Exhibit 10(k)

 

TIDEWATER INC.

MANAGEMENT ANNUAL INCENTIVE PLAN

(MAIP)

 

I. PLAN OBJECTIVE

 

The primary objective of the Management Annual Incentive Plan (MAIP) is to
assist in achieving specific business and financial goals conducive to the
organization’s success which the Company believes can best be accomplished by
providing cash incentives to key Tidewater employees.

 

The MAIP helps prioritize and focus efforts on the accomplishment of financial
goals and other corporate objectives established each year through the annual
planning and budgeting process. This is achieved by linking a significant
element of annual compensation to the accomplishments of selected goals. At
target performance levels, the MAIP provides incentive compensation
opportunities which, in conjunction with base salary, will yield competitive
total compensation levels.

 

II. BASIC PLAN CONCEPT

 

The plan concept focuses primarily on the performance of Tidewater overall. The
MAIP is comprised of two divisions which will enable the Company to better
measure performance results of eligible participants by specific areas of
responsibility. The two divisions are as follows:

 

  • Administrative

 

  • Marine

 

Overall corporate performance is considered each year along with certain
divisional and individual performance measures specific to each division’s
operations and functions. Regardless of corporate performance, however, the
Compensation Committee of the Board of Directors may at its discretion establish
a funding pool of up to 50% of the target awards for all participants in order
to allow awards for outstanding individual contributions even if the Company
does not achieve threshold performance on plan performance measures within a
year.

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III. ELIGIBILITY CRITERIA

 

Eligibility for participation in the MAIP will be limited to officers and
certain key employees that directly impact the Company’s financial performance
and who do not participate in another Company bonus plan. The specific positions
eligible to participate in the plan will be reviewed and determined annually by
Tidewater’s Chief Executive Officer and the Compensation Committee of the Board
of Directors.

 

IV. AWARD OPPORTUNITIES

 

Prior to the beginning of each fiscal year, Tidewater will specify target
incentive awards for each eligible position. Prior to the beginning of each
fiscal year, Tidewater will determine the total pool target, threshold and
maximum incentive award amounts. These amounts are determined from each eligible
participant’s base salary times the target percent associated with the
participant’s position within the Company. The actual target percent is
determined based upon the employee’s relevant position within the Company and
the measurable amount of direct influence on the Company’s financial
performance. Base target percents by position are as follows:

 

   

Base    

Target %

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A. Administrative

   

Executive Vice President

  95%

Executive Vice President, CFO & Treasurer

  95%

Senior Vice President

  80%

Vice President & Corporate Controller

  70%

B. Marine

   

Vice President – Operational Areas

  70%

Regional Manager

  62.5%

Area Manager (A)

  55%

Director - Health, Safety, and Environmental Management

  55%

Vice President – International Sales

  55%

Vice President – Technical Services

  55%

Area Manager (B)

  45%

Director – Human Resources

  45%

Regional Finance Director (B)

  45%

Vice President – Domestic Sales

  45%

Area Manager (C)

  35%

Regional Finance Director (C)

  35%

Manager – Domestic Sales

  27.5%

 

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V. PERFORMANCE MEASURES AND STANDARDS

 

Prior to the start of each fiscal year, specific corporate and divisional
measures and standards will be established. In addition, the appropriate
weighing to each measurement will also be established.

 

PERFORMANCE MEASURES

 

  A. Except as provided in Section II of this MAIP, before any individual
incentive amount can be awarded, the Company must first achieve minimum
(threshold) performance in at least one of two Company performance measures. For
fiscal year 2004, Company performance measures are:

 

  1. Adjusted Net Income vs. Budget –Under this test, net income as compared
with budgeted net income, adjusted for selected charges/credits of an unusual
nature which would not be subject to normal budgeting procedures, is used. The
net income test is a measurement test comparing actual results against budgeted
results for the year.

 

Note: The Company’s adjusted net income must be at least 50% of the budgeted net
income, in order for the minimum (threshold) award to be paid.

