-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EbkZrC/aThEV/JBnh7UOnz49M+3d3exrlKVQn8iNOyqDUZeICIWRA4Gc4RWbmZIS fWRyU6XoxfSxhJ8Asfuu8g== 0000950129-99-001292.txt : 19990402 0000950129-99-001292.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950129-99-001292 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEATHERFORD INTERNATIONAL INC /NEW/ CENTRAL INDEX KEY: 0000032908 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 042515019 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13086 FILM NUMBER: 99581521 BUSINESS ADDRESS: STREET 1: 5 POST OAK PARK STREET 2: STE 1760 CITY: HOUSTON STATE: TX ZIP: 77027-3415 BUSINESS PHONE: 7132978400 MAIL ADDRESS: STREET 1: 5 POST OAK PARK STREET 2: STE 1760 CITY: HOUSTON STATE: TX ZIP: 77027-3415 FORMER COMPANY: FORMER CONFORMED NAME: EVI WEATHERFORD INC DATE OF NAME CHANGE: 19980528 FORMER COMPANY: FORMER CONFORMED NAME: EVI INC DATE OF NAME CHANGE: 19980226 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY VENTURES INC /DE/ DATE OF NAME CHANGE: 19920703 10-K 1 WEATHERFORD INTERNATIONAL, INC. - 12/31/98 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------- FORM 10-K For Annual and Transition Report Pursuant to Sections 13 or 15(d) of Securities Exchange Act of 1933 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-13086 WEATHERFORD INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 04-2515019 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 515 Post Oak Boulevard, Suite 600, Houston, Texas 77027-3415 (Address of principal executive offices) (Zip Code) Registrant's telephone number, include area code: (713) 693-4000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange in which registered -------------------- ----------------------------------------- Common Stock, $1.00 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 24, 1999, was $2,407,577,415, based upon the closing price on the New York Stock Exchange as of such date. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Title of Class Outstanding at March 24, 1999 -------------- ----------------------------- Common Stock, $1.00 Par Value 97,311,874 DOCUMENTS INCORPORATED BY REFERENCE The information called for by Items 10, 11, 12 and 13 of Part III will be included in the registrant's definitive proxy statement to be filed pursuant to Regulation 14A and is incorporated herein by reference. 2 PART I ITEM 1. BUSINESS Weatherford International, Inc. is one of the world's largest providers of equipment and services used for the exploration and production of oil and natural gas. Our operations are conducted in over 50 countries and we have more than 300 service locations, which are located in substantially all of the oil and natural gas producing regions in the world. We are among the leaders in each of our primary markets and our distribution and service network is one of the most extensive in the industry. Our products and services are divided into four principal operating business divisions: o Completion and Oilfield Services o Artificial Lift Systems o Compression Services o Drilling Products A discussion follows of our products and services offered, our strategy for growth and the markets in which we compete. There is also included a discussion of our recent financial results, the trends affecting our results and our financial condition. We believe you will find these discussions informative and helpful to a better understanding of the new Weatherford. STRATEGY In May 1998, EVI, Inc. and Weatherford Enterra, Inc. merged to form the new Weatherford. A principal objective of the merger was to create a larger integrated oilfield service company that could take advantage of Weatherford's historical worldwide service infrastructure by adding new products, services and technology to compete in changing markets. Since the merger, we have combined various components of the operations of the two companies, added new technologies to the products and services offered by our Completion and Oilfield Services Division and Artificial Lift Systems Division and have substantially expanded our Compression Services Division through a strategic joint venture with GE Capital Corporation. Although current market conditions in our industry are depressed and will likely continue to be depressed through 1999, we see many opportunities for positioning our company for growth as the industry recovers. In looking to the future, our strategic focus for growth is as follows: o Invest in technology to provide o Take advantage of secular customers value-added products growth trends, such as natural and services that can reduce gas compression, thru-tubing the cost of exploration and re-entry drilling and production of oil and gas underbalanced drilling o Pursue strategic acquisitions o Leverage our worldwide and combinations for long-term infrastructure to introduce new growth products and services o Continually review our asset o Continue our expansion holdings for ways to maximize internationally value o Provide integrated product and services offerings
Our long-term objective is to create stockholder value in the form of asset and income growth through the implementation of this strategy. Positioning our company for growth in these times is a difficult task, especially when there is uncertainty as to when the bottom of the cycle will be reached and a recovery will begin. 1 3 Nevertheless, we believe that to achieve stockholder value, we cannot remain static and we must pursue new opportunities to enhance new Weatherford's position in our industry. SEGMENT AND GEOGRAPHIC DATA FINANCIAL SEGMENT DATA When we review the operations of our business divisions we look at their revenues, operating income, EBITDA (operating income adding back depreciation and amortization), total assets and capital expenditures. We gauge how these divisions are performing by comparing their year on year results, their average gross margins and their returns on total assets. The following charts set forth those items for each of our operating business segments for 1998, 1997 and 1996:
COMPLETION AND OILFIELD ARTIFICIAL COMPRESSION DRILLING SERVICES LIFT SYSTEMS SERVICES PRODUCTS ---------- ---------- ---------- ---------- (IN THOUSANDS) 1998 Revenues ............................ $ 848,219 $ 329,196 $ 177,481 $ 655,758 Operating Income (Loss)(1)........... 135,521 (19,223) 17,092 115,433 EBITDA (1) .......................... 230,239 (40) 40,171 147,384 Total Assets ........................ 1,007,399 592,370 388,220 764,807 Capital Expenditures ................ 107,661 20,946 32,465 42,052 1997 Revenues ............................ $ 929,001 $ 249,476 $ 178,897 $ 611,715 Operating Income .................... 215,412 22,792 14,774 120,830 EBITDA .............................. 301,550 31,736 36,440 144,440 Total Assets ........................ 919,198 622,853 441,759 674,388 Capital Expenditures ................ 121,422 20,213 35,705 32,682 1996 Revenues ............................ $ 824,639 $ 150,816 $ 154,503 $ 337,312 Operating Income .................... 146,332 11,667 7,833 42,573 EBITDA .............................. 226,914 17,532 31,387 53,619 Total Assets ........................ 952,445 199,615 414,969 386,245 Capital Expenditures ................ 119,201 8,732 30,392 14,332
- ----------------------------- (1) In 1998 we incurred $195.0 million in merger and other charges relating to the merger of EVI and Weatherford Enterra on May 27, 1998 and a reorganization and rationalization of our business to match industry conditions. Of this charge, $44.9 million, $40.8 million, $1.5 million, $35.0 million, and $72.8 million relate to Completion and Oilfield Services, Artificial Lift Systems, Compression Services, Drilling Products and Corporate. 2 4 GEOGRAPHIC DATA At the time of the combination of EVI and Weatherford Enterra, a large portion of our business was concentrated in the United States and Canada. We also had a strong international presence in all of the oil producing regions of the world through our Completion and Oilfield Services Division. As the world's oil reserves have matured and prices declined, international exploration, development and production has become more dominant. Following our merger last year, we began a concentrated program to expand our operations and shift our product sales to the international side by utilizing the strength of our international service infrastructure to introduce new and existing products and services in these markets. Among the activities being pursued by us are: o The offering of our completion, artificial lift systems and compression services through our international service locations. Sales of these products and services had historically been concentrated in North America. o The introduction of new technologies and products in the multi-lateral, thru-tubing, re-entry and underbalanced markets. We are also reorganizing our operations by reducing our staff and locations primarily in North America and focusing on growth in those areas which serve the international markets. We expect that our international revenue and income will increase over time and our dependence on North American activity will decline as this strategy is implemented. The following charts set forth for 1998, 1997 and 1996: o Our revenues from third party customers in the United States, Canada, Europe, the Middle East and Africa and all other foreign locations. Sales in the United States include export sales. Sales are based on the location of our entity that is selling or providing the products or services. o Our long-lived assets located in the United States, Canada, Europe, the Middle East and Africa and all other foreign locations. [REVENUE BY COUNTRY PIE CHART]
AFRICA UNITED LATIN AND STATES CANADA AMERICA EUROPE MIDDLE EAST OTHER TOTAL --------- ----------- ------------ ----------- ----------- ----------- ----------- (in millions) Revenues 1998 ................. $1,181.9 $265.2 $138.8 $167.3 $143.2 $114.3 $2,010.7 1997 ................. 1,205.6 257.5 118.8 149.2 109.1 128.9 1,969.1 1996 ................. 929.0 143.6 74.1 148.1 98.9 73.6 1,467.3
3 5
[LONG LIVED ASSETS BY COUNTRY PIE CHART] UNITED LATIN AFRICA AND STATES CANADA AMERICA EUROPE MIDDLE EAST OTHER TOTAL ------ ------ ------- ------ ----------- ----- --------- (in millions) 1998 $ 950.6 $306.5 $204.7 $151.4 $59.1 $60.3 $1,732.6 1997 1,060.9 133.3 174.8 143.8 36.7 41.6 1,591.1 1996 784.4 66.3 100.9 145.8 33.4 32.1 1,162.9
4 6 Looking forward, we expect that Asia, Middle East, North Africa and Eastern Europe will be the growth markets for our products and services, with North America and Western Europe declining as a percentage of our total sales as the oil and gas reserves in those regions mature. COMPLETION AND OILFIELD SERVICES Our Completion and Oilfield Services Division provides a wide range of products and services for the exploration and production of oil and natural gas. The principal products and services provided by this segment are: o Fishing and Downhole Services o Well Completion Systems o Well Installation Services o Equipment Rental MARKET TRENDS AND OUTLOOK Our Completion and Oilfield Services Division provides products and services used by oil and gas companies, drilling contractors and other service companies to explore for and produce oil and natural gas. We estimate that around 50% of the products and services offered by this division are used in the initial drilling and 5 7 completion of oil and gas wells. The remainder of the products and services are used in connection with the production phases of wells, primarily maintenance and recompletion. Historically, our Completion and Oilfield Services Division has generated much of its revenues from activity in North America, in particular the United States. With the recent declines in oil prices, activity in North America has fallen substantially to nearly a 50-year low. As a result of the decline in this revenue base, we are focusing our future growth in the international markets using our broad international infrastructure. We are also pursuing selective consolidation opportunities in the United States as a means to reduce costs and offer a broader range of services to our customers and to assist our customers in reducing the costs of exploration and production. Technology is becoming a more important aspect of our products and services so that we may provide our customers with more efficient and cost-effective tools to find and produce oil and gas. During 1998 and 1999 to-date, we invested a substantial amount of our time and resources in building our technology offerings. We believe that many of the new technological products and services being offered by us are among the best in the industry and provide our customers with a means to reduce their costs of exploration and production through more efficient and accurate tools. Integrated product offerings are also becoming more important in the market as customers seek to reduce the number of vendors to perform a single task on a well. We continue to expand the scope and breadth of our extensive products and services offerings through selective acquisitions and alliances. GROWTH STRATEGY The growth strategy for our Completion and Oilfield Services Division is to: o Improve the technology of our products and services to allow our customers to reduce the costs of exploration and production o Leverage our worldwide sales and service infrastructure to push through new products and services o Focus on secular growth trends such as thru-tubing, re-entry drilling, underbalanced drilling and intelligent completion and monitoring o Take advantage of selective consolidation and acquisition opportunities to reduce costs and increase market share o Provide our customers with integrated products and services o Reduce costs and increase profit margins through the addition of manufacturing capabilities for our higher margin products PRODUCTS AND SERVICES OFFERED BY OUR COMPLETION AND OILFIELD SERVICES DIVISION FISHING AND DOWNHOLE SERVICES Our Fishing and Downhole Services group provides a wide variety of downhole services used during the drilling, completion, workover and plugging of oil and gas wells. These include: o Fishing Services o Re-Entry and Thru-Tubing Services o Downhole Remediation and Other Services Our downhole services are provided worldwide at more than 300 locations in 50 countries. We believe that our downhole services group is the largest provider of these services in the world. 6 8 Fishing Services. Our "fishing" services consist of cleaning and removing obstructions (such as a piece of equipment, a tool, a part of a drill string or other debris) in a well bore that may become caught during the drilling, completion and workover of a well or during the well's production phase. The process of "fishing" requires the use of a wide variety of specialty and proprietary tools, including fishing jars, milling tools, casing cutters, overshots, spears and other tools used for retrieving or eliminating the items within the well. These operations also utilize our proprietary "whipstocks", which are downhole tools that act as vertical ramps to "sidetrack" an existing wellbore. We believe we have one of the most comprehensive lines of proprietary fishing tools in the industry and one of the largest and most experienced teams of fishing services employees in the industry. Our fishing services are provided at our various service and distribution locations throughout the world. We believe we are one of the largest providers of fishing services in the United States and the second largest provider in the world. Our principal competitors are Baker Hughes Incorporated and Smith International, Inc. There are also a large number of smaller regional competitors. Re-Entry and Thru-Tubing Services. Our re-entry and thru-tubing group provides specialized products and services that allow the operator to perform drilling, completion and remediation functions from existing wellbores. Re-entry drilling may involve multilateral drilling of newly drilled open holes or the opening of new sections within an existing wellbore. Re-entry wells are typically drilled from a directional or horizontal well. Thru-tubing services consist of the drilling, completion and remediation of a well directly through an existing wellbore's production tubing. Our re-entry and thru-tubing operations also utilize our proprietary "whipstocks". Our thru-tubing and re-entry group grew out of our fishing and downhole services group, which was among the first to use thru-tubing technology for downhole fishing operations. This group has expanded on that expertise and technology to provide state-of-the-art technology for re-entry drilling and multilateral completions. The use of re-entry and thru-tubing technology substantially reduces the cost of drilling a well by eliminating the need for the drilling and completion of a new well bore. Although the rig count declined substantially during 1998 and is currently at historical lows, re-entry drilling rose by approximately 10% in 1998 from the previous year. We believe that the thru-tubing re-entry and multi-lateral re-entry markets will continue to increase in the coming years as operators seek ways to contain costs by reducing risks and construction downhole. Our thru-tubing operations require highly engineered and technically advanced products that can operate within the confined space of an existing well bore. Our operations utilize proprietary whipstock mills, high performance drilling motors and completion tools, including the high performance long running MacDrill(TM) metal motor, the Radius(TM) short radius motor, the Radius downhole guidance instrumentation and the thru-tubing inflatable packer systems. Our primary competition in the area of re-entry and thru-tubing is Baker Hughes Incorporated. Downhole Remediation and Other Services. Our other downhole services operations include a variety of well maintenance and control services. Among the services and equipment provided by us are well control equipment used in critical well situations such as a blow out or high pressure sour gas wells. We also provide internal casing patch installation, plugging and abandonment services, pipe recovery wireline services and foam services for underbalanced wells. Our primary competitor in the area of downhole remediation is Baker Hughes Incorporated. EQUIPMENT RENTAL Our equipment rental group provides specialized equipment and tools for the drilling, completion and workover of oil and gas wells. Our rental equipment allows our customers (primarily operators and drilling contractors) the ability to have access to inventories of tools and other equipment without the cost of maintaining that equipment in their own inventory. The rental of this equipment permits the equipment to be more efficiently used and allows us to receive value-added returns on the rental of the equipment. 7 9 Among the equipment and tools rented by us are: o Pressure control equipment such as preventers, high pressure valves, accumulators, adapters and choke and kill manifolds o Drill string equipment such as drill pipe, drill collars, tubing and drilling jars o Tubular handling equipment such as elevators, spiders, slits, tongs and kelly spinners o Fishing and downhole tools such as milling tools, casing cutters, fishing jars, spears and overshots, stabilizers, power swivels and bottom hole assemblies We manufacture many of our rental tools, such as drill pipe, pressure control equipment and fishing tools. We conduct our rental operations worldwide. The breadth of our operations and locations allow us to manage and redeploy our equipment throughout our worldwide system to locations where the equipment is most needed. We believe we are the world's largest provider of oilfield rental tool equipment. Our primary competitors are Baker Hughes Incorporated, Superior Energy Services and Offshore Rentals. There are also a number of regional competitors. WELL COMPLETION Our well completion group provides a variety of products and services used to construct and complete oil and gas wells. The principal products and services provided by this group are: o PACKERS - Packers are mechanical or hydraulically actuated devices that lock into the casing string and provide a seal between the casing and tubing in the well through an expanding element system. Packers permit producing formations to be isolated from other sections of the well bore as well as allow downhole operations, such as cementing and acidizing, to take place without damaging the reservoir. We also offer an extensive line of inflatable casing packers that are used in openhole sections of a wellbore to isolate a zone with or without the use of cement as well as in thru-tubing applications. o LINER HANGERS - Liner hangers allow strings of casing to be suspended within a wellbore without having to extend the string to the surface. We offer both production and service liner hangers. Drilling liners are used to isolate areas within the well during drilling operations. Production liners are used in the producing area of the well to support the wellbore and to isolate various sections of the well. Most directional wells include one or more liners because of the difficulty of designing casing programs compatible with high tensile tubulars. o SAND SCREENS - Sand screens are devices run in the producing section of a well to prevent sand from reaching the surface or causing problems with production equipment and pumps. o INTELLIGENT WELL TECHNOLOGY - Intelligent completion products allow operators to remotely monitor and control various downhole components, such as chokes and pumps. These products, when combined with production packers, permit various sections of a well to be optimized to improve production. These devices can also eliminate the need for wireline and coiled tubing because they can be operated electrically from the surface. o CEMENTING AND ELASTOMER PRODUCTS -Cementing operations are one of the most important and expensive phases in the completion of a well. Our cementing products allow operators to centralize the casing in the well and control the displacement of cement and other fluids. We also offer specialty elastomer products that are designed to remove excess cement from the inside of the casing. 8 10 The market for our well completion products is dependent on the level of worldwide completion and workover activity. Our completion products are currently sold primarily in North America and the North Sea. We are actively pursuing the distribution of our completion products in other regions of the world through our worldwide infrastructure. Our competition in the completion market is generally based on price and product quality. Our principal competitors in the well completion market are Baker Hughes Incorporated and Halliburton Company. We also compete with various smaller providers of completion equipment. We believe that we are the number one provider of oilfield cementation products in the world, the third largest provider of completion equipment in the United States and the leading provider of liner hanger equipment in the North Sea market. WELL INSTALLATION SERVICES Our well installation services group provides a wide variety of tubular and completion equipment installation services for the drilling, completion and workover of an oil and gas well. This group offers an integrated package of installation services that allows our customers to receive all of their tubular handling, preparation, inspection, cleaning and wellsite installation needs from a single source. This group is a leader in rig mechanization technology used for the installation of tubing and casing and offers various products and services to improve rig floor operations by reducing staffing requirements and increasing operational effectiveness and safety standards. They also specialize in high alloy installation services where metallurgical characteristics call for specific handling technology. Finally, this group also works with our well completion group to provide high grade completion equipment installation services as well as cementation engineering services (consisting of computer-generated recommendations as to the number and placement of centralizers during cementation). We believe that we are one of the largest providers of installation services in the world. Competition in the market for tubular and completion well installation services is based on price, experience and quality. We believe that our ability to provide an integrated package of rig mechanization and high grade installation services, together with our worldwide infrastructure, provides us with a competitive advantage. Our primary competitors are Franks International and BJ Services, Inc. We also compete with a large number of smaller regional competitors. The market for well installation services is dependent on the level of worldwide drilling and well completion activity. RAW MATERIALS Our Completion and Oilfield Services Division purchases a wide variety of materials from a number of sources. Many of the products sold by our Completion and Oilfield Services Division also are manufactured and provided by other parties. We do not believe that the loss of any one supplier would have a material adverse effect on this division. 9 11 ARTIFICIAL LIFT SYSTEMS Our Artificial Lift Systems Division is a leading provider of artificial lift systems worldwide. Artificial lift systems are installed in oil wells that do not have sufficient reservoir pressure to raise the oil to the surface or that need to supplement the natural reservoir drive in producing oil from the well. We estimate that 80% of all producing oil wells in the world require some form of artificial lift. Regionally, we estimate that 90% of the producing wells in North America are on some form of lift and approximately 70% of the rest of the world's wells require artificial lift. In addition, as oil wells mature, artificial lift is generally necessary to supplement or enhance the flowing pressure of oil from the well. The worldwide market for artificial lift is estimated to be in excess of $1.2 billion per year, of which 50% has historically been in North America due to the maturity of the North American oil fields. There are five principal types of artificial lift technologies used in the industry. These forms of lift are: o Progressing Cavity Pumps o Electrical Submersible Pumps o Reciprocating Rod Lift o Hydraulic Lift o Gas Lift We are the only company in the industry that has the ability to offer all forms of artificial lift as well as the ability to design optimization solutions. MARKET TRENDS AND OUTLOOK Our Artificial Lift Systems Division was severely affected by the recent declines in oil prices. These declines were particularly felt in our North American operations where historically our businesses were located. Since the merger of EVI and Weatherford Enterra, we have undertaken an aggressive worldwide marketing program of our artificial lift systems. This program involves the provision of artificial lift products and services worldwide utilizing the assistance of the Weatherford international distribution and service locations. We have recently been awarded a number of international contracts to manage fields using our artificial lift systems and expect to continue to pursue additional contracts in the future. Although we expect that oil production and demand for our products in North America will not likely return to prior levels as a result of the recent declines in oil prices and associated reduction in drilling for and production of oil in North America, we do expect that international demand for our artificial lift products will continue to increase as the rest of the world's oil fields mature. As the only fully integrated provider of these systems, we expect to greatly benefit from the breadth of our product line and expertise. We also are extending our product offerings in the growing areas of wellsite optimization. This product offering is driven by our clients' needs for greater planning of their production. We are currently implementing a package for production in Venezuela that will transmit real time data from the well to the operator's office for continuous monitoring. This division is working with our well completion division on the use of its intelligent completion and monitoring technology to optimize the production process and reduce the cost of production. GROWTH STRATEGY The growth strategy for our Artificial Lift Systems Division is as follows: o Invest in and provide technological o Expand our electrical submersible pump solutions for artificial lift needs business with Electrical Submersible Pumps, Inc. o Provide our customers with the right o Reposition and consolidate our technologies that increase run times, manufacturing and distribution decrease costs and effectively deliver organization to address the changing oil production at a given depth, marketplace, in particular, in North temperature and level of corrosion America o Provide integrated solution packages to o Position our business for the return our customers to address all of their cycle in oil production and take artificial lift needs advantage of the continued maturation of the world's oilfields o Expand internationally by leveraging our international infrastructure
10 12 PRODUCTS OFFERED BY OUR ARTIFICIAL LIFT SYSTEMS DIVISION The following is a brief description of each of the forms of artificial lift offered by us: PROGRESSING CAVITY PUMPS A progressing cavity pump is a downhole pump that is controlled by an above-ground electric system connected to a sucker rod that operates the downhole pump for the production of oil. These pumps are among the most efficient to operate and are designed to work in wells of depths up to 6,000 feet and production between 10 to 4,500 barrels of oil per day. We believe that we are the world's largest provider of progressing cavity pumps and the only fully integrated provider of these systems. Our principal competitors for progressing cavity pumps are Robbins & Myers and KUDU. RECIPROCATING ROD LIFT SYSTEMS A reciprocating rod lift system is an artificial lift pumping system that uses an above-ground pumping unit that is connected to a sucker rod and a downhole pump and uses an up and down suction process to lift the oil from the reservoir. Reciprocating lift is used primarily for the production of oil from wells of depths up to 14,000 feet and production rates from 20 to 8,000 barrels per day. Reciprocating lift systems are generally more expensive to install than other systems but less costly to operate. We offer a complete package of products for rod lift applications ranging from traditional pump jacks to the state-of-the-art RotaFlex(R) long stroke pumping unit, as well as all downhole components, including the Corod(R) continuous sucker rod, traditional sucker rods and tubing anchors. We believe we are the world's largest provider of reciprocating rod lift pump systems and the only fully integrated provider of these systems. Our principal competitors for rod lift systems are Lufkin Industries, Dover Industries and Harbinson Fischer. GAS LIFT SYSTEMS Gas lift is a form of artificial lift that uses natural gas to lift oil in a producing reservoir to the surface. The process of gas lift involves the injection of natural gas into the well through an above-ground injection system and a series of downhole mandrels and gas lift valves. The gas that is injected into the system is either produced from and reinjected into the well, or is injected from nearby gas produced from nearby wells. The injected gas acts as the lifting agent for the heavier oil. Gas lift systems are used primarily for offshore wells and those wells that have a high component of gas in the well or have a gas supply near the well. Gas lift systems are designed to operate at a depth of up to 15,000 feet with volume up to 20,000 barrels of oil per day. We believe that we are one of the two largest providers of gas lift systems in the world, with our principal competitor being Schlumberger Limited. ELECTRICAL SUBMERSIBLE PUMPS An electrical submersible pump is an electric pump and motor that is placed downhole near the producing reservoir and is driven by an electric motor controller and supply system above ground. Electrical submersible pumps are designed to operate at depths of 9,000 to 12,000 feet with volumes from 800 to 20,000 barrels per day. We have historically not been a provider of electrical submersible pumps to the industry. We recently entered into a long-term alliance with Electrical Submersible Pumps, Inc., the world's third largest supplier of electrical submersible pumps, to supply us with our own line of electrical submersible pumps and to take over distribution of electrical submersible pumps from Electrical Submersible Pumps, Inc. in selected markets. We believe that this alliance will be highly beneficial to both our customers and the customers of Electrical Submersible Pumps, Inc. This alliance also provides our customers with a complete suite of artificial lift systems. Our principal competitors for electrical submersible pumps are Baker Hughes Incorporated and Schlumberger Limited. 11 13 HYDRAULIC LIFT SYSTEMS Hydraulic lift is a form of oil pumping system that uses an above-ground surface power unit to operate a downhole hydraulic pump (jet or piston) to lift oil from the reservoir. These systems are designed for wells at depths up to 20,000 feet with volumes of up to 15,000 barrels per day. Hydraulic pumps are well-suited for wells with high volumes and low solids. We believe that we are the world's largest provider of hydraulic lift systems. Our principal competitor for hydraulic lift systems is Baker Hughes Incorporated. RAW MATERIALS Our Artificial Lift Systems Division purchases a variety of raw materials for its manufacturing operations. A number of its products are manufactured utilizing parts and components made by other manufacturers and suppliers. This division is not dependent upon any single source of supply for its raw materials and components. The loss of one or more of our suppliers could, however, disrupt production for some time. COMPRESSION SERVICES Our Compression Services Division is one of the world's largest providers of natural gas compression products and services. The products and services offered by this division include: o Sales and rental of natural gas o Maintenance and reconditioning compressors services and select services such as repair services o Custom-designed compression systems o Offshore platform installation and management of compression equipment o Full service turnkey compression management
As of February 1999, our compression business is operated through a joint venture with GE Capital's Global Compression Services. We own 64% of this venture and GE Capital owns 36%. We have the right to acquire GE Capital's interest at any time at a price equal to the greater of a market determined third party valuation or book value. GE Capital also has the right to require us to purchase its interest at any time after February 2001 at a market determined third party valuation and to request a public offering of its interest after that date, if we have not purchased its interest by that time. MARKET TRENDS AND OUTLOOK We believe our compression services operate in a growth market with significant opportunities. We estimate that over 75% of the operating natural gas compressors are owned by the exploration and production companies and more than 75% of the world's natural gas compression services are sold in North America. We expect international demand to grow significantly in the coming years as producers of natural gas worldwide continue to grow. We also believe that demand in North America should increase as natural gas production continues to grow and our customers seek ways to reduce costs by out-sourcing their compression needs. Our compression services are provided primarily to producers of natural gas and pipeline companies. These services are used by the customer to compensate for diminished wellhead pressure. Our compressors are either sold or rented to the client on a term basis ranging from a number of months to years. Once a compressor has been placed in service, that compressor will generally remain in place for the life of the reservoir. We also offer field management services. Our compression services are charged on both a fixed and turnkey basis. The compressors marketed by us are generally manufactured by us at our manufacturing facility located in Corpus Christi, Texas or purchased from third parties. 12 14 GROWTH STRATEGY The growth strategy for our compression business is as follows: o Expand our operations o Place into service the newly internationally using our worldwide manufactured inventory of high power infrastructure compressors previously owned by Global Compression o Leverage our businesses in locations o Increase our revenues, income and where we are currently located to market share by offering to our obtain economies of scale customers the ability to out-source all of their compression needs o Pursue higher horsepower projects that provide for longer term contracts and higher margins
COMPRESSOR FLEET Our Compression Services Division currently has a fleet of over 4,100 compression units with horsepowers ranging from 26 to 3,335 horsepower. The average horsepower of our compression fleet is approximately 220 horsepower. The following table sets forth a summary of our compression fleet.
HORSEPOWER SIZE NUMBER OF UNITS TOTAL HORSEPOWER 0 - 100 2,117 127,592 101 - 200 894 139,362 201 - 500 633 191,409 501 - 800 211 139,198 801 - 1,100 157 157,395 1,101 and over 130 182,429 --------- --------- TOTALS 4,142 937,385 ========= =========
In addition, we manage over 530 compression units owned by our clients having an aggregate horsepower of approximately 122,000. CAPITAL EXPENDITURES Our compression services operations are by their nature capital intensive as they require substantial investments in additional compressor units as our business grows. These capital investments have historically been financed through existing cash and internally generated cash flow. We expect that future capital investments by our Compression Services Division will be financed by the joint venture through debt, sale-leaseback arrangements and other similar financing structures that are repaid from the cash flows generated from the compressor units over the projected term of rental of the equipment. We recently entered into a lease arrangement under which a number of our compressors were sold to a third party and were then rented back to us over a five year period. Structures such as this lease should allow us to expand our compressor fleet and maximize the return on the equity invested in this joint venture. Compression services does not require a high level of maintenance capital expenditures. Because of the high leverage aspect of our compression business, we gauge the performance of this division primarily by the cash flow it generates and its operating income and EBITDA. We do this because in the initial years of financing the acquisition of compressors, there will be high levels of interest expense or lease expense. Although the net income return on capital from this business is generally less than other less capital intensive businesses, we believe the benefits of the steady cash flow from the operations and the less cyclical nature 13 15 of the business make this business an important component in our growth. Where possible, we will attempt to secure our financing on a non-recourse basis. COMPETITION Our principal competitors in the compression service business are Hanover Compression Company and Production Operators Corp., a subsidiary of Schlumberger Limited. We believe that we are the second largest provider of natural gas compression services in the world. DRILLING PRODUCTS Our Drilling Products Division is the world's leading provider of drill stem products, including drill pipe, drill collars and heavyweight tubular products used for the drilling of oil and gas wells. This division is also a leading provider in North America for engineered connections used for casing, production tubing and marine conductors and subsea structures. Our drilling products are designed and engineered for high performance and include all components of a drill stem from the rig to the drill bit. The principal products offered by our Drilling Products Division are as follows: o Drill pipe o Engineered connections o Drill collars o High Grade Premium Tubing and Casing o Heavyweight drill pipe o Accessories o Connections for Marine Conductors and Subsea Structures MARKET TRENDS AND OUTLOOK The market conditions for our Drilling Products Division have been depressed since mid-1998 due to low oil prices and reduced drilling activity. This decline has affected our Drilling Product Division's operations in two significant ways: o The lower rig count has reduced demand for drill stem products. The reduction in demand is attributable to both the lower number of drilling rigs requiring drill stem products and an increased level of stock on hand with our customers as drill stem products from idle rigs are made available to other rigs. o The decline in drilling activity has reduced the number of wells being completed offshore. This reduction in the number of completed offshore wells also reduces the demand for our premium casing, liner and production tubing and connections for these products. The reduced demand for premium tubular products also affects our accessory products. We currently expect that the demand for our drill stem products for 1999 could be down as much as 60% from 1998. The utilization of the excess drill stem products provided by idle rigs may also suppress levels of demand substantially below requirements for current drilling activity. We expect, however, that excess stock should, absent any further changes in the drilling markets, be substantially diminished by the middle of the year 2000. Because the market conditions for our drilling products is heavily dependent on drilling activity, which in turn is dependent on the price of oil and gas, the effect of the current market conditions on our business is extremely difficult to project and is subject to much uncertainty. GROWTH STRATEGY The growth strategy for our Drilling Products Division is as follows: o Lower drill stem cost structure o Introduce new technologies, such as vacuum insulated tubing and short radius drill pipe o Maintain capacity capabilities for o Expand product line and marketing of recovery subsea conductors and risers o Add complementary products to o Continue improvements in connector existing lines technology
14 16 PRODUCTS OFFERED BY OUR DRILLING PRODUCTS DIVISION A description of the principal products offered by our Drilling Products Division is as follows: DRILL PIPE Drill pipe is the principal mechanical tool used to drill for oil and gas. Our drill pipe is sold primarily to rig contractors and rental companies. Unlike a drilling rig, drill pipe is a consumable product with a limited lifespan based on usage. Our drill pipe is designed and manufactured for extreme environments and incorporates a number of proprietary designs. Our principal competitors in drill pipe are Omsco, IDPA and various local manufacturers in foreign countries. DRILL COLLARS Drill collars are used to provide weight on a drill bit to assist in the drilling process. A drill collar is generally located directly above the drill bit and is machined from a solid steel bar to provide the necessary weight for a vertical well. HEAVYWEIGHT DRILL PIPE AND OTHER DRILL STEM PRODUCTS Our heavyweight drill pipe is a seamless tubular product that is less rigid than a drill collar. Heavyweight drill collars provide the transition zone between a drill collar and the drill pipe. Heavyweight drill pipe also serves to apply weight to a drill bit in a directional well. We also provide kellys, subs and pupjoints. The principal competitors for heavyweight drill pipe and other drill stem products are Smith International, Inc., SMFI and Omsco. ENGINEERED CONNECTIONS AND PREMIUM TUBULARS Our premium tubular products consist of premium production tubing, liners and casing. The term "premium" refers to seamless tubulars with high alloy chemistry, specific molecular structure and highly engineered connections. Our premium tubulars are sold both with and without our proprietary Atlas Bradford(R) connections. Our premium tubulars are used in particularly harsh environments, such as offshore and deep natural gas wells where pressure, temperature and corrosive elements are extreme. The principal competitors for our premium engineered connections are Hydril, Hunting Interlock and VAM. During 1999, we licensed TAMSA the international rights to our Atlas Bradford connections. CONNECTORS FOR CONDUCTORS AND SUBSEA STRUCTURES Our connections for marine conductors and subsea structures consist of our XL System proprietary line of connection technology for conductors and subsea structures. Conductors are the initial support for new wells from which both downhole and wellhead sections attach. Conductors are typically hammered in place at the beginning of the drilling process. We use a proprietary wedge thread technology to connect the conductors. Our primary competition for conductors and subsea constructors are ABB, DrillQuip and various smaller companies. RAW MATERIALS The following list sets forth the principal raw materials used by our Drilling Products Division.
Product Raw Material ------- ------------ Drill pipe Steel billets and seamless green tubing Drill collars Solid steel bars Heavyweight drill pipe Heavy walled tubes Premium tubing and casing Seamless green tubing
15 17 Our suppliers for the above raw materials are the major domestic and international steel mills. We have established relationships with several domestic and foreign mill sources to provide us with these products. Currently raw materials for our Mexican and Indian operations are provided by TAMSA in Mexico. We have a 30 year supply contract with TAMSA in which we have given it the right to supply these operations as long as the prices are on a competitive basis and we are not providing those supplies internally. We are also reviewing other cost-effective long-term supply arrangements for this division. PROPERTIES Our operations are conducted in over 50 countries. We currently have more than 60 manufacturing and over 300 sales, service and distribution locations throughout the world. We are in the process of consolidating many of these operations in light of current market conditions. The following table describes the material manufacturing and other facilities and principal offices currently owned or leased by us.
FACILITY PROPERTY SIZE SIZE LOCATION (SQ. FT) (ACRES) TENURE UTILIZATION -------- ------- -------- ------ ----------- COMPLETION AND OILFIELD SERVICES: Houston, Texas 117,500 16.36 Owned Manufacture of power tongs, power units and accessories Pearland, Texas 127,500 57.45 Owned Manufacture of fishing tools, milling tools, cutters, overshots and whipstocks Houma, Louisiana 109,800 12.908 Owned Manufacture of mechanical cementing products, float equipment, stage tools, rubber products and industrial valves Hannover, Germany 65,950 3.41 Leased Manufacture of mechanical cementing products, power tongs, power units and accessories, and specialized bucking machines Bryne, Norway 60,000 13.59 Leased Manufacture of liner hanger equipment Huntsville, Texas 81,700 20.00 Owned Manufacture of downhole packers and completion systems Liberal, Kansas 40,000 9.93 Owned Provider of fishing and rental, coiled tubing, and foam Casper, Wyoming 41,553 9.50 Owned Provider of rental and fishing tools and services COMPRESSION SERVICES: Cochrane, Alberta, Canada 41,200 1.90 Owned Package of natural gas compression systems Corpus Christi, Texas 90,000 61.5 Owned Manufacture of and package of natural gas compression systems Yukon, Oklahoma 77,500 15.00 Owned Repair of natural gas compressors ARTIFICIAL LIFT SYSTEMS: Woodward, Oklahoma 138,800 53.00 Leased Manufacture of sucker rod pumps Greenville, Texas 100,000 26.00 Owned Manufacture of sucker rods, couplings, stabilizer bars and pump parts Odessa, Texas 99,200 7.20 Owned Manufacture of RotaFlex(R) pumping units Sao Leopoldo, Brazil 86,100 17.00 Owned Manufacture of progressing cavity pumps Houston, Texas 81,000 6.50 Owned Manufacture of steel filter screens Nisku, Alberta, Canada 74,000 8.00 Leased Manufacture of pumpjacks
16 18 Caxias do Sul, Brazil 62,400 6.00 Leased Manufacture of downhole packers and completion systems Longview, Texas 47,000 22.10 Owned Manufacture of pump barrels and plungers Lloydminster, Alberta, Canada 47,000 2.70 Owne Manufacture of progressing cavity pumps Edmonton, Alberta, Canada 42,000 11.00 Owned Manufacture of progressing cavity pumps and continuous sucker rods DRILLING PRODUCTS: Navasota, Texas 347,000 83.00 Owned Manufacture of drill pipe, premium threaded casing, liners and tubing Veracruz, Mexico 303,400 42.00 Owned Manufacture of tool joints Muskogee, Oklahoma 195,900 108.40 Owned Manufacture of TCA premium casing Houston, Texas 148,500 20.00 Leased Manufacture of AB connectors 114,200 21.90 Owned Manufacture of API and premium threaded couplings 82,750 13.50 Owned Manufacture of drill pipe, drill collars, heavyweights and kellys 54,500 7.00 Owned Premium threading services and manufacture tubular accessories Bryan, Texas 160,000 55.30 Owned Manufacture of premium tubing Edmonton, Alberta, Canada 109,600 10.20 Owned Manufacture of drill pipe, premium threaded casing, liners and tubing Houma, Louisiana 85,000 9.40 Owned Manufacture of downhole accessories Jurong, Singapore 64,000 1.48 Leased Manufacture of drill collars and accessories CORPORATE: Houston, Texas 82,000 -- Leased Company's principal offices
In addition to the above facilities, our Drilling Products Division has an agreement with Oil Country Tubular Limited pursuant to which OCTL's manufacturing facility in Narketpally, India is dedicated by OCTL to the production of drill pipe and other tubular products exclusively for us. This facility is owned by OCTL and consists of 262,000 square feet located on 60 acres. The facilities owned by our Compression Services Division are held in a joint venture that is 64% owned by us. OTHER BUSINESS DATA PATENTS Many areas of our business rely on patents and proprietary technology. We currently have more than 500 patents. Many of our patents provide us with competitive advantages in our markets. Although we consider our patents and our patent protection to be an important part of our business, we do not believe that the loss of one or more of our patents would have a material adverse effect on our business. BACKLOG With the exception of drill pipe for our Drilling Products Division, backlog is not material. Our Drilling Products Division had a backlog of drill pipe as of December 31, 1998, 1997 and 1996, of $89.9 million, $360.0 million and $170.0 million, respectively. This backlog represented approximately 4.5%, 18.3% and 11.6% of our total company sales for those years. The total backlog for drill pipe and other drilling products at December 31, 1998, was down to 17 19 approximately $89.9 million, most of which is expected to be shipped by the second quarter of 1999. The decline in drill pipe backlog is reflective of current market conditions. We do not expect that there will be a substantial backlog for this division during 1999. We also believe that sales for this division will be materially dependent upon timing and recovery of drilling activity. INSURANCE We currently carry a variety of insurance for our operations. We are partially self-insured for certain claims in amounts that we believe to be customary and reasonable. We also maintain political risk insurance to insure against certain risks while doing business with foreign countries. Although we believe that we currently maintain insurance coverage that is adequate for the risks involved, there is always a risk that our insurance may not be sufficient to cover any particular loss or that our insurance may not cover all losses. For example, while we maintain product liability insurance, this type of insurance is limited in coverage and it is possible that an adverse claim could arise that is in excess of our coverage. Finally, insurance rates have in the past been subject to wide fluctuation and changes in coverage could result in increases in our cost or higher deductibles and retentions. FEDERAL REGULATION AND ENVIRONMENTAL MATTERS Our operations are subject to federal, state and local laws and regulations relating to the energy industry in general and the environment in particular. Environmental laws have in recent years become more stringent and have generally sought to impose greater liability on a larger number of potentially responsible parties. While we are not currently aware of any situation involving an environmental claim that would likely have a material adverse effect on our business, it is always possible that an environmental claim with respect to one or more of our current businesses or a business or property that one of our predecessors owned or used could arise that could have a material adverse effect. We have been recently named by the Environmental Protection Agency ("EPA") as a party to the Casmalia, California landfill Superfund site. We legally transported certain waste materials to this site between 1980 and 1985. In 1985, after we had ended transporting materials to the landfill, the EPA declared the landfill as a Superfund site. We have been requested to participate in a settlement for the matter by paying approximately $440,000. However, we dispute the findings of EPA regarding our level of involvement in this matter and are currently reviewing the proposed settlement and other options we may have. Our expenditures during 1998 to comply with environmental laws and regulations were not material and we currently expect that the cost of compliance with environmental laws and regulations for 1999 also will not be material. We also believe that our costs for compliance with environmental laws and regulations are generally within the same range with those of our competitors. EMPLOYEES As of December 31, 1998, we employed approximately 11,400 employees. This number of employees was down from approximately 13,800 at the beginning of 1998. The reduction in the number of employees was attributable to the downturn in the industry and our attempts to control costs. In the first quarter of 1999, we further reduced headcount an additional 10% from December 31, 1998 levels. Certain of our operations are subject to union contracts. These contracts, however, cover only a small number of our employees. We believe that our relationship with our employees is generally satisfactory. CORPORATE HISTORY We are a Delaware corporation that was organized in 1972. Many of our businesses, including those of Weatherford Enterra, Inc., have been conducted for more than 50 years. PRINCIPAL EXECUTIVE OFFICES Our principal executive offices are located at 515 Post Oak Blvd., Suite 600, Houston, Texas 77027. Our telephone number is (713) 693-4000. 18 20 FORWARD-LOOKING STATEMENTS This report and our other filings with the Securities and Exchange Commission and public releases contain statements relating to our future results, including certain projections and business trends. We believe these statements constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties may cause actual results to be materially different from projected results contained in forward-looking statements in this report and in our other disclosures. These risks and uncertainties include, but are not limited to, the following: A Further Downturn in Market Conditions Could Affect Projected Results. Any unexpected material changes in oil and gas prices or other market trends would likely affect the forward-looking information contained in this report. Our estimates as to future results and industry trends make assumptions regarding the future prices of oil and gas and their effect on the demand and pricing of our products and services. In analyzing the market and its impact on us for 1999, we have made the following assumptions: o Average prices for oil for most of 1999 will not increase significantly and will be within the same range of prices as they were in the fourth quarter of 1998 and the first quarter of 1999. o Average natural gas prices for 1999 will remain at or near their current levels. o World demand for oil will be up only marginally or flat. o North American and international rig counts will remain at their current low levels. o Future growth in the industry will be dependent on technological advances that can reduce the costs of exploration and production, and technological improvements in tools used for re-entry, thru-tubing and extended reach drilling as well as artificial lift technologies will be important to our future. These assumptions are based on various macro economic factors, and actual market conditions could vary materially from those assumed. A Continuation of the Low Rig Count Could Adversely Affect the Demand for Our Products and Services. Our operations were materially affected by the decline in the rig count during 1998 and 1999 to date. Although the North American and international rig counts are at historical or near historical lows, a continuation of the rig count at its current level for a prolonged period of time would adversely affect our results as demand for oil related products and services would continue to fall because of the uncertainty relating to the future prices. In addition, any further material declines in the current worldwide rig count or drilling activity would likely further reduce the demand for our drilling products and services. Our forward-looking statements regarding our drilling products assume there will not be any further material declines in the worldwide rig count, in particular the foreign rig count. Projected Cost Savings Could Be Insufficient. During 1998 and 1999 to date, we implemented a number of programs intended to reduce costs and align our cost structure with the current market environment. Our forward-looking statements regarding cost savings and their impact on our business 19 21 assume these measures will generate the savings expected. However, if the markets continue to decline, additional actions may be necessary to achieve the desired savings. Weatherford's Success is Dependent upon Technological Advances. Our ability to succeed with our long-term growth strategy is dependent on the technological competitiveness of our product and service offerings. A central aspect of our growth strategy is to enhance the technology of our products and services, to expand the markets for many of our products through the leverage of our worldwide infrastructure and to enter new markets and expand in existing markets with technologically advanced value-added products. Our forward-looking statements have assumed only a small amount of near-term growth from these new products and services. Unexpected Year 2000 Problems Could Have an Adverse Financial Impact. We have not fully determined the impact of Year 2000 on our systems and products. It is possible that unexpected problems associated with the Year 2000 could arise during the implementation of our Year 2000 program that could have a material adverse effect on our business, financial condition and results of operations. We are currently in the assessment and initial implementation phases of our Year 2000 program and expect it to be completed by the fourth quarter of 1999. Economic Downturn in Asia and South America Could Adversely Affect Demand for Products and Services. The economic downturn in Asia has begun to affect the economies in other regions of the world, including South America and the Former Soviet Union. To date, the economies in the United States and Europe have not been materially affected. If the United States or European economies were to begin to decline or if the economies of South America or Asia were to experience further material problems, the demand and price for oil and gas and our products and services could fall further and adversely affect our revenues and income. We have assumed that a worldwide recession will not occur as a result of the economic downturn in Asia and South America. A material decline in the Chinese economy or devaluation of its currency could cause further deterioration to the Asian and world economies. Currency Fluctuations Could Have a Material Adverse Financial Impact. A material decline in currency rates in our markets could affect our future results as well as affect the carrying values of our assets. World currencies have been subject to much volatility. Our forward-looking statements assume no material impact from changes in currencies because our financial position is generally dollar based or hedged. For those revenues denominated in local currency the effect of foreign currency fluctuations is largely mitigated because local expenses are denominated in the same currency. Changes in Global Trade Policies Could Adversely Impact Operations. Changes in global trade policies in our markets could impact our operations in these markets. We have assumed that there will be no material changes in global trading policies. Unexpected Litigation and Legal Disputes Could Have a Material Adverse Financial Impact. If we experience unexpected litigation or unexpected results in our existing litigation having a material effect on results, the accuracy of the forward-looking statements would be affected. Our forward-looking statements assume that there will be no such unexpected litigation or results. Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our other filings with the Securities and Exchange Commission. For additional information regarding risks and uncertainties, see our other current year filings with the Commission under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended. We will generally update our assumptions in our filings as circumstances require. 20 22 RISK FACTORS An investment in our stock and securities involves various risks. When considering your investment in our company you should carefully consider the following factors, together with the information described elsewhere in this report. Continued Low Prices for Oil Will Adversely Affect the Demand for Our Products and Services Low oil prices adversely affect demand throughout the oil and natural gas industry, including the demand for our products and services. As prices decline, we are affected in two significant ways. First, the funds available to our customers for the purchase of goods and services declines. Second, exploration and drilling activity declines as marginally profitable projects become uneconomic and either are delayed or eliminated. Accordingly, as long as oil prices remain low, our revenues and income will be adversely affected. The current market conditions have affected our business in various ways. Our artificial lift business which is heavily dependent on North American production experienced continuous declines in revenue throughout 1998. Our Drilling Products Division has experienced a significant decline in new orders of drill pipe and other drill stem products and tubular sales have fallen as completion activity slowed and tubular distributors reduced inventories. Sales in 1999 for our drill stem products could be down by more than 50% from 1998. The level of decline will be dependent on the timing of any increase of drilling activity and the amount of time it takes for our customers' drill pipe and other tubular inventories to be reduced. Our completion and oilfield services business has experienced declines in line with the general reduction in industry activity, with the greatest declines occurring in the United States markets. Our compression business has only been marginally affected by the recent declines in market conditions due to the fact that its business is based on levels of natural gas development and production, which has been more stable than oil production. Our businesses will continue to be affected by industry conditions, including those conditions and factors described under "Forward-Looking Statements". Disruptions in Foreign Operations Could Adversely Affect Our Income Our operations in certain locations in Latin America, Africa and Far East are subject to various political and economic conditions existing in such countries that could disrupt operations. Disruptions may occur in our foreign operations and losses may occur that will not be covered by insurance. Drill pipe and other products are manufactured for us by Oil Country Tubular Limited in India under a long-term exclusive manufacturing arrangement. Although we have sought to minimize the risks of this operation through a manufacturing versus ownership arrangement, we are providing OCTL with a substantial amount of raw materials, inventory and working capital for the products it manufactures for us. Our Indian operations have been adversely affected by the downturn of the economies in the eastern hemisphere. Operations in India are subject to various political and economic risks as well as financial risks with respect to OCTL. We have recently substantially curtailed our operations in India and they are expected to continue to be curtailed through the end of 1999. A termination or complete shutdown of this operation in light of current market conditions or political factors could have an adverse effect on our income and results. Our Products and Services are Subject to Operational Hazards Our products are used for the exploration and production of oil and natural gas. These operations are subject to hazards inherent in the oil and gas industry that can cause personal injury or loss of life, damage to or destruction of property, equipment, the environment and marine life, and suspension of operations. These hazards include fires, explosions, craterings, blowouts and oil spills. Litigation arising from an accident at a location where our products or services are used or provided may result in our being named as a defendant in lawsuits asserting potentially large claims. Our Common Stock has Fluctuated Historically Historically, and in recent months in particular, the market price of common stock of companies engaged in the oil and gas industry has been highly volatile. Likewise, the market price of our common stock has varied significantly in the past. News announcements and changes in oil and natural gas prices, changes in the demand for oil and natural gas exploration and changes in the supply and demand for oil and natural gas have all been factors that have affected the price of our common stock. 21 23 REFERENCES TO WEATHERFORD When we refer to Weatherford and make use of phrases such as "we" and "us", we are generally referring to Weatherford International, Inc. and its subsidiaries as a whole or on a division basis depending on the context in which the statements are made. ITEM 2. PROPERTIES See Item 1. Business - Properties on page 16 of this report, which is incorporated by reference into this item. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, we become the subject of various claims and litigation. We maintain insurance to cover many of our potential losses and we are subject to various self-retentions and deductibles with respect to our insurance. See Item 1, Business -- Other Business Data -- Federal Regulation and Environmental Matters on page 18 of this report, which is incorporated by reference into this item. Although we are subject to various ongoing items of litigation, we do not believe that any of the items of litigation that we are currently subject to will result in any material uninsured losses to us. It is, however, possible that an unexpected judgment could be rendered against us in the cases in which we are involved that could be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for that matter. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the year ended December 31, 1998, to a vote of stockholders of the Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our Common Stock is traded on the New York Stock Exchange under the symbol "WFT". As of March 24, 1999, there were 3,209 stockholders of record. The following table sets forth, for the periods indicated, the range of high and low sale prices per share for the Common Stock as reported on the New York Stock Exchange. These prices have been adjusted for a two-for-one stock split that occurred in May 1997.
PRICE --------------------------- HIGH LOW ----------- ------------ Year ending December 31, 1998 First Quarter.............................................. $ 53 7/8 $ 37 1/2 Second Quarter............................................. 58 7/16 34 3/4 Third Quarter.............................................. 39 15/16 15 Fourth Quarter............................................. 28 3/4 16 Year ending December 31, 1997 First Quarter.............................................. $ 31 7/8 $ 23 7/8 Second Quarter............................................. 45 1/2 28 Third Quarter.............................................. 64 42 1/16 Fourth Quarter............................................. 73 40 1/4
On March 24, 1999, the closing sales price of our Common Stock as reported by the New York Stock Exchange was $26 3/4 per share. We have not declared or paid dividends on our Common Stock since 1984 and we do not anticipate paying dividends on our Common Stock at any time in the foreseeable future. In addition to our Common Stock, we currently have outstanding $402.5 million principal amount in 5% Convertible Subordinated Preferred Equivalent Debentures due 2027. These debentures have the following material terms: o Mature on November 1, 2027 o Interest rate of 5% per annum, payable February 1, May 1, August 1 and November 1 of each year o Are convertible in Common Stock at a conversion price of $80 per share o May be redeemed at any time on or after November 4, 2000 at redemption prices set forth in an indenture relating to the debentures 22 24 o Are subordinated in right of payment of principal and interest on certain existing and future senior indebtedness ITEM 6. SELECTED FINANCIAL DATA The following table sets forth certain restated selected historical consolidated financial data and should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included elsewhere herein. The following information may not be deemed indicative of our future operating results.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------ ------------ ------------- ------------ ------------ (in thousands, except per share amounts) Revenues.................................. $ 2,010,654 $ 1,969,089 $ 1,467,270 $ 1,125,803 $ 858,993 Operating Income.......................... 149,048(a) 335,992 169,101 12,120 70,952 Income (Loss) From Continuing Operations............................ 64,837(a) 196,773 92,161 (8,268) 36,046 Basic Earnings (Loss) Per Share From Continuing Operations................. 0.67 2.04 1.03 (0.10) 0.53 Diluted Earnings (Loss) Per Share From Continuing Operations............ 0.66 2.01 1.01 (0.10) 0.53 Total Assets.............................. 2,831,715 2,737,910 2,243,633 1,710,568 1,464,804 Long-Term Debt............................ 229,663 252,322 417,976 416,473 303,854 5% Convertible Subordinated Preferred Equivalent Debentures................. 402,500 402,500 -- -- -- Stockholders' Equity...................... 1,493,880 1,458,549 1,292,704 958,337 845,287 Cash Dividends Per Share.................. -- -- -- -- --
(a) Includes $195.0 million, $126.8 million net of tax, of merger and other charges relating to the merger between EVI and Weatherford Enterra and a reorganization and rationalization of our business in light of industry conditions. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL In May 1998, the new Weatherford was created through the merger of EVI, Inc. and Weatherford Enterra, Inc. This merger was accounted for as a pooling of interests and our financial statements have been restated to reflect our businesses on a combined basis. We have also redefined our business segments into four separate divisions: Completion and Oilfield Services, Artificial Lift Systems, Compression Services and Drilling Products. Our segment data has been restated to reflect these four divisions. The following is a discussion of our results of operations for the last three years and our current financial position. This discussion should be read in conjunction with our financial statements that are included with this report. Our discussion of our results and financial condition includes various forward-looking statements about our markets, the demand for our products and services and our future results. These statements are based on certain assumptions that we consider to be reasonable. For information about these assumptions, you should refer to our Section entitled "Forward-Looking Statements." MARKET TRENDS AND OUTLOOK Our businesses serve the oil and gas industry. Certain of our products and services, such as our drill pipe, tubular installation services and well completion services, are dependent on the North American and worldwide level of exploration and development activity. Other products and services, such as our artificial lift systems and compression services, are dependent on oil and gas production activity. We currently estimate that between 50% and 60% of our business is reliant on drilling activity, with the remainder related to production activity. The oil and gas industry has been subject to extreme volatility in recent years due to significant changes in the demand, supply and pricing of oil and natural gas. In 1997 through early 1998, we experienced a strong increase in the demand for our products and services due to a worldwide increase in the demand for oil and shortages of 23 25 equipment and people to service this demand. During this period, we and our industry operated at levels that had not been experienced since the early 1980's and many of our businesses operated at full capacity. Beginning in late 1997, the price of oil began to fall. The reasons for the decline included the spreading impact of the financial crisis in Asia on the worldwide demand for oil and an increase in the supply of oil worldwide as new projects and production came online. Initially, the effects of these changes were felt only in isolated markets, such as the Canadian and California heavy oil markets, where drilling and production activity is more sensitive to the price of oil. Drilling and completion activity in North America then began to decline due to the greater sensitivity of North American production to prices. By late 1998, demand throughout the industry had fallen substantially as our customers' exploration, development and production activities worldwide dropped in reaction to sharply lower oil prices. Low oil prices have also affected the economies of various developing countries, in particular those in Latin America and the former Soviet Union, that are heavily dependent on oil exports for growth. Many of these countries are now experiencing declines in their own economies, which in turn has further affected the worldwide demand and price for oil. The following chart sets forth certain historical statistics that are reflective of the current market conditions in which we operate: SELECTED INDUSTRY DATA - ------------------------------------------------------------------------------- (1) (2) (3) (3) NORTH AMERICAN INTERNATIONAL WTI OIL HENRY HUB GAS RIG COUNT RIG COUNT - ------------------------------------------------------------------------------- 1998 $11.28 $1.945 895 671 - ------------------------------------------------------------------------------- 1997 $18.32 $2.264 1,499 819 - ------------------------------------------------------------------------------- 1996 $25.39 $2.757 1,195 810 - ------------------------------------------------------------------------------- (1) Price per Barrel as of December 31 - Source: Applied Reasoning, Inc. (2) Price per MM/BTU as of December 31 - Source: Oil World (3) Average rig count for December - Source: Baker Hughes Rig Count The reduction in drilling and production activity impacted our businesses through lower revenues, pricing pressure and reduced margins. Contributing to these conditions are the following trends: o Low oil prices have reduced the funds available to our clients to explore for and produce oil and gas and have made the exploration and production of oil reserves in various locations uneconomical. o Reduced exploration activity has reduced the demand for the products and services provided by us serving the drilling markets. Our Drilling Products Division has been the most significantly affected. o North American activity has declined more than the decline in international activity due to the maturity of the reserves in North America and the higher per barrel cost of exploration and production in North America. o The capital budgets of our customers have been reduced and delayed because of industry consolidations and market uncertainties as to future oil prices. o Reduced demand for our products and services has resulted in pricing pressures and reduced margins in most of our markets. As we enter 1999, there is substantial uncertainty as to when demand will stop declining and when a recovery will start. Our view is that we are nearing the bottom of the cycle and that improvements will slowly begin to be felt near the end of the year. We believe the principal factor behind a recovery will be a reduction in the supply of oil as production rates decline due to the current reduction in drilling activity. Recent proposed production cuts by the oil producing countries may also result in improved market conditions to the extent those cuts are actually implemented. Increases in worldwide demand could also speed up the recovery. We do not expect any material improvements in industry conditions until sometime in 2000. We expect that in light of current market conditions our revenues, operating income before special charges and net income from continuing operations before special charges for 1999 will all be substantially down on a year to year basis absent a significant turn-around by the third quarter of 1999. The extent of the decline will be a function of when the market stabilizes and begins to recover. The extreme volatility of our markets, however, makes predictions regarding results for 1999 difficult to make. 24 26 RESULTS OF OPERATIONS The business environment in which we have operated over the last three years has experienced extreme changes. Starting in 1996, we began to experience the first significant improvements in our markets in a number of years. That improvement continued through 1997 into the first part of 1998, with a material slow down beginning near the middle of 1998. By the end of 1998, our industry was in the midst of one of the worse downturns in its history. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 The following charts contain selected financial data comparing our results for 1998 and 1997:
COMPARATIVE FINANCIAL DATA YEAR ENDED --------------------------- 1998 1997 ------------ ----------- (in thousands) Revenues.......................................... $ 2,010,654 $1,969,089 Gross Profit...................................... 583,869(a) 580,702 Gross Profit %.................................... 29.0% 29.5% Selling, General and Administrative Attributable to Segments........................ $ 266,423 $ 209,476 Corporate General and Administrative.............. 26,980 37,816 Operating Income.................................. 149,048(a) 335,992 Interest Income................................... 2,969 8,329 Interest Expense.................................. 54,497 43,273 Net Income from Continuing Operations............. 64,837(a) 196,773 EBITDA (b)........................................ 319,780(a) 478,923
(a) Includes $195.0 million, $126.8 million net of tax, of merger and other charges relating to the merger between EVI and Weatherford Enterra and a reorganization and rationalization of our business in light of industry conditions. Of these charges $50.9 million related to the write-off of inventory and have been classified as cost of products. (b) EBITDA is calculated by taking operating income and adding back depreciation and amortization. We have included an EBITDA calculation here because when we look at the performance of our businesses, we give consideration to their EBITDA. Calculations of EBITDA should not be viewed as a substitute to calculations under GAAP, in particular cash flows from operations, operating income and net income. In addition, EBITDA calculations by one company may not be comparable to another company.
