0000950129-01-503744.txt : 20011107 0000950129-01-503744.hdr.sgml : 20011107 ACCESSION NUMBER: 0000950129-01-503744 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011102 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13086 FILM NUMBER: 1774013 BUSINESS ADDRESS: STREET 1: 515 POST OAK BLVD STREET 2: SUITE 600 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: ENERGY VENTURES INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EVI INC DATE OF NAME CHANGE: 19980226 FORMER COMPANY: FORMER CONFORMED NAME: EVI WEATHERFORD INC DATE OF NAME CHANGE: 19980528 10-Q 1 h91717e10-q.txt WEATHERFORD INTERNATIONAL, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 1-13086 WEATHERFORD INTERNATIONAL, INC. ------------------------------- (Exact name of Registrant as specified in its Charter) Delaware 04-2515019 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 515 Post Oak Blvd., Suite 600, Houston, Texas 77027-3415 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (713) 693-4000 -------------------------------------------------- (Registrant's telephone number, include area code) -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Title of Class Outstanding at October 26, 2001 -------------- ------------------------------- Common Stock, par value $1.00 114,766,950 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PAR VALUES)
SEPTEMBER 30, DECEMBER 31, 2001 2000 -------------- -------------- (UNAUDITED) ASSETS Current Assets: Cash and Cash Equivalents ......................................... $ 44,732 $ 153,808 Accounts Receivable, Net of Allowance for Uncollectible Accounts of $22,775 and $23,281, Respectively ................... 456,757 498,663 Inventories ....................................................... 483,946 443,588 Other Current Assets .............................................. 164,639 145,528 -------------- -------------- 1,150,074 1,241,587 -------------- -------------- Property, Plant and Equipment, Net ................................... 938,782 973,025 Goodwill, Net ........................................................ 1,148,716 1,051,562 Equity Investments in Unconsolidated Affiliates ...................... 482,348 9,229 Other Assets ......................................................... 157,645 186,176 -------------- -------------- $ 3,877,565 $ 3,461,579 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-Term Borrowings and Current Portion of Long-Term Debt ....... $ 308,955 $ 31,134 Accounts Payable .................................................. 200,574 196,200 Other Current Liabilities ......................................... 313,658 235,382 -------------- -------------- 823,187 462,716 -------------- -------------- Long-Term Debt ....................................................... 232,441 221,004 Zero Coupon Convertible Senior Debentures ............................ 520,685 509,172 Minority Interests ................................................... 3,444 198,523 Deferred Tax Liability ............................................... 115,157 164,451 Other Liabilities .................................................... 81,866 164,755 5% Convertible Subordinated Preferred Equivalent Debentures ............................................. 402,500 402,500 Commitments and Contingencies Stockholders' Equity: Series A Preferred Stock, $1 Par Value, Authorized Zero Shares and One Share, Issued Zero Shares and One Share, Respectively ... -- -- Common Stock, $1 Par Value, Authorized 250,000,000 Shares, Issued 126,576,790 and 121,955,723 Shares, Respectively ......... 126,577 121,956 Capital in Excess of Par Value .................................... 1,810,847 1,594,060 Treasury Stock, Net ............................................... (300,686) (304,315) Retained Earnings ................................................. 213,526 53,399 Accumulated Other Comprehensive Loss .............................. (151,979) (126,642) -------------- -------------- 1,698,285 1,338,458 -------------- -------------- $ 3,877,565 $ 3,461,579 ============== ==============
The accompanying notes are an integral part of these consolidated condensed financial statements. 1 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenues: Products .............................................. $ 259,083 $ 207,983 $ 734,821 $ 569,727 Services and Rentals .................................. 349,538 254,187 972,958 709,673 ------------ ------------ ------------ ------------ 608,621 462,170 1,707,779 1,279,400 Costs and Expenses: Cost of Products ...................................... 161,512 133,556 474,064 383,261 Cost of Services and Rentals .......................... 232,997 188,839 640,644 514,596 Selling, General and Administrative Attributable to Segments ......................................... 94,915 85,869 271,861 249,053 Corporate General and Administrative .................. 9,984 9,574 29,650 27,383 Equity in Earnings of Unconsolidated Affiliates ....... (6,947) (677) (14,708) (2,460) ------------ ------------ ------------ ------------ Operating Income ........................................... 116,160 45,009 306,268 107,567 ------------ ------------ ------------ ------------ Other Income (Expense): Interest Income ....................................... 156 5,269 1,695 8,781 Interest Expense ...................................... (19,958) (15,818) (53,602) (45,360) Other, Net ............................................ (1,047) (368) (744) 193 ------------ ------------ ------------ ------------ Income Before Income Taxes and Minority Interests .......... 95,311 34,092 253,617 71,181 Provision for Income Taxes ................................. (34,789) (12,442) (92,683) (25,626) ------------ ------------ ------------ ------------ Income Before Minority Interests ........................... 60,522 21,650 160,934 45,555 Minority Interest Expense, Net of Taxes .................... (341) (127) (807) (835) ------------ ------------ ------------ ------------ Income from Continuing Operations .......................... 60,181 21,523 160,127 44,720 Loss from Discontinued Operations, Net of Taxes ............ -- -- -- (3,458) ------------ ------------ ------------ ------------ Net Income ................................................. $ 60,181 $ 21,523 $ 160,127 $ 41,262 ============ ============ ============ ============ Basic Earnings (Loss) Per Share: Income from Continuing Operations ..................... $ 0.52 $ 0.20 $ 1.42 $ 0.41 Loss from Discontinued Operations ..................... -- -- -- (0.03) ------------ ------------ ------------ ------------ Net Income Per Basic Share ................................. $ 0.52 $ 0.20 $ 1.42 $ 0.38 ============ ============ ============ ============ Diluted Earnings (Loss) Per Share: Income from Continuing Operations ..................... $ 0.49 $ 0.19 $ 1.32 $ 0.40 Loss from Discontinued Operations ..................... -- -- -- (0.03) ------------ ------------ ------------ ------------ Net Income Per Diluted Share ............................... $ 0.49 $ 0.19 $ 1.32 $ 0.37 ============ ============ ============ ============ Weighted Average Shares Outstanding: Basic ................................................. 115,068 109,792 113,093 109,147 ============ ============ ============ ============ Diluted ............................................... 135,081 114,500 131,826 112,908 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated condensed financial statements. 2 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- Cash Flows from Operating Activities: Net Income ......................................................... $ 160,127 $ 41,262 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization ................................... 152,845 146,339 Amortization of Original Issue Discount ......................... 11,513 3,762 Equity in Earnings of Unconsolidated Affiliates ................. (14,708) (2,460) Loss from Discontinued Operations, Net of Taxes ................. -- 3,458 Deferred Income Tax Provision (Benefit) ......................... 62 (13,647) Gain on Sales of Property, Plant and Equipment .................. (11,202) (8,483) Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired ........................................ (196,138) (148,364) ---------- ---------- Net Cash Provided by Continuing Operations .................... 102,499 21,867 Net Cash Used by Discontinued Operations ...................... -- (12,225) ---------- ---------- Net Cash Provided by Operating Activities ..................... 102,499 9,642 ---------- ---------- Cash Flows from Investing Activities: Acquisition of Businesses, Net of Cash Acquired .................... (214,417) (86,366) Capital Expenditures for Property, Plant and Equipment ............. (237,200) (164,062) Acquisitions and Capital Expenditures of Discontinued Operations ........................................ -- (5,056) Acquisition of Minority Interest ................................... (206,500) -- Proceeds from Sale of Businesses ................................... -- 14,084 Proceeds from Sales of Property, Plant and Equipment ............... 21,408 25,666 Proceeds from Sale and Leaseback of Equipment ...................... -- 55,068 ---------- ---------- Net Cash Used by Investing Activities ......................... (636,709) (160,666) ---------- ---------- Cash Flows from Financing Activities: Borrowings (Repayments) on Short-Term Debt, Net .................... 286,383 (280,095) Repayments of Long-Term Debt, Net .................................. (8,612) (9,468) Issuance of Zero Coupon Convertible Senior Debentures, Net ......... -- 491,868 Proceeds from Asset Securitization ................................. 136,784 -- Proceeds from Exercise of Stock Options ............................ 10,170 6,226 Acquisition of Treasury Stock ...................................... (2,815) (2,607) Other, Net ......................................................... -- 324 ---------- ---------- Net Cash Provided by Financing Activities ..................... 421,910 206,248 ---------- ---------- Effect of Exchange Rates on Cash ..................................... 3,224 (1,846) Net Increase (Decrease) in Cash and Cash Equivalents ................. (109,076) 53,378 Cash and Cash Equivalents at Beginning of Period ..................... 153,808 44,361 ---------- ---------- Cash and Cash Equivalents at End of Period ........................... $ 44,732 $ 97,739 ========== ========== Supplemental Cash Flow Information: Interest Paid ...................................................... $ 35,110 $ 40,204 Income Taxes Paid, Net of Refunds .................................. 44,951 12,916
The accompanying notes are an integral part of these consolidated condensed financial statements. 3 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (IN THOUSANDS)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ----------------------- ------------------------ 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Net Income ....................................... $ 60,181 $ 21,523 $ 160,127 $ 41,262 Other Comprehensive Income (Loss): Foreign Currency Translation Adjustment ..... 1,156 (31,176) (28,962) (53,593) ---------- ---------- ---------- ---------- Comprehensive Income (Loss) ...................... $ 61,337 $ (9,653) $ 131,165 $ (12,331) ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated condensed financial statements. 4 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. GENERAL The consolidated condensed financial statements of Weatherford International, Inc. (the "Company") included herein are unaudited; however, they include all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the Company's Consolidated Condensed Balance Sheet at September 30, 2001, Consolidated Condensed Statements of Income and Consolidated Condensed Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2001 and 2000, and Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2001 and 2000. Although the Company believes that the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to the Company's organization and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. has been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2000 and notes thereto included in the Company's Annual Report on Form 10-K, as amended on Forms 10-K/A. The results of operations for the three and nine month periods ended September 30, 2001 are not necessarily indicative of the results expected for the full year. Certain reclassifications of prior year balances have been made to conform such amounts to corresponding current year classifications. 2. UNIVERSAL TRANSACTION On February 9, 2001, the Company completed the merger of essentially all of its Compression Services Division with and into a subsidiary of Universal Compression Holdings, Inc. ("Universal") in exchange for 13.75 million shares of Universal common stock. The Company retained part of the Compression Services Division, including Singapore-based Gas Services International operations, which is now consolidated within the Company's Artificial Lift Systems Division. The Universal common stock received represented approximately 48% of Universal's total common stock outstanding as of the date of the merger. Subsequent to the merger, Universal issued additional shares of common stock, and the Company's ownership declined to 45%. In connection with the merger, the Company de-consolidated the businesses that merged with Universal and recorded its investment in Universal as Equity Investments in Unconsolidated Affiliates on the accompanying Consolidated Condensed Balance Sheets. Accordingly, the Company began recording its equity interest in Universal's results of operations, based on estimates provided by Universal, as Equity in Earnings of Unconsolidated Affiliates on the accompanying Consolidated Condensed Statements of Income. The difference between the cost basis of the Company's investment in Universal and the Company's fair value in the net assets of Universal was $152.5 million and is being amortized straight-line over 40 years through Equity in Earnings of Unconsolidated Affiliates. Prior to the merger, the Company operated this division in a joint venture with GE Capital. The Company paid GE Capital $206.5 million for its 36% ownership in the joint venture concurrent with the merger. 5 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) As of December 31, 2000, the net assets of the Compression Services Division, excluding the assets which the Company retained, were as follows, in thousands: Assets: Cash ............................................................ $ 3,118 Accounts Receivable, Net ........................................ 62,650 Inventory ....................................................... 77,059 Other Current Assets ............................................ 10,113 -------- Total Current Assets ......................................... 152,940 Property, Plant and Equipment, Net .............................. 281,622 Goodwill, Net ................................................... 166,720 Other Assets .................................................... 12,849 -------- Total Assets ................................................. $614,131 ======== Liabilities: Accounts Payable ................................................ $ 26,125 Short-Term Borrowings and Current Portion of Long-Term Debt ..... 13,136 Other Current Liabilities ....................................... 21,048 -------- Total Current Liabilities .................................... 60,309 Long-Term Debt .................................................. 1,727 Minority Interest Liability ..................................... 197,513 Deferred Income Taxes ........................................... 26,917 Other Liabilities ............................................... 95,538 -------- Total Liabilities ........................................... 382,004 -------- Net Assets .................................................. $232,127 ========
3. INVENTORIES Inventories by category are as follows:
SEPTEMBER 30, DECEMBER 31, 2001 2000 -------------- -------------- (in thousands) Raw materials, components and supplies ...... $ 128,896 $ 152,569 Work in process ............................. 47,443 46,500 Finished goods .............................. 307,607 244,519 -------------- -------------- $ 483,946 $ 443,588 ============== ==============
