<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
----------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 0-18312
------------
TUBOSCOPE INC.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0252850
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2835 Holmes Road, Houston, Texas 77051
-------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(713) 799-5100
------------------------------------------------------
(Registrant's telephone number, including area code)
None
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---------- --------
The Registrant had 45,410,530 shares of common stock outstanding as of
June 30, 1998.
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TUBOSCOPE INC.
INDEX
Page No.
--------
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1998 (unaudited) and December 31, 1997 2
Unaudited Consolidated Statements of Operations -
For the Three and Six Months Ended June 30, 1998 and 1997 3
Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1998 and 1997 4
Notes to Unaudited Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7-9
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
Exhibit Index 12-13
Appendix A - Financial Data Schedule 14-15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
1
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
1998 1997
--------- ------------
(unaudited)
(In thousands)
<S> <C> <C>
A S S E T S
-----------
Current assets:
Cash and cash equivalents............................................................ $ 9,120 $ 12,593
Accounts receivable, net............................................................. 151,721 144,067
Inventory, net....................................................................... 98,292 78,317
Deferred income taxes................................................................ -- 984
Prepaid expenses and other........................................................... 9,326 11,755
-------- --------
Total current assets.............................................................. 268,459 247,716
-------- --------
Property and equipment:
Land, buildings, and leasehold improvements.......................................... 80,289 79,581
Operating equipment and equipment leased to customers................................ 234,575 208,052
Accumulated depreciation and amortization............................................ (86,129) (77,072)
-------- --------
Net property and equipment........................................................ 228,735 210,561
Identified intangibles, net............................................................... 22,624 23,315
Goodwill, net............................................................................. 214,558 202,301
Other assets, net......................................................................... 3,055 2,274
-------- --------
Total assets...................................................................... $737,431 $686,167
======== ========
L I A B I L I T I E S A N D E Q U I T Y
-----------------------------------------
Current liabilities:
Accounts payable..................................................................... $ 39,699 $ 43,350
Accrued liabilities.................................................................. 54,453 76,596
Income taxes payable................................................................. 10,904 15,902
Current portion of long-term debt and short-term borrowings.......................... 31,988 30,574
-------- --------
Total current liabilities......................................................... 137,044 166,422
Long-term debt............................................................................. 228,725 187,803
Pension liabilities........................................................................ 8,996 8,916
Deferred taxes payable..................................................................... 23,288 22,239
Other liabilities.......................................................................... 2,566 754
-------- --------
Total liabilities.................................................................. 400,619 386,134
-------- --------
Common stockholders' equity:
Common stock, $.01 par value, 60,000,000 shares authorized, 45,410,530
shares issued and outstanding (44,235,591 at December 31, 1997).................... 454 442
Paid-in capital....................................................................... 304,644 294,402
Retained earnings..................................................................... 39,275 10,155
Cumulative translation adjustment..................................................... (7,561) (4,966)
-------- --------
Total common stockholders' equity.................................................. 336,812 300,033
-------- --------
Total liabilities and equity....................................................... $737,431 $686,167
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Revenue .................................................. $ 153,522 $ 125,995 $ 303,703 $ 231,496
Costs and expenses:
Costs of services and products sold....................... 106,151 84,278 209,342 156,852
Goodwill amortization.................................. 1,629 1,207 3,134 2,314
Selling, general and administration.................... 14,162 12,845 28,246 24,017
Research and engineering costs......................... 3,173 2,511 6,586 4,986
----------- ----------- ----------- -----------
125,115 100,841 247,308 188,169
----------- ----------- ----------- -----------
Operating profit.......................................... 28,407 25,154 56,395 43,327
Other expense (income):
Interest expense....................................... 4,616 3,567 8,969 7,090
Interest income........................................ (195) (90) (284) (123)
Foreign exchange....................................... 169 185 317 317
Other, net............................................. (2) 776 801 1,231
----------- ----------- ----------- -----------
Income before income taxes................................ 23,819 20,716 46,592 34,812
Provision for income taxes................................ 8,932 7,769 17,472 13,267
----------- ----------- ----------- -----------
Net income................................................ $ 14,887 $ 12,947 $ 29,120 $ 21,545
=========== =========== =========== ===========
Earnings per common share:
Basic earnings per common share........................ $0.33 $0.30 $0.65 $0.50
=========== =========== =========== ===========
Dilutive earnings per common share..................... $0.31 $0.28 $0.61 $0.48
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic.................................................. 45,153,058 43,626,560 44,732,628 43,029,278
=========== =========== =========== ===========
Dilutive............................................... 48,404,246 45,656,477 48,132,733 44,910,425
=========== =========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to unaudited consolidated financial statements.
3
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TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------------- ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 29,120 $ 21,545
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................................. 14,910 11,605
Compensation related to employee 401(K) plan................................... 432 197
Provision for losses on accounts receivable.................................... 292 650
Provision for inventory reserve................................................ 48 500
Provision for deferred income taxes............................................ 713 4,401
Changes in assets and liabilities, net of effects of acquired companies:
Accounts receivable........................................................... (3,843) (24,436)
Inventory..................................................................... (16,383) (14,130)
Prepaid expenses and other assets............................................. 2,551 (4,283)
Accounts payable, accrued liabilities, and pension liabilities................ (17,970) 7,448
Federal and foreign income taxes payable...................................... (4,998) 3,705
--------- --------
Net cash provided by operating activities...................................... 4,872 7,202
--------- --------
Cash flows used for investing activities:
Capital expenditures.............................................................. (20,759) (12,092)
Business acquisitions, net of cash acquired....................................... (23,691) 1,334
Other............................................................................. (1,570) (644)
--------- --------
Net cash used for investing activities......................................... (46,020) (11,402)
--------- --------
Cash flows provided by financing activities:
Borrowings under financing agreements............................................. 153,235 13,000
Principal payments under financing agreements..................................... (115,935) (9,412)
Proceeds from sale of common stock, net........................................... 375 2,152
--------- --------
Net cash provided by financing activities...................................... 37,675 5,740
--------- --------
Net increase (decrease) in cash and cash equivalents................................... (3,473) 1,540
Cash and cash equivalents:
Beginning of period............................................................... 12,593 10,407
--------- --------
End of period..................................................................... $ 9,120 $ 11,947
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the six month period for:
Interest........................................................................ $ 7,108 $ 5,775
========= ========
Taxes........................................................................... $ 19,903 $ 5,614
========= ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
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TUBOSCOPE INC.
Notes to Unaudited Consolidated Financial Statements
For the Six Months Ended June 30, 1998 and 1997
and as of December 31, 1997
1. Organization and Basis of Presentation of Interim Consolidated Financial
Statements
The accompanying unaudited consolidated financial statements of the Company and
its wholly-owned subsidiaries have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information in
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to these rules and regulations. The unaudited consolidated
financial statements included in this report reflect all the adjustments which
the Company considers necessary for a fair presentation of the results of
operations for the interim periods covered and for the financial condition of
the Company at the date of the interim balance sheet. Results for the interim
periods are not necessarily indicative of results for the year.
The financial statements included in this report should be read in conjunction
with the Company's 1997 audited consolidated financial statements and
accompanying notes included in the Company's 1997 Form 10-K, filed under the
Securities Exchange Act of 1934, as amended.
2. Inventory
At June 30, 1998 inventories consist of the following (in thousands):
Components, subassemblies, and expendable parts.................. $56,728
Equipment under production....................................... 41,564
-------
$98,292
=======
3. Senior Credit Agreement and Dividend Restrictions
The Company's Senior Credit Agreement restricts the Company from paying
dividends on its capital stock unless the total funded debt to capital ratio
(as defined in the Senior Credit Agreement) is less than or equal to 40%. The
Company's total funded debt to capital ratio (calculated as defined under the
Senior Credit Agreement) was 44.1% at June 30, 1998.
4. $100.0 Million Senior Notes
On February 25, 1998, the Company issued $100.0 million of 7.5% Senior Notes
due 2008 ("Notes"). The Notes are fully and unconditionally guaranteed, on a
joint and several basis, by certain wholly-owned subsidiaries of the Company
(collectively "Guarantor Subsidiaries" and individually "Guarantor"). Each of
the guarantees is an unsecured obligation of the Guarantor and ranks pari
passu with the guarantees provided by and the obligations of such Guarantor
Subsidiaries under the Senior Credit Agreement and with all existing and
future unsecured indebtedness of such Guarantor for borrowed money that is
not, by its terms, expressly subordinated in right of payment to such
guarantee. A portion of the net proceeds from the issuance of the Notes was
used by the Company to repay indebtedness outstanding under the Senior Credit
Agreement. The remaining net proceeds were used to finance acquisitions and
for general corporate purposes.
5. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" which established new rules for the
reporting and display of comprehensive income. SFAS No. 130 requires the
Company's foreign currency translation adjustments to be added to net income
to determine total comprehensive income. Total comprehensive income for the
six months ended June 30, 1998 and 1997 was $26,525,000 and $18,487,000
respectively. The difference between net income of $29,120,000 and total
comprehensive income of $26,525,000 for the first six months of 1998 was due
to a negative change in cumulative translation adjustment of
5
<PAGE>
$2,595,000.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS No. 131) which establishes
standards for the way that public companies report information about operating
segments in both annual and interim financial statements. SFAS No. 131 also
establishes standards for disclosures about products and services, geographic
areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. The Company will adopt SFAS No. 131
retroactively in the fourth quarter of 1998. The adoption of SFAS No. 131
will not affect the Company's results of operations or financial position, but
will increase the Company's disclosure of segment information.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, the Company does not anticipate that the
adoption of SFAS No. 133 will have a significant effect on earnings or the
financial position of the Company.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
- ---------------------
Three and Six Months Ended June 30, 1998 and 1997
Revenue. Revenue was $153.5 million and $303.7 million for the second quarter
and first half of 1998, respectively, representing increases of $27.5 million
(22%) and $72.2 million (31%), respectively, from the same periods of 1997. The
increases were primarily due to eleven 1997 acquisitions, four 1998
acquisitions, and strong internal growth in several of the Company's products
and markets including Coiled Tubing & Pressure Control Products, Solids Control
equipment sales, Mill equipment sales, and Far East Inspection services. The
drop in oil prices in the first half of 1998 and the related decline in rig
activity in the second quarter of 1998 began to have an effect on some of the
Company's products and markets in the second quarter of 1998. The effect of
these market conditions on the Company's operations is expected to be greater in
the second half of 1998--see discussion under "Current Operating Environment"
below.
Revenue from the Company's Tubular Services, comprised of Inspection, Coating,
and Mill Systems and Sales was approximately $62.4 million and $123.7 million
for the three and six months ending June 30, 1998, respectively. These results
represented increases of $7.4 million (13%) and $25.3 million (26%),
respectively, over the prior year periods. The increases in Tubular Services
revenue were mainly related to the acquisition of two tubular inspection
operations in each of 1997 and 1998, the acquisition of Fiber Glass Systems,
Inc. (FGS) in March 1997, and stronger Far East inspection operations. U.S.
Coating operations and Mill equipment sales were also up in the second quarter
and first half of 1998 compared to the same periods of 1997. These results were
offset to some extent by lower coating revenue in Europe and Canada.
Solids Control revenue was $43.7 million and $91.2 million for the second
quarter and first half of 1998, representing increases of $9.6 million (28%) and
$23.9 million (36%), respectively, over the same periods of 1997. The increases
were primarily due to greater solids control equipment and screen sales in the
first half of 1998, greater revenue from the Company's Canadian operations, and
six acquisitions since the second quarter of 1997. These increases were offset
to some extent by lower revenue from U.S. and Latin America rental operations in
the second quarter of 1998.
Coiled Tubing & Pressure Control Products revenue was $31.2 million and $60.3
million for the three and six months ending June 30, 1998, respectively. These
results represented increases of $10.6 million (51%) and $22.9 million (61%),
respectively, over the prior year periods. The increases were driven by a
continued strong market demand for the Company's Hydra Rig coiled tubing units,
wireline units, and related well remediation and drilling equipment. In
addition, revenue from coiled tubing blowout preventors manufactured by the
Company's Texas Oil Tools operation also increased significantly over the prior
year periods. Results for 1998 also benefited from the acquisition of Tulsa
Equipment Manufacturing in the fourth quarter of 1997 and Eastern Oil Tools in
the second quarter of 1998. Backlog for the Coiled Tubing & Pressure Control
Products operations was $52.2 million at June 30, 1998, an increase of 24% from
December 31, 1997.
Pipeline and Other Industrial Inspection revenue was $16.2 million and $28.5
million for the second quarter and first six months of 1998, respectively,
representing a decrease of $0.1 million compared to the second quarter of 1997
and an increase of $0.1 million compared to the first half of 1997. Pipeline
inspection revenue declined in 1998 due to a non-recurring equipment sale to the
China market in the second quarter of 1997 and project delays in Latin America
operations in the second quarter of 1998. These declines were offset to some
extent by greater revenue from Middle East Industrial Inspection operations.
Gross Profit. Gross profit was $47.4 million (31% of revenue) and $94.4 million
(31% of revenue) for the second quarter and first half of 1998 compared to $41.7
million (33% of revenue) and $74.6 million (32% of revenue), respectively, for
the same periods of 1997. The increases were primarily due to the growth in
internal revenue and the 1997 and 1998 acquisitions discussed above. Gross
profit percentages were down slightly in 1998 due to a change in revenue mix as
a greater percentage of the Company's 1998 revenue originated from product lines
that have lower margins.
Selling, General and Administrative Costs. Selling, general and administrative
costs were $14.2 million and $28.2 million in the second quarter and first half
of 1998, respectively, representing increases of $1.3 million and $4.2 million,
respectively, over the same periods of 1997. The increases were due mainly to
the eleven 1997 acquisitions and four 1998
7
<PAGE>
acquisitions, and costs associated with internal incremental growth. Total
worldwide employees increased from 3,877 at the end of June 30, 1997 to 4,534 at
June 30, 1998. Selling, general and administrative costs as a percent of revenue
was 9.2% and 9.3% for the second quarter and first half of 1998, respectively,
compared to 10.2% and 10.4% in the same periods of 1997.
Research and Engineering Costs. Research and engineering costs were $3.2
million and $6.6 million for the three and six months ended June 30, 1998
compared to $2.5 million and $5.0 million in the second quarter and first half
of 1997. The increase was due mainly to greater engineering costs in the
Company's Pipeline operations associated with the continued commercial
development and enhancement of the Company's TruRes(R) "High-Resolution"
pipeline tools. In addition, research and engineering costs were up in the
Company's Solids Control and Coiled Tubing product lines.
Operating Profit. Operating profit was $28.4 million and $56.4 million in the
second quarter and first half of 1998 compared to operating profit of $25.2
million and $43.3 million, respectively, in the same periods of 1997. The
increase was primarily due to the internal growth due to increased equipment
sales in the Coiled Tubing & Pressure Control Products, Solids Control, and Mill
Systems and Sales product lines, and the 1997 and 1998 acquisitions.
Interest Expense. Interest expense was $4.6 million and $9.0 million in the
three and six months ended June 30, 1998, respectively, an increase of $1.0
million and $1.9 million, respectively, over the same periods of 1997. The
increase was due to an increase in debt resulting primarily from the 1997 and
1998 acquisitions.
Other Expense (Income). Other expense (income), which includes interest income,
foreign exchange, minority interest, and other expense (income), resulted in a
net expense of $0.8 million in the first half of 1998 down slightly from $1.4
million in the same period of 1997.
Provision for Income Taxes. The Company's effective tax rate for the second
quarter and first half of 1998 was 37.5% compared to 37.5% and 38.1% for the
same periods of 1997. These rates are higher than the domestic rate of 35% due
to charges not allowed under domestic and foreign jurisdictions related to
goodwill amortization and foreign exchange earnings subject to tax rates
differing from domestic rates.
Net income. The second quarter and first half 1998 net income was $14.9 million
and $29.1 million, respectively, compared to the second quarter and first half
1997 net income of $12.9 million and $21.5 million, respectively. The
improvement is due to the factors discussed above.
Financial Condition and Liquidity
June 30, 1998
For the six months ended June 30, 1998, cash provided by operating activities
was $4.9 million compared to cash provided by operating activities of $7.2
million in the first six months of 1997. Cash was used in operations during the
first six months of 1998 principally as a result of a $16.4 million increase in
inventory, a $3.8 million increase in accounts receivable, a net reduction in
accounts payable and accrued liabilities of $18.0 million, and a reduction in
federal income taxes payable of $5.0 million. The increase in inventory was
due to greater backlog and resulting work in process in Coiled Tubing & Pressure
Control Products, greater work in process associated with anticipated future
Mill equipment sales, and greater work in process due to the construction of the
new TruRes(R) "High-Resolution" pipeline tools. Accounts receivable increased
due to greater second quarter 1998 revenue compared to the fourth quarter of
1997 and acquisitions late in the second quarter of 1998. The decrease in
accounts payable and accrued liabilities was due to 1998 payments made on
acquisitions which were completed in 1997 and 1998 bonus payments related to
1997 compensation. Current federal and foreign income taxes payable decreased
due to tax payments in the first half of 1998.
For the six months ended June 30, 1998, the Company used $46.0 million of cash
from investing activities compared to $11.4 million in the same period of 1997.
Capital expenditures of $20.8 million for the first half of 1998 were primarily
related to the Company's new Navasota coating plant, thermal desorption units in
Latin America, new truscope units (high speed ultrasonic inspection systems) in
the U.S., and additional solids control equipment (centrifuges and shakers) for
certain growing markets in Latin America. Business acquisitions of $23.7
million were primarily related to the following acquisitions: Baytron, Inc. (a
provider of drilling instrumentation systems and related equipment to operators
and drilling
8
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contractors throughout the Gulf of Mexico), Pacific Inspection Company (the
leading provider of oilfield tubular inspection services in California), and
Eastern Oil Tools (a worldwide provider of wireline units and pressure control
equipment).
For the six months ended June 30, 1998, the Company generated $37.7 million of
cash from financing activities. The cash from financing activities was
generated by net borrowings associated with the issue of $100.0 million of 7.5%
Senior Notes due 2008 ("Notes") offset to some extent by the partial repayment
of indebtedness outstanding under the Company's Credit Agreement.
Current and long-term debt was $260.7 million at June 30, 1998, an increase of
$42.3 million from the $218.4 million outstanding at December 31, 1997. The
increase was mainly due to the 1998 acquisitions discussed above and 1998
payments on acquisitions completed late in 1997. The Company's outstanding debt
at June 30, 1998 consisted of $100.0 million of Notes, $105.5 million of term
loans due under the Company's Senior Credit Agreement, $32.0 million due under
the Company's $100.0 million revolving credit facility, $3.3 million due under
the Company's $5.0 million swingline facility, $4.0 million associated with the
December 1996 acquisition of Gauthier Brothers, $3.5 million associated with the
acquisition of FGS, and other debt of $12.4 million.
At June 30, 1998, the Company had outstanding letters of credit of $6.8 million.
The available facility on the Company's $100.0 million revolving credit facility
and $5 million swingline facility was $62.6 million and $0.3 million,
respectively, at June 30, 1998.
Current Operating Environment
Commencing in the fourth quarter of 1997 and continuing through the first half
of 1998, the average price of West Texas Intermediate Crude (WTI) has declined
significantly. The Company believes the decline was caused by several factors
including rising reported world oil inventories, the financial crisis in Asia,
an increase in worldwide production, uncertainties regarding compliance with
worldwide quotas and temperate weather conditions. The average price of WTI was
$14.61 and $15.22 for the second quarter and first six months of 1998,
respectively, representing declines of 27% and 29% from the same periods of
1997. In addition, natural gas prices declined by 5% in the first half of 1998
compared to the first half of 1997. Rig activity, an historical benchmark of
the Company's activity level, was down worldwide in the second quarter of 1998;
U.S. (7%), Canada (32%), and International (2%) all experienced lower rig
activity compared to the second quarter of 1997. Rig activity in July 1998
dropped further as the U.S. average rig count was down 16% and Canada average
rig count was down 42% from July 1997. While this downturn in oil and gas
prices and rig activity did not significantly impact the Company's operating
results in the first half of 1998, the continuation of these market conditions
could impact the Company's results of operations in the second half of 1998.
