<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10
ON
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------
GRANT PRIDECO, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 76-0312499
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1450 LAKE ROBBINS DRIVE
SUITE 600
THE WOODLANDS, TEXAS 77380
(Address of principal executive offices) (Zip code)
</TABLE>
(281) 297-8500
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON WHICH EACH
TITLE OF EACH CLASS TO BE REGISTERED CLASS IS TO BE REGISTERED
------------------------------------ -----------------------------------
<S> <C>
Common Stock, par value $.01 per share New York Stock Exchange
</TABLE>
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INFORMATION INCLUDED IN INFORMATION STATEMENT AND
INCORPORATED IN FORM 10 BY REFERENCE
ITEM 1. BUSINESS.
See attached information statement under headings "Answers to Certain
Questions Regarding the Spinoff", "The Spinoff" and "Business".
ITEM 2. FINANCIAL INFORMATION.
See attached information statement under headings "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Financial
Statements".
ITEM 3. PROPERTIES.
See attached information statement under heading "Business".
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See attached information statement under heading "Security Ownership of
Certain Beneficial Owners and Management".
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
See attached information statement under heading "Management".
ITEM 6. EXECUTIVE COMPENSATION.
See attached information statement under heading "Management".
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See attached information statement under headings "Relationship Between
Grant Prideco and Weatherford After the Spinoff", "Management" and "Certain
Relationships and Related Transactions".
ITEM 8. LEGAL PROCEEDINGS.
See attached information statement under heading "Business".
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
See attached information statement under headings "The Spinoff",
"Relationship Between Grant Prideco and Weatherford After the Spinoff",
"Dividend Policy" and "Security Ownership of Certain Beneficial Owners and
Management".
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
See attached information statement under heading "Description of Grant
Capital Stock".
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
See attached information statement under heading "Liability and
Indemnification of Officers and Directors".
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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Not applicable.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
See attached information statement under headings "Financial Statements"
and "Exhibits".
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[WEATHERFORD LOGO]
December , 1999
To the Stockholders of Weatherford International, Inc.:
The Board of Directors of Weatherford International, Inc. has authorized a
distribution to the Weatherford stockholders of all of the outstanding shares of
Grant Prideco, Inc., a wholly owned subsidiary of Weatherford. The distribution
will be made on or about , 2000, to holders of record of Weatherford
common stock at the close of business on December , 1999.
The distribution of the Grant Prideco common stock will be made on the
basis of one share of Grant Prideco common stock for each two shares of
Weatherford common stock held by a Weatherford stockholder on the record date
for the distribution. As such, if you hold 100 shares of Weatherford common
stock on the record date, you will receive 50 shares of Grant Prideco common
stock in the distribution.
Grant Prideco is the world's largest provider of drill pipe and other drill
stem products and is a leading provider of premium tubulars and connections in
North America. Grant Prideco also provides tubulars and connections for
conductors and risers for subsea wells. Following the distribution, the stock of
Grant Prideco will be traded on the New York Stock Exchange under the symbol
"GRP".
The distribution of the Grant Prideco stock to the stockholders of
Weatherford is intended to allow Weatherford and Grant Prideco to focus better
on growing their respective businesses to compete in today's highly competitive
and volatile markets. The distribution will separate the businesses of
Weatherford and Grant Prideco in a manner that reflects their different missions
and different financial, investment and operating characteristics so that each
can pursue business strategies and objectives appropriate to its specific
business. We expect the separation of the businesses to result in greater focus
of our management teams on the core strengths that make each business successful
and to allow for more effective incentives for key employees of each group. The
separation also will permit our investors, customers, lenders and other
constituencies to evaluate the respective businesses of Weatherford and Grant
Prideco on a stand-alone basis.
We are providing you the attached information statement solely for your
information. The information statement contains important information about the
distribution and important financial and other information about Grant Prideco.
No action is being requested of you. If you hold shares of Weatherford common
stock on the record date you will receive your shares of Grant Prideco stock in
the distribution.
For those of us who have been involved in the development and growth of
Grant Prideco from its inception as part of Energy Ventures, Inc., the
separation of Grant Prideco from Weatherford is not being done without some
sadness. The managements of Weatherford and Grant Prideco, however, believe that
the opportunities for growth created by the separation are significant and will
enhance stockholder value. We look forward to the successful future of both
companies as we enter the new millennium.
Sincerely,
/s/ Bernard J. Duroc-Danner
Bernard J. Duroc-Danner
President, Chief Executive Officer
and Chairman of the Board
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Weatherford International, Inc. www.weatherford.com
515 Post Oak Blvd., Suite 600
Houston, Texas 77027
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[GRANT PRIDECO LOGO]
Information Statement
Common Stock
(par value $.01 per share)
Grant Prideco, Inc. is furnishing this information statement in connection
with the spinoff by Weatherford International, Inc. of its wholly owned
subsidiary, Grant Prideco. Weatherford will make the spinoff through a
distribution to its stockholders of one share of Grant Prideco common stock for
each two shares of Weatherford common stock held by the Weatherford stockholders
on the record date for the distribution. The Board of Directors of Weatherford
has fixed the close of business on , 1999 as the record date for the
spinoff. Grant Prideco is mailing this information statement to holders of
Weatherford common stock on or about , 1999.
Grant Prideco is the world's largest provider of drill pipe and other drill
stem products to the oil and gas industry and is a leading provider of premium
tubulars and connections in North America. Grant Prideco also provides tubulars
and connections for conductors and risers for subsea wells. The spinoff will
result in all of the outstanding shares of Grant Prideco common stock being
distributed to holders of Weatherford common stock on a pro rata basis.
Weatherford stockholders will not pay any consideration for shares of Grant
Prideco common stock. The distribution of the Grant Prideco stock to the
Weatherford stockholders is scheduled to be made on , 2000.
Currently, there is no public market for the Grant Prideco common stock,
although we expect that a "when-distributed" trading market will develop before
the distribution date. We have applied to list the Grant Prideco common stock,
and we believe that the Grant Prideco common stock will be approved for listing,
on the New York Stock Exchange.
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NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPINOFF. NO
PROXIES ARE BEING SOLICITED. PLEASE DO NOT SEND US A PROXY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
Weatherford stockholders with questions related to the spinoff should
contact Investor Relations, Weatherford International, Inc., 515 Post Oak
Boulevard, Suite 600, Houston, Texas 77027, at (713) 693-4000; or the Grant
Prideco common stock transfer agent, American Stock Transfer & Trust Company, at
(800) 937-5449. American Stock Transfer & Trust Company also is acting as
distribution agent for the spinoff.
---------------------
, 1999.
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TABLE OF CONTENTS
<TABLE>
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ANSWERS TO CERTAIN QUESTIONS REGARDING THE SPINOFF.......... 1
SUMMARY HISTORICAL FINANCIAL DATA........................... 4
RISK FACTORS................................................ 5
The IRS May Treat the Transaction as Taxable to
Weatherford and Its Stockholders if Representations
Weatherford and Grant Prideco Made to the IRS Were
Inaccurate or if Weatherford and Grant Prideco Do Not
Comply with the Undertakings Made to the IRS........... 5
We Generally Will be Responsible for Taxes if the Spinoff
is Determined to be Taxable............................ 5
Weatherford Will Provide No Future Financial Support to
Us..................................................... 5
Weatherford and Grant Prideco Will Have a Business
Relationship After the Spinoff and Conflicts May
Arise.................................................. 6
There Is No Current Trading Market for the Grant Prideco
Common Stock........................................... 6
The Spinoff Could Adversely Affect the Aggregate Value of
Your Investment in Weatherford Common Stock............ 7
Our Business is Materially Affected By Drilling Activity
and the Rig Count...................................... 7
An Economic Downturn Could Adversely Affect Demand for
Products and Services.................................. 7
Disruptions in Foreign Operations Could Adversely Affect
Our Income............................................. 7
We are Subject to Risks Related to the Year 2000 that
could Negatively Impact Our Business................... 8
THE SPINOFF................................................. 9
Reasons for the Spinoff................................... 9
Distribution Agent........................................ 10
Manner of Effecting the Spinoff........................... 10
Results of the Spinoff.................................... 10
Listing and Trading of the Grant Prideco Common Stock..... 11
Federal Income Tax Consequences of the Spinoff............ 11
Conditions; Termination................................... 12
Reason for Furnishing this Information Statement.......... 13
RELATIONSHIP BETWEEN GRANT PRIDECO AND WEATHERFORD AFTER THE
SPINOFF................................................... 13
Distribution Agreement.................................... 13
Pre-Spinoff Contributions.............................. 14
The Weatherford Note and Contribution of Debt.......... 14
Employment Matters; Treatment of Outstanding Stock
Options and Restricted Stock.......................... 14
Adjustment and Substitution of Existing Weatherford
Stock Options....................................... 14
Options Granted Prior to September 1998.............. 14
Options Granted in September 1998 and Thereafter..... 15
Treatment of Outstanding Restricted Stock............ 16
Payments under Weatherford Nonqualified Deferred
Compensation Plans.................................. 16
Additional Actions................................... 16
Terms and Conditions of the Spinoff.................... 16
Allocation of Liabilities and Indemnities.............. 17
Tax Allocation Agreement.................................. 17
Transition Services Agreement............................. 18
Preferred Supplier Agreement.............................. 18
Policies and Procedures for Addressing Conflicts.......... 18
ACCOUNTING TREATMENT........................................ 19
DIVIDEND POLICY............................................. 19
SELECTED HISTORICAL FINANCIAL DATA.......................... 20
</TABLE>
i
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<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 21
Forward-Looking Statements............................................................................... 21
Market Trends and Outlook................................................................................ 22
Results of Operations.................................................................................... 24
Three and Nine Months Ended September 30, 1999 Compared to the Three and Nine Months Ended September
30, 1998............................................................................................. 24
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997................................. 26
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996................................. 29
Other Charges......................................................................................... 31
Acquisitions............................................................................................. 32
Liquidity and Capital Resources.......................................................................... 33
Tax Matters.............................................................................................. 35
Recent Accounting Pronouncements......................................................................... 35
Year 2000 Matters........................................................................................ 35
Quantitative and Qualitative Market Risk Disclosures..................................................... 36
Foreign Currency Exchange Rates....................................................................... 36
Interest Rates........................................................................................ 37
BUSINESS................................................................................................... 38
General.................................................................................................. 38
Market Trends and Outlook................................................................................ 38
Growth Strategy.......................................................................................... 39
Drill Stem Products...................................................................................... 39
Drill Pipe............................................................................................ 40
Drill Collars......................................................................................... 40
Heavyweight Drill Pipe and Other Drill Stem Products.................................................. 40
Premium Tubulars and Engineered Connections.............................................................. 40
Premium Tubulars and Connections...................................................................... 41
Premium Casing........................................................................................ 41
Couplings............................................................................................. 41
Accessories and Insulated Tubing...................................................................... 41
Conductors and Risers for Subsea Structures........................................................... 41
Other................................................................................................. 41
Raw Materials............................................................................................ 41
Properties............................................................................................... 42
Patents.................................................................................................. 43
Backlog.................................................................................................. 43
Insurance................................................................................................ 43
Federal Regulation and Environmental Matters............................................................. 44
Employees................................................................................................ 44
Litigation............................................................................................... 44
Principal Executive Offices.............................................................................. 44
MANAGEMENT................................................................................................. 45
Board of Directors and Committees of the Board of Grant Prideco.......................................... 45
Director Compensation.................................................................................... 46
Fees.................................................................................................. 46
Grant Prideco, Inc. 1999 Non-Employee Director Stock Option Plan...................................... 46
Director Deferred Compensation Plan................................................................... 47
Executive Officers of Grant Prideco...................................................................... 47
Executive Compensation................................................................................... 48
Stock Option Grants in Fiscal 1998....................................................................... 49
Aggregated Option Exercises in Fiscal 1998 and December 31, 1998 Option Values........................... 49
</TABLE>
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<TABLE>
<S> <C>
Benefit Plans............................................... 50
Grant Prideco, Inc. 1999 Employee Stock Option and
Restricted Stock Plan................................. 50
Grant Prideco, Inc. Executive Deferred Compensation
Plan.................................................. 50
Grant Prideco, Inc. Foreign Executive Deferred
Compensation Plan..................................... 50
Grant Prideco, Inc. 401(k) Savings Plan................ 51
Employment Agreements and Change-of-Control
Arrangements........................................... 51
Compensation Committee Interlocks and Insider
Participation.......................................... 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 54
DESCRIPTION OF GRANT PRIDECO CAPITAL STOCK.................. 54
General................................................... 54
Grant Prideco Common Stock................................ 54
Voting Rights.......................................... 54
Dividend Rights........................................ 55
Liquidation Rights and Other Provisions................ 55
Grant Prideco Preferred Stock............................. 55
No Preemptive Rights...................................... 55
Business Combinations with Interested Stockholders........ 55
Nomination of Directors................................... 56
Transfer Agent and Registrar.............................. 56
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS..... 56
Exculpation of Monetary Liability......................... 56
Indemnification........................................... 57
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 57
WHERE YOU CAN FIND MORE INFORMATION......................... 57
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
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ANSWERS TO CERTAIN QUESTIONS REGARDING THE SPINOFF
The following answers certain questions you may have regarding the spinoff.
We encourage you to read this information statement carefully and completely.
References in this information statement to "Grant Prideco", "we", "us" or the
"Company" include Grant Prideco, Inc. and its subsidiaries (after giving effect
to the transactions contemplated in connection with the spinoff), except where
the context otherwise requires. References in this information statement to
"Weatherford" include Weatherford International, Inc. and its consolidated
subsidiaries (other than Grant Prideco), except where the context otherwise
requires.
Q: WHAT IS THE SPINOFF?
A: Grant Prideco currently is a wholly owned subsidiary of Weatherford. At the
close of business on , 1999, Weatherford will distribute all of
the shares of Grant Prideco common stock to the Weatherford stockholders as
a non-cash distribution, resulting in Grant Prideco becoming an
independent, publicly-owned company.
Q: WHO WILL RECEIVE GRANT PRIDECO COMMON STOCK?
A: Holders of Weatherford common stock will receive Grant Prideco common stock
as of the close of business on , 1999.
Q: WHEN WILL THE SPINOFF OCCUR?
A: The spinoff will occur on , 2000.
Q: HOW MANY SHARES OF GRANT PRIDECO COMMON STOCK WILL I RECEIVE?
A: You will receive one share of Grant Prideco common stock for each two
shares of Weatherford common stock you hold as of the close of business on
the record date. We estimate that Weatherford will distribute approximately
54.3 million shares of Grant Prideco common stock (based on the number of
shares of Weatherford common stock outstanding on September 30, 1999). The
shares to be distributed will constitute all of the outstanding shares of
Grant Prideco common stock immediately after the spinoff.
Q: WHEN WILL I RECEIVE SHARES OF GRANT PRIDECO COMMON STOCK?
A: On the distribution date, Weatherford will deliver certificates
representing the shares of Grant Prideco common stock to the distribution
agent for distribution. The distribution agent will mail certificates
representing the shares of Grant Prideco common stock to holders of
Weatherford common stock as soon as practicable thereafter. See "The
Spinoff -- Manner of Effecting the Spinoff".
Q: WHO IS ACTING AS THE DISTRIBUTION AGENT?
A: American Stock Transfer & Trust Company.
Q: SHOULD I SEND IN MY WEATHERFORD STOCK CERTIFICATES FOR EXCHANGE?
A: No. Holders of Weatherford common stock should not send stock certificates
to Weatherford, Grant Prideco or the distribution agent. See "The
Spinoff -- Manner of Effecting the Spinoff".
Q: WILL THERE BE A TRADING MARKET FOR GRANT PRIDECO COMMON STOCK AFTER THE
SPINOFF? WILL GRANT PRIDECO HAVE A TRADING SYMBOL?
A: There is currently no public market for the Grant Prideco common stock. We
have applied to list the shares of Grant Prideco common stock on the New
York Stock Exchange under the trading symbol "GRP". See "The
Spinoff -- Listing and Trading of the Grant Prideco Common Stock".
Q: WHY IS WEATHERFORD SPINNING OFF GRANT PRIDECO?
A: Weatherford is spinning off Grant Prideco to allow Weatherford and Grant
Prideco to focus better on growing their respective businesses to compete
in today's highly competitive and volatile markets. We expect the spinoff
to allow each company to develop its own strategy for growth and to fund
that growth with its own capital resources without internal competition for
financial and other resources. The objective of the spinoff is to allow
Weatherford to continue its current strategy of becoming a major provider
of products and services used to enhance reservoir recovery and complete
oil and gas wells while allowing Grant Prideco to expand in the tubular and
drilling markets by leveraging off its leading position as the world's
largest provider of drill pipe and other drill stem products. We believe
that given current
1
<PAGE> 10
market conditions, these objectives could not be achieved other than
through a separation of Grant Prideco from Weatherford. See "The
Spinoff -- Reasons for the Spinoff".
Q: WHAT ARE GRANT PRIDECO'S OPERATIONS? WHICH OPERATIONS WILL WEATHERFORD
RETAIN?
A: Grant Prideco conducts Weatherford's drilling products business. This
business includes the manufacturing and sale of drill pipe and other drill
stem products to the oil and gas industry, the provision of premium tubular
and connections and the provision of tubulars and connections for
conductors and risers for subsea applications. Weatherford will retain its
downhole and well intervention services business, its completion products
and services business, its artificial lift systems business and its
compression services business.
Q: HOW WILL GRANT PRIDECO BE CAPITALIZED AFTER THE SPINOFF?
A: Before the spinoff, we will issue a $100 million unsecured subordinated
note to Weatherford and a $15 million credit to Weatherford for the
purchase of drill stem products. Weatherford will then contribute to us all
remaining intercompany indebtedness that we owe to Weatherford. We
currently are negotiating with potential lenders to establish a secured
credit facility that would provide us with up to $100 million for working
capital purposes, of which we expect $30 million to $50 million to be
available to us initially. Following the spinoff, we will have outstanding
approximately $38 million in indebtedness including capitalized leases
relating to obligations we previously incurred from third parties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Relationship Between Grant Prideco and Weatherford After
the Spinoff -- Distribution Agreement -- The Weatherford Note and
Contribution of Debt" and the Financial Statements.
Q: CAN WEATHERFORD DECIDE NOT TO GO THROUGH WITH THE SPINOFF?
A: Yes. Weatherford can cancel the spinoff for any reason at any time before
it is effected. See "The Spinoff -- Conditions; Termination".
Q: WILL I BE TAXED ON THE SHARES OF GRANT PRIDECO THAT I RECEIVE IN THE
SPINOFF?
A: Weatherford has conditioned the spinoff on the receipt of a favorable
ruling from the Internal Revenue Service to the effect that, for United
States federal income tax purposes, the spinoff generally will be tax-free
to Weatherford stockholders. The tax ruling will not address state, local
or foreign tax consequences that may apply to Weatherford stockholders. You
should consult your tax advisor as to the particular tax consequences to
you of the spinoff.
Q: WILL WEATHERFORD BE TAXED ON THE SPINOFF?
A: The tax ruling that Weatherford is seeking requests confirmation that
Weatherford generally should not recognize income, gain or loss as a result
of the spinoff. The requested tax ruling will be based on representations
made by Weatherford and Grant Prideco, the accuracy of which are critical
to the spinoff qualifying as a tax-free distribution. See "The
Spinoff -- Federal Income Tax Consequences of the Spinoff".
Q: WHAT WILL BE THE RELATIONSHIP BETWEEN WEATHERFORD AND GRANT PRIDECO AFTER
THE SPINOFF?
A: Weatherford will not own any stock of Grant Prideco after the spinoff.
Before the spinoff, Grant Prideco and Weatherford will enter into
agreements with respect to relationships and transactions between Grant
Prideco and Weatherford after the spinoff. These agreements include:
- Distribution Agreement, providing for, among other things, (1) the
spinoff and the division between Weatherford and us of certain assets and
liabilities, (2) the issuance by us of a $100 million note to Weatherford
and a $15 million drill stem purchase credit and the cancellation of all
remaining intercompany indebtedness, (3) the allocation of
responsibilities with respect to employee benefit plans, employee
compensation, and other labor and employment matters, (4) the terms and
conditions of the spinoff and (5) the material indemnification
provisions.
- Tax Allocation Agreement, providing for the allocation between
Weatherford and us of tax liabilities that relate to periods before and
after the distribution date. This agreement will provide that we
generally will be responsible for any taxes relating to the spinoff other
than in certain circumstances involving a change of control of
Weatherford.
2
<PAGE> 11
- Preferred Supplier Agreement, pursuant to which we will sell drill pipe
and related products to Weatherford as Weatherford's primary supplier at
prices not higher than the lowest price at which we sell those products
to similarly situated third parties. Weatherford will agree to purchase
at least 70% of its drill stem purchases from us for a period of three
years, subject to certain exceptions. Weatherford will be able to apply
its $15 million drill stem credit for purchases under this agreement.
- Transition Services Agreement, pursuant to which Weatherford will provide
us with certain services on a temporary basis.
Q: WILL WEATHERFORD AND GRANT PRIDECO HAVE ANY COMMON DIRECTORS OR OFFICERS?
HOW WILL CONFLICTS OF INTEREST BE AVOIDED?
A: Grant Prideco and Weatherford will share five common directors. In
addition, Bernard Duroc-Danner, President, Chief Executive Officer and
Chairman of the Board of Weatherford, will serve as Chairman of the Board
of Grant Prideco, and Curtis Huff, Senior Vice President and General
Counsel of Weatherford, will serve as Vice President and Interim General
Counsel of Grant Prideco. Grant Prideco and Weatherford will each adopt
policies and procedures to be followed by the board of directors of each
company to limit the involvement of these common directors in potential
conflict situations, including requiring them to abstain from voting as a
director of either Grant Prideco or Weatherford on certain matters that
present a potential conflict of interest between the two companies and
providing for the outside directors of each company to control the decision
making process in certain situations. We believe that such potential
conflict situations will be minimal. See "Relationship Between Grant
Prideco and Weatherford After the Spinoff -- Policies and Procedures for
Addressing Conflicts".
Q: WHAT ELSE SHOULD I BE CONCERNED ABOUT WITH RESPECT TO THE SPINOFF AND
HOLDING AN INVESTMENT IN GRANT PRIDECO?
A: You should read this entire information statement carefully. You should
read the sections entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations -- Forward-Looking Statements" in evaluating whether and for how
long you should retain an investment in Grant Prideco common stock received
in the spinoff.
3
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SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth certain historical combined financial data
of Grant Prideco. This information has been prepared as if we had been a
stand-alone company for the periods presented. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Combined Financial Statements and the Notes
thereto (the "Financial Statements"). The following information may not be
indicative of our future operating results.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ------------------- -----------------------------------------------------
1999 1998 1999 1998 1998 1997 1996 1995 1994
------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................. $57,987 $160,196 $210,987 $521,911 $646,805 $630,021 $367,336 $167,616 $107,256
Operating Income
(Loss)................. (11,841) 35,732 (13,179) 118,702(a) 112,877(a) 115,436 46,322 15,238 2,640
Net Income (Loss)........ (10,545) 20,515 (15,722) 69,843(a) 65,720(a) 61,514 23,588 3,059 (3,768)
Earnings (Loss) Per
Share:(b)
Basic.................. (0.21) 0.42 (0.32) 1.44 1.35 1.28 0.53 0.08 (0.11)
Diluted................ (0.21) 0.42 (0.32) 1.43 1.34 1.26 0.52 0.08 (0.11)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets......................................... $708,467 $738,314 $662,598 $396,693 $237,854 $146,824
Long-Term Debt....................................... 26,499 9,265 27,387 3,432 2,591 4,641
Subordinated Note to Weatherford..................... 100,000 100,000 100,000 100,000 51,425 65,911
Stockholder's Equity................................. 471,625 445,211 332,722 164,220 104,094 18,593
</TABLE>
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(a) Includes $7.0 million, $4.5 million net of tax, and $35.0 million, $22.8
million net of tax, of other charges relating to a reorganization and
rationalization of our business in light of our industry conditions for the
nine months ended September 30, 1998 and for the year ended December 31,
1998, respectively.
(b) We have calculated our earnings per share using our basic and diluted
weighted average shares outstanding for each of the periods presented. In
calculating our basic weighted average shares, we have adjusted
Weatherford's historical basic weighted average shares outstanding for the
applicable period to reflect the number of shares that would have been
outstanding at the time assuming a distribution of one share of our common
stock for each two shares of Weatherford common stock. Our diluted weighted
average shares reflect an estimate of the potential dilutive effect of
common stock equivalents. This estimate is calculated based on
Weatherford's dilutive effect of stock options and restricted stock divided
by two. The effect of stock options and restricted stock are not included
in the diluted weighted average shares computation for periods in which a
loss occurs because to do so would have been anti-dilutive.
4
<PAGE> 13
RISK FACTORS
In addition to the other information contained in this information
statement, recipients of Grant Prideco common stock should carefully consider
the following information.
THE IRS MAY TREAT THE TRANSACTION AS TAXABLE TO WEATHERFORD AND ITS STOCKHOLDERS
IF REPRESENTATIONS WEATHERFORD AND GRANT PRIDECO MADE TO THE IRS WERE INACCURATE
OR IF WEATHERFORD AND GRANT PRIDECO DO NOT COMPLY WITH THE UNDERTAKINGS MADE TO
THE IRS.
The spinoff is conditioned on Weatherford receiving a favorable ruling from
the IRS to the effect that, for United States federal income tax purposes, the
spinoff generally will be tax-free to Weatherford and its stockholders. It is
possible that Weatherford and its stockholders could be subject to a material
amount of taxes as a result of the spinoff if the representations and
undertakings Grant Prideco and Weatherford made to the IRS in connection with
obtaining the proposed tax ruling are determined to be inaccurate. In addition,
under the Internal Revenue Code of 1986, as amended, and Treasury regulations
promulgated thereunder (including proposed regulations), the spinoff could be
determined to be taxable if within two years following the spinoff there were to
be a change of control of either Weatherford or Grant Prideco and Weatherford
and Grant Prideco were not able to rebut the presumption that the change in
control was contemplated at the time of the spinoff. For a description of
material United States federal income tax consequences to Weatherford
stockholders of the spinoff, see "The Spinoff -- Federal Income Tax Consequences
of the Spinoff".
WE GENERALLY WILL BE RESPONSIBLE FOR TAXES IF THE SPINOFF IS DETERMINED TO BE
TAXABLE.
Under the terms of the Distribution Agreement, we will be responsible and
liable to Weatherford for any and all corporate-level taxes or liabilities
incurred by Weatherford relating to the spinoff except to the extent the spinoff
is determined to be taxable as a result of a change of control of Weatherford
following the spinoff. Our obligation and liability will apply under all other
circumstances, regardless of the reason for the spinoff being determined to be
taxable. This liability would extend to circumstances within the control of
Weatherford as well as circumstances under which it is alleged or determined
that there was a breach or misrepresentation, negligent or otherwise, by
Weatherford in connection with the proposed tax ruling. We also will be
restricted under the Tax Allocation Agreement from engaging in certain
transactions without the consent of Weatherford that could affect the taxability
of the spinoff unless Weatherford receives a supplemental tax ruling or an
acceptable tax opinion. For a summary of Weatherford's and Grant Prideco's
obligations in connection with obtaining the tax ruling and potential tax
liabilities if the transaction is held to be taxable, see "Relationship Between
Grant Prideco and Weatherford After the Spinoff -- Tax Allocation Agreement".
WEATHERFORD WILL PROVIDE NO FUTURE FINANCIAL SUPPORT TO US.
We cannot assure you that we will generate or have available to us
sufficient funds to fund our planned expenditures and meet our obligations to
pay principal and interest on our debt following the spinoff. Further, we cannot
assure you that we will be able to secure sufficient debt or equity financing to
fund our growth strategy.
Weatherford has no obligation to support us financially after the spinoff.
As a result, we will need to secure and maintain our own credit facilities. As a
smaller company engaged in a volatile sector of the oil and gas industry, the
cost of capital to us is expected to be greater than that which we paid as a
Weatherford subsidiary. Financing in our industry also is illiquid at this time,
and the long-term debt markets are expensive for companies of our size and
credit.
Our strategy envisions growth through acquisitions. We expect to finance
future acquisitions through a combination of the issuance of additional equity
and debt financing. Additional equity issuances will be dependent on the nature
of the opportunity that arises and the anticipated accretion or dilution from
the acquisition to our stockholders. We expect any debt financing would
initially be in the form of high-yield notes or debentures. Under the terms of
the $100 million note that we will issue to Weatherford, the proceeds from any
new financing (other than working capital borrowings and equity financings
issued as part of an
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acquisition) must first be applied to the repayment of the Weatherford note.
This repayment obligation could affect the amount and terms of any third party
debt financing that would be available to us.
In connection with the spinoff, we currently are negotiating with potential
lenders to establish a credit facility that would provide us with up to $100
million for working capital purposes, of which we expect $30 to $50 million to
be available to us initially. We expect that this facility would be secured by
our inventory and receivables and guaranteed by our domestic subsidiaries. This
facility also would place limits on our ability to incur new debt, engage in
certain acquisitions and investments, grant liens and make distributions to our
stockholders.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Relationship Between Weatherford and Grant Prideco
After the Spinoff" and the Financial Statements.
WEATHERFORD AND GRANT PRIDECO WILL HAVE A BUSINESS RELATIONSHIP AFTER THE
SPINOFF AND CONFLICTS MAY ARISE.
The terms of the agreements between Weatherford and Grant Prideco were not
negotiated and were proposed by Weatherford as our sole stockholder. As a
result, the terms of those agreements, in particular the Distribution Agreement,
the Tax Allocation Agreement, the Preferred Supplier Agreement and the
Weatherford note, may not reflect the terms that would have been provided to us
from an unrelated third party. Weatherford as our sole stockholder has ratified
the terms of these agreements, and we have acknowledged that the agreements will
constitute our valid obligations.
Persons associated with Weatherford also will have a continuing
relationship with Grant Prideco. Five current directors of Weatherford, Messrs.
Bernard J. Duroc-Danner, Sheldon B. Lubar, William E. Macaulay, Robert K. Moses,
Jr. and Robert A. Rayne, will be named directors of Grant Prideco. These
directors will represent a majority of our initial Board of Directors of Grant
Prideco. In addition, Mr. Duroc-Danner, President, Chief Executive Officer and
Chairman of the Board of Directors of Weatherford, will serve as our Chairman of
the Board and Curtis W. Huff, Senior Vice President and General Counsel of
Weatherford, will serve as our Vice President and Interim General Counsel.
The persons currently associated with Weatherford were asked to serve as
directors or officers of Grant Prideco because of their experience and knowledge
of us and our businesses. Although each of them will have a fiduciary obligation
to both Weatherford and Grant Prideco, we cannot assure you that no conflicts of
interest will arise with them or Weatherford relating to Weatherford and Grant
Prideco after the spinoff. Weatherford and Grant Prideco will each adopt
policies and procedures to be followed by their respective board of directors to
limit the involvement of Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne
in conflict situations, including requiring them to abstain from voting as a
director of either Grant Prideco or Weatherford on certain matters that present
a potential conflict of interest between the two companies. See "Relationship
Between Grant Prideco and Weatherford After the Spinoff".
THERE IS NO CURRENT TRADING MARKET FOR THE GRANT PRIDECO COMMON STOCK.
There currently is no public market for our common stock. Although we
expect our common stock to be listed on the New York Stock Exchange following
the spinoff, we cannot predict the prices at which our common stock will trade
after the spinoff. We expect that a large number of holders of our common stock
may sell their shares shortly after the spinoff due to the investment objectives
and requirements of those holders. Until our common stock is fully distributed
and an orderly market develops, we believe the prices at which our common stock
will trade will fluctuate significantly. The trading price of our common stock
will be influenced by a variety of factors, including our operating results and
liquidity of the market for our common stock, investor perception of Grant
Prideco, the industry in which we operate and general and economic market
conditions. See "The Spinoff -- Listing and Trading of the Grant Prideco Common
Stock".
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THE SPINOFF COULD ADVERSELY AFFECT THE AGGREGATE VALUE OF YOUR INVESTMENT IN
WEATHERFORD COMMON STOCK.
Following the spinoff, the trading prices of our common stock and
Weatherford common stock will not necessarily be related. The combined trading
prices of our common stock and Weatherford common stock after the spinoff may be
less than the trading price of Weatherford common stock immediately before the
spinoff. As a result of the spinoff, we expect the trading price range of
Weatherford common stock to be lower than the trading price range of Weatherford
common stock immediately before the spinoff. See "The Spinoff -- Listing and
Trading of the Grant Prideco Common Stock".
OUR BUSINESS IS MATERIALLY AFFECTED BY DRILLING ACTIVITY AND THE RIG COUNT.
A material decline in either prices or drilling activity would negatively
impact our future results. Our business is materially dependent on the level of
drilling activity worldwide. During 1997 and the first half of 1998, we
benefitted from an increase in drilling activity that resulted in strong demand
for our drill pipe and other drill stem products. When drilling activity
declined in the second half of 1998 and 1999, our business fell significantly.
In general, we believe that our drill stem business trails changes in the rig
count by six to nine months. The worldwide monthly rig count for each month in
1999 did not surpass the rig count for the corresponding month of 1998 until
October, and the October 1999 rig count was well below the rig count of any
single month in 1997. This suggests that our drill stem business may not recover
for several more quarters and will not recover completely unless rig counts
continue to rise. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
AN ECONOMIC DOWNTURN COULD ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS AND
SERVICES.
The economic downturn that began in Asia in 1997 affected the economies in
other regions of the world, including South America and the former Soviet Union,
and contributed to the decline in the price of oil and the level of drilling
activity. Although the economy in the United States also has experienced one of
its longest periods of growth in recent history, the continued strength of the
United States economy cannot be assured. If the United States or European
economies were to begin to decline or if the economies of South America or Asia
were to experience further material problems, the demand and price for oil and
gas and our products and services could again adversely affect our revenues and
income.
DISRUPTIONS IN FOREIGN OPERATIONS COULD ADVERSELY AFFECT OUR INCOME.
Our operations in certain locations outside the United States, including
Mexico, India, China and Indonesia, are subject to various political and
economic conditions existing in such countries that could disrupt operations.
These risks include (1) currency fluctuations and potential devaluations in most
countries, in particular those in South America and Asia, (2) currency
restrictions in China and India and limitations on repatriation of profits in
various countries in South America and Asia and (3) political instability in
countries such as Indonesia, India, the former Soviet Union and China.
Disruptions may occur in our foreign operations and losses may occur that will
not be covered by insurance.
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Oil Country Tubular Limited ("OCTL") manufactures drill pipe and other
products for us under a long-term exclusive manufacturing arrangement. Over the
years, we have provided OCTL with a substantial amount of raw materials,
inventory and working capital for the products it manufactures for us. As of
September 30, 1999, OCTL was indebted to us for approximately $21 million for
prior advances for working capital paid by us. Our business in India through our
relationship with OCTL has been adversely affected by the downturn of the
economies in the eastern hemisphere and is subject to various political and
economic risks as well as financial and operational risks with respect to OCTL.
We have substantially curtailed purchases from OCTL in India and expect to
continue to be curtail these purchases into 2000. In this regard, we are
currently discussing various potential modifications to our arrangement with
OCTL in light of market conditions, political events and other matters. Among
the matters being considered and discussed is a termination of the manufacturing
arrangement as well as a possible conversion of the debt owed to us by OCTL into
equity of OCTL. A termination of our relationship with OCTL could result in our
inability to recover funds advanced by us to OCTL and the loss or impairment of
our inventory and equipment located in India. Such an impairment could result in
a charge of up to $20.0 million and would materially adversely effect our
results for this year. At this time we are unable to predict the ultimate
outcome of our ongoing negotiations.
WE ARE SUBJECT TO RISKS RELATED TO THE YEAR 2000 THAT COULD NEGATIVELY IMPACT
OUR BUSINESS.
The Year 2000 issue is the risk that information systems, computers,
equipment and products using date-sensitive software or containing computer
chips with two-digit date fields will be unable to correctly process the Year
2000 date change. If not identified and corrected prior to the Year 2000,
failures could occur in our software, hardware, equipment and products and those
of our suppliers, vendors and customers that could result in interruptions in
our business. Any failure could have a material impact on us.
We cannot guarantee that our information technology and non-information
technology systems or those of our third-party contractors will be Year 2000
ready or that the failure of us or any of these third parties to have Year 2000
ready systems would not result in interruptions in our business. Any such
interruptions could have a material adverse impact on us. Further, there can be
no assurance that any contingency plan we develop will be sufficient to
alleviate or remediate any significant Year 2000 problems that we may
experience. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Matters".
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THE SPINOFF
REASONS FOR THE SPINOFF
The spinoff is intended to allow Weatherford and Grant Prideco to focus
better on growing their respective businesses to compete in today's highly
competitive and volatile markets. We expect the spinoff to allow each company to
develop its own strategy for growth and to fund that growth with its own capital
resources without internal competition for financial and other resources. The
objective of the spinoff is to allow Weatherford to continue its current
strategy of becoming a major provider of products and services used to enhance
reservoir recovery and complete oil and gas wells while allowing Grant Prideco
to expand in the tubular and drilling markets by leveraging off its position as
the world's largest provider of drill pipe and other drill stem products. We
believe that given current market conditions, these objectives could not be
achieved other than through a separation of Grant Prideco from Weatherford.
The decision to effect the spinoff was triggered by the significant changes
that have occurred in the oil and gas industry during the last year and a half.
During this period, the industry has experienced what we believe to have been
one of the most fundamental economic and structural changes ever seen in the
industry. These changes were caused in part by a precipitous drop in the
worldwide price of oil in 1998 and a related fall in the North American and
international rig counts. During the latter part of 1998 and through the first
half of 1999, our industry saw oil prices range from a high of $17.89 per barrel
to a low of $10.44 per barrel and the North American and international rig
counts range from a high of 1,059 and 732, respectively, to a low of 534 and
591, respectively.
The decline and volatility in oil prices and drilling activity resulted in
record low drilling activity by Weatherford's and Grant Prideco's customers
throughout the world and wholesale reductions in field activity and capital
spending in many regions, in particular Canada, the United States and the Far
East. These conditions led to large layoffs and cost reductions in the industry,
an unprecedented consolidation among the major oil companies and what we believe
to be a long-term change in the competitive landscape in the industry.
It is against this background that Weatherford undertook a review of our
businesses and prospects and our relationship with Weatherford's other
businesses to determine the best way to achieve long-term growth. In analyzing
our future prospects, Weatherford's board concluded that for us to continue to
grow and prosper, we would need to pursue new opportunities and acquisitions in
the tubular and drilling segments of the industry. Although we believe that many
opportunities exist for us to grow in these areas, we have not been able to take
full advantage of these opportunities as part of Weatherford due to the capital
cost that would be necessary to do so and Weatherford's focus on reservoir and
production enhancement and investments in technology to compete in today's cost
conscious environment. In general, additional material investments in our
businesses were considered to be inconsistent with the strategic direction and
focus of Weatherford's other businesses.
Over the past year, we have been presented with certain acquisition and
combination opportunities for growth in the tubular segment of the industry that
would have required Weatherford to invest substantial amounts of cash in our
businesses or for us to issue our own stock to fund the acquisition. While we
believe those opportunities would have been desirable for us, they generally
were inconsistent with the strategic direction of Weatherford's other
businesses. Those opportunities also had to compete against other opportunities
Weatherford was pursuing during the market downturn that had generally lower
costs of capital and potentially higher growth rates. Because of these
limitations and constraints on capital and a related desire by Weatherford to
remain focused on reservoir recovery enhancement, we were not able to take
advantage of those opportunities.
Following the spinoff, we intend to actively pursue acquisitions and other
opportunities for growth in our core businesses, including:
- Additional acquisitions where desirable;
- The addition of new tubular and thread technologies;
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- International expansion;
- The addition of new products and services that are complementary to our
existing products and services;
- The investment in new tubular and connection technologies and joint
venture projects such as our titanium drill pipe project with RTI Energy
Systems, Inc. and our connection project for expandable tubing; and
- The investment in additional subsea products and services.
We intend to finance these acquisitions and growth opportunities through a
combination of internally generated capital, equity issuances and incurrences of
debt where deemed prudent or appropriate. Any issuances of equity will depend
upon the opportunity and circumstances. We will incur debt only where we
consider the terms to be appropriate.
The separation of our businesses from Weatherford also is intended to allow
us to reduce various conflicts that have arisen over the past year between our
businesses and certain of Weatherford's other businesses. In particular, many of
our customers are competitors of Weatherford and have been reluctant to support
our businesses when the benefit of that support inured to Weatherford as a
competitor. We believe that a separation of our businesses from Weatherford
should reduce these conflicts and benefit both of our businesses.
DISTRIBUTION AGENT
The distribution agent is American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005.
MANNER OF EFFECTING THE SPINOFF
The general terms and conditions relating to the spinoff are set forth in
the Distribution Agreement between Weatherford and Grant Prideco.
Weatherford will effect the spinoff on the distribution date by delivering
certificates evidencing shares of our common stock to the distribution agent for
distribution to holders of record of Weatherford common stock as of the close of
business on the record date. The spinoff will be made on the basis of one share
of our common stock for each two shares of Weatherford common stock outstanding
as of the close of business on the record date. The total number of shares of
our common stock to be distributed will depend on the number of shares of
Weatherford common stock outstanding on the record date. The shares of our
common stock will be fully paid and non-assessable and the holders thereof will
not be entitled to preemptive rights. See "Description of Grant Prideco Capital
Stock".
THE DISTRIBUTION AGENT WILL MAIL CERTIFICATES REPRESENTING SHARES OF OUR
COMMON STOCK TO WEATHERFORD STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE
DISTRIBUTION DATE. HOLDERS OF WEATHERFORD COMMON STOCK SHOULD NOT SEND
CERTIFICATES TO GRANT PRIDECO, WEATHERFORD OR THE DISTRIBUTION AGENT. THE
DISTRIBUTION AGENT WILL MAIL THE STOCK CERTIFICATES REPRESENTING SHARES OF OUR
COMMON STOCK AS SOON AS PRACTICABLE AFTER THE DISTRIBUTION DATE. WEATHERFORD
STOCK CERTIFICATES WILL CONTINUE TO REPRESENT SHARES OF WEATHERFORD COMMON STOCK
AFTER THE SPINOFF IN THE SAME AMOUNT SHOWN ON THOSE CERTIFICATES.
No holder of Weatherford common stock will be required to pay any cash or
other consideration for the shares of our common stock received in the spinoff
or to surrender or exchange shares of Weatherford common stock to receive shares
of our common stock. No fractional shares of our common stock will be issued in
the spinoff. Any fractional shares of our common stock will be rounded up to the
nearest whole.
RESULTS OF THE SPINOFF
We will be a separate public company after the spinoff and will continue to
own and operate our drilling products and tubular businesses. The number and
identity of the holders of our common stock immediately
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after the spinoff likely will be substantially the same as the number and
identity of the holders of Weatherford common stock on the record date.
Immediately after the spinoff, we expect to have approximately 3,140 holders of
record of our common stock and approximately 54.3 million shares of our common
stock outstanding based on the number of record holders and outstanding shares
of Weatherford common stock as of the close of business on September 30, 1999.
We will determine the actual number of shares of our common stock to be
distributed as of the record date.
The spinoff will not affect the number of outstanding shares of Weatherford
common stock or any rights of Weatherford stockholders. For certain information
regarding the options to purchase our common stock that will be outstanding
after the spinoff, see "Relationship Between Grant Prideco and Weatherford After
the Spinoff -- The Distribution Agreement -- Employment Matters; Treatment of
Outstanding Stock Options and Restricted Stock".
LISTING AND TRADING OF THE GRANT PRIDECO COMMON STOCK
We have applied to list our common stock on the New York Stock Exchange
under the ticker symbol "GRP". We anticipate that our common stock will be
approved for listing by the distribution date, and that trading may commence on
a "when-distributed" basis before the spinoff. On the trading day following the
date that the distribution agent mails certificates for our common stock,
"when-distributed" trading of our common stock and Weatherford common stock will
end and ordinary trading will begin. The New York Stock Exchange will not
approve any trading of our common stock until the Securities and Exchange
Commission has declared our registration statement in respect of our common
stock effective, which is expected to occur before the distribution date.
There currently is no public market for our common stock. Although we
expect our common stock to be listed on the New York Stock Exchange following
the spinoff, we cannot predict the prices at which our common stock will trade
after the spinoff. We expect that a large number of holders of our common stock
may sell their shares shortly following the spinoff due to their investment
objectives and requirements. Until our common stock is fully distributed and an
orderly market develops, we believe the prices at which our common stock will
trade will fluctuate significantly. The trading price of our common stock will
be influenced by a variety of factors, including our operating results, the
depth and liquidity of the market for our common stock, investor perception of
Grant Prideco, the industry in which we operate and general and economic market
conditions.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF
The following is a summary of the material United States federal income tax
consequences relating to the spinoff. The summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder, and interpretations of the Code and Treasury regulations
by the courts and the IRS, all as they exist as of the date of this document.
TAX MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE SPINOFF TO YOU
MAY DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR OWN
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
SPINOFF, PARTICULARLY IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE UNITED
STATES FEDERAL INCOME TAX LAWS, SUCH AS IF YOU ARE A TAX-EXEMPT ENTITY,
NON-RESIDENT ALIEN INDIVIDUAL, FOREIGN ENTITY, FOREIGN TRUST OR ESTATE OR
BENEFICIARY THEREOF, PERSON WHO ACQUIRED SUCH WEATHERFORD STOCK PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INSURANCE
COMPANY OR DEALER IN SECURITIES, OR IF YOU DO NOT HOLD YOUR WEATHERFORD COMMON
STOCK AS A CAPITAL ASSET. THIS SUMMARY DOES NOT ADDRESS STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES.
Weatherford has requested a ruling from the IRS to the effect that, for
United States federal income tax purposes, the spinoff will qualify under
Section 355 of the Code as a distribution that is generally tax-free to
Weatherford and its stockholders. Although rulings generally are binding on the
IRS, Weatherford will not be able to rely on the tax ruling if any factual
representations Weatherford and Grant Prideco made to the IRS are incorrect or
untrue in any material respect or if Weatherford and Grant Prideco do not comply
with any
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undertakings they made to the IRS. We are not aware of any facts or
circumstances that would cause any such representations to be incorrect or
untrue in any material respect.
If Weatherford completes the spinoff and, notwithstanding the tax ruling,
the spinoff is held to be taxable for United States federal income tax purposes,
both Weatherford and its stockholders that receive our common stock could be
subject to a material amount of taxes as a result of the spinoff. The amount of
taxes to which Weatherford would be subject will be based on the difference
between our aggregate market value immediately following the spinoff and
Weatherford's tax basis in our common stock at the time of the spinoff (which
Weatherford estimates will be approximately $396.4 million). We will be liable
to Weatherford for any such corporate-level taxes incurred by Weatherford,
except to the extent those taxes are attributable to a change of control of
Weatherford following the spinoff. For a description of Weatherford's and Grant
Prideco's obligations in connection with obtaining the tax ruling and potential
tax liabilities if the spinoff is held to be taxable, see "Relationship Between
Grant Prideco and Weatherford After the Spinoff -- Tax Allocation Agreement".
The tax ruling will provide that for United States federal income tax
purposes:
- No gain or loss will be recognized by, and no amount will be included in
the income of, the Weatherford stockholders upon their receipt of shares
of our common stock in the spinoff.
- The aggregate basis of our common stock and the Weatherford common stock
in the hands of each Weatherford stockholder after the spinoff will equal
the aggregate basis of the Weatherford common stock held by such
Weatherford stockholder immediately before the spinoff, allocated between
our common stock and the Weatherford common stock in proportion to their
respective fair market values.
- The holding period of our common stock received from Weatherford by each
Weatherford stockholder in the spinoff will include the holding period of
the Weatherford common stock held by such Weatherford stockholder
immediately before the spinoff, provided that such Weatherford
stockholder held the Weatherford common stock as a capital asset on the
date of the spinoff.
The tax ruling will not address tax basis issues with respect to holders of
Weatherford common stock who have blocks of Weatherford common stock with
different per share tax bases. Those holders are urged to consult their tax
advisors regarding the possible tax basis consequences to them of the spinoff.
United States Treasury regulations require each Weatherford stockholder
that receives shares of our common stock in the spinoff to attach to the
holder's United States federal income tax return for the year in which such
stock is received a detailed statement of data demonstrating the applicability
of Section 355 of the Code to the spinoff. Within a reasonable time after the
spinoff, Weatherford will provide Weatherford stockholders and Weatherford
stockholders who receive our common stock in the spinoff with the information
necessary to comply with this requirement, and will provide information
regarding the allocation of tax basis described above.
We urge you to consult your tax advisors as to the particular tax
consequences to you of the spinoff, including the application of state, local
and foreign tax laws and any changes in federal tax laws that occur after the
date of this document.
CONDITIONS; TERMINATION
The Distribution Agreement provides that Weatherford may decline to
consummate the spinoff if:
- The transfers of assets and liabilities contemplated by the Distribution
Agreement to occur prior to the spinoff have not been consummated in all
material respects.
- Our new board of directors has not been elected as of the spinoff and our
certificate of incorporation and the bylaws, as each will be in effect
after the spinoff, are not effective as of the spinoff.
- The registration statement of which this information statement is a part
has not been declared effective.
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- Weatherford has not received the tax ruling.
- We have not entered into the agreements, instruments, understandings,
assignments or other arrangements contemplated by the Distribution
Agreement, including the Tax Allocation Agreement, the Transition
Services Agreement and the Preferred Supplier Agreement. See
"Relationship Between Grant Prideco and Weatherford After the Spinoff".
- Our common stock has not been approved for listing on the New York Stock
Exchange.
Weatherford's board may waive any of these conditions in its discretion.
Weatherford, however, has advised us that it would not waive the condition of a
tax ruling, the registration of our stock under the Exchange Act or the
execution by us of the material agreements contemplated by the Distribution
Agreement. YOU ALSO SHOULD BE AWARE THAT EVEN IF ALL OF THESE CONDITIONS ARE
SATISFIED, WEATHERFORD'S BOARD HAS THE RIGHT TO ABANDON, DEFER OR MODIFY THE
TERMS OF THE SPINOFF AT ANY TIME BEFORE THE DISTRIBUTION DATE. See "Relationship
Between Grant Prideco and Weatherford After the Spinoff".
REASON FOR FURNISHING THIS INFORMATION STATEMENT
We are providing this information statement solely to provide information
to Weatherford stockholders who will receive our common stock in the spinoff. It
is not an inducement or encouragement to buy or sell any securities of
Weatherford or Grant Prideco. We believe the information contained in this
information statement is accurate as of the date set forth on the cover page.
Changes may occur after that date, and neither Grant Prideco nor Weatherford
will update the information except in the normal course of their respective
public disclosure practices.
RELATIONSHIP BETWEEN GRANT PRIDECO AND WEATHERFORD
AFTER THE SPINOFF
On or before the distribution date, we will enter into various agreements
with Weatherford to govern certain of the ongoing relationships between
Weatherford and us after the spinoff and to provide for an orderly transition to
the status of two separate companies. These agreements will be approved and
ratified by Weatherford as our sole stockholder before the spinoff. A summary of
the material provisions of these agreements follows. The terms of these
agreements are subject to change before the spinoff. The forms of agreements
summarized in this section are included as exhibits to our registration
statement of which this information statement forms a part, and the following
summaries are qualified in their entirety by reference to the agreements as
filed.
DISTRIBUTION AGREEMENT
Before the spinoff, we will enter into a Distribution Agreement with
Weatherford that will:
- Set forth the steps to be taken to separate our business from the
remaining Weatherford businesses, which will result in our business being
conducted by us and our wholly owned subsidiaries.
- Provide for our issuance of the $100 million Weatherford note and
Weatherford's contribution to us of all remaining intercompany
indebtedness we owe to Weatherford other than a $15 million drill stem
purchase credit.
- Provide for allocations of responsibilities with respect to employee
benefit plans, employee compensation, and other labor and employment
matters, including the satisfaction of obligations to issue stock upon
the exercise of prior Weatherford options.
- Set forth the terms and conditions of the spinoff.
- Provide for certain indemnities of Weatherford by us with respect to
matters involving our business.
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Pre-Spinoff Contributions
The Distribution Agreement will outline certain corporate transactions to
be taken immediately before the spinoff, which transactions will result in our
business being wholly within Grant Prideco. The information in this information
statement gives effect to these transactions.
The Weatherford Note and Contribution of Debt
As of September 30, 1999, we owed Weatherford approximately $446.4 million.
We incurred this indebtedness for various purposes including (1) the funding of
approximately $275.0 million for our acquisitions with cash and stock provided
by Weatherford, (2) purchases of capital equipment for manufacturing and (3)
funding of working capital and third party debt requirements.
Before the spinoff, we will issue an unsecured subordinated note to
Weatherford in the amount of $100 million. Weatherford will then contribute to
us all remaining intercompany indebtedness that we owe to Weatherford, except
for a $15 million drill stem purchase credit. The Weatherford note will bear
interest at an annual rate of 10%. Interest payments will be due quarterly, and
principal and all unpaid interest will be due no later than December 31, 2001.
If we complete a debt or equity financing (whether public or private, but
excluding working capital borrowings under our proposed credit facility and any
equity issued in connection with a business combination) while the Weatherford
note is outstanding, we will be required to use a portion of the net proceeds of
that financing to repay any amount outstanding under the Weatherford note as of
the time we complete that financing. The Weatherford note will be subordinated
to our proposed credit facility. The terms of the drill stem purchase credit are
described under "Preferred Supplier Agreement". We expect to refinance the
Weatherford note as soon as practicable when market conditions permit.
Employment Matters; Treatment of Outstanding Stock Options and Restricted
Stock
The Distribution Agreement will allocate certain responsibilities with
respect to employee compensation, benefit and labor matters. The allocation of
responsibility and adjustments to be made pursuant to the Distribution Agreement
are substantially consistent with the existing benefits provided to Weatherford
employees under Weatherford's various compensation plans. We will be required to
provide participants in certain of Weatherford's deferred compensation plans
with shares of our common stock. We also will be required to provide to the
holders of certain of Weatherford's options shares of our common stock on the
exercise of Grant Prideco options granted in partial substitution of those
options.
Adjustment and Substitution of Existing Weatherford Stock Options
As of September 30, 1999, there were outstanding options and warrants to
purchase an aggregate of 6,691,854 shares of Weatherford common stock under
various Weatherford employee and director option plans and agreements. The
holders of these options include both employees who will be employed by us and
employees who will be employed by Weatherford after the spinoff. Included in
these options were options to purchase an aggregate of 4,916,000 shares of
Weatherford common stock granted under Weatherford's 1998 Employee Stock Option
Plan, which was adopted in September 1998, and 360,000 shares subject to
Weatherford director options and warrants granted in September 1998. Of the
options to purchase 4,916,000 shares of Weatherford common stock granted under
Weatherford's 1998 Employee Stock Option Plan, options to purchase 862,000
shares of Weatherford common stock were held by employees who will be primarily
employed by us. The options and warrants granted to employees and directors in
September 1998 and thereafter generally vest only after three years from the
date of grant. All other outstanding options are either fully or partially
vested.
Under the terms of the Distribution Agreement, the outstanding Weatherford
options and warrants will be adjusted as follows:
Options Granted Prior to September 1998. All outstanding options granted
prior to September 1998 will be adjusted to provide the holder with the right to
purchase both a share of Weatherford common stock and one half of a share of our
common stock. The adjusted exercise price of the outstanding Weatherford options
14
<PAGE> 23
and the related Grant Prideco options will be a function of the relative market
price of our common stock after giving effect to the spinoff and the value of
the Weatherford common stock before giving effect to the spinoff, with those
values to be determined as described in the table below. This adjustment is
intended to assure that each holder will have the opportunity after the spinoff
to obtain the same number of shares of Weatherford common stock and our common
stock at the same aggregate exercise price as if that option holder had
exercised the Weatherford option in full immediately before giving effect to the
spinoff. The Weatherford options will be administered by the Weatherford
compensation committee, and the substitute Grant Prideco options will be issued
and administered by our compensation committee under a new Grant Prideco
employee stock option plan. We will provide to the option holders the shares of
our common stock required to be issued to them on exercise of their substitute
Grant Prideco options.
Options Granted in September 1998 and Thereafter. All Weatherford options
or warrants granted in September 1998 and thereafter were granted under
Weatherford's 1998 Employee Stock Option Plan or as part of a one time grant
made to Weatherford directors in September 1998. Under the terms of the
Weatherford 1998 plan and the Weatherford director grants, all outstanding
options and warrants granted thereunder will be adjusted to provide the holder
with the right to purchase only shares of common stock of either Weatherford or
Grant Prideco depending upon with which company the employee is primarily
employed. The adjustment will provide for both a new exercise price and number
of shares subject to option. The new exercise price will be based on the
relationship of the value of one-half of a share of our common stock after the
spinoff to the value of the Weatherford common stock before the spinoff. The
number of shares subject to option will be calculated by dividing the new
exercise price into the aggregate exercise price of the holder's option prior to
the spinoff. The formulas, which are set forth below, are intended to tie the
future value of the option to the company that employs the option holder and to
maintain the economic value of the option to the holder before and after the
spinoff.
<TABLE>
<S> <C> <C> <C>
Weatherford Employee and Director Option Adjustments:
W-G
New Exercise Price: E( --- )
W
E
New Number of Weatherford Shares Subject to Option: N( --- )
P(w)
Grant Prideco Employee Option Adjustments:
2G
New Exercise Price: E( --- )
W
E
New Number of Grant Prideco Shares Subject to Option: N( --- )
P(g)
</TABLE>
<TABLE>
<S> <C> <C> <C>
Where E = The original exercise price of the Weatherford option;
N = The original number of shares of Weatherford common stock
subject to the Weatherford option;
G = One half of the market value of a share of Grant Prideco
common stock based on (a) the average of the high and low
trading prices on the NYSE on the first full trading date
after "when-distributed" trading begins, or if lower, for
options remaining outstanding at the date of adjustment, (b)
the average of the last sales price per share the NYSE on
for each of the 30 consecutive trading days beginning on the
date "when-distributed" trading begins; and
W = The market value per share of Weatherford common stock as of
the close of market on the last trading day before
"when-distributed" trading begins.
P(w) = The adjusted exercise price of the Weatherford option
determined in accordance with the first formula above.
P(g) = The exercise price of the new Grant Prideco option
determined in accordance with the third formula above.
</TABLE>
15
<PAGE> 24
Except for the above adjustments, the terms of Weatherford's outstanding
options will remain substantially the same as those in effect before the
spinoff, provided that employment with either Grant Prideco or Weatherford will
satisfy any condition to continuing employment where discontinued employment
would cause the options to terminate. The adjusted Weatherford options will be
administered by the Weatherford compensation committee and the substitute Grant
Prideco options will be issued and administered by our compensation committee
under a new Grant Prideco employee stock option plan. We will provide to the
option holders the shares of our common stock required to be issued to them by
our compensation committee and the substitute Grant Prideco options will be
issued and administered by our compensation committee under a new Grant Prideco
employee stock option plan. We will provide to the option holders the shares of
our common stock required to be issued to them on the exercise of their options
and Weatherford will provide the shares of Weatherford common stock required to
be issued to them on exercise of those options.
Treatment of Outstanding Restricted Stock
Holders of restricted Weatherford common stock will receive one share of
restricted Grant Prideco common stock for each two shares of restricted
Weatherford common stock they hold. The restricted Grant Prideco common stock
will be subject to the same restrictions as the applicable restricted
Weatherford common stock.
Payments under Weatherford Nonqualified Deferred Compensation Plans
As of September 30, 1999, there were accrued deferred compensation
liabilities with respect to an aggregate of 494,152 shares of Weatherford common
stock under the Weatherford International, Inc. Executive Deferred Compensation
Stock Ownership Plan, the Weatherford International, Inc. Foreign Executive
Deferred Compensation Stock Plan and the Weatherford International, Inc.
Executive Deferred Compensation Plan for Non-Employee Directors (the
"Weatherford Deferred Compensation Plans"). Upon the spinoff, the accounts of
all participants in the Weatherford Deferred Compensation Plans will be adjusted
so that the accounts will be deemed to be credited with one non-monetary unit
equal to one share of our common stock for every two non-monetary units equal to
two shares of Weatherford common stock that are then deemed credited to the
accounts. When benefits become distributable under the Weatherford Deferred
Compensation Plans, we will issue directly to the participants the number of
shares of our common stock deemed credited to their accounts, as adjusted under
the antidilution provisions of the Weatherford Deferred Compensation Plans and
as adjusted by dividends on shares of our common stock.
Additional Actions
Effective as of the spinoff, we will assume responsibility for liabilities
and obligations as of the distribution date for medical and dental plan coverage
and for vacation and welfare plans with respect to employees who will be
employees of Grant Prideco or its subsidiaries on or after the distribution
date. We will be responsible for reimbursing Weatherford for all self-insured
amounts under Weatherford's policies to the extent such amounts relate to
current or past employees of Grant Prideco and its businesses.
The Distribution Agreement will provide that the spinoff will not
constitute a termination of employment for employees who will continue to be
employees of Grant Prideco or Weatherford after the spinoff. Therefore, those
employees who continue to be employed by Grant Prideco or Weatherford after the
spinoff will not be deemed severed from employment from Weatherford or any of
its subsidiaries for purposes of any policy, plan, program or agreement that
provides for the payment of severance, salary, continuation, vesting or similar
benefits based on periods of past service. Weatherford and Grant Prideco
employees also will be entitled to service credit for any period of employment
with the other company before the distribution date or for five years following
the distribution date.
Terms and Conditions of the Spinoff
The Distribution Agreement outlines the terms and conditions of the spinoff
as described under the heading "The Spinoff -- Conditions; Termination".
16
<PAGE> 25
Allocation of Liabilities and Indemnities
Subject to certain exceptions, the Distribution Agreement will provide for
an express assumption of liabilities by us and is designed to allocate,
effective as of the distribution date, financial responsibility for the
liabilities arising out of or in connection with our business. We also will
indemnify Weatherford for matters involving (1) our business, including the
business of our and our subsidiaries' predecessors, regardless of whether those
matters are historical or arise in the future, and (2) the spinoff, including
any claims by stockholders relating to the spinoff or the transactions related
thereto.
The Distribution Agreement also will provide that by the distribution date
our certificate of incorporation and bylaws shall be in the forms included in
our registration statement as exhibits, and that Grant Prideco and Weatherford
will elect the persons indicated herein as our directors. See "Description of
Grant Prideco Capital Stock".
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the spinoff will be charged to Weatherford.
TAX ALLOCATION AGREEMENT
We and our subsidiaries have historically been included in Weatherford's
consolidated group (the "consolidated group") for United States federal income
tax purposes as well as in consolidated, combined or unitary groups that include
Weatherford and/or a number of its subsidiaries (a "combined group") for state,
local and foreign income tax purposes.
We will enter into a Tax Allocation Agreement with Weatherford in
connection with the spinoff. Under the Tax Allocation Agreement, we generally
will make payments to Weatherford such that, with respect to tax returns for any
taxable period in which we or any of our subsidiaries are included in the
consolidated group or any combined group, the amount of taxes to be paid by us
will be determined, subject to adjustments, as if we and each of our
subsidiaries included in the consolidated group or combined group filed our own
consolidated, combined or unitary tax return. We generally will be responsible
for any taxes related to tax returns that include only us and our subsidiaries.
The Tax Allocation Agreement allocates responsibility between Weatherford
and us for preparing and filing tax returns and controlling and contesting
audits and tax proceedings. Weatherford will be primarily responsible for
preparing and filing any tax return with respect to the consolidated group or
any combined group. We will be responsible for preparing the portion of any such
tax return that relates exclusively to us or any of our subsidiaries. We
generally will be responsible for preparing and filing any tax returns that
include only us and our subsidiaries. Weatherford will be primarily responsible
for controlling and contesting any audit or other tax proceeding relating to the
consolidated group or any combined group, and we generally will have the right
to control and contest any audit or tax proceeding that relates directly to any
tax item included on the portion of any tax return that we are responsible for
preparing. We may not, however, enter into any settlement or compromise or make
any decision in connection with any audit or tax proceeding that would require
settlement or compromise of issues relating to the tax liabilities of
Weatherford and its subsidiaries. Disputes arising between Weatherford and us
relating to matters covered by the Tax Allocation Agreement are subject to
resolution through specific dispute resolution provisions.
We were included in the consolidated group for periods in which Weatherford
beneficially owned at least 80% of the total voting power and value of our
outstanding stock. We will cease to be included in the consolidated group
following the spinoff. Each member of a consolidated group for United States
federal income tax purposes is jointly and severally liable for the United
States federal income tax liability of each other member of the consolidated
group. Accordingly, although the Tax Allocation Agreement allocates tax
liabilities between Weatherford and us, for any period in which we were included
in the consolidated group, we could be liable if any United States federal
income tax liability was incurred, but not discharged, by any other member of
the consolidated group.
We have agreed with Weatherford that we will not take any action
inconsistent with any information, covenant or representation provided to the
IRS in connection with obtaining the tax ruling and have further
17
<PAGE> 26
agreed to be liable for any taxes arising from a breach of that agreement. In
addition, we have agreed that, during the three-year period following the
spinoff, we will not engage in transactions that could adversely affect the tax
treatment of the spinoff, unless we obtain a supplemental tax ruling from the
IRS or a tax opinion acceptable to Weatherford of nationally recognized tax
counsel to the effect that the proposed transaction would not adversely affect
the tax treatment of the spinoff. Moreover, we will be liable to Weatherford for
any corporate level taxes incurred by Weatherford as a result of the spinoff,
except to the extent the taxes arise as a result of a change of control of
Weatherford. Our indemnity obligation would include indemnification where the
taxes are attributable to specified actions or failures to act by us, or to
specified transactions involving us following the spinoff, including the
acquisition of our common stock by any person or persons.
TRANSITION SERVICES AGREEMENT
We will enter into a Transition Services Agreement with Weatherford for a
period of one year from the distribution date pursuant to which Weatherford will
provide to us certain services requested by us for the conduct of our business.
The fee for these services will be based on a cost-plus-10% basis. Subject to
termination provisions of the agreement, Grant Prideco and Weatherford will be
free to obtain services from outside vendors or may develop an in-house
capability to provide these services. The transition services to be provided
under this agreement may include accounting, tax, treasury services, insurance
and risk management, and management information systems.
PREFERRED SUPPLIER AGREEMENT
We will enter into a Preferred Supplier Agreement with Weatherford pursuant
to which Weatherford will agree for at least a three year period to purchase at
least 70% of its requirements of drill stem products from us. The price for
those products will be at a price not greater than that at which we sell to
similarly situated customers. Weatherford's obligation to purchase will not
apply when:
- we are unable to assure Weatherford of our ability to deliver products to
the location and at the time specified by Weatherford,
- the sale would be illegal,
- we are unable to assure Weatherford of our ability to meet product
specifications,
- we are unable to meet expedited delivery requirements,
- Weatherford is required to use local content,
- Weatherford's customer specifies a competitor,
- we do not accept an order, or
- we breach the Preferred Supplier Agreement.
Under this agreement, we will provide Weatherford with a $15 million purchase
credit that Weatherford will be entitled to apply against its purchases under
the agreement, subject to a limitation of the application of the credit to no
more than 20% of any single purchase.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The ongoing relationship between Weatherford and us may present certain
conflict situations for Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne.
We and Weatherford have adopted appropriate policies and procedures to be
followed by the board of directors of each company to limit the involvement of
Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne (or such executive
officers and other directors having a significant ownership interest in the
companies) in potential conflict situations, including matters relating to
contractual relationships or litigation between Weatherford and us. Such
procedures require Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne (or
such executive officers and other directors
18
<PAGE> 27
having a significant ownership interest in the companies) to abstain from voting
as directors of each company with respect to matters that involve a material
conflict of interest between the companies. Whether or not a material conflict
of interest situation exists will be determined on a case-by-case basis
depending on such factors as the dollar value of the matter, the degree of
personal interest of Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne (or
such executive officers and other directors having a significant ownership
interest in the companies) in the matter and the likelihood that resolution of
the matter has significant strategic, operational or financial implications for
our business. We believe such conflicts will be minimal.