 

For fiscal year 2004, this performance measurement will carry a weight of
66.67%.

 

In order to have the incentive pay program not inhibit good management/business
decisions, certain adjustments to net income should be made in determining if
the net income test has been met. Such adjustments should be objectively
determinable to avoid the appearance of impropriety. Accordingly, the following
items as reported in the corporation’s consolidated statement of earnings should
be added to or subtracted from net income as reported in order to determine net
income for purposes of the incentive pay plan:

 

Cumulative effect of accounting changes;

Extraordinary items;

Discounted operations; and

 

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Unusual or infrequently occurring items (less the amount of related income
taxes) as that term is used in Accounting Principles Board Opinion No. 30.

 

NOTE: For purposes of calculating achievement of this performance measure,
budgeted net income shall be divided by the average number of common shares
outstanding for the year as contemplated by the budget. Likewise, the amount of
Adjusted Net Income shall be divided by the average number of common shares
outstanding during the year. For purposes of making both of these Earnings Per
Share calculations, common stock equivalents shall not be considered in
determining the average number of common shares outstanding.

 

  2. Return of Total Capital (ROTC) – Under this performance measurement, the
Company must attain at least the 40th percentile when compared to the Peer Group
(see Exhibit 1) on Return of Total Capital (ROTC). ROTC is defined as:

 

Earnings Before Interest Expenses, Taxes,

Depreciation and Amortization (EBITDA)

Average Shareholders Equity + Average Long-Term Debt (including current
maturities of Long-Term Debt)

 

NOTE: Average shareholders’ equity and average long-term debt shall be
determined by summing the respective totals as of the end of each interim
quarterly reporting period during the fiscal year as shown on the Company’s
consolidated balance sheet and dividing such sums by the number of interim
reporting periods.

 

The standard for the ROTC performance measure will be established by considering
Tidewater’s performance against the Peer Group of companies (see Exhibit 2).
When determining peer group performance ranking, pro-rating is not permitted
below the 40th percentile.

 

For fiscal year 2004, this performance measurement will carry a weight of
33.33%.

 

STANDARDS FOR EACH DIVISION

 

  A. Although overall Company performance determines the maximum funding of the
pool, each participant, within each division, will have specific standards
established for the accomplishment of certain Company and individual performance
measures. These criteria will be established annually, prior to the beginning of
each fiscal year,

 

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     and will be used to determine the amount of the incentive award that each
participant will be eligible to receive. The amount of bonus actually awarded to
the participant depends upon his (her) achievement of the Company and individual
performance criteria. For Fiscal Year 2004, the performance measures for each
division are as follows:

 

  1. Administrative

 

  a. Return on Total Capital – As defined above, this measurement will carry a
weight of 25% of the individual’s total award.

 

  b. Adjusted Net Income –As defined above, this measurement will carry a weight
of 25% of the individual’s total award.

 

  c. Individual Performance – This measurement is determined on a subjective
basis and will carry a weight of 25% of the individual’s total award.

 

  d. Safety Performance – This measurement is determined by achievement of the
Company’s overall established safety performance goals for the fiscal year. The
safety performance measurement will carry a weight of 25% of the individual’s
total award.

 

  2. Marine

 

  a. Safety Measurement – This measurement will be considered in four parts.

 

  1. First, each area will be given a specific goal to achieve during the fiscal
year with respect to safety performance as it relates to Total Recordable
Incident Rates. Each area will be graded on how well it performs toward
achieving the assigned goals. Total Recordable Incident Rate will be defined as
follows:

 

Loss Time Accidents

 

Plus

   Recordable incidents

Multiplied by

   200,000 (manhours)

Divided by

   Total manhour exposure

Equals

   Total Recordable Incident Rate per 2000,000 manhours of exposure

 

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Attached as Exhibit 3, are the Safety Total Recordable Incident Rate goals for
Fiscal 2004.