Forward Looking Statements
This Quarterly Report on Form 10Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The forward-looking statements are those that
do not state historical facts and are inherently subject to risk and
uncertainties. The forward-looking statements contained herein are based on
current expectations and entail various risks and uncertainties that could cause
actual results to differ materially from those projected in the forward-looking
statements. Such risks and uncertainties include, among others, the cyclical
nature of the oilfield services industry, risks associated with growth through
acquisitions and other factors discussed in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 under the caption "Factors Affecting
Future Operating Results."
9
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Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held May 8, 1998 for the following
purposes:
1. Proposal One: The election of the members of the Tuboscope Board of
------------
Directors.
Name For Against
---- --- -------
Jerome Baier 40,558,219 51,479
John F. Lauletta 40,550,218 59,480
Eric L. Mattson 40,558,219 51,479
L.E. Simmons 40,557,319 52,379
Douglas E. Swanson 40,554,652 55,046
Jeffrey A. Smisek 40,554,919 54,779
2. Proposal Two: Approval of an amendment to the Company's Qualified Stock
-------------
Purchase Plan, as amended, to increase the number of shares of the Company's
Common Stock available for issuance thereunder.
For Against Abstain
--- ------- -------
40,381,109 187,534 41,055
3. Proposal Three: The ratification of the selection of Ernst & Young as the
---------------
Company's independent auditors.
For Against Abstain
--- ------- -------
40,572,248 7,099 30,351
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits -- Reference is hereby made to the Exhibit Index
commencing on page 12.
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1998.
10
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TUBOSCOPE INC.
--------------
(Registrant)
Date: August 13, 1998 /s/ Joseph C. Winkler
- ------------------------------------ ---------------------------------------
Joseph C. Winkler
Executive Vice President, Chief
Financial Officer and Treasurer (Duly
Authorized Officer, Principal
Financial and Accounting Officer)
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Note No.
----------- ----------- --------
<C> <S> <C>
3.1 Amended and Restated Bylaws. (Note 2)
3.2 Restated Certificate of Incorporation, dated March 12, 1990. (Note 7)
3.3 Certificate of Amendment to Restated Certificate of Incorporation dated May 12, (Note 8)
1992.
3.4 Certificate of Amendment to Restated Certificate of Incorporation dated May 10, (Note 10)
1994.
3.5 Certificate of Amendment to Restated Certificate of Incorporation dated April 24, (Note 17)
1996.
3.6 Certificate of Amendment to Restated Certificate of Incorporation dated June 3, 1997. (Note 18)
4.1 Registration Rights Agreement dated May 13, 1998 among the Company, Brentwood (Note 1)
Associates, Hub Associates IV, L.P., and the investors listed therein.
4.2 Purchase Agreement dated as of October 1, 1991 between the Company and Baker (Note 3)
Hughes Incorporated regarding certain registration rights.
4.3 Exchange Agreement, dated as of January 3, 1996, among the Company and Baker (Note 11)
Hughes Incorporated.
4.4 Registration Rights Agreement dated April 24, 1996 among the Company, SCF III, (Note 15)
L.P., D.O.S. Partners L.P., Panmell (Holdings), Ltd. and Zink Industries Limited.
4.5 Registration Rights Agreement dated March 7, 1997 among the Company and certain (Note 16)
stockholders of Fiber Glass Systems, Inc.
4.6 Warrant for the Purchase of Shares of Common Stock Expiring December 31, 2000 (Note 15)
between the Company and SCF III, L.P. regarding 2,533,000 shares, dated January
3, 1996.
4.7 Warrant for the Purchase of Shares of Common stock expiring December 31, 2000 (Note 11)
between the Company and Baker Hughes Incorporated regarding 1,250,000 shares,
dated January 3, 1996.
4.8 Indenture, dated as of February 25, 1998, between the Company, the Guarantors (Note 19)
named therein and The Bank of New York Trust Company of Florida as trustee,
relating to $100,000,000 aggregate principal amount of 7 1/2% Senior Notes due 2008
Specimen Certificate of 7 1/2% Senior Notes due 2008 (the "Private Notes"); and
Specimen Certificate at 7 1/2% Senior Notes due 2008 (the "Exchange Notes").
4.9 Registration Rights Agreement, dated as of February 25, 1998, between the Company (Note 19)
Credit Suisse First Boston Corporation, ABN AMRO Incorporated, Chase Securities
and Solomon Brothers Inc.
10.1 Purchase Agreement, dated as of February 19, 1998, between Tuboscope Inc., Credit (Note 19)
Suisse First Boston Corporation, ABN AMRO Incorporated, Chase Securities Inc. and
Solomon Brothers Inc.
10.2 401(k) Thrift Savings Plan (As Amended and Restated Effective January 1, 1993); Exhibit 10.2
First Amendment thereto dated February 15, 1996; Second Amendment thereto dated
October 25, 1996; Third Amendment thereto dated December 31, 1996; and the Fourth
Amendment thereto dated February 19, 1998.
10.3 Deferred Compensation Plan dated November 14, 1994; Amendment thereto dated May 11, Exhibit 10.3
1998.
10.4 Employee Qualified Stock Purchase Plan; and First Amendment to Employee (Note 6)
Qualified Stock Purchase Plan dated March 10, 1994.
10.5 1996 Equity Participation Plan; Form of Non-qualified Stock Option Agreement for (Note 13)
Employees and Consultants; Form of Non-qualified Stock Option Agreement for
Independent Directors.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Note No.
----------- ----------- --------
<C> <S> <C>
10.6 DOS Ltd. 1993 Stock Option Plan; Form of D.O.S. Ltd. Non-Statuary Stock Option (Note 14)
Agreement.
10.7 Amended and Restated Stock Option Plan for Key Employees of Tuboscope Vetco (Note 4)
International Corporation; Form of Revised Incentive Stock Option Agreement; and
Form of Revised Non-Qualified Stock Option Agreement.
10.8 Stock Option Plan for Non-Employee Directors; Amendment to Stock Option Plan (Note 5)
for Non-Employee Directors; and Form of Stock Option Agreement.
10.9 Master Leasing Agreement, dated December 18, 1995 between the Company and (Note 11)
Heller Financial Leasing, Inc.
21 Subsidiaries (Note 12)
27 Financial Data Exhibit 27
- ----------------------
Note 1 Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-31102).
Note 2 Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-33248).
Note 3 Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-43525).
Note 4 Incorporated by reference to the Company's Registration Statement on Form S-8 (No. 33-72150).
Note 5 Incorporated by reference to the Company's Registration Statement on Form S-8 (No. 33-72072).
Note 6 Incorporated by reference to the Company's Registration Statement on Form S-8 (No. 33-54337).
Note 7 Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
Note 8 Incorporated by reference to the Company's Annual Report on Form 10K for the fiscal year ended
December 31, 1992.
Note 9 Incorporated by reference to the Company's Annual Report on Form 10K for the fiscal year ended
December 31, 1993.
Note 10 Incorporated by reference to the Company's Proxy Statement for the 1994 Annual Meeting of
Stockholders.
Note 11 Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
Note 12 Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
Note 13 Incorporated by reference to the Company's Registration Statement on Form S-8 (No. 333-05233).
Note 14 Incorporated by reference to the Company's Registration Statement on Form S-8 (No. 333-05237).
Note 15 Incorporated by reference to the Company's Current Report on Form 8-K filed on January 16, 1996.
Note 16 Incorporated by reference to the Company's Current Report on Form 8-K filed on March 19, 1997, as
amended by Amendment No. 1 filed on May 7, 1997.
Note 17 Incorporated by reference to Appendix E in the Company's Registration Statement on Form S-4
(No. 333-01869).
Note 18 Incorporated by reference to the Company's Proxy Statement for the 1997 Annual Meeting
of Stockholders.
Note 19 Incorporated by reference to the Company's Registration Statement on Form S-4 (No. 333-51115).
</TABLE>
13
<PAGE>
EXHIBIT 10.2
TUBOSCOPE VETCO INTERNATIONAL INC.
401(k) THRIFT SAVINGS PLAN
(As Amended and Restated Effective January 1, 1993)
<PAGE>
TUBOSCOPE VETCO INTERNATIONAL INC.
401(k) THRIFT SAVINGS PLAN
(As Amended and Restated Effective January 1, 1993)
INDEX
Page
ARTICLE I DEFINITIONS.............................................. 2
Section:
1.1 General.................................................. 2
1.2 Account or Account(s).................................... 2
1.3 Active Participant....................................... 2
1.4 Administrator............................................ 2
1.5 Annual Addition.......................................... 2
1.6 Beneficiary.............................................. 3
1.7 Board.................................................... 3
1.8 Break in Service Year.................................... 3
1.9 Code..................................................... 3
1.10 Company; Company Affiliate............................... 3
1.11 Company Contributions Account............................ 4
1.12 Compensation............................................. 4
1.13 Contribution Percentage.................................. 4
1.14 Deferral Percentage...................................... 5
1.15 Deferred Compensation.................................... 5
1.16 Deferred Compensation Account............................ 5
1.17 Denominator Compensation................................. 6
1.18 Disability Retirement.................................... 6
1.19 Disability Retirement Date............................... 6
1.20 Employee................................................. 6
1.21 ERISA.................................................... 6
1.22 Highly Compensated Employee.............................. 6
1.23 Hour of Service.......................................... 8
1.24 Military Leave........................................... 10
1.25 Normal Retirement........................................ 10
1.26 Normal Retirement Date................................... 10
1.27 Participant.............................................. 10
1.28 Payday................................................... 10
1.29 Personal Contributions Account........................... 10
1.30 Plan..................................................... 10
1.31 Plan Representative...................................... 10
(i)
<PAGE>
1.32 Plan Year............................................... 10
1.33 Prior Plan.............................................. 10
1.34 Rules of the Plan....................................... 11
1.35 Separation from the Service............................. 10
1.36 Spousal Consent......................................... 11
1.37 Spouse; Surviving Spouse................................ 11
1.38 Statutory Compensation.................................. 11
1.39 Trust................................................... 12
1.40 Trust Agreement......................................... 12
1.41 Trust Fund.............................................. 12
1.42 Trustee................................................. 12
1.43 Vested.................................................. 12
1.44 Year of Vesting Service................................. 12
1.45 Rollover Account........................................ 13
ARTICLE II ELIGIBILITY............................................. 13
Section:
2.1 Requirements for Participation.......................... 13
2.2 Notice of Participation................................. 14
2.3 Enrollment Form......................................... 14
2.4 Inactive Status......................................... 14
ARTICLE III PARTICIPANTS' DEFERRALS................................. 15
Section:
3.1 Deferral of Compensation................................ 15
3.2 Suspension of Deferral.................................. 15
3.3 Commencement, Resumption or Change of Deferred
Compensation............................................ 15
3.4 Withdrawals from Deferred Compensation Account.......... 15
3.5 Other Distributions Prohibited.......................... 16
ARTICLE IV CONTRIBUTIONS OF PARTICIPANTS........................... 16
Section:
4.1 Voluntary Personal Contributions........................ 16
4.2 Change, Commencement, Discontinuance or Resumption of
Personal Contributions.................................. 16
4.3 Withholding of Personal Contributions................... 17
4.4 Personal Contributions Account.......................... 17
4.5 Deposit in Trust........................................ 17
4.6 Withdrawals from Personal Contributions Account......... 17
(ii)
<PAGE>
ARTICLE V CONTRIBUTIONS OF THE COMPANY............................ 17
Section:
5.1 Determination of Annual Contribution.................... 17
5.2 Maximum Annual Contribution............................. 18
5.3 Contribution Date....................................... 18
ARTICLE VI PARTICIPATION IN COMPANY CONTRIBUTIONS AND
FORFEITURES............................................. 19
Section:
6.1 Deferred Compensation Account........................... 19
6.2 Company Contributions Account........................... 19
6.3 Allocation of Company Contributions..................... 19
6.4 Allocation of Forfeitures............................... 19
6.5 Deferral Percentage Fail-Safe Provisions................ 19
6.6 Contribution Percentage Fail-Safe Provisions............ 20
ARTICLE VII VALUATION OF THE TRUST FUND AND ACCOUNTS................ 21
Section:
7.1 Determination of Values................................. 21
7.2 Allocation of Values.................................... 22
7.3 Applicability of Account Values......................... 22
7.4 Recognition of Different Investment Funds............... 22
ARTICLE VIII VESTING OF INTERESTS.................................... 23
Section:
8.1 Vesting of Accounts..................................... 23
8.2 Additional Vesting of Accounts.......................... 23
8.3 Accrued Benefit of Highly Compensated Employees......... 24
ARTICLE IX EMPLOYMENT AFTER NORMAL RETIREMENT DATE................. 24
Section:
9.1 Continuation of Employment.............................. 24
9.2 Continuation of Participation........................... 24
ARTICLE X BENEFITS UPON RETIREMENT................................ 25
Section:
10.1 Normal or Disability Retirement......................... 25
10.2 Rights Upon Normal or Disability Retirement............. 25
10.3 Distribution of Accounts................................ 25
ARTICLE XI BENEFITS UPON DEATH..................................... 25
Section:
11.1 Designation of Beneficiary.............................. 25
(iii)
<PAGE>
11.2 Distribution on Death........................................ 26
ARTICLE XII BENEFITS UPON RESIGNATION OR DISCHARGE....................... 26
Section:
12.1 Distribution on Resignation or Discharge..................... 26
12.2 Forfeitures.................................................. 27
12.3 Restoration of Forfeitures................................... 27
ARTICLE XIII TOP-HEAVY PROVISIONS......................................... 27
Section:
13.1 Top-Heavy Determination...................................... 27
13.2 Minimum Benefits............................................. 30
13.3 Limitation on Benefits....................................... 30
ARTICLE XIV ADMINISTRATIVE PROVISIONS.................................... 30
Section:
14.1 Administrative Committee..................................... 30
14.2 Duties and Powers of the Administrative Committee............ 31
14.3 Expenses of Administration................................... 31
14.4 Payments..................................................... 32
14.5 Statement to Participants.................................... 32
14.6 Inspection of Records........................................ 33
14.7 Claims Procedure............................................. 33
14.8 Conflicting Claims........................................... 34
14.9 Effect of Delay or Failure to Ascertain Amount
Distributable or to Locate Distribute........................ 34
14.10 Service of Process........................................... 35
14.11 Limitations Upon Powers of the Administrative Committee...... 35
14.12 Effect of Administrative Committee Action.................... 35
14.13 Loans........................................................ 35
14.14 Distributions Pursuant to Qualified Domestic Relations Order. 37
14.15 Contributions to Rollover Accounts........................... 37
ARTICLE XV TERMINATION, DISCONTINUANCE, AMENDMENT,
MERGER OF PLAN............................................... 38
Section:
15.1 Termination of Plan; Discontinuance of Contributions......... 38
15.2 Amendment of Plan............................................ 39
15.3 Retroactive Effect of Plan Amendment......................... 39
15.4 Consolidation or Merger; Adoption of Plan by Other Companies. 40
ARTICLE XVI MISCELLANEOUS PROVISIONS..................................... 40
Section:
(iv)
<PAGE>
16.1 Identification of Fiduciaries........................... 40
16.2 Allocation of Fiduciary Responsibilities................ 41
16.3 Limitation on Rights of Employees....................... 41
16.4 Limitation on Annual Additions; Treatment of Otherwise
Excessive Allocation.................................... 42
16.5 Governing Law........................................... 43
16.6 Genders and Plurals..................................... 43
16.7 Titles.................................................. 43
16.8 References.............................................. 43
ARTICLE XVII TRUST AGREEMENT; INVESTMENT FUNDS; INVESTMENT
DIRECTIONS.............................................. 43
Section:
17.1 Trust Agreement......................................... 43
17.2 Investment Funds........................................ 43
17.3 Investment Directions of Participants................... 44
17.4 Change of Investment Directions......................... 44
17.5 Benefits Paid Solely from Trust Fund.................... 45
17.6 Administrative Committee Directions to Trustee.......... 45
17.7 Authority to Designate Investment Manager............... 45
ARTICLE XVIII PARTICIPANT'S RIGHT TO TRANSFER ELIGIBLE
ROLLOVER DISTRIBUTION................................... 45
Section:
18.1 Rule.................................................... 45
18.2 Definitions............................................. 45
(v)
<PAGE>
TUBOSCOPE VETCO INTERNATIONAL INC.
401(k) THRIFT SAVINGS PLAN
(As Amended and Restated Effective January 1, 1993)
Tuboscope, Inc. (now known as Tuboscope Vetco International Inc. and
hereinafter referred to as the "Company"), a corporation organized under the
laws of the State of Texas, by resolution of its Board of Directors adopted on
May 13, 1988, the Tuboscope Inc. 401(k) Thrift Savings Plan (the "Prior Plan")
for the exclusive benefit of its eligible Employees, effective as of May 13,
1988.
Effective as of June 1, 1992, the Board of Directors of the Company
authorized the amendment of the Prior Plan to change the name of the Prior Plan
to the Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan (the
"Plan").
The Plan was subsequently amended and restated effective as of May 13,
1988, to incorporate Amendments One through Seven to such Plan, and to reflect
statutory provisions in effect through December 31, 1992.
Effective as of January 1, 1993, the Board of Directors of the Company
authorized this amendment and restatement of the Plan in order to (i)
incorporate all amendments to the Plan (i.e, the Eighth Amendment), (ii reflect
such other Plan changes that are necessary to satisfy the requirements of the
Tax Reform Act of 1986 ("TRA '86") or made desirable by changes required by TRA
'86 and (ii effective January 1, 1994, to provide that Company contributions to
a Participant's Company Contributions Account under Section 5.1(B) of this Plan
shall be made in the form of common stock of the Company or in any other
"qualifying employer security" within the meaning of Section 407(d)(5) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The purposes of the Plan are:
(a) To permit Participants to share in the Company's success.
(b) To stimulate and maintain among Participants a sense of
responsibility, cooperative effort and a sincere interest in the progress
and success of the Company.
(c) To increase the efficiency of Participants and to encourage them
to remain with the Company until retirement from active service.
(d) To provide security for Participants by establishing a plan under
which each Participant's share of Company contributions, his personal
contributions, his
1
<PAGE>
deferrals and the earnings thereon will be invested and accumulated to
create a fund to benefit him in the event of his retirement, disability or
other termination of employment.
The Plan is a profit-sharing plan which is intended to comply with the
provisions of Sections 401, 401(k), 402(a) and other applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), similar provisions
of applicable state law, ERISA and Section 7(e)(4) of the Fair Labor Standards
Act of 1938, as amended.
The provisions of this restated Plan shall apply to a Participant who
terminates employment with the Company on or after January 1, 1993. The rights
and benefits, if any, of a former employee shall be determined in accordance
with the provisions of the Prior Plan in effect on the date his employment
terminated.
It is also intended that disability payments received by Participants
pursuant to the Plan shall qualify for exclusion from income under Section 105
of the Code.
ARTICLE I
DEFINITIONS
-----------
1.1 General: Whenever any of the following terms is used in the Plan with
-------
the first letter or letters capitalized, it shall have the meaning specified
below unless the context clearly indicates to the contrary.
1.2 "Account" or "Account(s)" of a Participant or former Participant shall
------- ----------
mean, as the context indicates, any one or more of his Personal Contributions
Account, his Deferred Compensation Account, his Company Contributions Account or
his Rollover Account, if any, in the Trust Fund established in accordance with
Sections 4.4, 6.1, 6.2 and 14.15, respectively.
1.3 "Active Participant" shall mean a Participant who is an Employee.
------------------
1.4 "Administrator" shall mean the Company, acting through its chief
-------------
executive officer or his delegate, and shall include the Administrative
Committee established in accordance with Section 14.1.
1.5 "Annual Addition" of a Participant for the Plan Year in question shall
---------------
mean the sum of:
(a) Company contributions and forfeitures allocated to his Company
Contributions Account for that Plan Year;
2
<PAGE>
(b) Company contributions and forfeitures allocated to his Deferred
Compensation Account for that Plan Year;
(c) Company contributions and forfeitures allocated to his accounts
under all other qualified defined contribution plans, if any, of the
company and any Company Affiliate for the Plan Year;
(d) His personal contributions under the Plan and all other qualified
defined contribution plans, if any, of the Company and any Company
Affiliate for that Plan Year; and
(e) Except for purposes of Section 16.4(A)(i), the sum of:
(i) Company contributions allocated after March 31, 1984 to an
individual medical account as defined in Code Section 415(1)(1), if
any, which is maintained under a qualified pension or annuity plan;
and
(ii) Company contributions paid or accrued for Plan Years ending
after December 3, 1985, if any, and allocated to the separate account
of a Key Employee (as defined in Section 13.1(B)(iv)) for the purpose
of providing post-retirement medical benefits.