Work in process and finished goods inventories include the cost of material, labor and plant overhead. 6 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) 4. BUSINESS COMBINATIONS On April 19, 2001, the Company acquired Orwell Group plc ("Orwell") for total consideration of approximately $258.5 million, consisting of 3.4 million shares of the Company's common stock, $1.00 par value ("Common Stock") and $81.4 million of assumed debt which was paid in full following the closing of the transaction. Orwell is an international provider of oilfield services for drilling, fishing, remediation and marine applications. This acquisition increases the Company's presence in the international markets and increases capacity. Orwell's operations are being integrated into the Company's Drilling and Intervention Services Division. The Company also completed various other smaller acquisitions during the nine months ended September 30, 2001 for total consideration of approximately $166.9 million, of which $136.9 million was paid in cash and assumed debt and $30.0 million was paid in the form of Common Stock. The acquisitions discussed above were accounted for using the purchase method of accounting; accordingly, the results of operations are included in the accompanying consolidated condensed financial statements since the date of acquisition. The purchase price was allocated to the net assets acquired based upon their estimated fair market values at the date of acquisition. The balances included in the Consolidated Condensed Balance Sheets related to the acquisitions are based upon preliminary information and are subject to change when final asset and liability valuations are obtained. Material changes in the preliminary allocations are not anticipated by management. 5. ASSET SECURITIZATION In July 2001, the Company entered into an agreement with a financial institution to securitize, on a continuous basis, an undivided interest in a specific pool of the Company's domestic accounts receivables. Pursuant to this agreement, the Company periodically sells certain trade accounts receivables to a wholly-owned bankruptcy-remote subsidiary of the Company, W1 Receivables, L.P. ("W1"). W1 was formed to purchase accounts receivables and, in turn, sell participating interests in such accounts receivables to a financial institution. The financial institution then purchases and receives ownership and security interests in those receivables. In this transaction, the Company retained servicing responsibilities and a subordinated interest in the receivables sold. The Company's retained interest in the receivables pool is valued based on the recoverable value which approximates book value. There is no recourse against the Company for failure of debtors to pay when due, and the Company's retained interest in the receivables pool is subordinate to the investors' interests. The Company is permitted to securitize up to $150.0 million under this agreement. The Company pays a program fee on participating interests at a variable rate based on the financial institution's commercial paper rate plus other fees. Program fees totaled $1.3 million for the three and nine months ended September 30, 2001. As of September 30, 2001, the Company had received $136.8 million for purchased interests which was used to pay down short-term debt. 6. SHORT-TERM DEBT In April 2001, the Company entered into a $250.0 million, three-year multi-currency revolving credit facility, with commitment capacity of up to $400.0 million. As of September 30, 2001, the Company had $158.0 million available under this agreement. Amounts outstanding under this facility accrue interest at a variable rate based on the borrower's applicable Eurocurrency rate and credit ratings assigned to the Company by Standard and Poor's and Moody's Investor Service. A commitment fee of 0.125% is payable quarterly on the unused portion of the facility. The facility contains customary affirmative and negative covenants and reflects the same covenant structure as the Company's existing $250.0 million revolving credit agreement, dated May 1998, which remains in effect. The Company entered into a five-year unsecured credit agreement in May 1998 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. As of September 30, 2001, the Company had $43.0 million available under this facility due to amounts outstanding and $40.2 million being used to secure outstanding letters of credit. Amounts outstanding under the facility accrue interest at the U.S. prime rate or a variable rate based on LIBOR. A commitment fee ranging from 0.09% to 0.20% per annum, depending on the senior unsecured credit ratings assigned to the Company by Standard and Poor's and Moody's Investor Service, 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. 7 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) The Company also engages in unsecured short-term borrowings with various institutions pursuant to uncommitted facilities and bid note arrangements. At September 30, 2001, the Company had $43.5 million in unsecured short-term borrowings outstanding under these arrangements with interest rates ranging from 3.80% to 5.77%. 7. INTEREST RATE SWAP In July 2001, the Company entered into an interest rate swap to hedge the exposure on $100.0 million of its 7 1/4% Senior Notes due May 2006. The objective of this transaction is to protect the debt against changes in fair value and take advantage of the interest rates available in the current economic environment. Under the agreement, on May 15 and November 15 of each year until maturity on May 15, 2006, the Company will receive interest at the fixed rate of 7 1/4% and will pay a floating rate based on six month LIBOR in arrears plus a spread of 1.405%. The hedge qualifies under Statement of Financial Accounting Standards ("SFAS") No. 133 for the shortcut method of accounting. The fair value of the swap is offset by the effect of changes in the underlying basis of the hedged transaction, and the interest rate differential to be received or paid on the swap is recognized over the life of the swap as an adjustment to interest expense. As of September 30, 2001, the fair market value of this swap agreement was a $5.0 million asset, which is recorded in Other Assets on the Consolidated Condensed Balance Sheets. 8. DISCONTINUED OPERATIONS At the close of business on April 14, 2000 (the "Spin-off Date"), the Company distributed shares of its wholly owned subsidiary Grant Prideco, Inc. ("Grant Prideco") to the holders of record of Common Stock as of March 23, 2000. As a result, the accompanying Consolidated Condensed Statements of Income reflect the results of operations for Grant Prideco through the Spin-off Date as Loss from Discontinued Operations, Net of Taxes. The distribution of the net assets of discontinued operations and the related accumulated other comprehensive loss is reflected in the accompanying Consolidated Condensed Balance Sheets as an adjustment to Retained Earnings. Condensed results of Grant Prideco were as follows:
NINE MONTHS ENDED SEPTEMBER 30, 2000 ------------------- (in thousands) Revenues .............................................. $ 124,813 ------------------- Loss before interest allocation and income taxes ...... $ (831) Interest allocation ................................... (2,500) Income tax benefit .................................... 888 ------------------- Net loss before Spin-off related costs ................ (2,443) Spin-off related costs, net of taxes .................. (1,015) ------------------- Net loss .............................................. $ (3,458) ===================
The Company purchases drill pipe and other related products from Grant Prideco. The purchases made prior to the Spin-off Date have been eliminated in the accompanying consolidated condensed financial statements. The purchases eliminated for the nine months ended September 30, 2000 were $7.0 million. These purchases represent Grant Prideco's cost. The results from discontinued operations for the nine months ended September 30, 2000 include a management fee charged to Grant Prideco of $0.5 million. The fee is based on the time devoted to Grant Prideco for accounting, tax, treasury and risk management services. 8 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) The Company entered into a preferred customer agreement with Grant Prideco pursuant to which the Company agreed, for a three-year period, to purchase at least 70% of its requirements of drill stem products from Grant Prideco. The price for those products will be at a price not greater than that which Grant Prideco sells to its best similarly situated customers. The Company is entitled to apply against its purchases a drill stem credit in the amount of $30.0 million, subject to a limitation of the application of the credit to no more than 20% of any purchase. As of September 30, 2001, the Company had $22.9 million remaining of the drill stem credit. 9. EARNINGS PER SHARE Basic earnings per share for all periods presented equals net income divided by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed by dividing net income, as adjusted for the assumed conversion of dilutive debentures, by the weighted average number of shares of Common Stock outstanding during the period adjusted for the dilutive effect of the Company's stock option and restricted stock plans and the incremental shares for the assumed conversion of dilutive debentures. Diluted earnings per share for the three and nine months ended September 30, 2001 reflects the assumed conversion of the Company's Zero Coupon Convertible Senior Debentures (the "Zero Coupon Debentures") and the Company's 5% Convertible Subordinated Preferred Equivalent Debentures (the "Convertible Preferred Debentures"), as the conversion of each in those periods would have been dilutive. Net income for the dilutive earnings per share calculation is adjusted to add back the amortization of original issue discount, net of taxes, relating to the Zero Coupon Debentures totaling $2.5 million and $7.6 million for the three and nine months ended September 30, 2001, respectively, and interest, net of taxes, on the Convertible Preferred Debentures totaling $3.3 million and $6.5 million for the three and nine months ended September 30, 2001, respectively. The following reconciles basic and diluted weighted average shares outstanding:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 2001 2000 2001 2000 -------- -------- -------- -------- (in thousands) Basic weighted average shares outstanding ........................ 115,068 109,792 113,093 109,147 Dilutive effect of stock option and restricted stock plans .. 3,370 4,708 4,605 3,761 Dilutive effect of Zero Coupon Debentures ........................ 9,097 -- 9,097 -- Dilutive effect of Convertible Preferred Debentures .............. 7,546 -- 5,031 -- -------- -------- -------- -------- Diluted weighted average shares outstanding ...................... 135,081 114,500 131,826 112,908 ======== ======== ======== ========
10. SUPPLEMENTAL CASH FLOW INFORMATION The following summarizes investing activities relating to acquisitions integrated into the Company's continuing operations for the periods shown:
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands) Fair value of assets, net of cash acquired ....... $ 213,950 $ 87,173 Goodwill ......................................... 312,697 129,256 Total liabilities, including minority interest ... (105,168) (70,812) Common Stock issued .............................. (207,062) (59,251) ---------- ---------- Cash consideration, net of cash acquired ......... $ 214,417 $ 86,366 ========== ==========
9 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) 11. 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. The Company divides its business segments into three separate groups as defined by the chief operating decision maker: drilling and intervention services, completion systems, and artificial lift systems. The Company also historically operated a compression services segment. The amounts reported for this segment include results up through February 9, 2001 (Note 2). The Company's Drilling and Intervention Services segment provides a wide range of oilfield products and services, including fishing services, third-party and proprietary drilling products, well installation services, cementing products and underbalanced drilling and specialty pipeline services. The Company's Completion Systems segment provides completion products and systems including packers, sand control, flow control, expandable products, liner hangers, inflatable packers and intelligent well technology. 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, gas lift, electrical submersible pumps and hydraulic lift. This segment also offers well optimization and remote monitoring and control services. The Company's Compression Services segment historically packaged, rented and sold parts and provided services for gas compressor units over a broad horsepower range. 10 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) Financial information by industry segment for each of the three and nine months ended September 30, 2001 and 2000 is summarized below. The accounting policies of the segments are the same as those of the Company.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ (in thousands) Revenues from unaffiliated customers Drilling and Intervention Services ..... $ 363,293 $ 225,720 $ 986,197 $ 619,997 Completion Systems ..................... 86,838 56,656 247,807 150,821 Artificial Lift Systems ................ 158,490 119,910 446,836 340,181 Compression Services ................... -- 59,884 26,939 168,401 ------------ ------------ ------------ ------------ $ 608,621 $ 462,170 $ 1,707,779 $ 1,279,400 ============ ============ ============ ============ EBITDA(a) Drilling and Intervention Services ..... $ 127,824 $ 67,334 $ 345,294 $ 186,340 Completion Systems ..................... 15,588 7,391 40,875 10,478 Artificial Lift Systems ................ 29,480 17,429 79,504 46,793 Compression Services ................... -- 11,195 3,587 32,801 Corporate(b) ........................... (1,274) (8,058) (10,147) (22,506) ------------ ------------ ------------ ------------ $ 171,618 $ 95,291 $ 459,113 $ 253,906 ============ ============ ============ ============ Depreciation and amortization Drilling and Intervention Services ..... $ 38,064 $ 26,288 $ 100,491 $ 77,280 Completion Systems ..................... 8,368 6,660 22,314 19,257 Artificial Lift Systems ................ 7,263 6,859 21,061 19,373 Compression Services ................... -- 9,636 4,184 28,012 Corporate(b) ........................... 1,763 839 4,795 2,417 ------------ ------------ ------------ ------------ $ 55,458 $ 50,282 $ 152,845 $ 146,339 ============ ============ ============ ============ Operating income (loss) Drilling and Intervention Services ..... $ 89,760 $ 41,046 $ 244,803 $ 109,060 Completion Systems ..................... 7,220 731 18,561 (8,779) Artificial Lift Systems ................ 22,217 10,570 58,443 27,420 Compression Services ................... -- 1,559 (597) 4,789 Corporate(b) ........................... (3,037) (8,897) (14,942) (24,923) ------------ ------------ ------------ ------------ $ 116,160 $ 45,009 $ 306,268 $ 107,567 ============ ============ ============ ============
(a) The Company evaluates performance and allocates resources based on EBITDA, which is calculated as operating income adding back depreciation and amortization. Calculations of EBITDA should not be viewed as a substitute to calculations under GAAP, in particular cash flows from operations, operating income, income from continuing operations and net income. In addition, EBITDA calculations by one company may not be comparable to those of another company. (b) Includes Equity in Earnings of Unconsolidated Affiliates. 11 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) As of September 30, 2001, total assets were $1,873.0 million for Drilling and Intervention Services, $646.6 million for Completion Systems, $844.6 million for Artificial Lift Systems and $513.4 million for Corporate. As of December 31, 2000, total assets were $1,284.4 million for Drilling and Intervention Services, $538.9 million for Completion Systems, $724.6 million for Artificial Lift Systems, $614.1 million for Compression Services and $299.6 million for Corporate. 12. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of Accounting Principles Board Opinion ("APB") No. 30. This statement retains the fundamental provisions of SFAS No. 121 and the basic requirements of APB No. 30; however, it establishes a single accounting model to be used for long-lived assets to be disposed of by sale and it expands the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company does not anticipate that the statement will have a material impact on its financial position or results of operations. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Intangible Assets." This statement establishes new accounting standards for goodwill, recognition of intangibles and certain intangibles determined to have an indefinite life. It continues to require the recognition of goodwill and certain intangibles determined to have an indefinite life as assets but does not permit their amortization as previously required. The statement also establishes a new method of testing goodwill and intangibles determined to have an indefinite life for impairment. It requires them to be tested for impairment at least annually at a reporting unit level and written down against results of operations in the periods in which the recorded value is greater than the market value. This statement is effective for fiscal years beginning after December 15, 2001 except for goodwill and certain intangibles determined to have an indefinite life acquired after June 30, 2001 which will be subject to the non-amortization provisions of this statement immediately. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the goodwill non-amortization provision of this statement is expected to result in an increase in net income per diluted share of approximately $0.28, on an annual basis. The Company has not yet determined whether the potential non-amortization of identifiable intangible assets will have a material impact on its financial position and results of operations. During 2002, the Company will perform the first of the required impairment tests; therefore, has not yet determined what the impact of these tests will be on its financial position and results of operations. In July 2001, the FASB issued SFAS No. 141, "Business Combinations." This statement establishes accounting and reporting standards requiring that all business combinations be accounted for using the purchase method of accounting. This statement is effective for all business combinations initiated after June 30, 2001 and has no current impact on the Company's financial statements. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125." This statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. It is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company adopted this standard in connection with its agreement to sell accounts receivable (see Note 5). The adoption of this standard did not have a material effect on the Company's financial position or results of operations. 12 WEATHERFORD INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED) In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes new accounting and reporting standards requiring that all derivative instruments, including derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability, depending on the rights or obligations under the contracts, at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For a qualifying cash flow hedge, the changes in fair value of the derivative instrument are initially recognized in other comprehensive income and then are reclassified into earnings in the period that the hedged transaction affects earnings. For a qualifying fair value hedge, the changes in fair value of the derivative instrument are offset against the corresponding changes for the hedged item through earnings. Such accounting for qualifying hedges allows a derivative's gains and losses to offset related results of the hedged item in the income statement and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", was issued in June 2000 and amends certain provisions of SFAS No. 133. The Company adopted SFAS No. 133 and SFAS No. 138 as of January 1, 2001 with no financial statement impact. 