SALES BY GEOGRAPHIC REGION YEAR ENDED ----------------------- 1998 1997 ------------ -------- REGION: (a) U.S................................................. 59% 61% Canada.............................................. 13% 13% Europe.............................................. 8% 8% Latin America....................................... 7% 6% Africa and Middle East.............................. 7% 5% Other .............................................. 6% 7% ------- ------ Total........................................... 100% 100% ======= ======
(a) Sales are based on the region of origination and do not reflect sales by ultimate destination. Our results for 1998 reflected the volatile industry in which we competed; trends and factors affecting our businesses varied depending on the quarter. Our results for 1998 and 1997 were also affected by the following specific items: o Results for 1998 include $195.0 million in pre-tax charges for the merger between EVI and Weatherford Enterra, Inc. and charges associated with the downturn in our industry. o Revenues for the second six months of 1998 declined 14.3% compared to the same period in 1997 and 17.4% compared to the first half of 1998. o The increase in the 1998 operating income of $344.0 million, before charges of $195.0 million, as compared to 1997 operating income of $336.0 million, reflected the strong demand for our products in the first half of 1998. 25 27 o Businesses acquired in 1997 and 1998 contributed $403.5 million in revenues and $25.9 million in operating income in 1998. Revenues and operating income in 1997 from the businesses acquired in 1997 were $166.5 million and $23.3 million. o Businesses sold in 1997 contributed $76.9 million in revenues in 1997. Net income for the disposed businesses was $8.3 million in 1997. o In 1997 we recorded an extraordinary charge of $9.0 million, net of taxes, related to our acquisition of approximately $120.0 million principal amount of our 10 1/4% Senior Notes due 2004 and 10 1/4% Senior Notes due 2004, Series B. o Our interest charges for 1998 reflected higher levels of debt following our issuance in November 1997 of $402.5 million principal amount of 5% Convertible Subordinated Preferred Equivalent Debentures due 2027 and borrowings used to fund acquisitions. o Our corporate expenses as a percentage of revenues for 1998 were 1.3% as compared to 1.9% for 1997. The percentage decrease from 1997 was primarily attributable to the consolidation savings due to our merger. o Our effective tax rate on income from continuing operations for 1998 was 34.8% as compared to 35.5% for 1997. 1998 SPECIAL CHARGES In 1998, we incurred $195.0 million in merger and other charges relating to the merger between EVI and Weatherford Enterra and a reorganization and rationalization of our businesses in light of industry conditions. Of these charges, $120.0 million was incurred in the second quarter at the time of our merger and with the initial downturn in the industry. A $75.0 million charge was incurred in the fourth quarter in response to the previously unanticipated extent of the decline in our industry which resulted in a need for us to make additional reductions in our operations and align the cost structure of our business with current demand. The net after-tax effect of these charges was $126.8 million (or $1.30 per diluted share). Over $171.4 million of these charges had been realized as of December 31, 1998, with the remainder of the charges expected to be fully expended by the second quarter of 1999 in connection with planned activities. During 1999, we will assess whether any adjustments or reversals to the remaining accrued special charges are necessary. The following chart summarizes the special charges made by us in 1998:
COMPLETION BALANCE AND AS OF OILFIELD ARTIFICIAL COMPRESSION DRILLING DECEMBER 31, SERVICES LIFT SYSTEMS SERVICES PRODUCTS CORPORATE TOTAL UTILIZED 1998 ---------- ------------ ----------- -------- --------- ---------- --------- ------------ (in thousands) Merger Transaction Costs(1).... $ -- $ -- $ -- $ -- $ 62,462 $ 62,462 $ 62,462 $ -- Severance and Related Costs(2)..................... 1,961 5,050 -- -- 600 7,611 -- 7,611 Facility Closures(3)........... 8,969 13,817 -- 5,300 -- 28,086 15,257 12,829 Corporate Related Expenses(4).. -- -- -- -- 8,297 8,297 5,177 3,120 Inventory Write-Off(5)......... 4,830 17,573 -- 28,500 -- 50,903 50,903 -- Write-Down of Assets(6)......... 29,195 4,360 1,500 1,150 1,436 37,641 37,641 -- --------- ---------- ---------- -------- -------- --------- -------- -------- Total ...................... $ 44,955 $ 40,800 $ 1,500 $ 34,950 $ 72,795 $ 195,000 $171,440 $ 23,560 ========= ========== ========== ======== ======== ========= ======== ========
(1) The merger related costs were incurred in the second quarter and included $32.6 million in severance and termination costs related to approximately 300 employees and former officers and directors, and other employee benefits related to stock grants, in accordance with Weatherford Enterra's employment agreements and option plans, and $29.9 million in professional and financial advisory fees, filing and registration fees, and printing and mailing costs. (2) The severance and related costs included in the fourth quarter charges were $7.6 million for approximately 1,000 employees specifically identified, with terminations to be completed in the first half of 1999, in accordance with our announced plan to terminate employees. (3) The facility and plant closures costs were $15.3 million in the second quarter, all of which have been incurred by year end. These costs related primarily to the elimination of duplicated manufacturing, distribution and service locations following the merger in May. The facility and plant closures of $12.8 million were accrued in the fourth quarter for the consolidation and closure of approximately 100 service, manufacturing and administrative facilities in response to declining market conditions in the fourth quarter. 26 28 (4) The corporate related expenses of $5.2 million recorded in the second quarter and $3.1 million recorded in the fourth quarter were primarily for the relocation of corporate offices, related lease obligations and the consolidation of technology centers due to the merger and to align our corporate cost structure in light of current conditions. (5) The write-off of inventory was $12.4 million in the second quarter and $38.5 million in the fourth quarter, which were reported as cost of products. These charges relate to the write-off of inventory as a result of the combination of EVI's and Weatherford Enterra's operations, the rationalization of their product lines, the elimination of certain products, services and locations due to the merger and as a result of the decline in market conditions. (6) The write-down of assets was $24.6 million in the second quarter and $13.0 million in the fourth quarter. These charges primarily relate to the write-down of equipment and other assets as a result of the combination of EVI's and Weatherford Enterra's operations, the rationalization of their product lines, the elimination of certain products, services and locations due to the merger, the industry downturn, and the specific identification of assets which are held for sale as a result of the decline in market conditions. SEGMENT RESULTS COMPLETION AND OILFIELD SERVICES Our Completion and Oilfield Services Division began the first half of 1998 with strong revenue and income growth. By the second half of the year, this division began to experience reductions in revenue, operating income and margins as the rig count declined and demand for its products and services dropped. This division's North American operations have been the most adversely affected by the downturn. Revenue declines have continued into the first quarter of 1999. Although we are continuing to reduce our costs in this division through reductions in personnel, the declines in revenues have occurred faster than cost reductions. The revenue reduction has also resulted in manufacturing and operational inefficiencies in this division due to lower operating levels. While we believe this division is well positioned for growth as the industry recovers, results for this division for 1999 will be highly dependent on timing of improvements in the market. The following chart sets forth additional data regarding the results of our Completion and Oilfield Services Division for 1998 and 1997:
YEAR ENDED --------------------------- 1998 1997 ------------ ----------- (in thousands) Revenues........................................ $ 848,219 $ 929,001 Gross Profit.................................... 272,390(a) 314,870 Gross Profit %.................................. 32.1% 33.9% Selling, General and Administrative............. $ 99,423 $ 102,040 Operating Income................................ 135,521(a) 215,412 EBITDA.......................................... 230,239(a) 301,550
(a) Includes merger and other charges of $45.0 million, which consists of $9.0 million for facility closures, $29.2 million for the write-down of equipment, $2.0 million for severance and $4.8 million for the write- off of inventory. The write-off of inventory has been classified as cost of products. Material items affecting the results of our Completion and Oilfield Services Division for 1998 compared to 1997 were: o North American revenues for 1998 declined by 22.4% as compared to 1997 due to an average rig count reduction of 17.4%. o International revenues increased by 10.0% in 1998 to $432.8 million. The most significant revenue increases occurred in the African and Middle Eastern markets. 27 29 o Businesses sold by us in 1997 contributed $76.9 million in revenues in 1997. o Gross profit, before charges of $4.8 million, declined in 1998 by 12.0% as revenue in the second half of 1998 dropped by 10.8% as compared to the first half of 1998. o Selling, general and administrative expenses increased as a percentage of revenues from 11.0% in 1997 to 11.7% in 1998. The increase primarily reflects a reduced revenue base. o Operating income, before charges of $45.0 million, declined in 1998 to $180.5 million from $215.4 million in 1997 primarily due to increased costs and reduced revenues associated with industry conditions. ARTIFICIAL LIFT SYSTEMS Our Artificial Lift Systems Division was the first segment of our business to be affected by the market downturn. Beginning in late 1997 as oil prices began to fall, demand for this division's products fell as its customers reduced and deferred purchases of products used to produce oil, in particular heavy oil. The decline was most pronounced in Canada, where we had just purchased various companies that served this market. We believe this division's business has generally bottomed out and we expect that this division will realize slight sales and income increases during 1999. However, as long as the price of oil remains depressed, we do not expect demand for this division's products to increase significantly. As a result, we do not expect this division to be a significant contributor to income for 1999. Looking beyond 1999, we expect that as the world's oilfields mature, demand for this division's products should increase and it should return to greater profitability. International activity should begin to increase in 1999 as we leverage our worldwide distribution network to market the products and services offered. The following chart sets forth additional data regarding the results of our Artificial Lift Systems Division for 1998 and 1997:
YEAR ENDED --------------------------- 1998 1997 ------------ ----------- (in thousands) Revenues...................................... $ 329,196 $ 249,476 Gross Profit.................................. 101,972 (a) 69,806 Gross Profit %................................ 31.0% 28.0% Selling, General and Administrative........... $ 97,968 $ 47,014 Operating Income.............................. (19,223)(a) 22,792 EBITDA........................................ (40)(a) 31,736
(a) Includes merger and other charges of $40.8 million, primarily including $13.8 million for facility closures, $17.6 million for the write-off of inventory, $5.0 million for severance and $4.4 million related to the write-down of equipment. The write-off of inventory has been classified as costs of products. Material items affecting the results of our Artificial Lift Systems Division for 1998 compared to 1997 were: o The second half of 1998 experienced a decline in revenues of 33.4% compared to the first half of 1998. o Revenues in 1998 related to 1997 acquisitions were $189.1 million. o Gross profit, before charges of $17.6 million, increased to $119.5 million in 1998 from $69.8 million in 1997 due to improved margins from products sold in the first half of 1998. o Selling, general and administrative expenses as a percentage of revenues increased significantly from 18.8% in 1997 to 29.8% in 1998 due to higher amortization of goodwill and other intangibles relating to the 1997 and 1998 acquisitions for this segment, higher selling costs associated with the December 1997 acquisitions of distribution entities and system costs primarily related to Year 2000 compliance costs. o Operating income, before charges of $40.8 million, was down from $22.8 million in 1997 to $21.6 million in 1998 due to increased selling, general and administrative expenses and reduced revenues associated with industry conditions. 28 30 COMPRESSION SERVICES Our Compression Services Division was the least affected by the recent declines in market conditions due to the fact that its business is based on levels of natural gas development and production, which has been more stable than oil production. Revenues for 1998 were essentially flat compared to 1997 as we spent a large portion of the year working to position this division for growth. Gross margins and operating income for this division increased in 1998 as we focused on improving manufacturing and operational efficiencies of this division's operations. Looking forward into 1999, we believe that this division is the best positioned of our operating divisions for growth in 1999 as we expect increased demand for gas compression services as our customers seek ways to reduce costs. International demand is also expected to increase as we seek opportunities with foreign producers through our worldwide infrastructure. We expect this division's revenues and operating income will also be significantly up for 1999 due to our joint venture with GE Capital described below under the heading "Acquisitions and Dispositions." The following chart sets forth additional data regarding the results of our Compression Services Division for 1998 and 1997:
YEAR ENDED --------------------------- 1998 1997 ------------ ----------- (in thousands) Revenues...................................... $ 177,481 $ 178,897 Gross Profit.................................. 39,656 35,105 Gross Profit %................................ 22.3% 19.6% Selling, General and Administrative........... $ 21,064 $ 20,331 Operating Income.............................. 17,092(a) 14,774 EBITDA........................................ 40,171(a) 36,440
(a) Includes merger and other charges of $1.5 million which relates primarily to specific identification of excess equipment that is held for sale due to the weakening market conditions. Material items affecting the results of our Compression Services Division for 1998 compared to 1997 were: o Revenues in 1998 were down slightly from 1997. In the second half of 1998 revenues were down approximately 3.2% from the first half of 1998. o Gross profit as a percentage of revenues increased from 19.6% in 1997 to 22.3% in 1998. This increase reflected an improvement in the design of the compressor packages sold and operational efficiencies. o The increase in selling, general and administrative expenses for 1998 compared to 1997 primarily reflects costs associated with the expansion into international markets. o Operating income before charges was $18.6 million in 1998 which benefited from improved margins. DRILLING PRODUCTS Our Drilling Products Division has been the most affected by the recent decline in drilling activity. Although revenues for 1998 were up compared to 1997, the increase was attributable to sales from our backlog and prior price increases. This division also is expected to continue to have declining revenues throughout the year as its backlog of drill pipe is reduced substantially by the end of the second quarter of 1999. We currently expect that sales of premium connections and tubulars will increase slightly as the year progresses due to inventory reductions at the distributor level. We do not, however, anticipate any increase in sales volumes of drill pipe during 1999 unless the rig count increases substantially and do not expect the increased premium sales to offset the revenue and income losses from the drop in drill pipe sales. In addition, because of the high fixed costs associated with the manufacturing operations of this division, we expect this division to operate at a loss for the first half of 1999. The second half results will be dependent on the timing of improvements in demand, which we do not expect to see until later in 1999 or some time in 2000. 29 31 The following chart sets forth additional data regarding the results of our Drilling Products Division for 1998 and 1997:
YEAR ENDED --------------------------- 1998 1997 ------------ ----------- (in thousands) Revenues...................................... $ 655,758 $ 611,715 Gross Profit.................................. 169,851(a) 160,921 Gross Profit %................................ 25.9% 26.3% Selling, General and Administrative........... $ 47,968 $ 40,091 Operating Income.............................. 115,433(a) 120,830 EBITDA........................................ 147,384(a) 144,440
(a) Includes merger and other charges of $35.0 million, including $5.3 million for facility closures, $28.5 million for the write-off of inventory and $1.2 million for the write-down of equipment. The write-off of inventory is classified as cost of products. Material items affecting the results of our Drilling Products Division for 1998 compared to 1997 were: o The increase in revenues for 1998 reflects the benefit of sales from backlog from 1997 and the first half of 1998. o Sales in the second half of 1998 decreased by 20.5% as compared to the first half of 1998. o Premium tubular revenues declined in the second half of 1998 due to a decrease in demand as distributors' inventories fell in light of prevailing market conditions. o In December 1998, we acquired the company that owned our facility in Veracruz, Mexico, and canceled the lease associated with that facility. We also licensed internationally certain of our rights to some of our Atlas Bradford thread line and recorded $9.0 million in revenues from that arrangement. o Improved gross profit, before charges of $28.5 million, significantly benefited from lower average costs associated with higher production volumes during the first half of 1998. The second half of 1998 reflected a shift in the sales mix from higher margin product sales to lower margin product sales. o Selling, general and administrative expenses increased as a percentage of revenues from 6.6% in 1997 to 7.3% in 1998. The increase reflects system costs primarily associated with Year 2000 compliance costs, as well as the amortization of goodwill associated with the 1997 acquisitions in this division. o Operating income, before charges of $35.0 million, improved from $120.8 million in 1997 to $150.4 million in 1998 due to favorable operating results in the first half of 1998. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 The following charts contain selected financial data comparing our results for 1997 and 1996:
COMPARATIVE FINANCIAL DATA YEAR ENDED --------------------------- 1997 1996 ----------- ------------ (in thousands) Revenues.......................................... $1,969,089 $1,467,270 Gross Profit...................................... 580,702 368,345 Gross Profit %.................................... 29.5% 25.1% Selling, General and Administrative Attributable to Segments........................ $ 209,476 $ 162,018 Corporate General and Administrative.............. 37,816 39,304 Operating Income.................................. 335,992 169,101 Interest Income................................... 8,329 4,168 Interest Expense.................................. 43,273 39,368 Net Income from Continuing Operations............. 196,773 92,161 EBITDA(a)......................................... 478,923 290,931
(a) EBITDA is calculated by taking operating income and adding back depreciation and amortization. We have included an EBITDA calculation here because when we look at the performance of our businesses, we give 30 32 consideration to their EBITDA. Calculations of EBITDA should not be viewed as a substitute to calculations under GAAP, in particular cash flow from operations, operating income and net income. In addition, EBITDA calculations by one company may not be comparable to another company.
SALES BY GEOGRAPHIC REGION YEAR ENDED --------------------------- 1997 1996 ------------ ------------ REGION: (a) U.S............................................. 61% 63% Canada.......................................... 13% 10% Europe.......................................... 8% 10% Latin America................................... 6% 5% Africa and Middle East.......................... 5% 7% Other........................................... 7% 5% ------- ------- Total......................................... 100% 100% ======= =======
(a) Sales are based on the region of origination and do not reflect sales by ultimate destination. Our results for 1997 reflected a major improvement over 1996 as we saw improvements in both the domestic and international rig counts and drilling activity. These improvements resulted in most of our businesses operating at near full capacity and increased prices as demand for products and services exceeded supply. The improvements were generally seen in all of our geographic markets, with North America realizing the greatest increases. Our businesses also benefited from prior consolidation efforts and market expansions. In addition to the general effect of substantially better market conditions in 1997 compared to 1996, our results for 1997 and 1996 were affected by the specific following items: o Revenue increases in 1997 reflected the impact of the various acquisitions made during 1997, the impact of consolidation, restructuring and higher average sales prices which reflect the strength in our markets for 1997. o Acquisitions in 1997 benefited 1997 revenues by $166.5 million and income from continuing operations by $12.3 million. Acquisitions in 1996 benefited 1997 revenues by $269.2 million and income from continuing operations by $24.5 million. o Businesses sold by us in 1997 contributed $76.9 million in revenues in 1997 and $134.3 million in 1996. o Gross profit as a percentage of revenues increased from 25.1% in 1996 to 29.5% in 1997 due to stronger prices and sales of higher margin products and services. o Selling, general and administrative costs attributable to segments as a percentage of total revenues were flat between 1997 and 1996, despite increased amortization of intangibles and costs associated with the assimilation of acquired businesses. o Our corporate expenses as a percentage of revenues for 1997 were 1.9% as compared to 2.7% for 1996. The percentage decrease from 1996 was primarily attributable to the growth in 1997 revenues. o Our interest charges in 1997 reflected increased indebtedness during 1997 and our $402.5 million principal amount of the Debentures issued in November 1997. o Net income for the disposed businesses was $8.3 million in 1997 and $9.6 million in 1996. o We recorded in 1997 an extraordinary charge of $9.0 million, net of taxes, related to our acquisition of approximately $120.0 million principal amount of our 10 1/4% Senior Notes due 2004 and 10 1/4% Senior Notes due 2004, Series B. We also recorded an extraordinary charge of $0.7 million, net of taxes, for the early extinguishment of debt in 1996. o In 1996, we reported income of $7.5 million, net of taxes, from discontinued operations related to our Mallard Division and a gain of $66.9 million, net of taxes of $44.6 million, related to the disposition. In 1997, we benefited from a one-time pre-tax gain of $3.4 million relating to the sale of Parker Drilling Company common stock received in connection with the disposition of the Mallard Division. o Our effective tax rate on income from continuing operations for 1997 was 35.5% as compared to 30.5% for 1996. The 1996 effective rate was favorably impacted by a $4.0 million tax benefit resulting from a $6.4 million settlement in October 1996 with the United States Internal Revenue Service in connection with the dissolution in October 1990 of an oil and gas joint venture. 31 33 1996 SPECIAL CHARGES In the fourth quarter of 1996, we adopted a plan to close our Bastrop, Texas, tool joint manufacturing facility and to combine our two packer facilities through the closure of one facility in Arlington, Texas. In connection with these decisions, we incurred a charge of $5.8 million associated with these closures. Of this charge, $4.3 million related to the tool joint facility closure and relocation of equipment from this facility and $1.5 million related to the consolidation of our packer facilities and the closure of one of the plants. We incurred $3.8 million in 1996 for costs associated with these actions during 1996, including costs relating to the relocation of equipment at our Bastrop facility to other facilities. We also accrued $2.0 million as part of the $5.8 million charge for estimated exit costs that were incurred in 1997 relating to the closure of our Bastrop and Arlington facilities. These costs included $0.8 million for severance and termination costs, $0.9 million for the reduction in the carrying value of our Bastrop facility in light of the intended disposition of the facility and $0.3 million for the termination of the Arlington lease. Approximately 400 of our employees were affected by these closures. We had substantially completed the closure of both the Bastrop and Arlington facilities and incurred substantially all charges related to the closing of these facilities by the end of the second quarter of 1997. SEGMENT RESULTS COMPLETION AND OILFIELD SERVICES The following chart sets forth certain data regarding the results of our Completion and Oilfield Services Division for 1997 and 1996:
YEAR ENDED --------------------------- 1997 1996 ------------ ----------- (in thousands) Revenues...................................... $ 929,001 $ 824,639 Gross Profit.................................. 314,870 233,507 Gross Profit %................................ 33.9% 28.3% Selling, General and Administrative........... $ 102,040 $ 89,253 Operating Income.............................. 215,412 146,332 EBITDA........................................ 301,550 226,914
Material items affecting the results of our Completion and Oilfield Services Division for 1997 compared to 1996 were: o The increase in revenues primarily reflects increased volume of activity and improved pricing resulting from a 15% increase in worldwide drilling activity. o The increased use of certain drilling techniques, such as re-entry, multi-lateral, horizontal and directional drilling, were also important contributors to revenue growth in 1997, particularly in North America. o U.S. oilfield services revenues increased 33% to $317.7 million, while the U.S. average rig count increased 21%. Oilfield services revenues in Canada increased 31% while average Canadian rig count increased 39%. o International oilfield services revenues (excluding Canada) increased 18% compared to an average rig count increase of 2%. International revenue increases were primarily attributable to increased volume of rental and service activity, some pricing improvement and the introduction of downhole services into new markets. 32 34 o Businesses sold by us in 1997 contributed $76.9 million in revenues in 1997 and $134.3 million in 1996. o Cementation product sales increased 32% over 1996. o Liner hanger sales and service revenues, which included the results of Nodeco AS and Aarbakke AS from the date they were acquired in May 1996, increased 66% in 1997 over 1996. o Gross profit margin, as a percentage of revenues, increased in 1997 to 33.9% from 28.3% as a result of improved pricing in certain areas and increased volume. o Selling, general and administrative expenses for 1997 as a percentage of revenues were 11.0% compared to 10.8% for 1996. o Completion products operating income increased $15.7 million, or 67%, from 1996 to 1997, primarily as a result of the increased volume of cementation product sales, operating efficiencies and the inclusion of the Nodeco operations for the full year of 1997. ARTIFICIAL LIFT SYSTEMS The following chart sets forth certain data regarding the results of our Artificial Lift Systems Division for 1997 and 1996:
YEAR ENDED --------------------------- 1997 1996 ------------ ----------- (in thousands) Revenues...................................... $ 249,476 $ 150,816 Gross Profit.................................. 69,806 42,028 Gross Profit %................................ 28.0% 27.9% Selling, General and Administrative........... $ 47,014 $ 30,361 Operating Income.............................. 22,792 11,667 EBITDA........................................ 31,736 17,532
Material items affecting the results of our Artificial Lift Systems Division for 1997 compared to 1996 were: o Revenue growth in our Artificial Lift Systems Division was primarily due to increased sales of artificial lift equipment in the Canadian and South American markets, and the effects of acquisitions. During 1997, we acquired Trico Industries, BMW Monarch, BMW Pump and various small artificial lift companies. These acquisitions benefited 1997 revenues by $64.9 million and operating income by $6.8 million. o Sales of our progressing cavity pump product lines were particularly strong in Canada and South America where the heavy oil markets improved. o Gross profit, as a percentage of revenues, increased from 27.9% in 1996 to 28.0% in 1997 as a result of an improvement in this division's domestic cost structure and the December 1997 acquisitions of Trico Industries, BMW Pump and BMW Monarch. o Selling, general and administrative expenses for 1997 as a percentage of revenues was 18.8% compared to 20.1% for 1996 in spite of higher amortization and combination expenses related to 1997 acquisitions. COMPRESSION SERVICES The following chart sets forth certain data regarding the results of our Compression Services Division for 1997 and 1996:
YEAR ENDED --------------------------- 1997 1996 ------------ ----------- (in thousands) Revenues...................................... $ 178,897 $ 154,503 Gross Profit.................................. 35,105 29,771 Gross Margin %................................ 19.6% 19.3% Selling, General and Administrative........... $ 20,331 $ 21,938 Operating Income.............................. 14,774 7,833 EBITDA........................................ 36,440 31,387
33 35 Material items affecting the results of our Compression Services Division for 1997 compared to 1996 were: o Revenue increases were primarily due to an increase in manufacturing and packaging revenues of 21% to $78.2 million and an improvement of 12% to $100.7 million for compressor rental and service revenues. o Gross profit increased from 19.3% in 1996 to 19.6% in 1997 due to improvements in manufacturing and packaging operations. o Selling, general and administrative expenses for 1997, compared to 1996, declined due to cost reductions. o Operating income increased due to improved sales, slightly better margins and lower selling, general and administrative expenses. DRILLING PRODUCTS The following chart sets forth certain data regarding the results of our Drilling Products Division for 1997 and 1996:
YEAR ENDED --------------------------- 1997 1996 ------------ ----------- (in thousands) Revenues...................................... $ 611,715 $ 337,312 Gross Profit.................................. 160,921 63,039 Gross Margin %................................ 26.3% 18.7% Selling, General and Administrative........... $ 40,091 $ 20,466 Operating Income.............................. 120,830 42,573 EBITDA........................................ 144,440 53,619
Material items affecting the results of our Drilling Products Division for 1997 compared to 1996 were: o Improved results were primarily due to increased demand for drill pipe and other drilling tools, strength in premium tubular activity and our acquisition of TA Industries, Inc., a premium tubular couplings and accessories manufacturer, in April 1997, and the third quarter 1997 acquisition of XL Systems, Inc., a manufacturer of marine connectors. o Drill pipe and other drill stem products sales increased to approximately $283.4 million for 1997 from $181.3 million for 1996. The increase in demand for drill pipe reflected higher domestic and international drilling activity, in particular offshore drilling. Revenues from drill pipe sales also reflected higher pricing of products. o Premium tubular revenues increased to approximately $307.9 million during 1997 up from approximately $157.8 million for 1996. The increase in premium tubular revenues reflected strong demand in the Gulf of Mexico and the acquisition of TA Industries. o During 1997, our acquisitions of TA Industries, XL Systems and various small acquisitions benefited 1997 revenues in this division by $96.8 million and benefited its operating income by $16.1 million. o Gross profit for this division increased as a percentage of revenues from 18.7% in 1996 to 26.3% in 1997 due to increased pricing on our products and reduced costs resulting from the expansion of our Mexico tool joint facility. In the third quarter of 1997, the Mexico facility became fully operational, which benefited operations in the second half of 1997 by over $3.0 million. o Selling, general and administrative expenses for 1997, as a percentage of revenues, was 6.6% compared to 6.1% for 1996 and reflected higher selling, general and administrative expenses associated with the operations of TA Industries as well as the increase in the amortization of goodwill and other intangibles. 34 36 LIQUIDITY AND CAPITAL RESOURCES Our current sources of capital are current cash, cash generated from operations and borrowings under bank lines of credit. We believe that the current reserves of cash and short-term investments, access to our existing credit line and internally generated cash from operations are sufficient to finance the projected cash requirements of our current and future operations. We are continually reviewing acquisitions in our markets. Depending upon the size, nature and timing of an acquisition, we may need additional capital in the form of either debt, equity or a combination of both. The following chart contains information regarding our capital resources and borrowings and exposures as of and for the years ended 1998 and 1997:
1998 1997 ---------- ------------ (in thousands) Cash and Cash Equivalents.............................. $ 40,201 $ 74,211 Borrowings from Revolving Credit Facilities............ 117,279 24,243 Letters of Credit Outstanding.......................... 29,937 27,900 Cumulative Foreign Currency Translation Adjustment........................................... (76,389) (38,494) International Assets Hedged (U.S. Dollar Equivalent)... 33,365 36,802 Net Cash Inflows on Forward Exchange Contracts......... 423 5,200
The reduction in our cash and cash equivalents since December 31, 1997, was primarily attributable to the acquisition of new businesses for approximately $138.8 million in cash and capital expenditures for property, plant and equipment of $205.9 million, offset by net borrowings under revolving credit facilities of $93.0 million, cash of $100.0 million from a sale and leaseback that was consummated in the fourth quarter of 1998, and cash flow from operations of $127.9 million. BANKING FACILITIES In May 1998, we put in place a five-year unsecured revolving credit facility that allows us to borrow up to $250.0 million at any time. The facility consists of a $200.0 million U.S. credit facility and a $50.0 million Canadian credit facility. Borrowings under this facility bear interest at a variable rate based on the U.S. prime rate or LIBOR. Our credit facility contains customary affirmative and negative covenants, including a maximum debt to capitalization ratio, a minimum interest coverage ratio, a limitation on liens and a limitation on asset dispositions. CONVERTIBLE SUBORDINATED DEBENTURES In November 1997, we completed a private placement of $402.5 million principal amount of our 5% Convertible Subordinated Preferred Equivalent Debentures due 2027. The net proceeds from the Debentures were $390.9 million. The Debentures bear interest at an annual rate of 5% and are convertible into Common Stock at a price of $80 per share. We have the right to redeem the Debentures at any time on or after November 4, 2000, at redemption prices provided for in the indenture agreement, and are subordinated in right of payment of principal and interest to the prior payment in full of certain existing and future senior indebtedness. We also have the right to defer payments of interest on the Debentures by extending the quarterly interest payment period on the Debentures for up to 20 consecutive quarters at any time when we are not in default in the payment of interest. 35 37 7 1/4% SENIOR NOTES DUE 2006 We have outstanding $200.0 million of publicly traded 7 1/4% Senior Notes due May 15, 2006. Interest on the 7 1/4% Senior Notes is payable semi-annually on May 15 and November 15 of each year. COMPRESSION FINANCING Our Compression Services Division entered into a sale and leaseback arrangement in December 1998 where it was provided with the right to sell up to $200.0 million of compression units through December 1999 and lease them back over a five year period under an operating lease. Payments under the lease are calculated based on rate of return on the purchase price and an agreed valuation of the leased compressors. Under the terms of the lease, our Compression Services Division may repurchase the equipment at any time. Weatherford International has provided for a residual value guarantee at the end of the term of the lease equal to approximately 85.5% of the appraised value of the compression units under lease. As of December 31, 1998, our Compression Services Division had sold compressors under this arrangement having an appraised value of $119.6 million and received cash of $100.0 million and a receivable of $19.6 million. The receivable is classified in other current assets on the accompanying Consolidated Balance Sheets as the balance is due on demand. The net book value of the equipment sold was approximately $77.4 million, resulting in a pre-tax gain of $42.2 million, which may be deferred until the end of the lease. CAPITAL EXPENDITURES Our capital expenditures for property, plant and equipment during 1998 were $205.9 million and primarily related to drill pipe and tubing, fishing tools, tubular service equipment, compression rental equipment and the completion of plant expansions in Canada. Much of the 1998 capital expenditures related to projects initiated at the end of 1997 and early 1998. Capital expenditures for 1999 are expected to be approximately $105.0 million. Our compression operations are, by their nature, capital intensive and in the event of growth require substantial investments in compressor units. These capital investments have historically been financed through existing cash and internally generated cash flow. We expect that future capital investments by our compression division will be financed by our compression joint venture through debt, sale and leaseback arrangements and other similar financing structures that are repaid from the cash flows generated from the compressor units over the projected term of rental of the equipment. ACQUISITIONS AND DISPOSITIONS Our company has grown substantially over the years through selective acquisitions and combinations. The following table summarizes our 1998 and 1997 acquisitions by operating segment:
1998 1997 --------------------------------------- -------------------------------------- CASH/ASSUMED TOTAL CASH/ASSUMED TOTAL SEGMENT STOCK ($) LIABILITIES CONSIDERATION STOCK ($) LIABILITIES CONSIDERATION ----------------------------- ----------- ------------- ------------- ---------- ------------- ------------- (in thousands) Completion and Oilfield Services................... $ -- $ 83,706 $ 83,706 $ -- $ 44,505 $ 44,505 Artificial Lift Systems...... 30,753 72,234 102,987 -- 250,128 250,128 Compression Services......... -- -- -- -- -- -- Drilling Products............ -- 73,923 73,923 47,425 70,696 118,121 --------- ----------- ----------- --------- ----------- ----------- Total...................... $ 30,753 $ 229,863 $ 260,616 $ 47,425 $ 365,329 $ 412,754 ========= =========== =========== ========= =========== ===========
Subsequent to year end, we completed a joint venture with GE Capital Corporation in which we combined our compression services operations with GE Capital's Global Compression's services operations. The joint venture, which is known as Weatherford Global Compression, is the world's second largest provider of natural gas contract compression services and owns or manages over 4,000 compression units worldwide having more than one million horse power. The pro forma combined 1998 revenues, operating income and EBITDA for the joint venture were $256.9 million, $7.3 million and $52.1 million, respectively. We own 64% of the joint venture and GE Capital owns 36%. We have the right to acquire GE Capital's interest at anytime at a price equal to a third party market determined 36 38 value that is not less than book value. GE Capital also has the right to require us to purchase its interest at any time after February 2001 at a third party market determined value as well as request a public offering of its interest after that date, if we have not purchased its interest by that time. We also recently completed our acquisition of Christiana Companies, Inc. for approximately 4.0 million shares of Common Stock and $20.0 million cash. In the acquisition we acquired through Christiana (1) 4.0 million shares of our Common Stock, (2) cash, after distribution to the Christiana shareholders, equal to the amount of Christiana's outstanding tax and other liabilities and (3) a one-third interest in Total Logistic Control, a refrigerated warehouse, trucking and logistics company. TLC has a net book value of approximately $8.2 million and had 1998 revenues of $90.8 million, operating income of $5.8 million and EBITDA of $12.6 million. We acquired Christiana because it gave us a unique opportunity to own an interest in TLC for essentially no consideration. We intend to hold our investment in Christiana as a passive investment. Our 1998 and 1997 acquisitions, with the exception of our acquisition XL Systems, Inc. in 1997, which was accounted for as an immaterial pooling of interests, were accounted for using the purchase method of accounting. The results of operations of all such acquisitions are included in the Consolidated Statements of Income from their dates of acquisition. The 1998 and 1997 acquisitions were not material individually nor in the aggregate for each applicable year. Some of our acquisitions have resulted in substantial goodwill associated with their operations, including goodwill of approximately $485.3 million relating to our acquisitions in 1997 and 1998. The amortization expense for goodwill and other intangibles during 1998 was $23.4 million. During 1997 we sold certain non-core businesses. Cash proceeds from these transactions totaled $68.8 million in 1997. EXPOSURES Industry Exposure Substantially all of our customers are engaged in the energy industry. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. Many of our customers have slowed the payment of their accounts in light of current industry conditions and others have experienced greater financial difficulties in meeting their payment terms. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. We maintain reserves for potential credit losses, and actual losses have historically been within our expectations. Litigation and Environmental Exposure In the ordinary course of business, we become the subject of various claims and litigation. We maintain insurance to cover many of our potential losses and we are subject to various self-retentions and deductibles with respect to our insurance. Although we are subject to various ongoing items of litigation, we do not believe that any of the items of litigation that we are currently subject to will result in any material uninsured losses to us. It is, however, possible that an unexpected judgment could be rendered against us in cases in which we could be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for that matter. We are also subject to various federal, state and local laws and regulations relating to the energy industry in general and the environment in particular. Environmental laws have in recent years become more stringent and have generally sought to impose greater liability on a larger number of potentially responsible parties. While we are not currently aware of any situation involving an environmental claim that would likely have a material adverse effect on our business, it is always possible that an environmental claim with respect to one or more of our current businesses or a business or property that one of our predecessors owned or used could arise that could involve the expenditure of a material amount of funds. 37 39 International Exposure Like most multinational oilfield service companies, we have operations in certain international areas, including parts of the Middle East, North and West Africa, Latin America, the Asia-Pacific region and the Commonwealth of Independent States, that are inherently subject to risks of war, political disruption, civil disturbance and policies that may: o disrupt oil and gas exploration and production activities; o restrict the movement of funds; o lead to U.S. government or international sanctions; and o limit access to markets for periods of time. Historically, the economic impact of such disruptions has been temporary, and oil and gas exploration and production activities have resumed eventually in relation to market forces. Certain areas, including the CIS, Algeria, Nigeria, parts of the Middle East, the Asia-Pacific region and Latin America, have been subjected to political disruption which has negatively impacted results of operations following such events. Currency Exposure A single European currency ("the Euro") was introduced on January 1, 1999, at which time the conversion rates between legacy currencies and the Euro were set for 11 participating member countries. However, the legacy currencies in those countries will continue to be used as legal tender through January 1, 2002. Thereafter, the legacy currencies will be canceled, and the Euro bills and coins will be used in the 11 participating countries. We are currently evaluating the effect of the Euro on our consolidated financial statements and our business operations; however, we do not foresee that the transition to the Euro will have a significant impact. Approximately 51% of our net assets are located outside the United States and are carried on our books in local currencies. Changes in those currencies in relation to the U.S. dollar result in translation adjustments which are reflected as accumulated other comprehensive loss in the stockholders' equity on our balance sheet. In 1998, we recorded a $37.9 million adjustment to our equity account to reflect the net impact of the decline in various foreign currencies against the U.S. dollar. A discussion of our market risk exposures in financial instruments and additional currency exposures appears below under the heading "Quantitative and Qualitative Market Risk Disclosure." NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for the reporting of comprehensive income and its components in a full set of general-purpose financial statements and is effective for years beginning after December 15, 1997. We adopted SFAS No. 130 in the first quarter of 1998. In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. SFAS No. 131, effective for years beginning after December 15, 1997, requires segment information to be reported on a basis consistent with that used internally for evaluating segment performance and deciding how to allocate resources to segments. We have adopted SFAS No. 131 and restated our segment information and related disclosures in accordance with its requirements. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures About Pensions and Other Postretirement Benefits. SFAS No. 132 standardizes disclosure requirements for pensions and other postretirement benefits. SFAS No. 132 is effective for years beginning after December 15, 1997. We have adopted SFAS No. 132 in 1998. In March 1998, the AICPA issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. The SOP provides guidance with respect to accounting for the various types of costs incurred for computer software developed or obtained for our use. We adopted SOP 98-1 in 1998. It did not have a significant effect on our consolidated results of operations or financial position. 38 40 In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up Activities. We do not capitalize start-up cost; thus, the adoption will not have a significant effect on our consolidated results of operations or financial position. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS No. 133 is effective for years beginning after June 15, 1999. We are currently evaluating the impact of SFAS No. 133 on our consolidated financial statements. In October 1998, the FASB issued SFAS No. 134, Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. SFAS No. 134 is not applicable to us and has no impact on our financial statements. YEAR 2000 MATTERS The Year 2000 issue is the risk that information systems, computers, equipment and products using date-sensitive software or containing computer chips with two-digit date fields will be unable to correctly process the Year 2000 date change. If not identified and corrected prior to the Year 2000, failures could occur in our software, hardware, equipment and products and those of our suppliers, vendors and customers that could result in interruptions in our business. Any failure could have a material impact on us. In response to the Year 2000 issue, we have prepared and implemented a plan ("Year 2000 Plan") to assess and remediate significant Year 2000 issues in our: o information technology systems ("IT"), including computer software and hardware o non-information technology systems utilizing date-sensitive software or computer chips ("Non-IT"), including products, facilities, equipment and other infrastructures. Our management information systems department ("MIS Department"), together with our technical and engineering employees and outside consultants, are responsible for the implementation and execution of the Year 2000 Plan. Our Year 2000 Plan is a comprehensive, multi-step process covering our IT and Non-IT systems. The primary phases of the Year 2000 Plan are: (1) assessing and analyzing our systems to identify those that are not Year 2000 ready (2) preparing cost and resource estimates to repair, remediate or replace all systems that are not Year 2000 ready (3) developing a Company-wide, detailed strategy to coordinate the repair or replacement of all systems that are not Year 2000 ready (4) implementing the strategy to make all systems Year 2000 ready (5) verifying, testing and auditing the Year 2000 readiness of all systems. As of the end of 1998, the first phase of the Year 2000 Plan was completed with respect to the assessment of our IT and Non-IT systems. The second phase was also completed by the end of 1998. Work is currently underway in the third phase of the Year 2000 Plan. The third phase will be completed by the end of the first quarter of 1999, the fourth phase and the fifth and final phase will be completed by the end of the third quarter of 1999. Any unexpected delays or problems that prevent us from completing all phases of the Year 2000 Plan in a timely manner could have a material adverse impact on us. As part of the Year 2000 Plan, we are currently installing Year 2000 ready business application systems and expect that these installations will be complete by the end of the third quarter of 1999. We have retained outside consultants to assist us with the installation of the new software and with the assessment of the Year 2000 readiness of our IT systems. We expect to retain additional consultants to assist us in the remediation and testing phases of the Year 2000 Plan. In addition to our assessment and review of our own systems, we have begun communications with our third-party contractors, such as vendors, service providers and customers, for the purpose of evaluating their readiness for the Year 2000 and determining the extent to which we may be affected by the remediation of their systems, software, applications and products. We expect to further review and evaluate the Year 2000 programs of our significant third-party contractors. However, there can be no guarantee that our IT and Non-IT systems of third-party 39 41 contractors will be Year 2000 ready or that the failure of any such party to have Year 2000 ready systems would not result in interruptions in our business which could have a material adverse impact on us. In connection with the implementation and completion of the Year 2000 Plan, we currently expect to incur pretax expenditures of approximately $10.0 million. We have incurred $6.3 million of such expenditures through December 31, 1998, of which, approximately $5.7 million has been incurred in connection with the replacement of our business application software and approximately $0.6 million has been incurred in connection with the replacement of certain IT hardware systems. We intend to continue to fund the Year 2000 Plan expenditures with working capital and third-party lease financing. Based upon information currently available, we believe that expenditures associated with achieving Year 2000 compliance will not have a material impact on operating results. However, any unanticipated problems relating to the Year 2000 issue that result in materially increased expenditures could have a material adverse impact on us. The expenditures associated with the Year 2000 Plan represent approximately 12% of our MIS Department's budget for 1999. Various other IT projects that are not related to the Year 2000 issue have been deferred due to the Year 2000 efforts. The effects of these delays are not expected to have a material impact on the Company. We have not completed the evaluation of the most likely worst case Year 2000 scenario. We are preparing a contingency plan in response to Year 2000 worst case scenario and we estimate no lost revenues due to Year 2000 issues. However, there can be no assurance that any contingency plan developed by us will be sufficient to alleviate or remediate any significant Year 2000 problems that we may experience. The above discussion of the our efforts and expectations relating to the risks and uncertainties associated with the Year 2000 issues and our Year 2000 Plan contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements involve predictions and expectations concerning our ability to achieve Year 2000 compliance, the amount of costs and expenses related to the Year 2000 issue and the effect the Year 2000 issue may have on business and results of operations. Certain risks and uncertainties may cause actual results to be materially different from the projected or expected results, the overall effect of which may have a materially adverse impact on us. These risks and uncertainties include, but are not limited to, unanticipated problems and costs identified in all phases of the Year 2000 Plan, our ability to successfully implement the Year 2000 Plan in a timely manner and the ability of our suppliers, vendors and customers to make their systems and products Year 2000 compliant. 40 42 ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES We are currently exposed to market risk from changes in foreign currency and changes in interest rates. A discussion of our market risk exposure in financial instruments follows. FOREIGN CURRENCY EXCHANGE RATES Because we operate in virtually every oil and gas exploration and production region in the world we conduct a portion of our business in currencies other than the U.S. dollar. Although most of our international revenues are denominated in the local currency, the effects of foreign currency fluctuations are largely mitigated because local expenses of such foreign operations also generally are denominated in the same currency. The impact of exchange rate fluctuations during the years ended 1998, 1997 and 1996 did not have a material effect on reported amounts of revenues or net income. We enter into forward exchange contracts only as a hedge against certain existing economic exposures, and not for speculative or trading purposes. These contracts reduce exposure to currency movements affecting existing assets and liabilities denominated in foreign currencies, such exposure resulting primarily from trade receivables and payables and intercompany loans. The future value of these contracts and the related currency positions are subject to offsetting market risk resulting from foreign currency exchange rate volatility. The counterparties to these foreign exchange contracts are creditworthy multinational commercial banks. We believe that the risk of counterparty nonperformance is immaterial. At December 31, 1998 and 1997, we had contracts maturing within the next 60 days to sell $33.4 million and $36.8 million, respectively, in Norwegian kroner, U.K. pounds sterling, Canadian dollars and Dutch guilders. Our largest contracts are in Norwegian kroner, $28.8 million and $25.4 million as of December 31, 1998 and 1997, respectively. Had such respective contracts matured on December 31, 1998 and 1997, our required cash outlay would have been minimal. Settlement of forward exchange contracts resulted in net cash inflows totaling $0.4 million, $5.2 million and $1.1 million during the years ended December 31, 1998, 1997, and 1996, respectively. The net cash inflows vary from year to year due to differences in the forward rate and the spot rate on the date of settlement. This difference may result in material net inflows and outflows if the currency is volatile. For instance, we experienced a $5.2 million net cash inflow in 1997, $4.2 million of which related to the Norwegian kroner, when the difference between the spot rate at the settlement date and the forward rate related to the kroner was as much as 8%. Although currencies could fluctuate in the future and result in either a net inflow or outflow, we believe that this risk is mitigated because we enter into contracts with terms of 30 to 60 days. However, there can be no assurance that volatility similar to or greater than that experienced in 1997 could not occur in the future. INTEREST RATES We are subject to interest rate risk on our long-term fixed interest rate debt and, to a lesser extent, variable interest rate borrowings. Our long-term borrowings primarily consist of the $200.0 million principal of the 7 1/4% Senior Notes due 2006 and the $402.5 million principal of the 5% Convertible Subordinated Preferred Equivalent Debentures due 2027. Changes in interest rates would, assuming all other things being equal, cause the fair market value of debt with a fixed interest rate to increase or decrease, and thus increase or decrease the amount required to refinance the debt. As of December 31, 1998 and 1997, the fair value of the Senior Notes approximated the carrying value and the fair market value of the Debentures was $249.6 million and $368.8 million, respectively. The fair value of the Senior Notes is solely dependent on changes in prevailing interest rates, whereas the fair value of the Debentures is dependent on prevailing interest rates and our current stock price as it relates to the conversion price of $80 per share of our Common Stock. We have various other debt instruments but believe that the impact of changes in interest rates in the near term will not be material to these instruments. 41 43 ITEM 8: Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Page Report of Independent Public Accountants........................... 43 Consolidated Balance Sheets as of December 31, 1998 and 1997....... 44 Consolidated Statements of Income for each of the three years in the period ended December 31, 1998......................... 45 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1998......... 46 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998................... 47 Notes to Consolidated Financial Statements......................... 48 Financial Statement Schedule: II. Valuation and Qualifying Accounts and Allowances.......... 76 All other schedules are omitted because they are not required or because the required information is included in the financial statements or notes thereto. 42 44 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Weatherford International, Inc.: We have audited the accompanying consolidated balance sheets of Weatherford International, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Weatherford International, Inc. and subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The Financial Statement Schedule listed in Part II - Item 8 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic consolidated financial statements. The Financial Statement Schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Houston, Texas February 17, 1999 43 45 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ------------------------ 1998 1997 ----------- ----------- ASSETS CURRENT ASSETS: Cash and Cash Equivalents....................................... $ 40,201 $ 74,211 Accounts Receivable, Net of Allowance for Uncollectible Accounts of $19,764 in 1998 and $23,473 in 1997......................... 400,886 524,929 Inventories..................................................... 484,822 455,811 Deferred Tax Asset.............................................. 55,003 44,904 Other Current Assets............................................ 101,480 34,221 ---------- ---------- 1,082,392 1,134,076 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, AT COST: Land, Buildings and Other Property.............................. 237,305 228,178 Rental and Service Equipment.................................... 902,939 1,010,065 Machinery and Equipment......................................... 521,674 393,317 ---------- ---------- 1,661,918 1,631,560 Less: Accumulated Depreciation................................. 823,648 764,747 ---------- ---------- 838,270 866,813 ---------- ---------- GOODWILL, NET.................................................... 811,034 668,475 OTHER ASSETS..................................................... 100,019 68,546 ---------- ---------- $2,831,715 $2,737,910 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-Term Borrowings........................................... $ 185,729 $ 24,243 Current Portion of Long-Term Debt............................... 19,346 13,178 Accounts Payable................................................ 135,728 218,810 Accrued Salaries and Benefits................................... 44,558 63,656 Current Tax Liability........................................... 25,312 44,317 Other Accrued Liabilities....................................... 146,168 138,965 ---------- ---------- 556,841 503,169 ---------- ---------- LONG-TERM DEBT................................................... 229,663 252,322 DEFERRED INCOME TAXES AND OTHER.................................. 148,831 121,370 5% CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES...... 402,500 402,500 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common Stock, $1 Par Value, Authorized 250,000 Shares, Issued 103,513 Shares in 1998 and 101,958 Shares in 1997.............. 103,513 101,958 Capital in Excess of Par Value.................................. 1,052,899 1,018,024 Treasury Stock, at Cost......................................... (193,328) (165,287) Retained Earnings............................................... 607,185 542,348 Accumulated Other Comprehensive Loss ........................... (76,389) (38,494) ---------- ---------- 1,493,880 1,458,549 ---------- ---------- $2,831,715 $2,737,910 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 44 46 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- REVENUES: Products........................................... $1,250,570 $1,097,823 $ 704,350 Services and Rentals............................... 760,084 871,266 762,920 ---------- ---------- --------- 2,010,654 1,969,089 1,467,270 COSTS AND EXPENSES: Cost of Products................................... 924,133 807,575 550,292 Cost of Services and Rentals....................... 502,652 580,812 548,633 Selling, General and Administrative Attributable to Segments.......................................... 266,423 209,476 162,018 Corporate General and Administrative............... 26,980 37,816 39,304 Equity in Earnings of Unconsolidated Affiliates.... (2,679) (2,582) (2,078) Merger Costs and Other Charges..................... 144,097 -- -- ---------- ---------- --------- 1,861,606 1,633,097 1,298,169 ---------- ---------- --------- OPERATING INCOME.................................... 149,048 335,992 169,101 OTHER INCOME (EXPENSE): Interest Income.................................... 2,969 8,329 4,168 Interest Expense................................... (54,497) (43,273) (39,368) Gain on Sale of Marketable Securities.............. -- 3,352 -- Other, Net......................................... 1,868 561 (1,227) ---------- ---------- --------- INCOME BEFORE INCOME TAXES.......................... 99,388 304,961 132,674 PROVISION FOR INCOME TAXES.......................... 34,551 108,188 40,513 ---------- ---------- --------- INCOME FROM CONTINUING OPERATIONS................... 64,837 196,773 92,161 INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES....................................... -- -- 7,468 GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS, NET OF TAXES....................................... -- -- 66,924 EXTRAORDINARY CHARGE, NET OF TAXES.................. -- (9,010) (731) ---------- ---------- --------- NET INCOME.......................................... $ 64,837 $ 187,763 $ 165,822 ========== ========== ========= BASIC EARNINGS (LOSS) PER SHARE: Income From Continuing Operations.................. $ 0.67 $ 2.04 $ 1.03 Income From Discontinued Operations................ -- -- 0.08 Gain on Disposal of Discontinued Operations........ -- -- 0.75 Extraordinary Charge............................... -- (0.09) (0.01) ---------- ---------- --------- Net Income Per Share............................... $ 0.67 $ 1.95 $ 1.85 ========== ========== ========= Basic Weighted Average Shares Outstanding.......... 97,065 96,052 89,842 ========== ========== ========= DILUTED EARNINGS (LOSS) PER SHARE: Income From Continuing Operations.................. $ 0.66 $ 2.01 $ 1.01 Income From Discontinued Operations................ -- -- 0.08 Gain on Disposal of Discontinued Operations........ -- -- 0.74 Extraordinary Charge............................... -- (0.09) (0.01) ---------- ---------- --------- Net Income Per Share............................... $ 0.66 $ 1.92 $ 1.82 ========== ========== ========= Diluted Weighted Average Shares Outstanding........ 97,757 97,562 90,981 ========== ========== =========
The accompanying notes are an integral part of these consolidated financial statements. 45 47 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) --------------------------- CUMULATIVE FOREIGN UNREALIZED COMMON STOCK CAPITAL IN CURRENCY GAIN ON TREASURY STOCK TOTAL ----------------- EXCESS OF RETAINED TRANSLATION MARKETABLE ------------------- STOCKHOLDERS' SHARES $1 PAR PAR VALUE EARNINGS ADJUSTMENT SECURITIES SHARES AMOUNT EQUITY ------- -------- ---------- -------- --------- ------- ------ ----------- ---------- q Balance at December 31, 1995......... 85,485 $ 85,485 $698,320 $189,838 $(12,784) $ -- (265) $(2,522) $ 958,337 Total Comprehensive Income........... -- -- -- 165,822 1,304 2,381 -- -- 169,507 Shares Issued in Acquisitions........ 2,339 2,339 48,395 -- -- -- -- -- 50,734 Shares Issued Under Employee Benefit Plans....................... 29 29 1,342 -- -- -- 20 419 1,790 Stock Grants and Options Exercised... 740 740 12,038 -- -- -- (8) (394) 12,384 Issuance of Common Stock............. 6,900 6,900 93,960 -- -- -- -- -- 100,860 Purchase of Treasury Stock for Executive Deferred Compensation Plan............................... -- -- -- -- -- -- (44) (908) (908) ------- -------- ---------- -------- --------- ------- ------- ----------- ---------- Balance at December 31, 1996......... 95,493 95,493 854,055 355,660 (11,480) 2,381 (297) (3,405) 1,292,704 Total Comprehensive Income (Loss).... -- -- -- 187,763 (27,014) (2,381) -- -- 158,368 Effect of Immaterial Pooling......... 946 946 (717) (1,075) -- -- -- -- (846) Replacement Shares (Shares Acquired) from GulfMark Merger................ 4,471 4,471 142,788 -- -- -- (4,471) (147,259) -- Shares Issued Under Employee Benefit Plans....................... 11 11 464 -- -- -- -- -- 475 Stock Grants and Options Exercised... 1,037 1,037 12,635 -- -- -- (5) (247) 13,425 Tax Benefit of Options Exercised..... -- -- 8,799 -- -- -- -- -- 8,799 Purchase of Treasury Stock Under Stock Repurchase Plan............... -- -- -- -- -- -- (275) (11,860) (11,860) Purchase of Treasury Stock for Executive Deferred Compensation Plan .............................. -- -- -- -- -- -- (48) (2,516) (2,516) ------- -------- ---------- -------- --------- ------- ------- ----------- ---------- Balance at December 31, 1997.........101,958 101,958 1,018,024 542,348 (38,494) -- (5,096) (165,287) 1,458,549 Total Comprehensive Income (Loss).... -- -- -- 64,837 (37,895) -- -- -- 26,942 Shares Issued in an Acquisition...... 727 727 30,026 -- -- -- -- -- 30,753 Shares Issued Under Employee Benefit Plans....................... 12 12 312 -- -- -- -- -- 324 Stock Grants and Options Exercised... 2,115 2,115 40,627 -- -- -- (1,240) (38,215) 4,527 Tax Benefit of Options Exercised..... -- -- 7,760 -- -- -- -- -- 7,760 Purchase of Treasury Stock Under Stock Repurchase Plan............... -- -- -- -- -- -- (993) (37,585) (37,585) Purchase of Treasury Stock for Executive Deferred Compensation Plan............................... -- -- -- -- -- -- (79) (2,769) (2,769) Retirement of Treasury Stock.........(1,299) (1,299) (49,229) -- -- -- 1,299 50,528 -- Recognition of Deferred Compensation Due to Merger....................... -- -- 5,379 -- -- -- -- -- 5,379 ------- -------- ---------- -------- --------- ------- ------- ----------- ---------- Balance at December 31, 1998........ 103,513 $103,513 $1,052,899 $607,185 $(76,389) $ -- (6,109) $(193,328) $1,493,880 ======= ======== ========== ======== ========= ======= ======= =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 46 48 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 -------- ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income......................................................... $ 64,837 $187,763 $ 165,822 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Non-Cash Portion of Merger Costs and Other Charges................ 124,595 -- -- Depreciation and Amortization..................................... 170,732 142,931 121,830 Net Income from Discontinued Operations........................... -- -- (7,468) Gain on Disposal of Discontinued Operations, Net.................. -- -- (66,924) Gain on Sale of Assets, Net....................................... (29,292) (20,056) (14,058) Extraordinary Charge on Prepayment of Debt, Net................... -- 9,010 731 Deferred Income Tax Provision (Benefit) from Continuing Operations (20,503) 35,459 4,138 Provision for Uncollectible Accounts Receivable................... 2,397 13,248 4,608 Change in Assets and Liabilities, Net of Effects of Businesses Acquired: Accounts Receivable.............................................. 114,138 (113,009) (63,562) Inventories...................................................... (73,607) (108,837) (24,680) Other Current Assets............................................. (39,837) (2,742) 1,547 Accounts Payable................................................. (88,210) 19,216 28,540 Accrued Current Liabilities...................................... (88,143) 7,209 (5,599) Other Assets..................................................... (1,290) (5,031) (2,697) Other, Net....................................................... (7,882) (13,019) (22,257) -------- ------------ --------- Net Cash Provided by Continuing Operations....................... 127,935 152,142 119,971 Net Cash Provided by Discontinued Operations..................... -- -- 8,294 -------- ------------ --------- Net Cash Provided by Operating Activities........................ 127,935 152,142 128,265 -------- ------------ --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Businesses, Net of Cash Acquired.................... (138,840) (321,477) (80,077) Capital Expenditures for Property, Plant and Equipment............. (205,879) (212,992) (172,725) Proceeds from Sales of Businesses.................................. -- 68,798 326,016 Proceeds from Sales of Property, Plant and Equipment............... 46,727 30,431 20,215 Purchase of Short-Term Investment.................................. (20,742) -- -- Proceeds from Sale and Leaseback of Equipment...................... 100,000 -- -- Acquisitions and Capital Expenditures of Discontinued Operations... -- -- (63,136) Income Taxes Paid on Disposal of Discontinued Operations........... -- (62,808) -- Proceeds From Sale of Marketable Securities........................ -- 23,352 -- Other, Net......................................................... 589 (6,384) (15,388) -------- ------------ --------- Net Cash Provided (Used) by Investing Activities................. (218,145) (481,080) 14,905 -------- ------------ --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Long-Term Debt, Net.................................... -- 390,911 197,824 Issuance of Common Stock, Net...................................... -- -- 100,860 Purchases of Treasury Stock........................................ (40,356) (14,376) (908) Tender of Senior Notes............................................. -- (119,980) -- Proceeds from Stock Option Exercises............................... 3,932 16,352 14,148 Termination Costs on Retirement of Debt............................ -- (10,752) (1,125) Borrowings (Repayments) Under Short-Term Borrowings, Net........... 113,036 21,319 (121,656) Borrowings (Repayments) on Long-Term Debt, Net..................... (19,561) (126,425) (115,761) Other Financing Activities, Net.................................... 324 (10,111) 4,978 -------- ------------ --------- Net Cash Provided by Financing Activities........................ 57,375 146,938 78,360 -------- ------------ --------- Effect of Exchange Rate on Cash.................................... (1,175) (784) (220) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................................ (34,010) (182,784) 221,310 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................... 74,211 256,995 35,685 -------- ------------ --------- CASH AND CASH EQUIVALENTS AT END OF YEAR............................ $ 40,201 $74,211 $ 256,995 ======== ============ =========