1.6 "Beneficiary" shall mean a person or trust properly designated by a
-----------
Participant or former Participant to receive benefits, or such Participant's
Spouse or heirs at law, as provided in Article XI.
1.7 "Board" shall mean the Board of Directors of Tuboscope Vetco
-----
International Inc.
1.8 "Break in Service Year" of an Employee or former Employee shall mean
---------------------
any Plain Year beginning on or after the date of his first Hour of Service
during which he did not have more than 500 Hours of Service.
1.9 "Code" shall mean the Internal Revenue Code of 1986, a amended from
----
time to time.
1.10 "Company; Company Affiliate"
--------------------------
(a) "Company" shall mean Tuboscope Vetco International Inc., any other
Company Affiliate which subsequently adopts the Plan as a whole or as to
any one or more divisions, in accordance with Section 15.4(C), and any
successor company which continues the Plan under Section 15.4(A).
3
<PAGE>
(b) "Company Affiliate" shall mean any employer which, at the time of
reference, was, with the Company, a member of a controlled group of
corporations or a trade or business under common control, or a member of an
affiliated service group, as determined under regulations issued by the
Secretary of the Treasury or his delegate under Code Sections 414(b), (c),
(m) and 415(h).
1.11 "Company Contributions Account" shall mean of a Participant shall mean
-----------------------------
his individual account in the Trust Fund established in accordance with Section
6.2
1.12 "Compensation" of a Participant for any Plan Year shall mean his total
------------
cash compensation paid to him in that Plan Year for services rendered to the
Company as an Employee, prior to deferral of any part thereof under Article III,
and exclusive of any payments not reportable by the Company on federal income
tax Form W-2, any payments made to him on account of his Separation from the
Service, any retirement or profit-sharing contributions or benefits, retainers,
payment for temporary employment, bonuses, commissions, pay for overtime hours,
incentive compensation, pay in lieu of vacations, insurance premiums or any
other benefits; provided, however, that the "Compensation" of any Participant
shall in no event be greater than $200,000 or such other dollar amount as may be
prescribed by the Secretary of Treasury or his delegate under Code Section
401(a)(17).
From and after January 1, 1994, in no event shall the Compensation
taken into account under the Plan for any Participant exceed $150,000 or such
other dollar amount as may be prescribed by the Secretary of Treasury or his
delegate under Code Section 401(a)(17).
For purposes of applying the Code Section 401(a)(17) limit on
Compensation, the family unit of an Employee who either is a 5% owner or is both
a highly compensation employee and one of the ten most highly compensated
employees will be treated as a single Employee with one Compensation, and the
Code Section 401(a)(17) limit will be allocated among the members of the family
unit in proportion to the total Compensation of each member of the family unit.
For this purpose, a family unit consists of the Employee who is a 5% owner or
one of the ten most highly compensated employees, the Employee's spouse, and the
Employee's lineal descendants who have not attained age 19 before the close of
the year.
1.13 "Contribution Percentage"
-----------------------
(a) "Contribution Percentage" shall mean, with respect to all
Employees who are described in subsection (b) in any Plan Year the average
of the decimal numbers obtained, as to each such Employee, by dividing:
(i) the allocations described in subsection (c); by
(ii) his Denominator Compensation for the portion of such Plan
Year
4
<PAGE>
during which is described in subsection (b).
(b) An Employee is described in this subsection for such portion of
any Plan Year in which he:
(i) is eligible to contribute to his Personal Contributions
Account;
(ii) is eligible to receive an allocation to his Company
Contributions Account under Section 6.3(B);
(iii) is eligible to receive an allocation to his Deferred
Compensation Account, but only if the Administrative Committee elects
to take such allocations into account under Section 6.6;
(c) The allocations described in this subsection for an Employee are:
(i) allocations to his Personal Contributions Account;
(ii) allocations to his Company Contributions Account under
Section 6.3(B); and
(iii) allocations to his Deferred Compensation Account, but only
if the Administrative Committee elects to take such allocations into
account under Section 6.6;
(d) For purposes of this Section, all plans required to be taken into
account under Code Section 401(m)(2)(B) shall be treated as a single plan.
1.14 "Deferral Percentage" shall mean, with respect to each Employee who is
-------------------
eligible to participate in the Plan during the Plan Year in question, the
average of the decimal numbers obtained, as to such Employee by dividing:
(a) the amount, if any, credited to his Deferred Compensation Account
under the Plan and any other plans which are aggregated with the Plan under
Code Section 401(k)(3)(A) (and, to the extent elected by the Administrative
Committee under Section 6.5(B), such amounts as are allowed under Code
Section 401(k)(3)(C)(ii)); by
(b) his Denominator Compensation for the portion of such Plan Year
during which he is eligible to participate in the Plan.
1.15 "Deferred Compensation" of a Participant shall mean an amount
---------------------
contributed by the Company to the Plan for him under Section 5.1(A).
5
<PAGE>
1.16 "Deferred Compensation Account" of a Participant shall mean his
-----------------------------
individual account in the Trust Fund established in accordance with Section 6.1.
1.17 "Denominator Compensation"
------------------------
(a) Subject to subsection (b), "Denominator Compensation" of a
Participant for a Plan Year shall mean his compensation for services
performed for his employer which is includable in his gross income for tax
purposes for that Plan Year.
(b) Under Section 6.5 or 6.6, the Administrative Committee may elect
to treat compensation deferred under Section 3.1 which is not includable in
his gross income for tax purposes but is compensation for services
performed for his employer, as Denominator Compensation.
1.18 "Disability Retirement" of a Participant shall mean his Separation
---------------------
from the Service authorized by the Administrative Committee upon its finding,
based on competent medical evidence, that the Participant, as a result of mental
or physical disease or condition, will be permanently unable to discharge his
assigned duties.
1.19 "Disability Retirement Date" of a Participant shall mean the date
--------------------------
(prior to his Normal Retirement Date) fixed by the Administrative Committee for
his Disability Retirement.
1.20 "Employee" shall mean any person who renders services to the Company
--------
in the status of an employee as the term is defined in Code Section 3121(d)
including any person who is a leased employee within the meaning of Code Section
414(n)(2).
1.21 "ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
1.22 "Highly Compensated Employee"
---------------------------
(a) For any current Plan Year, a "Highly Compensated Employee," shall
mean any Employee who:
(i) in the previous Plan Year:
a. was a 5% owner of the Company (within the meaning of
Code Section 414(Q)(3));
b. had Statutory Compensation from the Company in excess of
$75,000;
6
<PAGE>
c. had Statutory Compensation from the Company in excess of
$50,000 and was in group consisting of the top 20% of employees
(excluding for such purpose such Employees described in Code
Section 414(q)(8) as are excluded under the Rules of the Plan)
when ranked by Statutory Compensation for the Plan Year in
question; or
d. was an officer of the Company (not more than 50
Employees or, if less, the greater of three Employees or 10% of
the Employees shall be treated as officers); and
1. had Statutory Compensation in excess of $45,000
(adjusted as described in Code Section 414(q)(1)(D)); or
2. had the greatest Statutory Compensation of any
officer; or
(ii) in the current Plan Year:
a. is described in subparagraph (i)a; or
b. is one of the 100 employees with the greatest Statutory
Compensation for such Plan Year and is described in any of
subparagraphs (i)b through d.
and any former Employee, who at the time of his Separation from
the Service, or at any time after his 55th birthday, was
described in paragraphs (i) or (ii).
(b) (i) For purposes of subsection (a), any Employee who is a
Spouse, or lineal ascendant or descendant (or Spouse thereof) of any
Employee described in paragraph (ii), shall not be treated as a
separate Employee and any Compensation paid to such Employee shall be
treated as if paid to (or on behalf of) the Employee described in
paragraph (ii), as described in Code Section 414(q)(6).
(ii) An Employee is described in this paragraph in a Plan Year if
he is:
a. described in subparagraph (a)(i)a; or
b. one of the ten Employees with the greatest Statutory
Compensation for such Plan Year.
(c) For purposes of this Section, Statutory Compensation shall
include
7
<PAGE>
compensation deferral amounts and other amounts Required to be taken into
account pursuant to Code Section 414(q)(7)(B).
1.23 "Hour of Service"
---------------
(a) "Hour of Service" of an Employee shall mean the following:
(i) Each hour for which he is paid or entitled to payment by
the Company or a Company Affiliate for the performance of services.
(ii) Each hour in or attributable to a period of time during
which he performs no duties (irrespective of whether he has had a
Separation from the Service) due to a vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or
a leave of absence for which he is so paid or so entitled to payment
by the Company or a Company Affiliate, whether direct or indirect;
provided, however, that:
a. no more than 501 Hours of Service shall be credited
under this paragraph to an Employee on account of any such
period; and
b. no such hours shall be credited to an Employee if
attributable to payments made or due under a plan maintained
solely for the purpose of complying with applicable workers'
compensation, unemployment compensation or disability insurance
laws or to a payment which solely reimburses the Employee for
medical or medically related expenses incurred by him.
(iii) Each hour for which he is entitled to back pay,
irrespective of mitigation of damages, whether awarded or agreed to by
the Company or a Company Affiliate.
(b) (i) Solely for the purposes of Section 1.8, each hour in or
attributable to a Plan Year during which the Employee performs no duties
for the Company or a Company Affiliate (irrespective of whether he has had
a Separation from the Service) due to an absence from work:
a. by reason of pregnancy of the Employee;
b. by reason of the birth of a child of the Employee;
c. by reason of the placement of a child with the Employee
in connection with the adoption of such child by the Employee; or
8
<PAGE>
d. for purposes of caring for such child for a period
beginning immediately following such birth or placement;
subject, however, to the provisions of paragraphs (ii), (iii) and
(iv), below.
(ii) The hours described in paragraph (i) are:
a. the Hours of Service which otherwise would normally
have been credited to the Employee but for such absence; or
b. in any case in which the Plan is unable to determine
such hours, eight Hours of Service per day of such absence;
provided, however, that the total number of hours treated as Hours of
Service under paragraph (i) by reason of any such pregnancy or
placement shall not exceed 501.
(iii) The hours described in paragraph (ii) shall be treated as
Hours of Service under paragraph (i):
a. only in the Plan Year in which the absence from work
for such reason or purpose begins if the Employee would be
prevented from incurring a Break in Service Year in such Plan
Year solely because of the provisions of paragraphs (i) and (ii);
or
b. in any other case, in the immediately following Plan
Year.
(iv) No credit for hours referred to in paragraphs (i), (ii) and
(iii) shall be given unless the Employee furnishes to the
Administrative Committee such timely information as the Administrative
Committee may reasonably require to establish:
a. that the absence from work is for a reason or purpose
referred to in paragraph (i); and
b. the number of days for which there was such an absence.
(c) Hours of Service under subsection (a)(ii) and (a)(iii) shall be
calculated in accordance with 29 C.F.R. Section 2530.200b-2(b). Each Hour
of Service shall be attributed to the Plan Year or initial eligibility year
in which it occurs except to the extent that the Company, in accordance
with 29 C.F.R. (S) 2530.200b-2(c), credits such Hour to another computation
period under a reasonable method consistently applied.
9
<PAGE>
(d) The Hours of Service of an Employee occurring prior to May 13,
1988 shall be determined by the Administrative Committee from reasonably
accessible records by means of appropriate calculations and approximations
or, if such records are insufficient to make an appropriate determination,
by reasonable estimation.
1.24 "Military Leave" shall mean any Employee who leaves the Company or a
--------------
Company Affiliate directly to perform service in the Armed Forces of the United
States or in the United States Public Health Service under conditions entitling
him to reemployment rights, as provided in the laws of the United States, shall,
solely for purposes of the Plan and irrespective of whether he is compensated by
the Company or a Company Affiliate during such period of service, be on Military
Leave. An Employee's Military Leave shall expire if such Employee voluntarily
resigns from the Company or such Company Affiliate during such period of service
or if he fails to make application for reemployment within the period specified
by such laws for the preservation of his reemployment rights.
1.25 "Normal Retirement" of a Participant shall mean his Separation from
-----------------
the Service upon his Normal Retirement Date, or after such date (except by
death) as permitted under Article X.
1.26 "Normal Retirement Date" of a Participant shall mean the last day of
----------------------
the Plan Year in which his 60th birthday occurs.
1.27 "Participant" shall mean any person included in the Plan as provided
-----------
in Article II.
1.28 "Payday" of a Participant shall mean the regular and recurring
------
established day for payment of Compensation to Employees in his classification
or position.
1.29 "Personal Contributions Account" of a Participant shall mean his
------------------------------
individual account in the Trust Fund established in accordance with Section 4.4.
1.30 "Plan" shall mean the Tuboscope Vetco International Inc. 401(k) Thrift
----
Savings Plan.
1.31 "Plan Representative" shall mean any person or person designated by
-------------------
the Administrative Committee in accordance with the Rules of the Plan to
function in accordance with Section 1.31.
1.32 "Plan Year" shall be the taxable year of the Company (presently
---------
January 1 through the last day of the following December), including all such
years prior to the adoption of the Plan.
1.33 "Prior Plan" shall mean the Tuboscope Inc. 401(k) Thrift Savings Plan
----------
as in effect
10
<PAGE>
on December 31, 1992.
1.34 "Rules of the Plan" shall mean the rules adopted by the Administrative
-----------------
Committee pursuant to Section 14.2(c) for the administration, interpretation or
application of the Plan.
1.35 "Separation from the Service"
---------------------------
(a) "Separation from the Service" of an Employee shall mean his
resignation from or discharge by the Company or a Company Affiliate, or his
death, Normal or Disability Retirement but not his transfer among the
Company and Company Affiliates.
(b) A leave of absence or sick leave authorized by the Company or a
Company Affiliate in accordance with established policies, a vacation
period, a temporary layoff for lack of work or a Military Leave shall not
constitute a Separation from the Service; provided, however, that:
(i) continuation upon a temporary layoff for lack of work for a
period in excess of three months shall be considered a discharge
effective as of the commencement of such period;
(ii) failure to return to work upon expiration of any leave of
absence, sick leave, or vacation or within three days after recall
from a temporary layoff for lack of work, or before expiration of a
Military Leave shall be considered a resignation effective as of the
commencement of any such leave of absence, sick leave, vacation,
temporary layoff or Military Leave.
1.36 "Spousal Consent" to an election, designation or other action of a
---------------
Participant, shall mean the written consent thereto of the Spouse of the
Participant, witnessed by a Plan Representative or a notary public, which
acknowledges the effect of such election on the rights of the Spouse, and, in
the case of consent to a Beneficiary designation, with such designation not
being changeable without further Spousal Consent unless the prior Spousal
Consent expressly permits such changes without the necessity of further Consent.
Spousal Consent shall be deemed to have been obtained if it is established to
the satisfaction of the Plan Representative that it cannot actually be obtained
because there is no Spouse, or because the Spouse could not be located, or
because of such other circumstances as the Secretary by regulation may
prescribe. Any Spousal Consent shall be effective only with respect to the
Spouse in question.
1.37 "Spouse; Surviving Spouse" of a Participant or former Participant
------------------------
shall mean the Spouse to whom he was married throughout the 365-day period
ending on the date of his death; provided, however, that to the extent required
by a qualified domestic relations order issued in accordance with Code Section
414(p), a former Spouse shall be treated as a Surviving Spouse.
11
<PAGE>
1.38 "Statutory Compensation" of a Participant for any Plan Year shall mean
----------------------
his total taxable remuneration received from the Company and all Company
Affiliates in that Plan Year for services rendered as an Employee (including
those items not reported on Form W-2 as determined under Treas. Reg. (S) 1.415-
2(d)(1)), exclusive of:
(a) Company and Company Affiliate contributions to a deferred
compensation plan (to the extent not includable in the gross income of the
Participant) or to a simplified employee pension plan (to the extent
deductible by the Participant) and any distribution from a deferred
compensation plan;
(b) amounts realized from the exercise of a non-qualified stock
option;
(c) amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(d) other amounts which receive special tax benefits such as premiums
for group life insurance and contributions toward the purchase of an
annuity contract described in Code Section 403(b).
1.39 "Trust" shall mean the trust established pursuant to the Trust
-----
Agreement.
1.40 "Trust Agreement" shall mean the Trust Agreement established pursuant
---------------
to the Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan as
described in Section 17.1, providing for the investment and administration of
the Trust Fund. By this reference, the Trust Agreement is incorporated herein.
1.41 "Trust Fund" shall mean the fund established under the Trust Agreement
----------
by contributions made by the Company and Participants pursuant to the Plan and
from which any distributions under the Plan are to be made.
1.42 "Trustee" shall mean the Trustee under the Trust Agreement.
-------
1.43 "Vested" when used with reference to a Participant's Accounts, shall
------
mean non-forfeitable.
1.44 "Year of Vesting Service" of an Employee shall mean a Plan Year during
-----------------------
which he completed at least 1,000 Hours of Service, excluding all such Plan
Years ending:
(a) before any portion of his Company Contributions Account has become
Vested and before a number of consecutive Break in Service Years equal to
the greater of:
12
<PAGE>
(i) five; and
(ii) the number of his Years of Vesting Service (ignoring for
this purpose any of such Plan Years excluded by virtue of any previous
application of this subsection); or
(b) before the effective date of the Plan;
provided, however, that "Years of Vesting Service" shall include all "years of
service" under the Minstar, Inc. Profit Sharing and Savings Plan credited to
such Employee on May 13, 1988.
1.45 "Rollover Account" of a Participant shall mean his individual account
----------------
in the Trust Fund established in accordance with Section 14.15.
ARTICLE II
ELIGIBILITY
-----------
2.1 Requirements for Participation:
------------------------------
A. Each Employee of the Company who was a participant in the Prior Plan
immediately before the effective date of the Plan shall become a Participant in
the Plan on the effective date. Each other Employee shall be eligible to
commence participation in the Plan on the date of or any date subsequent to his
date of hire, provided he is otherwise eligible hereunder.
B. Notwithstanding anything to the contrary in this Plan the following
Employees shall not be eligible to participate in this Plan (i) persons who are
non-resident aliens described in Code Section 410(b)(3)(C), (ii persons who are
leased employees described in Code Section 414(n), and (ii persons covered by a
collective bargaining agreement between Employee representatives and the
Company, if there is evidence that retirement benefits were the subject of good
faith bargaining between such employee representatives and the Company and such
collective bargaining agreement does not expressly provide for coverage of such
employees hereunder.
C. Any Participant whose participation in the Plan terminates shall again
become eligible to participate in the Plan effective as of his first subsequent
Hour of Service as an Employee.
D. A former Employee who was not an Employee on the January 1 or July 1
on which he first met all other eligibility requirements shall become eligible
to participate in the Plan effective as of his first subsequent Hour of Service
as an Employee.
13
<PAGE>
2.2 Notice of Participation: On or before the date on which an Employee
-----------------------
becomes eligible to be a Participant, the Administrative Committee shall give
him written notice thereof.
2.3 Enrollment Form: The Administrative Committee shall provide an
---------------
enrollment form on which the Participant should set forth:
(a) his name, date of birth, name of Spouse and other such relevant
information; and
(b) his consent that he, his successor in interest and assigns and all
persons claiming under him shall, to the extent consistent with applicable
law, be bound by the statements contained therein and the provisions of the
Plan and Trust Agreement as they now exist and as they may be amended from
time to time; and
(c) his statement as to whether he elects to defer Compensation within
the limits of Section 3.1, his selection of the amount of his deferral
within the limits of Section 3.1, his selection of Investment Funds in
accordance with Article XVII and his authorization for the Company to pay
the same to the Trust Fund in accordance with Section 5.1; and
(d) his statement as to whether he elects to make contributions to his
Personal Contributions Account in accordance with Section 4.1, his
selection of the amount of his contributions within the limits of Section
4.1, his section of Investment Funds in accordance with Article XVII and,
in such case, his authorization to the Company to withhold such amounts
from his Compensation and to pay the same to the Trust Fund in accordance
with Sections 4.3 and 4.5.
2.4 Inactive Status:
---------------
A. A Participant who is transferred to a Company Affiliate shall
thereupon cease to be an Active Participant and shall not thereafter make
deferral of Compensation under Article III or make personal contributions under
Article IV.
B. All provisions of the Plan, including Articles VII and VII, shall
continue to apply to such Participant, but he shall not share in allocations
under Article VI and Section 16.4 unless he again becomes an Active Participant
pursuant to subsection (c).
