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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5
TO
FORM 10
ON
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------
GRANT PRIDECO, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 76-0312499
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1450 LAKE ROBBINS DRIVE
SUITE 600
THE WOODLANDS, TEXAS 77380
(Address of principal executive offices) (Zip code)
</TABLE>
(281) 297-8500
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON WHICH EACH
TITLE OF EACH CLASS TO BE REGISTERED CLASS IS TO BE REGISTERED
------------------------------------ -----------------------------------
<S> <C>
Common Stock, par value $.01 per share New York Stock Exchange
</TABLE>
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INFORMATION INCLUDED IN INFORMATION STATEMENT AND
INCORPORATED IN FORM 10 BY REFERENCE
ITEM 1. BUSINESS.
See attached information statement under headings "Answers to Certain
Questions Regarding the Spinoff", "The Spinoff" and "Business".
ITEM 2. FINANCIAL INFORMATION.
See attached information statement under headings "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Financial
Statements".
ITEM 3. PROPERTIES.
See attached information statement under heading "Business".
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See attached information statement under heading "Security Ownership of
Certain Beneficial Owners and Management".
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
See attached information statement under heading "Management".
ITEM 6. EXECUTIVE COMPENSATION.
See attached information statement under heading "Management".
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See attached information statement under headings "Relationship Between
Grant Prideco and Weatherford After the Spinoff", "Management" and "Certain
Relationships and Related Transactions".
ITEM 8. LEGAL PROCEEDINGS.
See attached information statement under heading "Business".
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
See attached information statement under headings "The Spinoff",
"Relationship Between Grant Prideco and Weatherford After the Spinoff",
"Dividend Policy" and "Security Ownership of Certain Beneficial Owners and
Management".
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
See attached information statement under heading "Description of Grant
Capital Stock".
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
See attached information statement under heading "Liability and
Indemnification of Officers and Directors".
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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Not applicable.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
See attached information statement under headings "Financial Statements"
and "Exhibits".
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[WEATHERFORD LOGO]
March 23, 2000
To the Stockholders of Weatherford International, Inc.:
The Board of Directors of Weatherford International, Inc. has authorized a
distribution to the Weatherford stockholders of all of the outstanding shares of
Grant Prideco, Inc., a wholly owned subsidiary of Weatherford. The distribution
will be made on or about April 14, 2000, to holders of record of Weatherford
common stock at the close of business on March 23, 2000.
The distribution of the Grant Prideco common stock will be made on the
basis of one share of Grant Prideco common stock for each share of Weatherford
common stock held by a Weatherford stockholder on the record date for the
distribution. As such, if you hold 100 shares of Weatherford common stock on the
record date, you will receive 100 shares of Grant Prideco common stock in the
distribution.
Grant Prideco is the world's largest provider of drill pipe and other drill
stem products and is a leading provider of premium tubulars and connections in
North America. Grant Prideco also provides tubulars and connections for
conductors and risers for subsea wells. Following the distribution, the stock of
Grant Prideco will be traded on the New York Stock Exchange.
The distribution of the Grant Prideco stock to the stockholders of
Weatherford is intended to allow Weatherford and Grant Prideco to focus better
on growing their respective businesses to compete in today's highly competitive
and volatile markets. The distribution will separate the businesses of
Weatherford and Grant Prideco in a manner that reflects their different missions
and different financial, investment and operating characteristics so that each
can pursue business strategies and objectives appropriate to its specific
business. We expect the separation of the businesses to result in greater focus
of our management teams on the core strengths that make each business successful
and to allow for more effective incentives for key employees of each group. The
separation also will permit our investors, customers, lenders and other
constituencies to evaluate the respective businesses of Weatherford and Grant
Prideco on a stand-alone basis.
We are providing you the attached information statement solely for your
information. The information statement contains important information about the
distribution and important financial and other information about Grant Prideco.
No action is being requested of you. If you hold shares of Weatherford common
stock on the record date you will receive your shares of Grant Prideco stock in
the distribution.
For those of us who have been involved in the development and growth of
Grant Prideco from its inception as part of Energy Ventures, Inc., the
separation of Grant Prideco from Weatherford is not being done without some
sadness. The managements of Weatherford and Grant Prideco, however, believe that
the opportunities for growth created by the separation are significant and will
enhance stockholder value. We look forward to the successful future of both
companies as we enter the new millennium.
Sincerely,
/s/ Bernard J. Duroc-Danner
Bernard J. Duroc-Danner
President, Chief Executive Officer
and Chairman of the Board
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Weatherford International, Inc. www.weatherford.com
515 Post Oak Blvd., Suite 600
Houston, Texas 77027
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[GRANT PRIDECO LOGO]
Information Statement
Common Stock
(par value $.01 per share)
Grant Prideco, Inc. is furnishing this information statement in connection
with the spinoff by Weatherford International, Inc. of its wholly owned
subsidiary, Grant Prideco. Weatherford will make the spinoff through a
distribution to its stockholders of one share of Grant Prideco common stock for
each share of Weatherford common stock held by the Weatherford stockholders on
the record date for the distribution. The Board of Directors of Weatherford has
fixed the close of business on March 23, 2000 as the record date for the
spinoff. Grant Prideco is mailing this information statement to holders of
Weatherford common stock on or about March 27, 2000.
Grant Prideco is the world's largest provider of drill pipe and other drill
stem products to the oil and gas industry and is a leading provider of premium
tubulars and connections in North America. Grant Prideco also provides tubulars
and connections for conductors and risers for subsea wells. The spinoff will
result in all of the outstanding shares of Grant Prideco common stock being
distributed to holders of Weatherford common stock on a pro rata basis.
Weatherford stockholders will not pay any consideration for shares of Grant
Prideco common stock. The distribution of the Grant Prideco stock to the
Weatherford stockholders is scheduled to be made on April 14, 2000.
The New York Stock Exchange has approved the listing of Grant Prideco's
common stock under the symbol "GRP". We expect Grant Prideco's common stock to
begin trading on the New York Stock Exchange on a "when distributed" basis on or
about the record date. Currently, there is no public market for Grant Prideco's
common stock.
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NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPINOFF. NO
PROXIES ARE BEING SOLICITED. PLEASE DO NOT SEND US A PROXY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
Weatherford stockholders with questions related to the spinoff should
contact Investor Relations, Weatherford International, Inc., 515 Post Oak
Boulevard, Suite 600, Houston, Texas 77027, at (713) 693-4000; or the Grant
Prideco common stock transfer agent, American Stock Transfer & Trust Company, at
(800) 937-5449. American Stock Transfer & Trust Company also is acting as
distribution agent for the spinoff.
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March 23, 2000.
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TABLE OF CONTENTS
<TABLE>
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ANSWERS TO CERTAIN QUESTIONS REGARDING THE SPINOFF.......... 1
SUMMARY HISTORICAL FINANCIAL DATA........................... 4
RISK FACTORS................................................ 5
The IRS May Treat the Transaction as Taxable to
Weatherford and Its Stockholders if Representations
Weatherford and Grant Prideco Made to the IRS Were
Inaccurate or if Weatherford and Grant Prideco Do Not
Comply with the Undertakings Made to the IRS........... 5
We Generally Will be Responsible for Taxes if the Spinoff
is Determined to be Taxable............................ 5
Weatherford Will Provide No Future Financial Support to
Us..................................................... 5
Weatherford and Grant Prideco Will Have a Business
Relationship After the Spinoff and Conflicts May
Arise.................................................. 6
There Has Been No Trading Market for the Grant Prideco
Common Stock........................................... 6
The Spinoff Could Adversely Affect the Aggregate Value of
Your Investment in Weatherford Common Stock............ 7
Our Business is Materially Affected By Drilling Activity
and the Rig Count...................................... 7
An Economic Downturn Could Adversely Affect Demand for
Products and Services.................................. 7
Disruptions in Foreign Operations Could Adversely Affect
Our Income............................................. 7
THE SPINOFF................................................. 9
Reasons for the Spinoff................................... 9
Distribution Agent........................................ 10
Manner of Effecting the Spinoff........................... 10
Results of the Spinoff.................................... 11
Listing and Trading of the Grant Prideco Common Stock..... 11
Federal Income Tax Consequences of the Spinoff............ 11
Conditions; Termination................................... 12
Reason for Furnishing this Information Statement.......... 13
RELATIONSHIP BETWEEN GRANT PRIDECO AND WEATHERFORD AFTER THE
SPINOFF................................................... 13
Distribution Agreement.................................... 13
Pre-Spinoff Contributions.............................. 14
The Weatherford Note and Contribution of Debt.......... 14
Employment Matters; Treatment of Outstanding Stock
Options and Restricted Stock.......................... 14
Adjustment and Substitution of Existing Weatherford
Stock Options....................................... 14
Treatment of Outstanding Restricted Stock............ 16
Payments under Weatherford Nonqualified Deferred
Compensation Plans.................................. 16
Additional Actions................................... 17
Terms and Conditions of the Spinoff.................... 17
Allocation of Liabilities and Indemnities.............. 17
Tax Allocation Agreement.................................. 17
Transition Services Agreement............................. 18
Preferred Supplier Agreement.............................. 18
Policies and Procedures for Addressing Conflicts.......... 19
ACCOUNTING TREATMENT........................................ 19
DIVIDEND POLICY............................................. 19
SELECTED HISTORICAL FINANCIAL DATA.......................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 21
Forward-Looking Statements................................ 21
Market Trends and Outlook................................. 22
</TABLE>
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<TABLE>
<S> <C>
Results of Operations.................................................................................... 24
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998................................. 24
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997................................. 27
Other Charges......................................................................................... 30
Acquisitions............................................................................................. 31
Liquidity and Capital Resources.......................................................................... 32
Tax Matters.............................................................................................. 34
Recent Accounting Pronouncements......................................................................... 34
Year 2000 Matters........................................................................................ 34
Quantitative and Qualitative Market Risk Disclosures..................................................... 35
Foreign Currency Risk................................................................................. 35
Interest Rates........................................................................................ 36
BUSINESS................................................................................................... 37
General.................................................................................................. 37
Market Trends and Outlook................................................................................ 37
Growth Strategy.......................................................................................... 38
Drill Stem Products...................................................................................... 38
Drill Pipe............................................................................................ 39
Drill Collars......................................................................................... 39
Heavyweight Drill Pipe and Other Drill Stem Products.................................................. 39
Premium Tubulars and Engineered Connections.............................................................. 39
Premium Tubulars and Connections...................................................................... 40
Premium Casing........................................................................................ 40
Couplings............................................................................................. 40
Accessories and Insulated Tubing...................................................................... 40
Conductors and Risers for Subsea Structures........................................................... 40
Other................................................................................................. 40
Raw Materials............................................................................................ 40
Properties............................................................................................... 41
Patents.................................................................................................. 42
Backlog.................................................................................................. 42
Insurance................................................................................................ 42
Federal Regulation and Environmental Matters............................................................. 42
Employees................................................................................................ 43
Litigation............................................................................................... 43
Principal Executive Offices.............................................................................. 43
MANAGEMENT................................................................................................. 44
Board of Directors and Committees of the Board of Grant Prideco.......................................... 44
Director Compensation.................................................................................... 45
Fees.................................................................................................. 45
Grant Prideco, Inc. 2000 Non-Employee Director Stock Option Plan...................................... 45
Director Deferred Compensation Plan................................................................... 46
Executive Officers of Grant Prideco...................................................................... 46
Executive Compensation................................................................................... 47
Stock Option Grants in Fiscal 1999....................................................................... 48
Aggregated Option Exercises in Fiscal 1999 and December 31, 1999 Option Values........................... 48
Benefit Plans............................................................................................ 49
Grant Prideco, Inc. 2000 Employee Stock Option and Restricted Stock Plan.............................. 49
Grant Prideco, Inc. Executive Deferred Compensation Plan.............................................. 49
Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan...................................... 49
Grant Prideco, Inc. 401(k) Savings Plan............................................................... 50
</TABLE>
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<TABLE>
<S> <C>
Employment Agreements and Change-of-Control Arrangements................................................. 50
Compensation Committee Interlocks and Insider Participation.............................................. 51
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 53
DESCRIPTION OF GRANT PRIDECO CAPITAL STOCK................................................................. 54
General.................................................................................................. 54
Grant Prideco Common Stock............................................................................... 54
Voting Rights......................................................................................... 54
Dividend Rights....................................................................................... 54
Liquidation Rights and Other Provisions............................................................... 54
Grant Prideco Preferred Stock............................................................................ 54
No Preemptive Rights..................................................................................... 55
Business Combinations with Interested Stockholders....................................................... 55
Nomination of Directors.................................................................................. 55
Transfer Agent and Registrar............................................................................. 56
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.................................................... 56
Exculpation of Monetary Liability........................................................................ 56
Indemnification.......................................................................................... 56
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 56
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 57
FINANCIAL STATEMENTS....................................................................................... F-1
</TABLE>
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ANSWERS TO CERTAIN QUESTIONS REGARDING THE SPINOFF
The following answers certain questions you may have regarding the spinoff.
We encourage you to read this information statement carefully and completely.
References in this information statement to "Grant Prideco", "we", "us" or the
"Company" include Grant Prideco, Inc. and its subsidiaries (after giving effect
to the transactions contemplated in connection with the spinoff), except where
the context otherwise requires. References in this information statement to
"Weatherford" include Weatherford International, Inc. and its consolidated
subsidiaries (other than Grant Prideco), except where the context otherwise
requires.
Q: WHAT IS THE SPINOFF?
A: Grant Prideco currently is a wholly owned subsidiary of Weatherford. At the
close of business on or about April 14, 2000, Weatherford will distribute
all of the shares of Grant Prideco common stock to the Weatherford
stockholders as a non-cash distribution, resulting in Grant Prideco
becoming an independent, publicly-owned company.
Q: WHO WILL RECEIVE GRANT PRIDECO COMMON STOCK?
A: Holders of Weatherford common stock as of the close of business on March
23, 2000 will receive Grant Prideco common stock.
Q: WHEN WILL THE SPINOFF OCCUR?
A: The spinoff will occur on or about April 14, 2000.
Q: HOW MANY SHARES OF GRANT PRIDECO COMMON STOCK WILL I RECEIVE?
A: You will receive one share of Grant Prideco common stock for each share of
Weatherford common stock you hold as of the close of business on the record
date. Weatherford will distribute approximately 109.0 million shares of
Grant Prideco common stock (based on the number of shares of Weatherford
common stock outstanding on the record date). The shares to be distributed
will constitute all of the outstanding shares of Grant Prideco common stock
immediately after the spinoff.
Q: WHEN WILL I RECEIVE SHARES OF GRANT PRIDECO COMMON STOCK?
A: On the distribution date, Weatherford will deliver certificates
representing the shares of Grant Prideco common stock to the distribution
agent for distribution. The distribution agent will mail certificates
representing the shares of Grant Prideco common stock to holders of
Weatherford common stock as soon as practicable thereafter. See "The
Spinoff -- Manner of Effecting the Spinoff".
Q: WHO IS ACTING AS THE DISTRIBUTION AGENT?
A: American Stock Transfer & Trust Company.
Q: SHOULD I SEND IN MY WEATHERFORD STOCK CERTIFICATES FOR EXCHANGE?
A: No. Holders of Weatherford common stock should not send stock certificates
to Weatherford, Grant Prideco or the distribution agent. See "The
Spinoff -- Manner of Effecting the Spinoff".
Q: WILL THERE BE A TRADING MARKET FOR GRANT PRIDECO COMMON STOCK AFTER THE
SPINOFF? WILL GRANT PRIDECO HAVE A TRADING SYMBOL?
A: The New York Stock Exchange has approved the listing of Grant Prideco's
common stock under the symbol "GRP". We expect Grant Prideco's common stock
to begin trading on the New York Stock Exchange on a "when distributed"
basis on or about the record date. Currently, there is no public market for
Grant Prideco's common stock.
Q: WHY IS WEATHERFORD SPINNING OFF GRANT PRIDECO?
A: Weatherford is spinning off Grant Prideco to allow Weatherford and Grant
Prideco to focus better on growing their respective businesses to compete
in today's highly competitive and volatile markets. We expect the spinoff
to allow each company to develop its own strategy for growth and to fund
that growth with its own capital resources without internal competition for
financial and other resources. The objective of the spinoff is to allow
Weatherford to continue its current strategy of becoming a major provider
of products and services used to enhance reservoir recovery and complete
oil and gas wells while allowing Grant Prideco to expand in the tubular and
drilling markets by leveraging off its leading position as the world's
largest provider of drill pipe and other drill stem products. We believe
that given current
1
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market conditions, these objectives could not be achieved other than
through a separation of Grant Prideco from Weatherford. See "The
Spinoff -- Reasons for the Spinoff".
Q: WHAT ARE GRANT PRIDECO'S OPERATIONS? WHICH OPERATIONS WILL WEATHERFORD
RETAIN?
A: Grant Prideco conducts Weatherford's drilling products business. This
business includes the manufacturing and sale of drill pipe and other drill
stem products to the oil and gas industry, the provision of premium tubular
and connections and the provision of tubulars and connections for
conductors and risers for subsea applications. Weatherford will retain its
downhole and well intervention services business, its completion products
and services business, its artificial lift systems business and its
compression services business.
Q: HOW WILL GRANT PRIDECO BE CAPITALIZED AFTER THE SPINOFF?
A: Before the spinoff, we will issue a $100 million unsecured subordinated
note to Weatherford. Weatherford will then contribute to us substantially
all remaining intercompany indebtedness that we owe to Weatherford. We also
will grant to Weatherford a $30 million drill stem purchase credit. We
currently are negotiating with potential lenders to establish a secured
credit facility that would provide us with up to $75 million for working
capital purposes, of which we expect $30 million to $50 million to be
available to us initially. We expect this facility to be in place by or
shortly after the spinoff. Following the spinoff, we will have outstanding
approximately $36 million in indebtedness (exclusive of the drill stem
credit) including capitalized leases relating to obligations we previously
incurred from third parties. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Relationship Between
Grant Prideco and Weatherford After the Spinoff -- Distribution
Agreement -- The Weatherford Note and Contribution of Debt" and the
Financial Statements.
Q: CAN WEATHERFORD DECIDE NOT TO GO THROUGH WITH THE SPINOFF?
A: Yes. Weatherford can cancel the spinoff for any reason at any time before
it is effected. See "The Spinoff -- Conditions; Termination".
Q: WILL I BE TAXED ON THE SHARES OF GRANT PRIDECO THAT I RECEIVE IN THE
SPINOFF?
A: Weatherford has conditioned the spinoff on the receipt of a favorable
ruling from the IRS to the effect that, for United States federal income
tax purposes, the spinoff generally will be tax-free to Weatherford
stockholders. Weatherford has received oral advice from the IRS that it
will issue a favorable ruling on the spinoff. The tax ruling will not
address state, local or foreign tax consequences that may apply to
Weatherford stockholders. You should consult your tax advisor as to the
particular tax consequences to you of the spinoff.
Q: WILL WEATHERFORD BE TAXED ON THE SPINOFF?
A: The tax ruling that Weatherford is expecting will confirm that Weatherford
generally should not recognize income, gain or loss as a result of the
spinoff. The tax ruling will be based on representations made by
Weatherford and Grant Prideco, the accuracy of which are critical to the
spinoff qualifying as a tax-free distribution. See "The Spinoff -- Federal
Income Tax Consequences of the Spinoff".
Q: WHAT WILL BE THE RELATIONSHIP BETWEEN WEATHERFORD AND GRANT PRIDECO AFTER
THE SPINOFF?
A: Weatherford will not own any stock of Grant Prideco after the spinoff.
Before the spinoff, Grant Prideco and Weatherford will enter into
agreements with respect to relationships and transactions between Grant
Prideco and Weatherford after the spinoff. These agreements include:
- Distribution Agreement, providing for, among other things, (1) the
spinoff and the division between Weatherford and us of certain assets and
liabilities, (2) the issuance by us of a $100 million note to Weatherford
and a $30 million drill stem purchase credit and the cancellation of
substantially all remaining intercompany indebtedness, (3) the allocation
of responsibilities with respect to employee benefit plans, employee
compensation, and other labor and employment matters, (4) the terms and
conditions of the spinoff and (5) the material indemnification
provisions.
- Tax Allocation Agreement, providing for the allocation between
Weatherford and us of tax liabilities that relate to periods before and
after the distribution date. This agreement will provide that we
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generally will be responsible for any taxes relating to the spinoff other
than in certain circumstances solely involving a change of control of
Weatherford.
- Preferred Supplier Agreement, pursuant to which we will sell drill pipe
and related products to Weatherford as Weatherford's primary supplier at
prices not higher than the lowest price at which we sell those products
to similarly situated third parties. Weatherford will agree to purchase
at least 70% of its drill stem purchases from us for a period of three
years, subject to certain exceptions. Weatherford will be able to apply
its $30 million drill stem credit for purchases under this agreement.
- Transition Services Agreement, pursuant to which Weatherford will provide
us with certain services on a temporary basis.
Q: WILL WEATHERFORD AND GRANT PRIDECO HAVE ANY COMMON DIRECTORS OR OFFICERS?
HOW WILL CONFLICTS OF INTEREST BE AVOIDED?
A: Grant Prideco and Weatherford will share five common directors. In
addition, Bernard Duroc-Danner, President, Chief Executive Officer and
Chairman of the Board of Weatherford, will serve as Chairman of the Board
of Grant Prideco, and Curtis Huff, Executive Vice President, Chief
Financial Officer and General Counsel of Weatherford, will serve as Vice
President and Interim General Counsel of Grant Prideco. Grant Prideco and
Weatherford will each adopt policies and procedures to be followed by the
board of directors of each company to limit the involvement of these common
directors in potential conflict situations, including requiring them to
abstain from voting as a director of either Grant Prideco or Weatherford on
certain matters that present a potential conflict of interest between the
two companies and providing for the outside directors of each company to
control the decision making process in certain situations. We believe that
such potential conflict situations will be minimal. See "Relationship
Between Grant Prideco and Weatherford After the Spinoff -- Policies and
Procedures for Addressing Conflicts".
Q: WHAT ELSE SHOULD I BE CONCERNED ABOUT WITH RESPECT TO THE SPINOFF AND
HOLDING AN INVESTMENT IN GRANT PRIDECO?
A: You should read this entire information statement carefully. You should
read the sections entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations -- Forward-Looking Statements" in evaluating whether and for how
long you should retain an investment in Grant Prideco common stock received
in the spinoff.
3
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SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth certain historical combined financial data
of Grant Prideco. This information has been prepared as if we had been a
stand-alone company for the periods presented. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Combined Financial Statements and the Notes
thereto (the "Financial Statements"). The following information may not be
indicative of our future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................................................... $286,370 $646,454 $630,021 $367,336 $167,616
Operating Income (Loss).................................... (33,014)(a) 112,884(b) 115,436 46,322 15,238
Net Income (Loss).......................................... (33,511)(a) 65,720(b) 61,514 23,588 3,059
Pro Forma Earnings (Loss) Per Share:(c)
Basic.................................................... (0.33) 0.68 0.64 0.26 0.04
Diluted.................................................. (0.33) 0.67 0.63 0.26 0.04
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets................................................ $734,575 $738,314 $662,598 $396,693 $237,854
Long-Term Debt.............................................. 24,276 9,265 27,387 3,432 2,591
Subordinated Note to Weatherford............................ 100,000 100,000 100,000 100,000 51,425
Stockholder's Equity........................................ 453,856 445,211 332,722 164,220 104,094
</TABLE>
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(a) Includes a charge of $9.5 million, $6.1 million net of tax, relating to the
decision to terminate our manufacturing arrangement in India, of which $7.8
million involved a purchase deposit that we will not be able to use and
$1.7 million in equipment in India that we do not believe we will be able
to recover.
(b) Includes $35.0 million, $22.8 million net of tax, of other charges relating
to a reorganization and rationalization of our business in light of our
industry conditions for the year ended December 31, 1998.
(c) We have calculated our pro forma earnings per share using our pro forma
basic and diluted weighted average shares outstanding for each of the
periods presented. In calculating our pro forma basic weighted average
shares, we have adjusted Weatherford's historical basic weighted average
shares outstanding for the applicable period to reflect the number of
shares that would have been outstanding at the time assuming a distribution
of one share of our common stock for each share of Weatherford common
stock. Our pro forma diluted weighted average shares reflect an estimate of
the potential dilutive effect of common stock equivalents. This estimate is
calculated based on Weatherford's dilutive effect of stock options and
restricted stock. The effect of stock options and restricted stock is not
included in the diluted weighted average shares computation for periods in
which a loss occurs because to do so would have been anti-dilutive.
4
<PAGE> 13
RISK FACTORS
In addition to the other information contained in this information
statement, recipients of Grant Prideco common stock should carefully consider
the following information.
THE IRS MAY TREAT THE TRANSACTION AS TAXABLE TO WEATHERFORD AND ITS STOCKHOLDERS
IF REPRESENTATIONS WEATHERFORD AND GRANT PRIDECO MADE TO THE IRS WERE INACCURATE
OR IF WEATHERFORD AND GRANT PRIDECO DO NOT COMPLY WITH THE UNDERTAKINGS MADE TO
THE IRS.
The spinoff is conditioned on Weatherford receiving a favorable ruling from
the IRS to the effect that, for United States federal income tax purposes, the
spinoff generally will be tax-free to Weatherford and its stockholders.
Weatherford has received oral advice from the IRS that it will issue a favorable
ruling on the spinoff. It is possible that Weatherford and its stockholders
could be subject to a material amount of taxes as a result of the spinoff if the
representations and undertakings Grant Prideco and Weatherford made to the IRS
in connection with obtaining the expected tax ruling are determined to be
inaccurate. In addition, under the Internal Revenue Code of 1986, as amended,
and Treasury regulations promulgated thereunder (including proposed
regulations), the spinoff could be determined to be taxable if within two years
following the spinoff there were to be a change of control of either Weatherford
or Grant Prideco and Weatherford and Grant Prideco were not able to rebut the
presumption that the change in control was contemplated at the time of the
spinoff. For a description of material United States federal income tax
consequences to Weatherford stockholders of the spinoff, see "The
Spinoff -- Federal Income Tax Consequences of the Spinoff".
WE GENERALLY WILL BE RESPONSIBLE FOR TAXES IF THE SPINOFF IS DETERMINED TO BE
TAXABLE.
Under the terms of the Distribution Agreement, we will be responsible and
liable to Weatherford for any and all corporate-level taxes or liabilities
incurred by Weatherford relating to the spinoff except to the extent the spinoff
is determined to be taxable solely as a result of a change of control of
Weatherford following the spinoff. Our obligation and liability will apply under
all other circumstances, regardless of the reason for the spinoff being
determined to be taxable. This liability would extend to circumstances within
the control of Weatherford as well as circumstances under which it is alleged or
determined that there was a breach or misrepresentation, negligent or otherwise,
by Weatherford in connection with the expected tax ruling. We also will be
restricted under the Tax Allocation Agreement from engaging in certain
transactions without the consent of Weatherford that could affect the taxability
of the spinoff unless Weatherford receives a supplemental tax ruling or an
acceptable tax opinion. For a summary of Weatherford's and Grant Prideco's
obligations in connection with obtaining the tax ruling and potential tax
liabilities if the transaction is held to be taxable, see "Relationship Between
Grant Prideco and Weatherford After the Spinoff -- Tax Allocation Agreement".
WEATHERFORD WILL PROVIDE NO FUTURE FINANCIAL SUPPORT TO US.
We cannot assure you that we will generate or have available to us
sufficient funds to fund our planned expenditures and meet our obligations to
pay principal and interest on our debt following the spinoff. Further, we cannot
assure you that we will be able to secure sufficient debt or equity financing to
fund our growth strategy.
Weatherford has no obligation to support us financially after the spinoff.
As a result, we will need to secure and maintain our own credit facilities. As a
smaller company engaged in a volatile sector of the oil and gas industry, the
cost of capital to us is expected to be greater than that which we paid as a
Weatherford subsidiary. Financing in our industry also is illiquid at this time,
and the long-term debt markets are expensive for companies of our size and
credit.
Our strategy envisions growth through acquisitions. We expect to finance
future acquisitions through a combination of the issuance of additional equity
and debt financing. Additional equity issuances will be dependent on the nature
of the opportunity that arises and the anticipated accretion or dilution from
the acquisition to our stockholders. We expect any debt financing would
initially be in the form of high-yield notes or debentures. Under the terms of
the $100 million note that we will issue to Weatherford, the proceeds from
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any new financing (other than working capital borrowings and equity financings
issued as part of an acquisition) generally must first be applied to the
repayment of the Weatherford note. This repayment obligation could affect the
amount and terms of any third party debt financing that would be available to
us. The Weatherford note will limit our ability to incur new debt, engage in
certain acquisitions and investments and make distributions to our stockholders.
In connection with the spinoff, we currently are negotiating with potential
lenders to establish a credit facility that would provide us with up to $75
million for working capital purposes, of which we expect $30 to $50 million to
be available to us initially. We expect that this facility would be secured by
our domestic inventory and receivables and guaranteed by our domestic
subsidiaries. This facility also would place limits on our ability to incur new
debt, engage in certain acquisitions and investments, invest in our foreign
operations, grant liens and make distributions to our stockholders. We cannot
assure you that any such facility will be in place at the time of the spinoff.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Relationship Between Weatherford and Grant Prideco
After the Spinoff" and the Financial Statements.
WEATHERFORD AND GRANT PRIDECO WILL HAVE A BUSINESS RELATIONSHIP AFTER THE
SPINOFF AND CONFLICTS MAY ARISE.
The terms of the agreements between Weatherford and Grant Prideco were not
negotiated on an arm's-length basis and were proposed by Weatherford as our sole
stockholder. As a result, the terms of those agreements, in particular the
Distribution Agreement, the Tax Allocation Agreement, the Preferred Supplier
Agreement and the Weatherford note, may not reflect the terms that would have
been provided to us from an unrelated third party. Weatherford as our sole
stockholder has ratified the terms of these agreements, and we have acknowledged
that the agreements will constitute our valid obligations.
Persons associated with Weatherford also will have a continuing
relationship with Grant Prideco. Five current directors of Weatherford, Messrs.
Bernard J. Duroc-Danner, Sheldon B. Lubar, William E. Macaulay, Robert K. Moses,
Jr. and Robert A. Rayne, will be named directors of Grant Prideco. These
directors will represent a majority of our initial Board of Directors of Grant
Prideco. In addition, Mr. Duroc-Danner, President, Chief Executive Officer and
Chairman of the Board of Directors of Weatherford, will serve as our Chairman of
the Board and Curtis W. Huff, Executive Vice President, Chief Financial Officer
and General Counsel of Weatherford, will serve as our Vice President and Interim
General Counsel.
The persons currently associated with Weatherford were asked to serve as
directors or officers of Grant Prideco because of their experience and knowledge
of us and our businesses. Although each of them will have a fiduciary obligation
to both Weatherford and Grant Prideco, we cannot assure you that no conflicts of
interest will arise with them or Weatherford relating to Weatherford and Grant
Prideco after the spinoff. Weatherford and Grant Prideco will each adopt
policies and procedures to be followed by their respective board of directors to
limit the involvement of Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne
in conflict situations, including requiring them to abstain from voting as a
director of either Grant Prideco or Weatherford on certain matters that present
a potential conflict of interest between the two companies. See "Relationship
Between Grant Prideco and Weatherford After the Spinoff".
THERE HAS BEEN NO TRADING MARKET FOR THE GRANT PRIDECO COMMON STOCK.
The New York Stock Exchange has approved the listing of our common stock
under the symbol "GRP". We expect our common stock to begin trading on the New
York Stock Exchange on a "when distributed" basis on or about the record date.
Currently there is no public market for our common stock, and we cannot predict
the prices at which our common stock will trade after the spinoff. We expect
that a large number of holders of our common stock may sell their shares shortly
after the spinoff due to the investment objectives and requirements of those
holders. Until our common stock is fully distributed and an orderly market
develops, we believe the prices at which our common stock will trade will
fluctuate significantly. The trading price of our common stock will be
influenced by a variety of factors, including our operating results and
liquidity of the market for our common stock, investor perception of Grant
Prideco, the industry in which we
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operate and general and economic market conditions. See "The Spinoff -- Listing
and Trading of the Grant Prideco Common Stock".
THE SPINOFF COULD ADVERSELY AFFECT THE AGGREGATE VALUE OF YOUR INVESTMENT IN
WEATHERFORD COMMON STOCK.
Following the spinoff, the trading prices of our common stock and
Weatherford common stock will not necessarily be related. The combined trading
prices of our common stock and Weatherford common stock after the spinoff may be
less than the trading price of Weatherford common stock immediately before the
spinoff. As a result of the spinoff, we expect the trading price range of
Weatherford common stock to be lower than the trading price range of Weatherford
common stock immediately before the spinoff. See "The Spinoff -- Listing and
Trading of the Grant Prideco Common Stock".
OUR BUSINESS IS MATERIALLY AFFECTED BY DRILLING ACTIVITY AND THE RIG COUNT.
A material decline in either prices or drilling activity would negatively
impact our future results. Our business is materially dependent on the level of
drilling activity worldwide. During 1997 and the first half of 1998, we
benefitted from an increase in drilling activity that resulted in strong demand
for our drill pipe and other drill stem products. When drilling activity
declined in the second half of 1998 and 1999, our business fell significantly.
In general, we believe that our drill stem business trails changes in the rig
count by six to nine months. The worldwide monthly rig count for each month in
1999 did not surpass the rig count for the corresponding month of 1998 until
October, and the rig counts since October 1999 have been well below the average
rig count in 1997. This suggests that our drill stem business may not recover
until later this year and will not recover completely unless rig counts continue
to rise. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
AN ECONOMIC DOWNTURN COULD ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS AND
SERVICES.
The economic downturn that began in Asia in 1997 affected the economies in
other regions of the world, including South America and the former Soviet Union,
and contributed to the decline in the price of oil and the level of drilling
activity. Although the economy in the United States 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 again could adversely affect our revenues and
income.
DISRUPTIONS IN FOREIGN OPERATIONS COULD ADVERSELY AFFECT OUR INCOME.
Our operations in certain locations outside the United States, including
Mexico, India, China and Indonesia, are subject to various political and
economic conditions existing in such countries that could disrupt operations.
These risks include (1) currency fluctuations and potential devaluations in most
countries, in particular those in South America and Asia, (2) currency
restrictions in China and India and limitations on repatriation of profits in
various countries in South America and Asia and (3) political instability in
countries such as Indonesia, India, 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.
Oil Country Tubular Limited ("OCTL") manufactures drill pipe and other
products for us under a long-term exclusive manufacturing arrangement. Over the
years, we have provided OCTL with a substantial amount of raw materials,
inventory and working capital for the products it manufactures for us. Our
business in India through our relationship with OCTL has been adversely affected
by the downturn of the economies in the eastern hemisphere and is subject to
various political and economic risks as well as financial and operational risks
with respect to OCTL.
As of December 31, 1999, OCTL owed us approximately $25.1 million for prior
advances made by us to it and we had assets in India with a book value of
approximately $1.7 million. In 1999, we substantially curtailed our purchases
from OCTL, and in December of 1999, we decided to terminate our existing
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manufacturing relationship with OCTL and seek an alternative arrangement for the
recovery of our prior advances. We are currently discussing with OCTL a
restructuring of our relationship that would allow OCTL to repay our prior
advances in cash, equity in OCTL or product from OCTL.
Our decision to terminate our existing arrangement with OCTL and seek an
alternative structure resulted in our writing off a $7.8 million product deposit
previously paid to OCTL and approximately $1.7 million in property and equipment
currently located at the OCTL facility. The write off was due to the anticipated
inability to utilize the deposit and recover the equipment following the
termination of the arrangement. Our remaining exposure in India is approximately
$17.3 million consisting of unpaid receivables and advances made to assist OCTL
in its working capital needs as part of our manufacturing arrangement with it.
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.
We have entered into an agreement with Voest-Alpine Stahlrohr Kindberg GmbH
& Co. K.G., an entity of which we currently own 50.01%, to purchase 45,000
tonnes of tubulars for the twelve months ending July 2000, and 60,000 tonnes per
year for the next three years. Our future results could be adversely affected if
we are unable to use or resell these tubulars. In addition, we have agreed to be
responsible for paying any "anti-dumping" duties in the United States on the
resale of these tubulars, which could affect our ability to resell the tubulars
in the United States.
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THE SPINOFF
REASONS FOR THE SPINOFF
The spinoff is intended to allow Weatherford and Grant Prideco to focus
better on growing their respective businesses to compete in today's highly
competitive and volatile markets. We expect the spinoff to allow each company to
develop its own strategy for growth and to fund that growth with its own capital
resources without internal competition for financial and other resources. The
objective of the spinoff is to allow Weatherford to continue its current
strategy of becoming a major provider of products and services used to enhance
reservoir recovery and complete oil and gas wells while allowing Grant Prideco
to expand in the tubular and drilling markets by leveraging off its position as
the world's largest provider of drill pipe and other drill stem products. We
believe that given current market conditions, these objectives could not be
achieved other than through a separation of Grant Prideco from Weatherford.
The decision to effect the spinoff was triggered by the significant changes
that have occurred in the oil and gas industry during the last year and a half.
During this period, the industry has experienced what we believe to have been
one of the most fundamental economic and structural changes ever seen in the
industry. These changes were caused in part by a precipitous drop in the
worldwide price of oil in 1998 and a related fall in the North American and
international rig counts. During the latter part of 1998 and through the first
half of 1999, our industry saw oil prices range from a high of $17.89 per barrel
to a low of $10.44 per barrel and the North American and international rig
counts range from a high of 1,059 and 732, respectively, to a low of 534 and
591, respectively.
The decline and volatility in oil prices and drilling activity resulted in
record low drilling activity by Weatherford's and Grant Prideco's customers
throughout the world and wholesale reductions in field activity and capital
spending in many regions, in particular Canada, the United States and the Far
East. These conditions led to large layoffs and cost reductions in the industry,
an unprecedented consolidation among the major oil companies and what we believe
to be a long-term change in the competitive landscape in the industry.
It is against this background that Weatherford undertook a review of our
businesses and prospects and our relationship with Weatherford's other
businesses to determine the best way to achieve long-term growth. In analyzing
our future prospects, Weatherford's board concluded that for us to continue to
grow and prosper, we would need to pursue new opportunities and acquisitions in
the tubular and drilling segments of the industry. Although we believe that many
opportunities exist for us to grow in these areas, we have not been able to take
full advantage of these opportunities as part of Weatherford due to the capital
cost that would be necessary to do so and Weatherford's focus on reservoir and
production enhancement and investments in technology to compete in today's cost
conscious environment. In general, additional material investments in our
businesses were considered to be inconsistent with the strategic direction and
focus of Weatherford's other businesses.
Over the past year, we have been presented with certain acquisition and
combination opportunities for growth in the tubular segment of the industry that
would have required Weatherford to invest substantial amounts of cash in our
businesses or for us to issue our own stock to fund the acquisition. While we
believe those opportunities would have been desirable for us, they generally
were inconsistent with the strategic direction of Weatherford's other
businesses. Those opportunities also had to compete against other opportunities
Weatherford was pursuing during the market downturn that had generally lower
costs of capital and potentially higher growth rates. Because of these
limitations and constraints on capital and a related desire by Weatherford to
remain focused on reservoir recovery enhancement, we were not able to take
advantage of those opportunities.
Following the spinoff, we intend to actively pursue acquisitions and other
opportunities for growth in our core businesses, including:
- Additional acquisitions where desirable including investments in
integration such as our investment in Voest-Alpine Stahlrohr Kindberg
GmbH & Co. K.G. in the third quarter of 1999;
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- The addition of new tubular and thread technologies;
- International expansion;
- The addition of new products and services that are complementary to our
existing products and services;
- The investment in new tubular and connection technologies and joint
venture projects such as our titanium drill pipe project with RTI Energy
Systems, Inc. and our connection project for expandable tubing; and
- The investment in additional subsea products and services.
We intend to finance these acquisitions and growth opportunities through a
combination of internally generated capital, equity issuances and incurrences of
debt where deemed prudent or appropriate. Any issuances of equity will depend
upon the opportunity and circumstances. We will incur debt only where we
consider the terms to be appropriate.
The separation of our businesses from Weatherford also is intended to allow
us to reduce various conflicts that have arisen over the past year between our
businesses and certain of Weatherford's other businesses. In particular, many of
our customers are competitors of Weatherford and have been reluctant to support
our businesses when the benefit of that support inured to Weatherford as a
competitor. We believe that a separation of our businesses from Weatherford
should reduce these conflicts and benefit both of our businesses.
DISTRIBUTION AGENT
The distribution agent is American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005.
MANNER OF EFFECTING THE SPINOFF
The general terms and conditions relating to the spinoff are set forth in
the Distribution Agreement between Weatherford and Grant Prideco.
Weatherford will effect the spinoff on the distribution date by delivering
certificates evidencing shares of our common stock to the distribution agent for
distribution to holders of record of Weatherford common stock as of the close of
business on the record date. The spinoff will be made on the basis of one share
of our common stock for each share of Weatherford common stock outstanding as of
the close of business on the record date. The total number of shares of our
common stock to be distributed will depend on the number of shares of
Weatherford common stock outstanding on the record date. The shares of our
common stock will be fully paid and non-assessable and the holders thereof will
not be entitled to preemptive rights. See "Description of Grant Prideco Capital
Stock".
THE DISTRIBUTION AGENT WILL MAIL CERTIFICATES REPRESENTING SHARES OF OUR
COMMON STOCK TO WEATHERFORD STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE
DISTRIBUTION DATE. HOLDERS OF WEATHERFORD COMMON STOCK SHOULD NOT SEND
CERTIFICATES TO GRANT PRIDECO, WEATHERFORD OR THE DISTRIBUTION AGENT. THE
DISTRIBUTION AGENT WILL MAIL THE STOCK CERTIFICATES REPRESENTING SHARES OF OUR
COMMON STOCK AS SOON AS PRACTICABLE AFTER THE DISTRIBUTION DATE. WEATHERFORD
STOCK CERTIFICATES WILL CONTINUE TO REPRESENT SHARES OF WEATHERFORD COMMON STOCK
AFTER THE SPINOFF IN THE SAME AMOUNT SHOWN ON THOSE CERTIFICATES.
No holder of Weatherford common stock will be required to pay any cash or
other consideration for the shares of our common stock received in the spinoff
or to surrender or exchange shares of Weatherford common stock to receive shares
of our common stock. No fractional shares of our common stock will be issued in
the spinoff. Any fractional shares of our common stock will be rounded up to the
nearest whole.
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RESULTS OF THE SPINOFF
We will be a separate public company after the spinoff and will continue to
own and operate our drilling products and tubular businesses. The number and
identity of the holders of our common stock immediately after the spinoff likely
will be substantially the same as the number and identity of the holders of
Weatherford common stock on the record date. Immediately after the spinoff, we
expect to have approximately 3,000 holders of record of our common stock and
approximately 109.0 million shares of our common stock outstanding based on the
number of record holders and outstanding shares of Weatherford common stock as
of the close of business on the record date.
The spinoff will not affect the number of outstanding shares of Weatherford
common stock or any rights of Weatherford stockholders. For certain information
regarding the options to purchase our common stock that will be outstanding
after the spinoff, see "Relationship Between Grant Prideco and Weatherford After
the Spinoff -- The Distribution Agreement -- Employment Matters; Treatment of
Outstanding Stock Options and Restricted Stock".
LISTING AND TRADING OF THE GRANT PRIDECO COMMON STOCK
The New York Stock Exchange has approved the listing of our common stock
under the ticker symbol "GRP". We expect our common stock to begin trading on
the New York Stock Exchange on a "when-distributed" basis on or about the record
date. On the trading day following the date that the distribution agent mails
certificates for our common stock, "when-distributed" trading of our common
stock and Weatherford common stock will end and ordinary trading will begin.
Currently, there is no public market for our common stock. We cannot
predict the prices at which our common stock will trade after the spinoff. We
expect that a large number of holders of our common stock may sell their shares
shortly following the spinoff due to their investment objectives and
requirements. Until our common stock is fully distributed and an orderly market
develops, we believe the prices at which our common stock will trade will
fluctuate significantly. The trading price of our common stock will be
influenced by a variety of factors, including our operating results, the depth
and liquidity of the market for our common stock, investor perception of Grant
Prideco, the industry in which we operate and general and economic market
conditions.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF
The following is a summary of the material United States federal income tax
consequences relating to the spinoff. The summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder, and interpretations of the Code and Treasury regulations
by the courts and the IRS, all as they exist as of the date of this document.
TAX MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE SPINOFF TO YOU
MAY DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR OWN
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
SPINOFF, PARTICULARLY IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE UNITED
STATES FEDERAL INCOME TAX LAWS, SUCH AS IF YOU ARE A TAX-EXEMPT ENTITY,
NON-RESIDENT ALIEN INDIVIDUAL, FOREIGN ENTITY, FOREIGN TRUST OR ESTATE OR
BENEFICIARY THEREOF, PERSON WHO ACQUIRED SUCH WEATHERFORD STOCK PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INSURANCE
COMPANY OR DEALER IN SECURITIES, OR IF YOU DO NOT HOLD YOUR WEATHERFORD COMMON
STOCK AS A CAPITAL ASSET. THIS SUMMARY DOES NOT ADDRESS STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES.
Weatherford has received oral advice from the IRS that it will issue a
favorable ruling regarding the spinoff to the effect that, for United States
federal income tax purposes, the spinoff will qualify under Section 355 of the
Code as a distribution that is generally tax-free to Weatherford and its
stockholders. Although rulings generally are binding on the IRS, Weatherford
will not be able to rely on the expected tax ruling if any factual
representations Weatherford and Grant Prideco made to the IRS prove to be
incorrect or untrue in any material respect or if Weatherford and Grant Prideco
do not comply with any undertakings they
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made to the IRS. We are not aware of any facts or circumstances that would cause
any such representations to be incorrect or untrue in any material respect.
If Weatherford completes the spinoff and, notwithstanding the expected tax
ruling, the spinoff is held to be taxable for United States federal income tax
purposes, both Weatherford and its stockholders that receive our common stock
could be subject to a material amount of taxes as a result of the spinoff. The
amount of taxes to which Weatherford would be subject will be based on the
difference between our aggregate market value immediately following the spinoff
and Weatherford's tax basis in our common stock at the time of the spinoff
(which Weatherford estimates will be approximately $400 million). We will be
liable to Weatherford on an after-tax basis for any such corporate-level taxes
incurred by Weatherford, except to the extent those taxes are attributable
solely to a change of control of Weatherford following the spinoff. For a
description of Weatherford's and Grant Prideco's obligations in connection with
obtaining the tax ruling and potential tax liabilities if the spinoff is held to
be taxable, see "Relationship Between Grant Prideco and Weatherford After the
Spinoff -- Tax Allocation Agreement".
The tax ruling will provide that for United States federal income tax
purposes:
- No gain or loss will be recognized by, and no amount will be included in
the income of, the Weatherford stockholders upon their receipt of shares
of our common stock in the spinoff.
- The aggregate basis of our common stock and the Weatherford common stock
in the hands of each Weatherford stockholder after the spinoff will equal
the aggregate basis of the Weatherford common stock held by such
Weatherford stockholder immediately before the spinoff, allocated between
our common stock and the Weatherford common stock in proportion to their
respective fair market values.
- The holding period of our common stock received from Weatherford by each
Weatherford stockholder in the spinoff will include the holding period of
the Weatherford common stock held by such Weatherford stockholder
immediately before the spinoff, provided that such Weatherford
stockholder held the Weatherford common stock as a capital asset on the
date of the spinoff.
The tax ruling will not address tax basis issues with respect to holders of
Weatherford common stock who have blocks of Weatherford common stock with
different per share tax bases. Those holders are urged to consult their tax
advisors regarding the possible tax basis consequences to them of the spinoff.
United States Treasury regulations require each Weatherford stockholder
that receives shares of our common stock in the spinoff to attach to the
holder's United States federal income tax return for the year in which such
stock is received a detailed statement of data demonstrating the applicability
of Section 355 of the Code to the spinoff. Within a reasonable time after the
spinoff, Weatherford will provide Weatherford stockholders and Weatherford
stockholders who receive our common stock in the spinoff with the information
necessary to comply with this requirement, and will provide information
regarding the allocation of tax basis described above.
We urge you to consult your tax advisors as to the particular tax
consequences to you of the spinoff, including the application of state, local
and foreign tax laws and any changes in federal tax laws that occur after the
date of this document.
CONDITIONS; TERMINATION
The Distribution Agreement provides that Weatherford may decline to
consummate the spinoff if:
- The transfers of assets and liabilities contemplated by the Distribution
Agreement to occur prior to the spinoff are not consummated in all
material respects.
- Our new board of directors is not elected as of the spinoff and our
certificate of incorporation and the bylaws, as each will be in effect
after the spinoff, are not effective as of the spinoff.
- Weatherford does not receive the written tax ruling or if it is
withdrawn.
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- We do not enter into the agreements, instruments, understandings,
assignments or other arrangements contemplated by the Distribution
Agreement, including the Tax Allocation Agreement, the Transition
Services Agreement and the Preferred Supplier Agreement. See
"Relationship Between Grant Prideco and Weatherford After the Spinoff".
- Our approval for listing on the New York Stock Exchange is withdrawn.
Weatherford's board may waive any of these conditions in its discretion.
Weatherford, however, has advised us that it would not waive the condition of an
effective tax ruling, the registration of our stock under the Exchange Act or
the execution by us of the material agreements contemplated by the Distribution
Agreement. YOU ALSO SHOULD BE AWARE THAT EVEN IF ALL OF THESE CONDITIONS ARE
SATISFIED, WEATHERFORD'S BOARD HAS THE RIGHT TO ABANDON, DEFER OR MODIFY THE
TERMS OF THE SPINOFF AT ANY TIME BEFORE THE DISTRIBUTION DATE. See "Relationship
Between Grant Prideco and Weatherford After the Spinoff".
REASON FOR FURNISHING THIS INFORMATION STATEMENT
We are providing this information statement solely to provide information
to Weatherford stockholders who will receive our common stock in the spinoff. It
is not an inducement or encouragement to buy or sell any securities of
Weatherford or Grant Prideco. We believe the information contained in this
information statement is accurate as of the date set forth on the cover page.
Changes may occur after that date, and neither Grant Prideco nor Weatherford
will update the information except in the normal course of their respective
public disclosure practices.
RELATIONSHIP BETWEEN GRANT PRIDECO AND WEATHERFORD
AFTER THE SPINOFF
On or before the distribution date, we will enter into various agreements
with Weatherford to govern certain of the ongoing relationships between
Weatherford and us after the spinoff and to provide for an orderly transition to
the status of two separate companies. These agreements will be approved and
ratified by Weatherford as our sole stockholder before the spinoff. A summary of
the material provisions of these agreements follows. The terms of these
agreements are subject to change before the spinoff. The forms of agreements
summarized in this section are included as exhibits to our registration
statement of which this information statement forms a part, and the following
summaries are qualified in their entirety by reference to the agreements as
filed.
DISTRIBUTION AGREEMENT
Before the spinoff, we will enter into a Distribution Agreement with
Weatherford that will:
- Set forth the steps to be taken to separate our business from the
remaining Weatherford businesses, which will result in our business being
conducted by us and our wholly owned subsidiaries.
- Provide for our issuance of the $100 million Weatherford note and
Weatherford's contribution to us of substantially all remaining
intercompany indebtedness we owe to Weatherford.
- Provide for allocations of responsibilities with respect to employee
benefit plans, employee compensation, and other labor and employment
matters, including the satisfaction of obligations to issue stock upon
the exercise of prior Weatherford options.
- Set forth the terms and conditions of the spinoff.
- Provide for certain indemnities of Weatherford by us with respect to
matters involving our business.
13
<PAGE> 22
Pre-Spinoff Contributions
The Distribution Agreement will outline certain corporate transactions to
be taken immediately before the spinoff, which transactions will result in our
business being wholly within Grant Prideco. The information in this information
statement gives effect to these transactions.
The Weatherford Note and Contribution of Debt
As of December 31, 1999, we owed Weatherford approximately $494.7 million.
We incurred this indebtedness for various purposes including (1) the funding of
approximately $275.0 million for our acquisitions with cash and stock provided
by Weatherford, (2) $129.6 million for purchases of capital equipment for
manufacturing and (3) $90.1 million for funding of working capital and third
party debt requirements.
Before the spinoff, we will issue an unsecured subordinated note to
Weatherford in the amount of $100 million. Weatherford will then contribute to
us substantially all remaining intercompany indebtedness that we owe to
Weatherford. We also will grant to Weatherford a $30 million drill stem purchase
credit. The Weatherford note will bear interest at an annual rate of 10%.
Interest payments will be due quarterly, and principal and all unpaid interest
will be due no later than March 31, 2002. If we complete a debt or equity
financing (whether public or private, but excluding working capital borrowings
under our proposed credit facility and any equity issued in connection with a
business combination) while the Weatherford note is outstanding, we 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 we complete
that financing. The Weatherford note will be subordinated to our proposed credit
facility. The terms of the drill stem purchase credit are described under
"Preferred Supplier Agreement". We expect to refinance the Weatherford note as
soon as practicable when market conditions permit.
Employment Matters; Treatment of Outstanding Stock Options and Restricted
Stock
The Distribution Agreement will allocate certain responsibilities with
respect to employee compensation, benefit and labor matters. The allocation of
responsibility and adjustments to be made pursuant to the Distribution Agreement
is substantially consistent with the existing benefits provided to Weatherford
employees under Weatherford's various compensation plans. We will be required to
provide participants in certain of Weatherford's deferred compensation plans
with shares of our common stock. We also will be required to provide to the
holders of certain of Weatherford's options shares of our common stock on the
exercise of Grant Prideco options granted in partial substitution of those
options.
Adjustment and Substitution of Existing Weatherford Stock Options
As of December 31, 1999, there were outstanding options and warrants to
purchase an aggregate of 7,048,323 shares of Weatherford common stock under
various Weatherford employee and director option plans and agreements. The
holders of these options include both employees who will be employed by us and
employees who will be employed by Weatherford after the spinoff. Included in
these options were options to purchase an aggregate of 5,335,000 shares of
Weatherford common stock granted under Weatherford's 1998 Employee Stock Option
Plan, which was adopted in September 1998, and 360,000 shares subject to
Weatherford director options and warrants granted in September 1998. Of the
options to purchase 5,335,000 shares of Weatherford common stock granted under
Weatherford's 1998 Employee Stock Option Plan, options to purchase 951,000
shares of Weatherford common stock were held by employees who will be primarily
employed by us. The options and warrants granted to employees and directors in
September 1998 and thereafter generally vest only after three years from the
date of grant. All other outstanding options are either fully or partially
vested.
14
<PAGE> 23
Under the terms of the Distribution Agreement, the outstanding Weatherford
options and warrants will be adjusted as follows:
Options Granted Prior to September 1998. All outstanding options granted
prior to September 1998 will be adjusted to provide the holder with the right to
purchase both a share of Weatherford common stock and a share of our common
stock. The adjusted exercise price of the outstanding Weatherford options and
the related Grant Prideco options will be a function of the relative market
price of our common stock after giving effect to the spinoff and the value of
the Weatherford common stock before giving effect to the spinoff, with those
values to be determined as described in the table below. This adjustment is
intended to assure that each holder will have the opportunity after the spinoff
to obtain the same number of shares of Weatherford common stock and our common
stock at the same aggregate exercise price as if that option holder had
exercised the Weatherford option in full immediately before giving effect to the
spinoff. The Weatherford options will be administered by the Weatherford
compensation committee, and the substitute Grant Prideco options will be issued
and administered by our compensation committee under a new Grant Prideco
employee stock option plan or stand-alone option agreements. We will provide to
the option holders the shares of our common stock required to be issued to them
on exercise of their substitute Grant Prideco options.
Options Granted in September 1998 and Thereafter. All Weatherford options
or warrants granted in September 1998 and thereafter were granted under
Weatherford's 1998 Employee Stock Option Plan or as part of a one time grant
made to Weatherford directors in September 1998. Under the terms of the
Weatherford 1998 plan and the Weatherford director grants, all outstanding
options and warrants granted thereunder will be adjusted to provide the holder
with the right to purchase only shares of common stock of either Weatherford or
Grant Prideco depending upon which company primarily employs the employee. The
adjustment will provide for both a new exercise price and number of shares
subject to option. The new exercise price will be based on the relationship of
the value of a share of our common stock after the spinoff to the value of a
share of Weatherford common stock before the spinoff. The number of shares
subject to option will be calculated by dividing the new exercise price into the
aggregate exercise price of the holder's option prior to the spinoff. The
formulas, which are set forth below, are intended to tie the future value of the
option to the company that employs the option holder and to maintain the
economic value of the option to the holder before and after the spinoff.
<TABLE>
<S> <C> <C> <C>
Weatherford Employee and Director Option Adjustments:
W-G
New Exercise Price: E( --- )
W
E
New Number of Weatherford Shares Subject to Option: N( --- )
P(w)
Grant Prideco Employee Option Adjustments:
G
New Exercise Price: E( --- )
W
E
New Number of Grant Prideco Shares Subject to Option: N( --- )
P(g)
</TABLE>
15
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
Where E = The original exercise price of the Weatherford option.
N = The original number of shares of Weatherford common stock
subject to the Weatherford option.
G = The market value per share of Grant Prideco common stock.
The market value per share of Grant Prideco common stock
initially will be based on the average of the high and low
trading prices on the NYSE on the first full trading date
after "when-distributed" trading begins. Following 30
consecutive trading days after "when-distributed" trading
begins, for options remaining outstanding on that date, the
market value per share of Grant Prideco common stock will be
based on the average of the last sales price per share on
the NYSE for each of the 30 consecutive trading days
beginning on the date "when-distributed" trading begins.
W = The market value per share of Weatherford common stock as of
the close of market on the last trading day before
"when-distributed" trading begins.
P(w) = The adjusted exercise price of the Weatherford option
determined in accordance with the first formula above.
P(g) = The exercise price of the new Grant Prideco option
determined in accordance with the third formula above.
</TABLE>
Except for the above adjustments, the terms of Weatherford's outstanding
options will remain substantially the same as those in effect before the
spinoff, provided that employment with either Grant Prideco or Weatherford will
satisfy any condition to continuing employment where discontinued employment
would cause the options to terminate. The adjusted Weatherford options will be
administered by the Weatherford compensation committee and the substitute Grant
Prideco options will be issued and administered by our compensation committee
under a new Grant Prideco employee stock option plan. We will provide to the
option holders the shares of our common stock required to be issued to them by
our compensation committee and the substitute Grant Prideco options will be
issued and administered by our compensation committee under a new Grant Prideco
employee stock option plan. We will provide to the option holders the shares of
our common stock required to be issued to them on the exercise of their options
and Weatherford will provide the shares of Weatherford common stock required to
be issued to them on exercise of those options.
Treatment of Outstanding Restricted Stock
Holders of restricted Weatherford common stock will receive one share of
restricted Grant Prideco common stock for each share of restricted Weatherford
common stock they hold. The restricted Grant Prideco common stock will be
subject to the same restrictions as the applicable restricted Weatherford common
stock.
Payments under Weatherford Nonqualified Deferred Compensation Plans
As of December 31, 1999, there were accrued deferred compensation
liabilities with respect to an aggregate of 515,569 shares of Weatherford common
stock under the Weatherford International, Inc. Executive Deferred Compensation
Stock Ownership Plan, the Weatherford International, Inc. Foreign Executive
Deferred Compensation Stock Plan and the Weatherford International, Inc.
Deferred Compensation Plan for Non-Employee Directors (the "Weatherford Deferred
Compensation Plans"). Upon the spinoff, the accounts of all participants in the
Weatherford Deferred Compensation Plans will be adjusted so that the accounts
will be deemed to be credited with one non-monetary unit equal to one share of
our common stock for every non-monetary unit equal to one share of Weatherford
common stock that is then deemed credited to the accounts. When benefits become
distributable under the Weatherford Deferred Compensation Plans, we will issue
directly to the participants the number of shares of our common stock deemed
credited to their accounts, as adjusted under the antidilution provisions of the
Weatherford Deferred Compensation Plans and as adjusted by any dividends on
shares of our common stock.
16
<PAGE> 25
Additional Actions
Effective as of the spinoff, we will assume responsibility for liabilities
and obligations as of the distribution date for medical and dental plan coverage
and for vacation and welfare plans with respect to employees who will be
employees of Grant Prideco or its subsidiaries on or after the distribution
date. We will be responsible for reimbursing Weatherford for all self-insured
amounts under Weatherford's policies to the extent such amounts relate to
current or past employees of Grant Prideco and its businesses.
The Distribution Agreement will provide that the spinoff will not
constitute a termination of employment for employees who will continue to be
employees of Grant Prideco or Weatherford after the spinoff. Therefore, those
employees who continue to be employed by Grant Prideco or Weatherford after the
spinoff will not be deemed severed from employment from Weatherford or any of
its subsidiaries for purposes of any policy, plan, program or agreement that
provides for the payment of severance, salary, continuation, vesting or similar
benefits based on periods of past service. Weatherford and Grant Prideco
employees also will be entitled to service credit for any period of employment
with the other company before the distribution date or for five years following
the distribution date.
Terms and Conditions of the Spinoff
The Distribution Agreement outlines the terms and conditions of the spinoff
as described under the heading "The Spinoff -- Conditions; Termination".
Allocation of Liabilities and Indemnities
Subject to certain exceptions, the Distribution Agreement will provide for
an express assumption of liabilities by us and is designed to allocate,
effective as of the distribution date, financial responsibility for the
liabilities arising out of or in connection with our business. We also will
indemnify Weatherford for matters involving (1) our business, including the
business of our and our subsidiaries' predecessors, regardless of whether those
matters are historical or arise in the future, and (2) the spinoff, including
any claims by stockholders relating to the spinoff or the transactions related
thereto.
The Distribution Agreement also will provide that by the distribution date
our certificate of incorporation and bylaws will be substantially in the forms
included in our registration statement as exhibits, and that Grant Prideco and
Weatherford will elect the persons indicated herein as our directors. See
"Description of Grant Prideco Capital Stock".
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the spinoff will be charged to Weatherford.
TAX ALLOCATION AGREEMENT
We and our subsidiaries have historically been included in Weatherford's
consolidated group (the "consolidated group") for United States federal income
tax purposes as well as in consolidated, combined or unitary groups that include
Weatherford and/or a number of its subsidiaries (a "combined group") for state,
local and foreign income tax purposes.
We will enter into a Tax Allocation Agreement with Weatherford in
connection with the spinoff. Under the Tax Allocation Agreement, we generally
will make payments to Weatherford such that, with respect to tax returns for any
taxable period in which we or any of our subsidiaries are included in the
consolidated group or any combined group, the amount of taxes to be paid by us
will be determined, subject to adjustments, as if we and each of our
subsidiaries included in the consolidated group or combined group filed our own
consolidated, combined or unitary tax return. Weatherford, however, will have
the future benefit of any tax losses incurred by us prior, as a part of a
consolidated return with Weatherford, to the Distribution Date and we will be
required to pay Weatherford an amount of cash equal to any such tax benefit
utilized by us or which expires unused by us to the extent those benefits are
not utilized by Weatherford. We generally will be responsible for any taxes
related to tax returns that include only us and our subsidiaries.
17
<PAGE> 26
The Tax Allocation Agreement allocates responsibility between Weatherford
and us for preparing and filing tax returns and controlling and contesting
audits and tax proceedings. Weatherford will be primarily responsible for
preparing and filing any tax return with respect to the consolidated group or
any combined group. We will be primarily responsible for preparing the portion
of any such tax return that relates exclusively to us or any of our
subsidiaries. We generally will be responsible for preparing and filing any tax
returns that include only us and our subsidiaries. Weatherford will be primarily
responsible for controlling and contesting any audit or other tax proceeding
relating to the consolidated group or any combined group. We have the right to
participate in any audit or tax proceeding. We may not, however, enter into any
settlement or compromise or make any decision in connection with any audit or
tax proceeding without the approval of Weatherford and its subsidiaries.
Disputes arising between Weatherford and us relating to matters covered by the
Tax Allocation Agreement are subject to resolution through specific dispute
resolution provisions.
We were included in the consolidated group for periods in which Weatherford
beneficially owned at least 80% of the total voting power and value of our
outstanding stock. We will cease to be included in the consolidated group
following the spinoff. Each member of a consolidated group for United States
federal income tax purposes is jointly and severally liable for the United
States federal income tax liability of each other member of the consolidated
group. Accordingly, although the Tax Allocation Agreement allocates tax
liabilities between Weatherford and us, for any period that we were included in
the consolidated group, we could be liable if any United States federal income
tax liability was incurred, but not discharged, by any other member of the
consolidated group.
We have agreed with Weatherford that we will not take any action
inconsistent with any information, covenant or representation provided to the
IRS in connection with obtaining the tax ruling and have further agreed to be
liable for any taxes arising from a breach of that agreement. In addition, we
have agreed that, during the three-year period following the spinoff, we will
not engage in transactions that could adversely affect the tax treatment of the
spinoff, unless we obtain a supplemental tax ruling from the IRS or a tax
opinion acceptable to Weatherford of nationally recognized tax counsel to the
effect that the proposed transaction would not adversely affect the tax
treatment of the spinoff. Moreover, we will be liable to Weatherford for any
corporate level taxes incurred by Weatherford as a result of the spinoff, except
to the extent the taxes arise as a result of a change of control of Weatherford.
Our indemnity obligation would include indemnification where the taxes are
attributable to specified actions or failures to act by us, or to specified
transactions involving us following the spinoff, including the acquisition of
our common stock by any person or persons.
TRANSITION SERVICES AGREEMENT
We will enter into a Transition Services Agreement with Weatherford for a
period of one year from the distribution date pursuant to which Weatherford will
provide to us certain services requested by us for the conduct of our business.
The fee for these services will be based on a cost-plus-10% basis. Subject to
termination provisions of the agreement, Grant Prideco and Weatherford will be
free to obtain services from outside vendors or may develop an in-house
capability to provide these services. The transition services to be provided
under this agreement may include accounting, tax, treasury services, insurance
and risk management, and management information systems.
PREFERRED SUPPLIER AGREEMENT
We will enter into a Preferred Supplier Agreement with Weatherford pursuant
to which Weatherford will agree for at least a three year period to purchase at
least 70% of its requirements of drill stem products from us. The price for
those products will be at a price not greater than that at which we sell to
similarly situated customers. Weatherford's obligation to purchase will not
apply when:
- we are unable to assure Weatherford of our ability to deliver products to
the location and at the time specified by Weatherford,
- the sale would be illegal,
18
<PAGE> 27
- we are unable to assure Weatherford of our ability to meet product
specifications,
- we are unable to meet expedited delivery requirements,
- Weatherford is required to use local content,
- Weatherford's customer specifies a competitor,
- we do not accept an order, or
- we breach the Preferred Supplier Agreement.
Under this agreement, we will provide Weatherford with a $30 million purchase
credit that Weatherford will be entitled to apply against its purchases under
the agreement, subject to a limitation of the application of the credit to no
more than 20% of any single purchase.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The ongoing relationship between Weatherford and us may present certain
conflict situations for Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne.
We and Weatherford have adopted appropriate policies and procedures to be
followed by the board of directors of each company to limit the involvement of
Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne (or such executive
officers and other directors having a significant ownership interest in the
companies) in potential conflict situations, including matters relating to
contractual relationships or litigation between Weatherford and us. These
procedures require Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne (or
such executive officers and other directors having a significant ownership
interest in the companies) to abstain from voting as directors of each company
with respect to matters that involve a material conflict of interest between the
companies. Whether or not a material conflict of interest situation exists will
be determined on a case-by-case basis depending on such factors as the dollar
value of the matter, the degree of personal interest of Messrs. Duroc-Danner,
Lubar, Macaulay, Moses and Rayne (or such executive officers and other directors
having a significant ownership interest in the companies) in the matter and the
likelihood that resolution of the matter has significant strategic, operational
or financial implications for our business. We believe these conflicts will be
minimal.
ACCOUNTING TREATMENT
Our historical financial statements present our financial position, results
of operations and cash flows as if we were a separate entity for all periods
presented. Weatherford's historical basis in our assets and liabilities has been
carried over and, in accordance with generally accepted accounting principles,
allocations of certain Weatherford costs have been made.
DIVIDEND POLICY
We presently intend to retain earnings for use in our business and do not
anticipate paying cash dividends in the foreseeable future. The terms of our
$100 million note to Weatherford also will prohibit us from paying any dividends
or distributions to our stockholders for so long as the note is outstanding. We
also expect that our ability to declare and pay dividends will be limited by our
credit facilities.
19
<PAGE> 28
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical combined financial data
of Grant Prideco. This information has been prepared as if we had been a
stand-alone company for the periods presented. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements. The following
information may not be indicative of our future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................................................... $286,370 $646,454 $630,021 $367,336 $167,616
Operating Income (Loss).................................... (33,014)(a) 112,884(b) 115,436 46,322 15,238
Net Income (Loss).......................................... (33,511)(a) 65,720(b) 61,514 23,588 3,059
Pro Forma Earnings (Loss) Per Share:(c)
Basic.................................................... (0.33) 0.68 0.64 0.26 0.04
Diluted.................................................. (0.33) 0.67 0.63 0.26 0.04
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets................................................ $734,575 $738,314 $662,598 $396,693 $237,854
Long-Term Debt.............................................. 24,276 9,265 27,387 3,432 2,591
Subordinated Note to Weatherford............................ 100,000 100,000 100,000 100,000 51,425
Stockholder's Equity........................................ 453,856 445,211 332,722 164,220 104,094
</TABLE>
- ---------------
(a) Includes a charge of $9.5 million, $6.1 million net of tax, relating to the
decision to terminate our manufacturing arrangement in India, of which $7.8
million involved a purchase deposit that we will not be able to use and
$1.7 million in equipment in India that we do not believe we will be able
to recover.
(b) Includes $35.0 million, $22.8 million net of tax, of other charges relating
to a reorganization and rationalization of our business in light of our
industry conditions for the year ended December 31, 1998.
(c) We have calculated our pro forma earnings per share using our pro forma
basic and diluted weighted average shares outstanding for each of the
periods presented. In calculating our pro forma basic weighted average
shares, we have adjusted Weatherford's historical basic weighted average
shares outstanding for the applicable period to reflect the number of
shares that would have been outstanding at the time assuming a distribution
of one share of our common stock for each share of Weatherford common
stock. Our pro forma diluted weighted average shares reflect an estimate of
the potential dilutive effect of common stock equivalents. This estimate is
calculated based on Weatherford's dilutive effect of stock options and
restricted stock. The effect of stock options and restricted stock is not
included in the diluted weighted average shares computation for periods in
which a loss occurs because to do so would have been anti-dilutive.
20
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our results of operations and current
financial position on a stand-alone basis. This discussion should be read in
conjunction with the Financial Statements.
FORWARD-LOOKING STATEMENTS
This information statement contains statements relating to our future
results, including certain projections and business trends, which constitute
"forward-looking statements". Certain risks and uncertainties may cause actual
results to be materially different from projected results contained in
forward-looking statements in this information statement and in our other
disclosures. These risks and uncertainties include, but are not limited to,
those described in "Risk Factors" and the following:
Any unexpected material changes in oil and gas prices or other market
trends that would impact drilling activity would likely affect the
forward-looking information contained in this information statement. Our results
for 1999 were materially and adversely affected by the downturn in the industry
that began in 1998. Although we currently expect that our results for 2000 will
show an improvement over 1999 due to the recent increase in oil prices and
drilling activity and a general industry view that market conditions have
bottomed out and are beginning to recover, the oil and gas industry is extremely
volatile and subject to change based on political and economic factors outside
our control.
Our estimates as to future results and industry trends described in this
information statement are based on assumptions regarding the future prices of
oil and gas, the North American and international rig counts and their effect on
the demand and pricing of our products and services. In analyzing the market and
its impact on us for 2000, we have made the following assumptions:
- The recent increase in the price of oil will result in modest
improvements in drilling activity in the first half of 2000 and an
improvement in activity of between 10% and 20% by the second half of
2000.
- Oil prices will average over $20 per barrel for West Texas Intermediate
crude.
- Average natural gas prices for 2000 will remain at or near their current
levels.
- World demand for oil will be up only slightly.
- Drilling activity will increase slightly beyond normal demand as oil
companies seek to replace and produce reserves that were not replaced or
produced in 1999.
- North American and international rig counts will improve, with increases
in the international rig count following the North American rig count
increase by around six months. In 2000, we have made our internal budgets
based upon an average rig count for North America of around 1,040 and the
average international rig count of around 630.
- Demand for drill pipe and other drill stem products will gradually
increase during 2000, with the strongest increases occurring in the
second half of 2000. Demand for premium tubulars will continue to
increase steadily during the year as drilling activity increases and
distributors restock inventories.
- Pricing for many of our products and services will continue to be subject
to pricing pressures due to industry consolidations and competition.
Pricing improvements will occur only as expected demand comes closer to
supply.
- No worldwide recession or material downturn in the United States economy
will occur.
- Our currency hedges and revenue/expense matching procedures will
adequately mitigate any material fluctuations in currency exchange rates
involving countries in which we conduct operations.
- That there will be no material changes in global trading policies.
- That there will be no unexpected litigation involving us or unexpected
results in our existing litigation.
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<PAGE> 30
- That there will be no unexpected events or incurrences for which we are
responsible that are not covered by insurance.
- That we will not incur additional general and administrative expenses
materially exceeding our current estimates associated with the spinoff
and our becoming a stand-alone public company.
We have based these assumptions on various macro-economic factors, and actual
market conditions could vary materially from those assumed. We also have assumed
that no additional charges will be necessary for our exposure in India, which is
subject to uncertainty.
MARKET TRENDS AND OUTLOOK
Our business is materially dependent on drilling activity and the
associated demand for our drill stem products and production tubulars and
connections. Beginning in late 1996, we began experiencing improvements in our
markets due to more stable pricing of oil and natural gas and increased drilling
activity. This improvement in demand, combined with prior consolidations in our
industry, resulted in a substantial increase in the demand for our drill pipe
and other drill stem and tubular products as well as increases in pricing for
many of our products. For most of 1997 and the first half of 1998, our drill
pipe manufacturing facilities operated at or near full capacity and we invested
capital to expand our capacity and international presence. These improved market
conditions resulted in our revenues almost doubling and our operating profit,
before depreciation and amortization, increasing from approximately $58.8
million in 1996 to approximately $142.5 million in 1997. We also had a product
backlog in excess of $359.8 million as we entered into 1998.
Beginning in 1998, the price of oil began to fall. This decline in the
price was attributable to a number of factors. The most significant of the
factors were:
- A drop in demand due to the downturn in Asian and other developing
economies;
- An excess supply of oil due to increased production by most of the oil
exporting countries;
- Concerns over future production from Iraq; and
- The impact of prior exploration efforts and large reserve discoveries.
During 1998, the price of oil ranged from a high of $17.62 per barrel of
West Texas Intermediate crude to a low of $10.44 per barrel of West Texas
Intermediate crude. The North American rig count also fell from a high in 1998
of 1,508 rigs to a low in 1998 of 854 rigs. The international rig count, which
typically trails the domestic rig count by a number of months, fell in 1998 from
a high of 819 to a low of 671. In 1999, the price of oil hit an historical low
of $11.07 per barrel and the North American and international rig counts reached
historical lows of 534 and 556, respectively.
The following table sets forth certain information with respect to oil and
natural gas prices and the United States and international rig counts for the
periods reflected:
<TABLE>
<CAPTION>
HENRY HUB NORTH AMERICAN INTERNATIONAL
WTI OIL(1) GAS(2) RIG COUNT(3) RIG COUNT(3)
---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
December 31, 1999........................... $25.60 $ 2.33 1,202 595
December 31, 1998........................... 11.28 1.945 895 671
December 31, 1997........................... 18.32 2.264 1,499 819
December 31, 1996........................... 25.39 2.757 1,195 810
</TABLE>
- ---------------
(1) Price per barrel, as of December 31, 1999, 1998, 1997 and 1996 -- Source:
Applied Reasoning, Inc.
(2) Price per MMBtu as of December 31, 1999, 1998, 1997 and 1996 -- Source: Oil
World
(3) Average rig count for months ended December 31, 1999, 1998, 1997 and
1996 -- Source: Baker Hughes Rig Count
22
<PAGE> 31
The downturn in the industry that began in 1998 led our customers to
substantially curtail their drilling and exploration activity during the second
half of 1998 and 1999. This decline in activity resulted in substantially lower
purchases of capital equipment used for the exploration and drilling of oil, in
particular, drill pipe and other drill stem products we manufacture. We also
were impacted by customers and distributors reducing their inventories of
premium tubular products in light of market conditions and customers cancelling
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 were also operating at less than 30% utilization.
In light of the adverse market conditions facing us, we elected to reduce
substantially the operations at our manufacturing facilities in 1999 to avoid
producing excess supplies of inventory in the market. This decision 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.
Our revenues and operating loss for the fourth quarter of 1999 were $89.6
million and $17.3 million, respectively. We recorded a net loss for the year
ended December 31, 1999, of $33.5 million. This loss included a pre-tax
writedown of $9.5 million relating to our manufacturing arrangement with OCTL in
India due to a decision by us to terminate that arrangement. In addition,
although our fourth quarter revenues were up from the third quarter, our
operating loss was higher due to lower margin tubular sales. The increase in
sales is an indication of the beginning of a recovery as distributors have begun
restocking their inventories. We expect our first quarter 2000 results to
improve over our third and fourth quarters as demand for our products increases,
in particular the demand for our premium tubulars and connections. Drill stem
sales are also expected to increase based on current order activity.
Recently, the price of oil has increased due to members of the Organization
of Petroleum Exporting Countries reducing production in compliance with
production quotas. Although oil prices have been higher for a number of months,
the increased prices have not yet translated to materially higher drilling
activity. However, orders for drill stem products and other premium tubular
products are increasing, and we expect that demand will continue to improve
absent another material decline in oil prices. From August to December, 1999, we
averaged approximately $36 million per month in new orders compared to
approximately $20 million per month for the first seven months of 1999. We
currently expect that demand for our drill pipe and other drill stem products
will slowly improve during 2000, with most of the improvement occurring in the
second half of 2000. We expect that results will be significantly better in 2000
than they were in 1999. Nevertheless, demand for all of our products continues
to be highly dependent upon drilling activity and the price of oil and natural
gas and any material decline in the price of oil and natural gas or drilling
activity could result in a further delay in the recovery in our industry.
In July 1999, we acquired a 50.01% ownership interest in Voest-Alpine
Stahlrohr Kindberg GmbH & Co KG in Austria. Our investment in Voest-Alpine is
reported on the equity method of accounting. Voest-Alpine owns a tubular mill in
Austria with a capacity of approximately 300,000 metric tons that is capable of
supplying a large portion of our green tube requirements in the United States.
In addition, we entered into a long-term green tube supply contract with
Voest-Alpine. The impact of this investment and supply contract should benefit
us as the market recovers by providing us with a reliable source of raw
materials which is expected to significantly reduce the cost of our raw material
and provide us a 50% profit participation in Voest-Alpine's business.
As noted above, we recently decided to terminate our manufacturing
arrangement with OCTL in India. This decision was made in light of the current
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. 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.
23
<PAGE> 32
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.
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
have added additional financial, accounting, legal and other administrative
personnel who will 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.
Looking forward into 2000, we currently expect that demand for our drill
stem and premium and other tubular products should increase in 2000 as drilling
and completion activity picks up. Premium tubular orders are continuing to
improve and there has recently been an increase in the level of inquires and
orders for drill stem products. The improvement in the market, however, is
expected to be gradual over the year, with the largest increases currently
expected to occur in the second half of the year. Accordingly, our results for
2000 will be dependent on the speed and strength of the recovery. We, however,
believe that the market for our products is improving and that absent another
down-turn in the industry, operating results should improve steadily during the
year.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Our business was severely impacted during the year ended December 31, 1999
by the decline in worldwide drilling activity that began in 1998. Our revenues
for 1999 were down by approximately 56% from the relatively high levels recorded
in 1998. Our product backlog declined during 1999 due to lower drilling
activity. This backlog fell to as low as $34.8 million during the third quarter
of 1999. At December 31, 1999, our product backlog was $60.4 million compared to
backlog of $88.9 million at December 31, 1998.
The following chart sets forth additional data regarding our results for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1999 1998
-------- --------
(IN THOUSANDS,
EXCEPT PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $286,370 $646,454
Gross Profit................................................ 24,101 166,420(b)
Gross Profit %.............................................. 8.4% 25.7%
Selling, General and Administrative Attributable to
Segments.................................................. $ 31,104 $ 31,986
Corporate General and Administrative........................ 16,138 15,367
Operating Income (Loss)..................................... (33,014)(a) 112,884(b)
EBITDA(c)................................................... (2,500)(a) 144,057(b)
</TABLE>
- ---------------
(a) Includes a charge of $9.5 million relating to the decision to terminate our
manufacturing arrangement in India, of which $7.8 million involved a
purchase deposit that we will not be able to use and $1.7 million for
equipment in India that we do not believe we will be able to recover.
24
<PAGE> 33
(b) Includes merger and other charges of $35.0 million, comprised of $5.1
million for facility closures and exit costs, $0.2 million of severance and
related costs, $28.5 million for the write-off of inventory and $1.2
million for the write-down of equipment. The write-off of inventory is
classified as cost of sales.
(c) EBITDA is calculated by taking operating income (loss) and adding back
depreciation and amortization. We have included an EBITDA calculation here
because when we look at the performance of our businesses, we give
consideration to their EBITDA. Calculations of EBITDA should not be viewed
as a substitute to calculations under GAAP, in particular cash flows from
operations, operating income and net income. In addition, EBITDA
calculations by our company may not be comparable to those of another
company.
Material items affecting our results for 1999 compared to 1998 were:
- The decrease in revenues from 1998 to 1999 reflects our customers'
reduced drilling and exploration activity, the consumption of excess
drill pipe from idle rigs and the reduction of inventories held by
customers and distributors.
- Sales of premium tubulars and connections were materially down due to
reduced offshore activity, lower distributor purchases and a decline in
tubular processing activity.
- Unfavorable product mix due to higher sales of lower margin casing and
tubular sales.
- Revenues and gross profit in 1998 benefitted from sales from backlog
notwithstanding a general decline in market conditions that began in
early 1998.
- A $9.5 million writedown associated with the decision to terminate our
manufacturing arrangement with OCTL.
- High fixed costs associated with our manufacturing operations and plant
under utilization.
- Gross profit, gross profit percentages and operating income declined for
1999 compared to 1998, due to lower sales volume, pricing pressure and
high fixed costs associated with the manufacturing operations.
- In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico, which owned the
manufacturing facility in Veracruz, Mexico that we were operating under a
capital lease arrangement. As part of the consideration we paid in the
acquisition, we sold the international rights, excluding Canada, to our
Atlas Bradford tubular connection line for carbon grade tubular to TAMSA
through a license arrangement. This license resulted in our sale of all
of our rights, effective upon the closing of this transaction. We
retained no obligations with respect to the development, maintenance or
improvement of the Atlas Bradford connection line for the international
market, and TAMSA has no obligation to give us any additional
consideration for this license. Any future support by Grant Prideco is
provided on a fee basis. The rights we sold through this license
arrangement had a fair value of $9.0 million. As a result, in December
1998 we recorded $9.0 million in revenues to recognize the sale of our
international rights to the Atlas Bradford connection line. The income
associated with this sale benefitted 1998 by $9.0 million compared to
1999 results.
- We are in the early stages of consolidating three of our U.S.
manufacturing plants into our Navasota, Texas manufacturing facility and
also two of our foreign manufacturing plants into one foreign
manufacturing plant. We expect the consolidation to reduce operating
costs through the creation of greater efficiencies and to reduce our
selling, general and administrative expenses by reducing administrative
personnel. This consolidation is expected to benefit both the drill stem
products and premium tubulars and engineered connections segments through
an increase of manufacturing capacity utilization and lower plant
operating costs.
- Selling, general and administrative costs attributable to segments for
1999 decreased primarily due to cost reductions related to the premium
tubulars and engineered connections segment, which were partially offset
by increased amortization of goodwill of $1.2 million.
25
<PAGE> 34
- Our corporate general and administrative expenses for 1999 increased 5%
as compared to 1998 due primarily to increased corporate overhead charges
from Weatherford and higher corporate and overhead costs relating to the
addition of staff in anticipation of the spin-off.
- Our effective tax rate on our loss from continuing operations for 1999
was 25.2%, due primarily to non-deductible goodwill expense.
Drill Stem Products. Our drill stem products segment was most affected by
the decline in worldwide drilling activity in 1998 and 1999. Revenues for 1999
were down by approximately 65% from the record high levels reported in 1998.
The following chart sets forth additional data regarding the results of our
drill stem products segment for 1999 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1999 1998
-------- --------
(IN THOUSANDS,
EXCEPT PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $142,732 $410,840
Gross Profit................................................ 15,187 115,196(b)
Gross Profit %.............................................. 10.6% 28.0%
Selling, General and Administrative......................... $ 13,248 $ 12,169
Operating Income (Loss)..................................... (7,934)(a) 96,844(b)
EBITDA...................................................... 7,185(a) 113,615(b)
</TABLE>
- ---------------
(a) Includes a charge of $9.5 million, $6.1 million net of tax, relating to the
decision to terminate our manufacturing arrangement in India, of which $7.8
million involved a purchase deposit that we will not be able to use and $1.7
million in equipment in India that we do not believe we will be able to
recover.
(b) Includes merger and other charges of $35.0 million, comprised of $5.1
million for facility closures and exit costs, $0.2 million of severance and
related costs and $28.5 million for write-off of inventory. The write-off of
inventory is classified as cost of sales.
Material items affecting the results of our drill stem products segment for
1999 compared to 1998 were:
- The decrease in revenues from 1998 to 1999 reflects the overall decline
in drilling activity and the consumption of excess drill pipe from idle
rigs.
- Revenues and gross profit for 1999 were negatively affected by the
continued weak demand for our products and resulting unabsorbed fixed
costs associated with the manufacturing facilities operating at extremely
low utilization levels. These factors resulted in an operating loss of
$7.9 million.
- The $9.5 million writedown associated with the decision to terminate our
manufacturing arrangement in India.
- For 1998, revenues and gross profit for this segment benefitted from
sales from backlog notwithstanding a general decline in market conditions
that began in early 1998.
- The unabsorbed manufacturing costs for 1999 were somewhat reduced by
Weatherford purchases of drill pipe of $28.6 million.
- Selling, general and administrative costs for 1999 increased due
primarily to goodwill amortization associated with the acquisition of
T.F. de Mexico in December 1998.