 

  2. The second component of this measurement is related to property damage. For
fiscal 2004, property damage performance will be measured by applying a
subjective review of overall property damage results for the fiscal year. Only
property damage above the $100,000 per occurrence deductible will be included
for measurement purposes. Property damage claims will be adjusted to include
only Hull (excluding machinery), Marine Liability and Pollution claims. In other
words, preventable property damage claims. This type of information will form
the basic parameters that will be reviewed and considered for fiscal 2004
results.

 

  3. The third component of this measurement is related to pollution incidents.
For fiscal 2004, any pollution incident must be reported to the Insurance and
Claims Department. The number and severity of pollution incidents will be
measured by applying a subjective review of overall pollution incidents for the
fiscal year. The Safety Director will provide quarterly updates on the reported
incidents.

 

  4. Fourth, each area is evaluated on its own overall safety performance,
taking into consideration such things as number of deaths and/or disabilities
within an area, Lost Time Accidents, incident ratios, nature of accidents,
preventable accidents etc. Non-job related deaths will not count as an LTA.

 

Note: Within this weighing (1, 2, 3 & 4 above), personnel safety will comprise
60%, property damage 10%, pollution incidents 5%, and overall safety performance
25%.

 

Notwithstanding the above, no allocation under this measurement is provided
unless the Company achieves its overall established safety performance goals for
the fiscal year. The safety measurement will carry a weight of 33.33% of the
individual’s total award.

 

(Note: How well each area demonstrates its commitment to Tidewater’s safety
program overall will be part of the individual performance measurement.)

 

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  b. Pre-tax Earnings Test – Under this test, pre-tax earnings, as defined, as
compared with a budgeted pre-tax earnings goal, will be used to determine a
component of the individual’s incentive pay. The pre-tax earnings test will be
an operating area specific test, adjusted for an allocation of corporate and
marine overhead (as defined), and carry a weight of 33.33% of the individual’s
total award. This test will not be considered achieved if the operating area
does not provide a positive actual pre-tax earnings amount, even though the area
may meet its budgeted pre-tax earnings goal. Pre-tax earnings for this purpose
will be defined as follows:

 

Area Revenues from all operating activities as reported in the corporation’s
consolidated income statement.

 

Minus

  Area Operating Costs and Expenses, as reported in the corporation’s
consolidated income statement.

Minus

  Area General and Administrative Expenses as reported in the corporation’s
consolidated income statement.

Plus/Minus

  Area Other Income/Expenses, including gains/losses on asset sales, other
income, equity in joint venture earnings, minority interests in less than 100%
owned consolidated subsidiaries, interest income, depreciation and amortization
expense and foreign exchange gains/losses as reported in the corporations
consolidated income statement.

Minus

  Area Capitalized Repair and Maintenance Costs.

Minus

  An allocation, based upon the insured value of vessels in the Area versus the
total insured value of the company’s marine fleet, of corporate overhead
expenses (G&A costs, depreciation expense and other expenses), marine overhead
costs (G&A costs, depreciation expense, inventory adjustment and other
expenses), costs of vessels withdrawn from service and held for sale, net cost
of Pental Insurance and interest and debt cost as these items are reported in
the corporation’s consolidated income statement.

 

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Equals Pre-tax earnings, as defined.

 

In order to have the incentive pay program not inhibit good management/business
decisions, certain adjustments to pre-tax earnings should be made in determining
if the net income test has been met. Such adjustments should be objectively
determinable to avoid the appearance of impropriety. Accordingly, the following
items as reported in the corporation’s consolidated statement of earnings should
be added to or subtracted from net income as reported in order to determine net
income for purposes of the incentive pay plan:

 

Cumulative effect of accounting changes;

Extraordinary items;

Discounted operations; and

Unusual or infrequently occurring items (less the amount of related income
taxes) as that term is used in Accounting Principles Board Opinion No. 30.

 

The Pre-tax Earnings Test component will be replaced with a more relevant test
for those participants identified below who do not have direct operating area
responsibilities.