C. If such a Participant is retransferred to a position or classification
with the Company, he shall thereupon be eligible to resume deferral of
Compensation under Section 3.3 and voluntary personal contributions under
Section 4.2 thereby becoming an Active Participant.
14
<PAGE>
ARTICLE III
PARTICIPANTS' DEFERRALS
-----------------------
3.1 Deferral of Compensation: Each Participant may elect, in accordance
------------------------
with the Rules of the Plan, to defer on a pre-tax basis the lesser of:
(a) any whole number percentage, which is not less than one nor more
than 10%, of his Compensation for each Payday in such Plan Year; and
(b) the excess of $8,994 (adjusted for increases in the cost-of-living
as described in Code Section 402(g)(5)) over any amounts described in Code
Section 402(g)(3) and not deferred hereunder.
3.2 Suspension of Deferral: A Participant may, upon such prior written
----------------------
notice to the Administrative Committee as is required under the Rules of the
Plan, elect to suspend deferral of his Compensation commencing with the first
Payday subsequent to such notice.
3.3 Commencement, Resumption or Change of Deferred Compensation: As
-----------------------------------------------------------
permitted under the Rules of the Plan:
(a) a Participant in the Plan who previously declined to defer a
percentage of his Compensation may, upon such prior written notice to the
Administrative Committee as is required under the Rules of the Plan, elect
to commence deferral of his Compensation under Section 3.1 within the
limits thereof;
(b) after he has suspended deferral of his Compensation under Section
3.2, a Participant may, upon notice to the Administrative Committee, elect
to resume deferral of his Compensation under Section 3.1 within the limits
thereof; and
(c) a Participant may, upon prior written notice to the Administrative
Committee, elect to change his rate of deferral of his Compensation within
the limits of Section 3.1.
3.4 Withdrawals from Deferred Compensation Account: Within its sole
----------------------------------------------
discretion which shall be exercised without discrimination in favor of Highly
Compensated Employees, the Administrative Committee may permit a Participant to
make a withdrawal from his Deferred Compensation Account in the Plan in the
event of:
(a) a deferral in excess of the limitation of Section 3.1(b), to the
extent allowed by Code Section 402(g)(2)(A)(ii);
15
<PAGE>
(b) a deferral in excess of the limitation of Section 6.5, to the
extent allowed by Code Section 401(k)(8);
(c) the circumstances specified in Code Sections 401(k)(2)(B)(i)(II),
(III) or (IV); or
(d) the Participant's attainment of age 62. An eligible Participant
electing to withdraw contributions from his Deferred Compensation Account
under this subsection (d) may authorize the withdrawal of such amounts in
10% increments once per calendar quarter.
3.5 Other Distributions Prohibited: Except as provided in Sections 3.4,
------------------------------
4.6 and 10.3(B), no distribution shall be made to any Participant during his
participation in the Plan.
ARTICLE IV
CONTRIBUTIONS OF PARTICIPANTS
-----------------------------
4.1 Voluntary Personal Contributions:
--------------------------------
A. Each Participant may elect, in accordance with the Rules of the Plan,
to contribute any whole number percentage which is not less than one nor more
than 10% of this Compensation on an after-tax basis to his Personal
Contributions Account for each Payday. However:
(i) his aggregate contributions (net of withdrawals) shall not exceed
10% of his Compensation received by him while an Active Participant during
all periods of participation; and
(ii) he shall not knowingly contribute an amount which would make his
Annual Addition for the Plan Year in question exceed the limitations of
Section 16.4.
B. If any amount contributed hereunder inadvertently causes a
Participant's Annual Addition to exceed the maximum permissible amount for the
Plan Year in question, the provisions of Section 16.4 shall apply.
C. The Administrative Committee may establish rules for making personal
contributions and may permit Active Participants to make direct contributions to
their Personal Contributions Accounts.
4.2 Change, Commencement, Discontinuance or Resumption of Personal
--------------------------------------------------------------
Contribu-
- ---------
16
<PAGE>
tions: A Participant may elect to change his rate of contributions
- -----
within the limits of Section 4.1, or commence, discontinue or resume
contributions under Section 4.1. Such elections shall be made in accordance
with the Rules of the Plan.
4.3 Withholding of Personal Contributions: A Participant's contributions
-------------------------------------
to his Personal Contributions Account under Section 4.1(A) shall be withheld
each Payday from his Compensation.
4.4 Personal Contributions Account: The Administrative Committee shall
------------------------------
maintain a Personal Contributions Account for each Participant contributing to
the Plan. To this account shall be credited his contributions, debited his
withdrawals under Sections 4.6 and 6.6 and debited or credited investment gains
and losses and Annual Addition adjustments.
4.5 Deposit in Trust: Participants' contributions shall be transmitted to
----------------
the Trustee within one month after the end of the month of the Plan Year in
which withheld or received and shall be invested in accordance with the Trust
Agreement.
4.6 Withdrawals from Personal Contributions Account: A Participant may
-----------------------------------------------
make withdrawals from his Personal Contributions Account from time to time as
permitted by the Rules of the Plan.
ARTICLE V
CONTRIBUTIONS OF THE COMPANY
----------------------------
5.1 Determination of Annual Contribution:
------------------------------------
A. Subject to Section 16.4, for each Payday, the Company shall contribute
to the Plan for each Participant an amount for his Deferred Compensation Account
which is the amount of Deferred Compensation elected by such Participant under
Section 3.1 or 3.3.
B. Prior to October 1, 1993, subject to Section 16.4 for each Payday, the
Company shall contribute to the Plan for each Participant who elected to defer
Compensation under Section 3.1 or 3.3 or who elected to contribute under Section
4.1 or 4.2 an amount for his Company Contributions Account which is equal to the
lesser of:
(i) 1/2 of his Deferred Compensation for such Payday under Section
3.1 or 3.3 and 1/2 of his voluntary contributions for such Payday under
Section 4.1 or 4.2; or
(ii) 3% of his Compensation for such Payday.
17
<PAGE>
From and after October 1, 1993, subject to Section 16.4 for each
Payday, the Company shall contribute to the Plan for each Participant who
elected to defer Compensation under Section 3.1 or 3.3 or who elected to
contribute under Section 4.1 or 4.2 to such Participant's Company Contributions
Account an amount equal to the lesser of:
(i) 1/4 of his Deferred Compensation for each Payday under Section
3.1 or 3.3 and 1/4 of his voluntary contributions for such Payday under
Section 4.1 or 4.2; or
(ii) 1 1/2% of his Compensation for such Payday.
From and after January 1, 1994, the contributions by the Company to a
Participant's Company Contributions Account shall be made in the form of "Common
Stock" in accordance with Section 5.1(B). Common Stock shall mean the common
stock of Tuboscope Vetco International Inc. The Plan may acquire and hold
Common Stock in accordance with Section 407 of ERISA.
5.2 Maximum Annual Contribution: The Company's contribution for any Plan
---------------------------
Year shall not exceed the lesser of the maximum amount deductible by the Company
for such Plan Year under Code Section 404(a)(3)(A) and, in any event, shall be
less than that amount which would initially result in an Annual Addition of any
Participant which exceeds the maximum permissible amount under Section 16.4(A).
5.3 Contribution Date:
-----------------
A. The Company's contributions:
(i) under Section 5.1(A) shall be made within one month after the
end of the month in which deferred under Section 3.1 or 3.3;
(ii) under Section 5.1(B) shall be made on or before the date upon
which the Company's federal income tax return is due (including extensions
thereof) for its taxable year coinciding with the Plan Year in question
and shall be transmitted to the Trustee and held in the Trust Fund.
B. If the Company makes a contribution after the end of the Plan Year for
which the contribution is made:
(i) the Company shall notify the Trustee in writing that the
contribution is made for such Plan Year;
(ii) the Company shall claim such payment as a deduction on its
federal
18
<PAGE>
income tax return for its taxable year coinciding with such Plan Year; and
(iii) the Administrative Committee and the Trustee shall treat the
payment as a contribution by the Company to the Trust actually made on the
last day of such taxable year.
ARTICLE VI
PARTICIPATION IN COMPANY CONTRIBUTIONS AND FORFEITURES
------------------------------------------------------
6.1 Deferred Compensation Account: The Administrative Committee shall
-----------------------------
maintain for each Participant a Deferred Compensation Account to which shall be
credited the amounts determined under Section 5.1(A), debited amounts withdrawn
under Sections 3.4 and 6.5 and debited or credited the amounts determined under
Section 7.2 and 16.4.
6.2 Company Contributions Account: The Administrative Committee shall
-----------------------------
maintain a Company Contributions Account for each Participant to which shall be
credited the amounts allocated thereto under Section 6.3 and to which shall be
debited or credited investment gains and losses and Annual Addition adjustments.
6.3 Allocation of Company Contributions:
-----------------------------------
A. Except as provided in Section 16.4(A), Company contributions under
Section 5.1(A) shall be allocated as provided therein.
B. Except as provided in Section 16.4(A), Company contributions under
Section 5.1(B) shall be allocated as provided therein.
6.4 Allocation of Forfeitures: Except as provided in Section 16.4(A),
-------------------------
amounts forfeited from Company Contributions Accounts, Personal Contributions
Accounts and Deferred Compensation Accounts under Sections 11.2(A)(iii), 12.2
and 14.9 shall be applied under Sections 5.1(A) and 5.1(B) to reduce the
Company's contribution for such Plan Year and shall be allocated under Section
6.2 as if part of such contribution for such Plan Year.
6.5 Deferral Percentage Fail-Safe Provisions:
----------------------------------------
A. For each Plan Year, the Deferral Percentage with respect to Employees
who are not Highly Compensated Employees, shall be:
(i) not less than 4/5 of; or
19
<PAGE>
(ii) not more than 2 percentage points lower than, and not less than
1/2 of,
the Deferral Percentage for such Plan Year with respect to Highly Compensated
Employees or such other amount as may be required by Treasury Regulations under
Code Section 401(m)(9). To the extent necessary to achieve such result (and
notwithstanding Section 6.3) as of the end of each Plan Year, the Administrative
Committee shall take or cause to be taken one or more of the actions listed in
subsection (B), in the order selected by the Administrative Committee and to the
extent necessary.
B. (i) Such amounts as are allowed by Code Section 401(k)(3)(C)(ii)
shall be taken into account for purposes of subsection (A) of the
definition of Deferral Percentage.
(ii) Compensation deferred under Section 3.1 shall be treated as
Denominator Compensation.
(iii) Amounts otherwise to be credited under Section 6.3(B) to Company
Contributions Accounts for such Plan Year shall be credited instead to
Deferred Compensation Accounts of the Participants in question.
(iv) The allocations under Section 6.3(B) for such Plan Year for
Participants who are not Highly Compensated Employees shall be
proportionately increased and such allocations with respect to Highly
Compensated Employees shall be correspondingly and proportionately reduced.
(v) Prior to the end of the following Plan Year, the amounts
described in subsection (a) of the definition of Deferral Percentage (and
any income thereon, other than "gap period" income as defined under
applicable Treasury Regulations) for Highly Compensated Employees shall be
reduced and:
a. designated by the Company as a distribution of excess
contributions and distributed to; or
b. to the extent provided by Treasury Regulations under Code
Section 401(k)(8), deemed distributed and re-contributed to the
Personal Contributions Accounts of
the Highly Compensated Employees with respect to whom the reduction is
made, in order of Deferral Percentages beginning with the highest Deferral
Percentage.
6.6 Contribution Percentage Fail-Safe Provisions:
--------------------------------------------
A. For each Plan Year, the Contribution Percentage with respect to
Employees who
20
<PAGE>
are not Highly Compensated Employees, shall be:
(i) not less than 4/5 of; or
(ii) not more than 2 percentage points lower than, and not less than
1/2 of,
the Contribution Percentage for such Plan Year with respect to Highly
Compensated Employees, or such other amount as may be required by Treasury
Regulations under Code Section 401(m)(9). To the extent necessary to achieve
such result (and notwithstanding Article IV and Section 6.3) as of the end of
the Plan Year, the Administrative Committee shall take or cause to be taken one
or more of the actions listed in subsection (B), in the order selected by the
Administrative Committee, after the application of Section 6.5 and to the extent
necessary.
B. (i) To the extent provided by Treasury Regulations under Code Section
401(m)(3), allocations to Deferred Compensation Accounts shall be taken
into account for purposes of calculating the Contribution Percentage.
(ii) Compensation deferred under Section 3.1 shall be treated as
Denominator Compensation.
(iii) Prior to the end of the following Plan Year, the allocations
described in subsection (c) of the definition of Contribution Percentage
(and any income thereon) for Highly Compensated Employees shall be reduced
(and distributed to the Highly Compensated Employees with respect to whom
the reduction is made) or forfeited (and applied under Section 6.4), in
order of Contribution Percentages beginning with the highest Contribution
Percentage.
ARTICLE VII
VALUATION OF THE TRUST FUND AND ACCOUNTS
----------------------------------------
7.1 Determination of Values: As of the end of the Plan Year and as of the
-----------------------
end of each quarter thereof or any other date deemed by the Administrative
Committee to be advisable, the Administrative Committee shall determine the fair
market value of each asset in the Trust Fund in compliance with the principles
of Section 3(26) of ERISA and regulations issued pursuant thereto, based upon
information reasonably available to it including data from, but not limited to,
newspapers and financial publications of general circulation, statistical and
valuation services, records of securities exchanges, appraisals by qualified
persons, transactions and bona fide offers in assets of the type in question and
other information customarily used in the valuation of property for purposes of
the Code. The value of any real property held in the Trust Fund determined as
of the end of the fourth quarter of any Plan Year shall be considered to remain
21
<PAGE>
unchanged until the end of the fourth quarter of the following Plan Year. With
respect to securities for which there is a generally recognized market, the
published selling prices on or nearest to such valuation date shall establish
the fair market value of such security. Fair market value so determined shall
be conclusive for all purposes of the Plan and Trust.
7.2 Allocation of Values: The difference between the total value of the
--------------------
assets of the Trust Fund, as determined under Section 7.1, and the total of the
Accounts therein shall be allocated by the Administrative Committee among such
Accounts in proportion to their respective stated values as of such valuation
date. For purposes of such allocation, the value of each Account shall be
deemed to be:
(a) the value of such Account without taking into account such
personal contributions, deferrals of Compensation or Company contributions
attributable to the period as provided under Section 7.1; plus
(b) 1/2 of such Participant's personal contributions and deferrals of
Compensation attributable to such period and credited to such Account; less
(c) the sum of (i) withdrawals from such Account received during such
period, (ii) the principal amount of all loans held in such Account and
made during such period pursuant to Section 14.13, and (iii) the unpaid
balance on the first day of such period of all outstanding loans held in
such Account and made pursuant to Section 14.13; provided, however that
gains and losses shall not be allocated with respect to amounts being held
in suspense under Section 16.4(B).
The difference between the total value of the assets of the Trust Fund, as
determined under Section 7.1, and the total of the Accounts therein, shall be
allocated by the Administrative Committee among such Accounts in proportion to
their respective stated values as of such valuation date, such values and
determinations being made without taking into account personal contributions,
deferrals of Compensation or Company contributions attributable to the period as
provided under Section 7.1, or to the Plan Year ending on such valuation date;
provided, however, that gains and losses shall not be allocated with respect to
amounts being held in suspense under Section 16.4(B).
7.3 Applicability of Account Values: The value of an Account, as
-------------------------------
determined as of a given date under this Article, plus any amounts subsequently
credited thereto under Sections 4.4, 6.3, 6.5, 6.6, 7.2, 11.2(A)(iii), 12.2,
14.9 and 16.4 and less any amounts withdrawn under Sections 3.4 and 4.6 or
transferred to suspense under Section 16.4(B), shall remain the value thereof
for all purposes of the Plan and Trust until revalued hereunder.
7.4 Recognition of Different Investment Funds: As provided in Article
-----------------------------------------
XVII, the Trustee shall allocate the Trust Fund into the types of investment
funds for the investment
22
<PAGE>
purposes (the "Investment Funds") as the Administrative Committee designates as
available for Participant's selection, and each Participant shall direct, within
the limitations set forth in Section 17.3, what portion of the balance in his
Accounts shall be deposited in each Investment Fund. Consequently, when
appropriate, a Participant shall have a Personal Contributions Account, a
Deferred Compensation Account, a Company Contributions Account and a Rollover
Account in each such Investment Fund, and the allocations described in Section
7.2 shall be adjusted in such manner as is appropriate to recognize the
existence of the Investment Funds. Because Participants have a choice of
Investment Funds, any reference in this Plan to a Personal Contributions
Account, a Deferred Compensation Account, a Company Contributions Account or a
Rollover Account shall be deemed to mean and include Accounts of a like nature
which are maintained for the Participant under each Investment Fund.
ARTICLE VIII
VESTING OF INTERESTS
--------------------
8.1 Vesting of Accounts:
-------------------
A. Each Participant's interest in his Personal Contributions Account,
Deferred Compensation Account and Rollover Account shall be Vested at all times.
B. Except as provided in Section 8.2, the Vested portion of a
Participant's Company Contributions Account shall be the percentage of such
Account shown on the following table:
Years of Vesting Service Vested Percentage
------------------------ -----------------
less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 100%
8.2 Additional Vesting of Accounts: The interest of a Participant in his
------------------------------
Company Contributions Account shall become fully Vested upon the earliest to
occur of:
(a) his death;
(b) his 60th birthday;
23
<PAGE>
(c) his Disability Retirement Date; or
(d) the termination or discontinuation of the Plan under Section 15.1,
if he is then an Employee or employed by a Company Affiliate.
8.3 Accrued Benefit of Highly Compensated Employees: Notwithstanding any
-----------------------------------------------
other contrary provision of the Plan, in calculating the accrued benefit
(including the right to any optional benefit provided under the Plan) of any
Plan Participant who is a Highly Compensated Employee within the meaning of
Section 414(q) of the Code, such Highly Compensated Employee shall accrue no
additional benefit under the Plan on or after June 1, 1989 to the extent that
such additional benefit accrual exceeds the benefit which would otherwise accrue
in accordance with the terms of the Plan as subsequently amended to comply with
those qualification requirements described in Income Tax Regulations Section
1.401(b)-1(b)(2)(ii) (TRA '86).
This provision shall be effective until the last day by which the Plan
may be amended retroactively to comply with TRA '86 for its first Plan Year
beginning in 1989 in order to remain qualified under the Code and shall be
effective for such period if and only if the subsequent Plan amendment to comply
with TRA '86 is made on or before the last day by which the Plan may be amended
retroactively to comply with TRA '86 for its first Plan Year commencing in 1989
in order to remain qualified under the Code.
In addition, the benefit accrued by any Highly Compensated Employee,
within the meaning of Section 414(g) of the Code, shall in no event exceed the
benefit accrual provided during the 1989 Plan year with respect to such
Participant under the terms of the Plan as subsequently amended to comply with
the terms of TRA '86. However, such Highly Compensated Employee's benefit shall
not be less than what that Participant had accrued as of the last day of the
last Plan Year beginning before January 1, 1989.
ARTICLE IX
EMPLOYMENT AFTER NORMAL RETIREMENT DATE
---------------------------------------
9.1 Continuation of Employment:
--------------------------
A. A Participant may, subject to Section 16.3, remain in the employ of
the Company or a Company Affiliate after attaining his Normal Retirement Date.
B. Notwithstanding subsection (A), the Company reserves the right to
require a Participant to retire in accordance with Section 12(c) of the Age
Discrimination in Employment Act of 1967, as amended.
24
<PAGE>
9.2 Continuation of Participation: A Participant retained in the employ
-----------------------------
of the Company after his Normal Retirement Date under Section 9.1 shall be
eligible to continue as an Active Participant herein.
ARTICLE X
BENEFITS UPON RETIREMENT
------------------------
10.1 Normal or Disability Retirement: Subject to the provisions of Section
-------------------------------
9.1, a Participant shall retire upon his Normal or Disability Retirement Date.
10.2 Rights Upon Normal or Disability Retirement: Upon a Participant's
-------------------------------------------
Normal or Disability Retirement, he shall be entitled to receive the entire
amount credited to his Accounts in accordance with Section 10.3.
