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<SEC-DOCUMENT>0000950129-02-003792.txt : 20020731
<SEC-HEADER>0000950129-02-003792.hdr.sgml : 20020731
<ACCEPTANCE-DATETIME>20020731114440
ACCESSION NUMBER:		0000950129-02-003792
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20020630
FILED AS OF DATE:		20020731

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			OCEANEERING INTERNATIONAL INC
		CENTRAL INDEX KEY:			0000073756
		STANDARD INDUSTRIAL CLASSIFICATION:	OIL, GAS FIELD SERVICES, NBC [1389]
		IRS NUMBER:				952628227
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-10945
		FILM NUMBER:		02715568

	BUSINESS ADDRESS:	
		STREET 1:		11911 FM 529
		CITY:			HOUSTON
		STATE:			TX
		ZIP:			77041
		BUSINESS PHONE:		713-329-4500

	MAIL ADDRESS:	
		STREET 1:		11911 FM 529
		CITY:			HOUSTON
		STATE:			TX
		ZIP:			77041
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>h98549e10vq.txt
<DESCRIPTION>OCEANEERING INTERNATIONAL, INC.- JUNE 30, 2002
<TEXT>
<PAGE>

                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


[X]                QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2002
                                                 -------------

                                       OR

[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

           For the transition period from              to
                                          ------------    ------------

                         Commission File Number 1-10945


                         OCEANEERING INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)


             DELAWARE                                        95-2628227
- ----------------------------------                      -------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                          Identification No.)


                                  11911 FM 529
                                 Houston, Texas
                                      77041
                       -----------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)


                                 (713) 329-4500
                       -----------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
                       -----------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes  X   No
   -----   -----

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<Table>
<Caption>
            Class                                 Outstanding at July 26, 2002
- -----------------------------                     ----------------------------
<S>                                               <C>
Common Stock, $.25 Par Value                             24,760,487 shares
</Table>


                                     PAGE 1
<PAGE>


                         PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS.


                 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<Table>
<Caption>
                                                             June 30,       Dec. 31,
                                                              2002           2001
                                                            ---------      ---------
<S>                                                         <C>            <C>
ASSETS

Current Assets:
   Cash and cash equivalents                                $  26,454      $  10,474
   Accounts receivable, net of allowance
     for doubtful accounts of $1,305 and $1,349               143,868        154,364
   Prepaid expenses and other                                  45,251         40,380
                                                            ---------      ---------
   Total current assets                                       215,573        205,218
                                                            ---------      ---------

Property and Equipment, at cost                               577,839        573,738
Less: accumulated depreciation                               (249,651)      (231,402)
                                                            ---------      ---------
Net property and equipment                                    328,188        342,336
                                                            ---------      ---------

Goodwill, net of amortization of $9,225 and $9,221             14,282         13,884
                                                            ---------      ---------

Other Assets                                                   19,910         18,173
                                                            ---------      ---------

   TOTAL ASSETS                                             $ 577,953      $ 579,611
                                                            =========      =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
   Accounts payable                                         $  26,764      $  28,902
   Accrued liabilities                                         71,444         74,193
   Income taxes payable                                        15,223         10,739
                                                            ---------      ---------
   Total current liabilities                                  113,431        113,834
                                                            ---------      ---------

Long-term Debt, net of current portion                        120,000        170,000
                                                            ---------      ---------

Other Long-term Liabilities                                    43,889         44,344
                                                            ---------      ---------

Commitments and Contingencies

Shareholders' Equity                                          300,633        251,433
                                                            ---------      ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $ 577,953      $ 579,611
                                                            =========      =========
</Table>

See Notes to Consolidated Financial Statements.


                                     PAGE 2
<PAGE>


                 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME


<Table>
<Caption>
                                                     For the Three Months Ended       For the Six Months Ended
                                                               June 30,                       June 30,
                                                     --------------------------      --------------------------
                                                        2002            2001            2002            2001
                                                     ----------      ----------      ----------      ----------
                                                                (in thousands, except per share amounts)
<S>                                                  <C>             <C>             <C>             <C>
Revenue                                              $  141,549      $  132,223      $  280,398      $  236,477

Cost of Services and Products                           110,782         107,482         220,888         190,932
                                                     ----------      ----------      ----------      ----------

    Gross margin                                         30,767          24,741          59,510          45,545

Selling, General and Administrative Expenses             11,488          10,619          22,399          21,135
                                                     ----------      ----------      ----------      ----------

    Income from operations                               19,279          14,122          37,111          24,410

Interest Income                                             134             124             204             205

Interest Expense, net of capitalized interest of
    $585 and $1,930 in the three- and six-month
    periods in 2001                                      (2,355)         (2,624)         (4,682)         (4,503)

Other Income (Expense), Net                                (883)            251            (770)           (233)
                                                     ----------      ----------      ----------      ----------

    Income before income taxes                           16,175          11,873          31,863          19,879

Provision for Income Taxes                               (5,661)         (4,156)        (11,152)         (6,958)
                                                     ----------      ----------      ----------      ----------

    Net Income                                       $   10,514      $    7,717      $   20,711      $   12,921
                                                     ==========      ==========      ==========      ==========


Basic Earnings per Share                             $     0.43      $     0.33      $     0.85      $     0.55

Diluted Earnings per Share                           $     0.42      $     0.32      $     0.84      $     0.54

Weighted average number of common shares                 24,667          23,464          24,347          23,313

Incremental shares from stock options                       393             558             407             523

Weighted average number of common shares and
equivalents                                              25,060          24,022          24,754          23,836


</Table>


See Notes to Consolidated Financial Statements.


                                     PAGE 3
<PAGE>


                 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>

                                                                                   For the Six Months Ended
                                                                                            June 30,
                                                                                  --------------------------
                                                                                     2002            2001
                                                                                  ----------      ----------
                                                                                        (in thousands)
<S>                                                                               <C>             <C>
Cash Flows from Operating Activities:

    Net Income                                                                    $   20,711      $   12,921
                                                                                  ----------      ----------
    Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
    Depreciation and amortization                                                     25,243          20,993
    Currency translation adjustments and other                                         5,812            (834)
    Increase (decrease) in cash from:
         Accounts receivable                                                          10,496         (31,183)
         Prepaid expenses and other current assets                                    (4,596)         (7,033)
         Other assets                                                                   (379)           (137)
         Current liabilities                                                             437          15,215
         Other long-term liabilities                                                   1,695           1,350
                                                                                  ----------      ----------

    Total adjustments to net income                                                   38,708          (1,629)
                                                                                  ----------      ----------

Net Cash Provided by Operating Activities                                             59,419          11,292
                                                                                  ----------      ----------

Cash Flows from Investing Activities:
    Purchases of property and equipment and other                                     (8,836)        (27,829)
                                                                                  ----------      ----------
Net Cash Used in Investing Activities                                                 (8,836)        (27,829)
                                                                                  ----------      ----------

Cash Flows from Financing Activities:
    Net proceeds from (payments of) revolving credit and other long-term debt        (50,000)          9,927
    Proceeds from issuance of common stock                                            15,397           7,612
                                                                                  ----------      ----------
Net Cash Provided by (Used in) Financing Activities                                  (34,603)         17,539
                                                                                  ----------      ----------

Net Increase in Cash and Cash Equivalents                                             15,980           1,002

Cash and Cash Equivalents - Beginning of Year                                         10,474           9,911
                                                                                  ----------      ----------

Cash and Cash Equivalents - End of Period
                                                                                  $   26,454      $   10,913
                                                                                  ==========      ==========
</Table>


See Notes to Consolidated Financial Statements.