Premium Tubulars and Engineered Connections. Our premium tubulars and
engineered connections segment was severely impacted by the decline in worldwide
drilling activity in 1998 and 1999. Revenues for 1999 were down by approximately
39% from 1998.
26
<PAGE> 35
The following chart sets forth additional data regarding the results of our
premium tubulars and engineered connections segment for 1999 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS,
EXCEPT PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $143,638 $235,614
Gross Profit................................................ 8,914 51,224
Gross Profit %.............................................. 6.2% 21.7%
Selling, General and Administrative......................... $ 17,856 $ 19,817
Operating Income (Loss)..................................... (8,942) 31,407
EBITDA...................................................... 5,359 44,716
</TABLE>
Material items affecting the results of our premium tubulars and engineered
connections segment for 1999 and 1998 were:
- The decline in revenues reflected the impact of a large reduction in
distributor and direct sales in light of market conditions. Revenue
declines also reflected a substantial drop in riser and conductor sales
by XL Systems due to a decline in offshore activity.
- Our mix of tubular products was less favorable in 1999 compared to 1998
due to drop in demand for premium tubulars associated with market
conditions.
- Gross profit, gross profit percentages and operating income declined due
to lower sales volume and unabsorbed fixed costs associated with the low
utilization levels at the manufacturing operations.
- Our 1998 results include the benefit from the license granted by us to an
affiliate of Tubos de Acero de Mexico, S.A. having a fair value of $9.0
million discussed above.
- The selling, general and administrative costs attributable to this
segment declined 10% for 1999 compared to 1998 due to cost reductions
implemented during the first half of 1999 in response to market
conditions.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Our results for 1998 compared to 1997 reflected improved market conditions
during the first half of 1998. During the first half of 1998, our operations
benefitted from strong demand and pricing as well as a large backlog going into
the second half of 1998. As the year progressed, demand declined and prices
began to soften. This decline in demand and prices, however, did not materially
affect the results due to the backlog that existed during the year.
Our results for 1998 also included a $35.0 million charge associated with
the market changes that occurred during 1998. Excluding these charges, our
results for 1998 were significantly higher due to the higher margins and prices
we received on our sales during 1998 compared to 1997. The higher margins and
prices reflected improved demand during the first half of 1998 and that our
facilities were operating at near capacity.
27
<PAGE> 36
The following chart sets forth additional data regarding our results for
1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
-------- --------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $646,454 $630,021
Gross Profit................................................ 166,420(a) 158,242
Gross Profit %.............................................. 25.7% 25.1%
Selling, General and Administrative Attributable to
Segments.................................................. $ 31,986 $ 29,903
Corporate General and Administrative........................ 15,367 12,903
Operating Income............................................ 112,884(a) 115,436
EBITDA...................................................... 144,057(a) 142,487
</TABLE>
- ---------------
(a) Includes merger and other charges of $35.0 million, comprised of $5.1
million for facility closures and exit costs, $0.2 million of severance and
related costs, $28.5 million for the write-off of inventory and $1.2
million for the write-down of equipment. The write-off of inventory is
classified as cost of sales.
Material items affecting our results for 1998 compared to 1997 were:
- The increase in revenues for 1998 reflects the benefit of sales from
backlog from 1997 and the first half of 1998.
- In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico, which owned the
manufacturing facility in Veracruz, Mexico that we were operating under a
capital lease arrangement. As part of the consideration we paid in the
acquisition, we sold the international rights, excluding Canada, to our
Atlas Bradford tubular connection line for carbon grade tubular to TAMSA
through a license arrangement. This license resulted in our sale of all
of our rights, effective upon the closing of this transaction. We
retained no obligations with respect to the development, maintenance or
improvement of the Atlas Bradford connection line for the international
market, and TAMSA has no obligation to give us any additional
consideration for this license. Any future support by Grant Prideco is
provided on a fee basis. The rights we sold through this license
arrangement had a fair value of $9.0 million. As a result, in December
1998 we recorded $9.0 million in revenues to recognize the sale of our
international rights to the Atlas Bradford connection line.
- Sales in the second half of 1998 decreased by 21.2% as compared to the
first half of 1998.
- Increased sales of drill stem products offset reduced sales of premium
tubulars and connections.
- Lower sales of premium tubulars and connections reflected the more
immediate impact of the tubular and connection market due to industry
changes and lower activity in sales of drill stem products.
- Improved gross profit, before charges of $28.5 million, significantly
benefitted from lower average costs associated with higher production
volumes during the first half of 1998. The second half of 1998 reflected
a shift in the sales mix from higher margin product sales to lower margin
product sales.
- Selling, general and administrative expenses attributable to segments
increased as a percentage of revenues from 4.7% in 1997 to 4.9% in 1998.
The increase reflects $1.4 million of goodwill amortization associated
with the 1997 acquisitions.
- Corporate general and administrative expenses increased as a percentage
of revenues from 2.0% in 1997 to 2.4% in 1998. Information systems costs
increased to $5.6 million in 1998 from $3.5 million in 1997 as a result
of an increase in the number of users, as well as costs associated with
system conversions, including those related to Year 2000 compliance.
28
<PAGE> 37
- Operating income improved from $115.4 million in 1997 to $147.8 million,
before charges of $35.0 million, in 1998 due to strong demand and sales
from backlog from 1997 and the first half of 1998.
Drill Stem Products. The following chart sets forth additional data
regarding the results of our drill stem products segment for 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
-------- --------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $410,840 $333,716
Gross Profit................................................ 115,196(a) 102,618
Gross Profit %.............................................. 28.0% 30.8%
Selling, General and Administrative......................... $ 12,169 $ 10,699
Operating Income............................................ 96,844(a) 91,919
EBITDA...................................................... 113,615(a) 105,604
</TABLE>
- ---------------
(a) Includes merger and other charges of $35.0 million, comprised of $5.1
million for facility closures and exit costs, $0.2 million of severance and
related costs, $28.5 million for the write-off of inventory and $1.2
million for the write-down of equipment. The write-off of inventory is
classified as cost of sales.
Material items affecting the results of our drill stem products segment for
1998 compared to 1997 were:
- The increase in revenues for 1998 reflects the benefit of sales from
backlog from 1997 and the first half of 1998. Backlog as of December 31,
1997 was $319.8 million.
- Sales in the second half of 1998 decreased by 12.4% as compared to the
first half of 1998.
- Improved gross profit, before charges of $28.5 million, significantly
benefitted from lower average costs associated with higher production
volumes during the first half of 1998. The second half of 1998 reflected
a shift in the sales mix from higher margin product sales to lower margin
product sales.
- Selling, general and administrative expenses decreased as a percentage of
revenues from 3.2% in 1997 to 3.0% in 1998. The decrease reflects a
higher revenue base.
Premium Tubulars and Engineered Connections. The following chart sets forth
additional data regarding the results of our premium tubulars and engineered
connections segment for 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $235,614 $296,305
Gross Profit................................................ 51,224 55,624
Gross Profit %.............................................. 21.7% 18.8%
Selling, General and Administrative......................... $ 19,817 $ 19,204
Operating Income............................................ 31,407 36,420
EBITDA...................................................... 44,716 48,938
</TABLE>
Material items affecting the results of our premium tubulars and engineered
connections segment for 1998 compared to 1997 were:
- Revenues declined in the second half of 1998 by 34.7% as compared to the
first half of 1998, due to a decrease in demand as distributors'
inventories fell in light of prevailing market conditions.
29
<PAGE> 38
- Gross profit benefitted from lower average costs associated with higher
production volumes during the first quarter of 1998, however the gross
profit was adversely impacted by the sharp decline in demand during the
second quarter of 1998.
- In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico, which owned the
manufacturing facility in Veracruz, Mexico that we were operating under a
capital lease arrangement. As part of the consideration we paid in the
acquisition, we sold the international rights, excluding Canada, to our
Atlas Bradford tubular connection line for carbon grade tubular to TAMSA
through a license arrangement. The rights we sold through this license
arrangement had a fair value of $9.0 million. As a result, in December
1998 we recorded $9.0 million in revenues to recognize the sale of our
international rights to the Atlas Bradford connection line.
- Selling, general and administrative expenses increased as a percentage of
revenues from 6.5% in 1997 to 8.4% in 1998 primarily due to a lower
revenue base. Selling, general and administrative expenses increased by
$1.2 million as a result of a full year of expenses associated with TA
Industries, Inc.
- Operating income declined from $36.4 million in 1997 to $31.4 million in
1998 primarily due to lower revenues and high fixed costs associated with
our manufacturing facilities.
Other Charges
In 1998, our drill stem segment incurred $35.0 million in charges relating
to the reorganization and rationalization of our businesses in light of
declining industry conditions and the merger between EVI, Inc. ("EVI") and
Weatherford Enterra, Inc. ("WII"). In the second quarter of 1998, we incurred
$7.0 million of these charges in accordance with our formalized plan, which
reflected costs associated with the merger between EVI and WII and the effects
of the beginning of the downturn in the industry. Following a further
deterioration in the markets that we serve, and accordingly we incurred an
additional $28.0 million charge in the fourth quarter of 1998. These charges
reflected additional reductions in operations and an attempt to align our cost
structure with current demand. All such costs had been fully expended as of
December 31, 1998, accordingly no accruals remained on the Combined Balance
Sheet as of December 31, 1998. No adjustments to the initial estimates were
required. The net after-tax effect of these charges was $22.8 million.
The following chart summarizes our other charges in 1998.
<TABLE>
<CAPTION>
SECOND FOURTH
QUARTER QUARTER REMAINING
1998 1998 BALANCES AT
CHARGE CHARGE UTILIZED DECEMBER 31, 1998
------- ------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Facility Closures and Exit Costs(1)...... $4,250 $ 850 $ 5,100 $ --
Severance and Related Costs(2)........... 200 -- 200 --
Inventory Write-off(3)................... 2,500 26,000 28,500 --
Asset Write-down(4)...................... -- 1,150 1,150 --
------ ------- ------- -------
Total.......................... $6,950 $28,000 $34,950 $ --
====== ======= ======= =======
</TABLE>
(1) The facility and exit costs were $5.1 million, all of which were
expended by December 31, 1998. The $4.3 million of costs accrued in the
second quarter related primarily to the elimination of duplicative
manufacturing facilities as a result of the reorganization and
rationalization of our businesses following the merger of WII and EVI
and the downturn in the industry. In the fourth quarter an additional
$0.8 million was accrued to further align our costs in response to the
significant decline in market conditions. The costs related primarily
to the (i) closure of the Channelview, Texas facility, (ii) the closure
of the sales location in the U.K. and a Houston, Texas administrative
location, and (iii) exit costs for certain operations at the Edmonton,
Canada, Pearland, Texas and Bryan, Texas facilities. The Pearland,
Texas facility was a location of WII prior to the merger. The Bryan,
Texas,
30
<PAGE> 39
the Channelview, Texas and Edmonton, Canada manufacturing facilities,
the U.K. sales location and a Houston, Texas administrative location
were EVI locations prior to the merger.
(2) The severance and related costs included in our second quarter charge
were $0.2 million for approximately 60 employees specifically
identified, with terminations completed in the second half of 1998.
(3) We reported the inventory write-off of $28.5 million as cost of sales.
The second quarter inventory write-off of $2.5 million resulted from
the elimination of certain products at the time of the merger of WII
and EVI and due to the declining industry conditions. The fourth
quarter inventory write-off of $26.0 million related to the significant
decline in market conditions.
(4) The write-down of assets was $1.2 million in the fourth quarter of
1998. The charge related to the write-down of equipment as a result of
the rationalization of product lines and the specific identification of
assets held for sale. The identified equipment had a net book value of
$0.6 million as of December 31, 1998. The effect of suspending
depreciation is $0.2 million annually. The equipment was originally
projected to be sold in 1999, but because of market conditions we have
not been able to dispose of the equipment to date. We currently expect
to dispose of these assets in 2000.
In the fourth quarter of 1996, we adopted a plan to close our Bastrop,
Texas tool joint manufacturing facility. In connection with this decision, we
incurred a charge of $4.3 million associated with the facility closing and
relocation of equipment from this facility. Of the $4.3 million, we expensed as
incurred $2.8 million in the fourth quarter of 1996, for costs associated with
these activities, including costs relating to the relocation of equipment from
our Bastrop facility to other facilities. The remaining $1.5 million was accrued
as part of the $4.3 million charge for exit costs that were incurred by June
1997 which related to the closure of the facility. These costs include $0.9
million for the exit costs associated with the disposition of the facility and
$0.6 million for severance and related costs. In connection with this facility
closure, the employment of approximately 200 employees was terminated, of which
approximately 105 were terminated in 1996 and the remaining in the first half of
1997. Severance and related costs were $0.2 million and $0.6 million in 1996 and
the first half of 1997, respectively. The closure of the Bastrop facility was
completed by June 1997 and all accrued exit costs had been expended. No
adjustments to the initial estimates were required.
ACQUISITIONS
On October 27, 1999, we acquired an additional 27% interest in H-Tech, an
Indonesia-based drill pipe manufacturer with facilities located on Batam Island.
We previously held a 27% interest in H-Tech and with this purchase we own a
controlling 54% interest in H-Tech. The purchase price for the acquisition was
$6.0 million.
On October 1, 1999, we acquired Drill Pipe Industries, Inc., a manufacturer
of drill stem products, for $1.4 million in cash and a $1.4 million non-interest
bearing note which was repaid in January 2000.
On August 25, 1999, we acquired Louisiana-based Petro-Drive, Inc., for 0.3
million shares of Weatherford common stock and assumed debt of approximately
$3.5 million. Petro-Drive's offerings include conductors, connections and
installation services and equipment. Under the terms of the acquisition, if any
former shareholder of Petro-Drive elects to sell any of the shares of
Weatherford common stock and the corresponding shares of Grant Prideco common
stock received by the shareholder between August 2000 and August 2001 at a
combined sale price of less than $36.50, we will be obligated to pay to the
shareholder an additional amount of cash equal to the deficit. In January 2000,
we exercised our option to acquire the facility leased by Petro-Drive for
approximately $1.6 million.
On July 23, 1999, we acquired a 50.01% interest in the Voest-Alpine
Stahlrohr Kindberg GmbH & Co. KG for approximately $32.6 million, of which we
paid approximately $8.0 million in cash, and we will pay the remainder over a
period of up to seven years. We paid our first principal installment of $1.5
million of this amount during January 2000. Voest-Alpine produces high quality
seamless tubulars in Austria.
31
<PAGE> 40
On July 7, 1999, we acquired Texas Pup, Inc., a manufacturer of premium and
API pup joints and utility boring drill pipe, for 105,000 shares of Weatherford
common stock and assumed debt of approximately $1.7 million.
On May 31, 1999, we acquired Texas Pipe Works, Inc., a manufacturer of API
couplings, for approximately $1.7 million in cash and 50,000 shares of
Weatherford common stock.
On May 31, 1999, we acquired InterOffshore Services, Pte., a manufacturer
of drilling tool accessories, for approximately $2.1 million in cash.
In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico, which owned the manufacturing
facility in Veracruz, Mexico that we were operating under a capital lease
arrangement. As part of the consideration we paid in the acquisition, we sold
the international rights, excluding Canada, to our Atlas Bradford tubular
connection line for carbon grade tubular to TAMSA through a license arrangement.
The total consideration given was $59.0 million comprised of $48.5 million in
debt (which was repaid in March 1999), cash of $1.5 million and a $9.0 million
license to the international rights of our Atlas Bradford thread line. The
rights we sold through this license arrangement had a fair value of $9.0
million. As a result, in December 1998 we recorded $9.0 million in revenues to
recognize the sale of our international rights to the Atlas Bradford connection
line.
On February 12, 1998, we acquired Drill Tube International, Inc., a
manufacturer of drill pipe and other drill stem products, for $29 million. The
consideration we paid in the acquisition consisted of $9 million in cash and a
contractual purchase credit obligation to manufacture and deliver products to
the seller over a two year period. Under our contract with the sellers, we were
required to provide product to the sellers at a notional price of $16 million.
The fair value of the products to be delivered to the sellers was $20 million.
Accordingly, a liability of $20 million was recorded as of the date of the
acquisition. As products are delivered under this commitment the liability is
reduced. As of December 31, 1999 and 1998, the contractual purchase credit
balance was $0 and $8 million, respectively.
On August 25, 1997, we acquired XLS Holding, Inc., a provider of premium
connections for conductors, risers and other offshore structure components. We
accounted for the acquisition as a pooling of interests. The consideration we
paid consisted of approximately 0.9 million shares of Weatherford common stock.
On July 23, 1997, we acquired Rotary Drilling Tools, a manufacturer of
drill collars and accessories, for approximately $3.3 million in cash.
On July 18, 1997, we acquired Coastal Tubular Inc., a manufacturer of API
threads and thread connections, for approximately $3.3 million in cash.
On April 14, 1997, we acquired TA Industries, Inc. for approximately $44.1
million in cash and $19.7 million of assumed debt. TA designs, manufactures and
markets premium and API couplings and accessories under the brand names Texas
Arai and Tube-Alloy.
The acquisitions discussed above, with the exception of XLS Holding, Inc.,
were accounted for using the purchase method of accounting. The results of
operations of all acquisitions, excluding XLS Holding, Inc., are included in our
Combined Statements of Operations from their respective dates of acquisition.
The 1999, 1998 and 1997 acquisitions are not material to us individually or in
the aggregate for each applicable year. Our historical financial statements have
been restated to reflect the historical results of operations of XLS Holding,
Inc. in accordance with the pooling of interest method of accounting.
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.
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<PAGE> 41
At December 31, 1999, we had cash and cash equivalents of $6.2 million and
working capital of $164.6 million. We also had $3.7 million in restricted cash
related to our 54% interest in H-Tech that is subject to dividend and
distribution restrictions. For 1999, our net cash flow from operations was $65.2
million and reflected a reduction in working capital needs. Our net cash flow
from operating activities for 1998 was approximately $10.7 million and reflected
uses of cash for working capital purposes and delays in collections of
receivables relating to the downturn in the market.
We currently expect to expend approximately $20.9 million for
non-acquisition related capital expenditures during 2000, of which approximately
$5.5 million relate to our manufacturing consolidation projects, $8.8 million of
which relate to maintaining the existing equipment base and $6.6 million of
which is discretionary for improvements to our various facilities. We also
estimate that our required principal and interest payments for our outstanding
debt to be approximately $12.0 million for 2000, of which $2.9 million was
recently paid. 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 currently intend to seek the placement of between $100.0 million and
$200.0 million of long-term debt in the private or public market during the year
2000. The terms of this financing will depend upon market conditions. We
currently expect to file a universal shelf registration statement with the SEC
that could be used for this purpose. Although we expect to pursue the financing
during the year, there can be no assurances that such financing will occur or as
to the terms and conditions thereof.
We have an uncommitted credit facility which provides for short-term loans
for periods up to 12 months. At December 31, 1999, we had an outstanding balance
of $3.9 million under the facility. The average interest rate for borrowings
under the facility was 3.50% per annum at December 31, 1999. We also had $0.3
million of short-term notes payable with interest rates ranging up to 8.6% at
December 31, 1999.
Through Weatherford, we also have various credit facilities 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
$3.7 million of such letters of credit and bid and performance bonds outstanding
as of December 31, 1999.
We currently are negotiating with potential lenders to establish a credit
facility that would provide us with up to $75.0 million for working capital
purposes, of which we expect $30.0 to $50.0 million to be available to us
initially. We expect this facility to be in place by or shortly after the
spinoff. This facility will also provide us with availability for stand-by
letters of credit and bid and performance bonds. We expect that this facility
would be secured by our inventory and receivables and guaranteed by our domestic
subsidiaries. This facility also would place limits on our ability to incur new
debt, engage in certain acquisitions and investments, grant liens and make
distributions to our stockholders.
Before the spinoff, we will issue an unsecured subordinated note to
Weatherford in the amount of $100.0 million. The Weatherford note will bear
interest at an annual rate of 10%. Interest payments will be due quarterly, and
principal and all unpaid interest will be due no later than 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 is
outstanding, we will be required to use a portion of the net proceeds of that
financing to repay any amount outstanding under the Weatherford note as of the
time we complete that financing. The Weatherford note will be subordinated to
the credit facility. We expect to refinance the Weatherford note as soon as
practicable when market conditions permit.
We currently are discussing with the Department of Energy our participation
in a consortium to develop composite drill pipe. We do not expect our
participation in this project to involve any material funding by us or our
receipt of any material funding. The development of composite drill pipe is
aimed primarily at specific
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<PAGE> 42
niche markets where the drill pipe could be used as a conduit for the
transmission of data for directional and other drilling applications. We do not
expect the successful development of composite drill pipe to have a material
adverse impact on our traditional drill pipe business.
We also are negotiating a joint project with RTI Energy Systems, Inc. to
develop titanium drill pipe. Titanium drill pipe developed by us and RTI Energy
Systems was recently successfully used in its first commercial project. Under
our proposed arrangement with RTI, RTI will provide the titanium tubulars and we
will provide the connections. We will sell the products jointly. Our
participation in the project will not involve any material costs to us. We will
offer the titanium drill pipe manufactured under this proposed arrangement as
part of our complete drill stem product offering.
As part of our arrangement to invest in Voest-Alpine Stahlrohr Kindberg
GmbH & Co. KG, we entered into a four-year supply contract to Voest-Alpine.
Under this agreement, we agreed to purchase a minimum of 45,000 tonnes of
tubulars for the first twelve months of the agreement at a negotiated third
party price that we believe to be attractive. We also agreed to purchase 60,000
tonnes per year for the next three years at the negotiated price. The volume
requirements fixed in the supply agreement were based on our anticipated needs
for tubulars of the type manufactured by Voest-Alpine and represented less than
half of our normal worldwide requirements for this type of tubular. Because this
agreement requires us to purchase tubulars regardless of our needs, our
purchases under this agreement may be made for inventory during periods of low
demand. These types of purchases will require us to use our working capital and
expose us to risks of excess inventory during those periods. Although these
purchases could require us to expend a material 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. Under our agreement with Voest-Alpine, we are
responsible for any "anti-dumping" duties that might be imposed on those
tubulars sold in the United States. We do not believe that any anti-dumping
duties should be imposed on any tubulars from Voest-Alpine. However, if there
were to be any such duties so imposed, our ability to resell these tubulars in
the United States would be adversely affected.
TAX MATTERS
As a result of the separation from Weatherford, we will no longer be able
to combine the results of our operations with those of Weatherford in reporting
income for United States federal income tax purposes and for income tax purposes
in some states and foreign countries. We believe this will not have a material
adverse effect on our earnings. However, 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,
associated with our business that occur prior to the spinoff. Moreover, we will
be liable to Weatherford for any corporate level taxes incurred by Weatherford
as a result of the spinoff, except to the extent the taxes arise 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.
YEAR 2000 MATTERS
The Year 2000 issue is the risk that some information systems, computers,
equipment and products using date-sensitive software or containing computer
chips with two-digit date fields are unable to process the Year 2000 date change
correctly.
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<PAGE> 43
In response to the Year 2000 issue, we prepared and implemented a plan to
assess significant Year 2000 issues and remediate any problems we identified in
our:
- information technology systems, including computer software and hardware;
and
- non-information technology systems utilizing date-sensitive software or
computer chips, including products, facilities, equipment and other
infrastructures.
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.
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.
Foreign Currency Risk
We operate in countries outside of the United States and conduct a portion
of our business in currencies other than the U.S. dollar; however, most of our
international revenues are denominated in U.S. dollars. Historically, the impact
of foreign currency exchange rate fluctuations has not had a material impact on
our results of operations or financial position.
A single European currency ("the Euro") was introduced on January 1, 1999,
at which time the conversion rates between legacy currencies and the Euro were
set for 11 participating member countries. However, the legacy currencies in
those countries will continue to be used as legal tender through January 1,
2002. Thereafter, the legacy currencies will be canceled, and the Euro bills and
coins will be used in the 11 participating countries. We are currently
evaluating the effect of the Euro on our financial statements and our business
operations; however, we do not forsee that the transition to the Euro will have
a significant impact.
We utilize foreign currency forward contracts to hedge our exposure on firm
commitments. We enter into foreign exchange contracts only as a hedge against
existing economic exposures and not for speculative or trading purposes. Our
objective in managing our exposure to foreign currency exchange rate
fluctuations is to reduce the impact of fluctuations on earnings and cash flows.
In connection with our July 1999 acquisition of a 50.01% interest in
Voest-Alpine Stahlrohr Kindberg GmbH & Co., we incurred debt denominated in
Austrian schilling for 319.8 million Austrian schilling ($23.4 million as of
December 31, 1999). Principal of $9.2 million is payable over three years in six
equal installments in each January and July beginning in January 2000 and ending
in July 2002. The remaining principal balance of $15.4 million is payable over a
7 1/2-year period. To date, we have mitigated our exposure to short-term
exchange rate fluctuations in the Austrian schilling through a hedging
arrangement Weatherford entered into on our behalf. On November 24, 1999,
Weatherford entered into a foreign currency contract maturing on January 31,
2000 to purchase 319.8 million Austrian schillings for $23.9 million. Gains and
losses for 1999 on the change in market value of Weatherford's foreign currency
contract are charged to us and recognized currently in earnings, which offsets
the impact of the change in the fair value of the Austrian schilling denominated
VA debt. On February 22, 2000 Weatherford entered into a foreign currency
contract maturing on May 25, 2000 to purchase 21.8 million Euros for $22.1
million. If a 10% devaluation in the Austrian schilling compared to the U.S.
dollar were to occur, the fair value of the VA debt would be increased by
approximately $2.2 million, which would be recognized in earnings.
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<PAGE> 44
Interest Rates
We are subject to interest rate risk on our long-term fixed interest rate
debt. We believe that significant interest rate changes will not have a material
near-term impact on our future earnings or cash flows. Excluding the
subordinated note payable to Weatherford, most of our borrowings are at variable
rates and therefore the fair value of these borrowings approximate book value.
With respect to the note to Weatherford, it is not practical to estimate the
fair market value as our borrowing rates have not yet been determined.
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<PAGE> 45
BUSINESS
GENERAL
We are an international manufacturer and supplier of products used for the
exploration and production of oil and gas. Our business is conducted through two
operating segments: (1) drill stem products and (2) premium tubulars and
engineered connections. Segment data for drill stem products and premium
tubulars and engineered connections segments is contained in Footnote 16 to the
Financial Statements. We are the world's leading provider of drill pipe and
other drill stem products. We are also a leading provider in North America for
engineered connections used for casing, production tubing and marine conductors
and subsea structures. Our drilling products are designed and engineered for
high performance and include all components of a drill stem from the rig floor
to the drill bit. We have been the innovator in the field of drill pipe and
other drill stem products for more than 20 years, and we are a leader in
connection technology used in the drilling of wells. Our Atlas Bradford division
also has been providing connection technology to the oil industry for
approximately 50 years.
Our company has grown substantially over the years through strategic
acquisitions and internal development. Our operations are conducted throughout
the world through manufacturing facilities located in the United States, Mexico,
Canada, Europe and Asia. We also have 19 sales, service and repair locations
around the world.
MARKET TRENDS AND OUTLOOK
The market conditions in which we compete have been depressed since
mid-1998 due to low oil prices and reduced drilling activity. This decline has
affected our operations in two significant ways:
- The lower rig count has reduced demand for drill stem products. The
reduction in demand is attributable to both the lower number of drilling
rigs requiring drill stem products and an increased level of stock on
hand with our customers, as drill stem products from idle rigs are made
available to other rigs.
- The decline in drilling activity has reduced the number of wells being
completed offshore. This reduction in the number of completed offshore
wells also reduces the demand for our premium casing, liner and
production tubing and connections for these products. The reduced demand
for premium tubular products also affects our accessory products.
Demand for our drill stem products for 1999 was down as much as 60% from
1998. The utilization of the excess drill stem products provided by idle rigs
also will suppress levels of demand substantially below requirements for current
drilling activity. We expect, however, that excess inventory with our customers
should, absent any further changes in the drilling markets, be substantially
diminished by the middle of the year 2000. Our premium tubulars and engineered
connections business historically has reacted faster to downturns in the
industry and has responded quicker to recoveries in the industry. This segment
was the first of our businesses to be affected by the downturn in 1998 and the
first to begin to experience improvements in demand. Demand for our premium
tubular products and connections was up in the fourth quarter of 1999 compared
to the third quarter of 1999 due to improvements in offshore drilling, the rig
count and distributors purchasing inventory. We also expect that demand for
these products will continue to improve during 2000 absent a downturn in the
market. Because the market conditions for our drilling products is heavily
dependent on drilling activity, which in turn is dependent on the price of oil
and gas, the effect of the current market conditions on our business is
extremely difficult to project and is subject to much uncertainty.
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GROWTH STRATEGY
Our strategy for growth is to seek new opportunities in our drilling and
tubular segments. During the last year, we completed various acquisitions that
are important to our long-term growth. Those acquisitions included:
- The acquisition of a 50.01% ownership interest in Voest-Alpine Stahlrohr
Kindberg in Austria. Voest-Alpine owns a modern tubular mill in Austria
with a production capacity of approximately 300,000 tons per year. We
also entered into a long-term green tube supply agreement with
Voest-Alpine to supply a large portion of the raw materials we need for
drill pipe in the United States. The investment in Voest-Alpine provided
us with a low cost source of raw materials for our operations as well as
a platform to enter the Eastern hemisphere tubular markets.
- The acquisition of substantially all of the outstanding shares of the
Mexican entity that owned our manufacturing facility in Veracruz, Mexico
where we manufacture drill pipe and tool joint connections for drill
pipe. This acquisition expanded our drill pipe manufacturing capacity and
enhanced our ability to provide our drill pipe operations throughout the
world with low cost tool joints.
- The acquisition of Petro-Drive, Inc., a provider of conductors,
connections and installation services and equipment for the Gulf of
Mexico and other offshore markets. This acquisition has helped strengthen
our XL Systems offshore conductor and riser business by expanding its
market presence and product offering. This acquisition in conjunction
with a smaller acquisition in Singapore earlier in the year also has
provided a platform for the expansion of our conductor and riser business
internationally.
- The acquisition of an additional interest in H-Tech, an Indonesia-based
manufacturer of drill pipe for the Southeast Asian markets. This
acquisition provides us with a controlling interest in H-Tech and a
stronger presence in the important and growing Asian markets.
We also acquired during 1999 various smaller companies that have allowed us
to expand our premium coupling, pup joint and accessory businesses. Following
the spinoff, we intend to continue to actively pursue acquisitions and other
opportunities for growth. Our strategy for growth through acquisitions and
internal development will focus on:
- Lowering costs through consolidations and investments similar to our
investments in Voest-Alpine Stahlrohr Kindberg 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 and joint venture
projects such as our proposed titanium drill pipe project with RTI Energy
Systems, Inc. and the development of connections for expandable tubing.
- Investing in additional subsea products and services.
- Maintaining manufacturing capacity for growth.
We intend to finance future acquisitions and growth opportunities through a
combination of internally generated capital, equity issuances and incurrences of
debt where we deem prudent or appropriate. Any issuances of equity will depend
upon the opportunity and circumstances. We will only incur debt where we
consider the terms to be appropriate.
DRILL STEM PRODUCTS
Our drill stem products segment manufactures and sells a complete line of
drill stem products. Those products include primarily drill pipe, drill collars,
heavyweight drill pipe and kellys. The products offered by
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our drill stem products segment constitute all of the components of the drill
stem used to drill a well from the rig floor to the drill bit.
We sell our drill stem products to a variety of customers including
drilling contractors, oil field equipment rental companies and oil and gas
operators. We also sell drill pipe to utility boring and water well companies as
well as distributors to those companies. Drill stem purchasing decisions are
based on quality, price, delivery and operational requirements.
A description of our principal drill stem products follows:
Drill Pipe
Drill pipe is the principal mechanical tool used in drilling for oil and
gas. We sell our drill pipe primarily to rig contractors and rental companies.
Unlike a drilling rig, drill pipe is a consumable product with a limited life
span based on usage. Our drill pipe is designed and manufactured to operate in
highly corrosive and harsh environments and is engineered to withstand extreme
operating conditions such as those that exist offshore and in deep wells.
Our drill pipe incorporates a number of proprietary designs, connections
and coatings. We recently introduced a line of drill pipe designed for extreme
drilling conditions as well as the first drill pipe manufactured using titanium
for short radius drilling. Our Drill Tube division also provides drill pipe for
the growing utility boring and water well industries. Our principal competitors
in drill pipe are Omsco, IDPA, NKK and various local manufacturers in foreign
countries. Sales of drill pipe represented approximately 26%, 56% and 39% of our
total sales during 1999, 1998 and 1997, respectively.
Drill Collars
Drill collars are used to provide weight on a drill bit to assist in the
drilling process. A drill collar is generally located directly above the drill
bit and is machined from a solid steel bar to provide the necessary weight for a
vertical well. Our principal competitors for drill collars are the same as our
competitors for drill pipe.
Heavyweight Drill Pipe and Other Drill Stem Products
Our heavyweight drill pipe is a seamless tubular product that is less rigid
than a drill collar. Heavyweight drill collars provide the transition zone
between a drill collar and the drill pipe. Heavyweight drill pipe also serves to
apply weight to a drill bit in a directional well. We also provide kellys, subs
and pupjoints (short and odd-sized tubular products). Our principal competitors
for heavyweight drill pipe and other drill stem products are Smith
International, Inc., SMFI and Omsco.
PREMIUM TUBULARS AND ENGINEERED CONNECTIONS
Our premium tubular and engineered connections segment manufactures and
sells premium production tubing, liners and casing and connections for marine
conductors and subsea structures. This segment also provides couplings and
accessories for casings and other tubular products. The term "premium" refers to
seamless tubulars with high alloy chemistry, specific molecular structure and
highly engineered connections. Our premium tubulars are sold both with and
without our proprietary Atlas Bradford(R) and other owned or licensed
connections. Our premium tubulars are used in particularly harsh environments,
such as offshore and deep natural gas wells where pressure, temperature and
corrosive elements are extreme.
Our premium tubular products and connections are sold both through
distributors and directly to operators of oil and gas wells. These products and
connections also are sold to mills and various oilfield service companies. The
principal competitors for our premium engineered connections are Hydril, Hunting
Interlock, Kawasaki and VAM. In December 1998, we licensed to TAMSA the
international rights to our Atlas Bradford connections.
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<PAGE> 48
A description of our principal premium tubulars and engineered connections
products follows:
Premium Tubulars and Connections
Our Atlas Bradford division provides connection threading and related
services to oil and gas companies, tubular distributors and oilfield service
companies. Threading services provided by this division may be sold with
tubulars we provide or on tubular products provided by the customer. We believe
that Atlas Bradford is one of the largest providers of connections in North
America for premium production tubing and casing.
Premium Casing
Our TCA division is a leading provider of critical-service casing for
offshore and extreme applications. TCA offers a wide variety of sizes ranging
from 4 1/2" to 17". Products sold by TCA also are sold with our proprietary
Atlas Bradford connections. TCA also provides tubular processing services for
major tubular steel mills.
Couplings
Our Texas Arai division provides couplings used to connect premium and API
casing and tubing. Texas Arai is one of the world's largest providers of
couplings for oilfield applications. Texas Arai's couplings are provided to
mills, distributors of tubular products and end users.
Accessories and Insulated Tubing
Our Tube-Alloy division provides a variety of tubular accessories, flow
control equipment and connections used in connection with the completion of oil
and gas wells. Tube-Alloy also has developed and is marketing a proprietary line
of insulated tubing used for deepwater and extreme temperature applications.
Conductors and Risers for Subsea Structures
Our XL Systems division provides connections and installation services for
marine conductors and subsea structures. Conductors are the initial support for
new wells from which both downhole and wellhead sections attach. Conductors are
typically hammered in place at the beginning of the drilling process. We use a
proprietary wedge thread technology to connect the conductors. Our primary
competition for conductors and subsea constructors are ABB, DrillQuip and
various smaller companies.
Other
Our premium tubulars and engineered connections segment also provides
design and connection services to third parties. This group has developed
connections for expandable casing and is developing on other new tubular and
connection technology.
RAW MATERIALS
We use the following principal raw materials:
<TABLE>
<CAPTION>
PRODUCT RAW MATERIAL
- ------- ------------
<S> <C>
Drill pipe Steel billets and seamless green
tubing
Drill collars Solid steel bars
Heavyweight drill pipe Heavy walled tubes
Premium tubing and casing Seamless green tubing
</TABLE>
Our suppliers for these raw materials are the major domestic and
international steel mills, including our Voest-Alpine Kindberg affiliate. We
also have established relationships with several domestic and foreign mill
sources to provide us with these products. TAMSA in Mexico currently provides
raw materials for our Mexican and Indian operations. We have a 30-year supply
contract with TAMSA in which we have given it
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<PAGE> 49
the right to supply these operations as long as the prices are on a competitive
basis and we are not providing those supplies internally or from affiliates such
as Voest-Alpine.
PROPERTIES
The following table describes the material manufacturing and other
facilities and principal offices we currently own or lease.
<TABLE>
<CAPTION>
FACILITY PROPERTY
SIZE SIZE
LOCATION (SQ.FT.) (ACRES) TENURE UTILIZATION
-------- --------- -------- ------ -----------
<S> <C> <C> <C> <C>
Navasota, Texas 347,000 83.00 Owned Manufacture of drill pipe,
premium threaded casing,
liners and tubing
Veracruz, Mexico 303,400 42.00 Owned Manufacture of tool joints
Muskogee, Oklahoma 195,900 108.40 Owned Manufacture of TCA premium
casing
Houston, Texas 148,500 20.00 Under lease through Manufacture of Atlas
03/31/2012 for $62,180 Bradford connectors
per month; renewable
for 10 additional years
114,200 21.90 Owned Manufacture of API and
premium threaded couplings
54,500 7.00 Owned Premium threading services
and manufacture of tubular
accessories
23,150 10.0 Owned Manufacture of drill
collars, heavyweights and
kellys
31,800 10.0 Owned Heat-treat of drill
collars and kellys
The Woodlands, Texas 52,000 -- Under lease through Corporate Headquarters
10/25/2008 for $80,381
per month; renewable
for 5 additional years
Bryan, Texas 160,000 55.30 Owned Manufacture of drill pipe
Kindberg, Austria 1,614,600 101.27 Owned through our Manufacture of green tube
50.01% joint venture and casing
with Voest-Alpine
Edmonton, Alberta, 109,600 10.20 Owned Manufacture of drill pipe,
Canada premium threaded casing,
liners and tubing
Houma, Louisiana 85,000 9.40 Owned Manufacture of downhole
accessories
</TABLE>
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<PAGE> 50
<TABLE>
<CAPTION>
FACILITY PROPERTY
SIZE SIZE
LOCATION (SQ.FT.) (ACRES) TENURE UTILIZATION
-------- --------- -------- ------ -----------
<S> <C> <C> <C> <C>
Broussard, Louisiana 24,600 5.64 Under lease through Provider of drivers for
08/24/2006, for $20,000 conductor installation
per month, Purchase services
option through 8/2000
Jurong, Singapore 33,600 2.67 Under lease through Manufacture of drill
08/14/2029 for $9,467 collars, accessories and
per quarter and an threading services
initial payment of $1.8
million
Beaumont, Texas 12,300 29.0 Owned Premium threading services
and manufacture of
conductors
</TABLE>
PATENTS
Many areas of our business rely on patents and proprietary technology. We
currently have more than 130 patents issued or pending. Many of our patents
provide us with competitive advantages in our markets. Although we consider our
patents and our patent protection to be an important part of our business, we do
not believe that the loss of one or more of our patents would have a material
adverse effect on our business.
BACKLOG
We had a product backlog as of December 31, 1999, 1998 and 1997 of $60.4
million, $88.9 million and $359.8 million, respectively. This backlog
represented approximately 21.1%, 13.8% and 57.1% of our total company sales for
those years. The decline in product backlog reflects current market conditions.
We also believe that sales will be materially dependent upon timing and recovery
of drilling activity.
INSURANCE
We currently participate in the insurance policies carried by Weatherford.
We have negotiated similar insurance policies for our U.S. and international
operations that will become effective on or before the spinoff. We do not
maintain political risk insurance (generally designed to cover expropriation and
nationalization exposures), but do maintain an all risk property insurance that
covers losses from insurrection, civil commotion and uprising. This insurance
does not cover losses resulting from a declared state of war.
Although we believe that we maintain insurance coverage that is adequate
for the risks involved, there is always a risk that our insurance may not be
sufficient to cover any particular loss or that our insurance may not cover all
losses. For example, while we maintain product liability insurance, this type of
insurance is limited in coverage and it is possible that an adverse claim could
arise that exceeds our coverage. Our insurance rates as a stand-alone entity may
differ from those rates obtained by Weatherford. Finally, insurance rates have
in the past been subject to wide fluctuation and changes in coverage could
result in increases in our cost or higher deductibles and retentions.
FEDERAL REGULATION AND ENVIRONMENTAL MATTERS
Our operations are subject to federal, state and local laws and regulations
relating to the energy industry in general and the environment in particular.
Environmental laws have over the years become more stringent and compliance with
such laws increases our overall cost of operations. In addition to affecting our
ongoing operations, applicable environmental laws can require us to remediate
contamination at our properties, at properties formerly owned or operated by us,
and at facilities to which we sent waste materials for treatment or disposal.
While we are not currently aware of any situation involving an environmental
claim that would likely have a material adverse effect on our business, it is
always possible that an environmental claim with respect to
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<PAGE> 51
one or more of our current businesses or a business or property that one of our
predecessors owned or used could arise that could have a material adverse
effect.
Our expenditures during 1999 to comply with environmental laws and
regulations were not material. We also believe that our costs for compliance
with environmental laws and regulations are generally within the same range with
those of our competitors. However, we can offer no assurance that our costs to
comply with environmental laws in the future will not be material.
EMPLOYEES
As of December 31, 1999, we had approximately 2,590 employees. Certain of
our operations are subject to union contracts. These contracts, however, cover
only approximately 15% of our total employees. We believe that our relationship
with our employees is good.
LITIGATION
From time to time, we may be involved in litigation relating to claims
arising out of the ordinary course of our business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would materially adversely affect us.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 1450 Lake Robbins Drive,
Suite 600, The Woodlands, Texas 77380. Our telephone number is (281) 297-8500.
Grant Prideco was incorporated in Delaware in 1990.
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MANAGEMENT
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF GRANT PRIDECO
Effective as of the distribution date, Grant Prideco's board of directors
will consist of nine persons. The following persons are currently expected to
serve as directors. In addition, we expect that at least one or two additional
persons will be named to our board of directors. Each director will serve until
our annual meeting of stockholders to be held in 2001.
<TABLE>
<CAPTION>
NAME AGE
- ---- ---
<S> <C>
John C. Coble............................................... 57
Bernard J. Duroc-Danner*.................................... 46
Eliot M. Fried.............................................. 66
Sheldon B. Lubar*........................................... 70
William E. Macaulay*........................................ 54
Robert K. Moses*............................................ 59
Robert A. Rayne*............................................ 50
</TABLE>
* Also a director of Weatherford.
John C. Coble will serve as Chief Executive Officer, President and Director
of Grant Prideco upon the completion of the spinoff. Mr. Coble was appointed
President of Grant Prideco in 1995. From 1989 to 1995, Mr. Coble held senior
executive positions at Weatherford and held senior executive positions at Grant
Prideco from 1981 to 1989. Prior to 1981, Mr. Coble spent 12 years with Shell
Oil Company in both marketing and financial areas. Mr. Coble graduated with a
Bachelors degree from the University of Missouri and a Masters degree from
Kellogg School of Business (Northwestern University).
Bernard J. Duroc-Danner is the President, Chief Executive Officer and
Chairman of the Board of Directors of Weatherford. Mr. Duroc-Danner has served
as President and CEO of Weatherford since May 1990. Mr. Duroc-Danner holds a
Ph.D. in economics from Wharton (University of Pennsylvania). In prior years,
Mr. Duroc-Danner held positions with Arthur D. Little and Mobil Oil Inc. Mr.
Duroc-Danner is a director of Parker Drilling Company (an oil and gas drilling
company) and Cal Dive International, Inc. (a company engaged in subsea services
in the Gulf of Mexico).
Eliot M. Fried joined Abner, Herrman & Brock Asset Management, an
independent investment management firm as of February 1, 2000. Prior to such
time, Mr. Fried was a Managing Director of Lehman Brothers, and a member of
Lehman Brothers' Investment and Capital Commitment Committees, as well as Senior
Trustee of Lehman Brothers Holdings Inc. Retirement Plan. Mr. Fried is a
director of Axsys Technologies Inc., L-3 Communications Corporation and Blount
International Inc.
Sheldon B. Lubar has been the Chairman of Lubar & Co., a private investment
company, for more than the past five years. Until February 8, 1999, Mr. Lubar
served as Chairman and Chief Executive Officer of Christiana Companies, Inc., a
diversified holding company that held shares of Weatherford common stock and
owned a company that was engaged in refrigerated and dry warehousing,
transportation and logistic services. Mr. Lubar is a director of C2, Inc.,
Ameritech Corporation, Massachusetts Mutual Life Insurance Company, Firstar
Corporation, MGIC Investment Corporation and Jefferies & Company, Inc.
William E. Macaulay has been the Chief Executive Officer of First Reserve
Corporation, a Connecticut-based-corporation that manages various investment
company funds, for more than the past five years and has served as Chairman of
First Reserve Corporation since June 1998. He is a director of Maverick Tube
Corporation (a manufacturer of oilfield tubulars, line pipe and structural
steel), National-Oilwell, Inc. (a company engaged in the design, manufacture and
sale of machinery and equipment and the distribution of products used in oil and
gas drilling production), and Cal Dive International, Inc. (a company engaged in
subsea services in the Gulf of Mexico).
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<PAGE> 53
Robert K. Moses, Jr. has been a private investor, principally in the oil
and gas exploration and oilfield services business in Houston, Texas, for more
than the past five years. He served as Chairman of the Weatherford Enterra Board
from May 1989 to December 1992.
Robert A. Rayne has been an Executive Director of London Merchant
Securities plc (property investment and development with major investments in
leisure enterprises), a United Kingdom-listed public limited company, for more
than the past five years.
Our board will have three standing committees: an Audit Committee, a
Compensation Committee and an Executive Committee. We will not have a nominating
committee.
The Audit Committee will comprise certain directors who are not employees
of Grant Prideco or any of its subsidiaries. Messrs. Fried, Lubar and Rayne will
serve initially as members of the Audit Committee. The primary functions of the
Audit Committee are:
- assessing the independence and performance of our independent and
internal auditors;
- recommending to our board the selection and discharge of our independent
auditors; and
- evaluating the adequacy of our internal accounting controls.
Our independent auditors and internal auditors will have unrestricted
access to the Audit Committee and vice versa.
The Compensation Committee will comprise certain directors who are not
employees of Grant Prideco or any of its subsidiaries. Messrs. Lubar, Moses and
Rayne will serve initially as members of the Compensation Committee. The primary
functions of the Compensation Committee are:
- recommending to our board the compensation to be paid to the directors,
officers and key employees; and
- subject to review and approval of certain matters by our full board of
directors, administering the compensation plans for our executive
officers.
Messrs. Duroc-Danner, Coble and Macaulay will serve initially as members of
the Executive Committee. The primary function of the Executive Committee is to
act on behalf of our board of directors between regularly scheduled meetings of
the board.
DIRECTOR COMPENSATION
Fees
We will pay our directors who are not our employees the following fees:
- $1,000 for each board and committee meeting attended;
- $1,500 for the Committee Chairman for each committee meeting attended;
and
- $7,000 for each quarter of the year in which the person serves as a
director.
Pursuant to Grant Prideco's Director Plan, each outside director will be
granted stock options or warrants to purchase an aggregate of 60,000 shares of
our common stock as of the spinoff. In addition, the directors will be
reimbursed for their travel expenses to and from board and committee meetings.
Grant Prideco, Inc. 2000 Non-Employee Director Stock Option Plan
Our non-employee director stock option plan is designed to encourage our
non-employee directors to obtain an equity interest in Grant Prideco. A total of
780,000 shares of Grant Prideco common stock may be subject to options under the
plan. We believe that stock ownership in Grant Prideco motivates our directors
to work toward our long-term growth and development. Under the plan,
non-employee directors, upon their
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<PAGE> 54
initial election to the board, are granted options or warrants to purchase
60,000 shares of common stock at exercise prices equal to the market price of
our common stock on the date of grant. In addition, on every third annual
meeting of our stockholders, each person who is then a non-employee director
will be granted options or warrants to purchase 60,000 shares of our common
stock at exercise prices equal to the market price of our common stock on the
date of the grant. Each person who becomes a non-employee director on the date
of the spinoff will be granted options or warrants to purchase 60,000 shares of
common stock at exercise prices equal to the market price of the common stock on
that date. The options granted under the plan generally are subject to
three-year cliff-vesting so that a non-employee director generally will not be
entitled to the options if he or she elects to leave. However, the options will
be immediately exercisable if the non-employee director dies or becomes disabled
or if there is a change in control of Grant Prideco while he or she is still a
director. The options also will be exercisable in part if the non-employee
director retires from Grant Prideco in good standing. We believe that this type
of vesting schedule provides strong incentives for creating long-term value for
Grant Prideco.
Director Deferred Compensation Plan
Under our deferred compensation plan for non-employee directors, each
non-employee director may elect to defer up to 7.5 percent of any fees paid by
us. The deferred fees are converted into non-monetary units representing shares
of common stock that could have been purchased with the deferred fees based on
the market price of common stock at the time of the deferral. If a non-employee
director elects to defer at least five percent of his fees, we will make an
additional credit to the director's account equal to the sum of (1) 7.5 percent
of the director's fees plus (2) the amount of fees deferred by the director. Our
directors may generally determine when the funds will be distributed from the
plan. The amount of the distribution will be equal to the number of units in the
director's account multiplied by the market price of the common stock at the
time of distribution. Distributions will generally be made in common stock,
except that amounts representing fractional shares will be distributed in cash.
EXECUTIVE OFFICERS OF GRANT PRIDECO
Set forth below is information with respect to the individuals who will
serve as our executive officers as of the distribution date.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bernard J. Duroc-Danner................ 46 Chairman of the Board
John C. Coble.......................... 57 Chief Executive Officer, President and
Director
William G. Chunn....................... 66 Executive Vice President of Operations
Curtis W. Huff......................... 42 Vice President and Interim General
Counsel
Frances R. Powell...................... 45 Vice President, Chief Financial Officer
and Treasurer
</TABLE>
William G. Chunn was appointed Executive Vice President, Operations in 1995
after the merger of Grant TFW, Inc. and Prideco, Inc. Mr. Chunn served as
President, Chief Executive Officer and Director of Prideco from 1985 to 1995.
Mr. Chunn has held senior executive positions in the drill stem industry for
over 30 years.
Curtis W. Huff will serve as Vice President and Interim General Counsel for
Grant Prideco subsequent to the spinoff in addition to his current duties as
Executive Vice President, Chief Financial Officer, General Counsel and Secretary
of Weatherford. Prior to February 2000, Mr. Huff served as Senior Vice
President, General Counsel and Secretary of Weatherford, positions he held since
June 1998. Prior to that time, Mr. Huff was a partner with the law firm of
Fulbright & Jaworski L.L.P., our counsel, and held that position for more than
five years.
Frances R. Powell will serve as Vice President, Chief Financial Officer and
Treasurer of Grant Prideco after the spinoff. Ms. Powell is currently Vice
President of Accounting and Controller for Weatherford, where
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<PAGE> 55
she has served in this position since 1991. From 1986 to 1990, Ms. Powell served
as Controller for and held other executive positions with GulfMark Offshore,
Inc.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
regarding compensation we paid for the fiscal year ended December 31, 1999 to
the individuals serving as our Chief Executive Officer and the only other
executive officer whose base salary and bonus exceeded $100,000 for fiscal 1999
(collectively, the "Named Executive Officers"). During the periods presented,
the individuals were compensated in accordance with Weatherford's plans and
policies. No compensation information is provided for Mr. Duroc-Danner, Mr. Huff
or Ms. Powell because compensation paid to those persons by Weatherford for 1999
was for their employment with Weatherford and not Grant Prideco or the portion
attributable to their employment with Grant Prideco did not exceed $100,000.
Descriptions of employment agreements to be entered into effective as of the
distribution date between Grant Prideco and certain of the Named Executive
Officers are set forth under "-- Employment Agreements and Change-of-Control
Arrangements".
All references in the tables to stock, stock options, prices and values
relate to awards of stock and stock options and historical prices of Weatherford
common stock. See "Relationship Between Grant Prideco and Weatherford After the
Spinoff -- Employment Matters; Treatment of Outstanding Stock Options and
Restricted Stock" for a discussion of how existing options and restricted stock
will be adjusted in connection with the spinoff.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -----------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION STOCK UNDERLYING COMPENSATION
COMPENSATION($) ($)(1) ($)(1) ($)(2)(3) AWARDS($) OPTIONS(#) ($)(4)
- --------------------------- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John C. Coble............................. 300,000 -- 67,500 -- -- 10,279
Chief Executive Officer,
President and Director
William G. Chunn.......................... 202,308 -- 35,701 -- -- 6,524
Executive Vice
President of Operations
</TABLE>
- ---------------
(1) Salary compensation includes amounts deferred by each executive officer
under the Weatherford Executive Deferred Compensation Stock Ownership Plan
(the "Executive Deferred Plan") described in Note 2 below. There were no
bonus amounts paid in 1999.
(2) Other Annual Compensation includes (i) the vested portion of the amount
contributed by us under the Executive Deferred Plan equal to 7.5% of each
annual officer's compensation for each year, plus (ii) the vested portion of
our matching contribution under the Executive Deferred Plan equal to 100% of
the amount deferred by the officer. Each officer can defer up to 7.5% of his
or her total salary and bonus compensation each year. Our contributions vest
over a five-year period on the basis of 20% per year from the date of
initial participation in the Executive Deferred Plan. Under the Executive
Deferred Plan, the compensation deferred by each officer and our
contributions are converted into non-monetary units equal to the number of
shares of common stock that could have been purchased at a market-based
price by the amounts deferred and contributed. Distributions are made under
the Executive Deferred Plan after an officer retires, terminates his
employment or dies. The amount of the distribution under the Executive
Deferred Plan is based on the number of vested units in the officer's
account multiplied by the market price of the common stock at that time.
Following the spinoff, the accounts of the executive officers for deferrals
made prior to spinoff will be maintained by Weatherford with the executive
being credited with both Weatherford common stock units and our common stock
units. Distributions in respect of deferrals prior to the spinoff will be
paid based on the market price of the Weatherford common stock allocated to
the account of the executive immediately prior to the spinoff and our common
stock issued as a
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<PAGE> 56
distribution in respect of those shares. Distributions under the Executive
Deferred Compensation Plan may, at Weatherford's election, be made in cash,
stock or combination of both. We have agreed to issue to participants in the
Executive Deferred Compensation Plan shares of our stock to the extent
required by Weatherford to satisfy the distribution under that plan. We also
will maintain a separate Executive Deferred Compensation Plan for our
executives after the spinoff in which the common stock accounts will be
based solely on our stock and distributions will be made by us in cash, our
stock or a combination of both. Weatherford's and our obligations with
respect to the Executive Deferred Plan are unfunded. However, Grant Prideco
and Weatherford have established grantor trusts that are subject to the
claims of our creditors, into which funds are deposited with an independent
trustee that purchases shares of common stock for the Executive Deferred
Plan. As of December 31, 1999, Messrs. Coble and Chunn had 37,975 and 10,792
units allocated to their respective accounts.
(3) Excludes the total amount of all perquisites and other benefits that were
less than the lesser of $50,000 or 10% of the total of annual salary and
bonus of each executive officer.
(4) Represents matching contributions of $1,920 and $1,920 were made by
Weatherford in 1999 under Weatherford's 401(k) Savings Plan for each of
Messrs. Coble and Chunn, respectively, and life insurance premiums of $8,359
and $4,604 paid by Weatherford in 1999 for each of Messrs. Coble and Chunn,
respectively.
STOCK OPTION GRANTS IN FISCAL 1999
Messrs. Coble and Chunn received no Weatherford stock option grants during
fiscal 1999. For information concerning the treatment of options held by our
officers after the spinoff, see "Relationship Between Grant Prideco and
Weatherford After the Spinoff -- Distribution Agreement -- Employment Matters;
Treatment of Outstanding Stock Options and Restricted Stock".
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND DECEMBER 31, 1999 OPTION VALUES
The following table provides information related to Weatherford common
stock options exercised by the Named Executive Officers during fiscal 1999 and
the number and value of Weatherford options held at December 31, 1999.
All references in the tables to stock, stock options, prices and values
relate to awards of stock and stock options and historical prices of Weatherford
common stock. See "Relationship Between Grant Prideco and Weatherford After the
Spinoff -- Employment Matters; Treatment of Outstanding Stock Options and
Restricted Stock" for a discussion of how existing options and restricted stock
will be adjusted in connection with the spinoff.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
VALUE UPON VALUE --------------------------- ---------------------------
NAME OPTION EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Coble.......... -- -- 80,400 100,000 1,766,375 2,181,250
William G. Chunn....... -- -- -- 25,000 -- 545,313
</TABLE>
- ---------------
(1) The value is based on the difference in the closing market price of the
Weatherford common stock on December 31, 1999 ($39.9375), and the exercise
price of the options. The actual value, if any, of the unexercised options
will depend on the market price of the Weatherford or Grant Prideco stock
issuable on the exercise of the options at the time of the exercise of the
options.
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<PAGE> 57
BENEFIT PLANS
We will maintain the following plans after the Spinoff:
Grant Prideco, Inc. 2000 Employee Stock Option and Restricted Stock Plan
We consider stock options and restricted stock to be an important incentive
to our employees to work toward the Company's long-term growth. Accordingly, we
will from time to time grant to our employees (including our executive officers)
options to purchase shares of Grant Prideco common stock and awards of
restricted Grant Prideco stock. The number of shares to be granted will be based
on the level and contribution of the employee. A total of 10,000,000 shares of
Grant Prideco common stock have been dedicated to the plan. Stock options are
subject to vesting over a number of years and generally will have exercise
prices equal to the market price of the common stock at the date of grant.
However, the exercise price and exercisability of each option may be determined
by the Compensation Committee of the board of directors. Similarly, restricted
stock awards will generally be subject to certain restrictions so that an
employee will not be entitled to the stock if he or she elects to leave the
Company. We believe that these types of vesting and restrictions provide strong
incentives for creating long-term value for the Company. We intend to grant to
our executive officers the number of stock options and restricted stock that is
consistent with industry standards and our objectives towards emphasizing
stock-based compensation for our senior executive officers.
Grant Prideco, Inc. Executive Deferred Compensation Plan
We will maintain an executive deferred compensation plan to provide our key
employees with long-term incentive compensation through benefits that are linked
directly to future increases in the value of Grant Prideco common stock and that
may be realized only upon the employee's termination of employment. Under this
plan, eligible employees receive a tax deferred credit equal to 7.5 percent of
their annual compensation through a credit to an account that is converted into
non-monetary units representing the number of shares of Grant Prideco common
stock that the credited funds could purchase at an price equal to the average
closing price of our common stock during the month the amounts are credited. In
addition, as an incentive to the participants to base their deferred
compensation on increases in our common stock a portion of the compensation that
they would otherwise receive from us, the participating employees also are
offered the opportunity to defer up to 7.5 percent of their compensation to
their account under this plan, in which case we will make a matching credit
equal to the amount of the deferral by the employee. This plan provides for a
five-year vesting period with respect to credits we provide, and the ultimate
value of benefits under the plan to the participant are wholly dependent upon
the price of Grant Prideco common stock at the time the employee terminates his
employment. We believe that our deferred compensation plans are an important
component of our stock-based compensation program and align management's
interest with those of our stockholders. Under the plan, Grant Prideco intends
to create a grantor trust so that each employer may make periodic contributions
to the trust approximating the amounts credited to an employee's account. The
trustee would use these contributions to purchase our common stock in the open
market, and this stock could be used to satisfy the obligation to the employee
when due.
Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan
We also will maintain an executive deferred compensation plan that will
provide our key foreign employees with long-term incentive compensation through
benefits that are directly linked to future increases in the value of the common
stock. Under this plan, eligible foreign employees receive a tax deferred credit
equal to 15 percent of their annual compensation through a credit to an account
that is converted into non-monetary units representing the number of shares of
our common stock that the contributed funds could purchase at a price equal to
the average closing price of our common stock during the month the amounts are
credited. This plan provides for a five-year vesting period with respect to
these credits, and the ultimate value of benefits under the plan to the
participant are wholly dependent upon the price of our common stock at the time
the employee terminates his employment.
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<PAGE> 58
Grant Prideco, Inc. 401(k) Savings Plan
We have established a 401(k) savings plan that allows eligible employees to
make before- and after-tax contributions toward their retirement security and
receive matching and discretionary contributions from us. All of our employees
are eligible to participate in the plan unless they are employees covered under
a collective bargaining agreement, leased employees, employees working outside
the United States, non-resident aliens with no United States source income or
employees participating in a retirement plan maintained outside the United
States. An eligible employee may elect to defer up to 16 percent of his or her
compensation on a before-tax basis. After a year of service, we will match half
of up to six percent of a participant's before-tax deferrals, and the
participant will be able to share in any discretionary contributions we make. A
participant's contributions and any matching and discretionary contributions we
make will be vested immediately. Participants may invest their accounts in
various investment funds offered under the plan. A participant may withdraw
certain funds from his or her account in the case of a financial hardship or on
or after age 59 1/2, and may withdraw his or her after-tax and/or rollover
contributions at any time. Loans are also available to participants under the
plan. Distributions of a participant's before- and after-tax contributions and
our contributions may be made when the participant dies, becomes disabled,
retires or terminates employment. We believe that financial security is often
the main factor for determining the quality of life during retirement, and this
plan provides our employees with the opportunity to effectively save toward
long-term financial goals.
EMPLOYMENT AGREEMENTS AND CHANGE-OF-CONTROL ARRANGEMENTS
We currently expect to enter into an employment agreement with each of Mr.
Coble and Ms. Powell as our executive officers. These employment agreements will
be in lieu and in substitution of the employment agreements that Mr. Coble and
Ms. Powell have with Weatherford. We expect that each employment agreement will
have a term of three years and be renewable annually. Under the terms of these
employment agreements, if we terminate the executive's employment for any reason
other than "cause" or "disability" or if the executive terminates his or her
employment for "good reason", as defined in the employment agreements, the
executive will be entitled to receive an amount equal to the sum of (1) three
times the executive's current annual base compensation plus the highest bonus
paid by Grant Prideco or Weatherford to the executive during the three years
prior to the year of termination, (2) any accrued salary or bonus (pro-rated to
the date of termination), (3) an amount payable as if all retirement plans were
vested, (4) the amount that would have been contributed as our match under our
401(k) plan and our executive deferred plan for three years and (5) the
executive's car allowance for three years. Under the employment agreements,
"cause" is defined as the willful and continued failure to perform the
executive's job after written demand is made by the Chief Executive Officer or
the board or the willful engagement in illegal conduct or gross misconduct.
Termination by the executive for "good reason" is generally defined as (A) a
material reduction in title and/or responsibilities of the executive, (B)
certain relocations of the executive or (C) any material reduction in the
executive's benefits. In addition, under such circumstances, all stock options
and restricted stock granted to the executive will vest automatically. The
executive also would have the right to surrender for such cash all such options
unless to do so would cause a transaction otherwise eligible for pooling of
interests accounting treatment under Accounting Principles Board Opinion No. 16
to be ineligible for such treatment, in which case the executive would receive
shares of common stock equal in value to the cash he or she would have received.
All health and medical benefits would also be maintained after termination for a
period of three years provided the executive makes his or her required
contribution. Under the Deficit Reduction Act of 1984, certain severance
payments that exceed a certain amount could subject both us and the executive to
adverse U.S. federal income tax consequences. Each of the employment agreements
provides that we would be required to pay the executive a "gross up payment" to
insure that the executive receives the total benefit intended by the employment
agreement. The base compensation payable to Mr. Coble and Ms. Powell under the
employment agreements are $400,000 and $225,000, respectively.
It is also expected that Mr. Coble and Ms. Powell will be granted options
to purchase an additional 400,000 and 100,000 shares of Grant Prideco common
stock, respectively, effective as of the spinoff. The exercise price of those
options will be equal to the fair market value of the Grant Prideco common stock
at the time of the spinoff.
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Upon the spinoff, we expect to enter into a change of control agreement
with Mr. Chunn. Under this agreement, he will be provided with certain benefits
if there is both a change of control of Grant Prideco and is subsequently
terminated for any reason other than for "cause" or elects to terminate his
employment for "good reason" within two years after a change of control. A
change of control is defined generally as an acquisition by a person or group of
persons of at least 50% of our outstanding common stock. Under his agreement, if
there is a change of control of Grant Prideco, we would agree that his base
salary would not decrease unless there was a company-wide salary reduction, Mr.
Chunn would continue to be eligible for an annual bonus under our incentive plan
applicable to other key employees and if we are not the surviving entity in a
change of control, the surviving company would be required to issue
substantially similar options in replacement of any Grant Prideco options held
by him. "For cause" under Mr. Chunn's change of control agreement will be
defined to be the failure by him to perform his job after written notice from
us, engaging in illegal conduct or misconduct, a conviction of a crime involving
moral turpitude, a misappropriation of funds, disparagement of us or our
management or other cause determined by our board of directors in good faith.
"Good reason" will be defined in Mr. Chunn's change of control agreement as a
material reduction in responsibility or benefits.
If, following a change of control, Mr. Chunn's employment is terminated by
us for any reason other than cause or Mr. Chunn's employment is terminated by
him for good reason, he would be entitled to two years base salary plus two
years bonus, and all of his outstanding options will vest.
We also expect to enter into employment agreements with each of Messrs.
Duroc-Danner and Huff in connection with the services they will provide to us.
In each case, the term of their employment will be for a period of three years
and will be renewable annually. The base compensation to be paid to Mr.
Duroc-Danner will be $150,000 per year and the base compensation to be paid to
Mr. Huff will be $100,000 per year. Messrs. Duroc-Danner and Huff also will be
granted options to purchase 400,000 and 240,000 shares, respectively, of Grant
Prideco common stock at an exercise price equal to the fair market value of the
Grant Prideco common stock at the time of the spinoff. These options will vest
three years from the date of grant, subject to acceleration in the event of a
change of control or termination of employment for any reason other than for
cause. Messrs. Duroc-Danner and Huff will provide services to us only on a
part-time basis from time to time as we may reasonably require to assist us in
the development and implementation of our strategic initiatives. Their services
also would be subject to their commitments to Weatherford. Mr. Huff also will
serve as Interim General Counsel of Grant Prideco until such time as a full time
General Counsel may be named. The employment agreements with Messrs.
Duroc-Danner and Huff also will be substantially similar to the employment
agreements with Mr. Coble and Ms. Powell.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before the spinoff, we had no Compensation Committee. As of the spinoff,
the Compensation Committee of our board will consist of Messrs. Lubar, Moses and
Rayne. Messrs. Lubar, Moses and Rayne also comprise the compensation committee
of Weatherford's board.
51
<PAGE> 60
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Because the spinoff will be on the basis of one share of our common stock
distributed for each share of Weatherford common stock owned on the record date,
each Weatherford stockholder will own at the distribution date the same
percentage of the issued and outstanding Grant Prideco common stock as that
stockholder owns of Weatherford common stock.
The following table sets forth certain information regarding the
anticipated beneficial ownership of our common stock by persons we anticipate
will own beneficially more than 5% of our outstanding common stock as of the
distribution date, based upon the actual holdings of Weatherford common stock as
of March 15, 2000.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES(1) OUTSTANDING SHARES
------------------- ------------------- ------------------
<S> <C> <C>
FMR Corp.(2)
82 Devonshire Street
Boston, Massachusetts 02109.............................. 12,276,092 11.3%
</TABLE>
- ---------------
(1) This information is based on information furnished by each stockholder or
contained in filings made with the Securities and Exchange Commission. The
persons listed have sole voting and dispositive power for their shares of
common stock, unless otherwise noted.
(2) Fidelity Management & Research Company ("Fidelity"), a wholly owned
subsidiary of FMR Corp. ("FMR") and a registered investment adviser, is the
beneficial owner of 10,302,274 shares as a result of acting as investment
adviser to various registered investment companies (the "Funds"). Fidelity
Management Trust Company ("FMTC"), a wholly owned subsidiary of FMR, is the
beneficial owner of 1,973,818 shares as a result of serving as investment
manager of various institutional accounts. Edward C. Johnson 3d, FMR's
Chairman and principal stockholder, FMR, through its control of Fidelity,
and the Funds each has sole power to dispose of the 9,462,140 shares owned
by the Funds. Mr. Johnson and FMR, through its control of FMTC, each has
sole power to dispose of 1,973,818 shares owned by the institutional
accounts and sole power to vote or direct the voting of 1,689,218 of such
shares. Members of Mr. Johnson's family and trusts for their benefit are the
predominant owners of Class B shares of common stock of FMR. Mr. Johnson
owns 12.0% and Abigail P. Johnson, a director of FMR, owns 24.5% of the
voting stock of FMR. The Johnson family and all other Class B shareholders
have entered into a shareholders' voting agreement under which all Class B
shares will be voted in accordance with the majority vote of Class B shares.
Through their ownership of voting common stock and the shareholders' voting
agreement, members of the Johnson family may be deemed, under the Investment
Company Act of 1940, to form a controlling group as to FMR.
52
<PAGE> 61
All of the figures in this table and the footnotes for shares of our common
stock have been derived based upon the hypothetical assumption that the record
date and the distribution date were March 15, 2000, so as to reflect what the
beneficial ownership of Grant Prideco common stock would have been at that time.
Actual ownership on the distribution date may vary substantially from that shown
in the table. The following table sets forth information with respect to the
shares of our common stock that we anticipate will be beneficially owned by each
director of Grant Prideco, each Named Executive Officer, and by all directors
and executive officers of Grant Prideco as a group effective as of the
distribution date. Each person has sole voting and investment power for the
shares shown below, unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES
BENEFICIALLY OWNED AS OF MARCH 15, 2000
----------------------------------------------
NUMBER OF RIGHT TO PERCENT OF
NAME SHARES OWNED ACQUIRE(1) OUTSTANDING SHARES
---- ------------ ---------- ------------------
<S> <C> <C> <C>
John C. Coble......................................... -- 80,400 *
Bernard J. Duroc-Danner............................... 90,412 630,000 *
Eliot M. Fried........................................ 20,000 -- *
Sheldon B. Lubar(2)................................... 746,969 30,000 *
William E. Macaulay(3)................................ 628,933 10,000 3.2%
Robert K. Moses, Jr.(4)............................... 424,383 10,000 *
Robert A. Rayne(5).................................... 279 20,000 *
William G. Chunn...................................... 38,806 -- *
Curtis W. Huff(6)..................................... 71,000 33,333 *
Frances R. Powell..................................... 953 41,000 *
All officers and directors as a group (10 persons).... 2,021,735 854,733 5.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Shares of common stock that can be acquired through stock options
exercisable through May 14, 2000.
(2) Includes 355,114 shares held by his wife, over which he has no voting or
dispositive power and as to which he disclaims beneficial ownership. Also
includes 27,342 shares held in trusts for his grandchildren, of which he is
the trustee and has voting and dispositive power.
(3) Includes 6,618 shares held by his wife, over which he has no voting or
dispositive power and as to which he disclaims beneficial ownership, and
3,876 shares held in the names of, or in trusts for, his daughters. Includes
611,000 shares owned beneficially by First Reserve Corporation. Mr. Macaulay
is Chairman and Chief Executive Officer of First Reserve. Mr. Macaulay
disclaims beneficial ownership of the shares of common stock beneficially
owned by First Reserve.
(4) Includes an aggregate of 42,750 shares held in various trusts for Mr. Moses'
family, of which Mr. Moses is the trustee and has sole voting and
dispositive power. Excludes (i) an aggregate of 49,875 shares held in
various trusts for Mr. Moses' children, (ii) 1,758 shares held in a trust
for Mr. Moses' son and (iii) 593 shares held by Mr. Moses' adult son
supported by him. Mr. Moses has no voting or dispositive power over these
excluded shares. Mr. Moses disclaims beneficial ownership of all of the
above-described shares.
(5) Excludes 540,000 shares beneficially owned by London Merchant Securities
plc, of which Mr. Rayne serves as Executive Director. Mr. Rayne disclaims
beneficial ownership of all of these shares.
(6) Includes 56,250 restricted shares that vest over a three-year period through
June 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective as of the spinoff, Grant Prideco and Weatherford will have five
common directors. Mr. Duroc-Danner, President, Chief Executive Officer and
Chairman of the Board of Weatherford, will serve as our Chairman of the Board.
Mr. Huff, Executive Vice President, Chief Financial Officer and General Counsel
of Weatherford, will serve as our Vice President and Interim General Counsel. We
will enter into several agreements with Weatherford in connection with the
spinoff, including the Distribution Agreement, the Tax Allocation Agreement, the
Transition Services Agreement and the Preferred Supplier Agreement. We will also
issue a $100 million note to Weatherford. See "Relationship Between Grant
Prideco and Weatherford After the Spinoff".
53
<PAGE> 62
DESCRIPTION OF GRANT PRIDECO CAPITAL STOCK
GENERAL
Our authorized capital stock as of the spinoff will consist of 300 million
shares of our common stock and 10 million shares of preferred stock, par value
$.01 per share, of which, approximately 109.0 million shares of our common stock
will be issued and outstanding and owned by Weatherford. No shares of our
preferred stock will be issued or outstanding. All of these issued and
outstanding shares of our common stock will be distributed to holders of
Weatherford common stock in the spinoff. Following the spinoff, Weatherford will
not own any of our common stock other than in trust for employee benefit plans.
All of the shares of our common stock issued in the spinoff will be validly
issued, fully paid and nonassessable.
GRANT PRIDECO COMMON STOCK
Voting Rights
Holders of our common stock will be entitled to one vote for each share on
all matters voted on by stockholders. Our common stock will possess all voting
power of Grant Prideco, except as otherwise required by law or provided in any
resolution adopted by our board designating any series of Grant Prideco
preferred stock. The shares of our common stock will not have cumulative voting
rights.
Although the holders of our common stock are generally entitled to vote for
the approval of amendments to our certificate of incorporation, the voting
rights of the holders of our common stock are limited with respect to certain
amendments to our certificate of incorporation that affect only the holders of
our preferred stock. Specifically, subject to the rights of any outstanding
shares of any series of our preferred stock, our certificate of incorporation
may be amended from time to time in any manner that would solely modify or
change the relative powers, preferences and rights and the qualifications or
restrictions of any issued shares of any series of our preferred stock then
outstanding with the only required vote or consent for approval of such
amendment being the affirmative vote or consent of the holders of a majority of
the outstanding shares of the series of our preferred stock so affected,
provided that the powers, preferences and rights and the qualifications and
limitations or restrictions of such series after giving effect to such amendment
are no greater than the powers, preferences and rights and qualifications and
limitations or restrictions permitted to be fixed and determined by the board of
directors with respect to the establishment of any new series of shares of our
preferred stock pursuant to the authority vested in the board of directors as to
such matters.
Dividend Rights
Subject to any preferential or other rights of any outstanding series of
our preferred stock that our board may designate, and subject to contractual
restrictions contained in our debt agreements, holders of our common stock will
be entitled to such dividends as may be declared from time to time by our board
from funds legally available therefor. See "Dividend Policy".
Liquidation Rights and Other Provisions
Subject to the prior rights of creditors and the holders of any of our
preferred stock that may be outstanding from time to time, the holders of our
common stock are entitled in any liquidation, dissolution or winding up to share
pro rata in the distribution of all remaining assets.
Our common stock is not liable for any calls or assessments and is not
convertible into any other securities. Our certificate of incorporation will
provide that the private property of the stockholders shall not be subject to
the payment of corporate debts. There are no redemption or sinking fund
provisions applicable to our common stock.
GRANT PRIDECO PREFERRED STOCK
Our board will be authorized to issue shares of preferred stock, in one or
more series, and to fix the voting powers, designations, preferences and
relative, participating, optional and other special rights, qualifications,
54
<PAGE> 63
limitations or restrictions of such shares, subject to the Delaware General
Corporation Law. No shares of our preferred stock will be issued in connection
with the spinoff.
NO PREEMPTIVE RIGHTS
No holder of any stock of Grant Prideco of any class authorized at the
distribution date will have any preemptive right to subscribe to any securities
of Grant Prideco of any kind or class.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
As a Delaware corporation, we are subject to Section 203 of the Delaware
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the time such person became an interested stockholder unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock plans that do not
provide employees with the rights to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer); or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder.
Under Section 203, the restrictions described above also do not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
NOMINATION OF DIRECTORS
Our bylaws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the board or a committee
thereof, of candidates for election as directors.
This nomination procedure requires that a stockholder give advance written
notice, in proper form, of a planned nomination for the board to the Secretary
of Grant Prideco. The requirements as to the form and timing of that notice,
which are specified in our bylaws, are not inconsistent with the requirements of
the Securities Exchange Act of 1934 for a stockholder proposal. If a person is
not nominated in accordance with this nomination procedure, that person will not
be eligible for election as a director.
Although our bylaws do not give the board any power to approve or
disapprove stockholder nominations for the election of directors, our bylaws may
have the effect of precluding a nomination for the election of directors at a
particular meeting if the proper procedures are not followed and may discourage
a third party from soliciting proxies to elect its own slate of directors or
otherwise attempting to obtain control of Grant Prideco, even if that
solicitation or attempt might be beneficial to us and our stockholders.
55
<PAGE> 64
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent of our common stock will be American Stock
Transfer & Trust Company.
LIABILITY AND INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Delaware law and our certificate of incorporation and bylaws include
provisions designed to limit the liability of our officers and directors and, in
certain circumstances, to indemnify our officers and directors against certain
liabilities. These provisions are designed to encourage qualified individuals to
serve as our officers and directors.
EXCULPATION OF MONETARY LIABILITY
Under Delaware law, a corporation may include provisions in its certificate
of incorporation that relieve its directors of monetary liability for breaches
of their fiduciary duty to the corporation, except under certain circumstances,
including
- a breach of the director's duty of loyalty,
- acts or omissions of the director not in good faith or which involve
intentional misconduct or a knowing violation of law,
- the approval of an improper payment of a dividend or an improper purchase
by the corporation of the corporation's stock or
- any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation will provide that our directors are not
liable to us or our stockholders for monetary damages for breach of their
fiduciary duty, subject to the restrictions above. These limitations of
liability may not affect claims arising under the federal securities laws.
INDEMNIFICATION
Under Section 145 of the Delaware General Corporation Law and our bylaws,
we are obligated to indemnify our present and former directors and officers and
may indemnify other employees and individuals against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation, a "derivative action"), if the person to whom indemnity is granted
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to our best interests, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that indemnification extends only to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action, and the
Delaware General Corporation Law requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to Grant Prideco.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and officers and controlling persons pursuant to
the foregoing provisions, we have been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
INDEPENDENT PUBLIC ACCOUNTANTS
Our board will select before the end of fiscal 2000 an independent
accounting firm to audit our financial statements for the year ending December
31, 2000. Arthur Andersen LLP has served as independent accountants of Grant
Prideco and Weatherford through the periods covered by the financial statements
included in this information statement.
56
<PAGE> 65
WHERE YOU CAN FIND MORE INFORMATION
We will file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934. You may inspect those reports, proxy statements
and other information at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Regional Offices of the SEC at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York
10048. Please call the SEC at 1-800-SEC-0300 for further information about the
public reference rooms. You may also obtain copies of those materials from the
Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The SEC maintains a site on the Internet at WWW.SEC.GOV that contains these
reports, proxy and information statements and other information regarding
Weatherford. You can also inspect and copy those reports, proxy and information
statements and other information at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, on which our common stock is
expected to be listed.
We have filed with the SEC a registration statement on Form 10 that
includes this information statement. This information statement is only a part
of that registration statement and does not contain all of the information in
our registration statement. For further information on us and our common stock,
please review our registration statement and the exhibits that are filed with
it. Statements made in this information statement that describe documents may
not necessarily be complete. We recommend that you review the documents that we
have filed with our registration statement to obtain a more complete
understanding of those documents.
All documents that we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this information
statement will be deemed to be incorporated in this information statement by
reference and will be a part of this information statement from the date of the
filing of the document. Any statement contained in a document incorporated or
deemed to be incorporated by reference in this information statement will be
deemed to be modified or superseded for purposes of this information statement
to the extent that a statement contained in this information statement or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in this information statement modifies or supersedes that
statement. Any statement that is modified or superseded will not constitute a
part of this information statement, except as modified or superseded.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this information statement has been delivered, upon
written or oral request, a copy of any or all of the documents incorporated by
reference in this information statement, other than the exhibits to those
documents, unless the exhibits are specifically incorporated by reference into
the information that this information statement incorporates. You should direct
a request for copies to Weatherford at 515 Post Oak Boulevard, Suite 600,
Houston, Texas 77027, Attention: Secretary (telephone number: (713) 693-4000).
If you have any other questions regarding us, please contact our Investor
Relations Department in writing (1450 Lake Robbins Drive, Suite 600, The
Woodlands, Texas 77380) or by telephone ((281) 297-8500).
We intend to furnish holders of our common stock with annual reports
containing consolidated financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial statements.
57
<PAGE> 66
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Financial Statements of Grant Prideco
Report of Independent Public Accountants.................. F-2
Combined Balance Sheets as of December 31, 1999 and
1998................................................... F-3
Combined Statements of Operations for the years ended
December 31, 1999, 1998, and 1997...................... F-4
Combined Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-5
Combined Statements of Stockholder's Equity for the years
ended December 31, 1999, 1998 and 1997................. F-6
Notes to Combined Financial Statements.................... F-7
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grant Prideco, Inc.:
We have audited the accompanying combined balance sheets of the drilling
product businesses of Weatherford International, Inc. (a Delaware corporation)
(Grant Prideco), as of December 31, 1999 and 1998, and the related combined
statements of operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Grant Prideco as of
December 31, 1999 and 1998, and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
January 28, 2000
F-2
<PAGE> 68
GRANT PRIDECO
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents................................. $ 6,204 $ 6,070
Restricted Cash........................................... 3,658 --
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $500 and $366 at December 31, 1999 and
1998................................................... 77,650 129,019
Inventories............................................... 173,904 186,267
Current Deferred Tax Asset................................ 6,197 10,785
Other Current Assets...................................... 4,425 18,155
-------- --------
272,038 350,296
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Machinery and Equipment................................... 224,225 197,552
Land, Buildings and Other Property........................ 81,390 86,350
-------- --------
305,615 283,902
Less: Accumulated Depreciation............................ 98,906 74,908
-------- --------
206,709 208,994
-------- --------
GOODWILL, NET............................................... 187,765 162,464
INVESTMENT IN UNCONSOLIDATED AFFILIATES..................... 37,453 6,848
OTHER ASSETS................................................ 30,610 9,712
-------- --------
$734,575 $738,314
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings and Current Portion of Long-Term
Debt................................................... $ 14,710 $ 52,881
Accounts Payable.......................................... 47,459 41,377
Accrued Wages and Benefits................................ 6,277 4,427
Current Deferred Tax Liability............................ 7,144 8,231
Customer Advances......................................... 18,503 5,248
Purchase Credit........................................... -- 8,000
Other Accrued Liabilities................................. 13,308 24,104
-------- --------
107,401 144,268
-------- --------
SUBORDINATED NOTE TO WEATHERFORD............................ 100,000 100,000
LONG-TERM DEBT.............................................. 24,276 9,265
DEFERRED INCOME TAXES....................................... 44,533 24,838
MINORITY INTEREST........................................... 886 --
OTHER LONG-TERM LIABILITIES................................. 3,623 14,732
COMMITMENTS AND CONTINGENCIES
TOTAL STOCKHOLDER'S EQUITY.................................. 453,856 445,211
-------- --------
$734,575 $738,314
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE> 69
GRANT PRIDECO
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES.................................................... $286,370 $646,454 $630,021
-------- -------- --------
COSTS AND EXPENSES:
Cost of Sales............................................. 262,269 480,034 471,779
Selling, General and Administrative Attributable to
Segments............................................... 31,104 31,986 29,903
Corporate General and Administrative...................... 14,638 14,407 11,983
Equity (Income) Loss in Unconsolidated Affiliates......... 419 (267) --
Weatherford Charges....................................... 1,500 960 920
Nonrecurring Charges...................................... 9,454 6,450 --
-------- -------- --------
319,384 533,570 514,585
-------- -------- --------
OPERATING INCOME (LOSS)..................................... (33,014) 112,884 115,436
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest Expense.......................................... (4,093) (4,758) (5,726)
Weatherford Interest Expense.............................. (7,250) (7,250) (7,250)
Other, Net................................................ (138) 4,692 (396)
-------- -------- --------
(11,481) (7,316) (13,372)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... (44,495) 105,568 102,064
PROVISION (BENEFIT) FOR INCOME TAXES........................ (11,199) 39,848 40,550
-------- -------- --------
NET INCOME (LOSS) BEFORE MINORITY INTEREST.................. (33,296) 65,720 61,514
MINORITY INTEREST........................................... (215) -- --
-------- -------- --------
NET INCOME (LOSS)........................................... $(33,511) $ 65,720 $ 61,514
======== ======== ========
Pro Forma Earnings (Loss) Per Share:
Basic..................................................... $ (0.33) $ 0.68 $ 0.64
======== ======== ========
Diluted................................................... $ (0.33) $ 0.67 $ 0.63
======== ======== ========
Pro Forma Weighted Average Shares:
Basic..................................................... 101,245 97,065 96,052
======== ======== ========
Diluted................................................... 101,245 97,757 97,562
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE> 70
GRANT PRIDECO
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)......................................... $(33,511) $65,720 $61,514
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided By Operating Activities:
Non-Cash Portion of Other Nonrecurring Charges............ 9,454 30,500 --
Depreciation and Amortization............................. 30,514 31,173 27,051
Deferred Income Tax Provision (Benefit)................... 9,531 (4,513) 14,944
Equity (Income) Loss in Unconsolidated Affiliates......... 419 (267) --
Gain on Asset Disposal.................................... -- (1,226) --
Sale of Technology License................................ -- (9,000) --
Change in Assets and Liabilities, Net of Effects of
Businesses Acquired:
Accounts Receivable.................................... 41,072 13,308 (40,922)
Inventories............................................ 10,944 (22,878) (52,686)
Other Current Assets................................... 8,919 (13,812) (1,375)
Accounts Payable....................................... 18,927 (57,091) 11,964
Accrued Current Liabilities............................ (32,291) (10,730) (12,871)
Other Assets........................................... (703) (1,215) (1,456)
Customer Advances...................................... 13,255 2,344 2,904
Purchase Credit........................................ (8,000) (8,000) --
Other, Net............................................. (3,290) (3,586) 805
-------- ------- -------
Net Cash Provided by Operating Activities.............. 65,240 10,727 9,872
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired........... (15,072) (17,400) (50,847)
Capital Expenditures for Property, Plant and Equipment.... (19,046) (38,102) (34,813)
Proceeds on Sale of Assets................................ -- 6,023 --
-------- ------- -------
Net Cash Used by Investing Activities.................. (34,118) (49,479) (85,660)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net................................... (54,225) (6,990) (22,778)
Stockholder's Investment.................................. 23,237 43,609 105,466
-------- ------- -------
Net Cash Provided (Used) by Financing Activities....... (30,988) 36,619 82,688
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 134 (2,133) 6,900
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 6,070 8,203 1,303
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 6,204 $ 6,070 $ 8,203
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 71
GRANT PRIDECO
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
CURRENCY TOTAL
STOCKHOLDER'S RETAINED TRANSLATION STOCKHOLDER'S
INVESTMENT EARNINGS ADJUSTMENT EQUITY
------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................... $150,168 $ 19,122 $ (5,070) $164,220
Total Comprehensive Income (Loss)............ -- 61,514 (2,360) 59,154
Stockholder's Contribution................... 109,348 -- -- 109,348
-------- -------- -------- --------
Balance of December 31, 1997................... 259,516 80,636 (7,430) 332,722
Total Comprehensive Income (Loss)............ -- 65,720 (5,908) 59,812
Stockholder's Contribution................... 51,928 749 -- 52,677
-------- -------- -------- --------
Balance at December 31, 1998................... 311,444 147,105 (13,338) 445,211
Total Comprehensive Loss..................... -- (33,511) (17) (33,528)
Stockholder's Contribution................... 42,173 -- -- 42,173
-------- -------- -------- --------
Balance at December 31, 1999................... $353,617 $113,594 $(13,355) $453,856
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 72
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS
1. WEATHERFORD INTERNATIONAL INC.'S PROPOSED SPINOFF OF ITS DRILLING PRODUCTS
DIVISION
On October 22, 1999, the Board of Directors of Weatherford International,
Inc. ("Weatherford" or "Stockholder") authorized the spinoff of its drilling
products businesses (the "Company" or "Grant Prideco") to its shareholders as an
independent, publicly-traded company (the "Distribution"). The drilling products
businesses will be transferred to Grant Prideco, Inc. from Weatherford. The
Distribution is subject to the effectiveness of a tax ruling by the Internal
Revenue Service that would allow it to be tax-free to shareholders subject to
U.S. Federal income taxes and appropriate stock market conditions. Immediately
following the Distribution, Weatherford will no longer have an equity investment
in Grant Prideco, however, Grant Prideco will have a $100.0 million unsecured
subordinated note to Weatherford due no later than March 31, 2002 and a $30
million drill stem credit obligation to Weatherford. Weatherford will also
remain liable on certain existing contingent liabilities relating to Grant
Prideco which were not able to be released, terminated or replaced prior to the
Distribution date ("unreleased contingent liabilities"). Grant Prideco will
fully indemnify Weatherford for any payments made under the unreleased
contingent liabilities.