10.3 Distribution of Accounts:
------------------------
A. A Participant shall be entitled to receive the entire amount credited
to his Accounts, to the extent Vested, in cash in one lump sum; provided,
however, that a Participant may elect to receive the portion of his Company
Contributions Account invested in Common Stock in the form of Common Stock,
except that cash shall be paid in lieu of fractional shares.
B. Unless otherwise provided in the Plan, distribution of a Participant's
benefit shall be made or commence 60 days after the end of the Plan Year in
which the Participant's Normal Retirement or Disability Retirement occurs.
Notwithstanding the above provision to the contrary, a Participant may elect to
defer the distribution otherwise payable hereunder until the April 1 following
the calendar year in which the Participant attains age 70 1/2, whether or not he
had a Separation from the Service in such year.
ARTICLE XI
BENEFITS UPON DEATH
-------------------
11.1 Designation of Beneficiary:
--------------------------
A. Each Participant or former Participant shall have the right to
designate, revoke and redesignate Beneficiaries hereunder and to direct payment
of the Vested amount credited to his Accounts to such Beneficiaries.
B. Designation, revocation and redesignation of Beneficiaries must be
made in
25
<PAGE>
writing in accordance with the Rules of the Plan on a form provided by the
Administrative Committee and shall be effective upon delivery to the
Administrative Committee.
C. A married Participant may not designate any Beneficiary other than his
Spouse without obtaining Spousal Consent thereto.
11.2 Distribution on Death:
---------------------
A. Upon the death of a Participant or former Participant, the Vested
amount credited to his Accounts (as determined under Section 8.2) shall be paid
in cash in one lump sum (provided, however, that a Beneficiary may elect to
receive the portion of his Company Contributions Account invested in Common
Stock in the form of Common Stock, except that cash shall be paid in lieu of
fractional shares) not later than the first anniversary of the Participant's
death to his then Surviving Spouse, if any, and otherwise to the person or
persons of highest priority who survives the Participant by at least 30 days
determined as follows:
(i) First, to his then surviving highest priority Beneficiary or
Beneficiaries, if any.
(ii) Second, to his then surviving heirs at law, if any, as
determined in the reasonable judgment of the Administrative Committee under
the applicable law governing succession to personal property.
(iii) Third, to the Plan to be applied to reduce the Company's
contribution under Sections 5.1(A)d and 5.1(B).
B. Members of a class shall cease to be entitled to benefits upon the
earlier of the Administrative Committee's determination that no members of such
class exist or the Administrative Committee's failure to locate any members of
such class, after making reasonable efforts to do so, within one year after the
members of that class became entitled to benefits hereunder had members existed.
ARTICLE XII
BENEFITS UPON RESIGNATION OR DISCHARGE
--------------------------------------
12.1 Distribution on Resignation or Discharge: A Participant who has a
----------------------------------------
Separation from the Service due to resignation or discharge shall receive:
(a) if the Vested amount credited to his Accounts does not exceed
$3,500, such amount in cash in one lump sum (provided, however, that a
Participant may elect to
26
<PAGE>
receive the portion of his Company Contributions Account invested in Common
Stock in the form of Common Stock, except that cash shall be paid in lieu
of fractional shares) not later than six months after the end of the Plan
Year in which such Separation from the Service occurs, or, if earlier,
within 60 days after the end of the Plan Year in which his 60th birthday
occurs; or
(b) if the Vested amount credited to his Accounts exceeds $3,500, such
amount in cash in one lump sum (provided, however, that a Participant may
elect to receive the portion of his Company Contributions Account invested
in Common Stock in the form of Common Stock, except that cash shall be paid
in lieu of fractional shares) payable on such date as he shall elect in
writing in accordance with Code Section 411(a)(11), but not earlier than
the earliest date described in subsection (a) and not later than his
attainment of age 70 1/2.
12.2 Forfeitures: If a Participant has a Separation from the Service due
-----------
to resignation or discharge, the portion of his Company Contributions Account
which is not Vested shall thereupon be forfeited. Pending application under
Section 6.4, forfeitures shall be held in suspense and shall not be commingled
with amounts held in suspense under Section 16.4.
12.3 Restoration of Forfeitures: If a Participant whose Company
--------------------------
Contributions Account is not then fully Vested:
(a) has a Separation from the Service;
(b) suffers a forfeiture under Section 12.2 of the portion of such
Account which is not Vested;
(c) again becomes an Employee or employed by a Company Affiliate
before he has five consecutive Break in Service Years; and
(d) repays to the Plan the full amount, if any, distributed to him
from such Account before the end of his 5th consecutive Break in Service
Year or, if earlier, the 5th anniversary of his reemployment;
then the amount forfeited under Section 12.2 by such Participant and any
interest thereon shall be restored to his Company Contributions Account,
applying forfeitures pending allocation, Company contributions and unallocated
earnings and gains of the Trust Fund, in that order, as necessary.
27
<PAGE>
ARTICLE XIII
TOP-HEAVY PROVISIONS
--------------------
13.1 Top-Heavy Determination:
-----------------------
A. Solely in the event that this Plan ever becomes Top Heavy, as defined
herein, the provisions of this Article shall apply.
B. For the purposes of this Article, the following definitions shall be
used:
(i) "Aggregation Group" shall mean:
a. each plan of the Company or a Company Affiliate in which a
Key Employee is a Participant; and
b. each other plan of the Company or a Company Affiliate which
enables any plan described in subparagraph (i)(a) to meet the
requirements of Code Section 401(a)(4) or 415.
(ii) "Determination Date" shall mean, with respect to any Plan Year,
the last day of the preceding Plan Year, or in the case of the first Plan
Year, the last day of such Plan Year.
(iii) "Controlled Group Employee" shall mean any person who renders
services to the Company or a Company Affiliate in the status of an employee
as the term is defined in Code Section 3121(d).
(iv) "Key Employee" shall mean a Controlled Group Employee, a former
Controlled Group Employee or the Beneficiary of a former Controlled Group
Employee, if, in the Plan Year containing the Determination Date or in any
of the four preceding Plan Years, such Controlled Group Employee or former
Controlled Group Employee is or was:
a. an officer of the Company or a Company Affiliate whose
Statutory Compensation for the Plan Year in question exceeds 150% of
the amount in effect under Code Section 415(c)(1)(A) (not more than 50
Controlled Group Employees or, if less, the greater of three
Controlled Group Employees or 10% of the Controlled Group Employees
shall be treated as officers);
b. one of the ten Controlled Group Employees owning (or
considered as owning within the meaning of the Code Section 318) both
the largest interest in the Company or a Company Affiliate and more
than 1/2 of 1% interest therein and whose Statutory Compensation for
the Plan Year in question equals or exceeds the
28
<PAGE>
amount in effect under Code Section 415(c)(1)(A); provided, however,
if two Controlled Group Employees have the same interest in the
Company or a Company Affiliate, the Controlled Group Employee with the
greater Statutory Compensation for such Plan Year shall be treated as
having the larger interest;
c. a 5% owner (within the meaning of Code Section 416(i)(1)(B)
and (C) of the Company or a Company Affiliate or a 1% owner (within
the meaning of Code Section 416(i)(1)(B) and (C)) of the Company or a
Company Affiliate whose Statutory Compensation for the Plan Year in
question exceeds $150,000.
(v) "Non-Key Employee" shall mean any Controlled Group Employee who
is not a Key Employee.
(vi) The Plan shall be Top Heavy if, as of any Determination Date, the
aggregate of the Accounts (under this Plan and such other plans as the
Company elects to take into account under Code Section 416(g)(2)(A)(ii)) of
Key Employees exceeds 60% of the aggregate of the Accounts for all Key
Employees and Non-Key Employees. In making this calculation as of a
Determination Date:
a. each Account balance as of the most recent valuation date
occurring within the Plan Year which includes the Determination Date
shall be determined;
b. an adjustment for contributions due as of the Determination
Date shall be determined;
c. the Account balance of any Controlled Group Employee or
former Controlled Group Employee shall be increased by the aggregate
distributions made during the five-year period ending on the
Determination Date with respect to such Controlled Group Employee or
former Controlled Group Employee;
d. the Account balance of:
1. any Non-Key Employee who was a Key-Employee for any
prior Plan Year; and
2. any former Controlled Group Employee who performed no
services for the Company or a Company Affiliate during the five-
year period ending on the Determination Date
shall be ignored; and
29
<PAGE>
e. if there have been any rollovers to or from any Account, the
balance of such Account shall be adjusted, as required by Code Section
416(g)(4)(A).
Notwithstanding the foregoing, this Plan shall be Top Heavy if, as of any
Determination Date, the sum of:
(vii) "Top Heavy Group" shall mean any Aggregation Group if, as of the
Determination Date, the sum of:
a. the present value of the cumulative accrued benefits for all
Key Employees under all defined benefit plans in such Aggregation
Group; and
b. the aggregate of the accounts of all Key Employees under all
defined contribution plans in such Aggregation Group exceeds 60% of a
similar sum determined for all Key Employees and Non-Key Employees.
13.2 Minimum Benefits:
----------------
A. For any Plan Year in which the Plan is Top Heavy, the allocation to
the Company Contributions Account of any Employee who is a Non-Key Employee at
the end of such Plan Year and is entitled to an allocation to such Account under
Section 6.3.
B. The allocation determined under this subsection shall be a percentage
of the Statutory Compensation of such Non-Key Employee which is not less than
the lesser of:
(i) 3%; or
(ii) that percentage reflecting the ratio of:
a. the allocations under Subsection 6.3(B) to;
b. Statutory Compensation (not in excess of $235,840);
for the Key Employee with respect to whom such ratio is highest for such
Plan Year.
13.3 Limitation on Benefits: For any Plan Year in which the Plan is Top
----------------------
Heavy:
(i) the denominator of both the defined benefit plan fraction and the
defined contribution plan fraction set forth in Code Sections 415(e)(2)(B)
and 415(e)(6)(B)(i) shall be calculated by substituting $41,500 for
$51,875,
30
<PAGE>
but only to the extent required by Code Section 416(h).
ARTICLE XIV
ADMINISTRATIVE PROVISIONS
-------------------------
14.1 Administrative Committee:
------------------------
A. The Board shall appoint an Administrative Committee consisting of one
or more persons. Any member of the Administrative Committee may resign upon ten
days prior written notice to the Board. The Board may remove any member of the
Administrative Committee at any time, and may appoint a successor whenever a
vacancy on the Administrative Committee occurs.
B. All actions of the Administrative Committee shall be taken pursuant to
the decision of a majority of the members thereof.
C. The Administrative Committee shall be the "named fiduciary," as
defined in Section 402(a) of ERISA, with respect to the management, operation
and administration of the Plan.
14.2 Duties and Powers of the Administrative Committee: The Administrative
-------------------------------------------------
Committee shall conduct the general administration of the Plan in accordance
with the Plan and shall have all the necessary powers and authority to carry out
that function including the power and authority:
(a) to determine questions of eligibility of Participants and the
entitlement to distributions of Participants, former Participants,
Beneficiaries and all other persons;
(b) to engage actuaries, attorneys, accountants, appraisers, brokers,
consultants, administrators, physicians or other firms or persons and (with
the Company and its officers, directors and employees) to rely upon the
advice, opinions or valuations of any such persons and, except as required
by law, be fully protected in acting or relying thereon in good faith;
(c) to adopt any Rules of the Plan that are not inconsistent with the
Plan or applicable law, and to amend or revoke any such Rules;
(d) to construe and interpret the Plan and any Rules of the Plan,
reconcile any inconsistency or supply any omitted detail consistent with
the general terms of the Plan;
(e) to appoint claims and review officials to conduct claims
procedures as
31
<PAGE>
provided in Section 14.6; and
(f) to delegate any power or duty to any firm or person engaged under
subsection (b) or to any other person or persons.
14.3 Expenses of Administration:
--------------------------
A. The Company shall pay or reimburse each Employee functioning under
Section 14.1(A) or person serving on an investment committee established in
accordance with the Trust Agreement for all expenses (including reasonable
attorneys' fees) properly incurred by him in the administration of the Plan.
B. Except to the extent that such liability is created by ERISA, no
member of the Administrative Committee or any investment committee appointed
pursuant to the Trust Agreement shall be liable for any act or omission of any
other member of the Administrative Committee or, if applicable, of any other
member of any such investment committee, for any act or omission on his own part
except for his own gross negligence or willful misconduct, or for the exercise
of any power or discretion in the performance of any duty assumed by him
hereunder. The Company shall indemnify and hold harmless each member of the
Administrative Committee or of any such investment committee from any and all
claims, losses, damages, expenses (including counsel fees approved by the
Administrative Committee or, if applicable, by the investment committee), and
liabilities (including any amounts paid in settlement with the approval of the
Administrative Committee or, if applicable, of the investment committee) arising
from any act or omission of such member in connection with his duties and
responsibilities under the Plan, except when the same is judicially determined
to be due to the gross negligence or willful misconduct of such member.
C. The Company may obtain and provide for any such Employee and
investment committee member, at the Company's expense, liability insurance
against liabilities imposed on him by law.
D. Legal fees incurred in the preparation and amendment of documents
shall be paid by the Company.
E. Expenses referred to in subsections (A), (B) and (D) not paid by the
Company shall be paid from the Trust Fund to the extent permitted by law.
F. Except as provided in subsection (A), fees and expenses of persons
rendering services to the Plan shall not be paid or reimbursed by the Company
except as agreed upon by the Company.
14.4 Payments: In the event any amount becomes payable under the Plan to a
--------
minor or
32
<PAGE>
a person who, in the sole judgment of the Administrative Committee, is
considered by reason of physical or mental condition to the unable to give a
valid receipt therefor, the Administrative Committee may direct that such
payment be made to any person found by the Administrative Committee, in its sole
judgment, to have assumed the care of such minor or other person. Any payment
made pursuant to such determination shall constitute a full release and
discharge of the Trustee, the Administrative Committee and the Company and their
officers, directors, employees, owners, agents and representatives.
14.5 Statement to Participants: Within 180 days after the end of each Plan
-------------------------
Year, the Administrative Committee shall furnish to each Participant a statement
setting forth the value of his Accounts and the Vested percentage thereof and
such other information as the Administrative Committee shall deem advisable to
furnish.
14.6 Inspection of Records: Copies of the Plan and any other documents and
---------------------
records which a Participant is entitled by law to inspect shall be open to
inspection by such Participant or such Participant's duly authorized
representatives at any reasonable business hour at the principal office of the
Company, any Company worksite at which at least fifty Employees regularly
perform services and such other locations as the Secretary of Labor may require.
14.7 Claims Procedure:
----------------
A. A claim by a Participant, former Participant, Beneficiary or any other
person shall be presented to the claims official appointed by the Administrative
Committee in writing within the maximum time permitted by law or under the
regulations promulgated by the Secretary of Labor or his delegate pertaining to
claims procedures.
B. The claims official shall, within a reasonable time, consider the
claim and shall issue his determination thereon in writing.
C. If the claim is granted, the appropriate distribution or payment shall
be made from the Trust Fund or by the Company.
D. If the claim is wholly or partially denied, the claims official shall,
within 90 days (or such longer period as may be reasonably necessary), provide
the claimant with written notice of such denial, setting forth, in a manner
calculated to be understood by the claimant
(i) the specific reason or reasons for such denial;
(ii) specific references to pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information
necessary for the
33
<PAGE>
claimant to perfect the claim and an explanation of why such material or
information is necessary; and
(iv) an explanation of the Plan's claim review procedure.
E. The Administrative Committee shall provide each claimant with a
reasonable opportunity to appeal the claims official's denial of a claim to a
review official (appointed by the Administrative Committee in writing) for a
full and fair review. The claimant or his duly authorized representative:
(i) may request a review upon written application to the review
official (which shall be filed with it);
(ii) may review pertinent documents; and
(iii) may submit issues and comments in writing.
F. The review official may establish such time limits within which a
claimant may request review of a denied claim as are reasonable in relation to
the nature of the benefit which is the subject of the claim and to other
attendant circumstances but which, in no event, shall be less than 60 days after
receipt by the claimant of written notice of denial of his claim.
G. The decision by the review official upon review of a claim shall be
made not later than 60 days after his receipt of the request for review, unless
special circumstances require an extension of time for processing, in which case
a decision shall be rendered as soon as possible, but not later than 120 days
after receipt of such request for review.
H. The decision on review shall be in writing and shall include specific
reasons for the decision written in a manner calculated to be understood by the
claimant with specific references to the pertinent Plan provisions on which the
decision is based.
I. To the extent permitted by law, the decision of the claims official
(if no review is properly requested) or the decision of the review official on
review, as the case may be, shall be final and binding on all parties, if
warranted on the record and reasonably based on the law and the provisions of
the Plan and Trust Agreement.
14.8 Conflicting Claims: If the Administrative Committee is confronted
------------------
with conflicting claims concerning a Participant's Accounts, the Administrative
committee may interplead the claimants in an action at law, or in an arbitration
conducted in accordance with the rules of the American Arbitration Association,
as the Administrative Committee shall elect in its sole discretion, and in
either case, the attorneys' fees, expenses and costs reasonably incurred by the
Administrative Committee in such proceeding shall be paid from the Participant's
Accounts.
34
<PAGE>
14.9 Effect of Delay or Failure to Ascertain Amount Distributable or to
------------------------------------------------------------------
Locate Distribute:
- -----------------
A. If an amount payable under Article X, XI or XII cannot be ascertained
or the person to whom it is payable has not been ascertained or located within
the stated time limits and reasonable efforts to do so have been made, then
distribution shall be made not later than 60 days after such amount is
determined or such person is ascertained or located, or as prescribed in
subsection (B).
B. If, within one year after a Participant has a Separation from the
Service, the Administrative Committee, in the exercise of due diligence, has
failed to locate him (or if such Separation from the Service is by reason of his
death, has failed to locate the person entitled to his Vested Accounts under
Section 11.2), his entire distributable interest in the Plan shall be forfeited
and applied to reduce the Company's contribution under Sections 5.1(A) and
5.1(B); provided, however, that if the Participant (or in the case of his
death, the person entitled thereto under Section 11.2) makes proper claim
therefor under Section 14.6, the amount so forfeited shall be restored to the
Participant's Account or Accounts, as the case may be, applying forfeitures
pending reallocation, Company contributions and unallocated earnings and gains
of the Trust Fund, in that order, as necessary.
14.10 Service of Process: The Secretary of Tuboscope Vetco International
------------------
Inc. is hereby designated as agent of the Plan for the service of legal process.
14.11 Limitations Upon Powers of the Administrative Committee: The Plan
-------------------------------------------------------
shall not be operated so as to discriminate in favor of Participants who are
Highly Compensated Employees. The Plan shall be uniformly and consistently
interpreted and applied with regard to all Participants in similar
circumstances. The Plan shall be administered, interpreted and applied fairly
and equitably and in accordance with the specified purposes of the Plan.
14.12 Effect of Administrative Committee Action: Except as provided in
-----------------------------------------
Section 14.6, all actions taken and all determinations made by the
Administrative Committee in good faith shall be final and binding upon all
Participants, the Trustee and any person interested in the Plan or Trust Fund.
14.13 Loans: A Participant who is an Employee and, to the extent not
-----
resulting in discrimination prohibited by Section 401(a)(4) of the Code, any
other Participant or any Beneficiary (including an "alternate payee" within the
meaning of ERISA Section 206(d)(3)(K)) who is a "party in interest" with respect
to the Plan within the meaning of ERISA Section 3(14) and who must be eligible
to obtain a Plan loan in order for the exemption set forth in 29 C.F.R. Section
2550.408b-1 to apply to the Plan (hereinafter "Borrower") may make application
to the Administrative Committee to borrow from the Deferred Compensation Account
and, to the extent Vested, the Company Contributions Account maintained by or
for the Borrower in the
35
<PAGE>
Trust Fund, and the Administrative Committee in its sole discretion may permit
such a loan. Loans shall be granted in a uniform and non-discriminatory manner
on terms and conditions determined by the Administrative Committee which shall
not result in more favorable treatment of highly compensated employees and shall
be set forth in written Rules promulgated by the Administrative Committee in
accordance with applicable governmental regulations. All such loans shall also
be subject to the following terms and conditions:
(a) The Amount of the loan from the Trust Fund, when added to the
amount of any outstanding loan or loans to the Borrower from any other plan
of the Company or a Company or a Company Affiliate which is qualified under
Section 401(a) of the Code, shall not exceed the lesser of (i) $50,000,
reduced by the excess, if any, of the highest outstanding balance of the
loans from all such plans during the one-year period ending on the day
before the date on which such loans was made over the outstanding balance
of loans from the Plan on the date on which such loan was made, or (ii 50%
of the present value of the Borrower's Vested Account balance under the
Plan. In no event shall a loan of less than $1,000 be made to a Borrower.