                                     PAGE 4
<PAGE>
                 OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       Basis of Presentation and Significant Accounting Policies

         These consolidated financial statements are unaudited, have been
         prepared pursuant to instructions for the Quarterly Report on Form 10-Q
         required to be filed with the Securities and Exchange Commission and do
         not include all information and footnotes normally included in
         financial statements prepared in accordance with generally accepted
         accounting principles. These financial statements reflect all
         adjustments that Oceaneering's management believes are necessary to
         present fairly Oceaneering's financial position at June 30, 2002 and
         its results of operations and cash flows for the periods presented. All
         such adjustments are of a normal and recurring nature. The financial
         statements should be read in conjunction with the consolidated
         financial statements and notes thereto included in Oceaneering's Annual
         Report on Form 10-K for the year ended December 31, 2001. The results
         for interim periods are not necessarily indicative of annual results.

2.       Prepaid Expenses and Other Current Assets

         Prepaid expenses and other current assets consisted of the following:

<Table>
<Caption>
                                               June 30,     Dec. 31,
                                                 2002         2001
                                               --------     --------
                                                  (in thousands)
<S>                                            <C>          <C>
Spare parts for remotely operated vehicles     $ 13,408     $ 14,316
Inventories, primarily raw materials             15,944        9,385
Deferred taxes                                   10,634       10,359
Other                                             5,265        6,320
                                               --------     --------
   Total                                       $ 45,251     $ 40,380
                                               ========     ========
</Table>

3.       Debt

         Long-term Debt consisted of the following:

<Table>
<Caption>
                                               June 30,     Dec. 31,
                                                 2002         2001
                                               --------     --------
                                                  (in thousands)
<S>                                            <C>          <C>
         6.72% Senior Notes                    $100,000     $100,000
         Revolving credit facility                   --       23,000
         Term Loan agreement                     20,000       47,000
                                               --------     --------
            Total                              $120,000     $170,000
                                               ========     ========
</Table>

         During the quarter ended June 30, 2002, Oceaneering prepaid $21 million
         of the principal owed under its Term Loan agreement. As a result of the
         prepayment, the remaining scheduled maturities of the Term Loan
         changed. Oceaneering had an interest rate hedge in place that
         effectively fixed LIBOR at 3.24% for the Term Loan. Oceaneering revised
         the hedge to match the rescheduled maturities of the Term Loan.
         Oceaneering charged $118,000 to interest expense in the three- and
         six-month periods ended June 30, 2002 as a result of this change.

         Scheduled maturities of Long-term Debt as of June 30, 2002 were as
         follows:

<Table>
<Caption>
                                          Revolving
      (in thousands)    6.72% Notes    Credit Facility   Term Loan        Total
      --------------    -----------    ---------------   ---------      --------
<S>                     <C>            <C>               <C>            <C>
Remainder of 2002       $        --       $     --       $   2,400      $  2,400
2003                             --             --           4,800         4,800
2004                             --             --          12,800        12,800
2005                             --             --              --            --
2006                         20,000             --              --        20,000
Thereafter                   80,000             --              --        80,000
                        -----------       --------       ---------      --------
     Total              $   100,000       $     --       $  20,000      $120,000
                        ===========       ========       =========      ========
</Table>

         Maturities before June 2003 are not classified as current as of June
         30, 2002 since Oceaneering can extend the maturity by borrowing under
         the revolving credit facility with a maturity date after one year.


                                     PAGE 5
<PAGE>


4.       Shareholders' Equity

         Shareholders' Equity consisted of the following:

<Table>
<Caption>
                                                                       June 30,     Dec. 31,
                                                                         2002         2001
                                                                       --------     --------
                                                                          (in thousands)
<S>                                                                    <C>          <C>
         Common Stock, par value $0.25;
             90,000,000 shares authorized; 24,756,737 and
             24,017,046 shares issued                                  $  6,189     $  6,004
         Additional paid-in capital                                     100,443       84,105
         Treasury stock; 249,872 shares in 2001, at average cost             --       (3,353)
         Retained earnings                                              205,626      184,915
         Other comprehensive income                                     (11,625)     (20,238)
                                                                       --------     --------

         Total shareholders' equity                                    $300,633     $251,433
                                                                       ========     ========
</Table>

5.       Income Taxes

         Cash taxes paid were $5.9 million and $5.4 million for the six months
         ended June 30, 2002 and 2001, respectively.

6.       Business Segment Information

         Oceaneering supplies a comprehensive range of technical services and
         specialty products to customers in a variety of industries.
         Oceaneering's Offshore Oil and Gas business consists of four business
         segments: Remotely Operated Vehicles ("ROVs"), Subsea Products, Mobile
         Offshore Production Systems and Other Services. Oceaneering's Advanced
         Technologies business is a separate segment that provides project
         management, engineering services and equipment for applications outside
         the oil and gas industry.

         There are no differences in the basis of segmentation or in the basis
         of measurement of segment profit or loss from those used in
         Oceaneering's consolidated financial statements for the year ended
         December 31, 2001. The following summarizes certain financial data by
         business segment:

<Table>
<Caption>
                                                         For the Three Months Ended            For the Six Months Ended
                                                  ----------------------------------------     -------------------------
                                                   June 30,       June 30,       March 31,      June 30,       June 30,
                                                     2002           2001           2002           2002           2001
                                                  ----------     ----------     ----------     ----------     ----------
                                                                              (in thousands)
<S>                                               <C>            <C>            <C>            <C>            <C>
Revenue
    Offshore Oil and Gas
         ROVs                                     $   37,616     $   40,584     $   36,136     $   73,752     $   72,818
         Subsea Products                              36,458         27,194         32,558         69,016         49,355
         Mobile Offshore Production Systems           12,474         11,130         12,227         24,701         18,109
         Other Services                               32,440         27,722         31,121         63,561         47,489
                                                  ----------     ----------     ----------     ----------     ----------
    Total Offshore Oil and Gas                       118,988        106,630        112,042        231,030        187,771
    Advanced Technologies                             22,561         25,593         26,807         49,368         48,706
                                                  ----------     ----------     ----------     ----------     ----------
         Total                                    $  141,549     $  132,223     $  138,849     $  280,398     $  236,477
                                                  ==========     ==========     ==========     ==========     ==========

Gross Margins
    Offshore Oil and Gas
         ROVs                                     $    9,852     $   12,544     $    8,553     $   18,405     $   22,376
         Subsea Products                               7,832            259          6,223         14,055          3,287
         Mobile Offshore Production Systems            4,419          2,591          5,443          9,862          4,445
         Other Services                                4,870          4,659          5,018          9,888          6,731
                                                  ----------     ----------     ----------     ----------     ----------
    Total Offshore Oil and Gas                        26,973         20,053         25,237         52,210         36,839
    Advanced Technologies                              3,794          4,688          3,506          7,300          8,706
                                                  ----------     ----------     ----------     ----------     ----------
         Total                                    $   30,767     $   24,741     $   28,743     $   59,510     $   45,545
                                                  ==========     ==========     ==========     ==========     ==========
</Table>