13. SUBSEQUENT EVENTS On October 24, 2001 the Company signed an agreement to acquire CiDRA Corporation's Optical Sensing Systems ("CiDRA OSS") unit for $130.0 million. Consideration will be in the form of Common Stock or up to 90% cash, at the option of the Company. If the Company elects to convert any percentage of the purchase price to cash, the cash consideration to be paid will be based on an overall purchase price of $125.0 million. CiDRA OSS is a provider of a suite of permanent in-well fiber optic sensor systems which include pressure temperature gauges, a flow and phase fraction system, and an all-fiber in-well seismic system. This acquisition is expected to provide the Company's Completion Systems Division with proprietary technology in the growing field of advanced intelligent completions and field automation systems. CiDRA OSS also complements this division's growing mechanical capabilities for "smart" completion technologies by providing a means of monitoring downhole well and reservoir activity. The acquisition is subject to customary closing conditions, the receipt of all required regulatory approvals and the expiration or termination of all waiting periods (and extensions thereof) under the Hart-Scott-Rodino Act. Although there can be no assurance that this acquisition will close, the Company currently expects this acquisition to be consummated sometime in the fourth quarter of this year. The Company signed an agreement to purchase the Johnson Screens division ("Johnson Screens") of Vivendi Environnement on October 22, 2001 for $110.0 million. Johnson Screens is a global provider of screens for fluid-solid separation processes, including the recently-introduced Excelflo(TM) premium screen line and the Superflo(TM), Super Weld(R) and Thin Pack(TM) screens for oil and gas production. The integration of Johnson Screens within the Company's Completion Systems Division is expected to provide significant manufacturing consolidation benefits, economies of scale and access to innovative new technologies. The acquisition is subject to customary closing conditions, the receipt of all required foreign regulatory approvals and the expiration or termination of all waiting periods (and extensions thereof) under the Hart-Scott-Rodino Act. Although there can be no assurance that this acquisition will close, the Company currently expects this acquisition to be consummated sometime in the fourth quarter of this year. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Our business is conducted through three principal operating divisions: (1) Drilling and Intervention Services, (2) Completion Systems and (3) Artificial Lift Systems. In addition to these operations, we historically operated a Compression Services Division and a Drilling Products Division. In February 2001, we completed the merger of essentially all of our Compression Services Division into a subsidiary of Universal Compression Holdings, Inc. in exchange for 13.75 million shares of Universal common stock, or an approximate 48% interest in Universal. On April 14, 2000, we distributed to our stockholders all of the outstanding shares of Grant Prideco, which held the operating assets used in our Drilling Products Division. As a result of this distribution, our Drilling Products Division is presented as discontinued operations in the accompanying financial statements. The following is a discussion of our results of operations for the three and nine months ended September 30, 2001 and 2000. This discussion should be read in conjunction with our financial statements that are included with this report and our financial statements and related Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2000 included in our Annual Report on Form 10-K, as amended by Forms 10-K/A. This 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 reasonable. For information about these assumptions, you should refer to the section entitled "Forward-Looking Statements." MARKET TRENDS AND OUTLOOK Our businesses serve the oil and gas industry. All of our businesses are affected by changes in the worldwide demand and price of oil and natural gas. Certain products and services, such as our fishing services, drilling products, well installation services and well completion products and services, are dependent on the level of exploration and development activity and particularly on the completion phase of a well. Other products and services, such as our artificial lift systems, are dependent on oil and/or gas production activity. We currently estimate that around two-thirds of our continuing operations are primarily reliant on drilling activity, with the remainder focused on production and reservoir enhancement activity. The following chart sets forth certain historical statistics that are reflective of the market conditions in which we operate:
HENRY HUB NORTH AMERICAN INTERNATIONAL WTI OIL(1) GAS(2) RIG COUNT(3) RIG COUNT(3) -------------- -------------- -------------- -------------- September 30, 2001 ...... $ 23.43 $ 2.244 1,539 761 December 31, 2000 ....... 26.80 9.775 1,497 703 September 30, 2000 ...... 30.84 5.186 1,327 710
(1) Price per barrel of West Texas Intermediate crude oil as of September 30 and December 31 - Source: Applied Reasoning, Inc. (2) Price per MM/BTU as of September 30 and December 31 - Source: Oil World (3) Average rig count for the applicable month - Source: Baker Hughes Rig Count The oil and gas industry has been subject to extreme volatility in the last few years. During 2000, the price of oil increased as a result of supply and demand imbalances created by reduced customer investment in oil and gas development in 1998 and 1999 when oil and gas prices decreased and North American and international rig count hit historical lows. Due to the supply and demand imbalances that caused the increase in the price of oil and gas in 2000, we experienced steady improvements in the demand for our products and services, which continued through the first nine months of 2001. 14 In the U.S., the level of rig activity began to slow-down in the third quarter 2001. The U.S. rig count peaked at 1,293 rigs in July 2001 and by the end of October, the count decreased to 1,063 rigs. Natural gas prices had declined from a high of $9.82 per mcf earlier in the year to a recent price of approximately $3.00 per mcf. We expect a continued decline in the North American markets in response to the slowing growth in the worldwide economy. Although the initial decline in U.S. activity did not significantly impact the demand for our products and services in the third quarter 2001, a continued decline in 2002 will adversely impact our U.S. markets. However, for the remainder of 2001 and for 2002, we currently expect improvements in the markets outside North and Latin America. In general, we expect the markets to affect our businesses as follows: DRILLING AND INTERVENTION SERVICES. This division is expected to see slight improvements in the fourth quarter as compared to the third quarter in both revenues and profitability. We currently expect that the markets in Europe and West Africa, Middle East and North Africa and Asia Pacific will experience sales improvements in the fourth quarter and into 2002. Due to the recent decline in the natural gas prices we expect a decline in the North and Latin American market segments through year-end and into 2002. COMPLETION SYSTEMS. In 2001, we completed our plan to increase our manufacturing capacity by approximately 50% over our available capacity as of mid-2000 and have continued to expand this division's sales and service infrastructure worldwide. We expect to see top-line growth in the fourth quarter of 2001 and in 2002 as we continue to realize the benefits of these initiatives. This growth will be offset in part by a decline in North American drilling. However, in addition to reliance upon drilling activity, the level of this division's contribution will be dependent on its ability to meet market demand through increased manufacturing output and its ability to successfully market its products, including its expandable products, liner hangers and packer systems. ARTIFICIAL LIFT SYSTEMS. We expect that our Artificial Lift Systems Division will continue to see revenue improvements due to new product offerings and international market penetration in spite of current market trends. This division will benefit from any shift in priority that our customers place on oil projects rather than natural gas projects in light of the recent decline in natural gas. We believe we will experience moderate improvements in margins as a result of higher throughput in our plants and the impact of price increases initiated throughout 2000. Overall, the level of results of operations for our businesses in the fourth quarter 2001 and into 2002 will be heavily dependent on the worldwide industrial production and our ability to react to the changes in the industry. In addition, the strength of the industry will be highly dependent on many other external factors, such as world economic conditions, world response to the September 11, 2001 terrorism acts, member country compliance with Organization of Petroleum Exporting Countries quotas and weather conditions. The extreme volatility of our markets makes predictions regarding future results difficult. 15 RESULTS OF CONTINUING OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000 The following charts contain selected financial data comparing our results for the three months ended September 30, 2001 and September 30, 2000: COMPARATIVE FINANCIAL DATA
THREE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands, except percentages and per share data) Revenues ........................................................ $ 608,621 $ 462,170 Gross Profit .................................................... 214,112 139,775 Gross Profit % .................................................. 35.2% 30.2% Selling, General and Administrative Attributable to Segments .... $ 94,915 $ 85,869 Corporate General and Administrative ............................ 9,984 9,574 Operating Income ................................................ 116,160 45,009 Net Income ...................................................... 60,181 21,523 Net Income Excluding Goodwill Amortization, Net of Taxes ........ 70,343 29,658 EBITDA (a) ...................................................... 171,618 95,291 Net Income per Diluted Share .................................... 0.49 0.19 Net Income per Diluted Share Excluding Goodwill Amortization, Net of Taxes ................................................. 0.56 0.26
(a) EBITDA is calculated by taking operating income and adding back depreciation and amortization. We have included an EBITDA calculation here because when we look at the performance of our businesses, we give consideration to their EBITDA. Calculations of EBITDA should not be viewed as a substitute to calculations under GAAP, in particular cash flows from operations, operating income, and net income. In addition, EBITDA calculations by one company may not be comparable to those of another company. SALES BY GEOGRAPHIC REGION
THREE MONTHS ENDED SEPTEMBER 30, -------------------- 2001 2000 -------- -------- REGION:(a) U.S. .............................. 44% 46% Canada ............................ 14 20 Europe and West Africa ............ 17 11 Latin America ..................... 10 10 Middle East and North Africa ...... 8 6 Asia Pacific ...................... 7 7 -------- -------- Total ......................... 100% 100% ======== ========
(a) Sales are based on the region of origination and do not reflect sales by ultimate destination. A discussion of our results for the three months ended September 30, 2001 as compared to the three months ended September 30, 2000 follows: o Third quarter 2001 consolidated revenues improved 51.3% over the third quarter 2000, excluding the results of our Compression Services Division that was merged into Universal Compression. This incremental revenue is the result of improved market conditions, pricing initiatives, acquisitions and new product offerings. Our third quarter 2001 revenues in North America were $88.4 million higher than they were in the third quarter of 2000. Our international revenues increased 76.2% compared to a quarterly international rig count increase of 10.7%. Our recent acquisitions contributed more than $33.0 million of international revenues in the third quarter of 16 2001. Excluding the impact of these acquisitions, our most significant international improvements were in Latin America and Asia Pacific. o Our gross profit as a percentage of revenues increased 16.6% from the third quarter of 2000 to the third quarter of 2001. Improved margins reflect pricing initiatives and improved manufacturing efficiencies due to higher throughput. o Selling, general and administrative expenses decreased as a percentage of revenues from 20.7% in the third quarter of 2000 to 17.2% in the third quarter of 2001. The decrease primarily reflects a higher revenue base, partially offset by higher selling costs associated with the additional revenues and incremental costs attributable to our acquisitions not yet fully integrated. Goodwill amortization was $10.8 million for the three months ended September 30, 2001 and $9.2 million for the same period last year. o Our effective tax rate for the third quarters of 2001 and 2000 was 36.5%. SEGMENT RESULTS DRILLING AND INTERVENTION SERVICES Our Drilling and Intervention Services Division continued to see improvements in both revenues and operating income as this division benefited from pricing initiatives, acquisitions and the higher North American and international rig count. In April 2001, we acquired Orwell Group plc which is an international provider of oilfield services for drilling, fishing, remediation and marine applications. All product lines and geographic regions experienced increased revenue when compared to the third quarter of 2000. The product line reflecting the most significant improvement in revenues was underbalanced services where revenues nearly doubled to $41.7 million. Excluding the results of Orwell, this division's strongest international improvements were in Latin America and Asia Pacific. The following chart sets forth data regarding the results of our Drilling and Intervention Services Division for the third quarters of 2001 and 2000:
THREE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands, except percentages) Revenues ............................... $ 363,293 $ 225,720 Gross Profit ........................... 132,557 73,322 Gross Profit % ......................... 36.5% 32.5% Selling, General and Administrative .... $ 42,797 $ 32,276 Operating Income ....................... 89,760 41,046 EBITDA ................................. 127,824 67,334
A discussion of the results of our Drilling and Intervention Services Division for the third quarter of 2001 compared to the third quarter of 2000 follows: o Our North American revenues for the third quarter of 2001 improved by 37.8% over the comparable period of 2000. Acquisitions, pricing initiatives and an increase in the North American rig count contributed to this improvement. o Our international revenues, excluding Canada, increased 95.0% from the third quarter of 2000 primarily due to an increase of $19.2 million in underbalanced services international revenues and our acquisition of Orwell. An international rig count increase of 10.7% also contributed to our international improvement. o Selling, general and administrative expenses decreased as a percentage of revenues from 14.3% in the third quarter of 2000 to 11.8% in the third quarter of 2001. The decrease primarily reflects a higher revenue base partially offset by increased selling costs attributable to higher sales and an increase of $1.9 million in goodwill and intangible amortization expense. We are in the process of fully integrating current year acquisitions, which is also diluting the positive impact of the higher revenue base. o Incremental EBITDA on incremental revenues was 44.0%. 17 COMPLETION SYSTEMS Our Completion Systems Division has shown strong quarterly improvements in its operating results since its formation in 1999. Revenues increased 53.3% from the third quarter of 2000. Geographically, the most improved regions were North America and Asia Pacific. On a product line basis, the strongest growth from the third quarter of 2000 was in expandable products and liner hangers. The following chart sets forth data regarding the results of our Completion Systems Division for the third quarters of 2001 and 2000:
THREE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands, except percentages) Revenues ............................... $ 86,838 $ 56,656 Gross Profit ........................... 24,312 14,526 Gross Profit % ......................... 28.0% 25.6% Selling, General and Administrative .... $ 17,092 $ 13,795 Operating Income ....................... 7,220 731 EBITDA ................................. 15,588 7,391
A discussion of the results of our Completion Systems Division for the third quarter of 2001 compared to third quarter of 2000 follows: o Revenues significantly improved primarily due to industry conditions, market expansion and new product offerings. The use of our worldwide infrastructure to expand into new markets contributed to a 46.0% increase in international revenues. We have also benefited from the market acceptance of our new technologies, particularly our expandable products, and our recently added manufacturing capacity. o Gross profit as a percentage of revenues increased 9.4% primarily due to pricing initiatives and improved product mix. o Research and development expenses of this division were $4.5 million for the third quarter of 2001 and $2.9 million for the same period last year. o Selling, general and administrative expenses as a percentage of revenues decreased from 24.3% in the third quarter of 2000 to 19.7% in the same period in 2001. The decrease is primarily due to the higher revenue base. o Incremental EBITDA on incremental revenues was 27.2%. ARTIFICIAL LIFT SYSTEMS Operating results from our Artificial Lift Systems Division are heavily dependent on oil production activity. Revenues for this division increased 32.2% from third quarter 2000 levels in a market that was dominated by natural gas. Geographically, our U.S. and Latin American markets both experienced strong growth. On a product line basis, our reciprocating rod lift and gas lift showed the greatest improvement over third quarter 2000. 18 The following chart sets forth data regarding the results of our Artificial Lift Systems Division for the third quarters of 2001 and 2000:
THREE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands, except percentages) Revenues ............................... $ 158,490 $ 119,910 Gross Profit ........................... 57,243 40,650 Gross Profit % ......................... 36.1% 33.9% Selling, General and Administrative .... $ 35,026 $ 30,080 Operating Income ....................... 22,217 10,570 EBITDA ................................. 29,480 17,429
A discussion of the results of our Artificial Lift Systems Division as reflected above for the third quarter of 2001 compared to the third quarter of 2000 follows: o The third quarter of 2001 experienced an increase in revenues of $38.6 million compared to the third quarter of 2000. Revenues in the U.S. increased 69.4% due to pricing initiatives, increased volume and acquisitions. Our current year acquisitions contributed approximately $20.0 million in revenues in the third quarter of 2001. o Gross profit as a percentage of revenues increased by 6.5% from the comparable period in 2000 primarily due to pricing and improved manufacturing productivity and utilization. o Selling, general and administrative expenses decreased as a percentage of revenue from 25.1% in the third quarter of 2000 to 22.1% in the comparable quarter this year. The decrease is primarily attributable to the higher revenue base and cost reduction initiatives, partially offset by increased selling costs associated with the incremental revenue. o Incremental EBITDA on incremental revenues was 31.2%. NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000 The following charts contain selected financial data comparing our results for the nine months ended September 30, 2001 and September 30, 2000: COMPARATIVE FINANCIAL DATA