(b) The loan shall be used for a term not to exceed five years, unless
the loan is used to acquire any dwelling unit which within a reasonable
time is to be used as a principal residence of the Borrower. The loan
shall be evidenced by a note signed by the Borrower. The loan shall be
payable in periodic installments and shall bear interest at a reasonable
rate which shall be determined by the Administrative Committee on a uniform
and consistent basis and set forth in the Rules in accordance with
applicable governmental regulations. Payments by a Borrower who is an
Employee will be made by means of payroll deduction from the Borrower's
compensation. If a Borrower is not receiving compensation from the
Company, the loan repayment shall be made in accordance with the terms and
procedures established by the Administrative Committee. A Borrower may
repay an outstanding loan in full at any time.
(c) In the event an installment payment is not paid within seven (7)
days following the monthly due date, the Administrative Committee shall
give written notice to the Borrower sent to his last known address. If
such installment payment is not made within 30 days thereafter, the
Administrative Committee shall proceed with foreclosure in order to collect
the full remaining balance or shall make such other arrangements with the
Borrower as the Administrative Committee deems appropriate. Foreclosures
need not be effective until occurrence of a distributable event under the
terms of the Plan and no rights against the Borrower or the security shall
be deemed waived by the Plan as a the result of such delay.
(d) The unpaid balance of the loan, together with interest thereon,
shall become due and payable upon the date of distribution of the Account
and the Trustee shall first satisfy the indebtedness from the amount
payable to the Borrower or to the
36
<PAGE>
Borrower's Beneficiary before making any payments to the Borrower or to the
Borrower's Beneficiary.
(e) Any loan to a Borrower under the Plan shall be adequately secured.
Such security shall include a pledge of a portion of the Borrower's right,
title and interest in the Trust Fund which shall not exceed 50% of the
present value of the Borrower's Vested Account balance under the Plan as
determined immediately after the loan is extended. Such pledge shall be
evidenced by the execution of a promissory note by the Borrower which shall
grant the security interest and provide that, in the event of any default
by the Borrower on a loan repayment, the Administrative Committee shall be
authorized to take any and all appropriate lawful actions necessary to
enforce collection of the unpaid loan.
(f) A request by a Borrower for a loan shall be made in writing to the
Administrative Committee and shall specify the amount of the loan. If a
Borrower's request for a loan is approved by the Administrative Committee,
the Administrative Committee shall furnish the Trustee with written
instructions directing the Trustee to make the loan in a lump-sum payment
of cash to the Borrower.
(g) A loan to a Borrower shall be considered an investment of the
separate Account(s) of the Borrower from which the loan is made and not an
investment of the Trust Fund generally. All loan repayments shall be
credited pro rata to such separate Account(s).
14.14 Distributions Pursuant to Qualified Domestic Relations Order:
------------------------------------------------------------
Notwithstanding any other provision of the Plan to the contrary, upon receipt by
the Administrative Committee of a qualified domestic relations order, as defined
in Code Section 414(p), which awards any portion of a Participant's Account or
Accounts to his former Spouse, the amount so awarded shall promptly be paid, in
the manner specified in such order, to the former Spouse; provided, however,
that no such distribution shall be made prior to the Participant's Separation
from the Service if such distribution could adversely affect the qualified
status of the Plan.
14.15 Contributions to Rollover Accounts:
----------------------------------
A. A Participant may make a contribution to his Rollover Account if such
contribution meets the requirements of the Section and is in accordance with the
Rules of the Plan.
B. Such contribution will meet the requirements of this Section if:
(i) it is made by the Participant to the Trust in cash in a lump sum
not later than the law allows after his admission or re-admission to the
Plan; and
37
<PAGE>
(ii) the amount contributed by the Participant consists of:
a. a tax-free rollover distribution from:
1. a qualified trust meeting the requirements of Code
Section 402(a)(5); or
2. an employee annuity meeting the requirements of Code
Section 403(a)(4); or
b. a tax-free rollover distribution from an individual
retirement account or under an individual retirement annuity which in
turn consisted entirely of a rollover contribution of a qualified
total distribution (as defined in Code Section 402(a)(5)(E)(i) from a
qualified total under Code Section 401(a) or an annuity plan under
which the Participant was an employee within the meaning of Code
Section 401(c)(1) at the time contributions were made on his behalf
under the Plan) together with any earnings thereon, and which
otherwise meets the requirements of Code Section 408(d)(3).
C. In addition, such contribution will meet the requirements of this
Section if:
(i) the contribution is made within 60 days following the day on
which the Participant received the distribution from a qualified trust,
annuity plan or individual retirement account or annuity;
(ii) such distribution was in the form of money; and
(iii) such distribution constituted a qualified total distribution
within the meaning of Code Section 402(a)(5)(E)(i), no part of which
consists of employee contributions.
D. The Administrator may require the Participant to supply information
sufficient to determine if his contribution meets the requirements of this
Section. If the Administrator determines that such contribution does not meet
the requirements of this Section, the contribution shall not be permitted.
E. The Plan will also accept the direct transfer from a plan qualified
under Code Section 401(a) of an amount which if paid to the Participant instead
of the Plan would have constituted a lump-sum distribution within the meaning of
Code Section 402(e). The transferred amount shall be credited to the
Participant's Rollover Account.
F. If the Administrator accepts a contribution or transfer pursuant to
this Section and
38
<PAGE>
later determines that it was improper to do so, in whole or in part, the Plan
shall refund the necessary amount to the Participant.
ARTICLE XV
TERMINATION, DISCONTINUANCE,
AMENDMENT, MERGER OF PLAN
-------------------------
15.1 Termination of Plan; Discontinuance of Contributions:
----------------------------------------------------
A. The Plan is intended as a permanent program but the Board shall have
the right at any time to declare the Plan terminated completely as to the
Company or as to any division, facility or other operational unit thereof.
Discharge or layoff of Employees of the Company or any unit thereof without such
a declaration shall not result in a termination or partial termination of the
Plan except to the extent required by law. In the event of any termination or
partial termination:
(i) An allocation of amounts being held under Section 16.4(B) shall
be made in accordance with Section 16.4(C).
(ii) For each Participant who is then an Employee or employed by a
Company Affiliate with respect to whom the Plan is terminated, the interest
in his Company Contributions Account shall become fully Vested.
(iii) The Administrative Committee shall direct the Trustee to
liquidate the necessary portion of the Trust Fund and distribute it, less a
proportionate share of the expenses of termination, to the persons entitled
thereto in proportion to their Accounts.
B. The Board shall have the right at any time to discontinue
contributions to the Plan completely as to the Company or as to any division,
facility or other operational unit thereof. Failure of the Company to make one
or more substantial contributions to the Plan for any period of three
consecutive Plan Years in each of which the Company realized substantial current
earnings, as shown on its financial reports, shall automatically become a
complete discontinuance of contributions to the Plan, the Plan and Trust shall
otherwise remain in full force and effect except that all Company Contributions
Accounts shall thereupon become fully Vested.
15.2 Amendment of Plan: As limited in Section 15.1 of the Plan and Section
-----------------
4.02 of the Trust Agreement, complete or partial amendments or modifications to
the Plan (including retroactive amendments to meet governmental requirements or
prerequisites for tax qualification) may be made from time to time by the Board;
provided, however, that no amendment shall
39
<PAGE>
decrease the Vested percentage any Participant has in his Accounts.
15.3 Retroactive Effect of Plan Amendment:
------------------------------------
A. No Plan amendment, unless it expressly provides otherwise, shall be
applied retroactively to increase the Vested percentage of a Participant whose
Separation from the Service preceded the date such amendment became effective
unless and until he again becomes a Participant and additional contributions are
allocated to him.
B. No Plan amendment, unless it expressly provides otherwise, shall be
applied retroactively to increase the amount of service credited to any person
for purposes of Plan participation, vesting or any other Plan purpose with
respect to his participation or employment before the date such amendment became
effective.
C. Except as provided in subsections (A) and (B), all rights under the
Plan shall be determined under the terms of the Plan as in effect at the time
the determination is made.
15.4 Consolidation or Merger; Adoption of Plan by Other Companies:
------------------------------------------------------------
A. In the event of the consolidation or merger of the Company with or
into any other business entity, or the sale by the Company or its owner of its
assets, the successor may continue the Plan by adopting the same by resolution
of its board of directors or agreement of its partners or proprietor and by
executing a proper supplemental agreement to the Trust Agreement with the
Trustee. If, within 90 days from the effective date of such consolidation,
merger or sale of assets, such new corporation, partnership or proprietorship
does not adopt the Plan, the Plan shall be terminated in accordance with Section
15.1.
B. The Plan shall not be merged or consolidated with any other plan, nor
shall its assets or liabilities be transferred to any other plan, unless each
Participant in this Plan would have immediately after the merger, consolidated
or transfer (if the Plan in question were then terminated) accounts which are
equal to or greater in amount than his corresponding Accounts under this Plan
had the Plan been terminated immediately before the merger, consolidation or
transfer.
C. Any Company Affiliate may, with the approval of the Board, adopt the
Plan as a whole company or as to any one or more divisions effective as of the
first day of any Plan Year by resolution of its own board of directors or
agreement of its partners. Such Company Affiliate shall give written notice of
such adoption to the Administrative Committee and to the Trustee by its duly
authorized officers.
40
<PAGE>
ARTICLE XVI
MISCELLANEOUS PROVISIONS
------------------------
16.1 Identification of Fiduciaries:
-----------------------------
A. The Administrative Committee (with respect to control and management
of Plan assets and in general) and the Trustee shall be named fiduciaries within
the meaning of ERISA and, as permitted or required by law, shall have exclusive
authority and discretion to control and manage the operation and administration
of the Plan within the limits set forth in the Trust Agreement, subject to
proper delegation.
B. Such named fiduciaries and every person who exercises any
discretionary authority or discretionary control respecting management of the
Trust Fund or Plan, or exercises any authority or control respecting the
management or disposition of the assets of the Trust Fund or Plan, or renders
investment advice for compensation, direct or indirect, with respect to any
moneys or other property of the Trust Fund or Plan or has authority or
responsibility to do so, or has any discretionary authority or discretionary
responsibility in the administration of the Plan, and any person designated by a
named fiduciary to carry out fiduciary responsibilities under the Plan, shall be
a fiduciary and, as such shall be subject to provisions of the Plan, the Trust
Agreement, ERISA and other applicable laws governing fiduciaries. Any person
may act in more than one fiduciary capacity.
16.2 Allocation of Fiduciary Responsibilities:
----------------------------------------
A. Fiduciary responsibilities under the Plan are allocated as follows:
(i) The sole power and discretion to manage and control the Plan's
assets including, but not limited to, the power to acquire and dispose of
Plan assets, is allocated to the Trustee, except to the extent that another
fiduciary is appointed in accordance with the Trust Agreement with the
power to control or manage (including the power to acquire and dispose of)
assets of the Plan.
(ii) The sole duties, responsibilities and powers allocated to the
Board shall be those expressly retained under Sections 14.1, 14.2 and 14.4.
(iii) The sole duties, responsibilities and powers allocated to the
Company shall be those expressly retained under the Plan or the Trust
Agreement.
(iv) All fiduciary responsibilities not allocated to the Trustee, the
Board, the Company or any investment manager are hereby allocated to the
Administrative Committee, subject to delegation in accordance with Section
14.2(F).
B. Fiduciary responsibilities under the Plan (other than the power to
manage or
41
<PAGE>
control the Plan's assets) may be reallocated among those fiduciaries identified
as named fiduciaries in Section 14.1 by amending the Plan in the manner
prescribed in Section 15.2, followed by such fiduciaries' acceptance of, or
operation under, such amended Plan.
16.3 Limitation on Rights of Employees: The Plan is strictly a voluntary
---------------------------------
undertaking on the part of the Company and shall not constitute a contract
between the Company and any Employee, or consideration for, or an inducement or
condition of, the employment of an Employee. Except as otherwise required by
law, nothing contained in the Plan shall give any Employee the right to be
retained in the service of the Company or to interfere with or restrict the
right of the Company, which is hereby expressly reserved, to discharge or retire
any Employee at any time, without notice and with or without cause. Except as
otherwise required by law, inclusion under the Plan will not give any Employee
any right or claim to any benefit hereunder except to the extent such right has
specifically become fixed under the terms of the Plan and there are funds
available therefor in the hands of the Trustee. The doctrine of substantial
performance shall have no application to Employees or Participants. Each
condition and provision, including numerical items, has been carefully
considered and constitutes the minimum limit on performance which will give rise
to the applicable right.
16.4 Limitation on Annual Additions; Treatment of Otherwise Excessive
----------------------------------------------------------------
Allocation:
- ----------
A. In any Plan Year (which shall be the Plan's "limitation year" within
the meaning of Treas. Reg. (S) 1.415-2(b)), the Annual Additional of a
Participant shall not exceed the least of:
(i) 25% of such Participant's Statutory Compensation for such Plan
Year;
(ii) $30,000 (or, if greater, 1/4 of the dollar limitation in effect
under Code Section 415(b)(1)(A)); or
(iii) the maximum allowed under Code Section 415 (utilizing the
adjustments to the "defined contribution fraction" allowed by Section
1106(i)(4) of TRA '86 and Code Section 415(e)).
B. If the Annual Addition of a Participant would exceed the limits of
subsection (A) as a result of an allocation of forfeitures, a reasonable error
in estimating a Participant's Statutory Compensation, a reasonable error in
determining the amount of elective deferrals or under other limited facts and
circumstances found justifiable by the Commissioner of Internal Revenue, it
shall be reduced until it comes within such limits. Such reduction shall be
accomplished by debiting the necessary amount from:
(i) his deferral of Compensation or voluntary personal contributions
for such Plan Year;
42
<PAGE>
(ii) his allocation of Company contributions for such Plan Year to
his Company Contributions Account; and
(iii) his allocation of Company contributions for such Plan Year to
his Deferred Compensation Account
in such order as the Administrative Committee shall determine. The portion of
such amount allocated to his Personal Contributions Account or allocations to
his Deferred Compensation Account first shall, to the extent allowed by law, be
refunded to him, and otherwise, to the extent allowed by Section 403 of ERISA,
be returned to the Company and recontributed for the applicable Account of the
Participant in the first Plan Year which is allowed under subsection (A), or
otherwise held in suspense hereunder and applied to the applicable Account of
the Participant in the first Plan Year which is allowed under subsection (A).
The balance, if any, of such reduction shall be allocated to the Company
Contributions Accounts of persons who are Active Participants at the end of the
Plan Year in proportion to their Compensation received while Active Participants
in such Plan Year. If any Participant's Annual Addition would, due to such
special allocation, exceed the limit of subsection (A), the excess shall be
reallocated by a second special allocation, and so on as necessary to allocate
such amounts within the limits of subsection (A). Any amounts which cannot be
so allocated because of the limitations of subsection (A) shall be held in
suspense and shall be allocated and reallocated in succeeding Plan Years, in the
order of time, prior to the allocation of any Company or personal contributions.
C. In the event the Plan is terminated while excess amounts are then held
in suspense under subsection (B), such excess amounts shall be allocated and
reallocated as provided in subsection (B), as of the day before the date of the
termination as if such day were the last day of such Plan Year. Any amounts
which cannot then be so allocated because of the limits of subsection (A) shall
revert to the Company, as provided in the Trust Agreement.
16.5 Governing Law: The Plan and Trust shall be interpreted, administered
-------------
and enforced in accordance with the Code and ERISA, and the rights of
Participants, former Participants, Beneficiaries and all other persons shall be
determined in accordance therewith; provided, however, that, to the extent that
state law is applicable, the laws of the State of Texas shall apply.
16.6 Genders and Plurals: Where the context so indicates, the masculine
-------------------
pronoun shall include the feminine pronoun and the singular shall include the
plural.
16.7 Titles: Titles are provided herein for convenience only and are not
------
to serve as a basis for interpretation or construction of the Plan or Trust
Agreement.
16.8 References: Unless the context clearly indicates to the contrary, a
----------
reference to a statute, regulation or document shall be construed as referring
to any subsequently enacted,
43
<PAGE>
adopted or executed statute, regulation or document.
ARTICLE XVII
TRUST AGREEMENT;
INVESTMENT FUNDS; INVESTMENT DIRECTIONS
---------------------------------------
17.1 Trust Agreement: The Company has entered into a Trust Agreement
---------------
governing the administration of the Trust under which Merrill Lynch serves as
Trustee, and, as amended, the provisions of which are herein incorporated by
reference as fully as if set out herein. Subject to the provisions of Section
17.2, and not by way of limitation of the provisions of the Trust Agreement, the
Trustee may invest a portion of the Trust Fund in Common Stock or any other
"qualifying employer security" within the meaning of ERISA Section 407(d)(5).
17.2 Investment Funds: The Trustee shall divide the Trust Fund into the
----------------
Investment Funds as the Administrative Committee designates as available for
Participant's selection. From and after April 1, 1991, no further contributions
to any Account of any Participant may be invested in the frozen Investment Fund
established effective as of April 1, 1991, consisting solely of amounts
attributable to Plan contributions in one or more insurance annuity contracts
purchased through Executive Life Insurance Company (the "Executive Life GIC
Fund"). Furthermore, from and after April 1, 1991, no transfers, withdrawals,
loans or any other types of disbursements or distributions from that portion of
any Account of any Participant invested in the Executive Life GIC Fund will be
allowed under this Plan. Only amounts constituting income of the Executive Life
GIC Fund may be reinvested in this Investment Fund.
Contributions shall be paid into the Investment Funds in accordance
with the provisions of Sections 17.3 and 17.4 as certified to the Trustee by the
Administrative Committee. Except as otherwise provided herein, interest,
dividends and other income and all profits and gains produced by each such
Investment Fund shall be paid into such Investment Fund, and such interest,
dividends and other income or profits and gains, without distinction between
principal and income, may be invested and reinvested but only in the property
hereinabove specified for the particular Investment Fund. Notwithstanding any
provision in this Section to the contrary, the Administrative Committee may
direct the Trustee (i) to invest any Participant and/or Company contributions to
a Participant's Account in short-term fixed income investments which are
acceptable to the Trustee or in the suspense account to be maintained in each
Investment Fund during the period from the date of any such contribution until
the next valuation date or (ii to invest all or any portion of the Trust Fund
attributable to any terminated or retired Participant or attributable to any
Participant who is expected to retire or to terminate his service within one
year, in one or more fixed income investments which are acceptable to the
Trustee. The fixed income investments authorized by this Section shall include,
but not be limited to, certificates of deposit, savings accounts, or U.S.
Treasury bills or notes.
44
<PAGE>
17.3 Investment Directions of Participants: Each Participant may, by
-------------------------------------
written notice to the Administrative Committee in the manner prescribed by it,
direct that the total of the contributions allocable to his Deferred
Compensation Account, Personal Contributions Account, and Company Contributions
Account, and the earnings and accretions thereon, be invested in such
percentages (in increments of 10% of the total of such Accounts) as he may
designate among the Investment Funds.
In the event a Participant fails to direct the manner of investing his
Accounts as provided herein, such Account shall be invested only in the
Investment Fund which holds fixed income investments.
17.4 Change of Investment Directions: Twice per Plan Year, each
-------------------------------
Participant may, by written notice 15 days prior to the last day of the month to
the Administrative Committee in the manner prescribed by it and subject to any
restrictions or conditions which may be established by the Administrative
Committee, direct, effective as of the next January 1, April 1, July 1 or
October 1, that the investment of his contributions and/or existing amounts in
his Accounts be changed from one authorized option to another authorized option
(in 10% increments) available under Section 17.2; provided however, that
contributions allocated to a GIC Fund may not be transferred directly to a
government securities fund, if available. Effective April 1, 1991,
contributions and other amounts allocated to the Executive Life GIC Fund may not
be transferred out of such Investment Fund. The Administrative Committee may
allow Participants to make more frequent changes in such investment directions
in writing or by telephone subject to any restrictions or conditions as
established by the Administrative Committee and effective as the date
established by the Administrative Committee on a non-discriminatory basis.
