<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 001-15423
GRANT PRIDECO, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 76-0312499
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1450 Lake Robbins Drive, Suite 600, The Woodlands, Texas 77380
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(281) 297-8500
--------------------------------------------------
(Registrant's telephone number, include area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of Class Outstanding at May 12, 2000
-------------- ---------------------------
Common Stock, par value $0.01 108,391,386
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRANT PRIDECO, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents .......................................... $ 3,967 $ 6,204
Restricted Cash .................................................... 4,394 3,658
Accounts Receivable, Net of Allowance for Uncollectible Accounts
of $254 and $500 at March 31, 2000 and December 31, 1999 ......... 89,472 77,650
Inventories ........................................................ 165,403 173,904
Current Deferred Tax Asset ......................................... 6,197 6,197
Other Current Assets ............................................... 5,604 4,425
--------------- ---------------
275,037 272,038
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Machinery and Equipment ............................................ 224,916 224,225
Land, Buildings and Other Property ................................. 81,820 81,390
--------------- ---------------
306,736 305,615
Less: Accumulated Depreciation .................................... 103,786 98,906
--------------- ---------------
202,950 206,709
--------------- ---------------
GOODWILL, NET ......................................................... 184,895 187,765
INVESTMENT IN UNCONSOLIDATED AFFILIATES ............................... 38,061 37,453
OTHER ASSETS .......................................................... 30,310 30,610
--------------- ---------------
$ 731,253 $ 734,575
=============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings and Current Portion of Long-Term Debt ........ $ 10,933 $ 14,710
Accounts Payable ................................................... 50,675 47,459
Current Deferred Tax Liability ..................................... 7,144 7,144
Customer Advances .................................................. 8,280 18,503
Other Accrued Liabilities .......................................... 20,182 19,585
--------------- ---------------
97,214 107,401
--------------- ---------------
SUBORDINATED NOTE TO WEATHERFORD ...................................... 100,000 100,000
LONG-TERM DEBT ........................................................ 22,742 24,276
DEFERRED INCOME TAXES ................................................. 38,655 44,533
MINORITY INTEREST ..................................................... 931 886
OTHER LONG-TERM LIABILITIES ........................................... 3,388 3,623
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY .................................................. 468,323 453,856
--------------- ---------------
$ 731,253 $ 734,575
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
2
<PAGE> 3
GRANT PRIDECO, INC.
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
REVENUES ............................................. $ 107,145 $ 81,303
COSTS AND EXPENSES:
Cost of Sales ...................................... 94,423 69,944
Selling, General and Administrative Attributable
to Segments ..................................... 8,218 7,569
Corporate General and Administrative ............... 4,370 3,693
Equity Income in Unconsolidated Affiliates ......... 607 --
Weatherford Charges ................................ 500 250
--------- ---------
106,904 81,456
--------- ---------
OPERATING INCOME (LOSS) .............................. 241 (153)
--------- ---------
OTHER INCOME (EXPENSE):
Interest Expense ................................... (3,496) (2,652)
Other, Net ......................................... (215) 98
--------- ---------
(3,711) (2,554)
--------- ---------
LOSS BEFORE INCOME TAXES ............................. (3,470) (2,707)
INCOME TAX BENEFIT ................................... 937 477
--------- ---------
NET LOSS BEFORE MINORITY INTEREST .................... (2,533) (2,230)
MINORITY INTEREST .................................... (45) --
--------- ---------
NET LOSS ............................................. $ (2,578) $ (2,230)
========= =========
PRO FORMA LOSS PER SHARE:
Basic and Diluted .................................. $ (0.02) $ (0.02)
========= =========
PRO FORMA WEIGHTED AVERAGE SHARES:
Basic and Diluted .................................. 108,752 97,315
========= =========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
3
<PAGE> 4
GRANT PRIDECO, INC.
COMBINED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net Loss ................................................. $ (2,578) $ (2,230)
Other Comprehensive Loss:
Cumulative Foreign Currency Translation Adjustment ... (517) (2,211)
---------- ----------
Total Comprehensive Loss ................................. $ (3,095) $ (4,441)
========== ==========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
4
<PAGE> 5
GRANT PRIDECO, INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ....................................................... $ (2,578) $ (2,230)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ............................... 7,988 7,207
Deferred Income Tax Provision ............................... 872 56
Equity Income in Unconsolidated Affiliates .................. (607) --
Change in Operating Assets and Liabilities:
Accounts Receivable ..................................... (12,527) 28,484
Inventories ............................................. 8,501 (3,076)
Other Current Assets .................................... (1,915) 11,733
Other Assets ............................................ (183) (1,155)
Accounts Payable ........................................ 2,510 (13,844)
Other Current Liabilities ............................... (647) (6,790)
Customer Advances ....................................... (10,223) 6,974
Purchase Credit ......................................... -- (1,867)
Other, Net .............................................. 858 (2,663)
---------- ----------
Net Cash (Used) Provided by Operating Activities ........ (7,951) 22,829
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures for Property, Plant and Equipment ......... (5,056) (4,106)
---------- ----------
Net Cash Used by Investing Activities ................... (5,056) (4,106)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net ........................................ (4,177) (50,590)
Stockholder's Investment ....................................... 14,947 30,592
---------- ----------
Net Cash Provided (Used) by Financing Activities ........ 10,770 (19,998)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................ (2,237) (1,275)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 6,204 6,070
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 3,967 $ 4,795
========== ==========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
5
<PAGE> 6
GRANT PRIDECO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. GENERAL
On October 22, 1999, the Board of Directors of Weatherford
International, Inc. ("Weatherford") authorized the spinoff of its drilling
products businesses (the "Company" or "Grant Prideco") to its stockholders as an
independent, publicly-traded company (the "Distribution"). The Internal Revenue
Service issued a favorable tax ruling stating that the Distribution should be
tax-free to the shareholders of Weatherford for U.S. federal income tax
purposes. Weatherford consummated the spinoff through a distribution to its
stockholders of one share of Grant Prideco common stock for each share of
Weatherford common stock held by the Weatherford stockholders on March 23, 2000,
the record date for the Distribution. The Distribution was completed on April
14, 2000 (see Note 13).
The combined financial statements reflect the results of operations of
Weatherford's drilling products businesses that was transferred to Grant Prideco
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. 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
has performed these functions using its own resources or purchased services and
is responsible for the costs and expenses associated with the management of a
public corporation. The combined financial statements included herein may not
necessarily reflect the combined results of operations, financial position 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's operations as a result of the Distribution.
The combined financial statements as of March 31, 2000 have not been
audited but have been prepared in conformity with the accounting principles
applied in the audited combined financial statements for the fiscal year ended
December 31, 1999 contained in the Grant Prideco Registration Statement on Form
10, as amended. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
combined financial statements have been included. Results of operations for
interim periods are not necessarily indicative of the results of operations that
may be expected for the entire year. This Form 10-Q should be read in
conjunction with the audited combined financial statements and notes included in
the Form 10, as amended.
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding 2000 classifications. These
reclassifications have no impact on net income.
2. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------------- ---------------
(in thousands)
<S> <C> <C>
Raw materials, components and supplies ... $ 104,787 $ 93,980
Work in process .......................... 20,957 15,720
Finished goods ........................... 39,659 64,204
--------------- ---------------
$ 165,403 $ 173,904
=============== ===============
</TABLE>
6
<PAGE> 7
3. ACQUISITIONS
On October 27, 1999, the Company acquired an additional 27% interest 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 results of operations of H-Tech have been consolidated in our
results of operations from November 1, 1999. Prior to November 1, 1999, our
investment in H-Tech was accounted for under the equity method.
On October 1, 1999, the Company acquired Drill Pipe Industries, Inc., a
manufacturer of drill stem products, for $1.4 million in cash and a $1.4 million
non-interest bearing note which was repaid in January 2000.
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. In
January 2000, the Company communicated its intention to exercise the option to
acquire the facility leased by Petro-Drive. The purchase was completed in April
2000 for $1.2 million.
On July 23, 1999, the Company acquired a 50.01% interest in the
Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG ("Voest-Alpine") for approximately
$32.6 million, of which approximately $8.0 million was paid in cash and the
remainder is to be paid over a period of up to 7.5 years. Voest-Alpine produces
high quality seamless tubulars in Austria. The Company's investment in
Voest-Alpine is reported under 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 50,000
shares of Weatherford common stock.
On May 31, 1999, the Company acquired InterOffshore Services, Pte., a
manufacturer of drilling tool accessories, for approximately $2.1 million in
cash.
The acquisitions discussed above were accounted for using the purchase
method of accounting. The results of operations of all acquisitions are included
in the Combined Statements of Operations from their respective dates of
acquisition. The acquisitions are not material to the Company individually or in
the aggregate; therefore, pro forma information is not provided.
4. SHORT-TERM BORROWINGS
In connection with the October 1, 1999 acquisition of Drill Pipe
Industries, Inc., the Company issued a non-interest bearing note payable of $1.4
million that was paid in January 2000.
The Company has an uncommitted credit facility that provides for
short-term loans. At March 31, 2000, the Company had an outstanding balance of
$3.8 million under the facility. The average interest rate for borrowings under
the facility was 3.5% per annum at March 31, 2000.
The Company also has various credit facilities through Weatherford
available only for stand-by letters of credit and bid and performance bonds,
pursuant to which funds are available to the Company to secure
7
<PAGE> 8
performance obligations. The Company had a total of $3.4 million of such letters
of credit and bid and performance bonds outstanding as of March 31, 2000 (see
Note 13).
5. SUBORDINATED NOTE TO WEATHERFORD
In connection with the Distribution, the Company issued to Weatherford
an unsecured subordinated note in the amount of $100 million. The Weatherford
note bears interest at an annual rate of 10%. Interest payments are due
quarterly, and principal and all unpaid interest is due no later than March 31,
2002. If the Company completes a debt or equity financing (whether public or
private, but excluding working capital borrowings under the credit facility (see
Note 13) and any equity issued in connection with a business combination) while
the Weatherford note is outstanding, the Company generally 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.
Interest expense on the Weatherford note prior to January 1, 2000
shown in the combined financial statements reflects the interest expense
associated with the $100 million indebtedness based on Weatherford's average
long-term debt rates, or 7.25%. Beginning January 1, 2000, interest expense on
the Weatherford note is based on the stated annual rate of 10%.
6. 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 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 March 31, 2000, Weatherford, on
the Company's behalf, had a contract maturing on May 25, 2000 to purchase 21.8
million Euros equivalent to $22.1 million. Gains and losses on the change in
market value of the contract are recognized currently in earnings. On April 19,
2000 Weatherford closed out the contract maturing on May 25, 2000.
7. PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share has been calculated using Grant Prideco's
pro forma basic and diluted weighted average shares outstanding for each of the
periods presented. Grant Prideco's pro forma 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 share of
Weatherford common stock. The effect of stock options and restricted stock is
not included in the diluted computation for periods in which a loss occurs
because to do so would have been anti-dilutive.
8. SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At March 31, 2000,
$4.4 million of cash was restricted.
8
<PAGE> 9
9. COMMITMENTS
As part of the arrangement to invest in VA, the Company entered into a
four-year supply contract with VA commencing July 1999. 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.
10. RELATED PARTY TRANSACTIONS
Sales
Weatherford purchases drill pipe and other related products from Grant
Prideco. The amounts purchased by Weatherford for the periods ended March 31,
2000 and 1999 were $6.8 million and $1.5 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, legal, 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 of costs related to
Weatherford's information systems function for the three months ended March 31,
1999. As of January 1, 2000, Grant Prideco had completed the formation of a
separate information systems department. 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.
9
<PAGE> 10
11. 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 primarily in the exploration
and production of oil and natural gas.
Financial information by industry segment for each of the three months
ended March 31, 2000 and 1999, is summarized below (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues from unaffiliated customers:
Drill Stem ............................... $ 47,856 $ 46,619
Premium Tubulars ......................... 59,289 34,684
------------ ------------
$ 107,145 $ 81,303
============ ============
EBITDA (a):
Drill Stem ............................... $ 3,843 $ 9,257
Premium Tubulars ......................... 9,161 1,466
Corporate ................................ (4,775) (3,669)
------------ ------------
$ 8,229 $ 7,054
============ ============
Depreciation and amortization:
Drill Stem ............................... $ 4,163 $ 3,452
Premium Tubulars ......................... 3,730 3,481
Corporate ................................ 95 274
------------ ------------
$ 7,988 $ 7,207
============ ============
Operating income (loss):
Drill Stem ............................... $ (320) $ 5,805
Premium Tubulars ......................... 5,431 (2,015)
Corporate ................................ (4,870) (3,943)
------------ ------------
$ 241 $ (153)
============ ============
Capital Expenditures for Property, Plant and
Equipment:
Drill Stem ............................... $ 3,216 $ 1,481
Premium Tubulars ......................... 1,773 2,598
Corporate ................................ 67 27
------------ ------------
$ 5,056 $ 4,106
============ ============
</TABLE>
(a) The Company evaluates performance and allocates resources based on
EBITDA, which is calculated as operating income (loss) adding back
depreciation and amortization. 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.
