara, Chairman, and Messrs. Monti and
Pattarozzi. The corporate governance committee met five times during 2003.
Audit Committee. The audit committee is directly responsible for the
appointment, compensation, retention and oversight of our independent public
accountants. The audit committee also monitors the integrity of our financial
statements and the independence and performance of our auditors and reviews our
financial reporting processes. The committee reviews and reports to the board
the scope and results of audits by our outside auditor and our internal auditing
staff and reviews the audit and other professional services rendered by the
outside auditor. It also reviews with the outside auditor the adequacy of our
system of internal controls. It reviews transactions between us and our
directors and officers, our policies regarding those transactions and compliance
with our business ethics and conflict of interest policies. The board of
directors has adopted a written charter for the audit committee, which is
attached as Appendix A to this proxy statement.
The board requires that all members of the committee meet the financial
literacy standard required under the NYSE rules and that at least one member
qualifies as having accounting or related financial management expertise under
the NYSE rules. In addition, the SEC has adopted rules requiring that we
disclose whether or not our audit committee has an "audit committee financial
expert" as a member. An "audit committee financial expert" is defined as a
person who, based on his or her experience, satisfies all of the following
attributes:
- an understanding of generally accepted accounting principles
and financial statements;
- an ability to assess the general application of such
principles in connection with the accounting for estimates,
accruals, and reserves;
- experience preparing, auditing, analyzing or evaluating
financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable
to the breadth and level of complexity of issues that can
reasonably be expected to be raised by our financial
statements, or experience actively supervising one or more
persons engaged in such activities;
- an understanding of internal controls and procedures for
financial reporting; and
- an understanding of audit committee functions.
The person is to further have acquired such attributes through one or
more of the following:
- education and experience as a principal financial officer,
principal accounting officer, controller, public accountant or
auditor or experience in one or more positions that involve
the performance of similar functions;
- experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant,
auditor or person performing similar functions;
- experience overseeing or assessing the performance of
companies or public accountants with respect to the
preparation, auditing or evaluation of financial statements;
or
- other relevant experience.
The current members of the audit committee are Mr. Lindenauer,
Chairman, and Messrs. McNamara and Strachan. The audit committee met eight times
during 2003. The board has reviewed the criteria set by the SEC and determined
that Arthur Lindenauer qualifies as an "audit committee financial expert." Mr.
Lindenauer is an
9
accountant by education, was a partner in an accounting firm and served as the
Chief Financial Officer of Schlumberger Limited, a public company.
Finally, NYSE rules restrict directors that have relationships with the
company that may interfere with the exercise of their independence from
management and the company from serving on the audit committee. We believe that
the members of the audit committee have no such relationships and are therefore
independent for purposes of NYSE rules.
AUDIT COMMITTEE REPORT
Our committee has reviewed and discussed the audited financial
statements of the Company for the year ended December 31, 2003 with management,
our internal auditors and Ernst & Young LLP. In addition, we have discussed with
Ernst & Young LLP, the independent auditing firm for the Company, the matters
required by Codification of Statements on Auditing Standards No. 61 (SAS 61).
The Sarbanes-Oxley Act of 2002 requires certifications by the Company's chief
executive officer and chief financial officer in certain of the Company's
filings with the Securities and Exchange Commission ("SEC"). The committee
discussed the review of the Company's reporting and internal controls undertaken
in connection with these certifications with the Company's management and
outside auditors. The audit committee has further periodically reviewed such
other matters as it deemed appropriate, including other provisions of the
Sarbanes-Oxley Act of 2002 and rules adopted or proposed to be adopted by the
SEC and the NYSE.
The committee also has received the written disclosures and the letter
from Ernst & Young LLP required by Independence Standards Board Standard No. 1,
and we have reviewed, evaluated and discussed the written disclosures with that
firm and its independence from the Company. We also have discussed with
management of the Company and the auditing firm such other matters and received
such assurances from them as we deemed appropriate.
Based on the foregoing review and discussions and relying thereon, we
have recommended to the Company's Board of Directors the inclusion of the
Company's audited financial statements for the year ended December 31, 2003 in
the Company's Annual Report on Form 10-K for such year filed with the SEC.
ARTHUR LINDENAUER, CHAIRMAN IAN C. STRACHAN
MARTIN B. MCNAMARA
SECURITY OWNERSHIP OF 5% BENEFICIAL
OWNERS AND MANAGEMENT
The table below shows how many ordinary shares each of our directors
and nominees, each of the executive officers named in the summary compensation
section below and all directors and executive officers as a group owned as of
January 31, 2004. The table below also sets forth information concerning the
persons known by us to beneficially own 5% or more of our ordinary shares.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
SHARES OWNED PERCENT OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY (1)(2) OWNED BENEFICIALLY (3)
------------------------ ------------------- ----------------------
Jean P. Cahuzac (4)............................................... 180,269
Gregory L. Cauthen (4)............................................ 22,017
Victor E. Grijalva................................................ 56,451
Arthur Lindenauer................................................. 19,121
Robert L. Long (4)(5)............................................. 233,247
Paul B. Loyd, Jr.................................................. 1,477,688
Martin B. McNamara................................................ 44,755
Roberto Monti..................................................... 14,000
Richard A. Pattarozzi............................................. 40,000
10
Jan Rask.......................................................... 0
Kristian Siem (6)................................................. 24,841
Robert M. Sprague................................................. 0
Ian C. Strachan................................................... 14,500
J. Michael Talbert (4)(7)......................................... 794,906
All directors and executive officers as a group (16 persons) (4).. 3,110,844
FMR Corp. (8)..................................................... 21,239,142 6.6%
(1) The business address of each director and executive officer is c/o
Transocean Inc., 4 Greenway Plaza, Houston, Texas 77046.
(2) Includes options exercisable within 60 days held by Messrs. Cahuzac
(178,594), Cauthen (19,167), Grijalva (14,000), Lindenauer (14,000), Long
(190,999), Loyd (1,412,688), McNamara (33,672), Monti (14,000), Pattarozzi
(40,000), Siem (24,841), Strachan (14,000), Talbert (713,792) and all
directors and executive officers as a group (2,846,511). Also includes
rights to acquire ordinary shares under our deferred compensation plan held
by Messrs. Grijalva (17,304) and McNamara (10,083), and all directors and
executive officers as a group (27,387).
(3) As of January 31, 2004, each listed individual and our directors and
executive officers as a group beneficially owned less than 1.0% of the
outstanding ordinary shares.
(4) Includes:
All directors
and executive
officers as a
Mr. Cahuzac Mr. Cauthen Mr. Long Mr. Rask Mr.Talbert group
----------- ----------- -------- -------- ---------- -----
Shares held by
Trustee under 401(k)
plan................. 0 0 3,646 0 2,295 10,551
Shares held in
Employee Stock
Purchase Plan........ 1,294 1,351 4,461 0 0 13,065
(5) Includes 34,322 shares held in a joint account with his wife.
(6) Excludes 1,423,720 of our ordinary shares held by Siem Industries, Inc. Mr.
Siem is the Chairman and Chief Executive Officer of Siem Industries, Inc.
As a result, he may be deemed a beneficial owner of those ordinary shares.
(7) Includes 78,536 shares held in a joint account with his wife.
(8) Based on a Schedule 13G filed with the SEC on February 17, 2004. According
to the filing, FMR Corp. has sole voting power over 838,286 shares, sole
dispositive power over 21,239,142 shares and shared voting or dispositive
power over no shares. Of the shares reported, 20,259,956 shares are
beneficially owned by Fidelity Management & Research Company, an investment
adviser and a wholly-owned subsidiary of FMR Corp., as a result of acting
as investment advisor to various investment companies (collectively, the
"Fidelity Funds"); with respect to these shares, FMR Corp., Mr. Edward C.
Johnson 3d and each of the Fidelity Funds exercise sole investment power
and the Fidelity Funds' Boards of Trustees exercise sole voting power. Of
the shares reported, 940,986 shares are beneficially owned by Fidelity
Management Trust Company, a bank and a wholly-owned subsidiary of FMR
Corp., as to which each of Mr. Johnson and FMR Corp., through its control
of Fidelity Management Trust Company, has sole investment power with
respect to 940,986 shares and sole voting power with respect to 796,586
shares. The remaining 38,200 shares reported are beneficially owned by
Fidelity International Limited, an investment adviser and an entity
independent of FMR Corp., as to which shares Fidelity International Limited
exercises sole investment and voting power. The address of FMR Corp. is 82
Devonshire Street, Boston, Massachusetts 02109.
11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We believe all Section 16(a) reporting requirements related to our
directors and executive officers were timely fulfilled during 2003. This belief
is based solely on a review of the reports required to be filed under Section
16(a) of the U.S. Securities Exchange Act of 1934 that have been furnished to us
and written representations from those with filing obligations that all reports
were timely filed.
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION COMMITTEE REPORT
INTRODUCTION
The executive compensation committee's primary responsibility is to
ensure that our executive compensation program aligns the interests of
management with those of our shareholders. The committee is composed solely of
nonemployee directors.
Our report covers the following topics:
- the role of the executive compensation committee
- our executive compensation guiding principles
- the components of our executive compensation program
- our stock ownership guidelines
- the limitations on deductibility of non-performance
based compensation
ROLE OF THE EXECUTIVE COMPENSATION COMMITTEE
Our executive compensation program is designed to attract and retain a
highly qualified and motivated management team and appropriately reward
individual executives for their contributions to the attainment of key strategic
goals. We review the compensation principles for the executive officers each
year. We also review and establish the individual compensation levels for the
executive officers. We have considered the advice of independent, outside
consultants in determining whether the amounts and types of compensation we pay
are appropriate.
Following the 2003 reviews, the Committee established a leading-edge
approach to the format of the long-term incentive program by adopting a new
arrangement for the earning of equity awards by executives and key employees
heavily weighted by performance goals. We believe that this fundamental
departure from our historical and what we believe to be the more typical
approach of awarding equity incentives subject only to time-vesting
significantly improves our ability to align the interests of management with
those of our shareholders and also exemplifies what we believe will be the
future trend toward performance-based incentives.
EXECUTIVE COMPENSATION GUIDING PRINCIPLES
The goal of the compensation program is to attract, motivate and retain
the talented individuals we need to be a leader in our highly competitive
industry. The following are the guiding principles of our program:
Align the interests of executives with those of our shareholders.
We believe that executive compensation should be directly linked to
results delivered to the shareholder. The cash bonus and long term incentive
programs should ultimately deliver total compensation of executives that is
predominantly determined by our success both in absolute terms and as measured
against peer companies.
12
Performance-based compensation.
We believe that individual bonus and equity-based compensation should
be tied to how well we perform and individual employee performance, so that when
performance meets or exceeds goals, our employees are compensated at the levels
set for such goals, and when performance does not meet goals, bonus and
equity-based awards for our employees are reduced or eliminated accordingly.
Compensation should be set at competitive levels.
The Committee believes that executive compensation must be monitored to
ensure that we maintain competitive compensation levels. We meet with outside
consultants at least annually to review and compare the level of compensation we
pay or award to key executives to the compensation practices of a peer group of
companies. For 2003, the primary peer group of companies used to determine
compensation (base salary, cash bonus incentives and long-term equity
incentives) for key executives consisted of 15 publicly held companies that the
Committee believes are generally of comparable financial size, business focus
and scope; however, as described below, we use a narrower group of companies for
comparisons based on return on capital.
Incentive compensation should be a greater part of total compensation for more
senior positions.
The portion of an employee's total compensation that varies based on
our performance and individual performance should increase as the employee's
business responsibilities increase. For 2003, over 83% of Mr. Long's target pay
was subject to annual cash bonus program and long-term incentive performance
goals.
COMPONENTS OF OUR EXECUTIVE COMPENSATION PROGRAM
The three components of our compensation program are:
- base salary
- cash bonus incentives
- long-term equity incentives
Base Salary
We set base salaries for executive officers so that they approximate
the size-adjusted median for salaries of comparable executives in our peer
group. We adjust base salaries when warranted by an employee's experience and
individual performance and when our market surveys or other similar information
show that base salaries within the peer group are being adjusted. In line with
this approach, Mr. Long's base salary was adjusted from $600,000 to $660,000 in
July 2003.
Cash Bonus Incentives
We award annual cash bonus incentive opportunities under the
Performance Award and Cash Bonus Plan. The amount of an executive's bonus
opportunity, which is expressed as a percentage of base salary, depends
primarily upon that individual's position and responsibilities and bonus
opportunities provided to comparable positions within our peer group. At the
beginning of each year, the Committee reviews and approves annual performance
goals. Shortly after the end of the year, the Committee determines the
appropriate bonus payout levels based on the degree to which these goals have
been achieved. The annual incentive program is designed to pay total annual cash
compensation, which is salary plus bonus, above the median of our peer group
when we meet substantially all of the goals established for an executive's bonus
opportunity. Similarly, when the goals are not achieved, the program is intended
to result in total annual cash compensation below the median of our peer group.
The Committee also has the discretion to award performance-based cash bonuses
under our Long-Term Incentive Plan.
13
The Committee determined that the payout for an executive's 2003 bonus
opportunity was to be based on the level of achievement of a company-wide
financial goal, corporate goals and individual goals, as described below. The
financial goal was weighted at 50%, the corporate goals at 35% and the
individual goals at 15%. For 2003, bonus opportunities ranged from 30% to 90% of
base pay. The actual percentage payment can range from 0% to 200% of the bonus
opportunity, depending on the Committee's evaluation of an individual's
performance against his or her goals. The Committee may use its discretion to
adjust payments downward from these amounts or to make additional cash bonus
awards beyond the bonus opportunity to recognize exceptional individual
performance or to take account of other factors.
The financial goals included in the 2003 bonus opportunities under our
Performance Award and Cash Bonus Plan for senior management was our 2003
earnings per share ("EPS") as compared to our budgeted EPS, and a measure of
cash flow return on capital ("CFROC"), as assessed and ranked to a group of
companies within our peer group. Payout of the EPS goal was based on minimum,
target and maximum levels of achievement. The corporate goals for all senior
executives included in the 2003 bonus opportunities included operating
excellence, technical leadership and annual goals relating to safety and
customer focus programs.
The Committee met in December 2003 and February 2004 to review the EPS
and CFROC performance and the attainment of the corporate goals and objectives
for the year 2003. Based on this review, the Committee determined that Mr. Long
would not receive a bonus for 2003 under our Performance Award Cash Bonus Plan
or Long Term Incentive Plan primarily because EPS results did not meet
expectations for the year and because of the number of safety-related incidents
that occurred during the year.
Long - Term Incentives: Stock Options, Contingent Stock Options and Contingent
Restricted Stock
The long-term equity incentive component of our executive compensation
program is designed to align executive and shareholder interests by rewarding
executives for the attainment of a total shareholder return ("TSR") and a cash
flow return on capital that ranks favorably within our peer group. In previous
years, we principally granted time-vested stock options to our executives as
long-term equity incentives and occasionally granted time-vested restricted
stock awards when specific results were met. In an effort to further align
executive and shareholder interests, we have made a fundamental change in our
equity awards through the granting of contingent stock options and contingent
restricted stock based on company performance.
The committee currently intends to administer the long-term equity
incentive program through annual grants of these contingent stock options and
contingent restricted shares to designated executive officers and other key
employees. The committee may also make special awards to individual executives
and other key employees during the year on a discretionary basis. The peer group
of companies used to measure our relative TSR consists of 15 publicly traded
companies with a focus on contract drilling and oilfield services. The peer
group of companies used to measure our relative CFROC rank is a more narrowly
defined group of 10 companies comprised primarily of contract drillers. In July
2003, the Committee made grants of contingent stock options, contingent
restricted stock and time-vested stock options to executives and certain key
employees, including Mr. Long, and contingent restricted stock grants to other
key employees in order to further the goal of aligning the executives' and key
employees' interests with those of our shareholders and to encourage management
continuity. The committee intends to award only contingent awards as part of the
annual 2004 grant.
Each executive officer is given a target grant opportunity based on the
executive's individual position and compensation survey data of our peer group.
The executives may be granted a combination of contingent stock options,
contingent restricted shares and time-vested stock options that in total
combined value approximate the 75th percentile level each year, subject to the
Committee's discretion to grant more or fewer options or restricted shares.