ACCOUNTING TREATMENT
Our historical financial statements present our financial position, results
of operations and cash flows as if we were a separate entity for all periods
presented. Weatherford's historical basis in our assets and liabilities has been
carried over and, in accordance with generally accepted accounting principles,
allocations of certain Weatherford costs have been made.
DIVIDEND POLICY
We presently intend to retain earnings for use in our business and do not
anticipate paying cash dividends in the foreseeable future. The terms of our
$100 million note to Weatherford also will prohibit us from paying any dividends
or distributions to our stockholders for so long as the note is outstanding. We
also expect that our ability to declare and pay dividends will be limited by our
credit facilities.
19
<PAGE> 28
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical combined financial data
of Grant Prideco. This information has been prepared as if we had been a
stand-alone company for the periods presented. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements. The following
information may not be indicative of our future operating results.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ------------------- -----------------------------------------------------
1999 1998 1999 1998 1998 1997 1996 1995 1994
------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.................. $57,987 $160,196 $210,987 $521,911 $646,805 $630,021 $367,336 $167,616 $107,256
Operating Income (Loss)... (11,841) 35,732 (13,179) 118,702(a) 112,877(a) 115,436 46,322 15,238 2,640
Net Income (Loss)......... (10,545) 20,515 (15,722) 69,843(a) 65,720(a) 61,514 23,588 3,059 (3,768)
Earnings (Loss) Per
Share:(b)
Basic................... (0.21) 0.42 (0.32) 1.44 1.35 1.28 0.53 0.08 (0.11)
Diluted................. (0.21) 0.42 (0.32) 1.43 1.34 1.26 0.52 0.08 (0.11)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets........................................ $708,467 $738,314 $662,598 $396,693 $237,854 $146,824
Long-Term Debt...................................... 26,499 9,265 27,387 3,432 2,591 4,641
Subordinated Note to Weatherford.................... 100,000 100,000 100,000 100,000 51,425 65,911
Stockholder's Equity................................ 471,625 445,211 332,722 164,220 104,094 18,593
</TABLE>
- ---------------
(a) Includes $7.0 million, $4.5 million net of tax, and $35.0 million, $22.8
million net of tax, of other charges relating to a reorganization and
rationalization of our business in light of our industry conditions for the
nine months ended September 30, 1998 and for the year ended December 31,
1998, respectively.
(b) We have calculated our earnings per share using our basic and diluted
weighted average shares outstanding for each of the periods presented. In
calculating our basic weighted average shares, we have adjusted
Weatherford's historical basic weighted average shares outstanding for the
applicable period to reflect the number of shares that would have been
outstanding at the time assuming a distribution of one share of our common
stock for each two shares of Weatherford common stock. Our diluted weighted
average shares reflect an estimate of the potential dilutive effect of
common stock equivalents. This estimate is calculated based on
Weatherford's dilutive effect of stock options and restricted stock divided
by two. The effect of stock options and restricted stock are not included
in the diluted weighted average shares computation for periods in which a
loss occurs because to do so would have been anti-dilutive.
20
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our results of operations and current
financial position on a stand-alone basis. This discussion should be read in
conjunction with the Financial Statements.
FORWARD-LOOKING STATEMENTS
This information statement contains statements relating to our future
results, including certain projections and business trends, which constitute
"forward-looking statements". Certain risks and uncertainties may cause actual
results to be materially different from projected results contained in
forward-looking statements in this information statement and in our other
disclosures. These risks and uncertainties include, but are not limited to,
those described in "Risk Factors" and the following:
Any unexpected material changes in oil and gas prices or other market
trends that would impact drilling activity would likely affect the
forward-looking information contained in this information statement. Our results
for 1999 were materially and adversely affected by the downturn in the industry
that began in 1998. Although we currently expect that our results for 2000 will
show an improvement over 1999 due to the recent increase in oil prices and
drilling activity and a general industry view that market conditions have
bottomed out and are beginning to recover, the oil and gas industry is extremely
volatile and subject to change based on political and economic factors outside
our control.
Our estimates as to future results and industry trends described in this
information statement are based on assumptions regarding the future prices of
oil and gas, the North American and international rig counts and their effect on
the demand and pricing of our products and services. In analyzing the market and
its impact on us for the balance of 1999 and 2000, we have made the following
assumptions:
- The recent increase in the price of oil will result in modest
improvements in drilling activity in the fourth quarter of 1999 and an
improvement of between 10% and 20% by the second half of 2000.
- Oil prices will average around $20 per barrel for West Texas Intermediate
crude.
- Average natural gas prices for 2000 will remain at or near their current
levels.
- World demand for oil will be up only slightly.
- Drilling activity will increase slightly beyond normal demand as oil
companies seek to replace and produce reserves that were not replaced or
produced in 1999.
- North American and international rig counts will improve, with increases
in the international rig count following the North American rig count
increase by around six months. In 2000, we expect the average rig count
for North America to be around 1,040 and the average international rig
count to be around 630.
- Demand for drill pipe and other drill stem products will gradually
increase during 2000, with the strongest increases occurring in the
second half of 2000. Demand for premium tubulars will continue to
increase through the remainder of 1999 and into 2000 as drilling activity
increases and distributors restock inventories.
- Pricing for many of our products and services will continue to be subject
to pricing pressures due to industry consolidations and competition as
the industry recovers.
- No worldwide recession or material downturn in the United States economy
will occur.
- Our currency hedges and revenue/expense matching procedures will
adequately mitigate any material fluctuations in currency exchange rates
involving countries in which we conduct operations.
- That there will be no material changes in global trading policies.
- That there will be no unexpected litigation involving us or unexpected
results in our existing litigation.
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<PAGE> 30
We have based these assumptions on various macro-economic factors, and actual
market conditions could vary materially from those assumed.
MARKET TRENDS AND OUTLOOK
Our business is materially dependent on drilling activity and the
associated demand for our drill stem products and production tubulars and
connections. Beginning in late 1996, we began experiencing improvements in our
markets due to more stable pricing of oil and natural gas and increased drilling
activity. This improvement in demand, combined with prior consolidations in our
industry, resulted in a substantial increase in the demand for our drill pipe
and other drill stem and tubular products as well as increases in pricing for
many of our products. For most of 1997 and the first half of 1998, our drill
pipe manufacturing facilities operated at or near full capacity and we invested
capital to expand our capacity and international presence. These improved market
conditions resulted in our revenues almost doubling and our operating profit,
before depreciation and amortization, increasing from approximately $58.8
million in 1996 to approximately $142.5 million in 1997. We also had a backlog
of drill stem products in excess of $319.8 million as we entered into 1998.
Beginning in 1998, the price of oil began to fall. This decline in the
price was attributable to a number of factors. The most significant of the
factors were:
- A drop in demand due to the downturn in Asian and other developing
economies;
- An excess supply of oil due to increased production by most of the oil
exporting countries;
- Concerns over future production from Iraq; and
- The impact of prior exploration efforts and large reserve discoveries.
During 1998, the price of oil ranged from a high of $17.62 per barrel of
West Texas Intermediate crude to a low of $10.44 per barrel of West Texas
Intermediate crude. The North American rig count also fell from a high in 1998
of 1,508 rigs to a low in 1998 of 854 rigs. The international rig count, which
typically trails the domestic rig count by a number of months, fell in 1998 from
a high of 819 to a low of 671. In 1999, the price of oil hit an historical low
of $11.07 per barrel and the North American and international rig counts reached
historical lows of 534 and 556, respectively.
The following table sets forth certain information with respect to oil and
natural gas prices and the United States and international rig counts for the
periods reflected:
<TABLE>
<CAPTION>
HENRY HUB NORTH AMERICAN INTERNATIONAL
WTI OIL(1) GAS(2) RIG COUNT(3) RIG COUNT(3)
---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
September 30, 1999.......................... $24.51 $2.560 966 557
December 31, 1998........................... 11.28 1.945 895 671
December 31, 1997........................... 18.32 2.264 1,499 819
December 31, 1996........................... 25.39 2.757 1,195 810
</TABLE>
- ---------------
(1) Price per barrel, as of September 30, 1999, and December 31, 1998, 1997 and
1996 -- Source: Applied Reasoning, Inc.
(2) Price per MMBtu as of September 30, 1999, and December 31, 1998, 1997 and
1996 -- Source: Oil World
(3) Average rig count for months ended September 30, 1999, and December 31,
1998, 1997 and 1996 -- Source: Baker Hughes Rig Count
The downturn in the industry that began in 1998 led our customers to
substantially curtail their drilling and exploration activity during the second
half of 1998 and 1999. This decline in activity resulted in substantially lower
purchases of capital equipment used for the exploration and drilling of oil, in
particular, drill pipe and other drill stem products we manufacture. We also
were impacted by customers and distributors reducing their inventories of
premium tubular products in light of market conditions and customers cancelling
22
<PAGE> 31
and delaying orders to reduce costs. Indicative of the impact of the downturn,
we estimate that worldwide drill pipe demand for 1999 will be less than five
million feet compared to more than ten million feet during each of 1997 and
1998. As of September 30, 1999, our backlog for drill stem products declined to
approximately $45.1 million and the level of new orders for drill stem products
fell to levels not experienced by us in over ten years. Our manufacturing
facilities were also operating at less than 30% utilization.
In light of the adverse market conditions facing us, we elected to reduce
substantially the operations at our manufacturing facilities in 1999 to avoid
producing excess supplies of inventory in the market. This decision has impacted
our 1999 results by creating large unabsorbed costs for the operation of our
manufacturing facilities at extremely low utilization levels. These unabsorbed
costs combined with lower sales resulted in our operating at a loss for most of
1999. Our revenues and operating loss for the third quarter of 1999 were $58.0
million and $11.8 million, respectively. We recorded a net loss for the three
and nine month periods ended September 30, 1999, of $10.5 million and $15.7
million, respectively. We expect fourth quarter results to improve over second
and third quarters as demand for our products increases, in particular the
demand for our premium tubulars and connections. Despite this anticipated
improvement, we expect that revenues for 1999 will be less than $300.0 million
and that we will have a net loss from ongoing continuing operations for 1999 in
an amount of up to $22.0 million. This loss could increase to include any
charges for unusual items, such as any impairment of our assets in India or the
indebtedness owed to us by OCTL in India or any exit or impairment costs
associated with the consolidation of our domestic and foreign facilities.
Recently, the price of oil has increased due to members of the Organization
of Petroleum Exporting Countries reducing production in compliance with
production quotas. Although oil prices have been higher for a number of months,
the increased prices have not yet translated to materially higher drilling
activity. In particular, drilling activity for deeper wells and wells in harsh
environments has not increased. However, orders for drill stem products and
other premium tubular products are increasing, and we expect that demand will
continue to improve absent another material decline in oil prices. Since August
1, 1999, we have averaged approximately $37 million per month in new orders
compared to approximately $20 million per month for the first seven months of
1999. We currently expect that demand for our drill pipe and other drill stem
products will slowly improve during 2000, with most of the improvement occurring
in the second half of 2000. We expect that results will be significantly better
in 2000 than they were in 1999. Nevertheless, demand for all of our products
continues to be highly dependent upon drilling activity and the price of oil and
natural gas and any material decline in the price of oil and natural gas or
drilling activity could result in a further delay in the recovery in our
industry.
In July 1999, we acquired a 50.01% ownership interest in Voest-Alpine
Stahlrohr Kindberg GmbH & Co KG in Austria. Our investment in Voest-Alpine is
reported on the equity method of accounting. Voest-Alpine owns a tubular mill in
Austria with a capacity of approximately 300,000 metric tons that is capable of
supplying a large portion of our green tube requirements in the United States.
In addition, we entered into a long-term green tube supply contract with
Voest-Alpine. The impact of this investment and supply contract should benefit
us as the market recovers by providing us with a reliable source of raw
materials which is expected to significantly reduce the cost of our raw material
and provide us a 50% profit participation in Voest-Alpine's business.
Over the years, we have provided OCTL with a substantial amount of raw
materials, inventory and working capital for the products it manufactures for
us. As of September 30, 1999, OCTL was indebted to us for approximately $21
million for prior advances for working capital paid by us. Our business in India
through our relationship with OCTL has been adversely affected by the downturn
of the economies in the eastern hemisphere and is subject to various political
and economic risks as well as financial and operational risks with respect to
OCTL. We have substantially curtailed purchases from OCTL in India and expect to
continue to be curtail these purchases into 2000. In this regard, we are
currently discussing various potential modifications to our arrangement with
OCTL in light of market conditions, political events and other matters. Among
the matters being considered and discussed is a termination of the manufacturing
arrangement as well as a possible conversion of the debt owed to us by OCTL into
equity of OCTL. A termination of our relationship with OCTL could result in our
inability to recover funds advanced by us to OCTL and the loss or impairment of
our inventory and equipment located in India. Such an impairment could result in
a charge of up to
23
<PAGE> 32
$20.0 million and would materially adversely effect our results for this year.
At this time we are unable to predict the ultimate outcome of our ongoing
negotiations.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1999 Compared to the Three and Nine
Months Ended September 30, 1998
Our business continued to be severely impacted during the three and nine
month periods ended September 30, 1999 by the decline in worldwide drilling
activity that began in 1998 and has continued through 1999. Our revenues for the
third quarter of 1999 were down by more than 60% from the relatively high levels
recorded in the third quarter of 1998. Our backlog of drill stem products
continued to decline during 1999 due to lower drilling activity. At September
30, 1999, our backlog in drill stem products was $45.1 million compared to
backlog of $71.7 million at December 31, 1998 and $210.1 million at September
30, 1998.
The following chart sets forth additional data regarding our results for
the three and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Revenues..................................... $57,987 $160,196 $210,987 $521,911
Gross Profit................................. 299 47,972 21,681 157,723(a)
Gross Profit %............................... 0.5% 29.9% 10.3% 30.2%
Selling, General and Administrative
Attributable to Segments................... $ 7,966 $ 8,657 $ 23,181 $ 22,804
Corporate General and Administrative......... 4,174 3,583 11,679 11,767
Operating Income (Loss)...................... (11,841) 35,732 (13,179) 118,702(a)
EBITDA(b).................................... (4,166) 43,057 8,983 141,231(a)
</TABLE>
- ---------------
(a) Includes merger and other charges of $7.0 million, comprised of $2.5
million for write-off of inventory, $4.3 million for facility closures and
exit costs and $0.2 million of severance and related costs. The write-off
of inventory is classified as cost of sales.
(b) EBITDA is calculated by taking operating income and adding back
depreciation and amortization. We have included an EBITDA calculation here
because when we look at the performance of our businesses, we give
consideration to their EBITDA. Calculations of EBITDA should not be viewed
as a substitute to calculations under GAAP, in particular cash flows from
operations, operating income and net income. In addition, EBITDA
calculations by our company may not be comparable to those of another
company.
Material items affecting our results for the three and nine months ended
September 30, 1999 compared to same periods in 1998 were:
- The decrease in revenues from 1998 to 1999 reflects our customers'
reduced drilling and exploration activity, the consumption of excess
drill pipe from idle rigs and the reduction of inventories held by
customers and distributors.
- Sales of premium tubulars and connections were materially down due to
reduced offshore activity, lower distributor purchases and a decline in
tubular processing activity.
- For the three and nine months ended September 30, 1998, revenues and
gross profit benefitted from sales from backlog notwithstanding a general
decline in market conditions that began in early 1998.
- Gross profit, gross profit percentages and operating income declined for
the three and nine months ended September 30, 1999 as compared to the
same periods in 1998, due to lower sales volume, pricing pressure and
high fixed costs associated with the manufacturing operations.
- We are in the process of finalizing a plan to consolidate three of our
U.S. manufacturing plants into our Navasota, Texas manufacturing facility
and also two of our foreign manufacturing plants into one
24
<PAGE> 33
foreign manufacturing plant. We expect the consolidation to reduce
operating costs through the creation of greater efficiencies and to
reduce our selling, general and administrative expenses by reducing
administrative personnel. This consolidation is expected to benefit both
drill stem products and premium tubulars and engineered connections
segments through an increase of manufacturing capacity utilization and
lower plant operating costs.
- Selling, general and administrative costs attributable to segments for
the three months ended September 30, 1999 decreased primarily due to cost
reductions related to the premium tubulars and engineered connections
segment, which were partially offset by increased amortization of
goodwill of $0.4 million. Selling general and administrative costs
increased for the nine months ended September 30, 1999 primarily due to
goodwill amortization of $1.0 million. This increase was partially offset
by cost reductions related to the premium tubulars and engineered
connections segment.
- Our corporate general and administrative expenses for the three months
ended September 30, 1999 increased 16% as compared to the same period in
1998 due primarily to increased support from Weatherford personnel.
- Our effective tax rate on our loss from continuing operations for the
three and nine months ended September 30, 1999 was 28.1% and 25.5%,
respectively, due primarily to non-deductible goodwill expense.
- During the nine months ended September 30, 1999, we reduced our workforce
by approximately 300 people.
Drill Stem Products. Our drill stem products segment was most affected by
the decline in worldwide drilling activity in 1998 and 1999. Revenues for the
three and nine month periods ended September 30, 1999 were down by approximately
78% and 67%, respectively, from the record high levels reported in the
comparable periods of 1998.
The following chart sets forth additional data regarding the results of our
drill stem products segment for the three and nine months ended September 30,
1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Revenues.................................... $24,846 $115,404 $112,045 $334,621
Gross Profit (Loss)......................... (1,759) 38,970 16,363 120,656(a)
Gross Profit (Loss) %....................... (7.1)% 33.8% 14.6% 36.1%
Selling, General and Administrative......... $ 3,713 $ 3,772 $ 10,353 $ 9,322
Operating Income (Loss)..................... (5,472) 35,198 6,010 106,884(a)
EBITDA...................................... (1,668) 39,014 16,743 118,654(a)
</TABLE>
- ---------------
(a) Includes merger and other charges of $7.0 million, comprised of $4.3 million
for facility closures and exit costs, $0.2 million of severance and related
costs and $2.5 million for write-off of inventory. The write-off of
inventory is classified as cost of sales.
Material items affecting the results of our drill stem products segment for
the three and nine months ended September 30, 1999 compared to same periods in
1998 were:
- The decrease in revenues from 1998 to 1999 reflects the overall decline
in drilling activity and the consumption of excess drill pipe from idle
rigs.
- Revenues and gross profit for the three months ended September 30, 1999
were negatively affected by the continued weak demand for our products
and resulting unabsorbed fixed costs associated with the manufacturing
facilities operating at extremely low utilization levels. These factors
resulted in an operating loss of $5.5 million.
25
<PAGE> 34
- For the three and nine months ended September 30, 1998, revenues and
gross profit for this segment benefitted from sales from backlog
notwithstanding a general decline in market conditions that began in
early 1998.
- The unabsorbed manufacturing costs for the three and nine months ended
September 30, 1999 were somewhat reduced by Weatherford purchases of
drill pipe of $15.1 million and $22.7 million, respectively.
- Selling, general and administrative costs for the nine months ended
September 30, 1999 increased due primarily to goodwill amortization
associated with acquisitions subsequent to September 30, 1998 of $0.8
million.
Premium Tubulars and Engineered Connections. Our premium tubulars and
engineered connections segment was severely impacted by the decline in worldwide
drilling activity in 1998 and 1999. Revenues for the three and nine months ended
September 30, 1999 were down by approximately 26% and 47%, respectively, from
the same periods in 1998.
The following chart sets forth additional data regarding the results of our
premium tubulars and engineered connections segment for the three and nine
months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1999 1998 1999 1998
-------- -------- ------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Revenues..................................... $33,141 $44,792 $98,942 $187,290
Gross Profit................................. 2,058 9,002 5,318 37,067
Gross Profit %............................... 6.2% 20.1% 5.4% 19.8%
Selling, General and Administrative.......... $ 4,253 $ 4,885 $12,828 $ 13,482
Operating Income (Loss)...................... (2,195) 4,117 (7,510) 23,585
EBITDA....................................... 1,403 7,354 3,098 33,523
</TABLE>
Material items affecting the results of our premium tubulars and engineered
connections segment for the three and nine months ended September 30, 1999 and
1998 were:
- The decline in revenues reflected the impact of a large reduction in
distributor and direct sales in light of market conditions. Revenue
declines also reflected a substantial drop in riser and conductor sales
by XL Systems due to a decline in offshore activity.
- Gross profit, gross profit percentages and operating income declined due
to lower sales volume and unabsorbed fixed costs associated with the low
utilization levels at the manufacturing operations.
- The selling, general and administrative costs attributable to this
segment declined 13% and 5% for the three and nine months ended September
30, 1999, respectively, as compared to three and nine month periods ended
September 30, 1998 due to cost reductions implemented during the first
half of 1999 in response to market conditions.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Our results for 1998 compared to 1997 reflected improved market conditions
during the first half of 1998. During the first half of 1998, our operations
benefitted from strong demand and pricing as well as a large backlog going into
the second half of 1998. As the year progressed, demand declined and prices
began to soften. This decline in demand and prices, however, did not materially
affect the results due to the backlog that existed during the year.
Our results for 1998 also included a $35.0 million charge associated with
the market changes that occurred during 1998. Excluding these charges, our
results for 1998 were significantly higher due to the higher margins and prices
we received on our sales during 1998 compared to 1997. The higher margins and
prices reflected improved demand during the first half of 1998 and that our
facilities were operating at near capacity.
26
<PAGE> 35
The following chart sets forth additional data regarding our results for
1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
-------- --------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $646,805 $630,021
Gross Profit................................................ 166,771(a) 158,242
Gross Profit %.............................................. 25.8% 25.1%
Selling, General and Administrative Attributable to
Segments.................................................. $ 32,077 $ 29,903
Corporate General and Administrative........................ 15,367 12,903
Operating Income............................................ 112,877(a) 115,436
EBITDA...................................................... 144,050(a) 142,487
</TABLE>
- ---------------
(a) Includes merger and other charges of $35.0 million, comprised of $5.1
million for facility closures and exit costs, $0.2 million of severance and
related costs, $28.5 million for the write-off of inventory and $1.2
million for the write-down of equipment. The write-off of inventory is
classified as cost of sales.
Material items affecting our results for 1998 compared to 1997 were:
- The increase in revenues for 1998 reflects the benefit of sales from
backlog from 1997 and the first half of 1998.
- In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico that owned the
manufacturing facility in Veracruz, Mexico that we were operating under a
capital lease arrangement. As part of the consideration paid by us in the
acquisition, we sold the international rights, excluding Canada, to our
Atlas Bradford tubular connection line to TAMSA through a license
arrangement. The rights sold by us through this license arrangement had a
fair value of $9.0 million. As a result, in December 1998 we recorded
$9.0 million in revenues to recognize the sale of our international
rights to the Atlas Bradford connection line.
- Sales in the second half of 1998 decreased by 21.2% as compared to the
first half of 1998.
- Increased sales of drill stem products offset reduced sales of premium
tubulars and connections.
- Lower sales of premium tubulars and connections reflected the more
immediate impact of the tubular and connection market due to industry
changes and lower activity in sales of drill stem products.
- Improved gross profit, before charges of $28.5 million, significantly
benefitted from lower average costs associated with higher production
volumes during the first half of 1998. The second half of 1998 reflected
a shift in the sales mix from higher margin product sales to lower margin
product sales.
- Selling, general and administrative expenses attributable to segments
increased as a percentage of revenues from 4.7% in 1997 to 5.0% in 1998.
The increase reflects $1.4 million of goodwill amortization associated
with the 1997 acquisitions.
- Corporate general and administrative expenses increased as a percentage
of revenues from 2.0% in 1997 to 2.4% in 1998. Information systems costs
increased to $5.6 million in 1998 from $3.5 million in 1997 as a result
of an increase in the number of users, as well as costs associated with
system conversions, including those related to Year 2000 compliance.
- Operating income improved from $115.4 million in 1997 to $147.9 million,
before charges of $35.0 million, in 1998 due to strong demand and sales
from backlog from 1997 and the first half of 1998.
27
<PAGE> 36
Drill Stem Products. The following chart sets forth additional data
regarding the results of our drill stem products segment for 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
-------- --------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $411,191 $333,716
Gross Profit................................................ 115,547(a) 102,618
Gross Profit %.............................................. 28.1% 30.8%
Selling, General and Administrative......................... $ 12,260 $ 10,699
Operating Income............................................ 96,837(a) 91,919
EBITDA...................................................... 113,608(a) 105,604
</TABLE>
- ---------------
(a) Includes merger and other charges of $35.0 million, comprised of $5.1
million for facility closures and exit costs, $0.2 million of severance and
related costs, $28.5 million for the write-off of inventory and $1.2
million for the write-down of equipment. The write-off of inventory is
classified as cost of sales.
Material items affecting the results of our drill stem products segment for
1998 compared to 1997 were:
- The increase in revenues for 1998 reflects the benefit of sales from
backlog from 1997 and the first half of 1998. Backlog as of December 31,
1997 was $319.8 million.
- Sales in the second half of 1998 decreased by 12.4% as compared to the
first half of 1998.
- Improved gross profit, before charges of $28.5 million, significantly
benefitted from lower average costs associated with higher production
volumes during the first half of 1998. The second half of 1998 reflected
a shift in the sales mix from higher margin product sales to lower margin
product sales.
- Selling, general and administrative expenses decreased as a percentage of
revenues from 3.2% in 1997 to 3.0% in 1998. The decrease reflects a
higher revenue base.
Premium Tubulars and Engineered Connections. The following chart sets forth
additional data regarding the results of our premium tubulars and engineered
connections segment for 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $235,614 $296,305
Gross Profit................................................ 51,224 55,624
Gross Profit %.............................................. 21.7% 18.8%
Selling, General and Administrative......................... $ 19,817 $ 19,204
Operating Income............................................ 31,407 36,420
EBITDA...................................................... 44,716 48,938
</TABLE>
Material items affecting the results of our premium tubulars and engineered
connections segment for 1998 compared to 1997 were:
- Revenues declined in the second half of 1998 by 34.7% as compared to the
first half of 1998, due to a decrease in demand as distributors'
inventories fell in light of prevailing market conditions.
- Gross profit benefitted from lower average costs associated with higher
production volumes during the first quarter of 1998, however the gross
profit was adversely impacted by the sharp decline in demand during the
second quarter of 1998.
28
<PAGE> 37
- In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico that owned the
manufacturing facility in Veracruz, Mexico that we were operating under a
capital lease arrangement. As part of the consideration paid by us in the
acquisition, we sold the international rights, excluding Canada, to our
Atlas Bradford tubular connection line for carbon grade tubular to TAMSA
through a license arrangement. This license resulted in a sale by us of
all of our rights that became effective upon the closing of this
transaction. We retained no obligations with respect to the development,
maintenance or improvement of the Atlas Bradford connection line for the
international market and TAMSA has no obligation to give any additional
consideration to us for this license. Any future support by Grant Prideco
is provided on a fee basis. The rights sold by us through this license
arrangement had a fair value of $9.0 million. As a result, in December
1998 we recorded $9.0 million in revenues to recognize the sale of our
international rights to the Atlas Bradford connection line.
- Selling, general and administrative expenses increased as a percentage of
revenues from 6.5% in 1997 to 8.4% in 1998 primarily due to a lower
revenue base. Selling, general and administrative expenses increased by
$1.2 million as a result of a full year of expenses associated with TA
Industries, Inc.
- Operating income declined from $36.4 million in 1997 to $30.2 million in
1998 primarily due to lower revenues and high fixed costs associated with
our manufacturing facilities.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Our results for 1997 compared to 1996 reflected the significant improvement
in market conditions that occurred in 1996. Beginning in 1996, the market and
demand for drill pipe and other drill stem products improved significantly. This
improvement was reflected in both increased volumes and pricing for our
products. The increased volume and pricing resulted in substantially higher
revenues and gross profit margins. During 1997 we were also able to implement
price increases for our drill stem products that we had not previously been able
to implement due to adverse market conditions. Our operations also benefitted
from prior consolidation efforts and the effects of our international expansion
in Mexico.
The following chart sets forth additional data regarding our results for
1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $630,021 $367,336
Gross Profit................................................ 158,242 70,739
Gross Profit %.............................................. 25.1% 19.3%
Selling, General and Administrative Attributable to
Segments.................................................. $ 29,903 $ 16,904
Corporate General and Administrative........................ 12,903 7,513
Operating Income............................................ 115,436 46,322
EBITDA...................................................... 142,487 58,840
</TABLE>
Material items affecting our results for 1997 compared to 1996 were:
- Improved results were primarily due to increased demand for drill pipe
and other drill stem products, strength in premium tubular activity and
our acquisition in April 1997 of TA Industries, Inc., a premium and API
tubular couplings and accessories manufacturer. The acquisition of TA
Industries, Inc. benefitted 1997 revenues and operating income by $73.7
million and $10.3 million, respectively.
- Gross profit increased as a percentage of revenues from 19.3% in 1996 to
25.1% in 1997 due to increased pricing on our products and reduced costs
resulting from the expansion of our Mexico tool joint facility.
29
<PAGE> 38
- Selling, general and administrative expenses attributable to segments
increased by $13.0 million in 1997 as compared to 1996. The increase is
primarily attributable to a full year of expenses associated with
acquisitions completed in 1996 to and 1997. Such acquisitions resulted in
an increase in selling, general and administration of $12.8 million from
1996 to 1997.
Drill Stem Products. The following chart sets forth additional data
regarding the results of our drill stem products segment for 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $333,716 $275,178
Gross Profit................................................ 102,618 49,858
Gross Profit %.............................................. 30.8% 18.1%
Selling, General and Administrative......................... $ 10,699 $ 9,489
Operating Income............................................ 91,919 40,369
EBITDA...................................................... 105,604 48,629
</TABLE>
Material items affecting the results of our drill stem products segment for
1997 compared to 1996 were:
- Improved results were primarily due to increased demand for drill pipe
and other drill stem products.
- The increase in demand for drill pipe reflected higher domestic and
international drilling activity, in particular offshore drilling.
Revenues from drill pipe sales also reflected higher pricing of products.
- Increased pricing on our products and reduced costs resulting from the
expansion of our Mexico tool joint facility benefitted gross profit of
this segment. In the third quarter of 1997, the Mexico facility became
fully operational, which benefitted operations in the second half of 1997
by over $3.0 million.
- Selling, general and administrative expenses for 1997, as a percentage of
revenues, was 3.2% compared to 3.4% for 1996 due to the higher sales
volume.
Premium Tubulars and Engineered Connections. The following chart sets forth
certain data regarding the results of our premium tubulars and engineered
connections segment for 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $296,305 $92,158
Gross Profit................................................ 55,624 20,881
Gross Profit %.............................................. 18.8% 22.7%
Selling, General and Administrative......................... $ 19,204 $ 7,415
Operating Income............................................ 36,420 13,466
EBITDA...................................................... 48,938 17,574
</TABLE>
Material items affecting the results of our premium tubulars and engineered
connections segment for 1997 compared to 1996 were:
- Improved results were primarily due to strength in premium tubular
activity and our acquisition of TA Industries, Inc., a premium and API
couplings and accessories manufacturer in April 1997.
- The increase in premium tubular revenues reflected the acquisition of TA
Industries, Inc. The improvement in premium tubular and connection
revenues also reflected strong demand for these products in the Gulf of
Mexico.
- During 1997, our acquisition of TA Industries, Inc. and various small
acquisitions benefitted 1997 revenues in this segment by $77.3 million
and benefitted its operating income by $12.0 million.
30
<PAGE> 39
- Gross profit for this segment decreased as a percentage of revenues from
22.7% in 1996 to 18.8% in 1997 due to a shift in the sales mix. The
revenues from the 1997 acquisition of TA Industries, Inc. generated lower
margins as compared to 1996 revenues generated primarily from higher
margin premium threading services.
- Selling, general and administrative expenses for 1997, as a percentage of
revenues, were 6.5% compared to 8.0% for 1996 and reflected the higher
revenue base, offset in part by higher selling, general and
administrative expenses of $6.1 million associated with the operations of
TA Industries, Inc. including the increase in the amortization of
goodwill and other intangibles.
Other Charges
In 1998, our drill stem segment incurred $35.0 million in charges relating
to the reorganization and rationalization of our businesses in light of
declining industry conditions and the merger between EVI, Inc. ("EVI") and
Weatherford Enterra, Inc. ("WII"). In the second quarter of 1998, we incurred
$7.0 million of these charges in accordance with Grand Prideco's formalized
plan, which reflected costs associated with the merger between EVI and WII and
the effects of the beginning of the downturn in the industry. Following a
further deterioration in the markets that we serve, and accordingly we incurred
an additional $28.0 million charge in the fourth quarter of 1998. These charges
reflected additional reductions in operations and an attempt to align our cost
structure with current demand. All such costs had been fully expended as of
December 31, 1998, accordingly no accruals remained on the Combined Balance
Sheet as of December 31, 1998. No adjustments to the initial estimates were
required. The net after-tax effect of these charges was $22.8 million.
The following chart summarizes our other charges in 1998.
<TABLE>
<CAPTION>
SECOND FOURTH
QUARTER QUARTER REMAINING
1998 1998 BALANCES AT
CHARGE CHARGE UTILIZED DECEMBER 31, 1998
------- ------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Facility Closures and Exit Costs(1)...... $4,250 $ 850 $ 5,100 $
Severance and Related Costs(2)........... 200 -- 200 --
Inventory Write-off(3)................... 2,500 26,000 28,500 --
Asset Write-down(4)...................... -- 1,150 1,150 --
------ ------- ------- -------
Total.......................... $6,950 $28,000 $34,950 $ --
====== ======= ======= =======
</TABLE>
(1) The facility and exit costs were $5.1 million, all of which were
expended by December 31, 1998. The $4.3 million of costs accrued in the
second quarter related primarily to the elimination of duplicative
manufacturing facilities as a result of the reorganization and
rationalization of our businesses following the merger of WII and EVI
and the downturn in the industry. In the fourth quarter an additional
$0.8 million was accrued to further align our costs in response to the
significant decline in market conditions. The costs related primarily
to the (i) closure of the Channelview, Texas facility, (ii) the closure
of the sales location in the U.K. and a Houston, Texas administrative
location, and (iii) exit costs for certain operations at the Edmonton,
Canada, Pearland, Texas and Bryan, Texas facilities. The Pearland,
Texas facility was a location of WII prior to the merger. The Bryan,
Texas, the Channelview, Texas and Edmonton, Canada manufacturing
facilities, the U.K. sales location and a Houston, Texas administrative
location were EVI locations prior to the merger.
(2) The severance and related costs included in the Company's second
quarter charge were $0.2 million for approximately 60 employees
specifically identified, with terminations completed in the second half
of 1998.
(3) We reported the inventory write-off of $28.5 million as cost of sales.
The second quarter inventory write-off of $2.5 million resulted from
the elimination of certain products at the time of the merger
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of WII and EVI and due to the declining industry conditions. The fourth
quarter inventory write-off of $26.0 million related to the significant
decline in market conditions.
(4) The write-down of assets was $1.2 million in the fourth quarter of
1998. The charge related to the write-down of equipment as a result of
the rationalization of product lines and the specific identification of
assets held for sale. The identified equipment had a net book value of
$0.6 million as of December 31, 1998. The effect of suspending
depreciation is $0.2 million annually. The equipment was originally
projected to be sold in 1999, but because of market conditions we have
not been able to dispose of the equipment to date. We currently expect
to dispose of these assets in 2000.
In the fourth quarter of 1996, we adopted a plan to close our Bastrop,
Texas tool joint manufacturing facility. In connection with this decision, we
incurred a charge of $4.3 million associated with the facility closing and
relocation of equipment from this facility. Of the $4.3 million, we expensed as
incurred $2.8 million in the fourth quarter of 1996, for costs associated with
these activities, including costs relating to the relocation of equipment from
our Bastrop facility to other facilities. The remaining $1.5 million was accrued
as part of the $4.3 million charge for exit costs that were incurred by June
1997 which related to the closure of the facility. These costs include $0.9
million for the exit costs associated with the disposition of the facility and
$0.6 million for severance and related costs. In connection with this facility
closure, the employment of approximately 200 employees was terminated, of which
approximately 105 were terminated in 1996 and the remaining in the first half of
1997. Severance and related costs incurred were $0.2 million and $0.6 million in
1996 and the first half of 1997, respectively. The closure of the Bastrop
facility was completed by June 1997 and all accrued exit costs had been
expended. No adjustments to the initial estimates were required.
ACQUISITIONS
On October 27, 1999, we acquired an additional 27% interest in H-Tech, an
Indonesia-based drill pipe manufacturer with facilities located on Batam Island.
We previously held a 27% interest in H-Tech and with this purchase we own a
controlling 54% interest in H-Tech. The purchase price for the acquisition was
$6.0 million.
On October 1, 1999, we acquired Drill Pipe Industries, Inc., a manufacturer
of drill stem products, for $2.8 million in cash.
On August 25, 1999, we acquired Louisiana-based Petro-Drive, Inc., for 0.3
million shares of Weatherford common stock and assumed debt of approximately
$3.5 million. Petro-Drive's offerings include conductors, connections and
installation services and equipment. Under the terms of the acquisition, if any
former shareholder of Petro-Drive elects to sell any of the shares of
Weatherford common stock and the corresponding shares of Grant Prideco common
stock received by them between August 2000 and August 2001 at a combined sale
price of less than $36.50, we will be obligated to pay to these persons an
additional amount of cash equal to the deficit.
On July 23, 1999, we acquired a 50.01% interest in the Voest-Alpine
Stahlrohr Kindberg GmbH & Co. KG for approximately $31.5 million, of which we
paid approximately $6.9 million at closing, and we will pay the remainder over a
period of up to seven years. Voest-Alpine produces high quality seamless
tubulars in Austria.
On July 7, 1999, we acquired Texas Pup, Inc., a manufacturer of premium and
API pup joints and utility boring drill pipe, for 105,000 shares of Weatherford
common stock and assumed debt of approximately $1.7 million.
On May 31, 1999, we acquired Texas Pipe Works, Inc., a manufacturer of API
couplings, for approximately $1.7 million in cash and 500,000 shares of
Weatherford common stock.
On May 31, 1999, we acquired InterOffshore Services, Pte., a manufacturer
of drilling tool accessories, for approximately $2.1 million in cash.
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In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico that owned the manufacturing
facility in Veracruz, Mexico that we were operating under a capital lease
arrangement. As part of the consideration paid by us in the acquisition, we sold
the international rights, excluding Canada, to our Atlas Bradford tubular
connection line for carbon grade tubular to TAMSA through a license arrangement.
The rights sold by us through this license arrangement had a fair value of $9.0
million. As a result, in December 1998 we recorded $9.0 million in revenues to
recognize the sale of our international rights to the Atlas Bradford connection
line.
On February 12, 1998, we acquired Drill Tube International, Inc., a
manufacturer of drill pipe and other drill stem products, for $25.0 million. The
consideration paid by us in the acquisition consisted of $9.0 million in cash
and a contractual purchase credit obligation of $16.0 million by us to
manufacture and deliver products to the seller over a two year period. Such
amount represented the fair market value of the contractual obligation to
deliver future products to the seller for which no future compensation will be
forthcoming. It was recorded as a liability on our balance sheet as of the date
of the acquisition and has been reduced as products were delivered pursuant to
our commitment.
On August 25, 1997, we acquired XLS Holding, Inc., a provider of premium
connections for conductors, risers and other offshore structure components. We
accounted for the acquisition as a pooling of interests. The consideration we
paid consisted of approximately 0.9 million shares of Weatherford common stock.
On July 23, 1997, we acquired Rotary Drilling Tools, a manufacturer of
drill collars and accessories, for approximately $3.3 million in cash.
On July 18, 1997, we acquired Coastal Tubular Inc., a manufacturer of API
threads and thread connections, for approximately $3.3 million in cash.
On April 14, 1997, we acquired TA Industries, Inc. for approximately $44.1
million in cash and $19.7 million of assumed debt. TA designs, manufactures and
markets premium and API couplings and accessories under the brand names Texas
Arai and Tube-Alloy.
On September 4, 1996, we acquired Superior Tube Limited, an Alberta,
Canada-based premium tubular manufacturer, for total cash consideration of
approximately $16.0 million.
On August 5, 1996, we acquired Tubular Corporation of America, a premium
casing manufacturer, for approximately 1.0 million shares of Weatherford common
stock, $14.4 million in cash, a $0.7 million note due January 1997 and assumed
debt of approximately $15.0 million.
On May 3, 1996, we acquired ENERPRO International, Inc., a manufacturer of
premium threads and thread connections, for 0.6 million shares of Weatherford
common stock and the assumption of approximately $3.1 million in indebtedness.
The acquisitions discussed above, with the exception of XL Systems, were
accounted for using the purchase method of accounting. The results of operations
of all acquisitions, excluding XL Systems, are included in our Combined
Statements of Operations from their respective dates of acquisition. The 1999,
1998 and 1997 acquisitions are not material to us individually or in the
aggregate for each applicable year.
LIQUIDITY AND CAPITAL RESOURCES
As a subsidiary of Weatherford, our liquidity and capital resources
historically have been provided from cash flow from operations and cash provided
to us by Weatherford. As an independent entity following the spinoff, our
liquidity and capital resources will depend upon our cash flow from operations
and our ability to raise capital from third parties.
Our cash flow from operating activities for 1998 was approximately $10.7
million and reflected uses of cash for working capital purposes and delays in
collections of receivables relating to the downturn in the market. For the nine
months ended September 30, 1999, our cash flow from operations was $51.8 million
and reflected a reduction in working capital needs. As of September 30, 1999, we
estimated that our required principal and interest payments for then outstanding
debt to be approximately $1.5 million over the remainder
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of 1999 and $11.9 million for the year ended December 31, 2000. At current
operating levels, our businesses generate only marginal levels of excess cash
flow. We have, however, taken a number of steps to reduce our cost structure and
expect that our operations for the year ending December 31, 2000 will generate
sufficient cash flow from operations to satisfy all required capital
expenditures and debt service requirements. We expect to finance additional
acquisitions and expansions from cash flow from operations due to improved
market conditions or through a combination of the issuance of additional equity
and debt financing.
We currently intend to seek the placement of between $100.0 million and
$200.0 million of long-term debt in the private or public market during the year
2000. The terms of this financing will depend upon market conditions. Although
we expect to pursue the financing during the year, there can be no assurances
that such financing will occur or as to the terms and conditions thereof.
We currently are negotiating with potential lenders to establish a credit
facility that would provide us with up to $100.0 million for working capital
purposes, of which we expect $30.0 to $50.0 million to be available to us
initially. We expect that this facility would be secured by our inventory and
receivables and guaranteed by our domestic subsidiaries. This facility also
would place limits on our ability to incur new debt, engage in certain
acquisitions and investments, grant liens and make distributions to our
stockholders.
Before the spinoff, we will issue an unsecured subordinated note to
Weatherford in the amount of $100.0 million. The Weatherford note will bear
interest at an annual rate of 10%. Interest payments will be due quarterly, and
principal and all unpaid interest will be due no later than December 31, 2001.
If we complete a debt or equity financing (whether public or private, but
excluding working capital borrowings under the proposed credit facility and any
equity issued in connection with a business combination) while the Weatherford
note is outstanding, we will be required to use a portion of the net proceeds of
that financing to repay any amount outstanding under the Weatherford note as of
the time we complete that financing. The Weatherford note will be subordinated
to the credit facility. We expect to refinance the Weatherford note as soon as
practicable when market conditions permit.
We currently are discussing with the Department of Energy our participation
in a consortium to develop composite drill pipe. We do not expect our
participation in this project to involve any material funding by us or our
receipt of any material funding. The development of composite drill pipe is
aimed primarily at specific niche markets where the drill pipe could be used as
a conduit for the transmission of data for directional and other drilling
applications. The successful development of composite drill pipe is not expected
to have a material adverse impact on our traditional drill pipe business.
We also are participating in a joint project with RTI Energy Systems, Inc.
to develop titanium drill pipe. The titanium drill pipe developed under this
project was recently successfully used in its first commercial project. Under
our arrangement with RTI, RTI provides the titanium tubulars and we provide the
connections. We sell the products jointly. Our participation in the project does
not involve any material costs to us. We will offer the titanium drill pipe
manufactured under this project as part of our complete drill stem product
offering.
As part of our arrangement to invest in Voest-Alpine Stahlrohr Kindberg
GmbH & Co. KG, we entered into a four-year supply contract to Voest-Alpine.
Under this agreement, we agreed to purchase a minimum of 45,000 tonnes of
tubulars for the first twelve months of the agreement at a negotiated third
party price that we believe to be attractive. We also agreed to purchase 60,000
tonnes per year for the next three years at the negotiated price. The volume
requirements fixed in the supply agreement were based on our anticipated needs
for tubulars of the type manufactured by Voest-Alpine and represented less than
half of our normal worldwide requirements for this type of tubular. Because this
agreement requires us to purchase tubulars regardless of our needs, our
purchases under this agreement may be made for inventory during periods of low
demand. These types of purchases will require us to use our working capital and
expose us to risks of excess inventory during those periods. Although these
purchases could require us to expend a material amounts of money, we expect that
we will be able to use or sell all of the tubular products we are required to
purchase from Voest-Alpine.
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TAX MATTERS
As a result of the separation from Weatherford, we will no longer be able
to combine the results of our operations with those of Weatherford in reporting
income for United States federal income tax purposes and for income tax purposes
in some states and foreign countries. We believe this will not have a material
adverse effect on our earnings.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The SOP provides guidance with respect to accounting for the various types
of costs incurred for computer software developed or obtained for our use. We
have adopted SOP 98-1. The adoption did not have a significant effect on our
combined results of operations or financial position.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. We adopted this SOP in the
first quarter of 1999. The adoption of SOP 98-5 is not expected to have a
significant effect on our combined results of operations or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS No. 133 has been amended by SFAS No. 137, which delays
the effective date to fiscal years beginning after June 15, 2000. The Company is
currently evaluating the impact of SFAS No. 133 on our combined financial
statements.
YEAR 2000 MATTERS
The Year 2000 issue is the risk that information systems, computers,
equipment and products using date-sensitive software or containing computer
chips with two-digit date fields will be unable to process the Year 2000 date
change correctly. If not identified and corrected prior to the Year 2000,
failures could occur in our software, hardware, equipment and products and those
of our suppliers, vendors and customers that could result in interruptions in
our business. Any failure could have a material impact on us.
In response to the Year 2000 issue, we have prepared and implemented a plan
to assess significant Year 2000 issues and remediate any problems we identify in
our:
- information technology systems, including computer software and hardware;
and
- non-information technology systems utilizing date-sensitive software or
computer chips, including products, facilities, equipment and other
infrastructures.
Our management information systems department, together with our technical
and engineering employees and outside consultants, are responsible for the
implementation and execution of the Year 2000 plan. Our Year 2000 plan is a
comprehensive, multi-step process covering our information technology systems
and non-information technology systems. The primary phases of the Year 2000 plan
are:
(1) assessing and analyzing our systems to identify those that are not
Year 2000 ready;
(2) preparing cost and resource estimates to repair, remediate or
replace all systems that are not Year 2000 ready;
(3) developing a company-wide, detailed strategy to coordinate the
repair or replacement of all systems that are not Year 2000 ready;
(4) implementing the strategy to make all systems Year 2000 ready; and
(5) verifying, testing and auditing the Year 2000 readiness of all
systems.
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The first, second, third and fourth phases of the Year 2000 plan have been
completed. The fifth phase will be completed during the fourth quarter of 1999.
Any unexpected delays or problems that prevent us from completing all phases of
the Year 2000 plan in a timely manner could have a material adverse impact on
us.
We retained outside consultants to assist us with the installation of new
software and with the assessment of the Year 2000 readiness of our information
technology systems. We expect to retain additional consultants to assist us in
the testing phase of the Year 2000 plan.
In addition to our assessment and review of our own systems, we have
communicated with our third-party contractors, such as vendors, service
providers and customers, for the purpose of evaluating their readiness for the
Year 2000 and determining the extent to which we may be affected by the
remediation of their systems, software, applications and products. However, we
are unable to guarantee that our information technology and non-information
technology systems or those of third-party contractors will be Year 2000 ready
or that the failure of us or any of these third parties to have Year 2000 ready
systems would not result in interruptions in our business that could have a
material adverse impact on us.
In connection with the implementation and completion of the Year 2000 plan,
we currently expect to incur pretax expenditures of approximately $3.5 million.
We incurred approximately $3.1 million of such expenditures from January 1998
through September 30, 1999, of which approximately $2.5 million was incurred in
connection with the replacement of our business application software and
approximately $0.6 million was incurred in connection with the replacement of
certain information technology hardware systems. We intend to continue to fund
the Year 2000 plan expenditures with working capital and third-party lease
financing. Based upon information currently available, we believe that
expenditures associated with achieving Year 2000 compliance will not have a
material impact on our operating results. However, any unanticipated problems
relating to the Year 2000 issue that result in materially increased expenditures
could have a material adverse impact on us.
The 1999 expenditures associated with the Year 2000 plan represent
approximately 15% of our 1999 management information systems department's
budget. Various other information technology projects that are not related to
the Year 2000 issue have been deferred due to the Year 2000 efforts. The effects
of these delays are not expected to have a material impact on us.
We are unable to predict the most likely worst case Year 2000 scenario. We
are preparing a contingency plan in response to a Year 2000 worst case scenario
and we estimate no lost revenues due to Year 2000 issues. However, we are unable
to provide assurance that any contingency plan we develop will be sufficient to
alleviate or remediate any significant Year 2000 problems that we may
experience.
The above discussion of our efforts and expectations relating to the risks
and uncertainties associated with the Year 2000 issues and our Year 2000 plan
contain forward-looking statements. These statements involve predictions and
expectations concerning our ability to achieve Year 2000 compliance, the amount
of costs and expenses related to the Year 2000 issue and the effect the Year
2000 issue may have on business and results of operations. Certain risks and
uncertainties may cause actual results to be materially different from the
projected or expected results, the overall effect of which may have a materially
adverse impact on us. These risks and uncertainties include, but are not limited
to, unanticipated problems and costs identified in all phases of the Year 2000
plan, our ability to successfully implement the Year 2000 plan in a timely
manner and the ability of our suppliers, vendors and customers to make their
systems and products Year 2000 compliant.
QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
We are currently exposed to market risk from changes in foreign currency
and changes in interest rates. A discussion of our market risk exposure in
financial instruments follows.
Foreign Currency Exchange Rates
Because we operate in countries outside of the United States we conduct a
portion of our business in currencies other than the U.S. dollar. Most of our
international revenues are denominated in the United States
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dollar. Historically, the impact of exchange rate fluctuations has not had a
material impact on reported amounts of revenue and net income.
In July 1999, we acquired a 50.01% interest in Voest-Alpine Stahlrohr
Kindberg GmbH & Co. for approximately $31.5 million, $6.9 million of which was
paid in cash at closing with the remainder to be paid up to a seven year period
in Austrian shilling. To date, we have hedged our liability with respect to
short-term payments with respect to our obligations on the acquisition of our
interest in Voest-Alpine through short-term hedging arrangements. As a result,
we are currently exposed to long-term increases in the Austrian Shilling against
the U.S. dollar. We are currently reviewing longer term hedge arrangements with
respect to our exposure for the indebtedness in connection with the Voest-Alpine
acquisition. The counterparties to our foreign currency hedging arrangements are
creditworthy multinational commercial banks. We believe that the risk of
counterparty nonperformance is minimal.
We do not enter into any other foreign exchange contracts and did not enter
into any such contracts prior to 1999.
Interest Rates
We are subject to interest rate risk on our long-term fixed interest rate
debt. Excluding the subordinated note payable to Weatherford, most of our
borrowings are at variable rates and therefore the fair value of these
borrowings approximate book value. With respect to the subordinate note to
Weatherford, it is not practical to estimate the fair market value as borrowing
rates for us have not yet been determined.
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BUSINESS
GENERAL
We are an international manufacturer and supplier of products used for the
exploration and production of oil and gas. Our business is conducted through two
operating segments: (1) drill stem products and (2) premium tubulars and
engineered connections. Segment data for drill stem products and premium
tubulars and engineered connections segments is contained in Footnote 17 to the
Financial Statements. We are the world's leading provider of drill pipe and
other drill stem products. We are also a leading provider in North America for
engineered connections used for casing, production tubing and marine conductors
and subsea structures. Our drilling products are designed and engineered for
high performance and include all components of a drill stem from the rig floor
to the drill bit. We have been the innovator in the field of drill pipe and
other drill stem products for more than 20 years, and we are a leader in
connection technology used in the drilling of wells. Our Atlas Bradford division
also has been providing connection technology to the oil industry for
approximately 50 years.
Our company has grown substantially over the years through strategic
acquisitions and internal development. Our operations are conducted throughout
the world through manufacturing facilities located in the United States, Mexico,
Canada, Europe and Asia. We also have 19 sales, service and repair locations
around the world.
MARKET TRENDS AND OUTLOOK
The market conditions in which we compete have been depressed since
mid-1998 due to low oil prices and reduced drilling activity. This decline has
affected our operations in two significant ways:
- The lower rig count has reduced demand for drill stem products. The
reduction in demand is attributable to both the lower number of drilling
rigs requiring drill stem products and an increased level of stock on
hand with our customers, as drill stem products from idle rigs are made
available to other rigs.
- The decline in drilling activity has reduced the number of wells being
completed offshore. This reduction in the number of completed offshore
wells also reduces the demand for our premium casing, liner and
production tubing and connections for these products. The reduced demand
for premium tubular products also affects our accessory products.
We currently expect that the demand for our drill stem products for 1999
will be down as much as 60% from 1998. The utilization of the excess drill stem
products provided by idle rigs also will suppress levels of demand substantially
below requirements for current drilling activity. We expect, however, that
excess inventory with our customers should, absent any further changes in the
drilling markets, be substantially diminished by the middle of the year 2000.
Our premium tubulars and engineered connections business historically has
reacted faster to downturns in the industry and has responded quicker to
recoveries in the industry. This segment was the first of our businesses to be
affected by the downturn in 1998 and the first to begin to experience
improvements in demand. We currently expect that demand for our premium tubular
products and connections will be up in the fourth quarter of 1999 compared to
the third quarter of 1999 due to improvements in offshore drilling and the rig
count and due to technological developments of our products. We also expect that
demand for these products will continue to improve next year absent a downturn
in the market. Because the market conditions for our drilling products is
heavily dependent on drilling activity, which in turn is dependent on the price
of oil and gas, the effect of the current market conditions on our business is
extremely difficult to project and is subject to much uncertainty.
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GROWTH STRATEGY
Our strategy for growth is to seek new opportunities in the drilling and
tubular segments of the oilfield equipment market. During the last year, we
completed various acquisitions that are important to our long-term growth. Those
acquisitions included:
- The acquisition of a 50.01% ownership interest in Voest-Alpine Stahlrohr
Kindberg in Austria. Voest-Alpine owns a modern tubular mill in Austria
with a production capacity of approximately 300,000 tons per year. We
also entered into a long-term green tube supply agreement with
Voest-Alpine to supply a large portion of the raw materials we need for
drill pipe in the United States. The investment in Voest-Alpine provided
us with a low cost source of raw materials for our operations as well as
a platform to enter the Eastern hemisphere tubular markets.
- The acquisition of substantially all of the outstanding shares of the
Mexican entity that owned the manufacturing facility in Veracruz, Mexico
where we manufacture drill pipe and tool joint connections for drill
pipe. This acquisition expanded our drill pipe manufacturing capacity and
enhanced our ability to provide our drill pipe operations throughout the
world with low cost tool joints.
- The acquisition of Petro-Drive, Inc., a provider of conductors,
connections and installation services and equipment for the Gulf of
Mexico and other offshore markets. This acquisition has helped strengthen
our XL Systems offshore conductor and riser business by expanding its
market presence and product offering. This acquisition in conjunction
with a smaller acquisition in Singapore earlier in the year also has
provided a platform for the expansion of our conductor and riser business
internationally.
- The acquisition of an additional interest in H-Tech, an Indonesia-based
manufacturer of drill pipe for the Southeast Asian markets. This
acquisition provides us with a controlling interest in H-Tech and a
stronger presence in the important and growing Asian markets.
We also acquired during 1999 various smaller companies that have allowed us
to expand our premium coupling, pup joint and accessory businesses. Following
the spinoff, we intend to continue to actively pursue acquisitions and other
opportunities for growth. Our strategy for growth through acquisitions and
internal development will focus on:
- Lowering costs through consolidations
- Introducing and acquiring new tubular and thread technologies
- Expanding internationally
- Adding new products and services that are complementary to our existing
products and services
- Investing in new tubular and connection technologies and joint venture
projects such as our titanium drill pipe project with RTI Energy Systems,
Inc. and the development of connections for expandable tubing
- Investing in additional subsea products and services
- Maintaining manufacturing capacity for growth
We intend to finance future acquisitions and growth opportunities through a
combination of internally generated capital, equity issuances and incurrences of
debt where we deem prudent or appropriate. Any issuances of equity will depend
upon the opportunity and circumstances. We will only incur debt where we
consider the terms to be appropriate.
DRILL STEM PRODUCTS
Our drill stem products segment manufactures and sells a complete line of
drill stem products. Those products include primarily drill pipe, drill collars,
heavyweight drill pipe and kellys. The products offered by
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our drill stem products segment constitute all of the components of the drill
stem used to drill a well from the rig floor to the drill bit.
We sell our drill stem products to a variety of customers including
drilling contractors, oil field equipment rental companies and oil and gas
operators. We also sell drill pipe to utility boring and water well companies as
well as distributors to those companies. Drill stem purchasing decisions are
based on quality, price, delivery and operational requirements.
A description of our principal drill stem products follows:
Drill Pipe
Drill pipe is the principal mechanical tool used in drilling for oil and
gas. We sell our drill pipe primarily to rig contractors and rental companies.
Unlike a drilling rig, drill pipe is a consumable product with a limited life
span based on usage. Our drill pipe is designed and manufactured to operate in
highly corrosive and harsh environments and is engineered to withstand extreme
operating conditions such as those that exist offshore and in deep wells.
Our drill pipe incorporates a number of proprietary designs, connections
and coatings. We recently introduced a line of drill pipe designed for extreme
drilling conditions as well as the first drill pipe manufactured using titanium
for short radius drilling. Our Drill Tube division also provides drill pipe for
the growing utility boring and water well industries. Our principal competitors
in drill pipe are Omsco, IDPA, NKK and various local manufacturers in foreign
countries. Sales of drill pipe represented approximately 56%, 39% and 43% of our
total sales during 1998, 1997 and 1996, respectively.
Drill Collars
Drill collars are used to provide weight on a drill bit to assist in the
drilling process. A drill collar is generally located directly above the drill
bit and is machined from a solid steel bar to provide the necessary weight for a
vertical well. Our principal competitors for drill collars are the same as our
competitors for drill pipe.
Heavyweight Drill Pipe and Other Drill Stem Products
Our heavyweight drill pipe is a seamless tubular product that is less rigid
than a drill collar. Heavyweight drill collars provide the transition zone
between a drill collar and the drill pipe. Heavyweight drill pipe also serves to
apply weight to a drill bit in a directional well. We also provide kellys, subs
and pupjoints (short and odd-sized tubular products). Our principal competitors
for heavyweight drill pipe and other drill stem products are Smith
International, Inc., SMFI and Omsco.
PREMIUM TUBULARS AND ENGINEERED CONNECTIONS
Our premium tubular and engineered connections segment manufactures and
sells premium production tubing, liners and casing and connections for marine
conductors and subsea structures. This segment also provides couplings and
accessories for casings and other tubular products. The term "premium" refers to
seamless tubulars with high alloy chemistry, specific molecular structure and
highly engineered connections. Our premium tubulars are sold both with and
without our proprietary Atlas Bradford(R) and other owned or licensed
connections. Our premium tubulars are used in particularly harsh environments,
such as offshore and deep natural gas wells where pressure, temperature and
corrosive elements are extreme.
Our premium tubular products and connections are sold both through
distributors and directly to operators of oil and gas wells. These products and
connections also are sold to mills and various oilfield service companies. The
principal competitors for our premium engineered connections are Hydril, Hunting
Interlock and VAM. During 1999, we licensed to TAMSA the international rights to
our Atlas Bradford connections.
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A description of our principal premium tubulars and engineered connections
products follows:
Premium Tubulars and Connections
Our Atlas Bradford division provides connection threading and related
services to oil and gas companies, tubular distributors and oilfield service
companies. Threading services provided by this division may be sold with
tubulars we provide or on tubular products provided by the customer. We believe
that Atlas Bradford is one of the largest providers of connections in North
America for premium production tubing and casing.
Premium Casing
Our TCA division is a leading provider of critical-service casing for
offshore and extreme applications. TCA offers a wide variety of sizes ranging
from 4 1/2" to 17". Products sold by TCA also are sold with our proprietary
Atlas Bradford connections. TCA also provides tubular processing services for
major tubular steel mills.
Couplings
Our Texas Arai division provides couplings used to connect premium and API
casing and tubing. Texas Arai is one of the world's largest providers of
couplings for oilfield applications. Texas Arai's couplings are provided to
mills, distributors of tubular products and end users.
Accessories and Insulated Tubing
Our Tube-Alloy division provides a variety of tubular accessories, flow
control equipment and connections used in connection with the completion of oil
and gas wells. Tube-Alloy also has developed and is marketing a proprietary line
of insulated tubing used for deepwater and extreme temperature applications.
Conductors and Risers for Subsea Structures
Our XL Systems division provides connections and installation services for
marine conductors and subsea structures. Conductors are the initial support for
new wells from which both downhole and wellhead sections attach. Conductors are
typically hammered in place at the beginning of the drilling process. We use a
proprietary wedge thread technology to connect the conductors. Our primary
competition for conductors and subsea constructors are ABB, DrillQuip and
various smaller companies.
Other
Our premium tubulars and engineered connections segment also provides
design and connection services to third parties. This group has developed
connections for expandable casing and is developing on other new tubular and
connection technology.
RAW MATERIALS
We use the following principal raw materials:
<TABLE>
<CAPTION>
PRODUCT RAW MATERIAL
- ------- ------------
<S> <C>
Drill pipe Steel billets and seamless green
tubing
Drill collars Solid steel bars
Heavyweight drill pipe Heavy walled tubes
Premium tubing and casing Seamless green tubing
</TABLE>
Our suppliers for these raw materials are the major domestic and
international steel mills, including our Voest-Alpine Kindberg affiliate. We
also have established relationships with several domestic and foreign mill
sources to provide us with these products. TAMSA in Mexico currently provides
raw materials for our Mexican and Indian operations. We have a 30-year supply
contract with TAMSA in which we have given it
41
<PAGE> 50
the right to supply these operations as long as the prices are on a competitive
basis and we are not providing those supplies internally or from affiliates such
as Voest-Alpine.
PROPERTIES
The following table describes the material manufacturing and other
facilities and principal offices we currently own or lease.
<TABLE>
<CAPTION>
FACILITY PROPERTY
SIZE SIZE
LOCATION (SQ.FT.) (ACRES) TENURE UTILIZATION
-------- --------- -------- ------ -----------
<S> <C> <C> <C> <C>
Navasota, Texas 347,000 83.00 Owned Manufacture of drill pipe,
premium threaded casing,
liners and tubing
Veracruz, Mexico 303,400 42.00 Owned Manufacture of tool joints
Muskogee, Oklahoma 195,900 108.40 Owned Manufacture of TCA premium
casing
Houston, Texas 148,500 20.00 Under lease Manufacture of Atlas
through 03/31/2012 Bradford connectors
renewable for 10
additional years
114,200 21.90 Owned Manufacture of API and
premium threaded couplings
54,500 7.00 Owned Premium threading services
and manufacture of tubular
accessories
23,150 10.0 Owned Manufacture of drill
collars, heavyweights and
kellys
31,800 10.0 Owned Heat-treat of drill
collars and kellys
The Woodlands, Texas 52,000 -- Under lease Corporate Headquarters
through 10/25/2008
renewable for 5
additional years
Bryan, Texas 160,000 55.30 Owned Manufacture of drill pipe
Kindberg, Austria 1,614,600 101.27 Owned through our Manufacture of green tube
50.01% joint and casing
venture with
Voest-Alpine
Edmonton, Alberta, 109,600 10.20 Owned Manufacture of drill pipe,
Canada premium threaded casing,
liners and tubing
Houma, Louisiana 85,000 9.40 Owned Manufacture of downhole
accessories
</TABLE>
42
<PAGE> 51
<TABLE>
<CAPTION>
FACILITY PROPERTY
SIZE SIZE
LOCATION (SQ.FT.) (ACRES) TENURE UTILIZATION
-------- --------- -------- ------ -----------
<S> <C> <C> <C> <C>
Broussard, Louisiana 24,600 5.64 Under lease Provider of drivers for
through 08/24/2006 conductor installation
Purchase option services
through 8/2000
Jurong, Singapore 33,600 2.67 Under lease Manufacture of drill
through 08/14/2029 collars, accessories and
threading services
Beaumont, Texas 12,300 29.0 Owned Premium threading services
and manufacture of
conductors
</TABLE>
In addition to the above facilities, we have an agreement with Oil Country
Tubular Limited pursuant to which OCTL's manufacturing facility in Narketpally,
India is dedicated by OCTL to the production of drill pipe and other tubular
products exclusively for us. OCTL owns this facility, which consists of 262,000
square feet located on 60 acres. We are currently reviewing our manufacturing
arrangement with OCTL in India and expect that some modification or termination
of that arrangement will be made.
PATENTS
Many areas of our business rely on patents and proprietary technology. We
currently have more than 130 patents issued or pending. Many of our patents
provide us with competitive advantages in our markets. Although we consider our
patents and our patent protection to be an important part of our business, we do
not believe that the loss of one or more of our patents would have a material
adverse effect on our business.
BACKLOG
With the exception of drill pipe, our backlog is not material. We had a
backlog of drill pipe as of December 31, 1998, 1997 and 1996 of $71.7 million,
$319.8 million and $114.8 million, respectively. This backlog represented
approximately 11.1%, 50.8% and 31.3% of our total company sales for those years.
The decline in drill pipe backlog reflects current market conditions. Our
backlog at September 30, 1999 was $45.1 million. We also believe that sales will
be materially dependent upon timing and recovery of drilling activity.
INSURANCE
We currently participate in the insurance policies carried by Weatherford.
We have negotiated similar insurance policies for our U.S. and international
operations that will become effective on or before the spinoff. We do not
maintain political risk insurance (generally designed to cover expropriation and
nationalization exposures), but do maintain an all risk property insurance that
covers losses from insurrection, civil commotion and uprising. This insurance
does not cover losses resulting from a declared state of war.
Although we believe that we maintain insurance coverage that is adequate
for the risks involved, there is always a risk that our insurance may not be
sufficient to cover any particular loss or that our insurance may not cover all
losses. For example, while we maintain product liability insurance, this type of
insurance is limited in coverage and it is possible that an adverse claim could
arise that exceeds our coverage. Our insurance rates as a stand-alone entity may
differ from those rates obtained by Weatherford. Finally, insurance rates have
in the past been subject to wide fluctuation and changes in coverage could
result in increases in our cost or higher deductibles and retentions.
43
<PAGE> 52
FEDERAL REGULATION AND ENVIRONMENTAL MATTERS
Our operations are subject to federal, state and local laws and regulations
relating to the energy industry in general and the environment in particular.
Environmental laws have over the years become more stringent and compliance with
such laws increases our overall cost of operations. In addition to affecting our
ongoing operations, applicable environmental laws can require us to remediate
contamination at our properties, at properties formerly owned or operated by us,
and at facilities to which we sent waste materials for treatment or disposal.
While we are not currently aware of any situation involving an environmental
claim that would likely have a material adverse effect on our business, it is
always possible that an environmental claim with respect to one or more of our
current businesses or a business or property that one of our predecessors owned
or used could arise that could have a material adverse effect.
Our expenditures during 1998 to comply with environmental laws and
regulations were not material and we currently expect that the cost of
compliance with environmental laws and regulations for 1999 also will not be
material. We also believe that our costs for compliance with environmental laws
and regulations are generally within the same range with those of our
competitors. However, we can offer no assurance that our costs to comply with
environmental laws in the future will not be material.
EMPLOYEES
As of September 30, 1999, we had approximately 2,290 employees. Certain of
our operations are subject to union contracts. These contracts, however, cover
only a small portion of our employees or approximately 17% of our total
employees. We believe that our relationship with our employees is good.