10
<PAGE> 11
12. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("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. We are
currently evaluating the impact of SFAS No. 133 on the Company's combined
financial statements.
13. SUBSEQUENT EVENTS
On April 14, 2000, Grant Prideco was spunoff through a distribution by
Weatherford to its stockholders of all of the Grant Prideco common stock. The
Board of Directors of Weatherford declared a distribution effective April 14,
2000 of one share of Grant Prideco common stock for each share of Weatherford
common stock held by stockholders of record of Weatherford at the close of
business on March 23, 2000, to effect the spinoff of Grant Prideco. The number
of shares of Grant Prideco common stock distributed was approximately 108.4
million shares. As a result of the spinoff, Grant Prideco's stock became
publicly owned and traded on the New York Stock Exchange under the symbol "GRP".
Following the Distribution, Weatherford no longer has an equity
investment in Grant Prideco, however, Grant Prideco has a $100 million unsecured
subordinated note to Weatherford due no later than March 31, 2002 and a $30
million drill stem credit obligation to Weatherford. Weatherford also will
remain liable on certain existing contingent liabilities relating to Grant
Prideco which were not released, terminated or replaced prior to the
Distribution date ("unreleased contingent liabilities"). Grant Prideco will
fully indemnify Weatherford for any payments under the unreleased contingent
liabilities.
Under the terms of a tax allocation agreement with Weatherford, the
Company will not have the future benefit of any prior tax losses or benefits
incurred as part of a consolidated return with Weatherford. Moreover, the
Company 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
solely as a result of a change of control of Weatherford.
The Company entered 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 services, employee benefit services, information services,
management information systems and may include any other similar services.
The Company entered into a preferred supplier agreement with
Weatherford pursuant to which Weatherford agreed for at least a three-year
period to purchase a minimum of 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 rental tool
customers. Weatherford will be entitled to apply against its purchases a drill
stem credit granted to it in the aggregate amount of $30 million, subject to a
limitation of the application of the credit to no more than 20% of any purchase.
On April 14, 2000, the Company entered into a revolving credit and
letter of credit facility that will provide it with up to $100 million for
working capital and other corporate purposes. The facility is secured by the
Company's U.S. and Canadian inventories, equipment and receivables and is
guaranteed by Grant Prideco's domestic subsidiaries. Borrowings under the
facility are based on the lender's determination of the collateral value of the
inventories and receivables securing the facility. Approximately $50 million was
available to the Company under the facility initially. The facility also
provides the Company with availability for stand-by letters of credit and bid
and performance bonds. The Company is required to comply with various
affirmative and negative covenants as well as maintenance covenants relating to
fixed charge coverage and net worth. These covenants also place limits on the
Company's ability to incur new debt, engage in certain acquisitions and
investments, grant liens, pay dividends and make distributions to our
stockholders.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of our results of operations for the
quarters ended March 31, 2000, and March 31, 1999, and our current financial
position. This discussion should be read in conjunction with our financial
statements that are included with this report as well as our financial
statements and related Management's Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 1999,
previously filed with the Securities and Exchange Commission in our Registration
Statement on Form 10, as amended.
Our discussion of our results of operations and financial condition
includes various forward-looking statements about our markets, the demand for
our products and services and our future results. These statements are based on
certain assumptions that we consider reasonable. For information about these
assumptions, you should refer to our section entitled "Forward-Looking
Statements". As used herein, unless otherwise required by the context, the term
"Grant Prideco" refers to Grant Prideco, Inc. and the terms "we", "our", and
similar words refer to Grant Prideco and its subsidiaries. The use herein of
such terms as group, organization, we, us, our and its, or references to
specific entities, is not intended to be a precise description of corporate
relationships.
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. 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 innovators 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
Our business is materially dependent on drilling activity and the
associated demand for our drill stem products and production tubulars and
connections. 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.
In the last half of 1999 and first quarter of 2000, crude oil prices
increased due to members of the Organization of Petroleum Exporting Countries
("OPEC") reducing production in compliance with production
12
<PAGE> 13
quotas. Crude oil prices moved above $30 per barrel in the first quarter of 2000
on reports that significant boosts to production output may not take place until
early summer 2000. Recently, oil prices have stabilized around $25 per barrel
following OPEC's decision to boost production output and establish a price band
between $22 and $28 per barrel.
The downturn in the industry that began in 1998 and continued in 1999
led our customers to substantially curtail their drilling and exploration
activity during 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 canceling
and delaying orders to reduce costs. Indicative of the impact of the downturn,
we estimate that worldwide drill pipe demand for 1999 was less than five million
feet compared to more than ten million feet during each of 1997 and 1998. As of
December 31, 1999, our product backlog declined to approximately $60.4 million.
Our manufacturing facilities also were 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 and
the first quarter of 2000 to avoid producing excess supplies of inventory in the
market. This decision 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 1999 and the first quarter of 2000.
In 1999 we decided to terminate our manufacturing arrangement with Oil
Country Tubular Limited ("OCTL") in India. This decision was made in light of
the existing market and difficulties arising from the political situation
between India and countries where OCTL's principal customers reside. This
decision resulted in our need to write off a $7.8 million deposit previously
paid to OCTL for future products and $1.7 million of our equipment located in
India in the fourth quarter of 1999. We are currently seeking to collect
approximately $17.3 million in receivables and advances provided by us to OCTL
through a combination of cash, equity of OCTL and products from OCTL. We are in
discussions with OCTL regarding this matter and are unable to predict the
outcome of these discussions.
Based on financial information of OCTL known to us and our general
knowledge of the business and assets of OCTL, OCTL would appear to have a
sufficient asset and equity value to allow for a restructuring of its remaining
$17.3 million in debt owed to us through a combination of cash, equity of OCTL
or product from OCTL. There is, however, uncertainty as to how much, if any, of
the amounts owed to us by OCTL will ultimately be collected. Accordingly, there
can be no assurance that we will be able to fully realize on the amounts owed to
us by OCTL or that additional charges relating to India will not be required in
the near term as the negotiation and collection process continues.
In July 1999, we acquired a 50.01% ownership interest in Voest-Alpine
Stahlrohr Kindberg GmbH & Co. KG ("Voest-Alpine") 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.
Orders for drill stem products and premium tubular products are
increasing, and we expect that demand will continue to improve absent another
material decline in oil prices. Generally, improvements in demand for our drill
stem products lag improvements in demand for our premium tubular products by
approximately six to nine months. During the first quarter of 2000, revenues for
our premium tubular products increased 34% over revenues for such products
during the fourth quarter of 1999 while demand for our drill stem products
increased by only 5% during such periods. As of March 31, 2000, our overall
product backlog had increased to approximately $86.7 million compared to $60.4
million at December 31, 1999.
13
<PAGE> 14
We currently expect modest improvements in demand for our drill pipe
and other drill stem products during the second quarter of 2000, with more
significant improvements occurring during the second half of 2000 when we expect
excess drill pipe inventories will deplete to more rationale levels. We expect
demand for our tubular products to gradually improve during these periods as
well. Nevertheless, demand for all of our products continue 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.
The following table sets forth certain information with respect to oil
and natural gas prices and the North American 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>
March 31, 2000.................. $ 26.90 $ 2.95 1,167 606
December 31, 1999............... 25.60 2.33 1,183 574
March 31, 1999.................. 14.66 2.01 724 613
</TABLE>
(1) Price per barrel of West Texas Intermediate crude oil as of March 31 and
December 31 - Source: Applied Reasoning, Inc.
(2) Price per MM/BTU as of March 31 and December 31 - Source: Oil World
(3) Average rig count for the applicable month - Source: Baker Hughes Rig Count
Our future results of operations also will be affected by the spinoff
and our becoming a stand-alone public company. In preparation for the spinoff,
we added additional financial, accounting, legal and other administrative
personnel who have responsibility for matters historically provided by
Weatherford on our behalf. We also will incur additional costs associated with
complying with our public-company reporting requirements and being listed on the
New York Stock Exchange. Although our historical results of operations include
an overhead allocation from Weatherford, we anticipate that the annual overhead
costs that will be incurred by us following the spinoff will exceed the annual
historical overhead allocations from Weatherford by approximately $4.0 million.
GROWTH STRATEGY
Our strategy for growth is to seek new opportunities in our drilling
and tubular segments. During the last year, we completed various acquisitions
that are important to our long-term growth. 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 and investments similar to our
investment in Voest-Alpine in 1999.
- 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, joint venture
projects and the development of connections for expandable
tubing.
- Investing in additional subsea products and services.
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<PAGE> 15
- 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.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2000 COMPARED TO THE QUARTER ENDED MARCH 31, 1999
GENERAL
Grant Prideco reported a net loss of $2.6 million, or $0.02 per share,
for the first quarter 2000, as compared to a net loss of $2.2 million, or $0.02
per share, for the first quarter 1999. Revenues for the first quarter 2000 were
$107.1 million, a 32% increase from first quarter 1999 revenues of $81.3
million. Revenues for 2000 benefited from the increase in demand for premium
tubular products, which historically have been a leading indicator of increasing
demand for drill stem products. Our product backlog increased to $86.7 million
at March 31, 2000 as compared to $46.5 for the same period in 1999.
SEGMENT RESULTS
DRILL STEM PRODUCTS
The following table sets forth additional data regarding the results of
our drill stem products segment for the quarters ended 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
---------- ----------
(in thousands, except
percentages)
<S> <C> <C>
Revenues .............................. $ 47,856 $ 46,619
Gross Profit .......................... 2,939 8,873
Gross Profit % ........................ 6.1% 19.0%
Selling, General and Administrative ... $ 3,866 $ 3,068
Operating Income (Loss) ............... (320) 5,805
EBITDA (a) ............................ 3,843 9,257
</TABLE>
(a) 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, income from continuing
operations and net income. In addition, EBITDA calculations by one
company may not be comparable to another company.
Revenues. Drill stem revenues increased $1.2 million, or 3%, in the
first quarter 2000 as compared to the same period in 1999. The increase is
attributable to increased North American drilling activity, particularly in
Canada, coupled with the acquisition of an additional 27% interest in H-Tech in
October 1999. The rig count increased 99% in Canada and 47% in the U.S. in the
first quarter 2000 as compared to the first quarter 1999.
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<PAGE> 16
Gross Profit. Drill stem gross profit decreased $5.9 million, or 67%,
in the first quarter 2000 as compared to the first quarter 1999. As a
significant amount of sales in the first quarter 2000 were from existing
finished goods inventory, gross profit was negatively effected by low plant
utilization coupled with operational ramp up costs in anticipation of increased
demand for our products.
Selling, General and Administrative. Drill stem selling, general and
administrative expenses increased as a percentage of revenues from 7% in the
first quarter 1999 to 8% in the first quarter 2000. The increase is due to an
increase in headcount related to the expansion of other drill pipe products to
other markets coupled with the amortization of goodwill related to acquisitions
completed subsequent to March 31, 1999.
Operating Income (Loss). Drill stem operating loss was $0.3 million for
the first quarter 2000 as compared to operating income of $5.8 million in the
first quarter 1999. The loss is attributable to low plant utilization. This loss
was partially offset by equity earnings of $0.6 million related to our 50.01%
interest in Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG ("VA"), a producer of
high-quality seamless tubulars in Austria, which we acquired in July 1999.
PREMIUM TUBULARS AND ENGINEERED CONNECTIONS
The following table sets forth additional data regarding the results of
our premium tubulars and engineered connections segment for the quarters ended
2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
------------ ------------
(in thousands, except
percentages)
<S> <C> <C>
Revenues ............................. $ 59,289 $ 34,684
Gross Profit ......................... 9,783 2,486
Gross Profit % ....................... 16.5% 7.2%
Selling, General and Administrative .. $ 4,352 $ 4,501
Operating Income (Loss) .............. 5,431 (2,015)
EBITDA ............................... 9,161 1,466
</TABLE>
Revenues. Premium tubulars and engineered connections revenues
increased $24.6 million, or 71%, in the first quarter 2000 as compared to the
first quarter 1999. The increase in revenues was driven by a 48% increase in the
average North American rig count for the first quarter 2000 as compared to the
same period in 1999.
Gross Profit. Premium tubulars and engineered connections gross profit
increased $7.3 million, or 294%, in the first quarter 2000 as compared to the
first quarter 1999. The increase relates to increased production volume of
premium tubular products that provided better utilization of manufacturing
facilities and higher profitability.
Selling, General and Administrative. Premium tubulars and engineered
connections selling, general and administrative expenses decreased as a
percentage of revenues from 13% in the first quarter of 1999 to 7% in the first
quarter 2000. The decrease is due primarily to cost reduction efforts
implemented in 1999 coupled with a higher revenue base. This decrease is
partially offset by an increase in costs relating to acquisitions completed
subsequent to March 31, 1999.