The accompanying notes are an integral part of these consolidated financial statements. 47 49 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION On May 27, 1998, EVI, Inc. ("EVI") completed a merger with Weatherford Enterra, Inc. ("WII") and changed its name to EVI Weatherford, Inc. (together with its subsidiaries, the "Company") (See Note 2). The merger was accounted for as a pooling of interests; accordingly, the accompanying financial statements have been restated to include the results of WII for all periods presented. Certain reclassifications of prior year balances have been made to conform such amounts to corresponding 1998 classifications. NAME CHANGE At the Company's annual stockholders meeting on September 21, 1998, the stockholders of the Company approved a name change from EVI Weatherford, Inc. to Weatherford International, Inc. The Company's common stock, $1.00 par value ("Common Stock"), is listed on the New York Stock Exchange with a new stock symbol of "WFT". NATURE OF OPERATIONS The Company is one of the world's largest providers of oilfield services and equipment for the oil and gas industry. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Weatherford International, Inc. and all majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The Company accounts for its 50% or less-owned affiliates using the equity method. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVENTORIES Inventories are valued using the first-in, first-out ("FIFO") method and are stated at the lower of cost or market. OTHER CURRENT ASSETS Other current assets are comprised of non-trade receivables, prepaid expenses, and short-term investments. The net increase from December 31, 1997 to December 31, 1998 primarily reflects the receivable of $19.6 million related to the December 1998 sale and leaseback of compression equipment (See Note 14) and the fourth quarter purchase of short-term investments in debt securities for $20.7 million. DEBT AND EQUITY SECURITIES Investments in debt and equity securities are accounted for in accordance with Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), Accounting for Debt and Equity Securities, and accordingly, these investments are recorded at their fair market value with unrealized gains or losses recorded as a separate component of stockholders' equity. The Company has classified these investments in other current assets as available for sale, with any other than temporary decline in fair value of securities charged to earnings. In April 1997, the Company sold equity securities, comprised of approximately 3.1 million shares of Parker Drilling Company ("Parker") common stock, pursuant to a public offering effected by Parker. As a result, the Company received net proceeds of approximately $23.4 million and recognized a pre-tax gain of approximately $3.4 million. (See Note 15). 48 50 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost. Maintenance and repairs are expensed as incurred. The costs of renewals, replacements and betterments are capitalized. Depreciation on fixed assets is computed using the straight-line method over the estimated useful lives for the respective categories. The Company evaluates potential impairment of property, plant and equipment and other long-lived assets on an ongoing basis whenever events or circumstances indicate that carrying amounts may not be recoverable. The useful lives of the major classes of property, plant and equipment are as follows:
LIFE ---------------- Buildings and other property......................... 5 - 45 years Rental and service equipment......................... 3 - 15 years Machinery and equipment.............................. 3 - 20 years
INTANGIBLE ASSETS AND AMORTIZATION The Company's intangible assets are comprised primarily of goodwill and identifiable intangible assets, principally patents and technology licenses. The Company periodically evaluates goodwill and other intangible assets, net of accumulated amortization, for impairment based on the undiscounted cash flows associated with the asset compared to the carrying amount of that asset. Management believes that there have been no events or circumstances which warrant revision to the remaining useful life or which affect the recoverability of any intangible assets. Goodwill is being amortized on a straight-line basis over the lesser of the estimated useful life or 40 years. Other identifiable intangible assets, included as a component of other assets, are amortized on a straight-line basis over the years expected to be benefited, ranging from 5 to 15 years. Amortization expense for goodwill and other intangible assets was approximately $23.4 million, $15.0 million and $10.8 million for 1998, 1997 and 1996, respectively. Accumulated amortization for goodwill at December 31, 1998 and 1997 was $48.5 million and $30.1 million, respectively. ENVIRONMENTAL EXPENDITURES Environmental expenditures that relate to the remediation of an existing condition caused by past operations, and which do not contribute to current or future revenues, are expensed. Liabilities for these expenditures are recorded when it is probable that obligations have been incurred and the costs can be reasonably estimated. Estimates are based on currently available facts and technology, presently enacted laws and regulations and the Company's prior experience in remediation of contaminated sites. Liabilities included $7.3 million and $12.7 million of accrued environmental expenditures at December 31, 1998 and 1997, respectively. STOCK-BASED COMPENSATION In 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 123, ("SFAS No. 123"), Accounting for Stock Based Compensation. The Company has elected not to adopt the accounting recognition provisions of SFAS No. 123 and, as permitted, has continued to use the intrinsic value method of accounting established by Accounting Principles Board Opinion No. 25 ("APB No. 25") to account for its stock-based compensation programs. Under APB No. 25 no compensation expense is recognized when the exercise price of an employee stock option is equal to the market price of Common Stock on the grant date. The Company has adopted SFAS No. 123 by making the required pro forma disclosures of net earnings and earnings per share as if the fair value method of accounting under SFAS No. 123 had been applied (See Note 10). FOREIGN CURRENCY TRANSLATION The functional currency for most of the Company's international operations is the applicable local currency. Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rates in effect at the balance sheet date, and the resulting translation adjustments are included as accumulated other comprehensive loss, a component of stockholders' equity. Currency transaction gains and losses are reflected in income for the period. 49 51 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The net decline in the cumulative foreign currency translation adjustment, as reported in the Consolidated Statements of Stockholders' Equity, from December 31, 1997 to December 31, 1998 was $37.9 million which primarily reflects the financial impact of the devaluation of the Canadian and Latin American currencies as compared to the U.S. dollar. FOREIGN EXCHANGE CONTRACTS The Company enters into foreign exchange contracts only as a hedge against certain existing economic exposures, and not for speculative or trading purposes. These contracts reduce exposure to currency movements affecting specific existing assets and liabilities denominated in foreign currencies, such exposure resulting primarily from trade receivables and payables and intercompany loans. The future value of these contracts and the related currency positions are subject to offsetting market risks resulting from foreign currency exchange rate volatility. The counterparties to the Company's foreign exchange contracts are creditworthy multinational commercial banks. Management believes that the risk of counterparty nonperformance is immaterial. At December 31, 1998 and 1997, the Company had contracts maturing within the next 60 days to sell $33.4 million and $36.8 million, respectively, in Norwegian kroner, U.K. pounds sterling, Canadian dollars and Dutch guilders. Had such respective contracts matured on December 31, 1998 and 1997, the Company's required cash outlay would have been insignificant. ACCOUNTING FOR INCOME TAXES Under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. REVENUE RECOGNITION The Company recognizes revenue as products are shipped or accepted by the customer and when service and rentals are provided. Proceeds from customers for the cost of oilfield rental equipment that is involuntarily damaged or lost downhole are reflected as revenues. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the year. Diluted earnings per common share is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the year adjusted for the dilutive effect of the incremental shares that would have been outstanding under the Company's stock option and restricted stock plans (See Note 10). The effect of the 5% Convertible Subordinated Preferred Equivalent Debentures due 2027 (the "Debentures") on diluted earnings per share is anti-dilutive and, thus, has no impact. The following reconciles basic and diluted weighted average shares:
DECEMBER 31, ---------------------- 1998 1997 1996 ------ ------ ------ (in thousands) Basic weighted average number of shares outstanding.... 97,065 96,052 89,842 Dilutive effect of stock option and restricted stock plans.................................................. 692 1,510 1,139 ------ ------ ------ Dilutive weighted average number of shares outstanding. 97,757 97,562 90,981 ====== ====== ======
NEW REPORTING REQUIREMENTS In February 1998, the FASB issued Statement of Accounting Standards No. 132 ("SFAS No. 132"), Employers' Disclosures About Pensions and Other Postretirement Benefits. SFAS No. 132 standardizes disclosure requirements for pensions and other postretirement benefits. The Company adopted SFAS No. 132 in 1998 (See Note 11). 50 52 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In March 1998, the AICPA issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. The SOP provides guidance with respect to accounting for the various types of costs incurred for computer software developed or obtained for the Company's use. The Company has adopted SOP 98-1. The adoption did not have a significant effect on the consolidated results of operations or financial position. In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up Activities. The Company does not capitalize start-up cost; thus, the adoption will not have a significant effect on the consolidated results of operations or financial position of the Company. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130 establishes standards for the reporting of comprehensive income and its components in a full set of general-purpose financial statements. The Company adopted SFAS No. 130 in 1998 and presents comprehensive income in the accompanying Consolidated Statements of Stockholders' Equity. The primary adjustments and reclassifications to reflect net income on a comprehensive income basis for the years presented were foreign currency translation adjustments and the effect of unrealized and realized gains on marketable securities. In June 1998, the FASB issued Statement of Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The Company is currently evaluating the impact of SFAS No. 133 on its consolidated financial statements. In October 1998, the FASB issued Statement of Accounting Standards No. 134 ("SFAS No. 134"), Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. SFAS No. 134 is not applicable to the Company and has no impact on its consolidated financial statements. 2. MERGER AND ACQUISITIONS In December 1998, the Company acquired the company that owned the Veracruz, Mexico facility and cancelled the lease associated with that facility. Total consideration for this transaction was cash of $1.5 million and a note payable of $48.5 million due in March 1999. The Company also licensed internationally certain of its rights to some of the Company's Atlas Bradford thread lines and recorded approximately $9.0 million in revenue from that arrangement. On May 27, 1998, EVI completed a merger with WII, merging WII with and into EVI pursuant to a tax free merger (the "Merger") in which the stockholders of WII received 0.95 of a share of the Company's Common Stock in exchange for each outstanding share of WII common stock, approximately 48.9 million shares. In addition, approximately 1.4 million shares of Common Stock have been reserved for issuance by the Company for outstanding options under WII's compensation and benefit plans. The Merger was accounted for as a pooling of interests. 51 53 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The separate results of EVI and WII and the combined company were as follows:
January 1 to May 27, Year Ended December 31, 1998 1997 1996 ------------ ------------ ------------ (in thousands) Revenues: EVI............................... $505,549 $ 892,264 $ 478,020 WII............................... 426,422 1,083,965 994,468 Merger adjustments................ (4,963) (7,140) (5,218) ----------- ----------- ----------- Combined.......................... $927,008 $1,969,089 $1,467,270 =========== =========== =========== Extraordinary Charge, Net of Taxes: EVI............................... $ -- $ (9,010) $ (731) WII............................... -- -- -- ----------- ----------- ----------- Combined.......................... $ -- $ (9,010) $ (731) =========== =========== =========== Net Income (Loss): EVI............................... $ 54,045 $ 74,685 $ 98,166 WII............................... 48,481 112,900 70,073 Merger adjustments................ (1,033) 178 (2,417) ----------- ----------- ----------- Combined.......................... $101,493 $ 187,763 $ 165,822 =========== =========== ===========
Merger adjustments include the elimination of intercompany revenues of $5.0 million, $7.1 million and $5.2 million and cost of sales of $3.4 million, $5.7 million and $4.2 million for the five months ended May 27, 1998 and years ended December 31, 1997 and 1996, respectively. Merger adjustments for the years ended December 31, 1997 and 1996 also include the elimination of expenses of $1.7 million and a gain of $2.7 million, respectively, recorded by WII on the sale of Arrow Completion Systems, Inc. to EVI in December 1996. On February 19, 1998, the Company completed the acquisition of Ampscot Equipment Ltd. ("Ampscot"), an Alberta corporation, for approximately $57.1 million in cash. Ampscot is a Canadian-based manufacturer of pumping units. On January 15, 1998, the Company completed the acquisition of Taro Industries Limited ("Taro"), an Alberta corporation, in which approximately 0.8 million shares of Common Stock have been issued to the shareholders of Taro in exchange for their shares of Taro stock. Taro is a Canadian provider of well automation, gas compression, and drilling equipment distribution. On January 12, 1998, the Company completed the acquisition of the Houston Well Screen group of companies ("HWS") from Van der Horst Limited, a Singapore company, for a net purchase price of approximately $27.6 million in cash. The HWS acquisition includes the purchase of Van der Horst U.S.A., Inc., which is the holding company of Houston Well Screen Company and of Houston Well Screen Asia Pte. Ltd., which has operations in Singapore and Indonesia. HWS makes wedge-wire screen products for use in oil and gas production and other applications. On December 3, 1997, the Company completed the acquisition of all of the outstanding shares of BMW Monarch (Lloydminster) Ltd. ("BMW Monarch") and BMW Pump Inc. ("BMW Pump") for aggregate consideration of approximately $98.8 million in cash, including a final working capital adjustment, and $14.3 million in assumed debt. BMW Pump is a Canadian-based manufacturer of progressing cavity pumps, and BMW Monarch is a Canadian supplier of progressing cavity pumps, as well as, other production related oilfield products. On December 2, 1997, the Company completed the acquisition of all of the capital stock of Trico Industries, Inc. ("Trico"), in exchange for $105.0 million in cash and the assumption of $8.7 million of debt. Trico is a Texas-based manufacturer and distributor of sub-surface reciprocating pumps, sucker rods, accessories and hydraulic lift systems. 52 54 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On August 25, 1997, the Company completed the acquisition of XLS Holding, Inc. ("XL") in a transaction accounted for as a pooling of interests. XL designs, manufactures and markets high performance connectors for marine applications such as conductors, risers and offshore structural components. In connection with the acquisition, the Company issued approximately 0.9 million shares of Common Stock in exchange for all of the equity interests of XL. As the effect of this business combination is not significant, prior period financial statements were not restated. On May 1, 1997, the Company acquired GulfMark International, Inc. ("GulfMark") pursuant to a merger in which approximately 4.4 million shares of Common Stock were issued to the stockholders of GulfMark. Prior to the merger, GulfMark effected a spin-off to its stockholders of its marine transportation services business. The retained assets of GulfMark that were acquired by the Company in this transaction consisted of approximately 4.4 million shares of Common Stock, an erosion control company and certain other miscellaneous assets. The 4.4 million shares of Common Stock acquired are classified as "Treasury Stock, at Cost" on the accompanying Consolidated Balance Sheets. Because the number of shares of Common Stock issued in the GulfMark acquisition approximated the number of shares of Common Stock held by GulfMark prior to the acquisition, the GulfMark acquisition had no material effect on the outstanding number of shares of Common Stock or net equity of the Company. On April 14, 1997, the Company acquired TA Industries, Inc. ("TA"), a manufacturer of premium couplings and premium accessories, for approximately $44.1 million in cash and $19.7 million of assumed debt. On May 23, 1996, the Company acquired the business and assets of Nodeco AS, a Norwegian company, and its wholly-owned subsidiary, Aarbakke AS (collectively, "Nodeco"). Nodeco designs, manufactures, sells, and rents oil and gas well completion products primarily consisting of liner hanger equipment and related services, as well as pump packers. The Company paid cash of approximately $14.4 million and issued 0.7 million shares of its Common Stock. The Company has also effected various other 1998, 1997, and 1996 acquisitions for a total consideration of approximately $75.1 million, $82.2 million and $61.6 million, respectively. The acquisitions, with the exception of WII and XL, were accounted for using the purchase method of accounting. The results of operations of all such acquisitions and XL are included in the Consolidated Statements of Income from their respective dates of acquisition. The 1998 and 1997 acquisitions are not material individually or in the aggregate for each applicable year. 3. MERGER AND OTHER CHARGES In 1998, the Company incurred $195.0 million in merger and other charges relating to the merger between EVI and WII and a reorganization and rationalization of its businesses in light of industry conditions. Of these charges, $120.0 million was incurred in the second quarter at the time of our merger and with the initial downturn in the industry. A $75.0 million charge was incurred in the fourth quarter in response to the previously unanticipated extent of the decline in the industry which resulted in a need to make additional reductions in operations and align the cost structure with current demand. The net after-tax effect of these charges was $126.8 million. Over $171.4 million of these charges had been realized as of December 31, 1998, with the remainder of the charges expected to be fully expended by the second quarter of 1999 in connection with planned activities. During 1999, we will assess whether any adjustments or reversals to the remaining accrued special charges are necessary. The following chart summarizes the special charges made in 1998:
COMPLETION BALANCE AND AS OF OILFIELD ARTIFICIAL COMPRESSION DRILLING DECEMBER 31, SERVICES LIFT SYSTEMS SERVICES PRODUCTS CORPORATE TOTAL UTILIZED 1998 ---------- ------------ ----------- -------- --------- ---------- --------- ------------ (in thousands) Merger Transaction Costs(1).... $ -- $ -- $ -- $ -- $ 62,462 $ 62,462 $ 62,462 $ -- Severance and Related Costs(2). 1,961 5,050 -- -- 600 7,611 -- 7,611 Facility Closures(3)........... 8,969 13,817 -- 5,300 -- 28,086 15,257 12,829 Corporate Related Expenses(4).. -- -- -- -- 8,297 8,297 5,177 3,120 Inventory Write-Off(5)......... 4,830 17,573 -- 28,500 -- 50,903 50,903 -- Write-Down of Assets(6)......... 29,195 4,360 1,500 1,150 1,436 37,641 37,641 -- --------- ---------- ---------- -------- -------- --------- -------- -------- Total ...................... $ 44,955 $ 40,800 $ 1,500 $ 34,950 $ 72,795 $ 195,000 $171,440 $ 23,560 ========= ========== ========== ======== ======== ========= ======== ========
(1) The merger related costs were incurred in the second quarter and included $32.6 million in severance and termination costs related to approximately 300 employees and former officers and directors, and other employee benefits related to stock grants, in accordance with WII's employment agreements and option plans, and $29.9 million in professional and financial advisory fees, filing and registration fees, and printing and mailing costs. (2) The severance and related costs included in the fourth quarter charges were $7.6 million for approximately 1,000 employees specifically identified, with terminations to be completed in the first half of 1999, in accordance with our announced plan to terminate employees. (3) The facility and plant closures costs were $15.3 million in the second quarter, all of which have been incurred by year end. These costs related primarily to the elimination of duplicated manufacturing, distribution and service locations following the merger in May. The facility and plant closures of $12.8 million were accrued in the fourth quarter for the consolidation and closure of approximately 100 service, manufacturing and administrative facilities in response to declining market conditions in the fourth quarter. (4) The corporate related expenses of $5.2 million recorded in the second quarter and $3.1 million recorded in the fourth quarter were primarily for the relocation of corporate offices, related lease obligations and the consolidation of technology centers due to the Merger and to align our corporate cost structure in light of current conditions. (5) The write-off of inventory was $12.4 million in the second quarter and $38.5 million in the fourth quarter, which were reported as cost of products. These charges relate to the write-off of inventory as a result of the combination of EVI's and WII's operations, the rationalization of their product lines, the elimination of certain products, services and locations due to the merger and as a result of the decline in market conditions. (6) The write-down of assets was $24.6 million in the second quarter and $13.0 million in the fourth quarter. These charges primarily relate to the write-down of equipment and other assets as a result of the combination of EVI's and WII's operations, the rationalization of their product lines, the elimination of certain products, services and locations due to the merger, the industry downturn, and the specific identification of assets which are held for sale as a result of the decline in market conditions. 53 55 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company adopted a plan to close its Bastrop, Texas, tool joint manufacturing facility and to combine its two packer facilities through the closure of one facility in Arlington, Texas, in the fourth quarter of 1996. In connection with these decisions, the Company incurred a charge of $5.8 million associated with these closures. Of this charge, $4.3 million related to the tool joint facility closure and relocation of equipment from this facility and $1.5 million related to the consolidation of its packer facilities and the closure of one of the plants. The Company incurred $3.8 million in 1996 for costs associated with these actions during 1996, including costs relating to the relocation of equipment at its Bastrop facility to other facilities. The Company also accrued $2.0 million as part of the $5.8 million charge for exit costs that it expected to be incurred in 1997 relating to the closure of its Bastrop and Arlington facilities. Such costs included $0.8 million for severance and termination costs, $0.9 million for the reduction in the carrying value of its Bastrop facility in light of the intended plan of disposition of the facility and $0.3 million for the termination of the Arlington lease. Approximately 400 employees were affected by these closures. The closure of both the Bastrop and Arlington facilities had been substantially completed by June 1997. 4. CASH FLOW INFORMATION The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Other current assets at December 31, 1998 and 1997 included cash of approximately $3.2 million and $3.4 million, respectively, which was restricted as a result of exchange controls in certain foreign countries or cash collateral requirements for performance bonds, letters of credit, and customs bonds. Cash paid during the years ended December 31, 1998, 1997, and 1996 for interest and income taxes (net of refunds) was as follows:
1998 1997 1996 ------- -------- ------- (in thousands) Interest paid.................................... $52,439 $ 43,389 $28,068 Income taxes paid, net of refunds................ 74,359 121,302 21,367
During the years ended December 31, 1998, 1997, and 1996 there were noncash investing activities of $2.4 million, $24.4 million, and $1.7 million, respectively, relating to capital leases. The following summarizes investing activities relating to acquisitions:
YEAR ENDED DECEMBER 31, --------------------------------- 1998 1997 1996 ---------- ---------- --------- (in thousands) Fair value of assets, net of cash acquired $ 96,984 $ 212,731 $109,565 Goodwill.................................. 178,616 306,648 95,688 Total liabilities......................... (106,007) (197,902) (74,442) Common Stock issued....................... (30,753) -- (50,734) --------- --------- -------- Cash consideration, net of cash acquired.. $ 138,840 $ 321,477 $ 80,077 ========= ========= ========
During the years ended December 31, 1998 and 1997, there were noncash financing activities of $7.8 million and $8.8 million, respectively, relating to tax benefits received from the exercise of nonqualified stock options. These benefits were recorded as a reduction of income taxes payable and an increase to capital in excess of par value. 54 56 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INVENTORIES Inventories by category are as follows:
DECEMBER 31, ------------------ 1998 1997 -------- -------- (in thousands) Raw materials, components and supplies.............. $212,863 $238,349 Work in process..................................... 42,650 66,402 Finished goods...................................... 229,309 151,060 -------- -------- $484,822 $455,811 ======== ========
Work in process and finished goods inventories include the cost of materials, labor, and plant overhead. 6. SHORT-TERM BORROWINGS
DECEMBER 31, ----------------- 1998 1997 -------- ------- (in thousands) Revolving credit facilities with an effective interest rate of 5.6% at December 31, 1998.............. $117,279 $24,243 Short-term bank loans with effective interest rates between 5.73% and 6.10%................................. 20,000 -- Short-term payable due March 1999 with an effective interest rate of 7.00%.................................. 48,450 -- -------- ------- $185,729 $24,243 ======== ======= Weighted average interest rate on short-term borrowings outstanding during the year............................. 5.78% 6.57%
In June 1996, the Company entered into a new working capital facility and terminated the Company's prior U.S. working capital facility. This resulted in an extraordinary charge of approximately $0.7 million, net of taxes of $0.4 million. In May 1998, the Company entered into a new five year unsecured credit agreement which provides for borrowings of up to an aggregate of $250.0 million, consisting of a $200.0 million U.S. credit facility and a $50.0 million Canadian credit facility, and terminated its existing working capital facilities. Amounts outstanding under the facility accrue interest at a variable rate based on either the U.S. prime rate or LIBOR. A commitment fee ranging from 0.09% to 0.20% per annum, depending on the credit ratings assigned to the 7 1/4% Senior Notes due May 15, 2006 (the "7 1/4% Senior Notes"), is payable quarterly on the unused portion of the facility. The facility contains customary affirmative and negative covenants, including a maximum debt to capitalization ratio, a minimum interest coverage ratio, a limitation on liens, and a limitation on asset dispositions. As of December 31, 1998, approximately $117.3 million was outstanding and approximately $1.8 million had been used to support outstanding letters of credit. The Company also has various credit facilities available only for stand-by letters of credit and bid and performance bonds, pursuant to which funds are available to the Company to secure performance obligations and certain retrospective premium adjustments under insurance policies. The Company had a total of $16.8 million of such letters of credit and bid and performance bonds outstanding at December 31, 1998. 55 57 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT
DECEMBER 31, ------------------ 1998 1997 -------- -------- (in thousands) Senior Notes with an effective interest rate of 7.25%, due 2006............................................... $200,000 $200,000 Industrial Revenue Bonds with variable interest rates,.. between 3.7% and 4.1% at December 31, 1998, due 2002... 11,325 10,840 Foreign bank debt, denominated in foreign currencies.... 9,069 8,152 Capital lease obligations under various agreements...... 9,866 28,376 Other................................................... 18,749 18,132 -------- -------- 249,009 265,500 Less: amounts due in one year.......................... 19,346 13,178 -------- -------- Long-term debt.......................................... $229,663 $252,322 ======== ========
The following is a summary of scheduled long-term debt maturities by year (in thousands): 1999.................................................... $19,346 2000.................................................... 7,426 2001.................................................... 4,218 2002.................................................... 11,492 2003.................................................... 3,986 Thereafter.............................................. 202,541 -------- $249,009 ========
The Company has outstanding $200.0 million of 7 1/4% Senior Notes. The 7 1/4% Senior Notes are unsecured obligations of the Company. Interest on the 7 1/4% Senior Notes is payable semi-annually on May 15 and November 15 of each year. Based on the borrowing rates available to the Company, the fair value of the 7 1/4% Senior Notes approximates the carrying value at December 31, 1998 and 1997. In December 1997, the Company completed a cash tender offer and consent solicitation (the "Tender Offer") relating to the Company's outstanding $120.0 million 10 1/4% Senior Notes due 2004 (the "Senior Notes"). An aggregate of $119.98 million principal amount of the Senior Notes were validly tendered by the Company pursuant to the Tender Offer. The prepayment of the Senior Notes resulted in an extraordinary charge of $9.0 million, net of taxes of $5.6 million, or $0.09 per basic share, for the year ended December 31, 1997. The extraordinary charge consists of prepayment fees, other professional fees and the write off of unamortized debt issuance costs. The contract terms of the Industrial Revenue Bonds require principal and interest payments to maturity, occurring in December 2002. In connection with the Industrial Revenue Bonds, the Company has letters of credit of $11.3 million. In 1997, upon the completion of the expansion of the Veracruz, Mexico, tool joint manufacturing facility, the Company recorded the obligation of $16.3 million under its lease to reflect the terms thereof. In December 1998, the lease was terminated in connection with the acquisition of the company that owned the Veracruz, Mexico facility (See Note 2). 56 58 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. 5% CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES In November 1997, the Company completed a private placement of $402.5 million principal amount of 5% Convertible Subordinated Preferred Equivalent Debentures due 2027. The net proceeds from the Debentures were $390.9 million. The Debentures are convertible at a price of $80 per share of Common Stock. The Debentures are redeemable by the Company at any time on or after November 4, 2000, at redemption prices described therein, and are subordinated in right of payment of principal and interest to the prior payment in full of certain existing and future senior indebtedness of the Company. The Company also has the right to defer payments of interest on the Debentures by extending the quarterly interest payment period on the Debentures for up to 20 consecutive quarters at anytime when the Company is not in default in the payment of interest. As evidenced by market transactions, the estimated fair value of the Debentures was $249.6 million and $368.8 million as of December 31, 1998 and December 31, 1997, respectively. 9. STOCKHOLDERS' EQUITY AUTHORIZED SHARES In May 1998, the Company's Restated Certificate of Incorporation was amended and restated to increase the authorized number of shares of Common Stock from 80.0 million to 250.0 million. PREFERRED STOCK The Company is authorized to issue up to 3.0 million shares of $1.00 par value preferred stock. As of December 31, 1998, none had been issued. PUBLIC STOCK OFFERINGS On July 25, 1996, the Company completed a public offering of 6.9 million shares of Common Stock. The net proceeds of this offering were approximately $100.9 million. STOCK REPURCHASE PLAN In December 1997, the WII Board of Directors instituted a stock repurchase program under which up to $100.0 million of WII common stock could be purchased in open market transactions or in privately negotiated transactions. Pursuant to this program, WII purchased approximately 0.3 million shares of its common stock in December 1997. During 1998, WII purchased approximately 1.0 million shares of its common stock. In connection with the Merger, the stock repurchase program has been discontinued and the repurchased shares retired. 10. STOCK-BASED COMPENSATION STOCK OPTION PLANS The Company has a number of stock option plans pursuant to which directors, officers and other key employees may be granted options to purchase shares of Common Stock at the fair market value on the date of grant. The Company has in effect a 1991 Employee Stock Option Plan ("1991 ESO Plan"), 1992 Employee Stock Option Plan ("1992 ESO Plan") and a 1998 Employee Stock Option Plan ("1998 ESO Plan"). Under these plans, options to purchase up to an aggregate of 8.2 million shares of Common Stock may be granted to officers and key employees of the Company (including directors who are also key employees). At December 31, 1998, approximately 2.2 million options were available for granting under such plans. The Company maintained a Non-Employee Director Stock Option Plan ("Director Plan"), a non-qualified stock option plan. In 1998, the Director Plan was terminated to the extent that no additional options will be granted. 57 59 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock options vest after one to three years and expire after ten to thirteen years from the date of grant. Information about the above stock option plans and predecessor plans, for the three years ended December 31, 1998, is set forth below:
WEIGHTED AVERAGE NUMBER RANGE OF EXERCISE OF EXERCISE PRICE SHARES PRICES PER SHARE ---------- ------------------ --------- Options outstanding, December 31, 1995..... 2,739,170 $ 4.69 - $24.70 $12.39 Granted................................... 882,218 13.07 - 33.73 19.19 Exercised................................. (597,121) 5.75 - 21.92 12.41 Terminated................................ (358,128) 17.58 - 29.98 20.83 --------- Options outstanding, December 31, 1996..... 2,666,139 4.69 - 33.73 13.61 Granted................................... 741,613 27.81 - 32.19 29.05 Exercised................................. (936,008) 4.69 - 33.73 11.36 Terminated................................ (47,908) 11.49 - 29.98 24.72 ---------- Options outstanding, December 31, 1997..... 2,423,836 4.69 - 32.19 19.08 Granted................................... 4,855,423 18.13 - 50.50 20.33 Exercised................................. (1,195,584) 7.11 - 40.76 31.40 Terminated................................ (24,971) 12.67 - 40.76 35.70 ---------- Options outstanding, December 31, 1998..... 6,058,704 4.69 - 50.50 18.96 ========== Options exercisable as of December 31, 1998 1,327,446 4.69 - 44.01 16.02 ==========
The 6.1 million options outstanding at December 31, 1998, have a weighted average remaining contractual life of 10.5 years. The 1.3 million options exercisable at December 31, 1998, have a weighted average remaining contractual life of 6.4 years. PRO FORMA COMPENSATION EXPENSE Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its stock options under the fair value method as provided therein. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rates of 5.0% to 7.0%, expected lives of four to seven years, expected volatility of 38% to 52% and no expected dividends. The weighted average fair value of the options granted in 1998, 1997 and 1996 is $11.97, $14.42 and $10.61, respectively. Set forth below is a summary of the Company's net income and earnings per share as reported and pro forma as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The pro forma information for the year ended December 31, 1998, reflects the pro forma expense associated with the accelerated vesting of options in connection with the Merger. The pro forma information is not meant to be representative of the effects on reported net income for future years, because as provided by SFAS No. 123, only the effects of awards granted after January 1, 1995, are considered in the pro forma calculation.
1998 1997 1996 ---------------------- ------------------------ ---------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ------------- --------- ----------- --------- Net income (in thousands).... $64,837 $55,107 $187,763 $183,281 $165,822 $162,933 Basic earnings per share..... 0.67 0.57 1.95 1.91 1.85 1.81 Diluted earnings per share... 0.66 0.56 1.92 1.88 1.82 1.79
58 60 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RESTRICTED STOCK PLANS WII had a restricted stock plan for certain officers of WII (the "Restricted Plan") and a restricted stock plan for non-employee directors of WII (the "Director Restricted Plan"; collectively, the "Restricted Stock Plans"), pursuant to which shares of Common Stock were granted. Shares granted under the Restricted Stock Plans are subject to certain restrictions on ownership and transferability when granted. Restrictions applicable to shares granted under the Restricted Plan lapse in part based on continued employment and in part based on Company performance. Restrictions applicable to shares granted under the Director Restricted Plan were removed in connection with the Merger and subsequently the plan was terminated. Restrictions related to certain shares granted under the Restricted Plan were also removed as a result of the Merger and subsequently the plan was frozen. In 1998, the Company granted 110,150 shares of restricted stock to directors and officers of the Company. Of these, 75,000 shares were granted pursuant to a separate agreement and are not covered under the Restricted Stock Plans. The compensation related to the restricted stock grants is deferred and amortized to expense on a straight-line basis over the period of time the restrictions are in place. The unamortized portion is classified as a reduction of capital in excess of par value in the accompanying Consolidated Balance Sheets. The following table provides a summary of restricted stock activity:
NON-EMPLOYEE EMPLOYEE DIRECTOR SHARES SHARES --------- ------------ Restricted shares outstanding, December 31, 1995...... 34,332 -- Granted.............................................. 29,450 -- Restrictions removed................................. (35,848) -- -------- ----------- Restricted shares outstanding, December 31, 1996...... 27,934 -- Granted.............................................. 86,489 10,296 Restrictions removed................................. (25,679) -- -------- ----------- Restricted shares outstanding, December 31, 1997...... 88,744 10,296 Granted.............................................. 110,150 -- Restrictions removed................................. (116,294) (10,296) -------- ----------- Restricted shares outstanding, December 31, 1998...... 82,600 -- ======== =========== Shares available for future grant as of December 31, 1998................................................... -- -- ======== =========== Compensation expense (in thousands): 1998................................................. $ 4,700 $ 352 1997................................................. 1,146 120 1996................................................. 418 -- Deferred compensation at December 31 (in thousands): 1998................................................. $ 1,563 $ -- 1997................................................. 3,095 352
EXECUTIVE DEFERRED COMPENSATION PLAN In May 1992, the Company's stockholders approved the Executive Deferred Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a portion of the compensation for certain key employees of the Company and its subsidiaries, including officers and employee directors, can be deferred for payment after retirement or termination of employment. The Company has established a grantor trust to fund the benefits under the EDC Plan. The funds provided to such trust are invested by a trustee independent of the Company primarily in Common Stock of the Company which is purchased by the trustee on the open market. The assets of the trust are available to satisfy the claims of all general creditors of the Company in the event of bankruptcy or insolvency. Accordingly, the Common Stock held by the trust is included in the accompanying Consolidated Statements of Stockholders' Equity as "Treasury Stock, at Cost" and reflected as such on the Consolidated Balance Sheets. 59 61 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. RETIREMENT AND EMPLOYEE BENEFIT PLANS The Company has defined contribution plans covering certain of its employees. Expenses related to these plans totaled $4.4 million, $3.6 million and $3.7 million in 1998, 1997 and 1996, respectively. The Company has defined benefit pension plans covering certain U.S. and international employees. The Company has two U.S. plans, one of which was terminated in 1998. The other U.S. plan was acquired as part of the Trico acquisition in December 1997. This plan was frozen on December 31, 1998. With respect to certain international plans, the Company has purchased irrevocable annuity contracts to settle certain benefit obligations. During 1998, the Company terminated one of its international plans. Plan benefits are generally based on years of service and average compensation levels. The Company's funding policy is to contribute, at a minimum, the annual amount required under applicable governmental regulations. Plan assets are invested primarily in equity and fixed income mutual funds. 60 62 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pension expense related to the Company's defined benefit pension plans included the following components:
1998 1997 1996 ------- ------ ------ (in thousands) Service cost--benefits earned during the period $ 822 $ 267 $ 651 Interest cost on projected benefit obligation.. 1,388 386 427 Expected return on plan assets................. (1,213) (391) (466) Net amortization and deferral.................. (19) 48 213 ------ ----- ----- $ 978 $ 310 $ 825 ====== ===== =====
The following table sets forth summaries of the changes in the benefit obligations and plan assets, the funded status of the Company's defined benefit pension plans and the assumptions used in computing such information:
U.S. PLANS NON-U.S. PLANS -------------------- ------------------ 1998 1997 1998 1997 --------- --------- ------- --------- (in thousands, except percentages) Change in benefit obligation: Projected benefit obligations at beginning of year $ 17,601 $ 1,647 $4,261 $ 3,468 Service cost...................................... 634 -- 188 267 Interest cost..................................... 1,244 109 144 277 Plan participants' contributions.................. -- -- -- 104 Actuarial (gain) loss............................. 2,189 (49) 680 285 Settlement/curtailment due to plan termination.... (503) -- -- -- Acquisition....................................... (341) 16,002 -- -- Benefits paid..................................... (3,155) (108) (2,559) (129) Currency translation adjustment................... -- -- 81 (11) -------- -------- ------ -------- Projected benefit obligation at end of year....... $ 17,669 $ 17,601 $2,795 $ 4,261 ======== ======== ====== ======== Change in plan assets: Fair value of plan assets at beginning of year.... $ 17,875 $ 1,383 $2,553 $ 2,405 Actual return on plan assets...................... 2,432 70 (103) 3 Employer contribution............................. 1,577 142 -- 112 Plan participants' contributions.................. -- -- -- 104 Acquisition....................................... -- 16,388 -- -- Benefits paid..................................... (3,155) (108) (2,204) (71) Currency translation adjustment................... -- -- (246) -- -------- -------- ------ -------- Fair value of plan assets at end of year.......... $ 18,729 $ 17,875 $ -- $ 2,553 ======== ======== ====== ======== Funded status: Accumulated benefit obligation less plan assets... $ (1,060) $ (274) $2,034 $ 978 Provision for future salary increases............. -- -- 761 730 -------- -------- ------ -------- (Excess) deficit of plan assets over projected benefit obligation............................... (1,060) (274) 2,795 1,708 Unrecognized net actuarial gain (loss)............ 234 (457) 267 758 Unrecognized transition obligation................ -- -- (148) (81) Unrecognized prior year service cost.............. -- 620 (122) (124) -------- -------- ------ -------- Accrued (prepaid) benefit costs................... $ (826) $ (111) $2,792 $2,261 ======== ======== ====== ======== Balance sheet liabilities (assets): Prepaid benefit costs............................. $ (1,663) $ (386) $ -- $ -- Accrued benefit liabilities....................... 837 275 2,792 2,261 -------- -------- ------ -------- Accrued (prepaid) benefit costs................... $ (826) $ (111) $2,792 $ 2,261 ======== ======== ====== ======== Assumed discount rates............................ 5.1%-6.8% 7.3% 5.8% 6.0%-8.0% Assumed rates of increase in compensation rates... 4.8% 4.0%-4.8% 3.3% 3.7%-5.0% Assumed expected long-term rate of return on plan assets................................... 5.5%-8.0% 8.0% -- 8.0%
61 63 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. INCOME TAXES The components of income before income taxes were as follows:
1998 1997 1996 ------- -------- -------- (in thousands) Domestic................................... $16,772 $202,297 $ 71,354 Foreign.................................... 82,616 102,664 61,320 ------- -------- -------- $99,388 $304,961 $132,674 ======= ======== ========
The Company's income tax provision (benefit) from continuing operations consisted of the following:
1998 1997 1996 --------- -------- ------- (in thousands) Current U.S. federal and state income taxes $ 21,743 $ 39,623 $14,801 Foreign............................ 33,311 33,106 21,574 -------- -------- ------- Total Current..................... $ 55,054 $ 72,729 $36,375 -------- -------- ------- Deferred U.S. federal....................... $(13,187) $ 23,405 $ 2,410 Foreign............................ (7,316) 12,054 1,728 -------- -------- ------- Total Deferred.................... $(20,503) $ 35,459 $ 4,138 -------- -------- ------- $ 34,551 $108,188 $40,513 ======== ======== =======
Total income tax provision (benefit) was recorded as follows:
1998 1997 1996 ------- -------- -------- (in thousands) Income from continuing operations.......... $34,551 $108,188 $40,513 Discontinued operations.................... -- -- 4,022 Gain on disposal of discontinued operations -- -- 44,600 Extraordinary charge....................... -- (5,640) (394) ------- -------- ------- $34,551 $102,548 $88,741 ======= ======== =======
The difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to income from continuing operations before income taxes for the three years ended December 31, 1998 is analyzed below:
1998 1997 1996 -------- --------- ------- (in thousands) Statutory federal income tax rate........................... $34,786 $106,736 $46,436 Effect of state income tax (net) and Alternative Minimum Tax 3,420 913 4,228 Effect of non-deductible expenses........................... 9,054 4,259 2,182 Change in valuation allowance............................... -- (8,214) (9,957) Effect of foreign income tax, net........................... (6,447) 8,214 -- Foreign losses benefited.................................... -- -- (546) Foreign Sales Corporation benefit........................... (412) (913) 273 Benefit of tax dispute settlement........................... -- -- (3,955) Effect of acquisitions and dispositions.................... (4,548) -- -- Other....................................................... (1,302) (2,807) 1,852 ------- -------- ------- $34,551 $108,188 $40,513 ======= ======== =======
62 64 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which the Company has operations. The change in the valuation allowance in 1997 and 1996 primarily relates to the utilization of U.S. net operating losses ("NOL") and tax credit carryforwards and management's assessment that future taxable income will be sufficient to enable the Company to utilize remaining NOL and tax credit carryforwards. Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related asset or liability for financial reporting. The components of the net deferred tax asset (liability) were as follows:
DECEMBER 31, -------------------- 1998 1997 --------- --------- (in thousands) Deferred tax assets: Domestic and foreign operating losses................... $ 7,852 $ 15,709 Accrued liabilities and reserves........................ 78,532 57,573 Tax credits............................................. 5,568 -- Tax benefit transfer leases acquired.................... 2,776 3,991 Other differences between financial and tax basis....... -- 1,126 Valuation allowance..................................... (4,716) (4,716) -------- -------- Total deferred tax assets................................ $ 90,012 $ 73,683 -------- -------- Deferred tax liabilities: Property and equipment.................................. $(59,442) $(56,747) Unremitted foreign earnings............................. (10,883) (6,532) Differences between financial and tax basis of inventory (1,530) (12,010) Goodwill................................................ (20,800) (13,451) Other differences between financial and tax basis....... -- (4,593) -------- -------- Total deferred tax liability............................. (92,655) (93,333) -------- -------- Net deferred tax liability............................... $ (2,643) $(19,650) ======== ========
At December 31, 1998, the Company had $10.1 million of U.S. net operating losses which were generated by certain subsidiaries prior to their acquisition. The use of these pre-acquisition operating losses is subject to limitations imposed by the Internal Revenue Code and is also restricted to the taxable income of the subsidiaries generating the losses. These U.S. carryforwards, if not utilized, will expire between 1999 and 2009. On October 11, 1996, the Company entered into a $3.9 million tax settlement plus accrued interest of $2.5 million with the United States Internal Revenue Service ("I.R.S.") relating to a dispute regarding the tax impact to the Company upon the dissolution of an oil and gas joint venture in 1990. The tax liability with respect to the dissolution had been previously provided for as a deferred tax liability in the Company's consolidated financial statements. This settlement resulted in the Company recognizing a $4.0 million tax benefit in 1996 due to the elimination of certain previously accrued deferred taxes that will no longer be required to be paid as a result of this settlement. 13. DISPUTES, LITIGATION AND CONTINGENCIES LITIGATION AND OTHER DISPUTES The Company is aware of various disputes and potential claims and is a party in various litigation involving claims against the Company, some of which are covered by insurance. Based on facts currently known, the Company believes that the ultimate liability, if any, which may result from known claims, disputes and pending litigation, would not have a material adverse effect on the Company's consolidated financial position or its results of operations with or without consideration of insurance coverage. 63 65 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INSURANCE The Company is self-insured for employee health insurance claims and for workers' compensation claims for certain of its employees. The amounts in excess of the self-insured levels are fully insured. Self-insurance accruals are based on claims filed and an estimate for significant claims incurred but not reported. Although the Company believes that adequate reserves have been provided for expected liabilities arising from its self-insured obligations, it is reasonably possible that management's estimates of these liabilities will change over the near term as circumstances develop. 14. COMMITMENTS SALE AND LEASEBACK OF EQUIPMENT The Company entered into a sale and leaseback arrangement in December 1998 where it was provided with the right to sell up to $200.0 million of compression units through December 1999 and lease them back over a five year period under an operating lease. Payments under the lease are calculated based on a rate of return on the purchase price and an agreed valuation of the leased compressors. Under the terms of the lease, the Company may repurchase the equipment at any time. The Company has provided for a residual value guarantee at the end of the term of the lease equal to approximately 85.5% of the appraised value of the compression units under lease. As of December 31, 1998, the Company had sold compressors under this arrangement, having an appraised value of $119.6 million, and received cash of $100.0 million and a receivable of $19.6 million. The receivable is classified in other current assets on the accompanying Consolidated Balance Sheets as the balance is due on demand. The net book value of the equipment sold was approximately $77.4 million, resulting in a pre-tax gain of $42.2 million, which may be deferred until the end of the lease. The lease agreement calls for quarterly payments. The following table provides future minimum lease payments (in thousands) under the aforementioned lease exclusive of any guarantee payments: 1999....................................................... $7,491 2000....................................................... 7,491 2001....................................................... 7,491 2002....................................................... 7,491 2003....................................................... 6,867 ------- $36,831 =======
OTHER OPERATING LEASES The Company is committed under various other noncancelable operating leases which primarily relate to office space and equipment. Future minimum rental commitments under these noncancelable operating leases are as follows (in thousands): 1999........................................................ $21,001 2000........................................................ 16,265 2001........................................................ 11,859 2002........................................................ 8,942 2003........................................................ 6,974 Thereafter.................................................. 34,504 ------- $99,545 =======
Total rent expense incurred under operating leases was approximately $30.0 million, $27.9 million and $26.4 million for the years ended December 31, 1998, 1997, and 1996, respectively. 64 66 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OTHER COMMITMENTS In January 1996, the Company entered into a long-term manufacturing and sales agreement with Oil Country Tubular, Ltd. ("OCTL") pursuant to which OCTL manufactures drill pipe and premium tubulars for the Company on an exclusive basis at OCTL's plant in India. 15. DISCONTINUED OPERATIONS AND DISPOSITIONS On November 11, 1996, the Company completed the sale of its contract drilling segment which was comprised of the Mallard Bay contract drilling division ("Mallard Division") to Parker, in exchange for cash of approximately $306.9 million and approximately 3.1 million shares of Parker common stock valued by the Company at approximately $20.0 million. The Company reported a net gain on the disposal of the Mallard Division of $66.9 million, net of taxes of $44.6 million. The results of operations for the Mallard Division are reflected in the accompanying Consolidated Statements of Income as "Discontinued Operations, Net of Taxes." Condensed results of the Mallard Division discontinued operations were as follows:
ELEVEN MONTHS ENDED NOVEMBER 11, 1996 -------------- (in thousands) Revenues........................................... $81,310 ------------- Income before income taxes......................... 11,490 Provision for income taxes......................... 4,022 -------------- Net income......................................... $ 7,468 ==============
During 1997 and 1996, the Company also sold certain non-core businesses. Cash proceeds from these transactions totaled $68.8 million and $19.2 million in 1997 and 1996, respectively. 16. RELATED PARTY TRANSACTIONS The Company incurred legal fees of $3.1 million, $2.7 million and $2.2 million during 1998, 1997 and 1996, respectively, with a law firm in which a former director and a current executive officer of the Company were partners. In 1998, the Company paid Lehman Brothers Inc., an affiliate of Lehman Brothers Holding Inc., a major stockholder of the Company, approximately $3.0 million for fees associated with the Merger. In 1997, the Company paid approximately $2.0 million for dealer management fees associated with the Tender Offer of the Senior Notes and the Debenture offering. The Company incurred fees of approximately $6.7 million associated with the Company's public offering and the disposition of the Mallard Division in 1996. The fee arrangements associated with these transactions were on terms standard in the industry. 17. SUBSEQUENT EVENTS In February 1999, the Company completed a joint venture with GE Capital Corporation ("GE Capital") in which the Company's compression services operations were combined with GE Capital's Global Compression Services operations. The joint venture is known as Weatherford Global Compression. The Company owns 64% of the joint venture and GE Capital owns 36%. The Company has the right to acquire GE Capital's interest at anytime at a price equal to the greater of a market determined third party valuation or book value. GE Capital also has the right to require the Company to purchase its interest at anytime after February 2001 at a market determined third party valuation as well as request a public offering of its interest after that date, if we have not purchased its interest by that time. On February 8, 1999, the Company completed the acquisition of Christiana Companies, Inc. for approximately 4.0 million shares of Common Stock and $20.0 million cash. In the acquisition, the Company acquired through Christiana (1) 4.0 million shares of the Company's Common Stock, (2) cash, after distribution to the Christiana shareholders, equal to the amount of Christiana's outstanding tax and other liabilities and (3) a one-third interest in Total Logistic Control, a refrigerated warehouse, trucking and logistics company. The 4.0 million shares of Common Stock acquired will be classified as treasury stock. Because the number of shares of Common Stock issued in the Christiana acquisition approximated the number of shares of Common Stock held by Christiana prior to the acquisition, the Christiana acquisition had no material effect on the outstanding number of shares of Common Stock or net equity of the Company. 65 67 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. SEGMENT INFORMATION BUSINESS SEGMENTS The Company is a diversified international energy service and manufacturing company that provides a variety of services and equipment to the exploration, production and transmission sectors of the oil and gas industry. The Company operates in virtually every oil and gas exploration and production region in the world. In 1998, the Company redefined its business segments into four separate groups: completion and oilfield services, artificial lift systems, compression services, and drilling products. The following information has been restated to reflect this regrouping. The Company's completion and oilfield services segment provides fishing and downhole services, well installation services, well completion systems and equipment rental. The Company's artificial lift systems segment designs, manufactures, sells and services a complete line of artificial lift equipment, including progressing cavity pumps, reciprocating rod lift equipment, gas lift equipment electrical submersible pumps and hydraulic lift equipment. The Company's compression services segment manufactures, packages, rents and sells parts and services for gas compressor units over a broad horsepower range. The Company's drilling products segment manufactures drill stem products, premium engineered connections, premium tubulars and marine and subsea connectors and related accessories. 66 68 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Financial information by industry segment for each of the three years ended December 31, 1998, is summarized below.
COMPLETION AND OILFIELD ARTIFICIAL COMPRESSION DRILLING SERVICES LIFT SYSTEMS SERVICES PRODUCTS CORPORATE TOTAL ------------ ------------ -------- -------- --------- ---------- (in thousands) 1998 Revenues from unaffiliated customers................... $ 848,219 $329,196 $177,481 $655,758 $ -- $2,010,654 EBITDA, before merger costs and other charges (a)....... 275,194 40,760 41,671 182,334 (25,179) 514,780 Merger costs and other charges (b)................. 44,955 40,800 1,500 34,950 72,795 195,000 Depreciation and amortization 94,718 19,183 23,079 31,951 1,801 170,732 Operating income (loss)...... 135,521 (19,223) 17,092 115,433 (99,775) 149,048 Total assets................. 1,007,399 592,370 388,220 764,807 78,919 2,831,715 Capital expenditures for property, plant, and equipment.................. 107,661 20,946 32,465 42,052 2,755 205,879 Non-cash portion of merger costs and other charges..... 39,481 30,367 1,500 30,500 22,747 124,595 1997 Revenues from unaffiliated customers................... $ 929,001 $249,476 $178,897 $611,715 $ -- $1,969,089 EBITDA (a) .................. 301,550 31,736 36,440 144,440 (35,243) 478,923 Depreciation and amortization 86,138 8,944 21,666 23,610 2,573 142,931 Operating income (loss)...... 215,412 22,792 14,774 120,830 (37,816) 335,992 Total assets................. 919,198 622,853 441,759 674,388 79,712 2,737,910 Capital expenditures for property, plant, and equipment.................. 121,422 20,213 35,705 32,682 2,970 212,992 1996 Revenues from unaffiliated customers................... $ 824,639 $150,816 $154,503 $337,312 $ -- $1,467,270 EBITDA (a) (c)............... 226,914 17,532 31,387 53,619 (38,521) 290,931 Depreciation and amortization 80,582 5,865 23,554 11,046 783 121,830 Operating income (loss) (c).. 146,332 11,667 7,833 42,573 (39,304) 169,101 Total assets................. 952,445 199,615 414,969 386,245 290,359 2,243,633 Capital expenditures for property, plant, and equipment.................. 119,201 8,732 30,392 14,332 68 172,725
(a) The Company evaluates performance and allocates resources based on EBITDA, which is calculated as operating income adding back depreciation and amortization, excluding the impact of merger costs and other charges. Calculations of EBITDA should not be viewed as a substitute to calculations under GAAP, in particular operating income and net income. In addition, EBITDA calculations by one company may not be comparable to another company. (b) Includes inventory write-downs of $50.9 million which have been classified as cost of products in the accompanying Consolidated Statements of Income. 67 69 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (c) During 1996, the Company incurred a charge of $5.8 million associated with plant closures. Of this charge, $4.3 million related to the closure of a tool joint facility within the drilling products segment and $1.5 million related to the closure of a packer facility within the completion and oilfield services segment. EBIDTA and operating income for 1996 for the drilling products and completion and oilfield services segments include accruals included within the $5.8 million charge of $1.5 million and $0.5 million, respectively, for such plant closures. FOREIGN OPERATIONS AND EXPORT SALES Financial information by geographic segment for each of the three years ended December 31, 1998, is summarized below. Revenues are attributable to countries based on the location of the entity selling products. Long-lived assets are long-term assets excluding deferred tax assets of $16.7 million, $12.8 million, and $18.9 million for 1998, 1997, and 1996, respectively.
UNITED LATIN STATES CANADA AMERICA EUROPE AFRICA OTHER TOTAL ---------- ------------- -------------- ------------- ------------ ------------- --------------- (in thousands) 1998 Revenues from unaffiliated customers $1,181,948 $265,229 $138,761 $167,285 $91,307 $166,124 $2,010,654 Long-lived assets...... 950,617 306,490 204,700 151,383 37,758 81,637 1,732,585 1997 Revenues from unaffiliated customers $1,205,633 $257,478 $118,762 $149,223 $70,037 $167,956 $1,969,089 Long-lived assets...... 1,060,871 133,309 174,845 143,831 15,341 62,874 1,591,071 1996 Revenues from unaffiliated customers $ 928,956 $143,610 $74,109 $148,094 $72,457 $100,044 $1,467,270 Long-lived assets...... 784,438 66,342 100,901 145,811 14,037 51,382 1,162,911
MAJOR CUSTOMERS AND CREDIT RISK Substantially all of the Company's customers are engaged in the energy industry. This concentration of customers may impact the Company's overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. The Company performs ongoing credit evaluations of its customers and does not generally require collateral in support of its trade receivables. The Company maintains reserves for potential credit losses, and actual losses have historically been within the Company's expectations. Foreign sales also present various risks, including risks of war, civil disturbances and governmental activities that may limit or disrupt markets, restrict the movement of funds; result in the deprivation of contract rights or the taking of property without fair consideration. Most of the Company's foreign sales, however, are to large international companies or are secured by letters of credit or similar arrangements. In 1998, 1997, and 1996 there was no individual customer who accounted for 10% of consolidated revenues. 68 70 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. QUARTERLY FINANCIAL DATA (UNAUDITED) The following tabulation sets forth unaudited quarterly financial data for 1998 and 1997.