                                     PAGE 6
<PAGE>


7.       Comprehensive Income

         Comprehensive income is the total of net income and all nonowner
         changes in equity. The amounts of comprehensive income for the three-
         and six-month periods ended June 30, 2002 and 2001 are as follows:

<Table>
<Caption>
                                                       Three Months Ended          Six Months Ended
                                                            June 30,                     June 30,
                                                     ----------------------      ----------------------
                                                       2002          2001          2002          2001
                                                     --------      --------      --------      --------
                                                                      (in thousands)
<S>                                                  <C>           <C>           <C>           <C>
Net Income per Consolidated Statements of Income     $ 10,514      $  7,717      $ 20,711      $ 12,921
Foreign Currency Translation Gains (Losses)             9,838        (2,090)        8,796        (5,329)
Change in Fair Value of Interest Rate Hedge              (442)           --          (183)           --
                                                     --------      --------      --------      --------
Comprehensive Income                                 $ 19,910      $  5,627      $ 29,324      $  7,592
                                                     ========      ========      ========      ========
</Table>

         Amounts comprising other elements of comprehensive income in
Shareholders' Equity:

<Table>
<Caption>
                                                                   June 30, 2002   December 31, 2001
                                                                   -------------   -----------------
                                                                           (in thousands)
<S>                                                                <C>             <C>
Accumulated Net Foreign Currency Translation Adjustments             $(11,506)          $(20,302)
Fair Value of Interest Rate Hedge                                        (119)                64
                                                                     --------           --------
                                                                     $(11,625)          $(20,238)
                                                                     ========           ========
</Table>

8.       New Accounting Standards

         In July 2001, the Financial Accounting Standards Board issued SFAS No.
         141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
         Intangible Assets." SFAS No. 141 requires the use of the purchase
         method of accounting for all business combinations entered into after
         June 30, 2001. SFAS No. 141 also specifies criteria intangible assets
         must meet to be recognized and reported apart from goodwill. SFAS No.
         142 changes the accounting method for goodwill from an amortization to
         an impairment-only approach. SFAS No. 142 was effective for
         Oceaneering's quarter ended March 31, 2002, and early adoption of this
         statement was not permitted. Oceaneering completed the impairment tests
         of goodwill as of January 1, 2002 and determined that its goodwill is
         not impaired. Goodwill amortization expense was $316,000 and $633,000
         for the three- and six-month periods ended June 30, 2001.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

All statements in this Form 10-Q, other than statements of historical facts,
including, without limitation, statements regarding our business strategy, plans
for future operations and industry conditions, are forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to various
risks, uncertainties and assumptions, including those we refer to under the
headings "Business -- Risks and Insurance" and "Cautionary Statement Concerning
Forward-Looking Statements" in Part I of our Annual Report on Form 10-K for the
year ended December 31, 2001. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, because of the
inherent limitations in the forecasting process, as well as the relatively
volatile nature of the industries in which we operate, we can give no assurance
that those expectations will prove to be correct. Accordingly, evaluation of our
future prospects must be made with caution when relying on forward-looking
information.

Material Changes in Financial Condition

We consider our liquidity and capital resources adequate to support our
operations and capital commitments. At June 30, 2002, we had working capital of
$102 million. Additionally, we had $80 million of borrowing capacity available
under our revolving credit facility.

Our capital expenditures were $12 million during the six months ended June 30,
2002, as compared to $28 million during the corresponding period of last year.
Capital expenditures in the current year consisted of expenditures relating to
the addition of units to our fleet of ROVs to replace older units we retired.
Prior-year expenditures consisted of final costs related to the conversion of a
jackup drilling rig to a mobile production unit, the Ocean Legend, and additions
to our fleet of ROVs.

We had no material commitments for capital expenditures at June 30, 2002.


                                     PAGE 7
<PAGE>


At June 30, 2002, we had long-term debt of $120 million and a 29% debt-to-total
capitalization ratio. We have $100 million of Senior Notes outstanding, to be
repaid from 2006 through 2010. We have an $80 million revolving credit facility,
under which we had no outstanding borrowings and $80 million available for
future borrowings at June 30, 2002. This facility is scheduled to expire in
October 2003. We also have a term loan facility that is to be repaid through
April 2004. At June 30, 2002, we had $20 million in outstanding borrowings under
the term loan facility. Both the revolving credit and term loan facilities have
short-term interest rates that float with market rates, plus applicable spreads.
We have effectively fixed the interest rate on the term loan at approximately 4%
through an interest rate swap. We have no off balance sheet debt and have not
guaranteed any debt not reflected on our consolidated balance sheets.

Results of Operations

We operate in five business segments. The segments are contained within two
businesses - services and products provided to the offshore oil and gas industry
("Offshore Oil and Gas") and all other services and products ("Advanced
Technologies"). Our segments within the Offshore Oil and Gas business are
Remotely Operated Vehicles ("ROVs"), Subsea Products, Mobile Offshore Production
Systems and Other Services. We report our Advanced Technologies business as one
segment.

Consolidated revenue and margin information is as follows:

<Table>
<Caption>
                                                         For the Three Months Ended            For the Six Months Ended
                                                  ----------------------------------------     -------------------------
                                                   June 30,       June 30,       March 31,      June 30,       June 30,
                                                     2002           2001           2002           2002           2001
                                                  ----------     ----------     ----------     ----------     ----------
                                                                              (in thousands)
<S>                                               <C>            <C>            <C>            <C>            <C>
Revenue                                           $  141,549     $  132,223     $  138,849     $  280,398     $  236,477
Gross margin                                          30,767         24,741         28,743         59,510         45,545
Gross margin %                                            22%            19%            21%            21%            19%
Operating margin %                                        14%            11%            13%            13%            10%
</Table>

Our Offshore Oil and Gas business results are influenced by the level of capital
spending by oil and gas companies in the offshore sector, particularly in
deepwater, that is, at water depths of 1,000 feet or more. In the first half of
2002, we have seen a decrease in deepwater exploration activity, particularly in
the Gulf of Mexico. We expect this trend to reverse later in 2002 or 2003.

We generate a material amount of our consolidated revenue from contracts for
marine services in the Gulf of Mexico and North Sea, which are usually more
active from April through November compared to the rest of the year. However,
our exit from the diving sector in the North Sea in early 1998 and the
substantial number of multiyear ROV contracts that we entered into since
calendar year 1997 have reduced the seasonality of our Other Services and ROV
operations. Revenues in our Mobile Offshore Production Systems, Subsea Products
and Advanced Technologies segments are generally not seasonal.


                                     PAGE 8
<PAGE>


OFFSHORE OIL AND GAS

The table below sets forth our revenues and gross margins for our Offshore Oil
and Gas business for the periods indicated.