Operating Income (Loss). Premium tubulars and engineered connections
operating income (loss) increased $7.4 million for the first quarter 2000 as
compared to the first quarter 1999. The significant improvement in operating
income reflects the increase in demand for our premium tubular products driven
by the increased drilling activity in North America.
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<PAGE> 17
OTHER ITEMS
Corporate General and Administrative. Corporate general and
administrative expenses increased $0.7 million, or 18%, for the first quarter
2000 as compared to the first quarter 1999. The increase is due to increased
overhead costs relating to the additional staff related to the spinoff.
Interest Expense. Interest expense increased $0.8 million, or 32%, in
the first quarter 2000 as compared to the first quarter 1999. The increase is
primarily due to the increase in the Weatherford subordinate note rate from
7.25% in the first quarter 1999, which was the average long-term debt rate for
Weatherford, to 10% in the first quarter 2000, which is the stated rate in the
note.
Tax Benefit. The effective tax rate on our loss before income taxes was
27.0% and 17.6% in the first quarter 2000 and first quarter 1999, respectively.
The increase is primarily attributable to a higher loss before income taxes in
the first quarter 2000.
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.
At March 31, 2000, we had cash and cash equivalents of $4.0 million and
working capital of $177.8 million as compared to cash and cash equivalents of
$6.2 million and working capital of $164.6 million at December 31, 1999. At
March 31, 2000, we also had $4.4 million in restricted cash related to our 54%
interest in H-Tech that is subject to dividend and distribution restrictions.
For the first quarter of 2000, our net cash flow used by operations was $8.0
million and reflected an increase in working capital needs to support increased
demand for our products.
Capital expenditures totaled $5.1 million and $4.1 million for the
first quarter of 2000 and 1999, respectively. We currently expect to expend
approximately $15 million for non-acquisition related capital expenditures
during the remainder of 2000 related to our manufacturing consolidation
projects, maintaining the existing equipment base and for improvements to our
various facilities. We also estimate that our required principal and interest
payments for our outstanding debt to be approximately $9.7 million for the
remainder of 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 operating cost structure. We currently expect that our operations
will generate sufficient cash flow in 2000 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 have an uncommitted credit facility that provides for short-term
loans. At March 31, 2000, we had an outstanding balance of $3.8 million under
the facility. The average interest rate for borrowings under the facility was
3.50% per annum at March 31, 2000.
We also have various credit facilities through Weatherford available
only for stand-by letters of credit and bid and performance bonds, pursuant to
which funds are available to us to secure performance obligations. We had a
total of $3.4 million of such letters of credit and bid and performance bonds
outstanding as of March 31, 2000.
In connection with the spinoff, we issued an unsecured subordinated
note to Weatherford in the amount of $100 million. The Weatherford note bears
interest at an annual rate of 10%. Interest payments are due quarterly, and
principal and all unpaid interest is due no later than March 31, 2002. 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
17
<PAGE> 18
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 is subordinated to
indebtedness outstanding under our credit facility.
On April 14, 2000, we entered into a revolving credit and letter of
credit facility that will provide us with up to $100 million for working capital
and other corporate purposes. The facility is secured by the Company's U.S. and
Canadian inventories, equipment and receivables and is guaranteed by our
domestic subsidiaries. Borrowings under the facility are based on the lender's
determination of the collateral value of the inventories and receivables
securing the facility. Approximately $50 million is available to us under the
facility initially. The facility also provides us with availability for stand-by
letters of credit and bid and performance bonds. We are required to comply with
various affirmative and negative covenants as well as maintenance covenants
relating to fixed charge coverage and net worth. These covenants place limits on
our ability to incur new debt, engage in certain acquisitions and investments,
grant liens, pay dividends and make distributions to our stockholders. As of
April 30, 2000, we had borrowed $9.6 million under the facility and $3.7 million
had been used to support outstanding letters of credit.
As part of our arrangement to invest in Voest-Alpine, 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 amount 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.
TAX MATTERS
As a result of the separation from Weatherford, subsequent to April 14,
2000 we are no longer 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. Under the terms of
a tax allocation agreement with Weatherford, we will not have the future benefit
of any prior tax losses or benefits incurred as part of a consolidated return
with Weatherford. 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 solely as a result of a change of control of Weatherford.
RECENT ACCOUNTING PRONOUNCEMENTS
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. We currently
are evaluating the impact of SFAS No. 133 on our combined financial statements.
18
<PAGE> 19
YEAR 2000 MATTERS
All phases of the Year 2000 plan have been completed. The costs
associated with achieving Year 2000 compliance were not material to us and we
have not had any material losses from third parties to date. To date, we do not
know of any failures of our software, hardware, equipment or products or those
of our suppliers, vendors or customers as a result of the occurrence of the Year
2000 date change; however, any such failure could have a material impact on us.
FORWARD-LOOKING STATEMENTS
This report and our other filings with the Securities and Exchange
Commission and public releases contain statements relating to our future
results, including certain projections and business trends. We believe these
statements constitute "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Certain risks and uncertainties may
cause actual results to be materially different from projected results contained
in forward-looking statements in this report and in our other disclosures. These
risks and uncertainties include, but are not limited to, the following:
A FURTHER DOWNTURN IN MARKET CONDITIONS COULD AFFECT PROJECTED RESULTS.
Any unexpected material changes in oil and gas prices or other market trends
would likely affect the forward-looking information contained in this report.
Our estimates as to future results and industry trends make assumptions
regarding the future prices of oil and gas and their effect on the demand and
pricing of our products and services. In analyzing the market and its impact on
us for the remainder of 2000, we have made the following assumptions:
- The recent increase in the price of oil will result in modest
improvements in our businesses in the second quarter of 2000 and
continue to improve through 2000, with the strongest improvements
expected to incur in the second half of 2000.
- Excess drill stem inventories will continue to fall during the second
quarter of 2000, with customer inventories stabilizing during the
second half of 2000.
- Oil prices will exceed $20 per barrel for the remainder of 2000.
Average natural gas prices for the remainder of 2000 will remain at or
near their current levels. World demand for oil will be up only
marginally or flat. Drilling activity will increase stronger beyond
normal demand as oil companies seek to replace and produce reserves
that were not replaced or produced in 1999 or the first quarter of
2000.
A CONTINUATION OF THE LOW RIG COUNT COULD ADVERSELY AFFECT THE DEMAND
FOR OUR PRODUCTS AND SERVICES. Our operations were materially affected by the
decline in the rig count during 1998 and 1999. Although rig counts have improved
from historical lows during this period, a further decline in the North American
and international rig counts would adversely affect our results.
Our forward-looking statements regarding our drilling products assume
an improvement in the rig count during the remainder of 2000 and that there will
not be any further declines in the worldwide rig count, in particular the
domestic rig count.
PROJECTED COST SAVINGS COULD BE INSUFFICIENT. During 1999 and the first
quarter of 2000, we implemented a number of programs intended to reduce costs
and align our cost structure with the current market environment. Our
forward-looking statements regarding cost savings and their impact on our
business assume these measures will generate the savings expected. However, if
the markets continue to decline, additional actions may be necessary to achieve
the desired savings.
19
<PAGE> 20
INTEGRATION OF ACQUISITIONS. During the last year, we have consummated
various acquisitions of businesses. The success of these acquisitions will be
dependent on our ability to integrate these businesses with our existing
businesses, eliminate duplicative costs and enjoy expected cost savings from
vertical integration. In particular, we expect significant costs savings due to
our acquisition of 50.01% of Voest Alpine and the related tubular supply
agreement that we have entered into with Voest Alpine. During 1999 and the first
quarter of 2000, we have incurred various duplicative costs with respect to the
operations of companies and businesses acquired by us pending the integration of
the acquired businesses with our businesses. Revenue and income benefits from
the acquisitions also have been delayed due to the adverse market conditions
that existed during 1999 and the first quarter of 2000. Our forward-looking
statements assume the successful integration of the acquired businesses and the
realization of expected costs savings and their contribution to our income
during the remainder of 2000. Integration of acquisitions is something that
cannot occur overnight and is something that requires constant effort at the
local level to be successful. Accordingly, there can be no assurance as to the
ultimate success of our integration efforts.
OUR SUCCESS IS DEPENDENT UPON TECHNOLOGICAL ADVANCES. Our ability to
succeed with our long-term growth strategy is dependent on the technological
competitiveness of our product and service offerings. A central aspect of our
growth strategy is to enhance the technology of our products and services, to
expand the markets for many of our products through the leverage of our
worldwide infrastructure and to enter new markets and expand in existing markets
with technologically advanced value-added products. Our forward-looking
statements have assumed gradual growth from these new products during 2000.
ECONOMIC DOWNTURN COULD ADVERSELY AFFECT DEMAND FOR 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. Our forward-looking statements have assumed that
a worldwide recession or a material downturn in the United States economy will
not occur.
CURRENCY FLUCTUATIONS COULD HAVE A MATERIAL ADVERSE FINANCIAL IMPACT. A
material decline in currency rates in our markets could affect our future
results as well as affect the carrying values of our assets. World currencies
have been subject to much volatility. Our forward-looking statements assume no
material impact from changes in currencies because our financial position is
generally dollar based or hedged. For those revenues denominated in local
currency the effect of foreign currency fluctuations is largely mitigated
because local expenses are denominated in the same currency.
CHANGES IN GLOBAL TRADE POLICIES COULD ADVERSELY IMPACT OPERATIONS.
Changes in global trade policies in our markets could impact our operations in
these markets. We have assumed that there will be no material changes in global
trading policies.
INTERNATIONAL EXPOSURES COULD ADVERSELY IMPACT OPERATIONS. Our
operations in certain locations outside the United States, including Mexico,
India, Austria, 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, Austria, Mexico, Venezuela, the former
Soviet Union and China. Disruptions may occur in our foreign operations and
losses may occur that will not be covered by insurance. Any material currency
fluctuations or devaluations or political disruptions that disrupt oil and gas
exploration and production or the movement of funds and assets will adversely
affect the accuracy of our forward-looking statements. Our forward-looking
statements assume there will be no such events.
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<PAGE> 21
UNEXPECTED LITIGATION AND LEGAL DISPUTES COULD HAVE A MATERIAL ADVERSE
FINANCIAL IMPACT. In the ordinary course of business, we become the subject of
various claims and litigation. We maintain insurance to cover many of our
potential losses and we are subject to various self-retention and deductibles
with respect to our insurance. Although we are subject to various ongoing items
of litigation, we do not believe that any of the items of litigation that we are
currently subject to will result in any material uninsured losses to us. It is,
however, possible that an unexpected judgment could be rendered against us in
cases in which we could be uninsured and beyond the amounts that we currently
have reserved or anticipate incurring for that matter. We are also subject to
various federal, state and local laws and regulations relating to the energy
industry in general and the environment in particular. Environmental laws have
in recent years become more stringent and have generally sought to impose
greater liability on a larger number of potentially responsible parties. 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 involve the expenditure of a material amount of funds. If
we experience unexpected litigation or unexpected results in our existing
litigation having a material effect on results, the accuracy of the
forward-looking statements would be affected. Our forward-looking statements
assume that there will be no such unexpected litigation or results.
In addition, our future results will depend upon various other risks
and uncertainties, including, but not limited to, those detailed in our other
filings with the Securities and Exchange Commission. For additional information
regarding risks and uncertainties, see our other current year filings with the
Commission under the Securities Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended. We will generally update our assumptions in
our filings, as circumstances require.
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
We currently are exposed to certain market risks arising from
transactions that we enter into in the normal course of business. These risks
relate to fluctuations in foreign currency exchange rates and changes in
interest rates. We do not believe these risks are material. There have been no
material changes in the Company's market risk sensitive instruments and
positions since its disclosure in its Registration Statement on Form 10, as
amended.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Effective April 14, 2000, Grant Prideco was spunoff by Weatherford
International, Inc. into a stand-alone public company pursuant to a distribution
by Weatherford to its stockholders of one share of Grant Prideco common stock
for each share of Weatherford common stock owned by such stockholders. In
connection with this spinoff, Grant Prideco amended its certificate of
incorporation to increase its authorized common stock to 300 million shares and
to authorize up to 10 million shares of preferred stock. Grant Prideco also
adopted new bylaws in contemplation of it becoming a stand-alone public company.
(b), (c) In connection with Grant Prideco's spinoff from Weatherford,
Grant Prideco issued to Weatherford a $100 million subordinated promissory note.
The terms of the Weatherford note restrict Grant Prideco's ability to declare
and make dividends and other distributions to Grant Prideco's stockholders. The
Weatherford Note was issued without registration in compliance with Section 4(2)
of the Securities Act of 1933
21
<PAGE> 22
in consideration for the forgiveness of intercompany debt owed by Grant Prideco
to Weatherford at the time of the spinoff. The distribution of Grant Prideco
shares issued in connection with the spinoff was not registered because such
distribution did not constitute a sale under the Securities Act of 1933.