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL -------- --------- -------- --------- --------------- (in thousands, except per share amounts) 1998 Revenues...................... $570,520 (1) $530,833 $482,454 $426,847 $2,010,654 Gross Profit.................. 186,162 (1) 167,118 (1) (2) 148,259 (1) 82,330 (2) 583,869 Selling, General and Administrative............... 76,911 (1) 71,629 (1) 69,458 (1) 75,405 293,403 Merger Costs and Other Charges -- 107,647 (1) (2) -- 36,450 (2) 144,097 Operating Income.............. 110,031 (1) (11,373) (1) 79,477 (29,087) 149,048 Net Income.................... 61,143 (14,891) (2) 42,754 (24,169) (2) 64,837 Basic EPS: Net Income................... $ 0.63 $ (0.15) $ 0.44 $ (0.25) $ 0.67 Diluted EPS: Net Income................... 0.63 (0.15) 0.44 (0.25) 0.66 1997 Revenues...................... $431,253 $476,999 $509,718 $551,119 $1,969,089 Gross Profit.................. 121,696 (1) 135,840 (1) 153,552 (1) 169,614 (1) 580,702 (1) Selling, General and Administrative............... 55,217 (1) 60,678 (1) 61,971 (1) 69,426 (1) 247,292 (1) Operating Income.............. 66,988 75,705 92,283 101,016 335,992 Income from Continuing Operations................... 37,903 45,741 53,726 59,403 196,773 Net Income.................... 37,903 45,741 53,726 50,393 (3) 187,763 Basic EPS: Income from Continuing Operations.................. $ 0.40 $ 0.48 $ 0.56 $ 0.61 $ 2.04 Net Income................... 0.40 0.48 0.56 0.52 (3) 1.95 Diluted EPS: Income from Continuing Operations.................. 0.39 0.47 0.55 0.60 2.01 Net Income................... 0.39 0.47 0.55 0.51 (3) 1.92
(1) The first, second, and third quarters of 1998 and all quarters of 1997 have been restated from amounts previously reported in the Company's respective Forms 10-Q and Amendment No. 1 to Form 8-K filed July 21, 1998 to reclassify certain amounts to conform to current year presentation. (2) The Company incurred $120.0 million and $75.0 million of pre-tax merger and other costs in the second and fourth quarters of 1998, respectively. The effect of these charges, net of tax, in the second and fourth quarters was $78.0 and $48.8 million, respectively. Of these charges, $12.4 million and $38.5 million related to the write-off of inventory and have been classified as cost of products in the accompanying Consolidated Statements of Income. (3) Includes the extraordinary charge, net of taxes, of approximately $9.0 million related to the repayment of the Senior Notes in the fourth quarter of 1997. 69 71 ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3), information on directors and executive officers of the Registrant is incorporated by reference from the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A. ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G(3), information on executive compensation is incorporated by reference from the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to General Instruction G(3), information on security ownership of certain beneficial owners and management is incorporated by reference from the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3), information on certain relationships and related transactions is incorporated by reference from the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report or incorporated herein by reference: 1. The consolidated financial statements of the Company are listed on page 42 of this report. 2. The financial statement schedule is listed on page 42 of this report. 3. The exhibits of the Company are listed below under Item 14(c). (b) Reports on Form 8-K 1. Current Report on Form 8-K/A filed on December 10, 1998, amending Current Report on Form 8-K/A filed on July 16, 1998, and amending Current Report on Form 8-K dated June 15, 1998, reporting the Company's (i) Management's Discussion and Analysis of Financial Condition and Results of Operations on a restated basis and (ii) supplemental restated financial statements as of December 31, 1997 and 1996 and for the three years ended December 31, 1997. 2. Current Report on Form 8-K dated October 22, 1998, announcing the Company's earnings for the quarter ended September 30, 1998. (c) Exhibits 2.1 Agreement and Plan of Merger dated as of March 4, 1998, by and between EVI, Inc. and Weatherford Enterra, Inc. (incorporated by reference to Exhibit No. 2.1 to Amendment No. 1 to Form 8-K on Form 8-K/A, File 1-13086, filed March 9, 1998). 2.2 Amendment No. 1 dated as of April 17, 1998, to the Agreement and Plan of Merger dated as of March 4, 1998, by and between EVI, Inc. and Weatherford Enterra, Inc. (incorporated by reference to Exhibit No. 2.2 to Form 8-K, File 1-13086, filed April 21, 1998). 70 72 2.3 Amendment No. 2 dated as of April 22, 1998, to the Agreement and Plan of Merger dated as of March 4, 1998, as amended by and between EVI, Inc. and Weatherford Enterra, Inc. (incorporated by reference to Exhibit No. 2.3 to Form 8-K, File 1-13086, filed April 23, 1998). 2.4 Share Purchase Agreement made and entered into as of January 30, 1998, by and among the shareholders of Nika Enterprises Ltd., an Alberta corporation, listed on the signature pages thereto and EVI Oil Tools Canada Ltd., an Alberta corporation (incorporated by reference to Exhibit No. 2.1 to the Form 8-K, File 1-13086, filed March 3, 1998). 2.5 Agreement and Plan of Merger dated as of December 12, 1997, by and among EVI, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc. and C2, Inc. (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed December 31, 1997). 2.6 Agreement dated as of December 12, 1997, by and among EVI, Inc., Christiana Companies, Inc., Total Logistic Control, LLC and C2, Inc. (incorporated by reference to Exhibit No. 2.2 to Form 8-K, File 1-13086, filed December 31, 1997). 2.7 Letter Agreement dated December 12, 1997, by and among EVI, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc. and C2, Inc. (incorporated by reference to Exhibit No. 2.3 to Form 8-K, File 1-13086, filed December 31, 1997). 2.8 Amended and Restated Arrangement Agreement by and between Taro Industries Limited, and EVI, Inc. and 756745 Alberta Ltd. and 759572 Alberta Ltd. dated as of December 5, 1997 (incorporated by reference to Exhibit No. 2.4 to Form 8-K, File 1-13086, filed December 31, 1997). 2.9 Stock Purchase Agreement dated as of October 9, 1997, between EVI, Inc. and PACCAR Inc. (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed October 21, 1997). 2.10 Stock Purchase Agreement dated as of October 9, 1997, among certain shareholders of BMW Monarch (Lloydminster) Ltd., the shareholders of BMW Pump Inc., the shareholder of Makelki Holdings Ltd., the shareholder of 589979 Alberta Ltd., the shareholders of 600969 Alberta Ltd., the shareholders of 391862 Alberta Ltd. and EVI, Inc. (incorporated by reference to Exhibit No. 2.2 to Form 8-K, File 1-13086, filed October 21, 1997). 2.11 Agreement and Plan of Merger dated as of July 16, 1997, as amended, by and among XLS Holding, Inc., EVI, Inc. and GPXL, Inc. (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed August 26, 1997). 2.12 Stock Purchase Agreement dated as of February 21, 1997, among Seigo Arai, Kanematsu USA Inc. and Energy Ventures, Inc. (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed March 17, 1997). 2.13 Agreement and Plan of Merger dated as of December 5, 1996, among Energy Ventures, Inc., GulfMark Acquisition Co., GulfMark International, Inc. and New GulfMark International, Inc. (incorporated by reference to Exhibit No. 2.2 to Form 8-K, File 1-13086, filed December 26, 1996). 2.14 Agreement and Plan of Distribution dated as of December 5, 1996, by and among GulfMark International, Inc., New GulfMark International, Inc. and Energy Ventures, Inc. (incorporated by reference to Exhibit No. 2.3 to Form 8-K, File 1-13086, filed December 26, 1996). 2.15 First Amendment to Agreement and Plan of Merger dated as of March 27, 1997, by and among Energy Ventures, Inc., GulfMark Acquisition Co., GulfMark International, Inc. and GulfMark Offshore, Inc. (incorporated by reference to Exhibit No. 2.3 to the Registration Statement on Form S-4, as amended (Reg. No. 333-24133)). 2.16 Stock Purchase Agreement dated as of September 14, 1996, by and among Parker Drilling Company and Energy Ventures, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K, File 1-13086, filed October 3, 1996). 71 73 2.17 Agreement and Plan of Merger dated as of June 20, 1996 between Energy Ventures, Inc., TCA Acquisition, Inc. and Tubular Corporation of America (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed June 24, 1996). 2.18 Amendment No. 1 dated as of May 26, 1998, to the Agreement and Plan of Merger dated as of December 12, 1997 and to the Agreement dated as of December 12, 1997, by and among EVI, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc., C2, Inc. and Total Logistic Control, LLC (incorporated by reference to Exhibit 2.18 to the Registration Statement on Form S-4, as amended (Reg. No. 333-58741)). 2.19 Amended and Restated Agreement and Plan of Merger among Weatherford International, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc. and C2, Inc. dated as of October 14, 1998 (incorporated by reference to Exhibit No. 2.19 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 2.20 Amendment No. 2 to Logistic Purchase Agreement by and among Weatherford International, Inc., Total Logistic Control, LLC, Christiana Companies, Inc. and C2, Inc. dated as of October 12, 1998 (incorporated by reference to Exhibit No. 2.20 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 2.21 Amendment No. 1 to Amended and Restated Agreement and Plan of Merger, by and among Weatherford International, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc. and C2, Inc. dated as of January 5, 1999 (incorporated by reference to Exhibit No. 2.21 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 2.22 Amendment No. 3 to Logistic Purchase Agreement, by and among Weatherford International, Inc., Total Logistic Control, LLC, Christiana Companies, Inc. and C2, Inc. dated as of January 5, 1999 (incorporated by reference to Exhibit No. 2.22 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). +3.1 Amended and Restated Certificate of Incorporation of the Company. 3.2 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit No. 3.2 to Form 8-K, File 1-13086, filed June 2, 1998). 4.1 See Exhibit Nos. 3.1 and 3.2 for provisions of the Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws of the Registrant defining the rights of the holders of Common Stock. 4.2 Amended and Restated Credit Agreement dated as of May 27, 1998, among EVI Weatherford, Inc., EVI Oil Tools Canada Ltd., Chase Bank of Texas, National Association, as U.S. Administrative Agent, The Bank of Nova Scotia, as Documentation Agent and Canadian Agent, ABN AMRO Bank, N.V., as Syndication Agent, and the other Lenders defined therein, including the forms of Notes (incorporated by reference to Exhibit No. 4.1 to the Form 8-K, File 1-13086, filed June 16, 1998). 4.3 Indenture dated May 17, 1996, between Weatherford Enterra, Inc. and Bank of Montreal Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to Weatherford Enterra, Inc.'s Current Report on Form 8-K, File No. 1-7867, dated May 28, 1996). 4.4 First Supplemental Indenture dated and effective as of May 27, 1998, by and among EVI Weatherford, Inc., the successor by merger to Weatherford Enterra, Inc., and Bank of Montreal Trust Company, as Trustee (incorporated by reference to Exhibit No. 4.1 to Form 8-K, File 1-13086, filed June 2, 1998). 4.5 Form of Weatherford Enterra, Inc.'s 7 1/4% Notes Due May 15, 2006 (incorporated by reference to Exhibit 4.2 to Weatherford Enterra, Inc.'s Current Report on Form 8-K, File No. 1-7867, dated May 28, 1996). 72 74 4.6 Indenture dated March 15, 1994, among Energy Ventures, Inc., as Issuer, the Subsidiary Guarantors party thereto, as Guarantors, and Chemical Bank, as Trustee (incorporated by reference to Form 8-K, File 1-13086, filed April 5, 1994). 4.7 Specimen 10 1/4% Senior Note due 2004 of Energy Ventures, Inc. (incorporated by reference to Form 8-K, File 1-13086, filed April 5, 1994). 4.8 First Supplemental Indenture by and among Energy Ventures, Inc., Prideco, Inc. and Chemical Bank, as trustee, dated June 30, 1995 (incorporated by reference to Exhibit No. 4.4 to the Registration Statement on Form S-3 (Reg. No. 33-61933)). 4.9 Second Supplemental Indenture by and among Energy Ventures, Inc., EVI Arrow, Inc., EVI Watson, Inc. and The Chase Manhattan Bank, as trustee, dated effective as of December 6, 1996 (incorporated by reference to Exhibit 4.6 to Form 10-K, File 1-13086, filed March 20, 1997). 4.10 Third Supplemental Indenture by and among EVI, Inc., Ercon, Inc. and The Chase Manhattan Bank, as trustee, dated effective as of May 1, 1997 (incorporated by reference to Exhibit 99.2 to Form 8-K, File 1-13086, filed October 27, 1997). 4.11 Fourth Supplemental Indenture by and among EVI, Inc., XLS Holding, Inc., XL Systems, Inc. and The Chase Manhattan Bank, as trustee, dated effective as of August 25, 1997 (incorporated by reference to Exhibit 99.3 to Form 8-K, File 1-13086, filed October 27, 1997). 4.12 Fifth Supplemental Indenture by and between EVI, Inc. and The Chase Manhattan Bank dated as of December 12, 1997 (including the Form of Note and Form of Exchange Note) (incorporated by reference to Exhibit 4.1 to Form 8-K, File 1-13086, filed December 31, 1997). 4.13 Indenture dated as of October 15, 1997, between EVI, Inc. and The Chase Manhattan Bank, as Trustee (incorporated by reference to Exhibit No. 4.13 to the Registration Statement on Form S-3 (Reg. No. 333-45207)). 4.14 First Supplemental Indenture dated as of October 28, 1997, between EVI, Inc. and The Chase Manhattan Bank, as Trustee (including form of Debenture) (incorporated by reference to Exhibit 4.2 to Form 8-K, File 1-13086, filed November 5, 1997). 4.15 Registration Rights Agreement dated November 3, 1997, by and among EVI, Inc., Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston Corporation, Lehman Brothers Inc., Prudential Securities Incorporated and Schroder & Co. Inc. (incorporated by reference to Exhibit 4.3 to Form 8-K, File 1-13086, filed November 5, 1997). 4.16 Participation Agreement dated December 8, 1998 by and among Weatherford Enterra Compression Company, L.P., ABN AMRO Bank N.V., as Administrative Agent, Arranger and Syndication Agent, Chase Bank of Texas, National Association, and the Lessors listed on Schedule I thereto (incorporated by reference to Exhibit No. 4.16 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 4.17 Master Lease Intended as Security dated as of December 8, 1998 between Weatherford Enterra Compression Company, L.P., as Lessee, and ABN AMRO Bank N.V., as Administrative Agent for the Lessors (incorporated by reference to Exhibit No. 4.17 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 4.18 Guaranty Agreement dated as of December 8, 1998 between Weatherford International, Inc. and ABN AMRO Bank N.V., as Administrative Agent for the Lessors (incorporated by reference to Exhibit No. 4.18 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). *10.1 Weatherford Enterra, Inc. Non-Employee Director Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to Weatherford Enterra Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 1-7867)). 73 75 *10.2 Weatherford Enterra, Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 4.15 to the Company's Registration Statement on Form S-8 (Reg. No. 333-53633)). *10.3 Weatherford International Incorporated 1987 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.3 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)). *10.4 Weatherford Enterra, Inc. 1991 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.4 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)). *10.5 Weatherford Enterra, Inc. Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.19 to the Company's Registration Statement on Form S-8 (Reg. No. 333-53633)). *10.6 Weatherford Enterra, Inc. Restricted Stock Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.6 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)). *10.7 Amended and Restated Change of Control Agreement with Jon Nicholson (incorporated by reference to Exhibit 10.1 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)). *10.8 Change of Control Agreement with Randall D. Stilley (incorporated by reference to Exhibit 10.1 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-17867)). *10.9 Indemnification Agreements with Robert K. Moses, Jr. (incorporated by reference to Exhibit 10.10 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 1-7867)); Philip Burguieres (incorporated by reference to Exhibit 10.4 to Weatherford Enterra, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 (File No. 1-7867)); William E. Macaulay (incorporated by reference to Exhibit 10.2 to Weatherford Enterra, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-7867)); Jon Nicholson (incorporated by reference to Exhibit 10.2 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)); and Randall D. Stilley (incorporated by reference to Exhibit 10.1 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-17867)). *10.10 Employment Agreement dated as of June 15, 1998, between EVI Weatherford, Inc. and Philip Burguieres (incorporated by reference to Exhibit No. 10.9 to Form 10-Q, File 1-13086, filed August 14, 1998). *10.11 Energy Ventures, Inc. Executive Deferred Compensation Stock Ownership Plan and related Trust Agreement (incorporated by reference to Form 10-Q, File 1-13086, filed November 16, 1992). *10.12 First Amendment to Energy Ventures, Inc. Executive Deferred Compensation Stock Ownership Plan dated June 28, 1993 (incorporated by reference to Exhibit No. 4.3 to the Registration Statement on Form S-8 (Reg. No. 33-65790)). *10.13 Energy Ventures, Inc. Non-Employee Director Deferred Compensation Plan (incorporated by reference to Form 10-Q, File 1-13086, filed November 16, 1992). *10.14 Energy Ventures, Inc. 1991 Non-Employee Director Stock Option Plan and Form of Agreement (incorporated by reference to Form 10-Q, File 1-13086, filed August 8, 1991). *10.15 Energy Ventures, Inc. 1992 Employee Stock Option Plan, as amended (incorporated by reference to Exhibit No. 4.7 to the Registration Statement on Form S-8 (Reg. No. 333-13531)). *10.16 Energy Ventures, Inc. Employee Stock Option Plan (incorporated by reference to Exhibit No. 4.1 to the Registration Statement on Form S-8 (Reg. No. 33-31662)). 74 76 *10.17 Form of Stock Option Agreement under the Company's Employee Stock Option Plan (incorporated by reference to Exhibit No. 4.2 to the Registration Statement on Form S-8 (Reg. No. 33-31662)). *10.18 Amended and Restated Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit No. 10.1 to Form 10-Q, File 1-13086, filed August 12, 1995). *10.19 Employment Agreements with each of Bernard J. Duroc-Danner, James G. Kiley, Frances R. Powell, John C. Coble and Robert Stiles (incorporated by reference to Exhibit No. 10.9 to Form 10-K, File 1-13086, filed March 27, 1998). *10.20 Employment Agreement dated March 16, 1998, between EVI, Inc. and Curtis W. Huff (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-13086)). +*10.21 Employment Agreements with Donald R. Galletly, E. Lee Colley, III, Jon R. Nicholson and Randall D. Stilley. +*10.22 Weatherford International, Inc. 1998 Employee Stock Option Plan, including form of agreement for officers. +*10.23 Form of Stock Option Agreement for Non-Employee Directors dated September 8, 1998. +*10.24 Form of Warrant Agreement with Robert K. Moses, Jr. dated September 8, 1998. +*10.25 Weatherford International, Inc. 401(k) Savings Plan. 10.26 Manufacturing and Sales Agreement dated as of January 1, 1996, by and between Grant Prideco, S.A. and Oil Country Tubular Limited (incorporated by reference to Exhibit No. 10.34 to Form 10-K, File 1-13086, filed March 20, 1996). 10.27 Amended and Restated Lease Agreement dated May 3, 1996, between Baker Hughes Oilfield Operations, Inc. and Grant Prideco, Inc. (incorporated by reference to Exhibit No. 10.14 to Form 10-K, as amended by Form 10-K/A, File 1-13086, filed March 24, 1997). 10.28 Formation Agreement dated as of February 2, 1999, by and among Weatherford International, Inc., Weatherford Enterra Compression Company, L.P., General Electric Capital Corporation and Global Compression Services, Inc. (incorporated by reference to Exhibit No. 10.1 to Form 8-K, File 1-13086, filed February 5, 1999). 10.29 Limited Partnership Agreement of Weatherford Global Compression Services, L.P. dated as of February 2, 1999, by and among Weatherford Global Compression Holding, L.L.C., Weatherford Enterra Compression Company, L.P. and Global Compression Services, Inc. (incorporated by reference to Exhibit No. 10.2 to Form 8-K, File 1-13086, filed February 5, 1999). 10.30 Limited Liability Company Agreement of Weatherford Global Compression Holding, L.L.C. dated as of February 2, 1999, by and between Weatherford Enterra Compression Company, L.P. and Global Compression Services, Inc. (incorporated by reference to Exhibit No. 10.3 to Form 8-K, File 1-13086, filed February 5, 1999). 10.31 Registration Rights Agreement dated as of February 2, 1999, among Weatherford Global Compression Services, L.P., Weatherford Enterra Compression Company, L.P. and Global Compression Services, Inc. (incorporated by reference to Exhibit No. 10.4 to Form 8-K, File 1-13086, filed February 5, 1999). 10.32 The Woodward, Oklahoma lease agreements as amended (incorporated by reference to Exhibit No. 10.32 to Form 10-K, File 1-13086, filed March 23, 1995). +21.1 Subsidiaries of Weatherford International, Inc. 75 77 +23.1 Consent of Arthur Andersen LLP. +27.1 Financial Data Schedule. ================================ * Management Contract or Compensatory Plan or Arrangement + Filed herewith As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed with this Annual Report on Form 10-K certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries, because the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of any of such instruments to the Securities and Exchange Commission upon request. We agree to furnish to any requesting stockholder a copy of any of the above named exhibits upon the payment of our reasonable expenses of obtaining, duplicating and mailing the requested exhibits. All requests for copies of exhibits should be made in writing to our Investor Relations Department at 515 Post Oak Blvd., Suite 600, Houston, TX 77027. (d) Financial Statement Schedule SCHEDULE II WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES FOR THE THREE YEARS ENDED DECEMBER 31, 1998
ADDITIONS ----------------------- BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSES COLLECTIONS DEDUCTIONS PERIOD ----------- --------- --------- ----------- ---------- --------- (in thousands) YEAR ENDED DECEMBER 31, 1998: Allowance for uncollectible accounts receivable ............................. $ 23,473 $ 2,397 $ 679 $ (6,785) $ 19,764 YEAR ENDED DECEMBER 31, 1997: Allowance for uncollectible accounts receivable ............................. $ 16,824 $ 13,248 $ 112 $ (6,711) $ 23,473 YEAR ENDED DECEMBER 31, 1996: Allowance for uncollectible accounts receivable ............................. $ 16,304 $ 4,608 $ 4 $ (4,092) $ 16,824
All other schedules are omitted because they are not required or because the information is included in the financial statements or notes thereto. 76 78 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Houston, State of Texas, on March 29, 1999. WEATHERFORD INTERNATIONAL, INC. By: /s/ Bernard J. Duroc-Danner --------------------------------------- Bernard J. Duroc-Danner President, Chief Executive Officer, Chairman of the Board and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Bernard J. Duroc-Danner President, Chief Executive Officer, Chairman March 29, 1999 ------------------------------------------- of the Board and Director, Bernard J. Duroc-Danner (Principal Executive Officer and Principal Financial Officer) /s/ Frances R. Powell Vice President, Accounting and Controller March 29, 1999 -------------------------------------------- (Principal Accounting Officer) Frances R. Powell /s/ David J. Butters Director March 29, 1999 -------------------------------------------- David J. Butters /s/ Sheldon B. Lubar Director March 29, 1999 -------------------------------------------- Sheldon B. Lubar /s/ Robert B. Millard Director March 29, 1999 -------------------------------------------- Robert B. Millard /s/ Robert A. Rayne Director March 29, 1999 -------------------------------------------- Robert A. Rayne /s/ Philip Burguieres Director March 29, 1999 -------------------------------------------- Philip Burguieres /s/ William E. Macaulay Director March 29, 1999 -------------------------------------------- William E. Macaulay /s/ Robert K. Moses, Jr. Director March 29, 1999 -------------------------------------------- Robert K. Moses, Jr.
77 79
NUMBER EXHIBITS - ------ -------- 2.1 Agreement and Plan of Merger dated as of March 4, 1998, by and between EVI, Inc. and Weatherford Enterra, Inc. (incorporated by reference to Exhibit No. 2.1 to Amendment No. 1 to Form 8-K on Form 8-K/A, File 1-13086, filed March 9, 1998). 2.2 Amendment No. 1 dated as of April 17, 1998, to the Agreement and Plan of Merger dated as of March 4, 1998, by and between EVI, Inc. and Weatherford Enterra, Inc. (incorporated by reference to Exhibit No. 2.2 to Form 8-K, File 1-13086, filed April 21, 1998). 2.3 Amendment No. 2 dated as of April 22, 1998, to the Agreement and Plan of Merger dated as of March 4, 1998, as amended by and between EVI, Inc. and Weatherford Enterra, Inc. (incorporated by reference to Exhibit No. 2.3 to Form 8-K, File 1-13086, filed April 23, 1998). 2.4 Share Purchase Agreement made and entered into as of January 30, 1998, by and among the shareholders of Nika Enterprises Ltd., an Alberta corporation, listed on the signature pages thereto and EVI Oil Tools Canada Ltd., an Alberta corporation (incorporated by reference to Exhibit No. 2.1 to the Form 8-K, File 1-13086, filed March 3, 1998). 2.5 Agreement and Plan of Merger dated as of December 12, 1997, by and among EVI, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc. and C2, Inc. (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed December 31, 1997). 2.6 Agreement dated as of December 12, 1997, by and among EVI, Inc., Christiana Companies, Inc., Total Logistic Control, LLC and C2, Inc. (incorporated by reference to Exhibit No. 2.2 to Form 8-K, File 1-13086, filed December 31, 1997). 2.7 Letter Agreement dated December 12, 1997, by and among EVI, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc. and C2, Inc. (incorporated by reference to Exhibit No. 2.3 to Form 8-K, File 1-13086, filed December 31, 1997). 2.8 Amended and Restated Arrangement Agreement by and between Taro Industries Limited, and EVI, Inc. and 756745 Alberta Ltd. and 759572 Alberta Ltd. dated as of December 5, 1997 (incorporated by reference to Exhibit No. 2.4 to Form 8-K, File 1-13086, filed December 31, 1997). 2.9 Stock Purchase Agreement dated as of October 9, 1997, between EVI, Inc. and PACCAR Inc. (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed October 21, 1997). 2.10 Stock Purchase Agreement dated as of October 9, 1997, among certain shareholders of BMW Monarch (Lloydminster) Ltd., the shareholders of BMW Pump Inc., the shareholder of Makelki Holdings Ltd., the shareholder of 589979 Alberta Ltd., the shareholders of 600969 Alberta Ltd., the shareholders of 391862 Alberta Ltd. and EVI, Inc. (incorporated by reference to Exhibit No. 2.2 to Form 8-K, File 1-13086, filed October 21, 1997). 2.11 Agreement and Plan of Merger dated as of July 16, 1997, as amended, by and among XLS Holding, Inc., EVI, Inc. and GPXL, Inc. (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed August 26, 1997). 2.12 Stock Purchase Agreement dated as of February 21, 1997, among Seigo Arai, Kanematsu USA Inc. and Energy Ventures, Inc. (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed March 17, 1997). 2.13 Agreement and Plan of Merger dated as of December 5, 1996, among Energy Ventures, Inc., GulfMark Acquisition Co., GulfMark International, Inc. and New GulfMark International, Inc. (incorporated by reference to Exhibit No. 2.2 to Form 8-K, File 1-13086, filed December 26, 1996).
80
NUMBER EXHIBITS - ------ -------- 2.14 Agreement and Plan of Distribution dated as of December 5, 1996, by and among GulfMark International, Inc., New GulfMark International, Inc. and Energy Ventures, Inc. (incorporated by reference to Exhibit No. 2.3 to Form 8-K, File 1-13086, filed December 26, 1996). 2.15 First Amendment to Agreement and Plan of Merger dated as of March 27, 1997, by and among Energy Ventures, Inc., GulfMark Acquisition Co., GulfMark International, Inc. and GulfMark Offshore, Inc. (incorporated by reference to Exhibit No. 2.3 to the Registration Statement on Form S-4, as amended (Reg. No. 333-24133)). 2.16 Stock Purchase Agreement dated as of September 14, 1996, by and among Parker Drilling Company and Energy Ventures, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K, File 1-13086, filed October 3, 1996). 2.17 Agreement and Plan of Merger dated as of June 20, 1996 between Energy Ventures, Inc., TCA Acquisition, Inc. and Tubular Corporation of America (incorporated by reference to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed June 24, 1996). 2.18 Amendment No. 1 dated as of May 26, 1998, to the Agreement and Plan of Merger dated as of December 12, 1997 and to the Agreement dated as of December 12, 1997, by and among EVI, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc., C2, Inc. and Total Logistic Control, LLC (incorporated by reference to Exhibit 2.18 to the Registration Statement on Form S-4, as amended (Reg. No. 333-58741)). 2.19 Amended and Restated Agreement and Plan of Merger among Weatherford International, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc. and C2, Inc. dated as of October 14, 1998 (incorporated by reference to Exhibit No. 2.19 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 2.20 Amendment No. 2 to Logistic Purchase Agreement by and among Weatherford International, Inc., Total Logistic Control, LLC, Christiana Companies, Inc. and C2, Inc. dated as of October 12, 1998 (incorporated by reference to Exhibit No. 2.20 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 2.21 Amendment No. 1 to Amended and Restated Agreement and Plan of Merger, by and among Weatherford International, Inc., Christiana Acquisition, Inc., Christiana Companies, Inc. and C2, Inc. dated as of January 5, 1999 (incorporated by reference to Exhibit No. 2.21 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 2.22 Amendment No. 3 to Logistic Purchase Agreement, by and among Weatherford International, Inc., Total Logistic Control, LLC, Christiana Companies, Inc. and C2, Inc. dated as of January 5, 1999 (incorporated by reference to Exhibit No. 2.22 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). +3.1 Amended and Restated Certificate of Incorporation of the Company. 3.3 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit No. 3.2 to Form 8-K, File 1-13086, filed June 2, 1998). 4.1 See Exhibit Nos. 3.1 and 3.2 for provisions of the Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws of the Registrant defining the rights of the holders of Common Stock. 4.2 Amended and Restated Credit Agreement dated as of May 27, 1998, among EVI Weatherford, Inc., EVI Oil Tools Canada Ltd., Chase Bank of Texas, National Association, as U.S. Administrative Agent, The Bank of Nova Scotia, as Documentation Agent and Canadian Agent, ABN AMRO Bank, N.V., as Syndication Agent, and the other Lenders defined therein,
81
NUMBER EXHIBITS - ------ -------- including the forms of Notes (incorporated by reference to Exhibit No. 4.1 to the Form 8-K, File 1-13086, filed June 16, 1998). 4.3 Indenture dated May 17, 1996, between Weatherford Enterra, Inc. and Bank of Montreal Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to Weatherford Enterra, Inc.'s Current Report on Form 8-K, File No. 1-7867, dated May 28, 1996). 4.4 First Supplemental Indenture dated and effective as of May 27, 1998, by and among EVI Weatherford, Inc., the successor by merger to Weatherford Enterra, Inc., and Bank of Montreal Trust Company, as Trustee (incorporated by reference to Exhibit No. 4.1 to Form 8-K, File 1-13086, filed June 2, 1998). 4.5 Form of Weatherford Enterra, Inc.'s 7 1/4% Notes Due May 15, 2006 (incorporated by reference to Exhibit 4.2 to Weatherford Enterra, Inc.'s Current Report on Form 8-K, File No. 1-7867, dated May 28, 1996). 4.6 Indenture dated March 15, 1994, among Energy Ventures, Inc., as Issuer, the Subsidiary Guarantors party thereto, as Guarantors, and Chemical Bank, as Trustee (incorporated by reference to Form 8-K, File 1-13086, filed April 5, 1994). 4.7 Specimen 10 1/4% Senior Note due 2004 of Energy Ventures, Inc. (incorporated by reference to Form 8-K, File 1-13086, filed April 5, 1994). 4.8 First Supplemental Indenture by and among Energy Ventures, Inc., Prideco, Inc. and Chemical Bank, as trustee, dated June 30, 1995 (incorporated by reference to Exhibit No. 4.4 to the Registration Statement on Form S-3 (Reg. No. 33-61933)). 4.9 Second Supplemental Indenture by and among Energy Ventures, Inc., EVI Arrow, Inc., EVI Watson, Inc. and The Chase Manhattan Bank, as trustee, dated effective as of December 6, 1996 (incorporated by reference to Exhibit 4.6 to Form 10-K, File 1-13086, filed March 20, 1997). 4.10 Third Supplemental Indenture by and among EVI, Inc., Ercon, Inc. and The Chase Manhattan Bank, as trustee, dated effective as of May 1, 1997 (incorporated by reference to Exhibit 99.2 to Form 8-K, File 1-13086, filed October 27, 1997). 4.11 Fourth Supplemental Indenture by and among EVI, Inc., XLS Holding, Inc., XL Systems, Inc. and The Chase Manhattan Bank, as trustee, dated effective as of August 25, 1997 (incorporated by reference to Exhibit 99.3 to Form 8-K, File 1-13086, filed October 27, 1997). 4.12 Fifth Supplemental Indenture by and between EVI, Inc. and The Chase Manhattan Bank dated as of December 12, 1997 (including the Form of Note and Form of Exchange Note) (incorporated by reference to Exhibit 4.1 to Form 8-K, File 1-13086, filed December 31, 1997). 4.13 Indenture dated as of October 15, 1997, between EVI, Inc. and The Chase Manhattan Bank, as Trustee (incorporated by reference to Exhibit No. 4.13 to the Registration Statement on Form S-3 (Reg. No. 333-45207)). 4.14 First Supplemental Indenture dated as of October 28, 1997, between EVI, Inc. and The Chase Manhattan Bank, as Trustee (including form of Debenture) (incorporated by reference to Exhibit 4.2 to Form 8-K, File 1-13086, filed November 5, 1997). 4.15 Registration Rights Agreement dated November 3, 1997, by and among EVI, Inc., Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston Corporation, Lehman Brothers Inc., Prudential Securities Incorporated and Schroder & Co. Inc. (incorporated by reference to Exhibit 4.3 to Form 8-K, File 1-13086, filed November 5, 1997).
82
NUMBER EXHIBITS - ------ -------- 4.16 Participation Agreement dated December 8, 1998 by and among Weatherford Enterra Compression Company, L.P., ABN AMRO Bank N.V., as Administrative Agent, Arranger and Syndication Agent, Chase Bank of Texas, National Association, and the Lessors listed on Schedule I thereto (incorporated by reference to Exhibit No. 4.16 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 4.17 Master Lease Intended as Security dated as of December 8, 1998 between Weatherford Enterra Compression Company, L.P., as Lessee, and ABN AMRO Bank N.V., as Administrative Agent for the Lessors (incorporated by reference to Exhibit No. 4.17 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). 4.18 Guaranty Agreement dated as of December 8, 1998 between Weatherford International, Inc. and ABN AMRO Bank N.V., as Administrative Agent for the Lessors (incorporated by reference to Exhibit No. 4.18 to the Registration Statement on Form S-4 (Reg. No. 333-65663)). *10.1 Weatherford Enterra, Inc. Non-Employee Director Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to Weatherford Enterra Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 1-7867)). *10.2 Weatherford Enterra, Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 4.15 to the Company's Registration Statement on Form S-8 (Reg. No. 333-53633)). *10.3 Weatherford International Incorporated 1987 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.3 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)). *10.4 Weatherford Enterra, Inc. 1991 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.4 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)). *10.5 Weatherford Enterra, Inc. Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.19 to the Company's Registration Statement on Form S-8 (Reg. No. 333-53633)). *10.6 Weatherford Enterra, Inc. Restricted Stock Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.6 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)). *10.7 Amended and Restated Change of Control Agreement with Jon Nicholson (incorporated by reference to Exhibit 10.1 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)). *10.8 Change of Control Agreement with Randall D. Stilley (incorporated by reference to Exhibit 10.1 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-17867)). *10.9 Indemnification Agreements with Robert K. Moses, Jr. (incorporated by reference to Exhibit 10.10 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 1-7867)); Philip Burguieres (incorporated by reference to Exhibit 10.4 to Weatherford Enterra, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 (File No. 1-7867)); William E. Macaulay (incorporated by reference to Exhibit 10.2 to Weatherford Enterra, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-7867)); Jon Nicholson (incorporated by reference to Exhibit 10.2 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-7867)); and Randall D. Stilley (incorporated by reference to Exhibit 10.1 to Weatherford Enterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-17867)).
83
NUMBER EXHIBITS - ------ -------- *10.10 Employment Agreement dated as of June 15, 1998, between EVI Weatherford, Inc. and Philip Burguieres (incorporated by reference to Exhibit No. 10.9 to Form 10-Q, File 1-13086, filed August 14, 1998). *10.11 Energy Ventures, Inc. Executive Deferred Compensation Stock Ownership Plan and related Trust Agreement (incorporated by reference to Form 10-Q, File 1-13086, filed November 16, 1992). *10.12 First Amendment to Energy Ventures, Inc. Executive Deferred Compensation Stock Ownership Plan dated June 28, 1993 (incorporated by reference to Exhibit No. 4.3 to the Registration Statement on Form S-8 (Reg. No. 33-65790)). *10.13 Energy Ventures, Inc. Non-Employee Director Deferred Compensation Plan (incorporated by reference to Form 10-Q, File 1-13086, filed November 16, 1992). *10.14 Energy Ventures, Inc. 1991 Non-Employee Director Stock Option Plan and Form of Agreement (incorporated by reference to Form 10-Q, File 1-13086, filed August 8, 1991). *10.15 Energy Ventures, Inc. 1992 Employee Stock Option Plan, as amended (incorporated by reference to Exhibit No. 4.7 to the Registration Statement on Form S-8 (Reg. No. 333-13531)). *10.16 Energy Ventures, Inc. Employee Stock Option Plan (incorporated by reference to Exhibit No. 4.1 to the Registration Statement on Form S-8 (Reg. No. 33-31662)). *10.17 Form of Stock Option Agreement under the Company's Employee Stock Option Plan (incorporated by reference to Exhibit No. 4.2 to the Registration Statement on Form S-8 (Reg. No. 33-31662)). *10.18 Amended and Restated Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit No. 10.1 to Form 10-Q, File 1-13086, filed August 12, 1995). *10.19 Employment Agreements with each of Bernard J. Duroc-Danner, James G. Kiley, Frances R. Powell, John C. Coble and Robert Stiles (incorporated by reference to Exhibit No. 10.9 to Form 10-K, File 1-13086, filed March 27, 1998). *10.20 Employment Agreement dated March 16, 1998, between EVI, Inc. and Curtis W. Huff (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-13086)). +*10.21 Employment Agreements with Donald R. Galletly, E. Lee Colley, III, Jon R. Nicholson and Randall D. Stilley. +*10.22 Weatherford International, Inc. 1998 Employee Stock Option Plan, including form of agreement for officers. +*10.23 Form of Stock Option Agreement for Non-Employee Directors dated September 8, 1998. +*10.24 Form of Warrant Agreement with Robert K. Moses, Jr. dated September 8, 1998. +*10.25 Weatherford International, Inc. 401(k) Savings Plan. 10.26 Manufacturing and Sales Agreement dated as of January 1, 1996, by and between Grant Prideco, S.A. and Oil Country Tubular Limited (incorporated by reference to Exhibit No. 10.34 to Form 10-K, File 1-13086, filed March 20, 1996). 10.27 Amended and Restated Lease Agreement dated May 3, 1996, between Baker Hughes Oilfield Operations, Inc. and Grant Prideco, Inc. (incorporated by reference to Exhibit No. 10.14 to Form 10-K, as amended by Form 10-K/A, File 1-13086, filed March 24, 1997).
84
NUMBER EXHIBITS - ------ -------- 10.28 Formation Agreement dated as of February 2, 1999, by and among Weatherford International, Inc., Weatherford Enterra Compression Company, L.P., General Electric Capital Corporation and Global Compression Services, Inc. (incorporated by reference to Exhibit No. 10.1 to Form 8-K, File 1-13086, filed February 5, 1999). 10.29 Limited Partnership Agreement of Weatherford Global Compression Services, L.P. dated as of February 2, 1999, by and among Weatherford Global Compression Holding, L.L.C., Weatherford Enterra Compression Company, L.P. and Global Compression Services, Inc. (incorporated by reference to Exhibit No. 10.2 to Form 8-K, File 1-13086, filed February 5, 1999). 10.30 Limited Liability Company Agreement of Weatherford Global Compression Holding, L.L.C. dated as of February 2, 1999, by and between Weatherford Enterra Compression Company, L.P. and Global Compression Services, Inc. (incorporated by reference to Exhibit No. 10.3 to Form 8-K, File 1-13086, filed February 5, 1999). 10.31 Registration Rights Agreement dated as of February 2, 1999, among Weatherford Global Compression Services, L.P., Weatherford Enterra Compression Company, L.P. and Global Compression Services, Inc. (incorporated by reference to Exhibit No. 10.4 to Form 8-K, File 1-13086, filed February 5, 1999). 10.32 The Woodward, Oklahoma lease agreements as amended (incorporated by reference to Exhibit No. 10.32 to Form 10-K, File 1-13086, filed March 23, 1995). +21.1 Subsidiaries of Weatherford International, Inc. +23.1 Consent of Arthur Andersen LLP. +27.1 Financial Data Schedule.
================================ * Management Contract or Compensatory Plan or Arrangement + Filed herewith As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed with this Annual Report on Form 10-K certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries, because the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of any of such instruments to the Securities and Exchange Commission upon request. EX-3.1 2 AMENDED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 EVI WEATHERFORD, INC. CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EVI Weatherford, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify: FIRST: That the Board of Directors of the Company, at a special meeting duly held on August 7, 1998, unanimously adopted resolutions proposing and declaring advisable the following amendment to the Amended and Restated Certificate of Incorporation of the Company and directed that such amendment be considered at the next annual meeting of stockholders of the Company: To amend Article 1 of the Amended and Restated Certificate of Incorporation in its entirety to read as follows: "1. The name of the Corporation is Weatherford International, Inc." SECOND: That at the annual meeting of stockholders of the Company duly called and held on September 21, 1998, in accordance with Section 222 of the General Corporation Law of the State of Delaware, the holders of a majority of the shares of Common Stock of the Company entitled to vote on such amendment voted in favor of such amendment. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by Bernard J. Duroc-Danner, its Chairman of the Board, President and Chief Executive Officer, this 21st day of September, 1998. EVI WEATHERFORD, INC. By: /s/ Bernard J. Duroc-Danner -------------------------------- Bernard J. Duroc-Danner Chairman of the Board, President and Chief Executive Officer 2 CERTIFICATE OF MERGER MERGING WEATHERFORD ENTERRA, INC., A DELAWARE CORPORATION, INTO EVI, INC., A DELAWARE CORPORATION Pursuant to the provisions of Section 251(c) of the General Corporation Law of the State of Delaware (the "DGCL"), the undersigned corporation submits the following Certificate of Merger for the purpose of effecting a merger under the DGCL. 1. The name and state of incorporation of each of the constituent corporations are as follows: Name of Corporation State of Incorporation ------------------------- ---------------------- Weatherford Enterra, Inc. Delaware EVI, Inc. Delaware 2. An agreement and plan of merger (the "Merger Agreement") has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with Section 251 of the DGCL. 3. The name of the surviving corporation is EVI, Inc. 4. Pursuant to the terms of the Merger Agreement, the restated certificate of incorporation of the surviving corporation shall be amended and restated and is attached hereto as Annex A in its entirety. 5. The executed Merger Agreement is on file at the principal place of business of the surviving corporation, located at 5 Post Oak Park, Suite 1760, Houston, Texas 77027. 6. A copy of the Merger Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation. Dated as of the 27th day of May, 1998. EVI, INC. /s/ Bernard J. Duroc-Danner ----------------------------------------- Bernard J. Duroc-Danner President and Chief Executive Officer 3 ANNEX A ------- EVI WEATHERFORD, INC. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1. The name of the Corporation is EVI Weatherford, Inc. 2. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. 4. The total number of shares of stock of all classes which the Corporation has authority to issue is Two Hundred and Fifty-Three Million (253,000,000) shares, of which Two Hundred and Fifty Million (250,000,000) shares shall be Common Stock, with a par value of one dollar ($1.00) per share ("Common Stock"), and Three Million (3,000,000) shares shall be Preferred Stock, with a par value of one dollar ($1.00) per share ("Preferred Stock"). The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions of the shares of each class of stock are as follows: PREFERRED STOCK Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series. Subject to the provisions hereof and the limitations prescribed by law, the Board of Directors is hereby vested with the authority and is expressly authorized, prior to issuance, by adopting resolutions providing for the issuance of, or providing for a change in the number of, shares of any particular series and, if and to the extent from time to time required by law, by filing a certificate pursuant to the General Corporation Law (or other law hereafter in effect relating to the same or substantially similar subject matter), to establish or change the number of shares to be included in each such series and to fix the designation and relative powers, preferences and rights and the qualifications and limitations or restrictions thereof relating to the shares of each such series. The vested authority of the Board of Directors with respect to each series shall include, but not be limited to, the determination of the following: (a) the distinctive serial designation of such series and the number of shares constituting such series (provided that the aggregate number of shares constituting all series of Preferred Stock shall not exceed Three Million (3,000,000)); A-1 4 (b) the annual dividend rate, if any, on shares of such series and the preferences, if any, over any other series (or of any other series over such series) with respect to dividends, and whether dividends shall be cumulative and, if so, from which date or dates; (c) whether the shares of such series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon and after which such shares shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (d) the obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or purchase fund and, if so, the terms of such obligation; (e) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or any stock of any series of the same class or any other class or classes or any evidences of indebtedness and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) whether the shares of such series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights, including, without limitation, whether such shares shall have the right to vote with the Common Stock on issues on an equal, greater or lesser basis; (g) the rights of the shares of such series in the event of a voluntary or involuntary liquidation, dissolution, winding up or distribution of assets of the Corporation; (h) whether the shares of such series shall be entitled to the benefit of conditions and restrictions upon (i) the creation of indebtedness of the Corporation or any subsidiary, (ii) the issuance of any additional stock (including additional shares of such series or of any other series) or (iii) the payment of dividends or the making of other distributions on the purchase, redemption or other acquisition by the Corporation or any subsidiary of any outstanding stock of the Corporation; and (i) any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to any such series. A-2 5 Except where otherwise set forth in the resolution or resolutions adopted by the Board of Directors providing for the issuance of any series of Preferred Stock, the number of shares comprising such series may be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors. The shares of Preferred Stock of any one series shall be identical with the other shares in such series in all respects except as to the dates from and after which dividends thereon shall cumulate, if cumulative. Shares of any series of Preferred Stock which have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the Corporation, or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issuance of any series of Preferred Stock and to any filing required by law. Subject to the rights of any outstanding shares of any series of Preferred Stock, this Restated Certificate of Incorporation may be amended from time to time in a manner that would solely modify or change the relative powers, preferences and rights and the qualifications and limitations or restrictions of any issued shares of any series of Preferred Stock then outstanding with the only required vote or consent for approval of such amendment being the affirmative vote or consent of the holders of a majority of the outstanding shares of the series of Preferred Stock so affected provided that the powers, preferences and rights and the qualification and limitations or restrictions of such series after giving effect to such amendment are no greater than the powers, preferences and rights and the qualifications and limitations or restrictions permitted to be fixed and determined by the Board of Directors with respect to the establishment of any new series of shares of Preferred Stock pursuant to the authority vested in the Board of Directors by this Article 4. Approval of any such amendment by the holders of the Common Stock shall not be required and any such amendment shall be deemed not to have affected the holders of the Common Stock adversely. The number of authorized shares of Preferred Stock may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote without the separate vote of holders of Preferred Stock as a class. COMMON STOCK Subject to all of the rights of the Preferred Stock, and except as may be expressly provided with respect to the Preferred Stock herein, by law or by the Board of Directors pursuant to this Article 4: A-3 6 (a) dividends may be declared and paid or set apart for payment upon Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends and may be payable in cash, stock or otherwise; (b) the holders of Common Stock shall have the exclusive right to vote for the election of directors and on all other matters requiring stockholder action, each share being entitled to one vote; and (c) upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of Common Stock in accordance with their respective rights and interests to the exclusion of the holders of the Preferred Stock. 5. The Corporation is to have perpetual existence. 6. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority vote of the whole board, to designate one or more committees. Any such committee, to the extent provided in the resolution of the board of directors, or in the by-laws of the Corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the Delaware General Corporation Law, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes, or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger or consolidation under Section 251 or 252 of the Delaware General Corporation Law, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the bylaws of the Corporation; and, unless the resolution, bylaws or certificate of incorporation expressly so provides, no such committee shall have the A-4 7 power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. When and as authorized by the stockholders in accordance with statute, to sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interest of the Corporation. 7. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the Corporation. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. 8. All of the powers of the Corporation, insofar as the same may be lawfully vested by this Restated Certificate of Incorporation in the Board of Directors of the Corporation, are hereby conferred upon the Board of Directors of the Corporation. In furtherance and not in limitation of the foregoing provisions of this Article 8, and for the purpose of the orderly management of the business and the conduct of the affairs of the Corporation, the Board of Directors of the Corporation shall have the power to adopt, amend or repeal from time to time any provision of the by-laws of the Corporation (including, without limitation, by-laws governing the conduct of, and the matters which may properly be brought before, meetings of the stockholders and by-laws specifying the manner and extent to which prior notice shall be given of the submission of proposals to be submitted at any meeting of stockholders or of nominations of A-5 8 elections of directors to be held at any such meeting) by the vote of a majority of the entire Board of Directors, subject to the right of the stockholders of the Corporation entitled to vote thereon to adopt, amend or repeal by-laws of the Corporation. In addition to any requirements of law and any other provision of this Restated Certificate of Incorporation or any resolution or resolutions of the Board of Directors adopted pursuant to Article 4 of this Restated Certificate of Incorporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Restated Certificate of Incorporation or any such resolution or resolutions), the affirmative vote of the holders of 80% or more of the combined voting power of the then outstanding shares of stock of all classes and series of stock the holders of which are entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend, alter or repeal any provision of the by-laws. 9. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 10. To the fullest extent that the General Corporation Law of the State of Delaware as it exists on the date hereof and as it may hereafter be amended permits the limitation or elimination of the liability of directors, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. A-6 EX-10.21 3 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.21 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and Donald R. Galletly (the "Executive"), effective September 8, 1998. W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") has previously determined that it is in the best interests of the Company and its stockholders to retain the Executive and to induce the employment of the Executive for the long term benefit of the Company; WHEREAS, the Board does not contemplate the termination of the Executive during the term hereof and the Board and the Executive expect that the Executive will be retained for at least the three year period contemplated herein; and WHEREAS, to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Employment. (a) The Company hereby agrees that the Company or an affiliated company will continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement, during the Employment Period (as defined below). (b) The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three year(s) after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Employment Period shall not be so extended. The Effective Date shall be September 8, 1998. 2. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Vice President - Communication and Investor Relations or similar position and (B) the Executive's services shall be performed primarily at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location. 2 (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary of $200,000 ("Annual Base Salary"), which shall be paid at a monthly rate. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the date hereof and thereafter at least annually; provided, however, that a salary increase shall not necessarily be awarded as a result of such review. Any increase in Annual Base Salary may not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Executive shall be eligible for an annual bonus (the "Annual Bonus") for each fiscal year ending during the Employment Period on the same basis as other executive officers under the Company's executive officer annual incentive program. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus pursuant to a Company sponsored deferred compensation plan in effect. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect on the date hereof. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided 2 3 by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Executive on the date hereof. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive on the date hereof. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits (including, without limitation, financial planning services and payment of related expenses, as appropriate) in accordance with the most favorable plans, practices, programs and policies of the Company in effect on the date hereof. (vii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies in effect for the Executive on the date hereof. 3. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective 30 days after receipt of such notice by the Executive (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the 3 4 Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act, or failure to act, on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 2(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 2(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required for the performance of the Executive's position, it being understood that travel will be a necessary part of the job; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or 4 5 (v) any failure by the Company to comply with and satisfy Section 9(c) of this Agreement. For purposes of this Section 3(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of the Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination; and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 4. Obligations of the Company Upon Termination. (a) Good Reason; Other than For Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Executive over the preceding three year period and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal 5 6 year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus", it being agreed that for any termination prior to the Executive receiving his first Annual Bonus under this Agreement, the Annual Bonus shall be an amount equal to the Annual Bonus the Executive would have received for the year ended December 31, 1997, had the Executive then been employed and received a bonus on the same basis as the other similarly situated vice presidents of the Company for such year, but shall exclude the sign on bonus previously paid to the Executive) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"), and (B) an amount equal to three times the sum of (i) the then current Annual Base Salary of the Executive and (ii) the Highest Annual Bonus, and (C) an amount equal to the total of the employer matching contributions credited to the Executive under the Company's 401(k) Savings Plan (the "401(k) Plan") or any other deferred compensation plan during the 12-month period immediately preceding the month of the Executive's Date of Termination multiplied by three, such amount to be grossed up so that the amount the Executive actually receives after payment of any federal or state taxes payable thereon equals the amount first described above. (ii) For a period of three years from the Executive's Date of Termination (the "Remaining Contract Term") or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 2(b)(iv) of this Agreement if the Executive's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Executive shall continue to pay the monthly employee contribution for same, and provided further, that if the Executive becomes reemployed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; (iii) The Company shall, at its sole expense as incurred, provide the Executive with outplacement services, the scope and provider of which shall be selected by the Executive in his sole discretion; (iv) With respect to all options to purchase Common Stock held by the Executive pursuant to a Company stock option plan on or prior to the Date of Termination, 6 7 irrespective of whether such options are then exercisable, the Executive shall have the right, during the 60-day period after the Date of Termination, to elect to surrender all or part of such options in exchange for a cash payment by the Company to the Executive in an amount equal the number of shares of Common Stock subject to the Executive's option multiplied by the difference between (x) and (y) where (x) equals the purchase price per share covered by the option and (y) equals the highest reported sale price of a share of Common Stock in any transaction reported on the New York Stock Exchange during the 60-day period prior to and including the Executive's Date of Termination. Such cash payments shall be made within 30 days after the date of the Executive's election; provided, however, that if the Executive's Date of Termination is within six months after the date of grant of a particular option held by the Executive and the Executive is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, any cash payments related thereto shall be made on the date which is six months and one day after the date of grant of such option to the extent necessary to prevent the imposition of the disgorgement provisions under Section 16(b). Notwithstanding the foregoing, if any right granted pursuant to the foregoing would make any change of control transaction ineligible for pooling of interests accounting treatment under APB No. 16 that but for this Section 4(a)(iv) would otherwise be eligible for such accounting treatment, the Executive shall receive shares of Common Stock with a Fair Market Value equal to the cash that would otherwise be payable hereunder in substitution for the cash, provided that any such shares of Common Stock so granted to the Executive shall be registered under the Securities Act of 1933, as amended; any options outstanding as of the Date of Termination and not then exercisable shall become fully exercisable as of the Executive's Date of Termination, and to the extent the Executive does not elect to surrender same for a cash payment (or the equivalent number of shares of Common Stock) as provided above, such options shall remain exercisable for one year after the Executive's Date of Termination or until the stated expiration of the stated term thereof, whichever is shorter; restrictions applicable to any shares of Common Stock granted to the Executive by the Company shall lapse, as of the date of the Executive's Date of Termination; (v) All country club memberships, luncheon clubs and other memberships which the Company was providing for the Executive's use at the time Notice of Termination is given shall, to the extent possible, be transferred and assigned to the Executive at no cost to the Executive (other than income taxes owed), the cost of transfer, if any, to be borne by the Company; (vi) The Company shall either transfer to the Executive ownership and title to the Executive's company car at no cost to the Executive (other than income taxes owed) or, if the Executive receives a monthly car allowance in lieu of a Company car, pay the Executive a lump sum in cash within 30 days after the Executive's Date of Termination equal to the Executive's annual car allowance multiplied by three; (vii) All benefits under the EDC and the 401(k) Plan and any other similar plans, including any stock options held by the Executive, not already vested shall be 100% vested, to the extent such vesting is permitted under the Code (as defined below); (viii) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or 7 8 practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (ix) The foregoing payments are intended to compensate the Executive for a breach of the Company's obligations and place Executive in substantially the same position had the employment of the Executive not been so terminated as a result of a breach by the Company. (b) Death. If Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of the Executive's peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, in effect on the date hereof or, if more favorable, those in effect on the date of the Executive's death. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall include, without limitation, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable benefits generally provided by the Company and its affiliated companies to the Executive's disabled peer executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in effect generally on the date hereof or, if more favorable, those in effect at the time of the Disability. (d) Cause; Other Than for Good Reason. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than the obligation to pay to the Executive (x) his or her Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. 5. Other Rights. Except as provided hereinafter, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, 8 9 nor, shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Executive that he or she shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. In addition, if the Executive has an employment or similar agreement with the Company at the Date of Termination, he or she agrees that he or she shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Executive chooses, but not both agreements, and when the Executive has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Executive also agrees that to the extent he or she may be eligible for any severance pay or similar benefit under any laws providing for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Executive shall not receive duplicate benefits. 6. Payments. (a) No Rights of Offset. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. (b) No Mitigation Required. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expense which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Executive of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 7. Certain Additional Payments by the Company. (a) Although this Agreement is not being entered into in connection with or contingent upon a change of control of the Company, anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are 9 10 incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 7(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 7(c), all determinations required to be made under this Section 7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days after the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by the Company to the Executive within five days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Executive is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect 10 11 to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 7(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days 11 12 after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement), information that is developed by the Executive independently of such information, or knowledge or data or information that is disclosed to the Executive by a third party under no obligation of confidentiality to the Company. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Successors. (a) This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 12 13 If to the Executive: Donald R. Galletly Weatherford International, Inc. 5 Post Oak Park, Suite 1760 Houston, Texas 77027 If to the Company: Weatherford International, Inc. 5 Post Oak Park, Suite 1760 Houston, Texas 77027-3415 Attention: Bernard J. Duroc-Danner or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ Don Galletly ---------------------------------------- Don Galletly WEATHERFORD INTERNATIONAL, INC. By /s/ Bernard J. Duroc-Danner -------------------------------------- Name: Bernard J. Duroc-Danner ---------------------------------- Title: President and CEO ---------------------------------- 13 14 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and E. Lee Colley (the "Executive"), effective December 19, 1998. W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") has previously determined that it is in the best interests of the Company and its stockholders to retain the Executive and to induce the employment of the Executive for the long term benefit of the Company; WHEREAS, the Board does not contemplate the termination of the Executive during the term hereof and the Board and the Executive expect that the Executive will be retained for at least the three year period contemplated herein; and WHEREAS, to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Employment. (a) The Company hereby agrees that the Company or an affiliated company will continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement, during the Employment Period (as defined below). (b) The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three year(s) after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Employment Period shall not be so extended. The Effective Date shall be December 19, 1998. 2. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Vice President - Artificial Lift Services or other executive officer and (B) the Executive's services shall be performed primarily at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable 15 attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary of $225,000.00 ("Annual Base Salary"), which shall be paid at a monthly rate. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the date hereof and thereafter at least annually; provided, however, that a salary increase shall not necessarily be awarded as a result of such review. Any increase in Annual Base Salary may not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Executive shall be eligible for an annual bonus (the "Annual Bonus") for each fiscal year ending during the Employment Period on the same basis as other executive officers under the Company's executive officer annual incentive program. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus pursuant to a Company sponsored deferred compensation plan in effect. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect on the date hereof. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death 2 16 and travel accident insurance plans and programs) to the extent applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Executive on the date hereof. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive on the date hereof. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits (including, without limitation, financial planning services and payment of related expenses, as appropriate) in accordance with the most favorable plans, practices, programs and policies of the Company in effect on the date hereof. (vii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies in effect for the Executive on the date hereof. 3. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective 30 days after receipt of such notice by the Executive (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or 3 17 (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act, or failure to act, on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 2(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 2(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required for the performance of the Executive's position, it being understood that travel will be a necessary part of the job; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 9(c) of this Agreement. 4 18 For purposes of this Section 3(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of the Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination; and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 4. Obligations of the Company Upon Termination. (a) Good Reason; Other than For Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Executive over the preceding three year period and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the 5 19 "Highest Annual Bonus", and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"), and (B) an amount equal to three times the sum of (i) the then current Annual Base Salary of the Executive and (ii) the Highest Annual Bonus, and (C) an amount equal to the total of the employer matching contributions credited to the Executive under the Company's 401(k) Savings Plan (the "401(k) Plan") or any other deferred compensation plan during the 12-month period immediately preceding the month of the Executive's Date of Termination multiplied by three, such amount to be grossed up so that the amount the Executive actually receives after payment of any federal or state taxes payable thereon equals the amount first described above. (ii) For a period of three years from the Executive's Date of Termination (the "Remaining Contract Term") or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 2(b)(iv) of this Agreement if the Executive's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Executive shall continue to pay the monthly employee contribution for same, and provided further, that if the Executive becomes reemployed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; (iii) The Company shall, at its sole expense as incurred, provide the Executive with outplacement services, the scope and provider of which shall be selected by the Executive in his sole discretion; (iv) With respect to all options to purchase Common Stock held by the Executive pursuant to a Company stock option plan on or prior to the Date of Termination, irrespective of whether such options are then exercisable, the Executive shall have the right, during the 60-day period after the Date of Termination, to elect to surrender all or part of such options in exchange for a cash payment by the Company to the Executive in an amount equal the number of shares of Common Stock subject to the Executive's option multiplied by the difference between (x) and (y) where (x) equals the purchase price per share covered by the option and (y) equals the highest reported sale price of a share of Common Stock in any transaction reported on the New York Stock Exchange during the 60-day period prior to and including the Executive's Date of Termination. Such cash payments shall be made within 30 days after the date of the Executive's election; provided, however, that if the 6 20 Executive's Date of Termination is within six months after the date of grant of a particular option held by the Executive and the Executive is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, any cash payments related thereto shall be made on the date which is six months and one day after the date of grant of such option to the extent necessary to prevent the imposition of the disgorgement provisions under Section 16(b). Notwithstanding the foregoing, if any right granted pursuant to the foregoing would make any change of control transaction ineligible for pooling of interests accounting treatment under APB No. 16 that but for this Section 4(a)(iv) would otherwise be eligible for such accounting treatment, the Executive shall receive shares of Common Stock with a Fair Market Value equal to the cash that would otherwise be payable hereunder in substitution for the cash, provided that any such shares of Common Stock so granted to the Executive shall be registered under the Securities Act of 1933, as amended; any options outstanding as of the Date of Termination and not then exercisable shall become fully exercisable as of the Executive's Date of Termination, and to the extent the Executive does not elect to surrender same for a cash payment (or the equivalent number of shares of Common Stock) as provided above, such options shall remain exercisable for one year after the Executive's Date of Termination or until the stated expiration of the stated term thereof, whichever is shorter; restrictions applicable to any shares of Common Stock granted to the Executive by the Company shall lapse, as of the date of the Executive's Date of Termination; (v) All country club memberships, luncheon clubs and other memberships which the Company was providing for the Executive's use at the time Notice of Termination is given shall, to the extent possible, be transferred and assigned to the Executive at no cost to the Executive (other than income taxes owed), the cost of transfer, if any, to be borne by the Company; (vi) The Company shall either transfer to the Executive ownership and title to the Executive's company car at no cost to the Executive (other than income taxes owed) or, if the Executive receives a monthly car allowance in lieu of a Company car, pay the Executive a lump sum in cash within 30 days after the Executive's Date of Termination equal to the Executive's annual car allowance multiplied by three; (vii) All benefits under the EDC and the 401(k) Plan and any other similar plans, including any stock options held by the Executive, not already vested shall be 100% vested, to the extent such vesting is permitted under the Code (as defined below); (viii) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (ix) The foregoing payments are intended to compensate the Executive for a breach of the Company's obligations and place Executive in substantially the same position had the employment of the Executive not been so terminated as a result of a breach by the Company. 