<Table>
<Caption>
                                             For the Three Months Ended           For the Six Months Ended
                                       -------------------------------------      ------------------------
                                       June 30,      June 30,      March 31,      June 30,        June 30,
                                         2002          2001          2002           2002            2001
                                       --------      --------      ---------      --------        --------
                                                      (in thousands, except for percentages)
<S>                                    <C>           <C>           <C>            <C>             <C>
ROVs
    Revenue                            $ 37,616      $ 40,584      $  36,136      $ 73,752        $ 72,818
    Gross margin                          9,852        12,544          8,553        18,405          22,376
    Gross margin %                           26%           31%            24%           25%             31%
    Work class utilization %                 70%           79%            70%           70%             75%

Subsea Products
    Revenue                            $ 36,458      $ 27,194      $  32,558      $ 69,016        $ 49,355
    Gross margin                          7,832           259          6,223        14,055           3,287
    Gross margin %                           21%            1%            19%           20%              7%

Mobile Offshore Production Systems
    Revenue                            $ 12,474      $ 11,130      $  12,227      $ 24,701        $ 18,109
    Gross margin                          4,419         2,591          5,443         9,862           4,445
    Gross margin %                           35%           23%            45%           40%             25%

Other Services
    Revenue                            $ 32,440      $ 27,722      $  31,121      $ 63,561        $ 47,489
    Gross margin                          4,870         4,659          5,018         9,888           6,731
    Gross margin %                           15%           17%            16%           16%             14%

Total Offshore Oil and Gas
    Revenue                            $118,988      $106,630      $ 112,042      $231,030        $187,771
    Gross margin                         26,973        20,053         25,237        52,210          36,839
    Gross margin %                           23%           19%            23%           23%             20%
</Table>

ROV segment gross margin had been increasing over the past several years due to
both additional units available for service and higher utilization rates. The
higher utilization rates had resulted from the return to service of more
floating drilling rigs and a rise in offshore construction-related activities.
This trend reversed in the first quarter of 2002 as there was weakness in the
semi-submersible drilling market, particularly in the Gulf of Mexico where we
have a large market share of ROV drill support. Our ROV revenues and margins
slightly improved in the second quarter over the first quarter, although not to
the levels of the second quarter of 2001. The improvement was primarily achieved
in our foreign operations. We are forecasting ROV results similar to those of
the second quarter for each of the third and fourth quarters of 2002.

Our Subsea Products results improved over the corresponding periods of the prior
year because our umbilical plants are now producing under contracts that were
awarded in improved market conditions. During the first half of 2001, we were
producing a large steel tube umbilical order, the largest umbilical contract we
had ever undertaken, at a loss. It was bid and undertaken during a period of
reduced demand. The completion of this project in the first half of 2001 freed
up capacity at our U.K. plant for profitable work. Our Subsea Products gross
margin percentage increased from the immediately preceding quarter, as our U.K.
plant had more thermoplastic umbilical work on which we generally earn higher
margin percentages, as compared to steel tube umbilicals, due to lower
subcontractor content. While our outlook for the Subsea Products segment is
highly positive based on the projected growth in subsea wellhead completions, we
anticipate this segment's results will be slightly lower in the second half of
2002 as compared to the first half based on our reduced level of backlog of $45
million at June 30, 2002 as compared to $61 million at December 31, 2001.

Our Mobile Offshore Production Systems gross margins were higher than the
corresponding periods of 2001. The Ocean Producer began operations in the fourth
quarter of 2001 under a new seven-year contract, which has been providing higher
revenues and margins than its prior contract. The Ocean Legend began receiving
partial dayrate in the first quarter of 2001 and began receiving full dayrate
mid-second quarter of 2001. As a result of brief operating problems during the
third and fourth quarters of 2001, the first quarter of 2002 was the first
quarter in which we achieved full dayrate for an entire quarter from the Ocean
Legend. We feel we are entitled to a portion of the third and fourth quarter
2001 dayrate that we have not recognized as revenue, and we are negotiating a
settlement with our customer. During the second quarter of 2002, our customer
exercised its option to extend


                                     PAGE 9
<PAGE>


the Ocean Legend contract for an additional two years. As a result, our revenue
and margin on this contract decreased by approximately $19,000 per day, for four
years from mid-May 2002, as compared to the first quarter of 2002. As a result
of the Ocean Legend contract change, gross margin was less than the first
quarter of 2002 and we anticipate lower revenue and gross margin for the balance
of 2002 as compared to the first half. Because we performed a low margin project
management contract in the second quarter, revenue was relatively flat as
compared to the first quarter of 2002.

For our Other Services segment, the three- and six-month periods of 2001
included $2.3 million and $3.1 million, respectively, of gross margin related to
the wind-up of our foreign vessel and diving operations. From our current
operations, a significant improvement in offshore activity in the Gulf of Mexico
contributed to the increase in Other Services gross margins for the three- and
six-month periods ended June 30, 2002. We experienced an increase in utilization
of and profitability from our two Gulf of Mexico Ocean Intervention
multi-service vessels in the three- and six-month periods of 2002 compared to
the corresponding periods of 2001. Additionally, gross margin improved as a
result of a significant engineering and specialized diving contract, and, to a
lesser extent, from topside inspection services. We believe that for 2002 our
Other Services segment will earn more revenue at higher margins than it did in
2001. Currently, we project this segment's results for the second half of 2002
to be lower than achieved in the first half as a result of a soft vessel market
in the Gulf of Mexico due to the low level of offshore industry activity being
experienced at this time.

ADVANCED TECHNOLOGIES

Revenue and gross margin information is as follows:

<Table>
<Caption>
                                             For the Three Months Ended           For the Six Months Ended
                                       -------------------------------------      ------------------------
                                       June 30,      June 30,      March 31,      June 30,        June 30,
                                         2002          2001          2002           2002            2001
                                       --------      --------      ---------      --------        --------
                                                     (in thousands, except for percentages)
<S>                                    <C>           <C>           <C>            <C>             <C>
    Revenue                            $ 22,561      $ 25,593      $  26,807      $ 49,368        $ 48,706
    Gross margin                          3,794         4,688          3,506         7,300           8,706
    Gross margin %                           17%           18%            13%           15%             18%
</Table>

Advanced Technologies revenues and margins were down in the three- and six-month
periods of 2002 as compared to the corresponding periods of 2001 from lower
levels of activities from our telecommunications cable ROV services and from our
space division as a result of lower NASA spending. Gross margin was higher than
the immediately preceding quarter from lower repair and maintenance expenses in
our ROV cable operations. We expect further improvement in this segment's
results for the second half of 2002 based on new orders received from the U.S.
Navy and from the theme park industry.

OTHER

Our equity in the earnings (loss) of our telecommunications joint venture was
$(429,000) and $(37,000) for the three and six months ended June 30, 2002,
compared to $345,000 and $722,000 for the three and six months ended June 30,
2001. The telecommunications cable lay and burial market is suffering from
reduced demand for services, and weak market conditions are expected to continue
at least through the balance of 2002.

Interest expense for the six months ended June 30, 2002 increased compared to
the corresponding period of the prior year as interest on the construction of
the Ocean Legend was capitalized until it was placed in service during the
second quarter of 2001. Our debt had been incurred to fund the acquisition of
additional equipment, including the Ocean Legend, and expansion of our Subsea
Products production capacity. Interest expense for the quarter ended June 30,
2002 was lower than that of the quarter ended June 30, 2001 as a result of lower
debt levels. Interest expense of $2,624,000 and $4,503,000 for the three and six
months ended June 30, 2001 was net of capitalized interest of $585,000 and
$1,930,000.