In addition, on April 14, 2000, Grant Prideco entered into a $100
million secured credit facility that restricts the Company's ability to declare
and make dividends and other distributions to its stockholders.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In connection with Grant Prideco's spinoff from Weatherford
International, Inc., various matters were submitted on March 22, 2000 to Grant
Prideco's sole stockholder for approval, including without limitation approval
of all of the contracts and arrangements governing Grant Prideco's spinoff from
Weatherford and the amendment to Grant Prideco's certificate of incorporation
discussed in Item 2 above.
ITEM 5. OTHER ITEMS.
None.
ITEM 6. EXHIBITS
3.1 Restated Certificate of Incorporation (incorporated by reference from
exhibit no. 3.1 of the Registrant's Registration Statement on Form
S-3 (File No. 333-35272)).
3.2 Restated Bylaws of the Registrant (incorporated by reference from
exhibit no. 3.2 of the Registrant's Registration Statement on Form 10
(File No. 001-15423).
4.1 See items 3.1 and 3.2 for certain instruments defining the rights of
security holders.
4.3 Grant Prideco, Inc. 401(K) Savings Plan (incorporated by reference
from exhibit no. 10.11 of the Registrant's Registration Statement on
Form 10 (File No. 001-15423).
4.4 Subordinated Promissory Note payable to Weatherford International,
Inc. (incorporated by reference from exhibit no. 4.1 of the
Registrant's Registration Statement on Form S-3 (File No. 333-35272).
4.5 Loan and Security Agreement dated April 14, 2000, among Grant and
certain of its subsidiaries, the lenders identified therein and
Transamerica Business Credit Corporation, ("TBCC"), as agent
(incorporated by reference from exhibit no. 4.3 to Grant's
Registration Statement on Form S-3 (File No. 333-35272).
4.6 Pledge Agreement dated April 14, 2000, among Grant and certain of its
subsidiaries, the lenders identified therein and TBCC, as agent
(incorporated by reference from exhibit no. 4.5 to Grant's
Registration Statement on Form S-3 (File No. 333-35272).
4.7 Guaranty dated April 14, 2000, by Grant and certain of its
subsidiaries in favor of TBCC, agent (incorporated by reference from
exhibit no. 4.4 to Grant's Registration Statement on Form S-3 (File
No. 333-35272).
4.8 Grant Prideco, Inc. 2000 Non-Employee Director Stock Option Plan
(incorporated by reference from exhibit no. 10.6 of the Registrant's
Registration Statement on Form 10 (File No. 001-15423).
22
<PAGE> 23
4.9 Grant Prideco, Inc. 2000 Employee Stock Option and Restricted Stock
Plan (incorporated by reference from exhibit no. 10.5 of the
Registrant's Registration Statement on Form 10 (File No. 001-15423).
4.10 Distribution Agreement dated March 22, 2000, between Grant Prideco,
Inc. and Weatherford International, Inc. (incorporated by reference
from exhibit no. 2.1 of the Registrant's Registration Statement on
S-3 (File No. 333-35272).
4.11 Guaranty dated April 14, 2000, by certain subsidiaries of Grant
Prideco in favor of Weatherford.
4.12 Grant Prideco, Inc. Executive Deferred Compensation Plan
(incorporated by reference from exhibit No. 10.9 of the Registrant's
Registration Statement on Form 10 (File No. 001-15423).
4.13 Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan
(incorporated by reference from exhibit no. 10.8 of the Registrant's
Registration Statement on Form 10 (File No. 001-15423).
4.14 Grant Prideco, Inc. Deferred Compensation Plan for Non-Employee
Directors (incorporated by reference from exhibit no. 10.10 of the
Registrant's Registration Statement on Form 10 (File No. 001-15423).
10.1 See items 4.1 through 4.11 for certain agreements constituting
material contracts.
10.2 Employment Agreement dated April 14, 2000 with Bernard J.
Duroc-Danner.
10.3 Employment Agreement dated April 14, 2000 with John C. Coble.
10.4 Employment Agreement dated April 14, 2000 with Frances R. Powell.
10.5 Employment Agreement dated April 14, 2000 with Curtis W. Huff.
10.6 Change of Control Agreement dated April 14, 2000 with William Chunn.
10.7 Preferred Supplier Agreement dated April 14, 2000, between Grant
Prideco, Inc. and Weatherford International, Inc. (incorporated by
reference from Weatherford International, Inc.'s Quarterly Report on
Form 10-Q for the three months ended March 31, 2000).
10.8 Tax Allocation Agreement dated April 14, 2000 between Grant Prideco
and Weatherford (incorporated by reference from Weatherford
International, Inc.'s Quarterly Report on Form 10-Q for the three
months ended March 31, 2000).
27.1 Financial Data Schedule.
23
<PAGE> 24
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GRANT PRIDECO, INC.
By: /s/ FRANCES R. POWELL
------------------------------------------
Frances R. Powell
Vice President and Chief Financial Officer
Date: May 15, 2000
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
INDEX DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation (incorporated by reference from
exhibit no. 3.1 of the Registrant's Registration Statement on Form
S-3 (File No. 333-35272)).
3.2 Restated Bylaws of the Registrant (incorporated by reference from
exhibit no. 3.2 of the Registrant's Registration Statement on Form 10
(File No. 001-15423).
4.1 See items 3.1 and 3.2 for certain instruments defining the rights of
security holders.
4.3 Grant Prideco, Inc. 401(K) Savings Plan (incorporated by reference
from exhibit no. 10.11 of the Registrant's Registration Statement on
Form 10 (File No. 001-15423).
4.4 Subordinated Promissory Note payable to Weatherford International,
Inc. (incorporated by reference from exhibit no. 4.1 of the
Registrant's Registration Statement on Form S-3 (File No. 333-35272).
4.5 Loan and Security Agreement dated April 14, 2000, among Grant and
certain of its subsidiaries, the lenders identified therein and
Transamerica Business Credit Corporation, ("TBCC"), as agent
(incorporated by reference from exhibit no. 4.3 to Grant's
Registration Statement on Form S-3 (File No. 333-35272).
4.6 Pledge Agreement dated April 14, 2000, among Grant and certain of its
subsidiaries, the lenders identified therein and TBCC, as agent
(incorporated by reference from exhibit no. 4.5 to Grant's
Registration Statement on Form S-3 (File No. 333-35272).
4.7 Guaranty dated April 14, 2000, by Grant and certain of its
subsidiaries in favor of TBCC, agent (incorporated by reference from
exhibit no. 4.4 to Grant's Registration Statement on Form S-3 (File
No. 333-35272).
4.8 Grant Prideco, Inc. 2000 Non-Employee Director Stock Option Plan
(incorporated by reference from exhibit no. 10.6 of the Registrant's
Registration Statement on Form 10 (File No. 001-15423).
4.9 Grant Prideco, Inc. 2000 Employee Stock Option and Restricted Stock
Plan (incorporated by reference from exhibit no. 10.5 of the
Registrant's Registration Statement on Form 10 (File No. 001-15423).
4.10 Distribution Agreement dated March 22, 2000, between Grant Prideco,
Inc. and Weatherford International, Inc. (incorporated by reference
from exhibit no. 2.1 of the Registrant's Registration Statement on
S-3 (File No. 333-35272).
4.11 Guaranty dated April 14, 2000, by certain subsidiaries of Grant
Prideco in favor of Weatherford.
4.12 Grant Prideco, Inc. Executive Deferred Compensation Plan
(incorporated by reference from exhibit No. 10.9 of the Registrant's
Registration Statement on Form 10 (File No. 001-15423).
4.13 Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan
(incorporated by reference from exhibit no. 10.8 of the Registrant's
Registration Statement on Form 10 (File No. 001-15423).
4.14 Grant Prideco, Inc. Deferred Compensation Plan for Non-Employee
Directors (incorporated by reference from exhibit no. 10.10 of the
Registrant's Registration Statement on Form 10 (File No. 001-15423).
10.1 See items 4.1 through 4.11 for certain agreements constituting
material contracts.
10.2 Employment Agreement dated April 14, 2000 with Bernard J.
Duroc-Danner.
10.3 Employment Agreement dated April 14, 2000 with John C. Coble.
10.4 Employment Agreement dated April 14, 2000 with Frances R. Powell.
10.5 Employment Agreement dated April 14, 2000 with Curtis W. Huff.
10.6 Change of Control Agreement dated April 14, 2000 with William Chunn.
10.7 Preferred Supplier Agreement dated April 14, 2000, between Grant
Prideco, Inc. and Weatherford International, Inc. (incorporated by
reference from Weatherford International, Inc.'s Quarterly Report on
Form 10-Q for the three months ended March 31, 2000).
10.8 Tax Allocation Agreement dated April 14, 2000 between Grant Prideco
and Weatherford (incorporated by reference from Weatherford
International, Inc.'s Quarterly Report on Form 10-Q for the three
months ended March 31, 2000).
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 4.11
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT ("Guaranty") is executed effective the 14th day
of April, 2000 by each of the persons, firms, corporations, partnerships or
other entities listed on the signature pages hereto under the heading
"Guarantors" (collectively, whether one or more, "Guarantors", and each
individually a "Guarantor"), in favor of Weatherford International, Inc., a
Delaware corporation (the "Creditor").
W I T N E S S E T H:
WHEREAS, for the purpose of enabling the Obligor (as hereinafter
defined) to obtain credit or other accommodations from Creditor, Guarantors have
agreed to guarantee jointly, severally and unconditionally to Creditor the
prompt payment when due of the Subordinated Promissory Note (as hereinafter
defined);
NOW, THEREFORE, in consideration of the credit and financial
accommodations extended or to be extended to the Obligor, by and for other good,
fair and valuable considerations and reasonably equivalent value, the receipt
and sufficiency of which are hereby acknowledged, the Guarantors hereby agree as
follows:
ARTICLE I--NATURE AND SCOPE OF GUARANTY
Section 1.01. Guaranty of Obligation. Guarantors hereby irrevocably,
jointly and severally, and unconditionally guarantee to Creditor and Creditor's
respective successors and assigns, when due (and howsoever such due date or
maturity shall arise), the due and punctual payment in United States Dollars of
the Guaranteed Obligations (as that term is hereinafter defined). Guarantors
hereby irrevocably and unconditionally covenant and agree that each is jointly
and severally liable for the Guaranteed Obligations as primary obligor.
Guarantors hereby acknowledge and agree that the financial accommodations to be
made to Obligor pursuant to the Subordinated Promissory Note will materially
benefit the Obligor and the Guarantors, and in recognition of this fact,
Guarantors desire to guarantee the payment of any and all indebtedness,
obligations and liabilities to Creditor and its successors and assigns arising
under or in connection with the Subordinated Promissory Note.
Section 1.02. Definitions.
(a) As used herein, the following capitalized terms shall have the
following meanings:
"Creditor" shall have the meaning first set forth therefor hereinabove.
"Debtor Laws" means any federal or state bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer, fraudulent conveyance,
preferential transfer or similar law or judicial decision, relating to or
affecting the enforcement of creditors' rights generally.
<PAGE> 2
"Default" means the occurrence of any breach, default, violation or
event of default under the Subordinated Promissory Note.
"Subordinated Promissory Note" means the Subordinated Promissory Note
made by the Obligor to the order of the Creditor, dated of even date herewith,
in the original principal amount of $100,000,000.
"Guaranteed Obligations" means all principal of and accrued unpaid
interest on the Subordinated Promissory Note, and all other indebtedness,
obligations, and liabilities of Obligor to Creditor at any time arising under or
otherwise evidenced by the Subordinated Promissory Note, and all reasonable
costs, expenses and fees, including, without limitation, court costs and
reasonable attorneys' fees, arising in connection with the enforcement or
collection (whether or not any proceeding is commenced in connection therewith)
of any or all amounts, indebtedness, liabilities and obligations arising in
connection with the Subordinated Promissory Note.
"Guarantor Claims" means all debts, obligations and liabilities of the
Obligor, to any of the Guarantors, whether such debts and liabilities now exist
or are hereafter incurred or arise, or whether the obligations of Obligor
thereon be direct, contingent, primary, secondary, several, joint and several or
otherwise, and irrespective of whether such debts or liabilities be evidenced by
notes, contracts, open account, or otherwise.
"Lien" means any lien, charge, encumbrance, security interest,
mortgage, deed of trust or other right or claim against property, real or
personal, tangible or intangible, that secures the indebtedness or obligations
of a Person.
"Obligor" means Grant Prideco, Inc., a Delaware corporation, and other
affiliates of Grant Prideco, Inc. that the Guarantors and Creditor may agree
upon in writing from time to time.
"Person" means any person, firm, corporation, partnership (limited or
general), association, joint venture, trust, individual, limited liability
company or other similar entity.
Section 1.03. "Obligor" to Include New Corporations. The term "Obligor"
as used herein shall include any successor corporation, partnership, association
or other successor entity.