7 21 (b) Death. If Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of the Executive's peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, in effect on the date hereof or, if more favorable, those in effect on the date of the Executive's death. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall include, without limitation, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable benefits generally provided by the Company and its affiliated companies to the Executive's disabled peer executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in effect generally on the date hereof or, if more favorable, those in effect at the time of the Disability. (d) Cause; Other Than for Good Reason. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than the obligation to pay to the Executive (x) his or her Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. 5. Other Rights. Except as provided hereinafter, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Executive that he or she shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. 8 22 In addition, if the Executive has an employment or similar agreement with the Company at the Date of Termination, he or she agrees that he or she shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Executive chooses, but not both agreements, and when the Executive has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Executive also agrees that to the extent he or she may be eligible for any severance pay or similar benefit under any laws providing for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Executive shall not receive duplicate benefits. 6. Payments. (a) No Rights of Offset. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. (b) No Mitigation Required. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expense which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Executive of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 7. Certain Additional Payments by the Company. (a) Although this Agreement is not being entered into in connection with or contingent upon a change of control of the Company, anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 7(a), if it shall be determined that the 9 23 Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 7(c), all determinations required to be made under this Section 7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days after the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by the Company to the Executive within five days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Executive is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, 10 24 accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 7(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, 11 25 provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement), information that is developed by the Executive independently of such information, or knowledge or data or information that is disclosed to the Executive by a third party under no obligation of confidentiality to the Company. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Successors. (a) This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Lee Colley Weatherford International, Inc. 515 Post Oak Blvd. Houston, Texas 77027 12 26 If to the Company: Weatherford International, Inc. 5 Post Oak Park, Suite 1760 Houston, Texas 77027-3415 Attention: Bernard J. Duroc-Danner or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ E. LEE COLLEY ------------------------------------ E. Lee Colley WEATHERFORD INTERNATIONAL, INC. By /s/ Bernard J. Duroc-Danner -------------------------------- Name: Bernard J. Duroc-Danner ------------------------------ Title: President and CEO ------------------------------ 13 27 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and Jon Nicholson (the "Executive"), effective December 31, 1998. W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") has previously determined that it is in the best interests of the Company and its stockholders to retain the Executive and to induce the employment of the Executive for the long term benefit of the Company; WHEREAS, the Board does not contemplate the termination of the Executive during the term hereof and the Board and the Executive expect that the Executive will be retained for at least the three year period contemplated herein; and WHEREAS, to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Employment. (a) The Company hereby agrees that the Company or an affiliated company will continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement, during the Employment Period (as defined below). (b) The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three year(s) after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Employment Period shall not be so extended. The Effective Date shall be December 31, 1998. 2. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Vice President - Human Resources or other executive officer and (B) the Executive's services shall be performed primarily at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable 28 attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary of $210,000.00 ("Annual Base Salary"), which shall be paid at a monthly rate. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the date hereof and thereafter at least annually; provided, however, that a salary increase shall not necessarily be awarded as a result of such review. Any increase in Annual Base Salary may not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Executive shall be eligible for an annual bonus (the "Annual Bonus") for each fiscal year ending during the Employment Period on the same basis as other executive officers under the Company's executive officer annual incentive program; provided, however the Annual Bonus for the years 1998, 1999, and 2000 shall be at least $105,000.00. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus pursuant to a Company sponsored deferred compensation plan in effect. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect on the date hereof. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, 2 29 prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Executive on the date hereof. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive on the date hereof. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits (including, without limitation, financial planning services and payment of related expenses, as appropriate) in accordance with the most favorable plans, practices, programs and policies of the Company in effect on the date hereof. (vii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies in effect for the Executive on the date hereof. 3. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective 30 days after receipt of such notice by the Executive (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or 3 30 (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act, or failure to act, on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 2(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 2(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required for the performance of the Executive's position, it being understood that travel will be a necessary part of the job; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 9(c) of this Agreement. 4 31 For purposes of this Section 3(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of the Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination; and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 4. Obligations of the Company Upon Termination. (a) Good Reason; Other than For Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Executive over the preceding three year period and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the 5 32 "Highest Annual Bonus", and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"), and (B) an amount equal to three times the sum of (i) the then current Annual Base Salary of the Executive and (ii) the Highest Annual Bonus, and (C) an amount equal to the total of the employer matching contributions credited to the Executive under the Company's 401(k) Savings Plan (the "401(k) Plan") or any other deferred compensation plan during the 12-month period immediately preceding the month of the Executive's Date of Termination multiplied by three, such amount to be grossed up so that the amount the Executive actually receives after payment of any federal or state taxes payable thereon equals the amount first described above. (ii) For a period of three years from the Executive's Date of Termination (the "Remaining Contract Term") or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 2(b)(iv) of this Agreement if the Executive's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Executive shall continue to pay the monthly employee contribution for same, and provided further, that if the Executive becomes reemployed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; (iii) The Company shall, at its sole expense as incurred, provide the Executive with outplacement services, the scope and provider of which shall be selected by the Executive in his sole discretion; (iv) With respect to all options to purchase Common Stock held by the Executive pursuant to a Company stock option plan on or prior to the Date of Termination, irrespective of whether such options are then exercisable, the Executive shall have the right, during the 60-day period after the Date of Termination, to elect to surrender all or part of such options in exchange for a cash payment by the Company to the Executive in an amount equal the number of shares of Common Stock subject to the Executive's option multiplied by the difference between (x) and (y) where (x) equals the purchase price per share covered by the option and (y) equals the highest reported sale price of a share of Common Stock in any transaction reported on the New York Stock Exchange during the 60-day period prior to and including the Executive's Date of Termination. Such cash payments shall be made within 30 days after the date of the Executive's election; provided, however, that if the 6 33 Executive's Date of Termination is within six months after the date of grant of a particular option held by the Executive and the Executive is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, any cash payments related thereto shall be made on the date which is six months and one day after the date of grant of such option to the extent necessary to prevent the imposition of the disgorgement provisions under Section 16(b). Notwithstanding the foregoing, if any right granted pursuant to the foregoing would make any change of control transaction ineligible for pooling of interests accounting treatment under APB No. 16 that but for this Section 4(a)(iv) would otherwise be eligible for such accounting treatment, the Executive shall receive shares of Common Stock with a Fair Market Value equal to the cash that would otherwise be payable hereunder in substitution for the cash, provided that any such shares of Common Stock so granted to the Executive shall be registered under the Securities Act of 1933, as amended; any options outstanding as of the Date of Termination and not then exercisable shall become fully exercisable as of the Executive's Date of Termination, and to the extent the Executive does not elect to surrender same for a cash payment (or the equivalent number of shares of Common Stock) as provided above, such options shall remain exercisable for one year after the Executive's Date of Termination or until the stated expiration of the stated term thereof, whichever is shorter; restrictions applicable to any shares of Common Stock granted to the Executive by the Company shall lapse, as of the date of the Executive's Date of Termination; (v) All country club memberships, luncheon clubs and other memberships which the Company was providing for the Executive's use at the time Notice of Termination is given shall, to the extent possible, be transferred and assigned to the Executive at no cost to the Executive (other than income taxes owed), the cost of transfer, if any, to be borne by the Company; (vi) The Company shall either transfer to the Executive ownership and title to the Executive's company car at no cost to the Executive (other than income taxes owed) or, if the Executive receives a monthly car allowance in lieu of a Company car, pay the Executive a lump sum in cash within 30 days after the Executive's Date of Termination equal to the Executive's annual car allowance multiplied by three; (vii) All benefits under the EDC and the 401(k) Plan and any other similar plans, including any stock options held by the Executive, not already vested shall be 100% vested, to the extent such vesting is permitted under the Code (as defined below); (viii) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (ix) The foregoing payments are intended to compensate the Executive for a breach of the Company's obligations and place Executive in substantially the same position had the employment of the Executive not been so terminated as a result of a breach by the Company. 7 34 (b) Death. If Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of the Executive's peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, in effect on the date hereof or, if more favorable, those in effect on the date of the Executive's death. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall include, without limitation, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable benefits generally provided by the Company and its affiliated companies to the Executive's disabled peer executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in effect generally on the date hereof or, if more favorable, those in effect at the time of the Disability. (d) Cause; Other Than for Good Reason. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than the obligation to pay to the Executive (x) his or her Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. 5. Other Rights. Except as provided hereinafter, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Executive that he or she shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. 8 35 In addition, if the Executive has an employment or similar agreement with the Company at the Date of Termination, he or she agrees that he or she shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Executive chooses, but not both agreements, and when the Executive has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Executive also agrees that to the extent he or she may be eligible for any severance pay or similar benefit under any laws providing for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Executive shall not receive duplicate benefits. 6. Payments. (a) No Rights of Offset. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. (b) No Mitigation Required. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expense which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Executive of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 7. Certain Additional Payments by the Company. (a) Although this Agreement is not being entered into in connection with or contingent upon a change of control of the Company, anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 7(a), if it shall be determined that the 9 36 Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 7(c), all determinations required to be made under this Section 7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days after the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by the Company to the Executive within five days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Executive is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, 10 37 accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 7(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, 11 38 provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement), information that is developed by the Executive independently of such information, or knowledge or data or information that is disclosed to the Executive by a third party under no obligation of confidentiality to the Company. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Successors. (a) This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) This Agreement supersedes the Change of Control Agreement between Executive and Weatherford Enterra, Inc., dated August 16, 1996, which shall be of no further effect. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 12 39 If to the Executive: Jon Nicholson Weatherford International, Inc. 515 Post Oak Blvd. Houston, Texas 77027 If to the Company: Weatherford International, Inc. 5 Post Oak Park, Suite 1760 Houston, Texas 77027-3415 Attention: Bernard J. Duroc-Danner or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ Jon Nicholson -------------------------------------- Jon Nicholson WEATHERFORD INTERNATIONAL, INC. By /s/ Bernard J. Duroc-Danner ------------------------------------ Name: Bernard J. Duroc-Danner -------------------------------- Title: President and CEO -------------------------------- 13 40 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and Randall D. Stilley (the "Executive"), effective December 31, 1998. W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") has previously determined that it is in the best interests of the Company and its stockholders to retain the Executive and to induce the employment of the Executive for the long term benefit of the Company; WHEREAS, the Board does not contemplate the termination of the Executive during the term hereof and the Board and the Executive expect that the Executive will be retained for at least the three year period contemplated herein; and WHEREAS, to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Employment. (a) The Company hereby agrees that the Company or an affiliated company will continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement, during the Employment Period (as defined below). (b) The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three year(s) after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Employment Period shall not be so extended. The Effective Date shall be December 31, 1998. 2. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Senior Vice President - President, Completion & Oilfield Services or other executive officer and (B) the Executive's services shall be performed primarily at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location. 41 (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary of $300,000.00 ("Annual Base Salary"), which shall be paid at a monthly rate. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the date hereof and thereafter at least annually; provided, however, that a salary increase shall not necessarily be awarded as a result of such review. Any increase in Annual Base Salary may not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Executive shall be eligible for an annual bonus (the "Annual Bonus") for each fiscal year ending during the Employment Period on the same basis as other executive officers under the Company's executive officer annual incentive program; provided, however, the Annual Bonus for the years 1998, 1999, 2000 shall be at least $200,000. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus pursuant to a Company sponsored deferred compensation plan in effect. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect on the date hereof. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible to participate in and shall 2 42 receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Executive on the date hereof. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive on the date hereof. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits (including, without limitation, financial planning services and payment of related expenses, as appropriate) in accordance with the most favorable plans, practices, programs and policies of the Company in effect on the date hereof. (vii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies in effect for the Executive on the date hereof. 3. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective 30 days after receipt of such notice by the Executive (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the 3 43 Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act, or failure to act, on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 2(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 2(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required for the performance of the Executive's position, it being understood that travel will be a necessary part of the job; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or 4 44 (v) any failure by the Company to comply with and satisfy Section 9(c) of this Agreement. For purposes of this Section 3(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of the Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination; and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 4. Obligations of the Company Upon Termination. (a) Good Reason; Other than For Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Executive over the preceding three year period and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal 5 45 year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus", and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"), and (B) an amount equal to three times the sum of (i) the then current Annual Base Salary of the Executive and (ii) the Highest Annual Bonus, and (C) an amount equal to the total of the employer matching contributions credited to the Executive under the Company's 401(k) Savings Plan (the "401(k) Plan") or any other deferred compensation plan during the 12-month period immediately preceding the month of the Executive's Date of Termination multiplied by three, such amount to be grossed up so that the amount the Executive actually receives after payment of any federal or state taxes payable thereon equals the amount first described above. (ii) For a period of three years from the Executive's Date of Termination (the "Remaining Contract Term") or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 2(b)(iv) of this Agreement if the Executive's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Executive shall continue to pay the monthly employee contribution for same, and provided further, that if the Executive becomes reemployed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; (iii) The Company shall, at its sole expense as incurred, provide the Executive with outplacement services, the scope and provider of which shall be selected by the Executive in his sole discretion; (iv) With respect to all options to purchase Common Stock held by the Executive pursuant to a Company stock option plan on or prior to the Date of Termination, irrespective of whether such options are then exercisable, the Executive shall have the right, during the 60-day period after the Date of Termination, to elect to surrender all or part of such options in exchange for a cash payment by the Company to the Executive in an amount equal the number of shares of Common Stock subject to the Executive's option multiplied by the difference between (x) and (y) where (x) equals the purchase price per share covered by the option and (y) equals the highest reported sale price of a share of Common Stock in 6 46 any transaction reported on the New York Stock Exchange during the 60-day period prior to and including the Executive's Date of Termination. Such cash payments shall be made within 30 days after the date of the Executive's election; provided, however, that if the Executive's Date of Termination is within six months after the date of grant of a particular option held by the Executive and the Executive is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, any cash payments related thereto shall be made on the date which is six months and one day after the date of grant of such option to the extent necessary to prevent the imposition of the disgorgement provisions under Section 16(b). Notwithstanding the foregoing, if any right granted pursuant to the foregoing would make any change of control transaction ineligible for pooling of interests accounting treatment under APB No. 16 that but for this Section 4(a)(iv) would otherwise be eligible for such accounting treatment, the Executive shall receive shares of Common Stock with a Fair Market Value equal to the cash that would otherwise be payable hereunder in substitution for the cash, provided that any such shares of Common Stock so granted to the Executive shall be registered under the Securities Act of 1933, as amended; any options outstanding as of the Date of Termination and not then exercisable shall become fully exercisable as of the Executive's Date of Termination, and to the extent the Executive does not elect to surrender same for a cash payment (or the equivalent number of shares of Common Stock) as provided above, such options shall remain exercisable for one year after the Executive's Date of Termination or until the stated expiration of the stated term thereof, whichever is shorter; restrictions applicable to any shares of Common Stock granted to the Executive by the Company shall lapse, as of the date of the Executive's Date of Termination; (v) All country club memberships, luncheon clubs and other memberships which the Company was providing for the Executive's use at the time Notice of Termination is given shall, to the extent possible, be transferred and assigned to the Executive at no cost to the Executive (other than income taxes owed), the cost of transfer, if any, to be borne by the Company; (vi) The Company shall either transfer to the Executive ownership and title to the Executive's company car at no cost to the Executive (other than income taxes owed) or, if the Executive receives a monthly car allowance in lieu of a Company car, pay the Executive a lump sum in cash within 30 days after the Executive's Date of Termination equal to the Executive's annual car allowance multiplied by three; (vii) All benefits under the EDC and the 401(k) Plan and any other similar plans, including any stock options held by the Executive, not already vested shall be 100% vested, to the extent such vesting is permitted under the Code (as defined below); (viii) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (ix) The foregoing payments are intended to compensate the Executive for a breach of the Company's obligations and place Executive in substantially the same position 7 47 had the employment of the Executive not been so terminated as a result of a breach by the Company. (b) Death. If Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of the Executive's peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, in effect on the date hereof or, if more favorable, those in effect on the date of the Executive's death. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall include, without limitation, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable benefits generally provided by the Company and its affiliated companies to the Executive's disabled peer executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in effect generally on the date hereof or, if more favorable, those in effect at the time of the Disability. (d) Cause; Other Than for Good Reason. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than the obligation to pay to the Executive (x) his or her Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. 5. Other Rights. Except as provided hereinafter, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance 8 48 with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Executive that he or she shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. In addition, if the Executive has an employment or similar agreement with the Company at the Date of Termination, he or she agrees that he or she shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Executive chooses, but not both agreements, and when the Executive has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Executive also agrees that to the extent he or she may be eligible for any severance pay or similar benefit under any laws providing for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Executive shall not receive duplicate benefits. 6. Payments. (a) No Rights of Offset. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. (b) No Mitigation Required. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expense which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Executive of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 7. Certain Additional Payments by the Company. (a) Although this Agreement is not being entered into in connection with or contingent upon a change of control of the Company, anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties 9 49 imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 7(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 7(c), all determinations required to be made under this Section 7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days after the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by the Company to the Executive within five days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Executive is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, 10 50 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 7(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 7(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or 11 51 any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies, provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement), information that is developed by the Executive independently of such information, or knowledge or data or information that is disclosed to the Executive by a third party under no obligation of confidentiality to the Company. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Successors. (a) This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) This Agreement supersedes the Change of Control Agreement between Executive and Weatherford Enterra, Inc., dated January 5, 1998, which shall be of no further effect. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 12 52 If to the Executive: Randall D. Stilley Weatherford International, Inc. 515 Post Oak Blvd. Houston, Texas 77027 If to the Company: Weatherford International, Inc. 5 Post Oak Park, Suite 1760 Houston, Texas 77027-3415 Attention: Bernard J. Duroc-Danner or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ Randall D. Stilley ----------------------------------- Randall D. Stilley WEATHERFORD INTERNATIONAL, INC. By /s/ Bernard J. Duroc-Danner --------------------------------- Name: Bernard J. Duroc-Danner ----------------------------- Title: President and CEO ----------------------------- 13 EX-10.22 4 1998 EMPLOYEE STOCK OPTION PLAN 1 EXHIBIT 10.22 WEATHERFORD INTERNATIONAL, INC. 1998 EMPLOYEE STOCK OPTION PLAN 2 WEATHERFORD INTERNATIONAL, INC. 1998 EMPLOYEE STOCK OPTION PLAN TABLE OF CONTENTS
Section ------- ARTICLE I - PLAN Purpose.................................................. 1.1 Effective Date of Plan................................... 1.2 ARTICLE II - DEFINITIONS Affiliate................................................ 2.1 Board of Directors....................................... 2.2 Code..................................................... 2.3 Committee................................................ 2.4 Company.................................................. 2.5 Disinterested Person..................................... 2.6 Employee................................................. 2.7 Fair Market Value........................................ 2.8 Nonqualified Option...................................... 2.9 Option................................................... 2.10 Option Agreement......................................... 2.11 Plan..................................................... 2.12 Stock.................................................... 2.13 ARTICLE III - ELIGIBILITY ARTICLE IV - GENERAL PROVISIONS RELATING TO OPTIONS Authority to Grant Options............................... 4.1 Dedicated Shares......................................... 4.2 Non-Transferability...................................... 4.3 Requirements of Law...................................... 4.4 Changes in the Company's Capital Structure............... 4.5 ARTICLE V - OPTIONS Type of Option........................................... 5.1 Option Price............................................. 5.2 Duration of Options...................................... 5.3 Amount Exercisable....................................... 5.4
-i- 3 Exercise of Options...................................... 5.5 Exercise Following Termination of Employment............. 5.6 Substitution Options..................................... 5.7 No Rights as Stockholder................................. 5.8 ARTICLE VI - ADMINISTRATION ARTICLE VII - AMENDMENT OR TERMINATION OF PLAN ARTICLE VIII - MISCELLANEOUS No Establishment of a Trust Fund......................... 8.1 No Employment Obligation................................. 8.2 Forfeiture............................................... 8.3 Tax Withholding.......................................... 8.4 Written Agreement........................................ 8.5 Indemnification of the Committee and the Board of Directors................................................ 8.6 Gender................................................... 8.7 Headings................................................. 8.8 Other Compensation Plans................................. 8.9 Other Options or Awards.................................. 8.10 Governing Law............................................ 8.11
-ii- 4 ARTICLE I. PLAN 1.1 PURPOSE. This Plan is a plan for certain employees of the Company and its Affiliates and is intended to advance the best interests of the Company, its Affiliates, and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in the employ of the Company or any of its Affiliates. 1.2 EFFECTIVE DATE OF PLAN. This Plan is effective September 8, 1998. ARTICLE II. DEFINITIONS The words and phrases defined in this Article shall have the meaning set out in these definitions throughout this Plan, unless the context in which any such word or phrase appears reasonably requires a broader, narrower, or different meaning. 2.1 "AFFILIATE" means any parent corporation and any subsidiary corporation. The term "parent corporation" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the action or transaction, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. The term "subsidiary corporation" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the action or transaction, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. 2.2 "BOARD OF DIRECTORS" means the board of directors of the Company. 2.3 "CODE" means the Internal Revenue Code of 1986, as amended. 2.4 "COMMITTEE" means the Compensation Committee of the Board of Directors or such other committee designated by the Board of Directors. 2.5 "COMPANY" means Weatherford International, Inc. 2.6 "EMPLOYEE" means a person employed by the Company or any Affiliate to whom an Option is granted. -1- 5 2.7 "EXECUTIVE OFFICER" means a "officer" of the Company as defined in Rule 16a-1 under the Securities Exchange Act of 1934. 2.8 "FAIR MARKET VALUE" of the Stock as of any date means (a) the closing sales price of the Stock on that date on the principal securities exchange on which the Stock is listed; or (b) if the Stock is not listed on a securities exchange, the closing sales price of the Stock on that date as reported on the New York Stock Exchange; or (c) if the Stock is not listed on the New York Stock Exchange, the average of the high and low bid quotations for the Stock on that date as reported by the National Quotation Bureau Incorporated; or (d) if none of the foregoing is applicable, an amount at the election of the Committee equal to the (x) the average between the closing bid and ask prices per Share of Stock on the last preceding date on which those prices were reported or (y) that amount as determined by the Committee in its sole discretion. 2.9 "NONQUALIFIED OPTION" means an option granted under this Plan which is not intended to satisfy the requirements of Section 422 of the Code. 2.10 "OPTION" means a Nonqualified Option granted under this Plan to purchase shares of Stock. 2.11 "OPTION AGREEMENT" means the written agreement which sets out the terms of an Option. 2.12 "PLAN" means the Weatherford International, Inc. 1998 Employee Stock Option Plan, as set out in this document and as it may be amended from time to time. 2.13 "STOCK" means the common stock of the Company, $1.00 par value (or such other par value as may be designated by act of the Company's stockholders) or, in the event that the outstanding shares of common stock are later changed into or exchanged for a different class of stock or securities of the Company or another corporation, that other stock or security. ARTICLE III. ELIGIBILITY The individuals who shall be eligible to receive Nonqualified Options shall be all employees of the Company or any of its Affiliates. Grants will be made to such of those employees who are eligible to participate as the Committee shall determine from time to time. The Board of Directors may designate one or more individuals who shall not be eligible to receive any Option under this Plan or under other similar plans of the Company. -2- 6 ARTICLE IV. GENERAL PROVISIONS RELATING TO OPTIONS 4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those employees of the Company or any of its Affiliates, as it shall from time to time determine, Options under the terms and conditions of this Plan. Subject only to any applicable limitations set out in this Plan, the number of shares of Stock to be covered by any Option to be granted to an employee of the Company or any of its Affiliates shall be as determined by the Committee. 4.2 DEDICATED SHARES. The total number of shares of Stock with respect to which Options may be granted under the Plan shall be 5,000,000 shares. The shares of Stock that may be issued to employees who are not Executive Officers may be either treasury shares or authorized but unissued shares. The shares of Stock that may be issued to Executive Officers may be treasury shares or, if necessary to permit the issuance of shares upon the exercise of an Option to an Executive Officer, subject to the receipt of all necessary approvals by the stockholders of the Company, authorized but unissued shares. The number of shares stated in this Section 4.2 shall be subject to adjustment in accordance with the provisions of Section 4.5. In the event that any outstanding Option shall expire or terminate for any reason or any Option is surrendered, the shares of Stock allocable to the unexercised portion of that Option may again be subject to an Option under the Plan. 4.3 NON-TRANSFERABILITY. Options shall not be transferable by the Employee otherwise than by will or under the laws of descent and distribution or pursuant to a domestic relations order, and shall be exercisable, during the Employee's lifetime, only by the Employee 4.4 REQUIREMENTS OF LAW. (a) In the event the shares issuable on exercise of an Option are not registered under the Securities Act of 1933, the Company may imprint on the certificate for such shares the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Securities Act of 1933: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be sold or transferred except upon such registration or upon receipt by the Corporation of an opinion of counsel satisfactory to the Corporation, in form and substance satisfactory to the Corporation, that registration is not required for such sale or transfer." The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) and, in the event any shares are so registered, the Company may remove any legend on certificates representing such shares. The Company shall not be obligated to take any other affirmative action in order to cause -3- 7 the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. (b) The Company shall (i) reserve a number of authorized but unissued shares of Stock sufficient to satisfy its obligations hereunder and (ii) shall reserve or acquire such number of treasury shares of Stock as may be necessary from time to time to allow any vested Options that are required to be satisfied with treasury shares to be exercised. 4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of outstanding Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If the Company shall effect a subdivision or consolidation of shares or other capital adjustment of, or the payment of a dividend in capital stock or other equity securities of the Company on, its Common Stock, or other increase or reduction of the number of shares of the Common Stock without receiving consideration therefor in money, services, or property, or the reclassification of its Common Stock, in whole or in part, into other equity securities of the Company, then (a) the number, class and per share price of shares of stock subject to outstanding Options hereunder shall be appropriately adjusted (or in the case of the issuance of other equity securities as a dividend on, or in a reclassification of, the Common Stock, the Options shall extend to such other securities) in such a manner as to entitle an optionee to receive, upon exercise of an Option, for the same aggregate cash consideration, the same total number and class or classes of shares (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) he would have held after such adjustment if he had exercised his Option in full immediately prior to the event requiring the adjustment, or, if applicable, the record date for determining stockholders to be affected by such adjustment; and (b) the number and class of shares then reserved for issuance under the Plan (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) shall be adjusted by substituting for the total number and class of shares of stock then received, the number and class or classes of shares of stock (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) that would have been received by the owner of an equal number of outstanding shares of Common Stock as a result of the event requiring the adjustment. Comparable rights shall accrue to each optionee in the event of successive subdivisions, consolidations, capital adjustments, dividends or reclassifications of the character described above. If the Company shall distribute to all holders of its shares of Common Stock (including any such distribution made to non-dissenting stockholders in connection with a consolidation or merger in which the Company is the surviving corporation and in which holders of shares of Common Stock continue to hold shares of Common Stock after such merger or consolidation) evidences of indebtedness or cash or other assets (other than cash dividends payable out of consolidated retained earnings not in excess of, in any one year period, the greater of (a) in an amount per share of Common Stock equal to $1.00 per share of Common Stock (as the same may be adjusted from time -4- 8 to time by the Board of Directors to reflect the effect of changes in capitalization) and (b) two times the aggregate amount of dividends per share paid during the preceding calendar year and dividends or distributions payable in shares of Common Stock or other equity securities of the Company described in the immediately preceding paragraph, but including stock or other securities of any corporation or other entity owned by the Company), then in each case the Option Price shall be adjusted by reducing the Option Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such distribution by the fair market value, as determined in good faith by the Board of Directors of the Company (whose determination shall be described in a statement filed in the Company's corporate records and be available for inspection by any holder of an Option) of the portion of the evidence of indebtedness or cash or other assets so to be distributed applicable to one share of Common Stock; provided that in no event shall the Option Price be less than the par value of a share of Common Stock. In the event such adjustment would result in the Option Price being less than the par value of a share of Common Stock but for the foregoing proviso, the terms of the Option shall be appropriately adjusted so as to maintain the economic value of the Option, including through an adjustment to the number of shares of Common Stock subject to the Option and through a provision allowing the holder of the Option to receive the evidence of indebtedness or cash or other assets so to be distributed applicable to one share of Common Stock for each share of Common Stock that may be purchased on the exercise of the Option. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of the distribution retroactive to the record date for the determination of the stockholders entitled to receive such distribution. In addition, in the event the Company distributes shares or other securities of a subsidiary corporation or other entity to the holders of the Common Stock, the Board of Directors may, in lieu of the adjustment provided above, either (i)make provision allowing the holder of the Option to receive the shares or securities of the corporation or entity that are subject to the distribution in addition to the shares of the Common Stock subject to the Option or (ii) adjust the exercise price and number of shares subject to the Option in a manner deemed appropriate to maintain the economic value of the Option. In the case of an adjustment pursuant to clause (i), separate option agreements covering each security may be used, with the Option Price to be allocated between the securities. Comparable adjustments shall be made in the event of successive distributions of the character described above. If the Company shall make a tender offer for, or grant to all of its holders of its shares of Common Stock the right to require the Company or any subsidiary of the Company to acquire from such stockholders shares of, Common Stock, at a price in excess of the Fair Market Value (a "Put Right") or the Company shall grant to all of its holders of its shares of Common Stock the right to acquire shares of Common Stock for less than the Fair Market Value (a "Purchase Right") then, in the case of a Put Right, the Option Price shall be adjusted by multiplying the Option Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such Put Right by a fraction, the numerator of which shall be the number of shares of Common Stock then outstanding minus the number of shares of Common Stock which could be purchased at the Fair Market Value for the aggregate amount which would be paid if all Put Rights are exercised and the denominator of which is the number of shares of Common Stock which would be outstanding if all Put Rights are exercised; and, in the case of a Purchase Right, the Option Price shall be adjusted by multiplying the Option Price in effect immediately prior to the record date for the determination of the stockholders entitled to receive such Purchase Right by a fraction, the numerator of which shall be the number of shares of Common Stock then outstanding plus the number of shares of Common -5- 9 Stock which could be purchased at the Fair Market Value for the aggregate amount which would be paid if all Purchase Rights are exercised and the denominator of which is the number of shares of Common Stock which would be outstanding if all Purchase Rights are exercised. In addition, the number of shares subject to the Option shall be increased by multiplying the number of shares then subject to the Option by a fraction which is the inverse of the fraction used to adjust the Option Price. Notwithstanding the foregoing, if any such Put Rights or Purchase Rights shall terminate without being exercised, the Option Price and number of shares subject to the Option shall be appropriately readjusted to reflect the Option Price and number of shares subject to the Option which would have been in effect if such unexercised Rights had never existed. Comparable adjustments shall be made in the event of successive transactions of the character described above. If there is a merger of one or more corporations or entities with or into the Company in which the Company is not the sole survivor or there is an exchange, conversion or modification to the ownership of the then outstanding shares of Common Stock of the Company, a consolidation of the Company and any one or more corporations or entities, a statutory share or interest exchange in which all of the Common Stock is acquired or any other similar business combination with respect to the Company in which the Common Stock is acquired by a third party, each optionee, at no additional cost, shall be entitled to receive, upon any exercise of his Option, in lieu of the number of shares as to which the Option shall then represent the right to purchase, the number and class of shares of stock or other securities, assets or other property, including cash, to which the optionee would have been entitled to receive or continue to hold pursuant to the terms of the agreement of merger, consolidation, share or interest exchange or other similar transaction if at the time of such merger, consolidation, share or interest exchange such optionee had been a holder of a number of shares of Common Stock equal to the number of shares as to which the Option shall then represent the right to purchase. Comparable rights shall accrue to each optionee in the event of successive mergers, consolidations, share or interest exchanges or other transactions of the character described above. If a corporate transaction described in Section 424(a) of the Code which involves the Company is to take place and there is to be no surviving corporation or entity while an Option remains in whole or in part unexercised, it may be cancelled by the Board of Directors as of the effective date of any such corporate transaction but before the date each optionee shall be provided with a notice of such cancellation and each optionee shall have the right to exercise such Option in full (without regard to any limitations on exercise set forth in or imposed by the option agreement pursuant to which such Option was granted as contemplated by Paragraph 9 of the Plan) to the extent it is then still unexercised during a 30-day period preceding the effective date of such corporate transaction. In the event (i) the Company were to distribute to its stockholders or otherwise divest of a majority of the stock of a subsidiary corporation that is the principal employer of the Employee and (ii) following such distribution or divestment the stock of the subsidiary corporation or any parent corporation of such subsidiary corporation is listed or authorized for listing on a national securities exchange or authorized for quotation on the NASDAQ national market (or successor market), the Board of Directors may, but shall not be required to, adjust the terms of the Option to provide that such Option shall only represent a right to purchase shares in such subsidiary corporation or parent corporation and the number of shares and exercise price will be appropriately adjusted so as to -6- 10 maintain the economic value of the Option. This adjustment would be in lieu of any adjustment that might otherwise be required under this Section 4.5 for that transaction. Except as hereinbefore expressly provided, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to outstanding Options. ARTICLE V. OPTIONS 5.1 TYPE OF OPTION. All Options granted under this Plan shall constitute Nonqualified Options. 5.2 OPTION PRICE. The price at which shares of Stock may be purchased under a Nonqualified Option shall not be less than the aggregate par value of the shares of Stock on the date the Option is granted. The Committee in its discretion may provide that the price at which shares of Stock may be purchased under a Nonqualified Option may be more or less than 100% of Fair Market Value on the date of grant. 5.3 DURATION OF OPTIONS. Unless otherwise provided in an Option Agreement, no Option shall be exercisable after one day less than 10 years from the date the Option becomes first exercisable. 5.4 AMOUNT EXERCISABLE. Each Option may be exercised by an Employee from time to time, in whole or in part, after three years from the date of grant, in the manner and subject to the conditions the Committee, in its sole discretion, may provide in the Option Agreement, as long as the Option is valid and outstanding under the terms of this Plan. Unless otherwise provided in an Option Agreement, (a) in the case of death or disability within three years of the date of grant, while the optionee is an Employee, each Option shall become immediately exercisable as described in Section 5.6, and (b) in the case of retirement by an Employee within three years of the date of grant, each Option shall become exercisable as described in Section 5.6. 5.5 EXERCISE OF OPTIONS. An optionee may exercise such optionee's Option by delivering to the Company a written notice stating (i) that such optionee wishes to exercise such Option on the date such notice is so delivered, (ii) the number of shares of stock with respect to which such Option is to be exercised, (iii) the address to which the certificate representing such shares of stock should be mailed, and (iv) the social security number of such optionee. In order to be effective, such written notice shall be accompanied by (i) payment of the Option price of such shares of stock and (ii) payment of an amount of money necessary to satisfy any withholding tax liability that may result from the exercise of such Option. Each such payment shall be made by cashier's check drawn on a national banking association and payable to the order of the Company in United States dollars. -7- 11 Unless otherwise provided in an Option Agreement, if, at the time of receipt by the Company of such written notice, (i) the Company has unrestricted surplus in an amount not less than the Option price of such shares of stock, (ii) all accrued cumulative preferential dividends and other current preferential dividends on all outstanding shares of preferred stock of the Company have been fully paid, (iii) the acquisition by the Company of its own shares of stock for the purpose of enabling such optionee to exercise such Option is otherwise permitted by applicable law and without any vote or consent of any stockholder of the Company, and (iv) there shall have been adopted, and there shall be in full force and effect, a resolution of the Board of Directors of the Company authorizing the acquisition by the Company of its own shares of stock for such purpose, then such optionee may deliver to the Company, in payment of the Option price of the shares of stock with respect to which such Option is exercised, (x) certificates registered in the name of such optionee that represent a number of shares of stock legally and beneficially owned by such optionee (free of all liens, claims and encumbrances of every kind) and having a fair market value on the date of receipt by the Company of such written notice that is not greater than the Option price of the shares of stock with respect to which such Option is to be exercised, such certificates to be accompanied by stock powers duly endorsed in blank by the record holder of the shares of stock represented by such certificates, with the signature of such record holder guaranteed by a national banking association (or in lieu of such certificates, other arrangements for the transfer of such shares to the Company which are satisfactory to the Company), and (y) if the Option price of the shares of stock with respect to which such Option is to be exercised exceeds such fair market value, a cashier's check drawn on a national banking association and payable to the order of the Company in an amount, in United States dollars, equal to the amount of such excess plus the amount of money necessary to satisfy any withholding tax liability that may result from the exercise of such Option. Notwithstanding the provisions of the immediately preceding sentence, the Committee, in its sole discretion, may refuse to accept shares of stock in payment of the Option price of the shares of stock with respect to which such Option is to be exercised and, in that event, any certificates representing shares of stock that were received by the Company with such written notice shall be returned to such optionee, together with notice by the Company to such optionee of the refusal of the Committee to accept such shares of stock. Unless otherwise provided in the Option Agreement, the Company, upon approval of the Committee and in its sole discretion, upon the request of the optionee, may retain shares of Common Stock which would otherwise be issued upon exercise of an Option to satisfy any withholding tax liability that may result from the exercise of such Option, which shares shall be valued for such purpose at their then Fair Market Value. If, at the expiration of seven business days after the delivery to such optionee of such written notice from the Company, such optionee shall not have delivered to the Company a cashier's check drawn on a national banking association and payable to the order of the Company in an amount, in United States dollars, equal to the Option Price of the shares of stock with respect to which such Option is to be exercised, such written notice from the optionee to the Company shall be ineffective to exercise such Option. As promptly as practicable after the receipt by the Company of (i) such written notice from the optionee, (ii) payment, in the form required by the foregoing provisions of this Paragraph 5.5, of the Option Price of the shares of stock with respect to which such Option is to be exercised, and (iii) payment, in the form required by the foregoing provisions of this Section, of an amount of money necessary to satisfy any withholding tax liability that may result from the exercise of such Option, a certificate representing the number of shares of stock with respect to which such Option -8- 12 has been so exercised, reduced, to the extent applicable by the number of shares retained by the Company as provided above to pay any required withholding tax, such certificate to be registered in the name of such optionee, provided that such delivery shall be considered to have been made when such certificate shall have been mailed, postage prepaid, to such optionee at the address specified for such purpose in such written notice from the optionee to the Company. 5.6 EXERCISE FOLLOWING TERMINATION OF EMPLOYMENT. Unless it is expressly provided otherwise in the Option Agreement or other written agreement with the Employee that provides otherwise, Options shall terminate as follows: SEVERANCE OF EMPLOYMENT. If the Employee severs employment from the Company and all Affiliates prior to three years from the date such Options were granted, for any reason, with or without cause, other than for death, retirement under the then established rules of the Company, or severance for disability, all such Options shall terminate and be immediately forfeited, and not be exercisable. If the Employee severs employment from the Company and all Affiliates for any reason, with or without cause, other than for death, retirement under the then established rules of the Company, or severance for disability on or after three years from the date such Options were granted, the Options shall continue in effect until the date such Options are otherwise due to expire in accordance with Section 5.3, unless it is expressly provided otherwise in the Option Agreement or other written agreement with the Employee that provides otherwise. Whether authorized leave of absence or absence on military or government service shall constitute severance of the employment of the Employee shall be determined by the Committee at that time. In determining the employment relationship between the Company and the Employee, employment by any Affiliate shall be considered employment by the Company, as shall employment by a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, or by a parent corporation or subsidiary corporation of the corporation issuing or assuming a stock option (and for this purpose, the phrase "corporation issuing or assuming a stock option" shall be substituted for the word "Company" in the definitions of parent corporation and subsidiary corporation in Section 2.1, and the parent-subsidiary relationship shall be determined at the time of the corporate action described in Section 424(a) of the Code). DEATH. If the Employee dies prior to three years from the date such Options were granted, the Options shall continue in effect until 10 years following the date of the Employee's death, unless it is expressly provided otherwise in the Option Agreement. If the Employee dies on or after three years from the date such Options were granted, the Option shall continue in effect until the date the Option is otherwise due to expire in accordance with Section 5.3, unless it is expressly provided otherwise in the Option Agreement. After the death of the Employee, the Employee's executors, administrators or any persons to whom his Option may be transferred by will or by the laws of descent and distribution shall have the right, at any time prior to the Option's expiration to exercise it. RETIREMENT. If the Employee shall be retired in good standing from the employ of the Company under the then established rules of the Company, prior to three years from the date such Options were granted, the Employee shall vest in the number of Options determined by multiplying the number of Options granted to the Employee by a fraction, the numerator of which is the -9- 13 Employee's total whole years of service since the Options were granted and the denominator of which is three. With respect to these vested Options, the Options shall be exercisable until 10 years following the date of the Employee's retirement in accordance with this Section 5.6, unless it is expressly provided otherwise in the Option Agreement. If the Employee shall be retired in good standing from the employ of the Company under the then established rules of the Company on or after three years from the date such Options were granted, such Options shall continue until the date the Options are otherwise due to expire in accordance with Section 5.3, unless it is expressly provided otherwise in the Option Agreement. DISABILITY. If the Employee shall be severed from the employ of the Company for disability prior to three years from the date such Options were granted, the Options shall be immediately exercisable and continue in effect until 10 years following the date he severed from the employ of the Company for disability, unless it is expressly provided otherwise in the Option Agreement. If the Employee shall be severed from the employ of the Company for disability on or after three years from the date such Options were granted, the Options shall continue in effect until the date the Options are otherwise due to expire in accordance with Section 5.3, unless it is expressly provided otherwise in the Option Agreement. 5.7 SUBSTITUTION OPTIONS. Options may be granted under this Plan from time to time in substitution for stock options held by employees of other corporations who are about to become employees of the Company, or whose employer is about to become a parent or subsidiary corporation of the Company, conditioned upon the employee becoming an employee of the Company or a parent or subsidiary corporation of the Company, as a result of the merger or consolidation of the Company with another corporation, or the acquisition by the Company of substantially all the assets of another corporation, or the acquisition by the Company of at least 50% of the issued and outstanding stock of another corporation as the result of which it becomes a subsidiary of the Company. The terms and conditions of the substitute Options so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board of Directors of the Company at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted. 5.8 NO RIGHTS AS STOCKHOLDER. No Employee shall have any rights as a stockholder with respect to Stock covered by his Option until the date a stock certificate is issued for the Stock. ARTICLE VI. ADMINISTRATION This Plan shall be administered by the Committee. All questions of interpretation and application of this Plan and Options shall be subject to the determination of the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be as effective as if it had been made by a majority vote at a meeting properly called and held. In carrying out its authority under this Plan, subject to the express terms of any outstanding Option or other agreement with an Employee, the -10- 14 Committee shall have full and final authority and discretion, including but not limited to the following rights, powers and authorities, to: 1. determine the Employees to whom and the time or times at which Options will be made, 2. determine the number of shares and the purchase price of Stock covered in each Option, subject to the terms of this Plan, 3. determine the terms, provisions and conditions of each Option, which need not be identical, 4. accelerate the time at which any outstanding Option may be exercise, 5. define the effect, if any, on an Option of the death, disability, retirement, or termination of employment of the Employee, 6. prescribe, amend and rescind rules and regulations relating to administration of this Plan, and 7. make all other determinations and take all other actions deemed necessary, appropriate, or advisable for the proper administration of this Plan. The actions of the Committee in exercising all of the rights, powers, and authorities set out in this Article and all other Articles of this Plan, when performed in good faith and in its sole judgment, shall be final, conclusive and binding on all parties. ARTICLE VII. AMENDMENT OR TERMINATION OF PLAN The Board of Directors of the Company may amend, terminate or suspend this Plan at any time, in its sole and absolute discretion subject to the rights of holders of outstanding Options at the time of such amendment, termination or suspension.. ARTICLE VIII. MISCELLANEOUS 8.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside nor shall a trust fund of any kind be established to secure the rights of any Employee under this Plan. All Employees shall at all times rely solely upon the general credit of the Company for the payment of any benefit which becomes payable under this Plan. -11- 15 8.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not constitute an employment contract, express or implied, nor impose upon the Company or any Affiliate any obligation to employ or continue to employ any Employee. The right of the Company or any Affiliate to terminate the employment of any person shall not be diminished or affected by reason of the fact that an Option has been granted to him. The decision of the Committee as to the cause of the Employee's discharge, the damage done to the Company or an Affiliate, and the extent of the Employee's competitive activity shall be final. No decision of the Committee, however, shall affect the finality of the discharge of the Employee by the Company or an Affiliate in any manner. 8.3 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to deduct from other compensation payable to each Employee any sums required by federal, state, or local tax law to be withheld with respect to the grant or exercise of an Option. In the alternative, the Company may require the Employee (or other person exercising the Option) to pay the sum directly to the employer corporation. If the Employee (or other person exercising the Option) is required to pay the sum directly, payment in cash or by check of such sums for taxes shall be delivered within 10 days after the date of exercise . The Company shall have no obligation upon exercise of any Option until payment has been received, unless withholding (or offset against a cash payment) as of or prior to the date of exercise is sufficient to cover all sums due with respect to that exercise. The Company and its Affiliates shall not be obligated to advise an Employee of the existence of the tax or the amount which the employer corporation will be required to withhold. The Company may also allow for the retention of shares of Stock issuable upon the exercise of Options to satisfy such withholding. 8.4 WRITTEN AGREEMENT. Each Option shall be embodied in a written Option Agreement which shall be subject to the terms and conditions of this Plan and shall be signed by the Employee and the Company. The Option Agreement may contain any other provisions that the Committee in its discretion shall deem advisable. 8.5 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With respect to administration of this Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further act on his part to indemnity from the Company for, all expenses (including attorney's fees, the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his being or having been a member of the Committee and/or the Board of Directors, whether or not he continues to be a member of the Committee and/or the Board of Directors at the time of incurring the expenses--including, without limitation, matters as to which he shall be finally adjudged in any action, suit or proceeding to have been found to have been negligent in the performance of his duty as a member of the Committee of the Board of Directors. However, this indemnity shall not include any expenses incurred by any member of the Committee and/or the Board of Directors in respect of matters as to which he shall be finally adjudged in any action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as a member of the Committee or the Board of Directors. In addition, no right of indemnification under this Plan shall be available to or enforceable -12- 16 by any member of the Committee and the Board of Directors unless, within 60 days after institution of any action, suit or proceeding, he shall have offered the Company, in writing, the opportunity to handle and defend same at its own expense. This right of indemnification shall inure to the benefit of the heirs, executors or administrators of each member of the Committee and the Board of Directors and shall be in addition to all other rights to which a member of the Committee and the Board of Directors may be entitled as a matter of law, contract, or otherwise. 8.6 GENDER. If the context requires, words of one gender when used in this Plan shall include the others and words used in the singular or plural shall include the other. 8.7 HEADINGS. Headings of Articles and Sections are included for convenience of reference only and do not constitute part of this Plan and shall not be used in construing the terms of this Plan. 8.8 OTHER COMPENSATION PLANS. The adoption of this Plan shall not affect any other stock option, incentive or other compensation or benefit plans or arrangements, including any employment, change of control or severance agreements, in effect with or for the Company or any Affiliate, nor shall this Plan preclude the Company from establishing any other forms of incentive or other compensation for employees of the Company or any Affiliate. 8.9 OTHER OPTIONS. The grant of an Option shall not confer upon the Employee the right to receive any future or other Options under this Plan, whether or not Options may be granted to similarly situated Employees, or the right to receive future Options upon the same terms or conditions as previously granted. 8.10 GOVERNING LAW. The provisions of this Plan shall be construed, administered, and governed under the laws of the State of Delaware. -13- 17 WEATHERFORD INTERNATIONAL, INC. 1998 EMPLOYEE STOCK OPTION PLAN STOCK OPTION AGREEMENT Under the terms and conditions of the Weatherford International, Inc. 1998 Employee Stock Option Plan (the "Plan"), a copy of which is attached hereto and incorporated in this Agreement by reference, Weatherford International, Inc. (the "Company") grants to ______ (the "Optionee") the option to purchase _________ shares of the Company's Common Stock, $1.00 par value, at the price of $ per share, subject to adjustment as provided in the Plan (the "Option") as follows: 1. Grant. (a) The Company hereby grants to the Optionee the Option effective as of September 8, 1998 (the "Date of Grant"). The Company and the Optionee agree that the Option shall be subject to the terms of this Agreement and the Plan. The Company and Optionee further agree that this Agreement, together with the Plan and the Employment Agreement with the Optionee dated __________, 1998 (the Employment Agreement"), sets forth the complete terms of the Option as in effect on the date hereof. To the extent the terms of this Agreement and the Option vary with the terms of the Plan, the terms of this Agreement and the Option shall prevail and this Agreement shall be deemed an amendment to the Plan to the extent necessary to permit the grant of the Option. (b) Subject to the terms and conditions of this Agreement and the Plan, the Option provides the Optionee with the option to purchase _____ shares of Common Stock at a price of $____________ per share (the "Option Price"). (c) The Option is subject to the terms and provisions of the Plan, which are hereby incorporated herein by reference. The Option shall also be subject to the terms of the Employment Agreement; provided that the Optionee agrees that as of the date of this Agreement there does not exist Good Reason (as defined in the Employment Agreement) for the Optionee to terminate the Optionee's employment. (d) The Option is considered to be a non-statutory option and is not intended to be an incentive stock option within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). (e) Subject to earlier vesting in the event of a "Change in Control" as provided in Section 1(f) hereof, or in the event of termination of employment (i) by the Optionee for Good Reason (as defined in the Employment Agreement), (ii) by the Company for any reason other than Cause (as defined in the Employment Agreement) or (iii) due to death, disability or retirement within three years from the date of the grant of the Option as provided for in Section 6 hereof, the Option shall be exercisable following three years from the date of grant of the Option. No Option however, shall be exercisable after one day less than 10 years from the date the option becomes first exercisable. (f) Notwithstanding the provisions of Section 1(e) hereof, the Option shall be exercisable with respect to all of the shares subject to the Option upon the occurrence of a Change in Control 18 (as defined herein). For purposes of this Agreement, a Change in Control shall mean the occurrence of one or more of the following events: (i) any "person", including a "group", as those terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934, other than an affiliate of the Company as of the Date of Grant, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding voting securities; (ii) the Company is merged or consolidated with or into another corporation and immediately after giving effect to the merger or consolidation either (A) less than 65% of the outstanding voting securities of the surviving or resulting entity are then beneficially owned in the aggregate by (x) the stockholders of the Company immediately prior to such merger or consolidation or (y) if a record date has been set to determine the stockholders of the Company entitled to vote on such merger or consolidation, the stockholders of the Company as of such record date, or (B) the Board of Directors, or similar governing body, of the surviving or resulting entity does not have as a majority of its members the persons specified in clause (iii)(A) and (B) below; (iii) if at any time the following do not constitute a majority of the Board of Directors of the Company (or any successor entity referred to in clause (ii) above): (A) persons who are directors of the Company on the Date of Grant and (B) persons who, prior to their election as a director of the Company (or successor entity if applicable), were nominated, recommended or endorsed by a formal resolution of the Board of Directors of the Company; (iv) persons who are directors of the Company as of the beginning of any calendar year cease to constitute a majority of the members of the Board of Directors at any time during that calendar year; or (v) the Company transfers all or substantially all of its assets as contemplated by Delaware corporate law on a consolidated basis to another corporation or entity which is a less than a 50% owned subsidiary of the Company. 