Other expense in the first half of 2001 included the first quarter write-off of
$600,000 related to the shares of Friede Goldman Halter, Inc. we received as
proceeds for the sale of an out-of-service jackup rig in the fourth quarter of
1999. Friede Goldman Halter, Inc. filed a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code on April 19, 2001. Friede Goldman
Halter, Inc. was delisted from the New York Stock Exchange on April 19, 2001.

The provisions for income taxes were related to U.S. income taxes that we
provided at estimated annual effective rates using assumptions as to earnings
and other factors that would affect the tax calculation for the remainder of the
year and to the operations of foreign branches and subsidiaries that were
subject to local income and withholding taxes.


                                    PAGE 10
<PAGE>


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There are no material changes from the information provided in Item 7A of our
Annual Report on Form 10-K for the year ended December 31, 2001. For a
discussion of a change we implemented relating to our interest rate swap for our
term loan, see Note 3 to the Consolidated Financial Statements in this report.


                           PART II - OTHER INFORMATION


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         (a)      Oceaneering International, Inc. held its Annual Meeting of
                  Shareholders on June 7, 2002. The following matters were voted
                  upon at the Annual Meeting, with the voting results as
                  follows:

                  (1)  Election of Class III Directors

<Table>
<Caption>
                       Nominee             Shares Voted For     Votes Withheld
                       -----------------   ----------------     --------------
<S>                                        <C>                  <C>
                       T. Jay Collins            19,890,398          2,676,200
                       D. Michael Hughes         19,881,689          2,684,909
</Table>

                       Messrs. Charles B. Evans, John R. Huff, David S. Hooker
                       and Harris J. Pappas also continued as directors
                       immediately following the Annual Meeting.

                  (2)  Approval of the 2002 Incentive Plan

<Table>
<Caption>
                                                                                             Broker
                       Shares Voted For   Shares Voted Against       Shares Abstaining       Non-Votes
                       ----------------   --------------------       -----------------       ---------
<S>                                       <C>                        <C>                     <C>
                       13,548,640         6,720,147                  109,856                 2,187,955
</Table>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits.

<Table>
<Caption>
                                                              Registration
                                                              or File           Form or      Report         Exhibit
                                                              Number            Report       Date           Number
                                                              ------            ------       ----           ------
<S>                 <C>                                       <C>               <C>          <C>            <C>
         *  3.01    Restated Certificate of Incorporation     1-10945           10-K         Dec. 2000      3.01
         *  3.02    Amended and Restated By-Laws              1-10945           10-K         Dec. 2001      3.02
           10.01    2002 Incentive Plan
</Table>

- ----------
         *  Indicates exhibit previously filed with the Securities and Exchange
            Commission as indicated and incorporated herein by reference.

(b)      Oceaneering filed the following reports on Form 8-K during the quarter
         for which this report is filed.

<Table>
<Caption>
      Date                 Description
      ----                 -----------
<S>                        <C>
      April 8, 2002        Information furnished under Item 9 regarding the posting of a presentation on
                           Oceaneering's Web site.

      April 15, 2002       Information furnished under Item 9 regarding the posting of a presentation on
                           Oceaneering's Web site.
</Table>


                                    PAGE 11
<PAGE>


                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                            OCEANEERING INTERNATIONAL, INC.
                            (Registrant)



Date:  July 31, 2002        By: /s/ JOHN R. HUFF
                               -----------------
                               John R. Huff
                               Chairman and Chief Executive Officer



Date:  July 31, 2002        By: /s/ MARVIN J. MIGURA
                               ---------------------
                               Marvin J. Migura
                               Senior Vice President and Chief Financial Officer


Date:  July 31, 2002        By: /s/ JOHN L. ZACHARY
                               --------------------
                               John L. Zachary
                               Controller and Chief Accounting Officer



                                    PAGE 12
<PAGE>


                               INDEX TO EXHIBITS


<Table>
<Caption>
EXHIBIT
NUMBER           DESCRIPTION
- -------          -----------
<S>              <C>
 10.01           2002 Incentive Plan
</Table>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>h98549exv10w1.txt
<DESCRIPTION>2002 INCENTIVE PLAN
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.01

                               2002 INCENTIVE PLAN
                                       OF
                         OCEANEERING INTERNATIONAL, INC.


         1. Plan. This 2002 Incentive Plan of Oceaneering International, Inc.
(the "Plan") was adopted by Oceaneering International, Inc. (the "Company") to
reward certain corporate officers and key employees of the Company and certain
independent consultants by enabling them to acquire shares of common stock of
the Company and/or through the provision of cash payments.

         2. Objectives. This Plan is designed to attract and retain key
employees of the Company and its Subsidiaries, to attract and retain qualified
directors of the Company, to attract and retain consultants and other
independent contractors, to encourage the sense of proprietorship of such
employees, directors and independent contractors and to stimulate the active
interest of such persons in the development and financial success of the Company
and its Subsidiaries. These objectives are to be accomplished by making Awards
under this Plan and thereby providing Participants with a proprietary interest
in the growth and performance of the Company and its Subsidiaries.

         3. Definitions. As used herein, the terms set forth below shall have
the following respective meanings:

         "Annual Director Award Date" means the first business day of the month
next succeeding the date upon which the annual meeting of stockholders of the
Company is held in such year.

         "Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either of them shall delegate the authority to execute any Award
Agreement).

         "Award" means the grant of any Option, SAR, Stock Award or Cash Award,
whether granted singly, in combination or in tandem, to a Participant pursuant
to such applicable terms, conditions and limitations as the Committee may
establish in order to fulfill the objectives of the Plan.

         "Award Agreement" means any written agreement between the Company and a
Participant setting forth the terms, conditions and limitations applicable to an
Award.

         "Board" means the Board of Directors of the Company.

         "Cash Award" means an award denominated in cash.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

         "Committee" means the Compensation Committee of the Board or such other
committee of the Board as is designated by the Board to administer the Plan.



                                       1
<PAGE>



         "Common Stock" means the Common Stock, par value $0.25 per share, of
the Company.

         "Company" means Oceaneering International, Inc., a Delaware
corporation.

         "Director" means an individual serving as a member of the Board.

         "Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.

         "Employee" means an employee of the Company or any of its Subsidiaries
and an individual who has agreed to become an employee of the Company or any of
its Subsidiaries and actually becomes such an employee within the following six
months.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.

         "Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported, or,
at the discretion of the Committee, the price prevailing on the exchange at the
time of exercise, (ii) if shares of Common Stock are not so listed but are
quoted on the Nasdaq National Market, the mean between the highest and lowest
sales price per share of Common Stock reported by the Nasdaq National Market on
that date, or, if there shall have been no such sale so reported on that date,
on the last preceding date on which such a sale was so reported, (iii) if the
Common Stock is not so listed or quoted, the mean between the closing bid and
asked price on that date, or, if there are no quotations available for such
date, on the last preceding date on which such quotations shall be available, as
reported by the Nasdaq Stock Market, or, if not reported by the Nasdaq Stock
Market, by the National Quotation Bureau Incorporated or (iv) if shares of
Common Stock are not publicly traded, the most recent value determined by an
independent appraiser appointed by the Company for such purpose.