Contingent awards are based upon a two-year performance period at the end of
which the number of contingent shares received and/or options retained is
determined based on our performance relative to peer groups using TSR and CFROC
rankings. In general terms, performance at the top of the relevant peer groups
results in the executive retaining all of the contingent options and receiving
all of the restricted shares. Conversely, performance within the approximate
bottom quartile results in contingent options being forfeited and restricted
stock not being received. Performance between these limits results in partial
retention of the contingent options and partial receipt of the restricted stock
in correlation to the peer rankings. One-third of the contingent options and
restricted shares vest at the end of the performance period (year 2), with the
remainder vesting in years 3 and 4.
14
Based upon the above criteria, in July 2003, we granted Mr. Long
time-vested options to purchase 53,140 ordinary shares at an exercise price of
$21.20 per share, which was the fair market value of the ordinary shares at the
date of the grant. At the same time, we also granted Mr. Long 159,400 contingent
options to purchase ordinary shares at an exercise price of $21.20 and 97,240
contingent restricted shares. Both the contingent option and contingent
restricted share grants are subject to a two year performance period ending
December 31, 2004, at which time the determination of how many of these options
or shares to be retained by Mr. Long, if any, will be made on the basis of
relative TSR and CFROC measures to peer groups.
STOCK OWNERSHIP GUIDELINES
The Committee believes that it is important for our executives to build
and maintain a significant minimum equity stake in our company and that these
ownership requirements should be an integral part of our performance-based grant
program. Our ownership policy only covers the restricted shares awarded under
this program beginning with the 2003 grants. In order to sell any restricted
shares granted under the program, our ownership policy requires executives to
hold and maintain after the sale vested shares with a value equal to or greater
than the following:
- our Chief Executive Officer -- five times annual base
salary;
- an Executive or Senior Vice President -- three times
annual base salary;
- a Vice President or a Region Manager -- two times
annual base salary.
Should the share price later decline whereby an executive falls below
the required holdings, the executive is precluded from further sales of
restricted shares granted under the program until such time as the executive
again meets the ownership requirements. Ownership status by each executive shall
be reviewed by the Committee on an annual basis. The Committee will consider the
size of and/or eligibility for any future awards to any executive found to have
knowingly violated the above requirements.
LIMITATIONS ON DEDUCTIBILITY OF NON-PERFORMANCE BASED COMPENSATION
To the extent attributable to our U.S. subsidiaries and otherwise
deductible, Section 162(m) of the U.S. Internal Revenue Code limits the tax
deduction that our U.S. subsidiaries can take with respect to the compensation
of designated executive officers, unless the compensation is
"performance-based." The Committee expects that all income recognized by
executive officers upon the exercise of stock options granted under the
Long-Term Incentive Plan will qualify as performance-based compensation.
Under the Long-Term Incentive Plan, the Committee has the discretion to
award performance-based cash compensation that qualifies under Section 162(m) of
the U.S. Internal Revenue Code based on the achievement of objective performance
goals. All of our executive officers are eligible to receive this type of award.
The Committee has determined, and may in the future determine, to award
compensation that does not qualify under Section 162(m) as performance-based
compensation.
CONCLUSION
The Committee believes that the executive compensation philosophy that
we have adopted effectively serves our interests and those of our shareholders.
It is the Committee's intention that the pay delivered to executives be
commensurate with our performance.
This report is issued as of February 11, 2004. The Committee membership
has changed since that date.
RICHARD A. PATTAROZZI, CHAIRMAN ROBERTO L. MONTI
PAUL B. LOYD, JR. KRISTIAN SIEM
15
EXECUTIVE COMPENSATION
The table below shows the compensation during 2001, 2002 and 2003 of
our Chief Executive Officer and our four most highly compensated executive
officers other than our Chief Executive Officer who were serving as executive
officers at the end of 2003 (the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary($) Bonus($)(1) Compensation($) Award($)(2) Options/SARs Compensation($)(5)
------------------ ---- --------- ----------- --------------- ----------- ------------ ------------------
J. Michael Talbert.. 2003 475,000 0 0 0 0 1,887,880(6)
Chairman 2002 851,042 735,000 0 0 200,000(3) 2,318,844(6)
2001 896,218 625,000 0 0 175,000(3) 86,550
Robert L. Long...... 2003 627,000 0 0 2,061,488 212,540(4) 800,322(7)
President and 2002 520,833 400,000 0 0 110,000(3) 968,380(7)
Chief 2001 460,494 260,039 0 0 50,000(3) 46,938
Executive
Officer
Jean P. Cahuzac..... 2003 401,875 0 42,097(9) 1,374,396 141,700(4) 63,744(8)
Executive Vice 2002 395,000 281,768 45,486(9) 0 75,000(3) 57,547(8)
President, 2001 384,244 196,656 50,365(9) 0 50,000(3) 74,708(8)
Chief Operating
Officer
Gregory L. Cauthen.. 2003 309,167 73,118 0 1,030,744 106,270(4) 14,255
Senior Vice 2002 286,458 154,340 0 0 40,000(3) 13,002
President and 2001 176,791 53,270 0 0 30,000(3) 1,060
Chief Financial
Officer
Jan Rask (9)........ 2003 530,000 0 0 0 0 0
President and 2002 242,917 194,103 0 0 0 0
Chief Executive
Officer of TODCO
-----------
(1) The amount shown as "Bonus" for a given year includes amounts
earned with respect to that year but paid in the first quarter
of the following year.
(2) Represents the dollar value of an opportunity to be awarded
shares of restricted stock based on the closing market price
of our ordinary shares on the date the opportunity was granted
(97,240 shares for Mr. Long, 64,830 shares for Mr. Cahuzac and
48,620 shares for Mr. Cauthen), assuming full vesting of the
shares subject to the opportunity. The actual number of
restricted shares that are awarded is subject to
performance-based conditions. One-third of the shares that are
awarded vest at the end of a two-year performance period, and
the remainder vest after years three and four. For a
discussion of our contingent, performance-based equity awards,
see " -- Executive Compensation Committee Report."
(3) Represents time-vested options to purchase our ordinary shares
at fair market value on the date of the grants.
(4) Represents time-vested options to purchase ordinary shares
(53,140 for Mr. Long, 35,430 for Mr. Cahuzac and 26,570 for
Mr. Cauthen) and contingent options to purchase ordinary
shares (159,400 for Mr. Long, 106,270 for Mr. Cahuzac and
79,700 for Mr. Cauthen), in each case at the fair market value
on the date of grant. The actual number of contingent options
that vest is subject to performance-based conditions. For a
discussion of our contingent, performance-based equity awards,
see " -- Executive Compensation Committee Report."
(5) With respect to 2003, the amounts shown as "All Other
Compensation" include the following:
16
Mr. Cahuzac Mr. Cauthen Mr. Long Mr. Rask Mr. Talbert
----------- ----------- -------- -------- -----------
Matching contributions
under the Savings Plan ... 9,000 9,000 9,000 0 9,000
Contributions under the
Supplemental Benefit
Plan.................. ... 10,307 5,255 22,024 0 20,152
Defined contribution
international
retirement benefit plan .. 44,437 0 0 0 0
(6) In addition to the items listed in footnote (5), includes
payments of $1,858,728 in 2003 and $2,272,943 in 2002 to Mr.
Talbert in connection with the change of control provisions in
his former employment agreement. See " -- Employment
Agreements."
(7) In addition to the items listed in footnote (5), includes
payments of $769,298 in 2003 and $942,509 in 2002 to Mr. Long
in connection with the change of control provisions in his
former employment agreement. See " -- Employment Agreements."
(8) For the years 2003, 2002 and 2001, includes payments to Mr.
Cahuzac relating to school fees ($34,463, $30,192 and $31,876,
respectively) and home country travel entitlement ($7,635,
$14,172 and $7,610, respectively).
(9) Mr. Rask began his employment on July 16, 2002 with TODCO, a
publicly traded drilling company in which we own a majority
interest.
OPTIONS GRANTED
The table below contains information with respect to options to
purchase our ordinary shares granted to the named executive officers in 2003.
OPTION/SAR GRANTS IN 2003
Potential Realizable
Individual Grants Value at
---------------------------------------------------- Assumed Annual Rates
% of Total of Company
Number of Options/SARs Share Price
Securities Granted to Appreciation for Option
Underlying Company Exercise Term (10 Years)
Options/SARs Employees in Price Expiration ---------------
Name Granted 2003 ($ /share) Date(1) 5%(2) 10%(2)
---- ------- ---- ---------- ------- ----- ------
J. Michael Talbert........... 0 0 - - $ 0 $ 0
Robert L. Long .............. 53,140(3) 3 $21.20 7/10/13 $ 708,493 $1,795,459
159,400(4) 10 $21.20 7/10/13 $2,125,211 $5,385,702
Jean P. Cahuzac ............. 35,430(3) 2 $21.20 7/10/13 $ 472,373 $1,197,085
106,270(4) 7 $21.20 7/10/13 $1,416,852 $3,590,581
Gregory L. Cauthen........... 26,570(3) 2 $21.20 7/10/13 $ 354,246 $ 897,730
79,700(4) 5 $21.20 7/10/13 $1,062,606 $2,692,851
Jan Rask..................... 0 0 - - $ 0 $ 0
------------------
(1) The options are subject to termination prior to their
expiration date in some cases where employment is terminated.
17
(2) These columns show the gains the named executives and all of
our shareholders could realize if our shares appreciate at a
5% or 10% rate. These growth rates are arbitrary assumptions
specified by the Securities and Exchange Commission, not our
predictions.
(3) Represents time-vested options to purchase ordinary shares.
(4) Represents contingent, performance-based options to purchase
ordinary shares. The actual number of contingent options that
vest is subject to performance-based conditions. For a
discussion of our contingent, performance-based equity awards,
see " -- Executive Compensation Committee Report."
AGGREGATE OPTION EXERCISES
The following table shows information concerning options to purchase
our ordinary shares the named executive officers exercised during 2003, and
unexercised options they held as of December 31, 2003:
AGGREGATED OPTION EXERCISES IN 2003 AND 2003 YEAR-END OPTION VALUE
Number of Securities
Underlying Value of Unexercised,
Unexercised Options In-the-Money Options
Shares at Fiscal Year End at Fiscal Year End
Acquired on Value ------------------- -------------------
Name Exercise Realized Exercisable Unexercisable Exercisable(1) Unexercisable
---- -------- -------- ----------- ------------- ------------- -------------
J. Michael Talbert........... 0 $0.00 713,792 191,668 $1,129,192 $ 0
Robert L. Long............... 0 $0.00 190,999 302,541(2) $ 97,784 $ 770,241
Jean P. Cahuzac.............. 0 $0.00 178,594 208,368(2) $ 43,248 $ 484,679
Gregory L. Cauthen........... 0 $0.00 16,667 127,103(2) $ 0 $ 298,619
Jan Rask..................... 0 $0.00 0 0 0 0
----------------
(1) The value of each unexercised in-the-money option is equal to
the difference between $24.00, which was the closing price of
our ordinary shares on December 31, 2003, and the exercise
price of the option.
(2) Includes contingent, performance-based options to purchase
ordinary shares granted in 2003 (159,400 for Mr. Long, 106,270
for Mr. Cahuzac and 79,700 for Mr. Cauthen). The actual number
of contingent options that vest is subject to
performance-based conditions. For a discussion of our
contingent, performance-based equity awards, see " --
Executive Compensation Committee Report."
DEFINED BENEFIT PLANS
We maintain a U.S. Retirement Plan for our qualifying employees and
officers and those of participating subsidiaries. In general, we base annual
retirement benefits on average covered compensation for the highest five
consecutive years of the final ten years of employment and years of service. We
include salaries and bonuses as covered compensation under the U.S. Retirement
Plan. We do not include (1) amounts relating to the grant or vesting of
restricted shares, the exercise of options and SARs, and receipt of tax-offset
supplemental payments with respect to options, SARs or restricted shares, or (2)
employer contributions under our Savings Plan or our Supplemental Benefit Plan.
The maximum annual retirement benefit under our U.S. Retirement Plan is
generally 60% of the participant's average covered compensation minus 19.5% of
his or her covered social security earnings. The eligible survivors of a
deceased U.S. Retirement Plan participant are entitled to a survivor's benefit
under the plan.
Eligible participants in our U.S. Retirement Plan and their eligible
survivors are entitled to receive retirement and survivors benefits that would
have been payable under the U.S. Retirement Plan but for the fact that benefits
payable under funded pension plans are limited by U.S. tax laws. As a general
rule, during 2003, the U.S. tax laws limited annual benefits under tax-qualified
retirement plans to $160,000, subject to reduction in some cases, and required
those plans to disregard any portion of the participant's 2003 compensation in
excess of $200,000. A
18
participant may choose to have these benefits paid either as a life annuity or
in a cash lump sum upon termination of employment.
Mr. Cahuzac is a non-U.S. citizen and participated in a defined
contribution international retirement plan. Effective January 1, 2004, he began
participation in our U.S. Retirement Plan. Mr. Rask does not participate in our
U.S. Retirement Plan or our Supplemental Benefit Plan.
The following table shows the estimated pension benefits payable under
the pension plan and the supplemental benefit plan at age 65 based on
compensation that is covered by the pension plan and the supplemental benefit
plan, years of service with us and the payment in the form of a lifetime
annuity:
YEARS OF SERVICE
FINAL AVERAGE -------------------------------------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35
--------------------------------------------------------------------------------------------------------------------
$ 100,000 $ 20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000
$ 300,000 $ 60,000 $ 90,000 $ 120,000 $ 150,000 $ 180,000 $ 180,000
$ 500,000 $ 100,000 $ 150,000 $ 200,000 $ 250,000 $ 300,000 $ 300,000
$ 700,000 $ 140,000 $ 210,000 $ 280,000 $ 350,000 $ 420,000 $ 420,000
$ 900,000 $ 180,000 $ 270,000 $ 360,000 $ 450,000 $ 540,000 $ 540,000
$ 1,100,000 $ 220,000 $ 330,000 $ 440,000 $ 550,000 $ 660,000 $ 660,000
$ 1,300,000 $ 260,000 $ 390,000 $ 520,000 $ 650,000 $ 780,000 $ 780,000
$ 1,500,000 $ 300,000 $ 450,000 $ 600,000 $ 750,000 $ 900,000 $ 900,000
$ 1,700,000 $ 340,000 $ 510,000 $ 680,000 $ 850,000 $ 1,020,000 $ 1,020,000
$ 1,900,000 $ 380,000 $ 570,000 $ 760,000 $ 950,000 $ 1,140,000 $ 1,140,000
Annual benefits are shown before deduction of 6.5% of average covered
social security earnings after 10 years of service, 9.75% after 15 years of
service, 13.0% after 20 years of service, 16.25% after 25 years of service, and
19.25% after 30 or more years of service.
The Final Average Earnings as of December 31, 2003 for Messrs. Talbert,
Long and Cauthen were $1,497,602, $724,899, and $348,953 respectively. Messrs.
Talbert, Long and Cauthen have approximately 9.33, 28.50, and 2.58 years,
respectively, of credited service under the pension plan and the supplemental
benefit plan.
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return of (1)
our ordinary shares, (2) the Standard & Poor's 500 Stock Index and (3) the
Simmons & Company International Upstream Index over our last five fiscal years.
The graph assumes that $100 was invested in our ordinary shares and each of the
other two indices on December 31, 1997, and that all dividends were reinvested
on the date of payment.
19
CUMULATIVE TOTAL SHAREHOLDER RETURN
INDEXED TOTAL SHAREHOLDER RETURN
DECEMBER 31, 1999 -- DECEMBER 31, 2003
[PERFORMANCE GRAPH]
December 31,
------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
Transocean 100.00 136.84 101.25 69.94 72.34
S&P 500 100.00 90.90 80.12 62.44 80.24
Simmons Upstream Index 100.00 169.81 126.92 121.69 140.14
CHANGE OF CONTROL PROVISIONS OF BENEFIT PLANS
Some of our benefit plans provide for the acceleration of benefits in
the event of a change of control of our company. A change of control generally
includes acquisitions of beneficial ownership of 20% or more of our ordinary
shares, changes in board composition and certain merger and sale transactions.