LITIGATION
From time to time, we may be involved in litigation relating to claims
arising out of the ordinary course of our business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would materially adversely affect us.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 1450 Lake Robbins Drive,
Suite 600, The Woodlands, Texas 77380. Our telephone number is (281) 297-8500.
Grant Prideco was incorporated in Delaware in 1990.
44
<PAGE> 53
MANAGEMENT
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF GRANT PRIDECO
Effective as of the distribution date, Grant Prideco's board of directors
will consist of nine persons. The following persons are currently expected to
serve as directors. In addition, we expect that at least one or two additional
persons will be named to our board of directors. Each director will serve until
our annual meeting of stockholders to be held in 2001.
<TABLE>
<CAPTION>
NAME AGE
- ---- ---
<S> <C>
John C. Coble............................................... 57
Bernard J. Duroc-Danner*.................................... 46
Eliot M. Fried.............................................. 66
Sheldon B. Lubar*........................................... 70
William E. Macaulay*........................................ 54
Robert K. Moses*............................................ 59
Robert A. Rayne*............................................ 50
</TABLE>
* Also a director of Weatherford.
John C. Coble will serve as Chief Executive Officer, President and Director
of Grant Prideco upon the completion of the spinoff. Mr. Coble was appointed
President of Grant Prideco in 1995. From 1989 to 1995, Mr. Coble held senior
executive positions at Weatherford and held senior executive positions at Grant
Prideco from 1981 to 1989. Prior to 1981, Mr. Coble spent 12 years with Shell
Oil Company in both marketing and financial areas. Mr. Coble graduated with a
Bachelors degree from the University of Missouri and a Masters degree from
Kellogg School of Business (Northwestern University).
Bernard J. Duroc-Danner is the President, Chief Executive Officer and
Chairman of the Board of Directors of Weatherford. Mr. Duroc-Danner has served
as President and CEO of Weatherford since May 1990. Mr. Duroc-Danner holds a
Ph.D. in economics from Wharton (University of Pennsylvania). In prior years,
Mr. Duroc-Danner held positions with Arthur D. Little and Mobil Oil Inc. Mr.
Duroc-Danner is a director of Parker Drilling Company (an oil and gas drilling
company) and Cal Dive International, Inc. (a company engaged in subsea services
in the Gulf of Mexico).
Eliot M. Fried, a Managing Director of Lehman Brothers, is a member of
Lehman Brothers' Investment and Capital Commitment Committees, as well as Senior
Trustee of Lehman Brothers Holdings Inc. Retirement Plan. Mr. Fried is a
director of Axsys Technologies Inc., L-3 Communications Corporation and Blount
International Inc.
Sheldon B. Lubar has been the Chairman of Lubar & Co., a private investment
company, for more than the past five years. Until February 8, 1999, Mr. Lubar
served as Chairman and Chief Executive Officer of Christiana Companies, Inc., a
diversified holding company that held shares of Weatherford common stock and
owned a company that was engaged in refrigerated and dry warehousing,
transportation and logistic services. Mr. Lubar is a director of C2, Inc.,
Ameritech Corporation, Massachusetts Mutual Life Insurance Company, Firstar
Corporation, MGIC Investment Corporation and Jefferies & Company, Inc.
William E. Macaulay has been the Chief Executive Officer of First Reserve
Corporation, a Connecticut-based-corporation that manages various investment
company funds, for more than the past five years and has served as Chairman of
First Reserve Corporation since June 1998. He is a director of Maverick Tube
Corporation (a manufacturer of oilfield tubulars, line pipe and structural
steel), National-Oilwell, Inc. (a company engaged in the design, manufacture and
sale of machinery and equipment and the distribution of products used in oil and
gas drilling production), and Cal Dive International, Inc. (a company engaged in
subsea services in the Gulf of Mexico).
45
<PAGE> 54
Robert K. Moses, Jr. has been a private investor, principally in the oil
and gas exploration and oilfield services business in Houston, Texas, for more
than the past five years. He served as Chairman of the Weatherford Enterra Board
from May 1989 to December 1992.
Robert A. Rayne has been an Executive Director of London Merchant
Securities plc (property investment and development with major investments in
leisure enterprises), a United Kingdom-listed public limited company, for more
than the past five years.
Our board will have a three standing committees: an Audit Committee, a
Compensation Committee and an Executive Committee. We will not have a nominating
committee.
The Audit Committee will comprise certain directors who are not employees
of Grant Prideco or any of its subsidiaries. Messrs. Fried, Lubar and Rayne will
serve initially as members of the Audit Committee. The primary functions of the
Audit Committee are:
- assessing the independence and performance of our independent and
internal auditors;
- recommending to our board the selection and discharge of our independent
auditors; and
- evaluating the adequacy of our internal accounting controls.
Our independent auditors and internal auditors will have unrestricted
access to the Audit Committee and vice versa.
The Compensation Committee will comprise certain directors who are not
employees of Grant Prideco or any of its subsidiaries. Messrs. Lubar, Moses and
Rayne will serve initially as members of the Compensation Committee. The primary
functions of the Compensation Committee are:
- recommending to our board the compensation to be paid to the directors,
officers and key employees; and
- subject to review and approval of certain matters by our full board of
directors, administering the compensation plans for our executive
officers.
Messrs. Duroc-Danner, Coble and Macaulay will serve initially as members of
the Executive Committee. The primary function of the Executive Committee is to
act on behalf of our board of directors between regularly scheduled meetings of
the board.
DIRECTOR COMPENSATION
Fees
We pay our directors who are not our employees the following fees:
- $1,000 for each board and committee meeting attended;
- $1,500 for the Committee Chairman for each committee meeting attended;
and
- $7,000 for each quarter of the year in which the person serves as a
director.
Pursuant to Grant Prideco's Director Plan, each outside director will be
granted stock options or warrants to purchase an aggregate of 60,000 shares of
our common stock. In addition, the directors will be reimbursed for their travel
expenses to and from board and committee meetings.
Grant Prideco, Inc. 1999 Non-Employee Director Stock Option Plan
Our non-employee director stock option plan is designed to encourage our
non-employee directors to obtain an equity interest in Grant Prideco. A total of
shares of Grant Prideco common stock may be subject to options under the
plan. We believe that stock ownership in Grant Prideco motivates our directors
to work toward our long-term growth and development. Under the plan,
non-employee directors, upon their
46
<PAGE> 55
initial election to the board, are granted options or warrants to purchase
60,000 shares of common stock at exercise prices equal to the market price of
our common stock on the date of grant. In addition, on every third annual
meeting of our stockholders, each person who is then a non-employee director
will be granted options or warrants to purchase 60,000 shares of our common
stock at exercise prices equal to the market price of our common stock on the
date of the grant. Each person who becomes a non-employee director on the date
of the spinoff will be granted options or warrants to purchase 60,000 shares of
common stock at exercise prices equal to the market price of the common stock on
that date. The options granted under the plan generally are subject to
three-year cliff-vesting so that a non-employee director generally will not be
entitled to the options if he or she elects to leave. However, the options will
be immediately exercisable if the non-employee director dies or becomes disabled
or if there is a change in control of Grant Prideco while he or she is still a
director. The options also will be exercisable in part if the non-employee
director retires from Grant Prideco in good standing. We believe that this type
of vesting schedule provides strong incentives for creating long-term value for
Grant Prideco.
Director Deferred Compensation Plan
Under our deferred compensation plan for non-employee directors, each
non-employee director may elect to defer up to 7.5 percent of any fees paid by
us. The deferred fees are converted into non-monetary units representing shares
of common stock that could have been purchased with the deferred fees based on
the market price of common stock at the time of the deferral. If a non-employee
director elects to defer at least five percent of his fees, we will make an
additional credit to the director's account equal to the sum of (1) 7.5 percent
of the director's fees plus (2) the amount of fees deferred by the director. Our
directors may generally determine when the funds will be distributed from the
plan. The amount of the distribution will be equal to the number of units in the
director's account multiplied by the market price of the common stock at the
time of distribution. Distributions will generally be made in common stock,
except that amounts representing fractional shares will be distributed in cash.
EXECUTIVE OFFICERS OF GRANT PRIDECO
Set forth below is information with respect to the individuals who will
serve as our executive officers as of the distribution date.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bernard J. Duroc-Danner................ 46 Chairman of the Board
John C. Coble.......................... 57 Chief Executive Officer, President and
Director
William G. Chunn....................... 66 Executive Vice President of Operations
Curtis W. Huff......................... 42 Vice President and Interim General
Counsel
Frances R. Powell...................... 44 Vice President, Chief Financial Officer
and Treasurer
</TABLE>
William G. Chunn was appointed Executive Vice President, Operations in 1995
after the merger of Grant TFW, Inc. and Prideco, Inc. Mr. Chunn served as
President, Chief Executive Officer and Director of Prideco from 1985 to 1995.
Mr. Chunn has held senior executive positions in the drill stem industry for
over 30 years.
Curtis W. Huff will serve as Vice President and Interim General Counsel for
Grant Prideco subsequent to the spinoff in addition to his current duties as
Senior Vice President, General Counsel and Secretary for Weatherford. Mr. Huff
has also served as Senior Vice President, General Counsel and Secretary of
Weatherford since June 1998. Prior to that time, Mr. Huff was a partner with the
law firm of Fulbright & Jaworski L.L.P., our counsel, and held that position for
more than five years.
Frances R. Powell will serve as Vice President, Chief Financial Officer and
Treasurer of Grant Prideco after the spinoff. Ms. Powell is currently Vice
President of Accounting and Controller for Weatherford, where she has served in
this position since 1991. From 1986 to 1990, Ms. Powell served as Controller for
and held other executive positions with GulfMark Offshore, Inc.
47
<PAGE> 56
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
regarding compensation we paid for the fiscal year ended December 31, 1998 to
the individuals serving as our Chief Executive Officer and the only other
executive officer whose base salary and bonus exceeded $100,000 for fiscal 1998
(collectively, the "Named Executive Officers"). During the periods presented,
the individuals were compensated in accordance with Weatherford's plans and
policies. All references in the tables to stock, stock options, prices and
values relate to awards of stock and stock options and historical prices of
Weatherford common stock. No compensation information is provided for Mr.
Duroc-Danner, Mr. Huff or Ms. Powell because compensation paid to those persons
by Weatherford for 1998 was for their employment with Weatherford and not Grant
Prideco. Descriptions of employment agreements to be entered into effective as
of the distribution date between Grant Prideco and certain of the Named
Executive Officers are set forth under "-- Employment Agreements and
Change-of-Control Arrangements".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -----------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION STOCK UNDERLYING COMPENSATION
COMPENSATION($) ($)(1) ($)(1) ($)(2)(3) AWARDS($) OPTIONS(#) ($)(4)
- --------------------------- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John C. Coble............................. 296,108 150,000 103,366 -- 100,000 11,056
Chief Executive Officer,
President and Director
William G. Chunn.......................... 207,692 35,700 59,984 -- 25,000 1,920
Executive Vice
President of Operations
</TABLE>
- ---------------
(1) Salary and bonus compensation include amounts deferred by each executive
officer under the Weatherford Executive Deferred Compensation Stock
Ownership Plan (the "Executive Deferred Plan") described in Note 2 below.
The bonus amounts were earned in the year in which they are shown in the
table but were paid in the first half of the following year.
(2) Other Annual Compensation includes (i) the vested portion of the amount
contributed by us under the Executive Deferred Plan equal to 7.5% of each
annual officer's compensation for each year, plus (ii) the vested portion of
our matching contribution under the Executive Deferred Plan equal to 100% of
the amount deferred by the officer. Each officer can defer up to 7.5% of his
or her total salary and bonus compensation each year. Our contributions vest
over a five-year period on the basis of 20% per year from the date of
initial participation in the Executive Deferred Plan. Under the Executive
Deferred Plan, the compensation deferred by each officer and our
contributions are converted into non-monetary units equal to the number of
shares of common stock that could have been purchased at a market-based
price by the amounts deferred and contributed. Distributions are made under
the Executive Deferred Plan after an officer retires, terminates his
employment or dies. The amount of the distribution under the Executive
Deferred Plan is based on the number of vested units in the officer's
account multiplied by the market price of the common stock at that time.
Following the spinoff, the accounts of the executive officers for deferrals
made prior to spinoff will be maintained by Weatherford with the executive
being credited with both Weatherford common stock units and our common stock
units. Distributions in respect of deferrals prior to the spinoff will be
paid by Weatherford based on the market price of the Weatherford common
stock allocated to the account of the executive immediately prior to the
spinoff and our common stock issued as a distribution in respect of those
shares. Distributions under the Executive Deferred Compensation Plan may, at
Weatherford's election, be made in cash, stock or combination of both. We
have agreed to issue to participants in the Executive Deferred Compensation
Plan shares of our stock to the extent required by Weatherford to satisfy
the distribution under that plan. We will also maintain a separate Executive
Deferred Compensation Plan for our executives after the spinoff in which the
common stock accounts will be based solely on our stock and distributions
will be made by us in cash, our stock or a
48
<PAGE> 57
combination of both. Weatherford's and our obligations with respect to the
Executive Deferred Plan are unfunded. However, Grant Prideco and Weatherford
have established grantor trusts that are subject to the claims of our
creditors, into which funds are deposited with an independent trustee that
purchases shares of common stock for the Executive Deferred Plan. As of
December 31, 1998, Messrs. Coble and Chunn had 33,863 and 13,219 units
allocated to their respective accounts.
(3) Excludes the total amount of all perquisites and other benefits that were
less than the lesser of $50,000 or 10% of the total of annual salary and
bonus of each executive officer.
(4) Represents matching contributions of $1,920 made by Weatherford in 1998
under Weatherford's 401(k) Savings Plan for each of Messrs. Coble and Chunn
and life insurance premiums of $7,493 and $2,063 paid by Weatherford in 1998
for each of Messrs. Coble and Chunn, respectively.
STOCK OPTION GRANTS IN FISCAL 1998
The following table provides certain information related to Weatherford
options granted to the Named Executive Officers during fiscal 1998. For
information concerning the treatment of options held by our officers after the
spinoff, see "Relationship Between Grant Prideco and Weatherford After the
Spinoff -- Distribution Agreement -- Employment Matters; Treatment of
Outstanding Stock Options and Restricted Stock".
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED
UNDERLYING TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANT IN FISCAL PRICE GRANT DATE
NAME GRANTED(1) 1998 ($/SH) EXPIRATION DATE PRESENT VALUE($)(2)
- ---- ---------- ---------- -------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
John C. Coble................. 100,000 13.8% 18.125 September 7, 2011 1,075,100
William G. Chunn.............. 25,000 3.4 18.125 September 7, 2011 268,775
</TABLE>
- ---------------
(1) The options become fully exercisable on September 8, 2001.
(2) The grant date present value is based upon Black-Scholes option valuation
model. The calculation assumes volatility of 52%, a risk free rate of 5.02%,
a seven year expected life, no expected dividends and option grants at
$18.125 per share. The actual value, if any, of any option will depend on
the amount, if any, by which the stock price exceeds the exercise price on
the date the option is exercised. Thus, this valuation may not be a reliable
indication as to value and there is no assurance the value realized will be
at or near the value estimated by the Black-Scholes model.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND DECEMBER 31, 1998 OPTION VALUES
The following table provides information related to Weatherford common
stock options exercised by the Named Executive Officers during fiscal 1998 and
the number and value of Weatherford options held at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
VALUE UPON VALUE --------------------------- ---------------------------
NAME OPTION EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Coble.......... -- -- 80,400 100,000 450,650 125,000
William G. Chunn....... -- -- -- 25,000 -- 31,250
</TABLE>
- ---------------
(1) The value is based on the difference in the closing market price of the
Weatherford common stock on December 31, 1998 ($19.375), and the exercise
price of the options. The actual value, if any, of the unexercised options
will depend on the market price of the Weatherford or Grant Prideco stock
issuable on the exercise of the options at the time of the exercise of the
options.
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<PAGE> 58
BENEFIT PLANS
We will maintain the following plans after the Spinoff:
Grant Prideco, Inc. 1999 Employee Stock Option and Restricted Stock Plan
We consider stock options and restricted stock to be an important incentive
to our employees to work toward the Company's long-term growth. Accordingly, we
will from time to time grant to our employees (including our executive officers)
options to purchase shares of Grant Prideco common stock and awards of
restricted Grant Prideco stock. The number of shares to be granted will be based
on the level and contribution of the employee. A total of shares of
Grant Prideco common stock have been dedicated to the plan. Stock options are
subject to vesting over a number of years and generally will have exercise
prices equal to the market price of the common stock at the date of grant.
However, the exercise price and exercisability of each option may be determined
by the Compensation Committee of the board of directors. Similarly, restricted
stock awards will generally be subject to certain restrictions so that an
employee will not be entitled to the stock if he or she elects to leave the
Company. We believe that these types of vesting and restrictions provide strong
incentives for creating long-term value for the Company. We intend to grant to
our executive officers the number of stock options and restricted stock that is
consistent with industry standards and our objectives towards emphasizing
stock-based compensation for our senior executive officers.
Grant Prideco, Inc. Executive Deferred Compensation Plan
We will maintain an executive deferred compensation plan to provide our key
employees with long-term incentive compensation through benefits that are linked
directly to future increases in the value of Grant Prideco common stock and that
may be realized only upon the employee's termination of employment. Under this
plan, eligible employees receive a tax deferred credit equal to 7.5 percent of
their annual compensation through a credit to an account that is converted into
non-monetary units representing the number of shares of Grant Prideco common
stock that the credited funds could purchase at an price equal to the average
closing price of our common stock during the month the amounts are credited. In
addition, as an incentive to the participants to base their deferred
compensation on increases in our common stock a portion of the compensation that
they would otherwise receive from us, the participating employees also are
offered the opportunity to defer up to 7.5 percent of their compensation to
their account under this plan, in which case we will make a matching credit
equal to the amount of the deferral by the employee. This plan provides for a
five-year vesting period with respect to credits we provide, and the ultimate
value of benefits under the plan to the participant are wholly dependent upon
the price of Grant Prideco common stock at the time the employee terminates his
employment. We believe that our deferred compensation plans are an important
component of our stock-based compensation program and align management's
interest with those of our stockholders. Under the plan, Grant Prideco intends
to create a grantor trust so that each employer may make periodic contributions
to the trust approximating the amounts credited to an employee's account. The
trustee would use these contributions to purchase our common stock in the open
market, and this stock could be used to satisfy the obligation to the employee
when due.
Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan
We also will maintain an executive deferred compensation plan that will
provide our key foreign employees with long-term incentive compensation through
benefits that are directly linked to future increases in the value of the common
stock. Under this plan, eligible foreign employees receive a tax deferred credit
equal to 15 percent of their annual compensation through a credit to an account
that is converted into non-monetary units representing the number of shares of
our common stock that the contributed funds could purchase at a price equal to
the average closing price of our common stock during the month the amounts are
credited. This plan provides for a five-year vesting period with respect to
these credits, and the ultimate value of benefits under the plan to the
participant are wholly dependent upon the price of our common stock at the time
the employee terminates his employment.
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<PAGE> 59
Grant Prideco, Inc. 401(k) Savings Plan
We have established a 401(k) savings plan that allows eligible employees to
make before- and after-tax contributions toward their retirement security and
receive matching and discretionary contributions from us. All of our employees
are eligible to participate in the plan unless they are employees covered under
a collective bargaining agreement, leased employees, employees working outside
the United States, non-resident aliens with no United States source income or
employees participating in a retirement plan maintained outside the United
States. An eligible employee may elect to defer up to 16 percent of his or her
compensation on a before-tax basis. After a year of service, we will match half
of up to six percent of a participant's before-tax deferrals, and the
participant will be able to share in any discretionary contributions we make. A
participant's contributions and any matching and discretionary contributions we
make will be vested immediately. Participants may invest their accounts in
various investment funds offered under the plan. A participant may withdraw
certain funds from his or her account in the case of a financial hardship or on
or after age 59 1/2, and may withdraw his or her after-tax and/or rollover
contributions at any time. Loans are also available to participants under the
plan. Distributions of a participant's before- and after-tax contributions and
our contributions may be made when the participant dies, becomes disabled,
retires or terminates employment. We believe that financial security is often
the main factor for determining the quality of life during retirement, and this
plan provides our employees with the opportunity to effectively save toward
long-term financial goals.
EMPLOYMENT AGREEMENTS AND CHANGE-OF-CONTROL ARRANGEMENTS
We currently expect to enter into an employment agreement with each of Mr.
Coble and Ms. Powell as our executive officers. These employment agreements will
be in lieu and in substitution of the employment agreements that Mr. Coble and
Ms. Powell have with Weatherford. We expect that each employment agreement will
have a term of three years and be renewable annually. Under the terms of these
employment agreements, if we terminate the executive's employment for any reason
other than "cause" or "disability" or if the executive terminates his or her
employment for "good reason", as defined in the employment agreements, the
executive will be entitled to receive an amount equal to the sum of (1) three
times the executive's current annual base compensation plus the highest bonus
paid by Grant Prideco or Weatherford to the executive during the three years
prior to the year of termination, (2) any accrued salary or bonus (pro-rated to
the date of termination), (3) an amount payable as if all retirement plans were
vested, (4) the amount that would have been contributed as our match under our
401(k) plan and our executive deferred plan for three years and (5) the
executive's car allowance for three years. Under the employment agreements,
"cause" is defined as the willful and continued failure to perform the
executive's job after written demand is made by the Chief Executive Officer or
the board or the willful engagement in illegal conduct or gross misconduct.
Termination by the executive for "good reason" is generally defined as (A) a
material reduction in title and/or responsibilities of the executive, (B)
certain relocations of the executive or (C) any material reduction in the
executive's benefits. In addition, under such circumstances, all stock options
and restricted stock granted to the executive will vest automatically. The
executive also would have the right to surrender for such cash all such options
unless to do so would cause a transaction otherwise eligible for pooling of
interests accounting treatment under Accounting Principles Board Opinion No. 16
to be ineligible for such treatment, in which case the executive would receive
shares of common stock equal in value to the cash he or she would have received.
All health and medical benefits would also be maintained after termination for a
period of three years provided the executive makes his or her required
contribution. Under the Deficit Reduction Act of 1984, certain severance
payments that exceed a certain amount could subject both us and the executive to
adverse U.S. federal income tax consequences. Each of the employment agreements
provides that we would be required to pay the executive a "gross up payment" to
insure that the executive receives the total benefit intended by the employment
agreement. The base compensation payable to Mr. Coble and Ms. Powell under the
employment agreements are $400,000 and $225,000, respectively.
It is also expected that Mr. Coble will be granted options to purchase an
additional 200,000 shares of Grant Prideco common stock effective as of the
spinoff. The exercise price of those options will be equal to the fair market
value of the Grant Prideco common stock at the time of the spinoff.
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<PAGE> 60
Upon the spinoff, we expect to enter into a change of control agreement
with Mr. Chunn. Under this agreement, he will be provided with certain benefits
if there is both a change of control of Grant Prideco and is subsequently
terminated for any reason other than for "cause" or elects to terminate his
employment for "good reason" within two years after a change of control. A
change of control is defined generally as an acquisition by a person or group of
persons of at least 50% of our outstanding common stock. Under his agreement, if
there is a change of control of Grant Prideco, we would agree that his base
salary would not decrease unless there was a company-wide salary reduction, Mr.
Chunn would continue to be eligible for an annual bonus under our incentive plan
applicable to other key employees and if we are not the surviving entity in a
change of control, the surviving company would be required to issue
substantially similar options in replacement of any Grant Prideco options held
by him. "For cause" under Mr. Chunn's employment agreement will be defined to be
the failure by him to perform his job after written notice from us, engaging in
illegal conduct or misconduct, a conviction of a crime involving moral
turpitude, a misappropriation of funds, disparagement of us or our management or
other cause determined by our board of directors in good faith. "Good reason"
will be defined in Mr. Chunn's employment agreement as a material reduction in
responsibility or benefits.
If, following a change of control, Mr. Chunn's employment is terminated by
us for any reason other than cause or Mr. Chunn's employment is terminated by
him for good reason, he would be entitled to two years base salary plus two
years bonus, and all of his outstanding options will vest.
We also expect to enter into employment agreements with each of Messrs.
Duroc-Danner and Huff in connection with the services they will provide to us.
In each case, the term of their employment will be for a period of three years
and will be renewable annually. The base compensation to be paid to Mr.
Duroc-Danner will be $150,000 per year and the base compensation paid to Mr.
Huff will be $100,000 per year. Messrs. Duroc-Danner and Huff also will be
granted options to purchase 200,000 and 120,000 shares, respectively, of Grant
Prideco common stock at an exercise price equal to the fair market value of the
Grant Prideco common stock at the time of the spinoff. These options will vest
three years from the date of grant, subject to acceleration in the event of a
change of control or termination of employment for any reason other than for
cause. Messrs. Duroc-Danner and Huff will provide services to us only on a
part-time basis from time to time as we may reasonably require to assist us in
the development and implementation of our strategic initiatives. Their services
also would be subject to their commitments to Weatherford. Mr. Huff also will
serve as Interim General Counsel of Grant Prideco until such time as a full time
General Counsel may be named. The employment agreements with Messrs.
Duroc-Danner and Huff also will be substantially similar to the employment
agreements with Mr. Coble and Ms. Powell.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before the spinoff, we had no Compensation Committee. As of the spinoff,
the Compensation Committee of our board will consist of Messrs. Lubar, Moses and
Rayne. Messrs. Lubar, Moses and Rayne also comprise the compensation committee
of Weatherford's board.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Because the spinoff will be on the basis of one share of our common stock
distributed for each two shares of Weatherford common stock owned on the record
date, each Weatherford stockholder will own at the distribution date the same
percentage of the issued and outstanding Grant Prideco common stock as that
stockholder owns of Weatherford common stock.
The following table sets forth certain information regarding the
anticipated beneficial ownership of our common stock by persons we anticipate
will own beneficially more than 5% of our outstanding common stock
52
<PAGE> 61
as of the distribution date, based upon the actual holdings of Weatherford
common stock as of September 30, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES(1) OUTSTANDING SHARES
------------------- ------------------- ------------------
<S> <C> <C>
FMR Corp.(2)
82 Devonshire Street
Boston, Massachusetts 02109................................ 5,783,670 10.6%
</TABLE>
- ---------------
(1) This information is based on information furnished by each stockholder or
contained in filings made with the Securities and Exchange Commission. The
persons listed have sole voting and dispositive power for their shares of
common stock, unless otherwise noted.
(2) Fidelity Management & Research Company ("Fidelity"), a wholly owned
subsidiary of FMR Corp. ("FMR"). FMR and a registered investment adviser, is
the beneficial owner of 4,731,070 shares as a result of acting as investment
adviser to various registered investment companies (the "Funds"). Fidelity
Management Trust Company ("FMTC"), a wholly owned subsidiary of FMR, is the
beneficial owner of 1,052,600 shares as a result of serving as investment
manager of various institutional accounts. Edward C. Johnson 3d, FMR's
Chairman and principal stockholder, FMR, through its control of Fidelity,
and the Funds each has sole power to dispose of the 4,731,070 shares owned
by the Funds. Mr. Johnson and FMR, through its control of FMTC, each has
sole power to dispose of 1,052,600 shares owned by the institutional
accounts and sole power to vote or direct the voting of 944,250 of such
shares. Members of Mr. Johnson's family and trusts for their benefit are the
predominant owners of Class B shares of common stock of FMR. Mr. Johnson
owns 12.0% and Abigail P. Johnson, Mr. Johnson's wife and a Director of FMR,
owns 24.5% of the voting stock of FMR. The Johnson family and all other
Class B shareholders have entered into a shareholders' voting agreement
under which all Class B shares will be voted in accordance with the majority
vote of Class B shares. Through their ownership of voting common stock and
the shareholders' voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a controlling
group as to FMR.
All of the figures in this table and the footnotes for shares of our common
stock have been derived based upon the hypothetical assumption that the record
date and the distribution date were September 30, 1999, so as to reflect what
the beneficial ownership of Grant Prideco common stock would have been at that
time. Actual ownership on the distribution date may vary substantially from that
shown in the table. The following table sets forth information with respect to
the shares of our common stock that we anticipate will be beneficially owned by
each director of Grant Prideco, each Named Executive Officer, and by all
directors and executive officers of Grant Prideco as a group effective as of the
distribution date. Each person has sole voting and investment power for the
shares shown below, unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES
BENEFICIALLY OWNED AS OF SEPTEMBER 30, 1999
----------------------------------------------
NUMBER OF RIGHT TO PERCENT OF
NAME SHARES OWNED ACQUIRE(1) OUTSTANDING SHARES
---- ------------ ---------- ------------------
<S> <C> <C> <C>
John C. Coble......................................... -- 40,200 *
Bernard J. Duroc-Danner............................... 25 415,000 *
Eliot M. Fried........................................ 10,000 -- *
Sheldon B. Lubar(2)................................... 373,485 15,000 *
William E. Macaulay(3)................................ 1,722,505 5,000 3.2%
Robert K. Moses, Jr.(4)............................... 212,192 5,000 *
Robert A. Rayne(5).................................... 140 10,000 *
William G. Chunn...................................... 19,403 -- *
Curtis W. Huff(6)..................................... 28,625 16,667 *
Frances R. Powell..................................... 477 20,500 *
All officers and directors as a group (10 persons).... 2,366,852 527,367 5.3%
</TABLE>
53
<PAGE> 62
- ---------------
* Less than 1%.
(1) Shares of common stock that can be acquired through stock options
exercisable through November 29, 1999.
(2) Includes 177,557 shares held by his wife, over which he has no voting or
dispositive power and as to which he disclaims beneficial ownership. Also
includes 13,671 shares held in trusts for his grandchildren, of which he is
the trustee and has voting and dispositive power.
(3) Includes 3,310 shares held by his wife, over which he has no voting or
dispositive power and as to which he disclaims beneficial ownership.
Includes 1,718,000 shares owned beneficially by First Reserve Corporation.
Mr. Macaulay is Chairman and Chief Executive Officer of First Reserve. Mr.
Macaulay disclaims beneficial ownership of the shares of common stock
beneficially owned by First Reserve.
(4) Includes an aggregate of 21,375 shares held in various trusts for Mr. Moses'
family, of which Mr. Moses is the trustee and has sole voting and
dispositive power. Excludes (i) an aggregate of 24,937 shares held in
various trusts for Mr. Moses' children, (ii) 879 shares held in a trust for
Mr. Moses' son and (iii) 297 shares held by Mr. Moses' adult son supported
by him. Mr. Moses has no voting or dispositive power over these excluded
shares. Mr. Moses disclaims beneficial ownership of all of the
above-described shares.
(5) Excludes 270,000 shares beneficially owned by London Merchant Securities
plc, of which Mr. Rayne serves as Executive Director. Mr. Rayne disclaims
beneficial ownership of all of these shares.
(6) Includes 28,125 restricted shares that vest over a three-year period through
June 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective as of the spinoff, Grant Prideco and Weatherford will have five
common directors. Mr. Huff, Senior Vice President and General Counsel of
Weatherford, will serve as our Vice President and Interim General Counsel. Mr.
Duroc-Danner, President, Chief Executive Officer and Chairman of the Board of
Weatherford, will serve as our Chairman of the Board. We will enter into several
agreements with Weatherford in connection with the spinoff, including the
Distribution Agreement, the Tax Allocation Agreement, the Transition Services
Agreement and the Preferred Supplier Agreement. We will also issue a $100
million note to Weatherford. See "Relationship Between Grant Prideco and
Weatherford After the Spinoff".
DESCRIPTION OF GRANT PRIDECO CAPITAL STOCK
GENERAL
Our authorized capital stock as of the spinoff will consist of 150 million
shares of our common stock and 10 million shares of preferred stock, par value
$.01 per share, of which, approximately 54.3 million shares of our common stock
will be issued and outstanding and owned by Weatherford. No shares of our
preferred stock will be issued or outstanding. All of these issued and
outstanding shares of our common stock will be distributed to holders of
Weatherford common stock in the spinoff. Following the spinoff, Weatherford will
not own any of our common stock other than in trust for employee benefit plans.
All of the shares of our common stock issued in the spinoff will be validly
issued, fully paid and nonassessable.
GRANT PRIDECO COMMON STOCK
Voting Rights. Holders of our common stock will be entitled to one vote for
each share on all matters voted on by stockholders. Our common stock will
possess all voting power of Grant Prideco, except as otherwise required by law
or provided in any resolution adopted by our board designating any series of
Grant Prideco preferred stock. The shares of our common stock will not have
cumulative voting rights.
Although the holders of our common stock are generally entitled to vote for
the approval of amendments to our certificate of incorporation, the voting
rights of the holders of our common stock are limited with
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<PAGE> 63
respect to certain amendments to our certificate of incorporation that affect
only the holders of our preferred stock. Specifically, subject to the rights of
any outstanding shares of any series of our preferred stock, our certificate of
incorporation may be amended from time to time in any manner that would solely
modify or change the relative powers, preferences and rights and the
qualifications or restrictions of any issued shares of any series of our
preferred stock then outstanding with the only required vote or consent for
approval of such amendment being the affirmative vote or consent of the holders
of a majority of the outstanding shares of the series of our preferred stock so
affected, provided that the powers, preferences and rights and the
qualifications and limitations or restrictions of such series after giving
effect to such amendment are no greater than the powers, preferences and rights
and qualifications and limitations or restrictions permitted to be fixed and
determined by the board of directors with respect to the establishment of any
new series of shares of our preferred stock pursuant to the authority vested in
the board of directors as to such matters.
Dividend Rights. Subject to any preferential or other rights of any
outstanding series of our preferred stock that our board may designate, and
subject to contractual restrictions contained in our debt agreements, holders of
our common stock will be entitled to such dividends as may be declared from time
to time by our board from funds legally available therefor. See "Dividend
Policy".
Liquidation Rights and Other Provisions. Subject to the prior rights of
creditors and the holders of any of our preferred stock that may be outstanding
from time to time, the holders of our common stock are entitled in any
liquidation, dissolution or winding up to share pro rata in the distribution of
all remaining assets.
Our common stock is not liable for any calls or assessments and is not
convertible into any other securities. Our certificate of incorporation will
provide that the private property of the stockholders shall not be subject to
the payment of corporate debts. There are no redemption or sinking fund
provisions applicable to our common stock.
GRANT PRIDECO PREFERRED STOCK
Our board will be authorized to issue shares of preferred stock, in one or
more series, and to fix the voting powers, designations, preferences and
relative, participating, optional and other special rights, qualifications,
limitations or restrictions of such shares, subject to the Delaware General
Corporation Law. No shares of our preferred stock will be issued in connection
with the spinoff.
NO PREEMPTIVE RIGHTS
No holder of any stock of Grant Prideco of any class authorized at the
distribution date will have any preemptive right to subscribe to any securities
of Grant Prideco of any kind or class.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
As a Delaware corporation, we are subject to Section 203 of the Delaware
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the time such person became an interested stockholder unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock plans that do not
provide employees with the rights to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer); or
55
<PAGE> 64
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder.
Under Section 203, the restrictions described above also do not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
NOMINATION OF DIRECTORS
Our bylaws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the board or a committee
thereof, of candidates for election as directors.
This nomination procedure requires that a stockholder give advance written
notice, in proper form, of a planned nomination for the board to the Secretary
of Grant Prideco. The requirements as to the form and timing of that notice,
which are specified in our bylaws, are not inconsistent with the requirements of
the Securities Exchange Act of 1934 for a stockholder proposal. If a person is
not nominated in accordance with this nomination procedure, that person will not
be eligible for election as a director.
Although our bylaws do not give the board any power to approve or
disapprove stockholder nominations for the election of directors, our bylaws may
have the effect of precluding a nomination for the election of directors at a
particular meeting if the proper procedures are not followed and may discourage
a third party from soliciting proxies to elect its own slate of directors or
otherwise attempting to obtain control of Grant Prideco, even if that
solicitation or attempt might be beneficial to us and our stockholders.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent of our common stock will be American Stock
Transfer & Trust Company.
LIABILITY AND INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Delaware law and our certificate of incorporation and bylaws include
provisions designed to limit the liability of our officers and directors and, in
certain circumstances, to indemnify our officers and directors against certain
liabilities. These provisions are designed to encourage qualified individuals to
serve as our officers and directors.
EXCULPATION OF MONETARY LIABILITY
Under Delaware law, a corporation may include provisions in its certificate
of incorporation that relieve its directors of monetary liability for breaches
of their fiduciary duty to the corporation, except under certain circumstances,
including
- a breach of the director's duty of loyalty,
- acts or omissions of the director not in good faith or which involve
intentional misconduct or a knowing violation of law,
- the approval of an improper payment of a dividend or an improper purchase
by the corporation of the corporation's stock or
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<PAGE> 65
- any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation will provide that our directors are not
liable to us or our stockholders for monetary damages for breach of their
fiduciary duty, subject to the restrictions above. These limitations of
liability may not affect claims arising under the federal securities laws.
INDEMNIFICATION
Under Section 145 of the Delaware General Corporation Law and our bylaws,
we are obligated to indemnify our present and former directors and officers and
may indemnify other employees and individuals against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation, a "derivative action"), if the person to whom indemnity is granted
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to our best interests, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that indemnification extends only to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action, and the
Delaware General Corporation Law requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to Grant Prideco.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and officers and controlling persons pursuant to
the foregoing provisions, we have been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
INDEPENDENT PUBLIC ACCOUNTANTS
Our board will select before the end of fiscal 1999 an independent
accounting firm to audit our financial statements for the year ending December
31, 1999. Arthur Andersen LLP has served as independent accountants of
Weatherford through the periods covered by the financial statements included in
this information statement.
WHERE YOU CAN FIND MORE INFORMATION
We will file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934. You may inspect those reports, proxy statements
and other information at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Regional Offices of the SEC at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York
10048. Please call the SEC at 1-800-SEC-0300 for further information about the
public reference rooms. You may also obtain copies of those materials from the
Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The SEC maintains a site on the Internet at WWW.SEC.GOV that contains these
reports, proxy and information statements and other information regarding
Weatherford. You can also inspect and copy those reports, proxy and information
statements and other information at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, on which our common stock is
expected to be listed.
We have filed with the SEC a registration statement on Form 10 that
includes this information statement. This information statement is only a part
of that registration statement and does not contain all of the information in
our registration statement. For further information on us and our common stock,
please review our registration statement and the exhibits that are filed with
it. Statements made in this information statement that describe documents may
not necessarily be complete. We recommend that you review the
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<PAGE> 66
documents that we have filed with our registration statement to obtain a more
complete understanding of those documents.
All documents that we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this information
statement will be deemed to be incorporated in this information statement by
reference and will be a part of this information statement from the date of the
filing of the document. Any statement contained in a document incorporated or
deemed to be incorporated by reference in this information statement will be
deemed to be modified or superseded for purposes of this information statement
to the extent that a statement contained in this information statement or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in this information statement modifies or supersedes that
statement. Any statement that is modified or superseded will not constitute a
part of this information statement, except as modified or superseded.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this information statement has been delivered, upon
written or oral request, a copy of any or all of the documents incorporated by
reference in this information statement, other than the exhibits to those
documents, unless the exhibits are specifically incorporated by reference into
the information that this information statement incorporates. You should direct
a request for copies to Weatherford at 515 Post Oak Boulevard, Suite 600,
Houston, Texas 77027, Attention: Secretary (telephone number: (713) 693-4000).
If you have any other questions regarding us, please contact our Investor
Relations Department in writing (1450 Lake Robbins Drive, Suite 600, The
Woodlands, Texas 77380) or by telephone ((281) 297-8500) or visit Weatherford's
website at WWW.WEATHERFORD.COM or our website at WWW.GRANTPRIDECO.COM.
We intend to furnish holders of our common stock with annual reports
containing consolidated financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial statements.
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<PAGE> 67
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Financial Statements of Grant Prideco
Report of Independent Public Accountants.................. F-2
Combined Balance Sheets as of December 31, 1998 and 1997
and September 30, 1999 unaudited....................... F-3
Combined Statements of Operations for the years ended
December 31, 1998, 1997, and 1996 and the nine months
and three months ended September 30, 1999 and 1998
unaudited.............................................. F-4
Combined Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and the nine months
ended September 30, 1999 and 1998 unaudited............ F-5
Combined Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996 and the nine
months ended September 30, 1999 unaudited.............. F-6
Notes to Combined Financial Statements.................... F-7
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grant Prideco, Inc.:
We have audited the accompanying combined balance sheets of the drilling
product businesses of Weatherford International, Inc. (a Delaware corporation)
(Grant Prideco), as of December 31, 1998 and 1997, and the related combined
statements of operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Grant Prideco as of
December 31, 1998 and 1997, and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN L.L.P.
ARTHUR ANDERSEN LLP
Houston, Texas
October 22, 1999
F-2
<PAGE> 69
GRANT PRIDECO
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1998 1997 1999
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents................................. $ 6,070 $ 8,203 $ 1,743
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $366 and $396 at December 31, 1998 and 1997
and $568 at September 30, 1999......................... 129,019 143,455 70,979
Inventories............................................... 186,267 186,248 165,438
Current Deferred Tax Asset................................ 10,785 9,044 11,483
Other Current Assets...................................... 18,155 4,295 8,574
-------- -------- --------
350,296 351,245 258,217
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Machinery and Equipment................................... 197,552 166,096 210,409
Land, Buildings and Other Property........................ 86,350 88,386 92,572
-------- -------- --------
283,902 254,482 302,981
Less: Accumulated Depreciation............................ 74,908 61,642 93,345
-------- -------- --------
208,994 192,840 209,636
-------- -------- --------
GOODWILL, NET............................................... 162,464 107,598 185,455
INVESTMENT IN UNCONSOLIDATED AFFILIATES..................... 6,848 -- 38,668
OTHER ASSETS................................................ 9,712 10,915 16,491
-------- -------- --------
$738,314 $662,598 $708,467
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings and Current Portion of Long-Term
Debt................................................... $ 52,881 $ 6,637 $ 13,122
Accounts Payable.......................................... 43,454 101,247 29,892
Accrued Wages and Benefits................................ 4,427 8,086 4,799
Current Deferred Tax Liability............................ 8,231 15,987 8,231
Purchase Credit........................................... 8,000 -- 998
Other Accrued Liabilities................................. 27,275 24,242 12,657
-------- -------- --------
144,268 156,199 69,699
-------- -------- --------
SUBORDINATED NOTE TO WEATHERFORD............................ 100,000 100,000 100,000
LONG-TERM DEBT.............................................. 9,265 27,387 26,499
DEFERRED INCOME TAXES....................................... 24,838 23,464 27,462
OTHER LONG-TERM LIABILITIES................................. 14,732 22,826 13,182
COMMITMENTS AND CONTINGENCIES
TOTAL STOCKHOLDER'S EQUITY.................................. 445,211 332,722 471,625
-------- -------- --------
$738,314 $662,598 $708,467
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE> 70
GRANT PRIDECO
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED NINE MONTHS ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------- -------------------
1998 1997 1996 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES.................................. $646,805 $630,021 $367,336 $210,987 $521,911 $ 57,987 $160,196
-------- -------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of Sales........................... 480,034 471,779 296,597 189,306 364,188 57,688 112,224
Selling, General and Administrative
Attributable to Segments.............. 32,077 29,903 16,904 23,181 22,804 7,966 8,657
Corporate General and Administrative.... 14,407 11,983 6,633 10,679 11,047 3,674 3,343
Weatherford Charges..................... 960 920 880 1,000 720 500 240
Nonrecurring Charges.................... 6,450 -- -- -- 4,450 -- --
-------- -------- -------- -------- -------- -------- --------
533,928 514,585 321,014 224,166 403,209 69,828 124,464
-------- -------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS)................... 112,877 115,436 46,322 (13,179) 118,702 (11,841) 35,732
-------- -------- -------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest Expense........................ (4,758) (5,726) (1,384) (2,894) (3,684) (1,130) (1,159)
Weatherford Interest Expense............ (7,250) (7,250) (5,987) (5,438) (5,437) (1,813) (1,812)
Other, Net.............................. 4,699 (396) (1,013) 400 4,095 109 394
-------- -------- -------- -------- -------- -------- --------
(7,309) (13,372) (8,384) (7,932) (5,026) (2,834) (2,577)
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES......... 105,568 102,064 37,938 (21,111) 113,676 (14,675) 33,155
PROVISION (BENEFIT) FOR INCOME TAXES...... 39,848 40,550 14,350 (5,389) 43,833 (4,130) 12,640
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)......................... $ 65,720 $ 61,514 $ 23,588 $(15,722) $ 69,843 $(10,545) $ 20,515
======== ======== ======== ======== ======== ======== ========
Earnings (Loss) Per Share:
Basic................................... $ 1.35 $ 1.28 $ 0.53 $ (0.32) $ 1.44 $ (0.21) $ 0.42
======== ======== ======== ======== ======== ======== ========
Diluted................................. $ 1.34 $ 1.26 $ 0.52 $ (0.32) $ 1.43 $ (0.21) $ 0.42
======== ======== ======== ======== ======== ======== ========
Weighted Average Shares:
Basic................................... 48,533 48,026 44,921 49,385 48,487 50,704 48,693
======== ======== ======== ======== ======== ======== ========
Diluted................................. 48,879 48,781 45,491 49,385 48,842 50,704 48,910
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE> 71
GRANT PRIDECO
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1998 1997 1996 1999 1998
------- ------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)............................. $65,720 $61,514 $23,588 $(15,722) $69,843
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) By Operating
Activities:
Non-Cash Portion of Other Nonrecurring
Charges.................................... 30,500 -- -- -- 3,350
Depreciation and Amortization................. 31,173 27,051 12,518 22,162 22,529
Deferred Income Tax Provision (Benefit)....... (4,513) 14,944 10,513 182 (5,260)
Gain on Asset Disposal........................ (1,226) -- (112) -- (1,247)
Deposit for Long-Term Contract................ -- -- (8,000) -- --
Sale of Technology License.................... (9,000) -- -- -- --
Change in Assets and Liabilities, Net of
Effects of Businesses Acquired:
Accounts Receivable........................ 13,308 (40,922) (19,334) 59,103 (8,301)
Inventories................................ (22,878) (52,686) (23,458) 22,310 (52,764)
Other Current Assets....................... (13,812) (1,375) (927) 10,416 (10,747)
Accounts Payable........................... (57,091) 11,964 17,604 (14,208) (26,041)
Accrued Current Liabilities................ (8,653) (9,967) (4,171) (20,611) (9,046)
Other Assets............................... (1,215) (1,456) (614) (1,701) (541)
Purchase Credit............................ (8,000) -- -- (7,002) (4,713)
Other, Net................................. (3,586) 805 1,731 (3,177) (3,884)
------- ------- ------- -------- -------
Net Cash Provided (Used) by Operating
Activities............................... 10,727 9,872 9,338 51,752 (26,822)
------- ------- ------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash
Acquired................................... (17,400) (50,847) (38,119) (10,703) (15,850)
Capital Expenditures for Property, Plant and
Equipment.................................. (38,102) (34,813) (16,829) (14,795) (26,355)
Proceeds on Sale of Assets.................... 6,023 -- 232 -- 5,986
------- ------- ------- -------- -------
Net Cash Used by Investing Activities...... (49,479) (85,660) (54,716) (25,498) (36,219)
------- ------- ------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net....................... (6,990) (22,778) (10,781) (53,608) (5,662)
Stockholder's Investment...................... 43,609 105,466 54,868 23,027 65,407
------- ------- ------- -------- -------
Net Cash Provided (Used) by Financing
Activities............................... 36,619 82,688 44,087 (30,581) 59,745
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (2,133) 6,900 (1,291) (4,327) (3,296)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR.......................................... 8,203 1,303 2,594 6,070 8,203
------- ------- ------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 6,070 $ 8,203 $ 1,303 $ 1,743 $ 4,907
======= ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 72
GRANT PRIDECO
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
CURRENCY TOTAL
STOCKHOLDER'S RETAINED TRANSLATION STOCKHOLDER'S
INVESTMENT EARNINGS ADJUSTMENT EQUITY
------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.................. $101,625 $ 7,304 $ (4,835) $104,094
Total Comprehensive Income (Loss)........... -- 23,588 (235) 23,353
Stockholder's Contribution.................. 48,543 -- -- 48,543
Stockholder's Dividend...................... -- (11,770) -- (11,770)
-------- -------- -------- --------
Balance at December 31, 1996.................. 150,168 19,122 (5,070) 164,220
Total Comprehensive Income (Loss)........... -- 61,514 (2,360) 59,154
Stockholder's Contribution.................. 109,348 -- -- 109,348
-------- -------- -------- --------
Balance of December 31, 1997.................. 259,516 80,636 (7,430) 332,722
Total Comprehensive Income (Loss)........... -- 65,720 (5,908) 59,812
Stockholder's Contribution.................. 51,928 749 -- 52,677
-------- -------- -------- --------
Balance at December 31, 1998.................. 311,444 147,105 (13,338) 445,211
Total Comprehensive Income (Loss)
(unaudited).............................. -- (15,722) 25 (15,697)
Stockholder's Contribution (unaudited)...... 42,111 -- -- 42,111
-------- -------- -------- --------
Balance at September 30, 1999 (unaudited)..... $353,555 $131,383 $(13,313) $471,625
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 73
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS
1. WEATHERFORD INTERNATIONAL INC.'S PROPOSED SPINOFF OF ITS DRILLING PRODUCTS
DIVISION
On October 22, 1999, the Board of Directors of Weatherford International,
Inc. ("Weatherford" or "Stockholder") authorized the spinoff of its drilling
products businesses (the "Company" or "Grant Prideco") to its shareholders as an
independent, publicly-traded company (the "Distribution"). The drilling products
businesses will be transferred to Grant Prideco, Inc. from Weatherford. The
Distribution is subject to a tax ruling by the Internal Revenue Service that
would allow it to be tax-free to shareholders subject to U.S. Federal income
taxes and appropriate stock market conditions. Immediately following the
Distribution, Weatherford will no longer have an equity investment in Grant
Prideco other than shares of the Company held in trust for employee benefit
plans, however, Grant Prideco will have a $100.0 million unsecured subordinated
note to Weatherford with a three year maturity and a $15 million drill stem
credit obligation to Weatherford. Weatherford will also remain liable on certain
existing contingent liabilities relating to Grant Prideco which were not able to
be released, terminated or replaced prior to the Distribution date ("unreleased
contingent liabilities"). Grant Prideco will fully indemnify Weatherford for any
payments made under the unreleased contingent liabilities.
Basis of Presentation
The combined financial statements reflect the results of operations of
Weatherford's drilling products businesses that will be transferred to Grant
Prideco, Inc. from Weatherford. The combined financial statements have been
prepared using the historical bases in the assets and liabilities and historical
results of operations related to Grant Prideco, except as noted herein. The
combined financial statements include allocations ("carve-outs") of general and
administrative corporate overhead costs of Weatherford to Grant Prideco and
direct costs of services provided by Weatherford for the benefit of Grant
Prideco (See Note 15). Management believes such allocations are reasonable;
however, the costs of these services charged to Grant Prideco are not
necessarily indicative of the costs that would have been incurred if Grant
Prideco had performed these functions as a stand-alone entity. Subsequent to the
Distribution, Grant Prideco will perform these functions using its own resources
or purchased services and will be responsible for the costs and expenses
associated with the management of a public corporation.
The financial information included herein may not necessarily reflect the
combined results of operations, financial position, changes in stockholder's
equity and cash flows of Grant Prideco in the future or what they would have
been had it been a separate, stand-alone entity during the periods presented.
The combined financial statements included herein do not reflect any changes
that may occur in the financing of Grant Prideco as a result of the
Distribution.
The combined financial information for the periods ended September 30, 1998
and 1999 is unaudited.
Nature of Operations
The Company manufactures and supplies drill pipe and drilling tools,
premium connectors and associated high grade tubular and marine connectors used
in the exploration and production of oil and natural gas.
Principles of Combination
Intercompany transactions and balances between Grant Prideco's businesses
have been eliminated. The Company accounts for its 50% or less-owned affiliates
using the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-7
<PAGE> 74
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Inventories
Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.
Property Plant and Equipment
Property, plant and equipment is carried at cost. Maintenance and repairs
are expensed as incurred. The costs of renewals, replacements and betterments
are capitalized. Depreciation on fixed assets is computed using the
straight-line method over the estimated useful lives for the respective
categories. The Company evaluates potential impairment of property, plant and
equipment and other long-lived assets on an ongoing basis and reduces the
carrying value whenever events or circumstances effecting the carrying amounts
indicate that amounts may not be fully recoverable. The useful lives of the
major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
LIFE
------------
<S> <C>
Machinery and equipment................................ 3 - 20 years
Buildings and other property........................... 5 - 40 years
</TABLE>
Intangible Assets and Amortization
The Company's intangible assets are comprised primarily of goodwill and
identifiable intangible assets, principally patents and technology licenses. The
Company periodically evaluates goodwill and other intangible assets, net of
accumulated amortization, for impairment based on the undiscounted cash flows
associated with the asset compared to the carrying amount of that asset.
Management believes that there have been no events or circumstances which
warrant revision to the remaining useful life or which affect the recoverability
of any intangible assets. Goodwill is being amortized on a straight-line basis
over the lesser of the estimated useful life or 40 years. Other identifiable
intangible assets, included as a component of other assets, are amortized on a
straight-line basis over the years expected to be benefited, ranging from 5 to
15 years.
Amortization expense for goodwill and other intangible assets was
approximately $4.4 million, $3.4 million, $5.8 million, $3.4 million and $1.2
million for the nine months ended September 30, 1999 and 1998, and the years
ended December 31, 1998, 1997, and 1996, respectively. Accumulated amortization
for goodwill at September 30, 1999 and December 31, 1998 and 1997 was $10.9
million, $7.1 million and $3.8 million, respectively.
Foreign Currency Translation
The functional currency for most of the Company's international operations
is the applicable local currency. Results of operations for foreign subsidiaries
with functional currencies other than the U.S. dollar are translated using
average exchange rates during the period. Assets and liabilities of these
foreign subsidiaries are translated using the exchange rates in effect at the
balance sheet date, and the resulting translation adjustments are included in
stockholder's equity. Currency transaction gains and losses are reflected in
income for the period.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts only as a hedge against
existing economic exposures, and not for speculative or trading purposes. These
contracts reduce exposure to currency
F-8
<PAGE> 75
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
movements affecting specific existing assets and liabilities denominated in
foreign currencies. The future value of these contracts and related currency
positions are subject to offsetting market risks resulting from foreign currency
exchange rate volatility. The counterparties to the Company's foreign exchange
contracts are creditworthy multinational commercial banks. Management believes
that the risk of counterparty nonperformance is immaterial. At September 30,
1999, the Company had a contract maturing on November 30, 1999 to purchase
Austrian Shillings equivalent to $24.5 million. Gains and losses on the change
in market value of the contract are recognized currently in earnings.
Accounting for Income Taxes
The accompanying financial statements have been prepared assuming Grant
Prideco was a separate entity under Statement of Financial Accounting Standards
No. 109 ("SFAS No. 109"). Accounting for Income Taxes under SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
In connection with the Distribution, Grant Prideco and Weatherford will
enter into a tax allocation agreement (the "Tax Allocation Agreement"). Under
the terms of the Tax Allocation Agreement, Grant Prideco, will be responsible
for all taxes and associated liabilities relating to the historical businesses
of Grant Prideco. The Tax Allocation Agreement will also provide that any tax
liabilities associated with the spinoff shall be assumed and paid by Grant
Prideco subject to certain exceptions relating to changes in control of
Weatherford. The Tax Allocation Agreement will further provide that in the event
there is a tax liability associated with the historical operations of the
Company that is offset by a tax benefit of Weatherford, Weatherford will apply
the tax benefit against such tax liability and will be reimbursed for the value
of such tax benefit when and as Weatherford would have been able to otherwise
utilize that tax benefit for its own businesses.
As Weatherford manages its tax position on a consolidated basis, which
takes into account the results of all of its businesses, the Company's effective
tax rate in the future could vary from its historical effective rates. Grant
Prideco's future effective tax rate will largely depend on its structure and tax
strategies as a separate, independent company.
Revenue Recognition
The Company recognizes revenue as products are shipped or accepted by the
customer.
Earnings Per Share
Earnings per share has been calculated using Grant Prideco's basic and
diluted weighted average shares outstanding for each of the periods presented.
Grant Prideco's basic weighted average shares have been calculated by adjusting
Weatherford's historical basic weighted average shares outstanding for the
applicable period to reflect the number of Grant Prideco shares that would have
been outstanding at the time assuming the distribution of one share of Grant
Prideco common stock for each two shares of Weatherford common stock. Grant
Prideco's diluted weighted average shares reflect an estimate of the potential
dilutive effect of common stock equivalents. Such estimate is calculated based
on Weatherford's dilutive effect of stock options and restricted stock divided
by two. The effect of stock options and restricted stock are not included in the
diluted computation for periods in which a loss occurs because to do so would
have been anti-dilutive.
Recent Accounting Requirements
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The SOP provides guidance with respect to
F-9
<PAGE> 76
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
accounting for the various types of costs incurred for computer software
developed or obtained for our use. We have adopted SOP 98-1. The adoption did
not have a significant effect on our combined results of operations or financial
position.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. This statement provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. We have adopted
this SOP in the first quarter of 1999. The adoption of SOP 98-5 is not expected
to have a significant effect on our combined results of operations or financial
position.
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133 , Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. SFAS No. 133
has been amended by SFAS No. 137, which delays the effective date to fiscal
years beginning after June 15, 2000. SFAS No. 133 will have no impact on our
combined financial statements.
2. INVENTORIES
Inventories by category are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1998 1997 1999
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials, components and supplies............. $126,559 $121,340 $110,587
Work in process.................................... 17,060 35,552 12,658
Finished goods..................................... 42,648 29,356 42,193
-------- -------- --------
$186,267 $186,248 $165,438
======== ======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
3. ACQUISITIONS
On August 25, 1999, the Company acquired Louisiana-based Petro-Drive, Inc.,
for 0.3 million shares of Weatherford common stock and assumed debt of
approximately $3.5 million. Petro-Drive's offerings include conductors,
connections and installation services and equipment. If any of the former
Petro-Drive shareholders sell any shares of Weatherford common stock and the
corresponding shares of Grant Prideco common stock between August 2000 and
August 2001 at a combined price of less than $36.50, the Company will be
obligated to pay cash to these persons equal to the amount of such deficit.
On July 23, 1999, the Company acquired a 50.01% interest in the
Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG ("VA") for approximately $31.5
million, of which approximately $6.9 million was paid at closing and the
remainder is to be paid over a period of up to 7 years. VA produces high quality
seamless tubulars in Austria. Our investment in Voest-Alpine is reported on the
equity method of accounting.
On July 7, 1999, the Company acquired Texas Pup, Inc., a manufacturer of
premium and API pup joints (odd-sized tubular products) and utility boring drill
pipe, for 0.1 million shares of common stock of Weatherford and assumed debt of
approximately $1.7 million.
On May 31, 1999, the Company acquired Texas Pipe Works, Inc., a
manufacturer of API couplings, for approximately $1.7 million in cash and 0.05
million shares of Weatherford common stock.
F-10
<PAGE> 77
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On May 31, 1999, the Company acquired InterOffshore Services, Pte., a
manufacturer of drilling tool accessories, for approximately $2.1 million in
cash.
In December 1998, the Company acquired from Tubos de Acero de Mexico, S.A.
("TAMSA") 93% of the outstanding shares of T.F. de Mexico that owned the
manufacturing facility in Veracruz, Mexico that the Company was operating under
a capital lease arrangement. As part of the consideration paid in the
acquisition, the Company sold the international rights, excluding Canada, to our
Atlas Bradford tubular connection line to TAMSA through a license arrangement.
This license resulted in a sale of all of the Company's rights that became
effective upon the closing of this transaction. The Company retained no
obligations with respect to the development, maintenance or improvement of the
Atlas Bradford connection line for carbon grade tubular for the international
market and TAMSA has no obligation to give any additional consideration for this
license. Any future support by Grant Prideco is provided on a fee basis. The
rights sold through this license arrangement had a fair value of $9.0 million.
As a result, in December 1998 the Company recorded $9.0 million in revenues to
recognize the sale of the international rights to the Atlas Bradford connection
line.
On February 12, 1998, the Company acquired Drill Tube International, Inc.,
a manufacturer of drill pipe and other drill stem products, for $25.0 million.
The consideration paid in the acquisition consisted of $9.0 million in cash and
a contractual purchase credit obligation to manufacture and deliver products to
the seller over a two year period. This credit had a fair value of $16.0 million
and was recorded as a liability on the balance sheet as of the date of the
acquisition. As products are delivered under this commitment the liability is
reduced. As of September 30, 1999 and December 31, 1998, the purchase credit
balance was $1.0 and $8.0 million, respectively, and is reflected in the
accompanying Combined Balance Sheet as "Purchase Credit."
On August 25, 1997, the Company acquired XLS Holding, Inc. ("XL"), a
provider of premium connections for conductors, risers and other offshore
structure components. The acquisition was accounted for as a pooling of
interests and the consideration paid consisted of approximately 0.9 million
shares of Weatherford common stock. The accompanying financial statements
include the results of XL for all periods presented.
The separate results of Grant Prideco, XL and the combined company were as
follows:
<TABLE>
<CAPTION>
JANUARY 1 TO YEAR ENDED
AUGUST 25, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Grant Prideco............................................ $376,030 $337,312
XL....................................................... 18,306 30,024
-------- --------
Combined................................................. $394,336 $367,336
======== ========
Net Income (Loss):
Grant Prideco............................................ $ 40,924 $ 20,936
XL....................................................... (5,514) 2,652
-------- --------
Combined................................................. $ 35,410 $ 23,588
======== ========
</TABLE>
On July 23, 1997, the Company acquired Rotary Drilling Tools ("RDT"), a
manufacturer of drill collars and accessories, for $3.3 million in cash.
On July 18, 1997, the Company acquired Coastal Tubular Inc. ("Coastal"), a
manufacturer of API threads and thread connections, for approximately $3.3
million in cash.
On April 14, 1997, the Company acquired TA Industries, Inc. ("TA") for
approximately $44.1 million in cash and $19.7 million of assumed debt. TA
designs, manufactures and markets premium and API couplings and accessories
under the brand names Texas Arai and Tube-Alloy.
F-11
<PAGE> 78
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On September 4, 1996, the Company acquired Superior Tube Limited
("Superior"), an Alberta, Canada-based manufacturer, for total cash
consideration of approximately $16.0 million.
On August 5, 1996, the Company acquired Tubular Corporation of America,
Inc. ("TCA"), a premium casing manufacturer, for approximately 1.0 million
shares of Weatherford common stock, $14.4 million in cash, a $0.7 million note
due January 1997 and assumed debt of approximately $15.0 million.
On May 3, 1996, the Company acquired ENERPRO International, Inc.
("ENERPRO"), a manufacturer of premium threads and thread connections, for 0.6
million shares of Weatherford common stock and the assumption of approximately
$3.1 million in indebtedness.
The acquisitions discussed above, with the exception of XL, were accounted
for using the purchase method of accounting. The results of operations of all
acquisitions, excluding XL, are included in the Combined Statements of
Operations from their respective dates of acquisition. The 1999, 1998 and 1997
acquisitions are not material to the Company individually or in the aggregate
for each applicable year.
4. SHORT-TERM BORROWINGS
In December 1998, the Company acquired 93% of the stock of the company that
owned the Veracruz, Mexico facility. As part of the consideration for the
acquisition the Company issued a note payable of $48.5 million due in March of
1999 with an effective interest rate of 7.0%. This note was subsequently paid in
March 1999.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Long-term loan, interest at prime less .025%, due March
2001........................................................ $ 6,750 $ 9,750
Capital lease obligations under various agreements.......... 5,114 21,617
Other....................................................... 1,832 2,657
------- -------
13,696 34,024
Less: amounts due in one year............................... 4,431 6,637
------- -------
$ 9,265 $27,387
======= =======
</TABLE>
The following is a summary of scheduled long-term debt maturities by year
(in thousands):
<TABLE>
<S> <C>
1999....................................................... $ 4,431
2000....................................................... 4,264
2001....................................................... 1,726
2002....................................................... 934
2003....................................................... 837
Thereafter................................................. 1,504
-------
$13,696
=======
</TABLE>
In connection with the July 1999 acquisition of a 50.01% interest in VA,
the Company incurred debt in the amount of $24.6 million (the "VA Debt"). The VA
debt bears interest at a rate equal to the six month EURIBOR rate. Principal of
$9.2 million is payable over three years in six equal installments beginning in
January 2000 and in each July and January thereafter until July 2002. The
remaining principal balance of $15.4 million shall be paid over a 7.5 year
period out of the annual dividend payable to the Company as a shareholder in VA.
If the total principal balance has not been repaid by the fifth anniversary of
the closing date of the acquisition, the remaining unpaid principal shall be
paid in five equal semi-annual installments beginning on December 1, 2004.
Interest on the VA Debt is payable every six months beginning January 2000. The
interest rate as of September 30, 1999 was 3.12% per annum.
F-12
<PAGE> 79
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is expected to have a capital structure different from the
capital structure in the combined financial statements and accordingly, interest
expense is not necessarily indicative of the interest expense that the Company
would have incurred as a separate, independent company or will incur in future
periods.
Capital Lease
In 1997, the Company effected a major expansion of its Veracruz, Mexico
tool joint manufacturing facility. As a result of this expansion, the Company
recorded a capital lease obligation of approximately $16.3 million. In December
1998, this Veracruz facility was purchased through the acquisition of 93% of the
outstanding shares of the company that owned the Veracruz, Mexico facility which
extinguished the capital lease.
6. SUBORDINATED NOTE TO WEATHERFORD
In connection with the Distribution, the Company will issue an unsecured
subordinated note in the amount of $100.0 million. The Weatherford note will
bear interest at an annual rate of 10%. Interest payments will be due quarterly,
and principal and all unpaid interest will be due no later than December 31,
2001. If the Company completes a debt or equity financing (whether public or
private, but excluding working capital borrowings under the credit facility and
any equity issued in connection with a business combination) while the
Weatherford note is outstanding, the Company will be required to use a portion
of the net proceeds of that financing to repay any amount outstanding under the
Weatherford note as of the time the Company completes that financing. The
Weatherford note will be subordinated to the credit facility. The Company
expects to refinance the Weatherford note as soon as practicable when market
conditions permit.
Weatherford interest expense shown in the combined financial statements
reflects the interest expense associated with the $100.0 million indebtedness
for each period presented based on Weatherford's average long-term debt rates
for the applicable periods. As of December 31, 1998, the effective interest rate
was 7.25%. It is not practical to estimate the fair market value of the
subordinated note payable to Weatherford as borrowing rates available to the
Company have not been determined.
7. STOCKHOLDER'S EQUITY
Changes in stockholder's equity represent net income and comprehensive net
income of the Company plus net transfers between the Company and Weatherford.
8. OTHER CHARGES
The Company adopted a plan to close its Bastrop, Texas, tool joint
manufacturing facility in the fourth quarter of 1996. In connection with this
decision, the Company incurred a charge of $4.3 million associated with the
facility closing and relocation of equipment from this facility. Of the $4.3
million, the Company expensed as incurred $2.8 million in the fourth quarter of
1996 for costs associated with these activities, including the costs relating to
the relocation of equipment at its Bastrop facility to other facilities. The
remaining $1.5 million was accrued as part of the $4.3 million charge for exit
costs that were incurred by June 1997 which related to the closure of the
facility. Such costs include $0.9 million for the exit costs associated with the
disposition of the facility and $0.6 million for severance and related costs. In
connection with this facility closure, approximately 200 employees were
terminated, of which approximately 105 were terminated in 1996 and the remaining
in the first half of 1997. Severance and related costs incurred were $0.2
million and $0.6 million in 1996 and the first half of 1997, respectively. The
closure of the Bastrop facility was completed by June 1997 and all accrued exit
costs had been expended. No adjustments to the initial estimates were required.
F-13
<PAGE> 80
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1998, the Company's drill stem segment incurred $35.0 million in charges
relating to the reorganization and rationalization of Grant Prideco's businesses
in light of declining industry conditions and the merger between EVI, Inc.