Section 1.04. Payment by Guarantors. If all or any part of the
Guaranteed Obligations shall not be punctually paid by the Obligor when due,
whether at maturity or earlier by acceleration or otherwise, Guarantors shall,
immediately upon demand by Creditor, and without presentment, protest, notice of
protest, notice of non-payment, notice of intention to accelerate, notice of
acceleration or any other notice whatsoever, pay in lawful money of the United
States of America, the amount due on the Guaranteed Obligations to Creditor at
Creditor's principal office as Creditor shall indicate. Such demand(s) may be
made at any time coincident with or after the time for payment of all or part of
the Guaranteed Obligations are due, but not punctually paid, and may be made
from time to time with respect to the same or different items of Guaranteed
Obligations.
Section 1.05. No Duty to Pursue Others. It shall not be necessary for
Creditor (and each of the Guarantors hereby waives any rights which Guarantors
may have to require Creditor), in order to enforce such payment by any of the
Guarantors, first to (i) institute suit or exhaust its
-2-
<PAGE> 3
rights against Obligor, or other Persons or any of them now or hereafter liable
on the Guaranteed Obligations, (ii) enforce Creditor's rights against any
security which shall ever have been given to secure the Guaranteed Obligations,
(iii) enforce Creditor's rights against any other guarantors of the Guaranteed
Obligations, (iv) join Obligor, or any other Persons now or hereafter liable on
the Guaranteed Obligations in any action seeking to enforce this Guaranty, or
(v) exhaust any rights available to Creditor against any security or guarantor
which shall ever have been given to secure the Guaranteed Obligations. Creditor
shall not be required to take any other action to reduce, collect or enforce the
Guaranteed Obligations.
Section 1.06. Waiver of Notices, etc. Each of the Guarantors agrees to
the provisions of the Subordinated Promissory Note, and, except as specifically
set forth in this Guaranty, hereby waives notice of (i) any loans or advances by
Creditor to or at the request of Obligor, (ii) acceptance of this Guaranty,
(iii) any amendment, modification, extension for any period, increase,
refinancing or rearrangement of the Guaranteed Obligations or any supplement,
modification, amendment and/or restatement of the Guaranteed Obligations or of
the Subordinated Promissory Note, (iv) the occurrence of any breach by Obligor,
or any default, under the Subordinated Promissory Note with respect to any of
the Guaranteed Obligations, (v) Creditor's transfer or disposition of the
Guaranteed Obligations, or any part thereof, and (vi) protest, proof of
non-payment or default by Obligor.
Section 1.07. Nature of Guaranty. This Guaranty is an irrevocable,
unconditional and absolute guaranty of payment and performance and not a
guaranty of collection. This Guaranty may not be revoked by any of the
Guarantors and shall continue to be effective with respect to any Guaranteed
Obligations arising or created after any attempted revocation by any of the
Guarantors. This Guaranty shall remain in full force and effect until all of the
Guaranteed Obligations have been paid in full. This Guaranty may be enforced by
Creditor and by any subsequent holder or holders of the Guaranteed Obligations
and shall not be discharged by the assignment or negotiation of all or part of
the Guaranteed Obligations. The liability of the Guarantors under this Guaranty
shall be irrevocable, absolute and unconditional irrespective of any change in
the time, manner or place of payment of, or in any other term of, all or any
part of the Guaranteed Obligations or the Subordinated Promissory Note, or any
other amendment, waiver of or any consent to changes in the Subordinated
Promissory Note.
Section 1.08. Payment of Expenses. In the event that any of the
Guarantors breaches or fails to timely perform any provisions of this Guaranty,
each of the Guarantors agrees to pay to Creditor all reasonable costs and
expenses (including court costs and reasonable attorneys' fees) incurred by
Creditor in the enforcement hereof or the preservation of Creditor's rights
hereunder.
ARTICLE II--EVENTS NOT DISCHARGING
ANY GUARANTORS' OBLIGATIONS
Each of the Guarantors consents and agrees to each of the following,
and each of the Guarantors further agrees that each of the Guarantors'
obligations under this Guaranty shall not be released, diminished, impaired,
reduced or adversely affected by any of the following:
Section 2.01. Modifications, etc. Any renewal, extension for any
period, increase, amendment, modification, alteration, supplement or
rearrangement of all or any part of the Guaranteed Obligations, or of the
Subordinated Promissory Note or understandings or
-3-
<PAGE> 4
agreements between Obligor or Creditor, or any other Persons, pertaining to the
Guaranteed Obligations.
Section 2.02. Adjustment, etc. Any adjustment, indulgence, forbearance
or compromise that might be granted or given by Creditor to Obligor, or any one
or more of the Guarantors or any other guarantor of the Guaranteed Obligations.
Section 2.03. Condition of Obligor or Guarantors. The insolvency,
bankruptcy, arrangement, adjustment, composition, reorganization, liquidation,
disability, dissolution or lack of power of Obligor, or any other Person now or
hereafter liable for the payment of all or part of the Guaranteed Obligations,
including any of the Guarantors; or any sale, lease or transfer of any or all of
the assets or properties of Obligor, or any one or more of the Guarantors or any
other guarantor of the Guaranteed Obligations, or any changes in the
shareholders, partners, members or other composition of Obligor, or any one or
more of the Guarantors.
Section 2.04. Preference. Any payment by Obligor to Creditor is held to
constitute a preference under Debtor Laws or for any reason or Creditor is
required to refund such payment or pay such amount to Obligor or to any other
Person.
Section 2.05. Release of Obligor. Any full or partial release of the
liability of Obligor on the Guaranteed Obligations or any part thereof, or any
other Person now or hereafter liable, whether directly or indirectly, jointly,
severally, or jointly and severally, to pay, perform, guarantee or assure the
payment of the Guaranteed Obligations or any part thereof, it being agreed by
each of the Guarantors that any of the Guarantors may be required to pay the
Guaranteed Obligations in full without assistance or support of any other
Person, and none of the Guarantors has been induced to enter into this Guaranty
on the basis of a contemplation, belief, understanding or agreement that
Creditor will look solely to other Persons to perform the Guaranteed
Obligations.
Section 2.06. Security. The taking or accepting of any security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Guaranteed Obligations.
Section 2.07. Incorporation/Merger. The reorganization, merger or
consolidation of Obligor, into or with any other corporation, partnership or
other entity, Person or form.
ARTICLE III--REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce Creditor to enter into the Subordinated Promissory Note, each
of the Guarantors represents, warrants and covenants to Creditor that:
Section 3.01. Authorization. Each of the Guarantors has full power and
authority to execute and deliver this Guaranty and to consummate the transaction
contemplated hereby. This Guaranty has been or will be duly authorized and
approved by all necessary and proper action of Guarantors. This Guaranty
constitutes a legal, valid and binding obligation of Guarantors, and when
executed and delivered, will constitute a legal, valid and binding obligation,
enforceable against Guarantors in accordance with its terms, except as limited
by Debtor Laws. The execution, delivery and performance by each of the
Guarantors of this Guaranty and the consummation of the transactions
contemplated hereunder do not, and will not, breach or violate
-4-
<PAGE> 5
any law to which any of the Guarantors is subject or constitute a default under,
or result in the breach of or violate, any material agreement to which any of
the Guarantors is a party.
Section 3.02. Familiarity and Reliance. Each of the Guarantors is
familiar with, and has independently reviewed books and records regarding, the
financial condition of Obligor; however, none of the Guarantors are relying on
such financial condition, on any representation or warranty by the Creditor, or
on any collateral, as an inducement to enter into this Guaranty.
Section 3.03. Benefit. Each of the Guarantors derives benefit from its
relationship with the Obligor in connection with the ownership and operation of
the business of the Obligor and its subsidiaries, and as a result thereof, each
of the Guarantors has received, or will receive, direct or indirect benefit and
reasonably equivalent value from the making of this Guaranty.
ARTICLE IV-MISCELLANEOUS
Section 4.01. Guarantor Claims. EACH OF THE GUARANTORS EXPRESSLY AND
SPECIFICALLY POSTPONES IN EFFECT ANY AND ALL RIGHTS, WHETHER ARISING BY LAW OR
AGREEMENT OR OTHERWISE, TO REIMBURSEMENT, CONTRIBUTION, SUBROGATION, EXONERATION
AND INDEMNIFICATION, AND TO PARTICIPATE IN ANY CLAIM OR REMEDY OF CREDITOR OR
ANY OTHER PERSON AGAINST OBLIGOR, OR ANY OTHER PERSON, WITH RESPECT TO THE
GUARANTEED OBLIGATIONS, UNTIL SUCH TIME AS CREDITOR HAS BEEN FULLY AND FINALLY
PAID.
Section 4.02. Waiver. No failure to exercise, and no delay in
exercising, on the part of Creditor, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The rights
of Creditor hereunder shall be in addition to all other rights provided by law.
Section 4.03. Notices. Except for telephonic notices permitted herein,
any notices or other communications required or permitted to be given by this
agreement, the Subordinated Promissory Note or any other documents and
instruments referred to herein must be (i) given in writing and personally
delivered or mailed by prepaid certified or registered mail, or (ii) made by
telecopy delivered or transmitted, to the party to whom such notice of
communication is directed, to the address of such party as follows: (a) if to
Guarantors, at the address set forth on the signature page hereof, and (b) if to
Creditor, then at Creditor's chief executive office or, if different, as
expressly set forth in any other written document executed by Creditor and any
Obligor.
Section 4.04. Entirety and Amendments. This Guaranty embodies the
entire agreement between the parties and supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof and this Guaranty
may be amended only by an instrument in writing executed by the parties hereto.
Section 4.05. Parties Bound; Assignment, Duration. This Guaranty shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns and legal representatives. This Guaranty shall
continue in full force and effect in accordance with the terms hereof, and may
not be terminated by the unilateral act of any of the Guarantors.
-5-
<PAGE> 6
Section 4.06. Multiple Parties. Any Person signing this Guaranty shall
be bound thereby, whether or not any other party signs this Guaranty or is
released therefrom at any time. It is specifically agreed that Creditor may
enforce the provisions hereof with respect to one or more of the Guarantors
without seeking to enforce the same as to all or any other such parties, and
each of the Guarantors hereby waives any requirement of joinder of all or any
other of the other parties hereto in any suit or proceeding to enforce the
provisions hereof. The obligations created by this Guaranty shall be joint and
several (and not merely joint) with respect to each of the Guarantors.
Section 4.07. Headings. Section headings, subheadings and captions are
for convenience of reference only and shall in no way affect the interpretation
of this Guaranty.
Section 4.08. Multiple Counterparts. This Guaranty may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same agreement, and any of the parties hereto may execute this Guaranty by
signing any such counterpart.
Section 4.09. Choice of Law. This Guaranty shall be governed by and
construed in accordance with the internal laws of the State of Texas.
Section 4.10. Severability. In the event that any one or more of the
provisions contained in this Guaranty should be held invalid, illegal, or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
-6-
<PAGE> 7
EXECUTED effective as of the date first written above.
GUARANTORS:
GRANT PRIDECO TECHNOLOGY, INC.
By: /s/ Linda S Bubacz
-----------------------------------------
Linda S. Bubacz
President
Address:
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
GRANT PRIDECO, LP
By: Grant Prideco Holding, LLC, a Delaware
limited liability company, general
partner of Grant Prideco, LP
By: Grant Prideco, Inc., a Delaware corporation,
sole member of Grant Prideco Holding,
LLC
By: /s/ John C. Coble
-----------------------------------------
John C. Coble
President
Address:
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
-7-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between Grant
Prideco, Inc., a Delaware corporation (the "Company"), and Bernard J.
Duroc-Danner (the "Executive"), is effective as of April 14, 2000.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three years after such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice to the Executive
that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be Chairman of the Board
of the Company and (B) the Executive's services shall be performed at
the principal executive offices of Weatherford International, Inc. in
Houston, Texas or such other locations as do not unreasonably interfere
with the Executive's ability to perform services hereunder.