Upon the occurrence of a change of control, all outstanding restricted
shares actually granted under the Long-Term Incentive Plan will immediately vest
and all options and SARs granted under the Long-Term Incentive Plan to outside
directors or held by then-current employees will become immediately exercisable.
Half of the shares subject to performance-based opportunities to be awarded
shares of restricted stock that were granted to certain employees in 2003 but
have not yet been determined will immediately vest upon the occurrence of a
change of control. In addition, the executive compensation committee may provide
that if a SAR is exercised within 60 days of the occurrence of a change of
control, the holder will receive a payment equal to the excess over the amount
otherwise due of the highest price per ordinary share paid during the 60-day
period prior to exercise of the SAR. The executive compensation committee also
may provide that the holder is entitled to a supplemental payment on that
excess. Those payments are in addition to the amount otherwise due on exercise.
Also, upon the occurrence of a change of control, the participant will become
vested in 100% of the maximum performance award he could have earned under our
Performance Award and Cash Bonus Plan for the proportionate part of the
performance period prior to the change of control and will retain the right to
earn out any additional portion of his award if he remains in our employ. If the
amendment of our Long-Term Incentive Plan is approved by shareholders, it will
provide for minimum vesting restrictions for restricted share and deferred unit
awards.
The Sedco Forex merger constituted a change of control under our
Long-Term Incentive Plan and Performance Award and Cash Bonus Plan.
20
CONSULTING AGREEMENTS WITH DIRECTORS
As part of the Sedco Forex merger and as a condition to his appointment
as Chairman of the Board, we entered into a consulting agreement with Victor E.
Grijalva. The consulting agreement terminated in July 2003 and contained the
following material terms:
- Mr. Grijalva remained as a member of our board and provided
consulting services to us, as an independent contractor, with
regard to long-range planning, strategic direction and
integration and rationalization matters;
- we paid Mr. Grijalva $400,000 per year;
- we were to indemnify Mr. Grijalva in connection with the
services he provided to the fullest extent available under our
articles of association; and
- Mr. Grijalva was entitled to the non-cash compensation and
benefits we provided to non-employee directors.
Mr. Grijalva received a pro rata portion of the normal director
retainer for part of 2003 after the expiration of his consulting agreement.
At the time of the R&B Falcon merger, R&B Falcon entered into a
consulting agreement with Paul B. Loyd, Jr. The consulting agreement, which has
now expired, contained the following material terms:
- the term of the consulting agreement was for a period of two
years following the date of Mr. Loyd's termination of
employment from R&B Falcon, which occurred on January 31,
2001, and he could terminate it at any time on 30 days'
advance written notice;
- Mr. Loyd would provide consulting services with regard to
strategies, policies, special projects, incentives, goals and
other matters related to the development and growth of R&B
Falcon for a minimum of 30 hours per month;
- Mr. Loyd agreed not to perform substantially similar services
during the term of the consulting agreement for any other
company that provides offshore contract drilling services;
- we would pay Mr. Loyd $360,000 per year and he would waive all
director's fees or other remuneration that he would otherwise
receive for being a member of our board of directors; and
- Mr. Loyd would be entitled to reimbursement of expenses
incurred in providing consulting services.
Mr. Grijalva and Mr. Loyd are now entitled to the same compensation and
benefits as other non-employee members of the board in accordance with our
policies.
EMPLOYMENT AGREEMENTS
During September and October 2000, we entered into new agreements with
some of our executive officers, including Messrs. Talbert and Long. These
agreements replaced agreements entered into prior to the Sedco Forex merger. The
prior agreements provided that the occurrence of a change in control triggered
employment agreements which contained provisions that allowed executives to
leave for any reason during a specified period following the change of control
and receive the payments defined in the employment agreements, which generally
guaranteed a minimum salary and bonus for a period of three years. The Sedco
Forex merger triggered these provisions, and as a result, the executives could
have left for any reason during January 2001 and received the payments under the
employment agreements. In order to induce the executives to remove such right
and remain with our company, we offered the executives either (a) a cash payment
equivalent to the amount otherwise due under the employment agreement as if the
executive left in January 2001 to be vested and paid, with interest, over a
three year period in
21
equal annual installments commencing January 2002, in exchange for termination
of the employment agreement (such amounts would become payable if the executive
remained employed, and would become payable in a lump sum if the executive's
termination occurred due to death, disability or termination without cause, or
due to certain reductions in authority or base salary), or (b) an extension of
the existing employment agreement for three years beyond the current one month
trigger period with a first term of 18 months during which the employee commits
to remain with our company, followed by an additional term of 18 months
(commencing July 1, 2002) during which the employee can self trigger the payment
rights to predetermined amounts, with interest, under the employment agreement
by terminating his or her employment. Messrs. Talbert and Long entered into
agreements described in clause (b) of the foregoing sentence. None of the new
agreements contain change of control provisions. The agreements with Messrs.
Talbert and Long provide that in the event the payments called for under the
agreement would subject the executive to an excise tax under Section 4999 of the
U.S. Internal Revenue Code, the executive will be entitled to receive an
additional "gross-up" payment in some circumstances.
In May 2002, Mr. Long entered into an agreement revoking his employment
agreement described above, which had provided him a right to leave for any
reason and receive his change of control payments. The new agreement provides
for a cash payment of $2,142,756 to be vested and paid, with interest, over a
three year period in equal annual installments beginning June 1, 2002. The
amount of this payment is approximately equal to the amount Mr. Long would have
been entitled to receive under his employment agreement if his employment had
been terminated in January 2001.
In October 2002, in connection with the change in his duties with our
company, Mr. Talbert entered into an agreement revoking his employment agreement
described above, which had provided him a right to leave for any reason and
receive his change of control payments. The new agreement provides for the
reduction in his annual salary to $475,000 and a cash payment of $4,877,593 to
be vested and paid, with interest, over a three year period in equal annual
installments beginning October 2002. The amount of this payment is approximately
equal to the amount Mr. Talbert would have been entitled to receive under his
prior employment agreement if his employment had been terminated in January
2001. The agreement also provides that Mr. Talbert will tender his resignation
as Chairman of the Board for action by the board of directors on the earliest to
occur of any regularly scheduled meeting of the board of directors in October
2004 and October 16, 2004.
The charter of the executive compensation committee has now been
changed to prohibit "single-trigger" change of control employment agreements
that are triggered solely by a change of control.
Neither Mr. Cahuzac nor Mr. Cauthen is a party to an employment
agreement with us.
TODCO entered into an employment agreement with Mr. Rask effective as
of July 16, 2002, as amended on December 12, 2003, to serve as Chief Executive
Officer and President of TODCO in exchange for specified compensation and
benefits. The initial term of his employment agreement ends on January 16, 2007.
Afterwards, the agreement automatically renews for an additional one-year term
on each anniversary of the effective date of the agreement unless either party
gives at least a six-month advance written notice of nonrenewal. Mr. Rask's
employment agreement calls for a minimum base salary of $530,000 per year, which
will be reviewed at least annually and may be increased afterwards. The
agreement also affords Mr. Rask the opportunity to receive an annual
discretionary bonus that is tied to his achievement of specified performance
objectives established by TODCO's board of directors. Mr. Rask's annual
discretionary bonus is calculated by multiplying his percentage of attained
objectives by his annual target bonus, which is a specified percentage of his
base salary. For each year of the initial term of his employment agreement, Mr.
Rask's annual target bonus will be no less than 70% of his base salary. Under
the agreement, Mr. Rask also is eligible to receive stock option awards at the
discretion of TODCO's board of directors and is entitled to participate in
TODCO's applicable incentive, savings, retirement and welfare plans and to
receive specified perquisites.
Under the employment agreement, Mr. Rask received a nonqualified stock
option to purchase 1,200,000 shares of TODCO Class A common stock immediately
after the closing of the initial public offering of TODCO. The exercise price of
the shares subject to the option, $12.00, is equal to the price to the public
for the shares sold in the offering. The option has a ten-year term (except in
the case of Mr. Rask's termination) and one-half of the shares subject to the
option became exercisable on February 10, 2004, the closing date of the
offering. The remaining shares subject to the option become exercisable the
first two anniversaries of the closing date of the offering in equal
22
increments. In addition to the option, Mr. Rask received 156,496 restricted
shares of TODCO Class A common stock. The restricted shares vest on July 16,
2005. The option and restricted shares are subject to the other terms and
conditions, consistent with the foregoing, of TODCO's incentive plan and the
applicable award agreement.
Under the employment agreement, if Mr. Rask voluntarily terminates his
employment (other than in connection with a "change in control" as defined in
the agreement) with 90 days' advance written notice or if his employment is
terminated due to death or disability, he will receive his unpaid base salary
through his termination date, any bonus payable for the relevant year and any
other benefits to which he has a vested right. Additionally, in the event of a
termination due to death or disability, the option and restricted shares awarded
to him, will fully vest and the option will remain exercisable for its full
term.
Upon termination of his employment by TODCO (except under limited
circumstances defined as for "cause" in the agreement), Mr. Rask will receive
(1) his unpaid base salary for his remaining employment term (which includes the
initial term and any renewals), (2) any bonus payable for the relevant year, (3)
full vesting of the option awarded to him and exercisability through its full
term, (4) full vesting of restricted shares awarded to him and (5) any other
benefits to which he has a vested right.
In the event of a termination of his employment by TODCO (except under
limited circumstances defined as for "cause" in the agreement) or by Mr. Rask
for specified reasons, such as his removal from the position of Chief Executive
Officer and President of TODCO, or the assignment to him of duties materially
inconsistent with his position with TODCO (for "good reason"), within the
18-month period immediately following a "change in control" as defined in the
agreement (a "change in control termination"), Mr. Rask will be entitled to
receive (1) three times his annual compensation for the year of termination
(which is the sum of his base salary and his annual target bonus, or, if
greater, the highest bonus paid to him under the agreement during the most
recent 36-month period), (2) any bonus payable for the relevant year, (3)
continuation of specified welfare benefits for three years, (4) full vesting of
the option awarded to him, and exercisability through its full term, and (5)
full vesting of restricted shares awarded to him.
The employment agreement also provides for covenants limiting
competition with TODCO, or any of its affiliates, and limiting solicitation for
employment of any of TODCO's employees, or any employees of its affiliates, for
18 months following a change in control termination or for one year following
any other termination of employment and a covenant to keep specified nonpublic
information relating to TODCO, or any of its affiliates, confidential. With
respect to any payment or distribution to Mr. Rask the agreement provides for a
tax gross-up payment designed to keep him whole with respect to any taxes
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the executive compensation committee of the board of
directors during the last completed fiscal year were Mr. Kuehn, Chairman until
his resignation from the board in March 2003, Alain Roger, who retired in May
2003, Mr. Pattarozzi, Chairman subsequent to Mr. Kuehn, and Messrs. Loyd, Monti
and Siem. There are no matters relating to interlocks or insider participation
that we are required to report.
CERTAIN TRANSACTIONS
We own a 50 percent interest in an unconsolidated joint venture
company, Overseas Drilling Limited ("ODL"), which owns the drillship Joides
Resolution. DSND Inc. owns the other 50 percent interest in ODL. Our director,
Kristian Siem, is the chairman of DSND and is also a director and officer of
ODL. We provide operational and management services to ODL, and we earned $1.2
million for these services in 2003. ODL also reimburses us for costs which we
incur in connection with these services, and we were reimbursed $5.9 million for
these services in 2003. ODL also distributed dividends of approximately $5.3
million to us in 2003. ODL loaned $1 million, interest-free, to each of DSND and
us in March 2003, and these loans were repaid in September 2003. Mr. Siem is
also chairman and chief executive officer of Siem Industries, Inc., which owns
more than a 50 percent interest in DSND.
23
PROPOSAL TO AMEND OUR LONG-TERM INCENTIVE PLAN
DESCRIPTION OF THE PROPOSAL
Consistent with the board's increased emphasis on performance-based
equity awards and its desire to compensate directors with deferred units that
must be held until they leave the board, our board of directors has unanimously
adopted a resolution to submit to a vote of our shareholders a proposal to amend
our Long-Term Incentive Plan to:
- provide for awards of deferred units, which are units equal to
one ordinary share each and are used to measure the benefits
payable to the holder of the award,
- provide that any award may be designated as a performance
award,
- provide for additional business criteria that may be used to
establish goals for performance awards,
- replace automatic awards to outside directors with
discretionary awards that are determined by our board,
- provide that outside directors are eligible for any type of
award except for cash awards,
- restate the performance criteria specified in the plan for
certain types of awards,
- allow net share counting in determining the number of shares
available for issuance under the plan,
- provide for minimum vesting restrictions for restricted share
and deferred unit awards,
- modify provisions relating to the amendment of the plan, and
- provide that the plan has a 10-year term.
No awards may be granted under the amended and restated incentive plan after the
tenth anniversary of the date on which our shareholders approve this proposal.
The board believes that the amendment is necessary to change the nature of the
awards to our directors and to allow flexibility in the types of awards that we
grant under the plan.
Because as of December 31, 2003 we had only 6,597,903 authorized shares
remaining under the plan that can be issued to employees (assuming all
outstanding awards vest and are exercised, including all contingent,
performance-based awards), including only 1,170,935 shares that can be issued as
restricted shares, the proposal would also increase the number of ordinary
shares reserved for issuance to employees under the plan from 18,900,000 to
22,900,000 and the number of restricted shares or deferred units that may be
issued to employees under the plan from 2,000,000 to 6,000,000. The total number
of shares authorized under the plan for issuance to employees and directors
would be 23,500,000, of which 10,803,384 would remain available for issuance.
If the proposal is approved by shareholders, the board intends to grant
deferred units following the annual meeting to directors equal in value to
$62,000 based upon the average price of our ordinary shares for the 10 trading
days prior to the annual meeting. This amount is intended to represent
approximately half of a director's total annual compensation. This grant would
be in lieu of the current annual grant of stock options/stock appreciation
rights to our directors. The board may grant directors joining our board after
the annual meeting an award but it has not yet made a determination.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO APPROVE THE AMENDMENT TO OUR LONG-TERM INCENTIVE PLAN.
24
PRINCIPAL PROVISIONS OF THE PROPOSED LONG-TERM INCENTIVE PLAN
The following summary of the proposed amended and restated long-term
incentive plan is qualified by reference to the full text of the proposed
amended and restated plan, which is attached as Appendix B to this proxy
statement.
Our officers are eligible to participate in the incentive plan, as are
employees of our company and our subsidiaries (other than TODCO) and of
partnerships or joint ventures in which we and our subsidiaries have a
significant ownership interest, as determined by the executive compensation
committee. Our outside directors are also eligible to participate in the plan.
Approximately 388 current employees and all of our current outside directors
have received awards under the plan. All of our officers, employees and outside
directors are eligible to receive awards under the plan at present.
With respect to awards to employees, the plan is administered by the
executive compensation committee of our board of directors. We believe that all
of the members of this committee are currently "non-employee directors" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 and "outside
directors" within the meaning of Section 162(m) of the U.S. Internal Revenue
Code (the "Code"). The committee will administer the plan and will have the
authority to interpret and amend the plan, adopt administrative regulations for
the operation of the plan and determine and amend the terms of awards to
employees under the plan. It is intended that the grant of awards under the
amended and restated incentive plan, after approval by shareholders, will
satisfy the requirements of Section 162(m) of the Code, as applicable to
limitations on deductions of compensation expenses in excess of $1 million for
certain executive officers.
With respect to awards to eligible outside directors, the plan is
administered and interpreted by our board of directors. The board has the
authority to designate the directors to receive awards under the plan and the
type and amount of awards to be granted and the authority to amend the terms of
awards to outside directors.
Under the plan, options to purchase ordinary shares, share appreciation
rights in tandem with options, freestanding share appreciation rights,
restricted shares, deferred units, cash awards and performance awards may be
granted to employees at the discretion of the committee. With the exception of
cash awards, these same awards may be granted to outside directors at the
discretion of our board of directors. The committee (or the board, with respect
to outside directors) may provide for a supplemental cash payment upon the
exercise of an option or share appreciation right or the vesting of a restricted
share or deferred unit award to cover the participant's tax burden associated
with the exercise or vesting.