Basis of Presentation
The combined financial statements reflect the results of operations of
Weatherford's drilling products businesses that will be transferred to Grant
Prideco, Inc. from Weatherford. The combined financial statements have been
prepared using the historical bases in the assets and liabilities and historical
results of operations related to Grant Prideco, except as noted herein. The
combined financial statements include allocations ("carve-outs") of general and
administrative corporate overhead costs of Weatherford to Grant Prideco and
direct costs of services provided by Weatherford for the benefit of Grant
Prideco (See Note 15). Management believes such allocations are reasonable;
however, the costs of these services charged to Grant Prideco are not
necessarily indicative of the costs that would have been incurred if Grant
Prideco had performed these functions as a stand-alone entity. Subsequent to the
Distribution, Grant Prideco will perform these functions using its own resources
or purchased services and will be responsible for the costs and expenses
associated with the management of a public corporation.
The financial information included herein may not necessarily reflect the
combined results of operations, financial position, changes in stockholder's
equity and cash flows of Grant Prideco in the future or what they would have
been had it been a separate, stand-alone entity during the periods presented.
The combined financial statements included herein do not reflect any changes
that may occur in the financing of Grant Prideco as a result of the
Distribution.
Nature of Operations
The Company manufactures and supplies drill pipe and drilling tools,
premium connectors and associated high grade tubular and marine connectors used
in the exploration and production of oil and natural gas.
Principles of Combination
Intercompany transactions and balances between Grant Prideco's businesses
have been eliminated. The Company accounts for its 50% or less-owned affiliates
using the equity method. The minority's interest in H-Tech (46%) is included in
the balance sheets and statements of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE> 73
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.
Property Plant and Equipment
Property, plant and equipment is carried at cost. Maintenance and repairs
are expensed as incurred. The costs of renewals, replacements and betterments
are capitalized. Depreciation on fixed assets is computed using the
straight-line method over the estimated useful lives for the respective
categories. The Company evaluates potential impairment of property, plant and
equipment and other long-lived assets on an ongoing basis and reduces the
carrying value whenever events or circumstances effecting the carrying amounts
indicate that amounts may not be fully recoverable. The useful lives of the
major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
LIFE
------------
<S> <C>
Machinery and equipment................................ 3 - 20 years
Buildings and other property........................... 5 - 40 years
</TABLE>
Intangible Assets and Amortization
The Company's intangible assets are comprised primarily of goodwill and
identifiable intangible assets, principally patents and technology licenses. The
Company periodically evaluates goodwill and other intangible assets, net of
accumulated amortization, for impairment based on the undiscounted cash flows
associated with the asset compared to the carrying amount of that asset.
Management believes that there have been no events or circumstances which
warrant revision to the remaining useful life or which affect the recoverability
of any intangible assets. Goodwill is being amortized on a straight-line basis
over the lesser of the estimated useful life or 40 years. Other identifiable
intangible assets, included as a component of other assets, are amortized on a
straight-line basis over the years expected to be benefited, ranging from 5 to
15 years.
Amortization expense for goodwill and other intangible assets was
approximately $6.1 million, $5.8 million and $3.4 million for the years ended
December 31, 1999, 1998, and 1997, respectively. Accumulated amortization for
goodwill at December 31, 1999 and 1998 was $11.7 million and $7.1 million,
respectively.
Foreign Currency Translation
The functional currency for most of the Company's international operations
is the applicable local currency. Results of operations for foreign subsidiaries
with functional currencies other than the U.S. dollar are translated using
average exchange rates during the period. Assets and liabilities of these
foreign subsidiaries are translated into U.S. dollars using the exchange rates
in effect at the balance sheet date, and the resulting translation adjustments
are included in stockholder's equity. Currency transaction gains and losses are
reflected in income for the period.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts only as a hedge against
existing economic exposures, and not for speculative or trading purposes. These
contracts reduce exposure to currency 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 December 31, 1999, Weatherford had
a contract maturing on January 31, 2000 to
F-8
<PAGE> 74
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purchase Austrian schillings equivalent to $23.9 million. Gains and losses on
the change in market value of the contract are recognized currently in earnings.
Although we are exposed to exchange rate fluctuations in the Austrian schilling
subsequent to January 31, 2000, we are reviewing longer-term hedge arrangements
to mitigate this risk.
Accounting for Income Taxes
The accompanying financial statements have been prepared under Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes
assuming Grant Prideco was a separate entity. Under SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
In connection with the Distribution, Grant Prideco and Weatherford will
enter into a tax allocation agreement (the "Tax Allocation Agreement"). Under
the terms of the Tax Allocation Agreement, Grant Prideco, will be responsible
for all taxes and associated liabilities relating to the historical businesses
of Grant Prideco. The Tax Allocation Agreement will also provide that any tax
liabilities associated with the spinoff shall be assumed and paid by Grant
Prideco subject to certain exceptions relating to changes in control of
Weatherford. The Tax Allocation Agreement will further provide that in the event
there is a tax liability associated with the historical operations of the
Company that is offset by a tax benefit of Weatherford, Weatherford will apply
the tax benefit against such tax liability and will be reimbursed for the value
of such tax benefit when and as Weatherford would have been able to otherwise
utilize that tax benefit for its own businesses. Also, the Tax Allocation
Agreement will provide that Weatherford will have the future benefit of any tax
losses incurred by Grant Prideco prior, as a part of a consolidated return with
Weatherford, to the spinoff, and Grant Prideco will be required to pay
Weatherford an amount of cash equal to any such benefit utilized by Grant
Prideco or which expires unused by Grant Prideco to the extent those benefits
are not utilized by Weatherford.
As Weatherford manages its tax position on a consolidated basis, which
takes into account the results of all of its businesses, the Company's effective
tax rate in the future could vary from its historical effective rates. Grant
Prideco's future effective tax rate will largely depend on its structure and tax
strategies as a separate, independent company.
Revenue Recognition
The Company recognizes revenue as products are shipped or accepted by the
customer. Customer advances or deposits are deferred and recognized as revenue
when the Company has met all of its performance obligations related to the sale.
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. Grant Prideco's pro forma diluted weighted average
shares reflect an estimate of the potential dilutive effect of common stock
equivalents. Such estimate is calculated based on Weatherford's dilutive effect
of stock options and restricted stock. 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.
F-9
<PAGE> 75
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Requirements
In June 1998, the FASB issued 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.
2. INVENTORIES
Inventories by category are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials, components and supplies...................... $ 93,980 $126,559
Work in process............................................. 15,720 17,060
Finished goods.............................................. 64,204 42,648
-------- --------
$173,904 $186,267
======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
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. The results of
operations of H-Tech prior to November 1, 1999 were not material to the
Company's results of operations; therefore, pro forma financial information is
not presented.
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, we exercised our option to acquire the facility leased by
Petro-Drive for approximately $1.6 million.
On July 23, 1999, the Company acquired a 50.01% interest in the
Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG ("VA") 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. VA produces high quality
seamless tubulars in Austria. The Company's investment in Voest-Alpine is
reported on the equity method of accounting.
On July 7, 1999, the Company acquired Texas Pup, Inc., a manufacturer of
premium and API pup joints (odd-sized tubular products) and utility boring drill
pipe, for 0.1 million shares of common stock of Weatherford and assumed debt of
approximately $1.7 million.
F-10
<PAGE> 76
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In December 1998, the Company acquired from Tubos de Acero de Mexico, S.A.
("TAMSA") 93% of the outstanding shares of T.F. de Mexico, which owned the
manufacturing facility in Veracruz, Mexico that the Company was operating under
a capital lease arrangement. The total consideration given was $59.0 million
comprised of $48.5 million in debt (which was repaid in March 1999), cash of
$1.5 million and a $9.0 million license to the international rights of the
Company's Atlas Bradford thread line. The Company sold the international rights,
excluding Canada, to its Atlas Bradford tubular connection line to TAMSA through
a license arrangement that resulted in a sale of all of the Company's rights
which became effective upon the closing of this transaction. The Company
retained no obligations with respect to the development, maintenance or
improvement of the Atlas Bradford connection line for carbon grade tubular for
the international market and TAMSA has no obligation to give any additional
consideration for this license. Any future support by Grant Prideco is provided
on a fee basis. The rights sold through this license arrangement had a fair
value of $9.0 million. As a result, in December 1998 the Company recorded $9.0
million in revenues to recognize the sale of the international rights to the
Atlas Bradford connection line.
On February 12, 1998, the Company acquired Drill Tube International, Inc.,
a manufacturer of drill pipe and other drill stem products, for $29 million. The
consideration paid in the acquisition consisted of $9 million in cash and a
contractual purchase credit obligation to manufacture and deliver products to
the seller over a two year period. Under the Company's contract with the
Sellers, the Company was required to provide product to the Sellers at a
notional price of $16 million. The fair value of the products to be delivered to
the Sellers was $20 million. Accordingly, a liability of $20 million was
recorded as of the date of the acquisition. As products are delivered under this
commitment the liability is reduced. As of December 31, 1999 and 1998, the
contractual purchase credit balance was $0 and $8 million, respectively.
On August 25, 1997, the Company acquired XLS Holding, Inc. ("XL"), a
provider of premium connections for conductors, risers and other offshore
structure components. The acquisition was accounted for as a pooling of
interests and the consideration paid consisted of approximately 0.9 million
shares of Weatherford common stock. The accompanying financial statements
include the results of XL for all periods presented.
The separate results of Grant Prideco, XL and the combined company were as
follows:
<TABLE>
<CAPTION>
JANUARY 1 TO
AUGUST 25,
1997
---------------
(IN THOUSANDS)
<S> <C>
Revenues:
Grant Prideco............................................. $376,030
XL........................................................ 18,306
--------
Combined.................................................. $394,336
========
Net Income (Loss):
Grant Prideco............................................. $ 40,924
XL........................................................ (5,514)
--------
Combined.................................................. $ 35,410
========
</TABLE>
On July 23, 1997, the Company acquired Rotary Drilling Tools ("RDT"), a
manufacturer of drill collars and accessories, for $3.3 million in cash.
On July 18, 1997, the Company acquired Coastal Tubular Inc. ("Coastal"), a
manufacturer of API threads and thread connections, for approximately $3.3
million in cash.
F-11
<PAGE> 77
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On April 14, 1997, the Company acquired TA Industries, Inc. ("TA") for
approximately $44.1 million in cash and $19.7 million of assumed debt. TA
designs, manufactures and markets premium and API couplings and accessories
under the brand names Texas Arai and Tube-Alloy.
The acquisitions discussed above, with the exception of XL, were accounted
for using the purchase method of accounting. The results of operations of all
acquisitions, excluding XL, are included in the Combined Statements of
Operations from their respective dates of acquisition. The 1999, 1998 and 1997
acquisitions are not material to the Company individually or in the aggregate
for each applicable year.
4. SHORT-TERM BORROWINGS
In 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 due in January 2000. This note was subsequently paid in January 2000.
The Company has an uncommitted credit facility which provides for
short-term loans for periods up to 12 months. At December 31, 1999, the Company
had an outstanding balance of $3.9 million under the facility. The average
interest rate for borrowings under the facility was 3.50% per annum at December
31, 1999. The Company also has $0.3 million of short-term notes payable with
interest rates ranging up to 8.6%.
The Company, through Weatherford, also has various credit facilities
available only for stand-by letters of credit and bid and performance bonds,
pursuant to which funds are available to the Company to secure performance
obligations. The Company had a total of $3.7 million of such letters of credit
and bid and performance bonds outstanding as of December 31, 1999.
In December 1998, the Company acquired 93% of the stock of the company that
owned the Veracruz, Mexico facility. As part of the consideration for the
acquisition the Company issued a note payable of $48.5 million due in March of
1999 with an effective interest rate of 7.0%. This note was subsequently paid in
March 1999.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Long-term loan, interest at prime less .025%, due March
2001...................................................... $ 3,750 $ 6,750
Long-term loan, interest at 6 month EURIBOR, due 2002....... 8,757 --
Long-term loan, interest at 6 month EURIBOR, due 2007....... 14,595 --
Capital lease obligations under various agreements.......... 4,459 5,114
Other....................................................... 1,825 1,832
------- -------
33,386 13,696
Less: amounts due in one year............................... 9,110 4,431
------- -------
$24,276 $ 9,265
======= =======
</TABLE>
F-12
<PAGE> 78
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of scheduled long-term debt maturities by year
(in thousands):
<TABLE>
<S> <C>
2000....................................................... $ 9,110
2001....................................................... 6,664
2002....................................................... 5,924
2003....................................................... 2,884
2004....................................................... 3,225
Thereafter................................................. 5,579
-------
$33,386
=======
</TABLE>
In connection with the July 1999 acquisition of a 50.01% interest in VA,
the Company incurred debt in the amount of $24.6 million (the "VA Debt"). The VA
Debt bears interest at a rate equal to the six month EURIBOR rate. Principal of
$9.2 million is payable over three years in six equal installments beginning in
January 2000 and in each July and January thereafter until July 2002. The
remaining principal balance of $15.4 million shall be paid over a 7.5 year
period out of the annual dividend payable to the Company as a shareholder in VA.
If the total principal balance has not been repaid by the fifth anniversary of
the closing date of the acquisition, the remaining unpaid principal shall be
paid in five equal semi-annual installments beginning on December 1, 2004.
Interest on the VA Debt is payable every six months beginning January 2000. The
interest rate as of December 31, 1999 was 3.52% per annum.
The Company is expected to have a capital structure different from the
capital structure in the combined financial statements and accordingly, interest
expense is not necessarily indicative of the interest expense that the Company
would have incurred as a separate, independent company or will incur in future
periods.
Capital Lease
In 1997, the Company effected a major expansion of its Veracruz, Mexico
tool joint manufacturing facility. As a result of this expansion, the Company
recorded a capital lease obligation of approximately $16.3 million. In December
1998, this Veracruz facility was purchased through the acquisition of 93% of the
outstanding shares of the company that owned the Veracruz, Mexico facility,
which extinguished the capital lease.
6. SUBORDINATED NOTE TO WEATHERFORD
In connection with the Distribution, the Company will issue an unsecured
subordinated note in the amount of $100.0 million. The Weatherford note will
bear interest at an annual rate of 10%. Interest payments will be due quarterly,
and principal and all unpaid interest will be due no later than 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 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. The
Weatherford note will be subordinated to the credit facility. The Company
expects to refinance the Weatherford note as soon as practicable when market
conditions permit.
Weatherford interest expense shown in the combined financial statements
reflects the interest expense associated with the $100.0 million indebtedness
for each period presented based on Weatherford's average long-term debt rates
for the applicable periods. As of December 31, 1999, the effective interest rate
was 7.25%. It is not practical to estimate the fair market value of the
subordinated note payable to Weatherford as borrowing rates available to the
Company have not been determined.
F-13
<PAGE> 79
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDER'S EQUITY
Changes in stockholder's equity represent net income and comprehensive net
income of the Company plus net transfers between the Company and Weatherford.
8. OTHER CHARGES
Drill pipe and other products are manufactured for the Company by Oil
Country Tubular Limited ("OCTL") in India under a long-term exclusive
manufacturing arrangement. Although the Company has sought to minimize the risks
of this operation through a manufacturing agreement rather than owning a local
manufacturing operation, it has provided OCTL with a substantial amount of raw
materials, inventory and working capital for the products OCTL manufactures for
the Company. The Company's business in India through its relationship with OCTL
has been adversely affected by the downturn of the economies in the eastern
hemisphere and is subject to various political and economic risks as well as
financial and operational risks with respect to OCTL.
As of December 31, 1999, OCTL owed us approximately $25.1 million for prior
advances made by the Company to it and the Company had assets in India with a
book value of approximately $1.7 million. In 1999, the Company substantially
curtailed our purchases from OCTL, and in December of 1999, the Company decided
to terminate our existing manufacturing relationship with OCTL and seek an
alternative arrangement for the recovery of our prior advances. The Company is
currently discussing with OCTL a restructuring of our relationship that would
allow OCTL to repay our prior advances in cash, equity in OCTL or product from
OCTL.
The decision to terminate the Company's existing arrangement with OCTL and
seek an alternative structure resulted in our writing off a $7.8 million product
deposit previously paid to OCTL and approximately $1.7 million in property and
equipment currently located at the OCTL facility. The write off was due to the
anticipated inability to utilize the deposit and recover the equipment following
the termination of the arrangement. The Company's remaining exposure in India is
approximately $17.3 million consisting of unpaid receivables and advances made
to assist OCTL in its working capital needs as part of the Company's
manufacturing arrangement with it. Based on financial information of OCTL known
to the Company and the Company's 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 $17.3 million in debt to us through a combination of
cash, equity or product. 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 the Company will be able to fully realize on the
amounts owed to the Company by OCTL or that additional charges relating to India
will not be required in the near term as the negotiation and collection process
continues. The $17.3 million in unpaid receivables and advances owed to us is
classified as "Other Assets" in the accompanying Combined Balance Sheet as of
December 31, 1999.
In 1998, the Company's drill stem segment incurred $35.0 million in charges
relating to the reorganization and rationalization of Grant Prideco's businesses
in light of declining industry conditions and the merger between EVI, Inc.
("EVI") and Weatherford Enterra, Inc. ("WII"). Of these charges, $7.0 million
was incurred in the second quarter of 1998 in accordance with the Company's
formalized plan, and reflected costs associated with the merger between EVI and
WII and the effects of the beginning of a downturn in the industry. Following a
further deterioration in the markets which the Company serves, an additional
$28.0 million charge was incurred in the fourth quarter of 1998. These charges
reflected additional reductions in operations and an attempt to align the cost
structure of the Company with its then current demand. All such costs had been
fully expended as of December 31, 1998, accordingly no accruals remained on the
Combined
F-14
<PAGE> 80
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Balance Sheet as of December 31, 1998. No adjustments to the initial estimates
were required. The net after-tax effect of these charges was $22.8 million.
<TABLE>
<CAPTION>
SECOND FOURTH
QUARTER QUARTER REMAINING
1998 1998 UTILIZED BALANCES AT
CHARGE CHARGE IN 1998 DECEMBER 31, 1998
------- ------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Facility Closures and Exit Costs(1)...... $4,250 $ 850 $ 5,100 $ --
Severance and Related Costs(2)........... 200 -- 200 --
Inventory Write-off(3)................... 2,500 26,000 28,500 --
Asset Write-down(4)...................... -- 1,150 1,150 --
------ ------- ------- -------
Total.......................... $6,950 $28,000 $34,950 $ --
====== ======= ======= =======
</TABLE>
- ---------------
(1) The facility and exit costs were $5.1 million, all of which have been
expended by December 31, 1998. The $4.3 million of costs accrued in the
second quarter related primarily to the elimination of duplicative
manufacturing facilities as a result of the reorganization and
rationalization of the Company's businesses following the merger of EVI and
WII and the downturn in the industry. In the fourth quarter an additional
$0.8 million was accrued to further align the Company's costs in response to
the significant decline in market conditions. The costs related primarily to
the (i) closure of the Channelview, Texas facility, (ii) closure of the
sales location in the U.K. and a Houston, Texas administrative location and
(iii) exit costs for certain operations at the Edmonton, Canada, Pearland,
Texas and Bryan, Texas facilities. The Pearland, Texas facility was a
location of WII prior to the merger. The Bryan, Texas, the Channelview,
Texas and the Edmonton, Canada manufacturing facilities, the U.K. sales
location and the Houston, Texas administrative location were EVI locations
prior to the merger.
(2) The severance and related costs included in the Company's second quarter
charge were $0.2 million for approximately 60 employees specifically
identified, with terminations completed in the second half of 1998.
(3) The inventory write-off of $28.5 million was reported as cost of sales. The
second quarter inventory write-off of $2.5 million resulted from the
elimination of certain products at the time of the merger between EVI and
WII and due to the declining industry conditions. The fourth quarter
inventory write-off of $26.0 million related to the significant decline in
market conditions.
(4) The write-down of assets was $1.2 million in the fourth quarter of 1998. The
charge relates to the write-down of equipment as a result of the
rationalization of product lines and the specific identification of assets
held for sale. The identified equipment had a net book value of $0.6 million
as of December 31, 1998. The effect of suspending depreciation is $0.2
million annually. The equipment was originally projected to be sold in 1999,
but because of market conditions the Company has not been able to dispose of
the equipment to date. The Company currently expects to dispose of these
assets in 2000.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 1999,
$3.7 million of cash was restricted.
Cash paid for interest and income taxes (net of refunds) was as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Interest paid.............................................. $4,565 $4,768 $5,349
Income taxes paid, net of refunds.......................... 2,294 1,779 474
</TABLE>
F-15
<PAGE> 81
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For the year ended December 31, 1997, there were noncash investing
activities of $28.3 million relating to capital leases (See Note 5).
The following summarizes investing activities relating to acquisitions (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Fair value of assets, net of cash acquired............. $ 46,539 $12,133 $63,213
Goodwill............................................... 29,073 58,644 56,198
Total liabilities...................................... (42,892) (53,377) (68,564)
Weatherford common stock issued........................ (17,648) -- --
-------- ------- -------
Cash consideration, net of cash acquired............... $ 15,072 $17,400 $50,847
======== ======= =======
</TABLE>
10. STOCK-BASED COMPENSATION
Stock Option Plans
Various employees of the Company were granted stock options under
Weatherford's 1998 Employee Stock Option Plan (the "1998 Plan"). The total
number of options granted to the Grant Prideco employees under the 1998 Plan was
951,000 at December 31, 1999. Under the terms of the 1998 Plan, the options
granted to the Grant Prideco employees are to be converted into options to
solely acquire Grant Prideco's common stock (the "Grant Prideco Common Stock").
As a result, the Company has adopted the Grant Prideco Employee Stock Option
Plan under which options would be granted to the employees of Grant Prideco in
substitution of the Weatherford options granted under the 1998 Plan. Under the
terms of the 1998 Plan, the options to be granted to the Grant Prideco employees
will be determined based on the relative market price of Grant Prideco Common
Stock to the stock of Weatherford prior to the Distribution. The exercise price
for the options to be granted to the Grant Prideco employees will be the
historical option price multiplied by a percentage equal to the percentage that
the value of the Grant Prideco Common Stock represents to the value of the
Weatherford stock prior to the spinoff. The number of shares that will be
subject to the options will also be adjusted so that each option holder will be
entitled to purchase a number of shares of Grant Prideco Common Stock having the
same aggregate exercise price of the prior 1998 Plan options held by the option
holder.
Employees, as well as the directors of Weatherford, also hold various
options to purchase shares of Weatherford that were granted prior to September
1998. It is anticipated that these options will be divided into options to
purchase Weatherford common stock and Grant Prideco Common Stock, with the
exercise price allocated between the Weatherford common stock and the Grant
Prideco Common Stock based on the relative market value of the shares following
the spinoff. All other terms will remain the same. In connection with the
Distribution, the Company will agree to issue to the holders of those options
the number of shares of Grant Prideco Common Stock issuable upon the exercise of
those options. Similarly, Weatherford will agree to issue to the employees of
Grant Prideco who hold options to purchase Weatherford common stock the number
of shares of Weatherford common stock subject to the options held by those
employees. At December 31, 1999, there were 1,353,323 options granted under
these various plans. The Company cannot currently determine the number of shares
its common stock that will be subject to substitute awards after the
Distribution.
Executive Deferred Compensation Plan
Weatherford and the Company each have maintained an Executive Deferred
Compensation Stock Ownership Plan ("EDC Plan"). Prior to the Distribution,
participants in the EDC Plan had a right to receive shares of Weatherford common
stock upon termination of their employment based on the deferred amounts placed
in an account for them. Under the EDC Plan, in the event of a dividend or
special distribution to the
F-16
<PAGE> 82
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
shareholders of Weatherford, the accounts of the employees are to represent a
right to receive the consideration provided through the spinoff or dividend. As
a result, upon the spinoff, participants in the EDC Plan will be entitled to
receive shares of both Weatherford common stock and Grant Prideco Common Stock
in respect of amounts deferred by the participants prior to the Distribution.
Participants will only be entitled to receive shares in respect of amounts
deferred subsequent to the Distribution of Weatherford or the Company, depending
upon which company they are employed with.
In order to satisfy the obligations of Weatherford and Grant Prideco under
the EDC Plan, Weatherford and Grant Prideco have established a Grantor Trust to
fund the benefits under the EDC Plan. The funds provided to the trust are
invested by a trustee independent of Weatherford and Grant Prideco primarily in
shares of common stock of Weatherford, which is purchased by the trustee in the
open market. The trustee of the EDC Plan will agree to waive the trust's receipt
of any shares of Grant Prideco common stock to be issued to the trust in respect
of the shares of Weatherford common stock held by the trust in consideration of
the Company's agreement to issue directly to the participants in the EDC Plan
any shares of Grand Prideco common stock that may be required to be issued to
them upon distribution of amounts under the plan. Shares of stock are held by
the trustee as part of the Trust to satisfy the obligations of Weatherford and
Grant Prideco to the employees of Weatherford and Grant Prideco. A separate
trust will be established by Grant Prideco following the Distribution in which
only shares of the Company will be purchased for satisfaction of future
obligations under a new Executive Deferred Compensation Stock Ownership Plan to
be adopted by Grant Prideco. The assets of these trusts are available to satisfy
the claims of all general creditors of Weatherford and Grant Prideco in the
event of a bankruptcy or insolvency.
11. RETIREMENT AND EMPLOYEE BENEFIT PLANS
Weatherford has defined contribution plans covering certain of the
Company's employees. The Company's expenses related to these plans totaled $0.7
million, $0.6 million and $0.8 million in 1999, 1998 and 1997, respectively.
Grant Prideco plans to adopt similar plans.
12. INCOME TAXES
The domestic and foreign components of earnings (loss) before income taxes
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic............................................. $(40,690) $ 93,767 $ 66,021
Foreign.............................................. (3,805) 11,801 36,043
-------- -------- --------
Total earnings (loss) before income
taxes.................................... $(44,495) $105,568 $102,064
======== ======== ========
</TABLE>
F-17
<PAGE> 83
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. federal and state income taxes.................. $(14,030) $37,249 $22,638
Foreign.............................................. (6,700) 7,112 2,968
-------- ------- -------
(20,730) 44,361 25,606
-------- ------- -------
Deferred
U.S. federal......................................... 4,099 (1,170) 4,105
Foreign.............................................. 5,432 (3,343) 10,839
-------- ------- -------
9,531 (4,513) 14,944
-------- ------- -------
Total income tax provision (benefit)......... $(11,199) $39,848 $40,550
======== ======= =======
</TABLE>
The following is a reconciliation of income taxes at the U.S. Federal
income tax rate of 35% to the effective provision for income taxes reflected in
the Combined Statements of Operations:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rates.......... $(15,573) $36,949 $35,721
Effect of foreign income tax, net...................... 65 (361) 1,191
Foreign Sales Corporation benefit...................... -- (308) (308)
Foreign loss not benefited............................. 1,014 -- --
Non-deductible expense................................. 1,934 1,014 3,099
State and local income taxes net of U.S. Federal income
tax benefit.......................................... 1,214 2,554 847
Other.................................................. 147 -- --
-------- ------- -------
Provision (benefit) for income taxes................... $(11,199) $39,848 $40,550
======== ======= =======
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions which the Company has
operations.
At December 31, 1999, the Company had net operating loss carryforwards
("NOL's") for tax purposes of approximately $7.7 million, which were not
incurred as part of a consolidated return with Weatherford. These NOL's expire
in the years 2007 through 2010. Under the terms of a tax allocation agreement to
be entered into between the Company and Weatherford, the Company will not have
the future benefits of any prior tax losses, incurred as part of a consolidated
return with Weatherford, associated with the Company's business that occur prior
to the spinoff.
F-18
<PAGE> 84
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities are classified as current or noncurrent
according to the classification of the related asset or liability for financial
reporting. The components of the net deferred tax asset (liability) were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Domestic and foreign operating losses..................... $ 2,708 $ 1,204
Accrued liabilities and reserves.......................... 407 9,537
Inventory basis differences............................... -- 754
Goodwill and other intangibles............................ 573 --
-------- --------
Total deferred tax asset.......................... 3,688 11,495
-------- --------
Deferred tax liabilities:
Property and equipment and other.......................... (44,533) (31,403)
Inventory basis differences............................... (1,928) --
Goodwill.................................................. -- (2,376)
-------- --------
Total deferred tax liability...................... (46,461) (33,779)
-------- --------
Net deferred tax liability................................ $(42,773) $(22,284)
======== ========
</TABLE>
13. DISPUTES, LITIGATION AND CONTINGENCIES
Litigation and Other Disputes
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation, would not have a material adverse effect on the
Company's combined financial position or its results of operations with or
without consideration of insurance coverage.
Insurance
The Company is self-insured through participation in Weatherford's
insurance policy for employee health insurance claims and is self-insured for
workers' compensation claims for certain of its employees. The amounts in excess
of the self-insured levels are fully insured. Self-insurance accruals are based
on claims filed and an estimate for significant claims incurred but not
reported. Although the Company believes that adequate reserves have been
provided for expected liabilities arising from its self-insured obligations, it
is reasonably possible that management's estimates of these liabilities will
change over the near term as circumstances develop.
Weatherford will remain liable on certain existing contingent liabilities
relating to Grant Prideco's businesses which were not able to be released,
terminated or replaced prior to the Distribution Date. Grant Prideco will also
fully indemnify Weatherford for any payments made under the unreleased
contingent liabilities.
14. COMMITMENTS
Operating Leases
The Company is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately
F-19
<PAGE> 85
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$7.2 million, $3.8 million and $1.9 million for the years ended December 31,
1999, 1998 and 1997, respectively.
Future minimum rental commitments under these noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
2000...................................................... $ 3,389
2001...................................................... 2,892
2002...................................................... 2,702
2003...................................................... 2,465
2004...................................................... 2,405
Thereafter................................................ 12,887
-------
$26,740
=======
</TABLE>
Other Commitments
At the time of the December 1998 acquisition by the Company of 93% of
TAMSA, the Company entered into a 30 year supply contract with TAMSA. Under the
supply contract, TAMSA has been given the right to supply certain of the
Company's operations as long as the prices are on a competitive basis. This
supply agreement does not obligate the Company to make purchases from TAMSA for
any location other than Mexico and India nor restrict the Company's right to
make purchases without offering a right to purchase the materials from TAMSA to
the extent those purchases are made from affiliates of the Company such as
Voest-Alpine.
As part of the arrangement to invest in Voest-Alpine Stahlrohr Kindberg
GmbH & Co. KG, the Company entered into a four-year supply contract with
Voest-Alpine. Under this agreement, the Company agreed to purchase a minimum of
45,000 tonnes of tubulars for the first twelve months of the agreement at a
negotiated third party price that the Company believed to be attractive. The
Company also agreed to purchase 60,000 tonnes per year for the next three years
at the negotiated price.
Grant Prideco maintains consignment purchase arrangements with various
suppliers whereby suppliers' inventory is held on site at the Company's
manufacturing facilities. Under the terms of these arrangements, the Company
pays to the supplier an inventory stocking fee on the consignment inventory and
has an obligation to purchase the inventory under certain circumstances. As of
December 31, 1999, the Company had closed-ended purchase commitments maturing
within the next six months of approximately $3.0 million and open-ended purchase
commitments of approximately $22.1 million.
15. RELATED PARTY TRANSACTIONS
Sales
Weatherford purchases drill pipe and other related products from Grant
Prideco. The amounts purchased by Weatherford for the years ended December 31,
1999, 1998 and 1997 were $28.6 million, $9.6 million and $7.7 million,
respectively. Such sales represent Grant Prideco's cost. The sales to
Weatherford have been eliminated from the accompanying combined financial
statements.
Weatherford Overhead Charges
Weatherford overhead charges represent corporate overhead costs incurred by
Weatherford in providing services to the Company based on the time devoted to
Grant Prideco. These services include accounting, tax, treasury and risk
management services. Such allocation is included in the accompanying Combined
Statements of Operations as Weatherford Charges.
F-20
<PAGE> 86
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Weatherford Direct Services
Grant Prideco was allocated $5.6 million, $5.6 million and $3.5 million of
costs related to Weatherford's information systems function for the years ended
December 31, 1999, 1998 and 1997, respectively. Information systems allocation
charges were allocated based on direct support provided, equipment usage and
number of system users and are included in corporate general and administrative
expense in the accompanying Combined Statements of Operations.
Tax Allocation Agreement
The Company and Weatherford intend to enter into a Tax Allocation Agreement
in connection with the spinoff (see Note 1).
Transition Services Agreement
The Company intends to enter into a transition services agreement with
Weatherford for a period of one year from the Distribution date. Under the
agreement, Weatherford will provide certain services requested by the Company.
The fee for these services will be based on a cost-plus 10% basis. The
transition services to be provided under this agreement may include accounting,
tax, finance and legal services, employee benefit services, information
services, management information systems and may include any other similar
services.
Preferred Supplier Agreement
The Company intends to enter into a preferred supplier agreement with
Weatherford pursuant to which Weatherford will agree for at least a three-year
period to purchase at least 70% of its requirements of drill stem products from
Grant Prideco. The price for those products will be at a price not greater than
that which the Company sells to its best similarly situated customers.
Weatherford will be entitled to apply against its purchases a drill stem credit
granted to it in the amount of $30 million, subject to a limitation of the
application of the credit to no more than 20% of any purchase.
16. SEGMENT INFORMATION
Business Segments
The Company operates through two business segments: Drill Stem Products and
Premium Tubulars and Engineered Connections. The drill stem products segment
manufactures drill pipe, drill collars and heavyweight drill pipe and the
premium tubulars and engineered connections segment manufactures premium
production tubulars, liners, casing and connections for marine conductors and
subsea structures. The Company's products are used in the exploration and
production of oil and natural gas.
Financial information by industry segment is summarized below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS:
Drill Stem......................................... $142,732 $410,840 $333,716
Premium Tubulars................................... 143,638 235,614 296,305
-------- -------- --------
$286,370 $646,454 $630,021
======== ======== ========
</TABLE>
F-21
<PAGE> 87
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
EBITDA, BEFORE OTHER CHARGES(a):
Drill Stem(b)...................................... $ 16,639 $148,565 $105,604
Premium Tubulars................................... 5,359 44,716 48,938
Corporate.......................................... (15,044) (14,274) (12,055)
-------- -------- --------
$ 6,954 $179,007 $142,487
======== ======== ========
OTHER NONRECURRING CHARGES:
Drill Stem(c)...................................... $ 9,454 $ 34,950 $ --
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Drill Stem......................................... $ 15,119 $ 16,771 $ 13,685
Premium Tubulars................................... 14,301 13,309 12,518
Corporate.......................................... 1,094 1,093 848
-------- -------- --------
$ 30,514 $ 31,173 $ 27,051
======== ======== ========
EQUITY INCOME (LOSS) IN UNCONSOLIDATED AFFILIATES:
Drill Stem......................................... $ (419) $ 267 $ --
======== ======== ========
OPERATING INCOME (LOSS):
Drill Stem(c)...................................... $ (7,934) $ 96,844 $ 91,919
Premium Tubulars................................... (8,942) 31,407 36,420
Corporate.......................................... (16,138) (15,367) (12,903)
-------- -------- --------
$(33,014) $112,884 $115,436
======== ======== ========
CAPITAL EXPENDITURES FOR PROPERTY, PLANT AND
EQUIPMENT:
Drill Stem......................................... $ 12,127 $ 16,670 $ 19,956
Premium Tubulars................................... 6,716 20,698 14,468
Corporate.......................................... 203 734 389
-------- -------- --------
$ 19,046 $ 38,102 $ 34,813
======== ======== ========
NON-CASH PORTION OF OTHER NONRECURRING CHARGES:
Drill Stem......................................... $ 9,454 $ 30,500 $ --
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
TOTAL ASSETS(d)
Drill Stem......................................... $437,281 $457,709 $374,923
Premium Tubulars................................... 294,591 279,706 286,418
Corporate.......................................... 2,703 899 1,257
-------- -------- --------
$734,575 $738,314 $662,598
======== ======== ========
</TABLE>
- ---------------
(a) The Company evaluates performance and allocates resources based on EBITDA,
which is calculated as operating income (loss) adding back depreciation and
amortization, excluding the impact of other charges. Calculations of EBITDA
should not be viewed as a substitute to calculations under GAAP, in
particular operating income and net income. In addition, EBITDA
calculations by one company may not be comparable to another company.
F-22
<PAGE> 88
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Includes inventory write-downs of $28.5 million for the year ended December
31, 1998, which have been classified as cost of sales in the accompanying
Combined Statements of Operations.
(c) Includes a charge of $9.5 million relating to the decision to terminate our
manufacturing arrangement in India for the year ended December 31, 1999.
Includes $35.0 million of other charges relating to the reorganization and
rationalization of our business in light of our industry conditions for the
year ended December 31, 1998.
(d) Certain assets that are not directly attributable to a segment have been
allocated to the segments primarily based upon revenues generated.
Foreign Operations and Export Sales
Financial information by geographic segment for each of the three years
ended December 31, 1999 is summarized below. Revenues are attributable to
countries based on the location of the entity selling products. Long-lived
assets are long term assets excluding deferred tax assets.
<TABLE>
<CAPTION>
UNITED LATIN
STATES CANADA AMERICA OTHER TOTAL
-------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999
Revenues................................. $247,428 $15,610 $ 6,091 $17,241 $286,370
Long-lived assets........................ 331,813 17,663 83,269 27,085 459,830
1998
Revenues................................. $552,375 $31,925 $ 9,327 $52,827 $646,454
Long-lived assets........................ 276,374 18,399 76,559 16,686 388,018
1997
Revenues................................. $509,451 $45,080 $15,716 $59,774 $630,021
Long-lived assets........................ 228,754 19,713 44,399 18,487 311,353
</TABLE>
Major Customers and Credit Risk
Substantially all of the Company's customers are engaged in the exploration
and development of oil and gas reserves. The Company's drill pipe and related
products are sold primarily to rig contractors, operators and rental companies.
The Company's premium tubulars and connections are sold primarily to operators
and distributors. This concentration of customers may impact the Company's
overall exposure to credit risk, either positively or negatively, in that
customers may be similarly affected by changes in economic and industry
conditions. The Company performs ongoing credit evaluations of its customers and
does not generally require collateral in support of its trade receivables. The
Company maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letter of credit or similar
arrangements.
In 1999, 1998 and 1997, there was no individual customer who accounted for
10% of combined revenues.
F-23
<PAGE> 89
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for
1999 and 1998.
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1999
Revenues............................ $ 81,303 $ 56,622 $ 58,851 $ 89,594 $286,370
Gross Profit........................ 11,359 7,284 456 5,002 24,101
Nonrecurring Charges................ -- -- -- 9,454(a) 9,454
Selling, General and
Administrative(b)................ 11,512 11,208 12,140 12,382 47,242
Operating (Loss).................... (153) (3,924) (11,684) (17,253)(a) (33,014)
Net (Loss).......................... (2,230) (4,727) (10,443) (16,111)(a) (33,511)
Pro Forma (Loss) Per Share(c)
Basic............................ (0.02) (0.05) (0.10) (0.15) (0.33)
Diluted.......................... (0.02) (0.05) (0.10) (0.15) (0.33)
1998
Revenues............................ $189,713 $172,002 $160,117 $124,622 $646,454
Gross Profit........................ 55,487 54,264(a) 47,893 8,776(a) 166,420
Selling, General and
Administrative(b)................ 11,292 11,039 12,174 12,848 47,353
Nonrecurring Charges................ -- 4,450(a) -- 2,000(a) 6,450
Operating Income (Loss)............. 44,195 38,775(a) 35,742 (5,828)(a) 112,884
Net Income (Loss)................... 25,496 23,832(a) 20,515 (4,123)(a) 65,720
Pro Forma Earnings (Loss) Per
Share(c)
Basic............................ 0.26 0.25 0.21 (0.04) 0.68
Diluted.......................... 0.26 0.24 0.21 (0.04) 0.67
</TABLE>
- ---------------
(a) The Company incurred $9.5 million of pre-tax nonrecurring charges, $6.1
million net of tax, in the fourth quarter of 1999 relating to the decision
to terminate our manufacturing arrangement in India. The Company incurred
$7.0 million and $28.0 million of pre-tax nonrecurring charges in the
second and fourth quarters of 1998, respectively. The effect of these
charges, net of tax, in the second and fourth quarters was $4.5 million and
$18.3 million, respectively. Of these charges, $2.5 million and $26.0
million related to the write-off of inventory in the second and fourth
quarters, respectively, and have been classified as cost of sales in the
accompanying Combined Statements of Operations.
(b) Includes Weatherford overhead charges of $250,000 in each of the quarters
ended March 31, 1999 and June 30, 1999, $500,000 in each of the quarters
ended September 30, 1999 and December 31, 1999 and $240,000 per quarter for
the year ended December 31, 1998, respectively.
(c) 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. Grant Prideco's pro forma diluted
weighted average shares reflect an estimate of the potential dilutive
effect of common stock equivalents. Such estimate is calculated based on
Weatherford's dilutive effect of stock options and restricted stock. The
effect of stock options and restricted stock is not included in the diluted
weighted average shares computation for periods in which a loss occurs
because to do so would have been anti-dilutive.
F-24
<PAGE> 90
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
GRANT PRIDECO, INC.
By: /s/ FRANCES R. POWELL
----------------------------------
Frances R. Powell
Vice President and Chief Financial
Officer
Date: March 14, 2000
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 -- Form of Distribution Agreement, dated as of April ,
2000, between Weatherford and Grant
3.1 -- Form of Restated Certificate of Incorporation of Grant
3.2 -- Form of Restated Bylaws of Grant
4.1 -- Form of Subordinated Promissory Note to Weatherford
10.1 -- Form of Distribution Agreement, dated as of April ,
2000, between Weatherford and Grant (filed as Exhibit
2.1)
10.2 -- Form of Tax Allocation Agreement, dated as of April ,
2000, between Weatherford and Grant
10.3 -- Form of Transition Services Agreement, dated as of April
, 2000, between Weatherford and Grant
10.4 -- Form of Preferred Supplier Agreement, dated as of April
, 2000, between Weatherford and Grant
10.5 -- Form of Grant Prideco, Inc. 2000 Employee Stock Option
and Restricted Stock Plan
10.6 -- Form of Grant Prideco, Inc. 2000 Non-Employee Director
Stock Option Plan
10.7 -- Form of Grant Prideco, Inc. Individual Stock Option
Agreement
10.8 -- Form of Grant Prideco, Inc. Foreign Executive Deferred
Compensation Plan
10.9 -- Form of Grant Prideco, Inc. Executive Deferred
Compensation Plan
10.10 -- Form of Grant Prideco, Inc. Deferred Compensation Plan
for Non-Employee Directors
*10.11 -- Form of Grant Prideco, Inc. 401(k) Savings Plan
*10.12 -- Investment Agreement, dated as of April 29, 1999, by and
between Grant Prideco, Inc. and Voest-Alpine Schienen
GmbH & Co KG
*10.13 -- Operating Agreement, dated as of July 23, 1999, by and
between Grant Prideco, Inc. and Voest-Alpine Schienen
GmbH & Co KG
+10.14 -- Supply Agreement, dated as of July 23, 1999, by and
between Voest-Alpine Stahlrohr Kindberg GmbH & Co KG and
Grant Prideco, Inc.
*10.15 -- Manufacturing and Sales Agreement, dated as of January 1,
1996, by and between Grant Prideco, S.A. and Oil Country
Tubular Limited
*10.16 -- Stock Purchase Agreement, dated as of June 19, 1998, by
and among Weatherford, Pridecomex Holding, S.A. de C.V.,
Tubos de Acero de Mexico S.A. and Tamsider S.A. de C.V.
+10.17 -- Master Technology License Agreement, dated as of June 19,
1998, by and between Grant Prideco, Inc. and DST
Distributors of Steel Tubes Limited
*10.18 -- Agreement, dated as of November 12, 1998, by and between
Tubos de Acero de Mexico, Tamsider S.A. de C.V., DST
Distributors of Steel Tubes Limited, Techint Engineering
Company, Weatherford, Grant Prideco, Pridecomex Holding,
S.A. de C.V. and Grant Prideco, S.A. de C.V.
*10.19 -- Agreement, dated as of December 1, 1998, by and between
Tubos de Acero de Mexico, Tamsider S.A. de C.V.,
Weatherford and Pridecomex Holding, S.A. de C.V.
10.20 -- Form of Employment Agreement, dated as of April , 2000,
between Grant and John C. Coble.
</TABLE>
<PAGE> 92
<TABLE>
<C> <S>
10.21 -- Form of Employment Agreement, dated as of April , 2000,
between Grant and Bernard J. Duroc-Danner.
10.22 -- Form of Employment Agreement, dated as of April , 2000,
between Grant and Curtis W. Huff.
10.23 -- Form of Employment Agreement, dated as of April , 2000,
between Grant and Frances R. Powell.
10.24 -- Form of Change of Control Agreement, dated as of April
, 2000, between Grant and William G. Chunn.
*21.1 -- List of Subsidiaries of Grant (giving effect to the
Spinoff)
27.1 -- Financial Data Schedule
27.2 -- Financial Data Schedule
27.3 -- Financial Data Schedule
27.4 -- Financial Data Schedule
</TABLE>
- ---------------
* previously filed
+ confidential treatment requested.
<PAGE> 1
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
BY AND BETWEEN
WEATHERFORD INTERNATIONAL, INC.
AND
GRANT PRIDECO, INC.
APRIL __, 2000
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
ARTICLE 1.........................................................................................................1
CERTAIN DEFINITIONS......................................................................................1
1.1 "Additional Shares"...................................................................1
1.2 "Affiliate"...........................................................................1
1.3 "Agreement"...........................................................................2
1.4 "Assets"..............................................................................2
1.5 "Amended Bylaws"......................................................................2
1.6 "Business Day"........................................................................2
1.7 "CERCLA"..............................................................................2
1.8 "Circumstance"........................................................................2
1.9 "Code"................................................................................2
1.10 "Consent Required Contract"...........................................................2
1.11 "Contributed Indebtedness"............................................................2
1.12 "Contribution"........................................................................2
1.13 "Distribution"........................................................................2
1.14 "Distribution Date"...................................................................2
1.15 "Environmental Conditions"............................................................2
1.16 "Environmental Law" or "Environmental Laws"...........................................2
1.17 "Environmental Liabilities"...........................................................3
1.18 "Excluded Assets".....................................................................3
1.19 "Grant"...............................................................................3
1.20 "Grant Common Stock"..................................................................3
1.21 "Grant Company".......................................................................3
1.22 "Grant Employee"......................................................................3
1.23 "Grant Employee Benefit Plans"........................................................3
1.24 "Grant Entity"........................................................................3
1.25 "Grant 401(k) Plan"...................................................................4
1.26 "Grant Liabilities"...................................................................4
1.27 "Grant Option"........................................................................5
1.28 "Grant Taxes".........................................................................5
1.29 "Liability"...........................................................................5
1.30 "1998 Director Options and Warrants"..................................................5
1.31 "1998 Weatherford Employee Option Plan"...............................................5
1.32 "Note"................................................................................5
1.33 "NYSE"................................................................................5
1.34 "Old Weatherford Director Plans"......................................................5
1.35 "Old Weatherford Employee Option Plans"...............................................5
1.36 "Person"..............................................................................6
1.37 "Preferred Supplier Agreement"........................................................6
1.38 "Properties"..........................................................................6
1.39 "Record Date".........................................................................6
1.40 "Restated Certificate of Incorporation"...............................................6
1.41 "SEC".................................................................................6
1.42 "Service of Process"..................................................................6
1.43 "Stock Split".........................................................................6
1.44 "Tax Allocation Agreement"............................................................6
1.45 "Taxes"...............................................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1.46 "Transfer Agent"......................................................................6
1.47 "Transfers"...........................................................................6
1.48 "Transition Services Agreement".......................................................6
1.49 "Trust"...............................................................................6
1.50 "Waste Materials".....................................................................6
1.51 "Weatherford".........................................................................7
1.52 "Weatherford Common Stock"............................................................7
1.53 "Weatherford Company".................................................................7
1.54 "Weatherford Employee"................................................................7
1.55 "Weatherford 401(k) Plan".............................................................7
1.56 "Weatherford Indemnified Parties".....................................................7
1.57 "Weatherford Option"..................................................................7
ARTICLE 2.........................................................................................................7
CONTRIBUTION.............................................................................................7
2.1 Contribution..........................................................................7
2.2 Grant Liabilities.....................................................................8
2.3 Consideration.........................................................................8
2.4 Limitation of Assignments.............................................................8
2.5 Delivery of Records...................................................................8
2.6 Guarantees and Financial Assurances...................................................9
2.7 Grant Acknowledgments.................................................................9
ARTICLE 3.........................................................................................................9
RECAPITALIZATION OF GRANT; MECHANICS OF DISTRIBUTION.....................................................9
3.1 Grant Capitalization..................................................................9
3.2 Recapitalization of Grant.............................................................9
3.3 Mechanics of Distribution.............................................................9
3.4 Timing of Distribution................................................................9
ARTICLE 4.........................................................................................................9
EMPLOYEE BENEFIT PLANS...................................................................................9
4.1 Employee Benefits are Grant Liabilities...............................................9
4.2 401(k) Plans..........................................................................9
4.3 Employee Health, Life and Disability Insurance Plans.................................10
4.4 Credited Employment..................................................................10
4.5 No Termination of Employment for Benefit Entitlement Purposes........................10
ARTICLE 5........................................................................................................10
STOCK PLANS.............................................................................................10
ARTICLE 6........................................................................................................14
INDEMNIFICATION.........................................................................................14
6.1 Indemnification Matters..............................................................14
6.2 Notice of Circumstance...............................................................16
6.3 Payment..............................................................................16
6.4 Insurance............................................................................16
6.5 Scope of Indemnification.............................................................17
</TABLE>
ii
<PAGE> 4
<TABLE>
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6.6 Indemnity for Certain Environmental Liabilities......................................17
ARTICLE 7........................................................................................................17
CONDITIONS TO OBLIGATIONS OF WEATHERFORD................................................................17
ARTICLE 8........................................................................................................18
MISCELLANEOUS...........................................................................................18
8.1 Grant Covenants......................................................................18
8.2 Governing Law........................................................................18
8.3 Arbitration..........................................................................18
8.4 Notices..............................................................................19
8.5 Expenses.............................................................................20
8.6 Entire Agreement.....................................................................20
8.7 Waiver...............................................................................20
8.8 Binding Effect; Assignment; No Third Party Benefit...................................20
8.9 Counterparts.........................................................................20
8.10 References...........................................................................20
8.11 Terminology..........................................................................21
8.12 Severability.........................................................................21
8.13 Further Assurances...................................................................21
</TABLE>
LIST OF ANNEXES
Annex A - Amended Bylaws of Grant
Annex B - Excluded Assets
Annex C - Note
Annex D - Preferred Supplier Agreement
Annex E - Restated Certificate of Incorporation of Grant
Annex F - Tax Allocation Agreement
Annex G - Transfers
Annex H - Transition Services Agreement
Annex I - Grant Employee Stock Plan
Annex J - Grant Director Plan
Annex K - Employee Benefits Agreement
iii
<PAGE> 5
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement") is dated as of April
__, 2000, by and among WEATHERFORD INTERNATIONAL, INC., a Delaware corporation
("Weatherford"), and GRANT PRIDECO, INC. ("Grant"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, Grant is a wholly owned subsidiary of Weatherford;
WHEREAS, pursuant to this Agreement Weatherford and Grant will cause
the Transfers to be made or occur, Grant will execute the Note, Weatherford
will contribute the Contributed Indebtedness to Grant and Grant will effect the
Stock Split and issue the Additional Shares to Weatherford (the transactions
described in this paragraph are referred to collectively herein as the
"Contribution");
WHEREAS, after the Contribution, Weatherford will distribute to its
stockholders all of the outstanding stock of Grant as further described in
Article 3 hereof; and
WHEREAS, for federal income tax purposes, it is intended that the
Contribution and Distribution will qualify as transactions pursuant to Sections
368(a)(1)(D) and 355 and related sections of the Code;
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and conditions herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms have the following
respective meanings:
1.1 "Additional Shares" shall mean that number of shares of Grant
Common Stock as shall be equal to the number of shares of Weatherford Common
Stock outstanding on the Record Date, less the number of shares of Grant Common
Stock owned by Weatherford on the Record Date, which Additional Shares will be
issued to Weatherford as a result of the Stock Split.
1.2 "Affiliate" shall mean, with respect to Weatherford or Grant
Prideco, any Person, that directly or indirectly, is in control of, is
controlled by, controls or is under common control of Weatherford or Grant
Prideco, as the case may be. For purposes of this definition, control shall
include the ownership of 50% or more of the legal or beneficial interest in any
Person or the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise. A Person who is an Affiliate shall only be considered an
Affiliate for so long as that Person meets the definition of an Affiliate. An
officer, director, general partner, managing member or trustee of a Person or
Affiliate of such Person shall not be considered to be an Affiliate unless such
Person is under the direct or indirect control or common control of Weatherford
or Grant Prideco, as the case may be. For purposes of clarity, neither
Weatherford nor Grant Prideco shall be considered to be an Affiliate of the
other, nor shall National Oilwell, Grey Wolf Inc. or any other company in which
a director or officer of Weatherford is also a director, officer or shareholder
be considered an Affiliate of Weatherford unless Weatherford itself controls
such company.
1.3 "Agreement" shall have the meaning specified in the preamble.
<PAGE> 6
1.4 "Assets" shall mean, collectively, all the property, assets and
rights, tangible and intangible, owned or operated by the Grant Companies on,
before or after the Distribution Date, excluding the Excluded Assets.
1.5 "Amended Bylaws" shall mean the Amended Bylaws of Grant, in
substantially the form of Annex A hereto.
1.6 "Business Day" shall mean a day on which national banks are
generally open for the transaction of business in Houston, Texas.
1.7 "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq.
1.8 "Circumstance" shall have the meaning specified in Section 6.2
hereof.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.10 "Consent Required Contract" shall have the meaning specified in
Section 2.4 hereof.
1.11 "Contributed Indebtedness" shall mean all intercompany
indebtedness owed by a Grant Company to a Weatherford Company in excess of the
sum of (i) the amount of the Note owed by Grant to Weatherford immediately
prior to the Contribution, (ii) the Drill Stem Credits (as defined in the
Preferred Supplier Agreement), (iii) indebtedness owed by Grant to Weatherford
pursuant to the Tax Allocation Agreement and (iv) indebtedness owed by Grant in
connection with any employee benefit plans, arrangements or policies for the
benefit of employees and former employees (and their beneficiaries) of any
Grant Company.
1.12 "Contribution" shall have the meaning specified in the second
"WHEREAS" clause hereof.
1.13 "Distribution" shall mean the distribution by Weatherford to its
stockholders (other than the Trust) of all of the outstanding shares of Grant.
1.14 "Distribution Date" shall mean the time and date as of which the
Distribution is effective.
1.15 "Environmental Conditions" shall mean (i) any pollution,
contamination, degradation, damage or injury caused by, related to, arising
from or in connection with the generation, handling, use, treatment, storage,
transportation, disposal, discharge, release or emission of any Waste Materials
and (ii) any course of conduct or operating practice with respect to matters
governed by or regulated under Environmental Laws.
1.16 "Environmental Law" or "Environmental Laws" shall mean all laws,
rules, regulations, statutes, ordinances, decrees or orders of any governmental
entity now or at any time in the future in effect relating to (i) the
prevention or control of any potential pollutant or protection of the air,
water or land, (ii) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal, discharge, release or transportation and (iii)
exposure to hazardous, toxic or other substances alleged to be harmful. The
term "Environmental Law" or "Environmental Laws" includes, without limitation,
(1) the terms and conditions of any license, permit, approval or other
authorization by any governmental entity and (2) judicial, administrative or
other regulatory decrees, judgments and orders of any governmental entity. The
term "Environmental Law" or "Environmental Laws" includes, but is not limited
to, the following statutes and the regulations promulgated thereunder: the Clean
Air Act, 42 U.S.C. Section 7401 et seq., the Resource Conservation Recovery Act,
42 U.S.C. Section 6901 et seq., the Superfund Amendments and Reauthorization
Act, 42 U.S.C. Section 11011 et seq., the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq., the Federal Water Pollution Control Act (Clean
Water Act),
2
<PAGE> 7
33 U.S.C. Section 1251, et seq., the Safe Drinking Water Act, 42 U.S.C. Section
300f et seq., CERCLA and any state, county or local laws or regulations similar
thereto.
1.17 "Environmental Liabilities" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remediation, removal,
response, abatement, clean-up, investigative or monitoring costs and any other
related costs and expenses), other causes of action recognized now or at any
later time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, pre-judgment and post-judgment interest, attorney fees and
other legal fees imposed or incurred (i) pursuant to any agreement, order,
notice, requirement, responsibility or directive (including directives embodied
in Environmental Laws), injunction, judgment or similar documents (including
settlements) arising out of or in connection with any Environmental Laws, (ii)
pursuant to any claim by a governmental entity or other person or entity
pursuant to common law or statute for personal injury, property damage, damage
to natural resources, remediation, payment or reimbursement of response costs
or similar costs or expenses or (iii) as a result of Environmental Conditions.
1.18 "Excluded Assets" shall mean the assets listed on Annex B hereto.
1.19 "Grant" for purposes of the assumption and indemnification
provisions of this Agreement, shall include Grant Prideco, Inc. and any and all
predecessors or successors thereto, whether by merger, purchase or other
acquisition of substantially all of the assets or otherwise, and any and all
predecessors or successors to such entities.
1.20 "Grant Common Stock" shall mean shares of common stock, $.01 par
value per share, of Grant.
1.21 "Grant Company" shall mean any corporation, joint venture,
partnership, limited liability company, association, investment or other
entity, including Grant, and any predecessor of the foregoing, in which Grant
or any company in which the business of a Grant Entity is or was conducted (or
any predecessor to the business or assets of Grant) now or at any time in the
past owned, or as a result of Transfers will own, directly or indirectly, an
ownership interest (whether or not such ownership interest constitutes control
of the entity and whether or not such interest represents a passive or active
investment); provided, however, Weatherford International, Inc., Weatherford
Canada Ltd. and EVI de Venezuela, S.A. shall not be considered Grant Companies
to the extent the business conducted by them does not relate to the drill pipe,
tubular or related businesses that are being transferred to a subsidiary of
Grant.
1.22 "Grant Employee" shall mean an individual whose principal
occupation on the Distribution Date is as an employee of any Grant Company.
1.23 "Grant Employee Benefit Plans" shall have the meaning specified
in Section 4.3 hereof.
1.24 "Grant Entity" shall mean any entity or division of an entity in
which the drill pipe, tubular or related or associated business of
Weatherford's Grant Prideco division is now conducted or previously was
conducted, including when those businesses were conducted as a division of
Energy Ventures, Inc. or EVI, Inc.; provided, however, a Grant Entity shall not
include any Weatherford Company other than to the extent such Weatherford
Company's business is related to or associated with the drill pipe or other
business historically conducted by the Grant Prideco division.
1.25 "Grant 401(k) Plan" shall have the meaning specified in Section
4.2 hereof.
1.26 "Grant Liabilities" shall mean any and all Liabilities and
Environmental Liabilities (other than Liabilities or Environmental Liabilities
resulting from, arising out of or relating to the Excluded Assets) to which
Weatherford or any of its Affiliates may now or at any time in the future
become subject (whether
3
<PAGE> 8
directly or indirectly, including by reason of any Grant Company owning,
controlling or operating any business or assets), resulting from, arising out
of or relating to (i) any Grant Company, (ii) any Grant Taxes (except as
provided otherwise in the Tax Allocation Agreement), (iii) any obligation,
matter, fact, circumstance or action or omission by any Person in any way
relating to or arising from the business, operations or assets of any Grant
Company on, before or after the Distribution Date, (iv) any product or service
manufactured, sold or otherwise provided by any Grant Company on, before or
after the Distribution Date, (v) except as provided herein, the Contribution,
the Distribution or any of the other transactions contemplated hereby or (vi)
the Assets. The term "Grant Liabilities" shall also include, without
limitation, the following (other than Liabilities or Environmental Liabilities
resulting from, arising out of or relating to the Excluded Assets):
(a) Any and all Liabilities and Environmental Liabilities
resulting from, arising out of or relating to (i) the current, former
or future assets, activities, operations, facilities, actions or
omissions of any Grant Company or any of their respective officers,
directors or employees (to the extent such officer, director or
employee is acting in his or her capacity as an officer, director or
employee of a Grant Company), independent contractors or agents (in
their capacity as such), (ii) any product liability claim, recall,
replacement, returns or customer allowances of or relating to any
Grant Company or (iii) any contract or permit of any Grant Company,
regardless of whether the contract or permit is assigned, conveyed or
leased hereunder or under any other agreement contemplated hereby;
(b) Any and all accounts and notes payable of any Grant
Company;
(c) Any and all Liabilities relating to the Grant 401(k) Plan
and the Grant Employee Benefit Plans;
(d) Any and all Liabilities and Environmental Liabilities to,
on behalf of, or which arise from or relate to active or inactive
employees (retired or otherwise) of any Grant Company for claims
occurring on, before or after the Distribution Date, including,
without limitation, (i) liability for any salaries, wages, tax
equalization payments, vacation pay, sick leave, personal leave,
severance pay, wrongful dismissal or discrimination claims; (ii)
liability for or under any employee benefit plan, policy or
arrangement, including, without limitation, retirement, pension,
medical, dental, profit sharing, unemployment, supplemental
unemployment or disability plan policy or arrangement; (iii) liability
for any payroll taxes, social security or similar taxes or
withholding; (iv) liability arising from claims or litigation and (v)
liability arising from any injury, death, loss, disability,
occupational disease or claims under any workers' compensation laws;
(e) Any and all Liabilities and Environmental Liabilities
resulting from, arising out of, relating to or occurring on the
Properties, the operations on any of the Properties or with regard to
any of the Assets, and any off-site Environmental Liabilities related
to any of the foregoing or to any Grant Company, including, without
limitation, those under any indemnification agreement or obligation of
any Grant Company, Weatherford or any Affiliate of Weatherford and any
documents related thereto;
(f) Any and all Liabilities of any Grant Company with respect
to any projects or transactions performed or engaged in by it on,
before or after the Distribution Date;
(g) Any and all litigation and claims against any Grant
Company existing as of the Distribution Date;
(h) Except as provided otherwise in the Tax Allocation
Agreement, any and all Liabilities for Grant Taxes; and
4
<PAGE> 9
(i) Any and all legal, accounting, consulting and expert fees
and expenses incurred in investigating, preparing, defending, settling
or discharging any claim or action arising under, out of or in
connection with any of the Grant Liabilities or Assets.
1.27 "Grant Option" shall mean an option to purchase Grant Common
Stock.
1.28 "Grant Taxes" shall mean any and all Taxes (i) to which any Grant
Company may be obligated pursuant to the Tax Allocation Agreement or (ii)
relating to or arising from the Contribution or the Distribution (including,
without limitation, any transfer taxes or value added taxes).
1.29 "Liability" shall mean any and all claims, demands, liabilities,
responsibilities, disputes, causes of action, losses, damages, assessments,
costs and expenses (including interest, awards, judgments, penalties,
settlements, fines, costs of remediation, diminutions in value, costs and
expenses incurred in connection with investigating and defending any claims or
causes of action (including, without limitation, attorneys' fees and expenses
and all fees and expenses of consultants and other professionals)) and
obligations of every nature whatsoever, liquidated or unliquidated, known or
unknown, matured or unmatured, or fixed or contingent.
1.30 "1998 Director Options and Warrants" shall mean the nonqualified
stock options and warrants granted by Weatherford to non-employee directors on
or after August 31, 1998.
1.31 "1998 Weatherford Employee Option Plan" shall mean the
Weatherford International, Inc. 1998 Employee Stock Option Plan.
1.32 "Note" shall mean the promissory note to be executed by Grant in
favor of Weatherford, in substantially the form of Annex C hereto.
1.33 "NYSE" shall mean The New York Stock Exchange, Inc.
1.34 "Old Weatherford Director Plans" shall mean the Energy Ventures,
Inc. 1991 Non-Employee Director Stock Option Plan and the Energy Ventures, Inc.
Amended and Restated Non-Employee Director Stock Option Plan.
1.35 "Old Weatherford Employee Option Plans" shall mean the
Weatherford International Incorporated 1987 Stock Option Plan, the Weatherford
Enterra, Inc. 1991 Stock Option Plan, the Energy Ventures, Inc. Employees'
Stock Option Plan, the Energy Ventures, Inc. 1992 Employee Stock Option Plan,
the Taro Industries Limited Stock Option Plan and the D. Dale Wood Stock Option
Agreement.
1.36 "Person" shall mean an individual, partnership, corporation,
business trust, limited liability company, limited liability partnership, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
1.37 "Preferred Supplier Agreement" shall mean the agreement to be
entered into between Weatherford and Grant, in substantially the form of Annex
D hereto.
1.38 "Properties" shall mean the properties currently or previously
owned or operated by any Grant Company or Grant Entity, but excluding the
Excluded Assets.
1.39 "Record Date" shall have the meaning specified in Section 3.3
hereof.
1.40 "Restated Certificate of Incorporation" shall mean the Restated
Certificate of Incorporation of Grant, in substantially the form of Annex E
hereto.
5
<PAGE> 10
1.41 "SEC" shall mean the United States Securities and Exchange
Commission.
1.42 "Service of Process" shall have the meaning specified in Section
6.1 hereof.
1.43 "Stock Split" shall mean the split pursuant to the Restated
Certificate of Incorporation of the outstanding shares of Grant Common Stock
into an aggregate number of shares equal to the number of shares of Weatherford
Common Stock on the Record Date, resulting in the issuance of the Additional
Shares.
1.44 "Tax Allocation Agreement" shall mean the agreement to be entered
into between Weatherford and Grant, substantially in the form of Annex F
hereto.
1.45 "Taxes" shall mean all federal, state, local, foreign and other
taxes, duties, levies, imposts, customs or other assessments, including,
without limitation, all net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, profit share, license, value added,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, premium, property, windfall profits or other taxes of any kind
whatsoever, together with any interest, penalties, additions to tax, fines or
other additional amounts imposed thereon or related thereto, and the term "Tax"
means any one of the foregoing Taxes.
1.46 "Transfer Agent" shall mean American Stock Transfer & Trust
Company.
1.47 "Transfers" shall mean the transactions described on Annex G
hereto.
1.48 "Transition Services Agreement" shall mean the agreement to be
entered into between Weatherford and Grant, in substantially the form of Annex
H hereto.
1.49 "Trust" shall mean the Energy Ventures, Inc. Executive Deferred
Compensation Stock Ownership Trust.
1.50 "Waste Materials" shall mean any (i) toxic or hazardous materials
or substances; (ii) solid wastes, including asbestos, polychlorinated
biphenyls, mercury, buried contaminants, chemicals, flammable or explosive
materials; (iii) radioactive materials; (iv) petroleum wastes and spills or
releases of petroleum products; and (v) any other chemical, pollutant,
contaminant, substance or waste that is regulated by any governmental entity
under any Environmental Law.
1.51 "Weatherford" shall mean Weatherford International, Inc., a
Delaware corporation.
1.52 "Weatherford Common Stock" shall mean shares of common stock,
$1.00 par value per share, of Weatherford.
1.53 "Weatherford Company" shall mean any corporation, joint venture,
partnership, limited liability company, association, investment or other entity
(other than Grant, a Grant Company or any entity transferred to Grant or a
Grant Company as a result of the Transfers), including Weatherford, and any
predecessor of the foregoing, in which Weatherford or any Weatherford Company
(or any predecessor to the business or assets of Weatherford or any Weatherford
Company) now or at any time in the past owned, directly or indirectly, an
ownership interest (whether or not such ownership interest constitutes control
of the entity and whether or not such interest represents a passive or active
investment).
1.54 "Weatherford Employee" shall mean an individual whose principal
occupation on the Distribution Date is as an employee of any Weatherford
Company.
1.55 "Weatherford 401(k) Plan" shall mean the Weatherford
International, Inc. 401(k) Plan.
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<PAGE> 11
1.56 "Weatherford Indemnified Parties" shall have the meaning set
forth in Section 6.1(a) hereof.
1.57 "Weatherford Option" shall mean an option or warrant, as
applicable, to purchase Weatherford Common Stock.
ARTICLE 2
CONTRIBUTION
2.1 Contribution.
(a) Effective before the Distribution Date: (i) Weatherford
and Grant shall cause the Transfers to be made or occur, or shall have
entered into agreements to effect the Transfers; (ii) Grant will
transfer, or cause to be transferred, the Excluded Assets to the
Weatherford Company or Weatherford Companies designated by
Weatherford; (iii) Grant will execute and deliver the Note; (iv)
Weatherford will contribute the Contributed Indebtedness to Grant; (v)
Grant will effect the Stock Split and issue the Additional Shares to
Weatherford; and (vi) Grant will issue the Drill Stem Credits (as
defined in the Preferred Supplier Agreement) to Weatherford.
(b) THE TRANSFERS SHALL BE MADE WITHOUT ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE ASSETS (CURRENT,
FIXED, PERSONAL, REAL, TANGIBLE OR INTANGIBLE), INCLUDING, BUT NOT
LIMITED TO, CONDITION OR WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY
DEFECTS THEREIN, WHETHER LATENT OR PATENT, CAPACITY, SUITABILITY,
UTILITY, SALABILITY, AVAILABILITY, COLLECTIBILITY, OPERATIONS,
CONDITIONS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IT
BEING THE EXPRESS AGREEMENT OF WEATHERFORD AND GRANT THAT, EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, GRANT WILL OBTAIN THE ASSETS IN
THEIR PRESENT CONDITION AND STATE OF REPAIR, ON AN "AS IS AND WHERE
IS, WITH ALL FAULTS" BASIS.
2.2 Grant Liabilities. Effective as of the Distribution Date, Grant
hereby unconditionally assumes and undertakes to pay, satisfy and discharge the
Grant Liabilities. IT IS THE INTENT OF THE PARTIES THAT THE GRANT LIABILITIES
AND ENVIRONMENTAL LIABILITIES SHALL BE WITHOUT REGARD TO THE CAUSE THEREOF OR
THE NEGLIGENCE OF ANY PERSON, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR
CONCURRENT, ACTIVE OR PASSIVE, AND WHETHER SUCH GRANT LIABILITY OR
ENVIRONMENTAL LIABILITY IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY OR
ARISING AS AN OBLIGATION OF CONTRIBUTION. GRANT HEREBY WAIVES AND RELEASES FOR
ITSELF AND ON BEHALF OF GRANT'S AFFILIATES ANY CLAIMS, DEFENSES OR CLAIMS FOR
CONTRIBUTION, INCLUDING CLAIMS FOR CONTRIBUTION OR REIMBURSEMENT PROVIDED UNDER
ENVIRONMENTAL LAWS, THAT IT HAS OR MAY HAVE AGAINST WEATHERFORD OR ANY OF ITS
AFFILIATES WITH RESPECT TO THE GRANT LIABILITIES AND ENVIRONMENTAL LIABILITIES.
AFTER THE DISTRIBUTION, NEITHER WEATHERFORD NOR ANY OF ITS AFFILIATES SHALL IN
ANY WAY BE LIABLE OR RESPONSIBLE FOR ANY GRANT LIABILITIES, EXCEPT TO THE
EXTENT SUCH LIABILITY RELATES TO THE OWNERSHIP OR OPERATION OF AN EXCLUDED
ASSET AFTER THE DISTRIBUTION DATE.
2.3 Consideration. The aggregate consideration for the Transfers shall
consist of (a) the contribution by Weatherford to Grant of the Contributed
Indebtedness and (b) all other agreements, arrangements and understandings
contemplated by this Agreement.
2.4 Limitation of Assignments. Notwithstanding any other provision
hereof, this Agreement shall not constitute nor require an assignment to any
Grant Company or, in the case of Excluded Assets, any Weatherford Company of
any contract, permit, license or other right if an attempted assignment of the
same
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<PAGE> 12
without the consent of any party would constitute a breach thereof or a
violation of any law or any judgment, decree, order, writ, injunction, rule or
regulation of any governmental entity unless and until such consent shall have
been obtained. In the case of any such contract, permit, license or other right
that cannot be effectively transferred to a Grant Company or, in the case of
Excluded Assets, a Weatherford Company without such consent (a "Consent
Required Contract"), each transferor agrees that it will use its best efforts
to obtain all consents of third parties and governmental entities as are
necessary for the assignment of any Consent Required Contract. To the extent
that any Consent Required Contract cannot be transferred by law or without the
consent of any governmental entity or third party, such Consent Required
Contract shall be held by the transferor in trust for its transferee and shall
be performed by such transferee in the name of the transferor and all benefits
and obligations derived thereunder shall be for the account of such transferee;
provided, however, that where entitlement of a transferee to such Consent
Required Contract is not recognized by any third party or governmental entity,
its transferor shall, at the request of such transferee, enforce in a
reasonable manner, at the cost of and for the account of such transferee, any
and all rights of such transferor against such third party or governmental
entity.
2.5 Delivery of Records. Grant shall be entitled to all books,
records, papers and instruments of Weatherford of whatever nature that relate
to the Assets, including, without limitation, all financial and accounting
records, on the Distribution Date, and all books and records relating to
employees, the purchase of materials, supplies and services, research and
development, engineering drawings, designs, schematics, blueprints, instruction
manuals, flowsheets, models, maintenance schedules and similar technical
records, and dealings with customers, vendors and suppliers relating to the
Assets, and including computerized books and records and other computerized
storage media and the software (including documentation and object and source
codes) used in connection therewith; provided that Weatherford shall be
entitled to retain all originals of its corporate, financial, accounting,
legal, tax and auditing records, and Weatherford shall be entitled to retain
copies at its expense of any such other books and records that are necessary
for its tax, accounting or legal purposes.
2.6 Guarantees and Financial Assurances. Grant agrees to use
reasonable efforts to obtain the release of any guarantees or other financial
assurances provided by Weatherford or any of its Affiliates on behalf of any
Grant Company.
2.7 Grant Acknowledgments. Grant acknowledges that this Agreement is a
valid, binding and enforceable contract that has been approved by its sole
stockholder. Grant further acknowledges that this Agreement and the
transactions contemplated hereby are in the best interests of Grant.
ARTICLE 3
RECAPITALIZATION OF GRANT; MECHANICS OF DISTRIBUTION
3.1 Grant Capitalization. The current equity capitalization of Grant
consists of 1,000 issued and outstanding shares of Grant Common Stock, all of
which is outstanding and owned beneficially and of record by Weatherford.
3.2 Recapitalization of Grant. Effective before the Distribution Date,
Grant shall have filed the Restated Certificate of Incorporation effecting the
Stock Split, and the Board of Directors of Grant shall have adopted the Amended
Bylaws.
3.3 Mechanics of Distribution. The Distribution shall be effected by
the distribution to each holder of record of Weatherford Common Stock (other
than the Trust), as of the record date designated for the Distribution by or
pursuant to the authorization of the Board of Directors of Weatherford (the
"Record Date"), of one share of Grant Common Stock for each share of
Weatherford Common Stock held by such holder. No
8
<PAGE> 13
fraction of a share of Grant Common Stock shall be issued, but in lieu thereof
each holder of shares of Weatherford Common Stock who otherwise would be
entitled to a fraction of a share of Grant Common Stock shall receive a whole
share of Grant Common Stock for such fraction of a share. All shares of
Weatherford Common Stock held by a record holder other than nominee holders
shall be aggregated for purposes of computing the number of shares of Grant
Common Stock to be issued pursuant to this Section 3.3.
3.4 Timing of Distribution. The Board of Directors of the Weatherford
shall formally declare the Distribution and shall authorize Weatherford to pay
it upon the satisfaction or waiver of the conditions set forth in Article 7, by
delivery of certificates for Grant Common Stock to the Transfer Agent for
delivery to the holders entitled thereto. The Distribution shall be deemed to
be effective upon notification by Weatherford to the Transfer Agent that the
Distribution has been declared and that the Transfer Agent is authorized to
proceed with the distribution of Grant Common Stock.
ARTICLE 4
EMPLOYEE BENEFIT PLANS
4.1 Employee Benefits are Grant Liabilities. All obligations of Grant
Companies with respect to employee benefit plans, arrangements or policies for
the benefit of employees and former employees (and their beneficiaries) of
Grant Companies in place at the time of the Distribution shall be treated and
deemed to be as Grant Liabilities under this Agreement.
4.2 401(k) Plans. Before the Distribution Date, Grant shall establish
a defined contribution plan (the "Grant 401(k) Plan") that shall be qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended, and
effective as of the Distribution Date. On or before the Distribution Date, and
in accordance with the terms of the Weatherford 401(k) Plan, Weatherford shall
cause the account balance attributable to each individual who will cease to be
an employee of Weatherford and its Affiliates following the Distribution Date
to be transferred to the Grant 401(k) Plan to the extent that such transfer is
permitted by law. Each individual who continues to be an employee of any Grant
Company on the Distribution Date shall, for eligibility and vesting purposes
under the Grant 401(k) Plan, be credited with the same service with which he or
she is credited for such purposes under the Weatherford 401(k) Plan immediately
prior to the Distribution Date.
4.3 Employee Health, Life and Disability Insurance Plans. On or before
the Distribution Date, Grant shall establish such employee health, life and
disability insurance plans and other employee welfare or fringe benefit
arrangements (collectively, the "Grant Employee Benefit Plans") that are
comparable in the aggregate to the health, life and disability insurance plans
and other employee welfare or fringe benefit arrangements that had been
maintained by Weatherford for its employees and the employees of its
subsidiaries prior to the Distribution Date (collectively, the "Weatherford
Employee Benefit Plans"). Service by any employee with Weatherford or its
subsidiaries prior to the Distribution Date shall be counted for purposes of
determining any period of eligibility to participate in, or to vest in benefits
(including vacation rights) provided under the Grant Employee Benefit Plans,
and any amounts previously expended by any such employees of Weatherford or its
subsidiaries prior to the Distribution Date for purposes of satisfying such
plan year's deductible, co-payment limitations, maximum out-of-pocket
provisions and applicable annual and/or life-time maximum benefit limitations
shall be credited for purposes of satisfying such plan year's deductible,
co-payment limitations under the Grant Employee Benefit Plans and any coverage
waiting period for pre-existing conditions for such employees shall be waived
under the Grant Employee Benefit Plans.
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<PAGE> 14
4.4 Credited Employment.
(a) During the five-year period following the Distribution,
if any employee of Weatherford or any of its Affiliates shall become an
employee of Grant or any of its Affiliates, Grant shall, and shall cause its
Affiliates to, credit such employee, for purposes of eligibility and vesting
under the Grant Employee Benefit Plans (including Grant's vacation policy) and
the Grant 401(k) Plan, with the period of time such employee was employed by
Weatherford or any of its Affiliates.
(b) During the five-year period following the Distribution,
if any employee of Grant or any of its Affiliates shall become an employee of
Weatherford or any of its Affiliates, Weatherford shall, and shall cause its
Affiliates to, credit such employee, for purposes of eligibility and vesting
under Weatherford Employee Benefit Plans (including Weatherford's vacation
policy), with the period of time such employee was employed by Grant or any of
its Affiliates.
4.5 No Termination of Employment for Benefit Entitlement Purposes. For
purposes of determining a person's entitlement to benefits under any of the
Weatherford Employee Benefit Plans, the Distribution shall not constitute a
termination of employment for persons who will continue to be employees of
Grant or any of its Affiliates or Weatherford or any of its Affiliates after
the Distribution.
ARTICLE 5
STOCK PLANS
On or before the Distribution Date, Grant will adopt the Grant
Prideco, Inc. 2000 Employee Stock Option and Restricted Stock Plan, in
substantially the form of Annex I hereto (the "Grant Employee Stock Plan"), and
the Grant Prideco, Inc. 2000 Non-Employee Director Stock Option Plan, in
substantially the form of Annex J attached hereto (the "Grant Director Plan").
In consideration of Weatherford's contribution of the Contributed Indebtedness
to Grant, on or before the Distribution Date, Grant will enter into the
Employee Benefits Agreement in substantially the form of Annex K hereto. On or
before the Distribution Date, Weatherford and Grant will take such actions as
are necessary to cause the following treatment of outstanding Weatherford
Options to be effected as of the Distribution Date.
(a) Treatment of Old Weatherford Options and Old Director Options.
(i) Grant will issue Grant Options under the Grant Employee
Stock Plan to each holder of an outstanding Weatherford Option that
has been granted under an Old Weatherford Employee Option Plan ("Old
Weatherford Options").
(ii) Grant will issue Grant Options to each holder of an
outstanding Weatherford Option that has been granted under an Old
Weatherford Director Plan ("Old Director Options").
(iii) Grant Options issued pursuant to the preceding two
clauses will be exercisable for Grant Common Stock on the basis of one
share of Grant Common Stock for each share of Weatherford Common Stock
subject to the terms of the applicable outstanding Old Weatherford
Option or Old Director Option.
(iv) Each Grant Option will have the same vesting schedule
and other terms (including the exercise date and expiration date) as
the vesting schedules and other terms of the related Old Weatherford
Option or Old Director Option, as applicable; provided that employment
with either Grant or Weatherford will satisfy any condition to
continuing employment where discontinued employment would cause the
options to terminate.
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<PAGE> 15
(v) The per-share exercise price of each adjusted Old
Weatherford Option or Old Director Option and the related Grant Option
will be a function of (A) the per share exercise price of the Old
Weatherford Option or Old Director Option immediately before the
Distribution, (B) the market value per share of Weatherford Common
Stock immediately before giving effect to the Distribution and (C) the
market value per share of Grant Common Stock after giving effect to
the Distribution, all as provided in the following formula:
<TABLE>
<S> <C>
The adjusted exercise price per share for an Old
Weatherford Option or an Old Director Option will equal: E (W-G)/W
The exercise price per share for the related Grant Option will equal: E (G/W)
Where E = The original exercise price of the applicable Weatherford Option;
G = The market value per share of Grant Common Stock (a) initially based on
the average of the high and low trading prices on the NYSE on the first full
trading date after "when-distributed" trading begins, and (b) following 30
consecutive trading days after "when-distributed" trading begins, for
options remaining outstanding on such date, the average of the last sales
price per share of Grant Common Stock on the NYSE for each of the 30
consecutive trading days beginning on the date "when-distributed" trading
begins; and
W = The market value per share of Weatherford Common Stock as of the close of
market on the last trading day before "when-issued" trading begins as
reported by the NYSE.
</TABLE>
(vi) As a condition of exercise of a Grant Option issued to a
current or former Weatherford employee, Grant shall require the
optionee to pay at the time of exercise the exercise price and the
amount necessary to cover Weatherford's obligation to withhold all
federal, state, local and other taxes. Grant will then transfer Grant
Common Stock to the optionee in accordance with the terms of the Grant
Option. Grant also shall immediately notify Weatherford of the
exercise and remit to Weatherford the sum necessary to cover
Weatherford's obligation to withhold all federal, state, local and
other taxes with respect to such exercise. To the extent that
compensation income recognized by a holder of a Grant Option is
attributable to services rendered to Weatherford or any of its
subsidiaries (other than Grant or any of its subsidiaries),
Weatherford (or its subsidiary) and not Grant shall be entitled to a
compensation expense deduction for federal income tax purposes, and
Grant (or any of its subsidiaries) shall not attempt to claim a
deduction for such expense.
(b) Substitution of 1998 Weatherford Options.