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands, except percentages and per share data) Revenues ........................................................... $1,707,779 $1,279,400 Gross Profit ....................................................... 593,071 381,543 Gross Profit % ..................................................... 34.7% 29.8% Selling, General and Administrative Attributable to Segments ....... $ 271,861 $ 249,053 Corporate General and Administrative ............................... 29,650 27,383 Operating Income ................................................... 306,268 107,567 Income from Continuing Operations .................................. 160,127 44,720 Income from Continuing Operations Excluding Goodwill Amortization, Net of Taxes .............................. 187,366 69,308 EBITDA ............................................................. 459,113 253,906 Income per Diluted Share from Continuing Operations ................ 1.32 0.40 Income per Diluted Share from Continuing Operations Excluding Goodwill Amortization, Net of Taxes .................... 1.53 0.61
19 SALES BY GEOGRAPHIC REGION
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 2001 2000 -------- -------- REGION:(a) U.S. .............................. 45% 46% Canada ............................ 15 21 Europe and West Africa ............ 14 11 Latin America ..................... 11 9 Middle East and North Africa ...... 8 6 Asia Pacific ...................... 7 7 -------- -------- Total ......................... 100% 100% ======== ========
(a) Sales are based on the region of origination and do not reflect sales by ultimate destination. A discussion of our results for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000 follows: o Consolidated revenues for the first nine months of 2001, excluding our historical compression results, improved 51.3% over the same period of 2000. Revenues in North America increased $272.6 million, while international revenues increased $297.2 million. Our 2001 acquisitions contributed more than $90.0 million in revenue and the market acceptance of our underbalanced drilling services and expandable products contributed incremental revenue of more than $80.0 million in 2001. o Gross profit as a percentage of revenues increased 16.4%, primarily due to pricing, product mix and manufacturing improvements. o Selling, general and administrative expenses decreased as a percentage of revenues from 21.6% in the first nine months of 2000 to 17.7% for the same period of 2001 primarily due to a higher revenue base. Goodwill amortization was $29.0 million for the nine months ended September 30, 2001 and $27.2 million for the same period of 2000. o Incremental EBITDA as a percentage of incremental revenues was 47.9%. o Our effective tax rate for the nine months ended September 30, 2001 was 36.5%, compared to 36.0% for the same period of 2000, due to the mix of foreign and domestic income. SEGMENT RESULTS DRILLING AND INTERVENTION SERVICES The following chart sets forth data regarding the results of our Drilling and Intervention Services Division for the nine months ended September 30, 2001 and 2000:
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands, except percentages) Revenues ............................... $ 986,197 $ 619,997 Gross Profit ........................... 359,192 201,580 Gross Profit % ......................... 36.4% 32.5% Selling, General and Administrative .... $ 114,389 $ 92,520 Operating Income ....................... 244,803 109,060 EBITDA ................................. 345,294 186,340
20 A discussion of the results of our Drilling and Intervention Services Division for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000 follows: o Our North American revenues for the first nine months of 2001 improved by 48.6% over the comparable period of 2000. Pricing initiatives and a 30.8% increase in the North American rig count contributed to these improvements. Our international revenues were up 73.5%. Current year acquisitions contributing over $50.0 million in revenue, increased underbalanced drilling services revenue of $55.4 million, and strengthened international markets attributed to this improvement. o Gross profit as a percentage of revenues increased 12.0% primarily due to pricing initiatives, improved market conditions and product mix. o Selling, general and administrative expenses decreased as a percentage of revenues from 14.9% in 2000 to 11.6% in 2001 due to higher revenue base partially offset by higher selling costs and a $3.5 million increase in amortization expense. o Operating income increased $135.7 million in the nine months ended September 30, 2001 as compared to the same period of 2000 primarily due to improved market conditions and acquisitions. COMPLETION SYSTEMS The following chart sets forth data regarding the results of our Completion Systems Division for the nine months ended September 30, 2001 and 2000:
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands, except percentages) Revenues ............................... $ 247,807 $ 150,821 Gross Profit ........................... 68,773 32,475 Gross Profit % ......................... 27.8% 21.5% Selling, General and Administrative .... $ 50,212 $ 41,254 Operating Income (Loss) ................ 18,561 (8,779) EBITDA ................................. 40,875 10,478
A discussion of the results of our Completion Systems Division for the nine months ended September 30, 2001 compared to nine months ended September 30, 2000 follows: o Revenues increased by 64.3% compared to the first nine months of 2000, with North American revenues increasing $47.8 million and international revenues increasing $49.2 million. o Gross profit as a percentage of revenues increased 29.3% primarily due to pricing initiatives and higher throughput in our manufacturing facilities. o Selling, general and administrative expenses as a percentage of revenues decreased from 27.4% in 2000 to 20.3% in 2001 primarily due to increased revenues partially offset by costs associated with our efforts to expand our sales presence. o Operating income increased $27.3 million from a loss position last year of $8.8 million. Incremental operating income on incremental revenues was 28.2%. 21 ARTIFICIAL LIFT SYSTEMS The following chart sets forth data regarding the results of our Artificial Lift Systems Division for the nine months ended September 30, 2001 and 2000:
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ---------- ---------- (in thousands, except percentages) Revenues ............................... $ 446,836 $ 340,181 Gross Profit ........................... 161,152 113,359 Gross Profit % ......................... 36.1% 33.3% Selling, General and Administrative .... $ 102,709 $ 85,939 Operating Income ....................... 58,443 27,420 EBITDA ................................. 79,504 46,793
A discussion of the results of our Artificial Lift Systems Division as reflected above for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000 follows: o The first nine months of 2001 experienced an increase in revenues of 31.4% compared to the same period in 2000. Acquisitions contributed more than $35.0 million to the improved revenue. Revenues in North America increased $50.6 million and international revenues increased $56.0 million. o Selling, general and administrative expenses decreased as a percentage of revenues from 25.3% in the nine months ended September 30, 2000 to 23.0% in the same period of 2001 due to higher revenue base partially offset by higher selling costs incurred to support increased revenues. o Operating income increased by $31.0 million compared to 2000. Incremental operating income on incremental revenues was 29.1%. COMPRESSION SERVICES On February 9, 2001, we completed the merger of essentially all of our Compression Services Division into a subsidiary of Universal in exchange for 13.75 million shares of Universal common stock, which approximated 48% of Universal's outstanding shares. Subsequent to the merger Universal issued additional shares of common stock and our ownership declined to 45%. During the current year, up to the merger date, the Compression Services Division contributed $26.9 million of revenues, $3.6 million of EBITDA and an operating loss of $0.6 million to our consolidated results. During the three months ended September 30, 2000, this division contributed $59.9 million of revenues, $11.2 million of EBITDA and operating income of $1.6 million. During the nine months ended September 30, 2000, the Compression Services Division contributed $168.4 million of revenue, $32.8 million of EBITDA and operating income of $4.8 million. Subsequent to the merger date we began recording equity in earnings of unconsolidated affiliates based on our portion of Universal's net income. The compression businesses that were not included in the merger have been combined with our Artificial Lift Systems Division. DISCONTINUED OPERATIONS Our discontinued operations consist of our Grant Prideco drilling products division which was spun-off to our stockholders in April 2000. We had a loss from discontinued operations, net of taxes, for the nine months ended September 30, 2000 of $3.5 million. Included in the loss is $1.0 million of transaction costs, net of taxes. LIQUIDITY AND CAPITAL RESOURCES Our current sources of capital are current reserves of cash, cash generated from operations, proceeds from our asset securitization and borrowings under bank lines of credit. We believe that the current reserves of cash, access to our existing credit lines and internally generated cash from operations are sufficient to finance the projected cash requirements of our current operations. We have recently announced and are continually reviewing potential 22 acquisitions in our industry. Due to the size of our current pending acquisitions, we will require additional capital in the form of either debt, equity or a combination of both. As of September 30, 2001, our cash and cash equivalents were $44.7 million, a net decrease of $109.1 million from December 31, 2000, which was primarily attributable to the following: o Payment to GE Capital for the acquisition of its minority interest in our Compression Services Division of $206.5 million. o Capital expenditures for property, plant and equipment of $237.2 million, including $5.7 million for our Compression Services Division. o Acquisition of new businesses of approximately $214.4 million in cash, net of cash acquired. o Cash inflows from operating activities of $102.5 million. o Proceeds from our asset securitization of $136.8 million. o Borrowings, net of repayments, on long-term debt and short-term facilities of $277.8 million. BANKING FACILITIES In April 2001, we entered into a $250.0 million, three-year multi-currency revolving credit facility, with commitment capacity of up to $400.0 million. As of September 30, 2001, $158.0 million was available under this credit facility. Amounts outstanding under the facility accrue interest at a variable rate based on the borrower's applicable Eurocurrency rate and credit ratings assigned to us by Standard and Poor's and Moody's Investor Service. A commitment fee of 0.125% is payable quarterly on the unused portion of the facility. The facility contains customary affirmative and negative covenants, and it reflects the same covenant structure as our existing $250.0 million revolving credit agreement, dated May 1998, which remains in effect. We have a five-year unsecured revolving credit facility, dated May 1998, 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. As of September 30, 2001, $43.0 million was available under this facility due to amounts outstanding and $40.2 million was used to secure outstanding letters of credit. Borrowings under this facility accrue interest at the U.S. prime rate or a variable rate based on LIBOR. A commitment fee ranging from 0.09% to 0.20% per annum, depending on the senior unsecured credit ratings assigned to us by Standard and Poor's and Moody's Investor Service, is payable quarterly on the unused portion of the facility. 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. We also have unsecured short-term borrowings with various institutions pursuant to uncommitted facilities and bid note arrangements. At September 30, 2001, we had $43.5 million in unsecured short-term borrowings outstanding under these arrangements with interest rates ranging from 3.80% to 5.77%. ASSET SECURITIZATION In July 2001, we entered into an agreement with a financial institution to securitize, on a continuous basis, an undivided interest in a specific pool of our domestic accounts receivables. Pursuant to this agreement, we periodically sell certain trade accounts receivables to a wholly-owned bankruptcy-remote subsidiary, W1 Receivables. W1 was formed to purchase accounts receivables and, in turn, sell participating interests in such accounts receivables to a financial institution. That financial institution then purchases and receives ownership and security interest in those receivables. In this transaction, we retained servicing responsibilities and a subordinated interest in the receivables sold. Our retained interest in the receivables pool is valued based on the recoverable value which approximates book value. There is no recourse against us for failure of debtors to pay when due, and our retained interest in the receivables pool is subordinate to the investors' interests. We are permitted to securitize up to $150.0 million under this agreement. We pay a program fee on participating interests at a variable rate based on the financial institution's commercial paper rate plus other fees. Program fees totaled $1.3 million for the three and nine months ended September 30, 2001. As of September 30, 2001, we had received $136.8 million for purchased interests which was used to pay down short-term debt. ZERO COUPON CONVERTIBLE SENIOR DEBENTURES On June 30, 2000, we completed the private placement of $910 million face amount of our Zero Coupon Debentures. These Debentures were issued at $501.6 million providing the holders with an annual 3% yield to 23 maturity. As of September 30, 2001, the amount recorded on our balance sheet was $520.7 million, net of original issue discount. Holders may convert the Zero Coupon Debentures into shares of our common stock at any time before maturity at a conversion rate of 9.9970 shares per $1,000 principal amount at maturity or an initial conversion price of $55.1425 per share of common stock. The effective conversion price will increase as the accreted value of the Zero Coupon Debentures increases. We may redeem the Zero Coupon Debentures on or after June 30, 2005 at the accreted discounted amount at the time of redemption as provided for in the indenture agreement. The holders also may require us to repurchase the Zero Coupon Debentures on June 30, 2005, June 30, 2010, and June 30, 2015 at the accreted discounted amount at the time of redemption. CONVERTIBLE PREFERRED 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 Convertible Preferred Debentures bear interest at an annual rate of 5% and are convertible into common stock. The original conversion was at a price of $80 per share; however, under the terms of the Convertible Preferred Debentures, the conversion rate was adjusted to $53.34 per share following our spin-off of Grant Prideco. We have the right to redeem the Convertible Preferred Debentures at redemption prices provided for in the indenture agreement. The Convertible Preferred Debentures 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 Convertible Preferred Debentures by extending the quarterly interest payment period for up to 20 consecutive quarters at any time when we are not in default in the payment of interest. 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. In July 2001, we entered into an interest rate swap to hedge the exposure on $100.0 million of our 7 1/4% Senior Notes due May 2006. The objective of this transaction was to protect the debt against changes in fair value and to take advantage of the interest rates available in the current economic environment. Under the agreement, on May 15 and November 15 of each year until maturity on May 15, 2006, we will receive interest at the fixed rate of 7 1/4% and will pay a floating rate based on six month LIBOR in arrears plus a spread of 1.405%. The hedge qualifies under Statement of Financial Accounting Standards ("SFAS") No. 133 for the shortcut method of accounting. The fair value of the swap is offset by the effect of changes in the underlying basis of the hedged transaction, and the interest rate differential to be received or paid on the swap is recognized over the life of the swap as an adjustment to interest expense. As of September 30, 2001, the fair market value of this swap agreement was a $5.0 million asset. CAPITAL EXPENDITURES Our capital expenditures for property, plant and equipment, excluding $5.7 million for our Compression Services Division, during the nine months ended September 30, 2001 were $231.5 million and primarily related to our new technologies, drilling equipment, fishing tools and tubular service equipment. Capital expenditures for 2001 are expected to be approximately $260.0 million, with fourth quarter expenditures for international and technology. Our depreciation expense during the nine months ended September 30, 2001 was $117.8 million. PENDING ACQUISITIONS On October 24, 2001 we signed an agreement to acquire CiDRA Corporation's Optical Sensing Systems unit for $130.0 million. Consideration will be in the form of common stock or up to 90% cash, at our option. If we elect to convert any percentage of the purchase price to cash, the cash consideration to be paid will be based on an overall purchase price of $125.0 million. CiDRA OSS is a provider of a suite of permanent in-well fiber optic sensor systems which include pressure temperature gauges, a provider of flow and phase fraction systems, and an all-fiber in-well seismic system. This acquisition is expected to provide our Completion Systems Division with proprietary technology in the growing field of advanced intelligent completions and field automation systems. CiDRA complements this division's growing mechanical capabilities for "smart" completion technologies by providing a means of monitoring downhole well and reservoir activity. 