The aggregate number of ordinary shares that may be issued under the
plan with respect to options and share appreciation rights (including those
designated as performance awards) granted to employees may not exceed 22,900,000
shares. Of such 22,900,000 shares, the aggregate number of ordinary shares that
may be issued under the plan with respect to restricted share and deferred units
awards (including those designated as performance awards) to employees may not
exceed 6,000,000 shares. All shares available for awards under the plan may be
issued with respect to incentive stock options. The aggregate number of ordinary
shares that may be issued under the plan with respect to awards to outside
directors may not exceed 600,000 shares. The shares issued under the plan may be
ordinary shares held in treasury or authorized but unissued ordinary shares. As
of December 31, 2003, 205,481 shares remained available for award to directors.
Cash tax-offset supplemental payments will not count against the limits
above. Lapsed, forfeited or canceled awards, including options canceled upon the
exercise of tandem share appreciation rights, will not count against these
limits and can be regranted under the plan. If the exercise price of an option
is paid in ordinary shares or if ordinary shares are withheld from payment of an
award to satisfy tax obligations with respect to the award, those shares will
also not count against the above limits. If the exercise price of an option is
satisfied by a cash payment to our company by the participant or by or for the
account of the participant, the number of ordinary shares equal to the cash
payment to our company divided by the fair market value of the shares on the
payment date will be added to the number of shares available for future awards
(other than incentive stock options) under the incentive plan. Ordinary shares
that are delivered under the plan as an award or in settlement of an award
issued or made (1) upon the assumption, substitution, conversion or replacement
of outstanding awards under a plan or arrangement of an entity acquired in a
merger or other acquisition or (2) as a post-transaction grant under such plan
or arrangement
25
of an acquired entity will not count against the limits above (to the extent
that the exemption for transactions in connection with mergers or acquisitions
from the shareholder approval requirements of the New York Stock Exchange for
equity compensation plans applies).
No participant may be granted options, share appreciation rights,
restricted shares or deferred units, or any combination of the foregoing, with
respect to more than 600,000 ordinary shares in any fiscal year. No participant
may be granted a supplemental payment in any fiscal year with respect to more
than the number of ordinary shares covered by or relating to options,
freestanding share appreciation rights, restricted shares or deferred units
granted to such participant in any such fiscal year. No employee may receive a
payment for cash awards under the plan during any calendar year in an amount
that exceeds $2 million.
The committee (or the board, with respect to outside directors)
determines, in connection with each option awarded to a participant, the
exercise price, whether that price is payable in cash, ordinary shares or by
cashless exercise, the terms and conditions of exercise, restrictions on
transfer of the option, and other provisions not inconsistent with the plan.
With respect to options awarded to employees, the committee also determines
whether the option will qualify as an incentive stock option under the Code, or
a non-qualified option. The committee (or the board, with respect to outside
directors) is also authorized to grant share appreciation rights to plan
participants, either as freestanding awards or in tandem with an option. Every
share appreciation right entitles the participant, upon exercise of the share
appreciation right, to receive in cash or ordinary shares a value equal to the
excess of the market value of a specified number of ordinary shares at the time
of exercise, over the exercise price established by the committee (or the board,
with respect to outside directors). The plan requires that the exercise price of
options and share appreciation rights be at least equal to the fair market value
of our ordinary shares on the date of grant. The term of options and share
appreciation rights under the plan may not exceed 10 years, except that the
committee (or the board, with respect to outside directors) may extend the term
for up to one year following the death of the participant.
The committee (or the board, with respect to outside directors) is
authorized to grant participants awards of restricted shares or deferred units.
The committee (or the board, with respect to outside directors) will determine
the nature, extent and duration of any restrictions on restricted shares and the
schedule and conditions for vesting of such shares. The vesting of restricted
shares may be conditioned on the completion of a specified period of employment
or service, the attainment of specified performance goals, or such other
criteria as determined by the committee (or the board, with respect to outside
directors) in its discretion. A deferred unit is a unit that is equal to one
ordinary share, which is used to measure the benefits payable to a participant
under a deferred unit award. The committee (or the board, with respect to
outside directors) will determine the number of units awarded, the price (if
any) to be paid by the participant and the date or dates upon which the units
will vest. As with restricted shares, the vesting of deferred units may be
conditioned on the completion of a specified period of employment or service,
the attainment of specified performance goals, or such other criteria as
determined by the committee (or the board, with respect to outside directors) in
its discretion. Notwithstanding the foregoing, any restricted share or deferred
unit award that is designated as a performance award may not vest earlier than
the first anniversary of the initial date of the award (except that the
committee (or the board with respect to outside directors) may provide for
earlier vesting upon a termination of employment or service due to death,
disability or retirement). In addition, any restricted share or deferred unit
award that is not designated as a performance award may not vest earlier than
one-third on each of the first three anniversaries of the date of grant of such
award (except that the committee (or the board with respect to outside
directors) may provide for earlier vesting upon a termination of employment or
service due to death, disability or retirement and such restriction does not
apply to an award that is granted in lieu of salary or bonus). The committee (or
the board, with respect to outside directors) determines the other terms,
conditions, restrictions and contingencies applicable to awards of restricted
shares or deferred units.
The committee may also provide for cash awards to employees based on
the achievement of one or more objective performance goals preestablished by the
committee. Outside directors are not entitled to receive cash awards.
Any award granted under the plan may be designated as "qualified
performance-based compensation" under Section 162(m) of the Code. If so
designated, such performance award will be contingent upon our performance
during the performance period, as measured by targets established by the
committee, based on any one or more of:
26
- increased revenue;
- net income measures (including, but not limited to, income
after capital costs and income before or after taxes);
- ordinary share price measures (including, but not limited to,
growth measures and total shareholder return);
- price per ordinary share;
- market share;
- earnings per share (actual or targeted growth);
- earnings before interest, taxes, depreciation and amortization
("EBITDA");
- economic value added (or an equivalent metric);
- market value added;
- debt to equity ratio;
- cash flow measures (including, but not limited to, cash flow
return on tangible capital, cash flow return on capital, cash
flow value added, net cash flow and net cash flow before
financing activities);
- return measures (including, but not limited to, return on
equity, return on average assets, return on capital,
risk-adjusted return on capital, return on investors' capital
and return on average equity);
- operating measures (including operating income, funds from
operations, cash from operations, after-tax operating income,
sales volumes, production volumes and production efficiency);
- expense measures (including, but not limited to, overhead
costs and general and administrative expense);
- margins;
- shareholder value;
- total shareholder return;
- proceeds from dispositions;
- total market value; and
- corporate values measures (including ethics compliance,
environmental and safety).
Such performance measures may apply to the employee, to one or more
business units or divisions of our company or the applicable sector, or to our
company as a whole. Goals may also be based on performance relative to a peer
group of companies. If the committee intends for the performance award to be
granted and administered in a manner that preserves the deductibility of the
compensation resulting from such award in accordance with Section 162(m) of the
Code with respect to our U.S. affiliates, the performance goals must be
established (1) no later than 90 days after the commencement of the period of
service to which the performance goals relate and (2) prior to the completion of
25% of such period of service. The committee may modify or waive the performance
goals or
27
conditions to the granting or vesting of a performance award unless the
performance award is intended to qualify as performance-based compensation under
Section 162(m) of the Code. Section 162(m) of the Code generally disallows
deductions for U.S. federal tax purposes for compensation in excess of $1
million for some executive officers unless they meet the requirements for being
performance-based.
We have not granted any incentive options to date under the plan but
could determine to do so in the future.
The number and kind of shares covered by the plan and by outstanding
awards under the plan and the exercise price of outstanding awards are subject
to adjustment in the event of any:
- reorganization;
- recapitalization;
- stock dividend;
- stock split;
- merger;
- rights offer;
- liquidation;
- dissolution;
- spin-off
- consolidation;
- sale of assets;
- payment of an extraordinary cash dividend; or
- any other change in or affecting our corporate structure or
capitalization.
Upon the occurrence of a change of control, following the grant of an
award, the plan provides, with respect to awards other than performance-based
awards, that (1) all outstanding restricted shares and deferred units will
immediately vest and (2) all options and share appreciation rights held by a
participant who is an employee of our company or subsidiary or an outside
director of our company at the time of such change in control will become
immediately exercisable and will remain exercisable for the remainder of their
term.
The board has the authority to amend, alter, discontinue the plan at
any time, provided that such amendment, alteration or discontinuance does not
impair the rights of any participant under any outstanding award without such
participant's consent. No amendment to the plan will be made without shareholder
approval if such approval is required by Rule 16b-3 of the Securities Exchange
Act of 1934, Section 162(m) of the Code, or any other applicable law, agreement
or stock exchange requirement. In addition, shareholder approval of an amendment
to the plan is required under the plan if such amendment would:
- expand the classes of persons to whom awards may be made under
the plan;
- increase the number of ordinary shares reserved for awards;
28
- increase the number of ordinary shares that may be granted
pursuant to awards to any one participant;
- increase the number of ordinary shares available for
restricted share or deferred unit awards;
- permit unrestricted ordinary shares to be granted other than
in lieu of cash payments under other incentive plans and
programs of our company and subsidiaries;
- allow the creation of additional types of awards;
- permit shortening the minimum restriction periods with respect
to restricted share awards, the minimum vesting periods with
respect to deferred unit awards or removing or waiving
performance objectives (except to the extent permitted under
other plan provisions); or
- change any of these amendment provisions.
The committee (or the board, with respect to outside directors) has the
authority to amend any award, prospectively or retroactively (in accordance with
plan terms), except that no amendment may be made that would impair the rights
of any participant under any outstanding award without such participant's
consent or that would cause a performance award intended to qualify for a
section 162(m) exemption to cease to qualify for such exemption. The committee
(or the board, with respect to outside directors) may also cancel any award with
the participant's consent and grant a new award to such participant, provided
that the exercise or base price of the new award is not less than (1) the
original exercise price or base price of the option or share appreciation right
that is relinquished in connection with the grant of such new award or (2) the
then current market price of the ordinary shares on the date of grant of any
outstanding option or share appreciation right that is relinquished in
connection with the grant of such new award.
The amended and restated incentive plan will be effective as of January
1, 2004, subject to shareholder approval. Our board of directors may at any time
amend, suspend or terminate the plan, but in doing so cannot adversely affect
any outstanding awards without the participant's written consent. Unless
terminated earlier by the board, no awards may be made under the plan after the
tenth anniversary of the date on which the amended and restated incentive plan
is approved by our shareholders.
The amount and type of awards to be granted in the future under the
plan to the named officers, to all executive officers as a group and to all
other employees, or that would have been received by those individuals last year
had the plan as amended and restated then been in effect, are not currently
determinable.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the general rules of present U.S. federal
income tax law relating to the tax treatment of incentive stock options,
non-qualified stock options, share appreciation rights, restricted shares
awards, deferred unit awards and cash awards issued under the plan as they apply
to U.S. affiliates or participants. The discussion is general in nature and does
not take into account a number of considerations that may apply based on the
circumstances of a particular participant under the plan, including the
possibility that a participant may not be subject to U.S. federal income
taxation. When the terms "we", "our", "us" or "our company" is used in this
section, the term is understood to mean a U.S. operating subsidiary of
Transocean.
Non-Qualified Stock Options; Share Appreciation Rights; Incentive Stock
Options. Participants will not realize taxable income upon the grant of a
non-qualified stock option or a share appreciation right. Upon the exercise of a
non-qualified stock option or a share appreciation right, the participant will
recognize ordinary income (subject to withholding) in an amount equal to the
excess of (1) the fair market value on the date of exercise of the ordinary
shares received over (2) the exercise price (if any) he or she paid for the
shares. The participant will generally have a tax basis in any ordinary shares
received pursuant to the exercise of a share appreciation right, or pursuant to
the cash exercise of a non-qualified stock option, that equals the fair market
value of such shares on the date of exercise. Subject to the discussion under
"Certain Tax Code Limitations on Deductibility" below, our U.S.
29
subsidiaries will be entitled to a deduction, to the extent attributable to
them, for U.S. federal income tax purposes that corresponds as to timing and
amount with the compensation income recognized by the participant under the
foregoing rules. The disposition of the ordinary shares acquired upon exercise
of a non-qualified stock option will ordinarily result in capital gain or loss.
Employees will not have taxable income upon the grant of an incentive
stock option. Upon the exercise of an incentive stock option, the employee will
not have taxable income, although the excess of the fair market value of the
ordinary shares received upon exercise of the incentive stock option ("ISO
Shares") over the exercise price is an item of tax preference that may require
payment of an alternative minimum tax. The payment of any alternative minimum
tax attributable to the exercise of an incentive stock option would be allowed
as a credit against the employee's regular tax liability in a later year to the
extent the employee's regular tax liability is in excess of the alternative
minimum tax for that year.
Upon the disposition of ISO Shares that have been held for the
requisite holding period (generally, at least two years from the date of grant
and one year from the date of exercise of the incentive stock option), the
employee will generally recognize capital gain (or loss) equal to the difference
between the amount received in the disposition and the exercise price paid by
the employee for the ISO Shares. However, if an employee disposes of ISO Shares
that have not been held for the requisite holding period (a "disqualifying
disposition"), the employee will recognize ordinary income in the year of the
disqualifying disposition to the extent that the fair market value of the ISO
Shares at the time of exercise of the incentive stock option (or, if less, the
amount realized in the case of an arm's-length disqualifying disposition to an
unrelated party) exceeds the exercise price paid by the employee for such ISO
Shares. The employee would also recognize capital gain (or, depending on the
holding period, additional ordinary income) to the extent the amount realized in
the disqualifying disposition exceeds the fair market value of the ISO Shares on
the exercise date. If the exercise price paid for the ISO Shares exceeds the
amount realized in the disqualifying disposition (in the case of an arm's-length
disposition to an unrelated party), such excess would ordinarily constitute a
capital loss.
We will generally not be entitled to any U.S. federal income tax
deduction upon the grant or exercise of an incentive stock option, unless the
employee makes a disqualifying disposition of the ISO Shares. If an employee
makes such a disqualifying disposition, we will then, subject to the discussion
below under "Certain Tax Code Limitations on Deductibility," be entitled to a
tax deduction that corresponds as to timing and amount with the compensation
income recognized by the employee under the rules described in the preceding
paragraph.
Under current rulings, if a participant transfers previously held
ordinary shares (other than ISO Shares that have not been held for the requisite
holding period) in satisfaction of part or all of the exercise price of a
non-qualified stock option or an incentive stock option, the participant will
recognize income with respect to the ordinary shares received in the manner
described above, but no additional gain will be recognized as a result of the
transfer of such previously held shares in satisfaction of the non-qualified
stock option or incentive stock option exercise price. Moreover, that number of
ordinary shares received upon exercise that equals the number of previously held
ordinary shares surrendered in satisfaction of the non-qualified stock option or
incentive stock option exercise price will have a tax basis that equals, and a
holding period that includes, the tax basis and holding period of the previously
held ordinary shares surrendered in satisfaction of the non-qualified stock
option or incentive stock option exercise price. Any additional ordinary shares
received upon exercise will have a tax basis that equals the amount of cash (if
any) paid by the participant, plus, in the case of a non-qualified stock option,
the amount of ordinary income recognized by the participant with respect to the
ordinary shares received.
Cash Awards; Deferred Units; Restricted Shares. A participant will
recognize ordinary compensation income upon receipt of cash pursuant to a cash
award or, if earlier, at the time such cash is otherwise made available for the
participant to draw upon it. A participant will not have taxable income upon the
grant of a deferred unit award but rather will generally recognize ordinary
compensation income at the time the participant receives ordinary shares in
satisfaction of such deferred unit award in an amount equal to the fair market
value of the ordinary shares received.