(i) Each Weatherford Option granted under the 1998
Weatherford Employee Option Plan (collectively, "1998 Weatherford
Options") held by a Grant Employee will be substituted with Grant
Options. The number of shares of Grant Common Stock subject to such
Grant Options and the exercise price of such Grant Options will be
determined as provided in the following formula:
<TABLE>
<S> <C>
The exercise price for the Grant Option will equal: E (G/W)
The number of shares of Grant Common Stock subject to the
Grant Option will equal NE/Pg
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C> <C>
Where E = The original exercise price of the 1998 Weatherford Option;
N = The original number of shares of Weatherford Common Stock subject to
the 1998 Weatherford Option;
G = The market value per share of Grant Common Stock (a) initially based on
the average of the high and low trading prices on the NYSE on the first full
trading date after "when-distributed" trading begins, and (b) following 30
consecutive trading days after "when-distributed" trading begins, for
options remaining outstanding on such date, the average of the last sales
price per share of Grant Common Stock on the NYSE for each of the 30
consecutive trading days beginning on the date "when-distributed" trading
begins;
W = The market value per share of Weatherford
Common Stock as of the close of market on
the last trading day before
"when-distributed" trading begins as
reported by the NYSE; and
Pg = The exercise price of the Grant Option
determined in accordance with the first
formula of this subsection (i).
</TABLE>
(ii) Each 1998 Weatherford Option held by a Weatherford
Employee and each of the 1998 Director Options and Warrants will be
adjusted. The number of shares of Weatherford Common Stock for which
those adjusted options will be exercisable and the adjusted exercise
price of those options will be determined as provided in the following
formula:
<TABLE>
<S> <C>
The adjusted exercise price for the Weatherford Option will equal E (W-G)/W
The number of shares of Weatherford Common Stock subject to the
adjusted option will equal NE/Pw
Where E = The original exercise price of the 1998 Weatherford Option;
N = The original number of shares of Weatherford Common Stock subject to
the 1998 Weatherford Option;
G = The market value per share of Grant Common Stock (a) initially based on
the average of the high and low trading prices on the NYSE on the first full
trading date after "when-distributed" trading begins, and (b) following 30
consecutive trading days after "when-distributed" trading begins, for
options remaining outstanding on such date, the average of the last sales
price per share of Grant Common Stock on the NYSE for each of the 30
consecutive trading days beginning on the date "when-distributed" trading
begins;
W = The market value per share of Weatherford
Common Stock as of the close of market on
the last trading day before
"when-distributed" trading begins as
reported by the NYSE; and
Pw = The adjusted exercise price of the 1998
Weatherford Option determined in accordance
with the first formula in this subsection
(ii).
</TABLE>
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<PAGE> 17
(iii) The adjusted Weatherford Options will be administered
under the Weatherford Stock Option Plan or Weatherford Director Plan
under which they were issued. The substitute Grant Options will be
issued and administered under the Grant Employee Stock Plan.
(c) Treatment of Outstanding Restricted Stock. Holders of restricted
Weatherford Common Stock granted under the Weatherford Enterra, Inc. Restricted
Stock Incentive Plan, the Weatherford Enterra, Inc. 1997 Non-Employee Directors
Restricted Stock Plan or under an individual agreement in the case of the
restricted stock award granted to Curtis W. Huff, will receive one share of
restricted Grant Common Stock for each share of restricted Weatherford Common
Stock they hold. The restricted Grant Common Stock will be subject to the same
restrictions as the applicable restricted Weatherford Common Stock without any
reference to employment with Grant.
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification Matters.
(a) Grant hereby agrees to indemnify, defend and hold Weatherford and
its Affiliates and each of their respective officers, directors, employees,
agents and assigns (collectively, the "Weatherford Indemnified Parties")
harmless from and against any and all Liabilities or Environmental Liabilities
(including, without limitation, reasonable fees and expenses of attorneys,
accountants, consultants and experts) that the Weatherford Indemnified Parties
incur, suffer or realize, are subject to a claim for or are subject to, that
are based upon, arising out of, relating to or otherwise in respect of:
(i) any breach of any covenant or agreement of any Grant
Company contained in this Agreement or any other agreement
contemplated hereby, including the Tax Allocation Agreement;
(ii) the acts or omissions of any Grant Company or any
Affiliate of any Grant Company (other than Weatherford and its
Affiliates that are not Grant Companies after the Distribution) or the
conduct of any business by them or any predecessor thereto before, on
or after the Distribution Date;
(iii) the Grant Liabilities;
(iv) the Assets;
(v) the conveyance, assignment, sale, lease or making
available of the Assets;
(vi) any Grant Tax (except as provided otherwise in the Tax
Allocation Agreement);
(vii) any and all amounts for which Weatherford may be liable
on account of any claims, administrative charges, self-insured
retentions, deductibles, retrospective premiums or fronting provisions
in insurance policies, including as the result of any uninsured
period, insolvent insurance carriers or exhausted policies, arising
from claims by any Grant Company or any Affiliate of any Grant
Company, or the employees of any of the foregoing, or claims by
insurance carriers of any Grant Company for indemnity arising from or
out of claims by or against any Grant Company for acts or omissions of
any Grant Company, or related to any
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<PAGE> 18
current or past business of any Grant Company or any product or
service provided by any Grant Company;
(viii) any COBRA Liability with respect to any employees of
Weatherford who become employees of any Grant Company after the
Distribution;
(ix) any settlements or judgments in any litigation commenced
by one or more insurance carriers against Weatherford on account of
claims by any Grant Company or employees of any Grant Company;
(x) any and all Liabilities incurred by Weatherford pursuant
to its obligations hereunder in seeking to obtain or obtaining any
consent or approval to assign, transfer or lease any interest in any
asset or instrument, contract, lease, permit or benefit to any Grant
Company arising thereunder or resulting therefrom;
(xi) any Liability relating to the failure to comply with any
bulk sales or transfer laws in connection herewith or with any of the
other agreements contemplated hereby;
(xii) the on-site or off-site handling, storage, treatment or
disposal of any Waste Materials generated by any Grant Company;
(xiii) any and all Environmental Conditions, known or
unknown, existing on, at or underlying any of the Properties or
related to the operations on any of the Properties or with regard to
any of the Assets;
(xiv) any acts or omissions of any Grant Company relating to
the ownership or operation of the business of any Grant Company or the
Properties;
(xv) any and all Liabilities incurred by Weatherford or any
of its Affiliates relating to any guarantee or other financial
assurance provided by Weatherford or any of its Affiliates on behalf
of any Grant Company;
(xvi) any Liability relating to any claim or demand by any
stockholder of Weatherford, any stockholder of Grant following the
Distribution or any other Person with respect to the Transfers (or any
of them), the Contribution, the Distribution or the transactions
relating thereto;
(xvii) any Liability relating to the Grant 401(k) Plan, any
Grant Employee Benefit Plan and the other employee benefit or welfare
plans of any Grant Company; and
(xviii) any Liability relating to any Excluded Asset with
respect to any period prior to the Distribution Date.
(b) Absolute Indemnity. NONE OF THE WEATHERFORD INDEMNIFIED
PARTIES WILL BE OBLIGATED TO INSTITUTE ANY LEGAL PROCEEDINGS IN
CONNECTION WITH THE COLLECTION OR PURSUIT OF ANY INSURANCE IN ORDER TO
EXERCISE AN INDEMNIFICATION REMEDY UNDER THIS ARTICLE 6. UNLESS
OTHERWISE SPECIFICALLY EXPRESSED, THIS INDEMNITY OBLIGATION SHALL
APPLY WITHOUT REGARD TO WHETHER THE LIABILITY OR ENVIRONMENTAL
LIABILITY WAS CAUSED BY THE ORDINARY OR GROSS NEGLIGENCE OF ANY OF THE
WEATHERFORD INDEMNIFIED PARTIES (WHETHER
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<PAGE> 19
SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT OR ACTIVE OR PASSIVE), OR
WHETHER THE LIABILITY OR ENVIRONMENTAL LIABILITY IS BASED ON STRICT
LIABILITY, ABSOLUTE LIABILITY OR ARISES AS AN OBLIGATION OF
CONTRIBUTION OR INDEMNITY. GRANT ACKNOWLEDGES THAT IT IS AWARE OF
VARIOUS THEORIES KNOWN AS THE "EXPRESS NEGLIGENCE" DOCTRINE AND OTHER
SIMILAR DOCTRINES AND THEORIES THAT MAY LIMIT INDEMNIFICATION AND
AGREES AND STIPULATES THAT THE PROVISIONS OF THIS AGREEMENT REFLECT
THE EXPRESS INTENT OF THE PARTIES THAT THE INDEMNIFICATION TO BE
PROVIDED BY GRANT APPLY NOTWITHSTANDING THE FACT THAT THE LIABILITY OR
ENVIRONMENTAL LIABILITY (I) MAY NOT CURRENTLY BE KNOWN BY IT OR
MANIFEST ITSELF IN ANY REGARD, (II) MAY ARISE UNDER A STATUTE OR
THEORY THAT MAY NOT CURRENTLY EXIST OR BE KNOWN TO GRANT, (III) MAY
ARISE AS A RESULT OF ANY ACT OR OMISSION BY ANY OF THE WEATHERFORD
INDEMNIFIED PARTIES (WHETHER SUCH CONDUCT BE SOLE, JOINT OR CONCURRENT
OR ACTIVE OR PASSIVE) OR (IV) MAY CONSTITUTE A VIOLATION OF ANY
APPLICABLE CIVIL OR CRIMINAL LAW OR REGULATION.
6.2 Notice of Circumstance. After receipt by Weatherford of notice, or
Weatherford's actual discovery, of any action, proceeding, claim, demand or
potential claim that could give rise to a right to indemnification pursuant to
any provision of this Agreement (any of which is individually referred to as a
"Circumstance"), Weatherford shall give Grant written notice describing the
Circumstance in reasonable detail; provided, however, that no delay by
Weatherford in notifying Grant shall relieve Grant from any Liability or
Environmental Liability hereunder. If Grant notifies Weatherford within 15 days
after such notice that Grant is assuming the defense thereof, except as
otherwise provided in the Tax Allocation Agreement, (i) Grant will defend the
Weatherford Indemnified Parties against the Circumstance with counsel of its
choice, provided such counsel is reasonably satisfactory to Weatherford, (ii)
the Weatherford Indemnified Parties may retain separate co-counsel at its or
their sole cost and expense (except that Grant will be responsible for the fees
and expenses for the separate co-counsel to the extent Weatherford concludes
reasonably that the counsel Grant has selected has a conflict of interest),
(iii) the Weatherford Indemnified Parties will not consent to the entry of any
judgment or enter into any settlement with respect to the Circumstance without
the written consent of Grant and (iv) Grant will not consent to the entry of
any judgment with respect to the Circumstance, or enter into any settlement
that (x) requires any payments by or continuing obligations of an Weatherford
Indemnified Party, (y) requires an Weatherford Indemnified Party to admit any
facts or liability that could reasonably be expected to adversely affect an
Weatherford Indemnified Party in any other matter or (z) does not include a
provision whereby the plaintiff or claimant in the matter releases the
Weatherford Indemnified Parties from all Liability with respect thereto,
without the written consent of Weatherford. In the event Grant does not notify
Weatherford within 15 days after Weatherford has given notice of the
Circumstance that Grant is assuming the defense thereof, the Weatherford
Indemnified Parties may defend against, or enter into any settlement with
respect to, the Circumstance in any manner the Weatherford Indemnified Parties
reasonably may deem appropriate, at Grant's sole cost.
6.3 Payment. Payment of any amounts due pursuant to this Article 6
shall be made in United States dollars in immediately available funds, by wire
transfer to a bank account or accounts to be designated by the Weatherford
Indemnified Party, within ten Business Days after notice is sent by the
Weatherford Indemnified Party. If and to the extent the Weatherford Indemnified
Party shall make written demand upon Grant for indemnification pursuant to this
Article 6 and Grant shall refuse or fail to pay in full, within ten Business
Days of such written demand, the amounts demanded pursuant hereto and in
accordance herewith, then the Weatherford Indemnified Party may utilize any
legal or equitable remedy to collect from Grant the amount demanded.
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<PAGE> 20
6.4 Insurance. Grant shall not be obligated to indemnify the
Weatherford Indemnified Parties for amounts that shall have been covered and
paid by insurance of the Weatherford Indemnified Parties; provided, however,
insurance shall not include deductibles or self-insured retentions.
6.5 Scope of Indemnification. INDEMNIFICATION UNDER THIS ARTICLE 6
SHALL BE IN ADDITION TO ANY REMEDIES WEATHERFORD OR ANY WEATHERFORD INDEMNIFIED
PARTY MAY HAVE AT LAW OR EQUITY. THERE SHALL BE NO TIME LIMIT AS TO GRANT'S
INDEMNIFICATION OBLIGATIONS HEREUNDER.
6.6 Indemnity for Certain Environmental Liabilities. It is the
intention of the parties that the indemnity provided herein with respect to
Environmental Liabilities under CERCLA and corresponding provisions of state
law is an agreement expressly not barred by 42 U.S.C. Section 9607(e)(i) or
corresponding provisions of any state law.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF WEATHERFORD
The obligations of the Weatherford to consummate the Distribution
hereunder shall be subject to the fulfillment of each of the following
conditions:
(a) The Board of Directors of Weatherford shall be satisfied that,
after giving effect to the Contribution, (i) Weatherford will not be insolvent
and will not have unreasonably small capital with which to engage in its
businesses and (ii) the Weatherford surplus will be sufficient to permit,
without violation of Delaware law, the Distribution.
(b) The Transfers shall have been made or occurred.
(c) Weatherford and Grant shall have executed the Preferred
Supplier Agreement.
(d) Weatherford and Grant shall have executed the Tax Allocation
Agreement.
(e) Weatherford and Grant shall have executed the Transition
Services Agreement.
(f) Grant shall have filed the Restated Certificate of
Incorporation, effecting the recapitalization described in Section 3.2.
(g) The Board of Directors of Grant shall have adopted the Amended
Bylaws.
(h) The Grant Common Stock shall have been approved for listing by
the NYSE, and the NYSE shall not have (i) withdrawn its certification filed with
the SEC that the Grant Common Stock has been approved for listing, (ii)
suspended trading in either the Grant Common Stock or the Weatherford Common
Stock or (iii) filed with the SEC a Form 25 to strike either the Grant Common
Stock or the Weatherford Common Stock from listing and registration thereof.
(i) Grant's Registration Statement on Form 10 shall have become
effective pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and the SEC shall not have commenced any action to prohibit or restrict
the Distribution in any way.
(j) Weatherford shall have received a ruling from the United
States Internal Revenue Service to the effect that, for United States federal
income tax purposes, no gain or loss will be recognized by, and no
16
<PAGE> 21
amount will be included in the income of, the Weatherford stockholders upon
their receipt of shares of Grant Common Stock in the Distribution and that no
gain or loss will be recognized by Weatherford as a result of the Distribution.
(k) Grant shall have executed the Note and delivered the Note to
Weatherford.
(l) The Board of Directors of Weatherford shall not have
determined, in its sole discretion, to abandon, defer or modify the Transfers,
the Contribution and the Distribution or the terms thereof.
ARTICLE 8
MISCELLANEOUS
8.1 Grant Covenants. To assure the performance of the obligations of
Grant under this Agreement, Grant hereby covenants and agrees that it will not,
and will cause the Grant Companies not to, merge, convert into another entity,
engage in a share exchange for a majority of its shares, liquidate or transfer,
assign or otherwise convey or allocate, directly or indirectly, in one or more
transactions, whether or not related, a majority of Grant's assets (determined
in good faith by a board resolution prior to the transaction on a fair value
and consolidated basis) to any Person unless the acquiring Person (i) expressly
assumes the obligations of Grant hereunder, (ii) executes and delivers to
Weatherford an agreement, in form and substance satisfactory to Weatherford,
agreeing to be bound by each and every provision of this Agreement as if it
were Grant and (iii) has a net worth on a pro forma basis after giving effect
to the acquisition or business combination equal to or greater than that of
Grant (on a consolidated basis) and Grant complies with the provisions of the
Tax Allocation Agreement. Any such assumption of liability by the acquiring
Person shall not release Grant from its obligations under this Agreement.
8.2 Governing Law. All questions arising out of this Agreement and the
rights and obligations created herein, or its validity, existence,
interpretation, performance or breach, shall be governed by and construed in
accordance with the internals laws of the State of Texas, without regard to or
the application of the rules of conflicts of laws set forth in such laws.
8.3 Arbitration.
(a) In the event there shall exist any dispute or controversy with
respect to this Agreement or any matter relating hereto or the transactions
contemplated hereby, the parties hereto agree to seek to resolve such dispute or
controversy by mutual agreement. If the parties hereto are unable to resolve
such dispute or controversy by agreement within 90 days following notice by any
party hereto of the nature of such dispute or controversy setting forth in
reasonable detail the circumstances and basis of such dispute or controversy,
the parties agree that such dispute or controversy be resolved by binding
arbitration pursuant to the provisions of this Section 8.3 and in accordance
with the then current Commercial Arbitration Rules of the American Arbitration
Association. If a party elects to submit such matter to arbitration, such party
shall provide notice to the other party of its election to do so, which notice
shall name one arbitrator. Within 10 Business Days after the receipt of such
notice, the other party shall provide written notice to the electing party
naming a second arbitrator. The two arbitrators so appointed shall name a third
arbitrator, or failing to do so, a third arbitrator shall be appointed pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
(b) All arbitration proceedings shall be held in Houston, Texas.
(c) Each arbitrator selected to act hereunder shall be qualified by
education and experience to pass on the particular question in dispute and shall
be independent and not affiliated with any
17
<PAGE> 22
of the parties hereto or an Affiliate thereof. A person associated or affiliated
with the legal counsel for either of the parties or their Affiliates will not be
considered independent.
(d) The arbitrators shall resolve all disputes in controversy in
accordance with the Texas substantive law. All statutes of limitations that
would otherwise be applicable shall apply to any arbitration proceeding. The
arbitrators shall not be authorized to order any equitable remedies and shall
only be empowered to make monetary awards and determinations with respect to
compliance by a party and its Affiliates with the terms hereof.
(e) The arbitrators appointed pursuant to this Section 8.3 shall
promptly hear and determine (after due notice and hearing and giving the parties
reasonable opportunity to be heard) the questions submitted, and shall endeavor
to render their decision within 60 days after appointment of the third
arbitrator or as soon as practical thereafter. If within such period a decision
is not rendered by the board or a majority thereof, new arbitrators may be named
and shall act hereunder at the election of either party in like manner as if
none had previously been named.
(f) The decision of the arbitrators, or a majority thereof, made in
writing, shall absent manifest error be final and binding upon the parties
hereto as to the questions submitted, and each party shall abide by such
decision.
(g) The cost of the arbitration shall be borne by the parties
thereto as unanimously determined by the arbitrators.
(h) Notwithstanding the agreement by the parties to arbitration,
either party may seek from a court of competent jurisdiction injunctive and
other equitable relief in aid of arbitration. Each party hereto on its own
behalf and on behalf of its Affiliates irrevocably agrees that any such relief
shall first be sought in Federal or State court in Harris County, Texas.
8.4 Notices. All notices and other communications to be given or made
hereunder shall be in writing and shall be (a) personally delivered with signed
receipt obtained acknowledging delivery; (b) transmitted by postage prepaid
registered mail, return receipt requested (air mail if international); or (c)
transmitted by facsimile; to a party at the address set out below (or at such
other address as it may have provided notification for the purposes hereof to
the other party hereto in accordance with this Section).
If to Grant: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Fax number: (281) 297-8569
Attention: President
If to Weatherford: Weatherford International, Inc.
515 Post Oak Boulevard, Suite 600
Houston, Texas 77027
Fax number: (713) 693-4484
Attention: General Counsel
18
<PAGE> 23
With a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Fax number: (713) 651-5246
Attention: Charles L. Strauss
8.5 Expenses. Except as otherwise set forth herein or in any agreement
executed in connection herewith, all costs and expenses related to the
Distribution and the transactions contemplated hereby shall be borne by
Weatherford.
8.6 Entire Agreement. This Agreement, including the Schedules, Annexes
and other writings referred to herein or delivered pursuant hereto, constitutes
the entire agreement between Weatherford and Grant with respect to the subject
matter hereof and supersedes all other agreements, representations, warranties,
statements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. This Agreement may not be amended, altered or
modified except by a writing signed by duly authorized officers of Weatherford
and Grant.
8.7 Waiver. No consent or waiver, express or implied, by a party
hereto to or of any breach or default by the other party hereto in the
performance by such other party of its obligations hereunder will be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such other party of the same or any other obligations of such
other party hereunder. Failure on the part of a party to complain of any act or
failure to act of the other party or to declare the other party in default,
irrespective of how long such failure continues, will not constitute a waiver
by such party of its rights hereunder. The giving of consent by a party in any
one instance will not limit or waive the necessity to obtain such party's
consent in any future instance.
8.8 Binding Effect; Assignment; No Third Party Benefit.
(a) This Agreement will be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns. Neither party to this Agreement may assign
its rights under this Agreement without the prior written consent of the other
party; provided, however, Weatherford may assign any of its rights and
obligations under this Agreement to any Weatherford Affiliate, of which
Weatherford beneficially owns or controls at least 50% of the equity or other
interests of such Affiliate, without the consent of Grant.
(b) Nothing in this Agreement, express or implied, is
intended to or shall confer upon any person other than Grant, Weatherford and
the Weatherford Indemnified Parties any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
8.9 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
8.10 References. All references in this Agreement to Articles,
Sections and other subdivisions refer to the Articles, Sections and other
subdivisions of this Agreement unless expressly provided otherwise. The words
"this Agreement", "herein", "hereof", "hereby", "hereunder" and words of
similar import refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited.
8.11 Terminology. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, will include all
other genders; and the singular will include the plural and vice
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<PAGE> 24
versa. The headings of the Articles and Sections of this Agreement are included
for convenience only and will not be deemed to constitute part of this Agreement
or to affect the construction hereof or thereof.
8.12 Severability. Any provision of this Agreement that is determined
by arbitration as provided herein or a court of competent jurisdiction to be
invalid, illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable, so long as the
material purposes of this Agreement can be determined and effectuated. Should
any provision of this Agreement be so declared invalid, illegal or
unenforceable, the parties shall agree on a valid provision to substitute for
it.
8.13 Further Assurances. Each party hereto agrees to do all acts and
things and to make, execute and deliver such written instruments, as will from
time to time be reasonably required to carry out the terms and provisions of
this Agreement.
[signatures of the following page]
20
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth in the introduction to this Agreement.
WEATHERFORD INTERNATIONAL, INC.
By:
----------------------------------------
Curtis W. Huff
Executive Vice President, Chief Financial
Officer, General Counsel and Secretary
GRANT PRIDECO, INC.
By:
----------------------------------------
John C. Coble
President
21
<PAGE> 1
EXHIBIT 3.1
GRANT PRIDECO, INC.
FORM OF RESTATED CERTIFICATE OF INCORPORATION
The original Certificate of Incorporation of Grant Prideco, Inc. (the
"Corporation") was filed on June 22, 1990. On __________________, 2000, the
Board of Directors and the sole stockholder of the Corporation adopted
resolutions authorizing the further amendment and the restatement and
integration of the provisions of the most recent amended Certificate of
Incorporation of the Corporation and authorizing the filing of this Restated
Certificate of Incorporation, in accordance with Sections 242 and 245 of the
General Corporation Law of the State of Delaware. This Restated Certificate of
Incorporation amends and supersedes the most recent amended Certificate of
Incorporation of the Corporation, as presently in effect, in its entirety as
follows:
ARTICLE 1
The name of the Corporation is Grant Prideco, Inc.
ARTICLE 2
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805.
The name of its registered agent at that address is The Corporation Service
Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE 4
The total number of shares of stock of all classes which the
Corporation has authority to issue is 310,000,000 shares, of which 300,000,000
shares shall be common stock, with a par value of $.01 per share ("Common
Stock"), and 10,000,000 shares shall be preferred stock, with a par value of
$.01 per share ("Preferred Stock"). Effective upon the filing of this Restated
Certificate of Incorporation (the "Effective Time"), each share of Common Stock
issued and outstanding immediately prior to the Effective Time shall
automatically be changed and converted, without any action on the part of the
holder thereof, into __________________ shares of Common Stock.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class of stock
are as follows:
<PAGE> 2
PREFERRED STOCK
Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. Subject to the provisions hereof and
the limitations prescribed by law, the Board of Directors is hereby vested with
the authority and is expressly authorized, prior to issuance, by adopting
resolutions providing for the issuance of, or providing for a change in the
number of, shares of any particular series and, if and to the extent from time
to time required by law, by filing a certificate pursuant to the General
Corporation Law of the State of Delaware, to establish or change the number of
shares to be included in each such series and to fix the designation and powers,
preferences and rights and the qualifications and limitations or restrictions
thereof relating to the shares of each such series, all to the maximum extent
permitted by the General Corporation Law of the State of Delaware as in effect
on the date hereof or as hereafter amended. The vested authority of the Board of
Directors with respect to each series shall include, but not be limited to, the
determination of the following:
(a) the distinctive serial designation of such series and the
number of shares constituting such series;
(b) The annual dividend rate, if any, on shares of such series
and the preferences, if any, over any other series (or of any other
series over such series) with respect to dividends, and whether
dividends shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and,
if so, the terms and conditions of such redemption, including the date
or dates upon and after which such shares shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or purchase
fund and, if so, the terms of such obligation;
(e) whether shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or classes, any
stock of any series of the same class or any other class or classes or
any evidences of indebtedness and, if so, the terms and conditions of
such conversion or exchange, including the price or prices or the rate
or rates of conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights
in addition to the voting rights provided by law, and, if so, the terms
of such voting rights,
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<PAGE> 3
including, without limitation, whether such shares shall have the right
to vote with the Common Stock on issues on an equal, greater or lesser
basis;
(g) the rights of the shares of such series in the event of a
voluntary or involuntary liquidation, dissolution, winding up or
distribution of assets of the Corporation;
(h) whether the shares of such series shall be entitled to the
benefit of conditions and restrictions upon (1) the creation of
indebtedness of the Corporation or any subsidiary, (2) the issuance of
any additional stock (including additional shares of such series or of
any other series) or (3) the payment of dividends or the making of
other distributions on the purchase, redemption or other acquisition by
the Corporation or any subsidiary of any outstanding stock of the
Corporation; and
(i) any other relative, rights, powers, preferences,
qualifications, limitations or restrictions thereof, including, but not
limited to, any that may be determined in connection with the adoption
of any stockholder rights plan after the date hereof, relating to any
such series.
The number of authorized shares of Preferred Stock may be increased or
decreased by the affirmative vote of the holders of a majority of the stock of
the Corporation entitled to vote generally in the election of directors without
the separate vote of holders of Preferred Stock as a class.
COMMON STOCK
Subject to the rights of any outstanding series of Preferred Stock, and
except as may be expressly provided by law,
(a) dividends may be declared and paid or set apart for
payment upon Common Stock to the exclusion of the Preferred Stock out
of any assets or funds of the Corporation legally available for the
payment of dividends and may be payable in cash, stock or otherwise;
(b) the holders of Common Stock shall have the exclusive right
to vote for the election of directors (other than in the case of newly
created directorships and vacancies, which may be filled by the
remaining directors or as otherwise provided for by the General
Corporation Law of the State of Delaware) and on all other matters
requiring stockholder action, each share being entitled to one vote;
and
(c) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation
shall be distributed pro rata to the holders of Common Stock.
3
<PAGE> 4
ARTICLE 5
All power of the Corporation shall be vested in and exercised by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
(a) The Board of Directors of the Corporation may from time to time
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. Any such committee, to the extent provided in
the resolution of the board of directors, or in the Bylaws of the Corporation,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to the following matter: (1) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the General Corporation
Law of the State of Delaware to be submitted to stockholders for approval or (2)
adopting, amending or repealing any bylaw of the Corporation.
(b) Advance notice of nominations for the election of Directors, other
than nominations by the Board of Directors or a committee thereof, shall be
given in the manner provided in the Bylaws of the Corporation. Election of
Directors need not be by written ballot unless the Bylaws of the Corporation
provide otherwise.
(c) The power to adopt amend or repeal bylaws of the Corporation is
conferred upon the Board of Directors of the Corporation; provided that the fact
that such power has been so conferred upon the Board of Directors shall not
divest the stockholders of the Corporation of the power, nor limit their power
to adopt, amend or repeal bylaws of the Corporation. In addition to any
requirements of law and any other provision of this Restated Certificate of
Incorporation or any resolution or resolutions of the Board of Directors adopted
pursuant to Article 4 of this Restated Certificate of Incorporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Restated Certificate of Incorporation or any such resolution or resolutions),
the affirmative vote of the holders of 80% or more of the combined voting power
of the then outstanding shares of stock of all classes and series of stock the
holders of which are entitled to vote generally in the election of directors,
voting together as a single class, shall be required for the stockholders of the
Corporation to adopt, amend, alter or repeal any bylaws of the Corporation.
ARTICLE 6
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
4
<PAGE> 5
appointed for this Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE 7
(a) No director of the Corporation shall be liable to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary duty as
a director; provided that this Article shall not eliminate or limit the
liability of a director of the Corporation: (1) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (2) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (3i) under Section 174 of the General Corporation Law of the
State of Delaware, or (4) for any transaction from which the director derived an
improper personal benefit.
(b) If the General Corporation Law of the State of Delaware hereafter
is amended to authorize the further elimination or limitation of the liability
of directors of the Corporation to the Corporation or its stockholders, then the
liability of a director of the Corporation to the Corporation or its
stockholders shall be limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended, and such limitation of
liability shall be in addition to, and not in lieu of, the limitation on the
liability of a director of the Corporation provided this Article.
(c) Any repeal or modification of this Article shall be prospective
only and shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
(d) Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66 2/3% of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to alter, amend, adopt any provision inconsistent with, or repeal,
this Article or any provision hereof.
ARTICLE 8
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and
5
<PAGE> 6
this Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by its President and attested to by
its Secretary this ____ day of ________, 2000.
GRANT PRIDECO, INC.
By:
------------------------------------
John C. Coble, President
ATTEST:
- ------------------------------------
Curtis W. Huff, Secretary
6
<PAGE> 1
EXHIBIT 3.2
FORM OF BYLAWS
OF
GRANT PRIDECO, INC.
AMENDED AND RESTATED ON ______________, 2000
ARTICLE 1
CAPITAL STOCK
1.1 Issuance of Capital Stock. The Board of Directors may authorize the
issuance of the capital stock of the Corporation, to the extent such stock is
authorized in the Certificate of Incorporation, at such times, for such
consideration, and on such terms and conditions as the Board of Directors may
deem advisable, subject to any restrictions and provisions of law and the
Certificate of Incorporation.
1.2 Certificates of Stock. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary. Such signatures may be
facsimile if the certificate is signed by a transfer agent or registrar, other
than the Corporation or its employee. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the time of its issue. Every certificate for shares of stock which are subject
to any restriction on transfer and every certificate issued when the Corporation
is authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
1.3 Transfer Agents; Transfers. The Board of Directors may appoint one or
more transfer agents and registrars, and may require certificates for shares to
bear the signature of such transfer agent(s) and registrar(s). Subject to any
restrictions on transfer, shares of stock may be transferred on the books of the
Corporation by the surrender to the Corporation of its transfer agent of the
certificate therefor properly endorsed or accompanied by a written assignment or
power of attorney properly executed, with transfer stamps (if necessary)
affixed, and with such proof of the authenticity of signature as the Corporation
or its transfer agent may reasonably require.
<PAGE> 2
1.4 Replacement of Certificates. In case of the alleged loss, destruction
or mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms as the Board of Directors may from time to
time prescribe, or, if the Board of Directors has prescribed no such terms, on
such terms as the Corporation's duly appointed transfer agent and registrar or
Secretary of the Corporation shall determine. The Board of Directors or transfer
agent and registrar or Secretary may require as a condition precedent to the
issuance of a new certificate or uncertificated shares any or all of the
following: (a) additional evidence of the loss, destruction or mutilation
claimed; (b) advertisement of the loss in such manner as the Board of Directors
may direct or approve; (c) a bond or agreement of indemnity, in such form and
amount and with such surety (or without surety) as the Board of Directors or
transfer agent and registrar or Secretary may direct or approve; and (d) the
order or approval of a court.
ARTICLE 2
STOCKHOLDERS
2.1 Record Holders. The Corporation shall be entitled to treat the person
in whose name any share of stock is registered as the owner thereof for purposes
of dividends and other distributions in the course of business or in the course
of recapitalization, consolidation, merger, reorganization, liquidation, or
otherwise, and for the purpose of votes, approvals and consents by stockholders,
and for the purpose of notices to stockholders, and for all other purposes
whatsoever, and shall not be bound to recognize any equitable or other claim to
or interest in such share on the part of any other person, whether or not the
Corporation shall have notice thereof, save as expressly required by the laws of
the State of Delaware. It shall be the duty of each stockholder to notify the
Corporation of such stockholder's address.
2.2 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. In
order that the Corporation may determine the stockholders entitled to receive
the payment of any dividend or other distribution or any allotment of any
rights, the Board of Directors may fix in advance a record date and a payment
date therefor. In such case only stockholders of record on such record date
shall be so entitled notwithstanding any transfer of stock on the books of the
Corporation after the record date.
2.3 Annual Meeting. The annual meeting of stockholders shall be held on
such date, hour or place within or without the State of Delaware as fixed by the
Board of Directors or the Chairman of the Board. The purposes for which the
annual meeting is to be held, in addition to those prescribed by law, by the
Certificate of Incorporation or by these Bylaws, may be specified by the Board
of Directors or the Chairman of the Board.
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<PAGE> 3
2.4 Special Meetings. A special meeting of stockholders may only be called
by the Chairman of the Board or the Board of Directors. At any special meeting
of stockholders, only such business shall be conducted as shall be provided for
in the resolution or resolutions calling the special meeting or, where no such
resolution or resolutions have been adopted, only such business shall be
conducted as shall be provided in the notice to stockholders of the special
meeting.
2.5 Notice of Meetings. A written notice stating the place, date and hour
and purpose of all meetings of stockholders shall be given by the Secretary (or
other person authorized by these Bylaws or by law or by the Board of Directors)
not less than ten nor more than sixty days before the meeting (unless a shorter
or longer time may be prescribed by law) to each stockholder entitled to vote
thereat and to each stockholder who by law is entitled to such notice. If
mailed, such notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at such stockholder's address as it appears
in the records of the Corporation. Notice need not be given to a stockholder if
a written waiver of notice is executed before, at or after the meeting by such
stockholder, if communication with such stockholder is unlawful, or if such
stockholder attends the meeting in question, unless such attendance was for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. An affidavit from the transfer agent of the Corporation that the
notice has been given shall, in the absence of fraud, be prima facia evidence of
the facts stated therein. If a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place are
announced at the meeting at which the adjournment is taken, except that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
2.6 Quorum; Adjournment. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote generally in the election of directors
at a meeting shall constitute a quorum. Any meeting may be adjourned, whether or
not a quorum is present, by the presiding officer of the meeting for any reason
(including, if the presiding officer determines that it would be in the best
interests of the Corporation to extend the period of time for the solicitation
of proxies) from time to time and place to place until the presiding officer
shall determine that the business to be conducted at the meeting is completed,
which determination shall be conclusive.
2.7 Voting and Proxies. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
Corporation unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy (which
may include a signature and form of proxy pursuant to a facsimile or telegraphic
form of proxy or any other instruments acceptable to the Judge of Election of
the meeting), but no proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. Proxies shall be filed
with the Secretary of the meeting, or Secretary of any adjournment thereof.
Except as otherwise limited therein, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting. A proxy
purporting to be executed by or on behalf of a
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stockholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger.
2.8 Conduct of Meetings. The order of business and all other matters of
procedure at every meeting of the stockholders may be determined by the
presiding officer of the meeting, who shall be the Chairman of the Board, or in
the absence of the Chairman of the Board, the President, or in the absence of
both of them such other officer of the Corporation or member of the Board of
Directors as designated by the Board of Directors. The presiding officer of the
meeting shall have all the powers and authority vested in a presiding officer by
law or practice without restriction, including, without limitation, the
authority, in order to conduct an orderly meeting, to impose reasonable limits
on the amount of time at the meeting taken up in remarks by any one stockholder
and to declare any business not properly brought before the meeting to be out of
order. The Board of Directors shall appoint one or more Judges of Election to
serve at every meeting of the stockholders in accordance with Delaware law.
2.9 Action at Meeting. When a quorum is present, any matter before the
meeting shall be decided by vote of the holders of a majority of the shares of
stock voting on such matter except where a larger vote is required by law or by
the Certificate of Incorporation. Any election of Directors by stockholders
shall be determined by plurality of the votes cast, except where a larger vote
is required by law, by the Certificate of Incorporation or by these Bylaws. No
ballot shall be required for any election unless requested by a stockholder
entitled to vote in the election. The Corporation shall not directly or
indirectly vote any share of its own stock; provided, however, that the
Corporation may vote shares which it holds in a fiduciary capacity to the extent
permitted by law.
2.10 Action Without a Meeting. Any action required or permitted by law to be
taken at any annual or special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
2.11 Stockholder Lists. The Secretary (or other person authorized by these
Bylaws or by law) shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
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ARTICLE 3
DIRECTORS
3.1 Powers. The business of the Corporation shall be managed by a Board of
Directors, who may exercise all the powers of the Corporation except as
otherwise provided by the Certificate of Incorporation or by law.
3.2 Number of Directors. The number of Directors may be increased or
decreased from time to time by a vote of not less than 2/3 of the Directors then
in office, but no decrease shall have the effect of shortening the term of any
incumbent Director.
3.3 Election. Directors of the Corporation shall be elected annually at
each Annual Meeting of Stockholders.
3.4 Nomination. Only persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible for election as Directors
of the Corporation.
(a) Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders only (i) by or at the
direction of the Board of Directors or (ii) by a stockholder who (A) is a
stockholder of record who has owned at least 1% or $1000 in market value of
voting securities of the Corporation for at least one year on the date of such
stockholder gives the notice provided for below and who owns continues to own
such securities on the record date for the determination of stockholders
entitled to vote at such annual meeting and through the date of the meeting and
(B) gives timely and proper notice in writing to the Secretary of the
Corporation of such nomination. To be timely, a stockholder's notice must be
received in writing at the principal executive offices of the Corporation not
less than 120 nor more than 150 days in advance of the anniversary of the date
of the Corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders; provided, however, that if
no annual meeting was held in the previous year or the annual meeting is called
for date that is not within 30 days before or after the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received in writing not later than the close of business on
the tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the annual meeting date was made, whichever
occurs first. To be proper, a stockholder's notice to the Secretary of the
Corporation must be in writing and set forth (i) as to each person whom the
stockholder proposes to nominate for election or re-election as director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended, or any successor regulation thereto, (ii) the name and
record address of the stockholder proposing such business, (iii) the class and
number of shares of the Corporation that the stockholder owns of record or
beneficially, the dates on which such stockholder acquired such securities and
documentary support in accordance with Regulation 14A for a claim of beneficial
ownership, (iv) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or
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persons (including their names) pursuant to which the nomination or nominations
are to be made by such stockholder and (v) a representation that such
stockholder intends to appear in person or by proxy at the meeting to nominate
the persons named in the notice. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
Director if elected and a written representation from such nominee that the
information contained in such stockholder's notice is accurate and complete in
all respects.
(b) Any adjournment or postponement of the original meeting whereby the
meeting will reconvene within 30 days from the original date shall be deemed for
purposes of notice to be a continuation of the original meeting and no
nominations by a stockholder of persons to be elected as directors of the
Corporation may be made at any such reconvened meeting unless timely notice of
such nominations was given to the Secretary of the Corporation for the meeting
as originally scheduled.
(c) If the presiding officer of the meeting of stockholders determines
that a nomination was not properly brought before the annual meeting in
accordance with the foregoing procedures, the presiding officer shall declare to
the meeting that the nomination was not properly brought before the meeting and
such nomination shall be disregarded.
(d) For purpose of this Section, the term "public disclosure" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.
(e) Notwithstanding anything contained in this Section to the contrary,
a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder with respect to the matters set forth in this Section.
Nothing in this Section shall be deemed to affect any rights of the holders of
any series of Preferred Stock to elect Directors under specified circumstances
required by law or set forth in the certificate of designation governing such
Preferred Stock.
3.5 Tenure. Except as otherwise provided by law or by the Certificate of
Incorporation, Directors shall hold office until their successors are elected
and qualified or until their earlier resignation or removal. Any Director may
resign by delivering a written resignation to the Corporation. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.
3.6 Vacancies. Any vacancy occurring in the Board of Directors, including
any vacancy created by an increase in the number of Directors, may be filled by
a majority of the remaining Directors or as otherwise provided by law.
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3.7 Removal. A Director may be removed from office (a) with or without
cause by vote of the holders of the majority of the shares of stock entitled to
vote generally in the election of Directors or (b) to the extent permitted by
law, for cause by vote of the majority of the Directors then in office. A
Director may be removed for cause only after reasonable notice and opportunity
to be heard before the body proposing to remove such Director.
3.8 Meetings; Participation. Regular meetings of the Board of Directors may
be held without notice at such time, date and place as the Board of Directors
may from time to time determine. Special meetings of the Board of Directors may
be called, orally or in writing (or by electronic mail), by the Chairman of the
Board or President or by three or more Directors, designating the time, date and
place thereof. Directors may participate in meetings of the Board of Directors
by means of conference telephone or similar communications equipment by means of
which all Directors participating in the meeting can hear each other, and
participation in a meeting in accordance herewith shall constitute presence in
person at such meeting.
3.9 Notice of Meetings. Notice of the time, date and place of all special
meetings of the Board of Directors shall be given to each Director by the
President and Chief Executive Officer, Secretary, Assistant Secretary or, in the
case of the death, absence, incapacity or refusal of such persons, by one of the
Directors calling the meeting. Notice shall be given to each Director in person
or by telephone or by telegram (or by electronic mail) sent to such Director's
business or home address (or electronic mail address) at least twenty-four hours
in advance of the meeting, or by written notice mailed to such Director's
business or home at least forty-eight hours in advance of the meeting. Notice
need not be given to any Director if a written waiver of notice is executed by
such Director before, at or after the meeting, if communication with such
Director is unlawful, or if such Director attends the meeting in question,
unless such attendance was for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
was not lawfully called or convened.
3.10 Quorum; Adjournment. At any meeting of the Board of Directors, a
majority of the Directors then in office shall constitute a quorum. Less than a
quorum may adjourn any meeting from time to time and the meeting may be held as
adjourned without further notice.
3.11 Action at Meeting. At any meeting of the Board of Directors at which a
quorum is present, a majority of the Directors present may take any action on
behalf of the Board of Directors, unless a larger number is required by law, by
the Certificate of Incorporation or by these Bylaws.
3.12 Action by Consent. Any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting if all members
of the Board of Directors may be taken without a meeting if all members of the
Board of Directors consent thereto in writing, and the writing or writings are
filed with the minutes of the Board of Directors. Such consent shall be treated
as a vote of the Board of Directors for all purposes.
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3.13 Committees. The Board of Directors, by a majority vote of the Directors
then in office, may establish one or more committees, and may delegate thereto
some or all of its powers except those which by law, by the Certificate of
Incorporation, or by these Bylaws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but in the absence of such rules its business shall be
conducted so far as possible in the same manner as is provided in these Bylaws
for the Board of Directors. All members of such committees shall hold their
committee offices at the pleasure of the Board of Directors, and the Board of
Directors may abolish any committee at any time. Each such committee shall
report its action to the Board of Directors who shall have power to rescind any
action of any committee without retroactive effect.
3.14 Executive Committee. The Board of Directors shall establish a standing
Executive Committee. The Executive Committee shall consist of not less than two
Directors. The Executive Committee shall have and exercise the full power and
authority of the Board of Directors between meetings of the Board of Directors,
subject to such limitations and restrictions required by Delaware law, the
Certificate of Incorporation, or as the Board of Directors may impose in a
resolution duly adopted by the whole Board of Directors.
3.15 Compensation Committee. The Board of Directors shall establish a
standing Compensation Committee. The Compensation Committee shall consist of not
less than two Directors, none of whom shall be employees of the Corporation. The
Compensation Committee shall recommend to the Board of Directors the
compensation to be paid to officers and key employees of the Corporation and the
compensation of members of the Board of Directors. Except as otherwise provided
in any specific plan adopted by the Board of Directors, the Compensation
Committee shall be responsible for administration of executive incentive
compensation plans, stock option plans and other forms of direct or indirect
compensation of officers and key employees, and each member of the Compensation
Committee shall have the power and authority to execute and bind the Company to
such documents, agreements and instruments related to such plans and
compensation as are approved by the Compensation Committee. In the alternative,
the Compensation Committee may authorize any officer of the Company to execute
such documents, agreements and instruments on behalf of the Company and to set
the compensation levels of officers and key employees. In addition, the
Compensation Committee shall review levels of pension benefits and insurance
programs for officers and key employees.
3.16 Audit Committee. The Board of Directors shall establish a standing
Audit Committee. The Audit Committee shall consist of not less than two
Directors, none of whom shall be employees of the Corporation. The Audit
Committee shall be responsible for recommending to the entire Board of Directors
engagement and discharge of independent auditors of the financial statements of
the Corporation, shall review the professional service provided by independent
auditors, shall review the independence of independent auditors, shall review
with the auditors the plan and results of the auditing engagement, shall
consider the range of audit and non-audit fees, shall review the adequacy of the
Corporation's system of internal accounting controls, shall review the results
of procedures for internal auditing and shall consult with the internal auditor
of the Corporation with respect to all
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aspects of the Corporation's internal auditing program. In addition, the Audit
Committee shall direct and supervise special investigations as deemed necessary
by the Audit Committee.
3.17 Compensation of Directors. Unless the Board of Directors adopts a
resolution to the contrary, the Directors shall be paid their expenses, if any,
of attendance at each meeting of the Board of Directors, or a meeting of a
committee thereof. By resolution of the Board of Directors, the Directors may be
paid a fixed sum for attendance at each meeting of the Board of Directors, or a
meeting of a committee thereof, or a stated salary as Director. No such payment
shall preclude any Director from serving the Corporation in any other capacity
and receiving compensation therefor. The Board of Directors may establish other
forms of compensation for Directors (including variable compensation) as it
deems advisable.
ARTICLE 4
OFFICERS
4.1 Officers. The officers of the Corporation shall be a Chairman of the
Board, a President, one or more Vice Presidents, any one or more of which may be
designated Executive Vice President or Senior Vice President, a Secretary and a
Treasurer. The Board of Directors may appoint such other officers and agents,
including Chief Financial Officer, Controller, Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers, in each case as the Board of
Directors shall deem necessary, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined by the
Board of Directors. The Chairman of the Board shall be elected from among the
Directors. None of the other officers need be a Director. None of the officers
need be a stockholder of the Corporation. Any two or more offices may be held by
the same person. No officer shall execute, acknowledge, verify or countersign
any instrument on behalf of the Corporation in more than one capacity, if such
instrument is required by law, by these Bylaws or by any act of the Corporation
to be executed, acknowledged, verified, or countersigned by two or more
officers.
4.2 Election and Term of Office. The officers of the Corporation shall be
elected annually by the Board of Directors at its first regular meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
possible. Each officer shall hold office until such officer's successor shall
have been chosen and shall have qualified or until such officer's death or the
effective date of such officer's resignation or removal, or until such officer
shall cease to be a Director in the case of the Chairman of the Board.
4.3 Removal and Resignation. Any officer or agent elected or appointed by
the Board of Directors may be removed with or without cause by the affirmative
vote of a majority of the Board of Directors whenever, in its judgment, the best
interests of the Corporation shall be served thereby, but such removal shall be
without prejudice to the contractual rights, if any, of the person so removed.
Any officer may resign at any time by giving written notice to the Corporation.
Any such resignation shall take effect at the date of the receipt of such notice
or at any later time specified
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therein, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
4.4 Vacancies. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
4.5 Compensation. Officers shall receive such compensation as may from time
to time be determined by the Board of Directors or Compensation Committee.
Agents and employees shall receive such compensation as may from time to time be
determined by the Chief Executive Officer.
4.6 Chairman of the Board. The Chairman of the Board, subject to the
control of the Board of Directors, shall be responsible for formulating and
directing the strategic objective and goals of the Corporation. The Chairman of
the Board shall preside at all meetings of the Board of Directors or of the
stockholders of the Corporation. The Chairman of the Board shall formulate and
submit to the Board of Directors matters of general policy for the Corporation
and shall perform such other duties as usually appertain to the office or as may
be prescribed by the Board of Directors. The Chairman of the Board shall have
the power to appoint and remove subordinate officers, agents and employees,
except those elected or appointed by the Board of Directors. The Chairman of the
Board shall keep the Board of Directors informed and shall consult with them
concerning the business of the Corporation. The Chairman of the Board may sign
certificates for shares of the Corporation and any deeds, bonds, mortgages,
contracts, checks, notes, drafts, or other instruments that the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof has been expressly delegated by these Bylaws or by the Board
of Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed. The Chairman of the Board shall
perform all other duties normally incident to the office of Chairman of the
Board and Chief Executive Officer and such other duties as may be prescribed by
the stockholders or the Board of Directors from time to time.
4.7 President. The President shall be the chief executive officer of the
Corporation and, subject to the powers of the Chairman of the Board and Chief
Executive Officer and the control of the Board of Directors, shall in general
supervise and control the business and affairs and operations of the
Corporation. In the absence of the Chairman of the Board, the President shall
preside at all meetings of the Board of Directors and of the stockholders. The
President may also preside at any such meeting attended by the Chairman of the
Board if the President is so designated by the Chairman of the Board. The
President shall have the power to appoint and remove subordinate officers,
agents and employees, except those elected or appointed by the Board of
Directors or by the Chairman of the Board. The President shall keep the Chairman
of the Board and the Board of Directors informed and shall consult with them
concerning the operations of the Corporation. The President may sign
certificates for shares of the Corporation and any deeds, bonds, mortgages,
contracts, checks, notes, drafts, or other instruments that the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof has been expressly delegated by these Bylaws or by the Board
of Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed. The President shall vote, or give a
proxy to any other officer of the
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Corporation to vote, all shares of stock of any other Corporation standing in
the name of the Corporation and in general the President shall perform all other
duties normally incident to that office and such other duties as may be
prescribed by the stockholders or the Board of Directors from time to time.
4.8 Vice Presidents. In the absence of the Chairman of the Board and the
President, one or more Vice Presidents designated by the Board of Directors
shall perform the duties and exercise the powers of the President. Any Vice
President may sign certificates for shares of the Corporation and any deeds,
bonds, mortgages, contracts, checks, notes, drafts, or other instruments that
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof has been expressly delegated by these Bylaws or by
the Board of Directors to some other officer or agent of the Corporation, or
shall be required by law to be otherwise executed. The Vice Presidents shall
perform such other duties as from time to time may be assigned to them by the
Chairman of the Board, the President or the Board of Directors.
4.9 Secretary. The Secretary shall (a) keep the minutes of the meetings of
the stockholders, the Board of Directors and committees of Directors; (b) see
that all notices are duly given in accordance with the provisions of these
Bylaws and as required by law; (c) be custodian of the corporate records and of
the seal of the Corporation, and see that the seal of the Corporation or a
facsimile thereof is affixed to all certificates for shares prior to the issue
thereof and to all documents, the execution of which on behalf of the
Corporation under its seal is duly authorized in accordance with the provisions
of these Bylaws; (d) keep or cause to be kept a register of the post office
address of each stockholder which shall be furnished by such stockholder; (e)
sign with the President, or an Executive or Senior Vice President or Vice
President, certificates for shares of the Corporation, the issue of which shall
have been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general,
perform all duties normally incident to the office of Secretary and such other
duties as from time to time may be assigned to the Secretary by the Chairman of
the Board, the President or the Board of Directors.
4.10 Treasurer. If required by the Board of Directors, the Treasurer shall
give a bond for the faithful discharge of the Treasurer's duties in such sum and
with such surety or sureties as the Board of Directors shall determine. The
Treasurer shall (a) have charge and custody of and be responsible for all funds
and securities of the Corporation; (b) receive and give receipts for moneys due
and payable to the Corporation from any source whatsoever and deposit all such
moneys in the name of the Corporation in such banks, trust companies, or other
depositories as shall be selected in accordance with these Bylaws; (c) prepare,
or cause to be prepared, for submission at each regular meeting of the Board of
Directors, at each annual meeting of the stockholders, and at such other times
as may be required by the Board of Directors, the Chairman of the Board or the
President, a statement of financial condition of the Corporation in such detail
as may be required; and (d) in general, perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to the Treasurer by the Chairman of the Board, the President or the Board of
Directors.
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4.11 Assistant Secretary or Treasurer. The Assistant Secretaries and
Assistant Treasurers shall, in general, perform such duties as shall be assigned
to them by the Secretary or the Treasurer, respectively, or by the Chairman of
the Board, the President or the Board of Directors. The Assistant Secretaries
and Assistant Treasurers shall, in the absence of the Secretary or Treasurer,
respectively, perform all functions and duties which such absent officers may
delegate, but such delegation shall not relieve the absent officer from the
responsibilities and liabilities of such officer's office. The Assistant
Secretaries may sign, with the President or a Vice President, certificates for
shares of the Corporation, the issue of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the Board of
Directors shall determine.
4.12 Other Powers and Duties. Subject to these Bylaws, each officer of the
Corporation shall have in addition to the duties and powers specifically set
forth in these Bylaws, such duties and powers as are customarily incident to
such officer's office, and such duties and powers as may be designated from time
to time by the Board of Directors.
ARTICLE 5
INDEMNIFICATION
5.1 Present and Former Directors and Officers. The Corporation shall
indemnify, to the fullest extent that the General Corporation Law of the State
of Delaware as it exists on the date hereof and as it may hereafter be amended,
each of its present and former Directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit or proceeding, whether by or in the right of the
Corporation, by a third party or otherwise, to which such person is or was made
a party or threatened to be made a party by reason of the fact that such person
is or was a Director or officer of the Corporation. As soon as practicable after
a present or former officer or Director of the Corporation makes a claim for
indemnification pursuant to this provision (or pursuant to any related
contractual provision), the Corporation shall determine, pursuant to Section
145(d) of the General Corporation Law of the State of Delaware (or any successor
statute thereto), whether or not such person met the applicable standard set
forth in Section 145(a) or 145(b) of the General Corporation Law of the State of
Delaware (or any successor statute thereto), as applicable. Upon finding that
such applicable standard has been met, the Corporation shall immediately
authorize such indemnification.
5.2 Advancement of Expenses; Insurance. The Corporation shall pay expenses
(including attorney's fees) incurred by a present or former officer or Director
of the Corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding as and when such expenses are incurred,
including in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such present or former officer
or Director of the Corporation to repay such amount if it shall ultimately be
determined in a final, non-appealable decision by a court of competent
jurisdiction that such present or former officer or Director of the
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Corporation is not entitled to be indemnified by the Corporation under Delaware
law. The Corporation shall purchase and maintain indemnification insurance on
behalf of its Directors and officers in reasonable and customary amounts.
5.3 Indemnification of Others. To the extent that the General Corporation
Law of the State of Delaware as it exists on the date hereof and as it may
hereafter be amended, under general or specific authority granted by the Board
of Directors, the Corporation may furnish such indemnification persons other
than present or former officers or Directors of the Corporation.
5.4 Nature of Indemnities; Amendment of Indemnity Provisions. The rights to
indemnification and advancement of expenses conferred in this Section are
contractual rights. The rights conferred on any person by this Article shall not
be exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise. Any
repeal or modification of paragraphs the provisions of this Article shall not
adversely affect any right or protection hereunder of any person in respect of
any act or commission occurring before such repeal or modification.
ARTICLE 6
MISCELLANEOUS PROVISIONS
6.1 Fiscal Year. Except as otherwise determined by the Board of Directors,
the fiscal year of the Corporation shall end on December 31 of each year.
6.2 Seal. The Board of Directors shall have power to adopt and alter the
seal of the Corporation, but the absence of such seal shall not affect the
validity of any document or instrument.
6.3 Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations to be entered into by the Corporation in the
ordinary course of its business without Director action, may be executed on
behalf of the Corporation by the Chairman of the Board, the President, any
Senior or Executive Vice President or the Treasurer.
6.4 Voting of Securities. Unless otherwise provided by the Board of
Directors, the President or Treasurer may waive notice of and act on behalf of
the Corporation, or appoint another person or persons to act as proxy or
attorney in fact for the Corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other Corporation or organization, any of whose securities are held by the
Corporation.
6.5 Resident Agent. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
Corporation.
6.6 Corporate Records. The original or attested copies of the Certificate
of Incorporation, Bylaws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock and transfer records,
which shall contain the names of all stockholders, their record
13
<PAGE> 14
addresses and the amount of stock held by each, shall be kept at the principal
office of the Corporation, at the office of its counsel, or at an office of its
transfer agent.
6.7 Certification of Incorporation. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Restated
Certificate of Incorporation of the Corporation, as amended or restated and in
effect from time to time.
6.8 Amendments. The power to adopt amend or repeal bylaws of the
Corporation is conferred upon the Board of Directors of the Corporation;
provided that the fact that such power has been so conferred upon the Board of
Directors shall not divest the stockholders of the Corporation of the power, nor
limit their power to adopt, amend or repeal bylaws of the Corporation. In
addition to any requirements of law and any other provision of these Bylaws or
any resolution or resolutions of the Board of Directors adopted pursuant to
Article 4 of the Certificate of Incorporation (and notwithstanding the fact that
a lesser percentage may be specified by law, the Restated Certificate of
Incorporation or any such resolution or resolutions), the affirmative vote of
the holders of 80% or more of the combined voting power of the then outstanding
shares of stock of all classes and series of stock the holders of which are
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to adopt, amend, alter or repeal any provision
of these bylaws.
14
<PAGE> 1
Exhibit 4.1
FORM OF SUBORDINATED PROMISSORY NOTE
$100,000,000 Houston, Texas April __, 2000
1. FOR VALUE RECEIVED, the undersigned, GRANT PRIDECO, INC., a
Delaware corporation ("Maker"), hereby promises to pay to the order of
WEATHERFORD INTERNATIONAL, INC., a Delaware corporation (the "Payee"), in
Houston, Harris County, Texas, at 515 Post Oak Blvd., Suite 600, on or before
March 31, 2002 (the "Maturity Date"), in lawful money of the United States of
America, the principal amount of ONE HUNDRED MILLION DOLLARS, together with
interest on the unpaid balance of said principal amount from time to time
remaining outstanding, from the date hereof until maturity (howsoever such
maturity shall occur), in like money, at said office, at a rate per annum equal
to the lesser of (a) the Note Rate and (b) the Maximum Rate.
2. All past due principal of and interest on this Note shall bear
interest from the due date thereof (whether by acceleration or otherwise) until
paid at a per annum rate equal to the lesser of (a) the Note Rate plus 2% and
(b) the Maximum Rate.
3. Subject to the provisions of the Subordination Agreement,
accrued unpaid interest on the outstanding principal balance hereof shall be due
and payable by Maker to Payee on the last Business Day of each March, June,
September and December, commencing June 30, 2000. The outstanding principal
balance of this Note shall be due and payable on the Maturity Date; provided
that all unpaid accrued interest on this Note, and the outstanding unpaid
principal balance hereof, shall be immediately due and payable in full upon the
maturity of the principal of this Note, whether by acceleration or otherwise.
4. Maker shall have the right and privilege of prepaying this
Note, in whole or in part, at any time or from time to time without premium or
penalty or notice to the holder hereof. Maker shall notify Payee upon the
execution by Maker of any agreement relating to a proposed Financing. At the
closing of any Financing, Maker shall remit to Payee, by wire transfer of
immediately available funds on the same Business Day (or the next Business Day
if not reasonably practicable) as the closing of such Financing, an amount (to
be applied as a prepayment with respect hereto) equal to the lesser of (a) the
sum of the outstanding unpaid principal balance hereof and all accrued unpaid
interest thereon, and (b) the net cash proceeds from the Financing. All amounts
repaid or prepaid (including payments resulting from a Financing) shall be
applied first to earned, accrued and unpaid interest hereon and the balance, if
any, shall be applied to the outstanding principal.
5. The terms set forth below shall have the meanings assigned to
such terms as used in this Note:
"Applicable Law" shall mean the law in effect from time to
time and applicable to the transactions between Payee and Maker
pursuant to this Note that
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<PAGE> 2
lawfully permits the charging and collection of the highest permissible
lawful non-usurious rate of interest on such transactions, including
laws of the State of Texas, and to the extent controlling and providing
for a higher lawful rate of interest, laws of the United States of
America. It is intended that Chapter 1D, Subtitle 1, Title 79, Revised
Civil Statutes of Texas, 1925, as amended, shall be included in the
laws of the State of Texas in determining Applicable Law; and for the
purpose of applying said Chapter 1D, the interest ceiling applicable to
such transactions under said Chapter 1D shall be the indicated (weekly)
rate ceiling from time to time in effect.
"Business Day" shall mean any day on which banks are open for
general banking business in the State of Texas, other than on Saturday,
Sunday, a legal holiday or any other day on which banks in the State of
Texas are required or authorized by law or executive order to close.
"Credit Facility" shall mean one or more credit facilities
providing for aggregate borrowings and other financial accomodations,
including without limitation letter of credit facilities and related
reimbursement obligations, of up to $100 million that now is or are, or
hereafter may be, entered into among Maker and any of its direct or
indirect subsidiaries and the lenders party thereto, including any
related notes, guarantees, collateral documents, reimbursement
agreements and other instruments and agreements executed in connection
therewith, which credit facility may be secured by all or part of the
assets of Maker and its direct or indirect assets, in each case as may
be amended, modified, supplemented, renewed, extended, refunded,
replaced, restated or refinanced from time or time in whole or in part
in one or more credit agreements, loan agreements, instruments or
similar agreements so long as the aggregate permitted borrowings do not
exceed $100 million.
"Financing" shall mean any transaction or series of related
transactions (whether by means of the issuance and sale of debt or
equity securities or a sale of assets or equity interests in another
entity) pursuant to which Maker receives cash proceeds, net of
underwriting fees and discounts and transaction expenses, of not less
than $5,000,000; provided that none of the following transactions shall
be deemed to be a "Financing": (a) any sale of assets in the ordinary
course of Maker's business, (b) any borrowings or advances under the
Credit Facility, (c) any issuances of securities pursuant to employee
benefit plans or options granted thereunder, or (d) any borrowings not
requiring the prior written consent of Payee pursuant to Section 6(l)
of this Note.
"Indebtedness for Borrowed Money" shall mean any indebtedness
of Maker or its subsidiaries for borrowed money; provided, however, the
following shall not be considered Indebtedness for Borrowed Money:
(a) indebtedness under this Note;
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<PAGE> 3
(b) indebtedness and other obligations from time to time
outstanding under the Credit Facility;
(c) intercompany indebtedness from time to time
outstanding between or among any of Maker and/or its
subsidiaries;
(d) any indebtedness outstanding on the date of issuance
of this Note;
(e) indebtedness, the net proceeds of which are used
solely to renew, extend, refinance, refund or
repurchase Indebtedness for Borrowed Money otherwise
permitted under this definition; provided, however,
such indebtedness shall not have terms and conditions
materially adverse to the creditworthiness of Maker
and its subsidiaries taken as a whole;
(f) daylight overdraft facilities having customary terms
for such facilities not to exceed $2,500,000 in the
aggregate at any one time;
(g) accounts and other trade payables incurred in the
ordinary course of business and any standby letters
of credit, bid, performance or surety bonds or other
reimbursement obligations issued for the account of,
or entered into by, Maker or any of its subsidiaries
in the ordinary course of business; and
(h) capitalized lease obligations incurred in the
ordinary course of business or purchase money
indebtedness incurred in the ordinary course of
business (so long as such capitalized lease
obligations and purchase money indebtedness do not
exceed $7,500,000 at any one time in the aggregate).
"Material Subsidiary" shall mean a direct or indirect majority
owned subsidiary of Maker with total assets exceeding $5,000,000.
"Maximum Rate" shall mean the maximum lawful non-usurious rate
of interest, if any, that under Applicable Law Payee is permitted to
charge Maker on the loan evidenced by this Note from time to time. If,
however, during any period interest accruing on this Note is not
limited to any maximum lawful non-usurious rate of interest under
Applicable Law, then during each such period the "Maximum Rate" shall
be equal to a per annum rate of 4% plus the Note Rate.
"Note Rate" shall mean a per annum rate of interest (computed
on the basis of the actual number of days elapsed (including the first
but excluding the last day) over a year of 365 or 366 days, as the case
may be) equal to 10%.
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<PAGE> 4
"Subordination Agreement" shall mean a subordination agreement
between Payee and the lenders under the Credit Facility (or such
lenders agent, as the case may be) providing for the subordination of
Payee's rights and obligations under this Note to the rights of such
lenders under the Credit Facility, which subordination agreement shall
contain terms and conditions that are normal and customary in
agreements of this type and acceptable to Payee in its reasonable
discretion.
6. If any one of the following events shall occur and be
continuing (an "Event of Default"):
(a) Maker shall fail to pay timely when due, the
principal of, or accrued unpaid interest on, this Note or any other of
the obligations hereunder within three Business Days following the due
date;
(b) Maker or any Material Subsidiary shall (i) dissolve
or terminate its existence, (ii) merge with or into any other entity
(other than a wholly-owned subsidiary (excluding director qualifying
shares or other immaterial ownership required by applicable law) of
Maker) after the date hereof, (iii) discontinue its usual business or
(iv) sell all or substantially all of its business or assets;
(c) Maker or any Material Subsidiary shall (i) apply for
or consent to the appointment of a receiver, trustee, custodian or
liquidator of it or of all or a substantial part of its property, (ii)
generally fail to pay its debts as they come due in the ordinary course
of business or (iii) commence, or file an answer admitting the material
allegations of or consenting to, or default in a petition filed against
it in, any case, proceeding or other action under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
to have an order for relief entered with respect to it under the
federal Bankruptcy Code 11 USC Section 101 et. seq., or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or the similar relief with respect to it or
its debt;
(d) Any person or group becomes the beneficial owner (as
such terms are defined in the rules promulgated under the Securities
Exchange Act of 1934) of 40% or more of the voting power of Maker's
capital stock or shall otherwise have the right to cast 40% or more of
the votes cast in any election of Maker's directors (excluding votes
cast by or at the direction of directors of the Company by means of
proxies solicited in accordance with the Securities Exchange Act of
1934);
(e) A receiver, conservator, liquidator, custodian or
trustee of Maker or any Material Subsidiary or any of its property is
appointed by the order or decree of any court or agency or supervisory
authority having jurisdiction; or Maker obtains an order for relief
under the federal Bankruptcy Code 11 USC Section 101 et. seq.; or any
of the property of Maker is sequestered by court order; or a petition
is filed or a proceeding is commenced against Maker or any Material
Subsidiary under any
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<PAGE> 5
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect;
(f)(1) Any event or condition occurs that results in the
occurrence of any event, circumstance or condition that, after any
applicable cure or notice period or lapse of time, or both, would
constitute a default under the Credit Facility that continues
unremedied for any applicable cure period, whether or not a party
thereto exercises any of its rights and remedies with respect to such
default;
(g) The levy or execution of any attachment, execution or
other process against any material property or interest in property of
Maker or any Material Subsidiary that is not timely and completely
stayed by appropriate proceedings and/or bonding requirements;
(h) Any court shall find or rule, or Maker or any
Material Subsidiary shall assert or claim, that this Note does not or
will not constitute the legal, valid, binding and enforceable
obligations of the party or parties hereto;
(i) The rendering of any judgment or judgments against
Maker or any Material Subsidiary for the payment of money in excess of
$5,000,000, in the aggregate, that remains unsatisfied and in effect
for any period of 60 consecutive days without a stay of execution;
(j) Maker or any Material Subsidiary shall have
concealed, removed, or permitted to be concealed or removed, any part
of its property, with intent to hinder, delay or defraud its creditors
or any of them, or made or suffered a transfer of any of its property
that may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; or shall have made any transfer of its property to or for
the benefit of a creditor at a time when other creditors similarly
situated have not been paid; or shall have suffered or permitted, while
insolvent, any creditor to obtain a lien upon any of its property
through legal proceedings or distraint or other process that is not
vacated within 15 days from the date thereof;
(k) Maker shall declare, set aside or pay any dividend or
distribution of any kind (in cash, property, securities or otherwise)
(but excluding dividends or distributions of common stock);
(l) Maker and its subsidiaries shall have outstanding, at
any one time, without the prior written consent of Payee, Indebtedness
for Borrowed Money exceeding in the aggregate $10 million; or
(m) Maker shall breach any material provision of the
Subordination Agreement;
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<PAGE> 6
then Payee, at its option, subject to the Subordination Agreement, may declare
the unpaid principal portion of this Note to be forthwith due and payable,
whereupon the said portion of this Note and all accrued, earned and unpaid
interest shall become immediately due and payable by Maker without demand,
presentment for payment, notice of non-payment, protest, notice of protest,
notice of intent to accelerate maturity, notice of acceleration of maturity or
any other notice of any kind to Maker, or any other person liable hereon or with
respect hereto, all of which are hereby expressly waived by Maker and each other
person liable hereon or with respect hereto, anything contained herein or in any
other documents or instruments to the contrary notwithstanding; and upon the
happening of any Event of Default referred to in paragraphs (b), (c), (d) or
(e), the unpaid principal portion of this Note and all other interest on this
Note then accrued, earned and unpaid shall become automatically due and payable
by Maker without demand, presentment for payment, notice of nonpayment, protest,
notice of protest, notice of intent to accelerate maturity, notice of
acceleration of maturity or any other notice of any kind to Maker or any other
person liable hereon or with respect hereto, all of which are expressly waived
by Maker and each other Person liable hereon or with respect hereto, anything
contained herein or in any document or instrument to the contrary
notwithstanding. Further, upon any default or event of default, subject to the
Subordination Agreement, Payee shall have all other rights and remedies as set
forth herein and as otherwise provided at law or in equity, all such rights and
remedies being cumulative, including, but without limitation, the right, without
prior notice to Maker or any other person liable with respect hereto, to set-off
and apply any indebtedness at any time owing by Payee to, or for the credit or
account of, Maker against any indebtedness owed to Payee by Maker, irrespective
of whether or not Payee shall have made demand under this Note or any other
instrument securing this Note, and although this Note may not then be matured;
provided, that any exercise of said set-off by Payee shall be subsequently
followed by notice from Payee to Maker of such right exercised, but the failure
to give such notice shall in no manner affect the right of Payee in respect to
set-offs and corresponding applications of funds.
7. Upon the execution by Maker of any agreement related to a
proposed financing, Maker shall promptly provide written notice thereof to
Payee's Chief Financial Officer.
8. Maker shall, upon demand by Payee, promptly pay to Payee any
and all costs and expenses, including legal expenses, collections costs and
attorneys' fees (whether or not legal proceedings are instituted including,
without limitation, legal expenses and reasonable attorneys' fees in connection
with any bankruptcy proceedings), incurred or paid by Payee in protecting or
enforcing Payee's rights hereunder. Without limiting the generality of the
foregoing, if this Note is collected by suit or through the Bankruptcy Court, or
any judicial proceeding, or if this Note is not paid at maturity, however such
maturity may be brought about, and it is placed in the hands of an attorney for
collection (whether or not legal proceedings are instituted), then Maker agrees
to pay, in addition to all other amounts owing hereunder, the collection costs
and reasonable attorneys' fees of the holder hereof.
9. The records of Payee shall constitute rebuttably presumptive
evidence of the principal and earned, accrued and unpaid interest remaining
outstanding on this Note.
10. It is the intent of Payee and Maker in the execution and
performance of this Note to remain in strict compliance with Applicable Law from
time to time in effect. In furtherance thereof,
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<PAGE> 7
Payee and Maker stipulate and agree that none of the terms and provisions
contained in this Note shall ever be construed to create a contract to pay for
the use, forbearance or detention of money with interest at a rate or in an
amount in excess of the Maximum Rate or amount of interest permitted to be
charged under Applicable Law. For purposes of this Note "interest" shall include
the aggregate of all charges that constitute interest under Applicable Law that
are contracted for, charged, reserved, received or paid under this Note. Maker
shall never be required to pay unearned interest and shall never be required to
pay interest at a rate or in an amount in excess of the Maximum Rate or amount
of interest that may be lawfully charged under Applicable Law, and the
provisions of this paragraph shall control over all other provisions of this
Note, and of any other instrument pertaining to or securing this Note, that may
be in actual or apparent conflict herewith. If this Note is prepaid, or if the
maturity of this Note is accelerated for any reason, or if under any other
contingency the effective rate or amount of interest that would otherwise be
payable under this Note would exceed the Maximum Rate or amount of interest
Payee or any other holder of this Note is allowed by Applicable Law to charge,
contract for, take, reserve or receive, or in the event Payee or any holder of
this Note shall charge, contract for, take, reserve or receive monies that are
deemed to constitute interest that would, in the absence of this provision,
increase the effective rate or amount of interest payable under this Note to a
rate or amount in excess of that permitted to be charged, contracted for, taken,
reserved or received under Applicable Law then in effect, then the principal
amount of this Note or the amount of interest that would otherwise be payable
under this Note or both shall be reduced to the amount allowed under Applicable
Law as now or hereinafter construed by the courts having jurisdiction, and all
such moneys so charged, contracted for, taken, reserved or received that are
deemed to constitute interest in excess of the Maximum Rate or amount of
interest permitted by Applicable Law shall immediately be returned to or
credited to the account of Maker upon such determination. Payee and Maker
further stipulate and agree that, without limitation of the foregoing, all
calculations of the rate or amount of interest contracted for, charged, taken,
reserved or received under this Note that are made for the purpose of
determining whether such rate or amount exceeds the Maximum Rate or amount,
shall be made to the extent not prohibited by Applicable Law, by amortizing,
prorating, allocating and spreading during the period of the full stated term of
this Note, all interest at any time contracted for, charged, taken, reserved or
received from Maker or otherwise by Payee or any other holder of this Note.
11. Maker and all sureties, endorsers and guarantors (if any) of
this Note waive demand, presentment for payment, notice of non-payment, protest,
notice of protest, notice of intent to accelerate maturity, notice of
acceleration of maturity and all other notice, filing of suit and diligence in
collecting this Note or enforcing any security herefor, and agree to any
substitution, exchange or release of any such security, the release of any party
primarily or secondarily liable hereon and further agree that it will not be
necessary for any holder hereof, in order to enforce payment of this Note, to
first institute suit or exhaust its remedies against any security herefor, and
consent to any one or more extensions or postponements of time of payment of
this Note on any terms or any other indulgences with respect hereto, without
notice thereof to any of them.
12. This Note shall be governed by and construed in accordance
with the internal laws of the State of Texas and applicable federal laws of the
United States of America. This Note has been delivered and accepted and is
payable at Houston, Harris County, Texas. There are no unwritten or oral
agreements between Maker and Payee. Payee has no commitment to make any
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<PAGE> 8
additional loans or extend financial accomodations to Maker beyond the
indebtedness evidenced hereby.
13. This Note shall be subject to the terms and provisions of the
Subordination Agreement, and shall be subordinated to indebtedness under the
Credit Facility as provided in the Subordination Agreement.
EXECUTED AND EFFECTIVE as of the day and year first above written.
MAKER:
GRANT PRIDECO, INC.
By:
--------------------------------
Name:
--------------------------
Title:
-------------------------
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<PAGE> 1
EXHIBIT 10.2
TAX ALLOCATION AGREEMENT
BY AND BETWEEN
WEATHERFORD INTERNATIONAL, INC.
AND
GRANT PRIDECO, INC.
APRIL __, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Grant Group................................................ -2-
2. Tax Returns................................................ -2-
3. Obligation for Payment of Taxes............................ -4-
4. No Weatherford Tax Payments................................ -5-
5. Grant Tax Payments......................................... -6-
6. Tax Credits; Deferred Intercompany Gains................... -7-
7. Grant Tax Carryovers; Payment by Grant..................... -8-
8. Tax Audits................................................. -8-
9. Proposed Adjustments....................................... -9-
10. Notice of Settlement or Compromise......................... -9-
11. Grant's Right to Contest................................... -10-
12. Subsequent Adjustments or Refunds.......................... -10-
13. Grant Spin-Off Tax Indemnity............................... -11-
14. Future Actions............................................. -11-
15. Combined, Consolidated or Unitary Basis Returns............ -11-
16. Earnings and Profits Information........................... -12-
17. Tax Interpretation......................................... -12-
18. Consistent Tax Treatment................................... -13-
19. Retention of Records....................................... -13-
20. Expenses................................................... -13-
21. Definitions................................................ -14-
"After-Tax Basis".......................................... -14-
"Agreed Rate".............................................. -14-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
"Code"...................................................... -14-
"Distribution Agreement".................................... -14-
"Grant"..................................................... -14-
"Grant Group"............................................... -14-
"Interim Period"............................................ -14-
"Returns"................................................... -14-
"Ruling".................................................... -14-
"Short Period".............................................. -15-
"Spin-Off".................................................. -15-
"Spin-Off Date"............................................. -15-
"Spin-Off Tax".............................................. -15-
"Tax Authority"............................................. -15-
"Taxes"..................................................... -15-
"Transfer Tax".............................................. -15-
"Weatherford"............................................... -16-
"Weatherford Group"......................................... -16-
"WEI"....................................................... -16-
22. Notices..................................................... -16-
23. Binding Effect; Successors.................................. -16-
24. Severability................................................ -17-
25. Entire Agreement............................................ -17-
26. Governing Law............................................... -17-
27. Arbitration................................................. -18-
</TABLE>
EXHIBIT A - MEMBERS OF THE GRANT GROUP
-ii-
<PAGE> 4
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT, made and entered into as of the ____ day
of April, 2000, by and between WEATHERFORD INTERNATIONAL, INC., a Delaware
corporation ("Weatherford"), and GRANT PRIDECO, INC., a Delaware corporation
("Grant").
W I T N E S S E T H:
WHEREAS, Weatherford is the common parent of an affiliated group of
corporations (hereinafter referred to as the "Weatherford Group") within the
meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), which affiliated group includes (x) corporations owned by Weatherford
(formerly known as EVI, Inc.) and (y) corporations owned by Weatherford Enterra,
Inc., a Delaware corporation ("WEI"), on May 27, 1998, the date on which WEI
merged with and into Weatherford, and (z) corporations acquired by Weatherford
or other members of the Weatherford Group subsequent to May 27, 1998, and the
members of the Weatherford Group have heretofore joined in filing consolidated
Federal income Tax Returns;
WHEREAS, prior to May 27, 1998, Weatherford and its eligible
subsidiaries joined in filing consolidated Federal income Tax Returns as an
affiliated group and WEI and its eligible subsidiaries joined in filing
consolidated Federal income Tax Returns as an affiliated group;
WHEREAS, Grant and its subsidiaries have been members of the
Weatherford Group;
WHEREAS, on or about April __, 2000, certain assets associated with the
drilling products business conducted by the Weatherford Group, including the
stock of certain subsidiaries included in the Weatherford Group and engaged in
the drilling products business, will be contributed to the capital of Grant or
otherwise acquired by Grant or one or more of its subsidiaries;
WHEREAS, Weatherford, on or about April __, 2000 (the "Spin-Off Date"),
will distribute to its stockholders all of the outstanding stock of Grant (the
"Spin-Off"), and thereafter Grant and
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<PAGE> 5
its subsidiaries will no longer be members of the Weatherford Group for Federal
income Tax purposes; and
WHEREAS, the parties desire to provide for the sharing of the Federal,
state, local and foreign income Tax liabilities and benefits accrued prior to
the Spin-Off between Weatherford and its subsidiaries and Grant and its
subsidiaries;
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant Group. For purposes of this Agreement, the "Grant Group" shall
mean (i) Grant, (ii) Grant's subsidiaries, and (iii) those corporations and
other entities whose stock or ownership interests will be contributed to Grant
prior to the Spin-Off Date, all of such subsidiaries of Grant and such
corporations and other entities being listed on Exhibit A attached hereto.
Unless otherwise specified, whenever items of income, gain, loss, deduction,
credit, or other Tax attributes of Grant are referred to in this Agreement, the
reference shall be to the collective amounts of such items for the Grant Group.
2. Tax Returns. Weatherford shall prepare and file or cause to be
prepared and filed timely all appropriate Returns in respect of Grant and the
other members of the Grant Group that (i) are required to be filed on or before
the Spin-Off Date; or (ii) are required to be filed after the Spin-Off Date that
(A) are required to include, on a consolidated, combined or unitary basis, the
operations of Grant or any other member of the Grant Group for any Tax period or
portion thereof ending on or before the Spin-Off Date; or (B) are required to be
filed by Grant or any other member of the Grant Group on a separate return basis
for any Tax period ending on or before the Spin-Off Date. To the extent
requested by Weatherford, Grant shall participate in the filing of and shall
file any required Returns with respect to any Tax period that ends on or before
the Spin-Off Date. Grant shall prepare or cause to be prepared the schedules in
respect of Grant and other members of the
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<PAGE> 6
Grant Group containing the information necessary for Weatherford to prepare any
consolidated, combined or unitary Returns. If Weatherford, after consulting with
Grant, files any such consolidated, combined or unitary Return using information
with respect to Grant and the other members of the Grant Group that is different
from the information prepared and furnished by Grant and Weatherford and Grant
thereafter are unable to resolve such difference, such difference shall
constitute a claim for purposes of Paragraph 27 of this Agreement. Grant shall
also prepare or cause to be prepared and shall file or cause to be filed all
other Returns required of Grant or any other members of the Grant Group, or in
respect of its or any of their activities, for any Tax period ending after the
Spin-Off Date that includes the operations of Grant or any other member of the
Grant Group prior to the Spin-Off Date. The parties hereto will, to the extent
permitted by applicable law, elect with the relevant Tax Authority to treat for
all purposes the Spin-Off Date as the last day of a Tax period of Grant and the
other members of the Grant Group, and such period shall be treated as a "Short
Period" for purposes of this Agreement. In any case where applicable law does
not permit Grant to treat the Spin-Off Date as the last day of a Short Period,
then for purposes of this Agreement, the portion of such Taxes that is
attributable to the operations of Grant and the other members of the Grant Group
for such Interim Period (as defined below) shall be (i) in the case of Taxes
that are not based in whole or in part on income or gross receipts, the total
amount of such Taxes for the period in question multiplied by a fraction, the
numerator of which is the number of days in the Interim Period, and the
denominator of which is the total number of days in the entire period in
question, and (ii) in the case of Taxes that are based in whole or in part on
income or gross receipts, the Taxes that would be due with respect to the
Interim Period, if such Interim Period were a Short Period. "Interim Period"
means with respect to any Taxes imposed on Grant or any other members of the
Grant Group for which the Spin-Off Date is not the last day of a Short Period,
the
-3-
<PAGE> 7
period of time beginning on the first day of the actual Tax period that includes
(but does not end on) the Spin-Off Date and ending on and including the Spin-Off
Date. Any franchise Tax shall be allocated to the Tax period or portion thereof
during which the right to do business obtained by the payment of such franchise
Tax relates, regardless of whether such franchise Tax is measured by income,
operations, assets or capital relating to another Tax period.
3. Obligation for Payment of Taxes. Weatherford shall be entitled to
receive from Grant amounts calculated in accordance with Paragraphs 5, 7 and 12
hereof. Except as otherwise provided in Paragraph 5, the amounts, if any, that
Grant shall be obligated to pay Weatherford pursuant to Paragraph 5, with
respect to Tax periods of the Weatherford Group ending on or prior to the Spin-
Off Date, shall be paid (i) within 120 days after the Spin-Off Date where the
Taxes were paid by Weatherford on or before the Spin-Off Date and shall include
interest thereon calculated for the period from the Spin-Off Date to the date of
payment at a per annum rate of interest (computed on the basis of the actual
number of days elapsed (including the Spin-Off Date but excluding the payment
date) over a year of 365 or 366 days, as the case may be) equal to 10 percent,
or (ii) within 30 days after the date of payment where the Taxes are paid by
Weatherford after the Spin-Off Date. This initial settlement shall be based on
the Returns as they have been filed and shall include any amendments of or
adjustments to such Returns that have been finally settled. Except as otherwise
provided in Paragraph 5, any amounts that Grant shall be obligated to pay
Weatherford pursuant to Paragraph 5 with respect to Tax periods of the
Weatherford Group ending after the Spin-Off Date shall be paid within 30 days
after filing of the Returns for such Tax periods. In the event of an adjustment
to the amount of payment for any Tax period as determined under Paragraph 12,
Weatherford shall be entitled to receive from Grant such payment within 30 days
after payment of a deficiency to or receipt of a refund from the Tax Authority.
In the event of an adjustment under
-4-
<PAGE> 8
Paragraph 12 resulting in no additional payment to or receipt of a refund from
the Tax Authority, settlement shall be made within 30 days after filing of the
amended Return or final settlement of the adjustment. In the event that Grant is
delinquent in paying to Weatherford any amount due pursuant to this Paragraph 3,
including any interest accrued thereon pursuant to this Paragraph 3, or
Paragraph 7 hereof, such unpaid amount shall bear interest from the original due
date until paid at a per annum rate equal to the lesser of (a) 12 percent and
(b) the maximum lawful non-usurious rate of interest, if any, which under
applicable law Weatherford is permitted to charge Grant thereon from time to
time.
4. No Weatherford Tax Payments. Except as otherwise provided in
Paragraph 12 hereof, Weatherford shall not be obligated to pay Grant for any Tax
credits of the Grant Group or any losses or deductions of the Grant Group used
by the Weatherford Group to reduce its Federal income Tax liability or Federal
taxable income for any Tax period ending on or before the Spin-Off Date. For
purposes of these computations, the allocation of Tax attributes to the Grant
Group and absorption thereof by the Weatherford Group for each Tax period shall
be determined in accordance with the Treasury Regulations under Section 1502 of
the Code, applied in a manner consistent with practices and methods followed in
reporting the Federal income Tax liability of the Weatherford Group for such Tax
periods. In any instance where a Tax attribute must be characterized, the
characterization prescribed by the aforementioned Treasury Regulations will
control.
5. Grant Tax Payments. For each Tax period of the Weatherford Group
which includes income of the Grant Group, Grant shall be obligated to pay
Weatherford an amount equal to the product of (i) the net taxable income of the
Grant Group included in the consolidated Federal income Tax Return of the
Weatherford Group for such period, multiplied by (ii) the highest marginal
statutory Federal corporate income Tax rate applicable to such income for such
period; provided,
-5-
<PAGE> 9
however, that no payment shall be required pursuant to this Paragraph 5 to the
extent such payments have previously been made by the Grant Group to members of
the Weatherford Group other than the Grant Group under any Tax sharing agreement
or arrangement (whether written or oral) or any other similar system of payments
with respect to Federal income Taxes of the Weatherford Group in existence prior
to the Spin-Off Date, including, but not limited to, any estimated Tax payments.