-1-
<PAGE> 2
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to assist the Company on a part-time basis from
time to time during normal business hours as the Company may reasonably
require in the development and implementation of the Company's
strategic alternatives; provided, however, that the services of the
Executive hereunder shall not materially interfere with the principal
employment of the Executive or, in any case, require the Executive to
devote more than 20% of his business time to the business of the
Company. The Executive will use his reasonable efforts to perform
faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive
to (A) continue his employment with Weatherford International, Inc. and
its affiliates or other entities by which the Executive is employed,
(B) serve on corporate, civic or charitable boards or committees, (C)
deliver lectures, fulfill speaking engagements or teach at educational
institutions and (D) manage personal investments. It is expressly
understood and agreed that to the extent that any such activities have
been conducted by the Executive prior to the date hereof, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the date hereof shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary of $150,000 ("Annual Base
Salary"), which shall be paid at a monthly rate. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months
after the last salary increase awarded to the Executive prior to the
date hereof and thereafter at least annually; provided, however, that a
salary increase shall not necessarily be awarded as a result of such
review. Any increase in Annual Base Salary may not serve to limit or
reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase. The
term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
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opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect on the date hereof. As used in this Agreement,
the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are less
favorable, in the aggregate, than such plans, practices, policies and
programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
(viii) Options. Effective as of the date hereof, the
Executive shall receive options under the Company's stock option plan
to purchase an aggregate of 400,000 shares of Common Stock, $.01 par
value, of the Company ("Common Stock"), at an exercise price per share
equal to the closing sale price of a share of Common Stock on the date
hereof, such options to be subject to three year cliff vesting, subject
to acceleration in the event of change of control of the Company or a
termination of employment of the Executive by the Company without Cause
or by the Executive for Good Reason or a termination of such employment
by mutual agreement in recognition of the fact that the services of the
Executive are primarily to provide transitional support to the Company
following the distribution by Weatherford of its shares of Common Stock
to the public and that the transitional support may no longer be
necessary.
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3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company for 180
calendar days as a result of incapacity due to mental or physical illness that
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company that specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct that is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
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(c) Good Reason. The Executive's employment may be
terminated by the Executive during the Employment Period for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, if there were to occur
a merger, consolidation or other business combination involving the
Company where the Company ceases to be publicly traded and following
the transaction the Executive does not have the status, office, title
and reporting requirements at the ultimate parent company that are
substantially similar to that which the Executive has with the Company;
(iii) any failure by the Company to comply with any
of the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with
and satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice that (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance that contributes to
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a showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period (it being agreed that as of the
date of this Agreement, the Executive shall be deemed to have
received a bonus equal to 50% of his annual Base Salary in
respect of 1999) and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof that has been earned
but deferred (and annualized for any fiscal year consisting of
less than 12 full months or during which the Executive was
employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive under a plan
sponsored by the Company (together with any accrued interest
or earnings thereon), and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"), and
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(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12-month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those that would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock held by the Executive pursuant to a Company stock option plan on
or prior to the Date of Termination, irrespective of whether such
options are then exercisable, the Executive shall have the right,
during the 60-day period after the Date of Termination, to elect to
surrender all or part of such options in exchange for a cash payment by
the Company to the Executive in an amount equal the number of shares of
Common Stock subject to the Executive's option multiplied by the
difference between (x) and (y) where (x) equals the purchase price per
share covered by the option and (y) equals the highest reported sale
price of a share of Common Stock in any transaction reported on the New
York Stock Exchange during the 60-day period prior to and including the
Executive's Date of Termination. Such cash payments shall be made
within 30 days after the date of the Executive's election; provided,
however, that if the Executive's Date of Termination is within six
months after the date of grant of a particular option held by the
Executive and the Executive is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, any cash payments related
thereto shall be made on the date that is six months and one day after
the date of grant of such option to the extent necessary to prevent the
imposition of the disgorgement provisions under Section 16(b).
Notwithstanding the foregoing, if any right granted pursuant to the
foregoing would make
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any change of control transaction ineligible for pooling of interests
accounting treatment under APB No. 16 that but for this Section
4(a)(iv) would otherwise be eligible for such accounting treatment, the
Executive shall receive shares of Common Stock with a Fair Market Value
equal to the cash that would otherwise be payable hereunder in
substitution for the cash, provided that any such shares of Common
Stock so granted to the Executive shall be registered under the
Securities Act of 1933, as amended; any options outstanding as of the
Date of Termination or upon a change of control and not then
exercisable shall become fully exercisable as of the Executive's Date
of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
longer; restrictions applicable to any shares of Common Stock granted
to the Executive by the Company shall lapse, as of the date of the
Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships that the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the Company's Executive
Deferred Compensation Plan and the 401(k) Plan and any other similar
plans, including any stock options or restricted stock held by the
Executive, not already vested shall be 100% vested, to the extent such
vesting is permitted under the Code (as defined below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or that the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same position had the employment
of the Executive not been so terminated as a result of a breach by the
Company.
(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
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<PAGE> 9
paid to the Executive's estate or beneficiaries, as applicable, in a lump sum in
cash within 30 days after the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 4(b)
shall include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated companies to the
estates and beneficiaries of the Executive's peer executives of the Company and
such affiliated companies under such plans, programs, practices and policies
relating to death benefits, if any, in effect on the date hereof or, if more
favorable, those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts that are vested benefits or
that the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Executive that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Executive has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the benefits
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provided under this Agreement or such other agreement, whichever one, in its
entirety, the Executive chooses, but not both agreements, and when the Executive
has made such election, the other agreement shall be superseded in its entirety
and shall be of no further force and effect. The Executive also agrees that to
the extent he or she may be eligible for any severance pay or similar benefit
under any laws providing for severance or termination benefits, such other
severance pay or similar benefit shall be coordinated with the benefits owed
hereunder, such that the Executive shall not receive duplicate benefits.
Benefits provided under any Weatherford International, Inc. plan shall not be
considered an employment or other arrangement with the Company.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense that the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
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Notwithstanding the foregoing provisions of this Section 7(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the change of control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
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(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, that shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information that is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law,
or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive: Bernard J. Duroc-Danner
Weatherford International, Inc.
515 Post Oak Boulevard, Suite 600
Houston, Texas 77027
If to the Company: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Attention: John C. Coble
with a copy to: Charles L. Strauss
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Bernard J. Duroc-Danner
----------------------------------------
Bernard J. Duroc-Danner
GRANT PRIDECO, INC.
By /s/ John C. Coble
-----------------------------------------
John C. Coble
President
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between Grant
Prideco, Inc., a Delaware corporation (the "Company"), and John C. Coble (the
"Executive"), is effective as of April 14, 2000.
W I T N E S S E T H:
WHEREAS, concurrent with the date hereof, the Executive is terminating
the Employment Agreement dated March 16, 1998 between the Executive and EVI,
Inc.;
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three years after such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice to the Executive
that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be Chief Executive
Officer and President of the Company and (B) the
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Executive's services shall be performed at the location where the
Executive was employed immediately preceding the date hereof or any
office or location less than 50 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the date hereof, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the date hereof shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary of $400,000 ("Annual Base
Salary"), which shall be paid at a monthly rate. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months
after the last salary increase awarded to the Executive prior to the
date hereof and thereafter at least annually; provided, however, that a
salary increase shall not necessarily be awarded as a result of such
review. Any increase in Annual Base Salary may not serve to limit or
reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase. The
term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if
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any, that such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and
its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect on the date hereof. As used in this
Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are less
favorable, in the aggregate, than such plans, practices, policies and
programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
(viii) Options. Effective as of the date hereof, the
Executive shall receive options under the Company's stock option plan
to purchase an aggregate of 400,000 shares of Common Stock, $.01 par
value, of the Company ("Common Stock"), at an exercise price per share
equal to the closing sale price of a share of Common Stock on the date
hereof, such options to be subject to three year cliff vesting, subject
to acceleration in the event of change of control of the Company or a
termination of employment of the Executive by the Company without Cause
or by the Executive for Good Reason.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company
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determines in good faith that the Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of Disability set forth
below), it may give to the Executive written notice in accordance with Section
10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness that is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company that specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct that is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive during the Employment Period for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
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(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, if there were to occur
a merger, consolidation or other business combination involving the
Company where the Company ceases to be publicly traded and following
the transaction the Executive does not have the status, office, title
and reporting requirements at the ultimate parent company that are
substantially similar to that which the Executive has with the Company;
(iii) any failure by the Company to comply with any
of the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iv) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
2(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the date hereof;
(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(vi) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice that (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or
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the Company to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period (for purposes of determining any
bonuses paid during any preceding year, bonuses paid by
Weatherford International, Inc. shall be taken into account)
and (II) the Annual Bonus paid or payable, including any bonus
or portion thereof that has been earned but deferred (and
annualized for any fiscal year consisting of less than 12 full
months or during which the Executive was employed for less
than 12 full months), for the most recently completed fiscal
year during the Employment Period (for purposes of determining
any bonuses paid during any preceding year, bonuses paid by
Weatherford International, Inc. shall be taken into account),
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365, and (3)
any compensation previously deferred by the Executive under a
plan sponsored by the Company (together with any accrued
interest or earnings thereon), and any accrued vacation pay,
in each case to the extent not theretofore paid (the sum of
the amounts described
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in clauses (1), (2) and (3) shall be hereinafter referred to
as the "Accrued Obligations"), and
(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12-month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those that would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock held by the Executive pursuant to a Company stock option plan on
or prior to the Date of Termination, irrespective of whether such
options are then exercisable, the Executive shall have the right,
during the 60-day period after the Date of Termination, to elect to
surrender all or part of such options in exchange for a cash payment by
the Company to the Executive in an amount equal the number of shares of
Common Stock subject to the Executive's option multiplied by the
difference between (x) and (y) where (x) equals the purchase price per
share covered by the option and (y) equals the highest reported sale
price of a share of Common Stock in any transaction reported on the New
York Stock Exchange during the 60-day period prior to and including the
Executive's Date of Termination. Such cash payments shall be made
within 30 days after the date of the Executive's election; provided,
however, that if the Executive's Date of Termination is within six
months after the date of grant of a particular option held by the
Executive and the Executive is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, any cash payments related
thereto shall be made on the
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date that is six months and one day after the date of grant of such
option to the extent necessary to prevent the imposition of the
disgorgement provisions under Section 16(b). Notwithstanding the
foregoing, if any right granted pursuant to the foregoing would make
any change of control transaction ineligible for pooling of interests
accounting treatment under APB No. 16 that but for this Section
4(a)(iv) would otherwise be eligible for such accounting treatment, the
Executive shall receive shares of Common Stock with a Fair Market Value
equal to the cash that would otherwise be payable hereunder in
substitution for the cash, provided that any such shares of Common
Stock so granted to the Executive shall be registered under the
Securities Act of 1933, as amended; any options outstanding as of the
Date of Termination or upon a change of control and not then
exercisable shall become fully exercisable as of the Executive's Date
of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
longer; restrictions applicable to any shares of Common Stock granted
to the Executive by the Company shall lapse, as of the date of the
Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships that the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the Company's Executive
Deferred Compensation Plan and the 401(k) Plan and any other similar
plans, including any stock options or restricted stock held by the
Executive, not already vested shall be 100% vested, to the extent such
vesting is permitted under the Code (as defined below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or that the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same position had the employment
of the Executive not been so terminated as a result of a breach by the
Company.
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(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the Executive's peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, in effect on the date hereof or, if more favorable,
those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts that are vested benefits or
that the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the
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Executive that he or she shall have no right to receive, and hereby waives any
entitlement to, any severance pay or similar benefit under any other plan,
policy, practice or program of the Company. In addition, if the Executive has an
employment or similar agreement with the Company at the Date of Termination, he
or she agrees that he or she shall have the right to receive all of the benefits
provided under this Agreement or such other agreement, whichever one, in its
entirety, the Executive chooses, but not both agreements, and when the Executive
has made such election, the other agreement shall be superseded in its entirety
and shall be of no further force and effect. The Executive also agrees that to
the extent he or she may be eligible for any severance pay or similar benefit
under any laws providing for severance or termination benefits, such other
severance pay or similar benefit shall be coordinated with the benefits owed
hereunder, such that the Executive shall not receive duplicate benefits.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense that the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
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to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 7(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the change of control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
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(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid
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and the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, that shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information that is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law,
or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
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(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: John C. Coble
Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
If to the Company: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Attention: Bernard J. Duroc-Danner
with a copy to: Charles L. Strauss
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ John C. Coble
--------------------------------------------
John C. Coble
GRANT PRIDECO, INC.
By: /s/ Bernard J. Duroc-Danner
----------------------------------------
Bernard J. Duroc-Danner
Chief Executive Officer and Chairman
of the Board of Directors
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between Grant
Prideco, Inc., a Delaware corporation (the "Company"), and Frances R. Powell
(the "Executive"), is effective as of April 14, 2000.
W I T N E S S E T H:
WHEREAS, concurrent with the date hereof, the Executive is terminating
the Employment Agreement dated March 16, 1998 between the Executive and EVI,
Inc.;
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three years after such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice to the Executive
that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and
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responsibilities) shall be Vice President and Chief Financial Officer
of the Company and such other executive positions as may be assigned to
her and (B) the Executive's services shall be performed at the location
where the Executive was employed immediately preceding the date hereof
or any office or location less than 50 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the date hereof, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the date hereof shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary of $225,000 ("Annual Base
Salary"), which shall be paid at a monthly rate. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months
after the last salary increase awarded to the Executive prior to the
date hereof and thereafter at least annually; provided, however, that a
salary increase shall not necessarily be awarded as a result of such
review. Any increase in Annual Base Salary may not serve to limit or
reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase. The
term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities
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(measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect on the date hereof. As used in this Agreement,
the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are less
favorable, in the aggregate, than such plans, practices, policies and
programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
(viii) Options. Effective as of the date hereof, the
Executive shall receive options under the Company's stock option plan
to purchase an aggregate of 100,000 shares of Common Stock, $.01 par
value, of the Company ("Common Stock"), at an exercise price per share
equal to the closing sale price of a share of Common Stock on the date
hereof, such options to be subject to three year cliff vesting, subject
to acceleration in the event of change of control of the Company or a
termination of employment of the Executive by the Company without Cause
or by the Executive for Good Reason.