Generally, a participant will not recognize taxable income upon the
grant of restricted shares and we will not be entitled to any U.S. federal
income deduction upon the grant of such award. The value of the restricted
shares will generally be taxable to the participant as compensation income in
the year or years in which the restrictions on
30
the ordinary shares lapse. Such value will equal the fair market value of the
ordinary shares on the date or dates the restrictions terminate. A participant,
however, may elect pursuant to Section 83(b) of the Code to treat the fair
market value of the ordinary shares subject to the restricted share award on the
date of such grant as compensation income in the year of the grant of the
restricted share award. The participant must make such an election pursuant to
Section 83(b) of the Code within 30 days after the date of grant. If such an
election is made and the participant later forfeits the restricted shares to us,
the participant will not be allowed to deduct, at a later date, the amount such
participant had earlier included as compensation income.
A participant will be subject to withholding for U.S. federal, and
generally for state and local, income taxes at the time the participant
recognizes income under the rules described above with respect to the cash or
the ordinary shares received pursuant to awards. Dividends that are received by
a participant prior to the time that the restricted shares are taxed to the
participant under the rules described in the preceding paragraph are taxed as
additional compensation, not as dividend income. The tax basis of a participant
in the ordinary shares received will equal the amount recognized by the
participant as compensation income under the rules described in the preceding
paragraph, and the participant's holding period in such shares will commence on
the date income is so recognized.
Subject to the discussion under "Certain Tax Code Limitations on
Deductibility" below, we may be entitled to a deduction for U.S. federal income
tax purposes that corresponds as to timing and amount with the compensation
income recognized by the participant under the foregoing rules.
Certain Tax Code Limitations on Deductibility. In order for our U.S.
subsidiaries to deduct the amounts described above, such amounts must be
attributable to them and constitute reasonable compensation for services
rendered or to be rendered and must be ordinary and necessary business expenses.
Their ability to obtain a deduction for future payments under the plan could
also be limited by Section 280G of the Code, which provides that certain excess
parachute payments made in connection with a change of control of an employer
are not deductible. Their ability to obtain a deduction for amounts paid under
the plan could also be affected by Section 162(m) of the Code, which limits the
deductibility, for U.S. federal income tax purposes, of compensation paid to
certain employees to $1 million during any taxable year. However, certain
exceptions apply to this limitation in the case of performance-based
compensation. It is intended that the approval of the amended and restated
incentive plan by our shareholders will satisfy certain of the requirements for
the performance-based exception and that we will be able to comply with the
requirements of the Code and Treasury Regulation Section 1.162-27 with respect
to the grant and payment of certain performance-based awards (including certain
options and share appreciation rights) under the plan so as to be eligible for
the performance-based exception. However, it may not be possible in all cases to
satisfy all of the requirements for the exception and we may, in our sole
discretion, determine that in one or more cases it is in our best interest not
to satisfy the requirements for the performance-based exception.
31
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information concerning securities
authorized for issuance under our equity compensation plans as of December 31,
2003.
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
warrants and rights rights reflected in column (a))
Plan Category (a) (b) (c)
------------- --- --- ---
Equity compensation plans
approved by security
holders (1) (2) (3).. 16,926,215 $27.40 6,597,903
---------- ------ ---------
Equity compensation plans not
approved by security
holders (4).......... -- -- --
---------- ------ ---------
Total..................... 16,926,215 $27.40 6,597,903
========== ====== =========
-------------------
(1) Includes 7,195,767 shares to be issued upon exercise of options with a
weighted average exercise price of $23.15 that were granted under (a)
our Sedco Forex Employees Option Plan in connection with the Sedco
Forex merger, which was approved by our shareholders, and (b) equity
compensation plans of R&B Falcon assumed by us in connection with the
R&B Falcon merger, which was approved by our shareholders.
(2) In addition to stock options, we are authorized to grant awards of
restricted stock under our Long Term Incentive Plan, and 1,111,993
ordinary shares are available for future issuance pursuant to grants of
restricted stock under this plan.
(3) Includes 686,331 contingent, performance-based options and 829,065
shares relating to contingent, performance-based restricted share
awards in 2003 that are earnable based on the achievement of certain
performance targets. The actual number of options retained and
restricted shares to be issued will be determined upon completion of
the two-year performance period.
(4) Does not include any shares that may be distributed under our deferred
compensation plan, which has not been approved by our shareholders.
Under this plan, our directors may defer any fees or retainers by
investing those amounts in Transocean ordinary share equivalents or in
other investments selected by the administrative committee. Amounts
that are invested in the ordinary share equivalents at the time of
distribution are distributed in ordinary shares. There is no limit on
the number of shares directors may acquire under this plan. As of
December 31, 2003, our directors had purchased 27,387 Transocean
ordinary share equivalents under this plan.
SELECTION OF AUDITOR
We have selected Ernst & Young LLP as our auditor for the 2004 calendar
year. Ernst & Young LLP served as our auditor for the 2003 calendar year.
Although the selection and appointment of independent auditors is not required
to be submitted to a vote of shareholders, the Board of Directors has decided to
ask our shareholders to approve this appointment. Approval of our appointment of
Ernst & Young LLP to serve as independent auditors for the year 2004 requires
the affirmative vote of holders of at least a majority of the ordinary shares
present in person or by proxy at the meeting and entitled to vote on the matter.
If the shareholders do not approve the appointment of Ernst & Young LLP, the
Board of Directors will consider the appointment of other independent auditors.
A representative of Ernst & Young LLP is expected to be present at the annual
general meeting with the opportunity to make a statement if so desired and to
respond to appropriate questions.
32
FEES PAID TO ERNST & YOUNG LLP
Ernst & Young LLP has billed us fees as set forth in the table below
for services rendered in 2003.
Audit-Related Total of
Audit Fees Fees Tax Fees (1) All Other Fees
---------- ---- ------------ --------------
Fiscal year 2003 $600,000 $2,365,862 $1,928,942 $ 8,000
Fiscal year 2002 $400,000 $1,815,060 $1,081,285 $25,354
----------
(1) Includes approximately $1 million and $0.6 million of tax compliance
and preparation fees for the years 2003 and 2002, respectively.
The audit fees include those associated with our annual audit, reviews
of our quarterly reports on Form 10-Q and statutory audits of our subsidiaries.
The audit-related fees include other non-statutory audits of subsidiaries or
companies in which we have an investment, accounting consultations and employee
benefit plan audits. Tax fees were for tax preparation, compliance and tax
advice, and "all other fees" were those for the provision of temporary offices
and office services.
The audit committee pre-approves all auditing services, review or
attest engagements and permitted non-audit services to be performed by our
independent auditor, subject to some de minimis exceptions for non-audit
services which are approved by the audit committee prior to the completion of
the annual audit. No non-audit services were performed under the de minimis
exception during 2003. The audit committee has considered whether the provision
of services rendered in 2003 other than the audit of our financial statements
and reviews of quarterly financial statements was compatible with maintaining
the independence of Ernst & Young LLP and determined that the provision of such
services was compatible with maintaining such independence.
The audit committee has adopted a policy and procedures for
pre-approving all audit and non-audit services performed by the independent
auditor. The policy requires advance approval by the audit committee of all
audit and non-audit work. Unless the specific service has been previously
pre-approved with respect to the 12 month period following the advance approval,
the audit committee must approve a service before the independent auditor is
engaged to perform the service. The audit committee has given advance approval
for specified audit, audit-related and tax services for 2004. Requests for
services that have received this pre-approval are subject to specified fee or
budget restrictions and internal management controls as well.
HOUSEHOLDING
The SEC permits a single set of annual reports and proxy statements to
be sent to any household at which two or more stockholders reside if they appear
to be members of the same family. Each stockholder continues to receive a
separate proxy card. This procedure, referred to as householding, reduces the
volume of duplicate information stockholders receive and reduces mailing and
printing expenses. A number of brokerage firms have instituted householding.
As a result, if you hold your shares through a broker and you reside at
an address at which two or more stockholders reside, you will likely be
receiving only one annual report and proxy statement unless any stockholder at
that address has given the broker contrary instructions. However, if any such
beneficial stockholder residing at such an address wishes to receive a separate
annual report or proxy statement in the future, or if any such beneficial
stockholder that elected to continue to receive separate annual reports or proxy
statements wishes to receive a single annual report or proxy statement in the
future, that stockholder should contact their broker or send a request to our
corporate secretary at Eric B. Brown, Secretary, Transocean Inc., 4 Greenway
Plaza, Houston, Texas 77046, telephone number (713) 232-7500. We will deliver,
promptly upon written or oral request to the corporate secretary, a separate
copy of the 2003 annual report and this proxy statement to a beneficial
stockholder at a shared address to which a single copy of the documents was
delivered.
33
2003 ANNUAL GENERAL MEETING OF SHAREHOLDERS
At our last Annual General Meeting held on May 8, 2003, our
shareholders:
- elected Victor E. Grijalva, Arthur Lindenauer,
Richard A. Pattarozzi and Kristian Siem as directors,
- approved the amendment of our Long-Term Incentive
Plan to allow grants of incentive stock options for
an additional ten-year period to May 1, 2013, and to
allow a continuing right to grant stock options and
share appreciation rights to our outside directors,
- approved the amendment of our Employee Stock Purchase
Plan to increase the number of ordinary shares
reserved for issuance under the plan from 1,500,000
to 2,500,000, and
- approved the appointment of Ernst & Young LLP as our
independent auditors for 2003.
Since the 2003 Annual General Meeting, our articles and memorandum of
association have not been amended and no meetings of shareholders have been
held.
PROPOSALS OF SHAREHOLDERS
Shareholder Proposals in the Proxy Statement. Rule 14a-8 under the
Securities Exchange Act of 1934 addresses when a company must include a
shareholder's proposal in its proxy statement and identify the proposal in its
form of proxy when the company holds an annual or special meeting of
shareholders. Under Rule 14a-8, in order for your proposals to be considered for
inclusion in the proxy statement and proxy card relating to our 2005 annual
general meeting, your proposals must be received at our principal executive
offices, 4 Greenway Plaza, Houston, Texas 77046, by no later than November 19,
2004. However, if the date of the 2004 annual general meeting changes by more
than 30 days from the anniversary of the 2004 annual general meeting, the
deadline is a reasonable time before we begin to print and mail our proxy
materials. We will notify you of this deadline in a Quarterly Report on Form
10-Q or in another communication to you. Shareholder proposals must also be
otherwise eligible for inclusion.
Shareholder Proposals and Nominations for Directors to Be Presented at
Meetings. If you desire to bring a matter before an annual general meeting and
the proposal is submitted outside the process of Rule 14a-8, you must follow the
procedures set forth in our articles of association. Our articles of association
provide generally that, if you desire to propose any business at an annual
general meeting, you must give us written notice not less than 90 days prior to
the anniversary of the originally scheduled date of the immediately preceding
annual general meeting. However, if the date of the forthcoming annual general
meeting is more than 30 days before or after that anniversary date, the deadline
is the close of business on the tenth day after we publicly disclose the meeting
date. The deadline under our articles of association for submitting proposals
will be February 8, 2005 for the 2005 annual general meeting unless it is more
than 30 days before or after the anniversary of the 2004 annual general meeting.
Your notice must set forth:
- a brief description of the business desired to be brought
before the meeting and the reasons for conducting the business
at the meeting;
- your name and address;
- a representation that you are a holder of record of our
ordinary shares entitled to vote at the meeting, or if the
record date for the meeting is subsequent to the date required
for shareholder notice, a representation that you are a holder
of record at the time of the notice and intend to be a holder
of record on the date of the meeting, and, in either case,
intend to appear in person or by proxy at the meeting to
propose that business; and
- any material interest you have in the business.
34
If you desire to nominate directors at an annual general meeting, you
must give us written notice within the time period described in the preceding
paragraph. If you desire to nominate directors at an extraordinary general
meeting at which the board of directors has determined that directors will be
elected, you must give us written notice by the close of business on the tenth
day following our public disclosure of the meeting date. Notice must set forth:
- your name and address and the name and address of the person
or persons to be nominated;
- a representation that you are a holder of record of our
ordinary shares entitled to vote at the meeting or, if the
record date for the meeting is subsequent to the date required
for that shareholder notice, a representation that you are a
holder of record at the time of the notice and intend to be a
holder of record on the date of the meeting and, in either
case, setting forth the class and number of shares so held,
including shares held beneficially;
- a representation that you intend to appear in person or by
proxy as a holder of record at the meeting to nominate the
person or persons specified in the notice;
- a description of all arrangements or understandings between
you and each nominee you proposed and any other person or
persons under which the nomination or nominations are to be
made by you;
- any other information regarding each nominee you proposed that
would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange
Commission; and
- the consent of each nominee to serve as a director if so
elected.
The chairman of the meeting may refuse to transact any business or to
acknowledge the nomination of any person if you fail to comply with the
foregoing procedures.
You may obtain a copy of our articles of association, in which these
procedures are set forth, upon written request to Eric B. Brown, Secretary,
Transocean Inc., 4 Greenway Plaza, Houston, Texas 77046.
35
APPENDIX A
TRANSOCEAN
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee is to assist the Board of Directors in overseeing
(1) the integrity of the financial statements of the Company, (2) the compliance
by the Company with legal and regulatory requirements, (3) the independence,
qualifications and performance of the Company's independent auditors and (4) the
performance of the Company's internal audit function. Consistent with this
oversight function, the Audit Committee encourages continuous improvement of and
fosters adherence to the company's policies, procedures and practices at all
levels. The Audit Committee's primary duties and responsibilities are to:
- Serve as an independent and objective party to monitor the
corporation's financial reporting process and internal control
system.
- Review and appraise the performance of the Company's
independent auditors and internal audit function.
- Provide an open avenue of communication among the independent
auditors, financial and senior management, the internal
auditing department, and the Board of Directors.
- Prepare the audit committee report required by the rules of
the Securities and Exchange Commission (the "Commission") to
be included in the Company's annual proxy statement.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in the section on Committee Authority and
Responsibilities.
COMMITTEE MEMBERSHIP
The Audit Committee shall consist of at least three active members of
the Board, each of whom shall be independent directors, as defined by the New
York Stock Exchange, the rules and regulations of the Commission and applicable
law, and free from any relationship that, in the opinion of the Board, would
interfere with the exercise of his or her independent judgment as a member of
the Committee. In no event shall an active or retired officer or employee of the
Company be a member of the Committee.
The proposed committee members and Chairman of the Audit Committee
shall be recommended to the Board of Directors by the Corporate Governance
Committee. All members of the committee shall meet any applicable legal
requirements or New York Stock Exchange requirements and shall be financially
literate, and at least one member of the Committee shall have accounting or
related financial management expertise. Unless otherwise determined by the Board
of Directors, no member of the Audit Committee shall simultaneously serve on the
audit committees of more than two other public companies.
MEETINGS
The Audit Committee shall meet as often as it determines but not less
frequently than quarterly. The Committee should meet periodically with
management, the internal auditors and the independent auditors in separate
executive sessions to discuss any matters that the Committee or any of these
groups believe should be discussed privately.
36
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to retain or
terminate the independent auditors. The Audit Committee shall be directly
responsible for the compensation and oversight of the work of the independent
auditors (including resolution of disagreements between management and the
independent auditors regarding financial reporting) for the purpose of preparing
or issuing an audit report or related work or performing other audit, review or
attest services for the Company. The independent auditors shall report directly
to the Audit Committee.
The Audit Committee shall pre-approve all auditing services, review or
attest engagements and permitted non-audit services (including the fees and
terms thereof) to be performed for the Company by its independent auditors,
subject to the de minimis exceptions for non-audit services described in Section
10A(i)(1)(B) of the Exchange Act which are approved by the Audit Committee prior
to the completion of the audit. The Audit Committee may establish policies and
procedures for purposes of such pre-approval to the extent allowed by applicable
law and regulations.
The Audit Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority to
grant pre-approvals of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant pre-approvals shall be presented to the
full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority to retain, dismiss or
replace independent legal, accounting or other advisors. The Audit Committee
shall have the sole authority to approve the fees and other retention terms for
any advisors employed by the Audit Committee. The Company shall provide for
appropriate funding, as determined by the Audit Committee, for payment of
compensation to the independent auditors for the purpose of rendering or issuing
an audit report or performing other audit, review or attest services for the
Company and to any advisors employed by the Audit Committee and ordinary
administrative expenses of the Audit Committee that are necessary or appropriate
in carrying out its duties.