2. Changes in The Company's Capital Structure. (a) The existence of the Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure of its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) The number of shares of Common Stock subject to the Option, the Option Price and the securities issuable and other property payable upon exercise of the Option shall be subject to adjustment as provided in the Plan. 3. Exercise of Options. The Option may be exercised from time to time as to the total number of shares that may then be issuable upon the exercise thereof or any portion thereof in the manner and subject to the limitations provided for in the Plan and in Section 1 hereof. 4. Assignment. The Option may not be transferred or assigned in any manner by the Optionee except by will or the laws of descent and distribution or pursuant to a qualified domestic order, and shall be exercisable during the Employee's lifetime only by the Employee or an assignee pursuant to a qualified domestic order. -2- 19 5. Requirement of Law. If required at any time by the Committee, the Option may not be exercised until the Optionee has delivered an investment letter to the Company. In addition, specifically in connection with the Securities Act of 1933 (as now in effect or hereafter amended), upon exercise of the Option, the Company shall not be required to issue the underlying shares unless the Committee has received evidence satisfactory to it to the effect that the Optionee will not transfer such shares except pursuant to a registration statement in effect under such Act or unless an opinion of counsel satisfactory to the Committee has been received by the Company to the effect that such registration is not required. Any determination in this connection by the Committee shall be final, binding and conclusive. In the event the shares issuable on exercise of the Option are not registered under the Securities Act of 1933, the Company may imprint on the certificate for such shares the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with Securities Act of 1933: The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be sold or transferred except upon such registration or upon receipt by the Corporation of an opinion of counsel satisfactory to the Corporation, in form and substance satisfactory to the Corporation, that registration is not required for such sale or transfer. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of the Option or the issuance of shares of Common Stock pursuant thereto to comply with any law or regulation of any governmental authority. 6. Termination. The Option, to the extent it shall not previously have been exercised, shall terminate as follows: (a) If the employment of the Optionee with the Company and its Affiliates is terminated (i) by the Company for any reason other than Cause (as defined in the Employment Agreement) or (ii) by the Optionee for Good Reason (as defined in the Employment Agreement), the Option shall continue in effect until one day less than ten years following the date of the Optionee's date of termination of employment. If the Optionee elects to terminate the Optionee's employment relationship with the Company and its Affiliates prior to three years for any reason other than Good Reason, death, retirement under the then established rules of the Company or disability, such Options shall terminate and be immediately forfeited and not be exercisable. In addition, if the employment of the Optionee is terminated by the Company for Cause prior to three years from the date such Options were granted, all such Options shall terminate and be immediately forfeited and not be exercisable. (b) DEATH. If the Optionee dies prior to three years from the date such Options were granted, the Options shall continue in effect until one day less than 10 years following the date of the Optionee's death. If the Optionee dies on or after three years from the date such Options were granted, the Option shall continue in effect until one day less than 10 years after the date the Option became first exercisable. After the death of the Optionee, the Optionee's executors, administrators or any persons to whom his Option may be transferred by will or by the laws of descent and distribution shall have the right, at any time prior to the Option's expiration to exercise it. -3- 20 (c) RETIREMENT. If the Optionee shall be retired in good standing from the employ of the Company under the then established rules of the Company, prior to three years from the date such Options were granted, the Optionee shall vest in the number of Options determined by multiplying the number of Options granted to the Optionee by a fraction, the numerator of which is the Optionee's total whole years of service since the Options were granted and the denominator of which is three. With respect to these vested Options, the Options shall be exercisable until one day less than 10 years following the date of the Optionee's retirement. If the Optionee shall be retired in good standing from the employ of the Company under the then established rules of the Company on or after three years from the date such Options were granted, such Options shall continue until one day less than 10 years after the date the Option became first exercisable. (d) DISABILITY. If the Optionee shall be severed from the employ of the Company for disability prior to three years from the date such Options were granted, the Options shall be immediately be exercisable and continue in effect until one day less than 10 years following the date he severed from the employ of the Company for disability. If the Optionee shall be severed from the employ of the Company for disability on or after three years from the date such Options were granted, the Options shall continue in effect until one day less than ten years after the date the Option became first exercisable. 7. Amendment. This Agreement may not be changed, amended or modified except by an agreement in writing signed on behalf of each of the parties hereto. 8. No Rights as a Stockholder. The Optionee shall not have any rights as a stockholder with respect to any shares of Common Stock issuable upon the exercise of the Option until the date of issuance of the stock certificate or certificates representing such shares following the Optionee's exercise of the Option pursuant to its terms and conditions and payment for such shares. Except as otherwise provided in the Plan, no adjustment shall be made for dividends or other distributions made with respect to the Common Stock the record date for the payment of which is prior to the date of issuance of the stock certificate or certificates representing such shares following the Employee's exercise of the Option. 9. Governing Law. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. Any invalidity of any provision of this Agreement shall not affect the validity of any other provision. 10. Notices. All notices, demands, requests or other communications hereunder shall be in writing and shall be deemed to have been duly made or given if mailed by registered or certified mail, return receipt requested. Any such notice mailed to the Company shall be addressed to its principal executive office at 5 Post Oak Park, Suite 1760, Houston, Texas 77027-3415, and any notice mailed to the Optionee shall be addressed to the Employees's residence address as it appears on the books and records of the Company or to such other address as either party may hereafter designate in writing to the other. 11. Employment Obligation. The granting of the Option by the Company to the Optionee shall not impose upon the Company any obligation to employ or continue to employ the Optionee; and the right of the Company to terminate the employment of the Optionee with the Company shall -4- 21 not be diminished or affected by reason of the grant of the Option to the Optionee pursuant to this Agreement. 12. Binding Effect. This Agreement shall, except as otherwise provided to the contrary in this Agreement or in the Plan, inure to the benefit of and bind the successors and assigns of the Company. This Agreement shall, except as otherwise provided to the contrary in this Agreement, inure to the benefit of and bind the heirs, executors, administrators and legal representatives of the Optionee. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as of the day and year first above mentioned. WEATHERFORD INTERNATIONAL, INC. By: ------------------------------------ Name: -------------------------------- Title: -------------------------------- --------------------------------------- Optionee -5- EX-10.23 5 FORM OF STOCK OPTION AGMT. - NON-EMP. DIRECTORS 1 EXHIBIT 10.23 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of September 8, 1998, between WEATHERFORD INTERNATIONAL, INC., a Delaware corporation ("Weatherford"), and _______________ (the "Non-Employee Director"). W I T N E S S E T H: WHEREAS, the Non-Employee Director serves on the Board of Directors of Weatherford and Weatherford desires to have the Non-Employee Director remain as a director and desires to encourage stock ownership by the Non-Employee Director; WHEREAS, Weatherford has, as an inducement, determined to grant to the Non-Employee Director the option set forth in this Agreement in order that the Non-Employee Director may obtain an interest in the stock ownership of Weatherford; NOW, THEREFORE, in consideration of the premises and the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Weatherford and the Non-Employee Director hereby agree as follows: 1. Grant. (a) Weatherford hereby grants to the Non-Employee Director an option (the "Option") effective on September 8, 1998 (the "Date of Grant") to purchase 60,000 shares of Weatherford Common Stock, $1.00 par value per share ("Common Stock"), having an exercise price equal to the closing sale price of the Common Stock on the New York Stock Exchange, Inc. on September 8, 1998. Weatherford and the Non-Employee Director agree that the Option shall be subject to the terms of this Agreement. Weatherford and the Non-Employee Director further agree that this Agreement sets forth the complete terms of the Option as in effect on the date hereof. (b) No Option shall be exercisable after the expiration of 10 years from the date the Option becomes first exercisable. (c) Subject to the terms and conditions of this Agreement, the Option provides the Non- Employee Director with the option to purchase 60,000 shares of Common Stock at a price of $18.125 per share (the "Option Price"). (d) The Option shall be considered to be a non-statutory option that is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). (e) Subject to earlier vesting in the event of (i) a "Change in Control" as provided in Section 1(g) hereof, or (ii) in the event the Non-Employee Director dies, retires or incurs a disability while serving as a Non-Employee director of Weatherford as provided for in Section 6, the Option shall become exercisable following three years from the date hereof. 2 (f) Notwithstanding the provisions of Section 1(e) hereof, the Option shall be exercisable with respect to all of the shares subject to the Option upon the occurrence of a Change in Control (as defined herein). For purposes of this Agreement, a Change in Control shall mean the occurrence of one or more of the following events: (i) any "person", including a "group", as those terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934, other than an affiliate of Weatherford as of the Date of Grant, becomes the beneficial owner, directly or indirectly, of securities of Weatherford representing 30% or more of the combined voting power of Weatherford's then outstanding voting securities; (ii) Weatherford is merged or consolidated with or into another corporation and immediately after giving effect to the merger or consolidation either (A) less than 65% of the outstanding voting securities of the surviving or resulting entity are then beneficially owned in the aggregate by (x) the stockholders of Weatherford immediately prior to such merger or consolidation or (y) if a record date has been set to determine the stockholders of Weatherford entitled to vote on such merger or consolidation, the stockholders of Weatherford as of such record date, or (B) the Board of Directors, or similar governing body, of the surviving or resulting entity does not have as a majority of its members the persons specified in clause (iii)(A) and (B) below; (iii) if at any time the following do not constitute a majority of the Board of Directors of Weatherford (or any successor entity referred to in clause (ii) above): (A) persons who are directors of Weatherford on the Date of Grant and (B) persons who, prior to their election as a director of Weatherford (or successor entity if applicable), were nominated, recommended or endorsed by a formal resolution of the Board of Directors of Weatherford; (iv) persons who are directors of Weatherford as of the beginning of any calendar year cease to constitute a majority of the members of the Board of Directors at any time during that calendar year; or (v) Weatherford transfers all or substantially all of its assets as contemplated by Delaware corporate law on a consolidated basis to another corporation or entity which is a less than a 50% owned subsidiary of Weatherford. (g) The Non-Employee Director may exercise the Option by delivering to Weatherford a written notice stating (i) that he wishes to exercise the Option on the date such notice is so delivered, (ii) the number of shares of stock with respect to which the Option is to be exercised, (iii) the address to which the certificate representing such shares of stock should be mailed, and (iv) the social security number of the Non-Employee Director. In order to be effective, such written notice shall be accompanied by payment of the purchase price of such shares of stock. Each such payment shall be made by cashier's check drawn on a national banking association and payable to the order of Weatherford in United States dollars. If, at the time of receipt by Weatherford of such written notice, (i) Weatherford has unrestricted surplus in an amount not less than the Option Price of such shares of stock, (ii) all accrued cumulative preferential dividends and other current preferential dividends on all outstanding shares of preferred stock of Weatherford have been fully paid, (iii) the acquisition by Weatherford of its own shares of stock for the purpose of enabling the Non-Employee Director to exercise the Option is otherwise permitted by applicable law and without any vote or consent of any stockholder of Weatherford, and (iv) there shall have been adopted, and there shall be in full force and effect, a resolution of the Board of Directors of Weatherford authorizing the acquisition by Weatherford of its own shares of stock for such purpose, then the Non-Employee Director may deliver to Weatherford, in payment of the Option Price of the shares of stock with respect to which the Option is exercised, (x) certificates registered in the name of the Non-Employee Director that represent a number of shares of stock legally and beneficially owned by the Non-Employee Director (free of all -2- 3 liens, claims and encumbrances of every kind) and having a fair market value on the date of receipt by Weatherford of such written notice that is not greater than the Option Price of the shares of stock with respect to which the Option is to be exercised, such certificates to be accompanied by stock powers duly endorsed in blank by the record holder of the shares of stock represented by such certificates, with the signature of such record holder guaranteed by a national banking association (or in lieu of such certificates, other arrangements for the transfer of such shares to Weatherford which are satisfactory to Weatherford), and (y) if the Option Price of the shares of stock with respect to which the Option is to be exercised exceeds such fair market value, a cashier's check drawn on a national banking association and payable to the order of Weatherford in an amount, in United States dollars, equal to the amount of such excess. Notwithstanding the provisions of the immediately preceding sentence, the Board of Directors, in its sole discretion, may refuse to accept shares of stock in payment of the Option Price for the shares of stock with respect to which the Option is to be exercised and, in that event, any certificates representing shares of stock that were received by Weatherford with such written notice shall be returned to the Non-Employee Director, together with notice by Weatherford to the Non-Employee Director of the refusal of the Board of Directors to accept such shares of stock. If, at the expiration of seven business days after the delivery to the Non- Employee Director of such written notice from Weatherford, the Non-Employee Director shall not have delivered to Weatherford a cashier's check drawn on a national banking association and payable to the order of Weatherford in an amount, in United States dollars, equal to the Option Price of the shares of stock with respect to which the Option is to be exercised, such written notice from the Non- Employee Director to Weatherford shall be ineffective to exercise the Option. As promptly as practicable after the receipt by Weatherford of (i) such written notice from the Non-Employee Director and (ii) payment, in the form required by the foregoing provisions of this Section 1(g) of the Option Price of the shares of stock with respect to which the Option is to be exercised, a certificate representing the number of shares of stock with respect to which the Option has been so exercised, such certificate to be registered in the name of the Non-Employee Director, provided that such delivery shall be considered to have been made when such certificate shall have been mailed, postage prepaid, to the Non-Employee Director at the address specified for such purpose in such written notice from the Non-Employee Director to Weatherford. 2. Changes in Weatherford's Capital Structure. The existence of this Agreement shall not affect in any way the right or power of Weatherford or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Weatherford's capital structure or its business, or any merger or consolidation of Weatherford, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of Weatherford, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If Weatherford shall effect a subdivision or consolidation of shares or other capital adjustment of, or the payment of a dividend in capital stock or other equity securities of Weatherford on, its Common Stock, or other increase or reduction of the number of shares of the Common Stock without receiving consideration therefor in money, services, or property, or the reclassification of its Common Stock, in whole or in part, into other equity securities of Weatherford, then (a) the number, class and per share price of shares of stock subject to the Option shall be appropriately -3- 4 adjusted (or in the case of the issuance of other equity securities as a dividend on, or in a reclassification of, the Common Stock, the Option shall extend to such other securities) in such a manner as to entitle the Non-Employee Director to receive, upon exercise of the Option, for the same aggregate cash consideration, the same total number and class or classes of shares (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) the Non-Employee Director would have held after such adjustment if the Non-Employee Director had exercised the Option in full immediately prior to the event requiring the adjustment, or, if applicable, the record date for determining stockholders to be affected by such adjustment; and (b) the number and class of shares then reserved for issuance under this Agreement (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) shall be adjusted by substituting for the total number and class of shares of stock then received, the number and class or classes of shares of stock (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) that would have been received by the owner of an equal number of outstanding shares of Common Stock as a result of the event requiring the adjustment. Comparable rights shall accrue to the Non- Employee Director in the event of successive subdivisions, consolidations, capital adjustments, dividends or reclassifications of the character described above. If Weatherford shall distribute to all holders of its shares of Common Stock (including any such distribution made to non-dissenting stockholders in connection with a consolidation or merger in which Weatherford is the surviving corporation and in which holders of shares of Common Stock continue to hold shares of Common Stock after such merger or consolidation) evidences of indebtedness or cash or other assets (other than cash dividends payable out of consolidated retained earnings not in excess of, in any one year period, the greater of (a) in an amount per share of Common Stock equal to $1.00 per share of Common Stock (as the same may be adjusted from time to time by the Board of Directors of Weatherford to reflect the effect of changes in capitalization) and (b) two times the aggregate amount of dividends per share paid during the preceding calendar year and dividends or distributions payable in shares of Common Stock or other equity securities of Weatherford described in the immediately preceding paragraph, but including stock or other securities of any corporation or other entity owned by Weatherford), then in each case the Option Price shall be adjusted by reducing the Option Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such distribution by the fair market value, as determined in good faith by the Board of Directors of Weatherford (whose determination shall be described in a statement filed in Weatherford's corporate records and be available for inspection by any holder of the Option) of the portion of the evidence of indebtedness or cash or other assets so to be distributed applicable to one share of Common Stock; provided that in no event shall the Option Price be less than the par value of a share of Common Stock. In the event such adjustment would result in the Option Price being less than the par value of a share of Common Stock but for the foregoing proviso, the terms of the Option shall be appropriately adjusted so as to maintain the economic value of the Option, including through an adjustment to the number of shares of Common Stock subject to the Option and through a provision allowing the Non-Employee Director to receive the evidence of indebtedness or cash or other assets so to be distributed applicable to one share of Common Stock for each share of Common Stock that may be purchased on the exercise of the Option. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of the distribution retroactive to the record date for the determination of the stockholders entitled to receive such distribution. In addition, in the event Weatherford distributes shares or other securities of a subsidiary corporation or other entity to the holders of the Common -4- 5 Stock, the Board of Directors may, in lieu of the adjustment provided above, make provision allowing the Non-Employee Director to receive the shares or securities of the corporation or entity that are subject to the distribution. Comparable adjustments shall be made in the event of successive distributions of the character described above. If Weatherford shall make a tender offer for, or grant to all of its holders of its shares of Common Stock the right to require Weatherford or any subsidiary of Weatherford to acquire from such stockholders shares of, Common Stock, at a price in excess of the Fair Market Value (a "Put Right") or Weatherford shall grant to all of its holders of its shares of Common Stock the right to acquire shares of Common Stock for less than the Fair Market Value (a "Purchase Right") then, in the case of a Put Right, the Option Price shall be adjusted by multiplying the Option Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such Put Right by a fraction, the numerator of which shall be the number of shares of Common Stock then outstanding minus the number of shares of Common Stock that could be purchased at the Fair Market Value for the aggregate amount that would be paid if all Put Rights are exercised and the denominator of which is the number of shares of Common Stock that would be outstanding if all Put Rights are exercised; and, in the case of a Purchase Right, the Option Price shall be adjusted by multiplying the Option Price in effect immediately prior to the record date for the determination of the stockholders entitled to receive such Purchase Right by a fraction, the numerator of which shall be the number of shares of Common Stock then outstanding plus the number of shares of Common Stock that could be purchased at the Fair Market Value for the aggregate amount which would be paid if all Purchase Rights are exercised and the denominator of which is the number of shares of Common Stock that would be outstanding if all Purchase Rights are exercised. In addition, the number of shares subject to the Option shall be increased by multiplying the number of shares then subject to the Option by a fraction which is the inverse of the fraction used to adjust the Option Price. Notwithstanding the foregoing, if any such Put Rights or Purchase Rights shall terminate without being exercised, the Option Price and number of shares subject to the Option shall be appropriately readjusted to reflect the Option Price and number of shares subject to the Option that would have been in effect if such unexercised Rights had never existed. Comparable adjustments shall be made in the event of successive transactions of the character described above. In the event of a merger of one or more corporations or entities with or into Weatherford in which Weatherford is not the sole survivor or there is an exchange, conversion or modification to the ownership of the then outstanding shares of Common Stock of Weatherford, a consolidation of Weatherford and any one or more corporations or entities, a statutory share or interest exchange in which all of the Common Stock is acquired or any other similar business combination with respect to Weatherford in which the Common Stock is acquired by a third party, the Non-Employee Director, at no additional cost, shall be entitled to receive, upon any exercise of the Option, in lieu of the number of shares as to which the Option shall then represent the right to purchase, the number and class of shares of stock or other securities, assets or other property, including cash, to which the Non-Employee Director would have been entitled to receive or continue to hold pursuant to the terms of the agreement of merger, consolidation, share or interest exchange or other similar transaction if at the time of such merger, consolidation, share or interest exchange the Non-Employee Director had been a holder of a number of shares of Common Stock equal to the number of shares as to which the Option shall then represent the right to purchase. Comparable rights shall accrue to -5- 6 the Non-Employee Director in the event of successive mergers, consolidations, share or interest exchanges or other transactions of the character described above. If a corporate transaction described in Section 424(a) of the Code which involves Weatherford is to take place and there is to be no surviving corporation while the Option remains in whole or in part unexercised, it shall be cancelled by the Board of Directors of Weatherford as of the effective date of any such corporate transaction but before the date the Non-Employee Director shall be provided with a notice of such cancellation and the Non-Employee Director shall have the right to exercise the Option in full (without regard to any limitations on exercise set forth in or imposed by this Agreement) to the extent it is then still unexercised during a 30-day period preceding the effective date of such corporate transaction. For purposes of this Section 2, Fair Market Value per share of Common Stock shall mean the closing price of a share of Common Stock as reported by the principal national securities exchange on which the Common Stock is then listed if the Common Stock is then listed on a national securities exchange, or the average bid and asked prices of a share of Common Stock as reported in the NASDAQ listing if the Common Stock is not then listed on a national securities exchange, on the trading day immediately preceding the first trading day on which, as a result of the establishment of a record date or otherwise, the trading price reflects that an acquiror of Common Stock in the public market will not participate in or receive the payment of any applicable dividend or distribution. Except as hereinbefore expressly provided, the issue by Weatherford of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of Weatherford convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to the Option. 3. Exercise of Options. The Option may be exercised from time to time as to the total number of shares that may then be issuable upon the exercise thereof or any portion thereof in the manner and subject to the limitations provided for in Section 1 hereof. 4. Assignment. The Option may not be transferred or assigned in any manner by the Non-Employee Director. 5. Requirement of Law. (a) In the event the shares issuable on exercise of the Option are not registered under the Securities Act of 1933, Weatherford may imprint on the certificate for such shares the following legend or any other legend which counsel for Weatherford considers necessary or advisable to comply with Securities Act of 1933: The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be sold or transferred except upon such registration or upon receipt by the Corporation of an -6- 7 opinion of counsel satisfactory to the Corporation, in form and substance satisfactory to the Corporation, that registration is not required for such sale or transfer. Weatherford may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933. Weatherford shall not be obligated to take any other affirmative action in order to cause the exercise of the Option or the issuance of shares of Common Stock pursuant thereto to comply with any law or regulation of any governmental authority. (b) Weatherford shall reserve or acquire such number of shares of Common Stock as may be necessary from time to time to allow the Option to be exercised. 6. Termination. The Option, to the extent it shall not previously have been exercised, shall terminate as follows: (a) If the Non-Employee Director ceases to serve on the Board of Directors of Weatherford prior to three years from the date hereof, for any reason, with or without cause, other than for death, retirement under the then established rules of the Board of Directors, or for disability, the Option shall terminate and be immediately forfeited, and not be exercisable. If the Non-Employee Director ceases to serve on the Board of Directors of Weatherford after three years from the date hereof, the Option shall continue in effect until September 8, 2011. (b) If the Non-Employee Director dies prior to three years from the date hereof, the Option shall be immediately exercisable and continue in effect until 10 years following the date of his death. If the Non-Employee Director dies on or after three years from the date hereof, the Option shall continue in effect until September 8, 2011. After the death of the Non-Employee Director, his executors, administrators or any persons to whom his Option may be transferred by will or by the laws of descent and distribution shall have the right, at any time prior to the Option's expiration to exercise it. (c) If the Non-Employee Director shall retire from the Board of Directors of Weatherford under the then established rules of the Board of Directors of Weatherford, prior to three years from the date hereof, the Non-Employee Director shall only be entitled to exercise the Option for a number of shares determined by multiplying the number of shares subject to the Option by a fraction, the numerator of which is the total whole years of service of the Non-Employee Director as a director of Weatherford from the date hereof and the denominator of which is three. With respect to the portion of the Option that may be so exercised it shall be exercisable until 10 years following the date of the Non-Employee Director's retirement. If the Non-Employee Director shall retire from the Board of Directors of Weatherford on or after three years from the date hereof, the Option shall continue until September 8, 2011. (d) If the Non-Employee Director shall cease to be a director of Weatherford due to disability prior to three years from the date hereof, the Option shall be immediately exercisable and continue in effect until 10 years following the date the Non-Employee Director ceases to be a director of Weatherford due to disability. If the Non-Employee Director shall cease to be a director of Weatherford due to disability on or after three years from the date hereof, the Option shall continue in effect until September 8, 2011. -7- 8 7. Amendment. This Agreement may not be changed, amended or modified except by an agreement in writing signed on behalf of each of the parties hereto. 8. No Rights as a Stockholder. The Non-Employee Director shall not have any rights as a stockholder with respect to any shares of Common Stock issuable upon the exercise of the Option until the date of issuance of the stock certificate or certificates representing such shares following the Non-Employee Director's exercise of the Option pursuant to its terms and conditions and payment for such shares. Except as otherwise provided in this Agreement, no adjustment shall be made for dividends or other distributions made with respect to the Common Stock the record date for the payment of which is prior to the date of issuance of the stock certificate or certificates representing such shares following the Non-Employee Director's exercise of the Option. 9. Governing Law. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. Any invalidity of any provision of this Agreement shall not affect the validity of any other provision. 10. Notices. All notices, demands, requests or other communications hereunder shall be in writing and shall be deemed to have been duly made or given if mailed by registered or certified mail, return receipt requested. Any such notice mailed to Weatherford shall be addressed to its principal executive office at 515 Post Oak Blvd., Suite 600, Houston, Texas 77027, and any notice mailed to the Non-Employee Director shall be addressed to the Non-Employees Director's residence address as it appears on the books and records of Weatherford or to such other address as either party may hereafter designate in writing to the other. 11. No Rights to Continue as Director. The granting of the Option by Weatherford to the Non-Employee Director shall not impose upon Weatherford any obligation to retain the Non- Employee Director on the Board of Directors of the Weatherford. 12. Binding Effect. This Agreement shall, except as otherwise provided to the contrary in this Agreement, inure to the benefit of and bind the successors and assigns of Weatherford. This Agreement shall, except as otherwise provided to the contrary in this Agreement, inure to the benefit of and bind the heirs, executors, administrators, legal representatives and assigns of the Non- Employee Director. -8- 9 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as of the day and year first above mentioned. WEATHERFORD INTERNATIONAL, INC. By: --------------------------------------- Name: ----------------------------------- Title: ----------------------------------- ------------------------------------------ Non-Employee Director -9- EX-10.24 6 FORM OF WARRANT AGREEMENT - ROBERT K. MOSES 1 EXHIBIT 10.24 WARRANT THIS WARRANT (this "Warrant") is made as of September 8, 1998, between WEATHERFORD INTERNATIONAL, INC., a Delaware corporation ("Weatherford"), and Robert K. Moses, Jr. (the "Holder"). W I T N E S S E T H: WHEREAS, Weatherford has granted to the Holder the right to purchase stock as set forth in this Warrant; NOW, THEREFORE, in consideration of the premises and the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Weatherford and the Holder hereby agree as follows: 1. Grant. (a) Weatherford hereby grants to the Holder a warrant effective on September 8, 1998 (the "Date of Grant") to purchase 60,000 shares of Weatherford Common Stock, $1.00 par value ("Common Stock") having an exercise price equal to the closing sale price of the Common Stock on the New York Stock Exchange, Inc. on September 8, 1998. Weatherford and the Holder agree that the Warrant shall be subject to the terms of this Warrant. Weatherford and the Holder further agree that this Warrant sets forth the complete terms of the Warrant as in effect on the date hereof. (b) No Warrant shall be exercisable after the expiration of 10 years from the date the Warrant becomes first exercisable. (c) Subject to the terms and conditions hereof, this Warrant provides the Holder with the right to purchase 60,000 shares of Common Stock at a price of $18.125 per share (the "Warrant Price"). (d) Subject to earlier vesting in the event of (i) a "Change in Control" as provided in Section 1(g) hereof, or (ii) in the event the Holder dies, retires or incurs a disability while serving as a director of Weatherford as provided for in Section 6, the Warrant shall become exercisable following three years from the date of grant of the Warrant. (e) Notwithstanding the provisions of Section 1(e) hereof, the Warrant shall be exercisable with respect to all of the shares subject to this Warrant upon the occurrence of a Change in Control (as defined herein). For purposes of this Warrant, a Change in Control shall mean the occurrence of one or more of the following events: (i) any "person", including a "group", as those terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934, other than an affiliate of Weatherford as of the Date of Grant, becomes the beneficial owner, directly or indirectly, of securities of Weatherford representing 30% or more of the combined voting power of Weatherford's then outstanding voting securities; (ii) Weatherford is merged or consolidated with or into another corporation and immediately after giving effect to the merger or consolidation either (A) less than 65% of the outstanding voting securities of the surviving or resulting entity are then beneficially 2 owned in the aggregate by (x) the stockholders of Weatherford immediately prior to such merger or consolidation or (y) if a record date has been set to determine the stockholders of Weatherford entitled to vote on such merger or consolidation, the stockholders of Weatherford as of such record date, or (B) the Board of Directors, or similar governing body, of the surviving or resulting entity does not have as a majority of its members the persons specified in clause (iii)(A) and (B) below; (iii) if at any time the following do not constitute a majority of the Board of Directors of Weatherford (or any successor entity referred to in clause (ii) above): (A) persons who are directors of Weatherford on the Date of Grant and (B) persons who, prior to their election as a director of Weatherford (or successor entity if applicable), were nominated, recommended or endorsed by a formal resolution of the Board of Directors of Weatherford; (iv) persons who are directors of Weatherford as of the beginning of any calendar year cease to constitute a majority of the members of the Board of Directors at any time during that calendar year; or (v) Weatherford transfers all or substantially all of its assets as contemplated by Delaware corporate law on a consolidated basis to another corporation or entity which is a less than a 50% owned subsidiary of Weatherford. (f) The Holder may exercise this Warrant by delivering to Weatherford a written notice stating (i) that the Holder wishes to exercise this Warrant on the date such notice is so delivered, (ii) the number of shares of stock with respect to which this Warrant is to be exercised, (iii) the address to which the certificate representing such shares of stock should be mailed, and (iv) the social security number or the Holder. In order to be effective, such written notice shall be accompanied by payment of the purchase price of such shares of stock. Each such payment shall be made by cashier's check drawn on a national banking association and payable to the order of Weatherford in United States dollars. If, at the time of receipt by Weatherford of such written notice, (i) Weatherford has unrestricted surplus in an amount not less than the Warrant Price of such shares of stock, (ii) all accrued cumulative preferential dividends and other current preferential dividends on all outstanding shares of preferred stock of Weatherford have been fully paid, (iii) the acquisition by Weatherford of its own shares of stock for the purpose of enabling the Holder to exercise this Warrant is otherwise permitted by applicable law and without any vote or consent of any stockholder of Weatherford, and (iv) there shall have been adopted, and there shall be in full force and effect, a resolution of the Board of Directors of Weatherford authorizing the acquisition by Weatherford of its own shares of stock for such purpose, then the Holder may deliver to Weatherford, in payment of the Warrant Price for the shares of stock with respect to which this Warrant is exercised, (x) certificates registered in the name of the Holder that represent a number of shares of stock legally and beneficially owned by the Holder (free of all liens, claims and encumbrances of every kind) and having a fair market value on the date of receipt by Weatherford of such written notice that is not greater than the Warrant Price for the shares of stock with respect to which this Warrant is to be exercised, such certificates to be accompanied by stock powers duly endorsed in blank by the record holder of the shares of stock represented by such certificates, with the signature of such record holder guaranteed by a national banking association (or in lieu of such certificates, other arrangements for the transfer of such shares to Weatherford which are satisfactory to Weatherford), and (y) if the Warrant Price of the shares of stock with respect to which this Warrant is to be exercised exceeds such fair market value of the shares used to exercise this Warrant, a cashier's check drawn on a national banking association and payable to the order of Weatherford in an amount, in United States dollars, equal to the amount of such excess. Notwithstanding the provisions of the immediately -2- 3 preceding sentence, the Board of Directors, in its sole discretion, may refuse to accept shares of stock in payment of the Warrant Price for the shares of stock with respect to which this Warrant is to be exercised and, in that event, any certificates representing shares of stock that were received by Weatherford with such written notice shall be returned to the Holder, together with notice by Weatherford to the Holder of the refusal of the Board of Directors to accept such shares of stock. If, at the expiration of seven business days after the delivery to the Holder of such written notice from Weatherford, the Holder shall not have delivered to Weatherford a cashier's check drawn on a national banking association and payable to the order of Weatherford in an amount, in United States dollars, equal to the price for the shares of stock with respect to which this Warrant is to be exercised, such written notice from the Holder to Weatherford shall be ineffective to exercise this Warrant. As promptly as practicable after the receipt by Weatherford of (i) such written notice from the Holder and (ii) payment, in the form required by the foregoing provisions of this Section 1(g) of the Warrant Price for the shares of stock with respect to which this Warrant is to be exercised, a certificate representing the number of shares of stock with respect to which this Warrant has been so exercised, such certificate to be registered in the name of the Holder, provided that such delivery shall be considered to have been made when such certificate shall have been mailed, postage prepaid, to the Holder at the address specified for such purpose in such written notice from the Holder to Weatherford. 2. Changes in Weatherford's Capital Structure. The existence of this Warrant shall not affect in any way the right or power of Weatherford or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Weatherford's capital structure or its business, or any merger or consolidation of Weatherford, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of Weatherford, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If Weatherford shall effect a subdivision or consolidation of shares or other capital adjustment of, or the payment of a dividend in capital stock or other equity securities of Weatherford on, its Common Stock, or other increase or reduction of the number of shares of the Common Stock without receiving consideration therefor in money, services, or property, or the reclassification of its Common Stock, in whole or in part, into other equity securities of Weatherford, then (a) the number, class and per share price of shares of stock subject to the unexercised portion of this Warrant shall be appropriately adjusted (or in the case of the issuance of other equity securities as a dividend on, or in a reclassification of, the Common Stock, this Warrant shall extend to such other securities) in such a manner as to entitle the Holder to receive, upon exercise of this Warrant, for the same aggregate cash consideration, the same total number and class or classes of shares (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) the Holder would have held after such adjustment if the Holder had exercised this Warrant in full immediately prior to the event requiring the adjustment, or, if applicable, the record date for determining stockholders to be affected by such adjustment; and (b) the number and class of shares then reserved for issuance under this Warrant (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) shall be adjusted by substituting for the total number and class of -3- 4 shares of stock then received, the number and class or classes of shares of stock (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) that would have been received by the owner of an equal number of outstanding shares of Common Stock as a result of the event requiring the adjustment. Comparable rights shall accrue to the Holder in the event of successive subdivisions, consolidations, capital adjustments, dividends or reclassifications of the character described above. If Weatherford shall distribute to all holders of its shares of Common Stock (including any such distribution made to non-dissenting stockholders in connection with a consolidation or merger in which Weatherford is the surviving corporation and in which holders of shares of Common Stock continue to hold shares of Common Stock after such merger or consolidation) evidences of indebtedness or cash or other assets (other than cash dividends payable out of consolidated retained earnings not in excess of, in any one year period, the greater of (a) in an amount per share of Common Stock equal to $1.00 per share of Common Stock (as the same may be adjusted from time to time by the Board of Directors of Weatherford to reflect the effect of changes in capitalization) and (b) two times the aggregate amount of dividends per share paid during the preceding calendar year and dividends or distributions payable in shares of Common Stock or other equity securities of Weatherford described in the immediately preceding paragraph, but including stock or other securities of any corporation or other entity owned by Weatherford), then in each case the Warrant Price shall be adjusted by reducing the Warrant Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such distribution by the fair market value, as determined in good faith by the Board of Directors of Weatherford (whose determination shall be described in a statement filed in Weatherford's corporate records and be available for inspection by any holder of this Warrant) of the portion of the evidence of indebtedness or cash or other assets so to be distributed applicable to one share of Common Stock; provided that in no event shall the Warrant Price be less than the par value of a share of Common Stock. In the event such adjustment would result in this Warrant Price being less than the par value of a share of Common Stock but for the foregoing proviso, the terms of this Warrant shall be appropriately adjusted so as to maintain the economic value of this Warrant, including through an adjustment to the number of shares of Common Stock then subject to this Warrant and through a provision allowing the Holder to receive the evidence of indebtedness or cash or other assets so to be distributed applicable to one share of Common Stock for each share of Common Stock that may be purchased on the exercise of this Warrant. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of the distribution retroactive to the record date for the determination of the stockholders entitled to receive such distribution. In addition, in the event Weatherford distributes shares or other securities of a subsidiary corporation or other entity to the holders of the Common Stock, the Board of Directors may, in lieu of the adjustment provided above, make provision allowing the Holder to receive the shares or securities of the corporation or entity that are subject to the distribution. Comparable adjustments shall be made in the event of successive distributions of the character described above. If Weatherford shall make a tender offer for, or grant to all of its holders of its shares of Common Stock the right to require Weatherford or any subsidiary of Weatherford to acquire from such stockholders shares of, Common Stock, at a price in excess of the Fair Market Value (a "Put Right") or Weatherford shall grant to all of its holders of its shares of Common Stock the right to acquire shares of Common Stock for less than the Fair Market Value (a "Purchase Right") then, in -4- 5 the case of a Put Right, the Warrant Price shall be adjusted by multiplying the Warrant Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such Put Right by a fraction, the numerator of which shall be the number of shares of Common Stock then outstanding minus the number of shares of Common Stock which could be purchased at the Fair Market Value for the aggregate amount which would be paid if all Put Rights are exercised and the denominator of which is the number of shares of Common Stock which would be outstanding if all Put Rights are exercised; and, in the case of a Purchase Right, the Warrant Price shall be adjusted by multiplying the Warrant Price in effect immediately prior to the record date for the determination of the stockholders entitled to receive such Purchase Right by a fraction, the numerator of which shall be the number of shares of Common Stock then outstanding plus the number of shares of Common Stock which could be purchased at the Fair Market Value for the aggregate amount which would be paid if all Purchase Rights are exercised and the denominator of which is the number of shares of Common Stock which would be outstanding if all Purchase Rights are exercised. In addition, the number of shares subject to this Warrant shall be increased by multiplying the number of shares then subject to this Warrant by a fraction which is the inverse of the fraction used to adjust the Warrant Price. Notwithstanding the foregoing, if any such Put Rights or Purchase Rights shall terminate without being exercised, the Warrant Price and number of shares subject to this Warrant shall be appropriately readjusted to reflect the Warrant Price and number of shares then subject to this Warrant which would have been in effect if such unexercised rights had never existed. Comparable adjustments shall be made in the event of successive transactions of the character described above. In the event of a merger of one or more corporations or entities with or into Weatherford in which Weatherford is not the sole survivor or there is an exchange, conversion or modification to the ownership of the then outstanding shares of Common Stock of Weatherford, a consolidation of Weatherford and any one or more corporations or entities, a statutory share or interest exchange in which all of the Common Stock is acquired or any other similar business combination with respect to Weatherford in which the Common Stock is acquired by a third party, the Holder, at no additional cost, shall be entitled to receive, upon any exercise of this Warrant, in lieu of the number of shares as to which this Warrant shall then represent the right to purchase, the number and class of shares of stock or other securities, assets or other property, including cash, to which the Holder would have been entitled to receive or continue to hold pursuant to the terms of the agreement of merger, consolidation, share or interest exchange or other similar transaction if at the time of such merger, consolidation, share or interest exchange the Holder had been a holder of a number of shares of Common Stock equal to the number of shares as to which this Warrant shall then represent the right to purchase. Comparable rights shall accrue to the Holder in the event of successive mergers, consolidations, share or interest exchanges or other transactions of the character described above. If a corporate transaction described in Section 424(a) of the Code which involves Weatherford is to take place and there is to be no surviving corporation while this Warrant remains in whole or in part unexercised, it shall be cancelled by the Board of Directors of Weatherford as of the effective date of any such corporate transaction but before the date the Holder shall be provided with a notice of such cancellation and the Holder shall have the right to exercise this Warrant in full (without regard to any limitations on exercise set forth in or imposed by this Warrant) to the extent it is then still unexercised during a 30-day period preceding the effective date of such corporate transaction. -5- 6 For purposes of this Section 2, Fair Market Value per share of Common Stock shall mean the closing price of a share of Common Stock as reported by the principal national securities exchange on which the Common Stock is then listed if the Common Stock is then listed on a national securities exchange, or the average bid and asked prices of a share of Common Stock as reported in the NASDAQ listing if the Common Stock is not then listed on a national securities exchange, on the trading day immediately preceding the first trading day on which, as a result of the establishment of a record date or otherwise, the trading price reflects that an acquiror of Common Stock in the public market will not participate in or receive the payment of any applicable dividend or distribution. Except as hereinbefore expressly provided, the issue by Weatherford of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of Weatherford convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to this Warrant. 3. Exercise of Warrants. This Warrant may be exercised from time to time as to the total number of shares that may then be issuable in the manner and subject to the limitations provided for in Section 1 hereof. 4. Assignment. This Warrant may be transferred or assigned in any manner by the Holder. 5. Requirement of Law. (a) In the event the shares issuable on exercise of this Warrant are not registered under the Securities Act of 1933, Weatherford may imprint on the certificate for such shares the following legend or any other legend which counsel for Weatherford considers necessary or advisable to comply with Securities Act of 1933: The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be sold or transferred except upon such registration or upon receipt by the Corporation of an opinion of counsel satisfactory to the Corporation, in form and substance satisfactory to the Corporation, that registration is not required for such sale or transfer. Weatherford may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933. Weatherford shall not be obligated to take any other affirmative action in order to cause the exercise of the Warrant or the issuance of shares of Common Stock pursuant thereto to comply with any law or regulation of any governmental authority. (b) Weatherford shall reserve or acquire such number of shares of Common Stock as may be necessary from time to time to allow this Warrant to be exercised. -6- 7 6. Termination. This Warrant, to the extent it shall not previously have been exercised, shall terminate as follows: (a) If Mr. Moses ceases to serve on the Board of Directors of Weatherford prior to three years from the date hereof, for any reason, with or without cause, other than for death, retirement under the then established rules of the Board of Directors, or for disability, this Warrant shall terminate and be immediately forfeited, and not be exercisable. If Mr. Moses ceases to serve on the Board of Directors of Weatherford after three years from the date hereof, this Warrant shall continue in effect until September 8, 1999. (b) If Mr. Moses dies prior to three years from the date hereof, this Warrant shall be immediately exercisable and continue in effect until 10 years following the date of his death. If Mr. Moses dies on or after three years from the date hereof, this Warrant shall continue in effect until September 8, 2011. After the death of Robert Moses, his executors, administrators or any persons to whom this Warrant may be transferred by will or by the laws of descent and distribution or otherwise assigned shall have the right, at any time prior to this Warrant's expiration to exercise it. (c) If Mr. Moses shall retire from the Board of Directors of Weatherford under the then established rules of the Board of Directors of Weatherford prior to three years from the date hereof, the Holder shall only be entitled to exercise this Warrant for a number of shares determined by multiplying the number of shares subject to this Warrant by a fraction, the numerator of which is the total whole years of service of Mr. Moses as a director of Weatherford from the date hereof and the denominator of which is three. With respect to the portion of this Warrant that may be so exercised it shall be exercisable until 10 years following the date of Mr. Moses' retirement. If Mr. Moses shall retire from the Board of Directors of Weatherford on or after three years from the date hereof, this Warrant shall continue until September 8, 2011. (d) If Mr. Moses shall cease to be a director of Weatherford due to disability prior to three years from the date hereof, this Warrant shall be immediately exercisable and continue in effect until 10 years following the date Mr. Moses ceases to be a director of Weatherford due to disability. If Mr. Moses shall cease to be a director of Weatherford due to disability on or after three years from the date hereof, this Warrant shall continue in effect until September 8, 2011. 7. Amendment. This Warrant may not be changed, amended or modified except by an agreement in writing signed on behalf of each of the parties hereto. 8. No Rights as a Stockholder. The Holder shall not have any rights as a stockholder with respect to any shares of Common Stock issuable upon the exercise of this Warrant until the date of issuance of the stock certificate or certificates representing such shares following the Holder's exercise of this Warrant pursuant to its terms and conditions and payment for such shares. Except as otherwise provided in this Warrant, no adjustment shall be made for dividends or other distributions made with respect to the Common Stock the record date for the payment of which is prior to the date of issuance of the stock certificate or certificates representing such shares following the Holder's exercise of this Warrant. -7- 8 9. Governing Law. The validity, construction and performance of this Warrant shall be governed by the laws of the State of Delaware. Any invalidity of any provision of this Warrant shall not affect the validity of any other provision. 10. Notices. All notices, demands, requests or other communications hereunder shall be in writing and shall be deemed to have been duly made or given if mailed by registered or certified mail, return receipt requested. Any such notice mailed to Weatherford shall be addressed to its principal executive office at 515 Post Oak Blvd., Suite 600, Houston, Texas 77027, and any notice mailed to the Holder shall be addressed to the Holder's address as it appears on the books and records of Weatherford or to such other address as either party may hereafter designate in writing to the other. 11. No Rights to Continue as Director. The granting of this Warrant by Weatherford to Mr. Moses shall not impose upon Weatherford any obligation to retain Mr. Moses on the Board of Directors of the Weatherford. 12. Binding Effect. This Warrant shall, except as otherwise provided to the contrary in this Warrant, inure to the benefit of and bind the successors and assigns of Weatherford. This Warrant shall, except as otherwise provided to the contrary in this Warrant, inure to the benefit of and bind the heirs, executors, administrators, legal representatives and assigns of the Holder. IN WITNESS WHEREOF, this Warrant has been duly executed and delivered as of the day and year first above mentioned. WEATHERFORD INTERNATIONAL, INC. By: -------------------------------------- Name: ---------------------------------- Title: ---------------------------------- ----------------------------------------- ROBERT K. MOSES, JR. -8- EX-10.25 7 WEATHERFORD INTERNATIONAL, INC. - 401(K) PLAN 1 EXHIBIT 10.25 WEATHERFORD INTERNATIONAL, INC. 401(k) SAVINGS PLAN 2 TABLE OF CONTENTS
Section ARTICLE I - DEFINITIONS Account ............................................................ 1.1 Active Service ..................................................... 1.2 Actual Contribution Ratio .......................................... 1.3 Actual Deferral Percentage ......................................... 1.4 Actual Deferral Ratio .............................................. 1.5 Affiliated Employer ................................................ 1.6 Aggregate Accounts ................................................. 1.7 Aggregation Group .................................................. 1.8 Annual Additions ................................................... 1.9 Annual Compensation ................................................ 1.10 Beneficiary ........................................................ 1.11 Board of Directors ................................................. 1.12 Code ............................................................... 1.13 Committee .......................................................... 1.14 Considered Compensation ............................................ 1.15 Contribution ....................................................... 1.16 Contribution Percentage ............................................ 1.17 Determination Date ................................................. 1.18 Direct Rollover ......................................................... 1.19 Disability ......................................................... 1.20 Distributee ............................................................. 1.21 Eligible Retirement Plan ................................................ 1.22 Eligible Rollover Distribution .......................................... 1.23 Employee ........................................................... 1.24 Employer or Employers .............................................. 1.25 ERISA .............................................................. 1.26 Excess 401(k) Contributions ........................................ 1.27 Excess Aggregate 401(m) Contributions .............................. 1.28 Excess Deferral ......................................................... 1.29 Five Percent Owner ................................................. 1.30 Former Member ........................................................... 1.31 Highly Compensated Employee ........................................ 1.32 Hour of Service .................................................... 1.33 Key Employee ....................................................... 1.34 Limitation Year ......................................................... 1.35 Member ............................................................. 1.36 Non-Highly Compensated Employee .................................... 1.37 Non-Key Employee ................................................... 1.38 Period of Service .................................................. 1.39
i- 3 Period of Severance ................................................ 1.40 Plan ............................................................... 1.41 Plan Year .......................................................... 1.42 Qualified Nonelective Employer Contribution ........................ 1.43 Regulation ......................................................... 1.44 Retirement Age ..................................................... 1.45 Rollover Contribution .............................................. 1.46 Section 401(k) Contributions ....................................... 1.47 Section 401(m) Contributions ....................................... 1.48 Service ............................................................ 1.49 Severs Service ..................................................... 1.50 Sponsor ............................................................ 1.51 Top-Heavy Plan ..................................................... 1.52 Transferred ........................................................ 1.53 Trust .............................................................. 1.54 Trustee ............................................................ 1.55 Trust Fund ......................................................... 1.56 USERRA ............................................................. 1.57 Valuation Date ..................................................... 1.58 ARTICLE II - ACTIVE SERVICE When Active Service Begins ......................................... 2.1 Aggregation of Service ............................................. 2.2 Eligibility Computation Periods .................................... 2.3 Periods of Service of Less Than One Year ........................... 2.4 Service Prior to Severance ......................................... 2.5 Service After Severance ............................................ 2.6 Periods of Severance Due to Child Birth or Adoption ................ 2.7 Transfers .......................................................... 2.8 Employment Records Conclusive ...................................... 2.9 Coverage of Certain Previously Excluded Employees .................. 2.10 Military Service ................................................... 2.11 ARTICLE III - ELIGIBILITY RULES Eligibility Requirements ........................................... 3.1 Eligibility Upon Reemployment ...................................... 3.2 Frozen Participation ............................................... 3.3 ARTICLE IV - CONTRIBUTIONS AND THEIR LIMITATIONS PART A. CONTRIBUTIONS Employee After Tax Contributions ................................... 4.1
ii- 4 Rollover Contributions and Direct Transfers ........................ 4.2 Salary Deferral Contributions ...................................... 4.3 Employer Matching Contributions .................................... 4.4 Employer Discretionary Contributions ............................... 4.5 Restoration Contributions .......................................... 4.6 Excluded Members ................................................... 4.7 Qualified Nonelective Employer Contribution ........................ 4.8 Top-Heavy Contribution ............................................. 4.9 Contributions Required on Return From Military Service ............. 4.10 Deadline for Payment of Contributions .............................. 4.11 PART B. LIMITATIONS APPLICABLE TO CONTRIBUTIONS Limitations Based Upon Deductibility and the Maximum Allocation Permitted to a Member's Account ......................... 4.11 Dollar Limitation on Salary Deferral Contributions ................. 4.12 Limitation Based Upon Actual Deferral Percentage ................... 4.13 Limitation Based Upon Contribution Percentage ...................... 4.14 Alternative Limitation Based Upon Actual Deferral Percentage and Contribution Percentage ............................. 4.15 PART C. CORRECTION PROCEDURES FOR ERRONEOUS CONTRIBUTIONS Excess Deferral Fail Safe .......................................... 4.16 Actual Deferral Percentage Fail Safe For Plan Years Beginning After December 31, 1996 ........................................... 4.17 Contribution Percentage Fail Safe For Plan Years Beginning After December 31, 1996 ........................................... 4.18 Alternative Limitation Fail Safe ................................... 4.19 Income Allocable to Excess 401(k) and Aggregate 401(m) Contributions ............................................... 4.20 Return of Contributions for Mistake, Disqualification or Disallowance of Deduction .......................................... 4.21 ARTICLE V - PARTICIPATION PART A. ALLOCATIONS Allocation of Employee Contributions ............................... 5.1 Allocation of Rollover Contributions and Direct Transfers .......... 5.2 Allocation of Salary Deferral Contributions ........................ 5.3 Allocation of Employer Matching Contributions ...................... 5.4 Allocation of Employer Discretionary Contributions ................. 5.5 Allocation of Restoration Contributions ............................ 5.6 Allocation of Contribution to Excluded Members ..................... 5.7
iii- 5 Allocation of Qualified Nonelective Employer Contributions ......... 5.8 Allocation of Top-Heavy Contributions .............................. 5.9 Effect of Transfers Upon Allocations ............................... 5.10 Application of Forfeitures ......................................... 5.11 Scheduled Allocation of Income or Losses and Appreciation or Depreciation ....................................... 5.12 Interim Allocation of Income or Losses and Appreciation or Depreciation ....................................... 5.13 PART B. LIMITATION ALLOCATIONS PART C. INVESTMENT OF TRUST FUNDS ARTICLE VI - DISTRIBUTIONS AND FORFEITURES PART A. DISTRIBUTIONS Valuation of Accounts for Distributions ............................ 6.1 Distribution on Death .............................................. 6.2 Distribution on Retirement ......................................... 6.3 Distribution on Disability ......................................... 6.4 Distribution on Severance From Service ............................. 6.5 Distributions on Issuance of a Qualified Domestic Relations Order .. 6.6 Forfeiture on Severing Service With All Affiliated Employers ....... 6.7 Forfeiture by Lost Members or Beneficiaries; Escheat ............... 6.8 PART B. FORM, ADJUSTMENTS AND TIME OF DISTRIBUTION Form of Distributions .............................................. 6.9 Adjustment of Value of Distribution ................................ 6.10 Normal Time for Distribution ....................................... 6.11 Time Limit For Distribution ........................................ 6.12 Protected Benefits ................................................. 6.13 ARTICLE VII - WITHDRAWALS AND LOANS Valuation of Accounts for Withdrawals and Loans ................... 7.1 Minimum Loan Amount ............................................... 7.2 Withdrawals of Employee After Tax and Rollover Accounts ........... 7.3 Withdrawal for Financial Hardship ................................. 7.4 Withdrawals On or After Age 59 1/2 ................................ 7.5 Loans ............................................................. 7.6
iv- 6 ARTICLE VIII - GENERAL PROVISIONS APPLICABLE TO FILING A CLAIM, DISTRIBUTIONS TO MINORS AND NO DUPLICATION OF BENEFITS Claims Procedure ......................................... 8.1 No Duplication of Benefits ............................... 8.2 Distributions to Disabled or Minors ...................... 8.3 ARTICLE IX - TOP-HEAVY REQUIREMENTS Application .............................................. 9.1 Top-Heavy Test ........................................... 9.2 Vesting Restrictions if Plan Becomes Top-Heavy ........... 9.3 Minimum Contribution if Plan Becomes Top-Heavy ........... 9.4 Coverage Under Multiple Top-Heavy Plans .................. 9.5 Restrictions if Plan Becomes Super-Top-Heavy ............. 9.6 ARTICLE X - ADMINISTRATION OF THE PLAN Appointment, Term of Service & Removal ................... 10.1 Powers ................................................... 10.2 Organization ............................................. 10.3 Quorum and Majority Action ............................... 10.4 Signatures ............................................... 10.5 Disqualification of Committee Member ..................... 10.6 Disclosure to Members .................................... 10.7 Standard of Performance .................................. 10.8 Liability of Committee and Liability Insurance ........... 10.9 Exemption from Bond ...................................... 10.10 Compensation ............................................. 10.11 Persons Serving in Dual Fiduciary Roles .................. 10.12 Administrator ............................................ 10.13 Standard of Judicial Review of Committee Actions ......... 10.14 ARTICLE XI - TRUST FUND AND CONTRIBUTIONS Funding of Plan .......................................... 11.1 Incorporation of Trust ................................... 11.2 Authority of Trustee ..................................... 11.3 Allocation of Responsibility ............................. 11.4 ARTICLE XII - ADOPTION OF PLAN BY OTHER EMPLOYERS Adoption Procedure ....................................... 12.1 No Joint Venture Implied ................................. 12.2 All Trust Assets Available to Pay All Benefits ........... 12.3
v- 7 Qualification a Condition Precedent to Adoption and Continued Participation .............................. 12.4 ARTICLE XIII - AMENDMENT AND WITHDRAWAL OR TERMINATION PART A. AMENDMENT Right to Amend ........................................... 13.1 Limitation on Amendments ................................. 13.2 Each Employer Deemed to Adopt Amendment Unless Rejected .. 13.3 Amendment Applicable Only to Members Still Employed Unless Amendment Specifically Provides Otherwise ......... 13.4 Mandatory Amendments ..................................... 13.5 PART B. WITHDRAWAL OR TERMINATION Withdrawal of Employer ................................... 13.6 Termination of Plan ...................................... 13.7 100% Vesting Required on Partial or Complete Termination or Complete Discontinuance ............................... 13.8 Distribution Upon Termination ............................ 13.9 ARTICLE XIV - SALE OF EMPLOYER OR SUBSTANTIALLY ALL OF ITS ASSETS Continuance Permitted Upon Sale or Transfer of Assets ..... 14.1 Distributions Upon Disposition of Assets or a Subsidiary .. 14.2 ARTICLE XV - MISCELLANEOUS Plan Not An Employment Contract ........................... 15.1 Benefits Provided Solely From Trust ....................... 15.2 Anti-Alienation Provision ................................. 15.3 Requirements Upon Merger or Consolidation of Plans ........ 15.4 Gender and Number ......................................... 15.5 Severability .............................................. 15.6 Governing Law; Parties to Legal Actions ................... 15.7