17.5 Benefits Paid Solely from Trust Fund: All of the benefits provided to
------------------------------------
be paid under Article X shall be paid by the Trustee out of the Trust Fund to be
administered under such Trust Agreement. No fiduciary shall be responsible or
liable in any manner for payment of any such benefits, and all Participants
hereunder shall look solely to such Trust Fund and to the adequacy thereof for
the payment of any such benefits of any nature or kind which may at any time be
payable hereunder.
17.6 Administrative Committee Directions to Trustee: The Trustee shall
----------------------------------------------
make only such distributions and payments out of the Trust Fund as may be
directed by the Administrative Committee. The Trustee shall not be required to
determine or make any investigation to determine the identity or mailing address
of any person entitled to any distributions and payments out of the Trust Fund
and shall have discharged its obligation in that respect when it shall have sent
certificates and checks or other papers by ordinary mail to such persons and
addresses as may be certified to it by the Administrative Committee.
17.7 Authority to Designate Investment Manager: The Administrative
-----------------------------------------
Committee may appoint an investment manager to manage, including the power to
acquire and dispose of, any
45
<PAGE>
assets of the Trust Fund in accordance with the terms of the Trust Agreement and
the requirements of ERISA.
ARTICLE XVIII
PARTICIPANT'S RIGHT TO TRANSFER ELIGIBLE ROLLOVER DISTRIBUTION
--------------------------------------------------------------
18.1 Rule: This Section applies to distributions made on or after January
----
1, 1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a distributee may
elect, at the time and in the manner prescribed by the Administrative Committee,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
18.2 Definitions:
-----------
A. Eligible Rollover Distribution: An eligible rollover distribution is
------------------------------
any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities).
B. Eligible Retirement Plan: An eligible retirement plan is an
------------------------
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover
distribution to the surviving Spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
C. Distributee: A distributee includes an Employee or former Employee.
-----------
In addition, the Employee's or former Employee's Surviving Spouse and the
Employee's or former Employee's Spouse or former Spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the Spouse or
former Spouse.
D. Direct Rollover: A direct rollover is a payment by the Plan to the
---------------
eligible
46
<PAGE>
retirement plan specified by the distributee.
Executed this 18th day of November, 1994, effective as of January 1, 1993.
TUBOSCOPE VETCO INTERNATIONAL, INC.
By: /s/ Kenneth L. Nibling
-------------------------------------------
Name: Kenneth L. Nibling
Title: V.P. H.R. and Administration
47
<PAGE>
FIRST AMENDMENT TO THE
----------------------
TUBOSCOPE VETCO INTERNATIONAL, INC.
-----------------------------------
401(k) THRIFT SAVINGS PLAN,
---------------------------
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1993
-------------------------------------------------
Having reserved the right under Section 15.2 of the Tuboscope Vetco
International, Inc. 401(k) Thrift Savings Plan, as Amended and Restated
Effective January 1, 1993 (the "Plan"), the Plan is hereby amended to add
Section 6.7 effective January 1, 1996 as follows:
"6.7 Further Limitations on Company Contributions. Any Company
--------------------------------------------
Contributions generated by a Participant's excess deferrals or excess
contributions under Section 6.5 shall be forfeited by such Participant and
allocated pursuant to the provisions of Section 6.4."
IN WITNESS WHEREOF, Tuboscope Vetco International, Inc. has executed this
Amendment effective as provided herein on this 16th day of February, 1996.
TUBOSCOPE VETCO INTERNATIONAL, INC.
By: [Signature]
---------------------------------
Name:
Title:
Date:
<PAGE>
SECOND AMENDMENT TO THE
TUBOSCOPE, INC. 401(k) THRIFT SAVINGS PLAN
(EFFECTIVE AS OF JUNE 1, 1992)
[TUBOSCOPE VETCO INTERNATIONAL, INC. 401(k) THRIFT SAVINGS PLAN
RESTATEMENT EFFECTIVE: MAY 13, 1988]
------------------------------------
Having reserved the right in Section 15.2 to amend the Tuboscope, Inc.
401(k) Thrift Savings Plan (Effective as of June 1, 1992) [Tuboscope Vetco
International, Inc. 401(k) Thrift Savings Plan, Restatement Effective: May 13,
1988] (the "Plan"), Tuboscope Vetco International, Inc. does hereby amend the
Plan as follows:
1. Effective August 20, 1996, Section 3.4 of the Plan shall be amended in
its entirety to read as follows:
"Section 3.4 - WITHDRAWALS FROM DEFERRED COMPENSATION ACCOUNTS
----------- -----------------------------------------------
A Participant may make a withdrawal from his Deferred Compensation
Account in the event of:
(a) As may be permitted by the Administrative Committee, within its
sole discretion which shall be exercised without discrimination in favor of
Highly Compensated Employees, a deferral in excess of the limitation of
Section 3.1(b) of the Plan, to the extent allowed by Code Section
402(g)(2)(A)(ii);
(b) As may be permitted by the Administrative Committee, within its
sole discretion which shall be exercised without discrimination in favor of
Highly Compensated Employees, a deferral in excess of the limitation of
Section 6.5 of the Plan, to the extent allowed by Code Section 401(k)(8);
(c) As may be permitted by the Administrative Committee, within its
sole discretion which shall be exercised without discrimination in favor of
Highly Compensated Employees, the circumstances specified in Code Section
401(k)(2)(B)(i)(II) in accordance with 401(k)(10);
(d) On or after the Participant's attainment of age 59-1/2, as
provided in Code Section 401(k)(2)(B)(i)(III); or
(e) Effective as of June 1, 1990, the Participant's attainment of age
62; an eligible Participant electing to withdraw contributions from his
Deferred Compensation Account under this subsection (e) may authorize the
withdrawal of
<PAGE>
such amounts in 10% increments once per calendar quarter."
IN WITNESS WHEREOF, Tuboscope Vetco International, Inc. has executed this
Second Amendment effective as provided herein on this 25th day of October, 1996.
TUBOSCOPE VETCO INTERNATIONAL, INC.
By: /s/ J. F. Maroney III
---------------------
Name: J. F. Maroney III
Title: Vice President
2
<PAGE>
THIRD AMENDMENT TO THE
TUBOSCOPE VETCO INTERNATIONAL, INC. 401(K) THRIFT SAVINGS PLAN
Having reserved the right in Section 15.2 to amend the Tuboscope Vetco
International, Inc. 401(k) Thrift Savings Plan (the "Plan"), Tuboscope Vetco
International, Inc. does hereby amend the Plan in order to implement the merger
of the following tax-qualified plans into the Plan:
Hydra-Rig Inc./Drexel Oilfield Services, Inc. 401(k) Profit Sharing
Plan and Trust ("Hydra-Rig Plan");
Vetco Pipeline Services, Inc. 401(k) Retirement/Savings Plan
("Pipeline Plan"); and
Gauthier Brothers Rentals, Inc. 401(k) Profit Sharing Plan ("Gauthier
Plan").
Together, each of these foregoing plans shall be referred to as the "Merged
Plans".
1. Effective as of January 1, 1997, the Merged Plans shall be
frozen, with no future benefit accruals, contributions,
participation or eligibility thereafter, and effective as of
that date, the Merged Plans shall, to the extent such plans
are tax-qualified as of that date, be merged into and become
a part of the Plan.
2. As soon as is administratively feasible, all assets of the
Merged Plans shall be transferred to and become a part of
the Plan, and immediately thereafter, the accrued benefits
of each participant thereunder shall be at least equal to
the benefit such person would have been entitled to receive
under the respective Merged Plans if such plan were
terminated immediately before the transfer of assets.
3. Effective as of January 1, 1997, individuals who previously
participated under the Merged Plans shall continue to
participate under the Plan in accordance with the terms of
the Plan, and shall receive credit for all prior service
with the respective sponsor of the Merged Plan.
4. All "protected benefits" as described under Internal Revenue
Code (S) 411(d)(6) as they relate to the Merged Plans shall
be preserved
<PAGE>
and protected in the merger of the Merged Plans into the
Plan, and to the extent any provision in the Plan is
inconsistent with this, such Plan provision shall be
disregarded to the extent necessary to satisfy the
applicable requirements of IRC (S) 411(d)(6).
5. The transfer of assets from the Merged Plans shall include
the transfer of any outstanding loan balances attributable
to participants thereunder and the Trustee of the Plan shall
administer such transferred loans in accordance with the
procedures established by the Administrative Committee but
subject to the terms and conditions of the loan agreements
under which such loans were made.
6. With respect to all assets which are transferred from the
Merged Plans to the Plan, affected Participants shall direct
the investment of such assets upon the transfer into the
Plan; provided, however, that in the event a Participant
fails to direct the investment of such transferred assets,
such amounts shall, by default, be invested as set out in
the Plan's investment default provisions.
7. Effective as January 1, 1997, the applicable distribution of
benefits provisions of the respective Merged Plans as such
provisions relate to forms of distribution, election
provisions and timing of distributions, shall apply to all
accrued benefits under the Plan.
IN WITNESS WHEREOF, Tuboscope Vetco International, Inc. has executed this
Third Amendment on this 31st day of December, 1996.
TUBOSCOPE VETCO INTERNATIONAL, INC.
By: /s/ J. F. Maroney
-----------------
Name: J.F. Maroney
Title: Vice President
This amendment may be implemented by Attachments hereto.
-2-
<PAGE>
FOURTH AMENDMENT TO THE
TUBOSCOPE VETCO INTERNATIONAL INC.
401(k) THRIFT SAVINGS PLAN [RESTATEMENT
EFFECTIVE: JANUARY 1, 1993]
Tuboscope Vetco International Inc. does hereby amend the Plan as follows:
1. Section 1.9 shall be amended effective as of January 1, 1997 by adding
the following sentence at the end thereto:
"To the extent any Code Section is amended such that a reference in
the Plan to a particular Code Section is outdated, such revised Code
Section shall be deemed to apply to the Plan in lieu of such outdated
provision."
2. Effective as of January 1, 1998, Section 3.1 shall be deleted and the
following substituted in its place:
"3.1 Deferral of Compensation: Each Participant may elect, in
------------------------
accordance with the
Rules of the Plan, to defer on a pre-tax basis the lesser of:
(a) any whole number percentage, which is not less than 1% of
his Compensation for each pay day in such Plan Year; and
(b) the excess of $10,000.00 (adjusted for increases in the
cost-of-living as described in the applicable provisions of
the Code) over any amounts described in Code Section
402(g)(3) and not deferred hereunder."
3. Effective as of January 1, 1998, a new Section 3.6 shall be added to
the Plan as follows:
"3.6 Maximum Annual Deferrals/Voluntary Personal Contributions.
---------------------------------------------------------
Notwithstanding any of the provisions of Section 3.1, 4.1 or any other
provision of the Plan to the contrary, in no event shall the aggregate
amount of a Participant's deferral contributions and his Voluntary
Personal Contributions
<PAGE>
exceed 20% of his Compensation for each Pay Day in such Plan Year."
4. Effective as of January 1, 1998, Section 4.1A shall be deleted and the
following substituted in its place:
"4.1 Voluntary Personal Contributions.
--------------------------------
A. Each Participant may elect, in accordance with the Rules of
the Plan, to contribute any whole number percentage which is
not less than 1% of his Compensation on an after-tax basis
to his Personal Contributions Account for each Pay Day.
However:
(i) his aggregate contributions (net of withdrawals) shall
not exceed 20% of his Compensation received by him
while an active Participant during all periods of
participation; and
(ii) he shall not knowingly contribute an amount which
would make his Annual Addition for the Plan Year in
question exceed the limitations of Section 16.4."
5. Effective as of August 1, 1997, Section 5.1(B) shall be amended in its
entirety to read as follows:
"Subject to Section 16.4 for each Payday, the Company shall contribute
to the Plan for each Participant who elected to defer Compensation under
Section 3.1 or 3.3 or who elected to contribute under Section 4.1 or 4.2 to
such Participant's Company Contributions Account an amount which is equal
to the lesser of:
------
(i) 1/2 of his Deferred Compensation for each Payday under Section
3.1 or 3.3 and 1/2 of his voluntary contributions for each Payday
under Section 4.1 or 4.2; or
(ii) 3% of his Compensation for such Payday.
In addition to the foregoing, effective as of January 1, 1998, the
Company may, in its sole discretion, contribute to the Plan for each
Participant who elected to defer
2
<PAGE>
Compensation under Section 3.1 or 3.3 or who elected to contribute under
Section 4.1 or 4.2, an additional amount to his Company Contributions
Account which is equal to the lesser of:
------
(i) 1/2 of his Deferred Compensation under Article III and 1/2 of
his voluntary contributions under Article IV; or
(ii) 1% of his Compensation for the Plan Year.
From and after January 1, 1994, the contributions by the Company to a
Participant's Company Contributions Account shall be made in the form of
"Common Stock" in accordance with Section 5.1(B). Common Stock shall mean
the common stock of Tuboscope Inc. The Plan may acquire and hold the
Common Stock in accordance with Section 407 of ERISA."
6 Subject to guidance issued by the IRS, the second sentence of Section
10.3B shall be amended effective as of January 1, 1997 as follows:
"Notwithstanding the above provision to the contrary, a Participant
may elect to defer the distribution otherwise payable hereunder until
the April 1 following the calendar year in which the Participant
attains age 70-1/2."
7. Subject to guidance issued by the IRS, effective as of January 1,
1997, a new Section 10.3C shall be added to the Plan:
"Upon attainment of age 70-1/2, a Participant who has not incurred a
Separation from the Service may elect to receive a Plan distribution
in accordance with Section 10.3A at anytime thereafter or until such
Participant incurs a Separation from the Service, at which time such
Participant's Accounts shall become payable hereunder."
8. Effective as of January 1, 1997, the first sentence of Section 14.13
shall be amended by adding immediately after the phrase "Deferred Compensation
Account" the
3
<PAGE>
following: "and Rollover Account".
9. Effective as of January 1, 1997, the rollover provisions of Section
14.15 shall be amended to reflect changes in the tax laws as follows:
(i) Section 14.15(B)(ii) shall be amended by deleting reference to
Code Section 402(a)(5) and substituting in its place Code
Section 402(c)(8)(A);
(ii) Section 14.15(B)(ii)(b) shall be amended by deleting the phrase
"of a qualified total distribution (as defined in Code Section
402(a)(5)(E)(i)"; and
(iii) Section 14.15(C)(iii) shall be deleted.
10. Effective January 1, 1997, Article XVI shall be amended by adding a
new Section 16.9 as follows:
"16.9 Hydra-Rig/Vetco Pipeline Services/Gauthier Brothers Rentals:
-----------------------------------------------------------
With respect to any Participant whose accrued benefit includes any
assets transferred into the Plan from the Hydra-Rig, Inc. / Drexel Oilfield
Services, Inc. 401(k) Profit Sharing Plan and Trust, the Vetco Pipeline
Services, Inc. 401(k) Retirement Savings Plan or the Gauthier Brothers Rentals,
Inc. 401(k) Profit Sharing Plan, the portion of such accrued benefit which
constitutes a "protected benefit" under Code Section 411(d)(6) shall remain
subject to the applicable provisions of such transferee plan, which provisions
shall, for these purposes, be incorporated herein."
11. Effective as of date the entity (or the assets of entity) were
acquired by Tuboscope, Article XVI shall be amended by adding a new Section
16.10 as follows:
"16.10 Gator Hawk, Inc., South-West Centerfuge Services, Inc.,
-------------------------------------------------------
Tulsa Equipment Manufacturing Company and WMCO Equipment, Inc.:
-------------------------------------------------------------
With respect to any Participant who, immediately prior to becoming an
Employee, was an employee of Gator Hawk, Inc., South-West Centerfuge Services,
Inc., Tulsa Equipment
4
<PAGE>
Manufacturing Company or WMCO Equipment, Inc., all years of service with such
prior employer shall be counted for purposes of vesting under the terms of this
Plan."
12. Effective January 1, 1997, Section 17.4 shall be amended in its
entirety to read as follows:
"17.4 Change of Investment Directions:
-------------------------------
Each Participant may in the manner prescribed by and subject to any
restrictions or conditions which may be established by the Administrative
Committee, direct that the investment of his contributions and/or existing
amounts in his Accounts be changed from one authorized option to another option
available under Section 17.2; provided however, that contributions allocated to
a GIC Fund may not be transferred directly to a government securities fund, if
available. Contributions and other amounts allocated to the Executive GIC Fund
may not be transferred out of such Investment Fund."
IN WITNESS WHEREOF, Tuboscope Vetco International Inc. has executed this
Fourth Amendment effective as provided herein.
TUBOSCOPE VETCO INTERNATIONAL INC.
By: /s/ J. F. Maroney III
---------------------
Name: J. F. Maroney III
Title: Vice President and Secretary
Date: 2/19/98
5
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EXHIBIT 10.3
TUBOSCOPE VETCO INTERNATIONAL INC.
DEFERRED COMPENSATION PLAN
Tuboscope Vetco International Inc. hereby establishes the following Plan:
WITNESSETH:
WHEREAS, Tuboscope Vetco International Inc. (the "Employer") desires to
establish the Tuboscope Vetco International Inc. Deferred Compensation Plan (the
"Plan") primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees.
NOW, THEREFORE, this document is adopted to set forth the terms of the Plan
which are as follows:
ARTICLE
1
INTRODUCTION
1.1 Purpose of Plan
The Employer has adopted the Plan set forth herein to provide a means by
which certain employees may elect to defer receipt of designated percentages or
amounts of their Compensation and to provide a means for certain other deferrals
of compensation.
1.2 Status of Plan
The Plan is intended to be "a plan which is unfunded and is maintained by
an employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of Sections 201(2) and 301(a)(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"), and shall be interpreted and administered to the extent
possible in a manner consistent with that intent.
ARTICLE 2
DEFINITIONS
Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
<PAGE>
2.1 Account means, for each Participant, the bookkeeping account established
for his or her benefit under Section 5.1.
2.2 Adoption Agreement means the Tuboscope Vetco International Inc. Deferred
Compensation Plan Adoption Agreement signed by the Employer to establish the
Plan and containing all the options selected by the Employer, as the same may be
amended from time to time. The Adoption Agreement is set out as "Exhibit A" to
this Plan and is specifically incorporated into and made a part of the Plan,
including any amendments thereto.
2.3 Change of Control means (a) the purchase or other acquisition in one or
more transactions other than from the Employer, by any individual, entity or
group of persons, within the meaning of Section 13(d)(3) or 14(d) of the
Securities Exchange Act of 1934 or any comparable successor provisions, of
beneficial ownership (within the meanings of Rule 13d-3 of Securities Exchange
Act of 1934) of 30 percent or more of either the outstanding shares of common
stock or the combined voting power of the Employer's then outstanding voting
securities entitled to vote generally, or (b) the approval by the stockholders
of the Employer of a reorganization, merger, or consolidation, in each case,
with respect to which persons who were stockholders of the Employer immediately
prior to such reorganization, merger or consolidation do not immediately
thereafter own more than 50 percent of the combined voting power of the
reorganized, merged or consolidated Employer's then outstanding securities that
are entitled to vote generally in the election of directors or (c) the sale of
substantially all of the Employer's assets.
2.4 Code means the Internal Revenue Code of 1986, as amended from time to time.
Reference to any section or subsection of the Code includes reference to any
comparable or succeeding provisions of any legislation which amends, supplements
or replaces such section or subsection.
2.5 Effective Date means the date chosen in the Adoption Agreement as of which
the Plan first becomes effective.
2.6 Election Form means the participation election form as approved and
prescribed by the Plan Administrator which is set out as Exhibit B to the Plan,
and which is included as part of the Plan, including any amendments thereto.
2.7 Eligible Employee means, on the Effective Date or as of January 1 of each
calendar year, each employee of the Employer who is designated in writing by the
Chief Executive Officer of the Employer to be eligible to participate in this
Plan.
2.8 Employer means the corporation referred to in the Adoption Agreement, any
successor to all or a major portion of the Employer's assets or business which
assumes the obligations of the Employer, and each other entity that is
affiliated with the Employer which adopts the Plan with the consent of the
Employer, provided that the Employer that signs the Adoption Agreement shall
have
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<PAGE>
the sole power to amend this Plan and shall be the Plan Administrator if no
other person or entity is so serving at any time.
2.9 ERISA means the Employee Retirement Income Security Act of 1974, as amended
from time to time. Reference to any section to subsection of ERISA includes
reference to any comparable or succeeding provisions of any legislation which
amends, supplements or replaces such section or subsection.