A. WITH REGARD TO THE INDEPENDENT AUDITORS
1. Review at least annually plans for the scope of the
independent auditors' activities, including the
auditors' performance of non-audit services, and
expected fees to be incurred therefor, the auditors'
report of findings resulting from examination of the
Company's records and systems of internal accounting
controls, and matters affecting their independence in
the performance of the audit of Company accounts.
2. Review with Internal Audit and the independent
auditors their annual audit plans, including the
degree of coordination of the respective plans. The
Committee should inquire as to the extent to which
the planned audit scope can be relied upon to detect
fraud or weaknesses in internal accounting controls.
3. Have a clear understanding with the independent
auditors that they are ultimately accountable to the
Audit Committee, and that the Audit Committee has
ultimate authority and responsibility to engage,
evaluate, and if appropriate, terminate their
services. To this end, the Committee will have the
exclusive authority with regard to the appointment or
discharge of the independent auditors.
4. On an annual basis, obtain from the independent
auditors a written communication delineating all
their relationships and professional services as
required by Independence Standards Board Standard No.
1, Independence Discussions with Audit Committees. In
addition, review with the independent auditors the
nature and scope of any disclosed relationships or
professional services with the Company or others,
assess the independent auditors' independence and
take or recommend appropriate action to ensure the
continuing independence of the auditors. Evaluate
whether the provision of permitted non-audit services
is compatible with maintaining the auditors'
independence.
37
5. Evaluate the independent auditors' qualifications,
performance and independence, including considering
whether the independent auditors' quality controls
are adequate and the provision of permitted non-audit
services is compatible with maintaining the
independent auditors' independence. In making this
evaluation, the Audit Committee shall take into
account the opinions of management and internal
auditors. The Audit Committee shall present its
conclusions with respect to the independent auditors
to the full Board of Directors.
6. Obtain and review at least annually a report by the
independent auditor describing the independent
auditor's internal quality-control procedures, any
material issues raised by the most recent internal
quality-control review, or peer review, of the firm,
or by any inquiry or investigation by governmental or
professional authorities, within the preceding five
years, respecting one or more independent audits
carried out by the firm, and any steps taken to deal
with any such issues.
7. Review with the independent auditors the cooperation
received from Management during the course of the
audit and extent of any restrictions that may have
affected their examination.
8. Review and discuss reports from the independent
auditors on:
- All critical accounting policies and
practices to be used;
- All alternative treatments within Generally
Accepted Accounting Principles for policies
and practices related to material items that
have been discussed with Management,
including ramification of the use of such
alternative disclosures and treatments; and
the treatment preferred by the independent
auditors;
- Other material written communications
between the independent auditors and
Management, such as any management letter or
schedule of unadjusted differences, any
reports on observations and recommendations
on internal controls and a listing of
adjustments and reclassifications not
recorded, if any, and any engagement or
independence letters.
9. Discuss with the independent auditors the matters
required to be discussed by Statement on Auditing
Standards No. 61 relating to the conduct of the
audit, including any problems or difficulties
encountered in the course of the audit work and
management's response, any restrictions on the scope
of activities or access to requested information and
any significant disagreements with management.
10. Meet separately, periodically, with the independent
auditors.
11. Set clear hiring policies for employees or former
employees of the independent auditors.
12. Consider whether there should be regular rotation of
the independent auditing firm.
B. WITH REGARD TO THE COMPANY'S EARNINGS RELEASES AND GUIDANCE,
FINANCIAL STATEMENTS AND FOOTNOTES, AND INTERNAL ACCOUNTING
CONTROL SYSTEMS
1. Discuss the Annual Report and footnotes thereto prior
to its publication and discuss with the independent
auditors any significant transactions not a normal
part of the Company's business, significant
adjustments proposed by them, and comments submitted
by the independent auditors concerning the Company's
system of internal accounting control together with
Management's actions to correct any deficiencies
noted.
2. Discuss with management and the independent auditors
the Company's quarterly financial statements as well
as disclosures made in "Management's Discussion and
Analysis of Financial Condition and Results of
Operations" for both the Company's quarterly and
annual reports.
38
3. Review and discuss with management and the
independent auditors:
- Major issues regarding accounting principles
and financial statement presentations,
including any significant changes in the
selection or application of accounting
principles, any major issues concerning the
adequacy of the Company's internal controls
and any special audit steps adopted in light
of material control deficiencies.
- Analyses prepared by management and/or the
independent auditors setting forth
significant financial reporting issues and
judgments made in connection with the
preparation of the Company's financial
statements, including analyses of the
effects of alternative methods of generally
accepted accounting principles on the
financial statements.
This review will include the quality, not just the
acceptability, of the company's accounting principles
as applied in its financial reporting in terms of
clarity of disclosures, degree of aggressiveness or
conservatism of the Company's accounting principles
and underlying estimates and other significant
decisions made by the Company in preparing the
financial disclosures.
4. Review steps taken to assure compliance with the
Company's policy regarding conflicts of interest and
business ethics.
5. Review transactions or relationships between the
Company and any Director, Officer, or shareholder
owning more than 5% of the Company's common stock
(including any family members of the foregoing), and
make recommendation to the Board of Directors
concerning whether such relationships should
continue.
6. Ascertain that appropriate reporting of such
transactions or relationships is made to the
Commission or other regulatory agencies.
7. Review the quality and depth of staffing of the
Company's financial, accounting, and internal audit
personnel.
8. Review disclosures made to the Audit Committee by the
Company's CEO and CFO during their certification
process for the Form 10-K and Form 10-Q about any
significant deficiencies in the design or operation
of internal controls or material weaknesses therein
or instances of fraud involving management or other
employees who have a significant role in the
Company's internal controls.
9. Review and discuss with management and the
independent auditors the annual audited financial
statements, and based upon the review and discussion
decide whether to recommend to the Board that the
audited financial statements and accompanying notes
should be included in the Company's Form 10-K.
10. Discuss the Company's earnings press releases, as
well as financial information and earnings guidance
provided to analysts and rating agencies.
C. WITH REGARD TO THE COMPANY'S INTERNAL AUDITORS
1. Review the scope of the internal auditors'
activities, their report of findings resulting from
the examination of the Company's records, operations,
and systems of internal accounting controls, and
matters affecting their independence in the
performance of the audit of Company accounts,
including the cooperation and budgeting received from
Management during the course of any audit, and the
extent of any restrictions that may have affected
their examination.
39
D. OTHER RESPONSIBILITIES
1. Review expense accounts and executive perquisites of
the Company's senior officers.
2. Review litigation involving claims by shareholders of
wrongdoing by or against directors, officers, or
independent auditors of the Company.
3. Review and reassess the adequacy of this Charter
periodically, at least annually, as conditions
dictate.
4. Annually review the Audit Committee's own
performance.
5. Establish procedures for the receipt, retention and
treatment of complaints received by the Company
regarding accounting, internal accounting controls or
auditing matters, and the confidential, anonymous
submission by employees of concerns regarding
questionable accounting or auditing matters.
6. Discuss the Company's policies with respect to risk
assessment and risk management.
7. Prepare and approve the Audit Committee report as
required by the SEC to be included in the Company's
proxy statement for the annual meeting.
8. Meet separately, periodically, with the Company's
General Counsel to review any material legal matters
that may affect the Company.
9. Review any reports from the independent auditors
under Section 10A(b) of the Securities Exchange Act
of 1934.
10. Make regular reports to the Board of Directors.
LIMITATION OF AUDIT COMMITTEE'S ROLE
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements and disclosures
are complete and accurate and are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are the
responsibilities of Management and the independent auditors.
Unless he or she believes to the contrary (in which case, he or she
will advise the Audit Committee of such belief), each member of the Audit
Committee shall be entitled to assume and rely on (1) the integrity of those
persons and organizations within and outside the Company that it receives
information from and (2) the accuracy of the financial, legal and other
information provided to the Audit Committee by such persons or organizations.
40
APPENDIX B
LONG-TERM INCENTIVE PLAN
OF
TRANSOCEAN INC.
(As Amended and Restated Effective February 12, 2004)
I. GENERAL
1.1 PURPOSE OF THE PLAN
The Long-Term Incentive Plan (the "Plan") of Transocean Inc., a Cayman
Islands exempted company (the "Company"), is intended to advance the best
interests of the Company and its subsidiaries by providing Directors and
employees with additional incentives through the grant of options ("Options") to
purchase ordinary shares, par value US $0.01 per share of the Company ("Ordinary
Shares"), share appreciation rights ("SARs"), restricted Ordinary Shares
("Restricted Shares"), deferred stock units ("Deferred Units"), cash performance
awards ("Cash Awards") and performance awards ("Performance Awards"), thereby
increasing the personal stake of such Directors and employees in the continued
success and growth of the Company.
1.2 ADMINISTRATION OF THE PLAN
(a) With respect to awards to employees, the Plan shall be
administered by the Executive Compensation Committee or other designated
committee (the "Committee") of the Board of Directors of the Company (the
"Board"). The Committee shall have authority to interpret conclusively the
provisions of the Plan, to adopt such rules and regulations for carrying out the
Plan as it may deem advisable, to decide conclusively all questions of fact
arising in the application of the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. All decisions and
acts of the Committee, with respect to employees, shall be final and binding
upon all affected Plan participants.
(b) With respect to awards to Eligible Directors (as defined in
Section 1.3), the Plan shall be administered by the Board. The Board shall have
authority to interpret conclusively the provisions of the Plan, to adopt such
rules and regulations for carrying out the Plan as it may deem advisable, to
decide conclusively all questions of fact arising in the application of the
Plan, and to make all other determinations necessary or advisable for the
administration of the Plan. All decisions and acts of the Board, with respect to
Eligible Directors, shall be final and binding upon all affected Plan
participants.
1.3 ELIGIBLE PARTICIPANTS
Employees, including officers, of the Company and its subsidiaries, and
of partnerships or joint ventures in which the Company and its subsidiaries have
a significant ownership interest as determined by the Committee (all of such
subsidiaries, partnerships and joint ventures being referred to as
"Subsidiaries") shall be eligible for awards under the Plan.
Each Director of the Company who is not an officer or employee of the
Company or any of its Subsidiaries (an "Eligible Director") shall be eligible
for awards under the Plan. Notwithstanding the foregoing, any Eligible Director
may decline any such award. Eligible Directors shall not be entitled to receive
awards under Section 2.6 or Article IV.
An employee or Eligible Director to whom an award is granted under the
Plan may be hereinafter referred to as a "Participant."
41
1.4 AWARDS UNDER THE PLAN
Awards to eligible employees under the Plan may be in the form of (a)
Options to purchase Ordinary Shares, (b) SARs which may be either freestanding
or issued in tandem with Options, (c) Restricted Shares, (d) Deferred Units, (e)
Supplemental Payments (as defined in Section 2.4) which may be awarded with
respect to Options, SARs, Restricted Shares and Deferred Units, (f) Cash Awards,
(g) Performance Awards, or (h) any combination of the foregoing.
Awards to Eligible Directors under the Plan may be in the form of (a)
Options to purchase Ordinary Shares, (b) SARs which may be either freestanding
or issued in tandem with Options, (c) Restricted Shares, (d) Deferred Units, (e)
Supplemental Payments (as defined in Section 2.4) which may be awarded with
respect to Options, SARs, Restricted Shares and Deferred Units, (f) Performance
Awards, or (g) any combination of the foregoing.
1.5 SHARES SUBJECT TO THE PLAN
(a) The aggregate number of Ordinary Shares which may be issued
with respect to Option and SAR awards (including those designated as Performance
Awards) to employees under the Plan shall not exceed 22,900,000 shares. Of such
22,900,000 shares, the aggregate number of shares which may be issued pursuant
to awards of Restricted Shares and Deferred Units (including those designated as
Performance Awards) granted to employees under the Plan from and after January
31, 2001, shall not exceed 6,000,000 shares. All shares available for awards
under the Plan may be issued pursuant to statutory stock options as described in
Section 2.6. In addition, the aggregate number of Ordinary Shares which may be
issued with respect to awards to Eligible Directors under the Plan shall not
exceed 600,000.
At no time shall the number of shares issued plus the number of shares
estimated by the Committee (or the Board, with respect to Eligible Directors) to
be ultimately issued with respect to outstanding awards under the Plan exceed
the number of shares that may be issued under the Plan. Shares distributed
pursuant to the Plan may consist of authorized but unissued shares or treasury
shares of the Company, as shall be determined from time to time by the Board.
(b) If any Option under the Plan shall expire, terminate or be
canceled (including cancellation upon the Participant's exercise of a related
SAR) for any reason without having been exercised in full, or if any Restricted
Shares or Deferred Units shall be forfeited to the Company, the unexercised
Options and forfeited Restricted Shares and Deferred Units shall not count
against the above limit and shall again become available for grants under the
Plan (regardless of whether the Participant received dividends or other economic
benefits with respect to such Options, shares or units). Ordinary Shares equal
in number to the shares surrendered in payment of the option price, and Ordinary
Shares which are withheld or surrendered in order to satisfy federal, state or
local tax liability, shall not count against the above limit and shall again
become available for grants under the Plan of any award other than a statutory
stock option. If the option price per share with respect to any Option granted
under the Plan is satisfied by a payment of cash to the Company by the
Participant or by or for the account of the Participant, the number of Ordinary
Shares equal to the cash payment to the Company divided by the fair market value
of the Ordinary Shares on the payment date shall be added to the number of
shares available for future grants under the Plan of any award other than a
statutory stock option. Ordinary Shares delivered under the Plan as an award or
in settlement of an award issued or made (a) upon the assumption, substitution,
conversion or replacement of outstanding awards under a plan or arrangement of
an entity acquired in a merger or other acquisition or (b) as a post-transaction
grant under such a plan or arrangement of an acquired entity shall not reduce or
be counted against the maximum number of Ordinary Shares available for delivery
under the Plan, to the extent that the exemption for transactions in connection
with mergers or acquisitions from the shareholder approval requirements of the
New York Stock Exchange for equity compensation plans applies. Only the number
of Ordinary Shares actually issued upon the exercise of an SAR or the payment of
a Supplemental Payment shall count against the above limit, and any shares which
were estimated to be used for such purposes and were not in fact so used shall
again become available for grants under the Plan.
(c) No Participant shall be granted, in any fiscal year, Options,
freestanding SARs, Restricted Shares, or Deferred Units, or any combination of
the foregoing, covering or relating to more than 600,000 Ordinary Shares
(subject to adjustment as provided in Section 6.2). No Participant shall be
granted a Supplemental Payment in any
42
fiscal year with respect to more than the number of Ordinary Shares covered by
or relating to Options, freestanding SARs, Restricted Shares, or Deferred Units
granted to such Participant in such fiscal year.
(d) The Committee may from time to time adopt and observe such
rules and procedures concerning the counting of shares against the Plan maximum
or any sublimit as it may deem appropriate, including rules more restrictive
than those set forth above to the extent necessary to satisfy the requirements
of any national stock exchange on which the Ordinary Shares are listed or any
applicable regulatory requirement.
1.6 OTHER COMPENSATION PROGRAMS
The existence and terms of the Plan shall not limit the authority of
the Board in compensating Directors and employees of the Company and its
Subsidiaries in such other forms and amounts, including compensation pursuant to
any other plans as may be currently in effect or adopted in the future, as it
may determine from time to time.
II. OPTIONS AND SARS
2.1 TERMS AND CONDITIONS OF OPTIONS
Subject to the following provisions, all Options granted under the Plan
shall be in such form and shall have such terms and conditions as the Committee,
in its discretion, may from time to time determine.
(a) Option Price. The option price per share shall not be less
than the fair market value of the Ordinary Shares (as determined by the
Committee) on the date the Option is granted.
(b) Term of Option. The term of an Option shall not exceed ten
years from the date of grant, except as provided pursuant to Section 2.1(g) with
respect to the death of a Participant. No Option shall be exercised after the
expiration of its term.
(c) Exercise of Options. Options shall be exercisable at such time
or times and subject to such terms and conditions as the Committee shall specify
in the Option grant. The Committee shall have discretion to, at any time,
declare all or any portion of the Options held by any Participant to be
immediately exercisable. An Option may be exercised in accordance with its terms
as to any or all shares purchasable thereunder.