         "Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.

         "Independent Contractor" means a person providing services to the
Company or any of its Subsidiaries, except an Employee or Nonemployee Director,
who is eligible to receive such Awards as could be made to an Employee, other
than Incentive Options.

         "Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.

         "Nonqualified Option" means an Option that is not intended to comply
with the requirements set forth in Section 422 of the Code.



                                       2
<PAGE>



         "Participant" means an Employee, Director or Independent Contractor to
whom an Award has been made under this Plan.

         "Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee or Independent Contractor, which Award is subject
to the attainment of one or more Performance Goals.

         "Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.

         "Restricted Stock" means any Common Stock that is restricted or subject
to forfeiture provisions.

         "Restriction Period" means a period of time beginning as of the date
upon which an Award of Restricted Stock is made pursuant to this Plan and ending
as of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.

         "SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price, in each case, as determined by the Committee.

         "Stock Award" means an award in the form of shares of Common Stock or
units denominated in shares of Common Stock.

         "Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than 50%
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the case
of a partnership or other business entity not organized as a corporation, any
such business entity of which the Company directly or indirectly owns more than
50% of the voting, capital or profits interests (whether in the form of
partnership interests, membership interests or otherwise).

         4. Eligibility.

         (a) Employees. Key Employees eligible for Awards under this Plan are
         those who hold positions of responsibility and whose performance, in
         the judgment of the Committee, can have a significant effect on the
         success of the Company and its Subsidiaries.

         (b) Directors. Directors eligible for Director Awards under this Plan
         are those who are not employees of the Company or any of its
         Subsidiaries ("Nonemployee Directors").



                                       3
<PAGE>



         (c) Independent Contractors. Independent Contractors eligible for
         Awards under this Plan are those Independent Contractors providing
         services to, or who will provide services to, the Company or any of its
         Subsidiaries.

         5. Common Stock Available for Awards. Subject to the provisions of
paragraph 15 hereof, there shall be available for Awards under this Plan granted
wholly or partly in Common Stock (including rights or options that may be
exercised for or settled in Common Stock) an aggregate of 1,325,000 shares of
Common Stock. No more than 975,000 shares of Common Stock shall be available
under this Plan for Incentive Options. No more than 350,000 shares of Common
Stock shall be available under this Plan for Awards other than Options or SARs.
Shares of Common Stock awarded pursuant to the 1996 Incentive Plan, the 1999
Incentive Plan or the 2000 Non-Executive Incentive Plan (the "Prior Plans")
which are cancelled, terminated, forfeited, expire unexercised, are settled in
cash in lieu of Common Stock, or are exchanged for a consideration that does not
involve Common Stock will immediately become available for Awards under this
Plan. Effective as of March 28, 2002, no further awards shall be made under the
Prior Plans. Additionally, the number of shares of Common Stock that are the
subject of Awards under this Plan, that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a manner such
that all or some of the shares covered by an Award are not issued to a
Participant or are exchanged for Awards that do not involve Common Stock, shall
again immediately become available for Awards hereunder. The Committee may from
time to time adopt and observe such procedures concerning the counting of shares
against the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
shares of Common Stock are available for issuance pursuant to Awards . 6.
Administration.

         6. Administration.

         (a) Authority of the Committee. This Plan shall be administered by the
         Committee. Subject to the provisions hereof, the Committee shall have
         full and exclusive power and authority to administer this Plan and to
         take all actions that are specifically contemplated hereby or are
         necessary or appropriate in connection with the administration hereof.
         The Committee shall also have full and exclusive power to interpret
         this Plan and to adopt such rules, regulations and guidelines for
         carrying out this Plan as it may deem necessary or proper, all of which
         powers shall be exercised in the best interests of the Company and in
         keeping with the objectives of this Plan. Subject to paragraph 6(c)
         hereof, the Committee may, in its discretion, provide for the extension
         of the exercisability of an Award, accelerate the vesting or
         exercisability of an Award, eliminate or make less restrictive any
         restrictions contained in an Award, waive any restriction or other
         provision of this Plan or an Award or otherwise amend or modify an
         Award in any manner that is (i) not adverse to the Participant to whom
         such Award was granted, (ii) consented to by such Participant or (iii)
         authorized by paragraph 15(c) hereof; provided, however, that no such
         action shall permit the term of any Option to be greater than five
         years from the applicable grant date. The Committee may make an Award
         to an individual who it expects to become an employee of the Company or
         any of its Subsidiaries within the



                                       4
<PAGE>



         next six months, with such Award being subject to the individual's
         actually becoming an employee within such time period, and subject to
         such other terms and conditions as may be established by the Committee.
         The Committee may correct any defect or supply any omission or
         reconcile any inconsistency in this Plan or in any Award in the manner
         and to the extent the Committee deems necessary or desirable to further
         the Plan purposes. Any decision of the Committee in the interpretation
         and administration of this Plan shall lie within its sole and absolute
         discretion and shall be final, conclusive and binding on all parties
         concerned.

         (b) Indemnity. No member of the Committee or officer of the Company to
         whom the Committee has delegated authority in accordance with the
         provisions of paragraph 7 of this Plan shall be liable for anything
         done or omitted to be done by him or her, by any member of the
         Committee or by any officer of the Company in connection with the
         performance of any duties under this Plan, except for his or her own
         willful misconduct or as expressly provided by statute.

         (c) Prohibition on Repricing of Awards. No Award may be repriced,
         replaced, regranted through cancellation or modified without
         shareholder approval (except in connection with a change in the
         Company's capitalization), if the effect would be to reduce the
         exercise price for the shares underlying such Award.

         7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish.

         8. Awards. (a) Except as otherwise provided in paragraph 9 hereof
pertaining to Awards to Directors, the Committee shall determine the type or
types of Awards to be made under this Plan and shall designate from time to time
the Participants who are to be the recipients of such Awards. Each Award may be
embodied in an Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant to whom the Award is made and by an
Authorized Officer for and on behalf of the Company. Awards may consist of those
listed in this paragraph 8(a) hereof and may be granted singly, in combination
or in tandem. Awards may also be made in combination or in tandem with, in
replacement of, or as alternatives to, grants or rights under this Plan or any
other plan of the Company or any of its Subsidiaries, including the plan of any
acquired entity; provided that, except as contemplated in paragraph 15 hereof,
no Option may be issued in exchange for the cancellation of an Option with a
higher exercise price nor may the exercise price of any Option be reduced. All
or part of an Award may be subject to conditions established by the Committee,
which may include, but are not limited to, continuous service with the Company
and its Subsidiaries, achievement of specific business objectives, increases in
specified indices, attainment of specified growth rates and other comparable
measurements of performance. Upon the termination of employment by a Participant
who is an Employee, any unexercised, deferred, unvested or unpaid Awards shall
be treated as set forth in the applicable Award Agreement.