For purposes of these computations, the allocation of Tax attributes to the
Weatherford Group and absorption thereof by the Grant Group for each Tax period
shall be determined in accordance with the Treasury Regulations under Section
1502 of the Code, applied in a manner consistent with practices and methods
followed in reporting the Federal income Tax liability of the Weatherford Group
for such Tax periods. In any instance where a Tax attribute must be
characterized, the characterization prescribed by the aforementioned Treasury
Regulations will control. To the extent, if any, that the amount of Taxes
Weatherford is required to pay with respect to the net taxable income of the
Grant Group for a Tax period is less than the amount calculated as owed by Grant
to Weatherford under this Paragraph 5, the amount owed by Grant to Weatherford
shall be (i) reduced to the extent that such difference is attributable to Tax
benefits of the Weatherford Group used which would have otherwise expired unused
but for the fact that the Grant Group had net taxable income for such Tax
period, or (ii) deferred to the extent such difference is attributable to Tax
benefits of the Weatherford Group used which would have otherwise carried
forward to a subsequent year or years but for the fact that the Grant Group had
net taxable income for such Tax period. In the event an amount otherwise payable
by Grant to Weatherford is deferred pursuant to clause (ii) of the immediately
preceding sentence, such amount shall be paid by Grant to Weatherford within 30
days after the filing of the Tax Return for the Tax period in which such Tax
benefits of the Weatherford Group previously used would have been used. Any
amount payable by Grant to Weatherford pursuant to
-6-
<PAGE> 10
the immediately preceding sentence shall not be greater than the amount of Tax
paid by Weatherford as a consequence of the Tax benefits of the Weatherford
Group previously having been used to offset taxable income of the Grant Group.
6. Tax Credits; Deferred Intercompany Gains. For purpose of the
calculations under this Agreement, any loss of Tax credits resulting from or
attributable to the transfer of assets to Grant or any other member of the Grant
Group in connection with the Spin-Off shall be ignored and all calculations
shall be made as though all such tax credits were available for use by the
Weatherford Group. In the event any deferred intercompany gain attributable to
assets transferred to Grant or any other members of the Grant Group by other
members of the Weatherford Group is recognized by the Weatherford Group by
reason of the Spin-Off, such deferred intercompany gain, if any, shall be deemed
to be a gain of the Grant Group for its taxable year ending on the Spin-Off Date
for purposes of all calculations under this Agreement, including the calculation
of Taxes owed by Grant to Weatherford pursuant to Paragraphs 3 and 5 hereof.
7. Grant Tax Carryovers; Payment by Grant. Notwithstanding anything in
this Agreement to the contrary, with respect to items of loss or other Tax
benefits apportioned to and carried over by the Grant Group after the Spin-Off
(under the Treasury Regulations governing Federal consolidated income Tax
Returns) and regardless of whether such Tax benefits (x) are used by the Grant
Group to reduce its Federal income Tax liability after the Spin-Off or (y)
expire unused by the Grant Group, Grant shall pay to Weatherford an amount equal
to any such item of loss or other Tax benefit multiplied by the highest marginal
statutory Federal corporate income Tax rate in effect on the Spin-Off Date. Any
payment due from Grant to Weatherford pursuant to this Paragraph 7 shall be
payable on the earlier of 30 days after (x) the date of filing of the Return
which includes such item of loss or other Tax benefit or (y) the end of the Tax
year in which such item of loss or
-7-
<PAGE> 11
other Tax benefit expires unused. Weatherford agrees to cooperate with Grant in
determining the amount of such items of loss or other Tax benefits apportioned
to and carried over by the Grant Group after the Spin-Off.
8. Tax Audits. In the event of an audit by any Tax Authority of a
Return filed by Weatherford for any Tax period ending prior to or on the
Spin-Off Date (or any Tax period thereafter in which a carryforward of the Grant
Group's Tax benefits is used), Weatherford shall give Grant timely and
reasonable notice of such audit proceedings and Grant shall have the right to
participate in any such audit; provided, however, that Weatherford shall have
the full power and authority to control such audit. In connection with any such
audit, Grant will provide all necessary information and other assistance
reasonably requested by Weatherford with respect to issues concerning the
activities of the Grant Group. All communications with any such Tax Authority
and its employees concerning any such audit will be made by Weatherford unless
otherwise agreed between the parties hereto. In connection with its
participation in any audit, Grant shall be given reasonable notice of all
material meetings, investigations, field examinations and similar events and
copies of all relevant material correspondence between the Tax Authority
conducting the audit and Weatherford.
9. Proposed Adjustments. Weatherford shall give prompt notice to Grant
of any adjustment or adjustments proposed by any Tax Authority relating to the
activities of the Grant Group for any Tax period ending prior to or on the
Spin-Off Date. After consulting with Grant, Weatherford shall determine in its
sole discretion the nature of all action to be taken to contest such proposed
adjustment, including whether any such action shall initially be contested by
way of judicial or administrative proceedings, or both, whether any such
proposed adjustment shall be contested by resisting payment thereof or by paying
the same and seeking a refund thereof, and if Weatherford shall undertake to
contest such proposed adjustment, the court or other judicial body
-8-
<PAGE> 12
before which such action will be commenced. Weatherford shall have full control
over any contest or administrative proceeding pursuant to this Paragraph, but
Grant, at its expense and subject to approval by Weatherford, which approval
shall not be unreasonably withheld, may participate in any proceedings
contesting any proposed adjustment relating to the activities of the Grant
Group.
10. Notice of Settlement or Compromise. Weatherford shall give prompt
notice to Grant of any proposal made to it at the time of an audit or otherwise,
to settle or compromise issues relating to the Tax liabilities of the Grant
Group for any Tax period ending prior to or on the Spin-Off Date. Weatherford
will not accept or offer any settlement or compromise of such issues without the
consent of Grant, and such consent shall not be unreasonably withheld. If, in
Weatherford's opinion, Grant unreasonably withholds such consent, Weatherford
shall have the right to settle or compromise such issues on the basis contained
in the notice to Grant. If Grant thereafter desires to dispute such settlement
or compromise, Grant's claim with respect thereto shall constitute a claim for
purposes of Paragraph 27 of this Agreement.
11. Grant's Right to Contest. Should Weatherford decline or cease to
contest any proposed adjustment relating to the activities of the Grant Group
for any Tax period ending prior to or on the Spin-Off Date, Weatherford shall so
notify Grant. Grant, at its expense and upon providing reasonable assurances to
Weatherford of Grant's ability to pay any Taxes resulting from any such proposed
adjustment, may contest such proposed adjustment; but in no event shall Grant be
permitted to accept or offer any settlement or compromise that would require the
settlement or compromise of issues relating to the Tax liabilities of members of
the Weatherford Group other than the Grant Group.
12. Subsequent Adjustments or Refunds. With respect to any Tax period
of the Weatherford Group for which Weatherford received from Grant a payment
pursuant to Paragraph 5,
-9-
<PAGE> 13
Paragraph 7 or this Paragraph 12, if the filing of an amended income Tax Return,
final determination of any adjustment made by any Tax Authority or the receipt
of a refund by Weatherford occurs with respect to such period and such event
would cause a difference in the amount of payment required for such period as
previously calculated pursuant to Paragraph , Paragraph 7 or this Paragraph 12,
Weatherford shall give Grant prompt notice of such difference and Weatherford
shall be obligated to pay or entitled to receive from Grant the amount of such
difference. Any amount required to be paid pursuant to this Paragraph 12 shall
include any interest imposed by or received from the Tax Authority if the
adjustment results in the payment of Tax to or receipt of Tax from the Tax
Authority.
13. Grant Spin-Off Tax Indemnity. Notwithstanding any other provision
of this Agreement to the contrary, Grant shall be liable for, shall pay and
shall indemnify and hold Weatherford and the other members of the Weatherford
Group harmless, on an After-Tax Basis, against (A) any Transfer Taxes and other
Taxes which may be imposed or assessed as a result of the contribution by
Weatherford to the capital of Grant or the acquisition (by sale or purchase or
otherwise) by Grant or one or more of the other members of the Grant Group of
assets associated with the drilling products business conducted by the
Weatherford Group, including the stock of certain subsidiaries included in the
Weatherford Group and engaged in the drilling products business, (B) any Taxes
resulting from the recognition of deferred intercompany gains as contemplated by
Paragraph 6 hereof and (C) any Spin-Off Tax. In determining the amount of, and
the time of payment of, any such Transfer Taxes, other Taxes or Spin-Off Tax
owed by Grant to Weatherford, the principles set forth in the last three
sentences of Paragraph 5 shall apply.
14. Future Actions. Grant agrees that, during the three-year period
following the Spin-Off, it will not engage in any transaction that could
adversely affect the tax treatment of the Spin-Off
-10-
<PAGE> 14
without the prior written consent of Weatherford, which consent may be withheld
in Weatherford's discretion, unless Grant delivers to Weatherford a supplemental
ruling from the Internal Revenue Service or a tax opinion acceptable to
Weatherford of nationally recognized tax counsel to the effect that the proposed
transaction would not adversely affect the tax treatment of the Spin-Off.
Weatherford agrees to cooperate with and provide reasonable assistance to Grant
in the event that Grant requests a supplemental ruling from the Internal Revenue
Service.
15. Combined, Consolidated or Unitary Basis Returns. The parties
acknowledge that certain state, local or foreign Tax Authorities may require, or
one of the parties may desire, to file amended or original state, local or
foreign income Tax Returns on a combined, consolidated or unitary basis. Such
filing may result in an aggregate decrease in the state, local or foreign income
Tax of both parties; however, one party may suffer a Tax increase compared to
its state, local or foreign income Tax liability calculated on a separate
company basis, while the other party enjoys a Tax decrease. In any such event,
the parties intend that the required calculations for determining which party
owes Taxes to the other with respect thereto be made by utilizing the principles
set forth in Paragraphs 3, 4, 5, 7 and 12 hereof.
16. Earnings and Profits Information. The parties agree to share such
information as is necessary to properly allocate the earnings and profits of the
Grant Group in accordance with the Code and Treasury Regulations for Tax periods
prior to or ending on the Spin-Off Date. After the Spin-Off, Weatherford agrees
to provide Grant and Grant's independent auditors with such information as is
necessary to verify amounts received or receivable or paid or payable by Grant
under this Agreement. Grant agrees to make available to Weatherford, upon
request, all Federal, state, local and foreign Tax Returns, work papers and
other documents pertaining to the activities of the Grant Group prior to the
Spin-Off.
-11-
<PAGE> 15
17. Tax Interpretation. For all Tax purposes and notwithstanding any
other provision of this Agreement, to the extent permitted by applicable law,
the parties hereto shall treat any payment made pursuant to this Agreement as a
capital contribution or dividend distribution, as the case may be, immediately
prior to the Spin-Off Date and, accordingly, as not includible in the taxable
income of the recipient. If it is finally determined that the receipt or accrual
of any payment made under this Agreement is taxable to the recipient, the payor
shall pay to the recipient, on an After-Tax Basis, an amount equal to any
increase in the Taxes of the recipient as a result of receiving the payment from
the payor.
18. Consistent Tax Treatment. To the extent that assets are assigned,
sold, transferred or conveyed by a member of the Weatherford Group to Grant or
another member of the Grant Group in contemplation of the Spin-Off and any such
transaction is treated as a sale for Tax purposes, the aggregate purchase price
shall be allocated among the assets assigned, sold, transferred or conveyed as
determined by Weatherford in its sole discretion. Each of Weatherford and Grant
agrees to report and, where applicable, to cause the members of their respective
groups to report, the purchase prices of such assets as determined by
Weatherford.
19. Retention of Records. Each party hereto agrees, to the extent
potentially relevant to the other party, to (1) retain records, documents,
accounting and other information (including computer data) necessary for the
preparation and filing of all Returns or the audit of such Returns, and (2) give
to the other party reasonable access to such records, documents, accounting
data, Returns and related books and records and other information (including
computer data) and to its personnel (insuring their cooperation) and premises,
for purposes of the review or audit of such Returns to the extent relevant to an
obligation or liability of a party under this Agreement.
-12-
<PAGE> 16
20. Expenses. Each party will bear its own expenses in complying with
this Agreement, including but not limited to the cost of employee work hours.
The sharing of fees and expenses of nonemployees and independent contractors
mutually engaged by the parties shall be agreed upon before such persons are
engaged.
21. Definitions.
(a) "After-Tax Basis" means, with respect to any payment, an amount
calculated by taking into account the Tax consequences of the receipt of such
payment, as well as any Tax benefit associated with the liability giving rise to
the payment, in each case calculated on a present value basis using the Agreed
Rate.
(b) "Agreed Rate" means the annual rate of interest quoted, from
time to time, by _____________________, N.A. in Houston, Texas as its prime rate
of interest for the purpose of determining the interest rates charged by it for
United States dollar commercial loans made in the United States.
(c) "Code" has the meaning set forth in the first recital hereof.
(d) "Distribution Agreement" means that certain Distribution
Agreement dated as of April __, 2000, by and between Weatherford and Grant, as
the same may be amended or otherwise modified from time to time pursuant to the
terms thereof.
(e) "Grant" has the meaning set forth in the preamble hereto.
(f) "Grant Group" has the meaning set forth in Section 1 hereof.
(g) "Interim Period" has the meaning set forth in Section 2 hereof.
(h) "Returns" means all returns, declarations, reports, statements
and other documents required to be filed in respect of Taxes, and the term
"Return" means any one of the foregoing Returns.
-13-
<PAGE> 17
(i) "Ruling" means the private letter ruling to be issued by the
Internal Revenue Service with respect to the Spin-Off and relating to the tax
consequences associated with the distribution of all outstanding shares of Grant
common stock.
(j) "Short Period" has the meaning set forth in Section 2 hereof.
(k) "Spin-Off" has the meaning set forth in the fifth recital
hereof.
(l) "Spin-Off Date" has the meaning set forth in the fifth recital
hereof.
(m) "Spin-Off Tax" means any Tax to which Weatherford or any member
of the Weatherford Group is subject as a result of the application of any
provision of the Code to the Spin- Off, including without limitation, Section
311(b), Section 355(c)(2), Section 355(e) or Section 361(c)(2) of the Code (or
any corresponding or similar provision of state, local or foreign law), other
than any such Tax which results solely from the fact that one or more persons
acquire after the Spin- Off Date directly or indirectly stock representing a
50-percent or greater interest in Weatherford and such acquisition is subject to
Section 355(e) of the Code.
(n) "Tax Authority" means the United States Internal Revenue
Service or any other comparable state, local or foreign governmental authority.
(o) "Taxes" means all federal, state, local, foreign and other
taxes, duties, levies, imposts, customs or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, profit share, license, value added,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, premium, property, windfall profits, or other taxes, of any kind
whatsoever, together with any interest, penalties, additions to tax, fines or
other additional amounts imposed thereon or related thereto, and the term "Tax"
means any one of the foregoing Taxes.
-14-
<PAGE> 18
(p) "Transfer Tax" means any excise, sales, use, transfer,
documentary, filing, recordation or other similar tax or fee, together with any
interest, additions or penalties with respect thereto and any interest in
respect of such additions or penalties.
(q) "Weatherford" has the meaning set forth in the preamble hereto.
(r) "Weatherford Group" has the meaning set forth in the first
recital hereto.
(s) "WEI" has the meaning set forth in the first recital hereto.
22. Notices. All notices and other communications to be given or made
hereunder shall be in writing and shall be (a) personally delivered with signed
receipt obtained acknowledging delivery; (b) transmitted by postage prepaid
registered mail, return receipt requested (air mail if international); or (c)
transmitted by facsimile; to a party at the address set out below (or at such
other address as it may have provided notification for the purposes hereof to
the other party hereto in accordance with this Section).
If to Grant: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Fax number: (281) 297-8569
Attention: President
If to Weatherford: Weatherford International, Inc.
515 Post Oak Boulevard, Suite 600
Houston, Texas 77027
Fax number: (713) 693-4484
Attention: General Counsel
23. Binding Effect; Successors. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and any
successor, by merger, acquisition of substantially all of a party's assets or
otherwise, to either of the parties hereto (including but not limited to any
successor of Weatherford or Grant succeeding to the Tax attributes of
Weatherford or Grant under Section 381 of the Code), to the same extent as if
such successor had been an original
-15-
<PAGE> 19
party to this Agreement. In addition, in the event of an acquisition of
substantially all of the assets of Grant in which gain or loss is not
recognized, in whole or in part, for Federal income Tax purposes, Grant shall
ensure that any purchaser of such assets shall assume the obligations set forth
in this Agreement.
24. Severability. Any provision of this Agreement that is determined by
arbitration as provided herein or a court of competent jurisdiction to be
invalid, illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable, so long as the
material purposes of this Agreement can be determined and effectuated. Should
any provision of this Agreement be so declared invalid, illegal or
unenforceable, the parties shall agree on a valid provision to substitute for
it.
25. Entire Agreement. This Agreement, including the exhibit and other
writings referred to herein or delivered pursuant hereto and the Distribution
Agreement, as well as the other agreements entered into by and between
Weatherford and Grant in connection with the Spin-Off, constitutes the entire
agreement between Weatherford and Grant with respect to the subject matter
hereof and supersedes all other agreements, representations, warranties,
statements, promises and undertakings, whether oral or written, with respect to
the subject matter hereof, including, without limitation, any and all Tax
sharing agreements or arrangements (whether oral or written) between Weatherford
and the other members of the Weatherford Group (other than the Grant Group) on
the one hand and Grant and the other members of the Grant Group on the other
hand, that require payments or indemnities to be made with respect to Taxes.
This Agreement may not be amended, altered or modified except by a writing
signed by duly authorized officers of Weatherford and Grant.
-16-
<PAGE> 20
26. Governing Law. All questions arising out of this Agreement and the
rights and obligations created herein, or its validity, existence,
interpretation, performance or breach, shall be governed by and construed in
accordance with the internal laws of the State of Texas, without regard to or
the application of the rules of conflicts of laws set forth in such laws.
27. Arbitration. The parties agree that any claim arising out of or
related to this Agreement shall be governed by the dispute resolution,
arbitration and choice of forum provisions set forth in Section 8.3 of the
Distribution Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
WEATHERFORD INTERNATIONAL, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
GRANT PRIDECO, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-17-
<PAGE> 21
EXHIBIT A
MEMBERS OF THE GRANT GROUP
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
%
Name Incorporation Jurisdiction Controlled
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Channelview Real Property, Inc. Delaware 100
- ----------------------------------------------------------------------------------------------------
Citra Grant Prideco Marketing Ltd. Jersey Islands 100
- ----------------------------------------------------------------------------------------------------
Drill Tube International, Inc. Texas 100
- ----------------------------------------------------------------------------------------------------
Enerpro de Mexico, S.A. de C.V Mexico 100
- ----------------------------------------------------------------------------------------------------
EVI Oil Tools Ltd. Scotland 100
- ----------------------------------------------------------------------------------------------------
Grant Austria, Inc. Delaware 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco (Singapore) Pte Ltd. Singapore 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco Canada Ltd. Alberta, Canada 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco de Venezuela, S.A Venezuela 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco Holding, L.L.C Delaware 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco Limited Scotland 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco Technology, Inc. Delaware 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco U.S., L.L.C Delaware 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco, Inc. Delaware 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco, L.P. Delaware 100
- ----------------------------------------------------------------------------------------------------
Grant Prideco, S.A Switzerland 99
- ----------------------------------------------------------------------------------------------------
Grant Prideco, S.A. de C.V Mexico 100
- ----------------------------------------------------------------------------------------------------
Inmobiliaria Industrial de Veracruz, S.A. de C.V Mexico 100
- ----------------------------------------------------------------------------------------------------
Jiangsu Shuguang Grant Prideco Tubular Company Peoples Republic of China 21.48
- ----------------------------------------------------------------------------------------------------
Petro-Drive, Inc. Louisiana 100
- ----------------------------------------------------------------------------------------------------
Petroleum Equipment Supply Company Louisiana 100
- ----------------------------------------------------------------------------------------------------
Pridecomex Holding, S.A de C.V Mexico 100
- ----------------------------------------------------------------------------------------------------
PT H-Tech Oilfield Equipment Indonesia 54.03
- ----------------------------------------------------------------------------------------------------
TA Industries, Inc. Delaware 100
- ----------------------------------------------------------------------------------------------------
Texas Arai, Inc. Delaware 100
- ----------------------------------------------------------------------------------------------------
TF de Mexico, S.A de C.V Mexico 95.36
- ----------------------------------------------------------------------------------------------------
Tube Alloy Capital Corporation Texas 100
- ----------------------------------------------------------------------------------------------------
Tube Alloy Corporation Louisiana 100
- ----------------------------------------------------------------------------------------------------
Tube Alloy Corporation International Texas 100
- ----------------------------------------------------------------------------------------------------
Voest-Alpine Middle East Free Establishment Zone United Arab Emirates 50
- ----------------------------------------------------------------------------------------------------
Voest-Alpine South America, S.A Venezuela 50
- ----------------------------------------------------------------------------------------------------
Voest-Alpine Stahlrohr Kindberg GmbH Austria 50
- ----------------------------------------------------------------------------------------------------
Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG Austria 51
- ----------------------------------------------------------------------------------------------------
Weatherford Mauritius Limited Mauritius 100
- ----------------------------------------------------------------------------------------------------
XL Systems International, Inc. Delaware 100
- ----------------------------------------------------------------------------------------------------
XL Systems, Inc. Texas 100
- ----------------------------------------------------------------------------------------------------
XLS Holding, Inc. Texas 100
- ----------------------------------------------------------------------------------------------------
XLS Systems Antilles, N.V Netherlands Antilles 100
- ----------------------------------------------------------------------------------------------------
XLS Systems Europe, B.V Netherlands 100
- ----------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE> 1
EXHIBIT 10.3
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement (this "Agreement") is entered into
as of April __, 2000, between Weatherford International, Inc., a Delaware
corporation ("Weatherford"), and Grant Prideco, Inc., a Delaware corporation, on
behalf of itself and each of its Affiliates (collectively, "Grant Prideco").
W I T N E S S E T H
WHEREAS, Weatherford and Grant Prideco are parties to the Distribution
Agreement and other related agreements; and
WHEREAS, Weatherford and Grant Prideco desire for Weatherford and its
Affiliates to provide certain services to Grant Prideco;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Weatherford and Grant Prideco, each on behalf of itself and its
Affiliates, hereby covenant and agree as follows:
ARTICLE 1
DEFINITIONS
All capitalized terms or other defined terms used but not defined in
this Agreement are used in this Agreement with the following meanings:
"AFFILIATE" means, with respect to Weatherford or Grant Prideco, any
Person, that directly or indirectly, is in control of, is controlled by,
controls or is under common control of Weatherford or Grant Prideco, as the case
may be. For purposes of this definition, control shall include the ownership of
50% or more of the legal or beneficial interest in any Person or the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise. A
Person who is an Affiliate shall only be considered an Affiliate for so long as
that Person meets the definition of an Affiliate. An officer, director, general
partner, managing member or trustee of a Person or Affiliate of such Person
shall not be considered to be an Affiliate unless such Person is under the
direct or indirect control or common control of Weatherford or Grant Prideco, as
the case may be. For purposes of clarity, neither Weatherford nor Grant Prideco
shall be considered to be an Affiliate of the other, nor shall National Oilwell,
Grey Wolf Inc. or any other company in which a director or officer of
Weatherford is also a director, officer or shareholder be considered an
Affiliate of Weatherford unless Weatherford itself controls such company.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in Houston, Texas are authorized or required
to close.
"CLOSING DATE" shall mean the effective date of the Distribution
Agreement or such other date as the parties shall agree to in writing.
<PAGE> 2
ARTICLE 1
DEFINITIONS
All capitalized terms or other defined terms used but not defined in
this Agreement are used in this Agreement with the following meanings:
"AFFILIATE" means, with respect to Weatherford or Grant Prideco, any
Person, that directly or indirectly, is in control of, is controlled by,
controls or is under common control of Weatherford or Grant Prideco, as the case
may be. For purposes of this definition, control shall include the ownership of
50% or more of the legal or beneficial interest in any Person or the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise. A
Person who is an Affiliate shall only be considered an Affiliate for so long as
that Person meets the definition of an Affiliate. An officer, director, general
partner, managing member or trustee of a Person or Affiliate of such Person
shall not be considered to be an Affiliate unless such Person is under the
direct or indirect control or common control of Weatherford or Grant Prideco, as
the case may be. For purposes of clarity, neither Weatherford nor Grant Prideco
shall be considered to be an Affiliate of the other, nor shall National Oilwell,
Grey Wolf Inc. or any other company in which a director or officer of
Weatherford is also a director, officer or shareholder be considered an
Affiliate of Weatherford unless Weatherford itself controls such company.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in Houston, Texas are authorized or required
to close.
"CLOSING DATE" shall mean the effective date of the Distribution
Agreement or such other date as the parties shall agree to in writing.
<PAGE> 3
"DISTRIBUTION AGREEMENT" shall mean that certain Distribution Agreement
dated as of April __, 2000, by and between Weatherford and Grant Prideco, as the
same may be amended or otherwise modified from time to time pursuant to the
terms thereof.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"PERSON" shall mean an individual, partnership, corporation, business
trust, limited liability company, limited liability partnership, joint stock
company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
ARTICLE II
WEATHERFORD SERVICES
2.1 SERVICES. Weatherford agrees to provide, or cause its
Affiliates to provide, the services described below to Grant Prideco:
(a) Treasury Services. Weatherford will provide, or cause
to be provided, the treasury services set forth on ANNEX A (the "Treasury
Services"). Weatherford will allocate to Grant Prideco a proportional amount of
the costs and expenses of Weatherford's Treasury Department to the extent they
relate to matters associated with the Treasury Services. Grant Prideco agrees to
pay Weatherford for such proportional amount and for all additional costs, fees,
expenses, penalties, taxes and interest incurred by Weatherford relating to the
provision of the Treasury Services.
(b) Insurance and Risk Management Services. Weatherford
will provide, or cause to be provided, the insurance and risk management
services set forth on ANNEX B (the "Insurance and Risk Management Services").
Weatherford will allocate to Grant Prideco a proportional amount of the costs
and expenses of Weatherford's Risk Management Department to the extent they
relate to matters associated with the Insurance and Risk Management Services.
Grant Prideco agrees to pay Weatherford for such proportional amount and for all
additional costs, fees, expenses, penalties, taxes and interest incurred by
Weatherford relating to the provision of the Insurance and Risk Management
Services. Grant Prideco shall be solely responsible for, and shall reimburse
Weatherford for, the amount of any retentions, deductibles or any other payments
for any claims relating to Grant Prideco.
(c) Tax Services. Weatherford will provide general tax
supervision and oversight and assistance relating to the tax accounting of Grant
Prideco, including assistance with the preparation and filing of the state,
federal and foreign tax returns and assistance with the maintenance of tax
records (collectively, the "Tax Services"). Weatherford will allocate to Grant
Prideco a proportional amount of the costs and expenses of Weatherford's Tax
Department to the extent they relate to matters associated with the Tax
Services, including the costs of the preparation and filing of state, federal
and foreign tax returns. Grant Prideco agrees to pay Weatherford for such
proportional amount and for all additional costs, fees, expenses, penalties,
taxes and interest incurred by Weatherford relating to the provision of the Tax
Services.
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(d) Management Information Systems Services. Weatherford
will provide the management information system services set forth on ANNEX C
(the "MIS Services"). Weatherford will allocate to Grant Prideco a proportional
amount of the costs and expenses of Weatherford's MIS Department to the extent
they relate to matters associated with the MIS Services. Grant Prideco agrees to
pay Weatherford for such proportional amount and for all additional costs, fees,
expenses, penalties, taxes and interest incurred by Weatherford relating to the
provision of the MIS Services.
(e) Accounting Services. Weatherford will make its
Accounting Department available to Grant Prideco on a reasonable basis (the
"Accounting Services", and, collectively with the Treasury Services, the
Insurance and Risk Management Services, the Legal Services, the Tax Services and
the MIS Services, the "Services"). Weatherford will allocate to Grant Prideco a
proportional amount of the costs and expenses of Weatherford's Accounting
Department to the extent they relate to matters associated with the Accounting
Services. Grant Prideco agrees to pay Weatherford for such proportional amount
and for all additional costs, fees and expenses incurred by Weatherford relating
to the provision of the Accounting Services.
2.2 Early Termination of Services. With respect to any Service
(or portion thereof) that Grant Prideco no longer requires Weatherford (or its
Affiliates) to perform, Grant Prideco shall promptly notify Weatherford that
such Service (or portion thereof) is no longer required, and 30 Business Days
following receipt by Weatherford of such notice, such Service (or portion
thereof) will no longer be provided by Weatherford (or its Affiliates) under
this Agreement and Weatherford will have no further obligation with respect
thereto.
2.3 Management Fee and Reimbursement. Weatherford will prepare and
submit to Grant Prideco a monthly statement of account and invoice setting forth
in reasonable detail the amounts owed by Grant Prideco for the Services pursuant
to this Agreement for the immediately preceding month and the method and basis
of their calculation. In consideration for Weatherford's agreement to provide
and administer the Services under this Agreement, Grant Prideco also agrees to
pay to Weatherford a management fee equal to 10% of the total amount of the
proportional amount of the costs and expenses of the various Weatherford
departments allocated to Grant Prideco. Such management fee shall be added to
each monthly statement of account and invoice sent to Grant Prideco. Grant
Prideco agrees to pay to Weatherford, by wire transfer in immediately available
U.S. funds, all amounts owed and due under this Agreement within 30 days of
receipt of such monthly statement of account and invoice. Interest at the rate
of 10% per annum, compounded monthly, will accrue and will be payable with
respect to any amounts due and not paid by Grant Prideco until such amounts, and
any interest thereon, have been paid.
2.4 Adjustments. All costs, expenses and fees associated with the
Services are subject to change and adjustment based upon changes in
Weatherford's internal cost structure and the cost of outside services utilized
by Weatherford.
2.5 Term and Termination. Subject to the provisions of Section 2.2
hereof, the term of this Agreement shall commence on the Closing Date and shall
continue until, and terminate on, the first anniversary following the Closing
Date. The termination of this Agreement shall not release (i) either party from
its liability to the other party under this Agreement arising from a
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<PAGE> 5
breach of this Agreement, (ii) either party from its rights and obligations
under Article III or (iii) Grant Prideco from its payment obligations under
Sections 2.1 and 2.3.
ARTICLE III
ALLOCATION OF LIABILITY; RELATIONSHIP; DELEGATION OF DUTY
3.1 WAIVER AND INDEMNIFICATION. GRANT PRIDECO HEREBY WAIVES ANY
AND ALL CLAIMS AGAINST WEATHERFORD, ITS AFFILIATES AND THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS (THE "WEATHERFORD PARTIES") FOR
DAMAGES RESULTING FROM PERFORMANCE OF, ERROR OR DELAY IN PERFORMANCE, ATTEMPTING
TO PERFORM OR FAILING TO PERFORM, ANY RESPONSIBILITIES HEREUNDER, OR ANY DAMAGES
OF ANY KIND RELATED THERETO, INCLUDING CLAIMS ARISING AS A RESULT OF THE EXPRESS
NEGLIGENCE OF SUCH PERSONS UNLESS SUCH DAMAGES RESULTED FROM THE WILLFUL
MISCONDUCT OF SUCH PERSONS. FURTHER, GRANT PRIDECO HEREBY AGREES TO DEFEND,
INDEMNIFY AND HOLD THE WEATHERFORD PARTIES HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, DAMAGES, CAUSES OF ACTION AND LEGAL LIABILITIES ARISING OUT OF, IN
CONNECTION WITH, OR AS AN INCIDENT TO, THIS AGREEMENT OR ANY ACT OR OMISSION IN
THE PERFORMANCE BY SUCH PERSONS OF THEIR RESPONSIBILITIES HEREUNDER, INCLUDING
DAMAGES, CAUSES OF ACTION AND LEGAL LIABILITIES ARISING AS A RESULT OF THE
NEGLIGENCE OF SUCH PERSONS, UNLESS SUCH DAMAGES RESULTED FROM THE WILLFUL
MISCONDUCT OF SUCH PERSONS SEEKING INDEMNIFICATION.
3.2 LIMITATION ON WARRANTIES AND CONSEQUENTIAL DAMAGES. NONE OF
THE WEATHERFORD PARTIES MAKES ANY WARRANTIES OR REPRESENTATIONS REGARDING
SERVICES PROVIDED PURSUANT TO THIS AGREEMENT OTHER THAN THOSE EXPRESSED IN THIS
AGREEMENT AND NONE OF THE WEATHERFORD PARTIES MAKES ANY EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE. SUCH
SERVICES ARE FURNISHED ON AN "AS IS" BASIS, AND NONE OF THE WEATHERFORD PARTIES
ASSUMES ANY RESPONSIBILITY FOR ANY DAMAGE OR LOSS (INCLUDING, WITHOUT
LIMITATION, ANY CONSEQUENTIAL, EXEMPLARY OR SPECIAL DAMAGES OR LOST PROFITS)
ARISING OUT OF, RESULTING FROM OR CAUSED BY SERVICES FURNISHED.
3.3 EXPRESS NEGLIGENCE. THE INDEMNITIES SET FORTH IN THIS ARTICLE
III ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE
EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING TEXAS' EXPRESS NEGLIGENCE RULE
OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES
BECAUSE OF THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR
PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY OF THE WEATHERFORD PARTIES.
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<PAGE> 6
3.4 INDEPENDENT CONTRACTOR. UNLESS OTHERWISE AGREED BY THE PARTIES
WITH RESPECT TO LEGAL SERVICES, IN PERFORMING THE SERVICES HEREUNDER, GRANT
PRIDECO AND WEATHERFORD ACKNOWLEDGE AND AGREE THAT THE WEATHERFORD PARTIES AND
THEIR REPRESENTATIVES SHALL BE CONSIDERED INDEPENDENT CONTRACTORS WITH RESPECT
TO GRANT PRIDECO AND SHALL UNDER NO CIRCUMSTANCES BE DEEMED TO BE EMPLOYEES,
AGENTS, PARTNERS OR JOINT VENTURERS OF GRANT PRIDECO. ADDITIONALLY, WEATHERFORD
SHALL HAVE THE AUTHORITY AND RESPONSIBILITY TO SELECT THE MEANS, MANNER AND
METHOD OF PERFORMING THE SERVICES REQUIRED TO BE CAUSED TO BE PERFORMED BY IT
HEREUNDER.
3.5 Delegation of Duty. In the performance of their respective
obligations under this Agreement, Weatherford and its Affiliates may act
directly or through agents, counsel (in-house or outside) or other persons, may
delegate the performance of functions and may consult with agents, counsel
(in-house or outside) and other persons. None of Weatherford or any of its
Affiliates will be liable for the default or misconduct of any persons employed,
consulted or engaged thereby. Weatherford and its Affiliates will be entitled to
conclusively rely for all purposes upon any notice, document, correspondence,
request or directive received by it from Grant Prideco, or any officer or
director of Grant Prideco, and shall not be obligated to inquire (a) as to the
authority or power of any person executing or presenting any such notice,
document, correspondence, request or directive, or (b) as to the truthfulness of
any statements set forth therein.
ARTICLE IV
MISCELLANEOUS
4.1 Audit Right. Upon reasonable prior written request, Grant
Prideco shall have the right to audit Weatherford's calculations, and schedules
thereto, of the costs and expenses for the services provided hereunder. Upon the
request of Grant Prideco, Weatherford shall provide Grant Prideco with copies of
invoices relating to any third party costs and expenses relating to the
Services.
4.2 Complete Agreement; Amendment. This Agreement, including the
Annexes and other writings referred to herein or delivered pursuant hereto,
constitutes the entire agreement between Weatherford and Grant Prideco with
respect to the subject matter hereof and supersedes all other agreements,
representations, warranties, statements, promises and understandings, whether
oral or written, with respect to the subject matter hereof. This Agreement may
not be amended, altered or modified except by a writing signed by duly
authorized officers of Weatherford and Grant Prideco.
4.3 NOTICES. All notices under this Agreement must be in writing
and delivered by personal service; certified or registered mail, postage
prepaid, return receipt requested; nationally-recognized overnight courier,
courier charges prepaid; or facsimile transmission
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(followed by telephone confirmation of receipt), to Weatherford or Grant
Prideco, as applicable, at the addresses herein set forth.
The addresses for notices are as follows:
Weatherford International, Inc.
515 Post Oak Boulevard, Suite 600
Houston, Texas 77027
Attention: General Counsel
Facsimile: (713) 693-4484
Confirm: (713) 693-4102
Grant Prideco, Inc.
1450 Lake Robbins Dr., Suite 600
The Woodlands, Texas 77380
Attention: President
Facsimile: (281) 297-8569
Confirm: (281) 297-8500
With a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Attention: Charles L. Strauss
Facsimile: (713) 651-5246
Confirm: (713) 651-5535
All notices, demands and requests will be effective upon actual receipt or, in
the case of delivery by facsimile transmission, the completion of such
transmission during the normal business hours of the recipient. Rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was given as provided herein will be deemed to be receipt of
the notice, demand or request sent. By giving to the other party at least 10
Business Days' written notice thereof, a party and its respective permitted
successors and permitted assigns will have the right from time to time and at
any time during the term of this Agreement to change their respective addresses
for notices and each will have the right to specify as its address for notices
any other address within the United States of America.
4.4 SEVERABILITY. Any provision hereof that is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
4.5 ASSIGNMENT; OTHER BENEFITS. This Agreement will be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and
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permitted assigns. Neither party to this Agreement may assign its rights under
this Agreement without the prior written consent of the other party; provided,
however, Weatherford may assign any of its rights and obligations under this
Agreement to any Weatherford Affiliate, of which Weatherford beneficially owns
or controls at least 50% of the equity or other interests of such Affiliate,
without the consent of Grant Prideco.
4.6 GOVERNING LAW. This Agreement will be governed by, and
construed in accordance with, the internal laws of the State of Texas, without
reference to or the application of the rules of conflicts of laws set forth in
such laws.
4.7 WAIVER. No consent or waiver, express or implied, by a party
hereto to or of any breach or default by the other party hereto in the
performance by such other party of its obligations hereunder will be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such other party of the same or any other obligations of such
other party hereunder. Failure on the part of a party to complain of any act or
failure to act of the other party or to declare the other party in default,
irrespective of how long such failure continues, will not constitute a waiver by
such party of its rights hereunder. The giving of consent by a party in any one
instance will not limit or waive the necessity to obtain such party's consent in
any future instance.
4.8 TERMINOLOGY. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, will include all other
genders; and the singular will include the plural and vice versa. The headings
of the Articles and Sections of this Agreement are included for convenience only
and will not be deemed to constitute part of this Agreement or to affect the
construction hereof or thereof.
4.9 FORCE MAJEURE. Except for the obligation of Grant Prideco to
make payments hereunder when due and the indemnification obligations arising
hereunder, neither party shall be liable for delays in performance or for
non-performance, directly occasioned or caused by Force Majeure. Force Majeure
means any event beyond the reasonable control of the party claiming to be
affected thereby, including, without limitation, acts of God, storms, floods,
war, fire, strikes, lockouts or differences with workers, acts of the public
enemy, insurrections, riots or rules or regulations of any Governmental
Authority asserting jurisdiction or control, compliance with which makes
continuance of operations impossible. Inability of either party to secure funds
shall not be regarded as Force Majeure. Upon the occurrence of Force Majeure,
the party affected shall give prompt notice thereof to the other party and
shall, at its cost and expense, do all things reasonable to remove or mitigate
its effect.
4.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will for all purposes be deemed an original, but all
of which together will constitute one and the same agreement.
4.11 FURTHER ASSURANCES. Each party hereto agrees to do all acts
and things and to make, execute and deliver such written instruments, as will
from time to time be reasonably required to carry out the terms and provisions
of this Agreement.
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4.12 ARBITRATION. The parties hereto agree that any claim arising
out of or related to this Agreement shall be governed by the dispute resolution,
arbitration and choice of forum provisions set forth in Section 8.3 of the
Distribution Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth in the introduction to this Agreement.
WEATHERFORD INTERNATIONAL, INC.
By:
-------------------------------------------
Curtis W. Huff
Executive Vice President, Chief Financial
Officer, General Counsel and Secretary
GRANT PRIDECO, INC.
By:
--------------------------------------------
John C. Coble
President
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ANNEX A
TREASURY SERVICES
Letters of Credit
Weatherford Treasury will continue to maintain certain letters of credit that
are outstanding as of the date of this Agreement, a list of which is attached
hereto. As such letters of credit are required to be renewed, Grant Prideco
shall be required to cause replacement letters of credit to be issued; provided,
however, if the circumstances under which the letters of credit were initially
issued prohibit Weatherford or Grant Prideco from having a replacement letter of
credit issued, Weatherford shall cause such letters of credit to be renewed at
Grant Prideco's sole expense. Grant Prideco also shall cause there to be issued
to Weatherford within 90 days following the Closing Date a letter of credit from
a financial institution acceptable to Weatherford backing up any liability that
Weatherford may have with respect to any letter of credit issued by Weatherford
or any of its affiliates for Grant Prideco or any of its affiliates.
Guarantees
There are certain guarantees outstanding as of the date of this Agreement, a
list of which is attached hereto. As such leases with underlying guarantees are
required to be renewed, Grant Prideco shall be required to cause a replacement
guarantee to be issued, except for the SGD 6,500,000 line of credit in the name
of Grant Prideco (Singapore) Pte. Ltd. with Standard Chartered Bank, in which
Weatherford will release its guarantee not sooner than 60 days following the
Closing Date.
Miscellaneous
Other miscellaneous treasury services historically provided by Weatherford on
behalf of Grant Prideco that may be reasonably requested by Grant Prideco and
not unduly burdensome on Weatherford.
A-1
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ANNEX B
INSURANCE AND RISK MANAGEMENT SERVICES
Medical Insurance
Weatherford will continue to administer all medical claims relating to employees
of Grant Prideco that are for periods prior to the Closing Date and that are
covered under Weatherford's existing medical insurance program. All losses,
costs, fees and expenses relating to such claims, including the costs of
extending any of such coverage, and Weatherford's administration thereof shall
be the sole responsibility of Grant Prideco.
Risk Management
1. Weatherford will continue to administer all claims relating to Grant
Prideco that are for periods prior to the Closing Date and that are covered
under Weatherford's existing insurance program. All losses, costs, fees and
expenses relating to such claims and Weatherford's administration thereof shall
be the sole responsibility of Grant Prideco.
2. Grant Prideco also will be responsible for any shortfalls under the
current Weatherford insurance allocation method. Under such method, all
Weatherford entities receive an allocation based on their actual exposures and
historical loss experience. The insurance allocation represents the cost of the
actual insurance premiums and an estimate of losses that fall within
Weatherford's self-insured retentions and deductibles (Workers Compensation,
Auto Liability, Property and General Liability).
Actual insurance premiums are allocated on a pro-rata basis based on each unit's
percentage of total revenue, payroll, auto counts and property values. For
example, if a particular unit has 10% of all vehicles, the unit will pay 10% of
the auto liability premium. Estimated losses for a particular unit are allocated
on a formula basis outlined below:
1. Through a modeling process, losses are estimated for the
insurance year that will fall within Weatherford's deductibles and self-insured
retentions.
2. Total Weatherford losses are calculated for the prior
three-year period.
3. Each unit's losses are calculated for the same three-year
period (limited to $100,000 per loss).
4. Each unit's losses are calculated as a percentage of the total
three-year loss totals.
5. Each unit's percentage of losses is then applied against the
estimated losses establishing the unit's loss allocation for the coming
insurance year.
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Miscellaneous
Other miscellaneous insurance and risk management services historically provided
by Weatherford on behalf of Grant Prideco that may be reasonably requested by
Grant Prideco and not unduly burdensome on Weatherford.
B-2
<PAGE> 14
ANNEX C
MANAGEMENT INFORMATION SYSTEMS SERVICES
Miscellaneous management information systems services historically provided by
Weatherford on behalf of Grant Prideco that may be reasonably requested by Grant
Prideco and not unduly burdensome on Weatherford.
Participation by Grant Prideco employees in software and other information
system training offered in the ordinary course to Weatherford's employees and
its affiliates' employees.
Network access in foreign locations where such access is being provided as of
the date of this Agreement and Grant Prideco has not yet obtained its own
independent network capability.
C-1
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EXHIBIT 10.4
PREFERRED SUPPLIER AGREEMENT
<PAGE> 2
PREFERRED SUPPLIER AGREEMENT
This Agreement dated April __, 2000, by and between Grant Prideco,
Inc., a Delaware corporation ("Grant Prideco"), and Weatherford International,
Inc., a Delaware corporation ("Weatherford").
WITNESSETH:
WHEREAS, Weatherford wishes to enter into a long term supply contract
with Grant Prideco for the purchase by Weatherford and its Affiliates (as
defined below) of Drill Stem Products (as defined below) on the terms and
subject to the conditions set forth herein; and
WHEREAS, Grant Prideco and its Affiliates manufacture and produce Drill
Stem Products and desire to supply Weatherford and its Affiliates with Drill
Stem Products on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, Weatherford and Grant Prideco, each on behalf of itself
and its Affiliates, hereby agree as follows:
ARTICLE 1. DEFINITIONS
(a) "AFFILIATE" means, with respect to Weatherford or Grant Prideco, any Person
that, directly or indirectly, is in control of, is controlled by, controls
or is under common control of Weatherford or Grant Prideco, as the case may
be. For purposes of this definition, control shall include the ownership of
50% or more of the legal or beneficial interest in any Person or the power
to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise. A Person who is an Affiliate shall only be considered an
Affiliate for so long as that Person meets the definition of an Affiliate.
An officer, director, general partner, managing member or trustee of a
Person or Affiliate of such Person shall not be considered to be an
Affiliate unless such Person is under the direct or indirect control or
common control of Weatherford or Grant Prideco, as the case may be. For
purposes of clarity, neither Weatherford nor Grant Prideco shall be
considered to be an Affiliate of the other, nor shall National Oilwell,
Grey Wolf Inc. or any other company in which a director or officer of
Weatherford is also a director, officer or shareholder be considered an
Affiliate of Weatherford unless Weatherford itself controls such company.
(b) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or other
day on which commercial banks in Houston, Texas are authorized or required
to close.
(c) Unless the context otherwise requires, "BUYER" means Weatherford and its
Affiliates.
(d) "DRILL STEM CREDITS" mean those Drill Stem Products purchase credits that
have been granted to Weatherford and its Affiliates by Grant Prideco in the
amount of $30 million pursuant to Section 6.6.
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<PAGE> 3
(e) "DRILL STEM EXPENDITURES" mean, in respect of any period, the dollar amount
of purchases made by Weatherford and its Affiliates of Drill Stem Products
from Persons that are not Affiliated with Weatherford at the time of
purchase. Drill Stem Expenditures shall include (i) charges for coating and
commissions and procurement charges that may be paid by Weatherford and its
Affiliates for the purchase of the Drill Stem Products and (ii) any import
or export duties paid by Weatherford or its Affiliates in respect of the
original purchase and delivery of the Drill Stem Products. Drill Stem
Expenditures shall exclude (i) rebates, refunds, discounts provided to
Weatherford and its Affiliates in respect of any Drill Stem Product
purchase (other than the Drill Stem Credits) and (ii) charges for, fees,
taxes, shipping, shipping insurance and other similar charges and expenses.
(f) "DRILL STEM PRODUCTS" mean (i) drill pipe, (ii) heavyweight drill pipe,
(iii) drill collars and (iv) drill stem accessories (including, without
limitation, pup joints, thread protectors, lift subs, lift plugs, rotary
plugs and rotary kellys).
(g) "DRILL STEM PURCHASE OBLIGATION" means the obligation of Weatherford and
its Affiliates to purchase Drill Stem Products as provided in Section 2.1.
(h) "EVENT OF FORCE MAJEURE" shall mean any circumstance not within the
reasonable control of the party affected and that, despite the exercise of
reasonable diligence, such party is unable to prevent, avoid or remove.
Events of Force Majeure shall include without limitation: (i) acts of God;
(ii) expropriation, confiscation or requisitioning of facilities or
compliance with any law, decree, regulation, order, directive or request of
any governmental authority or person(s) purporting to act therefor that
affects to a degree not presently existing the supply, availability or use
of materials, equipment or labor; (iii) acts or inaction on the part of any
governmental authority or person purporting to act therefor; (iv) acts of
war or the public enemy whether war be declared or not; (v) public
disorders, insurrection, rebellion, sabotage, riots or violent
demonstrations; (vi) explosions, fires, earthquakes or other natural
calamities; and (vii) strikes or lockouts or other industrial action by
workers or employees of the Supplier.
(i) "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
(j) "PERSON" shall mean an individual, partnership, corporation, business
trust, limited liability company, limited liability partnership, joint
stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
(k) Unless the context otherwise requires, "SUPPLIER" means Grant Prideco and
its Affiliates.
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ARTICLE 2. PURCHASE AND SUPPLY COMMITMENT
SECTION 2.1 WEATHERFORD'S PURCHASE OBLIGATION
(a) Weatherford agrees that during the term of this Agreement it and
its Affiliates shall purchase from Grant Prideco or one of its Affiliates at
least 70% of Weatherford's and its Affiliates' total purchases of Drill Stem
Products for each calendar year during the term of this Agreement beginning with
the year 2000. Compliance with this obligation shall be based on the dollar
amount of Drill Stem Expenditures made by Weatherford and its Affiliates during
the applicable year, subject to the exceptions provided below.
(b) Except for those orders that are needed on an expedited basis or as
may otherwise be agreed to by Grant Prideco, Weatherford agrees that all firm
orders for Drill Stem Products by Weatherford and its Affiliates shall be placed
in writing with Grant Prideco or one of its Affiliates no later than 120 days
prior to the required delivery date unless industry practice at the time of the
order has changed and shorter or longer periods become standard, in which case
the delivery period shall be adjusted accordingly. Notwithstanding the
foregoing, Grant Prideco shall provide for shorter delivery times if requested
by Weatherford and such requested delivery periods are not shorter than those
offered by Grant Prideco to its best similarly situated customers for similar
orders. Weatherford shall consult with Grant Prideco on at least a quarterly
basis with respect to Weatherford's anticipated Drill Stem Product requirements
for the following two quarters. No deposits shall be required to be placed by
Weatherford or its Affiliates with respect to any order. Grant Prideco or the
Affiliate with whom the order is placed shall either accept or reject such order
within three Business Days of receiving the order. All acceptances or rejections
shall be required to be in writing. All confirmations of acceptances shall be
pursuant to the terms of this Agreement and the terms may not be modified
through the confirmation unless signed in writing by Weatherford or the
Affiliate placing the order. All confirmations of acceptance shall provide to
Weatherford or such Affiliate the expected delivery date. Unless otherwise
instructed in writing by Grant Prideco, all orders by Weatherford shall be
directed to Randall Edwards, Houston, Texas.
(c) In calculating the percentage of Drill Stem Products purchased by
Weatherford and its Affiliates, there shall be excluded from the calculation any
Drill Stem Expenditures for Drill Stem Products to the extent such Drill Stem
Products (i) are purchased by Weatherford or one of its Affiliates for an
unAffiliated third party, (ii) are not required to be purchased from Grant
Prideco or its Affiliates under Section 2.1(e), or (iii) are acquired in
connection with the acquisition of another company or substantially all of the
operating assets of another company or division thereof provided that such
acquisition is not effected as a means to circumvent the provisions of this
Agreement.
(d) Unless otherwise agreed to by Weatherford, all Drill Stem Products
shall be manufactured at Grant Prideco facilities approved by Weatherford and
utilizing raw materials sourced from mills approved by Weatherford from time to
time. Unless otherwise reasonably objected to by Weatherford, mills in the
United States and Western Europe that are owned or controlled by Grant Prideco
or with which it is affiliated shall be deemed approved by Weatherford.
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<PAGE> 5
(e) Weatherford and its Affiliates shall not be required to purchase
any particular Drill Stem Products, and Weatherford's purchase obligation under
this Section 2.1 shall not apply, under the following circumstances:
(i) Grant Prideco is unable to assure Weatherford and
its Affiliates of the delivery of that Drill Stem
Product at the location required by Weatherford or
an Affiliate of Weatherford within the time period
required by Weatherford or such Affiliate;
(ii) The purchase of that Drill Stem Product by
Weatherford or its Affiliate would constitute a
violation of law or regulation;
(iii) Grant Prideco is unable to assure Weatherford and
its Affiliate that such Drill Stem Product meets the
product specification and technical requirements of
Weatherford or such Affiliate;
(iv) Weatherford or its Affiliate reasonably requires the
Drill Stem Product on an expedited basis and Grant
Prideco is unable to provide the Drill Stem Product
within the time required, provided Weatherford or
such Affiliate provides Grant Prideco with such
reasonable opportunity as may be practical under the
circumstances to satisfy such requirement;
(v) There is a local content requirement for such Drill
Stem Product in the market or location in which such
Drill Stem Product is to be used;
(vi) There is a requirement by the rental customer of
Weatherford or its Affiliate for a Drill Stem
Product manufactured by another company and
Weatherford or such Affiliate does not already have
in inventory such Drill Stem Product that could be
used for such customer without unreasonable cost or
delay;
(vii) Grant Prideco or one of its Affiliates does not
accept and confirm the order for the Drill Stem
Product within the time period required in Section
2.1(b), provided that Weatherford or such Affiliate
that placed the order places an order for such Drill
Stem Product with another manufacturer within ten
days after the date on which Grant Prideco and its
Affiliates were required to accept or reject the
order; or
(viii) If at the time of the purchase or the placement of
the order for the purchase, Grant Prideco is in
material breach of this Agreement.
(f) Weatherford agrees to cause its Affiliates to comply with the terms
of this Agreement and to purchase from Grant Prideco and its Affiliates Drill
Stem Products as provided herein.
(g) In the event Weatherford and its Affiliates do not purchase the
required amount of Drill Stem Products from Grant Prideco and its Affiliates
during any calendar year, Weatherford shall be required to pay to Grant Prideco
an amount of cash equal to the product of (x) the amount of Drill Stem
Expenditures paid by Weatherford and its Affiliates to third parties during the
calendar
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year for Drill Stem Products that would have been required to have been paid to
Grant Prideco and its Affiliates to comply with the Drill Stem Purchase
Obligation for that year (with the calculation to be based on an assumption that
the Drill Stem Expenditures paid to the other parties were paid to Grant Prideco
and its Affiliates) and (y) 40%. The payment to be made by Weatherford in such
case shall be paid no later than 120 days following the end of the calendar year
for which the payment is to be made, with interest thereon from January 1 of the
year following the year for which the payment relates to the date of payment.
Interest shall be at an annual rate of 8% compounded quarterly.
SECTION 2.2 GRANT PRIDECO'S SUPPLY OBLIGATION
(a) Grant Prideco agrees to use its commercially reasonable efforts to
provide directly or through one or more of its Affiliates Weatherford's and its
Affiliates' requirements of Drill Stem Products as provided in Section 2.1.
(b) Grant Prideco agrees that such Drill Stem Products shall be
provided to Weatherford and its Affiliates on delivery and pricing terms equal
to or better than those provided to Grant Prideco's and its Affiliates' best
rental tool customer or customers that are purchasing the Drill Stem Products
for rental purposes (but taking into account any expedited delivery
requirements, special order requests or unusual delivery requirements that
reasonably should increase pricing and taking into account order quantity) for
the same or similar Drill Stem Products. Weatherford shall not be obligated to
provide any deposits, letters of credit or similar items to obtain such terms
and shall not be obligated to purchase any minimum quantities or amounts to be
eligible for such terms other than, subject to the provisions of Section 2.1,
the obligation provided herein that at least 70% of Weatherford's and its
Affiliates' total purchases of Drill Stem Products are purchased from Grant
Prideco and its Affiliates during each calendar year during the term of this
Agreement beginning with the year 2000. Weatherford and its Affiliates shall be
entitled to apply any Drill Stem Credits held by them against the purchase price
of any Drill Stem Products to be purchased by them from Grant Prideco and its
Affiliates subject to a maximum of 20% of the purchase price of any Drill Stem
Products being satisfied with a Drill Stem Credit.
(c) Grant Prideco agrees to purchase used drill pipe from Weatherford
and its Affiliates from time to time to the extent Grant Prideco and its
Affiliates are then offering to customers the right to trade in or sell used
drill pipe to Grant Prideco and its Affiliates. The terms of such purchases
shall be terms at least as good as the terms offered to Grant Prideco's and its
Affiliates' best rental tool customer or customers that are purchasing the Drill
Stem Products for rental purposes (but taking into account any expedited
delivery requirements, special order requests or unusual delivery requirements
that reasonably should increase pricing and taking into account order quantity).
Grant Prideco and its Affiliates may prorate purchases to the extent limitations
are placed on the quantities to be purchased by it.
(d) Grant Prideco agrees to cause its Affiliates to comply with the
terms of this Agreement and to supply Weatherford and its Affiliates with Drill
Stem Products as provided herein.
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SECTION 2.3 COMPLIANCE REPORT
(a) Grant Prideco shall be entitled to obtain on request an annual
certificate of Weatherford, signed by the Chief Financial Officer or Chief
Accounting Officer of Weatherford, certifying Weatherford's and its Affiliates'
compliance with the terms of this Agreement and setting forth (i) the total
Drill Stem Expenditures during such calendar year and (ii) the amount of Drill
Stem Expenditures made by Weatherford and its Affiliates from (x) Grant Prideco
and its Affiliates and (y) other parties. This certificate may be requested
within 60 days following the end of the calendar year to which it relates and
must be provided to Grant Prideco within 120 days following the end of the
calendar year to which it relates.
(b) Weatherford shall be entitled to obtain on request an annual
certificate of Grant Prideco, signed by the Chief Financial Officer or Chief
Accounting Officer of Grant Prideco, certifying Grant Prideco's and its
Affiliates' compliance with the terms of this Agreement. This certificate may be
requested within 60 days following the end of the calendar year to which it
relates and must be provided to Weatherford within 120 days following the end of
the calendar year to which it relates.
SECTION 2.4 ADDITIONAL PRODUCTS
Weatherford and Grant Prideco agree to discuss from time to time the
addition to this Agreement of other products manufactured by Grant Prideco and
its Affiliates, including rental tubulars and casing. Neither party shall be
obligated to agree to such additions, and the addition of other products to this
Agreement will be subject to the parties agreeing in writing in their sole
discretion on the specific products, pricing, delivery and specifications of the
products to be so added.
ARTICLE 3. TERMS
Unless otherwise agreed in writing with respect to any particular
purchase order for Drill Stem Products, the following terms shall apply to sales
of Drill Stem Products by a Supplier to a Buyer during the term of this
Agreement.
SECTION 3.1 PAYMENT
Payment of the price for the Drill Stem Product shall be made in U.S.
Dollars (or through utilization of Drill Stem Credits) in accordance with
payment terms offered to its best rental tool customers (excluding payment terms
associated with warranty claims, disputed claims, workouts, isolated promotional
sales, sales of slow moving inventory and other similar situations).
SECTION 3.2 DELIVERY PERIODS
All periods for delivery of Drill Stem Products shall commence on the
date on which the applicable purchase order is delivered by Buyer and shall be
not less than 120 days, unless industry practice changes and shorter or longer
periods become standard, in which case the delivery period shall be adjusted
accordingly. Notwithstanding the foregoing, Grant Prideco shall provide for
shorter
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delivery times if requested by Weatherford and such requested delivery periods
are not shorter than those offered by Grant Prideco to its best rental tool
customers for similar orders.
SECTION 3.3 WARRANTY
All Drill Stem Products sold to Weatherford and its Affiliates pursuant
to this Agreement shall be sold subject to Grant Prideco's and its Affiliates
then standard warranty provided to its customers for the Drill Stem Product
sold. To the extent Grant Prideco or its Affiliates provides to certain of its
customers a more favorable warranty for Drill Stem Products (other than in
connection with isolated sales or tenders), Grant Prideco and its Affiliates
shall provide such more favorable warranty to Weatherford and its Affiliates for
such Drill Stem Products of the type and nature to which such more favorable
warranty is provided.
SECTION 3.4 FORCE MAJEURE
(a) The parties' failure to perform their obligations under a purchase
contract shall not be deemed a breach of the obligation arising from the
purchase contract if such failure is caused by or the result of an Event of
Force Majeure.
(b) Immediately following the date of commencement of any Event of
Force Majeure, if either party desires to invoke such Event of Force Majeure as
a cause for delay in the performance of any obligation under the purchase
contract, it shall advise the other party in writing of such date and the nature
and expected duration of such Event of Force Majeure. Within a reasonable time
following the date of termination of such Event of Force Majeure, the party
having invoked such Event of Force Majeure as a cause for such delay shall
submit to the other party reasonable proof of the nature of such delay. The
parties shall thereupon consult with one another concerning the effect of such
delay upon the relevant schedule of delivery and the schedule of delivery shall
be equitably adjusted by the parties to take into account such effect and the
ability of the affected party to avoid or minimize overall delays resulting from
the Event of Force Majeure. Both parties shall make all reasonable efforts to
prevent and reduce to a minimum and mitigate the effect of any delay occasioned
by any Event of Force Majeure including recourse to alternate acceptable sources
of Drill Stem Products.
SECTION 3.5 RESOLUTION OF DISPUTES
All disputes, controversies or claims arising out or in connection with
any purchase agreement for Drill Stem Products, including any questions as to
the existence, validity, termination, discharge, breach or enforceability of the
purchase agreement arising thereunder, shall be finally settled by the
procedures outlined in Section 5.2.
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ARTICLE 4. TERM; TERMINATION
SECTION 4.1 DURATION
(a) This Agreement shall become effective as of the date hereof and,
subject to earlier termination as provided in Section 4.2 or extension as
provided in Section 4.1(b), shall continue in effect until March 31, 2003.
(b) This Agreement shall automatically be extended for a period of one
year if neither party provides the other party with written notice of its desire
for this Agreement not to be so extended on or prior to March 31, 2003.
Thereafter, this Agreement shall be extended for successive one-year periods
unless a party provides notice to the other party of its desire that this
Agreement not be so extended on or prior to March 31 of the year in which the
Agreement is to otherwise terminate.
SECTION 4.2 RIGHT TO TERMINATE
The parties may terminate this Agreement for the reasons and as
provided in this section.
(a) Default
If a party fails to observe or perform any of its material promises,
agreements or undertakings under this Agreement, and fails to remedy any such
breach within 120 days of notice to do so from the other party, then the
aggrieved party may, upon expiration of the 120-day notice period, give written
notice of termination of this Agreement either forthwith or at a future date
designated by the aggrieved party.
(b) Bankruptcy, Liquidation
If either of the parties shall become voluntarily or involuntarily the
subject of proceedings under any bankruptcy or insolvency law, or other law or
procedure for the relief of financially distressed debtors, or is unable, or
admits in writing its inability, to pay its debts as they mature, or takes or
suffers any action for its liquidation or dissolution other than in the context
of a merger of consolidation, or has a receiver or liquidator appointed for all
or any part of its assets and, in the event any act of the aforesaid character
is involuntary, the consequences thereof are not cured within 60 days, the party
not affected by such circumstances may give to the affected party written notice
of its decision immediately to terminate this Agreement. In the event that such
notice is not given for any reason, the affected party shall remain fully
responsible for its obligations set forth in this Agreement at the times
required.
SECTION 4.3 SURVIVAL
The provisions of Articles 5 and 6 shall survive any termination of
this Agreement.
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ARTICLE 5. GOVERNING LAW; DISPUTES
SECTION 5.1 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Texas, without regard to or the application of
the rules of conflicts of laws set forth in such laws.
SECTION 5.2 SOLUTION OF DISPUTES
(a) In the event there shall exist any dispute or controversy with
respect to this Agreement or any matter relating hereto or the transactions
contemplated hereby, the parties hereto agree to seek to resolve such dispute or
controversy by mutual agreement. If the parties hereto are unable to resolve
such dispute or controversy by agreement within 90 days following notice by any
party hereto of the nature of such dispute or controversy setting forth in
reasonable detail the circumstances and basis of such dispute or controversy,
the parties agree that such dispute or controversy be resolved by binding
arbitration pursuant to the provisions of this Section 5.2 and in accordance
with the then-current Commercial Arbitration Rules of the American Arbitration
Association. If a party elects to submit such matter to arbitration, such party
shall provide notice to the other party of its election to do so, which notice
shall name one arbitrator. Within 10 Business days after the receipt of such
notice, the other party shall provide written notice to the electing party
naming a second arbitrator. The two arbitrators so appointed shall name a third
arbitrator, or failing to do so, a third arbitrator shall be appointed pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
(b) All arbitration proceedings shall be held in Houston, Texas.
(c) Each arbitrator selected to act hereunder shall be qualified by
education and experience to pass on the particular question in dispute and shall
be independent and not Affiliated with any of the parties hereto or an associate
thereof. A person associated or affiliated with the legal counsel for either of
the parties or their Affiliates will not be considered independent.
(d) The arbitrators shall resolve all disputes in controversy in
accordance with the Texas substantive law. All statutes of limitations that
would otherwise be applicable shall apply to any arbitration proceeding. The
arbitrators shall not be authorized to order any equitable remedies and shall
only be empowered to make monetary awards and determinations with respect to
compliance by a party and its Affiliates in accordance with the terms hereof.
(e) The arbitrators appointed pursuant to this Section 5.2 shall
promptly hear and determine (after due notice and hearing and giving the parties
reasonable opportunity to be heard) the questions submitted, and shall endeavor
to render their decision within 60 days after appointment of the third
arbitrator or as soon as practical thereafter. If within such period a decision
is not rendered by the board or a majority thereof, new arbitrators may be named
and shall act hereunder at the election of either party in like manner as if
none had previously been named.
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(f) The decision of the arbitrators, or a majority thereof, made in
writing, shall absent manifest error be final and binding upon the parties
hereto as to the questions submitted, and each party shall abide by such
decision.
(g) The cost of the arbitration shall be borne by the parties thereto
as unanimously determined by the arbitrators.
(h) NOTWITHSTANDING THE AGREEMENT BY THE PARTIES TO ARBITRATION, EITHER
PARTY MAY SEEK FROM A COURT OF COMPETENT JURISDICTION INJUNCTIVE AND OTHER
EQUITABLE RELIEF IN AID OF ARBITRATION. EACH PARTY HERETO ON ITS OWN BEHALF AND
ON BEHALF OF ITS AFFILIATES IRREVOCABLY AGREES THAT ANY SUCH RELIEF SHALL FIRST
BE SOUGHT IN FEDERAL OR STATE COURT IN HARRIS COUNTY, TEXAS.
ARTICLE 6. MISCELLANEOUS
SECTION 6.1 ASSIGNMENT
This Agreement shall be binding upon and shall inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
duly permitted assigns. Neither Weatherford or any of its Affiliates nor Grant
Prideco or any of its Affiliates may assign their rights and/or obligations
under this Agreement other than with the express written consent of the other
party. Nothing in this Section 6.1 shall be deemed to prohibit a merger,
consolidation or conversion of Weatherford or Grant Prideco or a sale of all or
substantially all of the business operations of Weatherford or Grant Prideco as
long as the successor to the obligations of Weatherford or Grant Prideco assumes
Weatherford's or Grant Prideco's, as the case may be, obligations hereunder.
SECTION 6.2 WAIVER
The failure of either party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver of any right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any waiver must be made in writing.
SECTION 6.3 NOTICES
All notices and other communications (other than communications in the
ordinary course of business relating to purchases and sales of Drill Stem
Products) to be given or made hereunder shall be in writing and shall be (a)
personally delivered with signed receipt obtained acknowledging delivery; (b)
transmitted by postage prepaid registered mail, return receipt requested (air
mail if international); or (c) transmitted by facsimile; to a party at the
address set out below (or at such other address as it may have provided
notification for the purposes hereof to the other party hereto in accordance
with this Section).
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If to Supplier: Grant Prideco, Inc.
1450 Lake Robbins Drive, Suite 600
The Woodlands, Texas 77380
Fax number: (281) 297-8569
Attention: President
If to Buyer: Weatherford International, Inc.
515 Post Oak Boulevard, Suite 600
Houston, TX 77027
Fax Number: (713) 693-4484
Attention: General Counsel
With a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Fax number: (713) 651-5246
Attention: Charles L. Strauss
SECTION 6.4 SEVERABILITY
Any provision of this Agreement that is determined by arbitration as
provided herein or a court of competent jurisdiction to be invalid, illegal or
unenforceable shall be ineffective to the extent of such invalidity, illegality
or unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable, so long as the material purposes of
this Agreement can be determined and effectuated. Should any provision of this
Agreement be so declared invalid, illegal or unenforceable, the parties shall
agree on a valid provision to substitute for it.
SECTION 6.5 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes any existing agreements
between them whether oral or written. In case of a conflict between this
Agreement and a purchase order or purchase order confirmation contemplated
hereunder, the terms of this Agreement shall govern unless the parties otherwise
agree in writing. The terms of this Agreement shall only be amended, modified or
supplemented as set forth herein or in writing signed by or on behalf of each
party.
SECTION 6.6 DRILL STEM CREDITS
(a) Grant Prideco hereby grants to Weatherford and its Affiliates drill
stem purchase credits in the aggregate amount of $30 million, which Weatherford
and its Affiliates may apply against the purchase price of Drill Stem Products
during the term of this Agreement. Weatherford shall utilize such credit by
giving written notice to Grant Prideco at the time of payment of the invoice
relating to the applicable Drill Stem Products, which notice shall set forth the
invoice (or
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related invoices) for which the Drill Stem Credits are being utilized and the
amount of such credit being utilized.
(b) Drill Stem Credits can be utilized to satisfy only up to 20% of the
invoice amount for each applicable invoice, with the remaining invoice amount
being due in accordance with its terms.
(c) On a quarterly basis, Grant Prideco shall provide Weatherford with
a summary of the Drill Stem Credits balance and a statement of activity with
respect to the Drill Stem Credits. The parties shall work in good faith to
reconcile any discrepancies between the parties' records.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
GRANT PRIDECO, INC. WEATHERFORD INTERNATIONAL, INC.
By: By:
-------------------------- --------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
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EXHIBIT 10.5
GRANT PRIDECO, INC.
2000 EMPLOYEE STOCK OPTION
AND RESTRICTED STOCK PLAN
<PAGE> 2
GRANT PRIDECO, INC.
2000 EMPLOYEE STOCK OPTION
AND RESTRICTED STOCK PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
ARTICLE I - PLAN
<S> <C>
Purpose................................................................................................1.1
Effective Date of Plan.................................................................................1.2
ARTICLE II - DEFINITIONS
Affiliate..............................................................................................2.1
Agreement..............................................................................................2.2
Award..................................................................................................2.3
Board of Directors.....................................................................................2.4
Code...................................................................................................2.5
Committee..............................................................................................2.6
Company................................................................................................2.7
Disability.............................................................................................2.8
Employee...............................................................................................2.9
Exchange Act..........................................................................................2.10
Fair Market Value.....................................................................................2.11
Incentive Stock Option................................................................................2.12
Nonqualified Stock Option.............................................................................2.13
Option................................................................................................2.14
Optionee..............................................................................................2.15
Plan..................................................................................................2.16
Restricted Period.....................................................................................2.17
Restricted Stock......................................................................................2.18
Restricted Stock Award................................................................................2.19
Retained Distributions................................................................................2.20
Stock.................................................................................................2.21
Ten Percent Shareholder...............................................................................2.22
ARTICLE III - ELIGIBILITY
ARTICLE IV - STOCK SUBJECT TO THE PLAN
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V - GENERAL PROVISIONS RELATING TO ALL OPTIONS
Authority to Grant Options ............................................................................5.1
Non-Transferability....................................................................................5.2
Changes in the Company's Capital Structure.............................................................5.3
No Rights As a Stockholder.............................................................................5.4
Tax Withholding........................................................................................5.5
ARTICLE VI - VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS
Option Price...........................................................................................6.1
Duration of Options....................................................................................6.2
Maximum Value of Stock Subject to Options Which are Incentive Stock Options............................6.3
Amount Exercisable.....................................................................................6.4
Exercise of Options....................................................................................6.5
Exercise Following Termination of Employment...........................................................6.6
Substitution Options...................................................................................6.7
ARTICLE VII - GENERAL PROVISIONS RELATING TO ALL RESTRICTED STOCK AWARDS
Authority to Grant Awards..............................................................................7.1
Transferability and Rights with Respect to Restricted Stock............................................7.2
Withholding Tax........................................................................................7.3
Changes in Company's Capital Structure.................................................................7.4
ARTICLE VIII - VARIABLE PROVISIONS RELATING TO SPECIFIC RESTRICTED STOCK AWARDS
Vesting of Restricted Stock............................................................................8.1
Consequence of Vesting.................................................................................8.2
ARTICLE IX - REQUIREMENTS OF LAW
ARTICLE X - ADMINISTRATION
ARTICLE XI - AMENDMENT OR TERMINATION OF PLAN
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XII - MISCELLANEOUS
No Establishment of a Trust Fund......................................................................12.1
No Employment Obligation..............................................................................12.2
Written Agreement.....................................................................................12.3
Indemnification of the Committee and the Board of Directors...........................................12.4
Gender................................................................................................12.5
Headings..............................................................................................12.6
Other Compensation Plans..............................................................................12.7
Other Awards..........................................................................................12.8
Section 83(b) Elections...............................................................................12.9
Distribution Agreement Options.......................................................................12.10
Governing Law........................................................................................12.11
</TABLE>
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ARTICLE I
PLAN
1.1 PURPOSE. The Plan is maintained for certain employees of the
Company and its Affiliates and is intended to advance the best interests of the
Company, its Affiliates, and its stockholders by providing those persons who
have substantial responsibility for the management and growth of the Company and
its Affiliates with additional incentives and an opportunity to obtain or
increase their proprietary interest in the Company, thereby encouraging them to
continue in the employ of the Company or any of its Affiliates.
1.2 EFFECTIVE DATE OF PLAN. The Plan is effective on the effective date
of the distribution by Weatherford International, Inc. to its stockholders of
all the outstanding shares of stock of the Company.
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout the Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain. The
term "subsidiary corporation" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the action or transaction, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2.2 "AGREEMENT" means a written agreement setting forth the terms of an
Award.
2.3 "AWARD" means an Option or a Restricted Stock Award granted under
the Plan.
2.4 "BOARD OF DIRECTORS" means the board of directors of the Company.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended.
2.6 "COMMITTEE" means the Compensation Committee of the Board of
Directors or other committee designated by the Board of Directors to administer
the Plan.
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2.7 "COMPANY" means Grant Prideco, Inc.
2.8 "DISABILITY" means a mental or physical disability which, in the
opinion of a physician selected by the Committee, shall prevent the Employee
from earning a reasonable livelihood with the Company or any Affiliate and which
can be expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months and which: (a) was not
contracted, suffered or incurred while the Employee was engaged in, or did not
result from having engaged in, a felonious criminal enterprise; (b) did not
result from alcoholism or addiction to narcotics; and (c) did not result from an
injury incurred while a member of the Armed Forces of the United States for
which the Employee receives a military pension.
2.9 "EMPLOYEE" means a person employed by the Company or any Affiliate.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2.11 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
closing sales price of the Stock on that date on the principal securities
exchange on which the Stock is listed; or (b) if the Stock is not listed on a
securities exchange, the average of the high and low bid quotations for the
Stock on that date as reported by the National Association of Securities Dealers
Automated Quotation National Market System; or (c) if neither of the foregoing
is applicable, an amount determined by the Committee in its sole discretion.
2.12 "INCENTIVE STOCK OPTION" means an Option that is intended by the
Committee to meet the requirements of section 422 of the Code or any successor
provision.
2.13 "NONQUALIFIED STOCK OPTION" means an Option granted pursuant to
the Plan which does not qualify as an Incentive Stock Option.
2.14 "OPTION" means the right to purchase Stock at a price to be
specified and upon terms to be designated by the Committee pursuant to the Plan.
An Option shall be designated by the Committee as an Incentive Stock Option or a
Nonqualified Stock Option.
2.15 "OPTIONEE" means a person to whom an Option is granted.
2.16 "PLAN" means the Grant Prideco, Inc. 2000 Employee Stock Option
and Restricted Stock Plan, as set out in this document and as it may be amended
from time to time.
2.17 "RESTRICTED PERIOD" means the period designated by the Committee
during which Restricted Stock may not be sold, assigned, transferred, pledged,
or otherwise encumbered.
2.18 "RESTRICTED STOCK" means those shares of Stock issued pursuant to
a Restricted Stock Award which are subject to the restrictions, terms, and
conditions set forth in the related Agreement.
2.19 "RESTRICTED STOCK AWARD" means an award of Restricted Stock
pursuant to Section 7.1.
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2.20 "RETAINED DISTRIBUTIONS" means any securities or other property
(other than regular cash dividends) distributed by the Company in respect of
Restricted Stock during any Restricted Period.
2.21 "STOCK" means the common stock of the Company, $.01 par value (or
such other par value as may be designated by act of the Company's stockholders)
or, in the event that the outstanding shares of common stock are later changed
into or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.
2.22 "TEN PERCENT SHAREHOLDER" means an individual who, at the time the
Option is granted, owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any
Affiliate. An individual shall be considered as owning the stock owned, directly
or indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust, shall be
considered as being owned proportionately by or for its stockholders, partners,
or beneficiaries.
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ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Awards shall be those
key employees of the Company or any of its Affiliates as the Committee shall
determine from time to time. The Board of Directors may designate one or more
individuals who shall not be eligible to receive any Awards under the Plan.
ARTICLE IV
STOCK SUBJECT TO THE PLAN
The total amount of the Stock with respect to which Awards may be
granted shall not exceed in the aggregate 10,000,000 shares. The class and
aggregate number of shares which may be subject to the Options granted under the
Plan shall be subject to adjustment under Section 5.4. The class and aggregate
number of shares which may be subject to the Restricted Stock Awards granted
under the Plan shall also be subject to adjustment under Section 7.4. Shares may
be treasury shares or authorized but unissued shares. If any Award under the
Plan shall expire or terminate for any reason without having been exercised in
full, or if any Award shall be forfeited, the shares subject to the unexercised
or forfeited portion of such Award shall again be available for the purposes of
the Plan.
ARTICLE V
GENERAL PROVISIONS RELATING TO ALL OPTIONS
5.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those
employees of the Company or any of its Affiliates, as it shall from time to time
determine, Incentive Stock Options or Nonqualified Stock Options under the terms
and conditions of the Plan. Subject only to any applicable limitations set out
in the Plan, the number of shares of Stock to be covered by any Option to be
granted to an employee of the Company or any of its Affiliates shall be as
determined by the Committee.
5.2 NON-TRANSFERABILITY. Options shall not be transferable by the
Employee otherwise than by will or under the laws of descent and distribution or
pursuant to a domestic relations order, and shall be exercisable, during the
Employee's lifetime, only by the Employee.
5.3 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any
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part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital adjustment of, or the payment of a dividend in capital stock or
other equity securities of the Company on its Stock, or other increase or
reduction of the number of shares of the Stock without receiving consideration
therefor in money, services, or property, or the reclassification of its Stock,
in whole or in part, into other equity securities of the Company, then (a) the
number, class and per share price of shares of Stock subject to outstanding
Options hereunder shall be appropriately adjusted (or in the case of the
issuance of other equity securities as a dividend on, or in a reclassification
of, the Stock, the Options shall extend to such other securities) in such a
manner as to entitle an Optionee to receive, upon exercise of an Option, for the
same aggregate cash consideration, the same total number and class or classes of
shares (or in the case of a dividend of, or reclassification into, other equity
securities, such other securities) he would have held after such adjustment if
he had exercised his Option in full immediately prior to the event requiring the
adjustment, or, if applicable, the record date for determining stockholders to
be affected by such adjustment; and (b) the number and class of shares then
reserved for issuance under the Plan (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) shall be
adjusted by substituting for the total number and class of shares of stock then
received, the number and class or classes of shares of stock (or in the case of
a dividend of, or reclassification into, other equity securities, such other
securities) that would have been received by the owner of an equal number of
outstanding shares of Stock as a result of the event requiring the adjustment.
Comparable rights shall accrue to each Optionee in the event of successive
subdivisions, consolidations, capital adjustments, dividends or
reclassifications of the character described above.
If the Company shall distribute to all holders of its shares of Stock
(including any such distribution made to non-dissenting stockholders in
connection with a consolidation or merger in which the Company is the surviving
corporation and in which holders of shares of Stock continue to hold shares of
Stock after such merger or consolidation) evidences of indebtedness or cash or
other assets (other than cash dividends payable out of consolidated retained
earnings not in excess of, in any one year period, the greater of (a) an amount
per share of Stock equal to $.01 per share of Stock (as the same may be adjusted
from time to time by the Board of Directors to reflect the effect of changes in
capitalization) and (b) two times the aggregate amount of dividends per share
paid during the preceding calendar year and dividends or distributions payable
in shares of Stock or other equity securities of the Company described in the
immediately preceding paragraph, but including stock or other securities of any
corporation or other entity owned by the Company), then in each case the Option
price shall be adjusted by reducing the Option price in effect immediately prior
to the record date for the determination of stockholders entitled to receive
such distribution by the fair market value, as determined in good faith by the
Board of Directors (whose determination shall be described in a statement filed
in the Company's corporate records and be available for inspection by any holder
of an Option) of the portion of the evidence of indebtedness or cash or other
assets so to be distributed applicable to one share of Stock; provided that in
no event shall the Option price be less than the par value of a share of Stock.
In the event such adjustment would result in the Option price being less than
the par value of a share of Stock but for the foregoing proviso, the terms of
the Option shall be appropriately adjusted so as to maintain the economic value
of the Option, including through an adjustment to the number of shares of Stock
subject to the Option and through
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a provision allowing the holder of the Option to receive the evidence of
indebtedness or cash or other assets so to be distributed applicable to one
share of Stock for each share of Stock that may be purchased on the exercise of
the Option. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of the distribution retroactive to
the record date for the determination of the stockholders entitled to receive
such distribution. In addition, in the event the Company distributes shares or
other securities of a subsidiary corporation or other entity to the holders of
the Stock, the Board of Directors may, in lieu of the adjustment provided above,
make provision allowing the holder of the Option to receive the shares or
securities of the corporation or entity that is subject to the distribution.
Comparable adjustments shall be made in the event of successive distributions of
the character described above.
If the Company shall make a tender offer for, or grant to all of its
holders of its shares of Stock the right to require the Company or any
subsidiary of the Company to acquire from such stockholders shares of Stock, at
a price in excess of the Fair Market Value (a "Put Right"), or the Company shall
grant to all of its holders of its shares of Stock the right to acquire shares
of Stock for less than the Fair Market Value (a "Purchase Right") then, in the
case of a Put Right, the Option price shall be adjusted by multiplying the
Option price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such Put Right by a fraction,
the numerator of which shall be the number of shares of Stock then outstanding
minus the number of shares of Stock which could be purchased at the Fair Market
Value for the aggregate amount which would be paid if all Put Rights are
exercised and the denominator of which is the number of shares of Stock which
would be outstanding if all Put Rights are exercised; and, in the case of a
Purchase Right, the Option price shall be adjusted by multiplying the Option
price in effect immediately prior to the record date for the determination of
the stockholders entitled to receive such Purchase Right by a fraction, the
numerator of which shall be the number of shares of Stock then outstanding plus
the number of shares of Stock which could be purchased at the Fair Market Value
for the aggregate amount which would be paid if all Purchase Rights are
exercised and the denominator of which is the number of shares of Stock which
would be outstanding if all Purchase Rights are exercised. In addition, the
number of shares subject to the Option shall be increased by multiplying the
number of shares then subject to the Option by a fraction which is the inverse
of the fraction used to adjust the Option price. Notwithstanding the foregoing,
if any such Put Rights or Purchase Rights shall terminate without being
exercised, the Option price and number of shares subject to the Option shall be
appropriately readjusted to reflect the Option price and number of shares
subject to the Option which would have been in effect if such unexercised Put
Rights or Purchase Rights had never existed. Comparable adjustments shall be
made in the event of successive transactions of the character described above.
After the merger of one or more corporations into the Company, after
any consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company shall be the surviving corporation, each Optionee, at no additional
cost, shall be entitled to receive, upon any exercise of his Option, in lieu of
the number of shares as to which the Option shall then be so exercised, the
number and class of shares of stock or other equity securities to which the
Optionee would have been entitled pursuant to the terms of the agreement of
merger or consolidation if at the time of such merger or consolidation such
Optionee had been a holder of a number of shares of Stock equal to the number of
shares as to which the Option shall then be so exercised and, if as a result of
such merger,
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consolidation or other transaction, the holders of Stock are not entitled to
receive any shares of Stock pursuant to the terms thereof, each Optionee, at no
additional cost, shall be entitled to receive, upon exercise of his Option, such
other assets and property, including cash, to which he would have been entitled
if at the time of such merger, consolidation or other transaction he had been
the holder of the number of shares of Stock equal to the number of shares as to
which the Option shall then be so exercised. Comparable rights shall accrue to
each Optionee in the event of successive mergers or consolidations of the
character described above.
After a merger of the Company into one or more corporations, after any
consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company is not the surviving corporation, each Optionee shall, at no additional
cost, be entitled, at the option of the surviving corporation, (i) to have his
then existing Option assumed or to have a new option substituted for the
existing Option by the surviving corporation to the transaction which is then
employing him, or a parent or subsidiary of such corporation, on a basis where
the excess of the aggregate fair market value of the shares subject to the
option immediately after the substitution or assumption over the aggregate
option price of such option is equal to the excess of the aggregate fair market
value of all shares subject to the Option immediately before such substitution
or assumption over the aggregate Option price of such shares, provided that the
shares subject to the new option must be traded on the New York or American
Stock Exchange or quoted on the National Association of Securities Dealers
Automated Quotation National Market System (or successor system) or (ii) to
receive upon any exercise of his Option, in lieu of the number of shares as to
which the Option shall then be so exercised, the securities, property and other
assets, including cash, to which the Optionee would have been entitled pursuant
to the terms of the agreement or merger or consolidation or the agreement giving
rise to the other corporate transaction if at the time of such merger,
consolidation or other transaction such Optionee had been the holder of the
number of shares of Stock equal to the number of shares as to which the Option
shall then be so exercised.