vi- 8 WEATHERFORD INTERNATIONAL, INC. 401(K) SAVINGS PLAN Weatherford International, Inc. has entered into the following Agreement: WITNESSETH: WHEREAS, Weatherford International, Inc. has heretofore adopted a qualified profit sharing plan with a 401(k) feature and exempt trust for the exclusive benefit of its employees and their beneficiaries; and WHEREAS, it has been determined that the plan should now be completely amended, restated and continued without a gap or lapse in coverage, time or effect which would cause any Member to become fully vested or entitled to distribution, in order to (a) effect numerous technical changes for the benefit of eligible employees and beneficiaries, and (b) to ensure the plan's qualification under the applicable provisions of the Internal Revenue Code of 1986, as amended, and the Employee Retirement Income Security Act of 1974, as amended; and WHEREAS, it is intended that other business organizations may adopt this plan and its related trust for the exclusive benefit of their employees and their employees' beneficiaries; NOW, THEREFORE, this Agreement is entered into in order to set forth the terms of that profit sharing plan with a 401(k) feature which are as follows: 9 ARTICLE I. DEFINITIONS The words and phrases defined in this Article shall have the meaning set out in the definition unless the context in which the word or phrase appears reasonably requires a broader, narrower or different meaning. 1.1 "ACCOUNT" means all ledger accounts pertaining to a Member which are maintained by the Committee to reflect the Member's interest in the Trust Fund. The Committee shall establish the following Accounts and any additional Accounts that the Committee considers necessary to reflect the entire interest of the Member in the Trust Fund. Each of the Accounts listed below and any additional Accounts established by the Committee shall reflect the Contributions or amounts transferred to the Trust Fund, if any, and the appreciation or depreciation of the assets in the Trust Fund and the income earned or loss incurred on the assets in the Trust Fund attributable to the Contributions and/or other amounts transferred to the Account. (a) Employee After Tax Contribution Account - The Member's after tax contributions, if any. (b) Salary Deferral Contribution Account - The Member's before tax contributions, if any. (c) Employer Matching Contribution Account - The Employer's matching contributions allocated to the Member, if any. (d) Employer Discretionary Contribution Account - The Employer's discretionary contributions, if any. (e) Qualified Nonelective Employer Contribution Account - The Employer's Qualified Nonelective Employer Contributions allocated to the Member, if any. (f) Rollover Account - Funds transferred from another qualified plan or IRA Account for the benefit of a Member. (g) Grant Plan Prior Plan Account (h) Prideco Plan Prior Plan Account (i) Enerpro Plan Prior Plan Account (j) TCA Plan Prior Plan Account (k) Tube-Alloy Plan Prior Plan Account I-1 10 (l) XL Systems Plan Prior Plan Account (m) Weatherford Plan Prior Plan Account (this Prior Plan Account refers to assets attributable to a merger into the Weatherford Enterra, Inc. 401(k) Savings Plan by Total Energy Service Company). 1.2 "ACTIVE SERVICE" means the Periods of Service which are counted for either eligibility or vesting purposes as calculated under Article II. 1.3 "ACTUAL CONTRIBUTION RATIO" means for an Employee the ratio of Section 401(m) Contributions actually paid into the Trust on behalf of the Employee for a Plan Year to the Employee's Annual Compensation earned while the Employee was a Member for the same Plan Year. 1.4 "ACTUAL DEFERRAL PERCENTAGE" means for a specified group of Employees for a Plan Year the average of the ratios (calculated separately for each Employee in the group) of the sum of Section 401(k) Contributions actually paid into the Trust on behalf of each Employee for that Plan Year to the Employee's Annual Compensation earned while the Employee was a Member for the same Plan Year. 1.5 "ACTUAL DEFERRAL RATIO" means for an Employee the ratio of Section 401(k) Contributions actually paid into the Trust on behalf of the Employee for a Plan Year to the Employee's Annual Compensation earned while the Employee was a Member for the same Plan Year. 1.6 "AFFILIATED EMPLOYER" means the Employer and any employer which is a member of the same controlled group of corporations within the meaning of section 414(b) of the Code, which is a trade or business (whether or not incorporated) which is under common control within the meaning of section 414(c) of the Code, which is a member of an affiliated service group within the meaning of section 414(m) of the Code with the Employer, or which is required to be aggregated with the Employer under section 414(o) of the Code. For purposes of the limitation on allocations contained in Part B of Article V, the definition of Affiliated Employer is modified by substituting the phrase "more than 50 percent" in place of the phrase "at least 80 percent" each place the latter phrase appears in section 1563(a)(1) of the Code. 1.7 "AGGREGATE ACCOUNTS" means the total of all Account balances derived from Employer Contributions and Employee Contributions. 1.8 "AGGREGATION GROUP" means (a) each plan of the Employer or any Affiliated Employer in which a Key Employee is a Member and (b) each other plan of the Employer or any Affiliated Employer which enables any plan in (a) to meet the requirements of either section 401(a)(4) or 410 of the Code. Any Employer may treat a plan not required to be included in the Aggregation Group as being a part of the group if the group would continue to meet the requirements of sections 401(a)(4) and 410 of the Code with that plan being taken into account. I-2 11 1.9 "ANNUAL ADDITIONS" means the sum of the following amounts credited on behalf of a Member for the Limitation Year: (a) Employer Contributions, (b) Employee After Tax Contributions, and (c) forfeitures. Excess 401(k) Contributions and Excess Aggregate 401(m) Contributions for a Plan Year are treated as Annual Additions for that Plan Year even if they are corrected through distribution or recharacterization. Excess Deferrals that are timely distributed as set forth in Section 4.12 shall not be treated as Annual Additions. 1.10 "ANNUAL COMPENSATION" means the Employee's wages from the Affiliated Employers as defined in section 3401(a) of the Code for purposes of federal income tax withholding at the source (but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed) modified by including elective contributions under a cafeteria plan described in section 125 of the Code and elective contributions to any plan qualified under section 401(k), 408(k), or 403(b) of the Code. However, for purposes of Part B of Article V of the Plan, effective for Limitation Years beginning before January 1, 1998, "Annual Compensation" does not include any salary deferral contributions to a plan qualified under section 401(k) of the Code or any amount that is deferred at the election of the Employee and is not includable in the gross income of the Employee by reason of section 125 of the Code. Except for purposes of Part B of Article V of the Plan, Annual Compensation in excess of $150,000.00 (as adjusted by the Secretary of Treasury) shall be disregarded. If the Plan Year is ever less than 12 months the $150,000.00 limitation (as adjusted by the Secretary of Treasury) will be prorated by multiplying the limitation by a fraction, the numerator of which is the number of months in the Plan Year, and the denominator of which is 12. For purposes of determining an Employee's Actual Contribution Ratio or Actual Deferral Ratio, Annual Compensation shall include only compensation earned during the portion of the Plan Year that the Employee was eligible to participate in the Plan. 1.11 "BENEFICIARY" or Beneficiaries means the person or persons, or the trust or trusts created for the benefit of a natural person or persons or the Member's or Former Member's estate, designated by the Member or Former Member to receive the benefits payable under this Plan upon his death. 1.12 "BOARD OF DIRECTORS" means the board of directors, the executive committee or other body given management responsibility for the Sponsor. 1.13 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. 1.14 "COMMITTEE" means the committee appointed by the Sponsor to administer the Plan. 1.15 "CONSIDERED COMPENSATION" means as to each Employee, that Employee's Annual Compensation (wages subject to withholding modified by including elective contributions under a cafeteria plan described in section 125 of the Code and elective contributions to any plan qualified under section 401(k), 408(k) or 403(b) of the Code). For purposes of any Employer Matching Contribution, and any Employer Discretionary Contribution, Considered Compensation shall exclude the following items (even if includable in gross income): overtime pay, foreign service premiums, position allowances or location coefficient payments, call-in premiums, bonuses, sales commissions, I-3 12 reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation, welfare benefits, amounts includable in gross income as a result of an exercise of a stock option or a stock appreciation right, and other items not part of the Employee's base pay. Considered Compensation in excess of $150,000.00 (as adjusted by the Secretary of Treasury) shall be disregarded. If the Plan Year is ever less than 12 months the $150,000.00 limitation (as adjusted by the Secretary of Treasury) will be prorated by multiplying the limitation by a fraction, the numerator of which is the number of months in the Plan Year, and the denominator of which is 12. 1.16 "CONTRIBUTION" means the total amount of contributions made under the terms of this Plan. Each specific type of Contribution shall be designated by the type of contribution made as follows: (a) Employee After Tax Contribution - After tax contributions made by the Employee. (b) Salary Deferral Contribution - Contributions made by the Employer under the Employee's salary deferral agreement. (c) Employer Matching Contribution - Matching contributions made by the Employer. (d) Employer Discretionary Contribution - Contributions made by the Employer on a discretionary basis. (e) Qualified Nonelective Employer Contribution - Qualified Nonelective Employer Contributions made by the Employer as a means of passing the actual deferral percentage test of section 401(k) of the Code or the actual contribution percentage test of section 401(m) of the Code. (f) Rollover Contribution - Contributions made by a Member which consist of any part of an Eligible Rollover Distribution (as defined in section 402 of the Code) from a qualified employee trust described in section 401(a) of the Code or an IRA Rollover Account. 1.17 "CONTRIBUTION PERCENTAGE" means for a specified group of Employees for a Plan Year the average of the ratios (calculated separately for each Employee in the group) of the sum of Section 401(m) Contributions actually paid into the Trust on behalf of each Employee for that Plan Year to the Employee's Annual Compensation earned while the Employee was a Member for that Plan Year. 1.18 "DETERMINATION DATE" means for a given Plan Year the last day of the preceding Plan Year or in the case of the first Plan Year the last day of that Plan Year. I-4 13 1.19 "DIRECT ROLLOVER" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 1.20 "DISABILITY" means a mental or physical disability which, in the opinion of a physician selected by the Committee, will prevent the Member from earning a reasonable livelihood with any Affiliated Employer and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months and which: (a) was not contracted, suffered or incurred while the Member was engaged in, or did not result from having engaged in, a felonious criminal enterprise; (b) did not result from alcoholism or addiction to narcotics; and (c) did not result from an injury incurred while a member of the Armed Forces of the United States for which the Member receives a military pension. 1.21 "DISTRIBUTEE" means an Employee or former Employee, and in addition, the Employee's or former Employee's surviving spouse or the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, with regard to the interest of the spouse or former spouse. 1.22 "ELIGIBLE RETIREMENT PLAN" means an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 1.23 "ELIGIBLE ROLLOVER DISTRIBUTION" as defined in section 402 of the Code means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (a) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's Beneficiary, or for a specified period of ten years or more; (b) any distribution to the extent the distribution is required under section 401(a)(9) of the Code; and (c) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). For any distribution after December 31, 1999, an Eligible Rollover Distribution also does not include any hardship distribution described in section 401(k)(2)(B)(i)(IV) of the Code. If the Plan accepts a Rollover Contribution which the Trustee reasonably concludes is qualified under this Section of the Plan, and subsequently it is determined that such distribution was not qualified, the Trustee shall distribute the amount of such rollover distribution, plus earnings thereon, to the Member in compliance with applicable Regulations. 1.24 "EMPLOYEE" means all common law employees of each Employer exclusive of the following classifications: (a) employees working outside of the United States unless the Committee elects to cover or continue to cover them in this Plan and (b) all leased employees who are required to be treated as common law employees under section 414(n) of the Code unless the Plan's qualified I-5 14 status is dependent upon coverage of the leased employees. Independent contractors are not common law employees and are therefore not within the defined term "Employee" as used in this Plan. The determination of whether a person is within an excluded class or is an independent contractor shall be made by the Committee in its sole discretion as granted in Article X. However, if either one or more individuals who are classified as leased employees or independent contractors are later determined to be in fact common law employees of an Employer, they are nevertheless to be excluded as a classification unless the Plan's qualified status is dependent upon the coverage of that classification of persons. 1.25 "EMPLOYER" or "EMPLOYERS" means the Sponsor and any other business organization which has adopted this Plan. 1.26 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.27 "EXCESS 401(K) CONTRIBUTIONS" means, with respect to any Plan Year, the excess of (a) the aggregate amount of Section 401(k) Contributions actually paid into the Trust on behalf of Highly Compensated Employees for the Plan Year over (b) the maximum amount of those contributions permitted under the limitations set out in the first sentence of Section 4.13 of the Plan. 1.28 "EXCESS AGGREGATE 401(M) CONTRIBUTIONS" means, with respect to any Plan Year, the excess of (a) the aggregate amount of Section 401(m) Contributions actually paid into the Trust on behalf of Highly Compensated Employees for the Plan Year over (b) the maximum amount of those contributions permitted under the limitations set out in the first sentence of Section 4.14 of the Plan. 1.29 "EXCESS DEFERRAL" means that part, if any, of the Salary Deferral Contribution of a Member for his taxable year which, when added to the amounts he deferred under other plans or arrangements described in sections 401(k), 408(k) and 403(b) of the Code, exceeds the deferral dollar limitation permitted by section 402(g) of the Code. 1.30 "FIVE PERCENT OWNER" means an Employee who is a 5-percent owner as defined in section 416(i) of the Code. 1.31 "FORMER MEMBER" means a person who was at one time a Member who received allocations of Contributions and who is no longer a Member under the Plan, but still has an Account balance in the Plan. 1.32 "HIGHLY COMPENSATED EMPLOYEE" means, effective for Plan Years beginning after December 31, 1996, an Employee or an employee of an Affiliated Employer who: (a) during the Plan Year or the preceding Plan Year was at any time a Five Percent Owner or (b) for the preceding year had Annual Compensation in excess of $80,000.00 (as adjusted from time to time by the Secretary of the Treasury) and was in the group consisting of the top 20 percent of the Employees when ranked on the basis of Annual Compensation paid during the preceding year. A former Member will be treated as a Highly Compensated Employee if he was a Highly Compensated I-6 15 Employee when he Severed Service or he was a Highly Compensated Employee at any time after attaining age 55. Non-resident aliens who receive no earned income from the employer which constitutes income from sources within the United States are excluded. 1.33 "HOUR OF SERVICE" means each hour for which an Employee is paid or entitled to payment for the performance of duties with an Affiliated Employer. 1.34 "KEY EMPLOYEE" means an Employee or former or deceased Employee or Beneficiary of an Employee who at any time during the Plan Year or any of the four preceding Plan Years is (a) an officer of an Employer or any Affiliated Employer having an Annual Compensation greater than 50% of the annual addition limitation of section 415(b)(1)(A) of the Code for the Plan Year, (b) one of the 10 employees having an Annual Compensation from an Employer or any Affiliated Employer of greater than 100% of the annual addition limitation of section 415(c)(1)(A) of the Code for the Plan Year and owning or considered as owning (within the meaning of section 318 of the Code) the largest interest in an Employer or any Affiliated Employer, treated separately, (c) a Five Percent Owner of an Employer or any Affiliated Employer, treated separately, or (d) a 1% owner of an Employer or any Affiliated Employer, treated separately, having Annual Compensation from an Employer or any Affiliated Employer of more than $150,000.00, as adjusted. For this purpose no more than 50 employees or, if lesser, the greater of three employees or 10% of the employees shall be treated as officers. Section 416(i) of the Code shall be used to determine percentage of ownership. For the purpose of the test set out in (b) above, if two or more employees have the same interest in an Employer, the employee with the greater Annual Compensation from the Employer shall be treated as having the larger interest. 1.35 LIMITATION YEAR" means the year used for purposes of applying the limitations under section 415 of the Code. The Limitation Year shall be the Plan Year unless the Employer affirmatively, by resolution, designates another limitation year. 1.36 "MEMBER" means the person or persons employed by an Employer who are eligible to participate in this Plan. 1.37 "NON-HIGHLY COMPENSATED EMPLOYEE" means any Employee who is not a Highly Compensated Employee. 1.38 "NON-KEY EMPLOYEE" means any Employee who is not a Key Employee. 1.39 "PERIOD OF SERVICE" means a period of employment with an Affiliated Employer which commences on the day on which an Employee performs his initial Hour of Service or performs his initial Hour of Service upon returning to the employ of an Affiliated Employer, whichever is applicable, and ends on the date the Employee Severs Service. 1.40 "PERIOD OF SEVERANCE" means the period of time which commences on the date an Employee Severs Service and ends on the date the Employee again performs an Hour of Service. 1.41 "PLAN" means this Plan, including all subsequent amendments. I-7 16 1.42 "PLAN YEAR" means the calendar year. The Plan Year shall be the fiscal year of this Plan. 1.43 "QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTION" means the Employer's Contribution, if any, made as a means of passing the Actual Deferral Percentage test or the Contribution Percentage test. 1.44 "REGULATION" means the Internal Revenue Service regulation specified, as it may be changed from time to time. 1.45 "RETIREMENT AGE" means normally 65 years of age. Once a Member has attained his Retirement Age he shall be 100% vested at all times. 1.46 "ROLLOVER CONTRIBUTION" means the amount contributed by a Member to his Account in this Plan which consists of any part or all of an Eligible Rollover Distribution. 1.47 "SECTION 401(K) CONTRIBUTIONS" means the sum of Salary Deferral Contributions made on behalf of the Member during the Plan Year and Qualified Nonelective Employer Contributions that the Employer elects to have treated as Section 401(k) Contributions pursuant to section 401(k)(3)(D)(ii) of the Code to the extent that those contributions are not used to enable the Plan to satisfy the minimum contribution requirements of section 416 of the Code. 1.48 "SECTION 401(M) CONTRIBUTIONS" means the sum of Employer Matching Contributions and Employee After Tax Contributions made on behalf of the Member during the Plan Year and Qualified Nonelective Employer Contributions that the Employer elects to have treated as Section 401(m) Contributions pursuant to section 401(m)(3)(B) of the Code to the extent that those contributions are not used to enable the Plan to satisfy the minimum contribution requirements of section 416 of the Code. 1.49 "SERVICE" means the period or periods that a person is paid or is entitled to payment for performance of duties with an Affiliated Employer. 1.50 "SEVERS SERVICE" means the earlier of the following events: (a) the Employee's quitting, retiring, dying or being discharged, (b) the completion of a period of 365 continuous days in which the Employee remains absent from Service (with or without pay) for any reason other than quitting, retiring, dying or being discharged, such as vacation, holiday, sickness, disability, leave of absence, layoff or any other absence or (c) the second anniversary of the commencement of a continuous period of absence occasioned by the reason of the pregnancy of the Employee, the birth of a child of the Employee, the placement of a child with the Employee in connection with the adoption of the child by the Employee or the caring for the child for a period commencing immediately after the child's birth or placement. 1.51 "SPONSOR" means Weatherford International, Inc. or any other organization which assumes the primary responsibility for maintaining this Plan with the consent of the last preceding Sponsor. I-8 17 1.52 "TOP-HEAVY PLAN" means any plan which has been determined to be top-heavy under the test described in Article IX of this Plan. 1.53 "TRANSFERRED" means an Employee's termination of employment with one Employer and his contemporaneous commencement of employment with another Employer. 1.54 "TRUST" means the one or more trust estates created to fund this Plan. 1.55 "TRUSTEE" means collectively one or more persons or entities with trust powers which have been appointed by the initial Sponsor and have accepted the duties of Trustee and any and all successor or successors appointed by the Sponsor or successor Sponsor. 1.56 "TRUST FUND" means all of the trust estates established under the terms of this Plan to fund this Plan, whether held to fund a particular group of Accounts or held to fund all of the Accounts of Members, collectively. 1.57 USERRA: means the Uniformed Services Employment And Reemployment Rights Act of 1994 which was enacted on October 13, 1994 as Public Law 103-353 and which amended Chapter 43 of Title 38 of the United States Code. 1.58 "VALUATION DATE" means the day or days each Plan Year selected by the Committee on which the Trust Fund is to be valued which cannot be less frequent than annual. One or more Accounts may have different Valuation Dates from other Accounts. The Valuation Date must be announced to all Members and Former Members who have Account Balances and shall remain the same until changed by the Committee and announced to the Members. I-9 18 ARTICLE II. ACTIVE SERVICE 2.1 WHEN ACTIVE SERVICE BEGINS. For purposes of eligibility and vesting, Active Service begins when an Employee first performs an Hour of Service for an Affiliated Employer or an employer the stock or assets of which were or are acquired by an Employer or Affiliated Employer without regard to whether a predecessor plan was maintained, limited to five years of past service credit. Once an Employee has begun Active Service for purposes of eligibility or vesting and Severs Service he shall recommence Active Service for those purposes when he again performs an Hour of Service for an Affiliated Employer. 2.2 AGGREGATION OF SERVICE. When determining an Employee's Active Service, all Periods of Service, whether or not completed consecutively, shall be aggregated on a per day basis. Thirty days shall be counted as one month and 12 months shall be counted as one year. For purposes of eligibility and vesting, only full years of Active Service shall be counted, any fractional year shall be dropped. 2.3 ELIGIBILITY COMPUTATION PERIODS. For the purpose of determining eligibility and vesting, the initial period shall begin on the day the Employee first performs an Hour of Service and each future year shall begin on the anniversary of that date. 2.4 PERIODS OF SERVICE OF LESS THAN ONE YEAR. If an Employee performs an Hour of Service within 12 months after he Severs Service, the intervening Period of Severance shall be counted as a Period of Service. 2.5 SERVICE PRIOR TO SEVERANCE. If the Employee was covered by the Plan or a predecessor qualified plan on December 31, 1984, any Period of Service occurring before the first Plan Year beginning after that date shall be disregarded if that Service would have been disregarded under the rules applicable to breaks in service at that time under the Plan or a predecessor qualified plan prior to that date. Any Period of Service occurring during or after the first Plan Year beginning after December 31, 1984 shall be governed by the following rules. If an Employee Severs Service at a time when he does not have any vested right to amounts credited to his Employer Matching Contribution Account or Employer Discretionary Contribution Account and the Period of Severance continues for a continuous period of five years or more, the Period of Service completed by the Employee before the Period of Severance shall not be taken into account if his Period of Severance equals or exceeds his Period of Service, whether or not consecutive, completed before the Period of Severance. In addition if a Member incurs a Period of Severance of five consecutive years, the Members years of Credited Service for vesting completed after that Period of Severance shall be disregarded in determining the Member's vested interest in that portion of his Accounts derived from Employer Contributions on his behalf prior to the Period of Severance. 2.6 SERVICE AFTER SEVERANCE. If an Employee's Period of Severance continues for a continuous period of five years or more, the Period of Service completed by the Employee after that II-1 19 Period of Severance shall not be taken into account in determining the Employee's vested interest in amounts contributed to his Employer Matching Contribution Account, and earnings thereon, attributable to Service before that Period of Severance. 2.7 PERIODS OF SEVERANCE DUE TO CHILD BIRTH OR ADOPTION. If the period of time between the first anniversary of the first day of an absence from Service by reason of the pregnancy of the Employee, the birth of a child of the Employee, the placement of a child with the Employee in connection with the adoption of the child by the Employee or for purposes for caring for the child for a period beginning immediately after the birth or placement and the second anniversary of the first day of the absence occurs during or after the first Plan Year beginning after December 31, 1984, it shall neither be counted as a Period of Service nor of Severance. 2.8 TRANSFERS. If an Employee is Transferred from one Employer to another, his Active Service shall not be interrupted and he shall continue to be in Active Service for purposes of eligibility, vesting and allocation of Contributions and/or forfeitures. If an Employee is transferred to the service of an Affiliated Employer that has not adopted the Plan he shall not have Severed Service; however, even though he shall continue to be in Active Service for eligibility and vesting purposes he shall not receive any allocation of Contributions or forfeitures. 2.9 EMPLOYMENT RECORDS CONCLUSIVE. The employment records of the Employer shall be conclusive for all determinations of Active Service. 2.10 COVERAGE OF CERTAIN PREVIOUSLY EXCLUDED EMPLOYEES. Any Employee who is no longer excludable because he or she is no longer included in a unit of Employees covered by a collective bargaining agreement between the Employees' representative and the Employer where retirement benefits were the subject of good faith bargaining shall immediately become eligible for membership if he meets the eligibility requirements. All his Service with any Affiliated Employer that would have been counted had he not been previously excluded shall now be counted as Active Service for eligibility and vesting purposes. 2.11 MILITARY SERVICE. A Member who leaves the employ of an Employer to enter the armed services of the United States and is covered by USERRA shall not be deemed to have broken his continuous employment if he is reemployed under USERRA. And, the Member shall be awarded Active Service upon reemployment for each period served by him in the uniformed services for eligibility, vesting and benefit accrual purposes. II-2 20 ARTICLE III. ELIGIBILITY RULES 3.1 ELIGIBILITY REQUIREMENTS. Except as otherwise provided for in this Plan, each Employee shall be eligible to participate in this Plan beginning on the first day the Employee completes an Hour of Service. However, no Employee shall be eligible to participate in this Plan for purposes of sharing in Employer Matching Contributions or Employer Discretionary Contributions until the first day he completes one year of Active Service. An Employee employed as a temporary or part-time employee shall not be eligible to commence participation in the Plan until the first day the temporary or part-time employee completes one year of Active Service. A "temporary" or "part-time" Employee (as defined by the Committee) is an Employee who is not expected to be credited with one year of Active Service commencing on his first day of employment. Employees who are included in a unit of Employees covered by a collective bargaining agreement between the Employees' representative and the Employer, shall be excluded, even if they have met the requirements for eligibility, if there has been good faith bargaining between the Employer and the Employees' representative pertaining to retirement benefits and the agreement does not require the Employer to include such Employees in this Plan. In addition, any Employee who is a non-resident alien with no United States source income or an individual participating in a retirement plan maintained by the Employer or an Affiliated Employer outside the United States shall likewise be ineligible to participate in the Plan. 3.2 ELIGIBILITY UPON REEMPLOYMENT. If an Employee Severs Service with the Employer for any reason after fulfilling the eligibility requirements but prior to the date he initially begins participating in the Plan, the Employee shall be eligible to begin participation in this Plan on the day he first completes an Hour of Service upon his return to employment with an Employer. Once an Employee has become eligible to be a Member, his eligibility shall continue until he Severs Service. A former Member shall be eligible to recommence participation in this Plan on the first day he completes an Hour of Service upon his return to employment with an Employer. 3.3 FROZEN PARTICIPATION. An employee employed by an Affiliated Employer, which has not adopted this Plan, cannot actively participate in this Plan even though he accrues Active Service. Likewise, if an Employee: (a) is transferred from an Employer to an Affiliated Employer which has not adopted this Plan, (b) is a Member of this Plan when he is excluded from this Plan because he becomes excluded under the provisions of a collective bargaining agreement or because he becomes a leased employee or an independent contractor and he has not had a complete termination of his contractual relationship with all Affiliated Employers, (c) is a non-resident alien with no United States source income, (d) participates in a retirement plan maintained by the Employer or an Affiliated Employer outside the United States, or (e) is a Member of the Plan when he is employed outside the United States and is not designated by the Committee to continue to be eligible to participate, his participation becomes inactive. Under these circumstances, the Member's Account becomes frozen: he cannot contribute to the Plan nor can he share in the allocation of any Employer Contribution or forfeitures for the frozen period. However, his Accounts shall continue to share in any appreciation or depreciation of the Trust Fund and in any income earned or losses incurred by III-1 21 the Trust Fund during the frozen period of time. Once the contract or contracts of an independent contractor, who has a frozen Account, have expired with all Affiliated Employers in a good-faith and complete termination of the contractual relationship and no renewal is expected or once an employee who has a frozen Account terminates his employment with all Affiliated Employers, he shall have Severed Service for purposes of distribution of benefits. III-2 22 ARTICLE IV. CONTRIBUTIONS AND THEIR LIMITATIONS PART A. CONTRIBUTIONS 4.1 EMPLOYEE AFTER TAX CONTRIBUTIONS. The Committee may permit Employee After Tax Contributions to be made by Members from time to time. If the Committee permits Contributions by Members, the opportunity must be made available to all Members on a nondiscriminatory basis. If the Committee decides to stop all Contributions by Members, the Contributions to the effective date of the announcement shall be retained in the Trust Fund subject to the right of withdrawal described under this Plan. Employee After Tax Contributions are limited to an amount which, when added to the other amounts required to be taken into consideration, will not exceed the limit set by section 415 of the Code and will meet the Contribution Percentage test described in section 401(m) of the Code. Changes in the rate of Employee After Tax Contributions and suspension of those Contributions shall be permitted under any uniform method determined from time to time by the Committee. 4.2 ROLLOVER CONTRIBUTIONS AND DIRECT TRANSFERS. The Committee may permit Rollover Contributions by Members and/or direct transfers to or from another qualified plan on behalf of Members from time to time. If Rollover Contributions and/or direct transfers to or from another qualified plan are permitted, the opportunity to make those Contributions must be made available to all Members on a nondiscriminatory basis. For this purpose, all Employees of an Employer who are in a classification which may participate in this Plan shall be considered to be Members of the Plan even though they may not have met the eligibility requirements. However, they shall not be entitled to elect to have Salary Deferral Contributions or Employee After Tax Contributions or share in any Employer Contribution unless and until they have met the requirements for eligibility and allocation. A Rollover Contribution shall not be accepted unless it is directly rolled over to this Plan in a roll over described in section 401(a)(31) of the Code and the property is acceptable to the Trustee. A direct transfer of assets from another qualified plan in a transfer subject to the requirements of section 414(l) of the Code shall not be accepted if it was at any time part of the plan which contained a right, feature or benefit not contained in this Plan unless the Committee, in its sole discretion, agrees to continue to provide that right, feature or benefit to that portion of the Member's Account. Rollover Contributions shall have no effect upon the amount permitted to be allocated to a Member's Account under section 415 of the Code, or the amount contributed to the Plan by a Member under Section 4.1. IV-1 23 4.3 SALARY DEFERRAL CONTRIBUTIONS. Each Employer shall contribute for each Plan Year the amount by which the Member's Considered Compensation is reduced as a result of a salary deferral agreement, not to exceed 16% of the amount of the Member's Considered Compensation for the Plan Year less the amount of the Member's Employee After Tax Contribution, if any, as set by the Committee from time to time in a nondiscriminatory manner and announced to the Members. The election to have Salary Deferral Contributions made, the ability to change the rate of Salary Deferral Contributions, the right to suspend Salary Deferral Contributions, and the manner of commencing new Salary Deferral Contributions shall be permitted under any uniform method determined from time to time by the Committee. 4.4 EMPLOYER MATCHING CONTRIBUTIONS. Each Employer shall contribute for each Plan Year an amount, in cash or in common stock of the Sponsor (the number of shares to be determined using the closing sales price on the business day preceding the day of the contribution), at the sole discretion of the Board of Directors, equal to 50% of the Salary Deferral Contribution (modified to exclude those items in the second sentence of Section 1.15 of the Plan) made by each Member after the date he completes one year of Active Service, but not more than 6% of the Member's Considered Compensation. 4.5 EMPLOYER DISCRETIONARY CONTRIBUTIONS. Each Employer shall contribute for each Plan Year an amount, if any, in cash or in common stock of the Sponsor (the number of shares to be determined using the closing sales price on the business day preceding the day of the contribution), at the sole discretion of the Board of Directors, which is designated by the Board of Directors to be the Employer Discretionary Contribution for the Plan Year. 4.6 RESTORATION CONTRIBUTIONS. Each Employer shall contribute for each Plan Year an amount, which when added to previously unapplied and unallocated forfeitures, shall equal the amounts which were not vested and therefore forfeited by Members who have previously terminated but who have now become entitled to have their forfeited amounts restored plus an amount equal to the value of all forfeited benefits for Members who formerly could not be located, but have now filed a claim. 4.7 EXCLUDED MEMBERS. The Sponsor shall contribute an amount determined by the Sponsor if at any time it discovers one or more Employees have been erroneously excluded from participation or a clerical error has caused one or more Members to not be credited with his or their proper allocation of Employer Contributions. The amount of the contribution will equal (i) the average deferral percentage for the employee's compensation group (either highly compensated or nonhighly compensated), (ii) an amount that would have been allocated to such excluded Employee or Member as a matching contribution based on the amount contributed in (i) above if such contribution was otherwise made, and (iii) an amount that would have been allocated to such excluded Employee or Member as an Employer Discretionary Contribution, if such a contribution was otherwise made. Any amount contributed under (i) of this provision will be deemed a "qualified nonelective contribution" under Section 1.401(k)-1(g)(7) of the Regulations and is subject to all conditions required by the Regulations in order for them to be used in the Actual Deferral Percentage IV-2 24 test. Amounts contributed under (ii) and (iii) of this provision are subject to the vesting schedule set forth in Section 6.5. 4.8 QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTION. Each Employer concerned shall contribute for a given Plan Year an amount, if any, which is designated by the Board of Directors to be the Qualified Nonelective Employer Contribution for the Plan Year. A Member's right to benefits derived from Qualified Nonelective Employer Contributions made to the Plan on his behalf shall be nonforfeitable. In no event will Qualified Nonelective Employer Contributions be distributed before Salary Deferral Contributions may be distributed. 4.9 TOP-HEAVY CONTRIBUTION. Each Employer concerned shall contribute for a given Plan Year an amount which is equal to the amount, if any, necessary to fulfill the Top-Heavy Plan requirements found in Article IX if the Plan is determined to be a Top-Heavy Plan. 4.10 CONTRIBUTIONS REQUIRED ON RETURN FROM MILITARY SERVICE. If a Member leaves the employ of an Employer to enter the armed services of the United States and is covered by USERRA and is reemployed under USERRA, the Employer shall make a contribution equal to the amount of the Employer Discretionary Contributions which would have been allocated to the Member's Account if he had remained in the employ of the Employer for the period of time he was covered by USERRA. In addition, the Member may make additional "catch up" Salary Deferral Contributions during a period beginning on his date of reemployment and ending on the earlier of (a) three times the period of his qualified military service and (b) five years equal to the maximum amount he could have made and the Employer must make the appropriate Employer Matching Contributions. The Employer shall not make any contribution for lost earnings or failure to share in forfeitures. 4.11 DEADLINE FOR PAYMENT OF CONTRIBUTIONS. The Employee After Tax Contributions and the Salary Deferral Contributions are to be paid to the Trustee in installments. The installment for each payroll period is to be paid as of the end of the payroll period and shall be paid as soon as administratively feasible but in any event not later than the time prescribed by law for filing the Employer's federal income tax return (including extensions) for its taxable year which ends with or next follows the end of the Plan Year for which the Contribution is to be made. The Employer's Contribution for a Plan Year must be paid into the Trust Fund in one or more installments not later than the time prescribed by law for filing the Employer's federal income tax return (including extensions) for its taxable year for which it is to take the deduction. If the Contribution is paid after the last day of the Employer's taxable year but prior to the date it files its tax return (including extensions), it shall be treated as being received by the Trustee on the last day of the taxable year if (a) the Employer notifies the Trustee in writing that the payment is being made for that taxable year or (b) the Employer claims the Contribution as a deduction on its federal income tax return for the taxable year. PART B. LIMITATIONS APPLICABLE TO CONTRIBUTIONS IV-3 25 4.12 LIMITATIONS BASED UPON DEDUCTIBILITY AND THE MAXIMUM ALLOCATION PERMITTED TO A MEMBER'S ACCOUNT. Notwithstanding any other provision of this Plan, no Employer shall make any contribution that would be a nondeductible contribution within the meaning of section 4972 of the Code or that would cause the limitation on allocations to each Member's Account within the meaning of section 415 of the Code to be exceeded. For a further description of the limitation on allocations and the corrections permitted, see Part B of Article V. 4.13 DOLLAR LIMITATION ON SALARY DEFERRAL CONTRIBUTIONS. The maximum Salary Deferral Contribution that a Member may elect to have made on his behalf during the Member's taxable year may not, when added to the amounts deferred under other plans or arrangements described in sections 401(k), 408(k) and 403(b) of the Code exceed $10,000 (as adjusted by the Secretary of Treasury). For purposes of applying the requirements of Section 4.13 and Article IX, Excess Deferrals shall not be disregarded merely because they are Excess Deferrals or because they are distributed in accordance with this Section. However, Excess Deferrals made to the Plan on behalf of Non-Highly Compensated Employees are not to be taken into account under Section 4.13. 4.14 LIMITATION BASED UPON ACTUAL DEFERRAL PERCENTAGE. The Actual Deferral Percentage for eligible Highly Compensated Employees for any Plan Year must bear a relationship to the Actual Deferral Percentage for all other eligible Employees for the preceding Plan Year which meets either of the following tests: (a) the Actual Deferral Percentage of the eligible Highly Compensated Employees is not more than the Actual Deferral Percentage of all other eligible Employees multiplied by 1.25; or (b) the excess of the Actual Deferral Percentage of the eligible Highly Compensated Employees over that of all other eligible Employees is not more than two percentage points, and the Actual Deferral Percentage of the eligible Highly Compensated Employees is not more than the Actual Deferral Percentage of all other eligible Employees multiplied by two. For the initial Plan Year of this Plan and for the initial Plan Year of any Employer which adopts this Plan as its separate plan, the amount taken into account as the Actual Deferral Percentage of Non-highly Compensated Employees for the preceding Plan Year shall be (a) three percent or (b) if the Employer makes an election under this subclause (b), the Actual Deferral Percentage of Non-highly Compensated Employees for the first Plan year. For purposes of this test an eligible Employee is an Employee who is directly or indirectly eligible to make Salary Deferral Contributions for all or part of the Plan Year. A person who is suspended from making Salary Deferral Contributions because he has made a withdrawal is an eligible Employee. If no Salary Deferral Contributions are made for an eligible Employee, the Actual Deferral Ratio that shall be included for him in determining the Actual Deferral Percentage is zero. IV-4 26 If this Plan and any other plan or plans which include cash or deferred arrangements are considered as one plan for purposes of section 401(a)(4) or 410(b) of the Code, the cash or deferred arrangements included in this Plan and the other plans shall be treated as one plan for these tests. If any Highly Compensated Employee is a Member of this Plan and any other cash or deferred arrangements of the Employer, when determining the deferral percentage of the Employee, all of the cash or deferred arrangements are treated as one. If the Employer elects to apply section 410(b)(4)(B) of the Code in determining whether the Plan meets the requirements of section 401(k)(3)(A)(i) of the Code, the Employer may, in determining whether the arrangement meets the requirements of section 401(k)(3)(A)(ii), exclude from consideration all eligible Employees (other than Highly Compensated Employees) who are not 21 years of age or have not completed one year of Active Service by the end of the Plan Year. The Actual Deferral Percentages are to be calculated and the provisions of this Section are to be applied, separately, for each Employer which constitutes a separate controlled group or affiliated service group. A Salary Deferral Contribution will be taken into account under the Actual Deferral Percentage test of Code section 401(k) and this Section for a Plan Year only if it relates to Annual Compensation that either would have been received by the Employee in the Plan Year (but for the deferral election) or is attributable to services performed by the employee in the Plan Year and would have been received by the Employee within 2 1/2 months after the close of the Plan Year (but for the deferral election). In addition, a Section 401(k) Contribution will be taken into account under the Actual Deferral Percentage test of Code section 401(k) and this Section for a Plan Year only if it is allocated to an Employee as of a date within that Plan Year. For this purpose of a Section 401(k) Contribution is considered allocated as of a date within a Plan Year if the allocation is not contingent on participation or performance of services after that date and the Section 401(k) Contribution is actually paid to the Trust no later than 12 months after the Plan Year to which the Section 401(k) Contribution relates. Failure to correct Excess 401(k) Contributions by the close of the Plan Year following the Plan Year for which they were made will cause the Plan's cash or deferred arrangement to be disqualified for the Plan Year for which the Excess 401(k) Contributions were made and for all subsequent years during which they remain in the Trust. Also, the Employer will be liable for a 10% excise tax on the amount of Excess 401(k) Contributions unless they are corrected within 2 1/2 months after the close of the Plan Year for which they were made. 4.15 LIMITATION BASED UPON CONTRIBUTION PERCENTAGE. The Contribution Percentage for eligible Highly Compensated Employees for any Plan Year must not exceed the greater of the following: (a) the Contribution Percentage for all other eligible Employees for the preceding Plan Year multiplied by 1.25; or IV-5 27 (b) the lesser of the Contribution Percentage for all other eligible Employees for the preceding Plan Year multiplied by two, or the Contribution Percentage for all other eligible Employees for the preceding Plan Year plus two percentage points. For the initial Plan Year of this Plan and for the initial Plan Year of any Employer which adopts this Plan as its separate plan, the amount taken into account as the Contribution Percentage of Non-highly Compensated Employees for the preceding Plan Year shall be (a) three percent or (b) if the Employer makes an election under this subclause (b), the Contribution Percentage of Non-highly Compensated Employees for the first Plan Year. For purposes of this test an eligible Employee is an Employee who is directly or indirectly eligible to make Employee After Tax Contributions or to receive an allocation of Employer Matching Contributions under the Plan for all or part of the Plan Year. A person who is suspended from making Employee After Tax Contributions because he has made a withdrawal, a person who would be eligible to receive an allocation of Employer Matching Contributions but for his election not to participate, and a person who would be eligible to receive an allocation of Employer Matching Contributions but for the limitation on his Annual Additions imposed by section 415 of the Code, are all eligible Employees. If no Section 401(m) Contributions are made on behalf of an eligible Employee, the Actual Contribution Ratio that shall be included for him in determining the Contribution Percentage is zero. If this Plan and any other plan or plans to which Section 401(m) Contributions are made are considered as one plan for purposes of section 401(a)(4) or 410(b) of the Code, this Plan and those plans are to be treated as one. The Actual Contribution Ratio of a Highly Compensated Employee who is eligible to participate in more than one plan of an Affiliated Employer to which employee or matching contributions are made is calculated by treating all the plans in which the Employee is eligible to participate as one plan. However, plans that are not permitted to be aggregated under Regulation section 1.410(m)-1(b)(3)(ii) are not aggregated for this purpose. A Matching Employer Contribution will be taken into account under this Section for a Plan Year only if (a) it is allocated to the Employee's Account as of a date within the Plan Year, (b) it is paid to the Trust no later than the end of the 12 month period beginning after the close of the Plan Year, and (c) it is made on behalf of an Employee on account of his Salary Deferral Contributions for the Plan Year. If the Employer elects to apply section 410(b)(4)(B) of the Code in determining whether the Plan meets the requirements of section 410(b) of the Code, the Employer may, in determining whether the arrangement meets the requirements of section 401(m)(2) of the Code exclude from consideration all eligible Employees (other than Highly Compensated Employees) who are not 21 years of age or have not completed one year of Active Service by the end of the Plan Year. The Contribution Percentage shall be calculated and the provisions of this Section applied, separately, for each Employer which constitutes a separate controlled group or affiliated service group. IV-6 28 At the election of the Employer, a Member's Salary Deferral Contributions, and Qualified Nonelective Employer Contributions made on behalf of the Member during the Plan Year shall be treated as Section 401(m) Contributions that are Employer Matching Contributions provided that the conditions set forth in Regulation section 1.401(m)-1(b)(5) are satisfied. Salary Deferral Contributions may not be treated as Employer Matching Contributions for purposes of the Contribution Percentage test unless the contributions, including those taken into account for purposes of the test, satisfy the Actual Deferral Percentage test set forth in Section 4.13. Salary Deferral Contributions and Qualified Nonelective Employer Contributions may not be taken into account for purposes of the test to the extent that those contributions are taken into account in determining whether any other contributions satisfy the Actual Deferral Percentage test set forth in Section 4.13. Finally, Salary Deferral Contributions and Qualified Nonelective Employer Contributions may be taken into account for purposes of the test only if they are allocated to the Employee's Account as of a date within the Plan Year being tested within the meaning of Regulation section 1.401(k)-1(b)(4). Failure to correct Excess Aggregate 401(m) Contributions by the close of the Plan Year following the Plan Year for which they were made will cause the Plan to fail to be qualified for the Plan Year for which the Excess Aggregate 401(m) Contributions were made and for all subsequent years during which they remain in the Trust. Also, the Employer will be liable for a 10% excise tax on the amount of Excess Aggregate 401(m) Contributions unless they are corrected within 2 1/2 months after the close of the Plan Year for which they were made. 4.16 ALTERNATIVE LIMITATION BASED UPON ACTUAL DEFERRAL PERCENTAGE AND CONTRIBUTION PERCENTAGE. If the second alternative permitted in Sections 4.13 and 4.14 is used for both the Actual Deferral Percentage test and the Contribution Percentage test the following additional limitation on Salary Deferral Contributions shall apply. The Actual Deferral Percentage plus the Contribution Percentage of the eligible Highly Compensated Employees cannot exceed the greater of (a) or (b), where: (a) is the sum of: (i) 1.25 times the greater of the Actual Deferral Percentage or the Contribution Percentage of the eligible Non-Highly Compensated Employees for the preceding Plan Year, and (ii) the lesser of (x) two percentage points plus the lesser of the Actual Deferral Percentage or the Contribution Percentage of the eligible Non-Highly Compensated Employees for the preceding Plan Year or (y) two times the lesser of the Actual Deferral Percentage or the Contribution Percentage of the group of eligible Non-Highly Compensated Employees for the preceding Plan Year, and (b) is the sum of: IV-7 29 (i) 1.25 times the lesser of the Actual Deferral Percentage or the Contribution Percentage of the eligible Non-Highly Compensated Employees for the preceding Plan Year, and (ii) the lesser of (x) two percentage points plus the greater of the Actual Deferral Percentage or the Contribution Percentage of the eligible Non-Highly Compensated Employees for the preceding Plan Year or (y) two times the greater of the Actual Deferral Percentage or the Contribution Percentage of the group of eligible Non-Highly Compensated Employees for the preceding Plan Year. PART C. CORRECTION PROCEDURES FOR ERRONEOUS CONTRIBUTIONS 4.17 EXCESS DEFERRAL FAIL SAFE. As soon as practical after the close of each Plan Year, the Committee shall determine if there would be any Excess Deferrals. If there would be an Excess Deferral by a Member, the Excess Deferral as adjusted by any earnings or losses, will be distributed to the Member no later than April 15 following the Member's taxable year in which the Excess Deferral was made. The income allocable to the Excess Deferrals for the taxable year of the Member shall be determined by any reasonable method for computing the income allocable to Excess Deferrals, provided that the method does not violate section 401(a)(4) of the Code, is used consistently for all Members and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Members' accounts. 4.18 ACTUAL DEFERRAL PERCENTAGE FAIL SAFE FOR PLAN YEARS BEGINNING AFTER DECEMBER 31, 1996. As soon as practicable after the close of each Plan Year, the Committee shall determine whether the Actual Deferral Percentage for the Highly Compensated Employees would exceed the limitation. If the limitation would be exceeded for a Plan Year, before the close of the following Plan Year (a) the amount of Excess 401(k) Contributions for that Plan Year (and any income allocable to those Contributions as calculated in the specific manner required by Section 4.20) shall be distributed, or (b) to the extent provided in regulations issued by the Secretary of the Treasury, and permitted by the Committee, the Employee may elect to treat the amount of the Excess 401(k) Contributions as an amount distributed to the Employee and then contributed by the Employee to the Plan as an Employee After Tax Contribution, provided the recharacterized amounts shall remain subject to the same rules and restrictions to which the Salary Deferral Contributions are subjected, or (c) the Employer may make a Qualified Nonelective Employer Contribution which it elects to have treated as a Section 401(k) Contribution. The amount of Excess 401(k) Contributions to be distributed shall be that amount of the Salary Deferral Contributions by or on behalf of those Highly Compensated Employees with the largest Salary Deferral Contributions as is equal to the Excess 401(k) Contributions, taken ratably from each Account, based solely on those Salary Deferral Contributions for the Plan Year. This initial distribution shall not reduce those Accounts affected below the next highest level of Salary Deferral Contributions. If any further reduction is necessary the same process is to be repeated at the next highest level of Salary Deferral Contributions by or on behalf of the Highly Compensated Employees, and if necessary repeated in successively lower levels of Salary Deferral Contributions until the cash or deferred arrangement satisfies the Actual Deferral Percentage test. IV-8 30 Qualified Nonelective Employer Contributions shall be treated as Section 401(k) Contributions only if: (a) the conditions described in Regulation section 1.401(k)-1(b)(5) are satisfied and (b) they are allocated to Members' Accounts as of a date within that Plan Year and are actually paid to the Trust no later than the end of the 12 month period immediately following the Plan Year to which the contributions relate. If the Employer makes a Qualified Nonelective Employer Contribution that it elects to have treated as a Section 401(k) Contribution, the Contribution will be in an amount necessary to satisfy the Actual Deferral Percentage test and will be allocated first to those Non-Highly Compensated Employees who had the lowest Actual Deferral Ratio. The Excess 401(k) Contributions of Highly Compensated Employees will not be recharacterized to the extent that the recharacterized amounts would exceed the Contribution Percentage as determined prior to applying the Contribution Percentage limitations. Excess 401(k) Contributions may not be recharacterized after 2 1/2 months after the close of the Plan Year to which the recharacterization relates. The amount of recharacterized Excess 401(k) Contributions, in combination with Employee After Tax Contributions actually made by the Member, may not exceed the maximum amount of Employee After Tax Contributions (determined without regard to Section 4.14) that the Member could have made under the provisions of the Plan in effect on the first day of the Plan Year in the absence of recharacterization. Any distributions of the Excess 401(k) Contributions for any Plan Year are to be made to Highly Compensated Employees on the basis of the amount of contributions by, or on behalf of, each Highly Compensated Employee. The amount of Excess 401(k) Contributions to be distributed or recharacterized for any Plan Year must be reduced by any excess Salary Deferral Contributions previously distributed for the taxable year ending in the same Plan Year. 4.19 CONTRIBUTION PERCENTAGE FAIL SAFE FOR PLAN YEARS BEGINNING AFTER DECEMBER 31, 1996. If the limitation would be exceeded for any Plan Year, before the close of the following Plan Year any one or more of the following corrective actions shall be taken, as determined by the Committee in its sole discretion: (a) the amount of the Excess Aggregate 401(m) Contributions for that Plan Year (and any income allocable to those Contributions as calculated in the specific manner required by Section 4.20) shall be distributed or forfeited (to the extent not vested), or (b) the Employer may make a Qualified Nonelective Employer Contribution which it elects to have treated as a Section 401(m) Contribution. Any distributions of the Excess Aggregate 401(m) Contributions for any Plan Year are to be made to Highly Compensated Employees on the basis of the respective portions of the amounts attributable to each of them. Forfeitures of Excess Aggregate 401(m) Contributions may not be allocated to Members whose contributions are reduced under this Section. 4.20 ALTERNATIVE LIMITATION FAIL SAFE. As soon as practicable after the close of each Plan Year, the Committee shall determine whether the alternative limitation would be exceeded. If the limitation would be exceeded for any Plan Year, before the close of the following Plan Year the Actual Deferral Percentage or Contribution Percentage of the eligible Highly Compensated Employees, or a combination of both, shall be reduced by distributions made in the manner described in the Regulations. These distributions shall be in addition to and not in lieu of distributions required for Excess 401(k) Contributions and Excess Aggregate 401(m) Contributions. IV-9 31 4.21 INCOME ALLOCABLE TO EXCESS 401(K) AND AGGREGATE 401(M) CONTRIBUTIONS. The income allocable to Excess 401(k) Contributions and Excess Aggregate 401(m) Contributions for the Plan Year shall be determined by any reasonable method for computing the income allocable to Excess 401(k) Contributions and Excess Aggregate 401(m) Contributions, provided that the method does not violate section 401(a)(4) of the Code, is used consistently for all Members and for all corrective distributions under the Plan. 4.22 RETURN OF CONTRIBUTIONS FOR MISTAKE, DISQUALIFICATION OR DISALLOWANCE OF DEDUCTION. Subject to the limitations of section 415 of the Code, the assets of the Trust shall not revert to any Employer or be used for any purpose other than the exclusive benefit of the Members and their Beneficiaries and the reasonable expenses of administering the Plan except: (a) any Contribution made because of a mistake of fact shall be repaid to the Employer within one year after the payment of the Contribution; (b) any Contribution conditioned upon the Plan's initial qualification under section 401 of the Code or the initial qualification of an Employer's adoption of the Plan, if later, shall be repaid to the Employer within one year after the date of denial of the initial qualification of the Plan or of its adoption by the Employer; and (c) any and all Employer Contributions are conditioned upon their deductibility under section 404 of the Code; therefore, to the extent the deduction is disallowed, the Contributions shall be repaid to the Employer within one year after the disallowance. The Employer has the exclusive right to determine if a Contribution or any part of it is to be repaid or is to remain as a part of the Trust Fund except that the amount to be repaid is limited, if the Contribution is made by mistake of fact or if the deduction for the Contribution is disallowed, to the excess of the amount contributed over the amount that would have been contributed had there been no mistake or over the amount disallowed. Earnings which are attributable to any excess contribution cannot be repaid. Losses attributable to an excess contribution must reduce the amount that may be repaid. All repayments of mistaken Contributions or Contributions which are disallowed are limited so that the balance in a Member's Account cannot be reduced to less than the balance that would have been in the Member's Account had the mistaken amount or the amount disallowed never been contributed. IV-10 32 ARTICLE V. PARTICIPATION PART A. ALLOCATIONS 5.1 ALLOCATION OF EMPLOYEE CONTRIBUTIONS. The Committee shall allocate each Member's Employee After Tax Contributions made on his behalf to his Employee After Tax Contribution Account as of the date they are contributed. 5.2 ALLOCATION OF ROLLOVER CONTRIBUTIONS AND DIRECT TRANSFERS. If Rollover Contributions and/or direct transfers are permitted, the Committee shall allocate each Member's Rollover Contribution and/or direct transfers to his Rollover Account as of the date it is contributed or transferred. 5.3 ALLOCATION OF SALARY DEFERRAL CONTRIBUTIONS. The Committee shall allocate the Salary Deferral Contributions, if any, made on behalf of each Member to his Salary Deferral Contribution Account, as of the date they are contributed. 5.4 ALLOCATION OF EMPLOYER MATCHING CONTRIBUTIONS. The Committee shall, as of the end of each month, allocate the Employer Matching Contributions made on behalf of each Member to his Employer Matching Contribution Account if the Member has completed one year of Active Service credit. 5.5 ALLOCATION OF EMPLOYER DISCRETIONARY CONTRIBUTIONS. The Committee shall, as of the end of each Plan Year, allocate the Employer Discretionary Contribution, if any, among the Members who have completed one year of Active Service and who are employed by one of the Employers or Affiliated Employers at the end of the Plan Year and are employed at the time that the Contribution is made based upon each Member's Considered Compensation paid by the Employer as compared to the Considered Compensation of all Members employed by the Employer or Affiliated Employer and eligible for the allocation; provided, however, for this purpose, Considered Compensation shall be each Member's annualized Considered Compensation as determined on the date for which the Employer Discretionary Contribution is actually contributed to the Plan. 5.6 ALLOCATION OF RESTORATION CONTRIBUTIONS. The Committee shall, as of the end of each Plan Year, allocate the previously unapplied and unallocated forfeitures and the Employer Contribution, if any, which are required to restore the nonvested portion of the Employer Accounts of Members who had previously forfeited that nonvested portion on the date they terminated employment but who qualified for the restoration of that amount during the Plan Year and allocate the previously unapplied and unallocated forfeitures and the Employer Contribution, if any, which are required to restore the Accounts of those Members whose distributions were forfeited because of the Committee's inability to contact the Members previously but who have filed a claim for their Accounts during the Plan Year. The Committee shall establish and maintain a separate subaccount for the amount allocated to an Account in order to restore a previously forfeited amount. V-1 33 5.7 ALLOCATION OF CONTRIBUTION TO EXCLUDED MEMBERS. The Sponsor shall allocate the Employer Contribution, if any, made on behalf of any one or more Members to correct an error as to qualification for participation or in Contributions, allocations or distributions to the persons concerned and in the amount necessary to correct the error. 5.8 ALLOCATION OF QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTIONS. The Committee shall, as of the end of the Plan Year, allocate the Qualified Nonelective Employer Contribution, if any, among the Non-Highly Compensated Employees as set forth in Section 4.17 or 4.18, whichever is applicable. 5.9 ALLOCATION OF TOP-HEAVY CONTRIBUTIONS. The Committee shall, as of the end of the Plan Year, allocate the Employer Contribution, if any, which is necessary to fulfill the Top-Heavy Plan requirements found in Article IX if the Plan is determined to be a Top-Heavy Plan. 5.10 EFFECT OF TRANSFERS UPON ALLOCATIONS. If a Member has been Transferred during the Plan Year, the Member shall be entitled to have allocated to him a portion of the Employer Matching Contribution based upon his Salary Deferral Contributions made while he was an Employee of each Employer and the Employer Discretionary Contribution based upon his Considered Compensation for the Plan Year earned from all of the Employers for which an Employer Discretionary Contribution was made. 5.11 APPLICATION OF FORFEITURES. Amounts forfeited for any reason shall first be allocated under Section 5.6 to restore previously forfeited Accounts which are to be restored under the terms of this Plan and if any amount remains after that allocation, it shall be used to reduce the future Employer Matching Contributions. 5.12 SCHEDULED ALLOCATION OF INCOME OR LOSSES AND APPRECIATION OR DEPRECIATION. The Trustee shall value the Trust Fund on its Valuation Date at its then fair market value, but without regard to any Contributions made to the Plan after the preceding Valuation Date, shall determine the amount of income earned or losses suffered by the Trust Fund and shall determine the appreciation or depreciation of the Trust Fund since the preceding Valuation Date. The Committee shall then allocate as of the Valuation Date the income earned or losses suffered and the appreciation or depreciation in the assets of the Trust Fund for the period since the last preceding Valuation Date. The allocation shall be among the Members and former Members who have undistributed Account balances based upon their Account balances in each of the various investment funds or accounts, if more than one, as of the last Valuation Date reduced, as appropriate, by amounts used from the investment fund or account to make a withdrawal or distribution or any other transaction which is properly chargeable to the Member's Account during the period since the last Valuation Date. The Committee, by resolution, may elect in lieu of the allocation method described above to use a unit allocation method, a separate account method or any other equitable method if it announces the method of allocation to the Members prior to the beginning of the period during which it is first used. 5.13 INTERIM ALLOCATION OF INCOME OR LOSSES AND APPRECIATION OR DEPRECIATION. If at any time in the interval between Valuation Dates, one or more withdrawals or one or more distributions are to be made and the Committee determines that an interim allocation is necessary V-2 34 to prevent discrimination against those Members and former Members who are not receiving funds, the Trustee is to perform a valuation of a portion or all of the Trust Fund as of a date selected by the Committee which is administratively practical and near the date of withdrawals or distributions in the same manner as it would if it were a scheduled Valuation Date. That date may be before or after any particular distribution or withdrawal. The Committee shall then allocate as of that date any income or loss and any appreciation or depreciation to the various Accounts of each of the Members in the same manner as it would if it were a scheduled Valuation Date. Then without regard to the language in Section 6.1, all withdrawals or distributions made after that date and prior to the next Valuation Date, even though the event causing it occurred earlier, shall be based upon the Accounts as adjusted by the interim valuation. PART B. LIMITATION ALLOCATIONS The Annual Additions that may be credited to an individual Member's Accounts under this Plan and any other qualified defined contribution plan maintained by an Affiliated Employer for a Limitation Year shall not exceed the lesser of (a) $30,000.00 (as adjusted by the Secretary of Treasury), or (b) 25% of the Member's Annual Compensation for the Limitation Year. The Plan will be operated in compliance with section 415 of the Code and its Regulations, the terms of which are incorporated in this Plan. Thus, if the Employer maintains a defined benefit plan in which the Member participates, the combined limits provided in section 415(e) apply through December 31, 1999. If Annual Additions are made in excess of the limitations contained in this Part B, to the maximum extent permitted by law, those excess Annual Additions shall be attributed to this Plan. If an excess Annual Addition attributed to this Plan is held or contributed as a result of the application of forfeitures, reasonable error in estimating a Member's Annual Compensation, reasonable error in calculating the maximum Salary Deferral Contribution that may be made for a Member under section 415 of the Code or because of other facts and circumstances which the Commissioner of Internal Revenue finds to be justified, the excess Annual Addition shall be corrected as follows: (a) first, the excess Annual Addition shall be reduced to the extent necessary by distributing to the Member all Employee After Tax Contributions, if any, and then Salary Deferral Contributions together with their earnings. These distributed amounts are disregarded for purposes of the testing and limitations contained in Article IV; (b) second, if the Member is still employed by the Employer at the end of the Plan Year, any remaining excess funds shall be placed in an unallocated suspense account to be applied to reduce future Employer Contributions for that Member for as many Plan Years as are necessary to exhaust the suspense account in keeping with the amounts which would otherwise be allocated to that Member's Account; and (c) third, if the Member is not employed by the Employer at the end of the Plan Year, the remaining excess funds shall be placed in an unallocated suspense account to V-3 35 reduce future Employer Contributions for all remaining Members for as many Plan Years as are necessary to exhaust the suspense account. If the Plan terminates prior to the exhaustion of the suspense account, the remaining amount shall revert to the Employer. PART C. INVESTMENT OF TRUST FUNDS The Committee may: (a) maintain commingled and/or separate Trusts, (b) establish separate investment funds and/or (c) permit individual investments, some or all of which are directed by the Committee or selected by the Members or former Members for any portion or all of their Accounts. Once the Committee has selected or changed the mode of investments, it shall establish rules pertaining to its administration, including but not limited to: selection of forms, rules for making selections effective, establishing the frequency of permitted changes, the minimum percentage in any investment, and all other necessary or appropriate regulations. The Committee may direct the Trustee to hold funds in cash or near money awaiting investment or to sell assets and hold the proceeds in cash or near money awaiting reinvestment when establishing, using or changing investment modes. For this purpose the funds may be held in cash or invested in short term investments such as certificates of deposit, U.S. Treasury bills, savings accounts, commercial paper, demand notes, money market funds, any common, pooled or collective funds which the Trustee or any other corporation may now have or in the future may adopt for short term investments and any other similar assets which may be offered by the federal government, national or state banks (whether or not serving as Trustee) or any savings and loan association. No Plan funds attributable to Employee after Tax Contributions, or Salary Deferred Contributions shall be invested in securities (other than interests in the Plan) of any Employer or any company directly or indirectly controlling, controlled by or under common control with an Employer (within the meaning of the Securities Act of 1933, as amended), until an appropriate registration statement under the Securities Act of 1933, as amended, has become effective covering the interests in the Plan and the securities issued by one of the entities described above or counsel for the Sponsor or the Committee gives an opinion that such an investment can be made without the described registration process. V-4 36 ARTICLE VI. DISTRIBUTIONS AND FORFEITURES PART A. DISTRIBUTIONS 6.1 VALUATION OF ACCOUNTS FOR DISTRIBUTIONS. For the purpose of making a distribution, a Member's Accounts shall be his Accounts as valued as of the Valuation Date which is coincident with or next preceding the event which caused the distribution, adjusted only for Contributions, distributions and withdrawals, if any, made between the Valuation Date and that event. 6.2 DISTRIBUTION ON DEATH. If a Member dies, the Member's spouse or designated Beneficiary or Beneficiaries is entitled to receive 100% of the remaining amount in all of his Accounts as of the day he dies. Each Member has the right to designate and to revoke the designation of his Beneficiary or Beneficiaries. Each designation or revocation must be evidenced by a written document in the form required by the Committee, signed by the Member and filed with the Committee. If no designation is on file at the time of a Member's death or if the Committee determines that the designation is ineffective, the designated Beneficiary shall be the Member's spouse, if living, or if not, the executor, administrator or other personal representative for administration and distribution as part of the Member's estate. If a Member is considered to be married under local law, the Member's designation of any Beneficiary, other than the Member's spouse, shall not be valid unless the spouse acknowledges in writing that he or she understands the effect of the Member's beneficiary designation and consents to it. The consent must be to a specific Beneficiary. The written acknowledgment and consent must be filed with the Committee, signed by the spouse, and witnessed by a Plan representative or a notary public. However, if the spouse cannot be located or there exist other circumstances as described in sections 401(a)(11) and 417(a)(2) of the Code, the requirement of the Member's spouse's acknowledgment and consent may be waived. 6.3 DISTRIBUTION ON RETIREMENT. A Member may retire at any time on or after he attains his Retirement Age. If a Member retires, he is entitled to receive 100% of all of his Accounts as of the day he retires. 6.4 DISTRIBUTION ON DISABILITY. If a Member's employment with an Employer is terminated (which for this purpose, shall include the Member's receipt of long term disability payments from the Employer) and the Committee determines he is suffering from a Disability, he is entitled to receive 100% of all of his Accounts as of the day he terminated because of his Disability. 6.5 DISTRIBUTION ON SEVERANCE FROM SERVICE. If a Member Severs Service with all Affiliated Employers for any reason other than death, retirement or disability, he is entitled to receive (a) 100% of all of his Accounts, except his Employer Matching Contribution Account, if any, and VI-1 37 (b) that percentage of his Employer Matching Contribution Account, if any, as shown in the vesting schedule below, as of the day he severs employment.