2.10 Incentive Contribution means a contribution made by the Employer as
described in Section 4.3.
2.11 Insolvent means either (i) the Employer is unable to pay its debts as they
become due, or (ii) the Employer is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
2.12 Participant means any individual who participates in the Plan in accordance
with Article 3.
2.13 Plan means the Employer's plan in the form of the Tuboscope Vetco
International Inc. Deferred Compensation Plan and the Adoption Agreement and all
amendments thereto.
2.14 Plan Administrator means the person, persons or entity designated by the
Employer in the Adoption Agreement to administer the Plan and to serve as the
agent for "Company" with respect to the Trust as contemplated by the agreement
establishing the Trust. If no such person or entity is so serving at any time,
the Employer shall be the Plan Administrator
2.15 Plan Year means the 12-month period chosen in the Adoption Agreement.
2.16 Total and Permanent Disability means the inability of a Participant to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment 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 the permanence and degree of which shall be
supported by medical evidence satisfactory to the Plan Administrator.
2.17 Trust means the trust established by the Employer that identifies the Plan
as a plan with respect to which assets are to be held by the Trustee.
2.18 Trustee means the trustee or trustees under the Trust.
2.19 Year of Service means the computation period and service requirement
elected in the Adoption Agreement.
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<PAGE>
ARTICLE 3
PARTICIPATION
3.1 Commencement of Participation
Any Eligible Employee who executes an Election Form shall become a
Participant in the Plan.
3.2 Continued Participation
A Participant in the Plan shall continue to be a Participant so long as any
amount remains credited to his or her Account.
ARTICLE 4
ELECTIVE DEFERRALS
4.1 Elective Deferrals
By entering into an Election Form, a Participant may elect to have credited
under this Plan all or part of the amount of any contribution which would
otherwise have been credited on his or her behalf under the Tuboscope Vetco
International Inc. 401(k) Thrift Savings Plan but for application of the
limitations of Sections 401(k), 401(m), 415, 402(g), 401(a)(17) or any other
applicable provisions of the Code. Amounts deferred hereunder shall be paid by
the Employer to the Trust as soon as administratively feasible and credited to
the Participant's Account as of the date the amounts are received by the
Trustee.
Any election to defer hereunder shall apply for subsequent Plan Years
unless changed or revoked. A Participant may change or revoke his or her
deferral election as of the first day of any Plan Year by giving written notice
to the Plan Administrator before such first day (or any such earlier date as the
Plan Administrator may prescribe).
4.2 Matching Deferrals
The Employer will not make Matching Deferrals under the Plan.
4.3 Incentive Contributions
The Employer will make Incentive Contributions on behalf of any Participant
to the extent the Employer's matching contributions under the Tuboscope Vetco
International Inc. 401(k) Thrift Savings Plan attributable to the Participant is
otherwise limited by the application of the limitations of Sections 401(k),
401(m), 415, 402(g), 401(a)(17) or any other applicable provisions of the Code.
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<PAGE>
ARTICLE 5
ACCOUNTS
5.1 Accounts
The Plan Administrator shall establish an Account for each Participant
reflecting Elective Deferrals and Incentive Contributions made for the
Participant's benefit together with any adjustments for income, gain or loss and
any payments from the Account. As of the last business day of each calendar
quarter, the Plan Administrator shall provide the Participant with a statement
of his or her Account reflecting the income, gains and losses (realized and
unrealized), amounts of deferrals, and distributions of such Account since the
prior statement.
5.2 Investments
The assets of the Trust shall be invested in such investments as the
Trustee shall determine. The Trustee may (but is not required to) consider the
Employer's or a Participant's investment preferences when investing the assets
attributable to a Participant's Account.
ARTICLE 6
VESTING
6.1 General
A Participant shall be immediately vested in, i.e., shall have a
nonforfeitable right to, all Elective Deferrals, and all income and gain
attributable thereto, credited to his or her Account. A Participant shall
become vested in the portion of his or her Account attributable to Incentive
Contributions and income and gain attributable thereto in accordance with the
vesting rules under the Tuboscope Vetco International Inc. 401(k) Thrift Savings
Plan, subject to earlier vesting in accordance with Sections 6.2, 6.3, 6.4 and
6.5 hereunder.
6.2 Change of Control
A Participant shall become fully vested in his or her Account immediately
prior to a Change of Control of the Employer.
6.3 Death or Disability
A Participant shall become fully vested in his or her Account immediately
prior to termination of the Participant's employment by reason of the
Participant's death or Total and Permanent Disability. Whether a Participant's
termination of employment is by reason of the
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<PAGE>
Participant's Total and Permanent Disability shall be determined by the Plan
Administrator in its sole discretion.
6.4 Termination of the Plan
A Participant shall become fully vested in his or her Account upon
termination of the Plan by the Employer.
6.5 Insolvency
A Participant shall become fully vested in his or her Account immediately
prior to the Employer becoming Insolvent, in which case a Participant will have
the same rights as a general creditor of the Employer with respect to his or her
Account balance.
ARTICLE 7
PAYMENTS
7.1 Form of Payment
Payments shall be paid in a single lump-sum payment.
7.2 Change of Control
As soon as possible following a Change of Control of the Employer, each
Participant shall be paid his or her entire Account balance in a single lump
sum.
7.3 Termination of Employment
Upon termination of a Participant's employment for any reason, the vested
portion of the Participant's Account shall be paid to the Participant in a
single lump sum as soon as practicable following the date of such termination.
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<PAGE>
7.4 Death
If a Participant dies prior to the complete distribution of his or her
Account, the balance of the Account shall be paid as soon as practicable to the
Participant's designated beneficiary or beneficiaries, in a single lump-sum
payment.
Any designation of beneficiary shall be made by the Participant on an
Beneficiary Designation Form filed with the Plan Administrator and may be
changed by the Participant at any time by filing another Beneficiary Designation
Form containing the revised instructions. If no beneficiary is designated or no
designated beneficiary survives the Participant, payment shall be made to the
Participant's surviving spouse, or, if none, to his or her issue per stirpes, in
a single payment. If no spouse or issue survives the Participant, payment shall
be made in a single lump sum to the Participant's estate.
7.5 Forfeiture of Non-vested Amounts
To the extent that any amounts credited to a Participant's Account are not
vested at the time such amounts are otherwise payable, such amounts shall be
forfeited and shall be used to satisfy the Employer's obligation to make
contributions to the Trust under the Plan.
7.6 Taxes
All federal, state or local taxes that the Plan Administrator determines
are required to be withheld from any payments made pursuant to this Article 7
shall be withheld.
7.7 Termination of the Plan
As soon as possible following the termination of the Plan, each Participant
shall be paid his or her entire Account balance in a single lump sum.
ARTICLE 8
PLAN ADMINISTRATOR
8.1 Plan Administration and Interpretation
The Plan Administrator shall oversee the administration of the Plan. The
Plan Administrator shall have complete control and authority to determine the
rights and benefits and all claims, demands and actions arising out of the
provisions of the Plan of any Participant, beneficiary, deceased Participant, or
other person having or claiming to have any interest under the Plan. The Plan
Administrator shall have complete discretion to interpret the Plan and to decide
all matters under the Plan. Such interpretation and decision shall be final,
conclusive and binding on all Participants and any person claiming under or
through any Participant, in the absence of clear and
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<PAGE>
convincing evidence that the Plan Administrator acted arbitrarily and
capriciously. Any individual(s) serving as Plan Administrator who is a
Participant will not vote or act on any matter relating solely to himself or
herself. When making a determination or calculation, the Plan Administrator
shall be entitled to rely on information furnished by a Participant, a
beneficiary, the Employer or the Trustee. The Plan Administrator shall have the
responsibility for complying with any reporting and disclosure requirements of
ERISA.
8.2 Powers, Duties, Procedures, Etc.
The Plan Administrator shall have such powers and duties, may adopt such
rules and tables, may act in accordance with such procedures, may appoint such
officers or agents, may delegate such powers and duties, may receive such
reimbursement and compensation, and shall follow such claims and appeal
procedures with respect to the Plan as it may establish.
8.3 Information
To enable the Plan Administrator to perform its functions, the Employer
shall supply full and timely information to the Plan Administrator on all
matters relating to the compensation of Participants, their employment,
retirement, death, termination of employment, and such other pertinent facts as
the Plan Administrator may require.
8.4 Indemnification of Plan Administrator
The Employer agrees to indemnify and to defend to the fullest extent
permitted by law any officer(s) or employee(s) who serve as Plan Administrator
(including any such individual who formerly served as Plan Administrator)
against all liabilities, damages, costs and expenses (including attorneys' fees
and amounts paid in settlement of any claims approved by the Employer)
occasioned by any act or omission to act in connection with the Plan, if such
act or omission is in good faith.
ARTICLE 9
AMENDMENT AND TERMINATION
9.1 Amendments
The Employer, acting through its Board of Directors, shall have the right
to amend the Plan from time to time, subject to Section 9.3, by an instrument in
writing which has been executed on the Employer's behalf by its duly authorized
officer.
9.2 Termination of Plan
This Plan is strictly a voluntary undertaking on the part of the Employer
and shall not be deemed to constitute a contract between the Employer and any
Eligible Employee (or any other
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<PAGE>
employee) or a consideration for, or an inducement or condition of employment
for, the performance of other services by any Eligible Employee (or other
employee). The Employer, acting through its Board of Directors, reserves the
right to terminate the Plan at any time, subject to Section 9.3, by an
instrument in writing which has been executed on the Employer's behalf by its
duly authorized officer. Upon termination, the Employer shall direct the
Trustee to pay promptly to Participants (or their beneficiaries) the balance of
their Accounts.
9.3 Existing Rights
No amendment or termination of the Plan shall adversely affect the rights
of any Participant with respect to amounts that have been credited to his or her
Account prior to the date of such amendment or termination.
ARTICLE 10
MISCELLANEOUS
10.1 No Funding
The Plan constitutes a mere promise by the Employer to make payments in
accordance with the terms of the Plan and Participants and beneficiaries shall
have the status of general unsecured creditors of the Employer. Nothing in the
Plan will be construed to give any employee or any other person rights to any
specific assets of the Employer or of any other person. In all events, it is
the intent of the Employer that the Plan be treated as unfunded for tax purposes
and for purposes of Title I of ERISA.
10.2 Non-assignability
None of the benefits, payments, proceeds or claims of any Participant or
beneficiary shall be subject to any claim of any creditor of any Participant or
beneficiary and, in particular, the same shall not be subject to attachment or
garnishment or other legal process by any creditor of such Participant or
beneficiary, nor shall any Participant or beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any of the benefits or
payments or proceeds which he or she may expect to receive, contingently or
otherwise, under the Plan.
10.3 Limitation of Participants' Rights
Nothing contained in the Plan shall confer upon any person a right to be
employed or to continue in the employ of the Employer, or interfere in any way
with the right of the Employer to terminate the employment of a Participant in
the Plan at any time, with or without cause.
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<PAGE>
10.4 Participants Bound
Any action with respect to the Plan taken by the Plan Administrator or the
Employer or the Trustee or any action authorized by or taken at the direction of
the Plan Administrator, the Employer or the Trustee shall be conclusive upon all
Participants and beneficiaries entitled to benefits under the Plan.
10.5 Receipt and Release
Any payment to any Participant or beneficiary in accordance with the
provisions of the Plan shall, to the extent thereof, be in full satisfaction of
all claims against the Employer, the Plan Administrator and the Trustee under
the Plan, and the Plan Administrator may require such Participant or
beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect. If any Participant or beneficiary is determined by the
Plan Administrator to be incompetent by reason of physical or mental disability
(including minority) to give a valid receipt and release, the Plan Administrator
may cause the payment or payments becoming due to such person to be made to
another person for his or her benefit without responsibility on the part of the
Plan Administrator, the Employer or the Trustee to follow the application of
such funds.
10.6 Governing Law
The Plan shall be construed, administered, and governed in all respects
under and by the laws of the state in which the Employer maintains its primary
place of business. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
10.7 Headings and Subheadings
Headings and subheadings in this Plan are inserted for convenience only and
are not to be considered in the construction of the provisions hereof.
10.8 Claims Procedure.
Within 60 days after a Participant retires or otherwise terminates service
with the Employer, the Plan Administrator shall give notice in writing to the
Participant (or beneficiary), stating the amount of the Plan benefit (if any) to
which the person is entitled. If such person disagrees with the Plan
Administrator's determination, such person shall file with the Plan
Administrator, in writing and sent by registered or certified mail, a claim for
Plan benefits. If no claim is received by the Plan Administrator within 60 days
after such person receives notification of his entitlement (if any) to a Plan
benefit from the Plan Administrator, no such claim shall be permitted and the
Plan Administrator's determination shall be final. In the event such a claim is
filed, the Plan Administrator shall exercise its best efforts to act upon such
claim within 60 days after its receipt. If such claim is denied, in all or in
part, the Plan Administrator shall give notice in writing, by mail,
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<PAGE>
of such denial to the claimant, setting forth (i) the specific reasons for such
denial; (ii) specific reference to pertinent Plan provisions on which the denial
is based; (iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and (iv) advice to the effect that the
claimant may request a full review of such claim by filing with the Plan
Administrator, within 60 days after receipt by the claimant of the Plan
Administrator's initial denial of the claim, a request for such review. In the
event such request is submitted, the Plan Administrator shall review the claim
within 60 days and the claimant shall be given written notice of the result of
such review. Such notice shall include specific reasons for the decision.
IN WITNESS WHEREOF, Tuboscope Vetco International Inc. has cause this Plan
to be adopted this 15th day of November, 1994.
TUBOSCOPE VETCO INTERNATIONAL INC.
By: /s/ Kenneth L. Nibling
----------------------
Name: Kenneth L. Nibling
Title: Vice President, Human Resources and
Administration
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<PAGE>
AMENDMENT TO
TUBOSCOPE VETCO INTERNATIONAL INC.
DEFERRED COMPENSATION PLAN
WHEREAS, Tuboscope Vetco International Inc. (the "Employer") previously
established the Tuboscope Vetco International Inc. Deferred Compensation Plan
(the "Plan");
WHEREAS, pursuant to Article 9 of the Plan, the Employer has reserved the
right to amend the Plan;
WHEREAS, the Employer desires to amend the Plan to expand coverage and
deferral options to selected senior executives of the Employer as well as
members of the Board of Directors of the Employer and Tuboscope Inc.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Notwithstanding any other provisions of the Plan to the contrary, this
Amendment shall become effective as of January 1, 1998. All applicable
provisions of the original Plan document shall apply with respect to Members,
and any defined term (which is not otherwise defined herein) shall have the same
meaning as set forth in the original Plan document.
2. Definitions.
. Deferral Contribution. The amount of base salary, bonus, payment
under the Value Plan for the Senior Management Team of Tuboscope
Inc./Tuboscope Vetco International Inc. ("Value Plan"), stock
option gains and/or Director's Fees (Annual Retainer; Board and
Committee Meeting Fees), that a Member elects to defer receipt of
and instead have such amounts credited by the Employer to his or
her account in any Plan Year pursuant to the provisions of this
Plan.
. Account. Account means all amounts credited to the account of a
Member under the Plan pursuant to this Amendment.
<PAGE>
3. Eligible Members. The provisions of this Amendment shall apply to the
following persons:
. Members of the Senior Management Team.
. Senior executives of the Employer and Tuboscope Inc. who have
been selected and approved to participate in the Plan by the
Compensation Committee of the Board.
. Members of the Board of Directors of the Employer or Tuboscope
Inc.
Such eligible persons shall be referred to as "Members" in the Amendment and,
Participant's in the original Plan document.
4. Amount of contributions. For each calendar year, Members may elect to
defer the present payments of all or any portion of the following:
. Base salary;
. Bonus;
. Tuboscope Inc. stock option gains
. Payment under the Value Plan;
. Director's Fees (Annual Retainer; Board Meeting Fees;
Committee Meeting Fees; and/or
. Any other forms of remuneration approved by the Compensation
Committee
and instead have such amounts credited to the Member's Account under the Plan.
Any election hereunder is subject to such procedures as determined by the Plan
Administrator.
5. Manner of deferral; annual election. Elections to make Deferral
Contributions shall be in writing, signed by the Member and in a form prescribed
by the Plan Administrator. Except as otherwise provided herein, the form shall
be completed and returned to the Plan Administrator on a date which shall be
specified by the Plan Administrator.
. In the case of deferral of base salary or bonus, such form must
be completed and returned to the Plan Administrator prior to the
beginning of the applicable Plan Year for which the election is
to take effect, or at such other times as determined by the Plan
Administrator.
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<PAGE>
. In the case of an election to defer Tuboscope Inc. stock option
gains, such form must be completed and returned to the Plan
Administrator at least six months prior to the date the Member
elects to exercise his or her applicable stock option(s) relating
to such deferral election, or at such other times as determined
by the Plan Administrator.
. In the case of an election to defer payment under the Value Plan,
such form must be completed and returned to the Plan
Administrator at least twelve (12) months prior to the date such
Value Plan payment is otherwise payable, or at such other times
as determined by the Plan Administrator.
. In the case of deferral of Directors Fees, such form must be
completed and returned to the Plan Administrator prior to the
beginning of the applicable twelve month period for which the
Annual Retainer relates, or in the case of Board and/or Committee
Meeting Fees, prior to the date of such meeting.
Once an election to make Deferral Contributions has been made, such
election shall be irrevocable during the applicable deferral period unless
otherwise provided.
6. Nature of payments. Distributions under the Plan shall be made in
cash or Tuboscope Inc. common stock (or with respect to deferrals of Tuboscope
Inc. stock option gain, only in Tuboscope Inc. common stock).
7. Distribution to Directors. As soon as practicable after a Member who
is a Director ceases to be a Director (and is not otherwise a Participant) for
any reason, the Employer shall distribute the value of such Member's Account in
a single lump sum.
8. Change of Control. Section 7.2 of the original Plan document
regarding Change of Control shall be deleted.
9. Hardship distribution. Notwithstanding any provision of the Plan, in
the event of financial need that is beyond the control of a Member and upon the
written request of such Member, the Plan Administrator, in its sole discretion,
may authorize and direct the Employer to make a distribution under the Plan to
such Member in a lump sum. Such a distribution may be authorized only if
disallowance of the distribution would result in financial hardship to the
Member. Such distributions may be made only to the extent that the
distribution is necessary to enable the Member to resolve the financial need.
In the event the Plan Administrator authorizes a hardship distribution, a
Member's Deferral Contribution election shall cease on a prospective basis and
be suspended for the duration of the Plan Year.
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<PAGE>
10. Alternative time of distribution. Notwithstanding the provisions of
the Plan, a Member may elect to defer the receipt of benefits payable under the
Plan beyond the otherwise applicable distribution date by filing an election
with the Plan Administrator at least two years prior to the date benefits are
otherwise scheduled to commence, or at such other times as determined by the
Plan Administrator.
11. Stock option deferral. Notwithstanding any other provisions of the
Plan to the contrary, with respect to the deferral of Tuboscope Inc. stock
option gains, the amount of such deferred gain shall be recorded under the Plan
in the form of Tuboscope Inc. common stock and deposited in a rabbi trust.
12. Vesting. All amounts credited to the Accounts of Members pursuant to
this Amendment shall be fully vested.
IN WITNESS HEREOF, this Amendment has been adopted effective as of January
1, 1998.
TUBOSCOPE VETCO INTERNATIONAL INC.
By: /s/ J.F. Maroney
----------------
Name: J.F. Maroney
Title Vice President
Date: 5/11/98
-4-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,120
<SECURITIES> 0
<RECEIVABLES> 151,721
<ALLOWANCES> 3,704
<INVENTORY> 98,292
<CURRENT-ASSETS> 268,459
<PP&E> 314,864
<DEPRECIATION> 86,129
<TOTAL-ASSETS> 737,431
<CURRENT-LIABILITIES> 137,044
<BONDS> 228,725
0
0
<COMMON> 454
<OTHER-SE> 336,358
<TOTAL-LIABILITY-AND-EQUITY> 737,431
<SALES> 124,316
<TOTAL-REVENUES> 303,703
<CGS> 72,778
<TOTAL-COSTS> 209,342
<OTHER-EXPENSES> 3,134
<LOSS-PROVISION> 292
<INTEREST-EXPENSE> 8,969
<INCOME-PRETAX> 46,592
<INCOME-TAX> 17,472
<INCOME-CONTINUING> 29,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,120
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.61
</TABLE>