If a corporate transaction described in section 424(a) of the Code
which involves the Company is to take place and there is to be no surviving
corporation while an Option remains in whole or in part unexercised, it shall be
cancelled by the Board of Directors as of the effective date of any such
corporate transaction but before the date each Optionee shall be provided with a
notice of such cancellation and each Optionee shall have the right to exercise
such Option in full (without regard to any limitations on exercise set forth in
or imposed by the Agreement pursuant to which such Option was granted) to the
extent it is then still unexercised during a 30-day period preceding the
effective date of such corporate transaction.
In the event (i) the Company were to distribute to its stockholders or
otherwise divest of a majority of the stock of a subsidiary corporation that is
the principal employer of the Employee and (ii) following such distribution or
divestment the stock of the subsidiary corporation or any parent corporation of
such subsidiary corporation is listed or authorized for listing on a national
securities exchange or authorized for quotation on the National Association of
Securities Dealers Automated Quotation National Market System (or successor
system), the Board of Directors may, but shall not be required to, adjust the
terms of the Option to provide that such Option shall only represent a right to
purchase shares in such subsidiary corporation or parent corporation and the
number of shares and exercise price will be appropriately adjusted so as to
maintain the economic value of the Option.
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This adjustment would be in lieu of any adjustment that might otherwise be
required under this Section 5.4 for that transaction.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Stock then subject to
outstanding Options.
5.4 NO RIGHTS AS A STOCKHOLDER. No Employee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
5.5 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Employee
(or other person exercising the Option) to pay the sum directly to the employer
corporation. If the Employee (or other person exercising the Option) is required
to pay the sum directly, payment in cash or by check of such sums for taxes
shall be delivered within ten days after the date of exercise. The Company shall
have no obligation upon exercise of any Option until payment has been received,
unless withholding (or offset against a cash payment) as of or prior to the date
of exercise is sufficient to cover all sums due with respect to that exercise.
The Company and its Affiliates shall not be obligated to advise an Employee of
the existence of the tax or the amount which the employer corporation will be
required to withhold. The Company may also allow for the retention of shares of
Stock issuable upon the exercise of an Option to satisfy such withholding as
specified in Section 6.4.
ARTICLE VI
VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS
6.1 OPTION PRICE. The price at which shares of Stock may be purchased
under a Nonqualified Stock Option shall not be less than the aggregate par value
of the shares of Stock on the date the Nonqualified Stock Option is granted. The
Committee in its discretion may provide that the price at which shares of Stock
may be purchased under a Nonqualified Stock Option may be more or less than 100
percent of Fair Market Value on the date the Option is granted.
The price at which shares of Stock may be purchased under an Incentive
Stock Option shall be not less than the Fair Market Value of the shares of Stock
on the date the Incentive Stock Option is granted. However, in the case of a Ten
Percent Shareholder, the price at which shares of Stock may be purchased under
an Incentive Stock Option shall be at least 110 percent of the Fair Market Value
of the Stock on the date the Option is granted.
6.2 DURATION OF OPTIONS. No Option which is an Incentive Stock Option
shall be exercisable after the expiration of ten years from the date such Option
is granted. In the case of a
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Ten Percent Shareholder, no Incentive Stock Option shall be exercisable after
the expiration of five years from the date the Incentive Stock Option is
granted. Unless otherwise provided in an Agreement, no Nonqualified Stock Option
shall be exercisable after one day less than ten years from the date such Option
first becomes exercisable.
6.3 MAXIMUM VALUE OF STOCK SUBJECT TO OPTIONS WHICH ARE INCENTIVE STOCK
OPTIONS. To the extent that the aggregate Fair Market Value (determined as of
the date the Option is granted) of the Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee in any calendar
year (under the Plan and any other incentive stock option plan(s) of the Company
and any Affiliate) exceeds $100,000, the Options shall be treated as
Nonqualified Stock Options. In making this determination, Options shall be taken
into account in the order in which they were granted.
6.4 AMOUNT EXERCISABLE - INCENTIVE OPTIONS. Each Option may be exercised
from time to time, in whole or in part, in the manner and subject to the
conditions the Committee, in its sole discretion, may provide in the Agreement,
as long as the Option is valid and outstanding under the terms of the Plan. To
the extent that the aggregate Fair Market Value (determined as of the time an
Incentive Option is granted) of the Stock with respect to which Incentive
Options first become exercisable by the Employee during any calendar year (under
the Plan and any other incentive stock option plan(s) of the Company or any
Affiliate) exceeds $100,000, the Incentive Options shall be treated as
Nonqualified Stock Options. In making this determination, Incentive Stock
Options shall be taken into account in the order in which they were granted.
Unless otherwise provided in an Agreement, (a) in the case of death or
Disability within three years of the date of grant, while the Optionee is an
Employee, each Option shall become immediately exercisable as described in
Section 6.6, and (b) in the case of retirement by an Employee within three years
of the date of grant, each Option shall become exercisable as described in
Section 6.6.
6.5 EXERCISE OF OPTIONS. An Optionee may exercise his Option by
delivering to the Company a written notice stating (i) that he wishes to
exercise the Option on the date the notice is delivered, (ii) the number of
shares of Stock with respect to which the Option is to be exercised, (iii) the
address to which the certificate representing such shares of Stock should be
mailed, and (iv) his social security number. In order to be effective, such
written notice shall be accompanied by (i) payment of the Option price of such
shares of Stock and (ii) payment of an amount of money necessary to satisfy any
withholding tax liability that may result from the exercise of the Option. Each
such payment shall be made by cashier's check drawn on a national banking
association and payable to the order of the Company in United States dollars.
Unless otherwise provided in an Agreement, if, at the time of receipt
by the Company of such written notice, (i) the Company has unrestricted surplus
in an amount not less than the Option price of such shares of Stock, (ii) all
accrued cumulative preferential dividends and other current preferential
dividends on all outstanding shares of preferred stock of the Company have been
fully paid, (iii) the acquisition by the Company of its own shares of Stock for
the purpose of enabling such Optionee to exercise such Option is otherwise
permitted by applicable law and without any vote or consent of any stockholder
of the Company, and (iv) there shall have been adopted, and there shall be in
full force and effect, a resolution of the Board of Directors authorizing the
acquisition by the Company of its own shares of Stock for such purpose, then the
Optionee may deliver to the
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Company, in payment of the Option price of the shares of Stock with respect to
which the Option is exercised, (x) certificates registered in the name of the
Optionee that represent a number of shares of Stock legally and beneficially
owned by the Optionee (free of all liens, claims and encumbrances of every kind)
and having a fair market value on the date of receipt by the Company of such
written notice that is not greater than the Option price of the shares of Stock
with respect to which the Option is to be exercised, such certificates to be
accompanied by stock powers duly endorsed in blank by the record holder of the
shares of Stock represented by such certificates, with the signature of such
record holder guaranteed by a national banking association (or in lieu of such
certificates, other arrangements for the transfer of such shares to the Company
which are satisfactory to the Company), and (y) if the Option price of the
shares of Stock with respect to which such Option is to be exercised exceeds
such fair market value, a cashier's check drawn on a national banking
association and payable to the order of the Company in an amount, in United
States dollars, equal to the amount of such excess plus the amount of money
necessary to satisfy any withholding tax liability that may result from the
exercise of the Option. Notwithstanding the provisions of the immediately
preceding sentence, the Committee, in its sole discretion, may refuse to accept
shares of Stock in payment of the Option price of the shares of Stock with
respect to which the Option is to be exercised and, in that event, any
certificates representing shares of Stock that were received by the Company with
such written notice shall be returned to the Optionee, together with notice by
the Company to the Optionee of the refusal of the Committee to accept such
shares of Stock. Unless otherwise provided in the Agreement, the Company, upon
approval of the Committee and in its sole discretion, upon the request of the
Optionee, may retain shares of Stock which would otherwise be issued upon
exercise of an Option to satisfy any withholding tax liability that may result
from the exercise of such Option, which shares shall be valued for such purpose
at their then Fair Market Value. If, at the expiration of seven business days
after the delivery to the Optionee of such written notice from the Company, the
Optionee shall not have delivered to the Company a cashier's check drawn on a
national banking association and payable to the order of the Company in an
amount, in United States dollars, equal to the Option price of the shares of
Stock with respect to which the Option is to be exercised, such written notice
from the Optionee to the Company shall be ineffective to exercise the Option.
As promptly as practicable after the receipt by the Company of (i) such
written notice from the Optionee, (ii) payment, in the form required by the
foregoing provisions of this Section 6.4, of the Option price of the shares of
Stock with respect to which the Option is to be exercised, and (iii) payment, in
the form required by the foregoing provisions of this Section 6.4, of an amount
of money necessary to satisfy any withholding tax liability that may result from
the exercise of the Option, a certificate shall be issued representing the
number of shares of Stock with respect to which the Option has been so
exercised, reduced, to the extent applicable by the number of shares retained by
the Company as provided above to pay any required withholding tax, such
certificate to be registered in the name of the Optionee, provided that such
delivery shall be considered to have been made when such certificate shall have
been mailed, postage prepaid, to such optionee at the address specified for such
purpose in such written notice from the Optionee to the Company.
6.6 EXERCISE FOLLOWING TERMINATION OF EMPLOYMENT. Unless it is
expressly provided otherwise in the Agreement or other written agreement with
the Employee that provides otherwise, an Option shall terminate as follows,
provided, however, if an Incentive Stock Option is not
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exercised within specified time limits prescribed by the Code, it shall become a
Nonqualified Stock Option by operation of law:
SEVERANCE OF EMPLOYMENT. If the Employee severs employment from the
Company and all Affiliates prior to three years from the date his Option was
granted, for any reason, with or without cause, other than for death, retirement
under the then-established rules of the Company, or as a result of his incurring
a Disability, his Option shall terminate and be immediately forfeited. If the
Employee severs employment from the Company and all Affiliates for any reason,
with or without cause, other than for death, retirement under the
then-established rules of the Company, or as a result of his incurring a
Disability on or after three years from the date his Option was granted, the
Option shall continue in effect until the date the Option is otherwise due to
expire in accordance with Section 6.2. Whether authorized leave of absence or
absence on military or government service shall constitute severance of the
employment of the Employee shall be determined by the Committee at that time.
In determining the employment relationship between the Company and the
Employee, employment by any Affiliate shall be considered employment by the
Company, as shall employment by a corporation issuing or assuming a stock option
in a transaction to which section 424(a) of the Code applies, or by a parent
corporation or subsidiary corporation of the corporation issuing or assuming a
stock option (and for this purpose, the phrase "corporation issuing or assuming
a stock option" shall be substituted for the word "Company" in the definitions
of parent corporation and subsidiary corporation in Section 2.1, and the
parent-subsidiary relationship shall be determined at the time of the corporate
action described in section 424(a) of the Code).
DEATH. If the Employee dies prior to three years from the date his
Option was granted, the Option shall continue in effect until ten years
following the date of the Employee's death. If the Employee dies on or after
three years from the date his Option was granted, the Option shall continue in
effect until the date the Option is otherwise due to expire in accordance with
Section 6.2. After the death of the Employee, the Employee's executors,
administrators or any persons to whom his Option may be transferred by will or
by the laws of descent and distribution shall have the right, at any time prior
to the Option's expiration to exercise it.
RETIREMENT. If the Employee retires in good standing from the employ of
the Company under the then-established rules of the Company, prior to three
years from the date his Option was granted, the Employee shall become entitled
to exercise that portion of his Option determined by multiplying the number of
shares of Stock subject to the Option by a fraction, the numerator of which is
the Employee's total whole years of service since the Option was granted and the
denominator of which is three. To the extent that the Option is exercisable
under the preceding sentence, the Option shall be exercisable until ten years
following the date of the Employee's retirement in accordance with this Section
6.5, and the remainder of the Option shall terminate immediately. If the
Employee retires in good standing from the employ of the Company under the
then-established rules of the Company on or after three years from the date his
Option was granted, such Option shall continue until the date the Option is
otherwise due to expire in accordance with Section 6.2.
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DISABILITY. If the Employee severs from the employ of the Company as a
result of his incurring a Disability prior to three years from the date his
Option was granted, the Option shall be immediately exercisable and shall
continue in effect until ten years following the date he was severed from the
employ of the Company due to Disability. If the Employee severs from the employ
of the Company due to his Disability on or after three years from the date his
Option was granted, the Option shall continue in effect until the date the
Option is otherwise due to expire in accordance with Section 6.2.
6.7 SUBSTITUTION OPTIONS. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of the Company, or whose employer
is about to become a parent or subsidiary corporation of the Company,
conditioned upon the employee becoming an employee of the Company or a parent or
subsidiary corporation of the Company, as a result of the merger or
consolidation of the Company with another corporation, or the acquisition by the
Company of substantially all the assets of another corporation, or the
acquisition by the Company of at least 50 percent of the issued and outstanding
stock of another corporation as the result of which it becomes a subsidiary of
the Company. The terms and conditions of the substitute Options so granted may
vary from the terms and conditions set forth in the Plan to such extent as the
Board of Directors at the time of grant may deem appropriate to conform, in
whole or in part, to the provisions of the stock options in substitution for
which they are granted.
ARTICLE VII
GENERAL PROVISIONS RELATING TO ALL RESTRICTED STOCK AWARDS
7.1 AUTHORITY TO GRANT AWARDS. The Committee may make an Award of
Restricted Stock to selected eligible Employees. The amount of each Restricted
Stock Award and the respective terms and conditions of each Award (which terms
and conditions need not be the same in each case) shall be determined by the
Committee in its sole discretion. However, the terms and conditions of an Award
shall not be inconsistent with the terms of the Plan.
7.2 TRANSFERABILITY AND RIGHTS WITH RESPECT TO RESTRICTED STOCK. Except
as provided herein, Restricted Stock may not be sold, assigned, transferred,
pledged, or otherwise encumbered during a Restricted Period. Any attempted sale,
assignment, transfer, pledge or encumbrance of Restricted Stock in violation of
the Plan shall be void and the Company shall not be bound thereby.
During the Restricted Period, certificates representing the Restricted
Stock and any Retained Distributions shall be registered in the recipient's name
and may bear a restrictive legend to the effect that ownership of such
Restricted Stock (and any such Retained Distributions), and the enjoyment of all
rights appurtenant thereto are subject to the restrictions, terms, and
conditions provided in the Plan and the applicable Agreement. Such certificates
shall be deposited by the recipient with the Company, together with stock powers
or other instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock and any
securities constituting Retained Distributions which shall be forfeited in
accordance
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with the Plan and the applicable Agreement. Restricted Stock shall constitute
issued and outstanding shares of Stock for all corporate purposes.
Subject to the terms of the Plan and the Agreement with respect to the
Award, the recipient shall have the right to vote the Restricted Stock awarded
to such recipient and to receive and retain all regular cash dividends, and to
exercise all other rights, powers and privileges of a holder of Stock, with
respect to such Restricted Stock, with the exception that (i) the recipient
shall not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the restrictions applicable thereto
shall have expired, (ii) the Company shall retain custody of all Retained
Distributions made or declared with respect to the Restricted Stock (and such
Retained Distributions shall be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid, or declared shall have become vested, and such Retained
Distributions shall not bear interest or be segregated in separate accounts and
(iii) the recipient may not sell, assign, transfer, pledge, exchange, encumber,
or dispose of the Restricted Stock or any Retained Distributions during the
Restricted Period. Nothing in this Section shall prevent transfers by will or by
the applicable laws of descent and distribution.
7.3 WITHHOLDING TAX. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state or local tax law to be withheld with respect to Restricted Stock
Awards hereunder; or the Company may require the Employee to pay such sums
directly to the employer corporation.
The Company may meet its tax withholding obligations under the Code and
applicable state or local law arising upon the vesting of Restricted Stock by
delivering to the Restricted Stock recipient (or his estate, if applicable) a
reduced number of shares of Stock in the manner specified below. At the time of
vesting of shares of Restricted Stock, the Company shall (i) calculate the
amount of withholding tax due on the assumption that all such vested shares of
Restricted Stock are made available for delivery, (ii) reduce the number of such
shares made available for delivery so that the Fair Market Value of the shares
withheld on the vesting date approximates the amount of tax the Company is
obliged to withhold and (iii) in lieu of the withheld shares, remit cash to the
United States Treasury and other applicable governmental authorities, on behalf
of the participant, in the amount of the withholding tax due. The Company shall
withhold only whole shares of Stock to satisfy its withholding obligation. If
the Fair Market Value of the withheld shares does not equal Company's
withholding tax obligation, the Company shall withhold shares with a Fair Market
Value slightly in excess of the amount of its withholding obligation and shall
remit the excess cash to the Restricted Stock Award recipient (or his estate, if
applicable) with the shares of Stock made available for delivery. The withheld
shares of Restricted Stock not made available for delivery by the Company shall
be retained as treasury stock or will be cancelled and, in either case, the
recipient's right, title and interest in such Restricted Stock shall terminate.
7.4 CHANGES IN COMPANY'S CAPITAL STRUCTURE. In the event that the
issued and outstanding shares of Stock should, as a result of any stock
dividend, stock split or spin-off, recapitalization, combination or exchange of
shares, merger, consolidation, acquisition of property or stock, separation,
reclassification, reorganization, liquidation, or other similar event, be
increased or decreased or changed into or exchanged for a different number or
kind of share of stock or other
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<PAGE> 18
securities of the Company or of another corporation, the number and class of
additional shares or other securities which may be issued pursuant to Restricted
Stock Awards under the Plan will be appropriately adjusted by the Committee to
reflect such action. If any adjustment shall result in a fractional share, the
fraction shall be disregarded.
ARTICLE VIII
VARIABLE PROVISIONS RELATING TO SPECIFIC RESTRICTED STOCK AWARDS
8.1 VESTING OF RESTRICTED STOCK. Restricted Stock Awards shall be
subject to such vesting restrictions, if any, as the Committee shall determine
in its sole discretion. The vesting restrictions shall be specified in the
Agreements relating to the Awards.
8.2 CONSEQUENCE OF VESTING. Subject to Article IX, when shares of
Restricted Stock become vested, the Restricted Period shall be terminated as to
those shares, and the Company shall deliver to the Restricted Stock Award
recipient (or his estate, if applicable) a Stock certificate representing those
shares and all Retained Distributions made or declared with respect to those
shares, reduced as necessary to satisfy the Company's tax withholding
obligation.
ARTICLE IX
REQUIREMENTS OF LAW
The Company shall not be required to sell, issue or deliver any shares
of Stock under any Award if such sale, issuance or delivery shall constitute a
violation by the Award recipient or the Company of any provisions of any law or
regulation of any governmental authority. Each Award granted under the Plan
shall be subject to the requirements that, if at any time the Board of Directors
or the Committee shall determine that the listing, registration or qualification
of the shares upon any securities exchange or under any state or federal law of
the United States or of any other country or governmental subdivision, or the
consent or approval of any governmental regulatory body, or investment or other
representations, are necessary or desirable in connection with the issue, or
purchase or delivery of shares subject to an Award, that Award shall not be
exercised in whole or in part and no shares shall be delivered pursuant to an
Award unless the listing, registration, qualification, consent, approval or
representations shall have been effected or obtained free of any conditions not
acceptable to the Committee. Any determination in this connection by the
Committee shall be final. In the event the shares issuable or deliverable on
exercise or vesting of an Award are not registered under the Securities Act of
1933, the Company may imprint on the certificate for those shares the following
legend or any other legend which counsel for the Company considers necessary or
advisable to comply with the Securities Act of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any state and may not be sold or transferred except upon
registration or upon receipt by the Corporation of an
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<PAGE> 19
opinion of counsel satisfactory to the Corporation, in form and
substance satisfactory to the Corporation, that registration is not
required for a sale or transfer."
The Company may, but shall in no event be obligated to, register any securities
covered by the Plan under the Securities Act of 1933 (as now in effect or as
later amended) and, in the event any shares are registered, the Company may
remove any legend on certificates representing those shares. The Company shall
not be obligated to take any other affirmative action in order to cause the
exercise of an Award or the issuance or delivery of shares under the Award to
comply with any law or regulation or any governmental authority.
ARTICLE X
ADMINISTRATION
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan and Options shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. The Plan shall be
administered in such a manner as to permit the Options granted under it which
are designated to be Incentive Options to qualify as Incentive Options. In
carrying out its authority under the Plan, subject to the express terms of any
outstanding Option or other agreement with an Employee, the Committee shall have
full and final authority and discretion, including but not limited to the
following rights, powers and authorities, to:
(a) determine the Employees to whom and the time or times at
which Options will be made,
(b) determine the number of shares and the purchase price of
Stock covered in each Option, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of each
Option, which need not be identical,
(d) accelerate the time at which any outstanding Option may be
exercised,
(e) define the effect, if any, on an Option of the death,
Disability, retirement, or termination of employment of the Employee,
(f) prescribe, amend and rescind rules and regulations
relating to administration of the Plan, and
(g) make all other determinations and take all other actions
deemed necessary, appropriate, or advisable for the proper
administration of the Plan.
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<PAGE> 20
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of the Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
ARTICLE XI
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors may amend, terminate or suspend the Plan at any
time, in its sole and absolute discretion subject to the rights of holders of
outstanding Awards at the time of such amendment, termination or suspension.
ARTICLE XII
MISCELLANEOUS
12.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside
nor shall a trust fund of any kind be established to secure the rights of any
Employee under the Plan. All Employees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.
12.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option has been granted to him.
The decision of the Committee as to the cause of the Employee's
discharge, the damage done to the Company or an Affiliate, and the extent of the
Employee's competitive activity shall be final. No decision of the Committee,
however, shall affect the finality of the discharge of the Employee by the
Company or an Affiliate in any manner.
12.3 WRITTEN AGREEMENT. Each Award shall be embodied in a written
Agreement which shall be subject to the terms and conditions of the Plan and
shall be signed by the Employee and the Company. The Agreement may contain any
other provisions that the Committee in its discretion shall deem advisable.
12.4 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of the Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors against, and each
member of the Committee and the Board of Directors shall be entitled without
further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or
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<PAGE> 21
proceeding in which he may be involved by reason of his being or having been a
member of the Committee and/or the Board of Directors, whether or not he
continues to be a member of the Committee and/or the Board of Directors at the
time of incurring the expenses--including, without limitation, matters as to
which he shall be finally adjudged in any action, suit or proceeding to have
been found to have been negligent in the performance of his duty as a member of
the Committee or the Board of Directors. However, this indemnity shall not
include any expenses incurred by any member of the Committee and/or the Board of
Directors in respect of matters as to which he shall be finally adjudged in any
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Committee or the
Board of Directors. In addition, no right of indemnification under the Plan
shall be available to or enforceable by any member of the Committee and the
Board of Directors unless, within 60 days after institution of any action, suit
or proceeding, he shall have offered the Company, in writing, the opportunity to
handle and defend same at its own expense. This right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each member of
the Committee and the Board of Directors and shall be in addition to all other
rights to which a member of the Committee and the Board of Directors may be
entitled as a matter of law, contract, or otherwise.
12.5 GENDER. If the context requires, words of one gender when used in
the Plan shall include the others and words used in the singular or plural shall
include the other.
12.6 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
12.7 OTHER COMPENSATION PLANS. The maintenance of the Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
or arrangements, including any employment, change of control or severance
agreements, in effect with or for the Company or any Affiliate, nor shall the
maintenance of the Plan preclude the Company from establishing any other forms
of incentive or other compensation for employees of the Company or any
Affiliate.
12.8 OTHER AWARDS. The grant of an Award shall not confer upon the
Employee the right to receive any future or other Awards under the Plan, whether
or not Awards may be granted to similarly situated Employees, or the right to
receive future Awards upon the same terms or conditions as previously granted.
12.9 SECTION 83(b) ELECTIONS. No Employee shall exercise the election
permitted under section 83(b) of the Code with respect to an Award without
written approval of the chief financial officer of the Company. If the Committee
permits such an election with respect to any Award, the Company shall require
the Award recipient to pay the Company an amount necessary to satisfy the
Company's tax withholding obligation.
12.10 DISTRIBUTION AGREEMENT OPTIONS. Notwithstanding any other
provision of the Plan, Nonqualified Stock Options may be granted under the Plan
in accordance with the Distribution Agreement by and between Weatherford
International, Inc. and the Company (the "Distribution Agreement") whether or
not the persons to whom such Nonqualified Stock Options are granted are
Employees. For the purpose of any Nonqualified Stock Option granted pursuant to
this Section
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<PAGE> 22
12.10, employment with either the Company and any of its Affiliates or
Weatherford International, Inc. and any of its subsidiaries or other affiliates
will satisfy any condition to continuing employment where discontinued
employment would cause the Nonqualified Stock Option to terminate.
12.11 GOVERNING LAW. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Texas.
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<PAGE> 1
EXHIBIT 10.6
GRANT PRIDECO, INC.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<PAGE> 2
GRANT PRIDECO, INC.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
ARTICLE I - DEFINITIONS
<S> <C>
Board of Directors.................................................1.1
Company............................................................1.2
Date of Grant......................................................1.3
Disability.........................................................1.4
Fair Market Value..................................................1.5
Non-Employee Director..............................................1.6
Option.............................................................1.7
Option Agreement...................................................1.8
Optionee...........................................................1.9
Plan..............................................................1.10
Retire or Retirement .............................................1.11
Stock.............................................................1.12
ARTICLE II - PROVISIONS RELATING TO SPECIFIC OPTIONS
Automatic Grants Every Three Years.................................2.1
Automatic Grants for New Directors.................................2.2
Automatic Grants Upon the Spin-Off.................................2.3
ARTICLE III - GENERAL PROVISIONS RELATING TO ALL OPTIONS
Dedicated Shares...................................................3.1
Option Price.......................................................3.2
Amount Exercisable.................................................3.3
Exercise of Options................................................3.4
Non-Transferability................................................3.5
Requirements of Law................................................3.6
Changes in the Company's Capital Structure.........................3.7
Form of Options....................................................3.8
Written Agreement..................................................3.9
No Rights as Stockholder..........................................3.10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - AMENDMENT OR TERMINATION OF PLAN
ARTICLE V - MISCELLANEOUS
No Retention Obligation............................................5.1
Taxes..............................................................5.2
Gender.............................................................5.3
Headings...........................................................5.4
Other Compensation.................................................5.5
Other Options......................................................5.6
Governing Law......................................................5.7
</TABLE>
<PAGE> 4
GRANT PRIDECO, INC.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
This Grant Prideco, Inc. 2000 Non-Employee Director Stock Option Plan
(the "Plan") is adopted for the benefit of the directors of Grant Prideco, Inc.,
a Delaware corporation (the "Company") who, at the time of their service, are
not employees of the Company or any of its subsidiaries. The Plan is intended to
advance the interest of the Company by providing such directors with an
additional incentive to serve the Company by increasing their proprietary
interest in the success of the Company. The Plan is effective on the effective
date of the distribution by Weatherford International, Inc. to its stockholders
of all the outstanding shares of stock of the Company.
<PAGE> 5
ARTICLE I
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
1.1 "BOARD OF DIRECTORS" means the board of directors of the Company.
1.2 "COMPANY" means Grant Prideco, Inc., a Delaware corporation.
1.3 "DATE OF GRANT" means the date on which an Option is granted to a
Non-Employee Director.
1.4 "DISABILITY" means a mental or physical disability of the Optionee
which, in the opinion of a physician selected by the President of the Company,
(i) shall prevent the Optionee from adequately performing his services as a
director of the Company and (ii) can be expected to result in death or has
lasted or can be expected to last for a continuous period of not less than 12
months.
1.5 "FAIR MARKET VALUE" of the Stock as of any date means the closing
sale price of the Stock on that date (or, if there was no sale on such date, the
next preceding date on which there was such a sale) on the principal national
securities exchange on which the Stock is listed.
1.6 "NON-EMPLOYEE DIRECTOR" means a director of the Company who, while
a director, is not an employee of the Company, or a corporation, of which a
majority of voting securities is owned, directly or indirectly, by the Company.
1.7 "OPTION" means an option or warrant granted under this Plan to
purchase shares of Stock.
1.8 "OPTION AGREEMENT" means the written agreement which sets out the
terms of an Option.
1.9 "OPTIONEE" means a person who is granted an Option under this Plan.
1.10 "PLAN" means the Grant Prideco, Inc. 2000 Non-Employee Director
Stock Option Plan, as set out in this document and as it may be amended from
time to time.
1.11 "RETIRE" or "RETIREMENT" means the cessation of an Optionee's
services as a director on the Board of Directors under the then-established
retirement rules of the Board of Directors.
1.12 "STOCK" means the common stock of the Company, $.01 par value.
I-1
<PAGE> 6
ARTICLE II
PROVISIONS RELATING TO SPECIFIC OPTIONS
2.1 AUTOMATIC GRANTS EVERY THREE YEARS. Subject to the availability
under the Plan of a sufficient number of shares of Stock that may be issued upon
the exercise of outstanding Options, on every third annual meeting of the
Company's stockholders that occurs while the Plan is in effect, each person who
is then a Non-Employee Director shall be granted on each such date an Option to
purchase 60,000 shares of Stock.
2.2 AUTOMATIC GRANTS FOR NEW DIRECTORS. Subject to the availability
under the Plan of a sufficient number of shares of Stock that may be issued upon
the exercise of outstanding Options, upon his initial election to serve as a
director of the Company, a Non-Employee Director who was not granted an Option
pursuant to Section 2.3 shall be granted an Option to purchase 60,000 shares of
Stock. Upon the receipt of an Option under the Plan pursuant to this Section
2.2, the Optionee shall not be eligible to receive another Option for new
Non-Employee Directors pursuant to this Section 2.2. Nothing in this Section 2.2
shall affect the eligibility of an Optionee to receive an Option pursuant to
Section 2.1.
2.3 AUTOMATIC GRANTS UPON THE SPIN-OFF. Each person who is a
Non-Employee Director on the date as of which the distribution by Weatherford
International, Inc. to its stockholders of all the outstanding shares of stock
of the Company (the "Spin-Off Date") shall, upon the Spin-Off Date, be granted
an Option to purchase 60,000 shares of Stock.
II-1
<PAGE> 7
ARTICLE III
GENERAL PROVISIONS RELATING TO ALL OPTIONS
3.1 DEDICATED SHARES. The total number of shares of Stock with respect
to which Options may be granted under the Plan shall be 780,000 shares. The
shares may be treasury shares or authorized but unissued shares. The number of
shares stated in this Section 3.1 shall be subject to adjustment in accordance
with the provisions of Section 3.7.
If any outstanding Option expires or terminates for any reason or any
Option is surrendered, the shares of Stock allocable to the unexercised portion
of that Option may again be subject to an Option under the Plan.
3.2 OPTION PRICE. The price for which Stock may be purchased under an
Option shall be 100 percent of the Fair Market Value of the Stock on the Date of
Grant.
3.3 AMOUNT EXERCISABLE. Each Option Agreement shall contain the
following terms of exercise:
(a) Except as specified below, an Option may not be exercised
until the Optionee has served as a director of the Company for three
years following the Date of Grant.
(b) If the Non-Employee Director ceases to serve on the Board
of Directors prior to three years from the Date of Grant, for any
reason, with or without cause, other than for death, Retirement, or
severance for Disability, the Option shall terminate and be immediately
forfeited. If the Non-Employee Director ceases to serve on the Board of
Directors for any reason, with or without cause, other than for death,
Retirement, or severance for Disability on or after three years from
the Date of Grant, the Option shall continue in effect until ten years
from the Date of Grant.
(c) If the Non-Employee Director dies prior to three years
from the Date of Grant, the Option shall be immediately exercisable and
shall continue in effect until ten years following the date of his
death. If the Non-Employee Director dies on or after three years from
the Date of Grant, the Option shall continue in effect until ten years
from the Date of Grant. After the death of the Non-Employee Director,
his executors, administrators or any persons to whom the Option may be
transferred by will or by the laws of descent and distribution shall
have the right, at any time prior to the Option's expiration to
exercise it.
(d) If the Non-Employee Director Retires prior to three years
from the Date of Grant, he shall become entitled to exercise that
portion of the Option determined by multiplying the number of shares of
Stock subject to the Option by a fraction, the numerator of which is
his total whole years of service as a director of the
III-1
<PAGE> 8
Company since the Date of Grant and the denominator of which is three.
To the extent that the Option is exercisable under the preceding
sentence, the Option shall be exercisable until ten years following the
date of the Non-Employee Director's Retirement and the remainder of the
Option shall terminate immediately. If the Non-Employee Director
Retires on or after three years from the Date of Grant, the Option
shall continue until ten years from the Date of Grant.
(e) If the Non-Employee Director ceases to be a director of
the Company due to Disability prior to three years from the Date of
Grant, the Option shall be immediately exercisable and shall continue
in effect until ten years following the date the Non-Employee Director
ceased to be a director of the Company due to a Disability. If the
Non-Employee Director ceases to be a director of the Company due to
Disability on or after three years from the Date of Grant, the Option
shall continue in effect until ten years from the Date of Grant.
3.4 EXERCISE OF OPTIONS. An Optionee may exercise his Option by
delivering to the Company a written notice stating (i) that he wishes to
exercise the Option on the date the notice is delivered, (ii) the number of
shares of Stock with respect to which the Option is to be exercised, (iii) the
address to which the certificate representing such shares of Stock should be
mailed, and (iv) his social security number. In order to be effective, such
written notice shall be accompanied by (i) payment of the Option price of such
shares of Stock and (ii) payment of an amount of money necessary to satisfy any
withholding tax liability that may result from the exercise of the Option. Each
such payment shall be made by cashier's check drawn on a national banking
association and payable to the order of the Company in United States dollars.
Unless otherwise provided in an Agreement, if, at the time of receipt
by the Company of such written notice, (i) the Company has unrestricted surplus
in an amount not less than the Option price of such shares of Stock, (ii) all
accrued cumulative preferential dividends and other current preferential
dividends on all outstanding shares of preferred stock of the Company have been
fully paid, (iii) the acquisition by the Company of its own shares of Stock for
the purpose of enabling such Optionee to exercise such Option is otherwise
permitted by applicable law and without any vote or consent of any stockholder
of the Company, and (iv) there shall have been adopted, and there shall be in
full force and effect, a resolution of the Board of Directors authorizing the
acquisition by the Company of its own shares of Stock for such purpose, then the
Optionee may deliver to the Company, in payment of the Option price of the
shares of Stock with respect to which the Option is exercised, (x) certificates
registered in the name of the Optionee that represent a number of shares of
Stock legally and beneficially owned by the Optionee (free of all liens, claims
and encumbrances of every kind) and having a fair market value on the date of
receipt by the Company of such written notice that is not greater than the
Option price of the shares of Stock with respect to which the Option is to be
exercised, such certificates to be accompanied by stock powers duly endorsed in
blank by the record holder of the shares of Stock represented by such
certificates, with the signature of such record holder guaranteed by a national
banking association (or in lieu of such certificates, other arrangements for the
transfer of such shares to the Company which are satisfactory to the Company),
and (y) if the Option price of the shares of Stock with respect to which such
Option is to be exercised exceeds such fair market value, a cashier's check
drawn on a national banking
III-2
<PAGE> 9
association and payable to the order of the Company in an amount, in United
States dollars, equal to the amount of such excess plus the amount of money
necessary to satisfy any withholding tax liability that may result from the
exercise of the Option. Notwithstanding the provisions of the immediately
preceding sentence, the Committee, in its sole discretion, may refuse to accept
shares of Stock in payment of the Option price of the shares of Stock with
respect to which the Option is to be exercised and, in that event, any
certificates representing shares of Stock that were received by the Company with
such written notice shall be returned to the Optionee, together with notice by
the Company to the Optionee of the refusal of the Committee to accept such
shares of Stock. Unless otherwise provided in the Agreement, the Company, upon
approval of the Committee and in its sole discretion, upon the request of the
Optionee, may retain shares of Stock which would otherwise be issued upon
exercise of an Option to satisfy any withholding tax liability that may result
from the exercise of such Option, which shares shall be valued for such purpose
at their then Fair Market Value. If, at the expiration of seven business days
after the delivery to the Optionee of such written notice from the Company, the
Optionee shall not have delivered to the Company a cashier's check drawn on a
national banking association and payable to the order of the Company in an
amount, in United States dollars, equal to the Option price of the shares of
Stock with respect to which the Option is to be exercised, such written notice
from the Optionee to the Company shall be ineffective to exercise the Option.
As promptly as practicable after the receipt by the Company of (i) such
written notice from the Optionee, (ii) payment, in the form required by the
foregoing provisions of this Section 3.4, of the Option price of the shares of
Stock with respect to which the Option is to be exercised, and (iii) payment, in
the form required by the foregoing provisions of this Section 3.4, of an amount
of money necessary to satisfy any withholding tax liability that may result from
the exercise of the Option, a certificate shall be issued representing the
number of shares of Stock with respect to which the Option has been so
exercised, reduced, to the extent applicable by the number of shares retained by
the Company as provided above to pay any required withholding tax, such
certificate to be registered in the name of the Optionee, provided that such
delivery shall be considered to have been made when such certificate shall have
been mailed, postage prepaid, to such optionee at the address specified for such
purpose in such written notice from the Optionee to the Company.
3.5 NON-TRANSFERABILITY. Except as expressly provided otherwise in an
Optionee's Option Agreement, Options shall not be transferable by the Optionee
otherwise than by will or under the laws of descent and distribution, and shall
be exercisable, during the Optionee's lifetime, only by him.
3.6 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any shares on the exercise of the Option if the issuance of such shares
shall constitute a violation by the Non- Employee Director or the Company of any
provisions of any law or regulation of any governmental authority. The Option
shall be subject to the requirements that, if at any time the Board of Directors
shall determine that the listing, registration or qualification of the shares
subject thereto upon any securities exchange or under any state or federal law
of the United States or of any other country or governmental subdivision
thereof, or the consent or approval of any governmental regulatory body, or
investment or other representations, are necessary or desirable in connection
with the issue or purchase of shares subject thereto, the Option may not be
exercised in whole or in part unless such
III-3
<PAGE> 10
listing, registration, qualification, consent, approval or representation shall
have been effected or obtained free of any condition not acceptable to the Board
of Directors. If required at any time by the Board of Directors, the Option may
not be exercised until the Non-Employee Director has delivered an investment
letter to the Company. In addition, specifically in connection with the
Securities Act of 1933 (as now in effect or hereafter amended), upon exercise of
the Option, the Company shall not be required to issue the underlying shares
unless the Board of Directors has received evidence satisfactory to it to the
effect that the Non-Employee Director will not transfer such shares except
pursuant to a registration statement in effect under such Act or unless an
opinion of counsel satisfactory to the Board of Directors has been received by
the Company to the effect that such registration is not required. Any
determination in this connection by the Board of Directors shall be final,
binding and conclusive. In the event the shares issuable on exercise of the
Option are not registered under the Securities Act of 1933, the Company may
imprint on the certificate for such shares the following legend or any other
legend which counsel for the Company considers necessary or advisable to comply
with Securities Act of 1933:
The shares of stock represented by this certificate have not
been registered under the Securities Act of 1993 or under the
securities laws of any state and may not be sold or
transferred except upon such registration or upon receipt by
the Corporation of an opinion of counsel satisfactory to the
Corporation, in form and substance satisfactory to the
Corporation, that registration is not required for such sale
or transfer.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of the Option or the issuance of shares of Stock pursuant thereto
to comply with any law or regulation of any governmental authority.
3.7 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital adjustment of, or the payment of a dividend in capital stock or
other equity securities of the Company on its Stock, or other increase or
reduction of the number of shares of the Stock without receiving consideration
therefor in money, services, or property, or the reclassification of its Stock,
in whole or in part, into other equity securities of the Company, then (a) the
number, class and per share price of shares of Stock subject to outstanding
Options hereunder shall be appropriately adjusted (or in the case of the
issuance of other equity securities as a dividend on, or in a reclassification
of, the Stock, the Options shall extend to such other securities) in such a
manner as to entitle an Optionee to receive, upon exercise of an Option, for the
same aggregate cash
III-4
<PAGE> 11
consideration, the same total number and class or classes of shares (or in the
case of a dividend of, or reclassification into, other equity securities, such
other securities) he would have held after such adjustment if he had exercised
his Option in full immediately prior to the event requiring the adjustment, or,
if applicable, the record date for determining stockholders to be affected by
such adjustment; and (b) the number and class of shares then reserved for
issuance under the Plan (or in the case of a dividend of, or reclassification
into, other equity securities, such other securities) shall be adjusted by
substituting for the total number and class of shares of stock then received,
the number and class or classes of shares of stock (or in the case of a dividend
of, or reclassification into, other equity securities, such other securities)
that would have been received by the owner of an equal number of outstanding
shares of Stock as a result of the event requiring the adjustment. Comparable
rights shall accrue to each Optionee in the event of successive subdivisions,
consolidations, capital adjustments, dividends or reclassifications of the
character described above.
If the Company shall distribute to all holders of its shares of Stock
(including any such distribution made to non-dissenting stockholders in
connection with a consolidation or merger in which the Company is the surviving
corporation and in which holders of shares of Stock continue to hold shares of
Stock after such merger or consolidation) evidences of indebtedness or cash or
other assets (other than cash dividends payable out of consolidated retained
earnings not in excess of, in any one year period, the greater of (a) an amount
per share of Stock equal to $.01 per share of Stock (as the same may be adjusted
from time to time by the Board of Directors to reflect the effect of changes in
capitalization) and (b) two times the aggregate amount of dividends per share
paid during the preceding calendar year and dividends or distributions payable
in shares of Stock or other equity securities of the Company described in the
immediately preceding paragraph, but including stock or other securities of any
corporation or other entity owned by the Company), then in each case the Option
price shall be adjusted by reducing the Option price in effect immediately prior
to the record date for the determination of stockholders entitled to receive
such distribution by the fair market value, as determined in good faith by the
Board of Directors (whose determination shall be described in a statement filed
in the Company's corporate records and be available for inspection by any holder
of an Option) of the portion of the evidence of indebtedness or cash or other
assets so to be distributed applicable to one share of Stock; provided that in
no event shall the Option price be less than the par value of a share of Stock.
In the event such adjustment would result in the Option price being less than
the par value of a share of Stock but for the foregoing proviso, the terms of
the Option shall be appropriately adjusted so as to maintain the economic value
of the Option, including through an adjustment to the number of shares of Stock
subject to the Option and through a provision allowing the holder of the Option
to receive the evidence of indebtedness or cash or other assets so to be
distributed applicable to one share of Stock for each share of Stock that may be
purchased on the exercise of the Option. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the date of the
distribution retroactive to the record date for the determination of the
stockholders entitled to receive such distribution. In addition, in the event
the Company distributes shares or other securities of a subsidiary corporation
or other entity to the holders of the Stock, the Board of Directors may, in lieu
of the adjustment provided above, make provision allowing the holder of the
Option to receive the shares or securities of the corporation or entity that is
subject to the distribution. Comparable adjustments shall be made in the event
of successive distributions of the character described above.
III-5
<PAGE> 12
If the Company shall make a tender offer for, or grant to all of its
holders of its shares of Stock the right to require the Company or any
subsidiary of the Company to acquire from such stockholders shares of Stock, at
a price in excess of the Current Market Price (a "Put Right"), or the Company
shall grant to all of its holders of its shares of Stock the right to acquire
shares of Stock for less than the Current Market Price (a "Purchase Right")
then, in the case of a Put Right, the Option price shall be adjusted by
multiplying the Option price in effect immediately prior to the record date for
the determination of stockholders entitled to receive such Put Right by a
fraction, the numerator of which shall be the number of shares of Stock then
outstanding minus the number of shares of Stock which could be purchased at the
Current Market Price for the aggregate amount which would be paid if all Put
Rights are exercised and the denominator of which is the number of shares of
Stock which would be outstanding if all Put Rights are exercised; and, in the
case of a Purchase Right, the Option price shall be adjusted by multiplying the
Option price in effect immediately prior to the record date for the
determination of the stockholders entitled to receive such Purchase Right by a
fraction, the numerator of which shall be the number of shares of Stock then
outstanding plus the number of shares of Stock which could be purchased at the
Current Market Price for the aggregate amount which would be paid if all
Purchase Rights are exercised and the denominator of which is the number of
shares of Stock which would be outstanding if all Purchase Rights are exercised.
In addition, the number of shares subject to the Option shall be increased by
multiplying the number of shares then subject to the Option by a fraction which
is the inverse of the fraction used to adjust the Option price. Notwithstanding
the foregoing, if any such Put Rights or Purchase Rights shall terminate without
being exercised, the Option price and number of shares subject to the Option
shall be appropriately readjusted to reflect the Option price and number of
shares subject to the Option which would have been in effect if such unexercised
Put Rights or Purchase Rights had never existed. Comparable adjustments shall be
made in the event of successive transactions of the character described above.
After the merger of one or more corporations into the Company, after
any consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company shall be the surviving corporation, each Optionee, at no additional
cost, shall be entitled to receive, upon any exercise of his Option, in lieu of
the number of shares as to which the Option shall then be so exercised, the
number and class of shares of stock or other equity securities to which the
Optionee would have been entitled pursuant to the terms of the agreement of
merger or consolidation if at the time of such merger or consolidation such
Optionee had been a holder of a number of shares of Stock equal to the number of
shares as to which the Option shall then be so exercised and, if as a result of
such merger, consolidation or other transaction, the holders of Stock are not
entitled to receive any shares of Stock pursuant to the terms thereof, each
Optionee, at no additional cost, shall be entitled to receive, upon exercise of
his Option, such other assets and property, including cash, to which he would
have been entitled if at the time of such merger, consolidation or other
transaction he had been the holder of the number of shares of Stock equal to the
number of shares as to which the Option shall then be so exercised. Comparable
rights shall accrue to each Optionee in the event of successive mergers or
consolidations of the character described above.
After a merger of the Company into one or more corporations, after any
consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in
III-6
<PAGE> 13
section 424(a) of the Code in which the Company is not the surviving
corporation, each Optionee shall, at no additional cost, be entitled, at the
option of the surviving corporation, (i) to have his then existing Option
assumed or to have a new option substituted for the existing Option by the
surviving corporation to the transaction which is then employing him, or a
parent or subsidiary of such corporation, on a basis where the excess of the
aggregate fair market value of the shares subject to the option immediately
after the substitution or assumption over the aggregate option price of such
option is equal to the excess of the aggregate fair market value of all shares
subject to the Option immediately before such substitution or assumption over
the aggregate Option price of such shares, provided that the shares subject to
the new option must be traded on the New York or American Stock Exchange or
quoted on the National Association of Securities Dealers Automated Quotation
National Market System (or successor system) or (ii) to receive upon any
exercise of his Option, in lieu of the number of shares as to which the Option
shall then be so exercised, the securities, property and other assets, including
cash, to which the Optionee would have been entitled pursuant to the terms of
the agreement or merger or consolidation or the agreement giving rise to the
other corporate transaction if at the time of such merger, consolidation or
other transaction such Optionee had been the holder of the number of shares of
Stock equal to the number of shares as to which the Option shall then be so
exercised.
If a corporate transaction described in section 424(a) of the Code
which involves the Company is to take place and there is to be no surviving
corporation while an Option remains in whole or in part unexercised, it shall be
cancelled by the Board of Directors as of the effective date of any such
corporate transaction but before the date each Optionee shall be provided with a
notice of such cancellation and each Optionee shall have the right to exercise
such Option in full (without regard to any limitations on exercise set forth in
or imposed by the Agreement pursuant to which such Option was granted) to the
extent it is then still unexercised during a 30-day period preceding the
effective date of such corporate transaction.
In the event (i) the Company were to distribute to its stockholders or
otherwise divest of a majority of the stock of a subsidiary corporation that is
the principal employer of the Employee and (ii) following such distribution or
divestment the stock of the subsidiary corporation or any parent corporation of
such subsidiary corporation is listed or authorized for listing on a national
securities exchange or authorized for quotation on the National Association of
Securities Dealers Automated Quotation National Market System (or successor
system), the Board of Directors may, but shall not be required to, adjust the
terms of the Option to provide that such Option shall only represent a right to
purchase shares in such subsidiary corporation or parent corporation and the
number of shares and exercise price will be appropriately adjusted so as to
maintain the economic value of the Option. This adjustment would be in lieu of
any adjustment that might otherwise be required under this Section 3.7 for that
transaction.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Stock then subject to
outstanding Options.
III-7
<PAGE> 14
For purposes of this Section 3.7, Current Market Price per share of
Stock shall mean the closing price of a share of Stock as reported by the
principal national securities exchange on which the Stock is then listed if the
Stock is then listed on a national securities exchange, or the average bid and
asked prices of a share of Stock as reported in the National Association of
Securities Dealers Automated Quotation National Market System (or successor
system) listing if the Stock is not then listed on a national securities
exchange, on the trading day immediately preceding the first trading day on
which, as a result of the establishment of a record date or otherwise, the
trading price reflects that an acquiror of Stock in the public market will not
participate in or receive the payment of any applicable dividend or
distribution.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Stock then subject to
outstanding Options.
3.8 FORM OF OPTIONS. All Options granted under this Plan will be
nonqualified stock options that are not intended to qualify as incentive stock
options under section 422 of the Internal Revenue Code of 1986, as amended.
3.9 WRITTEN AGREEMENT. Each Option shall be embodied in a written
Option Agreement which shall be subject to the terms and conditions of the Plan
and shall be signed by the Optionee and by an officer of the Company.
3.10 NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
III-8
<PAGE> 15
ARTICLE IV
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend or terminate the Plan
at any time, in its sole and absolute discretion subject to the rights of
holders of outstanding Options at the time of such amendment or termination.
IV-1
<PAGE> 16
ARTICLE V
MISCELLANEOUS
5.1 NO RETENTION OBLIGATION. The granting of any Option shall not
impose upon the Company any obligation to continue to retain the Optionee's
services as a director of the Company.
5.2 TAXES. The Company shall not be obligated to advise an Optionee of
the existence of any tax that may apply with respect to the grant or exercise of
an Option.
5.3 GENDER. If the context requires, words of one gender when used in
this Plan shall include the others and words used in the singular or plural
shall include the other.
5.4 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.
5.5 OTHER COMPENSATION. The adoption of this Plan shall not affect any
other compensation in effect for the Non-Employee Directors, nor shall this Plan
preclude the Company from establishing any other forms of compensation for
Non-Employee Directors.
5.6 OTHER OPTIONS. The grant of an Option shall not confer upon an
Optionee the right to receive any future or other Options under this Plan.
5.7 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.
V-1
<PAGE> 1
EXHIBIT 10.7
Option Pursuant to the
Distribution Agreement
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of
____________, 2000, between GRANT PRIDECO, INC., a Delaware corporation (the
"Company"), and ________________________ (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee serves on the Board of Directors of Weatherford
International, Inc. ("Weatherford");
WHEREAS, on ______________________ Weatherford granted to the Optionee
an option to purchase ______ shares of Weatherford's common stock under the
[Energy Ventures, Inc. 1991 Non-Employee Director Stock Option Plan] [Energy
Ventures, Inc. Amended and Restated Non- Employee Director Stock Option Plan]
(an "Old Weatherford Option");
WHEREAS, the Distribution Agreement by and between Weatherford
International, Inc. and the Company provides that the Company shall grant to the
Optionee an option to purchase shares of the Company's common stock, $.01 par
value ("Common Stock");
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Optionee hereby agree as follows:
1. Grant. (a) The Company hereby grants to the Optionee an option (the
"Option") on ______________, 2000 (the "Date of Grant") to purchase ________
shares of the Company's common stock, $.01 par value ("Common Stock"). The
Company and the Optionee agree that the Option shall be subject to the terms of
this Agreement.
(b) The Option shall not be exercisable after __________, the term of
the Old Weatherford Option.
(c) Subject to the terms and conditions of this Agreement, the Option
provides the Optionee with the option to purchase ________ shares of Common
Stock at a price of $_______ per share (the "Option Price").
(d) The Option shall be considered to be a non-statutory option that is
not intended to be an incentive stock option within the meaning of section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
(e) The Option shall be immediately exercisable upon the Date of Grant.
(f) The Optionee may exercise the Option by delivering to the Company a
written notice stating (i) that he wishes to exercise the Option on the date
such notice is so delivered, (ii) the number of shares of stock with respect to
which the Option is to be exercised, (iii) the address to
<PAGE> 2
which the certificate representing such shares of stock should be mailed, and
(iv) his social security number. In order to be effective, such written notice
shall be accompanied by payment of the Option Price. Such payment shall be made
by cashier's check drawn on a national banking association and payable to the
order of the Company in United States dollars.
If, at the time of receipt by the Company of such written notice, (i)
the Company has unrestricted surplus in an amount not less than the Option
Price, (ii) all accrued cumulative preferential dividends and other current
preferential dividends on all outstanding shares of preferred stock of the
Company have been fully paid, (iii) the acquisition by the Company of its own
shares of stock for the purpose of enabling the Optionee to exercise the Option
is otherwise permitted by applicable law and without any vote or consent of any
stockholder of the Company, and (iv) there shall have been adopted, and there
shall be in full force and effect, a resolution of the Board of Directors of the
Company authorizing the acquisition by the Company of its own shares of stock
for such purpose, then the Optionee may deliver to the Company, in payment of
the Option Price with respect to the Option, (x) certificates registered in the
name of the Optionee that represent a number of shares of stock legally and
beneficially owned by the Optionee (free of all liens, claims and encumbrances
of every kind) and having a fair market value on the date of receipt by the
Company of such written notice that is not greater than the Option Price, such
certificates to be accompanied by stock powers duly endorsed in blank by the
record holder of the shares of stock represented by such certificates, with the
signature of such record holder guaranteed by a national banking association (or
in lieu of such certificates, other arrangements for the transfer of such shares
to the Company which are satisfactory to the Company), and (y) if the Option
Price exceeds such fair market value, a cashier's check drawn on a national
banking association and payable to the order of the Company in an amount, in
United States dollars, equal to the amount of such excess. Notwithstanding the
provisions of the immediately preceding sentence, the Committee, in its sole
discretion, may refuse to accept shares of stock in payment of the Option Price
and, in that event, any certificates representing shares of stock that were
received by the Company with such written notice shall be returned to the
Optionee, together with notice by the Company to the Optionee of the refusal of
the Committee to accept such shares of stock. If, at the expiration of seven
business days after the delivery to the Optionee of such written notice from the
Company, the Optionee shall not have delivered to the Company a cashier's check
drawn on a national banking association and payable to the order of the Company
in an amount, in United States dollars, equal to the Option Price, such written
notice from the Optionee to the Company shall be ineffective to exercise the
Option.
As promptly as practicable after the receipt by the Company of (i) such
written notice from the Optionee and (ii) payment, in the form required by the
foregoing provisions of this Paragraph 1(f) of the Option Price, a certificate
representing the number of shares of stock with respect to which the Option has
been so exercised, such certificate to be registered in the name of the
Optionee, provided that such delivery shall be considered to have been made when
such certificate shall have been mailed, postage prepaid, the Optionee at the
address specified for such purpose in such written notice from the Optionee to
the Company.
2. Changes in the Company's Capital Structure. The existence of the
Option shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure
-2-
<PAGE> 3
or its business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or prior preference stock ahead of or affecting the
Common Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital adjustment of, or the payment of a dividend in capital stock or
other equity securities of the Company on, its Common Stock, or other increase
or reduction of the number of shares of the Common Stock without receiving
consideration therefor in money, services, or property, or the reclassification
of its Common Stock, in whole or in part, into other equity securities of the
Company, then (a) the number, class and per share price of shares of stock
subject to outstanding the Option shall be appropriately adjusted (or in the
case of the issuance of other equity securities as a dividend on, or in a
reclassification of, the Common Stock, the Option shall extend to such other
securities) in such a manner as to entitle the Optionee to receive, upon
exercise of the Option, for the same aggregate cash consideration, the same
total number and class or classes of shares (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) he would
have held after such adjustment if he had exercised the Option in full
immediately prior to the event requiring the adjustment, or, if applicable, the
record date for determining stockholders to be affected by such adjustment; and
(b) the number and class of shares then reserved for issuance under this
Agreement (or in the case of a dividend of, or reclassification into, other
equity securities, such other securities) shall be adjusted by substituting for
the total number and class of shares of stock then received, the number and
class or classes of shares of stock (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) that
would have been received by the owner of an equal number of outstanding shares
of Common Stock as a result of the event requiring the adjustment. Comparable
rights shall accrue the Optionee in the event of successive subdivisions,
consolidations, capital adjustments, dividends or reclassifications of the
character described above.
If the Company shall distribute to all holders of its shares of Common
Stock (including any such distribution made to non-dissenting stockholders in
connection with a consolidation or merger in which the Company is the surviving
corporation and in which holders of shares of Common Stock continue to hold
shares of Common Stock after such merger or consolidation) evidences of
indebtedness or cash or other assets (other than cash dividends payable out of
consolidated retained earnings not in excess of, in any one year period, the
greater of (a) in an amount per share of Common Stock equal to $.01 per share of
Common Stock (as the same may be adjusted from time to time by the Board of
Directors of the Company to reflect the effect of changes in capitalization) and
(b) two times the aggregate amount of dividends per share paid during the
preceding calendar year and dividends or distributions payable in shares of
Common Stock or other equity securities of the Company described in the
immediately preceding paragraph, but including stock or other securities of any
corporation or other entity owned by the Company), then in each case the Option
Price shall be adjusted by reducing the Option Price in effect immediately prior
to the record date for the determination of stockholders entitled to receive
such distribution by the fair market value, as determined in good faith by the
Board of Directors of the Company (whose determination shall be described in a
statement filed in the Company's corporate records) of the portion of the
evidence of indebtedness or cash or other assets so to be distributed applicable
to one share of Common Stock;
-3-
<PAGE> 4
provided that in no event shall the Option Price be less than the par value of a
share of Common Stock. In the event such adjustment would result in the Option
Price being less than the par value of a share of Common Stock but for the
foregoing proviso, the terms of the Option shall be appropriately adjusted so as
to maintain the economic value of the Option, including through an adjustment to
the number of shares of Common Stock subject to the Option and through a
provision allowing the holder of the Option to receive the evidence of
indebtedness or cash or other assets so to be distributed applicable to one
share of Common Stock for each share of Common Stock that may be purchased on
the exercise of the Option. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of the distribution
retroactive to the record date for the determination of the stockholders
entitled to receive such distribution. In addition, in the event the Company
distributes shares or other securities of a subsidiary corporation or other
entity to the holders of the Common Stock, the Board of Directors may, in lieu
of the adjustment provided above, make provision allowing the holder of the
Option to receive the shares or securities of the corporation or entity that are
subject to the distribution. Comparable adjustments shall be made in the event
of successive distributions of the character described above.
If the Company shall make a tender offer for, or grant to all of its
holders of its shares of Common Stock the right to require the Company or any
subsidiary of the Company to acquire from such stockholders shares of, Common
Stock, at a price in excess of the Fair Market Value (a "Put Right") or the
Company shall grant to all of its holders of its shares of Common Stock the
right to acquire shares of Common Stock for less than the Fair Market Value (a
"Purchase Right") then, in the case of a Put Right, the Option Price shall be
adjusted by multiplying the Option Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such Put
Right by a fraction, the numerator of which shall be the number of shares of
Common Stock then outstanding minus the number of shares of Common Stock which
could be purchased at the Fair Market Value for the aggregate amount which would
be paid if all Put Rights are exercised and the denominator of which is the
number of shares of Common Stock which would be outstanding if all Put Rights
are exercised; and, in the case of a Purchase Right, the Option Price shall be
adjusted by multiplying the Option Price in effect immediately prior to the
record date for the determination of the stockholders entitled to receive such
Purchase Right by a fraction, the numerator of which shall be the number of
shares of Common Stock then outstanding plus the number of shares of Common
Stock which could be purchased at the Fair Market Value for the aggregate amount
which would be paid if all Purchase Rights are exercised and the denominator of
which is the number of shares of Common Stock which would be outstanding if all
Purchase Rights are exercised. In addition, the number of shares subject to the
Option shall be increased by multiplying the number of shares then subject to
the Option by a fraction which is the inverse of the fraction used to adjust the
Option Price. Notwithstanding the foregoing, if any such Put Rights or Purchase
Rights shall terminate without being exercised, the Option Price and number of
shares subject to the Option shall be appropriately readjusted to reflect the
Option Price and number of shares subject to the Option which would have been in
effect if such unexercised Put Rights or Purchase Rights had never existed.
Comparable adjustments shall be made in the event of successive transactions of
the character described above.
After the merger of one or more corporations into the Company, after
any consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company shall be the surviving corporation, the Optionee,
-4-
<PAGE> 5
at no additional cost, shall be entitled to receive, upon any exercise of the
Option, in lieu of the number of shares as to which the Option shall then be so
exercised, the number and class of shares of stock or other equity securities to
which the Optionee would have been entitled pursuant to the terms of the
agreement of merger or consolidation if at the time of such merger or
consolidation the Optionee had been a holder of a number of shares of Common
Stock equal to the number of shares as to which the Option shall then be so
exercised and, if as a result of such merger, consolidation or other
transaction, the holders of Common Stock are not entitled to receive any shares
of Common Stock pursuant to the terms thereof, the Optionee, at no additional
cost, shall be entitled to receive, upon exercise of the Option, such other
assets and property, including cash, to which he would have been entitled if at
the time of such merger, consolidation or other transaction he had been the
holder of the number of shares of Common Stock equal to the number of shares as
to which the Option shall then be so exercised. Comparable rights shall accrue
to each optionee in the event of successive mergers or consolidations of the
character described above.
After a merger of the Company into one or more corporations, after any
consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company is not the surviving corporation the Optionee shall, at no additional
cost, be entitled, at the option of the surviving corporation, (i) to have the
Option assumed or to have a new option substituted for the Option by the
surviving corporation to the transaction, or a parent or subsidiary of such
corporation, on a basis where the excess of the aggregate fair market value of
the shares subject to the Option immediately after the substitution or
assumption over the aggregate option price of the option is equal to the excess
of the aggregate fair market value of all shares subject to the Option
immediately before such substitution or assumption over the aggregate Option
Price, provided that the shares subject to the new option must be traded on the
New York or American Stock Exchange or quoted on the National Association of
Securities Dealers Automated Quotation National Market System (or successor
system), or (ii) to receive upon any exercise of the Option, in lieu of the
number of shares as to which the Option shall then be so exercised, the
securities, property and other assets, including cash, to which the Optionee
would have been entitled pursuant to the terms of the agreement or merger or
consolidation or the agreement giving rise to the other corporate transaction if
at the time of such merger, consolidation or other transaction the Optionee had
been the holder of the number of shares of Common Stock equal to the number of
shares as to which the Option shall then be so exercised.
If a corporate transaction described in section 424(a) of the Code
which involves the Company is to take place and there is to be no surviving
corporation while the Option remains in whole or in part unexercised, it shall
be cancelled by the Board of Directors of the Company as of the effective date
of any such corporate transaction but before the date the Optionee shall be
provided with a notice of such cancellation and the Optionee shall have the
right to exercise the Option in full (without regard to any limitations on
exercise set forth in or imposed by this Agreement) to the extent it is then
still unexercised during a 30-day period preceding the effective date of such
corporate transaction.
For purposes of this Paragraph 2, Fair Market Value per share of Common
Stock shall mean the closing price of a share of Common Stock as reported by the
principal national securities exchange on which the Common Stock is then listed
if the Common Stock is then listed on a national securities exchange, or the
average bid and asked prices of a share of Common Stock as
-5-
<PAGE> 6
reported in the National Association of Securities Dealers Automated Quotation
National Market System (or successor system) listing if the Common Stock is not
then listed on a national securities exchange, on the trading day immediately
preceding the first trading day on which, as a result of the establishment of a
record date or otherwise, the trading price reflects that an acquiror of Common
Stock in the public market will not participate in or receive the payment of any
applicable dividend or distribution.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to the Options.
3. Exercise of the Option. The Option may be exercised from time to
time as to the total number of shares that may then be issuable upon the
exercise thereof or any portion thereof in the manner and subject to the
limitations provided for in Paragraph 1 hereof.
4. Assignment. The Option may not be transferred or assigned in any
manner by the Optionee except by will or the laws of descent and distribution,
and shall be exercisable during the Optionee lifetime only by him.
5. Requirement of Law. The Company shall not be required to sell or
issue any shares on the exercise of the Option if the issuance of such shares
shall constitute a violation by the Optionee or the Company of any provisions of
any law or regulation of any governmental authority. The Option shall be subject
to the requirements that, if at any time the Board of Directors of the Company
shall determine that the listing, registration or qualification of the shares
subject thereto upon any securities exchange or under any state or federal law
of the United States or of any other country or governmental subdivision
thereof, or the consent or approval of any governmental regulatory body, or
investment or other representations, are necessary or desirable in connection
with the issue or purchase of shares subject thereto, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, approval or representation shall have been effected or obtained free of
any condition not acceptable to the Board of Directors of the Company. If
required at any time by the Board of Directors of the Company, the Option may
not be exercised until the Optionee has delivered an investment letter to the
Company. In addition, specifically in connection with the Securities Act of 1933
(as now in effect or hereafter amended), upon exercise of the Option, the
Company shall not be required to issue the underlying shares unless the Board of
Directors of the Company has received evidence satisfactory to it to the effect
that the Optionee will not transfer such shares except pursuant to a
registration statement in effect under such Act or unless an opinion of counsel
satisfactory to the Board of Directors of the Company has been received by the
Company to the effect that such registration is not required. Any determination
in this connection by the Board of Directors of the Company shall be final,
binding and conclusive. In the event the shares issuable on exercise of the
Option are not registered under the Securities Act of 1933, the Company may
imprint on the certificate for such shares the following legend or any other
legend which counsel for the Company considers necessary or advisable to comply
with Securities Act of 1933:
-6-
<PAGE> 7
The shares of stock represented by this certificate have not
been registered under the Securities Act of 1993 or under the
securities laws of any state and may not be sold or
transferred except upon such registration or upon receipt by
the Corporation of an opinion of counsel satisfactory to the
Corporation, in form and substance satisfactory to the
Corporation, that registration is not required for such sale
or transfer.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of the Option or the issuance of shares of Common Stock pursuant
thereto to comply with any law or regulation of any governmental authority.
6. Death of Optionee. If the Optionee dies , the Option shall continue
in effect until the date the Option is otherwise due to expire in accordance
with Paragraph 1 hereof. After the death of the Optionee, his executors,
administrators or any persons to whom the Option may be transferred by will or
by the laws of descent and distribution shall have the right, at any time prior
to the Option's expiration to exercise it.
7. Amendment. This Agreement may not be changed, amended or modified
except by an agreement in writing signed on behalf of each of the parties
hereto.
8. No Rights as a Stockholder. The Optionee shall not have any rights
as a stockholder with respect to any shares of Common Stock issuable upon the
exercise of the Option until the date of issuance of the stock certificate or
certificates representing such shares following the Optionee's exercise of the
Option pursuant to its terms and conditions and payment for such shares. Except
as otherwise provided in this Agreement, no adjustment shall be made for
dividends or other distributions made with respect to the Common Stock the
record date for the payment of which is prior to the date of issuance of the
stock certificate or certificates representing such shares following the
Optionee's exercise of the Option.
9. Governing Law. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Texas. Any invalidity of
any provision of this Agreement shall not affect the validity of any other
provision.
10. Notices. All notices, demands, requests or other communications
hereunder shall be in writing and shall be deemed to have been duly made or
given if mailed by registered or certified mail, return receipt requested. Any
such notice mailed to the Company shall be addressed to its principal executive
office at 1450 Lake Robbins Drive, Suite 600, The Woodlands, Texas 77380, and
any notice mailed to the Optionee shall be addressed to the Non-Employees
Director's residence address as it appears on the books and records of the
Company or to such other address as either party may hereafter designate in
writing to the other.
11. Binding Effect. This Agreement shall, except as otherwise provided
to the contrary in this Agreement, inure to the benefit of and bind the
successors and assigns of the Company. This Agreement shall, except as otherwise
provided to the contrary in this Agreement, inure to the benefit of and bind the
heirs, executors, administrators and legal representatives of the Optionee.
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
as of the day and year first above mentioned.
GRANT PRIDECO, INC.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-------------------------------------------
Optionee
-8-
<PAGE> 1
EXHIBIT 10.8
GRANT PRIDECO, INC.
FOREIGN EXECUTIVE
DEFERRED COMPENSATION PLAN
<PAGE> 2
GRANT PRIDECO, INC.
FOREIGN EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Grant Prideco, Inc. desires to establish a deferred
compensation plan for a select group of management and highly compensated
employees;
WHEREAS, as a result of the distribution by Weatherford International,
Inc. to its stockholders of all of the outstanding shares of stock of Grant
Prideco, Inc. (the "Spin-Off"), Grant Prideco, Inc. shall no longer be a
subsidiary of Weatherford International, Inc. as of the effective date of the
Spin-Off;
NOW, THEREFORE, Grant Prideco, Inc. hereby establishes the Grant
Prideco, Inc. Foreign Executive Deferred Compensation Plan effective on the
effective date of the Spin-Off, the terms of which are set forth in this
document as it may be amended from time to time.
<PAGE> 3
GRANT PRIDECO, INC.
FOREIGN EXECUTIVE
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
ARTICLE I - DEFINITIONS
Account........................................................1.1
Basic Benefit..................................................1.2
Beneficiary....................................................1.3
Board of Directors.............................................1.4
Code...........................................................1.5
Committee......................................................1.6
Common Stock...................................................1.7
Company........................................................1.8
Compensation...................................................1.9
Disability....................................................1.10
GP............................................................1.11
Foreign Deferred Compensation Ledger..........................1.12
Participant...................................................1.13
Plan..........................................................1.14
Plan Year.....................................................1.15
Retirement....................................................1.16
Subsidiary....................................................1.17
Year of Service...............................................1.18
ARTICLE II - ELIGIBILITY
ARTICLE III - BASIC BENEFIT ACCRUALS
General Basic Benefit Accruals.................................3.1
Reduction of Basic Benefit Accruals............................3.2
ARTICLE IV - ACCOUNT
Establishing a Participant's Account...........................4.1
Basic Benefit Account..........................................4.2
Gauge for Determining Benefits.................................4.3
ARTICLE V - VESTING
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI - DISTRIBUTIONS
Death..........................................................6.1
Disability.....................................................6.2
Retirement.....................................................6.3
Termination Prior to Death, Disability or Retirement...........6.4
Forfeiture For Cause...........................................6.5
Responsibility for Distributions and
Withholding of Taxes.........................................6.6
Distribution Determination Date................................6.7
Valuation of Accounts for Cash Distributions...................6.8
ARTICLE VII - ADMINISTRATION
Committee Appointment..........................................7.1
Committee Organization and Voting..............................7.2
Powers of the Committee........................................7.3
Committee Discretion...........................................7.4
Annual Statements..............................................7.5
Reimbursement of Expenses......................................7.6
ARTICLE VIII - ADOPTION BY SUBSIDIARIES
Procedure for and Status After Adoption........................8.1
Termination of Participation By Adopting Subsidiary............8.2
ARTICLE IX - AMENDMENT AND/OR TERMINATION
Amendment or Termination of the Plan...........................9.1
No Retroactive Effect on Awarded Benefits......................9.2
Effect of Termination..........................................9.3
ARTICLE X - PAYMENT
Payments Under This Agreement Are the Obligation
of the Company..............................................10.1
Participants Must Rely Only on General
Credit of the Company......................................10.2
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE XI - MISCELLANEOUS
Limitation of Rights..........................................11.1
Distribution to Minor or Incapacitated Person.................11.2
Nonalienation of Benefits.....................................11.3
Reliance Upon Information ....................................11.4
Severability..................................................11.5
Notice........................................................11.6
Gender and Number.............................................11.7
Governing Law.................................................11.8
Effective Date................................................11.9
</TABLE>
iii
<PAGE> 6
GRANT PRIDECO, INC.
FOREIGN EXECUTIVE
DEFERRED COMPENSATION PLAN
Grant Prideco, Inc. (the "Company") hereby establishes the
Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan effective upon
the Spin-Off which provides deferred compensation for a select group of foreign
highly compensated or management personnel based on services performed outside
the United States as follows:
ARTICLE I
DEFINITIONS
1.1 "ACCOUNT" means all ledger accounts pertaining to a
Participant which are maintained by the Committee to reflect the amount of
deferred compensation due the Participant. The Committee shall establish the
following Accounts and any additional Accounts that the Committee considers
necessary:
Basic Benefit Account - The Company's accrual of 15 percent of
Compensation for each Participant, or such lesser amount as the
Committee establishes pursuant to Section 3.2.
1.2 "BASIC BENEFIT" means the accrual made by the Company for
the benefit of a Participant equal to 15 percent of the Participant's
Compensation, or such lesser amount as the Committee establishes pursuant to
Section 3.2.
1.3 "BENEFICIARY" means a person or entity designated by the
Participant under the terms of the Plan to receive any amounts distributed under
the Plan upon the death of the Participant.
1.4 "BOARD OF DIRECTORS" means the Board of Directors of GP.
1.5 "CODE" means the United States of America, Internal
Revenue Code of 1986, as amended from time to time.
1.6 "COMMITTEE" means the persons who are from time to time
serving as members of the committee administering the Plan.
1.7 "COMMON STOCK" means the common stock, $.01 par value, of
GP.
1.8 "COMPANY" means GP and its Foreign Subsidiaries.
1.9 "COMPENSATION" means remuneration paid to a Participant by
the Company during the portion of the Plan Year in which he is eligible to
participate in the Plan for services
1
<PAGE> 7
performed outside the United States, including and limited to regular base pay,
merit and incentive bonuses (other than bonuses paid by the Company with respect
to services for a predecessor employer that has not adopted the Plan or with
respect to services performed by the Participant prior to his employment by the
Company, as determined by the Committee in its sole discretion), commissions,
short-term disability pay, vacation pay paid while the Participant is employed
by the Company, vacation pay paid upon a Participant's termination of
employment, and retention bonuses. Compensation does not include sign-on
bonuses, foreign service premiums or bonuses, position allowances, location
coefficient payments, housing allowances, car allowances, goods and services
allowances, tax gross-up payments, hypothetical tax payments, expense
reimbursements, travel allowances or bonuses, cash and non-cash fringe benefits,
severance pay, relocation allowances or expense reimbursements, deferred
compensation (such as income as a result of the exercise of a stock option or
stock appreciation right), or benefits under any pension plan or welfare plan as
defined in the Employee Retirement Income Security Act of 1974, as amended
(whether or not paid under a program that is subject to regulation under such
statute).
1.10 "DISABILITY" means a physical or mental condition that
prevents the Participant from earning a reasonable livelihood with any Company
and which was not the result of having engaged in a felonious criminal
enterprise, alcoholism, addiction to narcotics or service in the Armed Forces.
The Committee's determination of a Participant's Disability shall be in its sole
discretion and shall be final.
1.11 "GP" means Grant Prideco, Inc., the sponsor of the Plan,
or any successor of Grant Prideco, Inc. into which Grant Prideco, Inc. is merged
or consolidated.
1.12 "FOREIGN DEFERRED COMPENSATION LEDGER" means the ledger
maintained by the Committee for each Participant which reflects the Basic
Benefit credited to his Account.
1.13 "PARTICIPANT" means a non-U.S. resident alien foreign
employee of a Company who is eligible for and is participating in the Plan.
1.14 "PLAN" means the Grant Prideco, Inc. Foreign Executive
Deferred Compensation Stock Plan set out in this document, as amended from time
to time.
1.15 "PLAN YEAR" means a one year period which coincides with
the calendar year.
1.16 "RETIREMENT" means the retirement of a Participant from
any Company covered by the Plan on or after attaining age 60 under the Company's
retirement policy.
1.17 "SUBSIDIARY" means any wholly owned foreign subsidiary of
GP.
1.18 "YEAR OF SERVICE" means 365 days of employment with GP or
a Subsidiary. Employment with Weatherford International, Inc. up to the fifth
anniversary of the effective date of the distribution by Weatherford
International, Inc. to its stockholders of all the outstanding shares of stock
of GP shall be treated as employment with GP.
2
<PAGE> 8
ARTICLE II
ELIGIBILITY
The employees initially eligible to participate in the Plan
include the key foreign employees of GP and each foreign Subsidiary as
determined by the Committee from time to time. After the initial Plan Year the
Committee may change the eligibility requirements for participation in the Plan
as it may determine is appropriate or advisable from time to time in its sole
discretion. The Committee shall notify each Participant of his eligibility to
participate in the Plan. Except as specified below, each Participant in the Plan
during a Plan Year shall continue to participate in the Plan unless the
Committee shall have notified the Participant prior to the beginning of the next
Plan Year that he will not participate in the Plan for that Plan Year. The
Committee may at any time during a Plan Year on 60 days' notice to a Participant
advise the Participant that he shall not participate in the Plan after the
expiration of such notice period. A former Participant who has been notified
that he will no longer participate in the Plan, but who remains in the employ of
the Company, shall retain the balance in his Accounts under the terms of the
Plan, but no additional amounts should be credited to his Account under Section
4.2 during the periods in which he is not a Participant.
ARTICLE III
BENEFIT ACCRUALS
3.1 GENERAL BASIC BENEFIT ACCRUAL. Subject to Section 3.2, the
Company shall accrue an amount for the benefit of each Participant equal to 15
percent of the Participant's Compensation for the Plan Year.
3.2 REDUCTION OF BASIC BENEFIT ACCRUALS. The Committee may
reduce the percentage of the Basic Benefit Accrual upon written notice to a
Participant. Such reduction shall apply only as to Plan Years following such
notice, or in the case of a new Participant, beginning on the date that the
Participant first receives credit under Section 3.1.
ARTICLE IV
ACCOUNT
4.1 ESTABLISHING A PARTICIPANT'S ACCOUNT. The Committee shall
establish an Account for each Participant in a special Foreign Deferred
Compensation Ledger which shall be maintained by the Company. The Account shall
reflect the amount of the Company's obligation to the Participant at any given
time.
4.2 BASIC BENEFIT ACCOUNT. The Basic Benefit shall be credited
to each Participant's Basic Benefit Account as of the last day of each month of
each Plan Year for the accrual attributable to Compensation paid during that
month.
3
<PAGE> 9
4.3 GAUGE FOR DETERMINING BENEFITS. The Basic Benefit credits
described in Section 4.2 shall be credited in non-monetary units equal to the
number of whole shares of Common Stock that could have been purchased at a price
equal to the average closing sale price of a share of Common Stock during the
calendar month for which the allocation is made as reported by the principal
national securities exchange on which the Common Stock is then listed, if the
Common Stock is listed on a national securities exchange, or the average of the
bid and asked price of a share of Common Stock during such month as reported in
the National Association of Securities Dealers Automated Quotation National
Market System (or successor system) listing if the Common Stock is not then
listed on a national securities exchange, provided that if no such closing price
or quotes are so reported during that month or if, in the discretion of the
Committee, another means of determining the fair market value of the Common
Stock for such month shall be necessary and advisable, the Committee may provide
for another means of determining such value, and in monetary units for any
amount that is less than the value of a whole share. Any monetary unit credited
to an Account will be added to the next such amount credited to the Account and
converted into a non-monetary unit as quickly as possible. The value of each
unit credited to an Account and therefore the ultimate value of the deferred
compensation payable to each Participant will increase or decrease in proportion
to the change in the value of a share of Common Stock between the date of the
initial crediting of a unit and the date that the unit is valued for
distribution under Article VI of the Plan.
ARTICLE V
VESTING
Upon his Retirement, death or Disability while employed with
the Company, a Participant will have a 100 percent nonforfeitable interest in
the Basic Benefit credited to his Account together with any increase in the
accruals as a result of the rise in the value of the non-monetary units after
they have been initially credited, except for the events of forfeiture described
in Section 6.5. In addition, a Participant's interest in the Basic Benefit
credited to his Account together with any increase in the accruals as a result
of the rise in the value of the non-monetary units after they have been
initially credited shall vest at the rate set out in the vesting schedule below,
except for events of forfeiture described in Section 6.5 and upon termination of
the Plan as provided in Section 9.3.
4
<PAGE> 10
<TABLE>
<CAPTION>
Completed Years of Service
With the Company Beginning
January 1 of the Plan Year the Employee
First Becomes a Participant Percentage Vested
--------------------------------------- -----------------
<S> <C>
Less than one year...............................................................0
One but less than two...........................................................20
Two but less than three.........................................................40
Three but less than four........................................................60
Four but less than five.........................................................80
Five or more...................................................................100
</TABLE>
ARTICLE VI
DISTRIBUTIONS
6.1 DEATH. Upon the death of a Participant, his Beneficiary or
Beneficiaries shall receive the value of the amounts credited to the
Participant's Accounts in the Foreign Deferred Compensation Ledger determined
under Section 6.7, and in the discretion of the Committee, the distribution
shall be made in shares of Common Stock or in one lump sum payment in cash, or
in a combination of shares of Common Stock and cash, or in a combination of
shares of Common Stock and cash. The distribution shall be made within 90 days
after the Participant's death. Unless otherwise provided by the Committee, all
Distributions shall be made in shares of Common Stock.
Each Participant, upon notification of his participation in
the Plan, shall file with the Committee a designation of a Beneficiary or
Beneficiaries to whom distributions otherwise due the Participant shall be made
in the event of his death prior to the distribution of the amount credited to
his Accounts in the Foreign Deferred Compensation Ledger. The designation will
be effective upon receipt by the Committee of a properly executed form which the
Committee has approved for that purpose. The Participant may from time to time
revoke or change any designation of Beneficiary by filing another approved
Beneficiary designation form with the Committee. If there is no valid
designation of Beneficiary on file with the Committee at the time of the
Participant's death, or if all of the Beneficiaries designated in the last
Beneficiary designation have predeceased the Participant or otherwise ceased to
exist, the Beneficiary will be the Participant's spouse, if the spouse survives
the Participant, or otherwise the Participant's estate.
6.2 DISABILITY. Upon the Disability of a Participant, the
Participant shall receive the value of the amounts credited to the Participant's
Accounts in the Foreign Deferred Compensation Ledger determined under Section
6.7, and in the discretion of the Committee, the distribution shall be made in
shares of Common Stock or in one lump sum payment in cash, or in a combination
of shares of Common Stock and cash.. The distribution shall be made within 90
days after the Participant becomes disabled.
6.3 RETIREMENT. Upon the Retirement of a Participant on or
after attaining age 60, the Participant shall receive the value of the amounts
credited to his Accounts in the Foreign Deferred Compensation Ledger determined
under Section 6.7, and at the discretion of the
5
<PAGE> 11
Committee, the distribution shall be made in shares of Common Stock or in one
lump sum payment in cash, or in a combination of shares of Common Stock and
cash. The distribution shall be made within 90 days after the Participant's
Retirement.
6.4 TERMINATION PRIOR TO DEATH, DISABILITY OR RETIREMENT. Upon
a Participant's termination from the employ of all Companies prior to death,
Disability or Retirement, the Participant shall receive the portion of the
amount credited to his Accounts in the Foreign Deferred Compensation Ledger,
determined under Section 6.7, which is vested under Article V, and at the
discretion of the Committee, the distribution shall be made in Common Stock or
in one lump sum payment in cash, or in a combination of shares of Common Stock
and cash. Distribution shall be made within 90 days after the Participant's
termination. Any amounts not then vested shall be forfeited.
6.5 FORFEITURE FOR CAUSE. If the Committee finds, after full
consideration of the facts presented on behalf of both the Company and a former
Participant, that the Participant was discharged by the Company for fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his employment by the Company which damaged the Company, or for disclosing trade
secrets of the Company, the entire amount credited to his Accounts in the
Foreign Deferred Compensation Ledger shall be forfeited even though it may have
been previously vested under Article V. The decision of the Committee as to the
cause of a former Participant's discharge and the damage done to the Company
shall be final. No decision of the Committee shall affect the finality of the
discharge of the Participant by the Company in any manner.
6.6 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES.
The Committee shall furnish information to the Company last employing the
Participant concerning the amount and form of distribution to any Participant
entitled to a distribution so that the Company may make the distribution
required. It will also calculate the deductions, if any, from the amount of the
benefit paid under the Plan for any taxes required to be withheld by any
government or similar authority and will cause them to be withheld and paid to
the appropriate authority. If a Participant earns deferred compensation under
the Plan while in the service of more than one Company, each Company for which
the Participant worked shall pay the amount attributable to the period the
Participant was in the service of that Company.
6.7 DISTRIBUTION DETERMINATION DATE. For purposes of all
distributions described in this Article VI, the determination date for valuing
the amounts credited to a Participant's Accounts shall be the day which triggers
the beginning of the 90-day period described in Section 6.1, 6.2, 6.3, or 6.4,
as applicable. For purposes of all distributions in shares of Common Stock
described in this Article VI, the determination date shall be the date of the
actual direction by the Company in writing to the transfer agent to issue a
certificate for the Common Stock to the Participant or his Beneficiary, and the
number of shares issued shall be equal to the vested non-monetary units credited
to the Participant's Accounts.
6.8 VALUATION OF ACCOUNTS FOR CASH DISTRIBUTIONS. For purposes
of all distributions in cash described in this Article VI, the Committee shall
determine the fair market value of the non-monetary units of Common Stock deemed
credited to a Participant's Account as of the
6
<PAGE> 12
determination date specified in Section 6.7. For this purpose, the fair market
value of a share of Common Stock shall be the average closing price of a share
of Common Stock during the month in which the determination date described in
Section 6.7 occurs, as reported by the principal national securities exchange on
which the Common Stock is then listed if it is listed on a national securities
exchange or the average of the bid and asked price of a share of Common Stock
during such month as reported in the National Association of Securities Dealers
Automated Quotation National Market System (or successor system) listing if the
Common Stock is not then listed on a national securities exchange, provided that
if no such closing price or quotes are so reported during that month or if, in
the discretion of the Committee, another means of determining the fair market
value of the Common Stock for such month shall be necessary and advisable, the
Committee may provide for another means of determining such value.
ARTICLE VII
ADMINISTRATION
7.1 COMMITTEE APPOINTMENT. The Committee which shall consist
of not less than two members shall be appointed by the Board of Directors. Each
Committee member shall serve until his resignation or removal. The Board of
Directors shall have the sole discretion to remove any one or more Committee
members and appoint one or more replacement or additional Committee members from
time to time.
7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee shall
select from among its members a chairman who shall preside at all of its
meetings and shall elect a secretary without regard to whether that person is a
member of the Committee. The secretary shall keep all records, documents and
data pertaining to the Committee's supervision and administration of the Plan. A
majority of the members of the Committee shall constitute a quorum for the
transaction of business and the vote of a majority of the members present at any
meeting shall decide any question brought before the meeting. In addition, the
Committee may decide any question by a vote, taken without a meeting, of a
majority of its members. A member of the Committee who is also a Participant
shall not vote or act on any matter relating solely to himself.