(d) Payment for Shares. The Committee may authorize payment for
shares as to which an Option is exercised to be made in cash, in Ordinary Shares
or in such other manner as the Committee in its discretion may provide. The
Committee may provide for procedures to permit the payment for Ordinary Shares
as to which an Option is exercised to be made by use of proceeds to be received
from the sale of Ordinary Shares issuable pursuant to an award under the Plan.
(e) Nontransferability of Options. No Option or any interest
therein shall be transferable by the Participant other than by will, by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or Title I of the Employee Retirement Income Security Act
("ERISA"), or the rules thereunder. During a Participant's lifetime, all Options
shall be exercisable only by such Participant or by the guardian or legal
representative of the Participant.
(f) Shareholder Rights. The holder of an Option shall, as such,
have none of the rights of a shareholder.
(g) Termination of Employment. The Committee shall have discretion
to specify in the Option grant or an amendment thereof, provisions with respect
to the period during which the Option may be exercised following the
Participant's termination of employment. Notwithstanding the foregoing, the
Committee shall not permit any Option to be exercised beyond the term of the
Option established pursuant to Section 2.1(b), except that the Committee may
provide that, notwithstanding such Option term, an Option which is outstanding
on the date of a Participant's death shall remain outstanding and exercisable
for up to one year after the Participant's death.
43
(h) Change of Control. Notwithstanding the exercisability schedule
governing any Option, upon the occurrence of a Change of Control (as defined in
Section 6.10) all Options outstanding at the time of such Change of Control and
held by a Participant who is an employee of the Company or its Subsidiaries or a
Director of the Company at the time of such Change of Control shall become
immediately exercisable and, unless the Participant agrees otherwise in writing,
shall remain exercisable for the remainder of the Option term.
2.2 SARS IN TANDEM WITH OPTIONS
The Committee may, either at the time of grant of an Option or at any
time during the term of the Option, grant tandem SARs with respect to all or any
portion of the Ordinary Shares covered by such Option.
(a) Exercise of SARs. A tandem SAR may be exercised at any time
the Option to which it relates is then exercisable, but only to the extent the
Option to which it relates is exercisable, and shall be subject to the
conditions applicable to such Option. When a tandem SAR is exercised, the Option
to which it relates shall cease to be exercisable to the extent of the number of
shares with respect to which the tandem SAR is exercised. Similarly, when an
Option is exercised, the tandem SARs relating to the shares covered by such
Option exercise shall terminate. Any tandem SAR which is outstanding on the last
day of the term of the related Option (as determined pursuant to Section 2.1(b))
shall be automatically exercised on such date for cash without any action by the
Participant.
(b) Appreciation. Upon exercise of a tandem SAR, the Participant
shall receive, for each share with respect to which the tandem SAR is exercised,
an amount (the "Appreciation") equal to the amount by which the fair market
value (as defined below) of an Ordinary Share on the date of exercise of the SAR
exceeds the option price per share of the Option to which the tandem SAR
relates. For purposes of the preceding sentence, the fair market value of an
Ordinary Share shall be the average of the high and low prices of such share as
reported on the consolidated reporting system. The Appreciation shall be payable
in cash, Ordinary Shares, or a combination of both, at the option of the
Committee, and shall be paid within 30 days of the exercise of the tandem SAR.
(c) Change of Control. Notwithstanding the foregoing, if a tandem
SAR is exercised within 60 days of the occurrence of a Change of Control, (i)
the Appreciation and any Supplemental Payment (as defined in Section 2.4) to
which the Participant is entitled shall be payable solely in cash, and (ii) in
addition to the Appreciation and the Supplemental Payment (if any), the
Participant shall receive, in cash, (1) the amount by which the greater of (a)
the highest market price per Ordinary Share during the 60-day period preceding
exercise of the tandem SAR or (b) the highest price per Ordinary Share (or the
cash-equivalent thereof as determined by the Board) paid by an acquiring person
during the 60-day period preceding a Change of Control, exceeds the fair market
value of an Ordinary Share on the date of exercise of the tandem SAR, plus (2)
if the Participant is entitled to a Supplemental Payment, an additional payment,
calculated under the same formula as used for calculating such Participant's
Supplemental Payment, with respect to the amount referred to in clause (1) of
this sentence.
2.3 FREESTANDING SARS
The Committee may grant freestanding SARs in such form and having such
terms and conditions as the Committee, in its discretion, may from time to time
determine, subject to the following provisions.
(a) Base Price and Appreciation. Each freestanding SAR shall be
granted with a base price, which shall not be less than the fair market value of
the Ordinary Shares (as determined by the Committee) on the date the SAR is
granted. Upon exercise of a freestanding SAR, the Participant shall receive, for
each share with respect to which the SAR is exercised, an amount (the
"Appreciation") equal to the amount by which the fair market value (as defined
below) of an Ordinary Share on the date of exercise of the SAR exceeds the base
price of the SAR. For purposes of the preceding sentence, the fair market value
of an Ordinary Share shall be the average of the high and low prices of such
share as reported on the New York Stock Exchange composite tape. The
Appreciation shall be payable in cash and shall be paid within 30 days of the
exercise of the SAR.
(b) Term of SAR. The term of a freestanding SAR shall not exceed
ten years from the date of grant, except as provided pursuant to Section 2.3(f)
with respect to the death of the Participant. No SAR shall be exercised
44
after the expiration of its term. Any freestanding SAR which is outstanding on
the last day of its term (as such term may be extended pursuant to Section
2.3(f)) and as to which the Appreciation is a positive number on such date shall
be automatically exercised on such date for cash without any action by the
Participant.
(c) Exercise of SARs. Freestanding SARs shall be exercisable at
such time or times and subject to such terms and conditions as the Committee may
specify in the SAR grant. The Committee shall have discretion to at any time
declare all or any portion of the freestanding SARs then outstanding to be
immediately exercisable. A freestanding SAR may be exercised in accordance with
its terms in whole or in part.
(d) Nontransferability of SARs. No SAR or any interest therein
shall be transferable by the Participant other than by will, by the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined in the Code or Title I of ERISA, or the rules thereunder. During a
Participant's lifetime, all SARs shall be exercisable only by such Participant
or by the guardian or legal representative of the Participant.
(e) Shareholder Rights. The holder of an SAR shall, as such, have
none of the rights of a shareholder.
(f) Termination of Employment. The Committee shall have discretion
to specify in the SAR grant or an amendment thereof, provisions with respect to
the period during which the SAR may be exercised following the Participant's
termination of employment. Notwithstanding the foregoing, the Committee shall
not permit any SAR to be exercised beyond the term of the SAR established
pursuant to Section 2.3(b), except that the Committee may provide that,
notwithstanding such SAR term, an SAR which is outstanding on the date of a
Participant's death shall remain outstanding and exercisable for up to one year
after the Participant's death.
(g) Change of Control. Notwithstanding the exercisability schedule
governing any SAR, upon the occurrence of a Change of Control (as defined in
Section 6.10) all SARs outstanding at the time of such Change of Control and
held by a Participant who is an employee of the Company or its Subsidiaries or a
Director of the Company at the time of such Change of Control shall become
immediately exercisable and, unless the Participant agrees otherwise in writing,
shall remain exercisable for the remainder of the SAR term. In addition, the
Committee may provide that if a freestanding SAR is exercised within 60 days of
the occurrence of a Change of Control, in addition to the Appreciation the
Participant shall receive, in cash, the amount by which the greater of (a) the
highest market price per Ordinary Share during the 60-day period preceding
exercise of the SAR or (b) the highest price per Ordinary Share (or the cash
equivalent thereof as determined by the Board) paid by an acquiring person
during the 60-day period preceding a Change of Control, exceeds the fair market
value of an Ordinary Share on the date of exercise of the SAR.
2.4 SUPPLEMENTAL PAYMENT ON EXERCISE OF OPTIONS OR SARS
The Committee, either at the time of grant or at the time of exercise
of any Option or tandem SAR, may provide for a supplemental payment (the
"Supplemental Payment") by the Company to the Participant with respect to the
exercise of any Option or tandem SAR. The Supplemental Payment shall be in the
amount specified by the Committee, which shall not exceed the amount necessary
to pay the income tax payable to the national government with respect to both
exercise of the Option or tandem SAR and receipt of the Supplemental Payment,
assuming the Participant is taxed at the maximum effective income tax rate
applicable thereto. Supplemental Payments shall be paid in cash within 30 days
of the date of exercise of an Option or SAR (or, if later, within 30 days of the
date on which income is recognized for federal income tax purposes with respect
to such exercise).
2.5 ELIGIBLE DIRECTOR AWARDS
With respect to Options, SARs and Supplemental Payment awards to
Eligible Directors, the Board shall make all determinations otherwise assigned
to the Committee under Article II and any reference to "employment" shall be
changed to "service."
45
2.6 STATUTORY OPTIONS
Subject to the limitations on Option terms set forth in Section 2.1,
the Committee shall have the authority to grant (a) incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and (b) Options containing such terms and conditions as
shall be required to qualify such Options for preferential tax treatment under
the Code as in effect at the time of such grant. Options granted pursuant to
this Section 2.6 may contain such other terms and conditions permitted by
Article II of the Plan as the Committee, in its discretion, may from time to
time determine (including, without limitation, provision for SARs and
Supplemental Payments), to the extent that such terms and conditions do not
cause the Options to lose their preferential tax treatment. To the extent the
Code and regulations promulgated thereunder require a plan to contain specified
provisions in order to qualify options for preferential tax treatment, such
provisions shall be deemed to be stated in the Plan. Eligible Directors shall
not be entitled to receive incentive stock options as defined in Section 422 of
the Code.
III. RESTRICTED SHARES AND DEFERRED UNITS
3.1 TERMS AND CONDITIONS OF RESTRICTED SHARE AWARDS
Subject to the following provisions, all awards of Restricted Shares
under the Plan shall be in such form and shall have such terms and conditions as
the Committee, in its discretion, may from time to time determine.
(a) A Restricted Share award shall specify the number of
Restricted Shares to be awarded, the price, if any, to be paid by the recipient
of the Restricted Shares, and the date or dates on which the Restricted Shares
will vest. The vesting of Restricted Shares may be conditioned upon the
completion of a specified period of employment with the Company or its
Subsidiaries, upon the attainment of specified performance goals, or upon such
other criteria as the Committee may determine in its sole discretion.
(b) Notwithstanding the provisions of subsection (a) above, any
Restricted Share award which is a Performance Award shall not vest earlier than
the first anniversary of the initial date of such award, provided that the
Committee may provide for earlier vesting upon a termination of employment by
reason of death, disability or retirement. Any Restricted Share award which is
not a Performance Award shall not vest earlier than one-third on each of the
first three anniversaries of the date of grant of such award, provided that (i)
the Committee may provide for earlier vesting upon termination of employment by
reason of death, disability or retirement and (ii) such restriction on vesting
shall not apply to a Restricted Share award that is granted in lieu of salary or
bonus. Notwithstanding the foregoing, a Restricted Share award shall fully vest
upon a Change of Control of the Company (as defined in Section 6.10).
(c) Share certificates representing the Restricted Shares granted
to a Participant shall be registered in the Participant's name. Such
certificates shall either be held by the Company on behalf of the Participant,
or delivered to the Participant bearing a legend to restrict transfer of the
certificate until the Restricted Shares have vested, as determined by the
Committee. The Committee shall determine whether the Participant shall have the
right to vote and/or receive dividends on the Restricted Shares before they have
vested. No Restricted Shares may be sold, transferred, assigned, or pledged by
the Participant until they have vested in accordance with the terms of the
Restricted Share award. In the event of a Participant's termination of
employment before all of his Restricted Shares have vested, or in the event
other conditions to the vesting of Restricted Shares have not been satisfied
prior to any deadline for the satisfaction of such conditions set forth in the
award, the Restricted Shares which have not vested shall be forfeited and any
purchase price paid by the Participant shall be returned to the Participant. At
the time Restricted Shares vest (and, if the Participant has been issued
legended certificates of Restricted Shares, upon the return of such certificates
to the Company), a certificate for such vested shares shall be delivered to the
Participant (or the Beneficiary designated by such Participant in the event of
death), free of all restrictions.
46
3.2 TERMS AND CONDITIONS OF DEFERRED UNITS
(a) A "Deferred Unit" is a unit that is equal to one Ordinary
Share which is used to measure the benefits payable to a Participant under a
Deferred Unit award. Each Deferred Unit award shall be subject to such terms and
conditions as the Committee, in its discretion, may from time to time determine.
(b) The Deferred Unit award shall specify the number of Deferred
Units awarded, the price, if any, to be paid by the recipient of the Deferred
Units and the date or dates on which the Deferred Units will vest. The vesting
of Deferred Units may be conditioned upon the completion of a specified period
of employment with the Company or its Subsidiaries, upon the attainment of
specified performance goals, or upon such other criteria as the Committee may
determine in its sole discretion.
(c) Notwithstanding the provisions of subsection (b) above, any
Deferred Unit award which is a Performance Award shall not vest earlier than the
first anniversary of the initial date of such award, provided that the Committee
may provide for earlier vesting upon a termination of employment by reason of
death, disability or retirement. Any Deferred Unit award which is not a
Performance Award shall not vest earlier than one-third on each of the first
three anniversaries of the date of grant of such award, provided that (i) the
Committee may provide for earlier vesting upon termination of employment by
reason of death, disability or retirement and (ii) such restriction on vesting
shall not apply to a Deferred Unit award that is granted in lieu of salary or
bonus. Notwithstanding the foregoing, a Deferred Unit Award shall fully vest
upon a Change of Control of the Company (as defined in Section 6.10).
(d) The Company shall set up an appropriate record (the "Deferred
Unit Ledger") that shall from time to time reflect the name of each Participant,
the number of Deferred Units awarded to him and the date or dates on which the
Deferred Units will vest.
(e) The Committee shall determine whether the Participant shall
have the right to receive dividends on the Deferred Units before they have
vested. In such cases, it is intended that the amount of the payment shall be
equal to the dividend that the Participant would have received had he been the
owner of a number of Ordinary Shares equal to the number of Deferred Units
credited to him in the Deferred Unit Ledger as of the dividend record date.
Notwithstanding the foregoing, no amount shall be paid to a Participant with
respect to Deferred Units held by such Participant on a dividend record date but
forfeited by him prior to the dividend payment date. No Ordinary Shares subject
to a Deferred Unit award may be sold, transferred, assigned or pledged by the
Participant until the Deferred Units have vested in accordance with the terms of
the Deferred Unit award. In the event of a Participant's termination of
employment before all of his Deferred Units have vested, or in the event other
conditions to the vesting of the Deferred Units have not been satisfied prior to
any deadline for the satisfaction of such conditions set forth in the award, the
Deferred Units which have not vested shall be forfeited and any purchase price
paid by the Participant shall be returned to such Participant.
(f) Upon the vesting of the Deferred Units, as determined by the
Committee in accordance with this Section 3.2, a certificate for the number of
Ordinary Shares equal to the number of vested Deferred Units held by the
Participant shall be delivered to such Participant (or the Beneficiary
designated by such Participant in the event of death), free of all restrictions.
3.3 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED SHARES AND DEFERRED UNITS
The Committee, either at the time of grant or at the time of vesting of
Restricted Stock or Deferred Units, may provide for a Supplemental Payment by
the Company to the Participant in an amount specified by the Committee which
shall not exceed the amount necessary to pay the federal income tax payable with
respect to both the vesting of the Restricted Shares or Deferred Units and
receipt of the Supplemental Payment, assuming the Participant is taxed at the
maximum effective federal income tax rate applicable thereto and has not elected
to recognize income with respect to the Restricted Shares or Deferred Units
before the date such Restricted Shares or Deferred Units vest. The Supplemental
Payment shall be paid within 30 days of each date that the Restricted Shares or
Deferred Units vest. Supplemental Payments shall be paid in cash.
47
3.4 ELIGIBLE DIRECTOR AWARDS
With respect to Restricted Shares, Deferred Units and Supplemental
Payment awards to Eligible Directors, the Board shall make all determinations
otherwise assigned to the Committee under this Article III and any reference to
"employment" shall be changed to "service." In addition, with respect to
Eligible Directors, clause (i) of Section 3.1(b) and 3.2(c) shall include a
termination of service for the convenience of the Company (as determined by the
Board).