("EVI") and Weatherford Enterra, Inc. ("WII"). Of these charges, $7.0 million
was incurred in the second quarter of 1998 in accordance with our formalized
plan, and reflected costs associated with the merger between EVI and WII and the
effects of the beginning of a downturn in the industry. Following a further
deterioration in the markets in which the Company serves, an additional $28.0
million charge was incurred in the fourth quarter of 1998. These charges
reflected additional reductions in operations and an attempt to align the cost
structure of the Company with its then current demand. All such costs had been
fully expended as of December 31, 1998, accordingly no accruals remained on the
Combined Balance Sheet as of December 31, 1998. No adjustments to the initial
estimates were required. The net after-tax effect of these charges was $22.8
million.
<TABLE>
<CAPTION>
SECOND FOURTH
QUARTER QUARTER REMAINING
1998 1998 UTILIZED BALANCES AT
CHARGE CHARGE IN 1998 DECEMBER 31, 1998
------- ------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Facility Closures and Exit Costs(1)...... $4,250 $ 850 $ 5,100 $ --
Severance and Related Costs(2)........... 200 -- 200 --
Inventory Write-off(3)................... 2,500 26,000 28,500 --
Asset Write-down(4)...................... -- 1,150 1,150 --
------ ------- ------- -------
Total.......................... $6,950 $28,000 $34,950 $ --
====== ======= ======= =======
</TABLE>
- ---------------
(1) The facility and exit costs were $5.1 million, all of which have been
expended by December 31, 1998. The $4.3 million of costs accrued in the
second quarter related primarily to the elimination of duplicative
manufacturing facilities as a result of the reorganization and
rationalization of the Company's businesses following the merger of EVI and
WII and the downturn in the industry. In the fourth quarter an additional
$0.8 million was accrued to further align our costs in response to the
significant decline in market conditions. The costs related primarily to the
(i) closure of the Channelview, Texas facility, (ii) the closure of the
sales location in the U.K. and a Houston, Texas administrative location and
(iii) exit costs for certain operations at the Edmonton, Canada, Pearland,
Texas and Bryan, Texas facilities. The Pearland, Texas facility was a
location of WII prior to the merger. The Bryan, Texas, the Channelview,
Texas and the Edmonton, Canada manufacturing facilities, the U.K. sales
location and a Houston, Texas administrative location were EVI locations
prior to the merger.
(2) The severance and related costs included in the Company's second quarter
charge were $0.2 million for approximately 60 employees specifically
identified, with terminations completed in the second half of 1998.
(3) The inventory write-off of $28.5 million was reported as cost of sales. The
second quarter inventory write-off of $2.5 million resulted from the
elimination of certain products at the time of the merger between EVI and
WII and due to the declining industry conditions. The fourth quarter
inventory write-off of $26.0 million related to the significant decline in
market conditions.
(4) The write-down of assets was $1.2 million in the fourth quarter of 1998. The
charge relates to the write-down of equipment as a result of the
rationalization of product lines and the specific identification of assets
held for sale. The identified equipment had a net book value of $0.6 million
as of December 31, 1998. The effect of suspending depreciation is $0.2
million annually. The equipment was originally projected to be sold in 1999,
but because of market conditions the Company has not been able to dispose of
the equipment to date. The Company currently expects to dispose of these
assets in 2000.
F-14
<PAGE> 81
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Cash paid for interest and income taxes (net of refunds) was as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1998 1997 1996 1999 1998
------ ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid......................... $4,768 $5,349 $1,154 $3,543 $3,608
Income taxes paid, net of refunds..... 1,779 474 86 330 85
</TABLE>
For the year ended December 31, 1997, there were noncash investing
activities of $28.3 million relating to capital leases (See Note 5).
The following summarizes investing activities relating to acquisitions (in
thousands):
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1998 1997 1996 1999 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fair value of assets, net of cash
acquired............................... $12,133 $63,213 $85,103 $ 41,596 $ 16,737
Goodwill............................... 58,644 56,198 32,923 25,958 22,113
Total liabilities...................... (53,377) (68,564) (55,413) (39,203) (23,000)
Weatherford common stock issued........ -- -- (24,494) (17,648) --
------- ------- ------- -------- --------
Cash consideration, net of cash
acquired............................. $17,400 $50,847 $38,119 $ 10,703 $ 15,850
======= ======= ======= ======== ========
</TABLE>
10. STOCK-BASED COMPENSATION
Stock Option Plans
Various employees of the Company were granted stock options under
Weatherford's 1998 Employee Stock Option Plan (the "1998 Plan"). The total
number of options granted to the Grant Prideco employees under the 1998 Plan was
787,000 at December 31, 1998. Under the terms of the 1998 Plan, the options
granted to the Grant Prideco employees are to be converted into options to
solely acquire Grant Prideco's common stock (the "Grant Prideco Common Stock").
As a result, the Company has adopted the Grant Prideco Employee Stock Option
Plan under which options would be granted to the employees of Grant Prideco in
substitution of the Weatherford options granted under the 1998 Plan. Under the
terms of the 1998 Plan, the options to be granted to the Grant Prideco employees
will be determined based on the relative market price of Grant Prideco Common
Stock to the stock of Weatherford prior to the Distribution. The exercise price
for the options to be granted to the Grant Prideco employees will be the
historical option price multiplied by a percentage equal to the percentage that
the value of the Grant Prideco Common Stock represents to the value of the
Weatherford stock prior to the spinoff. The number of shares that will be
subject to the options will also be adjusted so that each option holder will be
entitled to purchase a number of shares of Grant Prideco Common Stock having the
same aggregate exercise price of the prior 1998 Plan options held by the option
holder.
Employees, as well as the directors of Weatherford, also hold various
options to purchase shares of Weatherford that were granted prior to September
1998. It is anticipated that these options will be divided into options to
purchase Weatherford common stock and Grant Prideco Common Stock, with the
exercise
F-15
<PAGE> 82
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
price allocated between the Weatherford common stock and the Grant Prideco
Common Stock based on the relative market value of the shares following the
spinoff. All other terms will remain the same. In connection with the
Distribution, the Company will agree to issue to the holders of those options
the number of shares of Grant Prideco Common Stock issuable upon the exercise of
those options. Similarly, Weatherford will agree to issue to the employees of
Grant Prideco who hold options to purchase Weatherford common stock the number
of shares of Weatherford common stock subject to the options held by those
employees. At December 31, 1998, there were 1,415,854 options granted under
these various plans. The Company cannot currently determine the number of shares
its common stock that will be subject to substitute awards after the
Distribution.
Executive Deferred Compensation Plan
Weatherford and the Company each have maintained an Executive Deferred
Compensation Stock Ownership Plan ("EDC Plan"). Prior to the Distribution,
participants in the EDC Plan had a right to receive shares of Weatherford common
stock upon their termination of their employment based on the deferred amounts
placed in an account for them. Under the EDC Plan, in the event of a dividend or
special distribution to the shareholders of Weatherford, the accounts of the
employees are to represent a right to receive the consideration provided through
the spinoff or dividend. As a result, upon the spinoff, participants in the EDC
Plan will be entitled to receive shares of both Weatherford common stock and
Grant Prideco Common Stock in respect of amounts deferred by the participants
prior to the Distribution. Participants will only be entitled to receive shares
in respect of amounts deferred subsequent to the Distribution of Weatherford or
the Company, depending upon which company they are employed with.
In order to satisfy the obligations of Weatherford and Grant Prideco under
the EDC Plan, Weatherford and Grant Prideco have established a Grantor Trust to
fund the benefits under the EDC Plan. The funds provided to the trust are
invested by a trustee independent of Weatherford and Grant Prideco primarily in
shares of common stock of Weatherford, which is purchased by the trustee in the
open market. The trustee of the EDC Plan will agree to waive the trust's receipt
of any shares of Grant Prideco common stock to be issued to the trust in respect
of the shares of Weatherford common stock held by the trust in consideration of
the Company's agreement to issue directly to the participants in the EDC Plan
any shares of Grand Prideco common stock that may be required to be issued to
them upon distribution of amounts under the plan. Shares of stock held by the
trustee as part of the Trust to satisfy the obligations of Weatherford and Grant
Prideco to the employees of Weatherford and Grant Prideco. A separate trust will
be established by Grant Prideco following the Distribution in which only shares
of the Company will be purchased for satisfaction of future obligations under a
new Executive Deferred Compensation Stock Ownership Plan to be adopted by Grant
Prideco. The assets of these trusts are available to satisfy the claims of all
general creditors of Weatherford and Grant Prideco in the event of a bankruptcy
or insolvency. As such, the liability of Grant Prideco employees participating
in the Weatherford EDC Plan has been recorded in the accompanying Combined
Balance Sheets as a long-term liability.
11. RETIREMENT AND EMPLOYEE BENEFIT PLANS
Weatherford has defined contribution plans covering certain of the
Company's employees. The Company's expenses related to these plans totaled $0.6
million, $0.8 million and $0.3 million in 1998, 1997 and 1996, respectively.
Grant Prideco plans to adopt similar plans.
F-16
<PAGE> 83
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
The domestic and foreign components of earnings before income taxes consist
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $ 93,767 $ 66,021 $32,986
Foreign............................................... 11,801 36,043 4,952
-------- -------- -------
Total earnings before income taxes.......... $105,568 $102,064 $37,938
======== ======== =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. federal and state income taxes................... $37,249 $22,638 $ 5,577
Foreign............................................... 7,112 2,968 (1,740)
------- ------- -------
44,361 25,606 3,837
------- ------- -------
Deferred
U.S. federal.......................................... (1,170) 4,105 6,341
Foreign............................................... (3,343) 10,839 4,172
------- ------- -------
(4,513) 14,944 10,513
------- ------- -------
Total income tax provision.................... $39,848 $40,550 $14,350
======= ======= =======
</TABLE>
The following is a reconciliation of income taxes at the U.S. Federal
income tax rate of 35% to the effective provision for income taxes reflected in
the Combined Statements of Operations:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rates........... $36,949 $35,721 $13,278
Effect of foreign income tax, net....................... (361) 1,191 698
Foreign Sales Corporation benefit....................... (308) (308) (236)
Non-deductible expense.................................. 1,014 3,099 459
State and local income taxes net of U.S. Federal income
tax benefit........................................... 2,554 847 151
------- ------- -------
Provision for income taxes.............................. $39,848 $40,550 $14,350
======= ======= =======
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions which the Company has
operations.
F-17
<PAGE> 84
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities are classified as current or noncurrent
according to the classification of the related asset or liability for financial
reporting. The components of the net deferred tax asset (liability) were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Domestic and foreign operating losses..................... $ 1,204 $ 4,276
Accrued liabilities and reserves.......................... 9,537 3,207
Inventory basis differences............................... 754 (5,720)
-------- --------
Total deferred tax asset.......................... 11,495 1,763
-------- --------
Deferred tax liabilities:
Property & equipment...................................... (31,403) (32,170)
Goodwill.................................................. (2,376) --
-------- --------
Total deferred tax liability...................... (33,779) (32,170)
-------- --------
Net deferred tax liability................................ $(22,284) $(30,407)
======== ========
</TABLE>
13. DISPUTES, LITIGATION AND CONTINGENCIES
Litigation and Other Disputes
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation, would not have a material adverse effect on the
Company's combined financial position or its results of operations with or
without consideration of insurance coverage.
Insurance
The Company is self-insured through participation in Weatherford's
insurance policy for employee health insurance claims and is self-insured for
workers' compensation claims for certain of its employees. The amounts in excess
of the self-insured levels are fully insured. Self-insurance accruals are based
on claims filed and an estimate for significant claims incurred but not
reported. Although the Company believes that adequate reserves have been
provided for expected liabilities arising from its self-insured obligations, it
is reasonably possible that management's estimates of these liabilities will
change over the near term as circumstances develop.
Weatherford will remain liable on certain existing contingent liabilities
relating to Grant Prideco's businesses which were not able to be released,
terminated or replaced prior to the Distribution Date. Grant Prideco will also
fully indemnify Weatherford for any payments made under the unreleased
contingent liabilities.
14. COMMITMENTS
Operating Leases
The Company is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately $3.8 million, $1.9
million and $2.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
F-18
<PAGE> 85
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental commitments under these noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
1999...................................................... $ 3,598
2000...................................................... 2,919
2001...................................................... 2,147
2002...................................................... 1,956
2003...................................................... 1,713
Thereafter................................................ 3,302
-------
$15,635
=======
</TABLE>
Other Commitments
Drill pipe and other products are manufactured for the Company by Oil
Country Tubular Limited ("OCTL") in India under a long-term exclusive
manufacturing arrangement. Although the Company has sought to minimize the risks
of this operation through a manufacturing agreement rather than owning a local
manufacturing operation, it has provided OCTL with a substantial amount of raw
materials, inventory and working capital for the products OCTL manufactures for
the Company. The Company's business in India through its relationship with OCTL
has been adversely affected by the downturn of the economies in the eastern
hemisphere and is subject to various political and economic risks as well as
financial and operational risks with respect to OCTL.
As of September 30, 1999, OCTL was indebted to the Company for
approximately $21 million for prior advances for working capital paid by the
Company. The Company has substantially curtailed purchases from OCTL in India
and expect to continue to be curtail these purchases into 2000. In this regard,
the Company is currently discussing various potential modifications to the
arrangement with OCTL in light of market conditions, political events and other
matters. Among the matters being considered and discussed is a termination of
the manufacturing arrangement as well as a possible conversion of the debt owed
to the Company by OCTL into equity of OCTL. A termination of the Company's
relationship with OCTL could result in the Company's inability to recover funds
advanced by the Company to OCTL and the loss or impairment of the Company's
inventory and equipment located in India. Such an impairment could result in a
charge of up to $20.0 million and would materially adversely effect the
Company's results for this year. At this time, the Company is unable to predict
the ultimate outcome of the Company's ongoing negotiations.
At the time of the December 1998 acquisition by the Company of 93% of
TAMSA, the Company entered into a 30 year supply contract with TAMSA. Under the
supply contract, TAMSA has been given the right to supply certain of the
Company's operations as long as the prices are on a competitive basis. This
supply agreement does not obligate the Company to make purchases from TAMSA for
any location other than Mexico and India nor restrict the Company's right to
make purchases without offering a right to purchase the materials from TAMSA to
the extent those purchases are made from affiliates of the Company such as
Voest-Alpine.
As part of the arrangement to invest in Voest-Alpine Stahlrohr Kindberg
GmbH & Co. KG, the Company entered into a four-year supply contract with
Voest-Alpine. Under this agreement, the Company agreed to purchase a minimum of
45,000 tonnes of tubulars for the first twelve months of the agreement at a
negotiated third party price that the Company believed to be attractive. The
Company also agreed to purchase 60,000 tonnes per year for the next three years
at the negotiated price.
Grant Prideco maintains consignment purchase arrangements with various
suppliers whereby suppliers' inventory is held on site at the Company's
manufacturing facilities. Under the terms of these arrangements, the Company
pays to the supplier an inventory stocking fee on the consignment inventory and
has an
F-19
<PAGE> 86
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
obligation to purchase the inventory under certain circumstances. As of
September 30, 1999, the Company had closed-ended purchase commitments maturing
within the next six months of approximately $5.0 million and open-ended purchase
commitments of approximately $25.1 million.
15. RELATED PARTY TRANSACTIONS
Sales
Weatherford purchases drill pipe and other related products from Grant
Prideco. The amounts purchased by Weatherford for the three and nine months
ended September 30, 1999 and the three and nine months ended September 30, 1998
were $15.1 million, $22.7 million, $1.5 million and $6.1 million, respectively.
Purchases for the years ended December 31, 1998, 1997 and 1996 were $9.6
million, $7.7 million and $5.7 million, respectively. Such sales represent Grant
Prideco's cost. The sales to Weatherford have been eliminated from the
accompanying combined financial statements.
Weatherford Overhead Charges
Weatherford overhead charges represent corporate overhead costs incurred by
Weatherford in providing services to the Company based on the time devoted to
Grant Prideco. These services include accounting, tax, treasury and risk
management services. Such allocation is included in the accompanying Combined
Statements of Operations as Weatherford Charges.
Weatherford Direct Services
Grant Prideco was allocated $1.4 million, $4.3 million, $1.4 million, and
$4.2 million of costs related to Weatherford's information systems function in
the three and nine months ended September 30, 1999 and three and nine months
ended September 30, 1998, respectively. For the years ended December 31, 1998,
1997 and 1996 Grant Prideco was allocated $5.6 million, $3.5 million and $1.1
million, respectively. Information systems allocation charges were allocated
based on direct support provided, equipment usage and number of system users and
are included in corporate general and administrative expense in the accompanying
Combined Statements of Operations.
Tax Allocation Agreement
The Company and Weatherford intend to enter into the Tax Allocation
Agreement in connection with the spinoff (see Note 1).
Transition Services Agreement
The Company intends to enter into a transition services agreement with
Weatherford for a period of one year from the Distribution date. Under the
agreement, Weatherford will provide certain services requested by the Company.
The fee for these services will be based on a cost-plus 10% basis. The
transition services to be provided under this agreement may include accounting,
tax, finance and legal services, employee benefit services, information
services, management information systems and may include any other similar
services.
Preferred Supplier Agreement
The Company intends to enter into a preferred supplier agreement with
Weatherford pursuant to which Weatherford will agree for at least a three-year
period to purchase at least 70% of its requirements of drill stem products from
Grant Prideco. The price for those products will be at a price not greater than
that which the Company sells to its best similarly situated customers.
Weatherford will be entitled to apply against its purchases a drill stem credit
granted to it in the amount of $15 million, subject to a limitation of the
application of the credit to no more than 20% of any purchase.
16. SUBSEQUENT EVENTS
On October 1, 1999, the Company acquired Drill Pipe Industries, Inc., a
manufacturer of drill stem products, for $2.8 million in cash.
F-20
<PAGE> 87
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Event (Unaudited) Subsequent to the Date of the Auditors' Report
On October 27, 1999 the Company acquired a 27% in H-Tech, an
Indonesia-based drill pipe manufacturer with facilities located on Batam Island
for $6.0 million in cash. The Company previously held a 27% interest in H-Tech
and with this purchase owns a controlling 54% interest in H-Tech.
The 1999 acquisitions are not material to the Company individually or in
the aggregate.
17. SEGMENT INFORMATION
Business Segments
The Company operates through two business segments: Drill Stem Products and
Premium Tubulars and Engineered Connections. The drill stem products segment
manufactures drill pipe, drill collars and heavyweight drill pipe and the
premium tubulars and engineered connections segment manufactures premium
production tubulars, liners, casing and connections for marine conductors and
subsea structures. The Company's products are used in the exploration and
production of oil and natural gas.
Financial information by industry segment is summarized below (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------- -------------------
1998 1997 1996 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS:
Drill Stem.............................. $411,191 $333,716 $275,178 $112,045 $334,621 $ 24,846 $115,404
Premium Tubulars........................ 235,614 296,305 92,158 98,942 187,290 33,141 44,792
-------- -------- -------- -------- -------- -------- --------
$646,805 $630,021 $367,336 $210,987 $521,911 $ 57,987 $160,196
======== ======== ======== ======== ======== ======== ========
EBITDA, BEFORE OTHER CHARGES(a):
Drill Stem(b)(c)........................ $148,558 $105,604 $ 48,629 $ 16,743 $125,604 $ (1,668) $ 39,014
Premium Tubulars........................ 44,716 48,938 17,574 3,098 33,523 1,403 7,354
Corporate............................... (14,274) (12,055) (7,363) (10,858) (10,946) (3,901) (3,311)
-------- -------- -------- -------- -------- -------- --------
$179,000 $142,487 $ 58,840 $ 8,983 $148,181 $ (4,166) $ 43,057
======== ======== ======== ======== ======== ======== ========
OTHER NONRECURRING CHARGES:
Drill Stem.............................. $ 34,950 $ -- $ -- $ -- $ 6,950 $ -- $ --
======== ======== ======== ======== ======== ======== ========
DEPRECIATION AND AMORTIZATION:
Drill Stem.............................. $ 16,771 $ 13,685 $ 8,260 $ 10,733 $ 11,770 $ 3,804 $ 3,816
Premium Tubulars........................ 13,309 12,518 4,108 10,608 9,938 3,598 3,237
Corporate............................... 1,093 848 150 821 821 273 272
-------- -------- -------- -------- -------- -------- --------
$ 31,173 $ 27,051 $ 12,518 $ 22,162 $ 22,529 $ 7,675 $ 7,325
======== ======== ======== ======== ======== ======== ========
OPERATING INCOME (LOSS):
Drill Stem(b)(c)........................ $ 96,837 $ 91,919 $ 40,369 $ 6,010 $106,884 $ (5,472) $ 35,198
Premium Tubulars........................ 31,407 36,420 13,466 (7,510) 23,585 (2,195) 4,117
Corporate............................... (15,367) (12,903) (7,513) (11,679) (11,767) (4,174) (3,583)
-------- -------- -------- -------- -------- -------- --------
$112,877 $115,436 $ 46,322 $(13,179) $118,702 $(11,841) $ 35,732
======== ======== ======== ======== ======== ======== ========
CAPITAL EXPENDITURES FOR PROPERTY, PLANT
AND EQUIPMENT:
Drill Stem.............................. $ 16,670 $ 19,956 $ 12,394 $ 8,682 $ 10,027 $ 6,056 $ 2,617
Premium Tubulars........................ 20,698 14,468 3,899 6,012 16,250 822 7,268
Corporate............................... 734 389 536 101 78 34 64
-------- -------- -------- -------- -------- -------- --------
$ 38,102 $ 34,813 $ 16,829 $ 14,795 $ 26,355 $ 6,912 $ 9,949
======== ======== ======== ======== ======== ======== ========
</TABLE>
F-21
<PAGE> 88
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------- -------------------
1998 1997 1996 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NON-CASH PORTION OF OTHER NONRECURRING
CHARGES:
Drill Stem.............................. $ 30,500 $ -- $ -- $ -- $ 3,350 $ -- $ --
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------
1998 1997 1996 1999
-------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS(d)
Drill Stem........................... $454,285 $374,923 $255,742 $410,548
Premium Tubulars..................... 283,130 286,418 139,929 295,286
Corporate............................ 899 1,257 1,022 2,633
-------- -------- -------- --------
$738,314 $662,598 $396,693 $708,467
======== ======== ======== ========
</TABLE>
- ---------------
(a) The Company evaluates performance and allocates resources based on EBITDA,
which is calculated as operating income (loss) adding back depreciation and
amortization, excluding the impact of other charges. Calculations of EBITDA
should not be viewed as a substitute to calculations under GAAP, in
particular operating income and net income. In addition, EBITDA
calculations by one company may not be comparable to another company.
(b) Includes inventory write-downs of $2.5 million for the nine months ended
September 30, 1998 and $28.5 million for the year ended December 31, 1998,
which have been classified as cost of sales in the accompanying Combined
Statements of Operations.
(c) During 1996, the Company incurred a charge of $4.3 million associated with
plant closures of a tool joint facility within the drill stem products
segment. EBITDA and operating income for 1996 for this segment include
accruals included within the $4.3 million charge of $1.5 million for this
plant closure.
(d) Certain assets that are not directly attributable to a segment have been
allocated to the segments primarily based upon revenues generated.
Foreign Operations and Export Sales
Financial information by geographic segment for each of the three years
ended December 31, 1998 is summarized below. Revenues are attributable to
countries based on the location of the entity selling products. Long-lived
assets are long term assets excluding deferred tax assets.
<TABLE>
<CAPTION>
UNITED LATIN
STATES CANADA AMERICA OTHER TOTAL
-------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1998
Revenues................................. $552,726 $31,925 $ 9,327 $52,827 $646,805
Long-lived assets........................ 276,374 18,399 76,559 16,686 388,018
1997
Revenues................................. $509,451 $45,080 $15,716 $59,774 $630,021
Long-lived assets........................ 228,754 19,713 44,399 18,487 311,353
1996
Revenues................................. $313,889 $10,261 $ 9,138 $34,048 $367,336
Long-lived assets........................ 149,316 19,195 6,923 10,582 186,016
</TABLE>
F-22
<PAGE> 89
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Major Customers and Credit Risk
Substantially all of the Company's customers are engaged in the exploration
and development of oil and gas reserves. The Company's drill pipe and related
products are sold primarily to rig contractors, operators and rental companies.
The Company's premium tubulars and connections are sold primarily to operators
and distributors. This concentration of customers may impact the Company's
overall exposure to credit risk, either positively or negatively, in that
customers may be similarly affected by changes in economic and industry
conditions. The Company performs ongoing credit evaluations of its customers and
does not generally require collateral in support of its trade receivables. The
Company maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letter of credit or similar
arrangements.
In 1998, 1997 and 1996, there was no individual customer who accounted for
10% of combined revenues.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for
1998 and 1997.
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1998
Revenues..................... $189,713 $172,002 $160,196 $124,894 $646,805
Gross Profit................. 55,487 54,264(a) 47,972 9,048(a) 166,771
Selling, General and
Administrative(b)......... 11,292 11,039 12,240 12,873 47,444
Nonrecurring Charges......... -- 4,450(a) -- 2,000(a) 6,450
Operating Income (Loss)...... 44,195 38,775(a) 35,732 (5,825)(a) 112,877
Net Income (Loss)............ 25,496 23,832(a) 20,515 (4,123)(a) 65,720
Earnings (Loss) Per Share(c)
Basic..................... 0.53 0.49 0.42 (0.08) 1.35
Diluted................... 0.52 0.49 0.42 (0.08) 1.34
1997
Revenues..................... $126,532 $159,856 $168,091 $175,542 $630,021
Gross Profit................. 30,085 31,865 45,291 51,001 158,242
Selling, General and
Administrative(b)......... 7,785 11,137 10,945 12,939 42,806
Operating Income............. 22,300 20,728 34,346 38,062 115,436
Net Income................... 11,505 10,101 18,128 21,780 61,514
Earnings Per Share(c)
Basic..................... 0.24 0.21 0.38 0.45 1.28
Diluted................... 0.24 0.21 0.37 0.44 1.26
</TABLE>
- ---------------
(a) The Company incurred $7.0 million and $28.0 million of pre-tax nonrecurring
charges in the second and fourth quarters of 1998, respectively. The effect
of these charges, net of tax, in the second and fourth quarters was $4.5
million and $18.3 million, respectively. Of these charges, $2.5 million and
$26.0 million related to the write-off of inventory in the second and
fourth quarters, respectively, and have been classified as cost of sales in
the accompanying Combined Statements of Operations.
F-23
<PAGE> 90
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Includes Weatherford overhead charges of $240,000 and $230,000 per quarter
for the years ended December 31, 1998 and 1997, respectively.
(c) Earnings per share has been calculated using Grant Prideco's basic and
diluted weighted average shares outstanding for each of the periods
presented. Grant Prideco's basic weighted average shares have been
calculated by adjusting Weatherford's historical basic weighted average
shares outstanding for the applicable period to reflect the number of Grant
Prideco shares that would have been outstanding at the time assuming the
distribution of one share of Grant Prideco common stock for each two shares
of Weatherford common stock. Grant Prideco's diluted weighted average
shares reflect an estimate of the potential dilutive effect of common stock
equivalents. Such estimate is calculated based on Weatherford's dilutive
effect of stock options and restricted stock divided by two. The effect of
stock options and restricted stock are not included in the diluted weighted
average shares computation for periods in which a loss occurs because to do
so would have been anti-dilutive.
F-24
<PAGE> 91
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
GRANT PRIDECO, INC.
By: /s/ FRANCES R. POWELL
----------------------------------
Frances R. Powell
Vice President and Chief Financial
Officer
Date: December 7, 1999
<PAGE> 92
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 -- Form of Distribution Agreement, dated as of ,
1999, between Weatherford and Grant
*3.1 -- Form of Restated Certificate of Incorporation of Grant
3.2 -- Form of Restated Bylaws of Grant
*4.1 -- Form of Subordinated Promissory Note to Weatherford
10.1 -- Form of Distribution Agreement, dated as of ,
1999, between Weatherford and Grant (filed as Exhibit
2.1)
10.2 -- Form of Tax Allocation Agreement, dated as of ,
1999, between Weatherford and Grant
*10.3 -- Form of Transition Services Agreement, dated as of
, 1999, between Weatherford and Grant
*10.4 -- Form of Preferred Supplier Agreement, dated as of
, 1999, between Weatherford and Grant
*10.5 -- Form of Grant Prideco, Inc. 1999 Employee Stock Option
and Restricted Stock Plan
*10.6 -- Form of Grant Prideco, Inc. 1999 Non-Employee Director
Stock Option Plan
*10.7 -- Form of Grant Prideco, Inc. Individual Stock Option
Agreement
10.8 -- Form of Grant Prideco, Inc. Foreign Executive Deferred
Compensation Plan
10.9 -- Form of Grant Prideco, Inc. Executive Deferred
Compensation Plan
10.10 -- Form of Grant Prideco, Inc. Deferred Compensation Plan
for Non-Employee Directors
10.11 -- Form of Grant Prideco, Inc. 401(k) Savings Plan
*21.1 -- List of Subsidiaries of Grant (giving effect to the
Spinoff)
27.1 -- Financial Data Schedule
27.2 -- Financial Data Schedule
27.3 -- Financial Data Schedule
27.4 -- Financial Data Schedule
</TABLE>
- ---------------
* previously filed
<PAGE> 1
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
BY AND BETWEEN
WEATHERFORD INTERNATIONAL, INC.
AND
GRANT PRIDECO, INC.
__________________, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1................................................................... 1
CERTAIN DEFINITIONS...................................................... 1
1.1 "Additional Shares".............................................. 1
1.2 "Affiliate"...................................................... 1
1.3 "Agreement"...................................................... 1
1.4 "Assets"......................................................... 1
1.5 "Amended Bylaws"................................................. 2
1.6 "Business Day"................................................... 2
1.7 "CERCLA"......................................................... 2
1.8 "Circumstance"................................................... 2
1.9 "Code"........................................................... 2
1.10 "Consent Required Contract"...................................... 2
1.11 "Contributed Indebtedness"....................................... 2
1.12 "Contribution"................................................... 2
1.13 "Distribution"................................................... 2
1.14 "Distribution Date".............................................. 2
1.15 "Environmental Conditions"....................................... 2
1.16 "Environmental Law" or "Environmental Laws"...................... 2
1.17 "Environmental Liabilities"...................................... 2
1.18 "Grant".......................................................... 3
1.19 "Grant Common Stock"............................................. 3
1.20 "Grant Company".................................................. 3
1.21 "Grant Employee"................................................. 3
1.22 "Grant Employee Benefit Plans"................................... 3
1.23 "Grant 401(k) Plan".............................................. 3
1.24 "Grant Liabilities".............................................. 3
1.25 "Grant Option"................................................... 4
1.26 "Grant Taxes".................................................... 4
1.27 "Liability"...................................................... 4
1.28 "1998 Director Options and Warrants"............................. 4
1.29 "1998 Weatherford Employee Option Plan".......................... 4
1.30 "Note"........................................................... 4
1.31 "NYSE"........................................................... 5
1.32 "Old Weatherford Director Plans"................................. 5
1.33 "Old Weatherford Employee Option Plans".......................... 5
1.34 "Person"......................................................... 5
1.35 "Preferred Supplier Agreement"................................... 5
1.36 "Properties"..................................................... 5
1.37 "Record Date".................................................... 5
1.38 "Restated Certificate of Incorporation".......................... 5
1.39 "SEC"............................................................ 5
1.40 "Service of Process"............................................. 5
1.41 "Tax Allocation Agreement"....................................... 5
1.42 "Taxes".......................................................... 5
1.43 "Transfer Agent"................................................. 5
1.44 "Transfers"...................................................... 5
1.45 "Transition Services Agreement".................................. 5
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
1.46 "Trust".......................................................... 5
1.47 "Waste Materials"................................................ 6
1.48 "Weatherford".................................................... 6
1.49 "Weatherford Common Stock"....................................... 6
1.50 "Weatherford Employee"........................................... 6
1.51 "Weatherford 401(k) Plan"........................................ 6
1.52 "Weatherford Indemnified Parties"................................ 6
1.53 "Weatherford Option"............................................. 6
ARTICLE 2................................................................... 6
CONTRIBUTION............................................................. 6
2.1 Contribution..................................................... 6
2.2 Grant Liabilities................................................ 6
2.3 Consideration.................................................... 7
2.4 Limitation of Assignments........................................ 7
2.5 Delivery of Records.............................................. 7
2.6 Guarantees and Financial Assurances.............................. 7
2.7 Grant Acknowledgments............................................ 7
ARTICLE 3................................................................... 7
RECAPITALIZATION OF GRANT; MECHANICS OF DISTRIBUTION..................... 7
3.1 Grant Capitalization............................................. 7
3.2 Recapitalization of Grant........................................ 7
3.3 Mechanics of Distribution........................................ 8
3.4 Timing of Distribution........................................... 8
ARTICLE 4................................................................... 8
EMPLOYEE BENEFIT PLANS................................................... 8
4.1 Employee Benefits are Grant Liabilities.......................... 8
4.2 401(k) Plans..................................................... 8
4.3 Employee Health, Life and Disability Insurance Plans............. 8
4.4 Credited Employment.............................................. 9
4.5 No Termination of Employment for Benefit Entitlement Purposes.... 9
ARTICLE 5................................................................... 9
STOCK PLANS.............................................................. 9
ARTICLE 6................................................................... 12
INDEMNIFICATION.......................................................... 12
6.1 Indemnification Matters.......................................... 12
6.2 Notice of Circumstance........................................... 14
6.3 Payment.......................................................... 14
6.4 Insurance........................................................ 14
6.5 Scope of Indemnification......................................... 14
6.6 Indemnity for Certain Environmental Liabilities.................. 14
ARTICLE 7................................................................... 15
CONDITIONS TO OBLIGATIONS OF WEATHERFORD................................. 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 8................................................................... 16
MISCELLANEOUS............................................................ 16
8.1 Grant Covenants.................................................. 16
8.2 Governing Law.................................................... 16
8.3 Arbitration...................................................... 16
8.4 Notices.......................................................... 17
8.5 Expenses......................................................... 17
8.6 Entire Agreement................................................. 17
8.7 Waiver........................................................... 18
8.8 Binding Effect; Assignment; No Third Party Benefit............... 18
8.9 Counterparts..................................................... 18
8.10 References....................................................... 18
8.11 Terminology...................................................... 18
8.12 Severability..................................................... 18
8.13 Further Assurances............................................... 18
</TABLE>
LIST OF ANNEXES
Annex A - Excluded Assets
Annex B - Amended Bylaws of Grant
Annex C - Note
Annex D - Preferred Supplier Agreement
Annex E - Restated Certificate of Incorporation of Grant
Annex F - Tax Allocation Agreement
Annex G - Transfers
Annex H - Transition Services Agreement
Annex I - Grant Employee Stock Plan
Annex J - Grant Director Plan
iii
<PAGE> 5
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement") is dated as of
__________, 1999, by and among WEATHERFORD INTERNATIONAL, INC., a Delaware
corporation ("Weatherford"), and GRANT PRIDECO, INC. ("Grant"), a Delaware
corporation.
W I T N E S S E T H:
WHEREAS, Grant is a wholly owned subsidiary of Weatherford;
WHEREAS, pursuant to this Agreement Weatherford and Grant will cause
the Transfers to be made or occur, Grant will execute the Note, Weatherford will
contribute the Contributed Indebtedness to Grant and Grant will issue the
Additional Shares to Weatherford (the transactions described in this paragraph
are referred to collectively herein as the "Contribution");
WHEREAS, after the Contribution, Weatherford will distribute to its
stockholders all of the outstanding stock of Grant as further described in
Article 3 hereof; and
WHEREAS, for federal income tax purposes, it is intended that the
Contribution and Distribution will qualify as transactions pursuant to Sections
368(a)(1)(D) and 355 and related sections of the Code;
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and conditions herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms have the following
respective meanings:
1.1 "Additional Shares" shall mean that number of shares of Grant
Common Stock as shall be equal to one-half of the number of shares of
Weatherford Common Stock outstanding on the Record Date, less the number of
shares of Grant Common Stock owned by Weatherford on the Record Date.
1.2 "Affiliate" shall mean, with respect to Weatherford or Grant
Prideco, any Person, that directly or indirectly, is in control of, is
controlled by, controls or is under common control of Weatherford or Grant
Prideco, as the case may be. For purposes of this definition, control shall
include the ownership of 50% or more of the legal or beneficial interest in any
Person or the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise. A Person who is an Affiliate shall only be considered an
Affiliate for so long as that Person meets the definition of an Affiliate. An
officer, director, general partner, managing member or trustee of a Person or
Affiliate of such Person shall not be considered to be an Affiliate unless such
Person is under the direct or indirect control or common control of Weatherford
or Grant Prideco, as the case may be.
1.3 "Agreement" shall have the meaning specified in the preamble.
1.4 "Assets" shall mean, collectively, all the property, assets and
rights, tangible and intangible, owned or operated by the Grant Companies on,
before or after the Distribution Date, excluding those listed on Annex A
attached hereto.
<PAGE> 6
1.5 "Amended Bylaws" shall mean the Amended Bylaws of Grant, in
substantially the form of Annex B hereto.
1.6 "Business Day" shall mean a day on which national banks are
generally open for the transaction of business in Houston, Texas.
1.7 "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq.
1.8 "Circumstance" shall have the meaning specified in Section 6.2
hereof.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.10 "Consent Required Contract" shall have the meaning specified in
Section 2.4 hereof.
1.11 "Contributed Indebtedness" shall mean all indebtedness in excess
of the sum of (i) the amount of the Note owed by Grant to Weatherford
immediately prior to the Contribution and (ii) the Drill Stem Credits (as
defined in the Preferred Supplier Agreement).
1.12 "Contribution" shall have the meaning specified in the second
"WHEREAS" clause hereof.
1.13 "Distribution" shall mean the distribution by Weatherford to its
stockholders (other than the Trust) of all of the outstanding shares of Grant.
1.14 "Distribution Date" shall mean the time and date as of which the
Distribution is effective.
1.15 "Environmental Conditions" shall mean (i) any pollution,
contamination, degradation, damage or injury caused by, related to, arising from
or in connection with the generation, handling, use, treatment, storage,
transportation, disposal, discharge, release or emission of any Waste Materials
and (ii) any course of conduct or operating practice with respect to matters
governed by or regulated under Environmental Laws.
1.16 "Environmental Law" or "Environmental Laws" shall mean all laws,
rules, regulations, statutes, ordinances, decrees or orders of any governmental
entity now or at any time in the future in effect relating to (i) the prevention
or control of any potential pollutant or protection of the air, water or land,
(ii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal, discharge, release or transportation and (iii) exposure to hazardous,
toxic or other substances alleged to be harmful. The term "Environmental Law" or
"Environmental Laws" includes, without limitation, (1) the terms and conditions
of any license, permit, approval or other authorization by any governmental
entity and (2) judicial, administrative or other regulatory decrees, judgments
and orders of any governmental entity. The term "Environmental Law" or
"Environmental Laws" includes, but is not limited to, the following statutes and
the regulations promulgated thereunder: the Clean Air Act, 42 U.S.C. Section
7401 et seq., the Resource Conservation Recovery Act, 42 U.S.C. Section 6901 et
seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 11011
et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the
Federal Water Pollution Control Act (Clean Water Act), 33 U.S.C. Section 1251,
et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., CERCLA and
any state, county or local laws or regulations similar thereto.
1.17 "Environmental Liabilities" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remediation, removal,
response, abatement, clean-up, investigative or monitoring costs and any other
related costs and expenses), other causes of action recognized now or at any
later time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, pre-judgment and post-judgment interest, attorney fees and
other legal fees imposed or incurred (i) pursuant to any agreement, order,
notice, requirement,
2
<PAGE> 7
responsibility or directive (including directives embodied in Environmental
Laws), injunction, judgment or similar documents (including settlements) arising
out of or in connection with any Environmental Laws, (ii) pursuant to any claim
by a governmental entity or other person or entity pursuant to common law or
statute for personal injury, property damage, damage to natural resources,
remediation, payment or reimbursement of response costs or similar costs or
expenses or (iii) as a result of Environmental Conditions.
1.18 "Grant" for purposes of the assumption and indemnification
provisions of this Agreement, shall include Grant Prideco, Inc. and any and all
predecessors or successors thereto, whether by merger, purchase or other
acquisition of assets or otherwise, and any and all predecessors or successors
to such entities.
1.19 "Grant Common Stock" shall mean shares of common stock, $.01 par
value per share, of Grant.
1.20 "Grant Company" shall mean any corporation, joint venture,
partnership, limited liability company, association, investment or other entity,
including Grant, and any predecessor of the foregoing, in which Grant or any
Grant Company (or any predecessor to the business or assets of Grant or any
Grant Company) now or at any time in the past owned, or as a result of Transfers
will own, directly or indirectly, an ownership interest (whether or not such
ownership interest constitutes control of the entity and whether or not such
interest represents a passive or active investment).
1.21 "Grant Employee" shall have the meaning specified in Section 4.2
hereof.
1.22 "Grant Employee Benefit Plans" shall have the meaning specified in
Section 4.3 hereof.
1.23 "Grant 401(k) Plan" shall have the meaning specified in Section
4.2 hereof.
1.24 "Grant Liabilities" shall mean any and all Liabilities and
Environmental Liabilities to which Weatherford or any of its Affiliates may now
or at any time in the future become subject (whether directly or indirectly,
including by reason of any Grant Company owning, controlling or operating any
business or assets), resulting from, arising out of or relating to (i) any Grant
Company, (ii) any Grant Taxes (except as provided otherwise in the Tax
Allocation Agreement), (iii) any obligation, matter, fact, circumstance or
action or omission by any Person in any way relating to or arising from the
business, operations or assets of any Grant Company on, before or after the
Distribution Date, (iv) any product or service manufactured, sold or otherwise
provided by any Grant Company on, before or after the Distribution Date, (v)
except as provided herein, the Contribution, the Distribution or any of the
other transactions contemplated hereby or (vi) the Assets. The term "Grant
Liabilities" shall also include, without limitation, the following:
(a) Any and all Liabilities and Environmental Liabilities
resulting from, arising out of or relating to (i) the current, former
or future assets, activities, operations, facilities, actions or
omissions of any Grant Company or any of their respective officers,
directors, employees, independent contractors or agents, (ii) any
product liability claim, recall, replacement, returns or customer
allowances of or relating to any Grant Company or (iii) any contract or
permit of any Grant Company, regardless of whether the contract or
permit is assigned, conveyed or leased hereunder or under any other
agreement contemplated hereby;
(b) Any and all accounts and notes payable of any Grant
Company;
(c) Any and all Liabilities relating to the Grant 401(k) Plan
and the Grant Employee Benefit Plans;
3
<PAGE> 8
(d) Any and all Liabilities and Environmental Liabilities to,
on behalf of, or which arise from or relate to active or inactive
employees (retired or otherwise) of any Grant Company for claims
occurring on, before or after the Distribution Date, including, without
limitation, (i) liability for any salaries, wages, tax equalization
payments, vacation pay, sick leave, personal leave, severance pay,
wrongful dismissal or discrimination claims; (ii) liability for or
under any employee benefit plan, policy or arrangement, including,
without limitation, retirement, pension, medical, dental, profit
sharing, unemployment, supplemental unemployment or disability plan
policy or arrangement; (iii) liability for any payroll taxes, social
security or similar taxes or withholding; (iv) liability arising from
claims or litigation and (v) liability arising from any injury, death,
loss, disability, occupational disease or claims under any workers'
compensation laws;
(e) Any and all Liabilities and Environmental Liabilities
resulting from, arising out of, relating to or occurring on the
Properties, the operations on any of the Properties or with regard to
any of the Assets, and any off-site Environmental Liabilities related
to any of the foregoing or to any Grant Company, including, without
limitation, those under any indemnification agreement or obligation of
any Grant Company, Weatherford or any Affiliate of Weatherford and any
documents related thereto;
(f) Any and all Liabilities of any Grant Company with respect
to any projects or transactions performed or engaged in by it on,
before or after the Distribution Date;
(g) Any and all litigation and claims against any Grant
Company existing as of the Distribution Date;
(h) Except as provided otherwise in the Tax Allocation
Agreement, any and all Liabilities for Grant Taxes; and
(i) Any and all legal, accounting, consulting and expert fees
and expenses incurred in investigating, preparing, defending, settling
or discharging any claim or action arising under, out of or in
connection with any of the Grant Liabilities or Assets.
1.25 "Grant Option" shall mean an option to purchase Grant Common
Stock.
1.26 "Grant Taxes" shall mean any and all Taxes (i) to which any Grant
Company may be obligated pursuant to the Tax Allocation Agreement or (ii)
relating to or arising from the Contribution or the Distribution (including,
without limitation, any transfer taxes or value added taxes).
1.27 "Liability" shall mean any and all claims, demands, liabilities,
responsibilities, disputes, causes of action, losses, damages, assessments,
costs and expenses (including interest, awards, judgments, penalties,
settlements, fines, costs of remediation, diminutions in value, costs and
expenses incurred in connection with investigating and defending any claims or
causes of action (including, without limitation, attorneys' fees and expenses
and all fees and expenses of consultants and other professionals)) and
obligations of every nature whatsoever, liquidated or unliquidated, known or
unknown, matured or unmatured, or fixed or contingent.
1.28 "1998 Director Options and Warrants" shall mean the nonqualified
stock options and warrants granted by Weatherford to non-employee directors on
or after August 31, 1998.
1.29 "1998 Weatherford Employee Option Plan" shall mean the Weatherford
International, Inc. 1998 Employee Stock Option Plan.
1.30 "Note" shall mean the promissory note to be executed by Grant in
favor of Weatherford, in substantially the form of Annex C hereto.
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<PAGE> 9
1.31 "NYSE" shall mean The New York Stock Exchange, Inc.
1.32 "Old Weatherford Director Plans" shall mean the Energy Ventures,
Inc. 1991 Non-Employee Director Stock Option Plan and the Energy Ventures, Inc.
Amended and Restated Non-Employee Director Stock Option Plan.
1.33 "Old Weatherford Employee Option Plans" shall mean the Weatherford
International Incorporated 1987 Stock Option Plan, the Weatherford Enterra, Inc.
1991 Stock Option Plan, the Energy Ventures, Inc. Employees' Stock Option Plan,
the Energy Ventures, Inc. 1992 Employee Stock Option Plan, the Taro Industries
Limited Stock Option Plan and the D. Dale Wood Stock Option Agreement.
1.34 "Person" shall mean an individual, partnership, corporation,
business trust, limited liability company, limited liability partnership, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
1.35 "Preferred Supplier Agreement" shall mean the agreement to be
entered into between Weatherford and Grant, in substantially the form of Annex D
hereto.
1.36 "Properties" shall mean the properties currently or previously
owned or operated by any Grant Company.
1.37 "Record Date" shall have the meaning specified in Section 3.3
hereof.
1.38 "Restated Certificate of Incorporation" shall mean the Restated
Certificate of Incorporation of Grant, in substantially the form of Annex E
hereto.
1.39 "SEC" shall mean the United States Securities and Exchange
Commission.
1.40 "Service of Process" shall have the meaning specified in Section
6.1 hereof.
1.41 "Tax Allocation Agreement" shall mean the agreement to be entered
into between Weatherford and Grant, substantially in the form of Annex F hereto.
1.42 "Taxes" shall mean all federal, state, local, foreign and other
taxes, charges, fees, duties, levies, imposts, customs or other assessments,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, profit share, license,
value added, withholding, payroll, employment, excise, estimated, severance,
stamp, occupation, premium, property, windfall profits, or other taxes, fees,
assessments, customs, duties, levies, imposts, or charges of any kind
whatsoever, together with any interest, penalties, additions to tax, fines or
other additional amounts imposed thereon or related thereto, and the term "Tax"
means any one of the foregoing Taxes.
1.43 "Transfer Agent" shall mean American Stock Transfer & Trust
Company.
1.44 "Transfers" shall mean the transactions described on Annex G
hereto.
1.45 "Transition Services Agreement" shall mean the agreement to be
entered into between Weatherford and Grant, in substantially the form of Annex H
hereto.
1.46 "Trust" shall mean the Energy Ventures, Inc. Executive Deferred
Compensation Stock Ownership Trust.
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<PAGE> 10
1.47 "Waste Materials" shall mean any (i) toxic or hazardous materials
or substances; (ii) solid wastes, including asbestos, polychlorinated biphenyls,
mercury, buried contaminants, chemicals, flammable or explosive materials; (iii)
radioactive materials; (iv) petroleum wastes and spills or releases of petroleum
products; and (v) any other chemical, pollutant, contaminant, substance or waste
that is regulated by any governmental entity under any Environmental Law.
1.48 "Weatherford" shall mean Weatherford International, Inc., a
Delaware corporation.
1.49 "Weatherford Common Stock" shall mean shares of common stock,
$1.00 par value per share, of Weatherford.
1.50 "Weatherford Employee" shall have the meaning specified in Section
4.4 hereof.
1.51 "Weatherford 401(k) Plan" shall mean the Weatherford
International, Inc. 401(k) Plan.
1.52 "Weatherford Indemnified Parties" shall have the meaning set forth
in Section 6.1(a) hereof.
1.53 "Weatherford Option" shall mean an option or warrant, as
applicable, to purchase Weatherford Common Stock.
ARTICLE 2
CONTRIBUTION
2.1 Contribution.
(a) Effective immediately before the Distribution Date: (i)
Weatherford and Grant shall cause the Transfers to be made or occur;
(ii) Grant will execute and deliver the Note; (iii) Weatherford will
contribute the Contributed Indebtedness to Grant; (iv) Grant will issue
the Additional Shares to Weatherford; and (v) Grant will issue the
Drill Stem Credits (as defined in the Preferred Supplier Agreement) to
Weatherford.
(b) THE TRANSFERS SHALL BE MADE WITHOUT ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE ASSETS (CURRENT,
FIXED, PERSONAL, REAL, TANGIBLE OR INTANGIBLE), INCLUDING, BUT NOT
LIMITED TO, CONDITION OR WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY
DEFECTS THEREIN, WHETHER LATENT OR PATENT, CAPACITY, SUITABILITY,
UTILITY, SALABILITY, AVAILABILITY, COLLECTIBILITY, OPERATIONS,
CONDITIONS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IT
BEING THE EXPRESS AGREEMENT OF WEATHERFORD AND GRANT THAT, EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, GRANT WILL OBTAIN THE ASSETS IN
THEIR PRESENT CONDITION AND STATE OF REPAIR, ON AN "AS IS AND WHERE IS,
WITH ALL FAULTS" BASIS.
2.2 Grant Liabilities. Effective as of the Distribution Date, Grant
hereby unconditionally assumes and undertakes to pay, satisfy and discharge the
Grant Liabilities. IT IS THE INTENT OF THE PARTIES THAT THE GRANT LIABILITIES
AND ENVIRONMENTAL LIABILITIES SHALL BE WITHOUT REGARD TO THE CAUSE THEREOF OR
THE NEGLIGENCE OF ANY PERSON, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR
CONCURRENT, ACTIVE OR PASSIVE, AND WHETHER SUCH GRANT LIABILITY OR ENVIRONMENTAL
LIABILITY IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY OR ARISING AS AN
OBLIGATION OF CONTRIBUTION. GRANT HEREBY WAIVES AND RELEASES FOR ITSELF AND ON
BEHALF OF GRANT'S AFFILIATES ANY CLAIMS, DEFENSES OR CLAIMS FOR CONTRIBUTION,
INCLUDING CLAIMS FOR CONTRIBUTION
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<PAGE> 11
OR REIMBURSEMENT PROVIDED UNDER ENVIRONMENTAL LAWS, THAT IT HAS OR MAY HAVE
AGAINST WEATHERFORD OR ANY OF ITS AFFILIATES WITH RESPECT TO THE GRANT
LIABILITIES AND ENVIRONMENTAL LIABILITIES. AFTER THE DISTRIBUTION, NEITHER
WEATHERFORD NOR ANY OF ITS AFFILIATES SHALL IN ANY WAY BE LIABLE OR RESPONSIBLE
FOR ANY GRANT LIABILITIES.
2.3 Consideration. The aggregate consideration for the Transfers shall
consist of (a) the issuance by Grant to Weatherford of the Additional Shares and
(b) the contribution by Weatherford to Grant of the Contributed Indebtedness.
2.4 Limitation of Assignments. Notwithstanding any other provision
hereof, this Agreement shall not constitute nor require an assignment to any
Grant Company of any contract, permit, license or other right if an attempted
assignment of the same without the consent of any party would constitute a
breach thereof or a violation of any law or any judgment, decree, order, writ,
injunction, rule or regulation of any governmental entity unless and until such
consent shall have been obtained. In the case of any such contract, permit,
license or other right that cannot be effectively transferred to Grant without
such consent (a "Consent Required Contract"), Weatherford agrees that it will
attempt to enter into a reasonable arrangement designed to provide Grant with
the benefit of Weatherford's rights under such Consent Required Contract,
including enforcement of any and all rights of Weatherford against any other
party as Grant may reasonably request, all such actions to be at Grant's sole
cost and expense.
2.5 Delivery of Records. Grant shall be entitled to all books, records,
papers and instruments of Weatherford of whatever nature that relate to the
Assets, including, without limitation, all financial and accounting records, on
the Distribution Date, and all books and records relating to employees, the
purchase of materials, supplies and services, research and development,
engineering drawings, designs, schematics, blueprints, instruction manuals,
flowsheets, models, maintenance schedules and similar technical records, and
dealings with customers, vendors and suppliers relating to the Assets, and
including computerized books and records and other computerized storage media
and the software (including documentation and object and source codes) used in
connection therewith; provided that Weatherford shall be entitled to retain all
originals of its corporate, financial, accounting, legal, tax and auditing
records, and Weatherford shall be entitled to retain copies at its expense of
any such other books and records that are necessary for its tax, accounting or
legal purposes.
2.6 Guarantees and Financial Assurances. Grant agrees to use reasonable
efforts to obtain the release of any guarantees or other financial assurances
provided by Weatherford or any of its Affiliates on behalf of any Grant Company.
2.7 Grant Acknowledgments. Grant acknowledges that this Agreement is a
valid, binding and enforceable contract that has been approved by its sole
stockholder. Grant further acknowledges that this Agreement and the transactions
contemplated hereby are in the best interests of Grant.
ARTICLE 3
RECAPITALIZATION OF GRANT; MECHANICS OF DISTRIBUTION
3.1 Grant Capitalization. The current equity capitalization of Grant
consists of 1,000 issued and outstanding shares of Grant Common Stock, all of
which is outstanding and owned beneficially and of record by Weatherford.
3.2 Recapitalization of Grant. Effective before the Distribution Date,
Grant shall have filed the Restated Certificate of Incorporation, and the Board
of Directors of Grant shall have adopted the Amended Bylaws.
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<PAGE> 12
3.3 Mechanics of Distribution. The Distribution shall be effected by
the distribution to each holder of record of Weatherford Common Stock (other
than the Trust), as of the record date designated for the Distribution by or
pursuant to the authorization of the Board of Directors of Weatherford (the
"Record Date"), of one share of Grant Common Stock for each two shares of
Weatherford Common Stock held by such holder. No fraction of a share of Grant
Common Stock shall be issued, but in lieu thereof each holder of shares of
Weatherford Common Stock who otherwise would be entitled to a fraction of a
share of Grant Common Stock shall receive a whole share of Grant Common Stock
for such fraction of a share. All shares of Weatherford Common Stock held by a
record holder other than nominee holders shall be aggregated for purposes of
computing the number of shares of Grant Common Stock to be issued pursuant to
this Section 3.3.
3.4 Timing of Distribution. The Board of Directors of the Weatherford
shall formally declare the Distribution and shall authorize Weatherford to pay
it upon the satisfaction or waiver of the conditions set forth in Article 7, by
delivery of certificates for Grant Common Stock to the Transfer Agent for
delivery to the holders entitled thereto. The Distribution shall be deemed to be
effective upon notification by Weatherford to the Transfer Agent that the
Distribution has been declared and that the Transfer Agent is authorized to
proceed with the distribution of Grant Common Stock.
ARTICLE 4
EMPLOYEE BENEFIT PLANS
4.1 Employee Benefits are Grant Liabilities. All obligations of Grant
Companies with respect to employee benefit plans, arrangements or policies for
the benefit of employees and former employees (and their beneficiaries) of Grant
Companies in place at the time of the Distribution shall be treated and deemed
to be as Grant Liabilities under this Agreement.
4.2 401(k) Plans. Before the Distribution Date, Grant shall establish a
defined contribution plan (the "Grant 401(k) Plan") that shall be qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended, and
effective as of the Distribution Date. On or before the Distribution Date, and
in accordance with the terms of the Weatherford 401(k) Plan, Weatherford shall
cause the account balance attributable to each individual who will cease to be
an employee of Weatherford and its Affiliates following the Distribution Date to
be transferred to the Grant 401(k) Plan to the extent that such transfer is
permitted by law. Each individual who continues to be an employee of any Grant
Company on the Distribution Date (a "Grant Employee") shall, for eligibility and
vesting purposes under the Grant 401(k) Plan, be credited with the same service
with which he or she is credited for such purposes under the Weatherford 401(k)
Plan immediately prior to the Distribution Date.
4.3 Employee Health, Life and Disability Insurance Plans. On or before
the Distribution Date, Grant shall establish such employee health, life and
disability insurance plans and other employee welfare or fringe benefit
arrangements (collectively, the "Grant Employee Benefit Plans") that are
comparable in the aggregate to the health, life and disability insurance plans
and other employee welfare or fringe benefit arrangements that had been
maintained by Weatherford for its employees and the employees of its
subsidiaries prior to the Distribution Date (collectively, the "Weatherford
Employee Benefit Plans"). Service by any employee with Weatherford or its
subsidiaries prior to the Distribution Date shall be counted for purposes of
determining any period of eligibility to participate in, or to vest in benefits
(including vacation rights) provided under the Grant Employee Benefit Plans, and
any amounts previously expended by any such employees of Weatherford or its
subsidiaries prior to the Distribution Date for purposes of satisfying such plan
year's deductible, co-payment limitations, maximum out-of-pocket provisions and
applicable annual and/or life-time maximum benefit limitations shall be credited
for purposes of satisfying such plan year's deductible, co-payment limitations
under the Grant Employee Benefit Plans and any coverage waiting period for
pre-existing conditions for such employees shall be waived under the Grant
Employee Benefit Plans.
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<PAGE> 13
4.4 Credited Employment.
(a) During the five-year period following the Distribution, if
any employee of Weatherford or any of its Affiliates shall become an employee of
Grant or any of its Affiliates, Grant shall, and shall cause its Affiliates to,
credit such employee, for purposes of eligibility and vesting under the Grant
Employee Benefit Plans (including Grant's vacation policy) and the Grant 401(k)
Plan, with the period of time such employee was employed by Weatherford or any
of its Affiliates.
(b) During the five-year period following the Distribution, if
any employee of Grant or any of its Affiliates shall become an employee of
Weatherford or any of its Affiliates, Weatherford shall, and shall cause its
Affiliates to, credit such employee, for purposes of eligibility and vesting
under Weatherford Employee Benefit Plans (including Weatherford's vacation
policy), with the period of time such employee was employed by Grant or any of
its Affiliates.
4.5 No Termination of Employment for Benefit Entitlement Purposes. For
purposes of determining a person's entitlement to benefits under any of the
Weatherford Employee Benefit Plans, the Distribution shall not constitute a
termination of employment for persons who will continue to be employees of Grant
or any of its Affiliates or Weatherford or any of its Affiliates after the
Distribution.
ARTICLE 5
STOCK PLANS
On or before the Distribution Date, Grant will adopt the Grant Prideco,
Inc. 1999 Employee Stock Option and Restricted Stock Plan, in substantially the
form attached hereto as Annex I (the "Grant Employee Stock Plan"), and the Grant
Prideco, Inc. 1999 Non-Employee Director Stock Option Plan, in substantially the
form attached hereto as Annex J (the "Grant Director Plan"). On or before the
Distribution Date, Weatherford and Grant will take such actions as are necessary
to cause the following treatment of outstanding Weatherford Options to be
effected as of the Distribution Date.
(a) Treatment of Old Weatherford Options and Old Director Options.
(i) Grant will issue Grant Options under the Grant Employee
Stock Plan to each holder of an outstanding Weatherford Option that has
been granted under an Old Weatherford Employee Option Plan ("Old
Weatherford Options").
(ii) Grant will issue Grant Options under the Grant Director
Plan to each holder of an outstanding Weatherford Option that has been
granted under an Old Weatherford Director Plan ("Old Director
Options").
(iii) Grant Options issued pursuant to the preceding two
clauses will be exercisable for Grant Common Stock on the basis of one
share of Grant Common Stock for each two shares of Weatherford Common
Stock subject to the terms of the applicable outstanding Old
Weatherford Option or Old Director Option.
(iv) Each Grant Option will have the same vesting schedule and
other terms (including the exercise date and expiration date) as the
vesting schedules and other terms of the related Old Weatherford Option
or Old Director Option, as applicable; provided that employment with
either Grant or Weatherford will satisfy any condition to continuing
employment where discontinued employment would cause the options to
terminate.
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<PAGE> 14
(v) The per-share exercise price of each adjusted Old
Weatherford Option or Old Director Option and the related Grant Option
will be a function of (A) the per share exercise price of the Old
Weatherford Option or Old Director Option immediately before the
Distribution, (B) the market value per share of Weatherford Common
Stock immediately before giving effect to the Distribution and (C) the
market value per share of Grant Common Stock after giving effect to the
Distribution, all as provided in the following formula:
<TABLE>
<S> <C>
The adjusted exercise price per share for an Old
Weatherford Option or an Old Director Option will equal: E (W-G)/W
The exercise price per share for the related Grant Option will equal: E (2G/W)
</TABLE>
Where E = The original exercise price of the applicable
Weatherford Option;
G = One half of the market value of a share of
Grant Prideco common stock based on (a) the
average of the high and low trading prices on
the NYSE on the first full trading date after
"when-distributed" trading begins, or if lower,
for options remaining outstanding at the date of
adjustment, (b) the average of the last sales
price per share the NYSE on for each of the 30
consecutive trading days beginning on the date
"when-distributed" trading begins; and
W = The market value per share of Weatherford
Common Stock as of the close of market on
the last trading day before "when-issued"
trading begins as reported by the NYSE.
(vi) As a condition of exercise of a Grant Option issued to a
current or former Weatherford employee, Grant shall require the
optionee to pay at the time of exercise the exercise price and the
amount necessary to cover Weatherford's obligation to withhold all
federal, state, local and other taxes. Grant will then transfer Grant
Common Stock to the optionee in accordance with the terms of the Grant
Option. Grant also shall immediately notify Weatherford of the exercise
and remit to Weatherford the sum necessary to cover Weatherford's
obligation to withhold all federal, state, local and other taxes with
respect to such exercise. To the extent that compensation income
recognized by a holder of a Grant Option is attributable to services
rendered to Weatherford or any of its subsidiaries (other than Grant or
any of its subsidiaries), Weatherford (or its subsidiary) and not Grant
shall be entitled to a compensation expense deduction for federal
income tax purposes, and Grant (or any of its subsidiaries) shall not
attempt to claim a deduction for such expense.
(b) Substitution of 1998 Weatherford Options.
(i) Each Weatherford Option granted under the 1998 Weatherford
Employee Option Plan and 1998 Director Options and Warrants
(collectively, "1998 Weatherford Options") held by a Grant Employee
will be substituted with Grant Options. The number of shares of Grant
Common Stock subject to such Grant Options and the exercise price of
such Grant Options will be determined as provided in the following
formula:
<TABLE>
<S> <C>
The exercise price for the Grant Option will equal: E (2G/W)
The number of shares of Grant Common Stock subject to the
Grant Option will equal NE/Pg
</TABLE>
Where E = The original exercise price of the 1998
Weatherford Option;
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<PAGE> 15
N = The original number of shares of Weatherford
Common Stock subject to the 1998 Weatherford
Option;
G = One half of the market value of a share of
Grant Prideco common stock based on (a) the
average of the high and low trading prices
on the NYSE on the first full trading date
after "when-distributed" trading begins, or if
lower, for options remaining outstanding at the
date of adjustment, (b) the average of the last
sales price per share the NYSE on for each of
the 30 consecutive trading days beginning on
the date "when-distributed" trading begins; and
W = The market value per share of Weatherford
Common Stock as of the close of market on
the last trading day before "when-distributed"
trading begins as reported by the NYSE; and
Pg = The exercise price of the Grant Option
determined in accordance with the first
formula of this subsection (i).
(ii) Each 1998 Weatherford Option held by a Weatherford
Employee and each of the 1998 Director Options and Warrants will be
adjusted. The number of shares of Weatherford Common Stock for which
those adjusted options will be exercisable and the adjusted exercise
price of those options will be determined as provided in the following
formula:
<TABLE>
<S> <C>
The adjusted exercise price for the Weatherford Option will equal E (W-G)/W
The number of shares of Weatherford Common Stock subject to the
adjusted option will equal NE/Pw
</TABLE>
Where E = The original exercise price of the 1998
Weatherford Option;
N = The original number of shares of Weatherford
Common Stock subject to the 1998 Weatherford
Option;
G = One half of the market value of a share of
Grant Prideco common stock based on (a) the
average of the high and low trading prices
on the NYSE on the first full trading date
after "when-distributed" trading begins, or if
lower, for options remaining outstanding at the
date of adjustment, (b) the average of the last
sales price per share the NYSE on for each of
the 30 consecutive trading days beginning on
the date "when-distributed" trading begins; and
W = The market value per share of Weatherford
Common Stock as of the close of market on the
last trading day before "when-distributed"
trading begins as reported by the NYSE; and
Pw = The adjusted exercise price of the 1998
Weatherford Option determined in accordance
with the first formula in this subsection (ii).
(iii) The adjusted Weatherford Options will be administered
under the Weatherford Stock Option Plan or Weatherford Director Plan
under which they were issued. The substitute Grant Options will be
issued and administered under the Grant Employee Stock Plan.
(c) Treatment of Outstanding Restricted Stock. Holders of restricted
Weatherford Common Stock granted under the Weatherford Enterra, Inc. Restricted
Stock Incentive Plan, the Weatherford Enterra, Inc. 1997 Non-Employee Directors
Restricted Stock Plan or under an individual agreement in the case of the
restricted stock award granted to Curtis W. Huff, will receive one share of
restricted Grant Common Stock for
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<PAGE> 16
each share of restricted Weatherford Common Stock they hold. The restricted
Grant Common Stock will be subject to the same restrictions as the applicable
restricted Weatherford Common Stock.
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification Matters.
(a) Grant hereby agrees to indemnify, defend and hold
Weatherford and its Affiliates and each of their respective officers, directors,
employees, agents and assigns (collectively, the "Weatherford Indemnified
Parties") harmless from and against any and all Liabilities or Environmental
Liabilities (including, without limitation, reasonable fees and expenses of
attorneys, accountants, consultants and experts) that the Weatherford
Indemnified Parties incur, suffer or realize, are subject to a claim for or are
subject to, that are based upon, arising out of, relating to or otherwise in
respect of:
(i) any breach of any covenant or agreement of any
Grant Company contained in this Agreement or any other
agreement contemplated hereby, including the Tax Allocation
Agreement;
(ii) the acts or omissions of any Grant Company or
any Affiliate of any Grant Company (other than Weatherford and
its Affiliates that are not Grant Companies after the
Distribution) or the conduct of any business by them or any
predecessor thereto before, on or after the Distribution Date;
(iii) the Grant Liabilities;
(iv) the Assets;
(v) the conveyance, assignment, sale, lease or making
available of the Assets;
(vi) any Grant Tax (except as provided otherwise in
the Tax Allocation Agreement);
(vii) any and all amounts for which Weatherford may
be liable on account of any claims, administrative charges,
self-insured retentions, deductibles, retrospective premiums
or fronting provisions in insurance policies, including as the
result of any uninsured period, insolvent insurance carriers
or exhausted policies, arising from claims by any Grant
Company or any Affiliate of any Grant Company, or the
employees of any of the foregoing, or claims by insurance
carriers of any Grant Company for indemnity arising from or
out of claims by or against any Grant Company for acts or
omissions of any Grant Company, or related to any current or
past business of any Grant Company or any product or service
provided by any Grant Company;
(viii) any COBRA Liability with respect to any
employees of Weatherford who become employees of any Grant
Company after the Distribution;
(ix) any settlements or judgments in any litigation
commenced by one or more insurance carriers against
Weatherford on account of claims by any Grant Company or
employees of any Grant Company;
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<PAGE> 17
(x) any and all Liabilities incurred by Weatherford
pursuant to its obligations hereunder in seeking to obtain or
obtaining any consent or approval to assign, transfer or lease
any interest in any asset or instrument, contract, lease,
permit or benefit arising thereunder or resulting therefrom;
(xi) any Liability relating to the failure to comply
with any bulk sales or transfer laws in connection herewith or
with any of the other agreements contemplated hereby;
(xii) the on-site or off-site handling, storage,
treatment or disposal of any Waste Materials generated by any
Grant Company;
(xiii) any and all Environmental Conditions, known or
unknown, existing on, at or underlying any of the Properties
or related to the operations on any of the Properties or with
regard to any of the Assets;
(xiv) any acts or omissions of any Grant Company
relating to the ownership or operation of the business of any
Grant Company or the Properties;
(xv) any and all Liabilities incurred by Weatherford
or any of its Affiliates relating to any guarantee or other
financial assurance provided by Weatherford or any of its
Affiliates on behalf of any Grant Company;
(xvi) any Liability relating to any claim or demand
by any stockholder of Weatherford, any stockholder of Grant
following the Distribution or any other Person with respect to
the Transfers (or any of them), the Contribution, the
Distribution or the transactions relating thereto; and
(xvii) any Liability relating to the Grant 401(k)
Plan, any Grant Employee Benefit Plan and the other employee
benefit or welfare plans of any Grant Company.