24 We signed an agreement to purchase the Johnson Screens division of Vivendi Environnement on October 22, 2001 for $110.0 million. Johnson Screens is a global provider of screens for fluid-solid separation processes, including the recently-introduced Excelflo(TM) premium screen line and the Superflo(TM), Super Weld(R) and Thin Pack(TM) screens for oil and gas production. The integration of Johnson Screens within our Completion Systems Division is expected to provide significant manufacturing consolidation benefits, economies of scale and access to innovative new technologies. These acquisitions are subject to customary closing conditions, the receipt of all required foreign regulatory approvals and the expiration or termination of all waiting periods (and extensions thereof) under the Hart-Scott-Rodino Act. Although there can be no assurance that these acquisitions will close, we currently expect these acquisitions to be consummated sometime during the fourth quarter of this year. ACQUISITIONS On April 19, 2001, we acquired Orwell for total consideration of approximately $258.5 million, consisting of 3.4 million shares of our common stock and $81.4 million of assumed debt which was paid in full immediately following the closing of the transaction. Orwell is based in Aberdeen, Scotland and is an international provider of oilfield services for drilling, fishing, remediation and marine applications. This acquisition increases our share of the international markets and increases capacity. These operations are being integrated into our Drilling and Intervention Services Division. During the nine months ended September 30, 2001, we also completed various other acquisitions for total consideration of $166.9 million. Some of our acquisitions have resulted in substantial goodwill associated with their operations, including the addition of goodwill of approximately $312.7 million during the nine months ended September 30, 2001. Amortization expense for goodwill and other intangibles during the three and nine months ended September 30, 2001 was $13.0 million and $35.0 million, respectively. NEW ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of Accounting Principles Board Opinion ("APB") No. 30. This statement retains the fundamental provisions of SFAS No. 121 and retains the basic requirements of APB No. 30; however, it establishes a single accounting model to be used for long-lived assets to be disposed of by sale and it expands the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. We do not anticipate that this statement will have a material impact on its financial position or results of operations. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Intangible Assets." This statement establishes new accounting standards for goodwill, recognition of intangibles and certain intangibles determined to have an indefinite life. It continues to require the recognition of goodwill and certain intangibles determined to have an indefinite life as assets but does not permit their amortization as previously required. The statement also establishes a new method of testing goodwill and intangibles determined to have an indefinite life for impairment. It requires them to be tested for impairment at least annually at a reporting unit level and written down against results of operations in the periods in which the recorded value is more than the market value. This statement is effective for fiscal years beginning after December 15, 2001, except for goodwill and certain intangibles determined to have an indefinite life acquired after June 30, 2001 which will be subject to the non-amortization provisions of this statement immediately. We will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the goodwill non-amortization provision of this statement is expected to result in an increase in net income per diluted share of approximately $0.28, on an annual basis. We have not yet determined whether the potential non-amortization of identifiable intangible assets will have a material impact on our financial position and results of operations. During 2002, we will perform the first of the required impairment tests; therefore, have not yet determined what the impact of these tests will be on our financial position and results of operations. 25 In July 2001, the FASB issued SFAS No. 141, "Business Combinations." This statement establishes accounting and reporting standards requiring that all business combinations be accounted for using the purchase method of accounting. This statement is effective for all business combinations initiated after June 30, 2001 and have no current impact on our financial statements. In September 2000, the FASB issued No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125." This Statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. It is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. We adopted this standard in connection with our agreement to sell accounts receivable. The adoption of this standard did not have a material effect on our financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes new accounting and reporting standards requiring that all derivative instruments, including derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability, depending on the rights or obligations under the contracts, at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For a qualifying cash flow hedge, the changes in fair value of the derivative instrument are initially recognized in other comprehensive income and then are reclassified into earnings in the period the hedge transaction affects earnings. For a qualifying fair value hedge, the changes in fair value of the derivative instrument are offset against the corresponding changes for the hedged item through earnings. Such accounting for qualifying hedges allows a derivative's gain and losses to offset related results of the hedged item in the income statement and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," was issued in June 2000 and amends certain provisions of SFAS No. 133. We adopted SFAS No. 133 and SFAS No. 138 as of January 1, 2001, with no financial statement impact. EXPOSURES INDUSTRY EXPOSURE Almost all of our customers operate 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. 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, historically, actual losses have been consistent with 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. 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 which would be likely to 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. 26 TERRORISM EXPOSURE The terrorist attacks that took place in the U.S. on September 11, 2001 were unprecedented events that have created many economic and political uncertainties, some of which may materially impact our businesses. The long-term effects of the September 11, 2001 attacks on our businesses are unknown. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have created many economic and political uncertainties, which could adversely affect our businesses for the short or long-term in ways that cannot presently be predicted. 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 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 that 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 28.0% of our net assets from continuing operations are located outside the U.S. 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 section on our balance sheet. We recorded a $29.0 million adjustment to our equity account for the nine months ended September 30, 2001 primarily to reflect the net impact of the Canadian dollar and Brazilian real against the U.S. dollar. We recognize remeasurement and transactional gains and losses on currencies in our Consolidated Condensed Statements of Income. FORWARD-LOOKING STATEMENTS This report and our other filings with the Securities and Exchange Commission and our releases issued to the public contain various 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 Downturn in Market Conditions Could Affect Projected Results. Any material changes in oil and gas supply and demand balance, oil and gas prices or other market trends would affect our results and would likely affect the forward-looking information provided by us. The oil and gas industry is extremely volatile and subject to change based on political and economic factors outside our control. 27 A Future Reduction in the Rig Count Could Adversely Affect the Demand for Our Products and Services. A material decline in the North American and international rig counts would adversely affect our results. Our forward-looking statements regarding our drilling products and services assume an improvement in the international rig count in 2001 and 2002 and that no extended material declines in the worldwide rig count, in particular the domestic rig count, will occur. Our statements also assume continued increase in the international markets during 2001 and 2002. A Material Disruption in our Manufacturing Improvements Could Adversely Affect Some Divisions of Our Business. We have recently taken steps to increase our manufacturing capacity and reduce manufacturing costs in our European completion operations through the addition of equipment and the consolidation of facilities. We were adversely affected by the relocation of manufacturing operations in our Completion Systems Division in 2000. Our forward-looking statements assume that the manufacturing expansion and consolidation will be completed without any further material disruptions. If there are any additional disruptions or excess costs associated with the manufacturing changes, the results of our Completion Systems Division could be adversely affected. Any Limitations on Our Capacity or Personnel Could Increase Our Costs. Our forward-looking information assumes that we will have sufficient manufacturing capacity and personnel to address demand increases that we expect, as noted above. To the extent there are limitations on capacity or personnel in areas in which the markets are improving, our growth could be limited or our costs could increase due to the need to meet demand through outside sources or due to higher wages. Our Success is Dependent Upon the Integration of Acquisitions. During 2000 and 2001, we consummated, or agreed to consummate, various acquisitions of product lines and businesses, including the pending acquisitions of CiDRA OSS and Johnson Screens. The success of these acquisitions will be dependent on our ability to integrate these product lines and businesses with our existing businesses and eliminate duplicative costs. We incur various duplicative costs during the integration of the operations of acquired businesses into our businesses. Our forward-looking statements assume the successful integration of the operations of the acquired businesses and their contribution to our income during 2001 and 2002. We have also assumed that we will successfully consummate our pending acquisitions of CiDRA OSS and Johnson Screens. However, there can be no assurance that these acquisitions will close or that the expected benefits of these acquisitions will materialize. Integration of acquisitions is something that cannot occur in the short term and that requires constant effort at the local level to be successful. Accordingly, there can be no assurance as to the ultimate success of these integration efforts. Our Long-Term Growth Strategy is Dependent Upon Technological Advances. Our ability to succeed with our long-term growth strategy is dependent in part on the technological competitiveness of our products and services. 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. These technological advances include our underbalanced drilling technology, our expandable sand screen technology, our rotary expansion systems and our recently added multilateral technology. Our forward-looking statements have assumed above average growth from these new products and services through 2001 and 2002. Economic Downturn Could Adversely Affect Demand for Our Products and Services. The U.S. and many foreign economies are currently weakening. Several quarters of shrinking GDP would indicate economic recession. An extended regional and/or worldwide recession would result in lower demand and lower prices for oil and gas, which would adversely affect our revenues and income. At this time, we have assumed that material declines will be limited to North and Latin America and that such declines will not last for an extended period of time. Currency Fluctuations Could Have a Material Adverse Financial Impact on Our Business. 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 future changes in currencies. Changes in Global Trade Policies Could Adversely Impact Our 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. 28 Unexpected Litigation and Legal Disputes Could Have a Material Adverse Financial Impact. If we experience unexpected litigation or unexpected results in our existing litigation that have a material effect on our financial 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are currently exposed to market risk from changes in foreign currency changes in interest rates and changes in equity prices. 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. The functional currency for most of our international operations is the applicable local currency. 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 are also generally denominated in the same currency. The impact of exchange rate fluctuations during the three and nine months ended September 30, 2001 did not have a material effect on reported amounts of revenues or net income. Assets and liabilities of those foreign subsidiaries are translated using the exchange rates in effect at the balance sheet date, resulting in translation adjustments that are reflected as accumulated other comprehensive loss in the stockholders' equity section on our balance sheet. Approximately 28.0% of our net assets are impacted by changes in foreign currencies in relation to the U.S. dollar. We recorded a $29.0 million adjustment to our equity account for the nine months ended September 30, 2001 to reflect the net impact of the decline in various foreign currencies against the U.S. dollar. 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 subject to interest rate risk primarily consist of the $200.0 million principal of the 7 1/4% Senior Notes due 2006, the $402.5 million principal of the 5% Convertible Subordinated Preferred Equivalent Debentures due 2027 and the $910.0 million Zero Coupon Senior Convertible Debentures due 2020. 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 September 30, 2001, the fair value of the Senior Notes was $202.8 million. The fair value of the Senior Notes is principally dependent on changes in prevailing interest rates. In July 2001, we entered into an interest rate swap to hedge the exposure on $100.0 million of the Senior Notes. Under the agreement, on May 15 and November 15 of each year until maturity on May 15, 2006, we will receive interest at the fixed rate of 7 1/4% and will pay a floating based on six month LIBOR in arrears plus a spread of 1.405%. As of September 30, 2001, the fair market value of the swap agreement was a $5.0 million asset. The fair market value of the Convertible Preferred Debentures was $316.0 million and the fair market value of the Zero Coupon Debentures at September 30, 2001 was $485.7 million. The fair value of the Convertible Preferred Debentures and the Zero Coupon Debentures are principally dependent on both prevailing interest rates and our current stock price as it relates to the conversion price of $53.34 per share and $55.1425 per share of our common stock, respectively. 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. 29 PART II. OTHER INFORMATION ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS During the quarter ended September 30, 2001, we issued an aggregate of 358,999 shares of Common Stock as follows: On July 5, 2001, we issued 358,999 shares of Common Stock to the shareholders of Brit Bit Limited in consideration for the purchase of all the issued capital stock of Brit Bit Limited. The shares were issued in transactions not involving a public offering and were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: EXHIBIT NUMBER DESCRIPTION 10.1 Sale and Purchase Agreement dated July 3, 2001, among Binnert Ruerd Haites and Others, Scottish Enterprise, Russell Eric Furner, Weatherford Australia Pty. Limited and Weatherford International, Inc. (incorporated by reference to Exhibit 4.13 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-65136) filed on July 13, 2001). 10.2 Registration Rights Agreement dated July 3, 2001, among Weatherford Australia Pty. Limited, Weatherford International, Inc. and the stockholders listed therein (incorporated by reference to Exhibit 4.14 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-65136) filed on July 13, 2001). +*10.3 Employment Agreements dated August 1, 2001 with Gary L. Warren, Mark E. Hopmann, Burt M. Martin, Lisa W. Rodriguez, and James N. Parmigiano. ---------- * Management contract or compensatory plan or arrangement + Filed herewith (b) Reports on Form 8-K: 1) Current Report on Form 8-K dated August 13, 2001, announcing the dismissal of Arthur Andersen LLP as the Company's independent accountants and the engagement of Ernst & Young LLP as the Company's new independent accountants. 2) Current Report on Form 8-K dated July 16, 2001, announcing the Company's earnings for the quarter ended June 30, 2001. 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Weatherford International, Inc. By: /s/ Bernard J. Duroc-Danner ----------------------------------------- Bernard J. Duroc-Danner Chief Executive Officer, Chairman of the Board and Director (Principal Executive Officer) /s/ Lisa W. Rodriguez -------------------------------------------- Lisa W. Rodriguez Vice President, Finance and Accounting (Principal Financial and Accounting Officer) Date: November 1, 2001 31 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 Sale and Purchase Agreement dated July 3, 2001, among Binnert Ruerd Haites and Others, Scottish Enterprise, Russell Eric Furner, Weatherford Australia Pty. Limited and Weatherford International, Inc. (incorporated by reference to Exhibit 4.13 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-65136) filed on July 13, 2001). 10.2 Registration Rights Agreement dated July 3, 2001, among Weatherford Australia Pty. Limited, Weatherford International, Inc. and the stockholders listed therein (incorporated by reference to Exhibit 4.14 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-65136) filed on July 13, 2001). +*10.3 Employment Agreements dated August 1, 2001 with Gary L. Warren, Mark E. Hopmann, Burt M. Martin, Lisa W. Rodriguez, and James N. Parmigiano.