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3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness that is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company that specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct that is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
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(c) Good Reason. The Executive's employment may be
terminated by the Executive during the Employment Period for Good Reason.
For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, if there were to occur
a merger, consolidation or other business combination involving the
Company where the Company ceases to be publicly traded and following
the transaction the Executive does not have the status, office, title
and reporting requirements at the ultimate parent company that are
substantially similar to that which the Executive has with the Company;
(iii) any failure by the Company to comply with any
of the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iv) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
2(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the date hereof;
(v) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or
(vi) any failure by the Company to comply with
and satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice that (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth
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in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than 30 days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance that contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, from asserting
such fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period (for purposes of determining any
bonuses paid during any preceding year, bonuses paid by
Weatherford International, Inc. shall be taken into account)
and (II) the Annual Bonus paid or payable, including any bonus
or portion thereof that has been earned but deferred (and
annualized for any fiscal year consisting of less than 12 full
months or during which the Executive was employed for less
than 12 full months), for the most recently completed fiscal
year during the Employment Period (for purposes of determining
any bonuses paid during any preceding year, bonuses paid by
Weatherford International, Inc. shall be taken into account),
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365, and (3)
any compensation
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previously deferred by the Executive under a plan sponsored by
the Company (together with any accrued interest or earnings
thereon), and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described
in clauses (1), (2) and (3) shall be hereinafter referred to
as the "Accrued Obligations"), and
(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12-month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those that would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock, $.01 par value, of the Company ("Common Stock"), held by the
Executive pursuant to a Company stock option plan on or prior to the
Date of Termination, irrespective of whether such options are then
exercisable, the Executive shall have the right, during the 60-day
period after the Date of Termination, to elect to surrender all or part
of such options in exchange for a cash payment by the Company to the
Executive in an amount equal the number of shares of Common Stock
subject to the Executive's option multiplied by the difference between
(x) and (y) where (x) equals the purchase price per share covered by
the option and (y) equals the highest reported sale price of a share of
Common Stock in any transaction reported on the New York Stock Exchange
during the 60-day period prior to and including the Executive's Date of
Termination. Such cash payments shall be made within 30 days after
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the date of the Executive's election; provided, however, that if the
Executive's Date of Termination is within six months after the date of
grant of a particular option held by the Executive and the Executive is
subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, any cash payments related thereto shall be made on the date
that is six months and one day after the date of grant of such option
to the extent necessary to prevent the imposition of the disgorgement
provisions under Section 16(b). Notwithstanding the foregoing, if any
right granted pursuant to the foregoing would make any change of
control transaction ineligible for pooling of interests accounting
treatment under APB No. 16 that but for this Section 4(a)(iv) would
otherwise be eligible for such accounting treatment, the Executive
shall receive shares of Common Stock with a Fair Market Value equal to
the cash that would otherwise be payable hereunder in substitution for
the cash, provided that any such shares of Common Stock so granted to
the Executive shall be registered under the Securities Act of 1933, as
amended; any options outstanding as of the Date of Termination or upon
a change of control and not then exercisable shall become fully
exercisable as of the Executive's Date of Termination, and to the
extent the Executive does not elect to surrender same for a cash
payment (or the equivalent number of shares of Common Stock) as
provided above, such options shall remain exercisable for one year
after the Executive's Date of Termination or until the stated
expiration of the stated term thereof, whichever is longer;
restrictions applicable to any shares of Common Stock granted to the
Executive by the Company shall lapse, as of the date of the Executive's
Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships that the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the Company's Executive
Deferred Compensation Plan and the 401(k) Plan and any other similar
plans, including any stock options or restricted stock held by the
Executive, not already vested shall be 100% vested, to the extent such
vesting is permitted under the Code (as defined below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or that the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same position
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had the employment of the Executive not been so terminated as a result
of a breach by the Company.
(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the Executive's peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, in effect on the date hereof or, if more favorable,
those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts that are vested benefits or
that the Executive is otherwise entitled to receive
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<PAGE> 10
under any plan, policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement. It is expressly agreed by the Executive that
he or she shall have no right to receive, and hereby waives any entitlement to,
any severance pay or similar benefit under any other plan, policy, practice or
program of the Company. In addition, if the Executive has an employment or
similar agreement with the Company at the Date of Termination, he or she agrees
that he or she shall have the right to receive all of the benefits provided
under this Agreement or such other agreement, whichever one, in its entirety,
the Executive chooses, but not both agreements, and when the Executive has made
such election, the other agreement shall be superseded in its entirety and shall
be of no further force and effect. The Executive also agrees that to the extent
he or she may be eligible for any severance pay or similar benefit under any
laws providing for severance or termination benefits, such other severance pay
or similar benefit shall be coordinated with the benefits owed hereunder, such
that the Executive shall not receive duplicate benefits.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense that the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such
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interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 7(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the change of control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect
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to such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall
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not be entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, that shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information that is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law,
or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
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(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Frances R. Powell
Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
If to the Company: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Attention: John C. Coble
with a copy to: Charles L. Strauss
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Frances R. Powell
-----------------------------------------
Frances R. Powell
GRANT PRIDECO, INC.
By: /s/ John C. Coble
--------------------------------------
John C. Coble
President
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between Grant
Prideco, Inc., a Delaware corporation (the "Company"), and Curtis W. Huff (the
"Executive"), dated April 14, 2000.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three years after such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice to the Executive
that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be Vice President and
Interim General Counsel of the Company and he shall report to the
Chairman of the Board of the Company and (B) the Executive's services
shall be performed at the principal executive offices of Weatherford
International, Inc. in Houston, Texas or such other locations as do not
unreasonably interfere with the Executive's ability to perform services
hereunder.
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(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to assist the Company on a part-time basis from
time to time during normal business hours as the Company may reasonably
require in the development and implementation of the Company's
strategic alternatives; provided, however, that the services of the
Executive hereunder shall not materially interfere with the principal
employment of the Executive or, in any case, require the Executive to
devote more than 20% of his business time to the business of the
Company. The Executive will use his reasonable efforts to perform
faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive
to (A) continue his employment with Weatherford International, Inc. and
its affiliates or other entities by which the Executive is employed,
(B) serve on corporate, civic or charitable boards or committees, (C)
deliver lectures, fulfill speaking engagements or teach at educational
institutions, (D) serve as "Of Counsel" to Fulbright & Jaworski L.L.P.
and (E) manage personal investments. It is expressly understood and
agreed that to the extent that any such activities have been conducted
by the Executive prior to the date hereof, the continued conduct of
such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the date hereof shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary of $100,000 ("Annual Base
Salary"), which shall be paid at a monthly rate. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months
after the last salary increase awarded to the Executive prior to the
date hereof and thereafter at least annually; provided, however, that a
salary increase shall not necessarily be awarded as a result of such
review. Any increase in Annual Base Salary may not serve to limit or
reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase. The
term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
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opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect on the date hereof. As used in this Agreement,
the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits that are less
favorable, in the aggregate, than such plans, practices, policies and
programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
(viii) Options. Effective as of the date hereof, the
Executive shall receive options under the Company's stock option plan
to purchase an aggregate of 240,000 shares of Common Stock, $.01 par
value, of the Company ("Common Stock"), at an exercise price per share
equal to the closing sale price of a share of Common Stock on the date
hereof, such options to be subject to three year cliff vesting, subject
to acceleration in the event of change of control of the Company or a
termination of employment of the Executive by the Company without Cause
or by the Executive for Good Reason or a termination of such employment
by mutual agreement in recognition of the fact that the services of the
Executive are primarily to provide transitional support to the Company
following the distribution by Weatherford of its shares of Common Stock
to the public and that the transitional support may no longer be
necessary.
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3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company for 180
calendar days as a result of incapacity due to mental or physical illness that
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company that specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct that is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
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(c) Good Reason. The Executive's employment may be terminated
by the Executive during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements (other than the
title of "Interim General Counsel")), authority, duties or
responsibilities as contemplated by Section 2(a) of this Agreement, or
any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, if there were to occur
a merger, consolidation or other business combination involving the
Company where the Company ceases to be publicly traded and following
the transaction the Executive does not have the status, office, title
and reporting requirements at the ultimate parent company that are
substantially similar to that which the Executive has with the Company;
(iii) any failure by the Company to comply with any
of the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice that (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or
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the Company to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period (it being agreed that as of the
date of this Agreement, the Executive shall be deemed to have
received a bonus equal to 50% of his annual Base Salary in
respect of 1999) and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof that has been earned
but deferred (and annualized for any fiscal year consisting of
less than 12 full months or during which the Executive was
employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive under a plan
sponsored by the Company (together with any accrued interest
or earnings thereon), and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"), and
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(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12-month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those that would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock held by the Executive pursuant to a Company stock option plan on
or prior to the Date of Termination, irrespective of whether such
options are then exercisable, the Executive shall have the right,
during the 60-day period after the Date of Termination, to elect to
surrender all or part of such options in exchange for a cash payment by
the Company to the Executive in an amount equal the number of shares of
Common Stock subject to the Executive's option multiplied by the
difference between (x) and (y) where (x) equals the purchase price per
share covered by the option and (y) equals the highest reported sale
price of a share of Common Stock in any transaction reported on the New
York Stock Exchange during the 60-day period prior to and including the
Executive's Date of Termination. Such cash payments shall be made
within 30 days after the date of the Executive's election; provided,
however, that if the Executive's Date of Termination is within six
months after the date of grant of a particular option held by the
Executive and the Executive is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, any cash payments related
thereto shall be made on the date that is six months and one day after
the date of grant of such option to the extent necessary to prevent the
imposition of the disgorgement provisions under Section 16(b).
Notwithstanding the foregoing, if any right granted pursuant to the
foregoing would make
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any change of control transaction ineligible for pooling of interests
accounting treatment under APB No. 16 that but for this Section
4(a)(iv) would otherwise be eligible for such accounting treatment, the
Executive shall receive shares of Common Stock with a Fair Market Value
equal to the cash that would otherwise be payable hereunder in
substitution for the cash, provided that any such shares of Common
Stock so granted to the Executive shall be registered under the
Securities Act of 1933, as amended; any options outstanding as of the
Date of Termination or upon a change of control and not then
exercisable shall become fully exercisable as of the Executive's Date
of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
longer; restrictions applicable to any shares of Common Stock granted
to the Executive by the Company shall lapse, as of the date of the
Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships that the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the Company's Executive
Deferred Compensation Plan and the 401(k) Plan and any other similar
plans, including any stock options or restricted stock held by the
Executive, not already vested shall be 100% vested, to the extent such
vesting is permitted under the Code (as defined below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or that the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same position had the employment
of the Executive not been so terminated as a result of a breach by the
Company.
(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
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<PAGE> 9
paid to the Executive's estate or beneficiaries, as applicable, in a lump sum in
cash within 30 days after the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 4(b)
shall include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated companies to the
estates and beneficiaries of the Executive's peer executives of the Company and
such affiliated companies under such plans, programs, practices and policies
relating to death benefits, if any, in effect on the date hereof or, if more
favorable, those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts that are vested benefits or
that the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Executive that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Executive has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the benefits
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provided under this Agreement or such other agreement, whichever one, in its
entirety, the Executive chooses, but not both agreements, and when the Executive
has made such election, the other agreement shall be superseded in its entirety
and shall be of no further force and effect. The Executive also agrees that to
the extent he or she may be eligible for any severance pay or similar benefit
under any laws providing for severance or termination benefits, such other
severance pay or similar benefit shall be coordinated with the benefits owed
hereunder, such that the Executive shall not receive duplicate benefits.
Benefits provided under any Weatherford International, Inc. plan shall not be
considered an employment or other arrangement with the Company.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense that the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
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Notwithstanding the foregoing provisions of this Section 7(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the change of control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
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(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, that shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information that is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law,
or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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<PAGE> 14
If to the Executive: Curtis W. Huff
Weatherford International, Inc.
515 Post Oak Boulevard, Suite 600
Houston, Texas 77027
If to the Company: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Attention: John C. Coble
with a copy to: Charles L. Strauss
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Curtis W. Huff
----------------------------------------
Curtis W. Huff
GRANT PRIDECO, INC.