(b) Absolute Indemnity. NONE OF THE WEATHERFORD INDEMNIFIED
PARTIES WILL BE OBLIGATED TO INSTITUTE ANY LEGAL PROCEEDINGS IN
CONNECTION WITH THE COLLECTION OR PURSUIT OF ANY INSURANCE IN ORDER TO
EXERCISE AN INDEMNIFICATION REMEDY UNDER THIS ARTICLE 6. UNLESS
OTHERWISE SPECIFICALLY EXPRESSED, THIS INDEMNITY OBLIGATION SHALL APPLY
WITHOUT REGARD TO WHETHER THE LIABILITY OR ENVIRONMENTAL LIABILITY WAS
CAUSED BY THE ORDINARY OR GROSS NEGLIGENCE OF ANY OF THE WEATHERFORD
INDEMNIFIED PARTIES (WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR
CONCURRENT OR ACTIVE OR PASSIVE), OR WHETHER THE LIABILITY OR
ENVIRONMENTAL LIABILITY IS BASED ON STRICT LIABILITY, ABSOLUTE
LIABILITY OR ARISES AS AN OBLIGATION OF CONTRIBUTION OR INDEMNITY.
GRANT ACKNOWLEDGES THAT IT IS AWARE OF VARIOUS THEORIES KNOWN AS THE
"EXPRESS NEGLIGENCE" DOCTRINE AND OTHER SIMILAR DOCTRINES AND THEORIES
THAT MAY LIMIT INDEMNIFICATION AND AGREES AND STIPULATES THAT THE
PROVISIONS OF THIS AGREEMENT REFLECT THE EXPRESS INTENT OF THE PARTIES
THAT THE INDEMNIFICATION TO BE PROVIDED BY GRANT APPLY NOTWITHSTANDING
THE FACT THAT THE LIABILITY OR ENVIRONMENTAL LIABILITY (I) MAY NOT
CURRENTLY BE KNOWN BY IT OR MANIFEST ITSELF IN ANY REGARD, (II) MAY
ARISE UNDER A STATUTE OR THEORY THAT MAY NOT CURRENTLY EXIST OR BE
KNOWN TO GRANT, (III) MAY ARISE AS A RESULT OF ANY ACT OR OMISSION BY
13
<PAGE> 18
ANY OF THE WEATHERFORD INDEMNIFIED PARTIES (WHETHER SUCH CONDUCT BE
SOLE, JOINT OR CONCURRENT OR ACTIVE OR PASSIVE) OR (IV) MAY CONSTITUTE
A VIOLATION OF ANY APPLICABLE CIVIL OR CRIMINAL LAW OR REGULATION.
6.2 Notice of Circumstance. After receipt by Weatherford of notice, or
Weatherford's actual discovery, of any action, proceeding, claim, demand or
potential claim that could give rise to a right to indemnification pursuant to
any provision of this Agreement (any of which is individually referred to as a
"Circumstance"), Weatherford shall give Grant written notice describing the
Circumstance in reasonable detail; provided, however, that no delay by
Weatherford in notifying Grant shall relieve Grant from any Liability or
Environmental Liability hereunder. If Grant notifies Weatherford within 15 days
after such notice that Grant is assuming the defense thereof, except as
otherwise provided in the Tax Allocation Agreement, (i) Grant will defend the
Weatherford Indemnified Parties against the Circumstance with counsel of its
choice, provided such counsel is reasonably satisfactory to Weatherford, (ii)
the Weatherford Indemnified Parties may retain separate co-counsel at its or
their sole cost and expense (except that Grant will be responsible for the fees
and expenses for the separate co-counsel to the extent Weatherford concludes
reasonably that the counsel Grant has selected has a conflict of interest),
(iii) the Weatherford Indemnified Parties will not consent to the entry of any
judgment or enter into any settlement with respect to the Circumstance without
the written consent of Grant and (iv) Grant will not consent to the entry of any
judgment with respect to the Circumstance, or enter into any settlement that (x)
requires any payments by or continuing obligations of an Weatherford Indemnified
Party, (y) requires an Weatherford Indemnified Party to admit any facts or
liability that could reasonably be expected to adversely affect an Weatherford
Indemnified Party in any other matter or (z) does not include a provision
whereby the plaintiff or claimant in the matter releases the Weatherford
Indemnified Parties from all Liability with respect thereto, without the written
consent of Weatherford. In the event Grant does not notify Weatherford within 15
days after Weatherford has given notice of the Circumstance that Grant is
assuming the defense thereof, the Weatherford Indemnified Parties may defend
against, or enter into any settlement with respect to, the Circumstance in any
manner the Weatherford Indemnified Parties reasonably may deem appropriate, at
Grant's sole cost.
6.3 Payment. Payment of any amounts due pursuant to this Article 6
shall be made in United States dollars in immediately available funds, by wire
transfer to a bank account or accounts to be designated by the Weatherford
Indemnified Party, within ten Business Days after notice is sent by the
Weatherford Indemnified Party. If and to the extent the Weatherford Indemnified
Party shall make written demand upon Grant for indemnification pursuant to this
Article 6 and Grant shall refuse or fail to pay in full, within ten Business
Days of such written demand, the amounts demanded pursuant hereto and in
accordance herewith, then the Weatherford Indemnified Party may utilize any
legal or equitable remedy to collect from Grant the amount demanded.
6.4 Insurance. Grant shall not be obligated to indemnify the
Weatherford Indemnified Parties for amounts that shall have been covered and
paid by insurance of the Weatherford Indemnified Parties; provided, however,
insurance shall not include deductibles or self-insured retentions.
6.5 Scope of Indemnification. INDEMNIFICATION UNDER THIS ARTICLE 6
SHALL BE IN ADDITION TO ANY REMEDIES WEATHERFORD OR ANY WEATHERFORD INDEMNIFIED
PARTY MAY HAVE AT LAW OR EQUITY. THERE SHALL BE NO TIME LIMIT AS TO GRANT'S
INDEMNIFICATION OBLIGATIONS HEREUNDER.
6.6 Indemnity for Certain Environmental Liabilities. It is the
intention of the parties that the indemnity provided herein with respect to
Environmental Liabilities under CERCLA and corresponding provisions of state law
is an agreement expressly not barred by 42 U.S.C. Section 9607(e)(i) or
corresponding provisions of any state law.
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<PAGE> 19
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF WEATHERFORD
The obligations of the Weatherford to consummate the Distribution
hereunder shall be subject to the fulfillment of each of the following
conditions:
(a) The Board of Directors of Weatherford shall be satisfied that,
after giving effect to the Contribution, (i) Weatherford will not be insolvent
and will not have unreasonably small capital with which to engage in its
businesses and (ii) the Weatherford surplus will be sufficient to permit,
without violation of Delaware law, the Distribution.
(b) The Transfers shall have been made or occurred.
(c) Weatherford and Grant shall have executed the Preferred Supplier
Agreement.
(d) Weatherford and Grant shall have executed the Tax Allocation
Agreement.
(e) Weatherford and Grant shall have executed the Transition Services
Agreement.
(f) Grant shall have filed the Restated Certificate of Incorporation,
effecting the recapitalization described in Section 3.2.
(g) The Board of Directors of Grant shall have adopted the Amended
Bylaws.
(h) The Grant Common Stock shall have been approved for listing by the
NYSE, and the NYSE shall not have (i) withdrawn its certification filed with the
SEC that the Grant Common Stock has been approved for listing, (ii) suspended
trading in either the Grant Common Stock or the Weatherford Common Stock or
(iii) filed with the SEC a Form 25 to strike either the Grant Common Stock or
the Weatherford Common Stock from listing and registration thereof.
(i) Grant's Registration Statement on Form 10 shall have become
effective pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and the SEC shall not have commenced any action to prohibit or restrict
the Distribution in any way.
(j) Weatherford shall have received a ruling from the United States
Internal Revenue Service to the effect that, for United States federal income
tax purposes, no gain or loss will be recognized by, and no amount will be
included in the income of, the Weatherford stockholders upon their receipt of
shares of Grant Common Stock in the Distribution and that no gain or loss will
be recognized by Weatherford as a result of the Distribution.
(k) Grant shall have executed the Note and delivered the Note to
Weatherford.
(l) The Board of Directors of Weatherford shall not have determined, in
its sole discretion, to abandon, defer or modify the Transfers, the Contribution
and the Distribution or the terms thereof.
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<PAGE> 20
ARTICLE 8
MISCELLANEOUS
8.1 Grant Covenants. To assure the performance of the obligations of
Grant under this Agreement, Grant hereby covenants and agrees that it will not,
and will cause the Grant Companies not to, merge, convert into another entity,
engage in a share exchange for a majority of its shares, liquidate or transfer,
assign or otherwise convey or allocate, directly or indirectly, in one or more
transactions, whether or not related, a majority of Grant's assets (determined
in good faith by a board resolution prior to the transaction on a fair value and
consolidated basis) to any Person unless the acquiring Person (i) expressly
assumes the obligations of Grant hereunder, (ii) executes and delivers to
Weatherford an agreement, in form and substance satisfactory to Weatherford,
agreeing to be bound by each and every provision of this Agreement as if it were
Grant and (iii) has a net worth on a pro forma basis after giving effect to the
acquisition or business combination equal to or greater than that of Grant (on a
consolidated basis) and Grant complies with the provisions of the Tax Allocation
Agreement. Any such assumption of liability by the acquiring Person shall not
release Grant from its obligations under this Agreement.
8.2 Governing Law. All questions arising out of this Agreement and the
rights and obligations created herein, or its validity, existence,
interpretation, performance or breach, shall be governed by and construed in
accordance with the internals laws of the State of Texas, without regard to or
the application of the rules of conflicts of laws set forth in such laws.
8.3 Arbitration.
(a) In the event there shall exist any dispute or controversy
with respect to this Agreement or any matter relating hereto or the transactions
contemplated hereby, the parties hereto agree to seek to resolve such dispute or
controversy by mutual agreement. If the parties hereto are unable to resolve
such dispute or controversy by agreement within 90 days following notice by any
party hereto of the nature of such dispute or controversy setting forth in
reasonable detail the circumstances and basis of such dispute or controversy,
the parties agree that such dispute or controversy be resolved by binding
arbitration pursuant to the provisions of this Section 8.3 and in accordance
with the then current Commercial Arbitration Rules of the American Arbitration
Association. If a party elects to submit such matter to arbitration, such party
shall provide notice to the other party of its election to do so, which notice
shall name one arbitrator. Within 10 Business Days after the receipt of such
notice, the other party shall provide written notice to the electing party
naming a second arbitrator. The two arbitrators so appointed shall name a third
arbitrator, or failing to do so, a third arbitrator shall be appointed pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
(b) All arbitration proceedings shall be held in Houston,
Texas.
(c) Each arbitrator selected to act hereunder shall be
qualified by education and experience to pass on the particular question in
dispute and shall be independent and not affiliated with any of the parties
hereto or an Affiliate thereof. A person associated or affiliated with the legal
counsel for either of the parties or their Affiliates will not be considered
independent.
(d) The arbitrators shall resolve all disputes in controversy
in accordance with the Texas substantive law. All statutes of limitations that
would otherwise be applicable shall apply to any arbitration proceeding. The
arbitrators shall not be authorized to order any equitable remedies and shall
only be empowered to make monetary awards and determinations with respect to
compliance by a party and its Affiliates with the terms hereof.
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<PAGE> 21
(e) The arbitrators appointed pursuant to this Section 8.3
shall promptly hear and determine (after due notice and hearing and giving the
parties reasonable opportunity to be heard) the questions submitted, and shall
endeavor to render their decision within 60 days after appointment of the third
arbitrator or as soon as practical thereafter. If within such period a decision
is not rendered by the board or a majority thereof, new arbitrators may be named
and shall act hereunder at the election of either party in like manner as if
none had previously been named.
(f) The decision of the arbitrators, or a majority thereof,
made in writing, shall absent manifest error be final and binding upon the
parties hereto as to the questions submitted, and each party shall abide by such
decision.
(g) The cost of the arbitration shall be borne by the parties
thereto as unanimously determined by the arbitrators.
(h) Notwithstanding the agreement by the parties to
arbitration, either party may seek from a court of competent jurisdiction
injunctive and other equitable relief in aid of arbitration. Each party hereto
on its own behalf and on behalf of its Affiliates irrevocably agrees that any
such relief shall first be sought in Federal or State court in Harris County,
Texas.
8.4 Notices. All notices and other communications to be given or made
hereunder shall be in writing and shall be (a) personally delivered with signed
receipt obtained acknowledging delivery; (b) transmitted by postage prepaid
registered mail, return receipt requested (air mail if international); or (c)
transmitted by facsimile; to a party at the address set out below (or at such
other address as it may have provided notification for the purposes hereof to
the other party hereto in accordance with this Section).
If to Grant: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Fax number: (281) 297-8569
Attention: General Counsel
If to Weatherford: Weatherford International, Inc.
515 Post Oak Boulevard, Suite 600
Houston, Texas 77027
Fax number: (713) 693-4484
Attention: General Counsel
With a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Fax number: (713) 651-5246
Attention: Charles L. Strauss
8.5 Expenses. Except as otherwise set forth herein or in any agreement
executed in connection herewith, all costs and expenses related to the
Distribution and the transactions contemplated hereby shall be borne by
Weatherford.
8.6 Entire Agreement. This Agreement, including the Schedules, Annexes
and other writings referred to herein or delivered pursuant hereto, constitutes
the entire agreement between Weatherford and Grant with respect to the subject
matter hereof and supersedes all other agreements, representations, warranties,
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<PAGE> 22
statements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. This Agreement may not be amended, altered or
modified except by a writing signed by duly authorized officers of Weatherford
and Grant.
8.7 Waiver. No consent or waiver, express or implied, by a party hereto
to or of any breach or default by the other party hereto in the performance by
such other party of its obligations hereunder will be deemed or construed to be
a consent or waiver to or of any other breach or default in the performance by
such other party of the same or any other obligations of such other party
hereunder. Failure on the part of a party to complain of any act or failure to
act of the other party or to declare the other party in default, irrespective of
how long such failure continues, will not constitute a waiver by such party of
its rights hereunder. The giving of consent by a party in any one instance will
not limit or waive the necessity to obtain such party's consent in any future
instance.
8.8 Binding Effect; Assignment; No Third Party Benefit.
(a) This Agreement will be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns. Neither party to this Agreement may assign its
rights under this Agreement without the prior written consent of the other
party; provided, however, Weatherford may assign any of its rights and
obligations under this Agreement to any Weatherford Affiliate, of which
Weatherford beneficially owns or controls at least 50% of the equity or other
interests of such Affiliate, without the consent of Grant.
(b) Nothing in this Agreement, express or implied, is intended
to or shall confer upon any person other than Grant, Weatherford and the
Weatherford Indemnified Parties any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
8.9 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
8.10 References. All references in this Agreement to Articles, Sections
and other subdivisions refer to the Articles, Sections and other subdivisions of
this Agreement unless expressly provided otherwise. The words "this Agreement",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited.
8.11 Terminology. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, will include all other
genders; and the singular will include the plural and vice versa. The headings
of the Articles and Sections of this Agreement are included for convenience only
and will not be deemed to constitute part of this Agreement or to affect the
construction hereof or thereof.
8.12 Severability. Any provision of this Agreement that is determined
by arbitration as provided herein or a court of competent jurisdiction to be
invalid, illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable, so long as the
material purposes of this Agreement can be determined and effectuated. Should
any provision of this Agreement be so declared invalid, illegal or
unenforceable, the parties shall agree on a valid provision to substitute for
it.
8.13 Further Assurances. Each party hereto agrees to do all acts and
things and to make, execute and deliver such written instruments, as will from
time to time be reasonably required to carry out the terms and provisions of
this Agreement.
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[signatures of the following page]
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<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth in the introduction to this Agreement.
WEATHERFORD INTERNATIONAL, INC.
By:
--------------------------------
Curtis W. Huff
Senior Vice President,
General Counsel and Secretary
GRANT PRIDECO, INC.
By:
--------------------------------
John C. Coble
President
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<PAGE> 25
ANNEX A
EXCLUDED ASSETS
The real estate, facility and improvements located at 6545 N. Eldridge Parkway,
Houston, Texas 77041, being two tracts of land aggregating 13.4897 acres, more
or less.
United States Patent No. 5,263,683 (issued November 23, 1993) and United States
Patent Application Nos. TA-0024-US and TA-0018-US and all related technology and
rights thereto.
A-1
<PAGE> 1
EXHIBIT 3.2
FORM OF BYLAWS
OF
GRANT PRIDECO, INC.
<PAGE> 2
FORM OF BYLAWS
OF
GRANT PRIDECO, INC.
AMENDED AND RESTATED ON ______________, 2000
ARTICLE I
CAPITAL STOCK
I.1 Issuance of Capital Stock. The Board of Directors may
authorize the issuance of the capital stock of the Corporation, to the extent
such stock is authorized in the Certificate of Incorporation, at such times,
for such consideration, and on such terms and conditions as the Board of
Directors may deem advisable, subject to any restrictions and provisions of law
and the Certificate of Incorporation.
I.2 Certificates of Stock. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Such signatures
may be facsimile if the certificate is signed by a transfer agent or registrar,
other than the Corporation or its employee. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed on
such certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the time of its issue. Every certificate for shares of
stock which are subject to any restriction on transfer and every certificate
issued when the Corporation is authorized to issue more than one class or
series of stock shall contain such legend with respect thereto as is required
by law.
I.3 Transfer Agents; Transfers. The Board of Directors may
appoint one or more transfer agents and registrars, and may require
certificates for shares to bear the signature of such transfer agent(s) and
registrar(s). Subject to any restrictions on transfer, shares of stock may be
transferred on the books of the Corporation by the surrender to the Corporation
of its transfer agent of the certificate therefor properly endorsed or
accompanied by a written assignment or power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the Corporation or its transfer agent may
reasonably require.
<PAGE> 3
I.4 Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate
may be issued in place thereof, upon such terms as the Board of Directors may
from time to time prescribe, or, if the Board of Directors has prescribed no
such terms, on such terms as the Corporation's duly appointed transfer agent
and registrar shall determine. The Board of Directors may require as a
condition precedent to the issuance of a new certificate or uncertificated
shares any or all of the following: (a) additional evidence of the loss,
destruction or mutilation claimed; (b) advertisement of the loss in such manner
as the Board of Directors may direct or approve; (c) a bond or agreement of
indemnity, in such form and amount and with such surety (or without surety) as
the Board of Directors may direct or approve; and (d) the order or approval of
a court.
ARTICLE II
STOCKHOLDERS
II.1 Record Holders. The Corporation shall be entitled to treat
the person in whose name any share of stock is registered as the owner thereof
for purposes of dividends and other distributions in the course of business or
in the course of recapitalization, consolidation, merger, reorganization,
liquidation, or otherwise, and for the purpose of votes, approvals and consents
by stockholders, and for the purpose of notices to stockholders, and for all
other purposes whatsoever, and shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person,
whether or not the Corporation shall have notice thereof, save as expressly
required by the laws of the State of Delaware. It shall be the duty of each
stockholder to notify the Corporation of such stockholder's address.
II.2 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action.
In order that the Corporation may determine the stockholders entitled to
receive the payment of any dividend or other distribution or any allotment of
any rights, the Board of Directors may fix in advance a record date and a
payment date therefor. In such case only stockholders of record on such record
date shall be so entitled notwithstanding any transfer of stock on the books of
the Corporation after the record date.
II.3 Annual Meeting. The annual meeting of stockholders shall be
held on the third Friday in May in each year (or if that be a legal holiday in
the place where the meeting is to be held, on the next succeeding full business
day), at the principal office of the Corporation at 11:00 o'clock A.M. unless a
different date, hour or place within or without the State of Delaware is fixed
by the Board of Directors or the Chairman of the Board. The purposes for which
the annual meeting is to be held, in addition to those prescribed by law, by
the Certificate of Incorporation or by these Bylaws, may be specified by the
Board of Directors or the Chairman of the Board.
II.4 Special Meetings. A special meeting of stockholders may only
be called by the Chairman of the Board or the Board of Directors. At any
special meeting of stockholders, only such
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<PAGE> 4
business shall be conducted as shall be provided for in the resolution or
resolutions calling the special meeting or, where no such resolution or
resolutions have been adopted, only such business shall be conducted as shall
be provided in the notice to stockholders of the special meeting.
II.5 Notice of Meetings. A written notice stating the place, date
and hour and purpose of all meetings of stockholders shall be given by the
Secretary (or other person authorized by these Bylaws or by law or by the Board
of Directors) not less than ten nor more than sixty days before the meeting
(unless a shorter or longer time may be prescribed by law) to each stockholder
entitled to vote thereat and to each stockholder who by law is entitled to such
notice. If mailed, such notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at such stockholder's
address as it appears in the records of the Corporation. Notice need not be
given to a stockholder if a written waiver of notice is executed before, at or
after the meeting by such stockholder, if communication with such stockholder
is unlawful, or if such stockholder attends the meeting in question, unless
such attendance was for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting was not
lawfully called or convened. An affidavit of the Secretary or an Assistant
Secretary of the transfer agent of the Corporation that the notice has been
given shall, in the absence of fraud, be prima facia evidence of the facts
stated therein. If a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place are announced at
the meeting at which the adjournment is taken, except that if the adjournment
is for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting.
II.6 Quorum; Adjournment. The holders of a majority in interest of
all stock issued, outstanding and entitled to vote at a meeting shall
constitute a quorum. Any meeting may be adjourned, whether or not a quorum is
present, by the presiding officer of the meeting for any reason (including, if
the presiding officer determines that it would be in the best interests of the
Corporation to extend the period of time for the solicitation of proxies) from
time to time and place to place until the presiding officer shall determine
that the business to be conducted at the meeting is completed, which
determination shall be conclusive.
II.7 Voting and Proxies. Stockholders shall have one vote for each
share of stock entitled to vote owned by them of record according to the books
of the Corporation unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy
(which may include a signature and form of proxy pursuant to a facsimile or
telegraphic form of proxy or any other instruments acceptable to the Judge of
Election of the meeting), but no proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. Proxies
shall be filed with the Secretary of the meeting, or of any adjournment
thereof. Except as otherwise limited therein, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger.
II.8 Conduct of Meetings. The order of business and all other
matters of procedure at every meeting of the stockholders may be determined by
the presiding officer of the meeting, who
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<PAGE> 5
shall be the Chairman of the Board, or in the absence of the Chairman of the
Board, the President, or in the absence of both of them such other officer of
the Corporation or member of the Board of Directors as designated by the Board
of Directors. The presiding officer of the meeting shall have all the powers
and authority vested in a presiding officer by law or practice without
restriction, including, without limitation, the authority, in order to conduct
an orderly meeting, to impose reasonable limits on the amount of time at the
meeting taken up in remarks by any one stockholder and to declare any business
not properly brought before the meeting to be out of order. The Board of
Directors shall appoint one or more Judges of Election to serve at every
meeting of the stockholders in accordance with Delaware law.
II.9 Action at Meeting. When a quorum is present, any matter
before the meeting shall be decided by vote of the holders of a majority of the
shares of stock voting on such matter except where a larger vote is required by
law or by the Certificate of Incorporation. Any election of Directors by
stockholders shall be determined by plurality of the votes cast, except where a
larger vote is required by law, by the Certificate of Incorporation or by these
Bylaws. No ballot shall be required for any election unless requested by a
stockholder entitled to vote in the election. The Corporation shall not
directly or indirectly vote any share of its own stock; provided, however, that
the Corporation may vote shares which it holds in a fiduciary capacity to the
extent permitted by law.
II.10 Action Without a Meeting. Any action required or permitted by
law to be taken at any annual or special meeting of stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
II.11 Stockholder Lists. The Secretary (or other person authorized
by these Bylaws or by law) shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
ARTICLE III
DIRECTORS
III.1 Powers. The business of the Corporation shall be managed by a
Board of Directors, who may exercise all the powers of the Corporation except
as otherwise provided by the Certificate of Incorporation or by law.
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<PAGE> 6
III.2 Number of Directors. The number of Directors may be increased
or decreased from time to time by a vote of not less than 2/3 of the Directors
then in office, but no decrease shall have the effect of shortening the term of
any incumbent Director.
III.3 Election. Directors of the Corporation shall be elected
annually at each Annual Meeting of Stockholders.
III.4 Nomination. Only persons who are nominated in accordance with
the procedures set forth in this Section shall be eligible for election as
Directors of the Corporation.
(a) Nominations of persons for election to the Board of Directors
of the corporation may be made at a meeting of stockholders only (i) by or at
the direction of the Board of Directors or (ii) by a stockholder who (A) is a
stockholder of record who has owned at least 1% or $1000 in market value of
voting securities of the Corporation for at least one year on the date of such
stockholder gives the notice provided for below and who owns continues to own
such securities on the record date for the determination of stockholders
entitled to vote at such annual meeting and through the date of the meeting and
(B) gives timely and proper notice in writing to the Secretary of the
Corporation of such nomination. To be timely, a stockholder's notice must be
received at the principal executive offices of the Corporation not less than
120 nor more than 150 days in advance of the anniversary of the date of the
Corporation's proxy statement released to stockholders in connection with the
previous year's annual meeting of stockholders; provided, however, that if no
annual meeting was held in the previous year or the annual meeting is called
for date that is not within 30 days before or after the date contemplated at
the time of the previous year's proxy statement, notice by the stockholder to
be timely must be so received not later than the close of business on the tenth
day following the day on which notice of the date of the meeting was mailed or
public disclosure of the annual meeting date was made, whichever occurs first.
To be proper, a stockholder's notice to the Secretary of the Corporation must
set forth (i) as to each person whom the stockholder proposes to nominate for
election or re-election as director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended, or any
successor regulation thereto, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of
the Corporation that the stockholder owns of record or beneficially, the dates
on which such stockholder acquired such securities and documentary support in
accordance with Regulation 14A for a claim of beneficial ownership, (iv) a
description of all arrangements or understandings between such stockholder and
each proposed nominee and any other person or persons (including their names)
pursuant to which the nomination or nominations are to be made by such
stockholder and (v) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in the notice.
Such notice must be accompanied by a written consent of each proposed nominee
to being named as a nominee and to serve as a Director if elected.
(b) Any adjournment or postponement of the original meeting
whereby the meeting will reconvene within 30 days from the original date shall
be deemed for purposes of notice to be a continuation of the original meeting
and no nominations by a stockholder of persons to be elected
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<PAGE> 7
as directors of the Corporation may be made at any such reconvened meeting
unless timely notice of such nominations was given to the Secretary of the
Corporation for the meeting as originally scheduled.
(c) If the presiding officer of the meeting of stockholders
determines that a nomination was not properly brought before the annual meeting
in accordance with the foregoing procedures, the presiding officer shall
declare to the meeting that the nomination was not properly brought before the
meeting and such nomination shall be disregarded.
(d) For purpose of this Section, the term "public disclosure"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as
amended.
(e) Notwithstanding anything contained in this Section to the
contrary, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder with respect to the matters set forth in this Section.
Nothing in this Section shall be deemed to affect any rights of the holders of
any series of Preferred Stock to elect Directors under specified circumstances.
III.5 Tenure. Except as otherwise provided by law or by the
Certificate of Incorporation, Directors shall hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Any Director may resign by delivering a written resignation to the
Corporation. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
III.6 Vacancies. Any vacancy occurring in the Board of Directors,
including any vacancy created by an increase in the number of Directors, may be
filled by a majority of the remaining Directors or as otherwise provided by
law.
III.7 Removal. A Director may be removed from office (a) with or
without cause by vote of the holders of the majority of the shares of stock
entitled to vote in the election of Directors or (b) to the extent permitted by
law, for cause by vote of the majority of the Directors then in office. A
Director may be removed for cause only after reasonable notice and opportunity
to be heard before the body proposing to remove such Director.
III.8 Meetings; Participation. Regular meetings of the Board of
Directors may be held without notice at such time, date and place as the Board
of Directors may from time to time determine. Special meetings of the Board of
Directors may be called, orally or in writing, by the Chairman of the Board or
by three or more Directors, designating the time, date and place thereof.
Directors may participate in meetings of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
Directors participating in the meeting can hear each other, and participation
in a meeting in accordance herewith shall constitute presence in person at such
meeting.
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<PAGE> 8
III.9 Notice of Meetings. Notice of the time, date and place of all
special meetings of the Board of Directors shall be given to each Director by
the Secretary, or Assistant Secretary, or in the case of the death, absence,
incapacity or refusal of such persons, by one of the Directors calling the
meeting. Notice shall be given to each Director in person or by telephone or by
telegram sent to such Director's business or home address at least twenty-four
hours in advance of the meeting, or by written notice mailed to such Director's
business or home at least forty-eight hours in advance of the meeting. Notice
need not be given to any Director if a written waiver of notice is executed by
such Director before, at or after the meeting, if communication with such
Director is unlawful, or if such Director attends the meeting in question,
unless such attendance was for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened.
III.10 Quorum; Adjournment. At any meeting of the Board of
Directors, a majority of the Directors then in office shall constitute a
quorum. Less than a quorum may adjourn any meeting from time to time and the
meeting may be held as adjourned without further notice.
III.11 Action at Meeting. At any meeting of the Board of Directors
at which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless a larger number is required
by law, by the Certificate of Incorporation or by these Bylaws.
III.12 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting
if all members of the Board of Directors may be taken without a meeting if all
members of the Board of Directors consent thereto in writing, and the writing
or writings are filed with the minutes of the Board of Directors. Such consent
shall be treated as a vote of the Board of Directors for all purposes.
III.13 Committees. The Board of Directors, by a majority vote of the
Directors then in office, may establish one or more committees, and may
delegate thereto some or all of its powers except those which by law, by the
Certificate of Incorporation, or by these Bylaws may not be delegated. Except
as the Board of Directors may otherwise determine, any such committee may make
rules for the conduct of its business, but in the absence of such rules its
business shall be conducted so far as possible in the same manner as is
provided in these Bylaws for the Board of Directors. All members of such
committees shall hold their committee offices at the pleasure of the Board of
Directors, and the Board of Directors may abolish any committee at any time.
Each such committee shall report its action to the Board of Directors who shall
have power to rescind any action of any committee without retroactive effect.
III.14 Executive Committee. The Board of Directors shall establish a
standing Executive Committee. The Executive Committee shall consist of not less
than three Directors. The Executive Committee shall have and exercise the full
power and authority of the Board of Directors between meetings of the Board of
Directors, subject to such limitations and restrictions required by Delaware
law, the Certificate of Incorporation, or as the Board of Directors may impose
in a resolution duly adopted by the whole Board of Directors.
7
<PAGE> 9
III.15 Compensation Committee. The Board of Directors shall
establish a standing Compensation Committee. The Compensation Committee shall
consist of not less than two Directors, none of whom shall be employees of the
Corporation. The Compensation Committee shall recommend to the Board of
Directors the compensation to be paid to officers and key employees of the
Corporation and the compensation of members of the Board of Directors. Except
as otherwise provided in any specific plan adopted by the Board of Directors,
the Compensation Committee shall be responsible for administration of executive
incentive compensation plans, stock option plans and other forms of direct
or indirect compensation of officers and key employees, and each member of the
Compensation Committee shall have the power and authority to execute and bind
the Company to such documents, agreements and instruments related to such plans
and compensation as are approved by the Compensation Committee. In the
alternative, the Compensation Committee may authorize any officer of the
Company to execute such documents, agreements and instruments on behalf of the
Company. In addition, the Compensation Committee shall review levels of pension
benefits and insurance programs for officers and key employees.
III.16 Audit Committee. The Board of Directors shall establish a
standing Audit Committee. The Audit Committee shall consist of not less than two
Directors, none of whom shall be employees of the Corporation. The Audit
Committee shall be responsible for recommending to the entire Board of Directors
engagement and discharge of independent auditors of the financial statements of
the Corporation, shall review the professional service provided by independent
auditors, shall review the independence of independent auditors, shall review
with the auditors the plan and results of the auditing engagement, shall
consider the range of audit and non-audit fees, shall review the adequacy of the
Corporation's system of internal accounting controls, shall review the results
of procedures for internal auditing and shall consult with the internal auditor
of the Corporation with respect to all aspects of the Corporation's internal
auditing program. In addition, the Audit Committee shall direct and supervise
special investigations as deemed necessary by the Audit Committee.
III.17 Compensation of Directors. Unless the Board of Directors
adopts a resolution to the contrary, the Directors shall be paid their
expenses, if any, of attendance at each meeting of the Board of Directors, or a
meeting of a committee thereof. By resolution of the Board of Directors, the
Directors may be paid a fixed sum for attendance at each meeting of the Board
of Directors, or a meeting of a committee thereof, or a stated salary as
Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. The
Board of Directors may establish other forms of compensation for Directors
(including variable compensation) as it deems advisable.
ARTICLE IV
OFFICERS
IV.1 Officers. The officers of the Corporation shall be a Chairman
of the Board and Chief Executive Officer, a President, one or more Vice
Presidents, any one or more of which may be designated Executive Vice President
or Senior Vice President, a Secretary and a Treasurer. The Board of Directors
may appoint such other officers and agents, including Chief Financial Officer,
Controller, Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers, in each case
8
<PAGE> 10
as the Board of Directors shall deem necessary, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined by the Board of Directors. The Chairman of the Board shall be
elected from among the Directors. None of the other officers need be a
Director. None of the officers need be a stockholder of the Corporation. Any
two or more offices may be held by the same person. No officer shall execute,
acknowledge, verify or countersign any instrument on behalf of the Corporation
in more than one capacity, if such instrument is required by law, by these
Bylaws or by any act of the Corporation to be executed, acknowledged, verified,
or countersigned by two or more officers.
IV.2 Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at its first regular
meeting held after each annual meeting of stockholders or as soon thereafter as
conveniently possible. Each officer shall hold office until such officer's
successor shall have been chosen and shall have qualified or until such
officer's death or the effective date of such officer's resignation or removal,
or until such officer shall cease to be a Director in the case of the Chairman
of the Board.
IV.3 Removal and Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed with or without cause by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the Corporation shall be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed. Any officer may resign at any time by giving written
notice to the Corporation. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
IV.4 Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
IV.5 Compensation. Officers shall receive such compensation as may
from time to time be determined by the Board of Directors. Agents and employees
shall receive such compensation as may from time to time be determined by the
Chief Executive Officer.
IV.6 Chairman of the Board. The Chairman of the Board shall be the
chief executive officer of the Corporation and, subject to the control of the
Board of Directors, shall in general supervise and control the business and
affairs of the Corporation The Chairman of the Board shall preside at all
meetings of the Board of Directors or of the stockholders of the Corporation.
The Chairman of the Board shall formulate and submit to the Board of Directors
matters of general policy for the Corporation and shall perform such other
duties as usually appertain to the office or as may be prescribed by the Board
of Directors. The Chairman of the Board shall have the power to appoint and
remove subordinate officers, agents and employees, except those elected or
appointed by the Board of Directors. The Chairman of the Board shall keep the
Board of Directors informed and shall consult with them concerning the business
of the Corporation. The Chairman of the Board may sign certificates for shares
of the Corporation and any deeds, bonds, mortgages, contracts, checks, notes,
drafts, or other instruments that the Board of Directors has authorized to be
executed, except in cases where the signing and execution thereof has been
expressly delegated by these Bylaws or by the Board of Directors to some other
officer or agent of the Corporation, or shall be
9
<PAGE> 11
required by law to be otherwise executed. The Chairman of the Board shall vote,
or give a proxy to any other officer of the Corporation to vote, all shares of
stock of any other Corporation standing in the name of the Corporation and in
general the Chairman of the Board shall perform all other duties normally
incident to the office of Chairman of the Board and Chief Executive Officer and
such other duties as may be prescribed by the stockholders or the Board of
Directors from time to time.
IV.7 President. The President shall be the chief operating officer
of the Corporation and, subject to the powers of the Chairman of the Board and
Chief Executive Officer and the control of the Board of Directors, shall in
general supervise and control the operations of the Corporation. In the absence
of the Chairman of the Board, the President shall preside at all meetings of
the Board of Directors and of the stockholders. The President may also preside
at any such meeting attended by the Chairman of the Board if the President is
so designated by the Chairman of the Board. The President shall have the power
to appoint and remove subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors or by the Chairman of the Board
and Chief Executive Officer. The President shall keep the Chairman of the Board
and the Board of Directors informed and shall consult with them concerning the
operations of the Corporation. The President may sign certificates for shares
of the Corporation and any deeds, bonds, mortgages, contracts, checks, notes,
drafts, or other instruments that the Board of Directors has authorized to be
executed, except in cases where the signing and execution thereof has been
expressly delegated by these Bylaws or by the Board of Directors to some other
officer or agent of the Corporation, or shall be required by law to be
otherwise executed. The President shall vote, or give a proxy to any other
officer of the Corporation to vote, all shares of stock of any other
Corporation standing in the name of the Corporation and in general the
President shall perform all other duties normally incident to that office and
such other duties as may be prescribed by the stockholders or the Board of
Directors from time to time.
IV.8 Vice Presidents. In the absence of the Chairman of the Board
and the President, or Senior Vice President designated by the Board of
Directors shall perform the duties and exercise the powers of the President.
Any Vice President may sign certificates for shares of the Corporation and any
deeds, bonds, mortgages, contracts, checks, notes, drafts, or other instruments
that the Board of Directors has authorized to be executed, except in cases
where the signing and execution thereof has been expressly delegated by these
Bylaws or by the Board of Directors to some other officer or agent of the
Corporation, or shall be required by law to be otherwise executed. The Vice
Presidents shall perform such other duties as from time to time may be assigned
to them by the Chairman of the Board, the President or the Board of Directors.
IV.9 Secretary. The Secretary shall (a) keep the minutes of the
meetings of the stockholders, the Board of Directors and committees of
Directors; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation, and see that the seal of
the Corporation or a facsimile thereof is affixed to all certificates for
shares prior to the issue thereof and to all documents, the execution of which
on behalf of the Corporation under its seal is duly authorized in accordance
with the provisions of these Bylaws; (d) keep or cause to be kept a register of
the post office address of each stockholder which shall be furnished by such
stockholder; (e) sign with the
10
<PAGE> 12
President, or an Executive or Senior Vice President or Vice President,
certificates for shares of the Corporation, the issue of which shall have been
authorized by resolution of the Board of Directors; (f) have general charge of
the stock transfer books of the Corporation; and (g) in general, perform all
duties normally incident to the office of Secretary and such other duties as
from time to time may be assigned to the Secretary by the Chairman of the
Board, the President or the Board of Directors.
IV.10 Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of the Treasurer's
duties in such sum and with such surety or sureties as the Board of Directors
shall determine. The Treasurer shall (a) have charge and custody of and be
responsible for all funds and securities of the Corporation; (b) receive and
give receipts for moneys due and payable to the Corporation from any source
whatsoever and deposit all such moneys in the name of the Corporation in such
banks, trust companies, or other depositories as shall be selected in
accordance with these Bylaws; (c) prepare, or cause to be prepared, for
submission at each regular meeting of the Board of Directors, at each annual
meeting of the stockholders, and at such other times as may be required by the
Board of Directors, the Chairman of the Board or the President, a statement of
financial condition of the Corporation in such detail as may be required; and
(d) in general, perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to the Treasurer by the
Chairman of the Board, the President or the Board of Directors.
IV.11 Assistant Secretary or Treasurer. The Assistant Secretaries
and Assistant Treasurers shall, in general, perform such duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
Chairman of the Board, the President or the Board of Directors. The Assistant
Secretaries and Assistant Treasurers shall, in the absence of the Secretary or
Treasurer, respectively, perform all functions and duties which such absent
officers may delegate, but such delegation shall not relieve the absent officer
from the responsibilities and liabilities of such officer's office. The
Assistant Secretaries may sign, with the President or a Vice President,
certificates for shares of the Corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Treasurers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine.
IV.12 Other Powers and Duties. Subject to these Bylaws, each
officer of the Corporation shall have in addition to the duties and powers
specifically set forth in these Bylaws, such duties and powers as are
customarily incident to such officer's office, and such duties and powers as
may be designated from time to time by the Board of Directors.
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<PAGE> 13
ARTICLE V
INDEMNIFICATION
V.1 Present and Former Directors and Officers. The Corporation
shall indemnify, to the fullest extent that the General Corporation Law of the
State of Delaware as it exists on the date hereof and as it may hereafter be
amended, each of its present and former Directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit or proceeding, whether by or in the right of the
Corporation, by a third party or otherwise, to which such person is or was made
a party or threatened to be made a party by reason of the fact that such person
is or was a Director or officer of the Corporation. As soon as practicable
after a present or former officer or Director of the Corporation makes a claim
for indemnification pursuant to this provision (or pursuant to any related
contractual provision), the Corporation shall determine, pursuant to Section
145(d) of the General Corporation Law of the State of Delaware (or any
successor statute thereto), whether or not such person met the applicable
standard set forth in Section 145(a) or 145(b) of the General Corporation Law
of the State of Delaware (or any successor statute thereto), as applicable.
Upon finding that such applicable standard has been met, the Corporation shall
immediately authorize such indemnification.
V.2 Advancement of Expenses; Insurance. The Corporation shall pay
expenses (including attorney's fees) incurred by a present or former officer or
Director of the Corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding as and when such expenses are
incurred, including in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such present or
former officer or Director of the Corporation to repay such amount if it shall
ultimately be determined in a final, non-appealable decision by a court of
competent jurisdiction that such present or former officer or Director of the
Corporation is not entitled to be indemnified by the Corporation under Delaware
law. The Corporation shall purchase and maintain indemnification insurance on
behalf of its Directors and officers in reasonable and customary amounts.
V.3 Indemnification of Others. To the extent that the General
Corporation Law of the State of Delaware as it exists on the date hereof and as
it may hereafter be amended, under general or specific authority granted by the
Board of Directors, the Corporation may furnish such indemnification persons
other than present or former officers or Directors of the Corporation.
V.4 Nature of Indemnities; Amendment of Indemnity Provisions. The
rights to indemnification and advancement of expenses conferred in this Section
are contractual rights. The rights conferred on any person by this Article
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. Any repeal or modification of paragraphs the provisions
of this Article shall not adversely affect any right or protection hereunder of
any person in respect of any act or commission occurring before such repeal or
modification.
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ARTICLE VI
MISCELLANEOUS PROVISIONS
VI.1 Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on December 31 of each
year.
VI.2 Seal. The Board of Directors shall have power to adopt and
alter the seal of the Corporation, but the absence of such seal shall not
affect the validity of any document or instrument.
VI.3 Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action, may
be executed on behalf of the Corporation by the Chairman of the Board, the
President, any Senior or Executive Vice President or the Treasurer.
VI.4 Voting of Securities. Unless otherwise provided by the Board
of Directors, the President or Treasurer may waive notice of and act on behalf
of the Corporation, or appoint another person or persons to act as proxy or
attorney in fact for the Corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other Corporation or organization, any of whose securities are held by the
Corporation.
VI.5 Resident Agent. The Board of Directors may appoint a resident
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
VI.6 Corporate Records. The original or attested copies of the
Certificate of Incorporation, Bylaws and records of all meetings of the
incorporators, stockholders and the Board of Directors and the stock and
transfer records, which shall contain the names of all stockholders, their
record addresses and the amount of stock held by each, shall be kept at the
principal office of the Corporation, at the office of its counsel, or at an
office of its transfer agent.
VI.7 Certification of Incorporation. All references in these
Bylaws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the Corporation, as amended or restated and in
effect from time to time.
VI.8 Amendments. The power to adopt amend or repeal bylaws of the
Corporation is conferred upon the Board of Directors of the Corporation;
provided that the fact that such power has been so conferred upon the Board of
Directors shall not divest the stockholders of the Corporation of the power,
nor limit their power to adopt, amend or repeal bylaws of the Corporation. In
addition to any requirements of law and any other provision of this Restated
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors adopted pursuant to Article 4 of this Restated Certificate of
Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Restated Certificate of Incorporation or any such
resolution or resolutions), the affirmative vote of the holders of 80% or more
of the combined voting power of the then outstanding shares of stock of all
classes and series of stock the holders of which are entitled to vote generally
in the election of directors, voting together as a single class, shall be
required to adopt, amend, alter or repeal any bylaws of the Corporation.
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<PAGE> 1
TAX ALLOCATION AGREEMENT
BY AND BETWEEN
WEATHERFORD INTERNATIONAL, INC.
AND
GRANT PRIDECO, INC.
, 1999
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Grant Group...................................................... -2-
2. Tax Returns...................................................... -2-
3. Obligation for Payment of Taxes.................................. -4-
4. No Weatherford Tax Payments...................................... -5-
5. Grant Tax Payments............................................... -5-
6. Tax Credits; Deferred Intercompany Gains......................... -6-
7. Grant Tax Carryovers............................................. -7-
8. Tax Audits....................................................... -7-
9. Proposed Adjustments............................................. -7-
10. Notice of Settlement or Compromise............................... -8-
11. Grant's Right to Contest......................................... -8-
12. Subsequent Adjustments or Refunds................................ -9-
13. Grant Spin-Off Tax Indemnity..................................... -9-
14. Future Actions.................................................. -10-
15. Combined, Consolidated or Unitary Basis Returns................. -10-
16. Earnings and Profits Information................................ -10-
17. Retention of Records............................................ -11-
18. Expenses........................................................ -11-
19. Definitions..................................................... -11-
"After-Tax Basis"............................................... -11-
"Agreed Rate"................................................... -11-
"Code" ....................................................... -12-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
"Distribution Agreement"........................................ -12-
"Grant"......................................................... -12-
"Grant Group"................................................... -12-
"Interim Period"................................................ -12-
"Returns"....................................................... -12-
"Ruling"........................................................ -12-
"Short Period".................................................. -12-
"Spin-Off"...................................................... -12-
"Spin-Off Date"................................................. -12-
"Spin-Off Tax".................................................. -12-
"Tax Authority"................................................. -13-
"Taxes"......................................................... -13-
"Transfer Tax".................................................. -13-
"Weatherford"................................................... -13-
"Weatherford Group"............................................. -13-
"WEI"........................................................... -13-
20. Notices......................................................... -13-
21. Binding Effect; Successors...................................... -14-
22. Severability.................................................... -15-
23. Entire Agreement................................................ -15-
24. Governing Law................................................... -15-
25. Arbitration..................................................... -16-
</TABLE>
EXHIBIT A - MEMBERS OF THE GRANT GROUP
-ii-
<PAGE> 4
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT, made and entered into as of the ____ day
of ____________, ____, by and between WEATHERFORD INTERNATIONAL, INC., a
Delaware corporation ("Weatherford"), and GRANT PRIDECO, INC., a Delaware
corporation ("Grant").
W I T N E S S E T H:
WHEREAS, Weatherford is the common parent of an affiliated group of
corporations (hereinafter referred to as the "Weatherford Group") within the
meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), which affiliated group includes (x) corporations owned by Weatherford
(then known as EVI, Inc.) and (y) corporations owned by Weatherford Enterra,
Inc., a Delaware corporation ("WEI"), on May 27, 1998, the date on which WEI
merged with and into Weatherford, and (z) corporations acquired by Weatherford
or other members of the Weatherford Group subsequent to May 27, 1998, and the
members of the Weatherford Group have heretofore joined in filing consolidated
Federal income Tax Returns;
WHEREAS, prior to May 27, 1998, Weatherford and its eligible
subsidiaries joined in filing consolidated Federal income Tax Returns as an
affiliated group and WEI and its eligible subsidiaries joined in filing
consolidated Federal income Tax Returns as an affiliated group;
WHEREAS, Grant and its subsidiaries have been members of the
Weatherford Group;
WHEREAS, on or about ____________ __, ____, certain
assets associated with the drilling products business conducted by the
Weatherford Group, including the stock of certain subsidiaries included in the
Weatherford Group and engaged in the drilling products business, will be
contributed to the capital of Grant or otherwise acquired by Grant or one or
more of its subsidiaries;
-1-
<PAGE> 5
WHEREAS, Weatherford, on or about ____________ __, ____ (the "Spin-Off
Date"), will distribute to its stockholders all of the outstanding stock of
Grant (the "Spin-Off"), and thereafter Grant and its subsidiaries will no longer
be members of the Weatherford Group for Federal income Tax purposes; and
WHEREAS, the parties desire to provide for the sharing of the Federal,
state, local and foreign income Tax liabilities and benefits accrued prior to
the Spin-Off between Weatherford and its subsidiaries and Grant and its
subsidiaries;
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant Group. For purposes of this Agreement, the "Grant Group" shall
mean (i) Grant, (ii) Grant's subsidiaries, and (iii) those corporations and
other entities whose stock or ownership interests will be contributed to Grant
prior to the Spin-Off Date, all of such subsidiaries of Grant and such
corporations and other entities being listed on Exhibit A attached hereto.
Unless otherwise specified, whenever items of income, gain, loss, deduction,
credit, or other Tax attributes of Grant are referred to in this Agreement, the
reference shall be to the collective amounts of such items for the Grant Group
as defined herein.
2. Tax Returns. Weatherford shall prepare and file or cause to be
prepared and filed timely all appropriate Returns in respect of Grant and the
other members of the Grant Group that (i) are required to be filed on or before
the Spin-Off Date; or (ii) are required to be filed after the Spin-Off Date that
(A) are required to include, on a consolidated, combined or unitary basis, the
operations of Grant or any other member of the Grant Group for any Tax period
ending on or before the Spin-Off Date; or (B) are required to be filed by Grant
or any other member of the Grant Group on a separate return basis for any Tax
period ending on or before the Spin-Off Date. To the extent
-2-
<PAGE> 6
requested by Weatherford, Grant shall participate in the filing of and shall
file any required Returns with respect to any Tax period that ends on or before
the Spin-Off Date. Grant shall prepare or cause to be prepared the schedules in
respect of Grant and other members of the Grant Group containing the information
necessary for Weatherford to prepare any consolidated, combined or unitary
Returns. If Weatherford, after consulting with Grant, files any such
consolidated, combined or unitary Return using information with respect to Grant
and the other members of the Grant Group that is different from the information
prepared and furnished by Grant and Weatherford and Grant thereafter are unable
to resolve such difference, such difference shall constitute a claim for
purposes of Paragraph 25 of this Agreement. Grant shall also prepare or cause to
be prepared and shall file or cause to be filed all other Returns required of
Grant or any other members of the Grant Group, or in respect of its or any of
their activities, for any Tax period ending after the Spin-Off Date that
includes the operations of Grant or any other member of the Grant Group prior to
the Spin-Off Date. The parties hereto will, to the extent permitted by
applicable law, elect with the relevant Tax Authority to treat for all purposes
the Spin-Off Date as the last day of a Tax period of Grant and the other members
of the Grant Group, and such period shall be treated as a "Short Period" for
purposes of this Agreement. In any case where applicable law does not permit
Grant to treat the Spin-Off Date as the last day of a Short Period, then for
purposes of this Agreement, the portion of such Taxes that is attributable to
the operations of Grant and the other members of the Grant Group for such
Interim Period (as defined below) shall be (i) in the case of Taxes that are not
based in whole or in part on income or gross receipts, the total amount of such
Taxes for the period in question multiplied by a fraction, the numerator of
which is the number of days in the Interim Period, and the denominator of which
is the total number of days in the entire period in question, and (ii) in the
case of Taxes that
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<PAGE> 7
are based in whole or in part on income or gross receipts, the Taxes that would
be due with respect to the Interim Period, if such Interim Period were a Short
Period. "Interim Period" means with respect to any Taxes imposed on Grant or any
other members of the Grant Group on a periodic basis for which the Spin-Off Date
is not the last day of a Short Period, the period of time beginning on the first
day of the actual Tax period that includes (but does not end on) the Spin-Off
Date and ending on and including the Spin-Off Date. Any franchise Tax shall be
allocated to the Tax period or portion thereof during which the right to do
business obtained by the payment of such franchise Tax relates, regardless of
whether such franchise Tax is measured by income, operations, assets or capital
relating to another Tax period.
3. Obligation for Payment of Taxes. Weatherford shall be entitled to
receive from Grant amounts calculated in accordance with Paragraphs 5 and 12
hereof. Except as otherwise provided in Paragraph 5, the amounts, if any, that
Grant shall be obligated to pay Weatherford pursuant to Paragraph 5, with
respect to Tax periods of the Weatherford Group ending on or prior to the
Spin-Off Date, shall be paid within 120 days after the Spin-Off Date. This
initial settlement shall be based on the Returns as they have been filed and
shall include any amendments of or adjustments to such Returns that have been
finally settled. Except as otherwise provided in Paragraph 5, any amounts that
Grant shall be obligated to pay Weatherford pursuant to Paragraph 5 with respect
to Tax periods of the Weatherford Group ending after the Spin-Off Date shall be
paid within 30 days after filing of the Returns for such Tax periods. In the
event of an adjustment to the amount of payment for any Tax period as determined
under Paragraph 12, Weatherford shall be entitled to receive from Grant such
payment within 30 days after payment of a deficiency to or receipt of a refund
from the Tax Authority. In the event of an adjustment under Paragraph 12
resulting in no additional payment to
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<PAGE> 8
or receipt of a refund from the Tax Authority, settlement shall be made within
30 days after filing of the amended Return or final settlement of the
adjustment.
4. No Weatherford Tax Payments. Except as otherwise provided in
Paragraph 12 hereof, Weatherford shall not be obligated to pay Grant for any Tax
credits of the Grant Group or any losses or deductions of the Grant Group used
by the Weatherford Group to reduce its Federal income Tax liability or Federal
taxable income for any Tax period ending on or before the Spin-Off Date. For
purposes of these computations, the allocation of Tax attributes to the Grant
Group and absorption thereof by the Weatherford Group for each Tax period shall
be determined in accordance with the Treasury Regulations under Section 1502 of
the Code, applied in a manner consistent with practices and methods followed in
reporting the Federal income Tax liability of the Weatherford Group for such Tax
periods. In any instance where a Tax attribute must be characterized, the
characterization prescribed by the aforementioned Treasury Regulations will
control.
5. Grant Tax Payments. For each Tax period of the Weatherford Group
which includes income of the Grant Group, Grant shall be obligated to pay
Weatherford an amount equal to the product of (i) the net taxable income of the
Grant Group included in the consolidated Federal income Tax Return of the
Weatherford Group for such period, multiplied by (ii) the highest marginal
statutory Federal corporate income Tax rate applicable to such income for such
period; provided, however, that no payment shall be required pursuant to this
Paragraph 5 to the extent such payments have previously been made by the Grant
Group to members of the Weatherford Group other than the Grant Group under any
Tax sharing agreement or arrangement (whether written or oral) or any other
similar system of payments with respect to Federal income Taxes of the
Weatherford Group in existence prior to the Spin-Off Date. For purposes of these
computations, the allocation of Tax
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<PAGE> 9
attributes to the Weatherford Group and absorption thereof by the Grant Group
for each Tax period shall be determined in accordance with the Treasury
Regulations under Section 1502 of the Code, applied in a manner consistent with
practices and methods followed in reporting the Federal income Tax liability of
the Weatherford Group for such Tax periods. In any instance where a Tax
attribute must be characterized, the characterization prescribed by the
aforementioned Treasury Regulations will control. To the extent, if any, that
the amount of Taxes Weatherford is required to pay with respect to the net
taxable income of the Grant Group for a Tax period is less than the amount
calculated as owed by Grant to Weatherford under this Paragraph 5, the amount
owed by Grant to Weatherford shall be (i) reduced to the extent that such
difference is attributable to Tax benefits of the Weatherford Group used which
would have otherwise expired unused but for the fact that the Grant Group had
net taxable income for such Tax period, or (ii) deferred to the extent such
difference is attributable to Tax benefits of the Weatherford Group used which
would have otherwise carried forward to a subsequent year or years but for the
fact that the Grant Group had net taxable income for such Tax period. In the
event an amount otherwise payable by Grant to Weatherford is deferred pursuant
to clause (ii) of the immediately preceding sentence, such amount shall be paid
by Grant to Weatherford within 30 days after the filing of the Tax Return for
the Tax period in which such Tax benefits of the Weatherford Group previously
used would have been used.
6. Tax Credits; Deferred Intercompany Gains. For purpose of the
calculations under this Agreement, any loss of Tax credits resulting from or
attributable to the transfer of assets to Grant or any other member of the Grant
Group in connection with the Spin-Off shall be ignored and all calculations
shall be made as though all such tax credits were available for use by the
Weatherford Group. In the event any deferred intercompany gain attributable to
assets transferred to Grant or any
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<PAGE> 10
other members of the Grant Group by other members of the Weatherford Group is
recognized by the Weatherford Group by reason of the Spin-Off, such deferred
intercompany gain, if any, shall be deemed to be gain of the Grant Group for its
taxable year ending on the Spin-Off Date for purposes of all calculations under
this Agreement.
7. Grant Tax Carryovers. Notwithstanding anything in this Agreement to
the contrary, no payment shall be made by Grant to Weatherford with respect to
items of loss or other Tax benefits apportioned to and carried over by the Grant
Group, under the Treasury Regulations governing Federal consolidated income Tax
Returns, after the Spin-Off, regardless of whether such Tax benefits are used by
the Grant Group to reduce its Federal income Tax liability after the Spin-Off.
Weatherford agrees to cooperate with Grant in determining the amount of such
items of loss or other Tax benefits apportioned to and carried over by the Grant
Group after the Spin-Off.
8. Tax Audits. In the event of an audit by any Tax Authority of a
Return filed by Weatherford for any Tax period ending prior to or on the
Spin-Off Date (or any Tax period thereafter in which a carryforward of the Grant
Group's Tax benefits is used), Weatherford shall give Grant timely and
reasonable notice of such audit proceedings and Grant will provide all necessary
information and other assistance reasonably requested by Weatherford with
respect to issues concerning the activities of the Grant Group. All
communications with any such Tax Authority and its employees concerning any such
audit will be made by Weatherford unless otherwise agreed between the parties
hereto.
9. Proposed Adjustments. Weatherford shall give prompt notice to Grant
of any adjustment or adjustments proposed by any Tax Authority relating to the
activities of the Grant Group for any Tax period ending prior to or on the
Spin-Off Date. After consulting with Grant,
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<PAGE> 11
Weatherford shall determine in its sole discretion the nature of all action to
be taken to contest such proposed adjustment, including whether any such action
shall initially be contested by way of judicial or administrative proceedings,
or both, whether any such proposed adjustment shall be contested by resisting
payment thereof or by paying the same and seeking a refund thereof, and if
Weatherford shall undertake to contest such proposed adjustment, the court or
other judicial body before which such action will be commenced. Weatherford
shall have full control over any contest or administrative proceeding pursuant
to this Paragraph, but Grant, at its expense and subject to approval of
Weatherford, may participate in any proceedings contesting any proposed
adjustment relating to the activities of the Grant Group.
10. Notice of Settlement or Compromise. Weatherford shall give prompt
notice to Grant of any proposal made to it at the time of an audit or otherwise,
to settle or compromise issues relating to the Tax liabilities of the Grant
Group for any Tax period ending prior to or on the Spin-Off Date. Weatherford
will not accept or offer any settlement or compromise of such issues without the
consent of Grant, and such consent shall not be unreasonably withheld. If, in
Weatherford's opinion, Grant unreasonably withholds such consent, Weatherford
shall have the right to settle or compromise such issues on the basis contained
in the notice to Grant. If Grant thereafter desires to dispute such settlement
or compromise, Grant's claim with respect thereto shall constitute a claim for
purposes of Paragraph 25 of this Agreement.
11. Grant's Right to Contest. Should Weatherford decline or cease to
contest any proposed adjustment relating to the activities of the Grant Group
for any Tax period ending prior to or on the Spin-Off Date, Weatherford shall so
notify Grant. Grant may, at its expense and only with Weatherford's prior
consent, contest such proposed adjustments; but in no event shall Grant be
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<PAGE> 12
permitted to accept or offer any settlement or compromise that would require the
settlement or compromise of issues relating to the Tax liabilities of members of
the Weatherford Group other than the Grant Group.
12. Subsequent Adjustments or Refunds. With respect to any Tax period
of the Weatherford Group for which Weatherford received from Grant a payment
pursuant to Paragraph 5 or this Paragraph 12, if the filing of an amended income
Tax Return, final determination of any adjustment made by any Tax Authority or
the receipt of a refund by Weatherford occurs with respect to such period and
such event would cause a difference in the amount of payment required for such
period as previously calculated pursuant to Paragraph 5 or this Paragraph 12,
Weatherford shall give Grant prompt notice of such difference and Weatherford
shall be obligated to pay or entitled to receive from Grant the amount of such
difference. The amount shall include interest at the applicable deficiency
interest rate imposed by the Tax Authority if the adjustment results in the
payment of Tax to or receipt of Tax from the Tax Authority.
13. Grant Spin-Off Tax Indemnity. Notwithstanding any other provision
of this Agreement to the contrary, Grant shall be liable for, shall pay and
shall indemnify and hold Weatherford and the other members of the Weatherford
Group harmless, on an After-Tax Basis, against (A) any Transfer Taxes and other
Taxes which may be imposed or assessed as a result of the contribution by
Weatherford to the capital of Grant or the acquisition (by sale or purchase or
otherwise) by Grant or one or more of the other members of the Grant Group of
assets associated with the drilling products business conducted by the
Weatherford Group, including the stock of certain subsidiaries included in the
Weatherford Group and engaged in the drilling products business, and (B) any
Spin-Off Tax. In determining the amount of, and the time of payment of, any such
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<PAGE> 13
Transfer Taxes, other Taxes or Spin-Off Tax owed by Grant to Weatherford, the
principles set forth in the last two sentences of Paragraph 5 shall apply.
14. Future Actions. The parties agree not to take any action
inconsistent with any information, covenant or representation provided to the
Internal Revenue Service in connection with obtaining the Ruling. In addition,
Grant agrees that, during the three-year period following the Spin-Off, it will
not engage in any transaction that could adversely affect the tax treatment of
the Spin- Off, unless Grant delivers to Weatherford a supplemental ruling from
the Internal Revenue Service or a tax opinion acceptable to Weatherford of
nationally recognized tax counsel to the effect that the proposed transaction
would not adversely affect the tax treatment of the Spin-Off.
15. Combined, Consolidated or Unitary Basis Returns. The parties
acknowledge that certain state, local or foreign Tax Authorities may require, or
one of the parties may desire, to file amended or original state, local or
foreign income Tax Returns on a combined, consolidated or unitary basis. Such
filing may result in an aggregate decrease in the state, local or foreign income
Tax of both parties; however, one party may suffer a Tax increase compared to
its state, local or foreign income Tax liability calculated on a separate
company basis, while the other party enjoys a Tax decrease. In any such event,
the parties intend that the required calculations for determining which party
owes Taxes to the other with respect thereto be made by utilizing the principles
set forth in Paragraphs 3, 4, 5 and 12 hereof.
16. Earnings and Profits Information. The parties agree to share such
information as is necessary to properly allocate the earnings and profits of the
Grant Group in accordance with the Code and Treasury Regulations for Tax periods
prior to or ending on the Spin-Off Date. After the Spin-Off, Weatherford agrees
to provide Grant and Grant's independent auditors with such
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<PAGE> 14
information as is necessary to verify amounts received or receivable by Grant
under this Agreement. Grant agrees to make available to Weatherford, upon
request, all Federal, state, local and foreign Tax Returns, work papers and
other documents pertaining to the activities of the Grant Group prior to the
Spin-Off.
17. Retention of Records. Each party hereto agrees, to the extent
potentially relevant to the other party, to (1) retain records, documents,
accounting and other information (including computer data) necessary for the
preparation and filing of all Returns or the audit of such Returns, and (2) give
to the other party reasonable access to such records, documents, accounting
data, Returns and related books and records and other information (including
computer data) and to its personnel (insuring their cooperation) and premises,
for purposes of the review or audit of such Returns to the extent relevant to an
obligation or liability of a party under this Agreement.
18. Expenses. Each party will bear its own expenses in complying with
this Agreement, including but not limited to the cost of employee work hours.
The sharing of fees and expenses of nonemployees and independent contractors
mutually engaged by the parties shall be agreed upon before such persons are
engaged.
19. Definitions.
(a) "After-Tax Basis" means, with respect to any payment, an
amount calculated by taking into account the Tax consequences of the receipt of
such payment, as well as any Tax benefit associated with the liability giving
rise to the payment, in each case calculated on a present value basis using the
Agreed Rate.
(b) "Agreed Rate" means the annual rate of interest quoted,
from time to time, by ______________________, N.A. in Houston, Texas as its
prime rate of interest for the purpose
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<PAGE> 15
of determining the interest rates charged by it for United States dollar
commercial loans made in the United States.
(c) "Code" has the meaning set forth in the first recital
hereof.
(d) "Distribution Agreement" means that certain Distribution
Agreement dated as of _______________, 1999, by and between Weatherford and
Grant, as the same may be amended or otherwise modified from time to time
pursuant to the terms thereof.
(e) "Grant" has the meaning set forth in the preamble hereto.
(f) "Grant Group" has the meaning set forth in Section 1
hereof.
(g) "Interim Period" has the meaning set forth in Section 2
hereof.
(h) "Returns" means all returns, declarations, reports,
statements and other documents required to be filed in respect of Taxes, and the
term "Return" means any one of the foregoing Returns.
(i) "Ruling" means the private letter ruling to be issued by
the Internal Revenue Service with respect to the Spin-Off and relating to the
tax consequences associated with the distribution of all outstanding shares of
Grant common stock.
(j) "Short Period" has the meaning set forth in Section 2
hereof.
(k) "Spin-Off" has the meaning set forth in the fifth recital
hereof.
(l) "Spin-Off Date" has the meaning set forth in the fifth
recital hereof.
(m) "Spin-Off Tax" means any Tax to which Weatherford or any
member of the Weatherford Group is subject as a result of the application of any
provision of the Code to the Spin-Off, including without limitation, Section
311(b), Section 355(c)(2), Section 355(e) or Section 361(c)(2) of the Code (or
any corresponding or similar provision of state, local or foreign law), other
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<PAGE> 16
than any such Tax which results solely from the fact that one or more persons
acquire directly or indirectly stock representing a 50-percent or greater
interest in Weatherford after the Spin-Off and such acquisition is subject to
Section 355(e) of the Code.
(n) "Tax Authority" means the United States Internal Revenue
Service or any other comparable state, local or foreign governmental authority.
(o) "Taxes" means all federal, state, local, foreign and other
taxes, charges, fees, duties, levies, imposts, customs or other assessments,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, profit share, license,
value added, withholding, payroll, employment, excise, estimated, severance,
stamp, occupation, premium, property, windfall profits, or other taxes, fees,
assessments, customs, duties, levies, imposts, or charges of any kind
whatsoever, together with any interest, penalties, additions to tax, fines or
other additional amounts imposed thereon or related thereto, and the term "Tax"
means any one of the foregoing Taxes.
(p) "Transfer Tax" means any excise, sales, use, transfer,
documentary, filing, recordation or other similar tax or fee, together with any
interest, additions or penalties with respect thereto and any interest in
respect of such additions or penalties.