---------- * Management contract or compensatory plan or arrangement + Filed herewith EX-10.3 3 h91717ex10-3.txt EMPLOYMENT AGREEMENTS DATED AUGUST 1, 2001 EXHIBIT 10.3 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is entered into and effective as of August 1, 2001, by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and Gary L. Warren (the "Employee"). WITNESSETH: WHEREAS, the Company desires to employ the Employee on the terms set forth below to provide services to the Company, and the Employee is willing to accept such employment and provide such services on the terms set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the parties hereto do hereby agree: NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) "Cause" shall mean: (i) the willful and continued failure of the Employee to perform substantially the Employee's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Employee by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Employee has not substantially performed the Employee's duties, or (ii) the willful engaging by the Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. No act, or failure to act, on the part of the Employee shall be considered "willful" unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company. The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee 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 Employee, and the Employee is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Employee is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (b) "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(b); or (ii) Individuals, who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction") in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Corporate Transaction or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members 2 of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (c) "Good Reason" shall mean the occurrence of any of the following: (i) the assignment to the Employee of any duties inconsistent in any material respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company 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 Employee; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (iii) the Company's requiring the Employee to be based at any office or location other than as provided in Section 3(a) hereof or the Company's requiring the Employee to travel on Company business to a substantially greater extent than required immediately prior to the date hereof; (iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; (v) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (vi) in the event of a Change of Control or merger, consolidation or other business combination of the Company in which the Company's securities cease to be publicly traded, the assignment to the Employee of any position (including status, offices, titles and reporting requirements), authority, duties or responsibilities that are not (A) at or with the ultimate parent company of the entity surviving or resulting from such merger, consolidation or other business combination and (B) substantially similar to the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities as contemplated by Section 3(a); (d) "Board" shall mean the Board of Directors of the Company. For purposes of this Agreement, any good faith determination of "Good Reason" made by the Employee shall be conclusive. 2. Employment Period. The Company hereby agrees that the Company or an affiliated company will continue the Employee in its employ, and the Employee hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement during the Employment 3 Period (as defined below). The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the Effective Date; provided, however, that commencing on the date one year after the Effective Date, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three years after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Employee that the Employment Period shall not be so extended. The Effective Date shall be August 1, 2001. 3. Terms of Employment. (a) Position and Duties. During the Employment Period, (A) the Employee's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Senior Vice President of the Company and President of the Company's Drilling and Intervention Services division, (B) the Employee's services shall be performed at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location and (C) the Employee will report directly to the Company's Chief Executive Officer. (b) Compensation. (i) Base Salary. During the Employment Period, the Employee shall receive an annual base salary of $300,000 ("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 Employee 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 Employee under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Employee shall be eligible for an annual bonus 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. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee 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 Employee 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. 4 (iv) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Employee on the date hereof. (v) Fringe Benefits. During the Employment Period, the Employee shall be entitled to (A) a $600 per month car allowance and (B) such other fringe benefits (including, without limitation, payment of club dues, payment of professional fees and taxes 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. (vi) Vacation. During the Employment Period, the Employee shall be entitled to at least 3 weeks paid vacation or such greater amount of paid vacation as may be applicable to the executive officers of the Company and its affiliated companies. (vii) Deferred Compensation Plan. During the Employment Period, the Employee shall be entitled to continue to participate in any deferred compensation or similar plans in which executive officers of the Company participate. (c) Termination of Prior Agreement. The Employee acknowledges and agrees that this Agreement is being executed in replacement of the Employee's existing Employment Agreement dated October 4, 1999 (the "Prior Agreement"). As a result, the Employee and the Company agree that the Prior Agreement is hereby terminated and of no further force and effect. 4. Termination of Employment. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective 30 days after receipt of such notice by the Employee (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Employee from the Employee's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative. (b) Cause. The Company may terminate the Employee's employment during the Employment Period for Cause. 5 (c) Good Reason. The Employee's employment may be terminated by the Employee during the Employment Period for Good Reason. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of the Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice 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 Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date, in the case of a notice by the Company, shall be not more than 30 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company, respectively, from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Employee's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination; and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, the Employee's employment shall terminate automatically without further obligations to the Employee's legal representatives under this Agreement, other than for payment of Accrued Obligations and Other Benefits (as defined below) and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(a) shall include, without limitation, and the Employee'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 officers 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 Employee's death. (b) Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, the Employee's employment shall terminate without further obligations to the Employee under this Agreement, other than for payment of Accrued Obligations 6 and Other Benefits and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee 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 5(b) shall include, without limitation, and the Employee 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 Employee's disabled executive officers 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. (c) Cause; Other Than for Good Reason. If the Employee's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Employee, other than the obligation to pay to the Employee (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Employee and (z) Other Benefits, in each case to the extent theretofore unpaid. (d) Termination by Employee. If the Employee voluntarily terminates his employment during the Employment Period for any reason other than for Good Reason, the Employee's employment shall terminate without further obligations to the Employee, other than for payment of Accrued Obligations and Other Benefits and the rights provided in Section 6. In such case, all Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. (e) Good Reason or Other than For Cause, Death or Disability. If, during the Employment Period, the Company terminates the Employee's employment other than for Cause, death or Disability, or the Employee terminates employment for Good Reason: (i) The Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Employee over the preceding three year period and (II) the Annual Bonus that would be payable in respect of the current fiscal year (and annualized for any fiscal year consisting of less than 12 months) (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Employee under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); (B) an amount equal to two times the sum of (i) the then current Annual Base Salary of the Employee and (ii) the Highest Annual Bonus; (C) an amount equal to the total of the employer basic and matching contributions credited to the Employee under the Company's 401(k) Savings Plan (the "401(k) Plan") and any other deferred compensation plan during the 12-month period immediately preceding the month of the Employee's Date of Termination multiplied by 7 multiplied by two, such amount to be grossed up so that the amount the Employee actually receives after payment of any federal or state taxes payable thereon equals the amount first described above.; and (D) the total amount of all fringe benefits received by Employee on an annualized basis multiplied by two. (ii) For a period of two years from the Employee's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Employee and/or the Employee's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(iv) of this Agreement if the Employee's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Employee shall continue to pay the monthly employee contribution for same, and provided further, that if the Employee becomes re-employed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii) All benefits and amounts under the Company's deferred compensation plan and the 401(k) Plan and any other similar plans, including all stock options, restricted stock or other stock-based awards held by the Employee, not already vested shall be 100% vested. (iv) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee any other amounts or benefits required to be paid or provided or which the Employee is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (collectively, the "Other Benefits"). 6. Other Rights. Except as provided herein, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Employee that the Employee shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. In addition, if the Employee has any other employment or similar agreement with the Company at the Date of Termination, the Employee agrees that he shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Employee chooses, but not both agreements, and when the Employee has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Employee also agrees that to the extent he may be eligible for any severance pay or similar benefit under any laws providing for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Employee shall not receive duplicate benefits. 7. Full Settlement. 8 (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 Employee or others. (b) No Mitigation Required. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Employee obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Employee of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Employee is entitled to a Gross-Up Payment, but that the Employee, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $1,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Employee resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days after the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the 9 Change of Control, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments 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 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service (the "IRS") that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Employee is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the 10 Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the IRS or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies, provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement), information that is developed by the Employee independently of such information, or knowledge or data or information that is disclosed to the Employee by a third party under no obligation of confidentiality to the Company. After termination of the Employee's employment with the Company, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provision of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. 10. Successors. (a) This Agreement is personal to the Employee and shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to 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 11 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. 11. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Gary L. Warren 1903 Valleria Ct. Sugar Land, TX 77479 If to the Company: Weatherford International, Inc. 515 Post Oak Blvd., Suite 600 Houston, Texas 77027 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right to the Employee or the Company may have hereunder, including without limitation, the right of the Employee to terminate employment for Good Reason shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement constitutes the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements between the parties relating to the subject matter hereof, including, without limitation, the Prior Agreement. 12 IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. /s/ GARY L. WARREN ------------------------------------------- Gary L. Warren WEATHERFORD INTERNATIONAL, INC. By: /s/ JON R. NICHOLSON --------------------------------------- Jon R. Nicholson Senior Vice President - Human Resources 13 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is entered into and effective as of August 1, 2001, by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and Mark E. Hopmann (the "Employee"). WITNESSETH: WHEREAS, the Company desires to employ the Employee on the terms set forth below to provide services to the Company, and the Employee is willing to accept such employment and provide such services on the terms set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the parties hereto do hereby agree: NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) "Cause" shall mean: (i) the willful and continued failure of the Employee to perform substantially the Employee's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Employee by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Employee has not substantially performed the Employee's duties, or (ii) the willful engaging by the Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. No act, or failure to act, on the part of the Employee shall be considered "willful" unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company. The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee 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 Employee, and the Employee is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Employee is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (b) "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(b); or (ii) Individuals, who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction") in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Corporate Transaction or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members 2 of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (c) "Good Reason" shall mean the occurrence of any of the following: (i) the assignment to the Employee of any duties inconsistent in any material respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company 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 Employee; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (iii) the Company's requiring the Employee to be based at any office or location other than as provided in Section 3(a) hereof or the Company's requiring the Employee to travel on Company business to a substantially greater extent than required immediately prior to the date hereof; (iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; (v) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (vi) in the event of a Change of Control or merger, consolidation or other business combination of the Company in which the Company's securities cease to be publicly traded, the assignment to the Employee of any position (including status, offices, titles and reporting requirements), authority, duties or responsibilities that are not (A) at or with the ultimate parent company of the entity surviving or resulting from such merger, consolidation or other business combination and (B) substantially similar to the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities as contemplated by Section 3(a); (d) "Board" shall mean the Board of Directors of the Company. For purposes of this Agreement, any good faith determination of "Good Reason" made by the Employee shall be conclusive. 2. Employment Period. The Company hereby agrees that the Company or an affiliated company will continue the Employee in its employ, and the Employee hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement during the Employment 3 Period (as defined below). The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the Effective Date; provided, however, that commencing on the date one year after the Effective Date, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three years after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Employee that the Employment Period shall not be so extended. The Effective Date shall be August 1, 2001. 3. Terms of Employment. (a) Position and Duties. During the Employment Period, (A) the Employee's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Senior Vice President of the Company and President of the Company's Completion Systems division, (B) the Employee's services shall be performed at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location and (C) the Employee will report directly to the Company's Chief Executive Officer. (b) Compensation. (i) Base Salary. During the Employment Period, the Employee shall receive an annual base salary of $250,008 ("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 Employee 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 Employee under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Employee shall be eligible for an annual bonus 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. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee 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 Employee 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. 4 (iv) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Employee on the date hereof. (v) Fringe Benefits. During the Employment Period, the Employee shall be entitled to (A) a $600 per month car allowance and (B) such other fringe benefits (including, without limitation, payment of club dues, payment of professional fees and taxes 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. (vi) Vacation. During the Employment Period, the Employee shall be entitled to at least 3 weeks paid vacation or such greater amount of paid vacation as may be applicable to the executive officers of the Company and its affiliated companies. (vii) Deferred Compensation Plan. During the Employment Period, the Employee shall be entitled to continue to participate in any deferred compensation or similar plans in which executive officers of the Company participate. (c) Termination of Prior Agreement. The Employee acknowledges and agrees that this Agreement is being executed in replacement of the Employee's existing Employment Agreement dated October 4, 1999 (the "Prior Agreement"). As a result, the Employee and the Company agree that Prior Agreement is hereby terminated and of no further force and effect. 4. Termination of Employment. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective 30 days after receipt of such notice by the Employee (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Employee from the Employee's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative. (b) Cause. The Company may terminate the Employee's employment during the Employment Period for Cause. 5 (c) Good Reason. The Employee's employment may be terminated by the Employee during the Employment Period for Good Reason. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of the Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice 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 Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date, in the case of a notice by the Company, shall be not more than 30 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company, respectively, from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Employee's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination; and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, the Employee's employment shall terminate automatically without further obligations to the Employee's legal representatives under this Agreement, other than for payment of Accrued Obligations and Other Benefits (as defined below) and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(a) shall include, without limitation, and the Employee'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 officers 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 Employee's death. (b) Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, the Employee's employment shall terminate without further obligations to the Employee under this Agreement, other than for payment of Accrued Obligations 6 and Other Benefits and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee 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 5(b) shall include, without limitation, and the Employee 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 Employee's disabled executive officers 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. (c) Cause; Other Than for Good Reason. If the Employee's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Employee, other than the obligation to pay to the Employee (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Employee and (z) Other Benefits, in each case to the extent theretofore unpaid. (d) Termination by Employee. If the Employee voluntarily terminates his employment during the Employment Period for any reason other than for Good Reason, the Employee's employment shall terminate without further obligations to the Employee, other than for payment of Accrued Obligations and Other Benefits and the rights provided in Section 6. In such case, all Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. (e) Good Reason or Other than For Cause, Death or Disability. If, during the Employment Period, the Company terminates the Employee's employment other than for Cause, death or Disability, or the Employee terminates employment for Good Reason: (i) The Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Employee over the preceding three year period and (II) the Annual Bonus that would be payable in respect of the current fiscal year (and annualized for any fiscal year consisting of less than 12 months) (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Employee under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); (B) an amount equal to two times the sum of (i) the then current Annual Base Salary of the Employee and (ii) the Highest Annual Bonus; (C) an amount equal to the total of the employer basic and matching contributions credited to the Employee under the Company's 401(k) Savings Plan (the "401(k) Plan") and any other deferred compensation plan during the 12-month period immediately preceding the month of the Employee's Date of Termination multiplied by 7 multiplied by two, such amount to be grossed up so that the amount the Employee actually receives after payment of any federal or state taxes payable thereon equals the amount first described above.; and (D) the total amount of all fringe benefits received by Employee on an annualized basis multiplied by two. (ii) For a period of two years from the Employee's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Employee and/or the Employee's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(iv) of this Agreement if the Employee's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Employee shall continue to pay the monthly employee contribution for same, and provided further, that if the Employee becomes re-employed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii) All benefits and amounts under the Company's deferred compensation plan and the 401(k) Plan and any other similar plans, including all stock options, restricted stock or other stock-based awards held by the Employee, not already vested shall be 100% vested. (iv) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee any other amounts or benefits required to be paid or provided or which the Employee is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (collectively, the "Other Benefits"). 