IV. CASH AWARDS
A "Cash Award" is a cash bonus paid solely on account of the attainment
of one or more objective performance goals that have been preestablished by the
Committee. Each Cash Award shall be subject to such terms and conditions,
restrictions and contingencies, if any, as the Committee shall determine.
Restrictions and contingencies limiting the right to receive a cash payment
pursuant to a Cash Award shall be based on the achievement of single or multiple
performance goals over a performance period established by the Committee. No
employee shall receive payment for Cash Awards during any calendar year
aggregating in excess of $2 million. Eligible Directors shall not be entitled to
receive Cash Awards under this Plan.
V. PERFORMANCE AWARDS
5.1 TERMS AND CONDITIONS OF PERFORMANCE AWARDS
The Committee shall have the right to designate any Option, SAR,
Supplemental Payment, Restricted Share award, Deferred Unit award or Cash Award
as a Performance Award. The grant or vesting of a Performance Award shall be
subject to the achievement of performance objectives (the "Performance
Objectives") established by the Committee based on one or more of the following
business criteria that apply to the employee, one or more business units or
divisions of the Company or the applicable sector, or the Company as a whole,
and if so desired by the Committee, by comparison with a peer group of
companies: increased revenue; net income measures (including but not limited to
income after capital costs and income before or after taxes); Ordinary Share
price measures (including but not limited to growth measures and total
shareholder return); price per Ordinary Share; market share; earnings per share
(actual or targeted growth); earnings before interest, taxes, depreciation, and
amortization ("EBITDA"); economic value added (or an equivalent metric); market
value added; debt to equity ratio; cash flow measures (including but not limited
to cash flow return on capital, cash flow return on tangible capital, net cash
flow and net cash flow before financing activities); return measures (including
but not limited to return on equity, return on average assets, return on
capital, risk-adjusted return on capital, return on investors' capital and
return on average equity); operating measures (including operating income, funds
from operations, cash from operations, after-tax operating income; sales
volumes, production volumes and production efficiency); expense measures
(including but not limited to overhead cost and general and administrative
expense); margins; shareholder value; total shareholder return; proceeds from
dispositions; total market value and corporate values measures (including ethics
compliance, environmental, and safety). Unless otherwise stated, such a
Performance Objective need not be based upon an increase or positive result
under a particular business criterion and could include, for example,
maintaining the status quo or limiting economic losses (measured, in each case,
by reference to specific business criteria).
The Committee shall have the authority to determine whether the
Performance Objectives and other terms and conditions of the award are
satisfied, and the Committee's determination as to the achievement of
Performance Objectives relating to a Performance Award shall be made in writing.
Notwithstanding the foregoing provisions, if the Committee intends for a
Performance Award to be granted and administered in a manner designed to
preserve the deductibility of the compensation resulting from such award in
accordance with Section 162(m) of the Code, then the Performance Objectives for
such particular Performance Award relative to the particular period of service
to which the Performance Objectives relate shall be established by the Committee
in writing (a) no later than 90 days after the beginning of such period and (b)
prior to the completion of 25% of such period. The Committee shall have no
discretion to modify or waive the Performance Objectives or conditions to the
grant or vesting of a Performance Award unless such award is not intended to
qualify as qualified performance-based compensation under Section 162(m) of the
Code and the relevant award agreement provides for such discretion.
48
VI. ADDITIONAL PROVISIONS
6.1 GENERAL RESTRICTIONS
Each award under the Plan shall be subject to the requirement that, if
at any time the Committee shall determine that (a) the listing, registration or
qualification of the Ordinary Shares subject or related thereto upon any
securities exchange or under any state or federal law, or (b) the consent or
approval of any government regulatory body, or (c) an agreement by the recipient
of an award with respect to the disposition of Ordinary Shares is necessary or
desirable (in connection with any requirement or interpretation of any federal
or state securities law, rule or regulation) as a condition of, or in connection
with, the granting of such award or the issuance, purchase or delivery of
Ordinary Shares thereunder, such award may not be consummated in whole or in
part unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
Notwithstanding the foregoing, with respect to awards to Eligible
Directors, the Board shall have the authority and discretion otherwise assigned
to the Committee under this Section 6.1.
6.2 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event of a scheme of arrangement, reorganization,
recapitalization, Ordinary Share split, Ordinary Share dividend, combination of
shares, rights offer, liquidation, dissolution, merger, consolidation, spin-off,
sale of assets, payment of an extraordinary cash dividend, or any other change
in or affecting the corporate structure or capitalization of the Company, the
Committee (or the Board, with respect to Eligible Directors) shall make
appropriate adjustment in the number and kind of shares authorized by the Plan
(including any limitations on individual awards), in the number, price or kind
of shares covered by the awards and in any outstanding awards under the Plan;
provided, however, that no such adjustment shall increase the aggregate value of
any outstanding award.
6.3 AMENDMENTS
(a) The Board may amend, alter, or discontinue the Plan from time
to time, but no amendment, alteration or discontinuation shall be made which
would impair the rights of a Participant under any award theretofore granted
without the Participant's consent, except such an amendment made to cause the
Plan to comply with applicable law, stock exchange rules or accounting rules. In
addition, no such amendment shall be made without the approval of the Company's
shareholders to the extent such approval is required to satisfy Rule 16b-3 under
the Securities Exchange Act or 1934, as amended (the "Exchange Act") or Section
162(m) of the Code, or required by applicable law, agreement or stock exchange
requirements or if such amendment would:
(i) expand the classes of persons to whom awards may be
made under Section 1.3 of the Plan;
(ii) increase the number of Ordinary Shares authorized for
grant under Section 1.5 of the Plan;
(iii) increase the number of Ordinary Shares which may be
granted pursuant to awards to any one Participant
under Section 1.5(c) of the Plan;
(iv) increase the number of shares available for
Restricted Share or Deferred Unit awards;
(v) permit unrestricted Ordinary Shares to be granted
other than in lieu of cash payments under other
incentive plans and programs of the Company and its
Subsidiaries;
(vi) allow the creation of additional types of awards;
49
(vii) permit shortening the minimum restriction periods
with respect to Restricted Share awards, the minimum
vesting periods with respect to Deferred Unit awards
or removing or waiving Performance Objectives except
to the extent permitted under Articles II and III and
Section 6.3(c) of the Plan; or
(viii) change any of the provisions of this Section 6.3(a).
Subject to the above provisions, the Board shall have the authority to
amend the Plan to take into account changes in law and tax and accounting rules
as well as other developments, and to grant awards which qualify for beneficial
treatment under such rules without shareholder approval.
(b) The Committee (or the Board, with respect to Eligible
Directors) shall have the authority to amend any grant, prospectively or
retroactively, to include any provision which, at the time of such amendment, is
authorized under the terms of the Plan; however, no such amendment (i) shall
cause a Performance Award intended to qualify for the Section 162(m) exemption
to cease to qualify for the Section 162(m) exemption or (ii) impair the rights
of any Participant without the Participant's written consent except such
amendment made to cause the award to comply with applicable law, stock exchange
rules or accounting rules.
(c) If a Participant has ceased or will cease to be a Director of
the Company for the convenience of the Company (as determined by the Board), the
Board may amend all or any portion of such Participant's awards so as to make
such awards fully vested and exercisable and/or to specify a schedule upon which
they become vested and exercisable, and/or to permit all or any portion of such
awards to remain exercisable for such period as designated by the Board, but not
beyond the expiration of the term established pursuant to Section 2.1(b) or
2.3(b), whichever is applicable. A Participant shall not participate in any
deliberations or vote by the Board under this Section 6.3(c) with respect to his
awards. The vesting schedule and exercise period for awards established by the
Board pursuant to this Section 6.3(c) shall override the applicable provisions
of Articles II and III to the extent inconsistent therewith.
6.4 CANCELLATION OF AWARDS
Any award granted under the Plan may be canceled at any time with the
consent of the Participant and a new award may be granted to such Participant in
lieu thereof, which award may, in the discretion of the Committee, be on more
favorable terms and conditions than the canceled award; provided, however, that
the exercise price or base price of the new award shall not be less than (a) the
original exercise price or base price of the Option or SAR that is relinquished
in connection with the grant of such new award or (b) the then current market
price of the Ordinary Shares on the date of grant of any outstanding Option or
SAR that is relinquished in connection with the grant of such new award.
Notwithstanding the foregoing, with respect to awards to Eligible
Directors, the Board shall have the authority and discretion otherwise assigned
to the Committee under this Section 6.4.
6.5 BENEFICIARY
A Participant may file with the Company a written designation of
Beneficiary, on such form as may be prescribed by the Committee (or the Board,
with respect to Eligible Directors), to receive any Options, SARs, Restricted
Shares, Deferred Units, Ordinary Shares, Supplemental Payments or any other
payments that become deliverable to the Participant pursuant to the Plan after
the Participant's death. A Participant may, from time to time, amend or revoke a
designation of Beneficiary. If no designated Beneficiary survives the
Participant, the executor or administrator of the Participant's estate shall be
deemed to be the Participant's Beneficiary.
6.6 WITHHOLDING
(a) Whenever the Company proposes or is required to issue or
transfer Ordinary Shares under the Plan, the Company shall have the right to
require the Participant to remit to the Company an amount sufficient to satisfy
any applicable withholding tax liability prior to the delivery of any
certificate for such shares. Whenever
50
under the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any withholding tax liability.
(b) An employee entitled to receive Ordinary Shares under the Plan
who has not received a cash Supplemental Payment may elect to have the minimum
statutory withholding tax liability (or a specified portion thereof) with
respect to such Ordinary Shares satisfied by having the Company withhold from
the shares otherwise deliverable to the employee Ordinary Shares having a fair
market value equal to the amount of the tax liability to be satisfied with
respect to the Ordinary Shares. An election to have all or a portion of the tax
liability satisfied using Ordinary Shares shall comply with such requirements as
may be imposed by the Committee.
6.7 NON-ASSIGNABILITY
Except as expressly provided in the Plan, no award under the Plan shall
be assignable or transferable by the Participant thereof except by will, by the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined in the Code or Title I of ERISA, or the rules thereunder.
During the life of the Participant, awards under the Plan shall be exercisable
only by such Participant or by the guardian or legal representative of such
Participant.
6.8 NON-UNIFORM DETERMINATIONS
Determinations by the Committee or the Board under the Plan (including,
without limitation, determinations of the persons to receive awards under the
Plan; the form, amount and timing of such awards; the terms and provisions of
such awards and the agreements evidencing same; and provisions with respect to
termination of employment or service) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan, whether or not such persons are similarly situated.
6.9 NO GUARANTEE OF EMPLOYMENT OR DIRECTORSHIP
The grant of an award under the Plan shall not constitute an assurance
of continued employment for any period or any obligation of the Board to
nominate any Director for re-election by the Company's shareholders.
6.10 CHANGE OF CONTROL
A "Change of Control" means:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding ordinary shares
of the Company (the "Outstanding Company Ordinary Shares") or (ii) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation or other entity controlled by
the Company or (iv) any acquisition by any corporation or other entity pursuant
to a transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section 6.10; or
(b) Individuals who, as of the date hereof, constitute the Board
of the Company (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board of the Company; provided, however, that for
purposes of this Section 6.10 any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of the Company; or
51
(c) Consummation of a scheme of arrangement, reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Ordinary Shares and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding ordinary shares
or shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation or other entity resulting from such Business
Combination (including, without limitation, a corporation or other entity which
as a result of such transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Ordinary Shares and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation or other entity resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation or
other entity resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
ordinary shares or shares of common stock of the corporation or other entity
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation or other entity except to
the extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the action of the Board of the Company providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
6.11 DURATION AND TERMINATION
(a) The Plan was originally effective May 1, 1993. The Plan was
amended and/or restated effective March 13, 1997, March 12, 1998, January 1,
2000 and May 8, 2003. This amendment and restatement of the Plan was adopted by
the Executive Compensation Committee effective January 1, 2004, subject to the
approval by the holders of a majority of outstanding Ordinary Shares (the
"Majority Shareholders") at the shareholder's meeting to be held on May 13,
2004. If the Majority Shareholders of the Company should fail so to approve this
amendment and restatement of the Plan, then this amendment and restatement shall
be null and void.
(b) The Board may discontinue or terminate the Plan at any time.
Such action shall not impair any of the rights of a Participant who has an award
outstanding on the date of the Plan's discontinuance or termination without the
Participant's written consent.
(c) Unless terminated earlier by the Board pursuant to subsection
(b), no awards may be made under the Plan after the tenth (10th) anniversary of
the date on which the Plan is approved by the Majority Shareholders in
accordance with subsection (a) of this Section 6.11.
IN WITNESS WHEREOF, this document has been executed effective as of
February 12, 2004.
TRANSOCEAN INC.
By: /s/ Eric B. Brown
------------------------------------
Eric B. Brown
Corporate Secretary
52
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TRANSOCEAN INC.
Walker House, Mary Street
P. O. Box 265 GT, George Town
Grand Cayman, Cayman Islands
PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking any proxy heretofore given in connection with the
Annual General Meeting described below, hereby appoints J. Michael Talbert,
Robert L. Long, Gregory L. Cauthen and Eric B. Brown, and each of them, proxies,
with full powers of substitution, to represent the undersigned at the Annual
General Meeting of Transocean Inc. to be held on Thursday, May 13, 2004 at 9:00
a.m., at the Royal Pavilion Hotel, St. James, Barbados and at any adjournment
thereof, and to vote all ordinary shares that the undersigned would be entitled
to vote if personally present as follows:
The shares represented by this proxy will be voted as directed herein. IF
THIS PROXY IS DULY EXECUTED AND RETURNED, AND NO VOTING DIRECTIONS ARE GIVEN
HEREIN, SUCH SHARES WILL BE VOTED "FOR" ALL NOMINEES LISTED IN ITEM 1, "FOR" THE
PROPOSAL TO AMEND OUR LONG-TERM INCENTIVE PLAN, AND "FOR" THE PROPOSAL TO
APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP. The undersigned hereby
acknowledges receipt of notice of, and the proxy statement for, the aforesaid
Annual General Meeting.
To include any comments, please mark this box. [ ]
TRANSOCEAN INC.
c/o THE BANK OF NEW YORK
P.O. BOX 11168
NEW YORK, N.Y. 10203-0168
(Continued, and to be signed and dated on the reverse side)
YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE
(TRANSOCEAN LOGO) 24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
http://www.proxyvotenow.com/rig 1-866-252-6950
o Go to the website address listed
above. OR o Use any touch-tone telephone. OR o Mark, sign and date your proxy card.
o HAVE YOUR PROXY CARD READY. O HAVE YOUR PROXY CARD READY. o Detach your proxy card.
o Follow the simple instructions that o Follow the simple recorded o Return your proxy card in the
appear on your computer screen. instructions. postage-paid envelope provided.
------------------------------
------------------------------
1-866-252-6950
CALL TOLL-FREE TO VOTE
-- DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET --
--------------------------------------------------------------------------------
MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY [X]
USING THE ENCLOSED ENVELOPE. VOTES MUST BE INDICATED
[X] IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF ITEMS 1 THROUGH 3.
Item 1. Election of Directors.
FOR all WITHHOLD AUTHORITY
nominees listed [ ] to vote for all nominees listed [ ] EXCEPTIONS* [ ]
Nominees for the Board of
Directors: 01 Robert L. Long, 02 Martin A. McNamara,
03 Robert M. Sprague and 04 J. Michael Talbert
[INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS*" BOX AND WRITE THAT NOMINEE'S NAME ON THE FOLLOWING BLANK
LINE.]
Exceptions*
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Item 2. Approval of the amendment of our Long-Term Incentive Plan as
described in the proxy statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Item 3. Approval of the appointment of Ernst & Young LLP to serve as
independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
To change your address, please mark this box [ ]
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SCAN LINE
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Sign exactly as name appears hereon. (If shares
are held in joint names, both should sign. If
signing as Attorney, Executor, Administrator,
Trustee or Guardian, please give your title as
such. If the signer is a corporation, please sign
in full corporate name by duly authorized
officer.)
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Date Share Owner Sign Here Co-Owner sign here