(q) "Weatherford" has the meaning set forth in the preamble
hereto.
(r) "Weatherford Group" has the meaning set forth in the first
recital hereto.
(s) "WEI" has the meaning set forth in the first recital
hereto.
20. Notices. All notices and other communications to be given or made
hereunder shall be in writing and shall be (a) personally delivered with signed
receipt obtained acknowledging delivery; (b) transmitted by postage prepaid
registered mail, return receipt requested (air mail if
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<PAGE> 17
international); or (c) transmitted by facsimile; to a party at the address set
out below (or at such other address as it may have provided notification for the
purposes hereof to the other party hereto in accordance with this Section).
If to Grant: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Fax number: (281) 297-8569
Attention: General Counsel
If to Weatherford: Weatherford International, Inc.
515 Post Oak Boulevard, Suite 600
Houston, Texas 77027
Fax number: (713) 693-4484
Attention: General Counsel
With a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Fax number: (713) 651-5246
Attention: Charles L. Strauss
21. Binding Effect; Successors. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and any
successor, by merger, acquisition of assets or otherwise, to either of the
parties hereto (including but not limited to any successor of Weatherford or
Grant succeeding to the Tax attributes of Weatherford or Grant under Section 381
of the Code), to the same extent as if such successor had been an original party
to this Agreement. In addition, in the event of any acquisition of the assets of
Grant in which gain or loss is not recognized, in whole or in part, for Federal
income Tax purposes, Grant shall ensure that any purchaser of such assets shall
assume the obligations set forth in this Agreement.
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<PAGE> 18
22. Severability. Any provision of this Agreement that is determined by
arbitration as provided herein or a court of competent jurisdiction to be
invalid, illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable, so long as the
material purposes of this Agreement can be determined and effectuated. Should
any provision of this Agreement be so declared invalid, illegal or
unenforceable, the parties shall agree on a valid provision to substitute for
it.
23. Entire Agreement. This Agreement, including the exhibit and other
writings referred to herein or delivered pursuant hereto, constitutes the entire
agreement between Weatherford and Grant with respect to the subject matter
hereof and supersedes all other agreements, representations, warranties,
statements, promises and undertakings, whether oral or written, with respect to
the subject matter hereof, including, without limitation, any and all Tax
sharing agreements or arrangements (whether oral or written) between Weatherford
and the other members of the Weatherford Group (other than the Grant Group) on
the one hand and Grant and the other members of the Grant Group on the other
hand, that require payments or indemnities to be made with respect to Taxes.
This Agreement may not be amended, altered or modified except by a writing
signed by duly authorized officers of Weatherford and Grant.
24. Governing Law. All questions arising out of this Agreement and the
rights and obligations created herein, or its validity, existence,
interpretation, performance or breach, shall be governed by and construed in
accordance with the internal laws of the State of Texas, without regard to or
the application of the rules of conflicts of laws set forth in such laws.
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<PAGE> 19
25. Arbitration. The parties agree that any claim arising out of or
related to this Agreement shall be governed by the dispute resolution,
arbitration and choice of forum provisions set forth in Section ___ of the
Distribution Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
WEATHERFORD INTERNATIONAL, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
GRANT PRIDECO INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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<PAGE> 1
EXHIBIT 10.8
GRANT PRIDECO, INC.
FOREIGN EXECUTIVE
DEFERRED COMPENSATION PLAN
<PAGE> 2
GRANT PRIDECO, INC.
FOREIGN EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Grant Prideco, Inc. desires to establish a deferred
compensation plan for a select group of management and highly compensated
employees;
WHEREAS, as a result of the distribution by Weatherford
International, Inc. to its stockholders of all of the outstanding shares of
stock of Grant Prideco, Inc. (the "Spin-Off"), Grant Prideco, Inc. shall no
longer be a subsidiary of Weatherford International, Inc. as of the effective
date of the Spin-Off;
NOW, THEREFORE, Grant Prideco, Inc. hereby establishes the
Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan effective on
the effective date of the Spin-Off, the terms of which are set forth in this
document as it may be amended from time to time.
<PAGE> 3
GRANT PRIDECO, INC.
FOREIGN EXECUTIVE
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
ARTICLE I -- DEFINITIONS
Account................................................................................................1.1
Basic Benefit..........................................................................................1.2
Beneficiary............................................................................................1.3
Board of Directors.....................................................................................1.4
Code...................................................................................................1.5
Common Stock...........................................................................................1.6
Company................................................................................................1.7
Compensation...........................................................................................1.8
Committee..............................................................................................1.9
Disability............................................................................................1.10
GP....................................................................................................1.11
Foreign Deferred Compensation Ledger..................................................................1.12
Participant...........................................................................................1.13
Plan..................................................................................................1.14
Plan Year.............................................................................................1.15
Retirement............................................................................................1.16
Subsidiary............................................................................................1.17
ARTICLE II - ELIGIBILITY
ARTICLE III - BASIC BENEFIT ACCRUALS
ARTICLE IV - ACCOUNT
Establishing a Participant's Account...................................................................4.1
Basic Benefit Account..................................................................................4.2
Gauge for Determining Benefits.........................................................................4.3
ARTICLE V - VESTING
ARTICLE VI - DISTRIBUTIONS
Death..................................................................................................6.1
Disability.............................................................................................6.2
Retirement.............................................................................................6.3
Termination Prior to Death, Disability or Retirement...................................................6.4
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Forfeiture For Cause...................................................................................6.5
Responsibility for Distributions and
Withholding of Taxes.................................................................................6.6
Distribution Determination Date........................................................................6.7
Valuation of Accounts for Cash Distributions...........................................................6.8
ARTICLE VII - ADMINISTRATION
Committee Appointment..................................................................................7.1
Committee Organization and Voting......................................................................7.2
Powers of the Committee................................................................................7.3
Committee Discretion...................................................................................7.4
Annual Statements......................................................................................7.5
Reimbursement of Expenses..............................................................................7.6
ARTICLE VIII - ADOPTION BY SUBSIDIARIES
Procedure for and Status After Adoption................................................................8.1
Termination of Participation By Adopting Subsidiary....................................................8.2
ARTICLE IX - AMENDMENT AND/OR TERMINATION
Amendment or Termination of the Plan...................................................................9.1
No Retroactive Effect on Awarded Benefits..............................................................9.2
Effect of Termination..................................................................................9.3
ARTICLE X - PAYMENT
Payments Under This Agreement Are the Obligation
of the Company......................................................................................10.1
Participants Must Rely Only on General
Credit of the Company..............................................................................10.2
ARTICLE XI - MISCELLANEOUS
Limitation of Rights..................................................................................11.1
Distributions to Incompetents or Minors...............................................................11.2
Nonalienation of Benefits.............................................................................11.3
Reliance Upon Information ............................................................................11.4
Severability..........................................................................................11.5
Notice................................................................................................11.6
Gender and Number.....................................................................................11.7
Governing Law.........................................................................................11.8
Effective Date........................................................................................11.9
</TABLE>
ii
<PAGE> 5
GRANT PRIDECO, INC.
FOREIGN EXECUTIVE
DEFERRED COMPENSATION PLAN
Grant Prideco, Inc. (the "Company") hereby establishes the
Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan effective upon
the Spin-Off which provides deferred compensation for a select group of foreign
highly compensated or management personnel based on services performed outside
the United States as follows:
ARTICLE I
DEFINITIONS
1.1 "ACCOUNT" means all ledger accounts pertaining to a
Participant which are maintained by the Committee to reflect the amount of
deferred compensation due the Participant. The Committee shall establish the
following Accounts and any additional Accounts that the Committee considers
necessary:
Basic Benefit Account - The Company's accrual of 15 percent of
Compensation for each Participant.
1.2 "BASIC BENEFIT" means the accrual made by the Company for
the benefit of a Participant equal to 15 percent of the Participant's
Compensation.
1.3 "BENEFICIARY" means a person or entity designated by the
Participant under the terms of the Plan to receive any amounts distributed under
the Plan upon the death of the Participant.
1.4 "BOARD OF DIRECTORS" means the Board of Directors of GP.
1.5 "CODE" means the United States of America, Internal Revenue
Code of 1986, as amended from time to time.
1.6 "COMMON STOCK" means the common stock, $.01 par value, of
GP.
1.7 "COMPANY" means GP and its Foreign Subsidiaries.
1.8 "COMPENSATION" means remuneration paid to a Participant by
the Company during the portion of the Plan Year in which he is eligible to
participate in the Plan for services performed outside the United States,
including and limited to regular base pay, merit and incentive bonuses (other
than bonuses paid by the Company with respect to services for a predecessor
employer that has not adopted the Plan or with respect to services performed by
the Participant prior to his employment by the Company, as determined by the
Committee in its sole discretion), commissions, car allowance payments,
short-term disability pay, vacation pay paid while the
1
<PAGE> 6
Participant is employed by the Company, vacation pay paid upon a Participant's
termination of employment, and retention bonuses. Compensation does not include
sign-on bonuses, foreign service premiums or bonuses, position allowances,
location coefficient payments, housing allowances, goods and services
allowances, tax gross-up payments, hypothetical tax payments, expense
reimbursements, travel allowances or bonuses, cash and non-cash fringe benefits,
severance pay, relocation allowances or expense reimbursements, deferred
compensation (such as income as a result of the exercise of a stock option or
stock appreciation right), or benefits under any pension plan or welfare plan as
defined in the Employee Retirement Income Security Act of 1974, as amended
(whether or not paid under a program that is subject to regulation under such
statute).
1.9 "COMMITTEE" means the persons who are from time to time
serving as members of the committee administering the Plan.
1.10 "DISABILITY" means a physical or mental condition that
prevents the Participant from earning a reasonable livelihood with any Company
and which was not the result of having engaged in a felonious criminal
enterprise, alcoholism, addiction to narcotics or service in the Armed Forces.
The Committee's determination of a Participant's Disability shall be in its sole
discretion and shall be final.
1.11 "GP" means Grant Prideco, Inc., the sponsor of the Plan.
1.12 "FOREIGN DEFERRED COMPENSATION LEDGER" means the ledger
maintained by the Committee for each Participant which reflects the Basic
Benefit credited to his Account.
1.13 "PARTICIPANT" means a non-U.S. resident alien foreign
employee of a Company who is eligible for and is participating in the Plan.
1.14 "PLAN" means the Grant Prideco, Inc. Foreign Executive
Deferred Compensation Stock Plan set out in this document, as amended from time
to time.
1.15 "PLAN YEAR" means a one year period which coincides with
the calendar year.
1.16 "RETIREMENT" means the retirement of a Participant from
any Company covered by the Plan on or after attaining age 60 under the Company's
retirement policy.
1.17 "SUBSIDIARY" means any wholly owned foreign subsidiary of
GP.
2
<PAGE> 7
ARTICLE II
ELIGIBILITY
The employees initially eligible to participate in the Plan
include the key foreign employees of GP and each foreign Subsidiary as
determined by the Committee. After the initial Plan Year the Committee may
change the eligibility requirements for participation in the Plan as it may
determine is appropriate or advisable from time to time in its sole discretion.
The Committee shall notify each Participant of his eligibility to participate in
the Plan. Each Participant in the Plan during a Plan Year shall continue to
participate in the Plan unless the Committee shall have notified the Participant
prior to the beginning of the next Plan Year that he will not participate in the
Plan for that Plan Year. A former Participant who has been notified that he will
no longer participate in the Plan, but who remains in the employ of the Company,
shall retain the balance in his Accounts under the terms of the Plan, but no
additional amounts should be credited to his Account under Section 4.2 during
the periods in which he is not a Participant.
ARTICLE III
BENEFIT ACCRUALS
BASIC BENEFIT ACCRUAL. The Company shall accrue an amount for
the benefit of each Participant equal to 15 percent of the Participant's
Compensation for the Plan Year.
ARTICLE IV
ACCOUNT
4.1 ESTABLISHING A PARTICIPANT'S ACCOUNT. The Committee shall
establish an Account for each Participant in a special Foreign Deferred
Compensation Ledger which shall be maintained by the Company. The Account shall
reflect the amount of the Company's obligation to the Participant at any given
time.
4.2 BASIC BENEFIT ACCOUNT. The Basic Benefit shall be credited
to each Participant's Basic Benefit Account as of the last day of each month of
each Plan Year for the accrual attributable to Compensation paid during that
month.
4.3 GAUGE FOR DETERMINING BENEFITS. The Basic Benefit credits
described in Section 4.2 shall be credited in non-monetary units equal to the
number of whole shares of Common Stock that could have been purchased at a price
equal to the average closing sale price of a share of Common Stock during the
month for which the allocation is made as reported by the principal national
securities exchange on which the Common Stock is then listed, if the Common
Stock is listed on a national securities exchange, or the average of the bid and
asked price of a share of Common Stock during such month as reported in the
National Association of Securities Dealers Automated Quotation National Market
System (or successor system) listing if the Common Stock
3
<PAGE> 8
is not then listed on a national securities exchange, provided that if no such
closing price or quotes are so reported during that month or if, in the
discretion of the Committee, another means of determining the fair market value
of the Common Stock for such month shall be necessary and advisable, the
Committee may provide for another means of determining such value, and in
monetary units for any amount that is less than the value of a whole share. Any
monetary unit credited to an Account will be added to the next such amount
credited to the Account and converted into a non-monetary unit as quickly as
possible. The value of each unit credited to an Account and therefore the
ultimate value of the deferred compensation payable to each Participant will
increase or decrease in proportion to the change in the value of a share of
Common Stock between the date of the initial crediting of a unit and the date
that the unit is valued for distribution under Article VI of the Plan.
ARTICLE V
VESTING
Upon his Retirement, death or Disability while employed with
the Company, a Participant will have a 100 percent nonforfeitable interest in
the Basic Benefit credited to his Account together with any increase in the
accruals as a result of the rise in the value of the non-monetary units after
they have been initially credited, except for the events of forfeiture described
in Section 6.5. In addition, a Participant's interest in the Basic Benefit
credited to his Account together with any increase in the accruals as a result
of the rise in the value of the non-monetary units after they have been
initially credited shall vest at the rate set out in the vesting schedule below,
except for events of forfeiture described in Section 6.5 and upon termination of
the Plan as provided in Section 9.3.
<TABLE>
<CAPTION>
Completed Years of Service
With the Company Beginning
January 1 of the Year the Employee
First Becomes a Participant Percentage Vested
-----------------
<S> <C>
Less than one year...............................................................0
One but less than two...........................................................20
Two but less than three.........................................................40
Three but less than four........................................................60
Four but less than five.........................................................80
Five or more...................................................................100
</TABLE>
4
<PAGE> 9
ARTICLE VI
DISTRIBUTIONS
6.1 DEATH. Upon the death of a Participant, his Beneficiary or
Beneficiaries shall receive the value of the amounts credited to the
Participant's Accounts in the Foreign Deferred Compensation Ledger determined
under Section 6.7, and in the discretion of the Committee, the distribution
shall be made in shares of Common Stock or in one lump sum payment in cash, or
in a combination of shares of Common Stock and cash, or in a combination of
shares of Common Stock and cash. The distribution shall be made within 90 days
after the Participant's death. Unless otherwise provided by the Committee, all
Distributions shall be made in shares of Common Stock.
Each Participant, upon notification of his participation in
the Plan, shall file with the Committee a designation of a Beneficiary or
Beneficiaries to whom distributions otherwise due the Participant shall be made
in the event of his death prior to the distribution of the amount credited to
his Accounts in the Foreign Deferred Compensation Ledger. The designation will
be effective upon receipt by the Committee of a properly executed form which the
Committee has approved for that purpose. The Participant may from time to time
revoke or change any designation of Beneficiary by filing another approved
Beneficiary designation form with the Committee. If there is no valid
designation of Beneficiary on file with the Committee at the time of the
Participant's death, or if all of the Beneficiaries designated in the last
Beneficiary designation have predeceased the Participant or otherwise ceased to
exist, the Beneficiary will be the Participant's spouse, if the spouse survives
the Participant, or otherwise the Participant's estate.
6.2 DISABILITY. Upon the Disability of a Participant, the
Participant shall receive the value of the amounts credited to the Participant's
Accounts in the Foreign Deferred Compensation Ledger determined under Section
6.7, and in the discretion of the Committee, the distribution shall be made in
shares of Common Stock or in one lump sum payment in cash, or in a combination
of shares of Common Stock and cash.. The distribution shall be made within 90
days after the Participant becomes disabled.
6.3 RETIREMENT. Upon the Retirement of a Participant on or
after attaining age 60, the Participant shall receive the value of the amounts
credited to his Accounts in the Foreign Deferred Compensation Ledger determined
under Section 6.7, and at the discretion of the Committee, the distribution
shall be made in shares of Common Stock or in one lump sum payment in cash, or
in a combination of shares of Common Stock and cash.. The distribution shall be
made within 90 days after the Participant's Retirement.
6.4 TERMINATION PRIOR TO DEATH, DISABILITY OR RETIREMENT. Upon
a Participant's termination from the employ of all Companies prior to death,
Disability or Retirement, the Participant shall receive the portion of the
amount credited to his Accounts in the Foreign Deferred Compensation Ledger,
determined under Section 6.7, which is vested under Article V, and at the
discretion of the Committee, the distribution shall be made in Common Stock or
in one lump sum payment in cash, or in a combination of shares of Common Stock
and cash. Distribution shall be
5
<PAGE> 10
made within 90 days after the Participant's termination. Any amounts not then
vested shall be forfeited.
6.5 FORFEITURE FOR CAUSE. If the Committee finds, after full
consideration of the facts presented on behalf of both the Company and a former
Participant, that the Participant was discharged by the Company for fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his employment by the Company which damaged the Company, or for disclosing trade
secrets of the Company, the entire amount credited to his Accounts in the
Foreign Deferred Compensation Ledger shall be forfeited even though it may have
been previously vested under Article V. The decision of the Committee as to the
cause of a former Participant's discharge and the damage done to the Company
shall be final. No decision of the Committee shall affect the finality of the
discharge of the Participant by the Company in any manner.
6.6 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES.
The Committee shall furnish information to the Company last employing the
Participant concerning the amount and form of distribution to any Participant
entitled to a distribution so that the Company may make the distribution
required. It will also calculate the deductions, if any, from the amount of the
benefit paid under the Plan for any taxes required to be withheld by any
government or similar authority and will cause them to be withheld and paid to
the appropriate authority. If a Participant earns deferred compensation under
the Plan while in the service of more than one Company, each Company for which
the Participant worked shall pay the amount attributable to the period the
Participant was in the service of that Company.
6.7 DISTRIBUTION DETERMINATION DATE. For purposes of all
distributions described in this Article VI, the determination date for valuing
the amounts credited to a Participant's Accounts shall be the day which triggers
the beginning of the 90-day period described in Section 6.1, 6.2, 6.3, or 6.4,
as applicable. For purposes of all distributions in shares of Common Stock
described in this Article VI, the determination date shall be the date of the
actual direction by the Company in writing to the transfer agent to issue a
certificate for the Common Stock to the Participant or his Beneficiary, and the
number of shares issued shall be equal to the vested non-monetary units credited
to the Participant's Accounts.
6.8 VALUATION OF ACCOUNTS FOR CASH DISTRIBUTIONS. For purposes
of all distributions in cash described in this Article VI, the Committee shall
determine the fair market value of the non-monetary units of Common Stock deemed
credited to a Participant's Account as of the determination date specified in
Section 6.7. For this purpose, the fair market value of a share of Common Stock
shall be the average closing price of a share of Common Stock during the month
in which the determination date described in Section 6.7 occurs, as reported by
the principal national securities exchange on which the Common Stock is then
listed if it is listed on a national securities exchange or the average of the
bid and asked price of a share of Common Stock during such month as reported in
the National Association of Securities Dealers Automated Quotation National
Market System (or successor system) listing if the Common Stock is not then
listed on a national securities exchange, provided that if no such closing price
or quotes are so reported during that month or if, in the discretion of the
Committee, another means of determining the fair market value of the
6
<PAGE> 11
Common Stock for such month shall be necessary and advisable, the Committee may
provide for another means of determining such value.
ARTICLE VII
ADMINISTRATION
7.1 COMMITTEE APPOINTMENT. The Committee which shall consist of
not less than three members shall be appointed by the Board of Directors. Each
Committee member shall serve until his resignation or removal. The Board of
Directors shall have the sole discretion to remove any one or more Committee
members and appoint one or more replacement or additional Committee members from
time to time.
7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee shall
select from among its members a chairman who shall preside at all of its
meetings and shall elect a secretary without regard to whether that person is a
member of the Committee. The secretary shall keep all records, documents and
data pertaining to the Committee's supervision and administration of the Plan. A
majority of the members of the Committee shall constitute a quorum for the
transaction of business and the vote of a majority of the members present at any
meeting shall decide any question brought before the meeting. In addition, the
Committee may decide any question by a vote, taken without a meeting, of a
majority of its members. A member of the Committee who is also a Participant
shall not vote or act on any matter relating solely to himself.
7.3 POWERS OF THE COMMITTEE. The Committee shall have the
exclusive responsibility for the general administration of the Plan according to
the terms and provisions of the Plan and shall have all powers necessary to
accomplish those purposes, including but not by way of limitation the right,
power and authority:
(a) to make rules and regulations for the administration of
the Plan;
(b) to construe all terms, provisions, conditions and
limitations of the Plan;
(c) to correct any defect, supply any omission or reconcile
any inconsistency that may appear in the Plan in the manner and to the
extent it deems expedient to carry the Plan into effect;
(d) to designate the persons eligible to become Participants;
(e) to determine all controversies relating to the
administration of the Plan, including but not limited to:
7
<PAGE> 12
(1) differences of opinion arising between the
Company and a Participant; and
(2) any question it deems advisable to determine in
order to promote the uniform administration of the Plan for
the benefit of all parties at interest; and
(f) to delegate by written notice those clerical and
recordation duties of the Committee, as it deems necessary or advisable
for the proper and efficient administration of the Plan.
7.4 COMMITTEE DISCRETION. The Committee in exercising any power
or authority granted under the Plan or in making any determination under the
Plan shall perform or refrain from performing those acts using its sole
discretion and judgment. Any decision made by the Committee or any refraining to
act or any act taken by the Committee in good faith shall be final and binding
on all parties and shall not be subject to de novo review.
7.5 ANNUAL STATEMENTS. The Committee shall cause each
Participant to receive an annual statement as soon as administratively feasible
after the conclusion of each Plan Year containing a statement of the
Participant's Accounts in the Foreign Deferred Compensation Ledger through the
end of that Plan Year. The statement shall include a report of the Basic Benefit
and the number of units credited to each Participant's Account for that Plan
Year.
7.6 REIMBURSEMENT OF EXPENSES. The Committee shall serve
without compensation for their services but shall be reimbursed by GP for all
expenses properly and actually incurred in the performance of its duties under
the Plan.
ARTICLE VIII
ADOPTION BY SUBSIDIARIES
8.1 PROCEDURE FOR AND STATUS AFTER ADOPTION. Any Subsidiary
may, with the approval of the Committee, adopt the Plan by appropriate action of
its board of directors. The terms of the Plan will apply separately to each
Subsidiary adopting the Plan and its Participants in the same manner as is
expressly provided for GP and its Participants except that the powers of the
Board of Directors and the Committee under the Plan shall be exercised by the
Board of Directors of GP alone. GP and each Subsidiary that adopts the Plan
shall bear the cost of providing plan benefits for its own Participants. It is
intended that the obligation of GP and each Subsidiary with respect to its
Participants shall be the sole obligation of the company that is employing the
Participant and shall not bind any other company.
8.2 TERMINATION OF PARTICIPATION BY ADOPTING SUBSIDIARY. Any
Subsidiary that adopts the Plan may, by appropriate action of its board of
directors, terminate its participation in the Plan. The Committee may, in its
discretion, also terminate a Subsidiary's participation in the
8
<PAGE> 13
Plan at any time. The termination of the participation in the Plan by a
Subsidiary shall not, however, affect the rights of any Participant who is
working or has worked for the Subsidiary as to amounts and/or units previously
standing to his credit in his Accounts in the Foreign Deferred Compensation
Ledger.
ARTICLE IX
AMENDMENT AND/OR TERMINATION
9.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board of
Directors may amend or terminate the Plan at any time by an instrument in
writing without the consent of any adopting Company or any Participant.
9.2 NO RETROACTIVE EFFECT ON AWARDED BENEFITS. No amendment
shall affect the rights of any Participant to the amounts and/or units then
standing to his credit in his Accounts in the Foreign Deferred Compensation
Ledger. However, the Board of Directors shall retain the right to change at any
time and in any manner the method of calculating all Basic Benefits to be
accrued in the future, and the gauge to be used to determine future increases or
decreases in amounts accrued after the date of the amendment.
9.3 EFFECT OF TERMINATION. If the Plan is terminated, all
amounts of Basic Benefits accrued by the Company and credited to a Participant's
Accounts shall immediately vest as if the Participant were entitled to and did
retire on the date the Plan terminated. Distribution would then commence in
accordance with Section 6.3. However, the forfeiture provisions of Section 6.5
would continue to apply until the actual date of distribution.
ARTICLE X
PAYMENT
10.1 PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATION OF THE
COMPANY. The Company shall be liable for all benefits due the Participants under
the Plan.
10.2 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE
COMPANY. The Plan is only a general corporate commitment and each Participant
must rely upon the general credit of the Company for the fulfillment of its
obligations under the Plan. Under all circumstances the rights of Participants
to any asset held by the Company shall be no greater than the rights expressed
in this agreement. Nothing contained in the Plan shall constitute a guarantee by
the Company that the assets of the Company will be sufficient to pay any
benefits under the Plan or would place the Participant in a secured position
ahead of general creditors and judgment creditors of the Company.
9
<PAGE> 14
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS. Nothing in the Plan will be
construed:
(a) to give any employee of any Company any right to be
designated a Participant in the Plan;
(b) to give a Participant any right with respect to the Basic
Benefit accrued except in accordance with the terms of the Plan;
(c) to limit in any way the right of the Company to terminate
a Participant's employment with the Company at any time;
(d) to evidence any agreement or understanding, expressed or
implied, that the Company will employ a Participant in any particular
position or for any particular remuneration; or
(e) to give a Participant or any other person claiming through
him any interest or right under the Plan other than that of any
unsecured general creditor of the Company.
11.2 DISTRIBUTIONS TO INCOMPETENTS OR MINORS. Should a
Participant become incompetent or should a Participant designate a Beneficiary
who is a minor or incompetent, the Committee is authorized to pay the amounts
due to the parent of the minor or to the guardian of the minor or incompetent or
directly to the minor or to apply those amounts for the benefit of the minor or
incompetent in any manner the Committee determines in its sole discretion.
11.3 NONALIENATION OF BENEFITS. No right or benefit provided in
the Plan shall be transferable by the Participant except, upon his death, to a
named Beneficiary as provided in the Plan. No right or benefit under the Plan
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same shall be void. No right or benefit under
the Plan shall in any manner be liable for or subject to any debts, contracts,
liabilities or torts of the person entitled to such benefits. If any Participant
or any Beneficiary becomes bankrupt or attempts to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or benefit under the Plan, that
right or benefit shall, in the discretion of the Committee, cease. In that
event, the Committee may have the Company hold or apply the right or benefit or
any part of it to the benefit of the Participant or Beneficiary, his or her
spouse, children or other dependents or any of them in any manner and in any
proportion the Committee believes to be proper in its sole and absolute
discretion, but is not required to do so.
11.4 RELIANCE UPON INFORMATION. The Committee shall not be
liable for any decision or action taken in good faith in connection with the
administration of the Plan. Without limiting the generality of the foregoing,
any decision or action taken by the Committee when it relies
10
<PAGE> 15
upon information supplied it by any officer of the Company, the Company's legal
counsel, the Company's independent accountants or other advisors in connection
with the administration of the Plan shall be deemed to have been taken in good
faith.
11.5 SEVERABILITY. If any term, provision, covenant or condition
of the Plan is held to be invalid, void or otherwise unenforceable, the rest of
the Plan shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
11.6 NOTICE. Any notice or filing required or permitted to be
given to the Committee or a Participant shall be sufficient if in writing and
hand delivered or sent by mail (postage prepaid) to the principal office of the
Company or to the residential mailing address of the Participant. Notice shall
be deemed to be given as of the date of hand delivery or if delivery is by mail,
as of the date shown on the postmark.
11.7 GENDER AND NUMBER. If the context requires it, words of one
gender when used in the Plan will include the other genders, and words used in
the singular or plural will include the other.
11.8 GOVERNING LAW. The Plan will be construed, administered and
governed in all respects by the laws of the State of Texas, United States of
America.
11.9 EFFECTIVE DATE. The Plan will be operative and effective on
the effective date of the distribution by Weatherford International, Inc. to its
stockholders of all the outstanding shares of stock of GP.
11
<PAGE> 16
IN WITNESS WHEREOF, the Company has executed this document on
this _____ day of ____________________ 1999.
GRANT PRIDECO, INC.
By
------------------------------
Its
-----------------------
The Foreign Subsidiaries listed on Exhibit A are included in the Plan.
12
<PAGE> 17
EXHIBIT A
GRANT PRIDECO, INC. FOREIGN SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation or Formation
---- --------------------------
<S> <C>
Weatherford Mauritius Limited Mauritius
Jiangsu Shuguang Grant Prideco Tubular Company Ltd. China
XLS Systems Antilles N.V. Netherlands Antilles
XLS Systems Europe, B.V. Netherlands
Enerpro de Mexico S.A. de C.V. Mexico
Grant Tubular Finishing Ltd. Hungary
Grant Prideco (Singapore) Pte Ltd. Singapore
Grant Prideco S.A. de C.V. Mexico
Grant Prideco Canada Ltd. Alberta
Grant Prideco, S.A. Switzerland
Citra Grant Prideco Marketing Ltd. Jersey Islands
Grant Prideco de Venezuela Venezuela
Prideco de Venezuela, S.A. Venezuela
Prideco Europe Limited UK
Pridecomex Holding, S.A. de C.V. Mexico
TF de Mexico, S.A. de C.V. Mexico
Inmobiliaria Industrial de Veracruz S.A. de C.V. Mexico
PT H-Tech Oilfield Equipment Indonesia
Voest-Alpine Stahlrohr Kindberg GmbH Austria
Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG Austria
Voest-Alpine Middle East Free Establishment Zone United Arab Emirates
Voest-Alpine South America, S.A. Venezuela
</TABLE>
13
<PAGE> 1
EXHIBIT 10.9
GRANT PRIDECO, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE> 2
GRANT PRIDECO, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
ARTICLE I -- DEFINITIONS
Account.................................................................1.1
Basic Benefit...........................................................1.2
Beneficiary.............................................................1.3
Board of Directors......................................................1.4
Code....................................................................1.5
Common Stock............................................................1.6
Company.................................................................1.7
Company Match...........................................................1.8
Compensation............................................................1.9
Committee..............................................................1.10
Deferral...............................................................1.11
Deferred Compensation Ledger...........................................1.12
Disability.............................................................1.13
ERISA..................................................................1.14
GP.....................................................................1.15
Participant............................................................1.16
Plan...................................................................1.17
Plan Year..............................................................1.18
Retirement.............................................................1.19
Subsidiary.............................................................1.20
ARTICLE II - ELIGIBILITY
ARTICLE III - DEFERRALS AND BENEFIT ACCRUALS
Basic Benefit Accrual...................................................3.1
Deferral Election.......................................................3.2
Company Match Accrual...................................................3.3
ARTICLE IV - ACCOUNT
Establishing a Participant's Account....................................4.1
Basic Benefit Account...................................................4.2
Deferral Account........................................................4.3
Company Match Account...................................................4.4
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Gauge for Determining Benefits..........................................4.5
ARTICLE V - VESTING
Deferrals...............................................................5.1
Basic Benefit and Company Match.........................................5.2
ARTICLE VI - DISTRIBUTIONS
Death...................................................................6.1
Disability..............................................................6.2
Retirement..............................................................6.3
Termination Prior to Death, Disability or Retirement....................6.4
Forfeiture for Cause....................................................6.5
Responsibility for Distributions and
Withholding of Taxes..................................................6.6
Distribution Determination Date.........................................6.7
Valuation of Accounts for Cash Distributions............................6.8
ARTICLE VII - ADMINISTRATION
Committee Appointment...................................................7.1
Committee Organization and Voting.......................................7.2
Powers of the Committee.................................................7.3
Committee Discretion....................................................7.4
Annual Statements.......................................................7.5
Reimbursement of Expenses...............................................7.6
ARTICLE VIII - ADOPTION BY SUBSIDIARIES
Procedure for and Status After Adoption.................................8.1
Termination of Participation by Adopting Subsidiary.....................8.2
ARTICLE IX - AMENDMENT AND/OR TERMINATION
Amendment or Termination of the Plan....................................9.1
No Retroactive Effect on Awarded Benefits...............................9.2
Effect of Termination...................................................9.3
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X - PAYMENT
Payments Under This Agreement Are the Obligation
of the Company.......................................................10.1
Payments May Be Made to a Rabbi Trust..................................10.2
Participants Must Rely Only on General
Credit of the Company...............................................10.3
Plan Unfunded..........................................................10.4
ARTICLE XI - MISCELLANEOUS
Limitation of Rights..................................................11.1
Distributions to Incompetents or Minors...............................11.2
Nonalienation of Benefits.............................................11.3
Reliance Upon Information ............................................11.4
Severability..........................................................11.5
Notice................................................................11.6
Gender and Number.....................................................11.7
Governing Law.........................................................11.8
Effective Date........................................................11.9
</TABLE>
iii
<PAGE> 5
GRANT PRIDECO, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Grant Prideco, Inc. desires to adopt a deferred
compensation plan for a select group of management and highly compensated
employees;
WHEREAS, as a result of the distribution by Weatherford
International, Inc. to its stockholders of all of the outstanding shares of
stock of Grant Prideco, Inc. (the "Spin-Off"), Grant Prideco, Inc. shall no
longer be a subsidiary of Weatherford International, Inc. as of the effective
date of the Spin-Off;
NOW, THEREFORE, Grant Prideco, Inc. hereby establishes the
Grant Prideco, Inc. Executive Deferred Compensation Plan effective on the
effective date of the Spin-Off, the terms of which are set forth in this
document as it may be amended from time to time.
<PAGE> 6
ARTICLE I
DEFINITIONS
1.1 "ACCOUNT" means all ledger accounts pertaining to a
Participant which are maintained by the Committee to reflect the amount of
deferred compensation due the Participant. The Committee shall establish the
following Accounts and any additional Accounts that the Committee considers
necessary.
(a) Deferral Account - The Participant's deferral, if any,
between one percent and 7 1/2 percent of his Compensation.
(b) Basic Benefit Account - The Company's accrual of 7 1/2
percent of Compensation for each Participant.
(c) Company Match Account - The Company's match equal to 100
percent of the Participant's Deferral, if any.
1.2 "BASIC BENEFIT" means the accrual made by the Company for
the benefit of a Participant equal to 7 1/2 percent of the Participant's
Compensation.
1.3 "BENEFICIARY" means a person or entity designated by the
Participant under the terms of the Plan to receive a payment under the Plan
upon the death of the Participant.
1.4 "BOARD OF DIRECTORS" means the Board of Directors of GP.
1.5 "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
1.6 "COMMON STOCK" means the common stock, $.01 par value, of
GP.
1.7 "COMPANY" means GP and any Subsidiary that adopts the
Plan.
I-1
<PAGE> 7
1.8 "COMPANY MATCH" means the 100 percent match which the
Company accrues with respect to the amount deferred during a Plan Year by a
Participant under the Plan.
1.9 "COMPENSATION" means remuneration paid to a Participant
by the Company during the portion of the Plan Year in which he is eligible to
participate in the Plan, or that would have been paid to a Participant during
the Plan Year by the Company but for the Participant's election to make a
Deferral under the Plan or his deferrals under a cash or deferred arrangement
described in section 401(k) of the Code or a cafeteria plan described in
section 125 of the Code, including and limited to regular base pay, merit and
incentive bonuses (other than bonuses paid by the Company with respect to
services for a predecessor employer that has not adopted the Plan or with
respect to services performed by the Participant prior to his employment by the
Company, as determined by the Committee in its sole discretion), commissions,
car allowance payments, short-term disability pay, vacation pay paid while the
Participant is employed by the Company, vacation pay paid upon a Participant's
termination of employment, and retention bonuses. Compensation does not include
sign-on bonuses, foreign service premiums or bonuses, position allowances,
location coefficient payments, housing allowances, goods and services
allowances, tax gross-up payments, hypothetical tax payments, expense
reimbursements, travel allowances or bonuses, cash and non-cash fringe
benefits, severance pay, relocation allowances or expense reimbursements,
deferred compensation (such as income as a result of the exercise of a stock
option or stock appreciation right), or benefits under any pension plan or
welfare plan as defined in ERISA (whether or not paid under a program that is
subject to regulation under ERISA).
I-2
<PAGE> 8
1.10 "COMMITTEE" means the persons who are from time to time
serving as members of the committee administering the Plan.
1.11 "DEFERRAL" means the amount of Compensation deferred
under a deferral election made by a Participant under Section 3.2.
1.12 "DEFERRED COMPENSATION LEDGER" means the ledger
maintained by the Committee for each Participant which reflects the amount of
Compensation deferred by the Participant under the Plan, the Basic Benefit and
the Company Match provided under the Plan, and the amount of earnings and losses
credited on each of these amounts.
1.13 "DISABILITY" means a physical or mental condition that
prevents the Participant from earning a reasonable livelihood with the Company
and was not the result of having engaged in a felonious criminal enterprise,
alcoholism, addiction to narcotics or service in the U.S. Armed Forces. The
Committee's determination of a Participant's Disability shall be in its sole
discretion and shall be final.
1.14 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
1.15 "GP" means Grant Prideco, Inc., the sponsor of the Plan.
1.16 "PARTICIPANT" means an employee of a Company who is
eligible to participate in the Plan.
1.17 "PLAN" means the Grant Prideco, Inc. Executive Deferred
Compensation Plan set out in this document, as amended from time to time.
1.18 "PLAN YEAR" means a one year period which coincides with
the calendar year.
I-3
<PAGE> 9
1.19 "RETIREMENT" means the retirement of a Participant under
the Company's retirement policy on or after attaining age 60.
1.20 "SUBSIDIARY" means any domestic wholly owned subsidiary
of GP.
I-4
<PAGE> 10
ARTICLE II
ELIGIBILITY
The employees eligible to participate in the Plan include the
key employees of GP and each Subsidiary, who are in a select group of management
or are highly compensated employees, as determined by the Committee. The
Committee shall notify each Participant of his eligibility to participate in the
Plan. Each Participant in the Plan during a Plan Year shall continue to
participate in the Plan unless the Committee shall have notified the Participant
prior to the beginning of the next Plan Year that he will not participate in the
Plan for that Plan Year. A former Participant who has been notified that he will
no longer participate in the Plan, but who remains in the employ of the Company,
shall retain the balance in his Accounts under the terms of the Plan, but he
shall not make additional deferrals under Section 3.2 and no additional amounts
shall be credited to his Accounts under Sections 4.2 and 4.4 during the periods
in which he is not a Participant.
II-1
<PAGE> 11
ARTICLE III
DEFERRALS AND BENEFIT ACCRUALS
3.1 BASIC BENEFIT ACCRUAL. The Company shall accrue an amount
for the benefit of each Participant equal to 7 1/2 percent of the Participant's
Compensation for the Plan Year.
3.2 DEFERRAL ELECTION. A Participant may elect, within 30 days
of notification that he is eligible to participate in the Plan, and not less
than six months prior to the effective date of the first deferral, and
thereafter not later than June 30 preceding the next Plan Year, the percentage,
if any, of his Compensation to be earned during the ensuing Plan Year, that is
to be deferred under the Plan. A Participant may defer a minimum of one percent
but not more than 7 1/2 percent of his Compensation for the Plan Year. Prior to
the election period the Committee shall notify all eligible Participants of
their right to make a deferral election. Once an election has been made as to
the percentage to be deferred, it becomes irrevocable for the Plan Year. The
election to defer a percentage of Compensation shall be effective only upon the
timely receipt by the Committee of the Participant's percentage deferral
election on such form as will be determined by the Committee from time to time.
Except with respect to the election by a newly eligible Participant as described
above, if the Committee fails to receive a properly filed election form on or
prior to June 30 of the year immediately preceding the Plan Year to which the
election applies, revoking or modifying a prior election, the prior election
shall remain in effect. If a timely election form is not received, the
Participant shall be deemed to have elected not to defer any part of his
Compensation for that Plan Year. An election to defer for one Plan Year shall
remain effective for subsequent Plan Years until modified or revoked in
accordance with this Section 3.2.
III-1
<PAGE> 12
3.3 COMPANY MATCH ACCRUAL. Each Plan Year the Company shall
credit the Company Match Account of each Participant who elects to defer a
portion of his Compensation under the Plan with an amount equal to 100 percent
of the amount that he defers for the Plan Year.
III-2
<PAGE> 13
ARTICLE IV
ACCOUNT
4.1 ESTABLISHING A PARTICIPANT'S ACCOUNT. The Committee shall
establish an Account for each Participant in a special Deferred Compensation
Ledger which shall be maintained by the Company. The Account shall reflect the
amount of the Company's obligation to the Participant at any given time.
4.2 BASIC BENEFIT ACCOUNT. The Basic Benefit shall be credited
to each Participant's Basic Benefit Account as of the last day of each month of
each Plan Year for the accrual attributable to Compensation paid during that
month.
4.3 DEFERRAL ACCOUNT. The amount deferred by a Participant, if
any, shall be credited to each Participant's Deferral Account as of the last day
of each month in which the Participant would have received the amount deferred
but for his election to defer.
4.4 COMPANY MATCH ACCOUNT. The Company Match shall be credited
to each Participant's Company Match Account coincident with the crediting of the
Participant's Deferral to the Participant's Deferral Account.
4.5 GAUGE FOR DETERMINING BENEFITS. The Basic Benefit,
Deferral and Company Match credits described in Sections 4.2, 4.3 and 4.4 shall
be deemed to be credited in non-monetary units equal to the number of whole
shares of Common Stock that could have been purchased at a price equal to the
average closing sale price of a share of Common Stock during the month for which
the allocation is made as reported by the principal national securities exchange
on which the Common Stock is then listed if the Common Stock is listed on a
national securities exchange or the average of the bid and asked price of a
share of Common Stock during such month as reported in the
IV-1
<PAGE> 14
National Association of Securities Dealers Automated Quotation National Market
System (or successor system) listing if the Common Stock is not then listed on a
national securities exchange, provided that if no such closing price or quotes
are so reported during that month or if, in the discretion of the Committee,
another means of determining the fair market value of the Common Stock for such
month shall be necessary and advisable, the Committee may provide for another
means of determining such value, and in monetary units for any amount that is
less than the value of a whole share. Any monetary unit credited to an Account
will be added to the next such amount credited to the Account and converted into
a non-monetary unit as quickly as possible. The value of each unit credited to
an Account, and therefore the ultimate value of the deferred compensation
payable to each Participant, will increase or decrease in proportion to the
change in the value of a share of Common Stock between the date of the initial
crediting of a unit and the date that the unit is valued for distribution under
Article VI of the Plan.
IV-2
<PAGE> 15
ARTICLE V
VESTING
5.1 DEFERRALS. A Participant shall have a 100 percent
nonforfeitable interest in his Deferrals under the Plan at all times. A
Participant will also have a 100 percent nonforfeitable interest in any increase
in the Deferral as a result of the rise in the value of the non-monetary units
after his Deferral has been initially credited.
5.2 BASIC BENEFIT AND COMPANY MATCH. Upon his Retirement,
death or Disability while employed with the Company, a Participant will have a
100 percent nonforfeitable interest in the Basic Benefit and Company Match
credited to his Account together with any increase in the accruals as a result
of the rise in the value of the non-monetary units after they have been
initially credited, except for the events of forfeiture described in Section
6.5. In addition, a Participant's interest in the Basic Benefit and Company
Match credited to his Account together with any increase in the accruals as a
result of the rise in the value of the non-monetary units after they have been
initially credited shall vest at the rate set out in the vesting schedule below,
except for events of forfeiture described in Section 6.5 and upon termination of
the Plan as provided in Section 9.3.
<TABLE>
<CAPTION>
Completed Years of Service
With the Company Beginning
January 1 of the Year the Employee
First Becomes a Participant Percentage Vested
---------------------------------- -----------------
<S> <C>
Less than one year................................ 0
One but less than two............................. 20
Two but less than three........................... 40
Three but less than four.......................... 60
Four but less than five........................... 80
Five or more...................................... 100
</TABLE>
V-1
<PAGE> 16
ARTICLE VI
DISTRIBUTIONS
6.1 DEATH. Upon the death of a Participant, his Beneficiary or
Beneficiaries shall receive the value of the amounts credited to the
Participant's Accounts in the Deferred Compensation Ledger determined under
Section 6.7, and in the discretion of the Committee, the distribution shall be
made in shares of Common Stock or in one lump sum payment in cash, or in a
combination of shares of Common Stock and cash. The distribution shall be made
within 30 days after the Participant's death.
Each Participant, upon notification of his participation in
the Plan, shall file with the Committee a designation of a Beneficiary or
Beneficiaries to whom distributions otherwise due the Participant shall be made
in the event of his death prior to the distribution of the amount credited to
his Accounts in the Deferred Compensation Ledger. The designation will be
effective upon receipt by the Committee of a properly executed form which the
Committee has approved for that purpose. The Participant may from time to time
revoke or change any designation of Beneficiary by filing another approved
Beneficiary designation form with the Committee. If there is no valid
designation of Beneficiary on file with the Committee at the time of the
Participant's death, or if all of the Beneficiaries designated in the last
Beneficiary designation have predeceased the Participant or otherwise ceased to
exist, the Beneficiary will be the Participant's spouse, if the spouse survives
the Participant, or otherwise the Participant's estate. Any Beneficiary
designation which designates any person or entity other than the Participant's
spouse must be consented to in writing by the spouse in a form acceptable to the
Committee in order to be effective.
VI-1
<PAGE> 17
6.2 DISABILITY. Upon the Disability of a Participant, the
Participant shall receive the value of the amounts credited to the Participant's
Accounts in the Deferred Compensation Ledger determined under Section 6.7, and
at the discretion of the Committee, the distribution shall be made in shares of
Common Stock or in one lump sum payment in cash, or in a combination of shares
of Common Stock and cash. The distribution shall be made within 30 days after
the Participant becomes disabled.
6.3 RETIREMENT. Upon the Retirement of a Participant on or
after attaining age 60, the Participant shall receive the value of the amounts
credited to his Accounts in the Deferred Compensation Ledger determined under
Section 6.7, and at the discretion of the Committee, the distribution shall be
made in Common Stock or in one lump sum payment in cash, or in a combination of
shares of Common Stock and cash. The distribution shall be made within 30 days
after the Participant's Retirement.
6.4 TERMINATION PRIOR TO DEATH, DISABILITY OR RETIREMENT. Upon
a Participant's termination from the employ of all Companies prior to his death,
Disability or Retirement, the Participant shall receive the portion of the
amount credited to his Accounts in the Deferred Compensation Ledger, determined
under Section 6.7, which is vested under Sections 5.1 and 5.2, and in the
discretion of the Committee, the distribution shall be made in shares of Common
Stock or in one lump sum payment in cash, or in a combination of shares of
Common Stock and cash. The distribution shall be made within 30 days after the
Participant's termination. Any amounts not then vested shall be forfeited.
VI-2
<PAGE> 18
6.5 FORFEITURE FOR CAUSE. If the Committee finds, after full
consideration of the facts presented on behalf of both the Company and a former
Participant, that the Participant was discharged by the Company for fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his employment by the Company which damaged the Company, or for disclosing trade
secrets of the Company, the entire amount credited to his Basic Benefit Account
and Company Match Account in the Deferred Compensation Ledger shall be forfeited
even though it may have been previously vested under Section 5.2. The decision
of the Committee as to the cause of a former Participant's discharge and the
damage done to the Company shall be final. No decision of the Committee shall
affect the finality of the discharge of the Participant by the Company in any
manner.
6.6 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES.
The Committee shall furnish information to the Company employing the Participant
concerning the amount and form of distribution to any Participant entitled to a
distribution so that the Company may make or cause the rabbi trust to make the
distribution required. It will also calculate the deductions from the amount of
the benefit paid under the Plan for any taxes required to be withheld by
federal, state or local government and will cause them to be withheld and paid
to the appropriate authority. If a Participant has deferred compensation under
the Plan while in the service of more than one Company, each Company for which
the Participant worked shall pay the amount attributable to the period the
Participant was in the service of that Company, except to the extent the Company
paid an amount to the Trust which was paid the Participant.
6.7 DISTRIBUTION DETERMINATION DATE. For purposes of all
distributions described in this Article VI, the determination date for valuing
the amounts credited to a Participant's Accounts shall be the day which triggers
the beginning of the 90-day period described in Section 6.1, 6.2, 6.3
VI-3
<PAGE> 19
or 6.4, as applicable. For purposes of all distributions in Common Stock and
Grant Stock described in this Article VI, the determination date shall be the
date of the actual distribution of the Common Stock to the Participant or his
beneficiary, and the number of shares issued shall be equal to the vested
non-monetary units allocated to the Participant's Accounts.
6.8 VALUATION OF ACCOUNTS FOR CASH DISTRIBUTIONS. For purposes
of all distributions in cash described in this Article VI, the Committee shall
determine the fair market value of the non-monetary units of Common Stock deemed
credited to a Participant's Account as of the determination date specified in
Section 6.7. For this purpose, the fair market value of a share of Common Stock
shall be the average closing price of a share of Common Stock during the month
in which the determination date described in Section 6.7 occurs, as reported by
the principal national securities exchange on which the Common Stock is then
listed if it is listed on a national securities exchange or the average of the
bid and asked price of a share of Common Stock during such month as reported in
the National Association of Securities Dealers Automated Quotation National
Market System (or successor system) listing if the Common Stock is not then
listed on a national securities exchange, provided that if no such closing price
or quotes are so reported during that month or if, in the discretion of the
Committee, another means of determining the fair market value of the Common
Stock for such month shall be necessary and advisable, the Committee may provide
for another means of determining such value.
VI-4
<PAGE> 20
ARTICLE VII
ADMINISTRATION
7.1 COMMITTEE APPOINTMENT. The Committee which shall consist
of not less than three members shall be appointed by the Board of Directors.
Each Committee member shall serve until his resignation or removal. The Board of
Directors shall have the sole discretion to remove any one or more Committee
members and appoint one or more replacement or additional Committee members from
time to time.
7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee shall
select from among its members a chairman who shall preside at all of its
meetings and shall elect a secretary without regard to whether that person is a
member of the Committee. The secretary shall keep all records, documents and
data pertaining to the Committee's supervision and administration of the Plan. A
majority of the members of the Committee shall constitute a quorum for the
transaction of business and the vote of a majority of the members present at any
meeting shall decide any question brought before the meeting. In addition, the
Committee may decide any question by a vote, taken without a meeting, of a
majority of its members. A member of the Committee who is also a Participant
shall not vote or act on any matter relating solely to himself.
7.3 POWERS OF THE COMMITTEE. The Committee shall have the
exclusive responsibility for the general administration of the Plan according to
the terms and provisions of the Plan and shall have all powers necessary to
accomplish those purposes, including but not by way of limitation the right,
power and authority:
VII-1
<PAGE> 21
(a) to make rules and regulations for the administration of
the Plan;
(b) to construe all terms, provisions, conditions and
limitations of the Plan;
(c) to correct any defect, supply any omission or reconcile
any inconsistency that may appear in the Plan in the manner and to the
extent it deems expedient to carry the Plan into effect;
(d) to designate the persons eligible to become Participants;
(e) to determine all controversies relating to the
administration of the Plan, including but not limited to:
(1) differences of opinion arising between the
Company and a Participant; and
(2) any question it deems advisable to determine in
order to promote the uniform administration of the Plan for
the benefit of all parties at interest; and
(f) to delegate by written notice those clerical and
recordation duties of the Committee, as it deems necessary or
advisable for the proper and efficient administration of the Plan.
7.4 COMMITTEE DISCRETION. The Committee in exercising any
power or authority granted under the Plan or in making any determination under
the Plan shall perform or refrain from performing those acts using its sole
discretion and judgment. Any decision made by the Committee or any refraining to
act or any act taken by the Committee in good faith shall be final and binding
on all parties and shall not be subject to de novo review.
7.5 ANNUAL STATEMENTS. The Committee shall cause each
Participant to receive an annual statement as soon as administratively feasible
after the conclusion of each Plan Year containing a statement of the
Participant's Accounts in the Deferred Compensation Ledger through the end of
that Plan Year. The statement shall include a report of the Basic Benefit, the
Participant
VII-2
<PAGE> 22
Deferral and Company Match, if any, and the number of units credited to each
Participant's Accounts for that Plan Year.
7.6 REIMBURSEMENT OF EXPENSES. The Committee shall serve
without compensation for its services but shall be reimbursed by GP for all
expenses properly and actually incurred in the performance of its duties under
the Plan.
VII-3
<PAGE> 23
ARTICLE VIII
ADOPTION BY SUBSIDIARIES
8.1 PROCEDURE FOR AND STATUS AFTER ADOPTION. Any Subsidiary
may, with the approval of the Committee, adopt the Plan by appropriate action of
its board of directors. The terms of the Plan will apply separately to each
Subsidiary adopting the Plan and its Participants in the same manner as is
expressly provided for GP and its Participants except that the powers of the
Board of Directors and the Committee under the Plan shall be exercised by the
Board of Directors of GP alone. GP and each Subsidiary that adopts the Plan
shall bear the cost of providing Plan benefits for its own Participants. It is
intended that the obligation of GP and each Subsidiary with respect to its
Participants shall be the sole obligation of the Company that is employing the
Participant and shall not bind any other Company.
8.2 TERMINATION OF PARTICIPATION BY ADOPTING SUBSIDIARY. Any
Subsidiary that adopts the Plan may, by appropriate action of its board of
directors, terminate its participation in the Plan. The Committee may, in its
discretion, also terminate a Subsidiary's participation in the Plan at any time.
The termination of the participation in the Plan by a Subsidiary shall not,
however, affect the rights of any Participant who is working or has worked for
the Subsidiary as to amounts and/or units previously standing to his credit in
his Accounts in the Deferred Compensation Ledger.
VIII-1
<PAGE> 24
ARTICLE IX
AMENDMENT AND/OR TERMINATION
9.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board of
Directors may amend or terminate the Plan at any time by an instrument in
writing without the consent of any adopting Company or any Participant.
9.2 NO RETROACTIVE EFFECT ON AWARDED BENEFITS. No amendment
shall affect the rights of any Participant to the amounts and/or units then
standing to his credit in his Accounts in the Deferred Compensation Ledger.
However, the Board of Directors shall retain the right to change at any time and
in any manner the method of calculating all Basic Benefits to be accrued in the
future, all amounts deferred by a Participant and all amounts matched by the
Company and the gauge to be used to determine future increases or decreases in
amounts accrued or deferred after the date of the amendment.
9.3 EFFECT OF TERMINATION. If the Plan is terminated, all
amounts of Basic Benefits accrued by the Company, deferred by Participants and
matched by the Company and credited to a Participant's Accounts shall
immediately vest as if the Participant were entitled to and did retire on the
date the Plan terminated. Distributions would then commence in accordance with
Section 6.3. However, the forfeiture provisions of Section 6.5 would continue to
apply until the actual date of distribution.
IX-1
<PAGE> 25
ARTICLE X
PAYMENT
10.1 PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATION OF THE
COMPANY. The Company shall be liable for all benefits due the Participants under
the Plan.
10.2 PAYMENTS MAY BE MADE TO A RABBI TRUST. Under all
circumstances, the rights of the Participants to the assets held in any rabbi
trust created with respect to the Plan shall be no greater than the rights
expressed in this agreement. Nothing contained in the trust agreement which
creates any such rabbi trust shall constitute a guarantee by any Company that
the amounts transferred by it to the trust shall be sufficient to pay any
benefits under the Plan or would place the Participant in a secured position
ahead of judgment and/or general creditors should the Company become insolvent
or bankrupt. Any trust agreement established with respect to a Plan must
specifically set out these principles so it is clear in the trust agreement that
the Participants are only unsecured general creditors of the Company with
respect to their benefits under the Plan.
10.3 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE
COMPANY. The Plan is only a general corporate commitment and each Participant
must rely upon the general credit of the Company for the fulfillment of its
obligations under the Plan. Under all circumstances the rights of Participants
to any asset held by the Company shall be no greater than the rights expressed
in this agreement. Nothing contained in this agreement shall constitute a
guarantee by the Company that the assets of the Company will be sufficient to
pay any benefits under the Plan or would place the Participant in a secured
position ahead of general creditors and judgment creditors of the Company.
Though the Company may establish or become a signatory to a rabbi trust to
accumulate assets to help fulfill its obligations, the Plan and any trust
created, shall not create any lien, claim, encumbrance, right, title or other
interest of any kind in any Participant in any asset held by the
X-1
<PAGE> 26
Company, contributed to any trust created, or otherwise be designated to be used
for payment of any of its obligations created in this agreement. No specific
assets of the Company have been or will be set aside, or will be transferred to
a trust or will be pledged for the performance of the Company's obligations
under the Plan which would remove those assets from being subject to the general
creditors and judgment creditors of the Company.
10.4 PLAN UNFUNDED. It is intended that the Plan shall be
unfunded for tax purposes and for purposes of Title I of ERISA.
X-2
<PAGE> 27
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS. Nothing in the Plan will be
construed:
(a) to give any employee of any Company any right to be
designated a Participant in the Plan;
(b) to give a Participant any right with respect to the Basic
Benefit accrued, the Deferral, or the Company Match accrued except in
accordance with the terms of the Plan;
(c) to limit in any way the right of the Company to terminate
a Participant's employment with the Company at any time;
(d) to evidence any agreement or understanding, expressed or
implied, that the Company will employ a Participant in any particular
position or for any particular remuneration; or
(e) to give a Participant or any other person claiming
through him any interest or right under the Plan other than that of
any unsecured general creditor of the Company.
11.2 DISTRIBUTIONS TO INCOMPETENTS OR MINORS. Should a
Participant become incompetent or should a Participant designate a Beneficiary
who is a minor or incompetent, the Committee is authorized to pay the amounts
due to the parent of the minor or to the guardian of the minor or incompetent or
directly to the minor or to apply those amounts for the benefit of the minor or
incompetent in any manner the Committee determines in its sole discretion.
11.3 NONALIENATION OF BENEFITS. No right or benefit provided
in the Plan shall be transferable by the Participant except, upon his death, to
a named Beneficiary as provided in the Plan. No right or benefit under the Plan
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same shall be void. No right or benefit under
the Plan shall in any manner
XI-1
<PAGE> 28
be liable for or subject to any debts, contracts, liabilities or torts of the
person entitled to such benefits. If any Participant or any Beneficiary becomes
bankrupt or attempts to anticipate, alienate, sell, assign, pledge, encumber or
charge any right or benefit under the Plan, that right or benefit shall, in the
discretion of the Committee, cease. In that event, the Committee may have the
Company hold or apply the right or benefit or any part of it to the benefit of
the Participant or Beneficiary, his or her spouse, children or other dependents
or any of them in any manner and in any proportion the Committee believes to be
proper in its sole and absolute discretion, but is not required to do so.
11.4 RELIANCE UPON INFORMATION. The Committee shall not be
liable for any decision or action taken in good faith in connection with the
administration of the Plan. Without limiting the generality of the foregoing,
any decision or action taken by the Committee when it relies upon information
supplied it by any officer of the Company, the Company's legal counsel, the
Company's independent accountants or other advisors in connection with the
administration of the Plan shall be deemed to have been taken in good faith.
11.5 SEVERABILITY. If any term, provision, covenant or
condition of the Plan is held to be invalid, void or otherwise unenforceable,
the rest of the Plan shall remain in full force and effect and shall in no way
be affected, impaired or invalidated.
11.6 NOTICE. Any notice or filing required or permitted to be
given to the Committee or a Participant shall be sufficient if in writing and
hand delivered or sent by U.S. mail to the principal office of the Company or to
the residential mailing address of the Participant. Notice shall be deemed to be
given as of the date of hand delivery or if delivery is by mail, as of the date
shown on the postmark.
XI-2
<PAGE> 29
11.7 GENDER AND NUMBER. If the context requires it, words of
one gender when used in the Plan will include the other genders, and words used
in the singular or plural will include the other.
11.8 GOVERNING LAW. The Plan will be construed, administered
and governed in all respects by the laws of the State of Texas.
11.9 EFFECTIVE DATE. The Plan will be operative and effective
on the effective date of the distribution by Weatherford International, Inc. to
its stockholders of all the outstanding shares of stock of GP.
IN WITNESS WHEREOF, the Company has executed this document on
this _____ day of ____________________, 1999.
GRANT PRIDECO, INC.
By
--------------------------------------
Its
--------------------------------
The Subsidiaries listed on Exhibit A have
adopted the Plan.
XI-3
<PAGE> 30
EXHIBIT A
GRANT PRIDECO, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
The following subsidiaries have adopted the Plan:
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation or Formation
---- --------------------------
<S> <C>
Channelview Real Property, Inc. Delaware
XL Systems International, Inc. Delaware
XLS Holding, Inc. Texas
XL Systems, Inc. Texas
TA Industries, Inc. Delaware
Tube-Alloy Capital Corporation Texas
Texas Arai, Inc. Delaware
Tube-Alloy Corporation Louisiana
Petroleum Equipment Supply Company Louisiana
Tube-Alloy Corporation International Texas
Grant Prideco Holding, L.L.C. Delaware
Grant Prideco U.S., L.L.C. Delaware
Grant Prideco, LP Delaware
Drill Tube International, Inc. Texas
Grant Austria, Inc. Delaware
Petro-Drive, Inc. Louisiana
</TABLE>
<PAGE> 1
EXHIBIT 10.10
GRANT PRIDECO, INC.
DEFERRED COMPENSATION PLAN FOR
NON-EMPLOYEE DIRECTORS
1. DEFINITIONS. Certain words and phrases used in the Plan shall have the
meaning set forth below.
(a) "ADMINISTRATIVE COMMITTEE" means a committee consisting of the duly
elected Corporate Secretary of the Company or, in the event the Secretary is a
Participant, one or more other persons appointed by the Board to administer the
Plan who are not Participants.
(b) "BOARD" means the Board of Directors of the Company.
(c) "COMPANY" means Grant Prideco, Inc., a Delaware corporation.
(d) "COMPENSATION" means any retainer, meeting, committee fee or any
similar fee or compensation to which a Non-Employee Director is entitled for
services performed.
(e) "CREDITED SHARES" means the shares of the Company's common stock
which, for accounting purposes only, are to be credited to a Participant's Share
Account from time to time. At no time shall Credited Shares be considered as
actual shares of common stock and a Participant shall have no rights as a
stockholder with respect to the Credited Shares.
(f) "DEFERRED AMOUNT" means compensation deferred by a Participant
under the Plan together with all dividends or other amounts credited to a
Participant's Share Account pursuant to the provisions of the Plan, including
the value of any Credited Shares in the Participant's Share Account.
(g) "MARKET VALUE" means with respect to the Company's common stock,
the mean between the high and low sales price per share (or average last bid and
asked price if applicable) of the Company's common stock, as reported by (i) the
automated quotation system of the National Association of Securities Dealers if
the Company's common stock is not then listed on a national securities exchange
or (ii) the principal national securities exchange on which the Company's common
stock is listed if the Company's common stock is so listed, in each case as of
the last trade day of each calendar month.
(h) "NON-EMPLOYEE DIRECTOR" means any duly elected or appointed member
of the Board who is not an employee of the Company or of any subsidiary of the
Company.
(i) "PARTICIPANT" means any Non-Employee Director who elects hereunder
to defer payment by the Company of a portion of the Compensation to which he or
she may be entitled.
<PAGE> 2
(j) "PLAN" means the Grant Prideco, Inc. Deferred Compensation Plan for
Non-Employee Directors.
(k) "SHARE ACCOUNT" means each account being administered for the
benefit of a Participant pursuant to Section 5 hereof.
2. ADMINISTRATION.
The Plan shall be administered by the Administrative Committee which
shall have the authority to construe and interpret the Plan, and to establish or
adopt rules, regulations and forms relating to the administration of the Plan.
The Administrative Committee shall have no authority to add to, delete from or
modify the terms of the Plan without the prior approval of the Board. All
actions and determinations by the Board with respect to the Plan shall be
required to be approved by a majority of the members thereof that are not then
participating in the Plan and who have not participated in the Plan during the
12-month period immediately preceding such action. Neither the Administrative
Committee nor any member of the Board shall be liable for any act or
determination made in good faith.
3. ELECTION TO DEFER COMPENSATION.
(a) Each Non-Employee Director may from time to time execute and
deliver to the Secretary an appropriate election form designating a portion of
the Non-Employee Director's future Compensation to be deferred under the Plan up
to a maximum of 7.5 percent of such Compensation. Any election shall be
applicable only to designated Compensation earned on or after the first day of
the month next following the month in which the election form is received by the
Administrative Committee and until the effective date of any revocation thereof.
Each such election must also irrevocably fix a date upon which the distributions
to the Participant under the Plan are to be made or begin as provided in Section
6 hereof, which date shall be a date not less than one year after the effective
date of the election.
(b) In the event a Participant elects to defer a portion of his or her
Compensation under the Plan that is equal to or greater than five percent of his
or her Compensation, the Company shall, during the period during which the
Participant's Compensation is being deferred, make an additional credit to the
Participant's Share Account in an amount equal to the sum of (i) 7.5 percent of
the Participant's Compensation during the period during which the Participant's
Compensation is being deferred and (ii) a percentage of such Compensation equal
to the percentage of Compensation then being deferred by the Participant under
the Plan up to a maximum of 7.5 percent of the Participant's Compensation.
(c) Each election to defer payment of Compensation by a Participant
shall continue in effect until revoked in writing upon not less than six months'
prior notice. No revocation shall be effective with respect to any Deferred
Amount credited with respect to Compensation prior to the effective date of the
new election. The amount, if any, of the Company's additional credit to a
2
<PAGE> 3
Participant's Share Account shall be adjusted effective as of the effective date
of each new election under the Plan by a Participant.
4. ACCOUNTING.
(a) The Company shall establish on its books appropriate bookkeeping
accounts for each Participant that will accurately reflect the Deferred Amount
of each Participant, including the number of Credited Shares in the
Participant's Share Account.
(b) The Administrative Committee shall furnish each Participant with a
statement of the Deferred Amount, including the number of Credited Shares in the
Participant's Share Account, as of the end of each calendar year promptly
following the end of each calendar year.
5. SHARE ACCOUNT.
(a) Each Share Account shall consist of the cash amounts credited in
respect of a specific election to defer Compensation and the Credited Shares
into which prior credited amounts in the Share Account have been converted.
Except as provided in this Section 5, any cash amount credited to a Share
Account in a calendar month shall be converted, as of the end of that calendar
month, into the maximum whole number of Credited Shares that the amount so
credited would have purchased at the then Market Value.
(b) As of the end of the calendar month during which the Company pays
any dividend on its common stock, either in cash or property other than its
common stock, each Share Account shall be credited with an amount equal to the
cash dividend per share or the cash value per share (as conclusively determined
by the Board) of the dividend in property other than its common stock, times the
Credited Shares in the Share Account on the dividend record date. The amount so
credited will be converted into the maximum whole number of Credited Shares that
the amount so credited could have purchased at the then Market Value. If the
Company pays any stock dividend, the Share Account shall be credited, as of the
end of the calendar month during which the stock dividend is paid, with a number
of Credited Shares equal to the number of shares or fraction of a share of
common stock paid per share of common stock as a dividend times the Credited
Shares in the Share Account on the dividend record date.
(c) If any distribution other than a dividend is made on, or with
respect to, the Company's common stock, or in the event of a stock split,
recapitalization, merger, consolidation or other adjustment of the Company's
common stock, an appropriate adjustment shall be made to the number of Credited
Shares in a Share Account or to the cash credited to the Share Account on the
same basis as would have been made had the Credited Shares then been actually
issued and outstanding on the record date. The Board shall resolve any questions
as to the appropriateness of any such adjustment, including, but not limited to,
values and exchange ratios, and its determination shall be binding and
conclusive.