PERCENTAGE OF AMOUNT VESTED IN ACCOUNTS CONTAINING EMPLOYER MATCHING COMPLETED YEARS OF ACTIVE SERVICE AND DISCRETIONARY CONTRIBUTIONS Less than one years .................................... 0% One years but less than two years ...................... 20% Two years but less than three years .................... 40% Three years but less than four years.................... 60% Four years but less than five years .................... 80% Five years or more ..................................... 100%
Notwithstanding the above vesting schedule, any plan that merges into this Plan shall retain its prior vesting schedule solely with respect to the assets merged into this Plan unless the merger agreement sets forth otherwise. 6.6 DISTRIBUTION ON ISSUANCE OF A QUALIFIED DOMESTIC RELATIONS ORDER. If the Committee determines that a judgment, decree or order relating to child support, alimony payments or marital property rights of the spouse, former spouse, child or other dependent of the Member is a qualified domestic relations order which complies with a state's domestic relations law or community property law and section 414(p) of the Code or is a domestic relations order entered before January 1, 1985, the Committee may direct the Trustee to distribute the awarded property to the person named in the award but only in the manner permitted under this Plan. To be a qualified domestic relations order, the order must clearly specify: (a) the name and last known mailing address of the Member and each alternate payee under the order, (b) the amount or percentage of the Member's benefits to be paid from the Plan to each alternate payee or the manner in which the amount or percentage can be determined, (c) the number of payments or periods for which the order applies, (d) the plan to which the order applies, and (e) all other requirements set forth in section 414(p) of the Code. If a distribution is made at a time when the Member is not fully vested, a separate subaccount shall be created for the remaining portion of each Account which was not fully vested. That subaccount shall then remain frozen: that is, no further contributions nor any forfeitures shall be allocated to the subaccount; however, it shall receive its proportionate share of trust appreciation or depreciation and income earned on or losses incurred by the Trust Fund. To determine the Member's vested interest in each subaccount at any future time, the Committee shall add back to the subaccount at that time the amount that was previously distributed under the qualified domestic relations order, shall multiply the reconstituted subaccount by the vesting percentage, and shall then subtract the amount that was previously distributed. The remaining amount is the Member's vested interest in the subaccount at that time. 6.7 FORFEITURE ON SEVERING SERVICE WITH ALL AFFILIATED EMPLOYERS. If as a result of Severing Service with all Affiliated Employers a former Member receives a distribution of his entire vested interest in his Account, the nonvested amount in his Account is immediately forfeited. However, if the Member is reemployed, all of his Accounts containing Employer Contributions VI-2 38 (unadjusted for subsequent gains or losses) shall be restored if he repays to the Trustee that portion of the distribution which was derived from Employer Contributions within five years of the date of distribution. A former Member who received no distribution upon his Severing Service with all Affiliated Employers because he had no vested interest shall be treated as if he received a distribution of his entire vested interest and that interest was less than $5,000.00. If a former Member who has a vested interest in his Account received no distribution or a distribution of less than the full amount of his entire vested interest as a result of his Severing Service with all Affiliated Employers the nonvested amount in his Account is immediately forfeited following five consecutive one-year Periods of Severance. A distribution shall be treated as if it were made as a result of Severing Service with all Affiliated Employers if it is made not later than the end of the second Plan Year following the Plan Year in which the former Member Severs Service. 6.8 FORFEITURE BY LOST MEMBERS OR BENEFICIARIES; ESCHEAT. If a person who is entitled to a distribution cannot be located during a search period of 60 days after the Trustee has initially attempted making payment, that person's Account shall be forfeited. However, if at any time prior to the termination of this Plan and the complete distribution of the Trust Fund, the Former Member or Beneficiary files a claim with the Committee for the forfeited benefit, that benefit shall be reinstated (without adjustment for trust income or losses during the forfeited period) effective as of the date of the receipt of the claim. As soon as appropriate following the Employer's Contribution of the reinstated amount, it shall be paid to the former Member or Beneficiary in a single sum. PART B. FORM, ADJUSTMENTS AND TIME OF DISTRIBUTION 6.9 FORM OF DISTRIBUTIONS. Distributions shall be made only in cash unless an asset held in the Trust cannot be sold by distribution date or can only be sold at less than its appraised value, in which event part or all of the distribution may be made in kind. Also, a Member (or his designated beneficiary or legal representative, in the case of a deceased Member) may elect to have those portions of his Accounts that are invested in shares of common stock of the Sponsor distributed in full shares with any remaining balance (including factional shares) distributed in cash. Except with respect to Plan mergers or Plan transfers from other qualified plans that require optional forms of payment, all distributions shall be made in one lump sum payment or, as a Direct Rollover if the Distributee elects, at the time and in the manner prescribed by the Committee, to have any portion or all of the Eligible Rollover Distribution paid directly to an Eligible Retirement Plan named by the Distributee. All protected Section 411(d)(6) benefits attributable to any plan merger or plan to plan transfer are hereby incorporated into this Plan by reference. Specifically, but not by way of limitation, the following reflect certain plan mergers and/or plan transfers whose Section 411(d)(6) protected benefits are hereby incorporated into the Plan: VI-3 39 (a) GRANT PLAN PRIOR PLAN ACCOUNT A Member who has a Grant Plan Prior Plan Account may elect in writing to have his Grant Plan Prior Plan Account distributed in periodic installments (no more frequently than monthly) over the life expectancy of the Participant, the life expectancy of the Participant's spouse or designated Beneficiary, a period certain not extending beyond the life expectancy of the Participant, or a period certain not extending beyond the life expectancy of the Participant and his spouse or designated Beneficiary. (b) PRIDECO PLAN PRIOR PLAN ACCOUNT A Member may elect in writing to have his Prideco Plan Prior Plan Account distributed in periodic installments either monthly, quarterly or annually over a fixed reasonable period of time, not exceeding the life expectancy of the Participant, or the joint life and last survivor expectancy of the Participant and his Beneficiary. (c) ENERPRO PLAN PRIOR PLAN ACCOUNT A Member may elect in writing to have his Enerpro Plan Prior Plan Account distributed as follows: i. periodic installments either monthly, quarterly, semiannually or annually over a fixed period, not exceeding the life expectancy of the Member, or the joint life and last survivor expectancy of the Member and his Beneficiary, and ii. a qualified joint and survivor annuity, if the Member is married, and a life annuity if single, at the time the benefit is payable. The spousal consent requirements, as provided in the Enerpro Plan or as hereafter amended by law, shall be applicable for distributions from an Enerpro Plan Prior Plan Account. In order for a Member to elect a distribution from the Enerpro Plan Prior Plan Account other than the qualified joint survivor annuity (if married) or the single life annuity (if single), the Member must waive the applicable annuity (with spousal consent, if married). The Member shall be allowed to waive the 30-day notice provision (in accordance with applicable Treasury regulations), which would otherwise be required by the Enerpro Plan. (d) TCA PLAN ACCUMULATION A Member may elect in writing to have his TCA Plan Prior Plan Account distributed in the following form: VI-4 40 If the Member is married, a qualified joint and 50% survivor annuity ("QJSA"), unless a 75% or 100% survivor annuity is elected, and a life annuity if single, at the time the benefit is payable. The QJSA shall be equal in value to the single life annuity. The spousal consent requirements, as provided in the TCA Plan or as hereafter amended by law or this Plan, shall be applicable for distributions from the TCA Plan Prior Plan Account. In order for a Member to elect a distribution from the TCA Plan Prior Plan Account other than the qualified joint survivor annuity (if married) or the single life annuity (if single), the Member must waive the applicable annuity (with spousal consent, if married). With the required spousal consent, the Member may elect a different form of annuity or a single lump sum distribution. The Member shall be allowed to waive the 30-day notice provision (in accordance with applicable Treasury regulations), which would otherwise be required by the TCA Plan. Subject to the spousal consent requirements, a Participant may withdraw funds from his Voluntary Contribution account while employed, but may not make more than one withdrawal in each six-month period. (e) TUBE ALLOY PLAN ACCUMULATION A Member may elect in writing to have his Tube-Alloy Plan Prior Plan Account distributed in as follows: payments over a period certain either monthly, quarterly, semiannually, or annually in cash installments. In order to provide such installments, the Committee may direct that the Member's interest in the Plan be segregated and invested separately, and that the funds in the segregated account be used for the payment of the installments. The period over which such payment is to be made shall not extend beyond the Member's life expectancy (or the life expectancy of the Member and his designated Beneficiary. (f) XL SYSTEMS PLAN PRIOR PLAN ACCOUNT A Member may elect in writing to have his XL Systems Plan Prior Plan Account distributed in a form other than described in previous Sections of this Article. If he so elects, his XL Systems Plan Prior Plan Account may be distributed in accordance with the methods described below, and any portion of his account exceeding his XL Systems Plan Prior Plan Account shall be payable in accordance with the other provisions of this Article VI. The forms of distribution for a Participant's XL Systems Plan Prior Plan Account are: If the Member is married, a qualified joint and 50% survivor annuity ("QJSA"), unless a 75% or 100% survivor annuity is elected, and a life annuity if single, at the time the benefit is payable as provided in the XL Systems Plan at the time of merger into this Plan. The spousal consent requirements, as provided in the XL Systems Plan or as hereafter amended by law or this Plan, shall be applicable for distributions from the XL Systems Plan Prior Plan Account. In order for a Member to elect a distribution from the XL Systems Plan Prior Plan Account other than the qualified joint survivor annuity (if married) or the single life annuity (if single), the VI-5 41 Member must waive the applicable annuity (with spousal consent, if married). With the required spousal consent, the Member may elect a different form of annuity, periodic installment payments, or a single lump sum distribution. The Member shall be allowed to waive the 30-day notice provision (in accordance with applicable Treasury regulations), which would otherwise be required by the XL Systems Plan. Upon the death of Member prior to retirement, his account balance shall be 100% vested and the spouses's death benefit shall equal 50% of such account, and shall be distributed as provided in the XL Systems Plan at the time of merger into this Plan, subject to the revisions thereto. (g) WEATHERFORD PLAN PRIOR PLAN ACCOUNT A Member may elect in writing to have his Weatherford Plan Prior Plan Account distributed as follows: If the Member is married, a qualified joint and 50% survivor annuity ("QJSA"), and a life annuity if single, at the time the benefit is payable. The QJSA shall be equal in value to the single life annuity. The spousal consent requirements, as provided in the Weatherford Plan or as hereafter amended by law or this Plan, shall be applicable for distributions from the Weatherford Plan Prior Plan Account. In order for a Member to elect a distribution from the Weatherford Plan Prior Plan Account other than the QJSA (if married) or the single life annuity (if single), the Member must waive the applicable annuity (with spousal consent, if married). With the required spousal consent, the Member may elect a single lump sum distribution. The Member shall be allowed to waive the 30-day notice provision (in accordance with applicable Treasury regulations), which would otherwise be required by the Weatherford Plan. 6.10 ADJUSTMENT OF VALUE OF DISTRIBUTION. Any Account held for distribution past one or more Valuation Dates shall continue to share in the appreciation or depreciation of the Trust Fund and in the income earned or losses incurred by the Trust Fund until the last Valuation Date which occurs with or next precedes the date distribution is made. 6.11 NORMAL TIME FOR DISTRIBUTION. The following rules shall normally govern the time for distribution unless Section 6.12 requires an earlier distribution. Prior to making a distribution, the Committee (or its designated representative) must furnish such Member with a benefit notice. The benefit notice must explain the optional forms of benefit in the Plan, including the material features and relative values of those options, the Member's right to defer distribution until he attains Retirement Age, and relevant information concerning the direct rollover option described in Section 6.9. The notice must also inform the Member of his right to consider whether or not to elect a distribution for 30 days after receiving the notice. Notwithstanding any other provision of this Section 6.11, or of this Plan, a Member and his or her spouse may waive the 30-day waiting period provided in this Section for making an election of benefits by affirmatively electing a form of distribution in a manner that satisfies the applicable Regulation, but that waiver shall not affect the VI-6 42 requirement that the information required by this Section be provided the Member no more than 90 days before his annuity starting date. If the benefit to be distributed to the Member is or is deemed to be $5,000.00 or less, the benefit should be distributed within one year after the Member becomes entitled to the benefit. Also, if it is or is deemed to be greater than $5,000.00 and the Member consents to the distribution, the benefit should be distributed or begin to be distributed within one year after the Member becomes entitled to the benefit. If, however, the benefit to be distributed is or is deemed to be greater than $5,000.00 and the Member fails to consent to the distribution, the distribution shall not be made without the Member's consent until he attains normal Retirement Age or age 62, whichever is later. In any event, if the Member dies, the surviving spouse may require payments to begin within a reasonable time. 6.12 TIME LIMIT FOR DISTRIBUTION. All distributions must comply with sections 401(a)(9) and 401(a)(14) of the Code and their regulations. Thus, the distribution must be made no later than the EARLIER of the date required by subsection (a) or (b) if the Member has not died. (a) Section 401(a)(9): Commencing January 1, 1999, each Member must begin receiving a distribution under the Plan on or before April 1st of the calendar year following the later of the calendar year in which the Member retires or attains age 70 1/2 in the amount required by section 401(a)(9) of the Code and its Regulations. Until that date, a Member may elect to begin receiving distributions or receive his distribution on the April 1st of the calendar year following the calendar year in which he attains age 70 1/2 even though he has not retired, in the amount required by section 401(a)(9) of the Code and its Regulations. However, if the Member is a Five Percent Owner in the Plan Year ending in the calendar year in which he attains 70 1/2, distribution must begin April 1st of the following calendar year regardless of whether he remains employed by the Employer or an Affiliated Employer. Without regard to the above rules, if a Member made a designation before January 1, 1984, which complied with section 401(a)(9) of the Code before its amendment by the Tax Reform Act of 1984, the distribution does not have to be made until the time described in the designation, if later. (b) Section 401(a)(14): The distribution must be made to the Member on or before the 60th day after the latest of the end of the Plan Year in which the Member attains his Retirement Age, attains the 10th anniversary of the year in which he began participation or terminates employment with all Affiliated Employers unless the Member consents to a later time. If the Member has died and a portion of the Member's Account is payable to a designated Beneficiary the payment must be made not later than one year after the Member's death. If the surviving spouse is the Beneficiary, the payment may be delayed so as to be made on the date on which the Member would have attained age 70 1/2. If payment is postponed and the surviving spouse dies before payment is made, the surviving spouse shall be treated as the Member for purposes of this paragraph. VI-7 43 6.13 PROTECTED BENEFITS. No provision of this Plan shall reduce or eliminate any benefit protected by section 411(d)(6)of the Code. VI-8 44 ARTICLE VII WITHDRAWALS AND LOANS 7.1 VALUATION OF ACCOUNTS FOR WITHDRAWALS AND LOANS. For the purpose of withdrawals and loans, a Member's Account shall be his Accounts as valued as of the Valuation Date which is coincident with or next preceding the request for the withdrawal or loan adjusted only for Contributions, distributions, withdrawals and loans, if any, made between the Valuation Date and that event. 7.2 MINIMUM WITHDRAWAL AMOUNT. Each withdrawal must be in an amount equal to or in excess of $500. 7.3 WITHDRAWALS OF EMPLOYEE AFTER TAX AND ROLLOVER ACCOUNTS. A Member is entitled at any time to receive a withdrawal from his Employee After Tax Contribution and/or Rollover Account after giving 15 days written notice to the Committee. The withdrawal cannot be more than the balance of the Account. Each withdrawal of Employee After Tax Contributions contributed after December 31, 1986 shall include a pro rata share of income earned on those Contributions. Pre-1987 Employee After Tax Contributions shall be withdrawn first until they are exhausted. 7.4 WITHDRAWAL FOR FINANCIAL HARDSHIP. A Member is entitled to receive a withdrawal from his Salary Deferral Contribution Account (exclusive of income earned after December 31, 1988), Employer Matching Contribution Account, Employer Discretionary Contribution Account, Rollover Account, or his Qualified Nonelective Contribution Account in the event of an immediate and heavy financial need incurred by the Member and the Committee's determination that the withdrawal is necessary to alleviate that hardship. A Member, however must first take a hardship withdrawal from his Employer Matching Contribution Account, Employer Discretionary Account, Rollover Account or his Qualified Nonelective Contribution Account prior to receiving a hardship withdrawal from his Salary Deferral Contribution Account. (a) Approval Reasons for Hardship: A distribution shall be made on account of financial hardship only if the distribution is for: (i) expenses for medical care described in section 213(d) of the Code previously incurred by the Member, the Member's spouse, or any dependents of the Member (as defined in section 152 of the Code) or necessary for these persons to obtain medical care described in section 213(d) of the Code, (ii) costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Member, (iii) payment of tuition, related educational fees and room and board expenses, for the next 12 months of post-secondary education for the Member, his or her spouse, children, or dependents (as defined in section 152 of the Code), (iv) payments necessary to prevent the eviction of the Member from his principal residence or foreclosure on the mortgage of the Member's principal residence, or (v) any other event added to this list by the Commissioner of Internal Revenue. VII-1 45 (b) Maximum Distribution Permitted: A distribution to satisfy an immediate and heavy financial need shall not be made in excess of the amount of the immediate and heavy financial need of the Member and the Member must have obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer. The amount of a Member's immediate and heavy financial need includes any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the financial hardship distribution. (c) Conditions Placed on Participation in Plan and other Fringe Benefits:. The Member's hardship distribution shall terminate his or her right to make any Employee After Tax Contributions or to have the Employer make any Salary Deferral Contributions on his or her behalf until the next time Employee After Tax Contributions and Salary Deferral Contributions are permitted after the lapse of 12 months following the hardship distribution and his or her timely filing of a written request to resume his or her Employee After Tax Contributions or Salary Deferral Contributions. Even then, if the Member resumes Contributions in his next taxable year he cannot have the Employer make any Salary Deferral Contributions in excess of the limit in section 402(g) of the Code for that taxable year reduced by the amount of Salary Deferral Contributions made by the Employer on the Member's behalf during the taxable year of the Member in which he received the hardship distribution. In addition, for 12 months after he receives a hardship distribution from this Plan the Member is prohibited from making elective contributions and employee contributions to all other qualified and nonqualified plans of deferred compensation maintained by the Employer, including stock option plans, stock purchase plans and cash or deferred arrangements that are part of cafeteria plans described in section 125 of the Code. However, the Member is not prohibited from making mandatory employee contributions to a defined benefit plan, or contributions to a health or welfare benefit plan, including one that is part of a cafeteria plan within the meaning of section 125 of the Code. 7.5 WITHDRAWALS ON OR AFTER AGE 59 1/2. A Member who is at least age 59 1/2 is entitled to withdraw his vested interest in all of his Accounts. 7.6 LOANS. The Committee may direct the Trustee to make loans to Members (and Beneficiaries who are "parties in interest" within the meaning of ERISA) who have a vested interest in the Plan. Loans may not be made to any shareholder-employee (as defined in section 1379 of the Code as in effect before the enactment of the Subchapter S Revision Act of 1982) or any owner-employee (as defined in section 401(c)(3) of the Code or a member of the family of either (as defined in section 267(c)(4) of the Code. The Loan Committee established by the Committee will be responsible for administering the Plan loan program. All loans will comply with the following requirements: (a) All loans will be made solely from the Member's or Beneficiary's Account. VII-2 46 (b) Loans will be available on a nondiscriminatory basis to all Beneficiaries who are "parties in interest" within the meaning of ERISA, and to all Members. (c) Loans will not be made for less than $1,000. (d) The maximum amount of a loan may not exceed the lesser of (i) $50,000 reduced by the person's highest outstanding loan balance from the Plan during the preceding one year period, or (ii) one-half of the present value of the person's vested Account balance under the Plan determined as of the date on which the loan is approved by the Loan Committee. If determining whether a loan would exceed these limits, all loans under all plans of the Employer and all Affiliated Employers which are outstanding or which have not been repaid at least one year before must be taken into consideration. (e) Any loan from the Plan will be evidenced by a note or notes (signed by the person applying for the loan) having such maturity, bearing such rate of interest, and containing such other terms as the Loan Committee will require by uniform and nondiscriminatory rules consistent with this Section and proper lending practices. When required by law, the borrowing person must be supplied with all documents required by the truth-in-lending laws and any other applicable federal or state statute. (f) All loans will bear a reasonable rate of interest which will be established by the Loan Committee. In determining the proper rate of interest to be charged, at the time any loan is made or renewed, the Loan Committee may contact one or more of the banks in the geographic location in which the Member or Beneficiary resides to determine what interest rate the banks would charge for a similar loan taking into account the collateral offered. (g) Each loan will be fully secured by a pledge of the borrowing person's vested Account balance. No more than 50% of the person's vested Account balance (determined immediately after the origination of the loan) will be considered as security for any loan. (h) Generally, the term of the loan will not be more than five years. The Loan Committee may agree to a longer term only if the term is otherwise reasonable and the proceeds of the loan are to be used to acquire a dwelling which will be used within a reasonable time (determined at the time the loan is made) as the principal residence of the borrowing person. (i) The loan agreement will require level amortization over the term of the loan and repayment through salary withholding except in the case of a loan to a person who is not employed by the Employer. (j) A Member may not make a withdrawal if the remaining balance of the Member's Account would be less than the outstanding loan balance or the withdrawal would violate any security requirements of the loan. No distribution may be made to a Member until all loans to him have been paid in full. If a Member has an outstanding loan VII-3 47 from the Plan at the time he terminates employment with all Affiliated Employers, the outstanding loan principal balance and any accrued but unpaid interest will become immediately due in full. The Member will have the right to immediately pay the Trustee that amount. If the Member fails to repay the loan, the Trustee will foreclose on the loan and the Member will be deemed to have received a Plan distribution of the amount foreclosed upon. The Trustee will not foreclose upon a Member's Salary Deferral Contributions Account or Qualified Nonelective Employer Contributions Account until the Member has terminated employment with all Affiliated Employers. (k) If a Beneficiary defaults on his loan, the Trustee will foreclose on the loan and the Beneficiary will be deemed to have received a Plan distribution of the amount foreclosed upon. (l) No amount that is pledged as collateral for a Plan loan to a Participant will be available for withdrawal before he has fully repaid his loan. (m) All interest payments made pursuant to the terms of the loan agreement will be credited to the borrowing person's Account and will not be considered as general earnings of the Trust Fund to be allocated to other Members. All expenses or losses incurred because of the loan shall be charged to the borrowing person's Account. (n) Payment of any loan made by a Member shall be suspended while a Member is in qualified military service and is covered by USERRA. (o) The Committee is authorized to establish written guidelines which, if and when adopted, shall become part of this Plan and shall establish a procedure for applying for loans, the basis on which loans will be approved or denied, limitations (if any) on the types and amounts of loans offered, and any other matters necessary or appropriate to administering this Section. VII-4 48 ARTICLE VIII GENERAL PROVISIONS APPLICABLE TO FILING A CLAIM, DISTRIBUTIONS TO MINORS AND NO DUPLICATION OF BENEFITS 8.1 CLAIMS PROCEDURE. When a benefit is due, the Member or Beneficiary should submit his claim to the person or office designated by the Committee to receive claims. Under normal circumstances, a final decision shall be made as to a claim within 90 days after receipt of the claim. If the Committee notifies the claimant in writing during the initial 90 day period, it may extend the period up to 180 days after the initial receipt of the claim. The written notice must contain the circumstances necessitating the extension and the anticipated date for the final decision. If a claim is denied during the claims period, the Committee must notify the claimant in writing. The denial must include the specific reasons for it, the Plan provisions upon which the denial is based, and the claims review procedure. If no action is taken during the claims period, the claim is treated as if it were denied on the last day of the claims period. If a Member's or Beneficiary's claim is denied and he wants a review, he must apply to the Committee in writing. That application may include any comment or argument the claimant wishes to make. The claimant may either represent himself or appoint a representative, either of whom has the right to inspect all documents pertaining to the claim and its denial. The Committee may schedule any meeting with the claimant or his representative that it finds necessary or appropriate to complete its review. The request for review must be filed within 60 days after the denial. If it is not, the denial becomes final. If a timely request is made, the Committee must make its decision, under normal circumstances, within 60 days of the receipt of the request for review. However, if the Committee notifies the claimant prior to the expiration of the initial review period, it may extend the period of review up to 120 days following the initial receipt of the request for a review. All decisions of the Committee must be in writing and must include the specific reasons for their action and the Plan provisions on which their decision is based. If a decision is not given to the claimant within the review period, the claim is treated as if it were denied on the last day of the review period. 8.2 NO DUPLICATION OF BENEFITS. There shall be no duplication of benefits under this Plan. Without regard to any other language in this Plan, all distributions and withdrawals are to be subtracted from a Member's Account as of the date of the distribution or withdrawal. Thus, if the Member has received one distribution or withdrawal and is ever entitled to another distribution or withdrawal, the prior distribution or withdrawal is to be taken into account. 8.3 DISTRIBUTIONS TO DISABLED OR MINORS. If the Committee determines that any person to whom a payment is due is a minor or is unable to care for his affairs because of a physical or mental disability, it shall have the authority to cause the payments to be made to an ancestor, descendant, spouse, or other person the Committee determines to have incurred, or to be expected VIII-1 49 to incur, expenses for that person or to the institution which is maintaining or has custody of the person unless a prior claim is made by a qualified guardian or other legal representative. The Committee and the Trustee shall not be responsible to oversee the application of those payments. Payments made pursuant to this power shall be a complete discharge of all liability under the Plan and Trust and the obligations of the Employer, the Trustee, the Trust Fund and the Committee. VIII-2 50 ARTICLE IX. TOP-HEAVY REQUIREMENTS 9.1 APPLICATION. The requirements described in this Article shall apply to each Plan Year that this Plan is determined to be a Top-Heavy Plan under the test set out in the following Section. 9.2 TOP-HEAVY TEST. If on the Determination Date the Aggregate Accounts of Key Employees in the Plan exceeds 60% of the Aggregate Accounts of all Employees in the Plan, this Plan shall be a Top-Heavy Plan for that Plan Year. In addition, if this Plan is required to be included in an Aggregation Group and that group is a top-heavy group, this Plan shall be treated as a Top-Heavy Plan. An Aggregation Group is a top-heavy group if on the Determination Date the sum of (a) the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans in the Aggregation Group which contains this Plan plus (b) the total of all of the accounts of Key Employees under all defined contribution plans included in the Aggregation Group (which contains this Plan) is more than 60% of a similar sum determined for all employees covered in the Aggregation Group which contains this Plan. In applying the above tests, the following rules shall apply: (a) In determining the present value of the accumulated accrued benefits for any Employee or the amount in the account of any Employee, the value or amount shall be increased by all distributions made to or for the benefit of the Employee under the Plan during the five year period ending on the Determination Date. (b) All rollover contributions made after December 31, 1983 by the Employee to the Plan shall not be considered by the Plan for either test. (c) If an Employee is a Non-Key Employee under the Plan for the Plan Year but was a Key Employee under the Plan for another prior Plan Year, his account shall not be considered. (d) Benefits shall not be taken into account in determining the top-heavy ratio for any Employee who has not performed services for the Employer during the last five-year period ending upon the Determination Date. 9.3 VESTING RESTRICTIONS IF PLAN BECOMES TOP-HEAVY. If a Member has at least one Hour of Service during a Plan Year when the Plan is a Top-Heavy Plan he shall either vest under each of the normal vesting provisions of the Plan or under the following vesting schedule, whichever is more favorable: IX-1 51
PERCENTAGE OF AMOUNT VESTED IN ACCOUNTS CONTAINING COMPLETED YEARS OF ACTIVE SERVICE EMPLOYER CONTRIBUTIONS Less than two years ................................. 0% Two years but less than three years ................ 20% Three years but less than four years ............... 40% Four years but less than five years ................ 60% Five years but less than six years ................. 80% Six years or more ................................. 100%
If the Plan ceases to be a Top-Heavy Plan, this requirement shall no longer apply. After that date the normal vesting provisions of the Plan shall be applicable to all subsequent Contributions by the Employer. 9.4 MINIMUM CONTRIBUTION IF PLAN BECOMES TOP-HEAVY. If this Plan is a Top-Heavy Plan and the normal allocation of the Employer Contribution and forfeitures is less than 3% of any Non-Key Employee Member's Annual Compensation, the Committee, without regard to the normal allocation procedures, shall allocate the Employer Contribution and the forfeitures among the Members who are in the employ of the Employer at the end of the Plan Year (even if the Member has less than 501 Hours of Service in the Plan Year), in proportion to each Member's Annual Compensation as compared to the total Annual Compensation of all Members for that Plan Year until each Non-Key Employee Member has had an amount equal to the lesser of (i) the highest rate of Contribution applicable to any Key Employee, or (ii) 3% of his Annual Compensation allocated to his Account. At that time, any more Employer Contributions or forfeitures shall be allocated under the normal allocation procedures described earlier in this Plan. Salary Deferral Contributions and Employer Matching Contributions made on behalf of Key Employees are included in determining the highest rate of Employer Contributions. Salary Deferral Contributions made on behalf of Non-Key Employees shall not be included in determining the minimum contribution required under this Section. Employer Matching Contributions and amounts that may be treated as Section 401(k) Contributions or Section 401(m) Contributions, other than Qualified Nonelective Employer Contributions, made on behalf of Non-Key Employees may not be included in determining the minimum contribution required under this Section to the extent that they are treated as Section 401(m) Contributions or Section 401(k) Contributions for purposes of the Actual Deferral Percentage test or the Contribution Percentage test. In applying this restriction the following rules shall apply: (a) Each Employee who is eligible for membership (without regard to whether he has made mandatory contributions, if any are required, or whether his compensation is less than a stated amount) shall be entitled to receive an allocation under this Section. (b) All defined contribution plans required to be included in the Aggregation Group shall be treated as one plan for purposes of meeting the 3% maximum. This required aggregation shall not apply if this Plan is also required to be included in an Aggregation IX-2 52 Group which includes a defined benefit plan and this Plan enables that defined benefit plan to meet the requirements of sections 401(a)(4) or 410 of the Code. 9.5 COVERAGE UNDER MULTIPLE TOP-HEAVY PLANS. If this Plan is a Top-Heavy Plan, it must meet the vesting and benefit requirements described in this Article without taking into account contributions or benefits under Chapter 2 of the Code (relating to tax on self-employment income), Chapter 21 of the Code (relating to Federal Insurance Contributions Act), Title II of the Social Security Act or any other Federal or State law. If a Non-Key Employee is covered by both a Top-Heavy defined contribution plan and a defined benefit plan, he shall receive the defined benefit minimum, offset by the benefits provided under the defined contribution plan. 9.6 RESTRICTIONS IF PLAN BECOMES SUPER-TOP-HEAVY. If the Plan is determined to be a Top-Heavy Plan, the number "1.00" must be substituted for the number "1.25" when applying the limitations of section 415 of the Code to this Plan, unless the Plan would not be a Top-Heavy Plan if "90%" were substituted for "60%" and the Employer Contribution for the Plan Year for each Non-Key Employee, who is a Member, is not less than 4% of the Member's Annual Compensation. IX-3 53 ARTICLE X. ADMINISTRATION OF THE PLAN 10.1 APPOINTMENT, TERM OF SERVICE & REMOVAL. The Board of Directors shall appoint a Committee to administer this Plan. The members shall serve until their resignation, death or removal. Any member may resign at any time by mailing a written resignation to the Board of Directors. Any member may be removed by the Board of Directors, with or without cause. Vacancies may be filled by the Board of Directors from time to time. 10.2 POWERS. The Committee is a fiduciary. It has the exclusive responsibility for the general administration of the Plan and Trust, and has all powers necessary to accomplish that purpose, including but not limited to the following rights, powers, and authorities: (a) to make rules for administering the Plan and Trust so long as they are not inconsistent with the terms of the Plan; (b) to construe all provisions of the Plan and Trust; (c) to correct any defect, supply any omission, or reconcile any inconsistency which may appear in the Plan or Trust; (d) to select, employ, and compensate at any time any consultants, actuaries, accountants, attorneys, and other agents and employees the Committee believes necessary or advisable for the proper administration of the Plan and Trust; any firm or person selected may be a disqualified person but only if the requirements of section 4975(d) of the Code have been met; (e) to determine all questions relating to eligibility, Active Service, Compensation, allocations and all other matters relating to the amount of benefits and any one or more Members' or Former Members' entitlement to benefits and to determine when it is required under the Plan to treat a Former Member as a Member; (f) to determine all controversies relating to the administration of the Plan and Trust, including but not limited to any differences of opinion arising between an Employer and the Trustee or a Member or Former Member, or any combination of them and any questions it believes advisable for the proper administration of the Plan and Trust; (g) to direct or to appoint an investment manager or managers who can direct the Trustee in all matters relating to the investment, reinvestment and management of the Trust Fund; (h) to direct the Trustee in all matters relating to the payment of Plan benefits; X-1 54 (i) to delegate any clerical or recordation duties of the Committee as the Committee believes is advisable to properly administer the Plan and Trust; and (j) to make any other determination of any fact or any decision as to any aspect of the administration of the Plan and Trust that is appropriate in its general administration of the Plan and Trust. 10.3 ORGANIZATION. The Committee may select, from among its members, a chairman, and may select a secretary. The secretary need not be a member of the Committee. The secretary shall keep all records, documents and data pertaining to its administration of the Plan and Trust. 10.4 QUORUM AND MAJORITY ACTION. A majority of the Committee constitutes a quorum for the transaction of business. The vote of a majority of the members present at any meeting shall decide any question brought before that meeting. In addition, the Committee may decide any question by a vote, taken without a meeting, of a majority of its members. 10.5 SIGNATURES. The chairman, the secretary and any one or more of the members of the Committee to which the Committee has delegated the power shall each, severally, have the power to execute any document on behalf of the Committee, and to execute any certificate or other written evidence of the action of the Committee. The Trustee, after it is notified of any delegation of power in writing, shall accept and may rely upon any document executed by the appropriate member or members as representing the action of the Committee until the Committee files a written revocation of that delegation of power with the Trustee. 10.6 DISQUALIFICATION OF COMMITTEE MEMBER. A member of the Committee who is also a Member of this Plan shall not vote or act upon any matter relating solely to himself. 10.7 DISCLOSURE TO MEMBERS. The Committee shall make available to each Member and Beneficiary for his examination those records, documents and other data required under ERISA, but only at reasonable times during business hours. No Member or Beneficiary has the right to examine any data or records reflecting the compensation paid to any other Member or Beneficiary. The Committee is not required to make any other data or records available other than those required by ERISA. 10.8 STANDARD OF PERFORMANCE. The Committee and each of its members: (a) shall use the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man, acting in a like capacity and familiar with such matters, would use in conducting his business as the administrator of the Plan, (b) shall, when exercising its power to direct investments, diversify the investments of the Plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so, and (c) shall otherwise comply with the provisions of this Plan and ERISA. 10.9 LIABILITY OF COMMITTEE AND LIABILITY INSURANCE. No member of the Committee shall be liable for any act or omission of any other member of the Committee, the Trustee, any investment manager appointed by the Committee X-2 55 or any other agent appointed by the Committee unless required by the terms of ERISA or another applicable state or federal law under which liability cannot be waived. No member of the Committee shall be liable for any act or omission of his own unless required by ERISA or another applicable state or federal law under which liability cannot be waived. If the Committee directs the Trustee to do so, it may purchase out of the Trust Fund insurance for the members of the Committee, for any other fiduciaries appointed by the Committee and for the Trust Fund itself to cover liability or losses occurring because of the act or omission of any one or more of the members of the Committee or any other fiduciary appointed under this Plan. But, that insurance must permit recourse by the insurer against the members of the Committee or the other fiduciaries concerned if the loss is caused by breach of a fiduciary obligation by one or more members of the Committee or other fiduciary. 10.10 EXEMPTION FROM BOND. No member of the Committee is required to give bond for the performance of his duties unless required by a law which cannot be waived. 10.11 COMPENSATION. The Committee shall serve without compensation but shall be reimbursed by the Employer for all expenses properly incurred in the performance of their duties unless the Sponsor elects to have those expenses paid from the Trust Fund. Each Employer shall pay that part of the expense as determined by the Committee in its sole judgment. 10.12 PERSONS SERVING IN DUAL FIDUCIARY ROLES. Any person, group of persons, corporations, firm or other entity, may serve in more than one fiduciary capacity with respect to this Plan, including serving as both Trustee and as a member of the Committee. 10.13 ADMINISTRATOR. For all purposes of ERISA, the administrator of the Plan is the Sponsor. The administrator has the final responsibility for compliance with all reporting and disclosure requirements imposed under all applicable federal or state laws and regulations. 10.14 STANDARD OF JUDICIAL REVIEW OF COMMITTEE ACTIONS. The Committee has full and absolute discretion in the exercise of each and every aspect of the rights, power, authority and duties retained or granted it under the Plan, including without limitation, the authority to determine all facts, to interpret this Plan, to apply the terms of this Plan to the facts determined, to make decisions based upon those facts and to make any and all other decisions required of it by this Plan, such as the right to benefits, the correct amount and form of benefits, the determination of any appeal, the review and correction of the actions of any prior administrative committee, and the other rights, powers, authority and duties specified in this Article and elsewhere in this Plan. Notwithstanding any provision of law, or any explicit or implicit provision of this document, any action taken, or finding, interpretation, ruling or decision made by the Committee in the exercise of any of its rights, powers, authority or duties under this Plan shall be final and conclusive as to all parties, including without limitation all Members, Former Members and Beneficiaries, regardless of whether the Committee or one or more of its members may have an actual or potential conflict of interest with respect to the subject matter of the action, finding, interpretation, ruling or decision. No final action, finding, interpretation, ruling or decision of the Committee shall be subject to de novo review in any judicial proceeding. No final action, finding, interpretation, ruling or decision of the Committee may X-3 56 be set aside unless it is held to have been arbitrary and capricious by a final judgment of a court having jurisdiction with respect to the issue. X-4 57 ARTICLE XI. TRUST FUND AND CONTRIBUTIONS 11.1 FUNDING OF PLAN. This Plan shall be funded by one or more separate Trusts. If more than one Trust is used, each Trust shall be designated by the name of the Plan followed by a number assigned by the Committee at the time the Trust is established. 11.2 INCORPORATION OF TRUST. Each Trust is a part of this Plan. All rights or benefits which accrue to a person under this Plan shall be subject also to the terms of the agreements creating the Trust or Trusts and any amendments to them which are not in direct conflict with this Plan. 11.3 AUTHORITY OF TRUSTEE. Each Trustee shall have full title and legal ownership of the assets in the separate Trust which, from time to time, is in his separate possession. No other Trustee shall have joint title to or joint legal ownership of any asset in one of the other Trusts held by another Trustee. Each Trustee shall be governed separately by the trust agreement entered into between the Employer and that Trustee and the terms of this Plan without regard to any other agreement entered into between any other Trustee and the Employer as a part of this Plan. 11.4 ALLOCATION OF RESPONSIBILITY. To the fullest extent permitted under section 405 of ERISA, the agreements entered into between the Employer and each of the Trustees shall be interpreted to allocate to each Trustee its specific responsibilities, obligations and duties so as to relieve all other Trustees from liability either through the agreement, Plan or ERISA, for any act of any other Trustee which results in a loss to the Plan because of his act or failure to act. XI-1 58 ARTICLE XII. ADOPTION OF PLAN BY OTHER EMPLOYERS 12.1 ADOPTION PROCEDURE. Any business organization may, with the approval of the Board of Directors, adopt this Plan by: (a) adopting a resolution or executing a consent of the board of directors of the adopting Employer or executing an adoption instrument (approved by the board of directors of the adopting Employer) agreeing to be bound as an Employer by all the terms, conditions and limitations of this Plan except those, if any, specifically described in the adoption instrument; and (b) providing all information required by the Committee and the Trustee. An adoption may be retroactive to the beginning of a Plan Year if these conditions are complied with on or before the last day of that Plan Year. 12.2 NO JOINT VENTURE IMPLIED. The document which evidences the adoption of the Plan by an Employer shall become a part of this Plan. However, neither the adoption of this Plan and its related Trust Fund by an Employer nor any act performed by it in relation to this Plan and its related Trust Fund shall ever create a joint venture or partnership relation between it and any other Employer. 12.3 ALL TRUST ASSETS AVAILABLE TO PAY ALL BENEFITS. The Accounts of Members employed by the Employers which adopt this Plan shall be commingled for investment purposes. All assets in the Trust Fund shall be available to pay benefits to all Members employed by any Employer which is an Affiliated Employer with the first Employer. 12.4 QUALIFICATION A CONDITION PRECEDENT TO ADOPTION AND CONTINUED PARTICIPATION. The adoption of this Plan and the Trust or Trusts used to fund this Plan by a business organization is contingent upon and subject to the express condition precedent that the initial adoption meets all statutory and regulatory requirements for qualification of the Plan and the exemption of the Trust or Trusts and that the Plan and the Trust or Trusts that are applicable to it continue in operation to maintain their qualified and exempt status. In the event the adoption fails to initially qualify and be exempt, the adoption shall fail retroactively for failure to meet the condition precedent and the portion of the Trust Fund applicable to the adoption shall be immediately returned to the adopting business organization and the adoption shall be void ab initio. In the event the adoption as to a given business organization later becomes disqualified and loses its exemption for any reason, the adoption shall fail retroactively for failure to meet the condition precedent and the portion of the Trust Fund allocable to the adoption by that business organization shall be immediately spun off, retroactively as of the last date for which the Plan qualified, to a separate Trust for its sole benefit and an identical but separate Plan shall be created, retroactively effective as of the last date the Plan as adopted by that business organization qualified, for the benefit of the Members covered by that adoption. XII-1 59 ARTICLE XIII. AMENDMENT AND WITHDRAWAL OR TERMINATION PART A. AMENDMENT 13.1 RIGHT TO AMEND. The Sponsor has the sole right to amend this Plan. An amendment may be made by adopting a resolution or executing a consent of the Board of Directors, or by the appropriate officer of the Sponsor executing an amendment document. 13.2 LIMITATION ON AMENDMENTS. No amendment shall: (a) vest in an Employer any interest in the Trust Fund; (b) cause or permit the Trust Fund to be diverted to any purpose other than the exclusive benefit of the present or future Members and their Beneficiaries except under the circumstances described in Section 4.21; (c) decrease the Account of any Member or eliminate an optional form of payment as to amounts then accrued; (d) increase substantially the duties or liabilities of the Trustee without its written consent; or (e) change the vesting schedule to one which would result in the nonforfeitable percentage of the Account derived from Employer Contributions (determined as of the later of the date of the adoption of the amendment or of the effective date of the amendment) of any Member being less than the nonforfeitable percentage computed under the Plan without regard to the amendment. If the Plan's vesting schedule is amended, if the Plan is amended in any other way that affects the computation of the Member's nonforfeitable percentage, or if the Plan is deemed amended by an automatic change to or from a Top-Heavy vesting schedule, each Member with at least three years of Service may elect, within a reasonable period after the adoption of the amendment or the change, to have the nonforfeitable percentage computed under the Plan without regard to the amendment or the change. The election period shall begin no later than the date the amendment is adopted or deemed to be made and shall end no later than the latest of the following dates: (1) 60 days after the date the amendment is adopted or deemed to be made, (2) 60 days after the date the amendment becomes effective, or (3) 60 days after the day the Member is issued written notice of the amendment. 13.3 EACH EMPLOYER DEEMED TO ADOPT AMENDMENT UNLESS REJECTED. Each Employer shall be deemed to have adopted any amendment made by the Sponsor unless the Employer notifies the Committee of its rejection in writing within 30 days after it is notified of the amendment. A XIII-1 60 rejection shall constitute a withdrawal from this Plan by that Employer unless the Sponsor acquiesces in the rejection. 13.4 AMENDMENT APPLICABLE ONLY TO MEMBERS STILL EMPLOYED UNLESS AMENDMENT SPECIFICALLY PROVIDES OTHERWISE. No benefit for any person who died, retired, became disabled or separated shall be affected by a subsequent amendment unless the amendment specifically provides otherwise and the person consents to its application. Instead, those persons who died, retired, became disabled or separated prior to the execution of an amendment shall be entitled to the benefit as adjusted from time to time as was provided by the Plan at the time the person first became entitled to his benefit. 13.5 MANDATORY AMENDMENTS. The Contributions of each Employer to this Plan are intended to be: (a) deductible under the applicable provisions of the Code; (b) except as otherwise prescribed by applicable law, exempt from the Federal Social Security Act; (c) except as otherwise prescribed by applicable law, exempt from withholding under the Code; and (d) excludable from any Employee's regular rate of pay, as that term is defined under the Fair Labor Standards Act of 1938, as amended. The Sponsor shall make any amendment necessary to carry out this intention, and it may be made retroactively. PART B. WITHDRAWAL OR TERMINATION 13.6 WITHDRAWAL OF EMPLOYER. An Employer may withdraw from this Plan and its related Trust Fund if the Sponsor does not acquiesce in its rejection of an amendment or by giving written notice of its intent to withdraw to the Committee. The Committee shall then determine the portion of the Trust Fund that is attributable to the Members employed by the withdrawing Employer and shall notify the Trustee to segregate and transfer those assets to the successor Trustee or Trustees when it receives a designation of the successor from the withdrawing Employer. A withdrawal shall not terminate the Plan and its related Trust Fund with respect to the withdrawing Employer, if the Employer either appoints a successor Trustee or Trustees and reaffirms this Plan and its related Trust Fund as its new and separate plan and trust intended to qualify under section 401(a) of the Code, or establishes another plan and trust intended to qualify under section 401(a) of the Code. The determination of the Committee, in its sole discretion, of the portion of the Trust Fund that is attributable to the Members employed by the withdrawing Employer shall be final and binding XIII-2 61 upon all parties. The Trustee's transfer of those assets to the designated successor Trustee shall relieve the Trustee of any further obligation, liability or duty to the withdrawing Employer, the Members employed by that Employer and their Beneficiaries, and the successor Trustee or Trustees. 13.7 TERMINATION OF PLAN. The Sponsor may terminate this Plan and its related Trust Fund with respect to all Employers by executing and delivering to the Committee and the Trustee, a notice of termination, specifying the date of termination. Any Employer may terminate this Plan and its related Trust Fund with respect to itself by executing and delivering to the Trustee a notice of termination, specifying the date of termination. Likewise, this Plan and its related Trust Fund shall automatically terminate with respect to any Employer if there is a general assignment by that Employer to or for the benefit of its creditors, or a liquidation or dissolution of that Employer without a successor. Upon the termination of this Plan as to an Employer, the Trustee shall, subject to the provisions of Section 13.9, distribute to each Member employed by the terminating Employer the amount certified by the Committee to be due the Member. The Employer should apply to the Internal Revenue Service for a determination letter with respect to its termination, and the Trustee should not distribute the Trust Funds until a determination is received. However, should it decide that a distribution before receipt of the determination letter is necessary or appropriate it should retain sufficient assets to cover any tax that may become due upon that determination. 13.8 100% VESTING REQUIRED ON PARTIAL OR COMPLETE TERMINATION OR COMPLETE DISCONTINUANCE. Without regard to any other provision of this Plan, if there is a partial or total termination of this Plan or there is a complete discontinuance of the Employer's Contributions, each of the affected Members shall immediately become 100% vested in his Account as of the end of the last Plan Year for which a substantial Employer Contribution was made and in any amounts later allocated to his Account. If the Employer then resumes making substantial Contributions at any time, the appropriate vesting schedule shall again apply to all amounts allocated to each affected Member's Account beginning with the Plan Year for which they were resumed. 13.9 DISTRIBUTION UPON TERMINATION. A Member may receive a distribution on account of termination of this Plan if neither the Employer nor any Affiliated Employer establishes or maintains a successor plan within the period ending 12 months after all assets are distributed from the Plan. A successor plan for this purpose is any other defined contribution plan except: (a) an employee stock ownership plan as defined in sections 4975(e) or 409 of the Code, (b) a simplified employee pension plan as defined in section 408(k) of the Code, or (c) or a defined contribution plan in which fewer than 2% of the Members of this Plan were eligible to participate during the 24 month period beginning 12 months before the time of this Plan's termination. Any distribution on account of the termination of this Plan, must be made only in the form of a lump sum payment or a Direct Rollover, as elected by the Member. If a Member is given the opportunity but fails to make an election as to the form of distribution, he shall be deemed to have elected a lump sum distribution. XIII-3 62 ARTICLE XIV SALE OF EMPLOYER OR SUBSTANTIALLY ALL OF ITS ASSETS 14.1 CONTINUANCE PERMITTED UPON SALE OR TRANSFER OF ASSETS. An Employer's participation in this Plan and its related Trust Fund shall not automatically terminate if it consolidates or merges and is not the surviving corporation, sells substantially all of its assets, is a party to a reorganization and its Employees and substantially all of its assets are transferred to another entity, liquidates, or dissolves, if there is a successor organization. Instead, the successor may assume and continue this Plan and its related Trust Fund by executing a direction, entering into a contractual commitment or adopting a resolution providing for the continuance of the Plan and its related Trust Fund. Only upon the successor's rejection of this Plan and its related Trust Fund or its failure to respond to the Employer's, the Sponsor's or the Trustee's request that it affirm its assumption of this Plan within 90 days of the request shall this Plan automatically terminate. In that event the appropriate portion of the Trust Fund shall be distributed exclusively to the Members or their Beneficiaries as soon as administratively feasible. If there is a disposition to an unrelated entity of substantially all of the assets used by the Employer in a trade or business or a disposition by the Employer of its interest in a subsidiary, the Employer may make a lump sum distribution from the Plan if it continues the Plan after the disposition; but the distribution can only be made for those Members who continue employment with the acquiring entity. 14.2 DISTRIBUTIONS UPON DISPOSITION OF ASSETS OR A SUBSIDIARY. A Member employed by an Employer that is a corporation is entitled to receive a lump sum distribution of his interest in his Accounts in the event of the sale or other disposition by the Employer of at least 85% of all of the assets used by the Employer in a trade or business to an unrelated corporation if (a) the Employer continues to maintain the Plan after the disposition and (b) in connection with the disposition the Member is transferred to the employ of the corporation acquiring the assets. A Member employed by an Employer that is a corporation is entitled to receive a lump sum distribution of his interest in his Accounts in the event of the sale or other disposition by the Employer of its interest in a subsidiary (within the meaning of section 409(d)(3) of the Code) to an unrelated entity or individual if (a) the Employer continues to maintain the Plan after the disposition and (b) in connection with the disposition the Member continues employment with the subsidiary. The selling Employer is treated as continuing to maintain the Plan after the disposition only if the purchaser does not maintain the Plan after the disposition. A purchaser is considered to maintain the Plan if it adopts the Plan, becomes an employer whose employees accrue benefits under the Plan, or if the Plan is merged or consolidated with, or any assets or liabilities are transferred from the Plan to a plan maintained by the purchaser in a transaction subject to section 414(l)(1) of the Code. XIV-1 63 An unrelated corporation, entity or individual is one that is not required to be aggregated with the selling Employer under section 414(b), (c), (m), or (o) of the Code after the sale or other disposition. If a Member's Account balance is or is deemed to be $5,000.00 or less determined under the rules set out in Section 6.11, the Committee will direct the Trustee to pay to the Member a lump sum cash distribution of his Account balance as soon as administratively practicable following the disposition and any Internal Revenue Service approval of the distribution that the Committee deems advisable to obtain. If it is or is deemed to be more than $5,000.00 at the date of the disposition, he may elect (a) to receive a lump sum cash distribution of his Account balance as soon as administratively practicable following the disposition and receipt of any Internal Revenue Service approval of the distribution that the Committee deems advisable to obtain, or (b) he may elect to defer receipt of his vested Account balance until the first day of the month coincident with or next following the date that he attains age 65. In the manner and at the time required under Department of Treasury regulations, the Committee will provide the Member with a notice of his right to defer receipt of his Account balance. However, no distribution shall be made to a Member under this Section after the end of the second calendar year following the calendar year in which the disposition occurred. In addition, no distribution shall be made under this Section unless it is a lump sum distribution within the meaning of section 402(d)(4) of the Code, without regard to subparagraphs (A)(i) through (iv), (B), and (F) of that section. XIV-2 64 ARTICLE XV. MISCELLANEOUS 15.1 PLAN NOT AN EMPLOYMENT CONTRACT. The adoption and maintenance of this Plan and its related Trust Fund is not a contract between any Employer and its Employees which gives any Employee the right to be retained in its employment. Likewise, it is not intended to interfere with the rights of any Employer to discharge any Employee at any time or to interfere with the Employee's right to terminate his employment at any time. 15.2 BENEFITS PROVIDED SOLELY FROM TRUST. All benefits payable under this Plan shall be paid or provided for solely from the Trust Fund. No Employer assumes any liability or responsibility to pay any benefit provided by the Plan. 15.3 ANTI-ALIENATION PROVISION. No principal or income payable or to become payable from the Trust Fund shall be subject: to anticipation or assignment by a Member or by a Beneficiary to attachment by, interference with, or control of any creditor of a Member or Beneficiary, or to being taken or reached by any legal or equitable process in satisfaction of any debt or liability of a Member or Beneficiary prior to its actual receipt by the Member or Beneficiary. An attempted conveyance, transfer, assignment, mortgage, pledge, or encumbrance of the Trust Fund, any part of it, or any interest in it by a Member or Beneficiary prior to distribution shall be void, whether that conveyance, transfer, assignment, mortgage, pledge, or encumbrance is intended to take place or become effective before or after any distribution of Trust assets or the termination of this Trust Fund itself. The Trustee shall never under any circumstances be required to recognize any conveyance, transfer, assignment, mortgage, pledge or encumbrance by a Member or Beneficiary of the Trust Fund, any part of it, or any interest in it, or to pay any money or thing of value to any creditor or assignee of a Member or Beneficiary for any cause whatsoever. The prohibitions against the alienation of a Member's Account shall not apply to: (a) qualified domestic relations orders or domestic relations orders entered into prior to January 1, 1985, or (b) any offset of a Member's Account under the Plan that the Member is ordered to pay to the Plan if (i) the order arises under a judgment of conviction of a crime involving the Plan, a civil judgment (including a consent decree) is entered by a court in connection with a violation (or alleged violation) of part 4 of subtitle B of title I of ERISA, or is pursuant to a settlement agreement between the Secretary of Labor and the Member, or between the Pension Benefit Guaranty Corporation and the Member, in connection with a violation (or alleged violation) of part 4 of such subtitle by a fiduciary or any other person, (ii) the judgment, order, decree or settlement agreement expressly provides for the offset of all or a part of the amount ordered or required to be paid to the Plan against the Member's Account balance under the Plan, and (iii) in a case in which the survivor annuity requirements of Section 401(a)(11) of the Code apply with respect to distributions, the requirements of Section 401(a)(13)(C)(iii) of the Code are satisfied. XV-1 65 15.4 REQUIREMENTS UPON MERGER OR CONSOLIDATION OF PLANS. This Plan shall not merge or consolidate with or transfer any assets or liabilities to any other plan unless each Member would (if the Plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated). 15.5 GENDER AND NUMBER. If the context requires it, words of one gender when used in this Plan shall include the other genders, and words used in the singular or plural shall include the other. 15.6 SEVERABILITY. Each provision of this Agreement may be severed. If any provision is determined to be invalid or unenforceable, that determination shall not affect the validity or enforceability of any other provision. 15.7 GOVERNING LAW; PARTIES TO LEGAL ACTIONS. The provisions of this Plan shall be construed, administered, and governed under the laws of the State of Texas and, to the extent applicable, by the laws of the United States. The Trustee or any Employer may at any time initiate a legal action or proceeding for the settlement of the account of the Trustee, or for the determination of any question or for instructions. The only necessary parties to that action or proceeding are the Trustee and the Employer concerned. However, any other person or persons may be included as parties defendant at the election of the Trustee and the Employer. IN WITNESS WHEREOF, Weatherford International, Inc. has caused this Agreement to be executed this 30th day of December, 1998, in multiple counterparts, each of which shall be deemed to be an original, to be effective the 1st day of January, 1999, except for those provisions which have an earlier effective date provided by law, or as otherwise provided under applicable provisions of this Plan. WEATHERFORD INTERNATIONAL, INC. By: /s/ Jon R. Nicholson ---------------------------------------- Vice President - Human Resources ------------------------------------------- Title XV-2 EX-21.1 8 SUBSIDIARIES OF WEATHERFORD INTERNATIONAL, INC. 1 Exhibit 21.1 WEATHERFORD INTERNATIONAL, INC. SUBSIDIARY LIST
Jurisdiction 708621 Alberta Ltd. Alberta 721260 Alberta Ltd. Alberta A-1 Bit & Tool Co., B.V. Netherlands Aarbakke AS Norway Aarbakke Eindom AS Norway Algerian Oilfield Services S.p.A. Algeria Ampscot Overseas Petroleum Equipment Co., LLC Oman Anbert Cilindros S.A.I.C. Argentina Ancil S.A.I.C. Argentina Baktexas Azerbajan BEI Technology, Inc. Texas Calumet Petroleum Services, Inc. Venezuela CanaRoss Limited Russia Channelview Real Property Inc. Delaware Citra Grant Prideco Marketing Ltd. Jersey Islands CRC-Evans Automatic Welding, Inc. Texas CRC-Evans Pipeline International (UK) Limited U.K. CRC-Evans Services Limited U.K. Dongying Shengli-Highland Company Ltd. China Drill Tube International, Inc. Texas EMI-Electro Magnetica Ispezioni Italia S.r.l. Italy Energy Ventures (Cyprus) Ltd. Cyprus Energy Ventures Far East Limited Hong Kong Energy Ventures Foreign Sales Corp. Barbados Energy Ventures Mid East, Inc. Cayman Islands Enerpro de Mexico, S.A. de C.V. Mexico Enterra Cyprus Limited Cyprus Enterra (U.K.) Limited U.K. Enterra Compression Company Delaware Enterra Compression Investment Company Delaware Enterra International Limited U.K. Enterra Oilfield Rentals Limited Hong Kong Enterra Patco Oilfield Products, Inc. Texas Enterra Rental and Fishing Company Delaware Ercon, Inc. Delaware European Material Inspection (EMI) B.V. Netherlands EVI (Barbados), SRL Barbados EVI Arrow, Inc. Delaware EVI Brasil Comercia Ltda. Brazil EVI Cayman Ltd. Cayman Islands EVI Christiana, Inc. Wisconsin EVI de Peru, SRL Peru EVI de Venezuela, S.A. Venezuela
1 2 EVI France SAS France EVI International, Inc. Delaware EVI do Brasil Comercio e Servicos Ltda. Brazil EVI Oil Tools Ltd. U.K. EVI Watson Packers, Inc. Delaware EVI Weatherford, Inc. Delaware Grant Prideco (Singapore) Pte. Ltd. Singapore Grant Prideco Limited U.K. Grant Prideco S.A. de C.V. Mexico Grant Prideco, Inc. Delaware Grant Prideco, S.A. Switzerland Grant Tubular Finishing Ltd. Hungary Griffin Legrand Limited Partnership Alberta Houston Well Screen Asia Pte. Ltd. Singapore Houston Well Screen Company Texas Immobiliaria Industrial de Veracruz, S.A. de C.V. Mexico Keltic Oil Tools Limited U.K. Kobe International Ltd. Bahamas KSP Logistics Co. Ltd. Thailand Legrand International (1977) Ltd. Barbados McAllister Petroleum Services (Cyprus) Limited Cyprus McMurry-Macco (UK) Lmited U.K. Nodeco A/S Norway Nodeco Ltd. U.K. Oil Field Rental Holdings Limited U.K. Oiltools Weatherford Limited British Virgin Islands Pacific Pump & Supply, Inc. California PETCO Fishing & Rental Tools (UK) Ltd. U.K. Petroleum Equipment Supply Company Louisiana PhlipCo, Inc. Delaware Prideco de Venezuela, S.A. Venezuela Prideco Europe Limited U.K. Pridecomex Holding, S.A. de C.V. Mexico PT Hawes Utama Indonesia Indonesia PT Weatherford Indonesia Indonesia SBS Drilling-and Production Systems GmbH & Co. KG Austria SBS Drilling-and Production-Systems Ltd. Cayman Islands Schoeller-Bleckmann Motovilithinskije Sucker Rod Gmbh Austria ServiciosTec LDC Cayman Islands Subsurface Technology AS Norway SubTech International, Inc. Delaware TA Industries, Inc. Delaware TF de Mexico, S.A. de C.V. Mexico Tech Line Oil Tools (Europe) A/S Norway Tech Line Oil Tools Inc. Delaware Technical Oil Services Ltd. British Virgin Islands Texas Arai, Inc. Delaware Trico Industries, Inc. California Tube-Alloy Capital Corporation Texas Tube-Alloy Corporation Louisiana Tube-Alloy Corporation International Texas
2 3 Van der Horst U.S.A., Inc. Delaware Venstar Ltd. U.K. Venstar, Inc. Delaware Weatherford (Malaysia) Sdn. Bhd. Malaysia Jt. Venture Weatherford (Saudi Arabia) Ltd. Saudi Arabia Weatherford (Thailand) Ltd. Thailand Weatherford (UK) Ltd. U.K. Weatherford/Al-Rushaid Ltd. Saudi Arabia Weatherford Ampscot Ltd. Alberta Weatherford/Lamb, Inc. Delaware Weatherford Abu Dhabi, Ltd. Cayman Islands Weatherford Artificial Lift Systems, Inc. Delaware Weatherford Asia Pacific Pte. Ltd. Singapore Weatherford Australia Pty. Ltd. Australia Weatherford BMW Ltd. Alberta Weatherford Canada Ltd. Canada Weatherford Colombia Ltd. British Virgin Islands Weatherford Compression Canada Ltd. Alberta Weatherford de Mexico S.A. de C.V. Mexico Weatherford East Europe Service GmbH Germany Weatherford Enterra Compression Company, L.P. Delaware Weatherford Enterra S.A. Argentina Weatherford Espana, S.A. Spain Weatherford Eurasia B.V. The Netherlands Weatherford Eurasia Ltd. United Kingdom Weatherford Foreign Sales Corporation Barbados Weatherford France, S.A. France Weatherford Global Compression (Australia) Limited Australia Weatherford Global Compression Foreign Sales Corporation Barbados Weatherford Global Compression Holding, L.L.C. Delaware Weatherford Global Compression Services, L.L.C. Delaware Weatherford Holding GmbH Germany Weatherford Holding U.S., Inc. Delaware Weatherford Industria e Comercio Ltda. Brazil Weatherford KSP Company Limited Thailand Weatherford Latin America, Inc. Panama Weatherford Latin America, S.A. Venezuela Weatherford Management, Inc. Delaware Weatherford Mauritius Limited Africa Weatherford Mediterranea S.p.A. Italy Weatherford Nigeria Ltd. Nigeria Weatherford Norge A/S Norway Weatherford PC Pump Ltd. Alberta Weatherford Oil Tool GesmbH Austria Weatherford Oil Tool GmbH Germany Weatherford Oil Tool Middle East Ltd. British Virgin Islands Weatherford Oil Tool Nederland B.V. Netherlands Weatherford Overseas Products, Ltd. Cayman Islands Weatherford Overseas Services, Ltd. Cayman Islands Weatherford QAF Sdn. Bhd. Brunei Weatherford Services (West Africa) Ltd. Nigeria
3 4 Weatherford Services, Ltd. Bermuda Weatherford Services, S.A. Panama Weatherford Trinidad Limited Trinidad Weatherford U.S., L.P. Louisiana Weatherford, Inc. Panama West Coast International Oilfield Rentals, B.V. Netherlands WEUS Holding, Inc. Delaware WI Products & Equipment, Inc. Cayman Islands WII Rental Company Delaware Worldwide Leasing LDC Cayman Islands XL Systems International, Inc. Delaware XL Systems, Inc. Texas XLS Holding, Inc. Texas XLS Systems Antilles N.V. Netherlands XLS Systems Europe, B.V. Netherlands
4 EX-23.1 9 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 17, 1999, included in this Form 10-K into Weatherford International, Inc.'s previously filed Registration Statement File Nos. 33-31662, 33-56384, 33-56386, 33-65790, 33-64349, 333-13531, 333-39587, 333-44345, 333-45207 and 333-53633. ARTHUR ANDERSEN LLP Houston, Texas March 29, 1999 EX-27 10 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of income and is qualified in its entirety by reference to such statements. 12-MOS 9-MOS 6-MOS 3-MOS DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998 JAN-01-1998 JAN-01-1998 JAN-01-1998 JAN-01-1998 DEC-31-1998 SEP-30-1998 JUN-30-1998 MAR-31-1998 40,201 48,542 66,527 42,500 0 0 0 0 420,650 482,642 528,613 562,116 19,764 21,319 20,882 25,300 484,822 552,609 529,069 499,387 1,082,392 1,177,276 1,197,553 1,179,902 1,661,918 900,616 872,045 886,351 823,648 0 0 0 2,831,715 2,924,220 2,922,306 2,909,445 556,841 635,018 649,196 604,041 632,163 647,052 649,463 655,027 0 0 0 0 0 0 0 0 103,513 103,461 103,021 101,507 1,390,367 1,420,049 1,392,440 1,410,835 2,831,715 2,924,220 2,922,306 2,909,445 1,250,570 975,987 674,917 360,456 2,010,654 1,583,807 1,101,353 570,520 924,133 679,006 467,459 251,252 1,426,785 1,082,268 748,073 384,358 0 0 0 0 0 0 0 0 54,497 40,482 25,759 12,011 99,388 140,829 75,052 97,962 34,551 51,823 28,800 36,819 64,837 89,006 46,252 61,143 0 0 0 0 0 0 0 0 0 0 0 0 64,837 89,006 46,252 61,143 0.67 0.92 0.48 0.63 0.66 0.91 0.47 0.63 This amount is not disclosed in the financial statements and thus a value of zero has been shown for purposes of this financial data schedule.
EX-27.1 11 RESTATED FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of income and is qualified in its entirety by reference to such statements. 12-MOS 9-MOS 6-MOS 3-MOS 12-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1996 DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996 74,211 53,221 88,205 133,743 256,995 0 0 0 0 0 548,402 485,879 442,480 455,680 406,457 23,473 19,772 18,956 18,835 16,824 455,811 402,987 393,029 346,535 320,933 1,134,076 1,003,250 976,517 1,018,852 1,061,780 1,631,560 1,577,282 1,493,339 1,470,354 1,473,816 764,747 0 0 0 741,804 2,737,910 2,365,313 2,236,197 2,204,684 2,243,633 503,169 451,502 398,258 388,612 440,541 654,822 378,875 367,208 400,257 417,976 0 0 0 0 0 0 0 0 0 0 101,958 101,892 100,447 95,634 95,493 1,356,591 1,319,495 1,267,613 1,227,968 1,197,211 2,737,910 2,365,313 2,236,197 2,204,684 2,243,633 1,097,823 770,973 480,177 219,979 704,350 1,969,089 1,417,970 908,252 431,253 1,467,270 807,575 571,276 360,192 165,357 550,292 1,388,387 1,006,882 650,716 309,557 1,098,925 0 0 0 0 0 0 0 0 0 0 43,273 31,273 21,148 10,545 39,368 304,961 211,767 128,983 58,621 132,674 108,188 74,397 45,339 20,718 40,513 196,773 137,370 83,644 37,903 92,161 0 0 0 0 74,392 (9,010) 0 0 0 (731) 0 0 0 0 0 187,763 137,370 83,644 37,903 165,822 1.95 1.43 0.88 0.40 1.85 1.92 1.41 0.86 0.39 1.82 This amount is not disclosed in the financial statements and thus a value of zero has been shown for purposes of this financial data schedule.
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