By /s/ John C. Coble
----------------------------------------
John C. Coble
President
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<PAGE> 1
EXHIBIT 10.6
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement") is entered into and
deemed effective as of April 14, 2000, by and between Grant Prideco, Inc., a
Delaware corporation (the "Company"), and William G. Chunn (the "Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Employee has accepted an offer of employment with the
Company as Executive Vice President of Operations; and
WHEREAS, the terms of employment with the Company included an agreement
with the Employee that in the event there were to be a Change of Control (as
defined below) of the Company within three years from the date hereof, the
Employee would be entitled to certain enhanced severance benefits if the
employment of the Employee is terminated by the Company without Cause (as
defined below) or by the Employee for Good Reason (as defined below).
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 1(c)) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Employee's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Employee that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three year(s) after such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Employee that the Change of Control Period shall not be so extended.
(c) A "Change of Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50 percent or more of either (A) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change of
Control:
<PAGE> 2
(A) any acquisition directly from the
Company; or
(B) any acquisition by the Company; or
(C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or
(D) any acquisition by any corporation
pursuant to a transaction that complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 1(c); or
(ii) Individuals, who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual was a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Corporate Transaction") in each case, unless,
following such Corporate Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction beneficially own, directly or
indirectly, more than 60 percent of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Corporate Transaction (including,
without limitation, a corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities, as the case
may be, (B) no Person (excluding any corporation resulting from such Corporate
Transaction or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Corporate Transaction) beneficially owns,
directly or indirectly, 20 percent or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Corporate Transaction and (C) at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Corporate Transaction; or
(iv) Approval by the stockholders of the Company of
a complete liquidation or dissolution of the Company.
(d) "Board" shall mean the Board of Directors of the Company.
2. Employment Period. The Company hereby agrees that the Company or an
affiliated company will continue the Employee in its employ, and the Employee
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the second anniversary of such date (the
"Employment Period").
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<PAGE> 3
3. Terms of Employment.
(a) Position and Duties. During the Employment Period, (i) the
Employee's position shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (ii) the
Employee's services shall be performed at the Company's principal executive
offices in The Woodlands, Texas or other locations less than 50 miles from such
principal executive offices or the Company's facilities in Navasota, Texas or
other locations less than 35 miles from such facilities.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Employee shall receive an annual base salary ("Annual Base Salary") at
least equal to the annual base salary payable to the Employee by the
Company and/or its affiliated companies immediately preceding the
Effective Date; provided, however, that notwithstanding the foregoing,
the Employee's Annual Base Salary shall be subject to any company-wide
salary reduction that takes effect during the Employment Period. During
the Employment Period, the Annual Base Salary shall be reviewed from
time to time on the same basis as similarly situated employees;
provided, however, that a salary increase shall not necessarily be
awarded as a result of such review. Any increase in Annual Base Salary
may not serve to limit or reduce any other obligation to the Employee
under this Agreement. Annual Base Salary shall not be reduced after any
such increase. The term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. The Employee shall be eligible for
an annual bonus (the "Annual Bonus") for each fiscal year ending during
the Employment Period on the same basis as other key employees under
the Company's annual incentive programs.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Employee shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Employee's peer key employees of
the Company and its affiliated companies. As used in this Agreement,
the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Employee and/or the Employee's family, as the case may be,
shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Employee's peer key employees of the Company and its
affiliated companies.
(v) Fringe Benefits. During the Employment Period,
the Employee shall be entitled to (A) payment of professional
association dues, payment of state professional taxes and a car
allowance and (B) such other fringe benefits as in effect generally at
any time thereafter with respect to the Employee's peer key employees
of the Company and its affiliated companies.
(vi) Vacation. During the Employment Period, the
Employee shall be entitled to at least three weeks paid vacation or
such greater amount of paid vacation as may be applicable to the
Employee's peer key employees of the Company and its affiliated
companies.
3
<PAGE> 4
(vii) Deferred Compensation Plan. During the
Employment Period, the Employee shall be entitled to continue to
participate in any deferred compensation or similar plans in which the
Employee was participating in prior to the Employment Period subject to
such changes thereto as may be necessary to reflect the effect of the
Change of Control.
4. Termination of Employment.
(a) Death or Disability. The Employee's employment shall
terminate automatically upon the Employee's death during the Employment Period.
If the Company determines in good faith that the Disability of the Employee has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Employee written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Employee's
employment. In such event, the Employee's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Employee (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Employee shall not have returned to full-time performance of the
Employee's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Employee from the Employee's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness that is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Employee or the
Employee's legal representative.
(b) Cause. The Company may terminate the Employee's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the failure of the Employee to perform the
Employee's duties with the Company or one of its affiliates (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to the Employee by the Company that specifically identifies
the manner in which the Employee has not performed the Employee's
duties;
(ii) the engaging by the Employee in illegal
conduct or misconduct that is materially and demonstrably injurious to
the Company;
(iii) the conviction of the Employee of a crime
involving moral turpitude;
(iv) the misappropriation by the Employee of
funds of the Company or one of the its affiliates;
(v) the disparagement by the Employee of the
Company or one of its affiliates or of management thereof; or
(vi) any conduct that is materially detrimental
to the Company as determined in good faith by the Board of Directors of
the Company, so long as the Employee has received prior written notice
that such conduct is materially detrimental to the Company and will be
grounds for termination for "cause".
For purposes of this provision, no act, or failure to act, on
the part of the Employee shall be considered "willful" unless it is done, or
omitted to be done, by the Employee in bad faith or without reasonable belief
that the Employee's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or of a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Employee in good faith and in the best interests of the Company.
4
<PAGE> 5
(c) Good Reason. The Employee's employment may be
terminated by the Employee during the Employment Period for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Employee of any duties
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 3(a) of this Agreement,
or any other action by the Company that results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by the Company to comply with any of
the provisions of Section 3(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Employee;
(iii) the Company's requiring the Employee to be
based at any office or location other than as provided in Section
3(a)(ii) hereof or the Company's requiring the Employee to travel on
Company business to a substantially greater extent than required
immediately prior to the Effective Date;
(iv) any purported termination by the Company of the
Employee's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 10(c) of this Agreement.
For purposes of this Section 4(c), any good faith
determination of "Good Reason" made by the Employee shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Employee for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 11(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice that (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date, in the case of a notice by the Company, shall be
not more than 30 days after the giving of such notice). The failure by the
Employee or the Company to set forth in the Notice of Termination any fact or
circumstance that contributes to a showing of Good Reason or Cause shall not
waive any right of the Employee or the Company, respectively, from asserting
such fact or circumstance in enforcing the Employee's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" shall
mean:
(i) if the Employee's employment is terminated by the
Company for Cause, or by the Employee for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Employee's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Employee of such termination; and
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<PAGE> 6
(iii) if the Employee's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Employee or the Disability Effective Date, as the
case may be.
5. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company terminates the Employee's
employment other than for Cause, death or Disability, or the Employee terminates
employment for Good Reason:
(i) The Company shall pay to the Employee in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Employee's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Employee over the
preceding three year period and (II) the Annual Bonus that
would be payable in respect of the current fiscal year, if any
(such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Employee under a plan
sponsored by the Company (together with any accrued interest
or earnings thereon), and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"); and
(B) an amount equal to two times the sum of
(i) the then current Annual Base Salary of the Employee and
(ii) the Highest Annual Bonus; and
(C) an amount equal to the total of the
employer basic and matching contributions credited to the
Employee under the Company's 401(k) Savings Plan (the "401(k)
Plan") and any other deferred compensation plan during the
12-month period immediately preceding the month of the
Employee's Date of Termination multiplied by two, such amount
to be grossed up so that the amount the Employee actually
receives after payment of any federal or state taxes payable
thereon equals the amount first described above; and
(D) an amount equal to two times the total
amount of all fringe benefits received by Employee on an
annualized basis.
(ii) For a period of two years from the Employee's
Date of Termination or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the Company
shall continue benefits to the Employee and/or the Employee's family
equal to those that would have been provided to them in accordance with
the plans, programs, practices and policies described in Section
3(b)(iv) of this Agreement if the Employee's employment had not been
terminated; provided, however, that with respect to any of such plans,
programs, practices or policies requiring an employee contribution, the
Employee shall continue to pay the monthly employee contribution for
same, and provided further, that if the Employee becomes re-employed by
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility;
6
<PAGE> 7
(iii) All benefits and amounts under the Company's
deferred compensation plan and the 401(k) Plan and any other similar
plans, including any stock options held by the Employee, not already
vested shall be 100% vested;
(iv) To the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Employee any other
amounts or benefits required to be paid or provided or that the
Employee is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(v) The foregoing payments are intended to compensate
the Employee for a breach of the Company's obligations and place
Employee in substantially the same position had the employment of the
Employee not been so terminated as a result of a breach by the Company.
The payments shall be in lieu of any other severance payments that
might be due to the Employee under the Company's severance and other
similar plans.
(b) Death. If Employee's employment is terminated by reason of
the Employee's death during the Employment Period, this Agreement shall
terminate without further obligations to the Employee's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Employee's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination.
(c) Disability. If the Employee's employment is terminated by
reason of the Employee's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Employee, other than for
payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Employee in a lump sum in
cash within 30 days after the Date of Termination.
(d) Cause; Other Than for Good Reason. If the Employee's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Employee under this
Agreement, other than the obligation to pay to the Employee (x) his or her
Annual Base Salary through the Date of Termination, (y) the amount of any
compensation previously deferred by the Employee, and (z) Other Benefits, in
each case to the extent theretofore unpaid. If the Employee voluntarily
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Employee under this Agreement, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In such case, all Accrued Obligations
shall be paid to the Employee in a lump sum in cash within 30 days after the
Date of Termination subject to such other options or restrictions as provided by
law.
6. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Employee's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Employee may qualify, nor
shall anything herein limit or otherwise affect such rights as the Employee may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts that are vested benefits or
that the Employee is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Employee that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Employee has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the
7
<PAGE> 8
benefits provided under this Agreement or such other agreement, whichever one,
in its entirety, the Employee chooses, but not both agreements, and when the
Employee has made such election, the other agreement shall be superseded in its
entirety and shall be of no further force and effect. The Employee also agrees
that to the extent he or she may be eligible for any severance pay or similar
benefit under any laws providing for severance or termination benefits, such
other severance pay or similar benefit shall be coordinated with the benefits
owed hereunder, such that the Employee shall not receive duplicate benefits.
7. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against the
Employee or others.
(b) No Mitigation Required. In no event shall the Employee be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Employee under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Employee
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expenses that the Employee may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Employee of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 8) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Employee with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a), if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Employee, after taking into account the Payments and the Gross-Up Payment, would
not receive a net after-tax benefit of at least $50,000 (taking into account
both income taxes and any Excise Tax) as compared to the net after-tax proceeds
to the Employee resulting from an elimination of the Gross-Up Payment and a
reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount")
such that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Employee and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up
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<PAGE> 9
Payment and the assumptions to be utilized in arriving at such determination
shall be made by Arthur Andersen LLP or, as provided below, such other certified
public accounting firm as may be designated by the Employee (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the Company
and the Employee within 15 business days after the receipt of notice from the
Employee that there has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 8, shall be paid by the Company to the Employee within
five days after the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Employee. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments that will not have been made by
the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Employee.
(c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Employee is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Employee shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Employee in writing
prior to the expiration of such period that it desires to contest such claim,
the Employee shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in
order to effectively contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 8(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Employee agrees to
prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
9
<PAGE> 10
that if the Company directs the Employee to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Employee, on an interest-free basis and shall indemnify and hold the
Employee harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable
year of the Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as
the case may be, any other issues raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 8(c), the Employee becomes entitled
to receive any refund with respect to such claim, the Employee shall (subject to
the Company's complying with the requirements of Section 8(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
9. Confidential Information. The Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, that shall have been obtained by the Employee
during the Employee's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information that is or shall
become public knowledge (other than by acts by the Employee or representatives
of the Employee in violation of this Agreement), information that is developed
by the Employee independently of such information, or knowledge or data or
information that is disclosed to the Employee by a third party under no
obligation of confidentiality to the Company. After termination of the
Employee's employment with the Company, the Employee shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Employee under
this Agreement.
10. Successors.
(a) This Agreement is personal to the Employee and shall not
be assignable by the Employee otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to (i) assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place and (ii) issue to the Employee substantially similar options to
purchase shares of equity in such successor in replacement of options held by
the Employee to purchase shares of common stock of the Company. As used in this
Agreement, "Company"
10
<PAGE> 11
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law, or otherwise.
11. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Employee: William G.Chunn
9850 E. Shore Dr.
Willis, Texas 77378
If to the Company: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Employee's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Employee or the Company may have hereunder, including without
limitation, the right of the Employee to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name and on its behalf, all as of
the day and year first above written.
/s/ William G. Chunn
----------------------------------
William G. Chunn
GRANT PRIDECO, INC.
By /s/ John C. Coble
----------------------------------
John C. Coble
President
11
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