3
<PAGE> 4
(d) All conversions into Credited Shares under Sections 5(a) through
(c) hereof shall be made in full shares. Amounts not so converted shall be
reflected as credited cash in a Share Account and shall be added to any
additional amounts of credited cash subsequently available for conversion;
provided, however, that in the event the Share Account reflects only credited
cash and interest thereon as provided in Section 5(e) hereof, the cash value of
such account shall not be converted into Credited Shares.
(e) In the event the Company's common stock is at any time not publicly
traded so as to permit the determination of the Market Value of the Credited
Shares, such value shall be determined based on such factors and criteria as the
Board shall determine in good faith to be appropriate under the circumstances.
In the event the Company's common stock shall have been converted into or
exchanged for cash, securities (other than the Company's common stock) or other
property by virtue of a merger, consolidation, share exchange, reclassification
or other similar transaction, the value of such cash, securities and other
property received by the holders of the Company's common stock per share of
common stock shall be fixed as the cash value for each Credited Share in each
Participant's Share Account and such cash value shall be credited in such Share
Account and thereafter remain credited in the Participant's Share Account until
distributed and such account shall thereafter be credited by an amount equal to
the interest that would have been earned thereon at an annual rate equal to the
published prime lending rate at the beginning of each calendar quarter at Chase
Bank of Texas, National Association computed quarterly until the cash value of
such account shall be distributed as provided in Section 6 hereof. In such
event, no further deferrals of Compensation may be made by the Participant under
the Plan and no further additional credits shall be made by the Company as
provided in Section 3(b) hereof and any cash credits in the Share Account shall
not thereafter be converted into Credited Shares.
(f) When a distribution is to commence pursuant to Section 6 hereof, a
stock certificate(s) representing the Credited Shares in the Share Account on
the last business day of the month preceding the date distribution is to
commence, and the amount of any credited cash in such Share Account will be
distributed as provided in Section 6 hereof, provided that all cash in the Share
Account shall be distributed at the time of the first distribution of stock
representing Crediting Shares.
6. DISTRIBUTION.
(a) Except in the case of the death of a Participant, distribution
shall commence as of the first day of the calendar quarter coincident with or
next following the date irrevocably specified by the Participant in the
applicable election to defer.
(b) Except in the case of the death of the Participant, distribution of
a stock certificate representing the number of shares in the Share Account shall
be either in the form of a single distribution of shares or in approximately
equal quarterly installments over a period not to exceed ten years as
irrevocably selected by the Participant in the applicable election to defer. In
the event the Participant elects to receive the deferred compensation of shares
of stock through quarterly
4
<PAGE> 5
installments, the undistributed Credited Shares shall accrue dividends when paid
which will be connected to additional Credited Shares in accordance with Plan
terms. Cash in the Share Account representing fractured shares shall be
distributed at the time of the next distribution of Credited Shares.
(c) In the event of the Participant's death prior to the date specified
for distribution of the Share Account, or after distribution to the Participant
has commenced but before full distribution has been made, the number of the
then-remaining shares in the Share Account shall be paid in a single
distribution to the beneficiary or contingent beneficiary designated in the
applicable election to defer, or to the estate of the deceased Participant if
there is no surviving beneficiary or contingent beneficiary. In either such
event, the single distribution shall be made as of the first day of the calendar
quarter following the Participant's date of death. A Participant may change the
beneficiary or contingent beneficiary from time to time with respect to any
election to defer by filing with the Administrative Committee a notice of change
of beneficiary. No change shall be effective unless received by the
Administrative Committee prior to the date of the Participant's death.
7. MISCELLANEOUS.
(a) The Board may amend or terminate the Plan at any time; provided,
however, (i) no amendment may be made that would accelerate or change the date
of distribution with respect to Compensation theretofore deferred and (ii) any
amendment or termination of the Plan shall not affect the rights of Participants
or beneficiaries to payment, in accordance with Section 6 of the Plan, of
amounts credited to Participants' account hereunder at the time of such
amendment or termination.
(b) The Plan does not create a trust in favor of a Participant, his or
her designated beneficiary or beneficiaries, or any other person claiming on his
or her behalf, and the obligation of the Company is solely a contractual
obligation to make payments due hereunder. In this regard, the balance in any
account shall be considered a liability of the Company and the Participant's
right thereto shall be the same as any unsecured general creditor of the
Company. Neither the Participant nor any other person shall acquire any right,
title, or interest in or to any Deferred Amount outstanding under the Plan other
than the actual payment of such Deferred Amount in accordance with the terms of
the Plan.
(c) No right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and
any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge
the same shall be void. No right or benefit hereunder shall in any manner be
liable for or subject to the debts, contracts, liabilities or torts of the
person entitled to such benefit. If any Participant or beneficiary shall become
bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or
charge any right or benefit hereunder, then such right or benefit shall in the
discretion of a majority of the Board, excluding the affected Participant, cease
and terminate; and in such event, the Company may hold or apply the same or any
part thereof for the benefit of the Participant or his or her beneficiary, his
or her spouse, children or other dependents, at any time and in such proportion
as a majority of the Board, excluding the affected Participant, may
5
<PAGE> 6
deem proper. Any statement to the contrary notwithstanding, the Company may
apply any Deferred Amount to satisfy, in whole or in part, any indebtedness of a
Participant to the Company.
(d) Construction of the Plan shall be governed by the laws of Texas.
(e) The terms of the Plan shall be binding upon the heirs, executors,
administrators, personal representatives, successors and assigns of all parties
in interest.
(f) The headings have been inserted for convenience only and shall not
affect the meaning or interpretation of the Plan.
(g) Each Participant shall submit to the Administrative Committee his
or her current mailing address. It shall be the duty of each Participant to
notify the Administrative Committee of any change of address. In the absence of
such notice, the Administrative Committee shall be entitled for all purposes to
rely on the last-known address of the Participant.
(h) Any amount payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's guardian or to the party providing or reasonably
appearing to provide for the care of such person, and such payment shall fully
discharge the Company and the Board with respect thereto.
(i) Nothing in the Plan or any amendment thereto shall give a
Participant, or any beneficiary of a Participant, a right not specifically
provided therein. Nothing in this Plan or any amendment thereto shall be
construed as giving a Participant the right to be retained as a member of the
Board.
(j) The Plan is effective on the effective date of the distribution by
Weatherford International, Inc. to its stockholders of all the outstanding
shares of stock of the Company.
6
<PAGE> 7
EXECUTED THIS ____ DAY OF ________________, 1999.
GRANT PRIDECO, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 1
EXHIBIT 10.11
GRANT PRIDECO, INC.
401(k) SAVINGS PLAN, AS AMENDED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
<S> <C>
ARTICLE I - DEFINITIONS
Account .........................................................................................1.1
Active Service...................................................................................1.2
Actual Contribution Ratio........................................................................1.3
Actual Deferral Percentage.......................................................................1.4
Actual Deferral Ratio............................................................................1.5
Affiliated Employer..............................................................................1.6
Aggregate Accounts...............................................................................1.7
Aggregation Group................................................................................1.8
Annual Additions.................................................................................1.9
Annual Compensation..............................................................................1.10
Beneficiary......................................................................................1.11
Board of Directors...............................................................................1.12
Code.............................................................................................1.13
Committee........................................................................................1.14
Considered Compensation..........................................................................1.15
Contribution.....................................................................................1.16
Contribution Percentage..........................................................................1.17
Determination Date...............................................................................1.18
Direct Rollover..................................................................................1.19
Disability.......................................................................................1.20
Distributee......................................................................................1.21
Eligible Retirement Plan.........................................................................1.22
Eligible Rollover Distribution...................................................................1.23
Employee.........................................................................................1.24
Employer or Employers............................................................................1.25
ERISA............................................................................................1.26
Excess 401(k) Contributions......................................................................1.27
Excess Aggregate 401(m) Contributions............................................................1.28
Excess Deferral..................................................................................1.29
Five Percent Owner...............................................................................1.30
Former Member....................................................................................1.31
Highly Compensated Employee......................................................................1.32
Hour of Service..................................................................................1.33
Key Employee.....................................................................................1.34
Limitation Year..................................................................................1.35
Member...........................................................................................1.36
Non-Highly Compensated Employee..................................................................1.37
Non-Key Employee.................................................................................1.38
</TABLE>
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<TABLE>
<S> <C>
Period of Service................................................................................1.39
Period of Severance..............................................................................1.40
Plan.............................................................................................1.41
Plan Year........................................................................................1.42
Qualified Nonelective Employer Contribution......................................................1.43
Regulation.......................................................................................1.44
Retirement Age...................................................................................1.45
Rollover Contribution............................................................................1.46
Section 401(k) Contributions.....................................................................1.47
Section 401(m) Contributions.....................................................................1.48
Service..........................................................................................1.49
Severs Service...................................................................................1.50
Sponsor..........................................................................................1.51
Top-Heavy Plan...................................................................................1.52
Transferred......................................................................................1.53
Trust............................................................................................1.54
Trustee..........................................................................................1.55
Trust Fund.......................................................................................1.56
USERRA...........................................................................................1.57
Valuation Date...................................................................................1.58
ARTICLE II - ACTIVE SERVICE
When Active Service Begins.......................................................................2.1
Aggregation of Service...........................................................................2.2
Eligibility Computation Periods..................................................................2.3
Periods of Service of Less Than One Year.........................................................2.4
Service Prior to Severance.......................................................................2.5
Service After Severance..........................................................................2.6
Periods of Severance Due to Child Birth or Adoption..............................................2.7
Transfers........................................................................................2.8
Employment Records Conclusive....................................................................2.9
Coverage of Certain Previously Excluded Employees................................................2.10
Military Service.................................................................................2.11
ARTICLE III - ELIGIBILITY RULES
Eligibility Requirements.........................................................................3.1
Eligibility Upon Reemployment....................................................................3.2
Frozen Participation.............................................................................3.3
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IV - CONTRIBUTIONS AND THEIR LIMITATIONS
PART A. CONTRIBUTIONS
Employee After Tax Contributions.................................................................4.1
Rollover Contributions and Direct Transfers......................................................4.2
Salary Deferral Contributions....................................................................4.3
Employer Matching Contributions..................................................................4.4
Employer Discretionary Contributions.............................................................4.5
Restoration Contributions........................................................................4.6
Excluded Members.................................................................................4.7
Qualified Nonelective Employer Contribution......................................................4.8
Top-Heavy Contribution...........................................................................4.9
Contributions Required on Return From Military Service...........................................4.10
Deadline for Payment of Contributions............................................................4.11
PART B. LIMITATIONS APPLICABLE TO CONTRIBUTIONS
Limitations Based Upon Deductibility and the Maximum
Allocation Permitted to a Member's Account.....................................................4.11
Dollar Limitation on Salary Deferral Contributions...............................................4.12
Limitation Based Upon Actual Deferral Percentage.................................................4.13
Limitation Based Upon Contribution Percentage....................................................4.14
Alternative Limitation Based Upon Actual Deferral
Percentage and Contribution Percentage.........................................................4.15
PART C. CORRECTION PROCEDURES FOR ERRONEOUS CONTRIBUTIONS
Excess Deferral Fail Safe........................................................................4.16
Actual Deferral Percentage Fail Safe.............................................................4.17
Contribution Percentage Fail Safe................................................................4.18
Alternative Limitation Fail Safe.................................................................4.19
Income Allocable to Excess 401(k) and Aggregate
401(m) Contributions...........................................................................4.20
Return of Contributions for Mistake, Disqualification or
Disallowance of Deduction......................................................................4.21
ARTICLE V - PARTICIPATION
PART A. ALLOCATIONS
Allocation of Employee Contributions.............................................................5.1
Allocation of Rollover Contributions and Direct Transfers........................................5.2
Allocation of Salary Deferral Contributions......................................................5.3
Allocation of Employer Matching Contributions....................................................5.4
</TABLE>
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<TABLE>
<S> <C>
Allocation of Employer Discretionary Contributions...............................................5.5
Allocation of Restoration Contributions..........................................................5.6
Allocation of Contribution to Excluded Members...................................................5.7
Allocation of Qualified Nonelective Employer Contributions.......................................5.8
Allocation of Top-Heavy Contributions............................................................5.9
Effect of Transfers Upon Allocations.............................................................5.10
Application of Forfeitures.......................................................................5.11
Scheduled Allocation of Income or Losses and
Appreciation or Depreciation...................................................................5.12
Interim Allocation of Income or Losses and
Appreciation or Depreciation...................................................................5.13
PART B. LIMITATION ALLOCATIONS
PART C. INVESTMENT OF TRUST FUNDS
ARTICLE VI - DISTRIBUTIONS AND FORFEITURES
PART A. DISTRIBUTIONS
Valuation of Accounts for Distributions..........................................................6.1
Distribution on Death............................................................................6.2
Distribution on Retirement.......................................................................6.3
Distribution on Disability.......................................................................6.4
Distribution on Severance From Service...........................................................6.5
Distributions on Issuance of a Qualified Domestic Relations Order................................6.6
Forfeiture on Severing Service With All Affiliated Employers.....................................6.7
Forfeiture by Lost Members or Beneficiaries; Escheat.............................................6.8
PART B. FORM, ADJUSTMENTS AND TIME OF DISTRIBUTION
Form of Distributions............................................................................6.9
Adjustment of Value of Distribution..............................................................6.10
Normal Time for Distribution.....................................................................6.11
Time Limit For Distribution......................................................................6.12
Protected Benefits...............................................................................6.13
ARTICLE VII - WITHDRAWALS AND LOANS
Valuation of Accounts for Withdrawals and Loans..................................................7.1
Minimum Loan Amount..............................................................................7.2
Withdrawals of Employee After Tax and Rollover Accounts..........................................7.3
Withdrawal for Financial Hardship................................................................7.4
Withdrawals On or After Age 59 1/2...............................................................7.5
Loans............................................................................................7.6
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VIII - GENERAL PROVISIONS APPLICABLE TO FILING A CLAIM,
DISTRIBUTIONS TO MINORS AND NO DUPLICATION OF BENEFITS
Claims Procedure.................................................................................8.1
No Duplication of Benefits.......................................................................8.2
Distributions to Disabled or Minors..............................................................8.3
ARTICLE IX - TOP-HEAVY REQUIREMENTS
Application......................................................................................9.1
Top-Heavy Test...................................................................................9.2
Vesting Restrictions if Plan Becomes Top-Heavy...................................................9.3
Minimum Contribution if Plan Becomes Top-Heavy...................................................9.4
Coverage Under Multiple Top-Heavy Plans..........................................................9.5
Restrictions if Plan Becomes Super-Top-Heavy.....................................................9.6
ARTICLE X - ADMINISTRATION OF THE PLAN
Appointment, Term of Service & Removal...........................................................10.1
Powers...........................................................................................10.2
Organization.....................................................................................10.3
Quorum and Majority Action.......................................................................10.4
Signatures.......................................................................................10.5
Disqualification of Committee Member.............................................................10.6
Disclosure to Members............................................................................10.7
Standard of Performance..........................................................................10.8
Liability of Committee and Liability Insurance...................................................10.9
Exemption from Bond..............................................................................10.10
Compensation.....................................................................................10.11
Persons Serving in Dual Fiduciary Roles..........................................................10.12
Administrator....................................................................................10.13
Standard of Judicial Review of Committee Actions.................................................10.14
ARTICLE XI - TRUST FUND AND CONTRIBUTIONS
Funding of Plan..................................................................................11.1
Incorporation of Trust...........................................................................11.2
Authority of Trustee.............................................................................11.3
Allocation of Responsibility.....................................................................11.4
ARTICLE XII - ADOPTION OF PLAN BY OTHER EMPLOYERS
Adoption Procedure...............................................................................12.1
No Joint Venture Implied.........................................................................12.2
</TABLE>
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<TABLE>
<S> <C>
All Trust Assets Available to Pay All Benefits...................................................12.3
Qualification a Condition Precedent to Adoption
and Continued Participation....................................................................12.4
ARTICLE XIII - AMENDMENT AND WITHDRAWAL OR TERMINATION
PART A. AMENDMENT
Right to Amend...................................................................................13.1
Limitation on Amendments.........................................................................13.2
Each Employer Deemed to Adopt Amendment Unless Rejected..........................................13.3
Amendment Applicable Only to Members Still Employed
Unless Amendment Specifically Provides Otherwise...............................................13.4
Mandatory Amendments.............................................................................13.5
PART B. WITHDRAWAL OR TERMINATION
Withdrawal of Employer...........................................................................13.6
Termination of Plan..............................................................................13.7
100% Vesting Required on Partial or Complete Termination
or Complete Discontinuance.....................................................................13.8
Distribution Upon Termination....................................................................13.9
ARTICLE XIV - SALE OF EMPLOYER OR SUBSTANTIALLY ALL OF ITS ASSETS
Continuance Permitted Upon Sale or Transfer of Assets............................................14.1
Distributions Upon Disposition of Assets or a Subsidiary.........................................14.2
ARTICLE XV - MISCELLANEOUS
Plan Not An Employment Contract..................................................................15.1
Benefits Provided Solely From Trust..............................................................15.2
Anti-Alienation Provision........................................................................15.3
Requirements Upon Merger or Consolidation of Plans...............................................15.4
Gender and Number................................................................................15.5
Severability.....................................................................................15.6
Governing Law; Parties to Legal Actions..........................................................15.7
</TABLE>
GRANT PRIDECO, INC.
401(k) SAVINGS PLAN
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<PAGE> 8
Grant Prideco, Inc. has entered into the following Agreement:
WITNESSETH:
WHEREAS, it has been determined that a profit sharing plan is
to be established which is intended to meet the requirements for qualification
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, and the Employee Retirement Income Security Act of 1974, as amended;
and
WHEREAS, it has also been determined that a trust is to be
established to fund that plan through a separate trust agreement which is
intended to meet the requirements for exemption under the applicable provisions
of the Internal Revenue Code of 1986, as amended, and the Employee Retirement
Income Security Act of 1974, as amended; and
WHEREAS, it is intended that other business organizations may
adopt this plan and its related trust for the exclusive benefit of their
employees and their employees' beneficiaries; and
WHEREAS, in connection with the establishment of this plan and
its related trust, Grant Prideco, Inc. agrees to the transfer of certain assets
from the Weatherford International, Inc. 401(k) Savings Plan and its related
trust to be effective as of the effective date of this plan;
NOW, THEREFORE, this Agreement is entered into in order to set
forth the terms of that profit sharing plan with a 401(k) feature which are as
follows:
<PAGE> 9
ARTICLE I
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in the definition unless the context in which the word or phrase appears
reasonably requires a broader, narrower or different meaning.
1.1 "ACCOUNT" means all ledger accounts pertaining to a Member which are
maintained by the Committee to reflect the Member's interest in the Trust Fund.
The Committee shall establish the following Accounts and any additional Accounts
that the Committee considers necessary to reflect the entire interest of the
Member in the Trust Fund. Each of the Accounts listed below and any additional
Accounts established by the Committee shall reflect the Contributions or amounts
transferred to the Trust Fund, if any, and the appreciation or depreciation of
the assets in the Trust Fund and the income earned or loss incurred on the
assets in the Trust Fund attributable to the Contributions and/or other amounts
transferred to the Account.
(a) Employee After Tax Contribution Account - The Member's
after tax contributions, if any.
(b) Salary Deferral Contribution Account - The Member's before
tax contributions, if any.
(c) Employer Matching Contribution Account - The Employer's
matching contributions allocated to the Member, if any.
(d) Employer Discretionary Contribution Account - The
Employer's discretionary contributions, if any.
(e) Qualified Nonelective Employer Contribution Account - The
Employer's Qualified Nonelective Employer Contributions allocated to
the Member, if any.
(f) Rollover Account - Funds transferred from another
qualified plan or IRA Account for the benefit of a Member.
(g) Weatherford Plan Prior Plan Account - Funds
transferred from the Weatherford International, Inc. 401(k) Savings
Plan.
1.2 "ACTIVE SERVICE" means the Periods of Service which are counted for
either eligibility or vesting purposes as calculated under Article II.
1.3 "ACTUAL CONTRIBUTION RATIO" means for an Employee the ratio of
Section 401(m) Contributions actually paid into the Trust on behalf of the
Employee for a Plan Year to the Employee's Annual Compensation earned while the
Employee was a Member for the same Plan Year.
I-1
<PAGE> 10
1.4 "ACTUAL DEFERRAL PERCENTAGE" means for a specified group of
Employees for a Plan Year the average of the ratios (calculated separately for
each Employee in the group) of the sum of Section 401(k) Contributions actually
paid into the Trust on behalf of each Employee for that Plan Year to the
Employee's Annual Compensation earned while the Employee was a Member for the
same Plan Year.
1.5 "ACTUAL DEFERRAL RATIO" means for an Employee the ratio of Section
401(k) Contributions actually paid into the Trust on behalf of the Employee for
a Plan Year to the Employee's Annual Compensation earned while the Employee was
a Member for the same Plan Year.
1.6 "AFFILIATED EMPLOYER" means the Employer and any employer which is a
member of the same controlled group of corporations within the meaning of
section 414(b) of the Code, which is a trade or business (whether or not
incorporated) which is under common control within the meaning of section 414(c)
of the Code, which is a member of an affiliated service group within the meaning
of section 414(m) of the Code with the Employer, or which is required to be
aggregated with the Employer under section 414(o) of the Code. For purposes of
the limitation on allocations contained in Part B of Article V, the definition
of Affiliated Employer is modified by substituting the phrase "more than 50
percent" in place of the phrase "at least 80 percent" each place the latter
phrase appears in section 1563(a)(1) of the Code. The definition of Affiliated
Employer shall also include Weatherford International, Inc. ("Weatherford") and
any employer which is a member of the same controlled group of corporations
within the meaning of section 414(b) of the Code, which is a trade or business
(whether or not incorporated) which is under common control within the meaning
of section 414(c) of the Code, which is a member of an affiliated service group
within the meaning of section 414(m) of the Code with Weatherford, or which is
required to be aggregated with Weatherford under section 414(o) of the Code.
1.7 "AGGREGATE ACCOUNTS" means the total of all Account balances derived
from Employer Contributions and Employee Contributions.
1.8 "AGGREGATION GROUP" means (a) each plan of the Employer or any
Affiliated Employer in which a Key Employee is a Member and (b) each other plan
of the Employer or any Affiliated Employer which enables any plan in (a) to meet
the requirements of either section 401(a)(4) or 410 of the Code. Any Employer
may treat a plan not required to be included in the Aggregation Group as being a
part of the group if the group would continue to meet the requirements of
sections 401(a)(4) and 410 of the Code with that plan being taken into account.
1.9 "ANNUAL ADDITIONS" means the sum of the following amounts credited
on behalf of a Member for the Limitation Year: (a) Employer Contributions, (b)
Employee After Tax Contributions, and (c) forfeitures. Excess 401(k)
Contributions and Excess Aggregate 401(m) Contributions for a Plan Year are
treated as Annual Additions for that Plan Year even if they are corrected
through distribution or recharacterization. Excess Deferrals that are timely
distributed as set forth in Section 4.12 shall not be treated as Annual
Additions.
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1.10 "ANNUAL COMPENSATION" means the Employee's wages from the
Affiliated Employers as defined in section 3401(a) of the Code for purposes of
federal income tax withholding at the source (but determined without regard to
any rules that limit the remuneration included in wages based on the nature or
location of the employment or the services performed) modified by including
elective contributions under a cafeteria plan described in section 125 of the
Code and elective contributions to any plan qualified under section 401(k),
408(k), or 403(b) of the Code. Except for purposes of Part B of Article V of the
Plan, Annual Compensation in excess of $160,000.00 (as adjusted by the Secretary
of Treasury) shall be disregarded. If the Plan Year is ever less than 12 months
the $160,000.00 limitation (as adjusted by the Secretary of Treasury) will be
prorated by multiplying the limitation by a fraction, the numerator of which is
the number of months in the Plan Year, and the denominator of which is 12. For
purposes of determining an Employee's Actual Contribution Ratio or Actual
Deferral Ratio, Annual Compensation shall include only compensation earned
during the portion of the Plan Year that the Employee was eligible to
participate in the Plan.
1.11 "BENEFICIARY" or Beneficiaries means the person or persons, or the
trust or trusts created for the benefit of a natural person or persons or the
Member's or Former Member's estate, designated by the Member or Former Member to
receive the benefits payable under this Plan upon his death.
1.12 "BOARD OF DIRECTORS" means the board of directors, the executive
committee or other body given management responsibility for the Sponsor.
1.13 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
1.14 "COMMITTEE" means the committee appointed by the Sponsor to
administer the Plan.
1.15 "CONSIDERED COMPENSATION" means as to each Employee, that
Employee's Annual Compensation (wages subject to withholding modified by
including elective contributions under a cafeteria plan described in section 125
of the Code and elective contributions to any plan qualified under section
401(k), 408(k) or 403(b) of the Code). For purposes of any Employer Matching
Contribution, and any Employer Discretionary Contribution, Considered
Compensation shall exclude the following items (even if includable in gross
income): overtime pay, foreign service premiums, position allowances or location
coefficient payments, call-in premiums, bonuses, sales commissions,
reimbursements or other expense allowances, fringe benefits (cash and non-cash),
moving expenses, deferred compensation, welfare benefits, amounts includable in
gross income as a result of an exercise of a stock option or a stock
appreciation right, and other items not part of the Employee's base pay.
Considered Compensation in excess of $160,000.00 (as adjusted by the Secretary
of Treasury) shall be disregarded. If the Plan Year is ever less than 12 months
the $160,000.00 limitation (as adjusted by the Secretary of Treasury) will be
prorated by multiplying the limitation by a fraction, the numerator of which is
the number of months in the Plan Year, and the denominator of which is 12.
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1.16 "CONTRIBUTION" means the total amount of contributions made under
the terms of this Plan. Each specific type of Contribution shall be designated
by the type of contribution made as follows:
(a) Employee After Tax Contribution - After tax contributions
made by the Employee.
(b) Salary Deferral Contribution - Contributions made by the
Employer under the Employee's salary deferral agreement.
(c) Employer Matching Contribution - Matching contributions
made by the Employer.
(d) Employer Discretionary Contribution - Contributions made
by the Employer on a discretionary basis.
(e) Qualified Nonelective Employer Contribution - Qualified
Nonelective Employer Contributions made by the Employer as a means of
passing the actual deferral percentage test of section 401(k) of the
Code or the actual contribution percentage test of section 401(m) of
the Code.
(f) Rollover Contribution - Contributions made by a Member
which consist of any part of an Eligible Rollover Distribution (as
defined in section 402 of the Code) from a qualified employee trust
described in section 401(a) of the Code or an IRA Rollover Account.
1.17 "CONTRIBUTION PERCENTAGE" means for a specified group of Employees
for a Plan Year the average of the ratios (calculated separately for each
Employee in the group) of the sum of Section 401(m) Contributions actually paid
into the Trust on behalf of each Employee for that Plan Year to the Employee's
Annual Compensation earned while the Employee was a Member for that Plan Year.
1.18 "DETERMINATION DATE" means for a given Plan Year the last day of
the preceding Plan Year or in the case of the first Plan Year the last day of
that Plan Year.
1.19 "DIRECT ROLLOVER" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
1.20 "DISABILITY" means a mental or physical disability which, in the
opinion of a physician selected by the Committee, will prevent the Member from
earning a reasonable livelihood with any Affiliated Employer and which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months and which: (a) was not contracted,
suffered or incurred while the Member was engaged in, or did not result from
having engaged in, a felonious criminal enterprise; (b) did not result from
alcoholism or addiction to
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narcotics; and (c) did not result from an injury incurred while a member of the
Armed Forces of the United States for which the Member receives a military
pension.
1.21 "DISTRIBUTEE" means an Employee or former Employee, and in
addition, the Employee's or former Employee's surviving spouse or the Employee's
or former Employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in section 414(p) of the Code,
with regard to the interest of the spouse or former spouse.
1.22 "ELIGIBLE RETIREMENT PLAN" means an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described in section
403(a) of the Code, or a qualified trust described in section 401(a) of the
Code, that accepts the Distributee's Eligible Rollover Distribution. However, in
the case of an Eligible Rollover Distribution to the surviving spouse, an
Eligible Retirement Plan is an individual retirement account or individual
retirement annuity.
1.23 "ELIGIBLE ROLLOVER DISTRIBUTION" as defined in section 402 of the
Code means any distribution of all or any portion of the balance to the credit
of the Distributee, except that an Eligible Rollover Distribution does not
include: (a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's Beneficiary, or for a specified period
of ten years or more; (b) any distribution to the extent the distribution is
required under section 401(a)(9) of the Code; and (c) the portion of any
distribution that is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities). For any distribution after December 31, 1999, an Eligible Rollover
Distribution also does not include any hardship distribution described in
section 401(k)(2)(B)(i)(IV) of the Code.
If the Plan accepts a Rollover Contribution which the Trustee
reasonably concludes is qualified under this Section of the Plan, and
subsequently it is determined that such distribution was not qualified, the
Trustee shall distribute the amount of such rollover distribution, plus earnings
thereon, to the Member in compliance with applicable Regulations.
1.24 "EMPLOYEE" means all common law employees of each Employer
exclusive of the following classifications: (a) employees working outside of the
United States unless the Committee elects to cover or continue to cover them in
this Plan and (b) all leased employees who are required to be treated as common
law employees under section 414(n) of the Code unless the Plan's qualified
status is dependent upon coverage of the leased employees. Independent
contractors are not common law employees and are therefore not within the
defined term "Employee" as used in this Plan. The determination of whether a
person is within an excluded class or is an independent contractor shall be made
by the Committee in its sole discretion as granted in Article X. However, if
either one or more individuals who are classified as leased employees or
independent contractors are later determined to be in fact common law employees
of an Employer, they are nevertheless to be excluded as a classification unless
the Plan's qualified status is dependent upon the coverage of that
classification of persons.
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1.25 "EMPLOYER" OR "EMPLOYERS" means the Sponsor and any other business
organization which has adopted this Plan.
1.26 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
1.27 "EXCESS 401(k) CONTRIBUTIONS" means, with respect to any Plan Year,
the excess of (a) the aggregate amount of Section 401(k) Contributions actually
paid into the Trust on behalf of Highly Compensated Employees for the Plan Year
over (b) the maximum amount of those contributions permitted under the
limitations set out in the first sentence of Section 4.13 of the Plan.
1.28 "EXCESS AGGREGATE 401(m) CONTRIBUTIONS" means, with respect to any
Plan Year, the excess of (a) the aggregate amount of Section 401(m)
Contributions actually paid into the Trust on behalf of Highly Compensated
Employees for the Plan Year over (b) the maximum amount of those contributions
permitted under the limitations set out in the first sentence of Section 4.14 of
the Plan.
1.29 "EXCESS DEFERRAL" means that part, if any, of the Salary Deferral
Contribution of a Member for his taxable year which, when added to the amounts
he deferred under other plans or arrangements described in sections 401(k),
408(k) and 403(b) of the Code, exceeds the deferral dollar limitation permitted
by section 402(g) of the Code.
1.30 "FIVE PERCENT OWNER" means an Employee who is a 5-percent owner as
defined in section 416(i) of the Code.
1.31 "FORMER MEMBER" means a person who was at one time a Member who
received allocations of Contributions and who is no longer a Member under the
Plan, but still has an Account balance in the Plan.
1.32 "HIGHLY COMPENSATED EMPLOYEE" means, an Employee or an employee of
an Affiliated Employer who: (a) during the Plan Year or the preceding Plan Year
was at any time a Five Percent Owner or (b) for the preceding year had Annual
Compensation in excess of $80,000.00 (as adjusted from time to time by the
Secretary of the Treasury) and was in the group consisting of the top 20 percent
of the Employees when ranked on the basis of Annual Compensation paid during the
preceding year. A former Member will be treated as a Highly Compensated Employee
if he was a Highly Compensated Employee when he Severed Service or he was a
Highly Compensated Employee at any time after attaining age 55. Non-resident
aliens who receive no earned income from the employer which constitutes income
from sources within the United States are excluded.
1.33 "HOUR OF SERVICE" means each hour for which an Employee is paid or
entitled to payment for the performance of duties with an Affiliated Employer.
1.34 "KEY EMPLOYEE" means an Employee or former or deceased Employee or
Beneficiary of an Employee who at any time during the Plan Year or any of the
four preceding Plan Years is (a) an officer of an Employer or any Affiliated
Employer having an Annual Compensation
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greater than 50% of the annual addition limitation of section 415(b)(1)(A) of
the Code for the Plan Year, (b) one of the 10 employees having an Annual
Compensation from an Employer or any Affiliated Employer of greater than 100% of
the annual addition limitation of section 415(c)(1)(A) of the Code for the Plan
Year and owning or considered as owning (within the meaning of section 318 of
the Code) the largest interest in an Employer or any Affiliated Employer,
treated separately, (c) a Five Percent Owner of an Employer or any Affiliated
Employer, treated separately, or (d) a 1% owner of an Employer or any Affiliated
Employer, treated separately, having Annual Compensation from an Employer or any
Affiliated Employer of more than $150,000.00, as adjusted. For this purpose no
more than 50 employees or, if lesser, the greater of three employees or 10% of
the employees shall be treated as officers. Section 416(i) of the Code shall be
used to determine percentage of ownership. For the purpose of the test set out
in (b) above, if two or more employees have the same interest in an Employer,
the employee with the greater Annual Compensation from the Employer shall be
treated as having the larger interest.
1.35 LIMITATION YEAR" means the year used for purposes of applying the
limitations under section 415 of the Code. The Limitation Year shall be the Plan
Year unless the Employer affirmatively, by resolution, designates another
limitation year.
1.36 "MEMBER" means the person or persons employed by an Employer who
are eligible to participate in this Plan.
1.37 "NON-HIGHLY COMPENSATED EMPLOYEE" means any Employee who is not a
Highly Compensated Employee.
1.38 "NON-KEY EMPLOYEE" means any Employee who is not a Key Employee.
1.39 "PERIOD OF SERVICE" means a period of employment with an Affiliated
Employer which commences on the day on which an Employee performs his initial
Hour of Service or performs his initial Hour of Service upon returning to the
employ of an Affiliated Employer, whichever is applicable, and ends on the date
the Employee Severs Service.
1.40 "PERIOD OF SEVERANCE" means the period of time which commences on
the date an Employee Severs Service and ends on the date the Employee again
performs an Hour of Service.
1.41 "PLAN" means this Plan, including all subsequent amendments.
1.42 "PLAN YEAR" means the calendar year. The Plan Year shall be the
fiscal year of this Plan.
1.43 "QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTION" means the Employer's
Contribution, if any, made as a means of passing the Actual Deferral Percentage
test or the Contribution Percentage test.
1.44 "REGULATION" means the Internal Revenue Service regulation
specified, as it may be changed from time to time.
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1.45 "RETIREMENT AGE" means normally 65 years of age. Once a Member has
attained his Retirement Age he shall be 100% vested at all times.
1.46 "ROLLOVER CONTRIBUTION" means the amount contributed by a Member to
his Account in this Plan which consists of any part or all of an Eligible
Rollover Distribution.
1.47 "SECTION 401(k) CONTRIBUTIONS" means the sum of Salary Deferral
Contributions made on behalf of the Member during the Plan Year and Qualified
Nonelective Employer Contributions that the Employer elects to have treated as
Section 401(k) Contributions pursuant to section 401(k)(3)(D)(ii) of the Code to
the extent that those contributions are not used to enable the Plan to satisfy
the minimum contribution requirements of section 416 of the Code.
1.48 "SECTION 401(m) CONTRIBUTIONS" means the sum of Employer Matching
Contributions and Employee After Tax Contributions made on behalf of the Member
during the Plan Year and Qualified Nonelective Employer Contributions that the
Employer elects to have treated as Section 401(m) Contributions pursuant to
section 401(m)(3)(B) of the Code to the extent that those contributions are not
used to enable the Plan to satisfy the minimum contribution requirements of
section 416 of the Code.
1.49 "SERVICE" means the period or periods that a person is paid or is
entitled to payment for performance of duties with an Affiliated Employer.
1.50 "SEVERS SERVICE" means the earlier of the following events: (a) the
Employee's quitting, retiring, dying or being discharged, (b) the completion of
a period of 365 continuous days in which the Employee remains absent from
Service (with or without pay) for any reason other than quitting, retiring,
dying or being discharged, such as vacation, holiday, sickness, disability,
leave of absence, layoff or any other absence or (c) the second anniversary of
the commencement of a continuous period of absence occasioned by the reason of
the pregnancy of the Employee, the birth of a child of the Employee, the
placement of a child with the Employee in connection with the adoption of the
child by the Employee or the caring for the child for a period commencing
immediately after the child's birth or placement.
1.51 "SPONSOR" means Grant Prideco, Inc. or any other organization which
assumes the primary responsibility for maintaining this Plan with the consent of
the last preceding Sponsor.
1.52 "TOP-HEAVY PLAN" means any plan which has been determined to be
top-heavy under the test described in Article IX of this Plan.
1.53 "TRANSFERRED" means an Employee's termination of employment with
one Employer and his contemporaneous commencement of employment with another
Employer.
1.54 "TRUST" means the one or more trust estates created to fund this
Plan.
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1.55 "TRUSTEE" means collectively one or more persons or entities with
trust powers which have been appointed by the initial Sponsor and have accepted
the duties of Trustee and any and all successor or successors appointed by the
Sponsor or successor Sponsor.
1.56 "TRUST FUND" means all of the trust estates established under the
terms of this Plan to fund this Plan, whether held to fund a particular group of
Accounts or held to fund all of the Accounts of Members, collectively.
1.57 USERRA: means the Uniformed Services Employment And Reemployment
Rights Act of 1994 which was enacted on October 13, 1994 as Public Law 103-353
and which amended Chapter 43 of Title 38 of the United States Code.
1.58 "VALUATION DATE" means the day or days each Plan Year selected by
the Committee on which the Trust Fund is to be valued which cannot be less
frequent than annual. One or more Accounts may have different Valuation Dates
from other Accounts. The Valuation Date must be announced to all Members and
Former Members who have Account Balances and shall remain the same until changed
by the Committee and announced to the Members.
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ARTICLE II
ACTIVE SERVICE
2.1 WHEN ACTIVE SERVICE BEGINS. For purposes of eligibility and vesting,
Active Service begins when an Employee first performs an Hour of Service for an
Affiliated Employer or an employer the stock or assets of which were or are
acquired by an Employer or Affiliated Employer without regard to whether a
predecessor plan was maintained, limited to five years of past service credit.
Once an Employee has begun Active Service for purposes of eligibility or vesting
and Severs Service he shall recommence Active Service for those purposes when he
again performs an Hour of Service for an Affiliated Employer.
2.2 AGGREGATION OF SERVICE. When determining an Employee's Active
Service, all Periods of Service, whether or not completed consecutively, shall
be aggregated on a per day basis. Thirty days shall be counted as one month and
12 months shall be counted as one year. For purposes of eligibility and vesting,
only full years of Active Service shall be counted, any fractional year shall be
dropped.
2.3 ELIGIBILITY COMPUTATION PERIODS. For the purpose of determining
eligibility and vesting, the initial period shall begin on the day the Employee
first performs an Hour of Service and each future year shall begin on the
anniversary of that date.
2.4 PERIODS OF SERVICE OF LESS THAN ONE YEAR. If an Employee performs an
Hour of Service within 12 months after he Severs Service, the intervening Period
of Severance shall be counted as a Period of Service.
2.5 SERVICE PRIOR TO SEVERANCE. If an Employee Severs Service at a time
when he does not have any vested right to amounts credited to his Employer
Matching Contribution Account or Employer Discretionary Contribution Account and
the Period of Severance continues for a continuous period of five years or more,
the Period of Service completed by the Employee before the Period of Severance
shall not be taken into account if his Period of Severance equals or exceeds his
Period of Service, whether or not consecutive, completed before the Period of
Severance. In addition if a Member incurs a Period of Severance of five
consecutive years, the Members years of Credited Service for vesting completed
after that Period of Severance shall be disregarded in determining the Member's
vested interest in that portion of his Accounts derived from Employer
Contributions on his behalf prior to the Period of Severance.
2.6 SERVICE AFTER SEVERANCE. If an Employee's Period of Severance
continues for a continuous period of five years or more, the Period of Service
completed by the Employee after that Period of Severance shall not be taken into
account in determining the Employee's vested interest in amounts contributed to
his Employer Matching Contribution Account, and earnings thereon, attributable
to Service before that Period of Severance.
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2.7 PERIODS OF SEVERANCE DUE TO CHILD BIRTH OR ADOPTION. If the period
of time between the first anniversary of the first day of an absence from
Service by reason of the pregnancy of the Employee, the birth of a child of the
Employee, the placement of a child with the Employee in connection with the
adoption of the child by the Employee or for purposes for caring for the child
for a period beginning immediately after the birth or placement and the second
anniversary of the first day of the absence occurs during or after the first
Plan Year beginning after December 31, 1984, it shall neither be counted as a
Period of Service nor of Severance.
2.8 TRANSFERS. If an Employee is Transferred from one Employer to
another, his Active Service shall not be interrupted and he shall continue to be
in Active Service for purposes of eligibility, vesting and allocation of
Contributions and/or forfeitures. If an Employee is transferred to the service
of an Affiliated Employer that has not adopted the Plan he shall not have
Severed Service; however, even though he shall continue to be in Active Service
for eligibility and vesting purposes he shall not receive any allocation of
Contributions or forfeitures.
2.9 EMPLOYMENT RECORDS CONCLUSIVE. The employment records of the
Employer shall be conclusive for all determinations of Active Service.
2.10 COVERAGE OF CERTAIN PREVIOUSLY EXCLUDED EMPLOYEES. Any Employee who
is no longer excludable because he or she is no longer included in a unit of
Employees covered by a collective bargaining agreement between the Employees'
representative and the Employer where retirement benefits were the subject of
good faith bargaining shall immediately become eligible for membership if he
meets the eligibility requirements. All his Service with any Affiliated Employer
that would have been counted had he not been previously excluded shall now be
counted as Active Service for eligibility and vesting purposes.
2.11 MILITARY SERVICE. A Member who leaves the employ of an Employer to
enter the armed services of the United States and is covered by USERRA shall not
be deemed to have broken his continuous employment if he is reemployed under
USERRA. And, the Member shall be awarded Active Service upon reemployment for
each period served by him in the uniformed services for eligibility, vesting and
benefit accrual purposes.
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ARTICLE III
ELIGIBILITY RULES
3.1 ELIGIBILITY REQUIREMENTS. Except as otherwise provided for in this
Plan, each Employee shall be eligible to participate in this Plan beginning on
the first day the Employee completes an Hour of Service. However, no Employee
shall be eligible to participate in this Plan for purposes of sharing in
Employer Matching Contributions or Employer Discretionary Contributions until
the first day he completes one year of Active Service. Employees who are
included in a unit of Employees covered by a collective bargaining agreement
between the Employees' representative and the Employer, shall be excluded, even
if they have met the requirements for eligibility, if there has been good faith
bargaining between the Employer and the Employees' representative pertaining to
retirement benefits and the agreement does not require the Employer to include
such Employees in this Plan. In addition, any Employee who is a non-resident
alien with no United States source income or an individual participating in a
retirement plan maintained by the Employer or an Affiliated Employer outside the
United States shall likewise be ineligible to participate in the Plan.
3.2 ELIGIBILITY UPON REEMPLOYMENT. If an Employee Severs Service with
the Employer for any reason after fulfilling the eligibility requirements but
prior to the date he initially begins participating in the Plan, the Employee
shall be eligible to begin participation in this Plan on the day he first
completes an Hour of Service upon his return to employment with an Employer.
Once an Employee has become eligible to be a Member, his eligibility shall
continue until he Severs Service. A former Member shall be eligible to
recommence participation in this Plan on the first day he completes an Hour of
Service upon his return to employment with an Employer.
3.3 FROZEN PARTICIPATION. An employee employed by an Affiliated
Employer, which has not adopted this Plan, cannot actively participate in this
Plan even though he accrues Active Service. Likewise, if an Employee: (a) is
transferred from an Employer to an Affiliated Employer which has not adopted
this Plan, (b) is a Member of this Plan when he is excluded from this Plan
because he becomes excluded under the provisions of a collective bargaining
agreement or because he becomes a leased employee or an independent contractor
and he has not had a complete termination of his contractual relationship with
all Affiliated Employers, (c) is a non-resident alien with no United States
source income, (d) participates in a retirement plan maintained by the Employer
or an Affiliated Employer outside the United States, or (e) is a Member of the
Plan when he is employed outside the United States and is not designated by the
Committee to continue to be eligible to participate, his participation becomes
inactive. Under these circumstances, the Member's Account becomes frozen: he
cannot contribute to the Plan nor can he share in the allocation of any Employer
Contribution or forfeitures for the frozen period. However, his Accounts shall
continue to share in any appreciation or depreciation of the Trust Fund and in
any income earned or losses incurred by the Trust Fund during the frozen period
of time. Once the contract or contracts of an independent contractor, who has a
frozen Account, have expired with all Affiliated Employers in a good-faith and
complete termination of the contractual relationship and no renewal is expected
or once an employee
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who has a frozen Account terminates his employment with all Affiliated
Employers, he shall have Severed Service for purposes of distribution of
benefits.
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ARTICLE IV
CONTRIBUTIONS AND THEIR LIMITATIONS
PART A. CONTRIBUTIONS
4.1 EMPLOYEE AFTER TAX CONTRIBUTIONS. The Committee may permit Employee
After Tax Contributions to be made by Members from time to time. If the
Committee permits Contributions by Members, the opportunity must be made
available to all Members on a nondiscriminatory basis. If the Committee decides
to stop all Contributions by Members, the Contributions to the effective date of
the announcement shall be retained in the Trust Fund subject to the right of
withdrawal described under this Plan.
Employee After Tax Contributions are limited to an amount which, when
added to the other amounts required to be taken into consideration, will not
exceed the limit set by section 415 of the Code and will meet the Contribution
Percentage test described in section 401(m) of the Code.
Changes in the rate of Employee After Tax Contributions and suspension
of those Contributions shall be permitted under any uniform method determined
from time to time by the Committee.
4.2 ROLLOVER CONTRIBUTIONS AND DIRECT TRANSFERS. The Committee may
permit Rollover Contributions by Members and/or direct transfers to or from
another qualified plan on behalf of Members from time to time. If Rollover
Contributions and/or direct transfers to or from another qualified plan are
permitted, the opportunity to make those Contributions must be made available to
all Members on a nondiscriminatory basis. For this purpose, all Employees of an
Employer who are in a classification which may participate in this Plan shall be
considered to be Members of the Plan even though they may not have met the
eligibility requirements. However, they shall not be entitled to elect to have
Salary Deferral Contributions or Employee After Tax Contributions or share in
any Employer Contribution unless and until they have met the requirements for
eligibility and allocation.
A Rollover Contribution shall not be accepted unless it is directly
rolled over to this Plan in a roll over described in section 401(a)(31) of the
Code and the property is acceptable to the Trustee. A direct transfer of assets
from another qualified plan in a transfer subject to the requirements of section
414(l) of the Code shall not be accepted if it was at any time part of the plan
which contained a right, feature or benefit not contained in this Plan unless
the Committee, in its sole discretion, agrees to continue to provide that right,
feature or benefit to that portion of the Member's Account.
Rollover Contributions shall have no effect upon the amount permitted
to be allocated to a Member's Account under section 415 of the Code, or the
amount contributed to the Plan by a Member under Section 4.1.
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4.3 SALARY DEFERRAL CONTRIBUTIONS. Each Employer shall contribute for
each Plan Year the amount by which the Member's Considered Compensation is
reduced as a result of a salary deferral agreement, not to exceed 16% of the
amount of the Member's Considered Compensation for the Plan Year less the amount
of the Member's Employee After Tax Contribution, if any, as set by the Committee
from time to time in a nondiscriminatory manner and announced to the Members.
The election to have Salary Deferral Contributions made, the ability to
change the rate of Salary Deferral Contributions, the right to suspend Salary
Deferral Contributions, and the manner of commencing new Salary Deferral
Contributions shall be permitted under any uniform method determined from time
to time by the Committee.
4.4 EMPLOYER MATCHING CONTRIBUTIONS. Each Employer shall contribute for
each Plan Year an amount, in cash or in common stock of the Sponsor (the number
of shares to be determined using the closing sales price on the business day
preceding the day of the contribution), at the sole discretion of the Board of
Directors, equal to 50% of the Salary Deferral Contribution (modified to exclude
those items in the second sentence of Section 1.15 of the Plan) made by each
Member after the date he completes one year of Active Service, but not more than
6% of the Member's Considered Compensation.
4.5 EMPLOYER DISCRETIONARY CONTRIBUTIONS. Each Employer shall contribute
for each Plan Year an amount, if any, in cash or in common stock of the Sponsor
(the number of shares to be determined using the closing sales price on the
business day preceding the day of the contribution), at the sole discretion of
the Board of Directors, which is designated by the Board of Directors to be the
Employer Discretionary Contribution for the Plan Year.
4.6 RESTORATION CONTRIBUTIONS. Each Employer shall contribute for each
Plan Year an amount, which when added to previously unapplied and unallocated
forfeitures, shall equal the amounts which were not vested and therefore
forfeited by Members who have previously terminated but who have now become
entitled to have their forfeited amounts restored plus an amount equal to the
value of all forfeited benefits for Members who formerly could not be located,
but have now filed a claim.
4.7 EXCLUDED MEMBERS. The Sponsor shall contribute an amount determined
by the Sponsor if at any time it discovers one or more Employees have been
erroneously excluded from participation or a clerical error has caused one or
more Members to not be credited with his or their proper allocation of Employer
Contributions. The amount of the contribution will equal (i) the average
deferral percentage for the employee's compensation group (either highly
compensated or nonhighly compensated), (ii) an amount that would have been
allocated to such excluded Employee or Member as a matching contribution based
on the amount contributed in (i) above if such contribution was otherwise made,
and (iii) an amount that would have been allocated to such excluded Employee or
Member as an Employer Discretionary Contribution, if such a contribution was
otherwise made. Any amount contributed under (i) of this provision will be
deemed a "qualified nonelective contribution" under Section 1.401(k)-1(g)(7) of
the Regulations and is subject to all conditions required by the Regulations in
order for them to be used in the Actual Deferral Percentage
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<PAGE> 24
test. Amounts contributed under (ii) and (iii) of this provision are subject to
the vesting schedule set forth in Section 6.5.
4.8 QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTION. Each Employer concerned
shall contribute for a given Plan Year an amount, if any, which is designated by
the Board of Directors to be the Qualified Nonelective Employer Contribution for
the Plan Year.
A Member's right to benefits derived from Qualified Nonelective
Employer Contributions made to the Plan on his behalf shall be nonforfeitable.
In no event will Qualified Nonelective Employer Contributions be distributed
before Salary Deferral Contributions may be distributed.
4.9 TOP-HEAVY CONTRIBUTION. Each Employer concerned shall contribute for
a given Plan Year an amount which is equal to the amount, if any, necessary to
fulfill the Top-Heavy Plan requirements found in Article IX if the Plan is
determined to be a Top-Heavy Plan.
4.10 CONTRIBUTIONS REQUIRED ON RETURN FROM MILITARY SERVICE. If a Member
leaves the employ of an Employer to enter the armed services of the United
States and is covered by USERRA and is reemployed under USERRA, the Employer
shall make a contribution equal to the amount of the Employer Discretionary
Contributions which would have been allocated to the Member's Account if he had
remained in the employ of the Employer for the period of time he was covered by
USERRA. In addition, the Member may make additional "catch up" Salary Deferral
Contributions during a period beginning on his date of reemployment and ending
on the earlier of (a) three times the period of his qualified military service
and (b) five years equal to the maximum amount he could have made and the
Employer must make the appropriate Employer Matching Contributions. The Employer
shall not make any contribution for lost earnings or failure to share in
forfeitures.
4.11 DEADLINE FOR PAYMENT OF CONTRIBUTIONS. The Employee After Tax
Contributions and the Salary Deferral Contributions are to be paid to the
Trustee in installments. The installment for each payroll period is to be paid
as of the end of the payroll period and shall be paid as soon as
administratively feasible but in any event not later than the time prescribed by
law for filing the Employer's federal income tax return (including extensions)
for its taxable year which ends with or next follows the end of the Plan Year
for which the Contribution is to be made. The Employer's Contribution for a Plan
Year must be paid into the Trust Fund in one or more installments not later than
the time prescribed by law for filing the Employer's federal income tax return
(including extensions) for its taxable year for which it is to take the
deduction. If the Contribution is paid after the last day of the Employer's
taxable year but prior to the date it files its tax return (including
extensions), it shall be treated as being received by the Trustee on the last
day of the taxable year if (a) the Employer notifies the Trustee in writing that
the payment is being made for that taxable year or (b) the Employer claims the
Contribution as a deduction on its federal income tax return for the taxable
year.
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PART B. LIMITATIONS APPLICABLE TO CONTRIBUTIONS
4.12 LIMITATIONS BASED UPON DEDUCTIBILITY AND THE MAXIMUM ALLOCATION
PERMITTED TO A MEMBER'S ACCOUNT. Notwithstanding any other provision of this
Plan, no Employer shall make any contribution that would be a nondeductible
contribution within the meaning of section 4972 of the Code or that would cause
the limitation on allocations to each Member's Account within the meaning of
section 415 of the Code to be exceeded. For a further description of the
limitation on allocations and the corrections permitted, see Part B of Article
V.
4.13 DOLLAR LIMITATION ON SALARY DEFERRAL CONTRIBUTIONS. The maximum
Salary Deferral Contribution that a Member may elect to have made on his behalf
during the Member's taxable year may not, when added to the amounts deferred
under other plans or arrangements described in sections 401(k), 408(k) and
403(b) of the Code exceed $10,000 (as adjusted by the Secretary of Treasury).
For purposes of applying the requirements of Section 4.13 and Article
IX, Excess Deferrals shall not be disregarded merely because they are Excess
Deferrals or because they are distributed in accordance with this Section.
However, Excess Deferrals made to the Plan on behalf of Non-Highly Compensated
Employees are not to be taken into account under Section 4.13.
4.14 LIMITATION BASED UPON ACTUAL DEFERRAL PERCENTAGE. The Actual
Deferral Percentage for eligible Highly Compensated Employees for any Plan Year
must bear a relationship to the Actual Deferral Percentage for all other
eligible Employees for the preceding Plan Year which meets either of the
following tests:
(a) the Actual Deferral Percentage of the eligible Highly
Compensated Employees is not more than the Actual Deferral Percentage
of all other eligible Employees multiplied by 1.25; or
(b) the excess of the Actual Deferral Percentage of the
eligible Highly Compensated Employees over that of all other eligible
Employees is not more than two percentage points, and the Actual
Deferral Percentage of the eligible Highly Compensated Employees is not
more than the Actual Deferral Percentage of all other eligible
Employees multiplied by two.
For the initial Plan Year of this Plan and for the initial Plan Year of
any Employer which adopts this Plan as its separate plan, the amount taken into
account as the Actual Deferral Percentage of Non-highly Compensated Employees
for the preceding Plan Year shall be (a) three percent or (b) if the Employer
makes an election under this subclause (b), the Actual Deferral Percentage of
Non-highly Compensated Employees for the first Plan year.
For purposes of this test an eligible Employee is an Employee who is
directly or indirectly eligible to make Salary Deferral Contributions for all or
part of the Plan Year. A person who is suspended from making Salary Deferral
Contributions because he has made a withdrawal is an
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<PAGE> 26
eligible Employee. If no Salary Deferral Contributions are made for an eligible
Employee, the Actual Deferral Ratio that shall be included for him in
determining the Actual Deferral Percentage is zero.
If this Plan and any other plan or plans which include cash or deferred
arrangements are considered as one plan for purposes of section 401(a)(4) or
410(b) of the Code, the cash or deferred arrangements included in this Plan and
the other plans shall be treated as one plan for these tests. If any Highly
Compensated Employee is a Member of this Plan and any other cash or deferred
arrangements of the Employer, when determining the deferral percentage of the
Employee, all of the cash or deferred arrangements are treated as one. If the
Employer elects to apply section 410(b)(4)(B) of the Code in determining whether
the Plan meets the requirements of section 401(k)(3)(A)(i) of the Code, the
Employer may, in determining whether the arrangement meets the requirements of
section 401(k)(3)(A)(ii), exclude from consideration all eligible Employees
(other than Highly Compensated Employees) who are not 21 years of age or have
not completed one year of Active Service by the end of the Plan Year.
The Actual Deferral Percentages are to be calculated and the provisions
of this Section are to be applied, separately, for each Employer which
constitutes a separate controlled group or affiliated service group.
A Salary Deferral Contribution will be taken into account under the
Actual Deferral Percentage test of Code section 401(k) and this Section for a
Plan Year only if it relates to Annual Compensation that either would have been
received by the Employee in the Plan Year (but for the deferral election) or is
attributable to services performed by the employee in the Plan Year and would
have been received by the Employee within 2 1/2 months after the close of the
Plan Year (but for the deferral election). In addition, a Section 401(k)
Contribution will be taken into account under the Actual Deferral Percentage
test of Code section 401(k) and this Section for a Plan Year only if it is
allocated to an Employee as of a date within that Plan Year. For this purpose of
a Section 401(k) Contribution is considered allocated as of a date within a Plan
Year if the allocation is not contingent on participation or performance of
services after that date and the Section 401(k) Contribution is actually paid to
the Trust no later than 12 months after the Plan Year to which the Section
401(k) Contribution relates.
Failure to correct Excess 401(k) Contributions by the close of the Plan
Year following the Plan Year for which they were made will cause the Plan's cash
or deferred arrangement to be disqualified for the Plan Year for which the
Excess 401(k) Contributions were made and for all subsequent years during which
they remain in the Trust. Also, the Employer will be liable for a 10% excise tax
on the amount of Excess 401(k) Contributions unless they are corrected within 2
1/2 months after the close of the Plan Year for which they were made.
4.15 LIMITATION BASED UPON CONTRIBUTION PERCENTAGE. The Contribution
Percentage for eligible Highly Compensated Employees for any Plan Year must not
exceed the greater of the following:
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<PAGE> 27
(a) the Contribution Percentage for all other eligible
Employees for the preceding Plan Year multiplied by 1.25; or
(b) the lesser of the Contribution Percentage for all other
eligible Employees for the preceding Plan Year multiplied by two, or
the Contribution Percentage for all other eligible Employees for the
preceding Plan Year plus two percentage points.
For the initial Plan Year of this Plan and for the initial Plan Year of
any Employer which adopts this Plan as its separate plan, the amount taken into
account as the Contribution Percentage of Non-highly Compensated Employees for
the preceding Plan Year shall be (a) three percent or (b) if the Employer makes
an election under this subclause (b), the Contribution Percentage of Non-highly
Compensated Employees for the first Plan Year.
For purposes of this test an eligible Employee is an Employee who is
directly or indirectly eligible to make Employee After Tax Contributions or to
receive an allocation of Employer Matching Contributions under the Plan for all
or part of the Plan Year. A person who is suspended from making Employee After
Tax Contributions because he has made a withdrawal, a person who would be
eligible to receive an allocation of Employer Matching Contributions but for his
election not to participate, and a person who would be eligible to receive an
allocation of Employer Matching Contributions but for the limitation on his
Annual Additions imposed by section 415 of the Code, are all eligible Employees.
If no Section 401(m) Contributions are made on behalf of an eligible
Employee, the Actual Contribution Ratio that shall be included for him in
determining the Contribution Percentage is zero. If this Plan and any other plan
or plans to which Section 401(m) Contributions are made are considered as one
plan for purposes of section 401(a)(4) or 410(b) of the Code, this Plan and
those plans are to be treated as one. The Actual Contribution Ratio of a Highly
Compensated Employee who is eligible to participate in more than one plan of an
Affiliated Employer to which employee or matching contributions are made is
calculated by treating all the plans in which the Employee is eligible to
participate as one plan. However, plans that are not permitted to be aggregated
under Regulation section 1.410(m)-1(b)(3)(ii) are not aggregated for this
purpose.
A Matching Employer Contribution will be taken into account under this
Section for a Plan Year only if (a) it is allocated to the Employee's Account as
of a date within the Plan Year, (b) it is paid to the Trust no later than the
end of the 12 month period beginning after the close of the Plan Year, and (c)
it is made on behalf of an Employee on account of his Salary Deferral
Contributions for the Plan Year.
If the Employer elects to apply section 410(b)(4)(B) of the Code in
determining whether the Plan meets the requirements of section 410(b) of the
Code, the Employer may, in determining whether the arrangement meets the
requirements of section 401(m)(2) of the Code exclude from consideration all
eligible Employees (other than Highly Compensated Employees) who are not 21
years of age or have not completed one year of Active Service by the end of the
Plan Year.
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<PAGE> 28
The Contribution Percentage shall be calculated and the provisions of
this Section applied, separately, for each Employer which constitutes a separate
controlled group or affiliated service group.
At the election of the Employer, a Member's Salary Deferral
Contributions, and Qualified Nonelective Employer Contributions made on behalf
of the Member during the Plan Year shall be treated as Section 401(m)
Contributions that are Employer Matching Contributions provided that the
conditions set forth in Regulation section 1.401(m)-1(b)(5) are satisfied.
Salary Deferral Contributions may not be treated as Employer Matching
Contributions for purposes of the Contribution Percentage test unless the
contributions, including those taken into account for purposes of the test,
satisfy the Actual Deferral Percentage test set forth in Section 4.13. Salary
Deferral Contributions and Qualified Nonelective Employer Contributions may not
be taken into account for purposes of the test to the extent that those
contributions are taken into account in determining whether any other
contributions satisfy the Actual Deferral Percentage test set forth in Section
4.13. Finally, Salary Deferral Contributions and Qualified Nonelective Employer
Contributions may be taken into account for purposes of the test only if they
are allocated to the Employee's Account as of a date within the Plan Year being
tested within the meaning of Regulation section 1.401(k)-1(b)(4).
Failure to correct Excess Aggregate 401(m) Contributions by the close
of the Plan Year following the Plan Year for which they were made will cause the
Plan to fail to be qualified for the Plan Year for which the Excess Aggregate
401(m) Contributions were made and for all subsequent years during which they
remain in the Trust. Also, the Employer will be liable for a 10% excise tax on
the amount of Excess Aggregate 401(m) Contributions unless they are corrected
within 2 1/2 months after the close of the Plan Year for which they were made.
4.16 ALTERNATIVE LIMITATION BASED UPON ACTUAL DEFERRAL PERCENTAGE AND
CONTRIBUTION PERCENTAGE. If the second alternative permitted in Sections 4.13
and 4.14 is used for both the Actual Deferral Percentage test and the
Contribution Percentage test the following additional limitation on Salary
Deferral Contributions shall apply. The Actual Deferral Percentage plus the
Contribution Percentage of the eligible Highly Compensated Employees cannot
exceed the greater of (a) or (b), where:
(a) is the sum of:
(i) 1.25 times the greater of the Actual Deferral
Percentage or the Contribution Percentage of the eligible
Non-Highly Compensated Employees for the preceding Plan Year,
and
(ii) the lesser of (x) two percentage points plus the
lesser of the Actual Deferral Percentage or the Contribution
Percentage of the eligible Non-Highly Compensated Employees
for the preceding Plan Year or (y) two times the lesser of the
Actual Deferral Percentage or the Contribution Percentage of
the group of eligible Non-Highly Compensated Employees for the
preceding Plan Year, and
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<PAGE> 29
(b) is the sum of:
(i) 1.25 times the lesser of the Actual Deferral
Percentage or the Contribution Percentage of the eligible
Non-Highly Compensated Employees for the preceding Plan Year,
and
(ii) the lesser of (x) two percentage points plus the
greater of the Actual Deferral Percentage or the Contribution
Percentage of the eligible Non-Highly Compensated Employees
for the preceding Plan Year or (y) two times the greater of
the Actual Deferral Percentage or the Contribution Percentage
of the group of eligible Non-Highly Compensated Employees for
the preceding Plan Year.
PART C. CORRECTION PROCEDURES FOR ERRONEOUS CONTRIBUTIONS
4.17 EXCESS DEFERRAL FAIL SAFE. As soon as practical after the close of
each Plan Year, the Committee shall determine if there would be any Excess
Deferrals. If there would be an Excess Deferral by a Member, the Excess Deferral
as adjusted by any earnings or losses, will be distributed to the Member no
later than April 15 following the Member's taxable year in which the Excess
Deferral was made. The income allocable to the Excess Deferrals for the taxable
year of the Member shall be determined by any reasonable method for computing
the income allocable to Excess Deferrals, provided that the method does not
violate section 401(a)(4) of the Code, is used consistently for all Members and
for all corrective distributions under the Plan for the Plan Year, and is used
by the Plan for allocating income to Members' accounts.
4.18 ACTUAL DEFERRAL PERCENTAGE FAIL. As soon as practicable after the
close of each Plan Year, the Committee shall determine whether the Actual
Deferral Percentage for the Highly Compensated Employees would exceed the
limitation. If the limitation would be exceeded for a Plan Year, before the
close of the following Plan Year (a) the amount of Excess 401(k) Contributions
for that Plan Year (and any income allocable to those Contributions as
calculated in the specific manner required by Section 4.20) shall be
distributed, or (b) to the extent provided in regulations issued by the
Secretary of the Treasury, and permitted by the Committee, the Employee may
elect to treat the amount of the Excess 401(k) Contributions as an amount
distributed to the Employee and then contributed by the Employee to the Plan as
an Employee After Tax Contribution, provided the recharacterized amounts shall
remain subject to the same rules and restrictions to which the Salary Deferral
Contributions are subjected, or (c) the Employer may make a Qualified
Nonelective Employer Contribution which it elects to have treated as a Section
401(k) Contribution.
The amount of Excess 401(k) Contributions to be distributed shall be
that amount of the Salary Deferral Contributions by or on behalf of those Highly
Compensated Employees with the largest Salary Deferral Contributions as is equal
to the Excess 401(k) Contributions, taken ratably from each Account, based
solely on those Salary Deferral Contributions for the Plan Year. This initial
distribution shall not reduce those Accounts affected below the next highest
level of Salary Deferral Contributions. If any further reduction is necessary
the same process is to be repeated at the next highest level of Salary Deferral
Contributions by or on behalf of the Highly Compensated
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<PAGE> 30
Employees, and if necessary repeated in successively lower levels of Salary
Deferral Contributions until the cash or deferred arrangement satisfies the
Actual Deferral Percentage test.
Qualified Nonelective Employer Contributions shall be treated as
Section 401(k) Contributions only if: (a) the conditions described in Regulation
section 1.401(k)-1(b)(5) are satisfied and (b) they are allocated to Members'
Accounts as of a date within that Plan Year and are actually paid to the Trust
no later than the end of the 12 month period immediately following the Plan Year
to which the contributions relate. If the Employer makes a Qualified Nonelective
Employer Contribution that it elects to have treated as a Section 401(k)
Contribution, the Contribution will be in an amount necessary to satisfy the
Actual Deferral Percentage test and will be allocated first to those Non-Highly
Compensated Employees who had the lowest Actual Deferral Ratio. The Excess
401(k) Contributions of Highly Compensated Employees will not be recharacterized
to the extent that the recharacterized amounts would exceed the Contribution
Percentage as determined prior to applying the Contribution Percentage
limitations.
Excess 401(k) Contributions may not be recharacterized after 2 1/2
months after the close of the Plan Year to which the recharacterization relates.
The amount of recharacterized Excess 401(k) Contributions, in combination with
Employee After Tax Contributions actually made by the Member, may not exceed the
maximum amount of Employee After Tax Contributions (determined without regard to
Section 4.14) that the Member could have made under the provisions of the Plan
in effect on the first day of the Plan Year in the absence of
recharacterization. Any distributions of the Excess 401(k) Contributions for any
Plan Year are to be made to Highly Compensated Employees on the basis of the
amount of contributions by, or on behalf of, each Highly Compensated Employee.
The amount of Excess 401(k) Contributions to be distributed or recharacterized
for any Plan Year must be reduced by any excess Salary Deferral Contributions
previously distributed for the taxable year ending in the same Plan Year.