6. Other Rights. Except as provided herein, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Employee that the Employee shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. In addition, if the Employee has any other employment or similar agreement with the Company at the Date of Termination, the Employee agrees that he shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Employee chooses, but not both agreements, and when the Employee has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Employee also agrees that to the extent he may be eligible for any severance pay or similar benefit under any laws providing for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Employee shall not receive duplicate benefits. 7. Full Settlement. 8 (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 Employee or others. (b) No Mitigation Required. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Employee obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Employee of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Employee is entitled to a Gross-Up Payment, but that the Employee, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $1,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Employee resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days after the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the 9 Change of Control, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments 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 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service (the "IRS") that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Employee is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the 10 Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the IRS or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies, provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement), information that is developed by the Employee independently of such information, or knowledge or data or information that is disclosed to the Employee by a third party under no obligation of confidentiality to the Company. After termination of the Employee's employment with the Company, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provision of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. 10. Successors. (a) This Agreement is personal to the Employee and shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to 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 11 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. 11. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Mark E. Hopmann Rt. 1, Box 258 Alvin, Texas 77511 If to the Company: Weatherford International, Inc. 515 Post Oak Blvd., Suite 600 Houston, Texas 77027 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right to the Employee or the Company may have hereunder, including without limitation, the right of the Employee to terminate employment for Good Reason shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement constitutes the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements between the parties relating to the subject matter hereof, including, without limitation, the Prior Agreement. 12 IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. /s/ MARK E. HOPMANN ------------------------------------------- Mark E. Hopmann WEATHERFORD INTERNATIONAL, INC. By: /s/ JON R. NICHOLSON --------------------------------------- Jon R. Nicholson Senior Vice President - Human Resources 13 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is entered into and effective as of August 1, 2001, by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and Burt M. Martin (the "Employee"). WITNESSETH: WHEREAS, the Company desires to employ the Employee on the terms set forth below to provide services to the Company, and the Employee is willing to accept such employment and provide such services on the terms set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the parties hereto do hereby agree: NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) "Cause" shall mean: (i) the willful and continued failure of the Employee to perform substantially the Employee's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Employee by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Employee has not substantially performed the Employee's duties, or (ii) the willful engaging by the Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. No act, or failure to act, on the part of the Employee shall be considered "willful" unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company. The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee 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 Employee, and the Employee is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Employee is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (b) "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(b); or (ii) Individuals, who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction") in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Corporate Transaction or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such 2 ownership existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (c) "Good Reason" shall mean the occurrence of any of the following: (i) the assignment to the Employee of any duties inconsistent in any material respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company 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 Employee; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (iii) the Company's requiring the Employee to be based at any office or location other than as provided in Section 3(a) hereof or the Company's requiring the Employee to travel on Company business to a substantially greater extent than required immediately prior to the date hereof; (iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; (v) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (vi) in the event of a Change of Control or merger, consolidation or other business combination of the Company in which the Company's securities cease to be publicly traded, the assignment to the Employee of any position (including status, offices, titles and reporting requirements), authority, duties or responsibilities that are not (A) at or with the ultimate parent company of the entity surviving or resulting from such merger, consolidation or other business combination and (B) substantially similar to the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities as contemplated by Section 3(a); (d) "Board" shall mean the Board of Directors of the Company. For purposes of this Agreement, any good faith determination of "Good Reason" made by the Employee shall be conclusive. 3 2. Employment Period. The Company hereby agrees that the Company or an affiliated company will continue the Employee in its employ, and the Employee hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement during the Employment Period (as defined below). The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the Effective Date; provided, however, that commencing on the date one year after the Effective Date, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three years after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Employee that the Employment Period shall not be so extended. The Effective Date shall be August 1, 2001. 3. Terms of Employment. (a) Position and Duties. During the Employment Period, (A) the Employee's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Vice President, General Counsel and Secretary of the Company, (B) the Employee's services shall be performed at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location and (C) the Employee will report directly to the Company's Chief Executive Officer. (b) Compensation. (i) Base Salary. During the Employment Period, the Employee 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 Employee 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 Employee under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Employee shall be eligible for an annual bonus 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. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee 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 Employee under such plans, practices, policies and programs as in effect on the date hereof. As used in this 4 Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (iv) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Employee on the date hereof. (v) Fringe Benefits. During the Employment Period, the Employee shall be entitled to (A) a $600 per month car allowance and (B) such other fringe benefits (including, without limitation, payment of club dues, payment of professional fees and taxes 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. (vi) Vacation. During the Employment Period, the Employee shall be entitled to at least 3 weeks paid vacation or such greater amount of paid vacation as may be applicable to the executive officers of the Company and its affiliated companies. (vii) Deferred Compensation Plan. During the Employment Period, the Employee shall be entitled to continue to participate in any deferred compensation or similar plans in which executive officers of the Company participate. (c) Termination of Prior Agreement. The Employee acknowledges and agrees that this Agreement is being executed in replacement of the Employee's existing Change of Control Agreement dated June 10, 1998 (the "Prior Agreement"). As a result, the Employee and the Company agree that the Prior Agreement is hereby terminated and of no further force and effect. 4. Termination of Employment. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective 30 days after receipt of such notice by the Employee (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Employee from the Employee's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative. 5 (b) Cause. The Company may terminate the Employee's employment during the Employment Period for Cause. (c) Good Reason. The Employee's employment may be terminated by the Employee during the Employment Period for Good Reason. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of the Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice 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 Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date, in the case of a notice by the Company, shall be not more than 30 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company, respectively, from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Employee's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination; and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, the Employee's employment shall terminate automatically without further obligations to the Employee's legal representatives under this Agreement, other than for payment of Accrued Obligations and Other Benefits (as defined below) and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(a) shall include, without limitation, and the Employee'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 officers 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 Employee's death. 6 (b) Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, the Employee's employment shall terminate without further obligations to the Employee under this Agreement, other than for payment of Accrued Obligations and Other Benefits and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee 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 5(b) shall include, without limitation, and the Employee 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 Employee's disabled executive officers 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. (c) Cause; Other Than for Good Reason. If the Employee's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Employee, other than the obligation to pay to the Employee (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Employee and (z) Other Benefits, in each case to the extent theretofore unpaid. (d) Termination by Employee. If the Employee voluntarily terminates his employment during the Employment Period for any reason other than for Good Reason, the Employee's employment shall terminate without further obligations to the Employee, other than for payment of Accrued Obligations and Other Benefits and the rights provided in Section 6. In such case, all Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. (e) Good Reason or Other than For Cause, Death or Disability. If, during the Employment Period, the Company terminates the Employee's employment other than for Cause, death or Disability, or the Employee terminates employment for Good Reason: (i) The Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Employee over the preceding three year period and (II) the Annual Bonus that would be payable in respect of the current fiscal year (and annualized for any fiscal year consisting of less than 12 months) (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Employee under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); (B) an amount equal to two times the sum of (i) the then current Annual Base Salary of the Employee and (ii) the Highest Annual Bonus; 7 (C) an amount equal to the total of the employer basic and matching contributions credited to the Employee under the Company's 401(k) Savings Plan (the "401(k) Plan") and any other deferred compensation plan during the 12-month period immediately preceding the month of the Employee's Date of Termination multiplied by multiplied by two, such amount to be grossed up so that the amount the Employee actually receives after payment of any federal or state taxes payable thereon equals the amount first described above.; and (D) the total amount of all fringe benefits received by Employee on an annualized basis multiplied by two. (ii) For a period of two years from the Employee's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Employee and/or the Employee's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(iv) of this Agreement if the Employee's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Employee shall continue to pay the monthly employee contribution for same, and provided further, that if the Employee becomes re-employed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii) All benefits and amounts under the Company's deferred compensation plan and the 401(k) Plan and any other similar plans, including all stock options, restricted stock or other stock-based awards held by the Employee, not already vested shall be 100% vested. (iv) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee any other amounts or benefits required to be paid or provided or which the Employee is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (collectively, the "Other Benefits"). 6. Other Rights. Except as provided herein, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Employee that the Employee shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. In addition, if the Employee has any other employment or similar agreement with the Company at the Date of Termination, the Employee agrees that he shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Employee chooses, but not both agreements, and when the Employee has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Employee also agrees that to the extent he may be eligible for any severance pay or similar benefit under any laws providing 8 for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Employee shall not receive duplicate benefits. 7. Full Settlement. (a) No Rights of Offset. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. (b) No Mitigation Required. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Employee obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Employee of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross- Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Employee is entitled to a Gross-Up Payment, but that the Employee, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $1,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Employee resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by 9 Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days after the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments 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 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service (the "IRS") that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Employee is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either 10 direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the IRS or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies, provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement), information that is developed by the Employee independently of such information, or knowledge or data or information that is disclosed to the Employee by a third party under no obligation of confidentiality to the Company. After termination of the Employee's employment with the Company, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provision of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. 10. Successors. (a) This Agreement is personal to the Employee and shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 11 (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. 11. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Burt M. Martin 4817 Wellford Bellaire, Texas 77401 If to the Company: Weatherford International, Inc. 515 Post Oak Blvd., Suite 600 Houston, Texas 77027 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right to the Employee or the Company may have hereunder, including without limitation, the right of the Employee to terminate employment for Good Reason shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 12 (f) This Agreement constitutes the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements between the parties relating to the subject matter hereof, including, without limitation, the Prior Agreement. 13 IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. /s/ BURT M. MARTIN --------------------------------------------- Burt M. Martin WEATHERFORD INTERNATIONAL, INC. By: /s/ JON R. NICHOLSON ------------------------------------------ Jon R. Nicholson Senior Vice President - Human Resources 14 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is entered into and effective as of August 1, 2001, by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and Lisa W. Rodriguez (the "Employee"). WITNESSETH: WHEREAS, the Company desires to employ the Employee on the terms set forth below to provide services to the Company, and the Employee is willing to accept such employment and provide such services on the terms set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the parties hereto do hereby agree: NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) "Cause" shall mean: (i) the willful and continued failure of the Employee to perform substantially the Employee's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Employee by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Employee has not substantially performed the Employee's duties, or (ii) the willful engaging by the Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. No act, or failure to act, on the part of the Employee shall be considered "willful" unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company. The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee 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 Employee, and the Employee is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Employee is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (b) "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(b); or (ii) Individuals, who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction") in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Corporate Transaction or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members 2 of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (c) "Good Reason" shall mean the occurrence of any of the following: (i) the assignment to the Employee of any duties inconsistent in any material respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company 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 Employee; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (iii) the Company's requiring the Employee to be based at any office or location other than as provided in Section 3(a) hereof or the Company's requiring the Employee to travel on Company business to a substantially greater extent than required immediately prior to the date hereof; (iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; (v) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (vi) in the event of a Change of Control or merger, consolidation or other business combination of the Company in which the Company's securities cease to be publicly traded, the assignment to the Employee of any position (including status, offices, titles and reporting requirements), authority, duties or responsibilities that are not (A) at or with the ultimate parent company of the entity surviving or resulting from such merger, consolidation or other business combination and (B) substantially similar to the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities as contemplated by Section 3(a); (d) "Board" shall mean the Board of Directors of the Company. For purposes of this Agreement, any good faith determination of "Good Reason" made by the Employee shall be conclusive. 2. Employment Period. The Company hereby agrees that the Company or an affiliated company will continue the Employee in its employ, and the Employee hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement during the Employment 3 Period (as defined below). The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the Effective Date; provided, however, that commencing on the date one year after the Effective Date, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three years after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Employee that the Employment Period shall not be so extended. The Effective Date shall be August 1, 2001. 3. Terms of Employment. (a) Position and Duties. During the Employment Period, (A) the Employee's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Vice President - Finance and Accounting and Controller of the Company, (B) the Employee's services shall be performed at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location and (C) the Employee will report directly to the Company's Chief Executive Officer. (b) Compensation. (i) Base Salary. During the Employment Period, the Employee shall receive an annual base salary of $200,004 ("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 Employee 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 Employee under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Employee shall be eligible for an annual bonus 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. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee 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 Employee 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. 4 (iv) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Employee on the date hereof. (v) Fringe Benefits. During the Employment Period, the Employee shall be entitled to (A) a $600 per month car allowance and (B) such other fringe benefits (including, without limitation, payment of club dues, payment of professional fees and taxes 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. (vi) Vacation. During the Employment Period, the Employee shall be entitled to at least 3 weeks paid vacation or such greater amount of paid vacation as may be applicable to the executive officers of the Company and its affiliated companies. (vii) Deferred Compensation Plan. During the Employment Period, the Employee shall be entitled to continue to participate in any deferred compensation or similar plans in which executive officers of the Company participate. 4. Termination of Employment. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective 30 days after receipt of such notice by the Employee (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Employee from the Employee's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative. (b) Cause. The Company may terminate the Employee's employment during the Employment Period for Cause. (c) Good Reason. The Employee's employment may be terminated by the Employee during the Employment Period for Good Reason. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of the Agreement. For purposes of this 5 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 Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date, in the case of a notice by the Company, shall be not more than 30 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company, respectively, from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Employee's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination; and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, the Employee's employment shall terminate automatically without further obligations to the Employee's legal representatives under this Agreement, other than for payment of Accrued Obligations and Other Benefits (as defined below) and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(a) shall include, without limitation, and the Employee'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 officers 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 Employee's death. (b) Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, the Employee's employment shall terminate without further obligations to the Employee under this Agreement, other than for payment of Accrued Obligations and Other Benefits and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee 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 5(b) shall include, without limitation, and the Employee 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 Employee's disabled executive officers and/or their families in accordance with such plans, programs, 6 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. (c) Cause; Other Than for Good Reason. If the Employee's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Employee, other than the obligation to pay to the Employee (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Employee and (z) Other Benefits, in each case to the extent theretofore unpaid. (d) Termination by Employee. If the Employee voluntarily terminates his employment during the Employment Period for any reason other than for Good Reason, the Employee's employment shall terminate without further obligations to the Employee, other than for payment of Accrued Obligations and Other Benefits and the rights provided in Section 6. In such case, all Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. (e) Good Reason or Other than For Cause, Death or Disability. If, during the Employment Period, the Company terminates the Employee's employment other than for Cause, death or Disability, or the Employee terminates employment for Good Reason: (i) The Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Employee over the preceding three year period and (II) the Annual Bonus that would be payable in respect of the current fiscal year (and annualized for any fiscal year consisting of less than 12 months) (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Employee under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); (B) an amount equal to two times the sum of (i) the then current Annual Base Salary of the Employee and (ii) the Highest Annual Bonus; (C) an amount equal to the total of the employer basic and matching contributions credited to the Employee under the Company's 401(k) Savings Plan (the "401(k) Plan") and any other deferred compensation plan during the 12-month period immediately preceding the month of the Employee's Date of Termination multiplied by multiplied by two, such amount to be grossed up so that the amount the Employee actually receives after payment of any federal or state taxes payable thereon equals the amount first described above.; and (D) the total amount of all fringe benefits received by Employee on an annualized basis multiplied by two. 7 (ii) For a period of two years from the Employee's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Employee and/or the Employee's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(iv) of this Agreement if the Employee's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Employee shall continue to pay the monthly employee contribution for same, and provided further, that if the Employee becomes re-employed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii) All benefits and amounts under the Company's deferred compensation plan and the 401(k) Plan and any other similar plans, including all stock options, restricted stock or other stock-based awards held by the Employee, not already vested shall be 100% vested. (iv) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee any other amounts or benefits required to be paid or provided or which the Employee is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (collectively, the "Other Benefits"). 6. Other Rights. Except as provided herein, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Employee that the Employee shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. In addition, if the Employee has any other employment or similar agreement with the Company at the Date of Termination, the Employee agrees that he shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Employee chooses, but not both agreements, and when the Employee has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Employee also agrees that to the extent he may be eligible for any severance pay or similar benefit under any laws providing for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Employee shall not receive duplicate benefits. 7. Full Settlement. (a) No Rights of Offset. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. 8 (b) No Mitigation Required. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Employee obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Employee of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Employee is entitled to a Gross-Up Payment, but that the Employee, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $1,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Employee resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days after the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days after the receipt of the Accounting Firm's determination. Any determination by the 9 Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments 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 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service (the "IRS") that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Employee is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount 10 is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the IRS or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies, provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement), information that is developed by the Employee independently of such information, or knowledge or data or information that is disclosed to the Employee by a third party under no obligation of confidentiality to the Company. After termination of the Employee's employment with the Company, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provision of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. 10. Successors. (a) This Agreement is personal to the Employee and shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to 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. 11 11. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Lisa W. Rodriguez 3106 Greenridge Drive Missouri City, TX 77459 If to the Company: Weatherford International, Inc. 515 Post Oak Blvd., Suite 600 Houston, Texas 77027 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right to the Employee or the Company may have hereunder, including without limitation, the right of the Employee to terminate employment for Good Reason shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement constitutes the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements between the parties relating to the subject matter hereof. 12 IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. /s/ LISA W. RODRIGUEZ --------------------------------------------- Lisa W. Rodriguez WEATHERFORD INTERNATIONAL, INC. By: /s/ JON R. NICHOLSON ------------------------------------------ Jon R. Nicholson Senior Vice President - Human Resources 13 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is entered into and effective as of August 1, 2001, by and between Weatherford International, Inc., a Delaware corporation (the "Company"), and James N. Parmigiano (the "Employee"). WITNESSETH: WHEREAS, the Company desires to employ the Employee on the terms set forth below to provide services to the Company, and the Employee is willing to accept such employment and provide such services on the terms set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the parties hereto do hereby agree: NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) "Cause" shall mean: (i) the willful and continued failure of the Employee to perform substantially the Employee's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Employee by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Employee has not substantially performed the Employee's duties, or (ii) the willful engaging by the Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. No act, or failure to act, on the part of the Employee shall be considered "willful" unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or of a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company. The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee 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 Employee, and the Employee is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Employee is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (b) "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(b); or (ii) Individuals, who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction") in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Corporate Transaction or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members 2 of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (c) "Good Reason" shall mean the occurrence of any of the following: (i) the assignment to the Employee of any duties inconsistent in any material respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company 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 Employee; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (iii) the Company's requiring the Employee to be based at any office or location other than as provided in Section 3(a) hereof or the Company's requiring the Employee to travel on Company business to a substantially greater extent than required immediately prior to the date hereof; (iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; (v) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (vi) in the event of a Change of Control or merger, consolidation or other business combination of the Company in which the Company's securities cease to be publicly traded, the assignment to the Employee of any position (including status, offices, titles and reporting requirements), authority, duties or responsibilities that are not (A) at or with the ultimate parent company of the entity surviving or resulting from such merger, consolidation or other business combination and (B) substantially similar to the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities as contemplated by Section 3(a); (d) "Board" shall mean the Board of Directors of the Company. For purposes of this Agreement, any good faith determination of "Good Reason" made by the Employee shall be conclusive. 2. Employment Period. The Company hereby agrees that the Company or an affiliated company will continue the Employee in its employ, and the Employee hereby agrees to remain in the employ of the Company or an affiliate subject to the terms and conditions of this Agreement during the Employment 3 Period (as defined below). The "Employment Period" shall mean the period commencing on the Effective Date (as defined below) and ending on the third anniversary of the Effective Date; provided, however, that commencing on the date one year after the Effective Date, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three years after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Employee that the Employment Period shall not be so extended. The Effective Date shall be August 1, 2001. 3. Terms of Employment. (a) Position and Duties. During the Employment Period, (A) the Employee's position (including status, offices, titles and reporting requirements, authority, duties and responsibilities) shall be Vice President - Operational Controller of the Company, (B) the Employee's services shall be performed at the Company's principal executive offices in Houston, Texas or other locations less than 35 miles from such location and (C) the Employee will report directly to the Presidents of the Company's Completion Systems and Drilling and Intervention Services divisions. (b) Compensation. (i) Base Salary. During the Employment Period, the Employee shall receive an annual base salary of $185,004 ("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 Employee 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 Employee under this Agreement. Annual Base Salary shall not be reduced after any such increase. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Employee shall be eligible for an annual bonus 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. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee 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 Employee 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. 4 (iv) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to all executive officers of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Employee with benefits which are less favorable, in the aggregate, than such plans, practices, policies and programs in effect for the Employee on the date hereof. (v) Fringe Benefits. During the Employment Period, the Employee shall be entitled to (A) a $600 per month car allowance and (B) such other fringe benefits (including, without limitation, payment of club dues, payment of professional fees and taxes 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. (vi) Vacation. During the Employment Period, the Employee shall be entitled to at least 3 weeks paid vacation or such greater amount of paid vacation as may be applicable to the executive officers of the Company and its affiliated companies. (vii) Deferred Compensation Plan. During the Employment Period, the Employee shall be entitled to continue to participate in any deferred compensation or similar plans in which executive officers of the Company participate. 4. Termination of Employment. (a) Death or Disability. The Employee's employment shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective 30 days after receipt of such notice by the Employee (the "Disability Effective Date"), provided that within the 30-day period after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Employee from the Employee's duties with the Company on a full-time basis for 180 calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative. (b) Cause. The Company may terminate the Employee's employment during the Employment Period for Cause. (c) Good Reason. The Employee's employment may be terminated by the Employee during the Employment Period for Good Reason. (d) Notice of Termination. Any termination during the Employment Period by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of the Agreement. For purposes of this 5 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 Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date, in the case of a notice by the Company, shall be not more than 30 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company, respectively, from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" shall mean: (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Employee's employment is terminated by the Company other than for Cause, death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination; and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. (a) Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, the Employee's employment shall terminate automatically without further obligations to the Employee's legal representatives under this Agreement, other than for payment of Accrued Obligations and Other Benefits (as defined below) and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days after the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(a) shall include, without limitation, and the Employee'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 officers 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 Employee's death. (b) Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, the Employee's employment shall terminate without further obligations to the Employee under this Agreement, other than for payment of Accrued Obligations and Other Benefits and the rights provided in Section 6. Accrued Obligations shall be paid to the Employee 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 5(b) shall include, without limitation, and the Employee 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 Employee's disabled executive officers and/or their families in accordance with such plans, programs, 6 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. (c) Cause; Other Than for Good Reason. If the Employee's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Employee, other than the obligation to pay to the Employee (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Employee and (z) Other Benefits, in each case to the extent theretofore unpaid. (d) Termination by Employee. If the Employee voluntarily terminates his employment during the Employment Period for any reason other than for Good Reason, the Employee's employment shall terminate without further obligations to the Employee, other than for payment of Accrued Obligations and Other Benefits and the rights provided in Section 6. In such case, all Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days after the Date of Termination subject to such other options or restrictions as provided by law. (e) Good Reason or Other than For Cause, Death or Disability. If, during the Employment Period, the Company terminates the Employee's employment other than for Cause, death or Disability, or the Employee terminates employment for Good Reason: (i) The Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the highest Annual Bonus received by the Employee over the preceding three year period and (II) the Annual Bonus that would be payable in respect of the current fiscal year (and annualized for any fiscal year consisting of less than 12 months) (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Employee under a plan sponsored by the Company (together with any accrued interest or earnings thereon), and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); (B) an amount equal to two times the sum of (i) the then current Annual Base Salary of the Employee and (ii) the Highest Annual Bonus; (C) an amount equal to the total of the employer basic and matching contributions credited to the Employee under the Company's 401(k) Savings Plan (the "401(k) Plan") and any other deferred compensation plan during the 12-month period immediately preceding the month of the Employee's Date of Termination multiplied by multiplied by two, such amount to be grossed up so that the amount the Employee actually receives after payment of any federal or state taxes payable thereon equals the amount first described above.; and (D) the total amount of all fringe benefits received by Employee on an annualized basis multiplied by two. 7 (ii) For a period of two years from the Employee's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Employee and/or the Employee's family equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(iv) of this Agreement if the Employee's employment had not been terminated; provided, however, that with respect to any of such plans, programs, practices or policies requiring an employee contribution, the Employee shall continue to pay the monthly employee contribution for same, and provided further, that if the Employee becomes re-employed by another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. (iii) All benefits and amounts under the Company's deferred compensation plan and the 401(k) Plan and any other similar plans, including all stock options, restricted stock or other stock-based awards held by the Employee, not already vested shall be 100% vested. (iv) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee any other amounts or benefits required to be paid or provided or which the Employee is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (collectively, the "Other Benefits"). 6. Other Rights. Except as provided herein, nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Except as provided hereinafter, amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement. It is expressly agreed by the Employee that the Employee shall have no right to receive, and hereby waives any entitlement to, any severance pay or similar benefit under any other plan, policy, practice or program of the Company. In addition, if the Employee has any other employment or similar agreement with the Company at the Date of Termination, the Employee agrees that he shall have the right to receive all of the benefits provided under this Agreement or such other agreement, whichever one, in its entirety, the Employee chooses, but not both agreements, and when the Employee has made such election, the other agreement shall be superseded in its entirety and shall be of no further force and effect. The Employee also agrees that to the extent he may be eligible for any severance pay or similar benefit under any laws providing for severance or termination benefits, such other severance pay or similar benefit shall be coordinated with the benefits owed hereunder, such that the Employee shall not receive duplicate benefits. 7. Full Settlement. (a) No Rights of Offset. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. 8 (b) No Mitigation Required. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Employee obtains other employment. (c) Legal Fees. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or the Employee of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereto (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Employee is entitled to a Gross-Up Payment, but that the Employee, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $1,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Employee resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination shall be made by Arthur Andersen LLP or, as provided below, such other certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days after the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days after the receipt of the Accounting Firm's determination. Any determination by the 9 Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments 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 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service (the "IRS") that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification shall be given as soon as practicable, but no later than ten business days after the Employee is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claims; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such costs and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount 10 is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the IRS or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies, provided that it shall not apply to information which is or shall become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement), information that is developed by the Employee independently of such information, or knowledge or data or information that is disclosed to the Employee by a third party under no obligation of confidentiality to the Company. After termination of the Employee's employment with the Company, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provision of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. 10. Successors. (a) This Agreement is personal to the Employee and shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to 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. 11 11. Miscellaneous. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: James N. Parmigiano -------------------------- -------------------------- If to the Company: Weatherford International, Inc. 515 Post Oak Blvd., Suite 600 Houston, Texas 77027 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right to the Employee or the Company may have hereunder, including without limitation, the right of the Employee to terminate employment for Good Reason shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement constitutes the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements between the parties relating to the subject matter hereof. 12 IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. /s/ JAMES N. PARMIGIANO -------------------------------------------- James N. Parmigiano WEATHERFORD INTERNATIONAL, INC. By: /s/ JON R. NICHOLSON ----------------------------------------- Jon R. Nicholson Senior Vice President - Human Resources 13