                                       5
<PAGE>



                  (i) Option. An Award may be in the form of an Option. An
         Option awarded pursuant to this Plan may consist of an Incentive Option
         or a Nonqualified Option. The price at which shares of Common Stock may
         be purchased upon the exercise of an Option shall be not less than the
         Fair Market Value of the Common Stock on the date of grant. The term of
         an Option shall not exceed five years from the date of grant. Subject
         to the foregoing provisions, the terms, conditions and limitations
         applicable to any Options awarded pursuant to this Plan, including the
         term of any Options and the date or dates upon which they become
         exercisable, shall be determined by the Committee.

                  (ii) Stock Appreciation Right. An Award may be in the form of
         a SAR. The strike price for a SAR shall not be less than the Fair
         Market Value of the Common Stock on the date on which the SAR is
         granted. The term of a SAR shall not exceed five years from the date of
         grant. Subject to the foregoing limitations, the terms, conditions and
         limitations applicable to any SARs awarded pursuant to this Plan,
         including the term of any SARs and the date or dates upon which they
         become exercisable, shall be determined by the Committee.


                  (iii) Stock Award. An Award may be in the form of a Stock
         Award. The terms, conditions and limitations applicable to any Stock
         Awards granted pursuant to this Plan shall be determined by the
         Committee.

                  (iv) Cash Award. An Award may be in the form of a Cash Award.
         The terms, conditions and limitations applicable to any Cash Awards
         granted pursuant to this Plan shall be determined by the Committee.

                  (v) Performance Award. Without limiting the type or number of
         Awards that may be made under the other provisions of this Plan, an
         Award may be in the form of a Performance Award. A Performance Award
         shall be paid, vested or otherwise deliverable solely on account of the
         attainment of one or more pre-established, objective Performance Goals
         established by the Committee prior to the earlier to occur of (x) 90
         days after the commencement of the period of service to which the
         Performance Goal relates and (y) the lapse of 25% of the period of
         service (as scheduled in good faith at the time the goal is
         established), and in any event while the outcome is substantially
         uncertain. A Performance Goal is objective if a third party having
         knowledge of the relevant facts could determine whether the goal is
         met. Such a Performance Goal may be based on one or more business
         criteria that apply to the individual, one or more business units of
         the Company, or the Company as a whole, and may include one or more of
         the following: revenues, income from operations, net income, stock
         price, market share, earnings per share, return on equity, assets or
         invested capital, economic value added, market value added, decrease in
         costs or achievement of balance sheet, income statement or cash flow
         objectives. Unless otherwise stated, such a Performance Goal 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). In interpreting Plan
         provisions applicable to Performance Goals and Performance Awards, it
         is the intent of the Plan to conform with the standards of Section
         162(m) of the Code and Treasury



                                       6
<PAGE>



         Regulation Section 1.162-27(e)(2)(i), and the Committee in establishing
         such goals and interpreting the Plan shall be guided by such
         provisions. Prior to the payment of any compensation based on the
         achievement of Performance Goals, the Committee must certify in writing
         that applicable Performance Goals and any of the material terms thereof
         were, in fact, satisfied. Subject to the foregoing provisions, the
         terms, conditions and limitations applicable to any Performance Awards
         made pursuant to this Plan shall be determined by the Committee.

                  (b) Notwithstanding anything to the contrary contained in this
         Plan, the following limitations shall apply to any Awards made
         hereunder:

                           (i) no Participant may be granted, during any
                  one-year period, Awards consisting of Options or SARs that are
                  exercisable for more than 300,000 shares of Common Stock;

                           (ii) no Participant may be granted, during any
                  one-year period, Stock Awards covering or relating to more
                  than 300,000 shares of Common Stock (the limitation set forth
                  in this clause (ii), together with the limitation set forth in
                  clause (i) above, being hereinafter collectively referred to
                  as the "Stock Based Awards Limitations"); and

                           (iii) no Participant may be granted Awards consisting
                  of cash or in any other form permitted under this Plan (other
                  than Awards consisting of Options or SARs or otherwise
                  consisting of shares of Common Stock or units denominated in
                  such shares) in respect of any one-year period having a value
                  determined on the date of grant in excess of $3,000,000.

                  (c) The Committee shall have the sole responsibility and
         authority to determine the type or types of Awards to an Independent
         Contractor to be made under this Plan and may make any such Awards as
         could be made to an Employee, other than Incentive Options; provided
         that the limitations described in paragraph 8(b) hereof shall be
         inapplicable to Awards to an Independent Contractor.

         9. Awards to Directors. Each Nonemployee Director of the Company shall
be granted Director Awards in accordance with this paragraph 9 and subject to
the applicable terms, conditions and limitations set forth in this Plan and the
applicable Award Agreement. Notwithstanding anything to the contrary contained
herein, Awards to Directors shall not be made in any year in which a sufficient
number of shares of Common Stock are not available to make such Awards under
this Plan.

                  On or after the effective date of his or her first appointment
or election to the Board of Directors, a Nonemployee Director shall
automatically be granted an Option that provides for the purchase of 10,000
shares of Common Stock. In addition, on each Annual Director Award Date, each
Nonemployee Director shall automatically be granted an Option that provides for
the purchase of 10,000 shares of Common Stock. Each Option granted to a Director
shall have a term of five years from the date of grant, notwithstanding any
earlier termination of



                                       7
<PAGE>



the status of the holder as a Nonemployee Director. The purchase price of each
share of Common Stock subject to an Option granted to a Director shall be equal
to the Fair Market Value of the Common Stock on the date of grant. No Option
granted to a Director may be issued in exchange for the cancellation of an
Option with a higher exercise price, nor may the exercise price of any Option
granted to a Director be reduced. All Options granted to a Director shall become
fully exercisable six months following the date of grant. All Options granted to
a Director that have not previously become exercisable shall be forfeited if the
Nonemployee Director resigns as a Director without the consent of a majority of
the other Directors.

                  Any Award of Options granted to a Director shall be embodied
in an Award Agreement, which shall contain the terms, conditions and limitations
set forth above and shall be signed by the Participant to whom the Options are
granted and by an Authorized Officer for and on behalf of the Company.

         10. Award Payment; Dividends; Substitution.

         (a) General. Payment of Awards may be made in the form of cash or
         Common Stock, or a combination thereof, and may include such
         restrictions as the Committee shall determine, including, in the case
         of Common Stock, restrictions on transfer and forfeiture provisions. If
         payment of an Award is made in the form of Restricted Stock, the
         applicable Award Agreement relating to such shares shall specify
         whether they are to be issued at the beginning or end of the
         Restriction Period. In the event that shares of Restricted Stock are to
         be issued at the beginning of the Restriction Period, the certificates
         evidencing such shares (to the extent that such shares are so
         evidenced) shall contain appropriate legends and restrictions that
         describe the terms and conditions of the restrictions applicable
         thereto. In the event that shares of Restricted Stock are to be issued
         at the end of the Restricted Period, the right to receive such shares
         shall be evidenced by book entry registration or in such other manner
         as the Committee may determine.

         (b) Deferral. With the approval of the Committee, amounts payable in
         respect of Awards may be deferred and paid either in the form of
         installments or as a lump-sum payment. The Committee may permit
         selected Participants to elect to defer payments of some or all types
         of Awards in accordance with procedures established by the Committee.
         Any deferred payment of an Award, whether elected by the Participant or
         specified by the Award Agreement or by the Committee, may be forfeited
         if and to the extent that the Award Agreement so provides.