4.19 CONTRIBUTION PERCENTAGE FAIL SAFE. If the limitation would be
exceeded for any Plan Year, before the close of the following Plan Year any one
or more of the following corrective actions shall be taken, as determined by the
Committee in its sole discretion: (a) the amount of the Excess Aggregate 401(m)
Contributions for that Plan Year (and any income allocable to those
Contributions as calculated in the specific manner required by Section 4.20)
shall be distributed or forfeited (to the extent not vested), or (b) the
Employer may make a Qualified Nonelective Employer Contribution which it elects
to have treated as a Section 401(m) Contribution. Any distributions of the
Excess Aggregate 401(m) Contributions for any Plan Year are to be made to Highly
Compensated Employees on the basis of the respective portions of the amounts
attributable to each of them. Forfeitures of Excess Aggregate 401(m)
Contributions may not be allocated to Members whose contributions are reduced
under this Section.
4.20 ALTERNATIVE LIMITATION FAIL SAFE. As soon as practicable after the
close of each Plan Year, the Committee shall determine whether the alternative
limitation would be exceeded. If the limitation would be exceeded for any Plan
Year, before the close of the following Plan Year the Actual Deferral Percentage
or Contribution Percentage of the eligible Highly Compensated Employees, or a
combination of both, shall be reduced by distributions made in the manner
described
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<PAGE> 31
in the Regulations. These distributions shall be in addition to and not in lieu
of distributions required for Excess 401(k) Contributions and Excess Aggregate
401(m) Contributions.
4.21 INCOME ALLOCABLE TO EXCESS 401(k) AND AGGREGATE 401(m)
CONTRIBUTIONS. The income allocable to Excess 401(k) Contributions and Excess
Aggregate 401(m) Contributions for the Plan Year shall be determined by any
reasonable method for computing the income allocable to Excess 401(k)
Contributions and Excess Aggregate 401(m) Contributions, provided that the
method does not violate section 401(a)(4) of the Code, is used consistently for
all Members and for all corrective distributions under the Plan.
4.22 RETURN OF CONTRIBUTIONS FOR MISTAKE, DISQUALIFICATION OR
DISALLOWANCE OF DEDUCTION. Subject to the limitations of section 415 of the
Code, the assets of the Trust shall not revert to any Employer or be used for
any purpose other than the exclusive benefit of the Members and their
Beneficiaries and the reasonable expenses of administering the Plan except:
(a) any Contribution made because of a mistake of fact shall
be repaid to the Employer within one year after the payment of the
Contribution;
(b) any Contribution conditioned upon the Plan's initial
qualification under section 401 of the Code or the initial
qualification of an Employer's adoption of the Plan, if later, shall be
repaid to the Employer within one year after the date of denial of the
initial qualification of the Plan or of its adoption by the Employer;
and
(c) any and all Employer Contributions are conditioned upon
their deductibility under section 404 of the Code; therefore, to the
extent the deduction is disallowed, the Contributions shall be repaid
to the Employer within one year after the disallowance.
The Employer has the exclusive right to determine if a Contribution or
any part of it is to be repaid or is to remain as a part of the Trust Fund
except that the amount to be repaid is limited, if the Contribution is made by
mistake of fact or if the deduction for the Contribution is disallowed, to the
excess of the amount contributed over the amount that would have been
contributed had there been no mistake or over the amount disallowed. Earnings
which are attributable to any excess contribution cannot be repaid. Losses
attributable to an excess contribution must reduce the amount that may be
repaid. All repayments of mistaken Contributions or Contributions which are
disallowed are limited so that the balance in a Member's Account cannot be
reduced to less than the balance that would have been in the Member's Account
had the mistaken amount or the amount disallowed never been contributed.
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<PAGE> 32
ARTICLE V
PARTICIPATION
PART A. ALLOCATIONS
5.1 ALLOCATION OF EMPLOYEE CONTRIBUTIONS. The Committee shall allocate
each Member's Employee After Tax Contributions made on his behalf to his
Employee After Tax Contribution Account as of the date they are contributed.
5.2 ALLOCATION OF ROLLOVER CONTRIBUTIONS AND DIRECT TRANSFERS. If
Rollover Contributions and/or direct transfers are permitted, the Committee
shall allocate each Member's Rollover Contribution and/or direct transfers to
his Rollover Account as of the date it is contributed or transferred.
5.3 ALLOCATION OF SALARY DEFERRAL CONTRIBUTIONS. The Committee shall
allocate the Salary Deferral Contributions, if any, made on behalf of each
Member to his Salary Deferral Contribution Account, as of the date they are
contributed.
5.4 ALLOCATION OF EMPLOYER MATCHING CONTRIBUTIONS. The Committee shall,
as of the end of each month, allocate the Employer Matching Contributions made
on behalf of each Member to his Employer Matching Contribution Account if the
Member has completed one year of Active Service credit.
5.5 ALLOCATION OF EMPLOYER DISCRETIONARY CONTRIBUTIONS. The Committee
shall, as of the end of each Plan Year, allocate the Employer Discretionary
Contribution, if any, among the Members who have completed one year of Active
Service and who are employed by one of the Employers or Affiliated Employers at
the end of the Plan Year and are employed at the time that the Contribution is
made based upon each Member's Considered Compensation paid by the Employer as
compared to the Considered Compensation of all Members employed by the Employer
or Affiliated Employer and eligible for the allocation; provided, however, for
this purpose, Considered Compensation shall be each Member's annualized
Considered Compensation as determined on the date for which the Employer
Discretionary Contribution is actually contributed to the Plan.
5.6 ALLOCATION OF RESTORATION CONTRIBUTIONS. The Committee shall, as of
the end of each Plan Year, allocate the previously unapplied and unallocated
forfeitures and the Employer Contribution, if any, which are required to restore
the nonvested portion of the Employer Accounts of Members who had previously
forfeited that nonvested portion on the date they terminated employment but who
qualified for the restoration of that amount during the Plan Year and allocate
the previously unapplied and unallocated forfeitures and the Employer
Contribution, if any, which are required to restore the Accounts of those
Members whose distributions were forfeited because of the Committee's inability
to contact the Members previously but who have filed a claim for their Accounts
during the Plan Year. The Committee shall establish and maintain a separate
subaccount for the amount allocated to an Account in order to restore a
previously forfeited amount.
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5.7 ALLOCATION OF CONTRIBUTION TO EXCLUDED MEMBERS. The Sponsor shall
allocate the Employer Contribution, if any, made on behalf of any one or more
Members to correct an error as to qualification for participation or in
Contributions, allocations or distributions to the persons concerned and in the
amount necessary to correct the error.
5.8 ALLOCATION OF QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTIONS. The
Committee shall, as of the end of the Plan Year, allocate the Qualified
Nonelective Employer Contribution, if any, among the Non-Highly Compensated
Employees as set forth in Section 4.17 or 4.18, whichever is applicable.
5.9 ALLOCATION OF TOP-HEAVY CONTRIBUTIONS. The Committee shall, as of
the end of the Plan Year, allocate the Employer Contribution, if any, which is
necessary to fulfill the Top-Heavy Plan requirements found in Article IX if the
Plan is determined to be a Top-Heavy Plan.
5.10 EFFECT OF TRANSFERS UPON ALLOCATIONS. If a Member has been
Transferred during the Plan Year, the Member shall be entitled to have allocated
to him a portion of the Employer Matching Contribution based upon his Salary
Deferral Contributions made while he was an Employee of each Employer and the
Employer Discretionary Contribution based upon his Considered Compensation for
the Plan Year earned from all of the Employers for which an Employer
Discretionary Contribution was made.
5.11 APPLICATION OF FORFEITURES. Amounts forfeited for any reason shall
first be allocated under Section 5.6 to restore previously forfeited Accounts
which are to be restored under the terms of this Plan and if any amount remains
after that allocation, it shall be used to reduce the future Employer Matching
Contributions.
5.12 SCHEDULED ALLOCATION OF INCOME OR LOSSES AND APPRECIATION OR
DEPRECIATION. The Trustee shall value the Trust Fund on its Valuation Date at
its then fair market value, but without regard to any Contributions made to the
Plan after the preceding Valuation Date, shall determine the amount of income
earned or losses suffered by the Trust Fund and shall determine the appreciation
or depreciation of the Trust Fund since the preceding Valuation Date. The
Committee shall then allocate as of the Valuation Date the income earned or
losses suffered and the appreciation or depreciation in the assets of the Trust
Fund for the period since the last preceding Valuation Date. The allocation
shall be among the Members and former Members who have undistributed Account
balances based upon their Account balances in each of the various investment
funds or accounts, if more than one, as of the last Valuation Date reduced, as
appropriate, by amounts used from the investment fund or account to make a
withdrawal or distribution or any other transaction which is properly chargeable
to the Member's Account during the period since the last Valuation Date. The
Committee, by resolution, may elect in lieu of the allocation method described
above to use a unit allocation method, a separate account method or any other
equitable method if it announces the method of allocation to the Members prior
to the beginning of the period during which it is first used.
5.13 INTERIM ALLOCATION OF INCOME OR LOSSES AND APPRECIATION OR
DEPRECIATION. If at any time in the interval between Valuation Dates, one or
more withdrawals or one or more distributions are to be made and the Committee
determines that an interim allocation is necessary
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to prevent discrimination against those Members and former Members who are not
receiving funds, the Trustee is to perform a valuation of a portion or all of
the Trust Fund as of a date selected by the Committee which is administratively
practical and near the date of withdrawals or distributions in the same manner
as it would if it were a scheduled Valuation Date. That date may be before or
after any particular distribution or withdrawal. The Committee shall then
allocate as of that date any income or loss and any appreciation or depreciation
to the various Accounts of each of the Members in the same manner as it would if
it were a scheduled Valuation Date. Then without regard to the language in
Section 6.1, all withdrawals or distributions made after that date and prior to
the next Valuation Date, even though the event causing it occurred earlier,
shall be based upon the Accounts as adjusted by the interim valuation.
PART B. LIMITATION ALLOCATIONS
The Annual Additions that may be credited to an individual Member's
Accounts under this Plan and any other qualified defined contribution plan
maintained by an Affiliated Employer for a Limitation Year shall not exceed the
lesser of (a) $30,000.00 (as adjusted by the Secretary of Treasury), or (b) 25%
of the Member's Annual Compensation for the Limitation Year. The Plan will be
operated in compliance with section 415 of the Code and its Regulations, the
terms of which are incorporated in this Plan. Thus, if the Employer maintains a
defined benefit plan in which the Member participates, the combined limits
provided in section 415(e) apply through December 31, 1999.
If Annual Additions are made in excess of the limitations contained in
this Part B, to the maximum extent permitted by law, those excess Annual
Additions shall be attributed to this Plan.
If an excess Annual Addition attributed to this Plan is held or
contributed as a result of the application of forfeitures, reasonable error in
estimating a Member's Annual Compensation, reasonable error in calculating the
maximum Salary Deferral Contribution that may be made for a Member under section
415 of the Code or because of other facts and circumstances which the
Commissioner of Internal Revenue finds to be justified, the excess Annual
Addition shall be corrected as follows:
(a) first, the excess Annual Addition shall be reduced to the
extent necessary by distributing to the Member all Employee After Tax
Contributions, if any, and then Salary Deferral Contributions together
with their earnings. These distributed amounts are disregarded for
purposes of the testing and limitations contained in Article IV;
(b) second, if the Member is still employed by the Employer at
the end of the Plan Year, any remaining excess funds shall be placed in
an unallocated suspense account to be applied to reduce future Employer
Contributions for that Member for as many Plan Years as are necessary
to exhaust the suspense account in keeping with the amounts which would
otherwise be allocated to that Member's Account; and
(c) third, if the Member is not employed by the Employer at
the end of the Plan Year, the remaining excess funds shall be placed in
an unallocated suspense account to
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reduce future Employer Contributions for all remaining Members for as
many Plan Years as are necessary to exhaust the suspense account.
If the Plan terminates prior to the exhaustion of the suspense account,
the remaining amount shall revert to the Employer.
PART C. INVESTMENT OF TRUST FUNDS
The Committee may: (a) maintain commingled and/or separate Trusts, (b)
establish separate investment funds and/or (c) permit individual investments,
some or all of which are directed by the Committee or selected by the Members or
former Members for any portion or all of their Accounts. Once the Committee has
selected or changed the mode of investments, it shall establish rules pertaining
to its administration, including but not limited to: selection of forms, rules
for making selections effective, establishing the frequency of permitted
changes, the minimum percentage in any investment, and all other necessary or
appropriate regulations.
The Committee may direct the Trustee to hold funds in cash or near
money awaiting investment or to sell assets and hold the proceeds in cash or
near money awaiting reinvestment when establishing, using or changing investment
modes. For this purpose the funds may be held in cash or invested in short term
investments such as certificates of deposit, U.S. Treasury bills, savings
accounts, commercial paper, demand notes, money market funds, any common, pooled
or collective funds which the Trustee or any other corporation may now have or
in the future may adopt for short term investments and any other similar assets
which may be offered by the federal government, national or state banks (whether
or not serving as Trustee) or any savings and loan association.
No Plan funds attributable to Employee after Tax Contributions, or
Salary Deferred Contributions shall be invested in securities (other than
interests in the Plan) of any Employer or any company directly or indirectly
controlling, controlled by or under common control with an Employer (within the
meaning of the Securities Act of 1933, as amended), until an appropriate
registration statement under the Securities Act of 1933, as amended, has become
effective covering the interests in the Plan and the securities issued by one of
the entities described above or counsel for the Sponsor or the Committee gives
an opinion that such an investment can be made without the described
registration process.
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ARTICLE VI
DISTRIBUTIONS AND FORFEITURES
PART A. DISTRIBUTIONS
6.1 VALUATION OF ACCOUNTS FOR DISTRIBUTIONS. For the purpose of making a
distribution, a Member's Accounts shall be his Accounts as valued as of the
Valuation Date which is coincident with or next preceding the event which caused
the distribution, adjusted only for Contributions, distributions and
withdrawals, if any, made between the Valuation Date and that event.
6.2 DISTRIBUTION ON DEATH. If a Member dies, the Member's spouse or
designated Beneficiary or Beneficiaries is entitled to receive 100% of the
remaining amount in all of his Accounts as of the day he dies. Each Member has
the right to designate and to revoke the designation of his Beneficiary or
Beneficiaries. Each designation or revocation must be evidenced by a written
document in the form required by the Committee, signed by the Member and filed
with the Committee. If no designation is on file at the time of a Member's death
or if the Committee determines that the designation is ineffective, the
designated Beneficiary shall be the Member's spouse, if living, or if not, the
executor, administrator or other personal representative for administration and
distribution as part of the Member's estate.
If a Member is considered to be married under local law, the Member's
designation of any Beneficiary, other than the Member's spouse, shall not be
valid unless the spouse acknowledges in writing that he or she understands the
effect of the Member's beneficiary designation and consents to it. The consent
must be to a specific Beneficiary. The written acknowledgment and consent must
be filed with the Committee, signed by the spouse, and witnessed by a Plan
representative or a notary public. However, if the spouse cannot be located or
there exist other circumstances as described in sections 401(a)(11) and
417(a)(2) of the Code, the requirement of the Member's spouse's acknowledgment
and consent may be waived.
6.3 DISTRIBUTION ON RETIREMENT. A Member may retire at any time on or
after he attains his Retirement Age. If a Member retires, he is entitled to
receive 100% of all of his Accounts as of the day he retires.
6.4 DISTRIBUTION ON DISABILITY. If a Member's employment with an
Employer is terminated (which for this purpose, shall include the Member's
receipt of long term disability payments from the Employer) and the Committee
determines he is suffering from a Disability, he is entitled to receive 100% of
all of his Accounts as of the day he terminated because of his Disability.
6.5 DISTRIBUTION ON SEVERANCE FROM SERVICE. If a Member Severs Service
with all Affiliated Employers for any reason other than death, retirement or
disability, he is entitled to receive 100% of all of his Accounts.
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6.6 DISTRIBUTION ON ISSUANCE OF A QUALIFIED DOMESTIC RELATIONS ORDER. If
the Committee determines that a judgment, decree or order relating to child
support, alimony payments or marital property rights of the spouse, former
spouse, child or other dependent of the Member is a qualified domestic relations
order which complies with a state's domestic relations law or community property
law and section 414(p) of the Code or is a domestic relations order entered
before January 1, 1985, the Committee may direct the Trustee to distribute the
awarded property to the person named in the award but only in the manner
permitted under this Plan. To be a qualified domestic relations order, the order
must clearly specify: (a) the name and last known mailing address of the Member
and each alternate payee under the order, (b) the amount or percentage of the
Member's benefits to be paid from the Plan to each alternate payee or the manner
in which the amount or percentage can be determined, (c) the number of payments
or periods for which the order applies, (d) the plan to which the order applies,
and (e) all other requirements set forth in section 414(p) of the Code. If a
distribution is made at a time when the Member is not fully vested, a separate
subaccount shall be created for the remaining portion of each Account which was
not fully vested. That subaccount shall then remain frozen: that is, no further
contributions nor any forfeitures shall be allocated to the subaccount; however,
it shall receive its proportionate share of trust appreciation or depreciation
and income earned on or losses incurred by the Trust Fund. To determine the
Member's vested interest in each subaccount at any future time, the Committee
shall add back to the subaccount at that time the amount that was previously
distributed under the qualified domestic relations order, shall multiply the
reconstituted subaccount by the vesting percentage, and shall then subtract the
amount that was previously distributed. The remaining amount is the Member's
vested interest in the subaccount at that time.
6.7 FORFEITURE ON SEVERING SERVICE WITH ALL AFFILIATED EMPLOYERS. If as
a result of Severing Service with all Affiliated Employers a former Member
receives a distribution of his entire vested interest in his Account, the
nonvested amount in his Account is immediately forfeited. However, if the Member
is reemployed, all of his Accounts containing Employer Contributions (unadjusted
for subsequent gains or losses) shall be restored if he repays to the Trustee
that portion of the distribution which was derived from Employer Contributions
within five years of the date of distribution. A former Member who received no
distribution upon his Severing Service with all Affiliated Employers because he
had no vested interest shall be treated as if he received a distribution of his
entire vested interest and that interest was less than $5,000.00.
If a former Member who has a vested interest in his Account received no
distribution or a distribution of less than the full amount of his entire vested
interest as a result of his Severing Service with all Affiliated Employers the
nonvested amount in his Account is immediately forfeited following five
consecutive one-year Periods of Severance.
A distribution shall be treated as if it were made as a result of
Severing Service with all Affiliated Employers if it is made not later than the
end of the second Plan Year following the Plan Year in which the former Member
Severs Service.
6.8 FORFEITURE BY LOST MEMBERS OR BENEFICIARIES; ESCHEAT. If a person
who is entitled to a distribution cannot be located during a search period of
60 days after the Trustee has initially attempted making payment, that person's
Account shall be forfeited. However, if at any time prior
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to the termination of this Plan and the complete distribution of the Trust Fund,
the Former Member or Beneficiary files a claim with the Committee for the
forfeited benefit, that benefit shall be reinstated (without adjustment for
trust income or losses during the forfeited period) effective as of the date of
the receipt of the claim. As soon as appropriate following the Employer's
Contribution of the reinstated amount, it shall be paid to the former Member or
Beneficiary in a single sum.
PART B. FORM, ADJUSTMENTS AND TIME OF DISTRIBUTION
6.9 FORM OF DISTRIBUTIONS. Distributions shall be made only in cash
unless an asset held in the Trust cannot be sold by distribution date or can
only be sold at less than its appraised value, in which event part or all of the
distribution may be made in kind. Also, a Member (or his designated beneficiary
or legal representative, in the case of a deceased Member) may elect to have
those portions of his Accounts that are invested in shares of common stock of
the Sponsor (or in shares of common stock of Weatherford International, Inc.)
distributed in full shares with any remaining balance (including factional
shares) distributed in cash. Except with respect to Plan mergers or Plan
transfers from other qualified plans that require optional forms of payment, all
distributions shall be made in one lump sum payment or, as a Direct Rollover if
the Distributee elects, at the time and in the manner prescribed by the
Committee, to have any portion or all of the Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan named by the Distributee.
With respect to a Member's Weatherford Plan Prior Plan Account, a
Member may elect in writing to have his Weatherford Plan Prior Plan Account
distributed in periodic installments (no more frequently than monthly) over the
life expectancy of the Participant, the life expectancy of the Participant's
spouse or designated Beneficiary, a period certain not extending beyond the life
expectancy of the Participant, or a period certain not extending beyond the life
expectancy of the participant and his spouse or designated Beneficiary.
6.10 ADJUSTMENT OF VALUE OF DISTRIBUTION. Any Account held for
distribution past one or more Valuation Dates shall continue to share in the
appreciation or depreciation of the Trust Fund and in the income earned or
losses incurred by the Trust Fund until the last Valuation Date which occurs
with or next precedes the date distribution is made.
6.11 NORMAL TIME FOR DISTRIBUTION. The following rules shall normally
govern the time for distribution unless Section 6.12 requires an earlier
distribution. Prior to making a distribution, the Committee (or its designated
representative) must furnish such Member with a benefit notice. The benefit
notice must explain the optional forms of benefit in the Plan, including the
material features and relative values of those options, the Member's right to
defer distribution until he attains Retirement Age, and relevant information
concerning the direct rollover option described in Section 6.9. The notice must
also inform the Member of his right to consider whether or not to elect a
distribution for 30 days after receiving the notice. Notwithstanding any other
provision of this Section 6.11, or of this Plan, a Member and his or her spouse
may waive the 30-day waiting period provided in this Section for making an
election of benefits by affirmatively electing a form of distribution in a
manner that satisfies the applicable Regulation, but that waiver shall not
affect the requirement that the information required by this Section be provided
the Member no more than 90 days before his annuity starting date. If the benefit
to be distributed to the Member is or is deemed
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to be $5,000.00 or less, the benefit should be distributed within one year after
the Member becomes entitled to the benefit. Also, if it is or is deemed to be
greater than $5,000.00 and the Member consents to the distribution, the benefit
should be distributed or begin to be distributed within one year after the
Member becomes entitled to the benefit. If, however, the benefit to be
distributed is or is deemed to be greater than $5,000.00 and the Member fails to
consent to the distribution, the distribution shall not be made without the
Member's consent until he attains normal Retirement Age or age 62, whichever is
later. In any event, if the Member dies, the surviving spouse may require
payments to begin within a reasonable time.
6.12 TIME LIMIT FOR DISTRIBUTION. All distributions must comply with
sections 401(a)(9) and 401(a)(14) of the Code and their regulations. Thus, the
distribution must be made no later than the EARLIER of the date required by
subsection (a) or (b) if the Member has not died.
(a) Section 401(a)(9): Commencing January 1, 1999, each Member
must begin receiving a distribution under the Plan on or before April
1st of the calendar year following the later of the calendar year in
which the Member retires or attains age 70 1/2 in the amount required
by section 401(a)(9) of the Code and its Regulations. Until that date,
a Member may elect to begin receiving distributions or receive his
distribution on the April 1st of the calendar year following the
calendar year in which he attains age 70 1/2 even though he has not
retired, in the amount required by section 401(a)(9) of the Code and
its Regulations. However, if the Member is a Five Percent Owner in the
Plan Year ending in the calendar year in which he attains 70 1/2,
distribution must begin April 1st of the following calendar year
regardless of whether he remains employed by the Employer or an
Affiliated Employer. Without regard to the above rules, if a Member
made a designation before January 1, 1984, which complied with section
401(a)(9) of the Code before its amendment by the Tax Reform Act of
1984, the distribution does not have to be made until the time
described in the designation, if later.
(b) Section 401(a)(14): The distribution must be made to the
Member on or before the 60th day after the latest of the end of the
Plan Year in which the Member attains his Retirement Age, attains the
10th anniversary of the year in which he began participation or
terminates employment with all Affiliated Employers unless the Member
consents to a later time.
If the Member has died and a portion of the Member's Account is payable
to a designated Beneficiary the payment must be made not later than one year
after the Member's death. If the surviving spouse is the Beneficiary, the
payment may be delayed so as to be made on the date on which the Member would
have attained age 70 1/2. If payment is postponed and the surviving spouse dies
before payment is made, the surviving spouse shall be treated as the Member for
purposes of this paragraph.
6.13 PROTECTED BENEFITS. No provision of this Plan shall reduce or
eliminate any benefit protected by section 411(d)(6)of the Code. In addition,
with respect to any plan that merges into this
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Plan, or if there is a plan to plan transfer, all section 411(d)(6) of the Code
protected benefits of such merged or transferred plan shall be incorporated into
this Plan except as required by law.
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ARTICLE VII
WITHDRAWALS AND LOANS
7.1 VALUATION OF ACCOUNTS FOR WITHDRAWALS AND LOANS. For the purpose
of withdrawals and loans, a Member's Account shall be his Accounts as valued as
of the Valuation Date which is coincident with or next preceding the request for
the withdrawal or loan adjusted only for Contributions, distributions,
withdrawals and loans, if any, made between the Valuation Date and that event.
7.2 MINIMUM WITHDRAWAL AMOUNT. Each withdrawal must be in an amount
equal to or in excess of $500.
7.3 WITHDRAWALS OF EMPLOYEE AFTER TAX AND ROLLOVER ACCOUNTS. A Member
is entitled at any time to receive a withdrawal from his Employee After Tax
Contribution and/or Rollover Account after giving 15 days written notice to the
Committee. The withdrawal cannot be more than the balance of the Account. Each
withdrawal of Employee After Tax Contributions contributed after December 31,
1986 shall include a pro rata share of income earned on those Contributions.
Pre-1987 Employee After Tax Contributions shall be withdrawn first until they
are exhausted.
7.4 WITHDRAWAL FOR FINANCIAL HARDSHIP. A Member is entitled to receive
a withdrawal from his Salary Deferral Contribution Account (exclusive of income
earned after December 31, 1988), Employer Matching Contribution Account,
Employer Discretionary Contribution Account, Rollover Account, or his Qualified
Nonelective Contribution Account in the event of an immediate and heavy
financial need incurred by the Member and the Committee's determination that the
withdrawal is necessary to alleviate that hardship. A Member, however must first
take a hardship withdrawal from his Employer Matching Contribution Account,
Employer Discretionary Account, Rollover Account or his Qualified Nonelective
Contribution Account prior to receiving a hardship withdrawal from his Salary
Deferral Contribution Account.
(a) Approval Reasons for Hardship: A distribution shall be
made on account of financial hardship only if the distribution is
for: (i) expenses for medical care described in section 213(d) of the
Code previously incurred by the Member, the Member's spouse, or any
dependents of the Member (as defined in section 152 of the Code) or
necessary for these persons to obtain medical care described in
section 213(d) of the Code, (ii) costs directly related to the
purchase (excluding mortgage payments) of a principal residence for
the Member, (iii) payment of tuition, related educational fees and
room and board expenses, for the next 12 months of post-secondary
education for the Member, his or her spouse, children, or dependents
(as defined in section 152 of the Code), (iv) payments necessary to
prevent the eviction of the Member from his principal residence or
foreclosure on the mortgage of the Member's principal residence, or
(v) any other event added to this list by the Commissioner of
Internal Revenue.
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(b) Maximum Distribution Permitted: A distribution to satisfy
an immediate and heavy financial need shall not be made in excess of
the amount of the immediate and heavy financial need of the Member
and the Member must have obtained all distributions, other than
hardship distributions, and all nontaxable (at the time of the loan)
loans currently available under all plans maintained by the Employer.
The amount of a Member's immediate and heavy financial need includes
any amounts necessary to pay any federal, state or local income taxes
or penalties reasonably anticipated to result from the financial
hardship distribution.
(c) Conditions Placed on Participation in Plan and other
Fringe Benefits:. The Member's hardship distribution shall terminate
his or her right to make any Employee After Tax Contributions or to
have the Employer make any Salary Deferral Contributions on his or
her behalf until the next time Employee After Tax Contributions and
Salary Deferral Contributions are permitted after the lapse of 12
months following the hardship distribution and his or her timely
filing of a written request to resume his or her Employee After Tax
Contributions or Salary Deferral Contributions. Even then, if the
Member resumes Contributions in his next taxable year he cannot have
the Employer make any Salary Deferral Contributions in excess of the
limit in section 402(g) of the Code for that taxable year reduced by
the amount of Salary Deferral Contributions made by the Employer on
the Member's behalf during the taxable year of the Member in which he
received the hardship distribution.
In addition, for 12 months after he receives a hardship
distribution from this Plan the Member is prohibited from making
elective contributions and employee contributions to all other
qualified and nonqualified plans of deferred compensation maintained
by the Employer, including stock option plans, stock purchase plans
and cash or deferred arrangements that are part of cafeteria plans
described in section 125 of the Code. However, the Member is not
prohibited from making mandatory employee contributions to a defined
benefit plan, or contributions to a health or welfare benefit plan,
including one that is part of a cafeteria plan within the meaning of
section 125 of the Code.
7.5 WITHDRAWALS ON OR AFTER AGE 59 1/2. A Member who is at least age
59 1/2 is entitled to withdraw his vested interest in all of his Accounts.
7.6 LOANS. The Committee may direct the Trustee to make loans to
Members (and Beneficiaries who are "parties in interest" within the meaning of
ERISA) who have a vested interest in the Plan. Loans may not be made to any
shareholder-employee (as defined in section 1379 of the Code as in effect before
the enactment of the Subchapter S Revision Act of 1982) or any owner-employee
(as defined in section 401(c)(3) of the Code or a member of the family of either
(as defined in section 267(c)(4) of the Code. The Loan Committee established by
the Committee will be responsible for administering the Plan loan program. All
loans will comply with the following requirements:
(a) All loans will be made solely from the Member's or
Beneficiary's Account.
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(b) Loans will be available on a nondiscriminatory basis to
all Beneficiaries who are "parties in interest" within the meaning of
ERISA, and to all Members.
(c) Loans will not be made for less than $1,000.
(d) The maximum amount of a loan may not exceed the lesser of
(i) $50,000 reduced by the person's highest outstanding loan balance
from the Plan during the preceding one year period, or (ii) one-half
of the present value of the person's vested Account balance under the
Plan determined as of the date on which the loan is approved by the
Loan Committee. If determining whether a loan would exceed these
limits, all loans under all plans of the Employer and all Affiliated
Employers which are outstanding or which have not been repaid at
least one year before must be taken into consideration.
(e) Any loan from the Plan will be evidenced by a note or
notes (signed by the person applying for the loan) having such
maturity, bearing such rate of interest, and containing such other
terms as the Loan Committee will require by uniform and
nondiscriminatory rules consistent with this Section and proper
lending practices. When required by law, the borrowing person must be
supplied with all documents required by the truth-in-lending laws and
any other applicable federal or state statute.
(f) All loans will bear a reasonable rate of interest which
will be established by the Loan Committee. In determining the proper
rate of interest to be charged, at the time any loan is made or
renewed, the Loan Committee may contact one or more of the banks in
the geographic location in which the Member or Beneficiary resides to
determine what interest rate the banks would charge for a similar
loan taking into account the collateral offered.
(g) Each loan will be fully secured by a pledge of the
borrowing person's vested Account balance. No more than 50% of the
person's vested Account balance (determined immediately after the
origination of the loan) will be considered as security for any loan.
(h) Generally, the term of the loan will not be more than five
years. The Loan Committee may agree to a longer term only if the term
is otherwise reasonable and the proceeds of the loan are to be used
to acquire a dwelling which will be used within a reasonable time
(determined at the time the loan is made) as the principal residence
of the borrowing person.
(i) The loan agreement will require level amortization over
the term of the loan and repayment through salary withholding except
in the case of a loan to a person who is not employed by the
Employer.
(j) A Member may not make a withdrawal if the remaining
balance of the Member's Account would be less than the outstanding
loan balance or the withdrawal would violate any security
requirements of the loan. No distribution may be made to a Member
until all loans to him have been paid in full. If a Member has
an outstanding loan
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from the Plan at the time he terminates employment with all
Affiliated Employers, the outstanding loan principal balance and any
accrued but unpaid interest will become immediately due in full. The
Member will have the right to immediately pay the Trustee that
amount. If the Member fails to repay the loan, the Trustee will
foreclose on the loan and the Member will be deemed to have received
a Plan distribution of the amount foreclosed upon. The Trustee will
not foreclose upon a Member's Salary Deferral Contributions Account
or Qualified Nonelective Employer Contributions Account until the
Member has terminated employment with all Affiliated Employers.
(k) If a Beneficiary defaults on his loan, the Trustee will
foreclose on the loan and the Beneficiary will be deemed to have
received a Plan distribution of the amount foreclosed upon.
(l) No amount that is pledged as collateral for a Plan loan to
a Participant will be available for withdrawal before he has fully
repaid his loan.
(m) All interest payments made pursuant to the terms of the
loan agreement will be credited to the borrowing person's Account and
will not be considered as general earnings of the Trust Fund to be
allocated to other Members. All expenses or losses incurred because
of the loan shall be charged to the borrowing person's Account.
(n) Payment of any loan made by a Member shall be suspended
while a Member is in qualified military service and is covered by
USERRA.
(o) The Committee is authorized to establish written
guidelines which, if and when adopted, shall become part of this Plan
and shall establish a procedure for applying for loans, the basis on
which loans will be approved or denied, limitations (if any) on the
types and amounts of loans offered, and any other matters necessary
or appropriate to administering this Section.
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ARTICLE VIII
GENERAL PROVISIONS APPLICABLE TO
FILING A CLAIM, DISTRIBUTIONS TO MINORS AND
NO DUPLICATION OF BENEFITS
8.1 CLAIMS PROCEDURE. When a benefit is due, the Member or
Beneficiary should submit his claim to the person or office designated by the
Committee to receive claims. Under normal circumstances, a final decision shall
be made as to a claim within 90 days after receipt of the claim. If the
Committee notifies the claimant in writing during the initial 90 day period, it
may extend the period up to 180 days after the initial receipt of the claim. The
written notice must contain the circumstances necessitating the extension and
the anticipated date for the final decision. If a claim is denied during the
claims period, the Committee must notify the claimant in writing. The denial
must include the specific reasons for it, the Plan provisions upon which the
denial is based, and the claims review procedure. If no action is taken during
the claims period, the claim is treated as if it were denied on the last day of
the claims period.
If a Member's or Beneficiary's claim is denied and he wants a review,
he must apply to the Committee in writing. That application may include any
comment or argument the claimant wishes to make. The claimant may either
represent himself or appoint a representative, either of whom has the right to
inspect all documents pertaining to the claim and its denial. The Committee may
schedule any meeting with the claimant or his representative that it finds
necessary or appropriate to complete its review.
The request for review must be filed within 60 days after the denial.
If it is not, the denial becomes final. If a timely request is made, the
Committee must make its decision, under normal circumstances, within 60 days of
the receipt of the request for review. However, if the Committee notifies the
claimant prior to the expiration of the initial review period, it may extend the
period of review up to 120 days following the initial receipt of the request for
a review. All decisions of the Committee must be in writing and must include the
specific reasons for their action and the Plan provisions on which their
decision is based. If a decision is not given to the claimant within the review
period, the claim is treated as if it were denied on the last day of the review
period.
8.2 NO DUPLICATION OF BENEFITS. There shall be no duplication of
benefits under this Plan. Without regard to any other language in this Plan, all
distributions and withdrawals are to be subtracted from a Member's Account as of
the date of the distribution or withdrawal. Thus, if the Member has received one
distribution or withdrawal and is ever entitled to another distribution or
withdrawal, the prior distribution or withdrawal is to be taken into account.
8.3 DISTRIBUTIONS TO DISABLED OR MINORS. If the Committee determines
that any person to whom a payment is due is a minor or is unable to care for his
affairs because of a physical or mental disability, it shall have the authority
to cause the payments to be made to an ancestor, descendant, spouse, or other
person the Committee determines to have incurred, or to be expected
VIII-1
<PAGE> 46
to incur, expenses for that person or to the institution which is maintaining
or has custody of the person unless a prior claim is made by a qualified
guardian or other legal representative. The Committee and the Trustee shall not
be responsible to oversee the application of those payments. Payments made
pursuant to this power shall be a complete discharge of all liability under the
Plan and Trust and the obligations of the Employer, the Trustee, the Trust Fund
and the Committee.
VIII-2
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ARTICLE IX
TOP-HEAVY REQUIREMENTS
9.1 APPLICATION. The requirements described in this Article shall
apply to each Plan Year that this Plan is determined to be a Top-Heavy Plan
under the test set out in the following Section.
9.2 TOP-HEAVY TEST. If on the Determination Date the Aggregate
Accounts of Key Employees in the Plan exceeds 60% of the Aggregate Accounts of
all Employees in the Plan, this Plan shall be a Top-Heavy Plan for that Plan
Year. In addition, if this Plan is required to be included in an Aggregation
Group and that group is a top-heavy group, this Plan shall be treated as a
Top-Heavy Plan. An Aggregation Group is a top-heavy group if on the
Determination Date the sum of (a) the present value of the cumulative accrued
benefits for Key Employees under all defined benefit plans in the Aggregation
Group which contains this Plan plus (b) the total of all of the accounts of Key
Employees under all defined contribution plans included in the Aggregation Group
(which contains this Plan) is more than 60% of a similar sum determined for all
employees covered in the Aggregation Group which contains this Plan.
In applying the above tests, the following rules shall apply:
(a) In determining the present value of the accumulated
accrued benefits for any Employee or the amount in the account of any
Employee, the value or amount shall be increased by all distributions
made to or for the benefit of the Employee under the Plan during the
five year period ending on the Determination Date.
(b) All rollover contributions made after December 31, 1983 by
the Employee to the Plan shall not be considered by the Plan for
either test.
(c) If an Employee is a Non-Key Employee under the Plan for
the Plan Year but was a Key Employee under the Plan for another prior
Plan Year, his account shall not be considered.
(d) Benefits shall not be taken into account in determining
the top-heavy ratio for any Employee who has not performed services
for the Employer during the last five-year period ending upon the
Determination Date.
9.3 VESTING RESTRICTIONS IF PLAN BECOMES TOP-HEAVY. If a Member has at
least one Hour of Service during a Plan Year when the Plan is a Top-Heavy Plan
he shall either vest under each of the normal vesting provisions of the Plan or
under the following vesting schedule, whichever is more favorable:
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<PAGE> 48
<TABLE>
<CAPTION>
PERCENTAGE OF AMOUNT VESTED
IN ACCOUNTS CONTAINING
COMPLETED YEARS OF ACTIVE SERVICE EMPLOYER CONTRIBUTIONS
- --------------------------------- ----------------------
<S> <C>
Less than two years...................................................... 0%
Two years but less than three years...................................... 20%
Three years but less than four years..................................... 40%
Four years but less than five years...................................... 60%
Five years but less than six years....................................... 80%
Six years or more........................................................100%
</TABLE>
If the Plan ceases to be a Top-Heavy Plan, this requirement shall no longer
apply. After that date the normal vesting provisions of the Plan shall be
applicable to all subsequent Contributions by the Employer.
9.4 MINIMUM CONTRIBUTION IF PLAN BECOMES TOP-HEAVY. If this Plan is a
Top-Heavy Plan and the normal allocation of the Employer Contribution and
forfeitures is less than 3% of any Non-Key Employee Member's Annual
Compensation, the Committee, without regard to the normal allocation procedures,
shall allocate the Employer Contribution and the forfeitures among the Members
who are in the employ of the Employer at the end of the Plan Year (even if the
Member has less than 501 Hours of Service in the Plan Year), in proportion to
each Member's Annual Compensation as compared to the total Annual Compensation
of all Members for that Plan Year until each Non-Key Employee Member has had an
amount equal to the lesser of (i) the highest rate of Contribution applicable to
any Key Employee, or (ii) 3% of his Annual Compensation allocated to his
Account. At that time, any more Employer Contributions or forfeitures shall be
allocated under the normal allocation procedures described earlier in this Plan.
Salary Deferral Contributions and Employer Matching Contributions made on behalf
of Key Employees are included in determining the highest rate of Employer
Contributions. Salary Deferral Contributions made on behalf of Non-Key Employees
shall not be included in determining the minimum contribution required under
this Section. Employer Matching Contributions and amounts that may be treated as
Section 401(k) Contributions or Section 401(m) Contributions, other than
Qualified Nonelective Employer Contributions, made on behalf of Non-Key
Employees may not be included in determining the minimum contribution required
under this Section to the extent that they are treated as Section 401(m)
Contributions or Section 401(k) Contributions for purposes of the Actual
Deferral Percentage test or the Contribution Percentage test.
In applying this restriction the following rules shall apply:
(a) Each Employee who is eligible for membership (without
regard to whether he has made mandatory contributions, if any are
required, or whether his compensation is less than a stated amount)
shall be entitled to receive an allocation under this Section.
(b) All defined contribution plans required to be included in
the Aggregation Group shall be treated as one plan for purposes of
meeting the 3% maximum. This required aggregation shall not apply if
this Plan is also required to be included in an Aggregation
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<PAGE> 49
Group which includes a defined benefit plan and this Plan enables that
defined benefit plan to meet the requirements of sections 401(a)(4) or
410 of the Code.
9.5 COVERAGE UNDER MULTIPLE TOP-HEAVY PLANS. If this Plan is a Top-Heavy
Plan, it must meet the vesting and benefit requirements described in this
Article without taking into account contributions or benefits under Chapter 2 of
the Code (relating to tax on self-employment income), Chapter 21 of the Code
(relating to Federal Insurance Contributions Act), Title II of the Social
Security Act or any other Federal or State law.
If a Non-Key Employee is covered by both a Top-Heavy defined
contribution plan and a defined benefit plan, he shall receive the defined
benefit minimum, offset by the benefits provided under the defined contribution
plan.
9.6 RESTRICTIONS IF PLAN BECOMES SUPER-TOP-HEAVY. If the Plan is
determined to be a Top-Heavy Plan, the number "1.00" must be substituted for the
number "1.25" when applying the limitations of section 415 of the Code to this
Plan, unless the Plan would not be a Top-Heavy Plan if "90%" were substituted
for "60%" and the Employer Contribution for the Plan Year for each Non-Key
Employee, who is a Member, is not less than 4% of the Member's Annual
Compensation.
IX-3
<PAGE> 50
ARTICLE X
ADMINISTRATION OF THE PLAN
10.1 APPOINTMENT, TERM OF SERVICE & REMOVAL. The Board of Directors shall
appoint a Committee to administer this Plan. The members shall serve until their
resignation, death or removal. Any member may resign at any time by mailing a
written resignation to the Board of Directors. Any member may be removed by the
Board of Directors, with or without cause. Vacancies may be filled by the Board
of Directors from time to time.
10.2 POWERS. The Committee is a fiduciary. It has the exclusive
responsibility for the general administration of the Plan and Trust, and has all
powers necessary to accomplish that purpose, including but not limited to the
following rights, powers, and authorities:
(a) to make rules for administering the Plan and Trust so
long as they are not inconsistent with the terms of the Plan;
(b) to construe all provisions of the Plan and Trust;
(c) to correct any defect, supply any omission, or reconcile
any inconsistency which may appear in the Plan or Trust;
(d) to select, employ, and compensate at any time any
consultants, actuaries, accountants, attorneys, and other agents and
employees the Committee believes necessary or advisable for the proper
administration of the Plan and Trust; any firm or person selected may
be a disqualified person but only if the requirements of section
4975(d) of the Code have been met;
(e) to determine all questions relating to eligibility, Active
Service, Compensation, allocations and all other matters relating to
the amount of benefits and any one or more Members' or Former Members'
entitlement to benefits and to determine when it is required under the
Plan to treat a Former Member as a Member;
(f) to determine all controversies relating to the
administration of the Plan and Trust, including but not limited to any
differences of opinion arising between an Employer and the Trustee or a
Member or Former Member, or any combination of them and any questions
it believes advisable for the proper administration of the Plan and
Trust;
(g) to direct or to appoint an investment manager or managers
who can direct the Trustee in all matters relating to the investment,
reinvestment and management of the Trust Fund;
(h) to direct the Trustee in all matters relating to the
payment of Plan benefits;
X-1
<PAGE> 51
(i) to delegate any clerical or recordation duties of the
Committee as the Committee believes is advisable to properly administer
the Plan and Trust; and
(j) to make any other determination of any fact or any
decision as to any aspect of the administration of the Plan and Trust
that is appropriate in its general administration of the Plan and
Trust.
10.3 ORGANIZATION. The Committee may select, from among its members, a
chairman, and may select a secretary. The secretary need not be a member of the
Committee. The secretary shall keep all records, documents and data pertaining
to its administration of the Plan and Trust.
10.4 QUORUM AND MAJORITY ACTION. A majority of the Committee constitutes
a quorum for the transaction of business. The vote of a majority of the members
present at any meeting shall decide any question brought before that meeting. In
addition, the Committee may decide any question by a vote, taken without a
meeting, of a majority of its members.
10.5 SIGNATURES. The chairman, the secretary and any one or more of the
members of the Committee to which the Committee has delegated the power shall
each, severally, have the power to execute any document on behalf of the
Committee, and to execute any certificate or other written evidence of the
action of the Committee. The Trustee, after it is notified of any delegation of
power in writing, shall accept and may rely upon any document executed by the
appropriate member or members as representing the action of the Committee until
the Committee files a written revocation of that delegation of power with the
Trustee.
10.6 DISQUALIFICATION OF COMMITTEE MEMBER. A member of the Committee who
is also a Member of this Plan shall not vote or act upon any matter relating
solely to himself.
10.7 DISCLOSURE TO MEMBERS. The Committee shall make available to each
Member and Beneficiary for his examination those records, documents and other
data required under ERISA, but only at reasonable times during business hours.
No Member or Beneficiary has the right to examine any data or records reflecting
the compensation paid to any other Member or Beneficiary. The Committee is not
required to make any other data or records available other than those required
by ERISA.
10.8 STANDARD OF PERFORMANCE. The Committee and each of its members: (a)
shall use the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man, acting in a like capacity and familiar with such
matters, would use in conducting his business as the administrator of the Plan,
(b) shall, when exercising its power to direct investments, diversify the
investments of the Plan so as to minimize the risk of large losses, unless under
the circumstances it is clearly prudent not to do so, and (c) shall otherwise
comply with the provisions of this Plan and ERISA.
10.9 LIABILITY OF COMMITTEE AND LIABILITY INSURANCE. No member of the
Committee shall be liable for any act or omission of any other member of the
Committee, the Trustee, any investment manager appointed by the Committee or any
other agent appointed by the Committee
X-2
<PAGE> 52
unless required by the terms of ERISA or another applicable state or federal law
under which liability cannot be waived. No member of the Committee shall be
liable for any act or omission of his own unless required by ERISA or another
applicable state or federal law under which liability cannot be waived.
If the Committee directs the Trustee to do so, it may purchase out of
the Trust Fund insurance for the members of the Committee, for any other
fiduciaries appointed by the Committee and for the Trust Fund itself to cover
liability or losses occurring because of the act or omission of any one or more
of the members of the Committee or any other fiduciary appointed under this
Plan. But, that insurance must permit recourse by the insurer against the
members of the Committee or the other fiduciaries concerned if the loss is
caused by breach of a fiduciary obligation by one or more members of the
Committee or other fiduciary.
10.10 EXEMPTION FROM BOND. No member of the Committee is required to give
bond for the performance of his duties unless required by a law which cannot be
waived.
10.11 COMPENSATION. The Committee shall serve without compensation but
shall be reimbursed by the Employer for all expenses properly incurred in the
performance of their duties unless the Sponsor elects to have those expenses
paid from the Trust Fund. Each Employer shall pay that part of the expense as
determined by the Committee in its sole judgment.
10.12 PERSONS SERVING IN DUAL FIDUCIARY ROLES. Any person, group of
persons, corporations, firm or other entity, may serve in more than one
fiduciary capacity with respect to this Plan, including serving as both Trustee
and as a member of the Committee.
10.13 ADMINISTRATOR. For all purposes of ERISA, the administrator of the
Plan is the Sponsor. The administrator has the final responsibility for
compliance with all reporting and disclosure requirements imposed under all
applicable federal or state laws and regulations.
10.14 STANDARD OF JUDICIAL REVIEW OF COMMITTEE ACTIONS. The Committee has
full and absolute discretion in the exercise of each and every aspect of the
rights, power, authority and duties retained or granted it under the Plan,
including without limitation, the authority to determine all facts, to interpret
this Plan, to apply the terms of this Plan to the facts determined, to make
decisions based upon those facts and to make any and all other decisions
required of it by this Plan, such as the right to benefits, the correct amount
and form of benefits, the determination of any appeal, the review and correction
of the actions of any prior administrative committee, and the other rights,
powers, authority and duties specified in this Article and elsewhere in this
Plan. Notwithstanding any provision of law, or any explicit or implicit
provision of this document, any action taken, or finding, interpretation, ruling
or decision made by the Committee in the exercise of any of its rights, powers,
authority or duties under this Plan shall be final and conclusive as to all
parties, including without limitation all Members, Former Members and
Beneficiaries, regardless of whether the Committee or one or more of its members
may have an actual or potential conflict of interest with respect to the subject
matter of the action, finding, interpretation, ruling or decision. No final
action, finding, interpretation, ruling or decision of the Committee shall be
subject to de novo review in any judicial proceeding. No final action, finding,
interpretation, ruling or decision of the Committee may
X-3
<PAGE> 53
be set aside unless it is held to have been arbitrary and capricious by a final
judgment of a court having jurisdiction with respect to the issue.
X-4
<PAGE> 54
ARTICLE XI
TRUST FUND AND CONTRIBUTIONS
11.1 FUNDING OF PLAN. This Plan shall be funded by one or more separate
Trusts. If more than one Trust is used, each Trust shall be designated by the
name of the Plan followed by a number assigned by the Committee at the time the
Trust is established.
11.2 INCORPORATION OF TRUST. Each Trust is a part of this Plan. All
rights or benefits which accrue to a person under this Plan shall be subject
also to the terms of the agreements creating the Trust or Trusts and any
amendments to them which are not in direct conflict with this Plan.
11.3 AUTHORITY OF TRUSTEE. Each Trustee shall have full title and legal
ownership of the assets in the separate Trust which, from time to time, is in
his separate possession. No other Trustee shall have joint title to or joint
legal ownership of any asset in one of the other Trusts held by another Trustee.
Each Trustee shall be governed separately by the trust agreement entered into
between the Employer and that Trustee and the terms of this Plan without regard
to any other agreement entered into between any other Trustee and the Employer
as a part of this Plan.
11.4 ALLOCATION OF RESPONSIBILITY. To the fullest extent permitted under
section 405 of ERISA, the agreements entered into between the Employer and each
of the Trustees shall be interpreted to allocate to each Trustee its specific
responsibilities, obligations and duties so as to relieve all other Trustees
from liability either through the agreement, Plan or ERISA, for any act of any
other Trustee which results in a loss to the Plan because of his act or failure
to act.
XI-1
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ARTICLE XII
ADOPTION OF PLAN BY OTHER EMPLOYERS
12.1 ADOPTION PROCEDURE. Any business organization may, with the
approval of the Board of Directors, adopt this Plan by:
(a) adopting a resolution or executing a consent of the board
of directors of the adopting Employer or executing an adoption
instrument (approved by the board of directors of the adopting
Employer) agreeing to be bound as an Employer by all the terms,
conditions and limitations of this Plan except those, if any,
specifically described in the adoption instrument; and
(b) providing all information required by the Committee and
the Trustee.
An adoption may be retroactive to the beginning of a Plan Year if these
conditions are complied with on or before the last day of that Plan Year.
12.2 NO JOINT VENTURE IMPLIED. The document which evidences the adoption
of the Plan by an Employer shall become a part of this Plan. However, neither
the adoption of this Plan and its related Trust Fund by an Employer nor any act
performed by it in relation to this Plan and its related Trust Fund shall ever
create a joint venture or partnership relation between it and any other
Employer.
12.3 ALL TRUST ASSETS AVAILABLE TO PAY ALL BENEFITS. The Accounts of
Members employed by the Employers which adopt this Plan shall be commingled for
investment purposes. All assets in the Trust Fund shall be available to pay
benefits to all Members employed by any Employer which is an Affiliated Employer
with the first Employer.
12.4 QUALIFICATION A CONDITION PRECEDENT TO ADOPTION AND CONTINUED
PARTICIPATION. The adoption of this Plan and the Trust or Trusts used to fund
this Plan by a business organization is contingent upon and subject to the
express condition precedent that the initial adoption meets all statutory and
regulatory requirements for qualification of the Plan and the exemption of the
Trust or Trusts and that the Plan and the Trust or Trusts that are applicable to
it continue in operation to maintain their qualified and exempt status. In the
event the adoption fails to initially qualify and be exempt, the adoption shall
fail retroactively for failure to meet the condition precedent and the portion
of the Trust Fund applicable to the adoption shall be immediately returned to
the adopting business organization and the adoption shall be void ab initio. In
the event the adoption as to a given business organization later becomes
disqualified and loses its exemption for any reason, the adoption shall fail
retroactively for failure to meet the condition precedent and the portion of the
Trust Fund allocable to the adoption by that business organization shall be
immediately spun off, retroactively as of the last date for which the Plan
qualified, to a separate Trust for its sole benefit and an identical but
separate Plan shall be created, retroactively effective as of the last date
the Plan as adopted by that business organization qualified, for the benefit of
the Members covered by that adoption.
XII-1
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ARTICLE XIII
AMENDMENT AND WITHDRAWAL OR TERMINATION
PART A. AMENDMENT
13.1 RIGHT TO AMEND. The Sponsor has the sole right to amend this Plan.
An amendment may be made by adopting a resolution or executing a consent of the
Board of Directors, or by the appropriate officer of the Sponsor executing an
amendment document.
13.2 LIMITATION ON AMENDMENTS. No amendment shall:
(a) vest in an Employer any interest in the Trust Fund;
(b) cause or permit the Trust Fund to be diverted to any
purpose other than the exclusive benefit of the present or future
Members and their Beneficiaries except under the circumstances
described in Section 4.21;
(c) decrease the Account of any Member or eliminate an
optional form of payment as to amounts then accrued;
(d) increase substantially the duties or liabilities of
the Trustee without its written consent; or
(e) change the vesting schedule to one which would result in
the nonforfeitable percentage of the Account derived from Employer
Contributions (determined as of the later of the date of the adoption
of the amendment or of the effective date of the amendment) of any
Member being less than the nonforfeitable percentage computed under the
Plan without regard to the amendment. If the Plan's vesting schedule is
amended, if the Plan is amended in any other way that affects the
computation of the Member's nonforfeitable percentage, or if the Plan
is deemed amended by an automatic change to or from a Top-Heavy vesting
schedule, each Member with at least three years of Service may elect,
within a reasonable period after the adoption of the amendment or the
change, to have the nonforfeitable percentage computed under the Plan
without regard to the amendment or the change. The election period
shall begin no later than the date the amendment is adopted or deemed
to be made and shall end no later than the latest of the following
dates: (1) 60 days after the date the amendment is adopted or deemed to
be made, (2) 60 days after the date the amendment becomes effective, or
(3) 60 days after the day the Member is issued written notice of the
amendment.
13.3 EACH EMPLOYER DEEMED TO ADOPT AMENDMENT UNLESS REJECTED. Each
Employer shall be deemed to have adopted any amendment made by the Sponsor
unless the Employer notifies the Committee of its rejection in writing within
30 days after it is notified of the amendment. A
XIII-1
<PAGE> 57
rejection shall constitute a withdrawal from this Plan by that Employer unless
the Sponsor acquiesces in the rejection.
13.4 AMENDMENT APPLICABLE ONLY TO MEMBERS STILL EMPLOYED UNLESS AMENDMENT
SPECIFICALLY PROVIDES OTHERWISE. No benefit for any person who died, retired,
became disabled or separated shall be affected by a subsequent amendment unless
the amendment specifically provides otherwise and the person consents to its
application. Instead, those persons who died, retired, became disabled or
separated prior to the execution of an amendment shall be entitled to the
benefit as adjusted from time to time as was provided by the Plan at the time
the person first became entitled to his benefit.
13.5 MANDATORY AMENDMENTS. The Contributions of each Employer to this
Plan are intended to be:
(a) deductible under the applicable provisions of the Code;
(b) except as otherwise prescribed by applicable law, exempt
from the Federal Social Security Act;
(c) except as otherwise prescribed by applicable law, exempt
from withholding under the Code; and
(d) excludable from any Employee's regular rate of pay, as
that term is defined under the Fair Labor Standards Act of 1938, as
amended.
The Sponsor shall make any amendment necessary to carry out this
intention, and it may be made retroactively.
PART B. WITHDRAWAL OR TERMINATION
13.6 WITHDRAWAL OF EMPLOYER. An Employer may withdraw from this Plan and
its related Trust Fund if the Sponsor does not acquiesce in its rejection of an
amendment or by giving written notice of its intent to withdraw to the
Committee. The Committee shall then determine the portion of the Trust Fund that
is attributable to the Members employed by the withdrawing Employer and shall
notify the Trustee to segregate and transfer those assets to the successor
Trustee or Trustees when it receives a designation of the successor from the
withdrawing Employer.
A withdrawal shall not terminate the Plan and its related Trust Fund
with respect to the withdrawing Employer, if the Employer either appoints a
successor Trustee or Trustees and reaffirms this Plan and its related Trust Fund
as its new and separate plan and trust intended to qualify under section 401(a)
of the Code, or establishes another plan and trust intended to qualify under
section 401(a) of the Code.
The determination of the Committee, in its sole discretion, of the
portion of the Trust Fund that is attributable to the Members employed by the
withdrawing Employer shall be final and binding
XIII-2
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upon all parties. The Trustee's transfer of those assets to the designated
successor Trustee shall relieve the Trustee of any further obligation, liability
or duty to the withdrawing Employer, the Members employed by that Employer and
their Beneficiaries, and the successor Trustee or Trustees.
13.7 TERMINATION OF PLAN. The Sponsor may terminate this Plan and its
related Trust Fund with respect to all Employers by executing and delivering to
the Committee and the Trustee, a notice of termination, specifying the date of
termination. Any Employer may terminate this Plan and its related Trust Fund
with respect to itself by executing and delivering to the Trustee a notice of
termination, specifying the date of termination. Likewise, this Plan and its
related Trust Fund shall automatically terminate with respect to any Employer if
there is a general assignment by that Employer to or for the benefit of its
creditors, or a liquidation or dissolution of that Employer without a successor.
Upon the termination of this Plan as to an Employer, the Trustee shall, subject
to the provisions of Section 13.9, distribute to each Member employed by the
terminating Employer the amount certified by the Committee to be due the Member.
The Employer should apply to the Internal Revenue Service for a
determination letter with respect to its termination, and the Trustee should not
distribute the Trust Funds until a determination is received. However, should it
decide that a distribution before receipt of the determination letter is
necessary or appropriate it should retain sufficient assets to cover any tax
that may become due upon that determination.
13.8 100% VESTING REQUIRED ON PARTIAL OR COMPLETE TERMINATION OR COMPLETE
DISCONTINUANCE. Without regard to any other provision of this Plan, if there is
a partial or total termination of this Plan or there is a complete
discontinuance of the Employer's Contributions, each of the affected Members
shall immediately become 100% vested in his Account as of the end of the last
Plan Year for which a substantial Employer Contribution was made and in any
amounts later allocated to his Account. If the Employer then resumes making
substantial Contributions at any time, the appropriate vesting schedule shall
again apply to all amounts allocated to each affected Member's Account beginning
with the Plan Year for which they were resumed.
13.9 DISTRIBUTION UPON TERMINATION. A Member may receive a distribution
on account of termination of this Plan if neither the Employer nor any
Affiliated Employer establishes or maintains a successor plan within the period
ending 12 months after all assets are distributed from the Plan. A successor
plan for this purpose is any other defined contribution plan except: (a) an
employee stock ownership plan as defined in sections 4975(e) or 409 of the Code,
(b) a simplified employee pension plan as defined in section 408(k) of the Code,
or (c) or a defined contribution plan in which fewer than 2% of the Members of
this Plan were eligible to participate during the 24 month period beginning 12
months before the time of this Plan's termination. Any distribution on account
of the termination of this Plan, must be made only in the form of a lump sum
payment or a Direct Rollover, as elected by the Member. If a Member is given the
opportunity but fails to make an election as to the form of distribution, he
shall be deemed to have elected a lump sum distribution.
XIII-3
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ARTICLE XIV
SALE OF EMPLOYER OR SUBSTANTIALLY ALL OF ITS ASSETS
14.1 CONTINUANCE PERMITTED UPON SALE OR TRANSFER OF ASSETS. An
Employer's participation in this Plan and its related Trust Fund shall not
automatically terminate if it consolidates or merges and is not the surviving
corporation, sells substantially all of its assets, is a party to a
reorganization and its Employees and substantially all of its assets are
transferred to another entity, liquidates, or dissolves, if there is a successor
organization. Instead, the successor may assume and continue this Plan and its
related Trust Fund by executing a direction, entering into a contractual
commitment or adopting a resolution providing for the continuance of the Plan
and its related Trust Fund. Only upon the successor's rejection of this Plan and
its related Trust Fund or its failure to respond to the Employer's, the
Sponsor's or the Trustee's request that it affirm its assumption of this Plan
within 90 days of the request shall this Plan automatically terminate. In that
event the appropriate portion of the Trust Fund shall be distributed exclusively
to the Members or their Beneficiaries as soon as administratively feasible. If
there is a disposition to an unrelated entity of substantially all of the assets
used by the Employer in a trade or business or a disposition by the Employer of
its interest in a subsidiary, the Employer may make a lump sum distribution from
the Plan if it continues the Plan after the disposition; but the distribution
can only be made for those Members who continue employment with the acquiring
entity.
14.2 DISTRIBUTIONS UPON DISPOSITION OF ASSETS OR A SUBSIDIARY. A Member
employed by an Employer that is a corporation is entitled to receive a lump sum
distribution of his interest in his Accounts in the event of the sale or other
disposition by the Employer of at least 85% of all of the assets used by the
Employer in a trade or business to an unrelated corporation if (a) the Employer
continues to maintain the Plan after the disposition and (b) in connection with
the disposition the Member is transferred to the employ of the corporation
acquiring the assets.
A Member employed by an Employer that is a corporation is entitled to
receive a lump sum distribution of his interest in his Accounts in the event of
the sale or other disposition by the Employer of its interest in a subsidiary
(within the meaning of section 409(d)(3) of the Code) to an unrelated entity or
individual if (a) the Employer continues to maintain the Plan after the
disposition and (b) in connection with the disposition the Member continues
employment with the subsidiary.
The selling Employer is treated as continuing to maintain the Plan
after the disposition only if the purchaser does not maintain the Plan after the
disposition. A purchaser is considered to maintain the Plan if it adopts the
Plan, becomes an employer whose employees accrue benefits under the Plan, or if
the Plan is merged or consolidated with, or any assets or liabilities are
transferred from the Plan to a plan maintained by the purchaser in a transaction
subject to section 414(l)(1) of the Code.
XIV-1
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An unrelated corporation, entity or individual is one that is not
required to be aggregated with the selling Employer under section 414(b), (c),
(m), or (o) of the Code after the sale or other disposition.
If a Member's Account balance is or is deemed to be $5,000.00 or less
determined under the rules set out in Section 6.11, the Committee will direct
the Trustee to pay to the Member a lump sum cash distribution of his Account
balance as soon as administratively practicable following the disposition and
any Internal Revenue Service approval of the distribution that the Committee
deems advisable to obtain.
If it is or is deemed to be more than $5,000.00 at the date of the
disposition, he may elect (a) to receive a lump sum cash distribution of his
Account balance as soon as administratively practicable following the
disposition and receipt of any Internal Revenue Service approval of the
distribution that the Committee deems advisable to obtain, or (b) he may elect
to defer receipt of his vested Account balance until the first day of the month
coincident with or next following the date that he attains age 65. In the manner
and at the time required under Department of Treasury regulations, the Committee
will provide the Member with a notice of his right to defer receipt of his
Account balance.
However, no distribution shall be made to a Member under this Section
after the end of the second calendar year following the calendar year in which
the disposition occurred. In addition, no distribution shall be made under this
Section unless it is a lump sum distribution within the meaning of section
402(d)(4) of the Code, without regard to subparagraphs (A)(i) through (iv), (B),
and (F) of that section.
XIV-2
<PAGE> 61
ARTICLE XV
MISCELLANEOUS
15.1 PLAN NOT AN EMPLOYMENT CONTRACT. The adoption and maintenance of
this Plan and its related Trust Fund is not a contract between any Employer and
its Employees which gives any Employee the right to be retained in its
employment. Likewise, it is not intended to interfere with the rights of any
Employer to discharge any Employee at any time or to interfere with the
Employee's right to terminate his employment at any time.
15.2 BENEFITS PROVIDED SOLELY FROM TRUST. All benefits payable under this
Plan shall be paid or provided for solely from the Trust Fund. No Employer
assumes any liability or responsibility to pay any benefit provided by the Plan.
15.3 ANTI-ALIENATION PROVISION. No principal or income payable or to
become payable from the Trust Fund shall be subject: to anticipation or
assignment by a Member or by a Beneficiary to attachment by, interference with,
or control of any creditor of a Member or Beneficiary, or to being taken or
reached by any legal or equitable process in satisfaction of any debt or
liability of a Member or Beneficiary prior to its actual receipt by the Member
or Beneficiary. An attempted conveyance, transfer, assignment, mortgage, pledge,
or encumbrance of the Trust Fund, any part of it, or any interest in it by a
Member or Beneficiary prior to distribution shall be void, whether that
conveyance, transfer, assignment, mortgage, pledge, or encumbrance is intended
to take place or become effective before or after any distribution of Trust
assets or the termination of this Trust Fund itself. The Trustee shall never
under any circumstances be required to recognize any conveyance, transfer,
assignment, mortgage, pledge or encumbrance by a Member or Beneficiary of the
Trust Fund, any part of it, or any interest in it, or to pay any money or thing
of value to any creditor or assignee of a Member or Beneficiary for any cause
whatsoever. The prohibitions against the alienation of a Member's Account shall
not apply to:
(a) qualified domestic relations orders or domestic relations
orders entered into prior to January 1, 1985, or
(b) any offset of a Member's Account under the Plan that the
Member is ordered to pay to the Plan if (i) the order arises under a
judgment of conviction of a crime involving the Plan, a civil judgment
(including a consent decree) is entered by a court in connection with a
violation (or alleged violation) of part 4 of subtitle B of title I of
ERISA, or is pursuant to a settlement agreement between the Secretary
of Labor and the Member, or between the Pension Benefit Guaranty
Corporation and the Member, in connection with a violation (or alleged
violation) of part 4 of such subtitle by a fiduciary or any other
person, (ii) the judgment, order, decree or settlement agreement
expressly provides for the offset of all or a part of the amount
ordered or required to be paid to the Plan against the Member's Account
balance under the Plan, and
XV-1
<PAGE> 62
(iii) in a case in which the survivor annuity requirements of
Section 401(a)(11) of the Code apply with respect to distributions, the
requirements of Section 401(a)(13)(C)(iii) of the Code are satisfied.
15.4 REQUIREMENTS UPON MERGER OR CONSOLIDATION OF PLANS. This Plan shall
not merge or consolidate with or transfer any assets or liabilities to any other
plan unless each Member would (if the Plan then terminated) receive a benefit
immediately after the merger, consolidation, or transfer which is equal to or
greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation, or transfer (if the Plan had then terminated).
15.5 GENDER AND NUMBER. If the context requires it, words of one gender
when used in this Plan shall include the other genders, and words used in the
singular or plural shall include the other.
15.6 SEVERABILITY. Each provision of this Agreement may be severed. If
any provision is determined to be invalid or unenforceable, that determination
shall not affect the validity or enforceability of any other provision.
15.7 GOVERNING LAW; Parties to Legal Actions. The provisions of this Plan
shall be construed, administered, and governed under the laws of the State of
Texas and, to the extent applicable, by the laws of the United States. The
Trustee or any Employer may at any time initiate a legal action or proceeding
for the settlement of the account of the Trustee, or for the determination of
any question or for instructions. The only necessary parties to that action or
proceeding are the Trustee and the Employer concerned. However, any other person
or persons may be included as parties defendant at the election of the Trustee
and the Employer.
IN WITNESS WHEREOF, Grant Prideco, Inc. has caused this Agreement to be
executed this _____ day of _______________ 1999, in multiple counterparts, each
of which shall be deemed to be an original, to be effective the 1st day of
November 1999, except for those provisions which have an earlier effective date
provided by law, or as otherwise provided under applicable provisions of this
Plan.
GRANT PRIDECO, INC.
By
---------------------------------------
Title
------------------------------------
XV-2
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