 

Director - Health, Safety, and Environmental Management

Director - Human Resources

Manager - Domestic Sales

Manager - Special Vessel Services

President/ General Manager – Quality Shipyards

Vice President – Domestic Sales

Vice President - International Sales

Vice-President -Technical Services

 

These tests will encompass up to five objective criteria that have been approved
by the immediate supervisor specific for that fiscal year. (See Exhibit 4).

 

  c. Individual Performance – Individual performance is determined annually and
is based upon a subjective evaluation by the participant’s manager(s) and
encompasses the overall performance of the individual for the fiscal year.

 

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Individual performance will also include an evaluation of each area’s commitment
to Tidewater’s safety program overall. This measurement will carry a weight of
33.34% of the individual’s total award.

 

Included as part of the individual performance measure may be an area specific
test. This test may be optional by area and would consist of zero to two
specific criteria relevant to a given area. Each participant will be advised of
any specific test for that fiscal year. Some examples would be the percent
improvement in receivables over a period of time, delinquent receivables
collected, revenue enhancement achieved over a period of time, utilization, or
other such criteria as deemed appropriate. When an area specific test is
utilized, the particular measurement will be weighted as part of the individual
performance weight.

 

VI. AWARD CALCULATIONS

 

  A. Development of Incentive Funding Pool

 

The actual amount of the incentive pool to be awarded depends upon the
attainment of specified corporate performance measures as set forth in Section
V-A. Each corporate measurement will operate independently of one another in
creating the funding pool for annual incentive awards. Thus, the Company could
achieve above threshold on one performance measure and below threshold on
another performance measure and still have funds available in the annual
incentive pool.

 

Exhibit 2, attached, provides a matrix example of how the size of the incentive
funding pool would be calculated at different levels of corporate performance.

 

The Matrix also shows:

 

  • The percentage of aggregate target incentives paid for all plan
participants; and

 

  • The total amount of money allocated to the incentive funding pool for fiscal
2004.

 

  • The greater emphasis for fiscal year 2004 is placed upon the Adjusted net
Income performance measures. As such, the payouts under that measurement are
more than twice that of the ROTC component.

 

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  B. Individual Awards.

 

The incentive funding pool is allocated to individual plan participants by the
performance measures set forth in Section V-B.

 

Each division will also be looked at independently of one another; therefore, it
is possible for a Division to receive individual awards for meeting performance
criteria and not the other if it does not reach its performance criteria.
However, the overall corporate performance measures must be positive before
consideration of any incentive awards.

 

The size of each divisional incentive pool is based upon the number of eligible
participants in each division. For example, if the Company meets target goals,
each participant’s annual base salary is multiplied by the participant’s target
percent amount. All target amounts are then added together to produce the total
pool for that division. Each divisional pool would be adjusted based upon the
actual results of the overall corporate performance measurements.

 

VII. AWARD PAYMENTS

 

Awards will be payable in cash, as soon as administratively possible after the
Company auditors have issued their audit report on the Company’s financial
statements for the fiscal year.

 

VIII. TRANSFERS

 

In the event that a participant transfers from one position to another during
the course of the year, his/her award for the year will be calculated on a
pro-rata basis according to the proportion of time spent in each position during
the year.

 

IX. RETIREMENTS AND TERMINATIONS

 

To receive an award under the MAIP, the participant must be actively employed on
the last day of the performance cycle. At the discretion of the Chief Executive
Officer and with the approval of the Compensation Committee of the Board of
Directors, a participant who separates from service prior to the end of the
performance cycle may be granted an award. The amount of the award, if any, will
be based in part upon the length of time employed during the performance cycle.

 

X PLAN ADMINISTRATION, MODIFICATION, AND ADJUSTMENT

 

The MAIP will be administered by Tidewater’s Chief Executive Officer, who may
delegate certain elements of program administration to the Chief Financial
Officer and the Director of Employee Benefits. Actual performance goals,
standards, and award determinations will be approved by the Compensation
Committee of the Board of Directors.

 

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