         (c) Dividends and Interest. Rights to dividends or Dividend Equivalents
         may be extended to and made part of any Award consisting of shares of
         Common Stock or units denominated in shares of Common Stock, subject to
         such terms, conditions and restrictions as the Committee may establish.
         The Committee may also establish rules and procedures for the crediting
         of interest on deferred cash payments and Dividend Equivalents for
         Awards consisting of shares of Common Stock or units denominated in
         shares of Common Stock.



                                       8
<PAGE>



         11. Stock Option Exercise. The price at which shares of Common Stock
may be purchased under an Option shall be paid in full at the time of exercise
in cash or, if elected by the Participant, the Participant may purchase such
shares by means of tendering Common Stock or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of exercise,
or any combination thereof. The Committee shall determine acceptable methods for
Participants to tender Common Stock or other Awards; provided that any Common
Stock that is or was the subject of an Award may be so tendered only if it has
been held by the Participant for six months. The Committee may provide for
procedures to permit the exercise or purchase of such Awards by use of the
proceeds to be received from the sale of Common Stock issuable pursuant to an
Award. Unless otherwise provided in the applicable Award Agreement, in the event
shares of Restricted Stock are tendered as consideration for the exercise of an
Option, a number of the shares issued upon the exercise of the Option, equal to
the number of shares of Restricted Stock used as consideration therefor, shall
be subject to the same restrictions as the Restricted Stock so submitted as well
as any additional restrictions that may be imposed by the Committee.

         12. Taxes. The Company shall have the right to deduct applicable taxes
from any Award payment and withhold, at the time of delivery or vesting of cash
or shares of Common Stock under this Plan, an appropriate amount of cash or
number of shares of Common Stock or a combination thereof for payment of taxes
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes. The
Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the Award
with respect to which withholding is required. If shares of Common Stock are
used to satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made. The Committee may
provide for loans, on either a short-term or demand basis, from the Company to a
Participant to permit the payment of taxes required by law.

         13. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that (i) no amendment or alteration that would adversely affect
the rights of any Participant under any Award previously granted to such
Participant shall be made without the consent of such Participant and (ii) no
amendment or alteration shall be effective prior to its approval by the
stockholders of the Company to the extent stockholder approval is otherwise
required by applicable legal requirements.

         14. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this paragraph 14
shall be null and void.


                                       9
<PAGE>



         15. Adjustments.

         (a) The existence of outstanding Awards shall not affect in any manner
         the right or power of the Company or its stockholders to make or
         authorize any or all adjustments, recapitalizations, reorganizations or
         other changes in the capital stock of the Company or its business or
         any merger or consolidation of the Company, or any issue of bonds,
         debentures, preferred or prior preference stock (whether or not such
         issue is prior to, on a parity with or junior to the Common Stock) or
         the dissolution or liquidation of the Company, or any sale or transfer
         of all or any part of its assets or business, or any other corporate
         act or proceeding of any kind, whether or not of a character similar to
         that of the acts or proceedings enumerated above.

         (b) In the event of any subdivision or consolidation of outstanding
         shares of Common Stock, declaration of a dividend payable in shares of
         Common Stock or other stock split, then (i) the number of shares of
         Common Stock reserved under this Plan, (ii) the number of shares of
         Common Stock covered by outstanding Awards in the form of Common Stock
         or units denominated in Common Stock, (iii) the exercise or other price
         in respect of such Awards, (iv) the Stock Based Award Limitations
         described in paragraph 8(b) hereof, (v) the number of shares of Common
         Stock covered by Awards to Directors automatically granted pursuant to
         paragraph 9 hereof and (vi) the appropriate Fair Market Value and other
         price determinations for such Awards shall each be proportionately
         adjusted by the Board to reflect such transaction. In the event of any
         other recapitalization or capital reorganization of the Company, any
         consolidation or merger of the Company with another corporation or
         entity, the adoption by the Company of any plan of exchange affecting
         the Common Stock or any distribution to holders of Common Stock of
         securities or property (other than normal cash dividends or dividends
         payable in Common Stock), the Board shall make appropriate adjustments
         to (i) the number of shares of Common Stock covered by Awards in the
         form of Common Stock or units denominated in Common Stock, (ii) the
         exercise or other price in respect of such Awards, (iii) the
         appropriate Fair Market Value and other price determinations for such
         Awards, (iv) the number of shares of Common Stock covered by Awards to
         Directors automatically granted pursuant to paragraph 9 hereof and (v)
         the Stock Based Award Limitations described in paragraph 8(b) hereof,
         to give effect to such transaction shall each be proportionately
         adjusted by the Board to reflect such transaction; provided that such
         adjustments shall only be such as are necessary to maintain the
         proportionate interest of the holders of the Awards and preserve,
         without exceeding, the value of such Awards. In the event of a
         corporate merger, consolidation, acquisition of property or stock,
         separation, reorganization or liquidation, the Board shall be
         authorized to issue or assume Awards by means of substitution of new
         Awards, as appropriate, for previously issued Awards or to assume
         previously issued Awards as part of such adjustment.



                                       10
<PAGE>



         (c) In the event of a corporate merger, consolidation, acquisition of
         property or stock, separation, reorganization or liquidation, the Board
         may make such adjustments to Awards or other provisions for the
         disposition of Awards as it deems equitable, and shall be authorized,
         in its discretion, (i) to provide for the substitution of a new Award
         or other arrangement (which, if applicable, may be exercisable for such
         property or stock as the Board determines) for an Award or the
         assumption of the Award, regardless of whether in a transaction to
         which Section 424(a) of the Code applies, (ii) to provide, prior to the
         transaction, for the acceleration of the vesting and exercisability of,
         or lapse of restrictions with respect to, the Award and, if the
         transaction is a cash merger, provide for the termination of any
         portion of the Award that remains unexercised at the time of such
         transaction or (iii) to provide for the acceleration of the vesting and
         exercisability of an Award and the cancellation thereof in exchange for
         such payment as shall be mutually agreeable to the Participant and the
         Board.

         16. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. Certificates evidencing shares of
Common Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.

         17. Unfunded Plan. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common Stock
or rights thereto, nor shall this Plan be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with respect
to an Award of cash, Common Stock or rights thereto under this Plan shall be
based solely upon any contractual obligations that may be created by this Plan
and any Award Agreement, and no such liability or obligation of the Company
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall be
required to give any security or bond for the performance of any obligation that
may be created by this Plan.

         18. Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.



                                       11
<PAGE>



         19. Effectiveness. This Plan shall be effective as of March 28, 2002
(the "Effective Date"), as approved by the Board of Directors of the Company.
Notwithstanding the foregoing, the adoption of this Plan is expressly
conditioned upon the approval by the holders of a majority of shares of Common
Stock present, or represented, and entitled to vote at a meeting of the Company
Stockholders held on or before December 31, 2002. If the Stockholders of the
Company should fail to so approve this Plan prior to such date, this Plan shall
terminate and cease to be of any further force or effect, and all grants of
Awards hereunder shall be null and void.






                                       12

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