7.3 POWERS OF THE COMMITTEE. The Committee shall have the
exclusive responsibility for the general administration of the Plan according to
the terms and provisions of the Plan and shall have all powers necessary to
accomplish those purposes, including but not by way of limitation the right,
power and authority:
(a) to make rules and regulations for the administration of
the Plan;
(b) to construe all terms, provisions, conditions and
limitations of the Plan;
7
<PAGE> 13
(c) to correct any defect, supply any omission or reconcile
any inconsistency that may appear in the Plan in the manner and to the
extent it deems expedient to carry the Plan into effect;
(d) to designate the persons eligible to become Participants;
(e) to determine all controversies relating to the
administration of the Plan, including but not limited to:
(1) differences of opinion arising between the
Company and a Participant; and
(2) any question it deems advisable to determine in
order to promote the uniform administration of the Plan for
the benefit of all parties at interest; and
(f) to delegate by written notice those clerical and
recordation duties of the Committee, as it deems necessary or advisable
for the proper and efficient administration of the Plan.
7.4 COMMITTEE DISCRETION. The Committee in exercising any
power or authority granted under the Plan or in making any determination under
the Plan shall perform or refrain from performing those acts using its sole
discretion and judgment. Any decision made by the Committee or any refraining to
act or any act taken by the Committee in good faith shall be final and binding
on all parties and shall not be subject to de novo review.
7.5 ANNUAL STATEMENTS. The Committee shall cause each
Participant to receive an annual statement as soon as administratively feasible
after the conclusion of each Plan Year containing a statement of the
Participant's Accounts in the Foreign Deferred Compensation Ledger through the
end of that Plan Year. The statement shall include a report of the Basic Benefit
and the number of units credited to each Participant's Account for that Plan
Year.
7.6 REIMBURSEMENT OF EXPENSES. The Committee shall serve
without compensation for their services but shall be reimbursed by GP for all
expenses properly and actually incurred in the performance of its duties under
the Plan.
ARTICLE VIII
ADOPTION BY SUBSIDIARIES
8.1 PROCEDURE FOR AND STATUS AFTER ADOPTION. Any Subsidiary
may, with the approval of the Committee, adopt the Plan by appropriate action of
its board of directors. The terms of the Plan will apply separately to each
Subsidiary adopting the Plan and its Participants in the same manner as is
expressly provided for GP and its Participants except that the powers of the
Board of
8
<PAGE> 14
Directors and the Committee under the Plan shall be exercised by the Board of
Directors of GP alone. GP and each Subsidiary that adopts the Plan shall bear
the cost of providing plan benefits for its own Participants. It is intended
that the obligation of GP and each Subsidiary with respect to its Participants
shall be the sole obligation of the company that is employing the Participant
and shall not bind any other company.
8.2 TERMINATION OF PARTICIPATION BY ADOPTING SUBSIDIARY. Any
Subsidiary that adopts the Plan may, by appropriate action of its board of
directors, terminate its participation in the Plan. The Committee may, in its
discretion, also terminate a Subsidiary's participation in the Plan at any time.
The termination of the participation in the Plan by a Subsidiary shall not,
however, affect the rights of any Participant who is working or has worked for
the Subsidiary as to amounts and/or units previously standing to his credit in
his Accounts in the Foreign Deferred Compensation Ledger.
ARTICLE IX
AMENDMENT AND/OR TERMINATION
9.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board of
Directors may amend or terminate the Plan at any time by an instrument in
writing without the consent of any adopting Company or any Participant.
9.2 NO RETROACTIVE EFFECT ON AWARDED BENEFITS. No amendment
shall affect the rights of any Participant to the amounts and/or units then
standing to his credit in his Accounts in the Foreign Deferred Compensation
Ledger. However, the Board of Directors shall retain the right to change at any
time and in any manner the method of calculating all Basic Benefits to be
accrued in the future, and the gauge to be used to determine future increases or
decreases in amounts accrued after the date of the amendment.
9.3 EFFECT OF TERMINATION. If the Plan is terminated, all
amounts of Basic Benefits accrued by the Company and credited to a Participant's
Accounts shall immediately vest as if the Participant were entitled to and did
retire on the date the Plan terminated. Distribution would then commence in
accordance with Section 6.3. However, the forfeiture provisions of Section 6.5
would continue to apply until the actual date of distribution.
ARTICLE X
PAYMENT
10.1 PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATION OF THE
COMPANY. The Company shall be liable for all benefits due the Participants under
the Plan.
9
<PAGE> 15
10.2 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE
COMPANY. The Plan is only a general corporate commitment and each Participant
must rely upon the general credit of the Company for the fulfillment of its
obligations under the Plan. Under all circumstances the rights of Participants
to any asset held by the Company shall be no greater than the rights expressed
in this agreement. Nothing contained in the Plan shall constitute a guarantee by
the Company that the assets of the Company will be sufficient to pay any
benefits under the Plan or would place the Participant in a secured position
ahead of general creditors and judgment creditors of the Company.
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS. Nothing in the Plan will be
construed:
(a) to give any employee of any Company any right to be
designated a Participant in the Plan;
(b) to give a Participant any right with respect to the Basic
Benefit accrued except in accordance with the terms of the Plan;
(c) to limit in any way the right of the Company to terminate
a Participant's employment with the Company at any time;
(d) to evidence any agreement or understanding, expressed or
implied, that the Company will employ a Participant in any particular
position or for any particular remuneration; or
(e) to give a Participant or any other person claiming through
him any interest or right under the Plan other than that of any
unsecured general creditor of the Company.
11.2 DISTRIBUTION TO MINOR OR INCAPACITATED PERSON. If the
Committee determines that any person to whom a payment is due is a minor or
unable to care for his affairs because of physical or mental disability, it
shall have the authority to cause his payments under the Plan to be made to his
parent, legal guardian, spouse, brother, sister or other person whom the
Committee determines. The Committee shall not be responsible to oversee the
application of those payments. Payments made pursuant to this power shall be a
complete discharge of all liability under the Plan and the obligations of the
Company and the Committee.
11.3 NONALIENATION OF BENEFITS. No right or benefit provided
in the Plan shall be transferable by the Participant except, upon his death, to
a named Beneficiary as provided in the Plan. No right or benefit under the Plan
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same shall be void. No right or benefit under
the Plan shall in any manner
10
<PAGE> 16
be liable for or subject to any debts, contracts, liabilities or torts of the
person entitled to such benefits. If any Participant or any Beneficiary becomes
bankrupt or attempts to anticipate, alienate, sell, assign, pledge, encumber or
charge any right or benefit under the Plan, that right or benefit shall, in the
discretion of the Committee, cease. In that event, the Committee may have the
Company hold or apply the right or benefit or any part of it to the benefit of
the Participant or Beneficiary, his or her spouse, children or other dependents
or any of them in any manner and in any proportion the Committee believes to be
proper in its sole and absolute discretion, but is not required to do so.
11.4 RELIANCE UPON INFORMATION. The Committee shall not be
liable for any decision or action taken in good faith in connection with the
administration of the Plan. Without limiting the generality of the foregoing,
any decision or action taken by the Committee when it relies upon information
supplied it by any officer of the Company, the Company's legal counsel, the
Company's independent accountants or other advisors in connection with the
administration of the Plan shall be deemed to have been taken in good faith.
11.5 SEVERABILITY. If any term, provision, covenant or
condition of the Plan is held to be invalid, void or otherwise unenforceable,
the rest of the Plan shall remain in full force and effect and shall in no way
be affected, impaired or invalidated.
11.6 NOTICE. Any notice or filing required or permitted to be
given to the Committee or a Participant shall be sufficient if in writing and
hand delivered or sent by mail (postage prepaid) to the principal office of the
Company or to the residential mailing address of the Participant. Notice shall
be deemed to be given as of the date of hand delivery or if delivery is by mail,
as of the date shown on the postmark.
11.7 GENDER AND NUMBER. If the context requires it, words of
one gender when used in the Plan will include the other genders, and words used
in the singular or plural will include the other.
11.8 GOVERNING LAW. The Plan will be construed, administered
and governed in all respects by the laws of the State of Texas, United States of
America.
11.9 EFFECTIVE DATE. The Plan will be operative and effective
on the effective date of the distribution by Weatherford International, Inc. to
its stockholders of all the outstanding shares of stock of GP.
11
<PAGE> 17
IN WITNESS WHEREOF, the Company has executed this document on
this _____ day of ____________________ 2000.
GRANT PRIDECO, INC.
By
-----------------------------------
Its
-------------------------------
The Foreign Subsidiaries listed on Exhibit A are included in the Plan.
12
<PAGE> 18
EXHIBIT A
GRANT PRIDECO, INC. FOREIGN SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation or Formation
- ---------------------------------------------------- --------------------------
<S> <C>
Weatherford Mauritius Limited Mauritius
Jiangsu Shuguang Grant Prideco Tubular Company Ltd. China
XLS Systems Antilles N.V. Netherlands Antilles
XLS Systems Europe, B.V. Netherlands
Enerpro de Mexico S.A. de C.V. Mexico
Grant Tubular Finishing Ltd. Hungary
Grant Prideco (Singapore) Pte Ltd. Singapore
Grant Prideco S.A. de C.V. Mexico
Grant Prideco Canada Ltd. Alberta
Grant Prideco, S.A. Switzerland
Citra Grant Prideco Marketing Ltd. Jersey Islands
Grant Prideco de Venezuela Venezuela
Prideco de Venezuela, S.A. Venezuela
Prideco Europe Limited UK
Pridecomex Holding, S.A. de C.V. Mexico
TF de Mexico, S.A. de C.V. Mexico
Inmobiliaria Industrial de Veracruz S.A. de C.V. Mexico
PT H-Tech Oilfield Equipment Indonesia
Voest-Alpine Stahlrohr Kindberg GmbH Austria
Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG Austria
Voest-Alpine Middle East Free Establishment Zone United Arab Emirates
Voest-Alpine South America, S.A. Venezuela
</TABLE>
13
<PAGE> 1
EXHIBIT 10.9
GRANT PRIDECO, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE> 2
GRANT PRIDECO, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
-------
<S> <C>
ARTICLE I - DEFINITIONS
Account.................................................................1.1
Basic Benefit...........................................................1.2
Beneficiary.............................................................1.3
Board of Directors......................................................1.4
Code....................................................................1.5
Committee...............................................................1.6
Common Stock............................................................1.7
Company.................................................................1.8
Company Match...........................................................1.9
Compensation...........................................................1.10
Deferral...............................................................1.11
Deferred Compensation Ledger...........................................1.12
Disability.............................................................1.13
ERISA..................................................................1.14
GP.....................................................................1.15
Participant............................................................1.16
Plan...................................................................1.17
Plan Year..............................................................1.18
Retirement.............................................................1.19
Subsidiary.............................................................1.20
Year of Service........................................................1.21
ARTICLE II - ELIGIBILITY
ARTICLE III - DEFERRALS AND BENEFIT ACCRUALS
Basic Benefit Accrual...................................................3.1
Deferral Election.......................................................3.2
Company Match Accrual...................................................3.3
Reduction of Accruals...................................................3.4
ARTICLE IV - ACCOUNT
Establishing a Participant's Account....................................4.1
Basic Benefit Account...................................................4.2
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Deferral Account........................................................4.3
Company Match Account...................................................4.4
Gauge for Determining Benefits..........................................4.5
ARTICLE V - VESTING
Deferrals...............................................................5.1
Basic Benefit and Company Match.........................................5.2
ARTICLE VI - DISTRIBUTIONS
Death...................................................................6.1
Disability..............................................................6.2
Retirement..............................................................6.3
Termination Prior to Death, Disability or Retirement....................6.4
Forfeiture for Cause....................................................6.5
Responsibility for Distributions and
Withholding of Taxes..................................................6.6
Distribution Determination Date.........................................6.7
Valuation of Accounts for Cash Distributions............................6.8
ARTICLE VII - ADMINISTRATION
Committee Appointment...................................................7.1
Committee Organization and Voting.......................................7.2
Powers of the Committee.................................................7.3
Committee Discretion....................................................7.4
Annual Statements.......................................................7.5
Reimbursement of Expenses...............................................7.6
ARTICLE VIII - ADOPTION BY SUBSIDIARIES
Procedure for and Status After Adoption.................................8.1
Termination of Participation by Adopting Subsidiary.....................8.2
ARTICLE IX - AMENDMENT AND/OR TERMINATION
Amendment or Termination of the Plan....................................9.1
No Retroactive Effect on Awarded Benefits...............................9.2
Effect of Termination...................................................9.3
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X - PAYMENT
Payments Under This Agreement Are the Obligation
of the Company.......................................................10.1
Payments May Be Made to a Rabbi Trust..................................10.2
Participants Must Rely Only on General
Credit of the Company................................................10.3
Plan Unfunded..........................................................10.4
ARTICLE XI - MISCELLANEOUS
Limitation of Rights...................................................11.1
Distribution to Minor or Incapacitated Person..........................11.2
Nonalienation of Benefits..............................................11.3
Reliance Upon Information .............................................11.4
Severability...........................................................11.5
Notice.................................................................11.6
Gender and Number......................................................11.7
Governing Law..........................................................11.8
Effective Date.........................................................11.9
</TABLE>
iii
<PAGE> 5
GRANT PRIDECO, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Grant Prideco, Inc. desires to adopt a deferred compensation
plan for a select group of management and highly compensated employees;
WHEREAS, as a result of the distribution by Weatherford International,
Inc. to its stockholders of all of the outstanding shares of stock of Grant
Prideco, Inc. (the "Spin-Off"), Grant Prideco, Inc. shall no longer be a
subsidiary of Weatherford International, Inc. as of the effective date of the
Spin-Off;
NOW, THEREFORE, Grant Prideco, Inc. hereby establishes the Grant
Prideco, Inc. Executive Deferred Compensation Plan effective on the effective
date of the Spin-Off, the terms of which are set forth in this document as it
may be amended from time to time.
<PAGE> 6
ARTICLE I
DEFINITIONS
1.1 "ACCOUNT" means all ledger accounts pertaining to a Participant
which are maintained by the Committee to reflect the amount of deferred
compensation due the Participant. The Committee shall establish the following
Accounts and any additional Accounts that the Committee considers necessary.
(a) Deferral Account - The Participant's deferral, if any, between one
percent and 7 1/2 percent of his Compensation.
(b) Basic Benefit Account - The Company's accrual of 7 1/2 percent of
Compensation for each Participant, or such lesser amount as the Committee
establishes pursuant to Section 3.4.
(c) Company Match Account - The Company's match equal to 100 percent of
the Participant's Deferral, if any, or such lesser amount as the Committee
establishes pursuant to Section 3.4.
1.2 "BASIC BENEFIT" means the accrual made by the Company for the
benefit of a Participant equal to 7 1/2 percent of the Participant's
Compensation or such lesser amount as the Committee establishes pursuant to
Section 3.4.
1.3 "BENEFICIARY" means a person or entity designated by the
Participant under the terms of the Plan to receive a payment under the Plan upon
the death of the Participant.
1.4 "BOARD OF DIRECTORS" means the Board of Directors of GP.
1.5 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
I-1
<PAGE> 7
1.6 "COMMITTEE" means the persons who are from time to time serving as
members of the committee administering the Plan.
1.7 "COMMON STOCK" means the common stock, $.01 par value, of GP.
1.8 "COMPANY" means GP and any Subsidiary that adopts the Plan.
1.9 "COMPANY MATCH" means the 100 percent match which the Company
accrues with respect to the amount deferred during a Plan Year by a Participant
under the Plan, or such lesser amount as the Committee establishes pursuant to
Section 3.4.
1.10 "COMPENSATION" means remuneration paid to a Participant by the
Company during the portion of the Plan Year in which he is eligible to
participate in the Plan, or that would have been paid to a Participant during
the Plan Year by the Company but for the Participant's election to make a
Deferral under the Plan or his deferrals under a cash or deferred arrangement
described in section 401(k) of the Code or a cafeteria plan described in section
125 of the Code, including and limited to regular base pay, merit and incentive
bonuses (other than bonuses paid by the Company with respect to services for a
predecessor employer that has not adopted the Plan or with respect to services
performed by the Participant prior to his employment by the Company, as
determined by the Committee in its sole discretion), commissions, short-term
disability pay, vacation pay paid while the Participant is employed by the
Company, vacation pay paid upon a Participant's termination of employment, and
retention bonuses. Compensation does not include sign-on bonuses, foreign
service premiums or bonuses, position allowances, location coefficient payments,
housing allowances, car allowances, goods and services allowances, tax gross-up
payments, hypothetical tax
I-2
<PAGE> 8
payments, expense reimbursements, travel allowances or bonuses, cash and
non-cash fringe benefits, severance pay, relocation allowances or expense
reimbursements, deferred compensation (such as income as a result of the
exercise of a stock option or stock appreciation right), or benefits under any
pension plan or welfare plan as defined in ERISA (whether or not paid under a
program that is subject to regulation under ERISA).
1.11 "DEFERRAL" means the amount of Compensation deferred under a
deferral election made by a Participant under Section 3.2.
1.12 "DEFERRED COMPENSATION LEDGER" means the ledger maintained by the
Committee for each Participant which reflects the amount of Compensation
deferred by the Participant under the Plan, the Basic Benefit and the Company
Match provided under the Plan, and the amount of earnings and losses credited on
each of these amounts.
1.13 "DISABILITY" means a physical or mental condition that prevents
the Participant from earning a reasonable livelihood with the Company and was
not the result of having engaged in a felonious criminal enterprise, alcoholism,
addiction to narcotics or service in the U.S. Armed Forces. The Committee's
determination of a Participant's Disability shall be in its sole discretion and
shall be final.
1.14 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.15 "GP" means Grant Prideco, Inc., the sponsor of the Plan, or any
successor of Grant Prideco, Inc. into which Grant Prideco, Inc. is merged or
consolidated.
I-3
<PAGE> 9
1.16 "PARTICIPANT" means an employee of a Company who is eligible to
participate in the Plan.
1.17 "PLAN" means the Grant Prideco, Inc. Executive Deferred
Compensation Plan set out in this document, as amended from time to time.
1.18 "PLAN YEAR" means a one year period which coincides with the
calendar year.
1.19 "RETIREMENT" means the retirement of a Participant under the
Company's retirement policy on or after attaining age 60.
1.20 "SUBSIDIARY" means any domestic wholly owned subsidiary of GP.
1.21 "YEAR OF SERVICE" means 365 days of employment with GP or a
Subsidiary. Employment with Weatherford International, Inc. up to the fifth
anniversary of the effective date of the distribution by Weatherford
International, Inc. to its stockholders of all the outstanding shares of stock
of GP shall be treated as employment with GP.
I-4
<PAGE> 10
ARTICLE II
ELIGIBILITY
The employees eligible to participate in the Plan include the key
employees of GP and each Subsidiary, who are in a select group of management or
are highly compensated employees, as determined by the Committee. The Committee
shall notify each Participant of his eligibility to participate in the Plan from
time to time. Except as specified below, each Participant in the Plan during a
Plan Year shall continue to participate in the Plan unless the Committee shall
have notified the Participant prior to the beginning of the next Plan Year that
he will not participate in the Plan for that Plan Year. The Committee may at any
time during a Plan Year on 60 days' notice to a Participant advise the
Participant that he shall not participate in the Plan after the expiration of
such notice period. A former Participant who has been notified that he will no
longer participate in the Plan, but who remains in the employ of the Company,
shall retain the balance in his Accounts under the terms of the Plan, but he
shall not make additional deferrals under Section 3.2 and no additional amounts
shall be credited to his Accounts under Sections 4.2 and 4.4 during the periods
in which he is not a Participant.
II-1
<PAGE> 11
ARTICLE III
DEFERRALS AND BENEFIT ACCRUALS
3.1 BASIC BENEFIT ACCRUAL. Subject to Section 3.4, the Company shall
accrue an amount for the benefit of each Participant equal to 7 1/2 percent of
the Participant's Compensation for the Plan Year.
3.2 DEFERRAL ELECTION. A Participant may elect, within 30 days of
notification that he is eligible to participate in the Plan, and not less than
six months prior to the effective date of the first deferral, and thereafter not
later than June 30 preceding the next Plan Year, the percentage, if any, of his
Compensation to be earned during the ensuing Plan Year, that is to be deferred
under the Plan. A Participant may defer a minimum of one percent but not more
than 7 1/2 percent of his Compensation for the Plan Year. Prior to the election
period the Committee shall notify all eligible Participants of their right to
make a deferral election. Once an election has been made as to the percentage to
be deferred, it becomes irrevocable for the Plan Year. The election to defer a
percentage of Compensation shall be effective only upon the timely receipt by
the Committee of the Participant's percentage deferral election on such form as
will be determined by the Committee from time to time. Except with respect to
the election by a newly eligible Participant as described above, if the
Committee fails to receive a properly filed election form on or prior to June 30
of the year immediately preceding the Plan Year to which the election applies,
revoking or modifying a prior election, the prior election shall remain in
effect. If a timely election form is not received, the Participant shall be
deemed to have elected not to defer any part of his Compensation
III-1
<PAGE> 12
for that Plan Year. An election to defer for one Plan Year shall remain
effective for subsequent Plan Years until modified or revoked in accordance with
this Section 3.2.
3.3 COMPANY MATCH ACCRUAL. Subject to Section 3.4, each Plan Year the
Company shall credit the Company Match Account of each Participant who elects to
defer a portion of his Compensation under the Plan with an amount equal to 100
percent of the amount that he defers for the Plan Year.
3.4 REDUCTION OF ACCRUALS. The Committee may reduce the percentage of
the Basic Benefit accrual and/or the Company Match accrual upon written notice
to a Participant. Such reduction shall apply only as to Plan Years following
such notice, or in the case of a new Participant, beginning on the date that the
Participant first receives credit under Section 3.1, 3.2 or 3.3.
III-2
<PAGE> 13
ARTICLE IV
ACCOUNT
4.1 ESTABLISHING A PARTICIPANT'S ACCOUNT. The Committee shall establish
an Account for each Participant in a special Deferred Compensation Ledger which
shall be maintained by the Company. The Account shall reflect the amount of the
Company's obligation to the Participant at any given time.
4.2 Basic Benefit Account. The Basic Benefit shall be credited to each
Participant's Basic Benefit Account as of the last day of each month of each
Plan Year for the accrual attributable to Compensation paid during that month.
4.3 Deferral Account. The amount deferred by a Participant, if any,
shall be credited to each Participant's Deferral Account as of the last day of
each month in which the Participant would have received the amount deferred but
for his election to defer.
4.4 Company Match Account. The Company Match shall be credited to each
Participant's Company Match Account coincident with the crediting of the
Participant's Deferral to the Participant's Deferral Account.
4.5 Gauge for Determining Benefits. The Basic Benefit, Deferral and
Company Match credits described in Sections 4.2, 4.3 and 4.4 shall be deemed to
be credited in non-monetary units equal to the number of whole shares of Common
Stock that could have been purchased at a price equal to the average closing
sale price of a share of Common Stock during the calendar month for which the
allocation is made as reported by the principal national securities exchange on
which the Common Stock is then listed if the Common Stock is listed on a
national securities exchange or the average of the bid and asked price of a
share of Common Stock during such month as reported
IV-1
<PAGE> 14
in the National Association of Securities Dealers Automated Quotation National
Market System (or successor system) listing if the Common Stock is not then
listed on a national securities exchange, provided that if no such closing price
or quotes are so reported during that month or if, in the discretion of the
Committee, another means of determining the fair market value of the Common
Stock for such month shall be necessary and advisable, the Committee may provide
for another means of determining such value, and in monetary units for any
amount that is less than the value of a whole share. Any monetary unit credited
to an Account will be added to the next such amount credited to the Account and
converted into a non-monetary unit as quickly as possible. The value of each
unit credited to an Account, and therefore the ultimate value of the deferred
compensation payable to each Participant, will increase or decrease in
proportion to the change in the value of a share of Common Stock between the
date of the initial crediting of a unit and the date that the unit is valued for
distribution under Article VI of the Plan.
IV-2
<PAGE> 15
ARTICLE V
VESTING
5.1 DEFERRALS. A Participant shall have a 100 percent nonforfeitable
interest in his Deferrals under the Plan at all times. A Participant will also
have a 100 percent nonforfeitable interest in any increase in the Deferral as a
result of the rise in the value of the non-monetary units after his Deferral has
been initially credited.
5.2 BASIC BENEFIT AND COMPANY MATCH. Upon his Retirement, death or
Disability while employed with the Company, a Participant will have a 100
percent nonforfeitable interest in the Basic Benefit and Company Match credited
to his Account together with any increase in the accruals as a result of the
rise in the value of the non-monetary units after they have been initially
credited, except for the events of forfeiture described in Section 6.5. In
addition, a Participant's interest in the Basic Benefit and Company Match
credited to his Account together with any increase in the accruals as a result
of the rise in the value of the non-monetary units after they have been
initially credited shall vest at the rate set out in the vesting schedule below,
except for events of forfeiture described in Section 6.5 and upon termination of
the Plan as provided in Section 9.3.
<TABLE>
<CAPTION>
Completed Years of Service
With the Company Beginning
January 1 of the Plan Year the Employee
First Becomes a Participant Percentage Vested
- --------------------------------------- -----------------
<S> <C>
Less than one year...............................................................0
One but less than two...........................................................20
Two but less than three.........................................................40
Three but less than four........................................................60
Four but less than five.........................................................80
Five or more...................................................................100
</TABLE>
V-1
<PAGE> 16
ARTICLE VI
DISTRIBUTIONS
6.1 DEATH. Upon the death of a Participant, his Beneficiary or
Beneficiaries shall receive the value of the amounts credited to the
Participant's Accounts in the Deferred Compensation Ledger determined under
Section 6.7, and in the discretion of the Committee, the distribution shall be
made in shares of Common Stock or in one lump sum payment in cash, or in a
combination of shares of Common Stock and cash. The distribution shall be made
within 30 days after the Participant's death.
Each Participant, upon notification of his participation in the Plan,
shall file with the Committee a designation of a Beneficiary or Beneficiaries to
whom distributions otherwise due the Participant shall be made in the event of
his death prior to the distribution of the amount credited to his Accounts in
the Deferred Compensation Ledger. The designation will be effective upon receipt
by the Committee of a properly executed form which the Committee has approved
for that purpose. The Participant may from time to time revoke or change any
designation of Beneficiary by filing another approved Beneficiary designation
form with the Committee. If there is no valid designation of Beneficiary on file
with the Committee at the time of the Participant's death, or if all of the
Beneficiaries designated in the last Beneficiary designation have predeceased
the Participant or otherwise ceased to exist, the Beneficiary will be the
Participant's spouse, if the spouse survives the Participant, or otherwise the
Participant's estate. Any Beneficiary designation which designates any person or
entity other than the Participant's spouse must be consented to in writing by
the spouse in a form acceptable to the Committee in order to be effective.
VI-1
<PAGE> 17
6.2 DISABILITY. Upon the Disability of a Participant, the Participant
shall receive the value of the amounts credited to the Participant's Accounts in
the Deferred Compensation Ledger determined under Section 6.7, and at the
discretion of the Committee, the distribution shall be made in shares of Common
Stock or in one lump sum payment in cash, or in a combination of shares of
Common Stock and cash. The distribution shall be made within 30 days after the
Participant becomes disabled.
6.3 RETIREMENT. Upon the Retirement of a Participant on or after
attaining age 60, the Participant shall receive the value of the amounts
credited to his Accounts in the Deferred Compensation Ledger determined under
Section 6.7, and at the discretion of the Committee, the distribution shall be
made in Common Stock or in one lump sum payment in cash, or in a combination of
shares of Common Stock and cash. The distribution shall be made within 30 days
after the Participant's Retirement.
6.4 TERMINATION PRIOR TO DEATH, DISABILITY OR RETIREMENT. Upon a
Participant's termination from the employ of all Companies prior to his death,
Disability or Retirement, the Participant shall receive the portion of the
amount credited to his Accounts in the Deferred Compensation Ledger, determined
under Section 6.7, which is vested under Sections 5.1 and 5.2, and in the
discretion of the Committee, the distribution shall be made in shares of Common
Stock or in one lump sum payment in cash, or in a combination of shares of
Common Stock and cash. The distribution shall be made within 30 days after the
Participant's termination. Any amounts not then vested shall be forfeited.
VI-2
<PAGE> 18
6.5 FORFEITURE FOR CAUSE. If the Committee finds, after full
consideration of the facts presented on behalf of both the Company and a former
Participant, that the Participant was discharged by the Company for fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his employment by the Company which damaged the Company, or for disclosing trade
secrets of the Company, the entire amount credited to his Basic Benefit Account
and Company Match Account in the Deferred Compensation Ledger shall be forfeited
even though it may have been previously vested under Section 5.2. The decision
of the Committee as to the cause of a former Participant's discharge and the
damage done to the Company shall be final. No decision of the Committee shall
affect the finality of the discharge of the Participant by the Company in any
manner.
6.6 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES. The
Committee shall furnish information to the Company employing the Participant
concerning the amount and form of distribution to any Participant entitled to a
distribution so that the Company may make or cause the rabbi trust to make the
distribution required. It will also calculate the deductions from the amount of
the benefit paid under the Plan for any taxes required to be withheld by
federal, state or local government and will cause them to be withheld and paid
to the appropriate authority. If a Participant has deferred compensation under
the Plan while in the service of more than one Company, each Company for which
the Participant worked shall pay the amount attributable to the period the
Participant was in the service of that Company, except to the extent the Company
paid an amount to the Trust which was paid the Participant.
6.7 DISTRIBUTION DETERMINATION DATE. For purposes of all distributions
described in this Article VI, the determination date for valuing the amounts
credited to a Participant's Accounts shall be the day which triggers the
beginning of the 90-day period described in Section 6.1, 6.2, 6.3
VI-3
<PAGE> 19
or 6.4, as applicable. For purposes of all distributions in Common Stock and
Grant Stock described in this Article VI, the determination date shall be the
date of the actual distribution of the Common Stock to the Participant or his
beneficiary, and the number of shares issued shall be equal to the vested
non-monetary units allocated to the Participant's Accounts.
6.8 VALUATION OF ACCOUNTS FOR CASH DISTRIBUTIONS. For purposes of all
distributions in cash described in this Article VI, the Committee shall
determine the fair market value of the non-monetary units of Common Stock deemed
credited to a Participant's Account as of the determination date specified in
Section 6.7. For this purpose, the fair market value of a share of Common Stock
shall be the average closing price of a share of Common Stock during the month
in which the determination date described in Section 6.7 occurs, as reported by
the principal national securities exchange on which the Common Stock is then
listed if it is listed on a national securities exchange or the average of the
bid and asked price of a share of Common Stock during such month as reported in
the National Association of Securities Dealers Automated Quotation National
Market System (or successor system) listing if the Common Stock is not then
listed on a national securities exchange, provided that if no such closing price
or quotes are so reported during that month or if, in the discretion of the
Committee, another means of determining the fair market value of the Common
Stock for such month shall be necessary and advisable, the Committee may provide
for another means of determining such value.
VI-4
<PAGE> 20
ARTICLE VII
ADMINISTRATION
7.1 COMMITTEE APPOINTMENT. The Committee which shall consist of not
less than two members shall be appointed by the Board of Directors. Each
Committee member shall serve until his resignation or removal. The Board of
Directors shall have the sole discretion to remove any one or more Committee
members and appoint one or more replacement or additional Committee members from
time to time.
7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee shall select from
among its members a chairman who shall preside at all of its meetings and shall
elect a secretary without regard to whether that person is a member of the
Committee. The secretary shall keep all records, documents and data pertaining
to the Committee's supervision and administration of the Plan. A majority of the
members of the Committee shall constitute a quorum for the transaction of
business and the vote of a majority of the members present at any meeting shall
decide any question brought before the meeting. In addition, the Committee may
decide any question by a vote, taken without a meeting, of a majority of its
members. A member of the Committee who is also a Participant shall not vote or
act on any matter relating solely to himself.
7.3 POWERS OF THE COMMITTEE. The Committee shall have the exclusive
responsibility for the general administration of the Plan according to the terms
and provisions of the Plan and shall have all powers necessary to accomplish
those purposes, including but not by way of limitation the right, power and
authority:
(a) to make rules and regulations for the administration of the Plan;
(b) to construe all terms, provisions, conditions and limitations of
the Plan;
VII-1
<PAGE> 21
(c) to correct any defect, supply any omission or reconcile any
inconsistency that may appear in the Plan in the manner and to the extent
it deems expedient to carry the Plan into effect;
(d) to designate the persons eligible to become Participants;
(e) to determine all controversies relating to the administration of
the Plan, including but not limited to:
(1) differences of opinion arising between the Company and a
Participant; and
(2) any question it deems advisable to determine in order to
promote the uniform administration of the Plan for the benefit of all
parties at interest; and
(f) to delegate by written notice those clerical and recordation duties
of the Committee, as it deems necessary or advisable for the proper and
efficient administration of the Plan.
7.4 COMMITTEE DISCRETION. The Committee in exercising any power or
authority granted under the Plan or in making any determination under the Plan
shall perform or refrain from performing those acts using its sole discretion
and judgment. Any decision made by the Committee or any refraining to act or any
act taken by the Committee in good faith shall be final and binding on all
parties and shall not be subject to de novo review.
7.5 ANNUAL STATEMENTS. The Committee shall cause each Participant to
receive an annual statement as soon as administratively feasible after the
conclusion of each Plan Year containing a statement of the Participant's
Accounts in the Deferred Compensation Ledger through the end of that Plan Year.
The statement shall include a report of the Basic Benefit, the Participant
Deferral and Company Match, if any, and the number of units credited to each
Participant's Accounts for that Plan Year.
VII-2
<PAGE> 22
7.6 REIMBURSEMENT OF EXPENSES. The Committee shall serve without
compensation for its services but shall be reimbursed by GP for all expenses
properly and actually incurred in the performance of its duties under the Plan.
VII-3
<PAGE> 23
ARTICLE VIII
ADOPTION BY SUBSIDIARIES
8.1 PROCEDURE FOR AND STATUS AFTER ADOPTION. Any Subsidiary may, with
the approval of the Committee, adopt the Plan by appropriate action of its board
of directors. The terms of the Plan will apply separately to each Subsidiary
adopting the Plan and its Participants in the same manner as is expressly
provided for GP and its Participants except that the powers of the Board of
Directors and the Committee under the Plan shall be exercised by the Board of
Directors of GP alone. GP and each Subsidiary that adopts the Plan shall bear
the cost of providing Plan benefits for its own Participants. It is intended
that the obligation of GP and each Subsidiary with respect to its Participants
shall be the sole obligation of the Company that is employing the Participant
and shall not bind any other Company.
8.2 TERMINATION OF PARTICIPATION BY ADOPTING SUBSIDIARY. Any Subsidiary
that adopts the Plan may, by appropriate action of its board of directors,
terminate its participation in the Plan. The Committee may, in its discretion,
also terminate a Subsidiary's participation in the Plan at any time. The
termination of the participation in the Plan by a Subsidiary shall not, however,
affect the rights of any Participant who is working or has worked for the
Subsidiary as to amounts and/or units previously standing to his credit in his
Accounts in the Deferred Compensation Ledger.
VIII-1
<PAGE> 24
ARTICLE IX
AMENDMENT AND/OR TERMINATION
9.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors may
amend or terminate the Plan at any time by an instrument in writing without the
consent of any adopting Company or any Participant.
9.2 NO RETROACTIVE EFFECT ON AWARDED BENEFITS. No amendment shall
affect the rights of any Participant to the amounts and/or units then standing
to his credit in his Accounts in the Deferred Compensation Ledger. However, the
Board of Directors shall retain the right to change at any time and in any
manner the method of calculating all Basic Benefits to be accrued in the future,
all amounts deferred by a Participant and all amounts matched by the Company and
the gauge to be used to determine future increases or decreases in amounts
accrued or deferred after the date of the amendment.
9.3 EFFECT OF TERMINATION. If the Plan is terminated, all amounts of
Basic Benefits accrued by the Company, deferred by Participants and matched by
the Company and credited to a Participant's Accounts shall immediately vest as
if the Participant were entitled to and did retire on the date the Plan
terminated. Distributions would then commence in accordance with Section 6.3.
However, the forfeiture provisions of Section 6.5 would continue to apply until
the actual date of distribution.
IX-1
<PAGE> 25
ARTICLE X
PAYMENT
10.1 PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATION OF THE COMPANY.
The Company shall be liable for all benefits due the Participants under the
Plan.
10.2 PAYMENTS MAY BE MADE TO A RABBI TRUST. Under all circumstances,
the rights of the Participants to the assets held in any rabbi trust created
with respect to the Plan shall be no greater than the rights expressed in this
agreement. Nothing contained in the trust agreement which creates any such rabbi
trust shall constitute a guarantee by any Company that the amounts transferred
by it to the trust shall be sufficient to pay any benefits under the Plan or
would place the Participant in a secured position ahead of judgment and/or
general creditors should the Company become insolvent or bankrupt. Any trust
agreement established with respect to a Plan must specifically set out these
principles so it is clear in the trust agreement that the Participants are only
unsecured general creditors of the Company with respect to their benefits under
the Plan.
10.3 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE COMPANY. The
Plan is only a general corporate commitment and each Participant must rely upon
the general credit of the Company for the fulfillment of its obligations under
the Plan. Under all circumstances the rights of Participants to any asset held
by the Company shall be no greater than the rights expressed in this agreement.
Nothing contained in this agreement shall constitute a guarantee by the Company
that the assets of the Company will be sufficient to pay any benefits under the
Plan or would place the Participant in a secured position ahead of general
creditors and judgment creditors of the Company. Though the Company may
establish or become a signatory to a rabbi trust to accumulate assets to help
fulfill its obligations, the Plan and any trust created, shall not create any
lien, claim, encumbrance, right, title or other interest of any kind in any
Participant in any asset held by the
X-1
<PAGE> 26
Company, contributed to any trust created, or otherwise be designated to be used
for payment of any of its obligations created in this agreement. No specific
assets of the Company have been or will be set aside, or will be transferred to
a trust or will be pledged for the performance of the Company's obligations
under the Plan which would remove those assets from being subject to the general
creditors and judgment creditors of the Company.
10.4 PLAN UNFUNDED. It is intended that the Plan shall be unfunded for
tax purposes and for purposes of Title I of ERISA.
X-2
<PAGE> 27
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS. Nothing in the Plan will be construed:
(a) to give any employee of any Company any right to be designated a
Participant in the Plan;
(b) to give a Participant any right with respect to the Basic Benefit
accrued, the Deferral, or the Company Match accrued except in accordance
with the terms of the Plan;
(c) to limit in any way the right of the Company to terminate a
Participant's employment with the Company at any time;
(d) to evidence any agreement or understanding, expressed or implied,
that the Company will employ a Participant in any particular position or
for any particular remuneration; or
(e) to give a Participant or any other person claiming through him any
interest or right under the Plan other than that of any unsecured general
creditor of the Company.
11.2 DISTRIBUTION TO MINOR OR INCAPACITATED PERSON. If the Committee
determines that any person to whom a payment is due is a minor or unable to care
for his affairs because of physical or mental disability, it shall have the
authority to cause his payments under the Plan to be made to his parent, legal
guardian, spouse, brother, sister or other person whom the Committee determines.
The Committee shall not be responsible to oversee the application of those
payments. Payments made pursuant to this power shall be a complete discharge of
all liability under the Plan and the obligations of the Company and the
Committee.
11.3 NONALIENATION OF BENEFITS. No right or benefit provided in the
Plan shall be transferable by the Participant except, upon his death, to a named
Beneficiary as provided in the Plan. No right or benefit under the Plan shall be
subject to anticipation, alienation, sale, assignment,
XI-1
<PAGE> 28
pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge the same shall be void. No right or benefit
under the Plan shall in any manner be liable for or subject to any debts,
contracts, liabilities or torts of the person entitled to such benefits. If any
Participant or any Beneficiary becomes bankrupt or attempts to anticipate,
alienate, sell, assign, pledge, encumber or charge any right or benefit under
the Plan, that right or benefit shall, in the discretion of the Committee,
cease. In that event, the Committee may have the Company hold or apply the right
or benefit or any part of it to the benefit of the Participant or Beneficiary,
his or her spouse, children or other dependents or any of them in any manner and
in any proportion the Committee believes to be proper in its sole and absolute
discretion, but is not required to do so.
11.4 RELIANCE UPON INFORMATION. The Committee shall not be liable for
any decision or action taken in good faith in connection with the administration
of the Plan. Without limiting the generality of the foregoing, any decision or
action taken by the Committee when it relies upon information supplied it by any
officer of the Company, the Company's legal counsel, the Company's independent
accountants or other advisors in connection with the administration of the Plan
shall be deemed to have been taken in good faith.
11.5 SEVERABILITY. If any term, provision, covenant or condition of the
Plan is held to be invalid, void or otherwise unenforceable, the rest of the
Plan shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
11.6 NOTICE. Any notice or filing required or permitted to be given to
the Committee or a Participant shall be sufficient if in writing and hand
delivered or sent by U.S. mail to the principal office of the Company or to the
residential mailing address of the Participant. Notice shall be deemed to be
given as of the date of hand delivery or if delivery is by mail, as of the date
shown on the postmark.
XI-2
<PAGE> 29
11.7 GENDER AND NUMBER. If the context requires it, words of one gender
when used in the Plan will include the other genders, and words used in the
singular or plural will include the other.
11.8 GOVERNING LAW. The Plan will be construed, administered and
governed in all respects by the laws of the State of Texas.
11.9 EFFECTIVE DATE. The Plan will be operative and effective on the
effective date of the distribution by Weatherford International, Inc. to its
stockholders of all the outstanding shares of stock of GP.
IN WITNESS WHEREOF, the Company has executed this document on this
_____ day of ____________________, 2000.
GRANT PRIDECO, INC.
By
---------------------------------------
Its
------------------------------------
The Subsidiaries listed on Exhibit A have
adopted the Plan.
XI-3
<PAGE> 30
EXHIBIT A
GRANT PRIDECO, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
The following subsidiaries have adopted the Plan:
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation or Formation
- ------------------------------------ --------------------------
<S> <C>
Channelview Real Property, Inc. Delaware
XL Systems International, Inc. Delaware
XLS Holding, Inc. Texas
XL Systems, Inc. Texas
TA Industries, Inc. Delaware
Tube-Alloy Capital Corporation Texas
Texas Arai, Inc. Delaware
Tube-Alloy Corporation Louisiana
Petroleum Equipment Supply Company Louisiana
Tube-Alloy Corporation International Texas
Grant Prideco Holding, L.L.C. Delaware
Grant Prideco U.S., L.L.C. Delaware
Grant Prideco, LP Delaware
Drill Tube International, Inc. Texas
Grant Austria, Inc. Delaware
Petro-Drive, Inc. Louisiana
</TABLE>
<PAGE> 1
EXHIBIT 10.10
GRANT PRIDECO, INC.
DEFERRED COMPENSATION PLAN FOR
NON-EMPLOYEE DIRECTORS
1. DEFINITIONS. Certain words and phrases used in the Plan shall have the
meaning set forth below.
(a) "ADMINISTRATIVE COMMITTEE" means a committee consisting of the duly
elected Corporate Secretary of the Company or, in the event the Secretary is a
Participant, one or more other persons appointed by the Board to administer the
Plan who are not Participants.
(b) "BOARD" means the Board of Directors of the Company.
(c) "COMPANY" means Grant Prideco, Inc., a Delaware corporation.
(d) "COMPENSATION" means any retainer, meeting, committee fee or any
similar fee or compensation to which a Non-Employee Director is entitled for
services performed.
(e) "CREDITED SHARES" means the shares of the Company's common stock
which, for accounting purposes only, are to be credited to a Participant's Share
Account from time to time. At no time shall Credited Shares be considered as
actual shares of common stock and a Participant shall have no rights as a
stockholder with respect to the Credited Shares.
(f) "DEFERRED AMOUNT" means compensation deferred by a Participant
under the Plan together with all dividends or other amounts credited to a
Participant's Share Account pursuant to the provisions of the Plan, including
the value of any Credited Shares in the Participant's Share Account.
(g) "MARKET VALUE" means with respect to the Company's common stock,
the mean between the high and low sales price per share (or average last bid and
asked price if applicable) of the Company's common stock, as reported by (i) the
automated quotation system of the National Association of Securities Dealers if
the Company's common stock is not then listed on a national securities exchange
or (ii) the principal national securities exchange on which the Company's common
stock is listed if the Company's common stock is so listed, in each case as of
the last trade day of each calendar month.
(h) "NON-EMPLOYEE DIRECTOR" means any duly elected or appointed member
of the Board who is not an employee of the Company or of any subsidiary of the
Company.
(i) "PARTICIPANT" means any Non-Employee Director who elects hereunder
to defer payment by the Company of a portion of the Compensation to which he or
she may be entitled.
<PAGE> 2
(j) "PLAN" means the Grant Prideco, Inc. Deferred Compensation Plan for
Non-Employee Directors.
(k) "SHARE ACCOUNT" means each account being administered for the
benefit of a Participant pursuant to Section 5 hereof.
2. ADMINISTRATION.
The Plan shall be administered by the Administrative Committee which
shall have the authority to construe and interpret the Plan, and to establish or
adopt rules, regulations and forms relating to the administration of the Plan.
The Administrative Committee shall have no authority to add to, delete from or
modify the terms of the Plan without the prior approval of the Board. All
actions and determinations by the Board with respect to the Plan shall be
required to be approved by a majority of the members thereof that are not then
participating in the Plan and who have not participated in the Plan during the
12-month period immediately preceding such action. Neither the Administrative
Committee nor any member of the Board shall be liable for any act or
determination made in good faith.
3. ELECTION TO DEFER COMPENSATION.
(a) Each Non-Employee Director may from time to time execute and
deliver to the Secretary an appropriate election form designating a portion of
the Non-Employee Director's future Compensation to be deferred under the Plan up
to a maximum of 7.5 percent of such Compensation. Any election shall be
applicable only to designated Compensation earned on or after the first day of
the month next following the month in which the election form is received by the
Administrative Committee and until the effective date of any revocation thereof.
Each such election must also irrevocably fix a date upon which the distributions
to the Participant under the Plan are to be made or begin as provided in Section
6 hereof, which date shall be a date not less than one year after the effective
date of the election.
(b) In the event a Participant elects to defer a portion of his or her
Compensation under the Plan that is equal to or greater than five percent of his
or her Compensation, the Company shall, during the period during which the
Participant's Compensation is being deferred, make an additional credit to the
Participant's Share Account in an amount equal to the sum of (i) 7.5 percent of
the Participant's Compensation during the period during which the Participant's
Compensation is being deferred and (ii) a percentage of such Compensation equal
to the percentage of Compensation then being deferred by the Participant under
the Plan up to a maximum of 7.5 percent of the Participant's Compensation.
(c) Each election to defer payment of Compensation by a Participant
shall continue in effect until revoked in writing upon not less than six months'
prior notice. No revocation shall be effective with respect to any Deferred
Amount credited with respect to Compensation prior to the effective date of the
new election. The amount, if any, of the Company's additional credit to a
2
<PAGE> 3
Participant's Share Account shall be adjusted effective as of the effective date
of each new election under the Plan by a Participant.
4. ACCOUNTING.
(a) The Company shall establish on its books appropriate bookkeeping
accounts for each Participant that will accurately reflect the Deferred Amount
of each Participant, including the number of Credited Shares in the
Participant's Share Account.
(b) The Administrative Committee shall furnish each Participant with a
statement of the Deferred Amount, including the number of Credited Shares in the
Participant's Share Account, as of the end of each calendar year promptly
following the end of each calendar year.
5. SHARE ACCOUNT.
(a) Each Share Account shall consist of the cash amounts credited in
respect of a specific election to defer Compensation and the Credited Shares
into which prior credited amounts in the Share Account have been converted.
Except as provided in this Section 5, any cash amount credited to a Share
Account in a calendar month shall be converted, as of the end of that calendar
month, into the maximum whole number of Credited Shares that the amount so
credited would have purchased at the then Market Value.
(b) As of the end of the calendar month during which the Company pays
any dividend on its common stock, either in cash or property other than its
common stock, each Share Account shall be credited with an amount equal to the
cash dividend per share or the cash value per share (as conclusively determined
by the Board) of the dividend in property other than its common stock, times the
Credited Shares in the Share Account on the dividend record date. The amount so
credited will be converted into the maximum whole number of Credited Shares that
the amount so credited could have purchased at the then Market Value. If the
Company pays any stock dividend, the Share Account shall be credited, as of the
end of the calendar month during which the stock dividend is paid, with a number
of Credited Shares equal to the number of shares or fraction of a share of
common stock paid per share of common stock as a dividend times the Credited
Shares in the Share Account on the dividend record date.
(c) If any distribution other than a dividend is made on, or with
respect to, the Company's common stock, or in the event of a stock split,
recapitalization, merger, consolidation or other adjustment of the Company's
common stock, an appropriate adjustment shall be made to the number of Credited
Shares in a Share Account or to the cash credited to the Share Account on the
same basis as would have been made had the Credited Shares then been actually
issued and outstanding on the record date. The Board shall resolve any questions
as to the appropriateness of any such adjustment, including, but not limited to,
values and exchange ratios, and its determination shall be binding and
conclusive.
3
<PAGE> 4
(d) All conversions into Credited Shares under Sections 5(a) through
(c) hereof shall be made in full shares. Amounts not so converted shall be
reflected as credited cash in a Share Account and shall be added to any
additional amounts of credited cash subsequently available for conversion;
provided, however, that in the event the Share Account reflects only credited
cash and interest thereon as provided in Section 5(e) hereof, the cash value of
such account shall not be converted into Credited Shares.
(e) In the event the Company's common stock is at any time not publicly
traded so as to permit the determination of the Market Value of the Credited
Shares, such value shall be determined based on such factors and criteria as the
Board shall determine in good faith to be appropriate under the circumstances.
In the event the Company's common stock shall have been converted into or
exchanged for cash, securities (other than the Company's common stock) or other
property by virtue of a merger, consolidation, share exchange, reclassification
or other similar transaction, the value of such cash, securities and other
property received by the holders of the Company's common stock per share of
common stock shall be fixed as the cash value for each Credited Share in each
Participant's Share Account and such cash value shall be credited in such Share
Account and thereafter remain credited in the Participant's Share Account until
distributed and such account shall thereafter be credited by an amount equal to
the interest that would have been earned thereon at an annual rate equal to the
published prime lending rate at the beginning of each calendar quarter at Chase
Bank of Texas, National Association computed quarterly until the cash value of
such account shall be distributed as provided in Section 6 hereof. In such
event, no further deferrals of Compensation may be made by the Participant under
the Plan and no further additional credits shall be made by the Company as
provided in Section 3(b) hereof and any cash credits in the Share Account shall
not thereafter be converted into Credited Shares.
(f) When a distribution is to commence pursuant to Section 6 hereof, a
stock certificate(s) representing the Credited Shares in the Share Account on
the last business day of the month preceding the date distribution is to
commence, and the amount of any credited cash in such Share Account will be
distributed as provided in Section 6 hereof, provided that all cash in the Share
Account shall be distributed at the time of the first distribution of stock
representing Crediting Shares.
6. DISTRIBUTION.
(a) Except in the case of the death of a Participant, distribution
shall commence as of the first day of the calendar quarter coincident with or
next following the date irrevocably specified by the Participant in the
applicable election to defer.
(b) Except in the case of the death of the Participant, distribution of
a stock certificate representing the number of shares in the Share Account shall
be either in the form of a single distribution of shares or in approximately
equal quarterly installments over a period not to exceed ten years as
irrevocably selected by the Participant in the applicable election to defer. In
the event the Participant elects to receive the deferred compensation of shares
of stock through quarterly
4
<PAGE> 5
installments, the undistributed Credited Shares shall accrue dividends when paid
which will be connected to additional Credited Shares in accordance with Plan
terms. Cash in the Share Account representing fractured shares shall be
distributed at the time of the next distribution of Credited Shares.
(c) In the event of the Participant's death prior to the date specified
for distribution of the Share Account, or after distribution to the Participant
has commenced but before full distribution has been made, the number of the
then-remaining shares in the Share Account shall be paid in a single
distribution to the beneficiary or contingent beneficiary designated in the
applicable election to defer, or to the estate of the deceased Participant if
there is no surviving beneficiary or contingent beneficiary. In either such
event, the single distribution shall be made as of the first day of the calendar
quarter following the Participant's date of death. A Participant may change the
beneficiary or contingent beneficiary from time to time with respect to any
election to defer by filing with the Administrative Committee a notice of change
of beneficiary. No change shall be effective unless received by the
Administrative Committee prior to the date of the Participant's death.
7. MISCELLANEOUS.
(a) The Board may amend or terminate the Plan at any time; provided,
however, (i) no amendment may be made that would accelerate or change the date
of distribution with respect to Compensation theretofore deferred and (ii) any
amendment or termination of the Plan shall not affect the rights of Participants
or beneficiaries to payment, in accordance with Section 6 of the Plan, of
amounts credited to Participants' account hereunder at the time of such
amendment or termination.
(b) The Plan does not create a trust in favor of a Participant, his or
her designated beneficiary or beneficiaries, or any other person claiming on his
or her behalf, and the obligation of the Company is solely a contractual
obligation to make payments due hereunder. In this regard, the balance in any
account shall be considered a liability of the Company and the Participant's
right thereto shall be the same as any unsecured general creditor of the
Company. Neither the Participant nor any other person shall acquire any right,
title, or interest in or to any Deferred Amount outstanding under the Plan other
than the actual payment of such Deferred Amount in accordance with the terms of
the Plan.
(c) No right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and
any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge
the same shall be void. No right or benefit hereunder shall in any manner be
liable for or subject to the debts, contracts, liabilities or torts of the
person entitled to such benefit. If any Participant or beneficiary shall become
bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or
charge any right or benefit hereunder, then such right or benefit shall in the
discretion of a majority of the Board, excluding the affected Participant, cease
and terminate; and in such event, the Company may hold or apply the same or any
part thereof for the benefit of the Participant or his or her beneficiary, his
or her spouse, children or other dependents, at any time and in such proportion
as a majority of the Board, excluding the affected Participant, may
5
<PAGE> 6
deem proper. Any statement to the contrary notwithstanding, the Company may
apply any Deferred Amount to satisfy, in whole or in part, any indebtedness of a
Participant to the Company.
(d) Construction of the Plan shall be governed by the laws of Texas.
(e) The terms of the Plan shall be binding upon the heirs, executors,
administrators, personal representatives, successors and assigns of all parties
in interest.
(f) The headings have been inserted for convenience only and shall not
affect the meaning or interpretation of the Plan.
(g) Each Participant shall submit to the Administrative Committee his
or her current mailing address. It shall be the duty of each Participant to
notify the Administrative Committee of any change of address. In the absence of
such notice, the Administrative Committee shall be entitled for all purposes to
rely on the last-known address of the Participant.
(h) Any amount payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's guardian or to the party providing or reasonably
appearing to provide for the care of such person, and such payment shall fully
discharge the Company and the Board with respect thereto.
(i) Nothing in the Plan or any amendment thereto shall give a
Participant, or any beneficiary of a Participant, a right not specifically
provided therein. Nothing in this Plan or any amendment thereto shall be
construed as giving a Participant the right to be retained as a member of the
Board.
(j) The Plan is effective on the effective date of the distribution by
Weatherford International, Inc. to its stockholders of all the outstanding
shares of stock of the Company.
6
<PAGE> 7
EXECUTED THIS ____ DAY OF ________________, 2000.
GRANT PRIDECO, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 10.14
SUPPLY AGREEMENT
concluded on the date set forth below
by and between
VOEST-ALPINE STAHLROHR KINDBERG GMBH & CO KG
AN AUSTRIAN LIMITED PARTNERSHIP
AND
GRANT PRIDECO, INC.
A DELAWARE CORPORATION
DATED AS OF JULY 23, 1999
*** Denotes information that has been intentionally excluded pursuant to a
confidential information treatment request pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
<PAGE> 2
2
PREAMBLE
WHEREAS, VOEST-ALPINE STAHLROHR KINDBERG GmbH & Co KG is a limited partnership
duly organized, validly existing and in good standing under the laws of Austria,
with its principal place of business in Kindberg and business address at Alpine
Stra(beta)e 17, A-8652 Kindberg, Austria, registered in the commercial register
of the Higher Court of Leoben under the registration number 165400 k
(hereinafter referred to as "Seller"), which has been involved for many years in
the manufacture of casings and tubings; and
WHEREAS, Grant Prideco, Inc. is a company duly organized, validly existing and
in good standing under the laws of Delaware, with its principal place of
business in The Woodlands, Texas and business address at The Woodlands, Texas
77380 (hereinafter referred to as "Purchaser"), which has been involved in the
field of manufacturing of drill pipe and the processing of casings and tubings;
and
WHEREAS, Purchaser wishes to purchase and Seller wishes to supply certain pipes
as defined below;
WHEREAS, Purchaser is an affiliate of Seller and Purchaser and Seller desire, to
avoid repetitive negotiations, and to set forth the terms under which affiliated
purchases will be made, Purchaser and Seller (hereinafter also referred to as
the "Parties" and each a "Party") wish to enter into this exclusive supply
agreement (hereinafter referred to as "Supply Agreement") on a long-term basis
establishing the terms and conditions of the purchase which will be applicable
to these transactions.
NOW THEREFORE, it is agreed as follows:
1. SALE AND PURCHASE
1.1 Seller herewith grants to Purchaser the right to purchase on a worldwide
exclusive basis green pipes (hereinafter referred to as "Green Pipes")
intended for the further processing into drill pipe and other Oil Country
Tubular Goods (hereinafter referred to as "OCTG"). The sale of Green
Pipes by or on behalf of Seller to other persons requires the prior
written consent of Purchaser. If Seller sells Green Pipes to third
persons without the prior written consent of Purchaser, any such sale
shall be credited against Purchaser's Annual Minimum Purchase Obligation
pursuant to Section 2.1.
For the purposes of this Supply Agreement, Green Pipes shall mean pipes
used to manufacture drill pipe, tubing and casing, provided that plain
end casing and tubing already produced to grade
<PAGE> 3
3
and requiring only end finishing to be converted to finished OCTG are
expressly excluded from the term "Green Pipes" used in this Supply
Agreement.
1.2 Seller grants to Purchaser the right, but Purchaser shall not be obliged,
to purchase API couplings on an exclusive basis in North, Central and
South America (Green Pipes and API couplings are hereinafter collectively
referred to as the "Material").
1.3 Seller and Purchaser agree that Purchaser shall have the sole right to
sell drill pipe and drill pipe hollows in the world. The Seller shall
not, directly or indirectly, sell any drill pipe or drill pipe hollows
without the written consent of the Purchaser.
2. ANNUAL MINIMUM PURCHASE OBLIGATION
2.1 Subject to the provisions of Section 13, Purchaser shall place orders for
purchase and Seller shall sell and deliver Green Pipes in a minimum
quantity of (i) 45,000 metric tons for the 12-month period beginning on
the 60th day after the date of signing of this Supply Agreement, which is
September 21, 1999 and (ii) 60,000 metric tons for each year thereafter
("Annual Minimum Purchase Obligation"). Of the 45,000 metric tons to be
ordered pursuant to clause (i) above, at least 12,500 metric tons must be
ordered prior to December 31, 1999, of which at least 3,500 metric tons
will be for casing according to TCA specification GT-01 rev. C of Type 7
or Type 2 in the size range of 127,0 - 177,8 mm OD.
2.2 Subject to the provisions of Section 2.1 and Section 13, Purchaser shall
place orders in monthly lots of not less than 3,750 metric tons and not
more than 5,625 metric tons, with a minimum of 100 metric tons per
dimension upon individual purchase orders placed by Purchaser. The
Parties may agree from time to time that Purchaser's monthly purchase may
be less than 3,750 metric tons or in excess of 5,625 metric tons,
provided, however, that without the consent of Seller, each order shall
not deviate from the previous order by more than 2,000 metric tons.
Purchaser's failure to place orders of Green Pipe in an amount equal to
the Annual Minimum Purchase Obligation shall not constitute a default
under this Supply Agreement and Seller's only remedy for that failure
will be the right to receive the penalties provided for under Section 13
and no more.
<PAGE> 4
4
2.3 Purchaser shall be entitled to order in excess of its Annual Minimum
Purchase Obligation up to 80,000 metric tons per year. Orders exceeding
80,000 metric tons require the prior consent of Seller.
3. TERM AND TERMINATION
3.1 This Supply Agreement shall commence on the first day of the calendar
month following the signing of this Supply Agreement, and shall be
concluded for an original term of 4 years. This Supply Agreement shall
automatically be renewed for successive one year periods, unless
terminated at the end of the original term or any renewal period in
writing, subject to a six month termination period. Nine months prior to
the expiration of the original 4 year term the Parties shall meet to
negotiate terms and conditions for a renewal of the Supply Agreement.
3.2 If either Party is in material default of any of its obligations under
this Supply Agreement and such default continues unremedied for 90 days
after written notice thereof by the Party not in default, such
non-defaulting Party may cancel this Supply Agreement and/or any orders
which may be affected by such default and shall have the right, in its
sole discretion, to exercise all rights and remedies available to it
under this Supply Agreement, including but not limited to Section 13, or
to exercise such rights and remedies as provided for in other agreements
concluded between the Parties or their affiliates, including but not
limited to the Operating Agreement dated July 23, 1999 concluded between
VOEST-ALPINE SCHIENEN GmbH & Co KG and GRANT PRIDECO, Inc.
3.3 An uncured failure to pay any amounts due to Seller under this Supply
Agreement which is not contested within 90 days of submission of the
invoice therefor as provided in Section 4.3 hereof shall be considered a
material default by Purchaser in the meaning of Section 3.2.
3.4 Continued failure by Seller to materially meet the quality and
specification requirements or the delivery requirements under this Supply
Agreement or breach by Seller of the exclusivity provisions of Section
1.1 and Section 1.3 hereof shall be considered a material default by
Seller in the meaning of Section 3.2.
3.5 Furthermore, Seller may by written notice to Purchaser forthwith
terminate this Supply Agreement
(a) if bankruptcy proceedings are opened against Purchaser, or Purchaser
is insolvent; or
<PAGE> 5
5
(b) if Purchaser or an affiliated entity no longer holds any limited
partnership interest in Seller.
3.6 Furthermore, Purchaser may by written notice to Seller forthwith
terminate this Supply Agreement
(a) if bankruptcy proceedings are opened against Seller, or Seller is
insolvent; or
(b) if Purchaser or an affiliated entity no longer holds any limited
partnership interest in Seller.
3.7 (i) If an event of force majeure occurs, the affected Party shall
promptly give notice thereof to the other Party and use its best
efforts to cure or correct such event of force majeure. Seller may,
during a period of shortage or delay due to any such causes, prorate
its supply in such a manner as deemed equitable in the judgement of
Seller. The Annual Minimum Purchase Obligation and the term of this
Supply Agreement as provided in Section 3.1 herein shall be adjusted
accordingly based upon the duration of any force majeure event. If
the event of force majeure shall continue for a period of twelve
months, either Party shall have the right to forthwith terminate
this Supply Agreement.
(ii) For the purpose of the Supply Agreement "force majeure" shall mean
all circumstances which are beyond the control of a Party exercising
a normal standard of care and which prevents such Party from
complying with its contractual obligations hereunder. Subject to the
foregoing and without limiting the generality of the foregoing, the
following circumstances in particular shall be regarded as force
majeure: acts of God; hurricane, tornado; labor strike, lockout or
other industrial disturbance; war, riot, sabotage, act of public
enemy, terrorist act or gang violence; blockade; serious epidemic;
earthquake or other earth movement, flood or other natural disaster;
bomb blast or other explosion; fire; shortage of goods essential to
a Party's performance of this Agreement, or their delay by a
carrier; or, government action that prevents performance. It is
explicitly agreed among the parties that any changes in market
conditions or the institution of U.S. Antidumping and Countervailing
Duty proceedings shall (subject to the provisions of Section 12) not
be considered as force majeure events.
3.8 Any termination of this Supply Agreement will not affect any individual
purchase order which may have been issued by Purchaser prior to the date
of termination, unless stated otherwise herein. The provisions of
Sections 8, 9, 10, 11, 12, 13, 15, and 16.3 shall survive any termination
of this Supply Agreement. In case this Supply Agreement is terminated,
Purchaser shall pay within 60 (sixty) days after the date of termination
any still outstanding Purchase Price or penalty
<PAGE> 6
6
payments due to Seller. In the event this Supply Agreement is terminated
by Purchaser pursuant to this Section 3 as a result of a material default
by Seller, any penalty payments due to Seller pursuant to Section 13
accruing on or after the date of such material default shall not be paid
and shall be deemed to be forfeited by Seller.
4. PURCHASE PRICE/INVOICE
4.1 The base purchase price for the Green Pipes is ATS [***] ("Purchase
Price") and shall include European sales tax and all export taxes and
duties if applicable to Green Pipes. The Purchase Price is based on
Purchaser's specifications in Purchaser's specification No. 359 (1), rev.
O, dated May 7, 1998. To the extent there are deviations from this
specification, the Purchase Price shall be adjusted as set forth on Annex
A, to the extent provided in Annex A. Annex B sets forth length
requirements for Annex A. Deviations not contemplated by Annexes A and B
shall result in an adjustment to the Purchase Price that reflects the
differential in costs of manufacture of the product from Purchaser's
specification No. 359 (1). Purchaser shall consult with Seller on any
change in specifications and will not request specifications which Seller
cannot fulfill with commercially reasonable efforts. The Purchase Price
is calculated on the basis of C.I.F. Houston in accordance with Incoterms
1990. Upon Purchaser's request, the Green Pipes shall be delivered to a
destination port other than Houston. If any change in delivery terms
pursuant to Purchaser's request results in a higher or lower cost to
Seller, the Purchase Price shall be increased or decreased accordingly.
4.2 During the term of this Supply Agreement (including the renewal periods),
the Purchase Price shall be subject to adjustment on a semi-annual basis
(starting on the first day of the sixth calendar month following the
signing of this Supply Agreement). The adjustment shall be computed on
the basis of the average of seamless alloy casing and tubing prices as
reported by the Preston Pipe Report or any report replacing it at the
time of order placement and shall be effected for all purchase orders
given on or after the first day of the calendar month following the
issuance of such Preston Pipe Report. The basis of assessment shall be
the average of seamless alloy casing and tubing prices as reported in the
Preston Pipe Report published in January 1999 and reflecting actual
October 1998 prices. This report shall be regarded as the 100 Index. The
index figure, however, is limited to upward fluctuations of not more than
5 %, based on the 100 Index during the term of this Supply Agreement.
Downwards fluctuations may be made, but not below the 100 Index.
4.3 Invoices will be submitted by Seller to Purchaser. Invoices will
reference Purchaser's purchase order number and will contain such other
information as Purchaser may reasonably request.
<PAGE> 7
7
Purchaser shall effect payment within sixty (60) calendar days after the
vessel arrival in the port of destination or net 105 days from ocean bill
of lading date, whichever comes first. Purchaser shall pay interest on
overdue invoice payments that are not contested as provided in Section
3.3 from the due date up to the actual date of payment at the rate
determined to be three percent (3 %) per annum above the six months
EURIBOR.
4.4 The Parties may agree from time to time to set off any amount owed by
Seller to Purchaser pursuant to this Supply Agreement against any amount
owed by Purchaser to Seller pursuant to this Supply Agreement.
4.5 In the event the Green Pipe being purchased by Purchaser does not meet
the specifications and is rejected, Purchaser may elect to credit amounts
paid for that Green Pipe against other purchases or to set off against
penalties due by Purchaser pursuant to Section 13 if Seller agrees to the
rejection or if it is determined that the Green Pipe does not meet the
required specifications.
5. PURCHASE ORDERS
5.1 This Supply Agreement does not constitute a purchase order. Purchases
under this Supply Agreement shall be made with purchase orders in a form
mutually agreed upon, placed by Purchaser. The first purchase order shall
be placed within 60 days after the date of signing of this Supply
Agreement, i.e. by September 21, 1999.
5.2 Any individual purchase order shall be acknowledged by Seller. Each order
acknowledgment shall contain either Seller's confirmation of the delivery
date as requested by Purchaser or Seller's own estimated delivery date,
which shall be no later than 10 days after Purchaser's requested delivery
date. Unless otherwise agreed to by Purchaser and Seller there shall be
at least two (2) months between receipt of the purchase order and the
delivery date. For the purposes of this Supply Agreement, the date on
which material is delivered shall be the ocean bill of lading date.
5.3 If Seller is unable to furnish the total quantity as ordered by
Purchaser, Seller shall without undue delay advise Purchaser. In such an
event, Purchaser shall have the option to cancel, at no charge, within 10
days from receipt of such advice the portion of the individual purchase
order which Seller is unable to furnish and the entire amount of the
cancelled portion shall be credited against the Annual Minimum Purchase
Obligation.
<PAGE> 8
8
6. DELIVERY DATES
6.1 Seller agrees to make every reasonable effort to meet the delivery dates
specified by Purchaser in any purchase order. If Seller is late in the
delivery of Green Pipes by 14 or more days, such late shipment shall be
counted for the Purchaser's monthly orders under Section 2.1 of this
Supply Agreement for both the month in which the order was placed and the
following month. If Seller is late in the delivery of Green Pipes by one
or more months, Purchaser shall have the option to cancel, at no charge,
the portion of the individual purchase order which has not yet been
delivered and the entire amount of the cancelled portion shall be
credited against the Annual Minimum Purchase Obligation.
6.2 Delivery is C.I.F. Houston in accordance with Incoterms 1990. Purchaser
may also request, as specified in any particular purchase order, that the
delivery destination of the Material be a location other than Houston.
For the calculation of the Purchase Price, Section 4.1 of this Supply
Agreement shall apply.
7. HAZARDOUS CONDITIONS
7.1 In the event that Seller or Purchaser learns of any issue relating to a
potential safety hazard or unsafe condition in any of the Material, or is
advised of such by competent authorities of any government having
jurisdiction over such Material, it will immediately advise the other
Party by the most expeditious means of communication. The Parties shall
cooperate in communication with the public and governmental agencies and
in correcting any such condition that is found to exist.
7.2 The Parties shall consult with each other prior to making any statements
to the public or to any governmental agency concerning issues related to
the safety hazard or unsafe condition except in circumstances in which a
failure to do so would prevent the timely notification which may be
required to be given under an applicable law or regulation.
7.3 Expenses associated with the correction of a safety hazard or unsafe
condition by or associated with the Material, including reasonable
attorneys' fees, court costs, expenses, and the like, if they become
necessary, shall be borne by the Party which caused such safety hazard or
unsafe condition, subject only to any other arrangement negotiated by the
Parties in light of the particular facts and circumstances then existing.
<PAGE> 9
9
8. CONFIDENTIAL INFORMATION
The Parties understand and agree that information concerning any of the
information set forth herein is confidential to each of them and shall,
except as may otherwise be required by law, regulation or order, only be
disclosed to unaffiliated third parties, in writing or orally, upon the
specific prior written agreement of the Parties, provided, however, that
if any of such terms have previously been disclosed, for any of the
foregoing reasons, these terms shall no longer be treated as confidential
by either Party.
9. PATENTS
9.1 Each Party hereby represents to the other Party that, to the best of its
knowledge, there are no third-party patent, trade secret, or copyright
rights which would be infringed by the manufacture, use or sale of the
Material to be supplied hereunder.
9.2 Each Party will defend any suit or proceeding brought against the other
Party, any of its affiliates or their customers, based on a claim that
the manufacture, use or sale of the Material purchased hereunder
constitutes an infringement of any patent or copyright of any country or
any trade secret to the extent and only to the extent such suit or
proceeding is attributable to the actions or omissions by such Party;
provided that each Party is notified by the other Party in writing and
given authority, information, and assistance for the defense of same. If,
as a result of any such suit or proceeding, the use or sale of the
Material purchased hereunder is enjoined, both Parties shall use their
best efforts to modify any infringing Material so that it becomes
non-infringing.
10. WARRANTY
10.1 Green Pipes manufactured by Seller for Purchaser under this Supply
Agreement shall be of the kind and quality as provided in Section 1 of
this Supply Agreement and as per the specification mutually agreed by the
Parties and the applicable parts of the API standards. In case of a
conflict between the specification and the API standards, the
specification shall prevail. The review or approval by Purchaser of any
designs, engineering drawings, quality control procedures, or any other
aspect of the design and manufacture of Material hereunder shall not
relieve Seller of the responsibility for producing Material which
complies with the specification and all current local,
<PAGE> 10
10
state, and federal governmental specifications and standards existing at
the date of delivery as expressly stated and identified in the
specification. Further, Seller shall be responsible for producing
Material which is of good workmanship and performance and of merchantable
quality. Seller also warrants that it complies with all Austrian
regulations applicable to the manufacturing of Material. Seller also
shall be responsible for any mill-related defects in the Material,
including, but not limited to, laps, slugs, gouges, slivers and seams,
detected prior to or after processing.
10.2 The warranty period extends for, and warranty claims may only be asserted
in writing by Purchaser against Seller within, the first 12 months of
service of the Green Pipes or within 2 years after delivery of the Green
Pipes to Purchaser, whichever comes first. Warranty claims for corrosion
or mechanical damage may only be asserted in writing by Purchaser against
Seller within six (6) months after the Material's arrival at its port of
destination.
10.3 In case Purchaser asserts warranty claims against Seller, Seller shall
have the right to examine such Material within 30 calendar days. If any
of the delivered Material fails to meet the warranties set forth above,
Seller shall, as promptly as practicable and at its expense, repair,
replace or cause to be repaired or replaced same without undue delay. In
either case, the cost of freight and handling to return or replace the
Material shall be at the expense of Seller and the Seller shall reimburse
Purchaser for the costs of any fabrication and reasonable additional
inspection costs incurred by Purchaser in the processing of the defective
Material.
10.4 In the event that a warranty claim exists and Seller has accepted to be
responsible for the warranty claim, or is otherwise determined to be
responsible, Seller will at Purchaser's option issue credit against
future invoices or set off against due penalty payments or Seller will
pay to Purchaser the amount due within 30 days of Seller's receipt of a
debit memorandum or some other written request for payment.
10.5 Notwithstanding any provision to the contrary, the Parties may agree to
an adjustment in the Purchase Price or to a (partial) cancellation of the
respective purchase order in the event of any failure or defect in the
Material.
11. PRODUCT LIABILITY
11.1 In the event that product liability claims are asserted against Seller or
Purchaser such Party will immediately advise the other Party of such
claim by the most expeditious means of
<PAGE> 11
11
communication. The Parties shall cooperate in communication with the
public and governmental agencies with respect to such liability claim.
11.2 Each Party shall defend any suit or proceeding brought against the other
Party, any of its affiliates or their customers, based on product
liability claims for which they are responsible. Unless agreed otherwise,
until such time as responsibility has been determined, the Parties shall
bear the costs and expenses (including, but not limited to, reasonable
attorneys' fees and expenses, settlements, judgments, and court costs)
arising out of or related to product liability in the ratio of the value
added to the finished product by each Party.
11.3 In the event a product liability claim is successfully asserted against
one of the Parties, the Party which caused such defect agrees to protect,
defend, hold harmless, indemnify, and reimburse the other Party and its
distributors, dealers, affiliates, insurers, and customers during the
term of this Supply Agreement and any time thereafter for any and all
liabilities, losses, damages, costs and expenses (including, but not
limited to, reasonable attorneys' fees and expenses, settlements,
judgments, and court costs) arising out of or related to such liability,
demand, lawsuit, action or claim.
11.4 If the Party which caused such defect cannot be identified, the Parties
shall bear all liabilities, losses, damages, costs and expenses
(including, but not limited to, reasonable attorneys' fees and expenses,
overhead, settlements, judgments, and court costs) arising out of or
related to such liability, demand, lawsuit, action or claim in the ratio
of the value added to the Green Pipe by each Party.
11.5 Both Parties shall maintain, at their own expense, appropriate insurance
in the amount of at least US$ 25 million for injury, death, or property
damage. Satisfactory evidence by copy of certificate of insurance thereof
shall be submitted annually to the other Party upon the other Party's
request. Such insurance shall be carried during the term of this Supply
Agreement, including extension, and for at least three (3) years
thereafter.
12. PURCHASER'S AND SELLER'S LIABILITIES
12.1 The Parties shall consult with each other on a regular basis on
procedures on how to minimize any risk with respect to the imposition of
U.S. Antidumping or Countervailing Duties provided that such consultation
is not in violation of law and is commercially reasonable.
<PAGE> 12
12
12.2 To this end, Seller shall employ a special sales advisor ("Special Sales
Advisor"). The appointment and dismissal of said Special Sales Advisor
shall be at the recommendation of Purchaser and require the unanimous
vote of the representatives of GRANT and Voest-Alpine Schienen GmbH & Co
KG to the Supervisory Board of the general partner of the Seller. The
Special Sales Advisor shall report to the Management Board of Seller.
12.3 If, despite these measures, a proceeding or investigation is initiated
threatening to lead to the imposition of U.S. Antidumping or
Countervailing Duties on products covered by this Supply Agreement either
Party may, upon written notice to the other, request a stay on the
performance of the obligations under Sections 1, 2 and 13 under this
Supply Agreement during the proceeding or investigation not to exceed two
years; provided, however, that such Party reasonably determines that
continued sales may subject the Party or the sales to the imposition of
U.S. Antidumping or Countervailing Duties. During the period of the stay,
all rights and obligations of the Parties under the above-referenced
Sections shall cease.
12.4 At any time during the stay under Section 12.3, either Party may request
that this Supply Agreement not be stayed and that Green Pipe continue to
be imported into the U.S. provided that the requesting Party (i) agrees
to indemnify the other Party for the additional duties or payments
imposed (ii) agrees to post any required bonds and (iii) provides
adequate assurances of payment for the additional duties or payments.
12.5 In the event that actual additional duties or payments are imposed,
either Party may elect to terminate this Supply Agreement provided that
the other Party may require the Supply Agreement not be terminated as
long as such Party (i) agrees to indemnify the other Party for any
additional duties or payments imposed and (ii) provides adequate
assurances of payment for the additional duties and payments.
12.6 If a proceeding or investigation is initiated threatening to lead to the
imposition of U.S. Antidumping on Countervailing Duties with respect to
products subject to this Supply Agreement, Purchaser shall, at its
expense, defend Seller in such action. Purchaser shall be entitled to
control the defense, but Seller shall be entitled to participate in the
action.
12.7 This Section 12 provides for the exclusive remedies for any action by the
Parties that may lead to the imposition of U.S. Antidumping or
Countervailing Duties.
<PAGE> 13
13
13. PENALTY
13.1 Purchaser agrees to pay a penalty of ATS 600 for each metric ton to the
extent that purchase orders fell short of the Annual Minimum Purchase
Obligation of Purchaser required under Section 2.1 during the entire term
of this Supply Agreement. Purchaser shall pay any penalties due within 30
days following the end of the contract year during which the penalties
arose.
13.2 Any penalties paid pursuant to Section 13.1 may be applied by and repaid
to Purchaser against separate invoices for purchases in excess of the
Annual Minimum Purchase Obligation in the following year.
13.3 For calculation purposes of the penalty only, any order placed by
Purchaser which was not delivered in compliance with this Supply
Agreement, shall be deducted from the Annual Minimum Purchase Obligation.
In case this Supply Agreement is terminated, the penalty due for the last
year prior to termination pursuant to Section 13.1 shall be calculated on
a pro rata basis.
14. CURRENCY CONVERSION
All of the amounts payable under this Supply Agreement that are
denominated in ATS shall be converted to EURO at such time as Seller and
Purchaser so agree, however on April 1, 2000 at the latest.
15. DISPUTE RESOLUTION
All disputes arising out of this Supply Agreement or related to its
violation, termination or nullity shall be finally settled under the
Rules of Arbitration and Conciliation of the International Arbitral
Centre of the Austrian Federal Economic Chamber in Vienna (Vienna Rules)
by three arbitrators appointed in accordance with these rules. The
substantive law of Austria shall be applicable and the language to be
used in the arbitral proceedings shall be English. The place of
arbitration shall be Vienna, Austria.
<PAGE> 14
14
16. MISCELLANEOUS
16.1 Modifications of and amendments to this Supply Agreement shall be valid
and binding only if made in writing.
16.2 If any provision hereof becomes invalid, this shall not effect the
validity of the remaining provisions hereof.
16.3 This Supply Agreement shall be governed by and construed according to
Austrian law. The application of the United Nations Convention on
Contracts for the International Sale of Goods is expressly excluded.
16.4 The termination of this Supply Agreement shall not release either Party
from any liability, obligation, or agreement which, pursuant to any
provision of this Supply Agreement, is to survive or be performed after
such expiration or termination.
16.5 This Supply Agreement has been made in the English language and has been
executed in two originals with Seller and Purchaser receiving one each.
16.6 All notices, requests, consents and other communications hereunder shall
be made in writing and sent by registered or certified mail or by any
express mail service or courier service or by facsimile transmission
(with receipt confirmed) to the parties at the addresses and numbers
below:
If to Purchaser, to:
Grant Prideco, Inc.
1450 Lake Rubbins Drive
Two Wood Lane, Tx USA 77380
Attention: John C. Coble and Curtis W. Huff
Telephone: (281) 297 8500
Telecopier: (281) 297 8569 and (713) 297 8488
With a copy to:
Bruckhaus Westrick Heller Lober
Seilergasse 16
1010 Vienna
Austria
<PAGE> 15
15
Attention: Jenny W.T. Power
Telephone: (++43 1) 51515 Ext. 210 or 310
Telecopier: (++43 1) 512 63 94
If to Seller to:
VOEST-ALPINE STAHLROHR KINDBERG GmbH & Co KG
Alpinestrasse 17
8652 Kindberg
Austria
Attention: Hubert Wastl and Eduard Obermayer
Telephone: (++43 1) 3842/202 4453
Telecopier: (++43 1) 3842/202 2444
With a copy to:
VA Schiene GmbH
Kerpelystrasse 201
8700 Leoben
AUSTRIA
Attention: Willibald Mautner
Telephone: (++43) 3842/202 4453
Telecopier: (++43) 3842/202 2444
and a copy to:
VOEST-ALPINE STAHL AG
Voest-Alpine-Strasse 1
4020 Linz
AUSTRIA
Attention: Hubert Possegger
Telephone: (++43/70/6585-9516)
Telecopier: (++43/70/6980-5581)
<PAGE> 16
16
16.7 The subject headings of this Supply Agreement are for the convenience of
the Parties and shall not be considered in any question of interpretation
or construction of this Supply Agreement.
IN WITNESS WHEREOF, the Parties have executed or caused to be executed this
Supply Agreement as of July 23, 1999.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
------------------------- -------------------------------
Grant Prideco, Inc. VOEST-ALPINE STAHLROHR KINDBERG
GmbH & Co KG
<PAGE> 17
17
ANNEX A
1.A) For drill pipe and casing specs, minimum quantity of 500 mt/item.
GP359
TCA G1-01 rev. C type 2
***
1.B) For drill pipe and casing specs, minimum purchase of 250 mt/size.
Price for GP 348 rev.I ***
Price for GP 347 rev.I ***
Price for TCA 61-01 rev. C type 7 ***
***
1.C) For tubing, minimum quantity of 250 mt/size.
Price for GP spec 359 ***
Price for GP spec 347 ***
Price for GP spec 348. ***
***
<PAGE> 1
EXHIBIT 10.17
GRANT PRIDECO, INC.
DST DISTRIBUTORS OF STEEL TUBES LIMITED
MASTER TECHNOLOGY LICENSE AGREEMENT
*** Denotes information intentionally omitted pursuant to a
confidential information treatment request pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
This Agreement dated as of June 19, 1998, is by and between Grant
Prideco, Inc., a corporation organized and existing under the laws of Delaware,
U.S.A., having its principal place of business at 363 North Sam Houston Parkway
East, Suite 1660, Houston, Texas 77060-2409, U.S.A. (hereinafter "GRANT"), and
DST Distributors of Steel Tubes Limited, a corporation organized and existing
under the laws of Princedom of Liechtenstein, having its offices at Prafadant 11
949 Vaduz, Princedom of Lichtenstein (hereinafter "LICENSEE"):
WHEREAS, Grant is the owner of various U.S. and foreign patents
described on Schedule "A" hereto (the "GRANT PATENTS") and has the right to
license technical information and know-how, in each case, relating to the
Threading and Reconstruction of Atlas Bradford Oil Field Connections for
Products and Accessory Equipment (the "TECHNOLOGY");
WHEREAS, Grant is the owner of and has the right to license certain
trademarks, commercial names and other such designations listed in Schedule "B"
to this Agreement used in connection with the manufacture and sale of Atlas
Bradford Connections (hereinafter "LICENSED TRADEMARKS");
WHEREAS, Licensee is a company jointly owned by Dalmine
S.p.A.("DALMINE"), Siderca S.A. ("SIDERCA"), and Tubos de Acero de Mexico
("TAMSA"), all of which are major producers of seamless steel pipe for the oil
and gas drilling industry, highly recognized suppliers of oil country tubular
goods and services to major oil companies, who have developed proprietary
products besides production of API and API Plus tubular goods and threads, and
have several premium connection licenses from third parties and affiliated
companies;
WHEREAS, Siderca currently possesses only short term rights regarding
Technology and Licensee, on behalf of its Affiliates, is desirous of obtaining
Technology, Patents and Trademark licenses on a long term basis and receiving
Technical Assistance from Grant for use by its Affiliates and other
Sub-Licensees in order to supply its customers with a more predictable and
complete range of oil country tubular good (OCTG) products; and
WHEREAS, Grant is willing to grant technology, patent and trademark
licenses and to provide technical assistance to Licensee under certain
conditions;
NOW THEREFORE, in consideration of the premises and of the covenants
and undertakings of the parties herein below, the sufficiency of which is hereby
acknowledged, Grant and Licensee agree as follows:
<PAGE> 2
ARTICLE 1. DEFINITIONS
Unless otherwise defined or the context otherwise requires, capitalized
terms shall have the meanings ascribed to them in Schedule "C".
ARTICLE 2. LICENSE
SECTION 2.1 GRANT OF LICENSE BY GRANT
Grant hereby grants to Licensee, subject to the terms of this
Agreement, the following licenses:
(a) An exclusive license (with the right to sub-license as provided
herein) under Technology and Patents to Thread, Reconstruct and to sell Atlas
Bradford Oil Field Connections on (i) full length carbon steel Products having
9% or less Cr in the Exclusive Territory and (ii) full length Products of all
grades in Mexico and its offshore waters and territories.
(b) A non-exclusive license (with the right to sub-license as provided
herein) under Technology and Patents to Thread, Reconstruct and to sell Atlas
Bradford Oil Field Connections on full length Products of all grades in the
Non-Exclusive Territory (it being understood that the non-exclusive nature of
this license does not render non-exclusive the license granted under Section
2.1(a)).
(c) An exclusive license (with the right to sub-license as provided
herein) under Technology and Patents to Thread, Reconstruct and sell Accessory
Equipment with Atlas Bradford Connections (i) of carbon steel of 9% or less Cr
in the Exclusive Territory and (ii) of all grades in Mexico and its offshore
waters and territories.
(d) A non-exclusive license (with the right to sub-license as provided
herein) under Technology and Patents to Thread and Reconstruct Accessory
Equipment with Atlas Bradford Connections and to sell Atlas Bradford Connections
on Accessory Equipment of all grades in the Non-Exclusive Territory (it being
understood that the non-exclusive nature of this license does not render
non-exclusive the license granted under Section 2.1(c)).
(e) A non-exclusive license to use Trademarks in association with Atlas
Bradford Oil Field Connections on Products and Accessory Equipment that have
been Threaded or Reconstructed and sold by Licensee or its Sub-Licensees
pursuant to this Agreement.
2
<PAGE> 3
Schedule 2.1 sets forth in summary form the licenses granted by this
Agreement.
SECTION 2.2 RESTRICTED USE
(a) Licensee and its Sub-Licensees shall have no right or license to
use Technology, Patents or Trademarks for any purpose other than the Threading,
Reconstruction, use and sale of Atlas Bradford Oil Field Connections on Products
and Accessory Equipment in strict accord with the terms and conditions of this
Agreement. Licensee shall also restrict its customers (other than end users who
may purchase Products and Accessory Equipment for their use) from reselling in
the Grant Territory (other than Canada) or for use in the Grant Territory (other
than Canada) Products or Accessory Equipment that has been Threaded,
Reconstructed or sold by Licensee or its Sub-Licensees.
(b) Licensee and its Sub-Licensees shall notify its distributors,
agents and significant international customers that (i) Grant has granted
Licensee the exclusive licenses to the Atlas Bradford Connections contemplated
under this Agreement, but has retained its rights to the Atlas Bradford
Connections in the Grant Territory, (ii) except for customers who are end users
who are purchasing for their own use, no Products Threaded with Atlas Bradford
Oil Field Connections sold or provided by Licensee or its Sub-Licensees may be
resold or used in the Grant Territory (other than Canada), (iii) if the customer
desires Atlas Bradford Oil Field Connections for use in the Grant Territory
(except Canada), Licensee recommends that it should seek those Connections from
Grant and (iv) if the customer who is an end user purchases any Atlas Bradford
Oil Field Connections for ultimate use in the Grant Territory (except Canada),
the customer is requested by Licensee to advise Licensee of the sale or use.
Licensee and Grant further agree that while Licensee will not make any sale of a
Product with an Atlas Bradford Oil Field Connection to a customer that is an end
user if it has actual knowledge that the sale to the end user of the Atlas
Bradford Oil Field Connection is specifically intended to be resold or used in
the Grant Territory (except Canada), neither Licensee nor any of its Affiliates
or Sub-Licensees shall be required to make prior inquiry from a customer that is
an end user of the Product or Accessory Equipment and not engaged in the resell
or distribution of Products or Accessory Equipment regarding any order received
by it with respect to the territory in which the Atlas Bradford Connection is to
be sold or used and may rely solely on the purchase order and other
communications received at the time the order is placed. Licensee and its
Sub-Licensees further shall not be deemed to have actual knowledge that an order
is for sale in or use in the Grant Territory (except Canada) solely by reason of
Grant advising Licensee that it believes the order is for sale in or use in the
Grant Territory (except Canada).
(c) Licensee and its Sub-Licensees shall have no rights to Thread or
Reconstruct Connections on Products or Accessory Equipment or to sell or ship
Atlas Bradford Oil Field Connections on Products or Accessory Equipment
incorporating Technology, Patents or Trademarks to persons located in the United
States or its offshore waters or territories or any country or other location in
which it would be unlawful for a licensee of Grant to do so or for which an
export license is required by any applicable governmental entity absent the
receipt of such license or any applicable governmental approvals. Upon
Licensee's request, Grant shall, at Licensee's sole cost, give reasonable
assistance to support Licensee's efforts to obtain any required approvals.
3
<PAGE> 4
(d ) In recognition of the licenses being granted to Licensee hereunder
and Licensee's rights in the Exclusive Territory, Grant agrees that after the
Effective Date and during the term of this Agreement neither it nor any of its
Affiliates will quote or sell for delivery or use in the Exclusive Territory any
Atlas Bradford Oil Field Connections on Products of carbon steel having 9% or
less Cr except as expressly permitted herein.
(e) In recognition of the rights to the Technology and Patents being
retained by Grant and its Affiliates in the Grant Territory, Licensee agrees
that except as expressly permitted under Section 2.2(b), neither it nor any of
its Affiliates will quote or sell for delivery or use in the United States of
America or its offshore waters or territories any Atlas Bradford Oil Field
Connections on any Products.
SECTION 2.3 EXTENT OF EXCLUSIVE LICENSES
The licenses granted hereunder shall not restrict or prohibit the
following:
(a) Subject to Section 17.1 the rights of any existing licensee of
Grant to use Technology, Patents or Trademarks.
(b) The use or resale within the Territories of Atlas Bradford
Connections on Products or Accessory Equipment sold by Grant or its licensees,
distributors or Affiliates prior to the Effective Date or after the Effective
Date to the extent not in violation of this Agreement.
(c) Any repair or replacement of Atlas Bradford Connections on Products
or Accessory Equipment sold by Grant or its distributors or Affiliates prior to
the Effective Date or after the Effective Date to the extent not in violation of
this Agreement.
(d) The Threading, Reconstruction, sale or distribution of Connections
(other than Atlas Bradford Connections) on Products or Accessory Equipment.
(e) The completion of any outstanding orders or bids by Grant or its
Affiliates described on Schedule 2.3(e) hereto and any other orders that are
scheduled to be completed within two months after the Effective Date; provided,
however, Grant shall provide to Licensee prior to the Effective Date a schedule
setting forth all orders that are scheduled to be completed by it within two
months following the Effective Date.
(f) The Threading or Reconstruction of full-length Products and
Accessory Equipment by or on behalf of Grant or any of its Affiliates in any
country for export into any territory where Grant has the right to sell Products
and Accessory Equipment under this Agreement; provided, however, that prior to
engaging in or contracting for the Threading or Reconstruction of Atlas Bradford
Oil Field Connections in the Exclusive Territory pursuant to this Section
2.3(f), Grant shall give Licensee a reasonable opportunity to provide to Grant
such Threading and Reconstruction of Atlas Bradford Oil Field Connections in the
Exclusive Territory for import into the territories where Grant has a right to
sell Products and Accessory Equipment at a cost to Grant equal to or less than
the cost that would have been incurred by Grant to do the Threading and
Reconstruction of the Atlas Bradford Oil Field Connections in the Exclusive
Territory itself or through another third party.
4
<PAGE> 5
(g) Any Distribution Sales (other than Distribution Sales that are
subject to the restriction agreed to in Section 2.4(f)) and any International
Company Sales made by Grant, Grant Affiliates or Grant Licensees; provided,
however, that Grant shall (i) notify its distributors, agents and significant
international customers that it has granted the rights granted hereunder in the
Exclusive Territory and request such distributors, agents and customers to
inform Grant of any sales or shipments made to the Exclusive Territory (other
than the Home Territories) by such persons of Products or Accessory Equipment
containing Atlas Bradford Oil Field Connections that were sold to them by Grant
or Grant Licensees after the Effective Date and (ii) require any new Grant
Licensees to inform Grant of any sales or shipments of Products or Accessory
Equipment containing Atlas Bradford Oil Field Connections made to the Exclusive
Territory (other than the Home Territories) pursuant to Distribution Sales or
International Company Sales made by such Grant Licensees after the Effective
Date as contemplated in (i) above. From and after the Effective Date, Grant
agrees to convey such information to Licensee each quarter and pay Licensee the
commissions required under Section 2.8. The notice to distributors, agents and
customers under this Section 2.3(g) shall state that (i) Grant has granted
Licensee the exclusive licenses to the Atlas Bradford Connections contemplated
under this Agreement, (ii) if the customer desires Atlas Bradford Oil Field
Connections for use in the Exclusive Territories (other than the Home
Territories), Grant recommends that it should seek those Connections from
Licensee and (iii) if the customer ultimately sells any Atlas Bradford Oil Field
Connections for use in the Exclusive Territories, the customer is requested by
Grant to advise Grant of the sale so that Grant may pay the Licensee the
commissions to be paid by it under this Agreement.
(h) Any activity by Grant or its Affiliates involving the marketing,
sale or distribution of any Oil Field Connections (other than the Atlas Bradford
Connections) on Products or Accessory Equipment in the Exclusive Territory as
long as Grant or such Affiliate does not Thread or Reconstruct the Products or
Accessory Equipment in question, is merely a licensee of anothercompany that has
Threaded or Reconstructed the Connections on the Product or item of Accessory
Equipment and no use is made of the Patents, Technology or Trademark.
(i) The Threading, Reconstruction or sale in any Territory of
Connections (other than Atlas Bradford Connections) on Products or Accessory
Equipment pursuant to licenses from a person that is not Affiliated with Grant.
(j) The manufacture, repair, distribution and sale of Products, Product
components and Accessory Equipment to the extent such Products and Product
components and Accessory Equipment are sold by Grant or its Affiliates prior to
the Threading of Atlas Bradford Connections thereon.
(k) The use or resale by a customer or distributor (other than the
resale by a distributor of a Product that is Threaded with an Atlas Bradford
Connection to the Home Territories or for use in the Home Territories or an item
of Designated Accessory Equipment with an Atlas Bradford Oil Field Connection in
Mexico or for use in Mexico) of any tubular or other product (including
Accessory Equipment) which have been Threaded or Reconstructed by any Person;
provided, however, the provisions of this Section 2.3(k) will not limit Grant's
obligation to pay the commissions under Section 2.8 for any sales for which a
commission would otherwise be payable.
5
<PAGE> 6
(l) Any use or exploitation of the XL Technology or other technology to
which Grant or any of its affiliates may have a right to utilize or exploit.
(m) The rental of any Accessory Equipment with Atlas Bradford
Connections or the provision of well services for customers in any Territory by
any party.
(n) The Threading, Reconstruction and sale of Atlas Bradford
Connections on Accessory Equipment (other than an item of Designated Accessory
Equipment that is to be sold or used in Mexico) by Grant or Grant Affiliates or
their respective licensees as long as (i) the Threading and Reconstruction is
conducted in the Grant Territory, (ii) information as to all sales of such
Accessory Equipment in the Exclusive Territory by Grant, its Affiliates,
distributors and agents is provided to Licensee on a quarterly basis, (iii)
Grant and its Affiliates shall be responsible for all service with respect to
such Accessory Equipment, and (iv) Grant pays to Licensee the commissions
required on such sales as provided in Section 2.8.
SECTION 2.4 GRANT UNDERTAKINGS; DISTRIBUTION SALES
(a) Except as otherwise permitted by Sections 2.1 and 2.3 of this
Agreement, Grant and its Affiliates shall not Thread, Reconstruct or sell Atlas
Bradford Oil Field Connections on Products having 9% or less Cr for use in any
part of the Territories.
(b) (i) Except as otherwise permitted by Sections 2.1 and 2.3 of this
Agreement, Grant and its Affiliates shall not grant any rights to any Person to
Thread, Reconstruct or sell Atlas Bradford Oil Field Connections on Products or
Accessory Equipment having 9% or less Cr with Technology, Patents or Trademarks
in the Exclusive Territory.
(ii) Except as otherwise permitted by Sections 2.1, 2.3 and 2.8,
Grant and its Affiliates shall not grant to any Person any rights to
Thread, Reconstruct or sell Atlas Bradford Oil Field Connections on
Products having 9% or less Cr inside of the Grant Territory for use in
any part of the Exclusive Territories.
(iii) Except as otherwise permitted by Sections 2.1, 2.3 and 2.8,
Grant and its Affiliates shall not grant to any Person any right to
Thread, Reconstruct or sell Atlas Bradford Oil Field Connections on
Products or Designated Accessory Equipment in Mexico or in the Grant
Territory for use in Mexico.
(iv) Future licenses of Atlas Bradford Oil Field Connections by
Grant entered into after the Effective Date and during the term of
this Agreement shall provide that Licensee
6
<PAGE> 7
is a third party beneficiary for the enforcement of the restrictions
hereunder relating to the Exclusive Territories.
(c) Grant will take the actions required by Article 17 in connection
with all existing Grant licenses for Threading, Reconstructing and sale of Atlas
Bradford Oil Field Connections on Products and Accessory Equipment having 9% or
less Cr or of all grades in relation to Mexico.
(d) Except for export into the Grant Territory and as otherwise
permitted by this Agreement, during the life of this Agreement, Grant shall not
grant any rights to any Person to Thread or Reconstruct Atlas Bradford Oil Field
Connections on full length Products or to sell such Atlas Bradford Oil Field
Connections on full length Products of carbon steel having 9% or less Cr in the
Exclusive Territory.
(e) Licensee agrees that Grant has granted to Oil Country Tubular
Limited (AOCTL") a non-exclusive license to Thread, Reconstruct and sell Atlas
Bradford Oil Field Connections on Products and Accessory Equipment manufactured
under the Manufacturing Agreement between OCTL and Grant Prideco S.A., an
affiliate of Grant. Grant agrees that after the Effective Date and during the
term of this Agreement it will not consent to the manufacture of Products at the
OCTL facility in India except for sale and use in India. Licensee hereby
consents to the use by OCTL of such license and OCTL's manufacture and sale of
Products and Accessory Equipment with Atlas Bradford Oil Field Connections in
India.
(f) In consideration of the undertakings made by Licensee in Section
2.2, Licensee and Grant agree as follows:
(i) Grant and its Affiliates shall restrict their customers
(other than end users who may purchase for their own use) from
reselling (a) Products of carbon steel of 9% or less Cr with Atlas
Bradford Oil Field Connections that have been Threaded by Grant or its
Affiliates after the Effective Date into the Home Territories or for
use in the Home Territories and (b) Products and Designated Accessory
Equipment of all grades with Atlas Bradford Oil Field Connections that
have been Threaded by Grant and its Affiliates after the Effective in
Mexico or for use in Mexico. Except for sales of (a) Products of
carbon steel of 9% or less Cr with Atlas Bradford Oil Field
Connections that have been Threaded by Grant or its Affiliates after
the Effective in the Home Territories or for use in the Home
Territories and (b) Products and Designated Accessory Equipment of all
grades with Atlas Bradford Oil Field Connections that have been
Threaded by Grant and its Affiliates after the Effective in Mexico or
for use in Mexico, which shall be restricted as provided in the
preceding sentence, agents and distributors of Grant and its
Affiliates shall not be required to restrict their sales of Atlas
Bradford Oil Field Connections or Products and Accessory Equipment
acquired by them to the Grant Territory and that such distributors
shall, subject to such restrictions as Grant may from time itself and
in its sole discretion impose, be free to make such sales without any
claim from Licensee and its Affiliates and Sub-Licensees for
infringement or claim that the distributor does not have the right to
make such sales. In this regard, Licensee acknowledges that, except
for sales of (a) Products of carbon steel of 9% or less Cr with Atlas
Bradford Oil Field Connections that have been Threaded by Grant or its
Affiliates after the Effective in the Home Territories or for use in
the Home Territories and (b) Products and Designated Accessory
Equipment of all grades with Atlas Bradford Oil Field Connections that
have been Threaded by Grant and its Affiliates after the
7
<PAGE> 8
Effective in Mexico or for use in Mexico, which shall be restricted as
provided in the first sentence of Section 2.4(f)(i), it shall have no
rights against any distributor for sales of Atlas Bradford Connections
or Products and Accessory Equipment with Atlas Bradford Connections in
the Exclusive Territory or against any end user or other customer for
the use or resale thereof and that Licensee's remedy for any such
sales shall be the right to receive commissions pursuant to Section
2.8. The commissions payable under Section 2.8 by Grant shall not be
in lieu of any other remedy that Licensee may have for sales made by
Grant in the Home Territories in violation of this Agreement.
(ii) That while Grant agrees that it will not make any
Distribution Sale if it has actual knowledge that the sale of the
Atlas Bradford Oil Field Connection is specifically intended to be
sold or used in the Exclusive Territory, except for sales of (a)
Products of carbon steel of 9% or less Cr with Atlas Bradford Oil
Field Connections that have been Threaded by Grant or its Affiliates
after the Effective in the Home Territories or for use in the Home
Territories and (b) Products and Designated Accessory Equipment of all
grades with Atlas Bradford Oil Field Connections that have been
Threaded by Grant and its Affiliates after the Effective in Mexico or
for use in Mexico, which shall be restricted as provided in the first
sentence of Section 2.4(f)(i), neither Grant nor any of its Affiliates
or Sub-Licensees shall be required to make prior inquiry regarding any
order received by it with respect to the territory in which the Atlas
Bradford Connection is to be sold or used and may rely solely on the
purchase order and other communications received at the time the order
is placed. Grant further shall not be deemed to have actual knowledge
that an order is for sale in or use in the Exclusive Territory solely
by reason of Licensee advising Grant that it believes the order is for
sale in or use in the Exclusive Territory.
(iii) Grant agrees that it will not grant any licenses for
Atlas Bradford Oil Field Connections to any United States domestic steel mill
that would permit that mill to sell (a) Products of carbon steel of carbon steel
of 9% or less Cr with Atlas Bradford Oil Field Connections in the Exclusive
Territory or the Grant Territory for use in the Exclusive Territory or (b)
Products or Designated Accessory Equipment with Atlas Bradford Oil Field
Connection in Mexico or for use in Mexico.
SECTION 2.5 LICENSEE SUB-LICENSES
Licensee may grant sub-licenses to third parties with respect to its
rights hereunder subject to the following conditions:
(a) Sub-Licenses
Except for Affiliates of Licensee, no Sub-Licensee of Licensee or its
Affiliates shall be engaged or propose to be engaged in the business of the
Threading or Reconstruction of Connections for Products or Accessory Equipment
within the Grant Territory unless assurances reasonably satisfactory to Grant
are provided that such Sub-Licensee will not be able to utilize the Technology
and Patents in a manner that would adversely affect Grant; provided, however, no
Sub-Licensee shall have any rights under the Technology and Patents to Thread,
Reconstruct or sell Atlas Bradford Oil Field Connections in the Grant Territory
(other than Canada). Each Sub-Licensee (other than Affiliates of Licensee and
Sub-Licensees engaged solely in the Threading of Connections of
8
<PAGE> 9
Accessory Equipment) shall be required to be approved by Grant in advance, which
approval shall not be unreasonably withheld.
(b) Type of Sub-Licenses
Each sub-license from Licensee shall be "non-exclusive" and
"non-assignable" (other than the sub-licenses that may be granted to Affiliates
of Licensee). No Sub-Licensee of Licensee shall have the right to sub-license
its rights other than to the customer for use.
(c) Form of Sub-Licenses
Each sub-license from Licensee shall be in a form consistent with the
terms of this Agreement and that shall be submitted to Grant for prior approval
(which approval shall be deemed granted if Grant does not object to its terms
within 15 days from its submission). Licensee shall not be required to submit to
Grant any sub-license agreement which is substantially similar to a standard
form approved by Grant; provided, however that an executed copy of each
sub-license from Licensee shall be provided to Grant promptly following the
execution thereof. Each sub-license shall provide that Grant is a third party
beneficiary.
(d) Royalty Payments
Any royalty payments that may be agreed with Sub-Licensees (including
payments for the procurement of Tooling and Gauges) shall be for the benefit of
Licensee.
(e) Enforcement
Licensee shall be fully responsible for any breach of the licenses
granted hereunder by a Sub-Licensee that is an Affiliate of Licensee. Licensee
shall otherwise not be a guarantor for any Sub-Licensee and therefore the breach
of the terms of the sub-license by a Sub-Licensee which is not an Affiliate of
Licensee or the failure to obtain from any such Sub-Licensee the performance of
obligations under the sub-license shall not entitle Grant to regard Licensee as
being in breach of its obligations hereunder nor to terminate this Agreement so
long as Licensee continues to exercise and enforce its rights under the
sub-license or terminates, in accordance with its terms, the relevant
sub-license. Grant shall not be required to seek remedies against a Sub-Licensee
that is an Affiliate of Licensee and may act directly against Licensee for any
breach of any such Affiliate. The failure of a Sub-Licensee that is an Affiliate
of Licensee to comply with the terms of this Agreement shall entitle Grant to
regard Licensee as being in breach of its obligations hereunder and to terminate
this Agreement as provided in Section 10.4.
(f) Duration
The longest duration of any sub-license from Licensee shall be one day
shorter than the effective term of this Agreement according to whether it
expires or is previously terminated; provided that if this Agreement is
terminated prior to its initial term any Sub-Licensee which is not an Affiliate
of Licensee may upon termination apply directly to Grant for the adoption of the
sub-
9
<PAGE> 10
license directly whereupon Grant shall, if the Sub-Licensee is not an
Affiliate of Licensee nor is in default and there are no other legal impediments
to such adoption, adopt the same.
(g) Sub-License to Citra Tubindo
(i) Licensee shall assume the license with P.T. Citra Tubindo
("CITRA TUBINDO") attached hereto as Schedule "D" (the ACITRA
LICENSE"). Citra Tubindo may not grant sub-licensees of its rights,
except to H-Tech or an Affiliate of Citra Tubindo. Licensee may not
terminate the Citra License without the prior written consent of Grant
(other than as a result of an uncured material breach thereof), which
may be withheld by Grant in its sole discretion, and shall allow the
Citra License to be extended from time to time as requested by Grant.
In addition, Grant shall have the right to consent to the right of
Citra Tubindo to Thread and sell Atlas Bradford Oil Field Connections
under the Citra License in other territories; provided, however, Grant
agrees that it will not consent to the right of Citra Tubindo to
Thread or Reconstruct Atlas Bradford Oil Field Connections in
Argentina, Columbia, Italy, Mexico and Venezuela.
(ii) Licensee agrees that Citra Grant Prideco Limited, an
affiliate of Grant (ACITRA GRANT"), has been appointed a distributor
of Products and Accessory Equipment with Atlas Bradford Oil Field
Connections that have been Threaded or Reconstructed by Citra Tubindo
and its Affiliates pursuant to the Citra License in the territories
described therein. Licensee further agrees that the Citra License
shall continue in effect and not be required to be terminated and that
Citra Grant shall be entitled to continue to distribute Products and
Accessory Equipment that have been Threaded or Reconstructed by Citra
Tubindo and its sub-licensees.
(h) Sub-License Grant Prideco Limited
Licensee undertakes to grant to Grant Prideco Limited a non-exclusive
sub-license to Thread, Reconstruct and sell Accessory Equipment and to
Reconstruct Products with Atlas Bradford Connections within the North Sea
theater on customary terms and conditions to be agreed upon in good faith
between Grant Prideco Limited and Licensee recognizing Grant Prideco Limited's
current use of the technology. The license shall be subject to a royalty fee of
4% of the price paid to Grant Prideco Limited for the Atlas Bradford Connections
sold or provided by Grant Prideco Limited subsequent to the Effective Date and
during the term of such sub-license. In addition, Licensee agrees that it and
its Affiliates will offer to Grant Prideco Limited the opportunity to Thread any
full length Products with Atlas Bradford Connections within the North Sea
theatre as long as Grant Prideco Limited is able to provide such Threads at a
price to Licensee and its Affiliates equal to or less than the price at which a
Sub-Licensee of Licensee could provide such services. Licensee may not terminate
Grant Prideco Limited's Sub-License without the prior written consent of Grant
(other than as a result of an uncured material breach thereof), which may be
withheld by Grant in its sole discretion.
(i) Licensees to Grant and its Affiliates
Licensee agrees to grant to Grant or any of its Affiliates a
non-exclusive license under the Technology and Patents to Thread, Reconstruct
and sell Atlas Bradford Oil Field Connections on Accessory Equipment in the
Exclusive Territory to the extent Grant or such Affiliate enters into a
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sub-license agreement with Licensee and pays all required royalties thereunder
to Licensee; provided, Licensee shall not be obligated to license Grant or its
Affiliates if Licensee determines in its reasonable good faith that the granting
of such license would not be economically or commercially advantageous to
Licensee.
SECTION 2.6 PATENT INFRINGEMENT
(a) Grant covenants not to bring suit against Licensee or any of its
Sub-Licensees for infringement of any Patent arising from Licensee's and its
Sub-Licensee's performance in strict accord with this Agreement.
(b) Any claims for any infringement of Technology, Patents or
Trademarks shall belong solely to Grant and any recoveries with respect thereto
shall belong to Grant except to the extent such recoveries solely and
specifically relate to an infringement of the Technology or Patents for Threaded
or Reconstructed Atlas Bradford Oil Field Connections on full length Products in
the Licensee Territories for which an exclusive license has been granted to
Licensee in such territories, in which case such recoveries shall belong to
Licensee to the extent of its interest. Licensee shall be primarily responsible
for the defense of any infringement claims with respect to Technology, Patents
or Trademarks in the Licensee Territories for which an exclusive license has
been granted to Licensee to the extent the claim relates to the Exclusive
Territories; provided, however, in the event Licensee does not diligently
enforce its rights under Technology, Patents and Trademarks in the Exclusive
Territory, then, upon written notice to Licensee, Grant may enforce those
rights. Grant shall also have the exclusive right to defend any claims for
infringement in Grant Territory and a right to participate at its expense in any
actions in the Exclusive Territory. Licensee, however, shall have no right to
bring any action with respect to any infringement for the Technology, Patents or
Trademarks without the prior written consent of Grant, which shall not be
unreasonably withheld. Grant shall be entitled to participate in such actions.
Licensee shall not be entitled to take any action that would adversely affect
the right or validity of any of Technology or Trademarks without the prior
consent of Grant, which may be withheld in its sole and absolute discretion.
(c) In the event Grant enters into any settlement with respect to any
infringement claim with respect to Technology, Patents or Trademarks, Grant
agrees that it will not release or extinguish any rights of Licensee to the
Technology, Patents or Trademarks for use in the Exclusive Territory.
SECTION 2.7 USE OF PRODUCTS BY END USERS
Use of Products and Accessory Equipment by end users (drilling
contractors, oil companies and other similar users) is not restricted by this
Agreement and such end users may use and transfer such Products and Accessory
Equipment freely throughout the world without restriction hereunder. Grant or
Licensee, as the case may be, however, may be subject to commissions on such use
and transfer under Section 2.3(g) or to any other applicable remedy for
transactions made in violation of the provisions of this Agreement.
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SECTION 2.8 COMMISSIONS
(a) In consideration of the undertakings made by Licensee hereunder,
Grant agrees to pay to Licensee the following commissions:
(i) A commission equal to ***% of any royalties received by
Grant and its Affiliates from a party that is not Affiliated with Grant
from the Threading by such unAffiliated party (other than from Licensee
and its Affiliates and its Sub- Licensees) of any Atlas Bradford
Connections on (a) Products or Accessory Equipment of carbon steel of
9% or less Cr that are sold or delivered for use in the Exclusive
Territory and (b) Products and Accessory Equipment of all grades with
Atlas Bradford Oil Field Connections that are sold or delivered for use
in Mexico, in both cases by such unAffiliated Party (other than
Licensee and its Affiliates and its Sub-Licensees) after the Effective
Date and during the term of this Agreement.
(ii) A commission equal to ***% of any payments made to Grant
or its Affiliates by an unAffiliated customer or distributor for any
Atlas Bradford Oil Field Connections on (a) Products and Accessory
Equipment of carbon steel of 9% or less Cr or on Products or Accessory
Equipment of all grades in the case of Mexico (whether or not the
Product that is Threaded is owned by the Customer or Grant or its
Affiliates prior to the sale) that are Threaded by Grant or any of its
Affiliates after the Effective Date and during the term of this
Agreement and that are ultimately sold or used in the Exclusive
Territory; provided, however, if Grant or Licensee cannot or does not
demonstrate the amount of the payment made to Grant or its Affiliates
for such Atlas Bradford Oil Field Connections and Licensee is able to
demonstrate that such Atlas Bradford Oil Field Connections were
Threaded by Grant or one or more of its Affiliates after the Effective
Date and during the term of this Agreement, then the commission
payable will be based on Grant's or its Affiliates' then existing
price list for such Atlas Bradford Oil Field Connections.
(iii) The foregoing commissions shall only be applicable to
Products sold after the Effective Date and only for those Products and
Accessory Equipment that are sold or shipped during the term of this
Agreement for consumption in the Exclusive Territory. Grant agrees to
provide to Licensee a report within 60 days following the end of each
calendar quarter setting forth a list of all sales or shipments of
Products and Accessory Equipment of carbon steel of 9% or less Cr (and
in the case of Mexico Products and Accessory Equipment of all grades)
containing Atlas Bradford Oil Field Connections made into the Exclusive
Territory by Grant's and its Affiliates' distributors, agents and
customers during the quarter. Such report shall be based on information
provided to Grant and Grant Affiliates and Grant licensees from such
distributors, agents and customers, the Grant licensees and any other
data known to Grant and Grant Affiliates. Licensee shall be entitled to
object to such report and if it is able to demonstrate that sales or
shipments of Products of carbon steel of 9% or less Cr containing Atlas
Bradford Oil Field Connections were made after the Effective Date in
the Exclusive Territory by Grant, the Grant Affiliates or Grant
Licensees (other than Licensee, its Sub-Licensees, Citra Tubindo, OCTL
or Citra Grant), Grant will be required to pay a commission with
respect to such sales.
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(iv) Grant shall pay any required commission contemporaneous
with the delivery of the report under Section 2.8(a)(iii) and
will be entitled to a credit against the commission payable
pursuant to this Section 2.8(a) for (x) all actual documented
expenses incurred by Grant in providing Licensee support for
Products and Accessory Equipment sold by it, Grant Affiliates and
their distributors, agents and customers in the Exclusive
Territory and (y) any commissions payable to Grant under Section
2.8(b).
(v) The commissions payable by Grant under this Section
2.8(a) shall not be in lieu of any other rights that Licensee may
have against Grant or any distributor or customer of Grant for
any sales of Atlas Bradford Oil Field Connections into the Home
Territories or for use in the Home Territories in violation of
this Agreement; provided, however, that a breach by a distributor
or customer of Grant of the resell or use restrictions required
under this Agreement shall not be considered a breach by Grant
under this Agreement and Licensee shall be entitled to take
action against a distributor or customer that acts in violation
of the resell and use restrictions contained herein; provided
further, however, that if a distributor or customer of Grant
violates the resell or use restrictions required under this
Agreement, Grant shall be obligated to pay to Licensee all
profits realized by Grant from such distributor or customer on
the sale of such Product and Atlas Bradford Oil Field Connection
that was resold by the distributor or customer in violation of
such restrictions.
(b) Although Licensee and its Affiliates shall be restricted from
making any sales of Atlas Bradford Oil Field Connections in the Grant Territory
(excluding Canada) and shall be required to restrict sales by customers (other
than customers who are end users that are purchasing for their own use and not
for resale), in recognition of Grant's retained rights to the Technology and
Patents, Licensee agrees to pay to Grant the following commissions:
(i) A commission equal to ***% of any royalties received by
Licensee and its Affiliates from a party that is not Affiliated
with Licensee from the Threading by such unAffiliated party
(other than from Grant and its Affiliates and its sub- licensees)
of any Atlas Bradford Connections on Products or Accessory
Equipment that are sold or delivered for use in the Grant
Territory (excluding Canada) by such unAffiliated party (other
than Grant and its Affiliates and its sub-licensees) after the
Effective Date and during the term of this Agreement.
(ii) A commission equal to ***% of any payments made to
Licensee or its Affiliates by an unAffiliated customer or
distributor for any Atlas Bradford Oil Field Connections on
Products (whether or not the Product that is Threaded is owned by
the Customer or Licensee or its Affiliates prior to the sale)
that are Threaded by Licensee or any of its Affiliates after the
Effective Date and during the term of this Agreement and that are
ultimately sold or used in the Grant Territory (excluding
Canada); provided, however, if Grant or Licensee cannot or does
not demonstrate the amount of the payment made to Licensee or its
Affiliates for such Atlas Bradford Oil Field Connections and
Grant is able to demonstrate that such Atlas Bradford Oil Field
Connections were Threaded by Licensee or one or more of its
Affiliates after the Effective Date and during the term of this
Agreement, then the commission payable will be based on
Licensee's or its Affiliates' then existing price list for such
Atlas Bradford Oil Field Connections.
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after the Effective Date and during the term of this Agreement,
then the commission payable will be based on Licensee's or its
Affiliates' then existing price list for such Atlas Bradford Oil
Field Connections.
(iii) The foregoing commission shall only be applicable to
Products sold after the Effective Date and only for those
Products that are sold or shipped during the term of this
Agreement for consumption in the Grant Territory (excluding
Canada). Licensee agrees to provide to Grant a report within 60
days following the end of each calendar quarter setting forth a
list of all sales or shipments of Products containing Atlas
Bradford Oil Field Connections made into the Grant Territory
(excluding Canada) by Licensee's and its Affiliates'
distributors, agents and customers during the quarter. Such
report shall be based on information provided to Licensee and
Licensee Affiliates and Licensee's sub-licensees from such
distributors, agents and customers, the Licensee's sub-licensees
and any other data known to Licensee and Licensee's sub-licensee
Affiliates. Grant shall be entitled to object to such report and
if it is able to demonstrate that sales or shipments of Products
of Accessory Equipment containing Atlas Bradford Oil Field
Connections were made after the Effective Date in the Grant
Territory (other than Canada) by Licensee, Licensee Affiliates
and Licensee's Sub-Licensees (other than Grant, Grant's
Affiliates, OCTL, Citra Tubindo or Citra Grant).
(iv) Licensee shall pay any required commission
contemporaneous with the delivery of the report under Section
2.8(b)(iii) and will be entitled to a credit against the
commission payable pursuant to this Section 2.8(b) for any
commissions payable to Licensee under Section 2.8(a).
(v) The commissions payable by Licensee under this Section
2.8(a) shall not be in lieu of any other rights that Grant may
have against Licensee or any distributor or customer of Licensee
for any sales of Atlas Bradford Oil Field Connections into the
Grant Territory (other than Canada) or for use in the Grant
Territory (other than Canada) in violation of this Agreement;
provided, however, that a breach by a distributor orcustomer of
Licensee of the resell or use restrictions required under this
Agreement shall not be considered a breach by Licensee under this
Agreement and Grant shall be entitled to take action against a
distributor or customer that acts in violation of the resell and
use restrictions contained herein; provided further, however,
that if a distributor or customer of Licensee or its
Sub-Licensees or its Affiliates violates the resell or use
restrictions required under this Agreement, Licensee shall be
obligated to pay to Grant all profits realized by Licensee or its
Affiliates from such distributor or customer on the sale of such
Product and Atlas Bradford Oil Field Connection that was resold
by the distributor or customer in violation of such restrictions.
(c) (i) Except as provided in Section 2.8(a)(v), commissions payable by
Grant and its Affiliates shall be limited to the sales price of the Atlas
Bradford Oil Field Connections as determined above and shall be net of discounts
and not include taxes, shipping, delivery,
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insurance and other similar charges or the price of Products or
Accessory Equipment on which the Atlas Bradford Oil Field
Connection is threaded. No commissions shall be payable by Grant
or its Affiliates under this Section 2.8 in respect of Atlas
Bradford Connections on Products or Accessory Equipment sold by
(i) a sub-licensee of Licensee or (ii) OCTL, Citra Tubindo or
Citra Grant to the extent otherwise permitted by the Agreement.
(ii) Except as provided in Section 2.8(b)(v), commissions
payable by Licensee and its Affiliates shall be limited to the
sales price of the Atlas Bradford Oil Field Connections as
determined above and shall be net of discounts and not include
taxes, shipping, delivery, insurance and other similar charges or
the price of Products or Accessory Equipment on which the Atlas
Bradford Oil Field Connection is threaded. No commissions shall
be payable under this Section 2.8 in respect of Atlas Bradford
Connections on Products or Accessory Equipment sold by (i) Grant
or its licensees (other than Licensee and its Affiliates and
Sub-Licensees) or distributors in respect to sales that were made
by Grant or (ii) OCTL, Citra Tubindo or Citra Grant.
(d) All commissions payable by Grant required under this Section 2.8
shall be paid to an account in the United States designated by Licensee from
time to time. All commissions payable by Licensee under this Section 2.8 shall
be paid to an account in the United States designated by Grant from time to
time. All commissions provided for hereunder shall be subject to any applicable
withholding or other similar taxes.
ARTICLE 3. CONFIDENTIAL INFORMATION
SECTION 3.1 DELIVERY OF PROPRIETARY DOCUMENTATION
Grant will, during the term of this Agreement, provide Licensee with
access to Proprietary Documentation relating to Grant Technology and Grant
Patents. Licensee agrees to refrain from: copying or abridging such Proprietary
Documentation; providing such Proprietary Documentation or copies thereof to any
third party (other than as necessary to allow Sub-Licensees to exercise their
rights and perform their obligations under the Sub-Licenses and subject to
appropriate confidentiality agreements for the benefit of Grant); or using such
Proprietary Documentation for any purpose other than performance under this
Agreement. Licensee agrees to promptly return all Proprietary Documentation
relating to the Grant Technology, including all copies and abridgments thereof,
to Grant upon termination of this Agreement.
SECTION 3.2 EXCHANGE OF CONFIDENTIAL INFORMATION
During the term of this Agreement, each party to this Agreement may or
will receive, directly or indirectly from the other party or from licensees or
Sub-Licensees, information which the other party, the licensees or the
Sub-Licensees, as the case may be, consider confidential ("CONFIDENTIAL
INFORMATION"). Confidential Information may be received in tangible form, or may
be received visually or orally. The receiving party agrees to hold in strict
confidence, and not to disclose to third
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parties, or use for any purpose other than performance under this Agreement any
Confidential Information which the receiving party receives from the disclosing
party in tangible form, marked "Confidential", or receives visually or orally
and with confirmation in writing as confidential by the disclosing party.
Further, the receiving party agrees to refrain from disclosing the disclosing
party's Confidential Information to any Person or party, except employees and
subcontractors of the receiving party who have a need to know the Confidential
Information in order for the receiving party to perform and receive its full
benefit under this Agreement and who have agreed in writing to maintain the
confidentiality of Confidential Information. The receiving party agrees to
promptly return all documentation and other tangible things embodying the
disclosing party's Confidential Information which are in the possession of or
under the control of the receiving party, upon termination of this Agreement for
any reason.
The above obligations of confidentiality and non-use of Confidential
Information apply both during the term of this Agreement and thereafter.
However, these obligations of confidentiality and non-use shall not apply to any
information which:
(a) was known to the receiving party, as shown by suitable evidence, at
the time the information was received from the disclosing party and who is not
subject to an obligation of confidentiality to the disclosing party; or
(b) is available, or becomes available to the public through no fault
of the receiving party, its Affiliates, licensees, Sub-Licensees or agents; or
(c) is disclosed to the receiving party by a third party who is not
subject to an obligation of confidentiality to the disclosing party; or
(d) is required by a final, unappealable order of any court or
government agency having competent jurisdiction over the information; or
(e) is independently developed by any of the parties without reference
to Confidential Information.
ARTICLE 4. MARKING PRODUCTS
SECTION 4.1 OBLIGATION TO MARK
Licensee agrees to mark each Product or item of Accessory Equipment on
which an Atlas Bradford Connection is Threaded or Reconstructed by Licensee
pursuant to this Agreement with marks showing:
(i) the Atlas Bradford Connection was Threaded or
Reconstructed by Licensee under license from Grant;
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(ii) the appropriate Grant Trademark(s) for the Atlas
Bradford Connection; and
(iii) the appropriate patent number or reference to patent
numbers.
SECTION 4.2 USE OF TRADEMARKS
(a) Licensee agrees to use Grant Trademarks only in conjunction with
Atlas Bradford Connections Threaded or Reconstructed by Licensee or its
Sub-Licensees at their facilities in the Licensee Territories pursuant to this
Agreement and in literature and advertising as approved in advance by Grant
which approval shall not be unreasonably withheld and deemed granted if Grant
does not object in writing to it within thirty (30) days of the written
submission to it for approval. All goodwill relating to the Grant Trademarks
shall belong exclusively to Grant and in the event of a termination of this
Agreement and Licensee's or its Sub-Licensees' rights with respect to the Grant
Trademarks, no payment shall be due or payable to Licensee or its Sub-Licensees.
Licensee has no license, either by grant or inference, to use Grant Trademarks,
except as specifically allowed under this Agreement. Use by Licensee of Grant
Trademarks shall inure solely to the benefit of Grant. Licensee agrees to
refrain from using or seeking registration of any trademark or trade name the
same or confusingly similar to Grant Trademarks, both during the term of this
Agreement and thereafter.
(b) Subject to the reimbursement of all costs relating thereto,
Licensee may designate where Trademarks and Patents are to be filed in the
Licensee Territories (other than Canada). (c) Grant will be responsible for the
filing and registration of all Trademarks and Patents worldwide. Licensee will
pay prosecution and maintenance fees (including legal and agency costs) of such
Trademarks and Patents in the Exclusive Territory.
ARTICLE 5. NEW TECHNOLOGY; TECHNOLOGY AND TECHNICAL
ASSISTANCE; SALES AND MARKETING
SECTION 5.1 OBLIGATION TO PROVIDE BUSINESS AND TECHNICAL INFORMATION
Grant agrees to make available to Licensee promptly following the
execution of this Agreement (at Licensee's cost) business and technical
information which, in accord with industry practice is required to Thread or
Reconstruct Atlas Bradford Oil Field Connections on Products and Accessory
Equipment as contemplated under this Agreement and which Grant has available.
Technical information shall include, as required, drawings, inspection manuals,
gauging manuals, Grant standards and specifications of quality and performance
of Atlas Bradford Oil Field Connections on Products and Accessory Equipment and
manufacturing processes and procedures. Technical information shall be in the
English language and shall use the English system of weights and measures (e.g.,
inches, feet, pounds, gallons, etc.). Once such information is initially
provided, Grant shall be required to supplement the same on a reasonable
frequency and Licensee shall reimburse for the reasonable costs incurred by
Grant in providing such supplements.
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SECTION 5.2 TOOLING AND GAUGES
Licensee shall procure from reputable international suppliers, on a
royalty free basis to Grant, the Tooling and Gauges required for Threading and
Reconstruction of Atlas Bradford Connections on Products and Accessory Equipment
by Licensee and its Sub-Licensees pursuant to the licenses granted hereunder to
it. Grant shall provide Licensee at Grant's cost plus 20% with the necessary
drawings and specifications. Licensee shall require Sub-Licensees to follow
procedural rules issued by Grant relating to the Patents and Technology
requiring calibration, verification, service or verification of Gauges against
master Gauges held by Licensee. Licensee master Gauges shall in turn be verified
against Grant's master Gauges. Licensee may also purchase Gauges from Grant upon
terms and conditions prevailing in the market at the time of the sale. Licensee
shall be entitled to purchase Gauges from third parties.
SECTION 5.3 RIGHT TO INSPECT GAUGES
Grant shall have the right, but not the obligation, to periodically
inspect all Gauges used by Licensee and its Sub-Licensees in connection with the
Threading and Reconstruction of Atlas Bradford Connections on Products and
Accessory Equipment using the Technology or Patents, upon Grant giving five (5)
days prior written notice to Licensee. Grant will provide Licensee with
procedures to determine from inspection of such Gauges when recalibration is
necessary. Licensee shall be responsible for calibration of such Gauges of
Licensee and of those Sub-Licensees which are Affiliates of Licensee. Each
Sub-Licensee of Licensee shall be responsible under the terms of the Sub-License
Agreement with such Sub-Licensee for the calibration of its Gauges.
SECTION 5.4 TRAINING OF PERSONNEL
Licensee may, from time to time, at its own expense send a reasonable
number of Licensee or its Sub-Licensees employees to Grant's facilities for a
reasonable period of time, for the purpose of receiving technical assistance and
studying methods employed by Grant in the Threading and Reconstruction of Atlas
Bradford Oil Field Connections on Products and Accessory Equipment. The time
schedule and number of employees will be mutually agreed between Grant and
Licensee. Such employees will be given access to Grant's facilities to the
extent necessary for such purpose. Licensee shall indemnify and hold Grant
harmless from any claim, award, or damages arising from injury, sickness or
death of such employees, including the injury, sickness or death resulting from
the sole or contributory negligence of Grant, its employees, officers or agents.
Licensee shall pay all salaries or wages, and all expenses of Licensee's
representatives sent to Grant's facilities and shall pay Grant a fee of $200.00
per person for each day of training, subject to an annual increase (effective
for training provided from January 1, 1999) equal to the annual change in the
United States Producers Price Index occurred during the preceding year;
provided, however, that no payment shall be due by the Licensee for the initial
training provided in Houston for five days and for up to ten Licensee employees
during one year from the Effective Date of this Agreement.
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SECTION 5.5 AVAILABILITY OF SPECIALISTS
At the request of Licensee, Grant shall provide technical specialists
to consult with Licensee concerning Threading and Reconstruction of Atlas
Bradford Oil Field Connections on Products and Accessory Equipment, and assist
Licensee or Sub-Licensees, as the case may be, with problems which may arise.
Should Licensee or a Sub-Licensee require the services of technical specialists
at any place other than Grant?s manufacturing facility at Navasota, Texas, USA,
Grant shall be entitled to be paid the amount of all reasonable travel and
living expense for the technical specialist provided at Grant?s then current
daily rate, (present daily rate is $500.00 and shall be increased by no more
than 5% in any one year), for each day a technical specialist is away from his
home office. Provision of technical specialists shall depend upon availability.
Grant shall indemnify and hold Licensee and Sub-Licensees, as the case may be,
harmless from any claim, award or damages arising from injury, sickness or death
of Grant technical specialists resulting from the sole or contributory
negligence of Licensee or Sub-Licensee, as the case may be, their employees,
officers or agents.
SECTION 5.6 PROVISION OF FIELD SERVICE
In the event a customer of Licensee requests field service with respect
to Atlas Bradford Oil Field Connections Threaded or Reconstructed using Patents
or Technology within the Territories, Licensee shall either provide such
services with the technical specialists/field service personnel of its
Affiliates or request Grant to provide such service, in which case Grant may,
but shall not be obligated to, provide such services at its then current charges
for such services. In the event the customer requests field services from Grant
with respect to Atlas Bradford Oil Field Connections Threaded or Reconstructed
using Patents or Technology within the Territories (other than Canada and the
jurisdictions in which Grant Prideco Limited has licenses), Grant will inform
its customer that Licensee provides field services through its Affiliates.
SECTION 5.7 CHANGES IN DESIGNS, STANDARDS, SPECIFICATIONS AND PROCESSES
Grant reserves the right to make any changes in the design, standards,
specifications, or Threading processes, for Atlas Bradford Oil Field
Connections, Tooling and Gauges. Grant shall, when such items are first utilized
on a regular commercial basis, for fees equal to Grant's cost plus 20%, make
available to Licensee with new drawings, specifications, Manual revisions,
updated drawings, etc., for the Threading or Reconstruction of Atlas Bradford
Oil Field Connections on Products and Accessory Equipment under this Agreement
in accordance with Grant's then current standards and specifications of quality
and performance. Prior to such time, Grant shall have no obligation to provide
the same; provided, however, it is understood that such fees shall not be
payable for the cost of the technological improvements or changes made in the
design, specifications or Threading processes that were not initiated or
requested by Licensee and will be limited to the cost of making available such
matters.
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SECTION 5.8 LICENSEE IMPROVEMENTS
In the event that Licensee or any of its Sub-Licensees shall develop
any modifications or improvements in the design or manufacture of Atlas Bradford
Oil Field Connections using Patents or Technology during the term of this
Agreement, Licensee shall communicate such modifications or improvements to
Grant and hereby grants a royalty-free non-exclusive license to Grant to make,
use and sell Atlas Bradford Oil Field Connections on Products and Accessory
Equipment incorporating such technology under terms and conditions similar to
those provided in this Agreement, including territory and limitation of use, and
only for as long as Licensee is allowed to use the Patents and Technology,
except in the case of termination of this Agreement under Section 10.5, in which
case such license would have the same duration as that of the patents, if any,
disclosed under that license or would be in force for so long as the know-how
disclosed under that license remained confidential and secret.
SECTION 5.9 MAINTENANCE OF INFORMATION, GAUGES AND TOOLING
Licensee and its Sub-Licensees shall be responsible for the maintenance
of all Grant Proprietary Documentation, Confidential Information and Tooling
provided to them. This includes proper storage, inventory, and protection as
deemed necessary and as directed by Grant. Further, Licensee agrees to follow
all procedures established by Grant and applied generally to all licensees,
concerning the maintenance and inventory of manuals, drawings, other Proprietary
Documentation, and Gauges of Grant and further agrees that repair or replacement
of abused damaged or lost manuals, drawings, and Gauges will be charged to
Licensee, normal wear and tear excepted.
SECTION 5.10 BREACH OF MAINTENANCE AND NON DISCLOSURE OBLIGATION
The parties agree that if any Proprietary Documentation relating to the
disclosing party, Confidential Information, Technology or Gauges, in whole or in
part, or any reproduction of same, is found outside the receiving party's
possession (other than the possession by a Sub-Licensee of Licensee) without
prior written consent of the disclosing party in a manner that would reasonably
lead to believe that the receiving party has materially breached its obligations
hereunder, then the disclosing party has, in addition to its other legal
remedies, the right to terminate this Agreement in accordance with Section 10.5.
Each of Grant and Licensee shall also be entitled to seek injunctive relief for
a breach of this section without the necessity of proving irreparable harm and
without posting bond.
SECTION 5.11 RESEARCH AND DEVELOPMENT
(a) In the event Grant or any of its Affiliates develop any New Grant
Connections Licensee may request that the patents, technology and trademarks for
the New Grant Connections be added to the technology, patents and trademarks
licensed to Licensee hereunder subject to the rights of any co-inventors or
owners. In such case, a license of the patents, technology and trademarks
subject to the rights of any co-inventors or owners for the New Connections
shall be granted subject to the Licensee reimbursing Grant an amount equal to
50% of the actual documented costs, including internal costs, associated with
the investment, development and testing thereof and
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the payment of any transfer or sub-license fees and payments of royalties for
third parties. Once such costs are paid, subject to the rights of other owners,
the license for the patents and technology for the New Grant Connections shall
be deemed to be fully paid and subject to the terms hereof, including
exclusivity, territory and field of use and be included within the definitions
of Technology, Patents, and Trademarks. Notwithstanding the foregoing, Grant or
any of its Affiliates may seek and obtain a license of patents and technology
relating to Connections from an unAffiliated third party without an obligation
to license the same under this Agreement. The foregoing shall also not apply to
XL Technology.
(b) In the event Grant or any Affiliate thereof acquires patents or
technology through an asset or stock purchase, merger or other transaction
(excluding a transaction under which patents or technology or other rights are
acquired pursuant to a license) for any New Grant Connections, Licensee may
request that such patents, technology and trademarks for the New Grant
Connections be added to the patents, technology and trademarks licensed to such
party hereunder. In such case, subject to any limitations or restrictions
relating to such patents, technology and trademarks prior to the date on which
such patents and technology are acquired and the payment of any transfer or
sub-license fees, payments or royalties that would be payable to any
unAffiliated third party, a license of the patents, technology and trademarks
for the New Grant Connections shall be granted subject to the Licensee
reimbursing Grant for the New Grant Connections an amount equal to 50% of the
allocated cost to Grant of the patents, technology and trademarks relating to
the New Grant Connections to be licensed. Once such costs are paid, the license
for the patents, technology and trademarks for the New Grant Connections shall
be deemed to be fully paid and subject to the terms hereof, including
exclusivity, territory and use and be included within the definition of
Technology, Patents, and Trademarks. Notwithstanding the foregoing, Grant or any
of its Affiliates may seek and obtain a license of patents and technology
relating to Connections from an unAffiliated third party without an obligation
to license the same under this Agreement. The foregoing shall also not apply to
XL Technology.
(c) Contemporaneous herewith, EVI, as the controlling Affiliate of
Grant, and Dalmine, Siderca and Tamsa, as Affiliates of Licensee, have executed
an agreement (the "Affiliates Agreement") to be bound by the provisions of this
Agreement to the extent there are obligations of Grant's and Licensee's
Affiliates. Any breach of the Affiliate Agreement shall be considered a breach
of this Agreement by the party affiliated with the breaching party.
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SECTION 5.12 INFORMATION TO CUSTOMERS
Grant and the Licensee agree to inform their customers of this
Agreement pursuant to a general notice and/or press release to be mutually
agreed by them. Such notice shall include a notice to distributors that (i) the
distributors of Grant shall be restricted from reselling Products with Atlas
Bradford Oil Field Connections sold by Grant to the distributor after the
Effective Date in the Home Territories or knowingly for use in the Home
Territories and (ii) the distributors of License and its Sub-Licensees shall be
restricted from reselling Products with Atlas Bradford Oil Field Connections
sold to the distributor after the Effective Date in the Grant Territory (other
than Canada) or knowingly for use in the Grant Territory (other than Canada).
SECTION 5.13 SALES LITERATURE
Grant agrees to assist Licensee, at Licensee's expense, in the
preparation of any sales literature used by Licensee or Sub-Licensees pursuant
to this Agreement. Licensee shall obtain Grant's prior written approval on all
sales literature for Atlas Bradford Connections threaded or reconstructed with
Patents or Technology (which approval shall not be unreasonably withheld) before
literature is distributed. Grant's approval shall be deemed granted whenever
Grant does not object to the proposed literature within 15 days of the written
request for approval made by Licensee.
ARTICLE 6. PRODUCT QUALITY AND PERFORMANCE
SECTION 6.1 COMPLIANCE OBLIGATIONS
Licensee understands that the safety of Atlas Bradford Connections and
protection of Trademarks are primary reasons for maintaining the quality and
performance of the licensed Atlas Bradford Connections. In this regard Licensee
agrees at all times to provide trained personnel and operate its facilities in
the manner necessary to Thread or Reconstruct Atlas Bradford Oil Field
Connections on Products and Accessory Equipment in accordance with Technology
and Patents and in strict conformance to the specifications and standards of
quality employed by Grant for products the same or similar to Atlas Bradford
Connections. Licensee further agrees to ensure that all manufacturing
procedures, finishing and gauging practices set forth in the aforementioned
Technology and Patents shall be strictly adhered to by Licensee. Any changes in
manufacturing procedures, such as threading, finishing and gauging shall be made
only with Grant's written consent. In the event any Atlas Bradford Connections
utilizing Patents and Technology that are Threaded or Reconstructed by Licensee
fail to comply with Grant's standards and specifications of quality, Licensee
shall refrain from marking any non-complying connections with any Trademark
called for in Article 4. To assure compliance with this provision, Grant shall
make available to Licensee on an ongoing basis Grant's current specifications
and standards for finishing.
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SECTION 6.2 RECORDS
Licensee shall record and maintain, in a reasonable manner, data sheets
containing measurements on each and every Atlas Bradford Connection Threaded and
Reconstructed by Licensee pursuant to this Agreement. Said data sheets shall be
available for Grant's auditor review and shall be retained by Licensee for a
period of five (5) years following the Threading or Reconstruction of the
licensed Atlas Bradford Connections.
SECTION 6.3 QUALITY PROBLEMS
Licensee and Grant shall cooperate to resolve problems Licensee or its
Sub-Licensees may have in complying with Atlas Bradford Connection standards and
specifications of quality. In the event Atlas Bradford Connections that are
Threaded or Reconstructed by Licensee or its Sub-Licensees utilizing the
licenses from Grant fail to comply with Grant standards and specifications of
quality, then Licensee and its Sub-Licensees, as the case may be, shall refrain
from marketing or selling such non-conforming Atlas Bradford Connections until
such time as the problems causing such non conformance are solved.
SECTION 6.4 COVENANT NOT TO MARK NON PERFORMING PRODUCTS
Licensee shall not place any Trademark on any product which does not
comply with Grant standards and specifications of quality for its licensed Atlas
Bradford Connections. To assure compliance with this provision, Grant shall make
available to Licensee on an ongoing basis Grant's current specifications and
standards for finishing.
ARTICLE 7. EFFECTIVE DATE; CONSIDERATION
(a) This Agreement shall become effective if and only if the purchase
by Pridecomex Holding, S.A. de C.V. of the stock of TF de Mexico, S.A. de C.V.
pursuant to the Stock Purchase Agreement dated as of the Effective Date between
EVI Weatherford, Inc., Pridecomex Holding, S.A. de C.V., Tamsa and Tamsider S.A.
de C.V. is consummated.. If such purchase is not consummated prior to October
31, 1998, this Agreement shall be terminated and void. Until this Agreement
becomes effective, Grant and its Affiliates shall have no obligations and will
not be restricted by the provisions of this Agreement.
(b) The licenses granted hereunder by Grant are being provided in
consideration for the agreements hereunder and other agreements that are being
entered into with Affiliates of Licensee.
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ARTICLE 8. WARRANTY
SECTION 8.1 WARRANTY
(a) Grant represents and warrants to Licensee that except as set forth
in Schedule 8.1(a), Grant is not currently aware of any claims by third parties
that the Technology infringes upon or violates the rights of any third party in
the Exclusive Territory.
(b) GRANT WARRANTS THAT THE TECHNOLOGY SUPPLIED TO LICENSEE PURSUANT TO
THIS AGREEMENT SHALL, IF PROPERLY APPLIED UNDER CIRCUMSTANCES EQUIVALENT AT
GRANT'S MANUFACTURING OPERATIONS, WILL PERMIT THE LICENSEE TO THREAD ATLAS
BRADFORD CONNECTIONS OF THE SAME KIND AND NATURE THREADED BY GRANT AT ITS
FACILITIES, PROVIDED, HOWEVER, NO REPRESENTATION OR WARRANTY IS MADE OR GIVEN AS
TO THE SUITABILITY OF THE TECHNOLOGY TO THREAD PRODUCTS IN ANY MANNER DIFFERENT
THAN THAT CONDUCTED BY GRANT. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE PATENTS,
TECHNOLOGY AND TRADEMARKS TO BE LICENSED UNDER THIS AGREEMENT ARE BEING LICENSED
WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE, INCLUDING TITLE,
DESIGN, PERFORMANCE, FITNESS FOR A PARTICULAR PURPOSE, ABSENCE OF DEFECTS,
LATENT OR OTHERWISE, INFRINGEMENT OR MERCHANTABILITY. IT BEING UNDERSTOOD THAT
THE LICENSES GRANTED HEREUNDER ARE BEING PROVIDED STRICTLY ON AN "AS IS" WHERE
IS BASIS. GRANT'S SOLE OBLIGATION TO LICENSEE UNDER THIS WARRANTY IS LIMITED TO
REPLACEMENT OF NON-CONFORMING TECHNOLOGY.
SECTION 8.2 EXCLUSION OF TOOLING
Licensee is aware that Tooling, including threadform inserts, groove
tools, Teflon seal rings, and thread protectors supplied by Grant for each Atlas
Bradford Oil Field Connection for Products and Accessory Equipment which
Licensee Threads or Reconstructs pursuant to this Agreement may not be of
Grant's manufacture. Accordingly, Licensee agrees that Grant shall not be
warrantor with respect to any threadform inserts, groove tools, Teflon seal
rings, thread protectors or other Tooling which Licensee may purchase directly
from any vendor. Licensee shall be responsible for the inspection of said
Tooling from any of such vendors.
SECTION 8.3 WARRANTY TO CUSTOMERS
Whenever market practice may allow it, Licensee agrees to use
reasonable efforts, and to require its Sub-Licensees to use reasonable efforts,
to limit their warranty of all Atlas Bradford Oil Field Connections on Products
and Accessory Equipment Threaded or Reconstructed by it or its Sub-Licensees
pursuant to this Agreement to the terms stated in Schedule "E".
ARTICLE 9. INDEMNITY
Without prejudice to Grant's obligations under Section 8.1, Licensee
hereby agrees to indemnify, defend and hold Grant, its Affiliates and their
respective officers, directors, employees, agent, stockholders and controlling
persons and their respective successors and assigns harmless
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from and against in respect of any and all liabilities, losses, damages,
demands, assessments, claims, costs and expenses (including interest, awards,
judgments, penalties, settlements, fines, diminutions in value, cost and
expenses incurred in connection with investigating and defending any claims or
causes of action (including, without limitation, attorneys' fees and expenses
and all fees and expenses of consultants and other professionals)) actually
suffered, incurred or realized by such party arising out of or resulting from or
relating to the use of the Technology, Patents or Trademarks by Licensee or any
of its Affiliates, the Threading, the Reconstruction, sale or use of any Atlas
Bradford Oil Field Connections on Products or Accessory Equipment Threaded,
Reconstructed, sold or used by the Licensee or any of its Affiliates or for any
breach of any covenant or agreement by Licensee hereunder or its Affiliates
under the Affiliates Agreement.
ARTICLE 10. TERM AND TERMINATION
SECTION 10.1 DURATION
This Agreement shall become effective and the rights herein granted
shall commence from the Effective Date and continue in effect until December 31,
2027 and thereafter for successive three (3) year periods unless notice of
termination is given on or prior to December 31, 2026 or one (1) year prior to
the expiration of any subsequent extension. Grant, however, agrees that from the
date hereof until the earlier of the Effective Date and the date on which the
Stock Purchase Agreement dated as of June 19, 1998, between EVI Weatherford,
Inc., Pridecomex Holding, S.A. de C.V., Tubos de Acero de Mexico S.A. and
Tamsider S.A. de C.V. is terminated pursuant to its terms prior to the Effective
Date, it will not (i) grant any new licenses or amend or renew any existing
licenses to Thread, Reconstruct or sell in the Exclusive Territory or inside of
the Grant Territory foruse in the Exclusive Territory, Atlas Bradford Oil Field
Connections on Products or Accessory Equipment of carbon steel of 9% or less Cr
unless such licenses are (x) entered into in the ordinary course of business,
(y) may be terminated without liability to Licensee on at least six months
notice and may be assigned to Licensee and (z) non-exclusive, (ii) take similar
action with respect to licenses as described in clause (i) (subject to the same
exceptions) with respect to Products or Accessory Equipment of all grades in
Mexico or for use in Mexico and (iii) take any action that would be prohibited
under the last sentence of Section 2.5(g)(i) had this Agreement been judged in
effect.
Whenever notice of termination is given during the remaining life of
this Agreement, Licensee or Grant, as the case may be, and any of its
Sub-Licensees shall (a) be entitled to complete the work as scheduled with their
customers on any orders requiring Products or Accessory Equipment placed prior
to the termination notice, irrespective of the agreed time for performance and
(b) may accept new orders for Threading or Reconstruction of Atlas Bradford
Connections on Products or Accessory Equipment derived from quotations dated
before the last day of the relevant period on which termination becomes
effective, as contemplated in this Agreement, provided that such Atlas Bradford
Connections are shipped not later than ninety (90) days from the last day of the
life of this Agreement. Notwithstanding the foregoing, nothing in this Agreement
shall be construed to provide for a license or other rights to use or employ
technology or patents inany jurisdiction in which such license or grant of
rights would not be lawful and the term of any license granted hereunder with
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respect to any patent in any jurisdiction shall not extend beyond the expiration
date of such patent in such jurisdiction.
SECTION 10.2 SURVIVING OBLIGATIONS
Neither party shall be relieved of its continuing obligations upon
termination of this Agreement. In this regard, subject to the provisions of this
Agreement:
(a) The parties shall abide by their continuing obligations of
confidentiality and non-use of Confidential Information, and shall, on the day
of termination, return all Confidential Information, including all copies
thereof, which are in their possession or under their control.
(b) Licensee shall promptly return to Grant all Grant Gauges, Tooling,
Proprietary Documentation, Technology and Confidential Information, including
all copies thereof, which are in the possession or under control of Licensee.
(c) Licensee and Grant shall abide by their obligations and indemnity
under this Agreement.
SECTION 10.3 INSOLVENCY
In the event Licensee, its successors or assigns shall become bankrupt
or insolvent, or enter into a composition with creditors, or if a receiver shall
be appointed, or if any petition or application for reorganization be filed by
or against it, then this Agreement may be terminated by Grant. However, Licensee
shall not be thereby discharged from any liability to Grant for any amounts due
at the time of termination or from antecedent liability and the licenses to
Grant shall continue in effect without impairment.
SECTION 10.4 MANUFACTURE OF PRODUCTS IN VIOLATION OF AGREEMENT
If Licensee or any of the Sub-Licensees that is an Affiliate of the
Licensee Threads, Reconstructs or sells any Atlas Bradford Connections on
Products or Accessory Equipment in violation of the terms and provisions of this
Agreement or uses or applies Technology, Patents or Trademarks in association
with products of a type other than those licensed under this Agreement, Grant
shall, upon 120 days written notice, be entitled to terminate the licenses
granted by it under this Agreement; provided, however if such breach is cured
within such time period Grant may not terminate the licenses; provided further,
however, that if Licensee or any Sub-Licensee that is an Affiliate of Licensee
within 18 months thereafter again violate the terms and conditions of this
Agreement, Grant may, upon written notice, immediately terminate all licenses
granted by it hereunder without any cure period. Licensee shall also be liable
to Grant for all damages of every nature resulting from such violations of this
Agreement or the Affiliates Agreement by Licensee's Affiliates, and further,
Licensee agrees that it shall be subject to an injunction of the appropriate
court against any further such violations without the requirement to prove an
inadequate remedy at law or obligation to post bond or similar security.
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SECTION 10.5 BREACH OF OTHER OBLIGATIONS
If either party shall fail to observe or perform any of its material
promises, agreements, or undertakings under this Agreement or a party's
Affiliate fails to observe any of its material promises, agreements or
undertakings under the Affiliates Agreement, and fails to remedy any such breach
within one hundred and twenty (120) days of notice to do so from the other
party, then the aggrieved party may, upon expiration of the one hundred and
twenty (120) days notice period, give written notice of termination of the
licenses granted by such party under this Agreement either forthwith or at a
future date designated by the aggrieved party. The parties agree that, without
prejudice to any indemnification rights they may be entitled to, the party in
breach of its obligations shall be subject to an injunction of the appropriate
court against any further such violations without the requirement to prove an
inadequate remedy at law or obligation to post bond or similar security.
ARTICLE 11. NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
certified mail, return receipt requested, or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
<TABLE>
<CAPTION>
GRANT LICENSEE
<S> <C>
Attention: Rich DeLange Attention: Pedro Minaudo
Grant Prideco, Inc. Simini 250
P.O. Box 60865 2804 Campana, Provincia de Buenos Aires
Houston, TX 77025-0865 Argentina
Facsimile No.: 281 774 4535 Facsimile No.: (54489) 3-3227
with a copy to: John C. Coble Telephone No.:
Facsimile No.: 281 774 4569
Telephone No.: 281 774 4505
and copy to:
Curtis W. Huff Cristian J. P. Mitrani
EVI Weatherford, Inc. Leandro N. Alem 1067, piso 25
5 Post Oak Park, Suite 1760 1001 Buenos Aires
Houston, TX 77027 Argentina
Facsimile No.: (713) 297-8488 Facsimile No.: (541) 310-1045
Telephone No.: (713) 297-8400 Telephone No.: (541) 318-2389
</TABLE>
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ARTICLE 12. GOVERNMENTAL APPROVAL
SECTION 12.1 US EXPORT CONTROL REGULATIONS
Grant's obligations under this Agreement are subject to the export
control regulations of the government of the United States of America, the
European Union and other applicable governments. Compliance of the parties with
such export control Regulations is a condition of this Agreement. Nothing
contained in this Agreement shall be deemed to have granted any rights contrary
to such laws or Regulations.
SECTION 12.2 REGISTRATION OF AGREEMENT
Promptly upon execution and delivery of this Agreement, Licensee shall
register, if required, this Agreement in the appropriate departments, agencies,
and/or offices of government within the Territories, and shall gain all
necessary approvals as may be required by law in the Territories.
SECTION 12.3 COOPERATION TO OBTAIN APPROVALS AND LICENSES
Grant and Licensee shall cooperate in obtaining any approvals or
licenses which may be required in connection with the implementation of any
portion of this Agreement.
ARTICLE 13. FORCE MAJEURE
If performance of this Agreement or of any obligation under this
Agreement, except payment of moneys due and maintaining information and
documents in confidence, is prevented, restricted or interfered with by acts of
government, war, rebellion, riot, labor unrest, unavailability of materials,
Acts of God, or any other force, act or condition beyond the reasonable control
of the parties ("Force Majeure"), the party affected by Force Majeure shall be
excused from such performance to the extent of such prevention, restriction or
interference, provided that the party so affected promptly notifies the other
party of the Force Majeure condition, uses its best efforts to avoid or remove
the Force Majeure condition, and continues performance under this Agreement with
utmost dispatch when such Force Majeure condition is removed. In the event a
Force Majeure condition results in suspension of performance under this
Agreement for a continuous period of one year or more, the party not affected by
the Force Majeure condition may terminate this agreement by giving the affected
party written notice of termination.
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ARTICLE 14. GOVERNING LAW; CONSTRUCTION
SECTION 14.1 GOVERNING LAW
This Agreement shall be deemed made pursuant to, and shall be governed
by the laws of the State of New York, except the conflict of laws provisions
thereof.
SECTION 14.2 SEVERABILITY
Both parties expressly agree that it is not the intention of either
party to violate any public policy, statue or common law; and if any
provision(s) of this Agreement shall be held to be invalid, illegal or
unenforceable, in whole or in part, in any jurisdiction within which the
Agreement is to be performed, or if any appropriate government agency or
authority shall require the parties to delete any provision of this Agreement,
such invalidity, illegality, enforceability or deletion shall not impair or
affect the remaining provisions of this Agreement, so long as the material
purposes of this Agreement can be determined and effectuated. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal,
unenforceable or deleted provisions by valid provisions, the effect of which
comes as close as legally possible to the intention of the parties upon entering
into this Agreement.
SECTION 14.3 NON WAIVER
The failure of one party hereto to enforce at any time any of the
provisions of this Agreement, or exercise any rights or any elections herein
provided, shall in no way be considered to be a waiver of such provisions,
rights or elections or in any way to affect the validity of this Agreement. The
exercise by said party of any rights or any elections under the terms of this
Agreement shall not preclude or prejudice said party from exercising the same or
any other rights or elections it may have under this Agreement.
ARTICLE 15. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties, their successors and assigns, provided that the assignor shall remain
liable to the other party for the obligations arising under this Agreement.
Notwithstanding the foregoing Licensee may not assign its rights, directly or
indirectly, by merger, sale of assets, conversion or a change in control of
Licensee, to any person or entity that directly or through an Affiliate Threads,
Reconstructs or sells Connections on Products and Accessory Equipment in the
Grant Territory. Further any such assignment shall, at the election of Grant, be
void or result in an immediate termination of the licenses granted hereunder to
Licensee.
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ARTICLE 16. SETTLEMENT OF DISPUTES
If, during the term of this Agreement or after its termination,
disputes, controversies, claims or differences arising out or relating to this
Agreement (including any questions as to the existence, validity, termination,
discharge, breach or enforceability of this Agreement and of this arbitration
clause), arise between Grant and Licensee, the parties shall take every
reasonable effort to negotiate an amicable settlement. In the event the parties
are unable to reach a settlement within thirty (30) days after notice by any of
the parties is given to the other party acknowledging the existence of a dispute
to be solved in accordance with the provisions of this section, then either
party may request arbitration pursuant to the then current rules of the
International Chamber of Commerce domiciled in Paris for arbitration in
accordance with the rules of said organization. Each party shall appoint one
arbitrator of its choice, and the two appointed arbitrators shall appoint a
third arbitrator. A decision agreed to by at least two of the arbitrators shall
be the decision of the Arbitration proceeding. In the event either party fails
to appoint an arbitrator or in the event no agreement is reached between the two
arbitrators as to the appointment of the third arbitrator in accordance with the
foregoing provisions, such arbitrator or arbitrators shall be appointed, upon
application of the interested party, by the Court of Arbitration of the
International Chamber of Commerce. Unless the parties agree otherwise, the site
of the arbitration shall be New York, New York. Arbitration proceedings shall be
conducted in the English language. Any decision or award of the arbitrators
shall be based solely on the provisions of this Agreement, provided, however,
that to the extent that the subject matter for the decision or award is not
provided for in such provisions, the decision or award shall be based upon the
controlling law of this Agreement, excluding the conflicts of laws provisions
thereof. The arbitrators shall not be requested nor shall they have the power to
render any decision or award except in accordance with the preceding sentence.
The award rendered in any arbitration commenced hereunder shall be final and
conclusive and judgment thereon may be entered in any court having jurisdiction
for its enforcement. Neither party shall appeal to any court from the decision
of the arbitration panel. In addition, except for injunctive relief in aid of
arbitration, neither party shall have any right to commence or maintain any suit
or legal proceeding concerning a dispute hereunder until the dispute has been
determined in accordance with the arbitration procedure provided for herein and
then only for enforcement of the award rendered in such arbitration. Pending
settlement of any dispute, the parties shall abide by their obligations under
this Agreement without prejudice to a final adjustment in accordance with an
award rendered in an arbitration settling such dispute. A party may be entitled
to receive injunctive relief from a court of competent jurisdiction in aid of
arbitration.
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ARTICLE 17. MISCELLANEOUS
SECTION 17.1 EXISTING LICENSES
(a) Non Renewal and Termination
(i) Except as provided herein, including without limitation
Grant's rights to make Distribution Sales and International Company Sales and
the rights of customers and distributors as provided in Sections 2.3 and 2.8,
Grant shall refrain from renewing and shall promptly terminate or assign all
licenses with respect to the Technology and Patents granted to other Persons for
the Threading, Reconstruction of Atlas Bradford Oil Field Connections on
Products or Accessory Equipment outside of the Grant Territory; provided,
however, Grant will not be obligated to terminate any license under conditions
where Grant would suffer financial loss unless Licensee indemnifies Grant for
any such loss in a manner satisfactory to Grant.
(ii) Except as provided herein, including without limitation
Grant's rights to make Distribution Sales and International Company Sales and
the rights of customers and distributors as provided in Sections 2.3 and 2.8,
Grant shall refrain from renewing and shall promptly terminate all licenses with
respect to the Technology and Patents granted to other Persons for Threading,
Reconstruction or sale of Atlas Bradford Oil Field Connections on Products
within the Grant Territory but only with respect to the Threading,
Reconstruction or sale of Atlas Bradford Oil Field Connections on Products for
use outside of such territory.
(iii) The foregoing provisions of this Section 17.1 shall not
apply to any licenses relating to the sale of Atlas Bradford Oil Field
Connections by any distributor located in the Grant Territory (other than any
United States steel mill) or any use licenses granted to customers and end
users.
(iv) Grant agrees to provide to Licensee within two weeks from
the date hereof a list, together with copies thereof, of all licenses currently
existing and in effect granted by Grant with respect to the right to Thread,
Reconstruct or sell Atlas Bradford Oil Field Connections on Products and
Accessory Equipment in the Exclusive Territory and in the Grant Territory for
use in the Exclusive Territory excluding (i) licenses to sell granted to
distributors, (ii) rights of customers and end users to use and resale Products
and Accessory Equipment and (iii) those licenses that may be terminated by Grant
prior to the Effective Date.
(b) Amendment
Grant shall use reasonable efforts to have its current licenses with
other Persons to be amended in order to avoid any conflict with this Agreement.
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(c) Information and Evidence of Performance
Upon Licensee's request Grant shall disclose to Licensee the material
license terms of all of its existing licenses related to the Exclusive
Territories covering the Threading, Reconstruction or sale of Atlas Bradford Oil
Field Connections on Products and Accessory Equipment and shall give reasonable
evidence of having complied with the undertakings made in the preceding
subsections (a) and (b).
(d) Exception
The obligations of Grant set forth in this Section 17.1 shall not apply
to (i) the rights of any distributor, customer or end user, (ii) the Citra
License, (iii) the rights of OCTL described herein and (iv) the rights of Citra
Grant described herein.
SECTION 17.2 ENTIRE AGREEMENT
This Agreement contains the entire Agreement between the parties
applying to the matters herein contained and has been entered into relying only
upon the provisions contained herein and not upon any other representation by
either of the parties. This Agreement supersedes all representations, agreement,
statements and understandings whether written or oral, relating to such matters
made prior to execution of this Agreement. This Agreement can only be amended by
an agreement in writing executed by all the parties hereto. This Agreement may
not be modified, supplemented, explained or waived except as agreed to in a
writing executed by both parties.
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SECTION 17.3 HEADINGS
The headings used in this Agreement are inserted for convenience and
identification only, and are not intended to describe, interpret, define, or
limit the scope, extent or intention of this Agreement or any provision hereof.
SECTION 17.4 CHOICE OF LANGUAGE
This Agreement has been prepared in English and, notwithstanding any
translation of this Agreement into any other language, the English version of
this Agreement shall control in all respects.
SECTION 17.5 NO PARTNERSHIPS
Nothing contained in this Agreement shall be construed to constitute a
partnership or other similar relationship between Grant, Licensee or any of
their respective Affiliates nor to confer any fiduciary or similar relationship
between Grant, Licensee or any of their respective Affiliates.
IN WITNESS WHEREOF, each party has caused this Agreement in multiple
original to be subscribed by duly authorized representative on the Effective
Date.
GRANT PRIDECO, INC. DST DISTRIBUTORS OF STEEL
TUBES LIMITED
By: /s/ [Illegible] By: /s/ [Illegible]
-------------------------- ------------------------------
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GRANT PRIDECO, INC.
DST DISTRIBUTORS OF STEEL TUBES LIMITED
MASTER TECHNOLOGY LICENSE AGREEMENT
SCHEDULE "C"
DEFINITIONS
"ACCESSORY EQUIPMENT" means crossovers, connectors, pup joints, liner hangers,
landing nipples, packers, packer stringers, end line pressure control equipment,
safety valves, gas lift valve mandrels, lift plugs, lift caps, hydrostatic test
plugs, hydrostatic test caps, handling plugs, handling caps, discharge head
hangers, float shoes, float guides, float collars, flow couplings collars blast
joints, tubing anchors, side pocket mandrels, couplings and similar equipment.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. Dalmine, Siderca and Tamsa and their respective Affiliates and
successors and assigns shall be deemed Affiliates of Licensee. OCTL, Citra
Tubindo and Citra Grant, and any entity controlled by them, shall not be
considered Affiliates of Grant.
"ATLAS BRADFORD CONNECTIONS" mean the current line of Atlas Bradford Connections
described in Exhibit A and any additions or modifications made to that product
line in the future.
"ATLAS BRADFORD OIL FIELD CONNECTIONS" mean Oil Field Connections that utilize
an Atlas Bradford Connection.
"CONNECTIONS" mean premium connections for Products and Accessory Equipment and
shall specifically exclude API and similar connections.
"DESIGNATED ACCESSORY EQUIPMENT" means crossovers, couplings and pup joints.
"DISTRIBUTION SALES" means any sale in the Grant Territory to a distributor
or agent of Grant or any of its Affiliates or Grant Licensees of any Atlas
Bradford Oil Field Connections on Products that have been Threaded or
Reconstructed to the extent that such Atlas Bradford Oil Field Connection is
sold to such distributor for its inventory as long as Grant or the Grant
Affiliate, as the case may be, is not advised by the distributor or agent that
the Product to which such Atlas Bradford Connection is placed is destined for
use in a part of the Exclusive Territories; provided that a Distribution Sale
shall not include a sale of a Product with an Atlas Bradford Oil Field
Connection
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that is to be resold by the distributor in the Home Territories or the sale of
an item of Designated Accessory Equipment with an Atlas Bradford Oil Field
Connection that is to be resold in Mexico.
"EFFECTIVE DATE" means the date on which the purchase by Pridecomex Holding,
S.A. de C.V. of the stock of TF de Mexico, S.A. de C.V. pursuant to the Stock
Purchase Agreement dated as of June 19, 1998, between EVI Weatherford, Inc.,
Pridecomex Holding, S.A. de C.V., Tamsa and Tamsider S.A. de C.V. is
consummated.
"EXCLUSIVE TERRITORY" means the world except Canada and the United States of
America and their respective offshore waters (including any country or
jurisdiction that may in the future lie within such areas).
"GAUGES", with respect to a party, means such party's proprietary gauges and
gauge tools necessary for the other party to Thread or Reconstruct Atlas
Bradford Connections on Products and Accessory Equipment pursuant to the
licenses granted hereunder to it.
"GRANT" means Grant Prideco, Inc.
"GRANT LICENSEES" means any Person to whom Grant or a Grant Affiliate has
licensed rights to Thread, Reconstruct and/or sell Atlas Bradford Oil Field
Connections on Products or Accessory Equipment in accordance with this
Agreement.
"GRANT TERRITORY" means the United States of America, Canada and their
respective offshore waters and territories (including any country or
jurisdiction that may in the future lie within the current territorial
boundaries of the United States of America, Canada and its respective offshore
waters and territories).
"HOME TERRITORY" means Mexico, Argentina and Italy and their respective offshore
waters and territories (including any country or jurisdiction that may in the
future lie within the current territorial bodies of Mexico, Argentina and Italy
and their respective offshore waters and territories).
"INTERNATIONAL COMPANY SALES" means any sale in the Grant Territory of Atlas
Bradford Connections that have been Threaded or Reconstructed on a Product or an
item of Accessory Equipment for an international contractor or exploration and
development company or similar entity that may purchase Products and Accessory
Equipment with Atlas Bradford Connections for use within its own organization
without reference to a specific location nor knowledge by Grant or the Affiliate
of Grant, as the case may be, of such specific locations.
"LICENSEE" means DST Distributors of Steel Tubes Limited.
"NEW GRANT CONNECTIONS" means any newly designed or acquired Oil Field
Connections for carbon and chromium steel Products and Accessory Equipment in
which Grant or its Affiliates may acquire an interest in the future excluding
any XL Technology or any Connection the rights to
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Thread, Reconstruct or sale are acquired pursuant to a license to Grant or one
or more of its Affiliates.
"NON-EXCLUSIVE TERRITORY" means the world, excluding the United States of
America and its offshore waters and territories (including any country or
jurisdiction that may in the future lie within such areas).
"OIL FIELD CONNECTIONS" mean Connections for (i) carbon and chromium steel
tubular Products having an outside diameter of less than 20" and designed for
the production of crude oil and (ii) Accessory Equipment; provided "Oil Field
Connections" shall specifically exclude (a) API and similar connections, (b)
Connections utilizing XL Technology and (c) Connections used for marine Products
and drill pipe. Chromium steel shall include, but not be limited to, 13% Cr,
Super 13% Cr, 22% Cr, Duplex and Super Duplex. "Products" shall not include
connections for tubular components and Accessory Equipment made of titanium,
graphite, nickel, nickel steel, composite materials, bimetallic lined, or other
non-carbon steel materials.
"PATENTS" means all patents and patent applications relating to the Threading or
Reconstruction of Atlas Bradford Oil Field Connections on Products and Accessory
Equipment described in Schedule "A" and future patents and patent applications
to the extent added as provided in this Agreement.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PRODUCTS" mean tubular products, excluding drill pipe.
"PROPRIETARY DOCUMENTATION" means any drawing or document, in either
man-readable or machine-readable form, or any tangible thing which is the
property of the parties, including without limitation all price lists, discount
sheets, customer lists, supplier lists, quotations, analytical data, market
data, engineering data, drawings, computer software, manuals, specifications,
standards, designs, methods, procedures, techniques, formulations, instruments,
and other business and technical information in tangible form which are the
property of either of the parties.
"RECONSTRUCT" means recutting a worn or damaged thread for Atlas Bradford
Connections on Products and Accessory Equipment.
"TECHNOLOGY" means all current (and future to the extent provided in this
Agreement) technical information which Grant has the right to license in the
Licensee Territories and which is reasonably necessary for Licensee to Thread or
Reconstruct Atlas Bradford Oil Field Connections on Products and Accessory
Equipment, including Grant data, methods, procedures, specifications, standards,
drawings, know how, manuals, Proprietary Documentation and Confidential
Information. Notwithstanding the foregoing, Technology shall not include any XL
Technology.
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"TERRITORIES" means the Exclusive Territory and the Non-Exclusive Territory.
"THREAD" and "THREADING" means the processes of cutting threads embodying the
technology and patents licensed hereunder.
"TOOLING" means tooling and accessories made to a party's specification (either
by a party hereto or any other Person) for use in Threading or Reconstruction of
Atlas Bradford Connections on Products or Accessory Equipment in accordance with
a party's technology or patents, including without limitation thread form
inserts, groove tools, Teflon seal rings, thread protectors.
"TRADEMARKS" means those current trademarks and trade names listed in Schedule
"B" and any future trademarks and trade names that may identify Atlas Bradford
Connections which are or may be the subject of a license under this Agreement,
both registered and unregistered.
"XL TECHNOLOGY" means the technology, patents and other intellectual property
currently owned or utilized by XLS Systems, Inc. or to which XLS Systems, Inc.
and its subsidiaries has a right or license to use or exploit, including all
technology relating to the Connections currently Threaded and Reconstructed by
it and the technology, patents and know-how licensed to or by it under its
license agreement with Hydril Company.
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EXHIBIT 10.20
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 __, 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.
-------------------------------
John C. Coble
GRANT PRIDECO, INC.
By
-----------------------------
Name:
--------------------------
Title:
-------------------------
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EXHIBIT 10.21
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 __, 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.
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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 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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<PAGE> 8
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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<PAGE> 10
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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<PAGE> 11
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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<PAGE> 12
(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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<PAGE> 13
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.
---------------------------------
Bernard J. Duroc-Danner
GRANT PRIDECO, INC.
By
--------------------------------
Name:
-----------------------------
Title:
----------------------------
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<PAGE> 1
EXHIBIT 10.22
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 __, 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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<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, (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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<PAGE> 6
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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<PAGE> 8
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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<PAGE> 10
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: 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.
----------------------------------------
Curtis W. Huff
GRANT PRIDECO, INC.
By
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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EXHIBIT 10.23
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 __, 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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<PAGE> 3
(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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<PAGE> 5
(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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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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<PAGE> 11
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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<PAGE> 12
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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<PAGE> 13
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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<PAGE> 14
(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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<PAGE> 15
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.
-----------------------------------------
Frances R. Powell
GRANT PRIDECO, INC.
By
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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<PAGE> 1
EXHIBIT 10.24
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement") is entered into and
deemed effective as of April __, 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
5
<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;
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<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
8
<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
---------------------
---------------------
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.
-----------------------------------
William G. Chunn
GRANT PRIDECO, INC.
By
---------------------------------
Name:
------------------------------
Title:
-----------------------------
11
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