-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NX7Bh36E7K4ojhYnvBm2by8LFETIB1Mdzc6cM43PqzCtCTQK61pNbftAPXw/m4Jx rGeIuHR31jKzZbk63M5wQw== 0000899243-01-500557.txt : 20010516 0000899243-01-500557.hdr.sgml : 20010516 ACCESSION NUMBER: 0000899243-01-500557 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES CO CENTRAL INDEX KEY: 0000864328 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 630084140 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10570 FILM NUMBER: 1635638 BUSINESS ADDRESS: STREET 1: 5500 NW CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77210 BUSINESS PHONE: 7134624239 MAIL ADDRESS: STREET 1: 5500 NORTHWEST CENTRAL DR STREET 2: 5500 NORTHWEST CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77092 10-Q 1 d10q.txt FOR PERIOD ENDING 3/31/2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 1-10570 BJ SERVICES COMPANY (Exact name of registrant as specified in its charter) Delaware 63-0084140 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5500 Northwest Central Drive, Houston, Texas 77092 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including areacode: (713) 462-4239 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 _____ ----- There were 82,274,048 shares of the registrant's common stock, $.10 par value, outstanding as of May 10, 2001. - -------------------------------------------------------------------------------- ================================================================================ BJ SERVICES COMPANY INDEX PART I - FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Condensed Statement of Operations (Unaudited) - Three and six months ended March 31, 2001 and 2000 3 Consolidated Condensed Statement of Financial Position - March 31, 2001 (Unaudited) and September 30, 2000 4 Consolidated Statement of Stockholders' Equity (Unaudited) - Six months ended March 31, 2001 5 Consolidated Condensed Statement of Cash Flows (Unaudited) - Six months ended March 31, 2001 and 2000 6 Notes to Unaudited Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II - OTHER INFORMATION 20 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) (In thousands, except per share amounts)
Three Months Ended Six Months Ended March 31 March 31, 2001 2000 2001 2000 ---------- ---------- ------------ ----------- Revenue $549,661 $390,755 $1,039,339 $ 745,575 Operating expenses: Cost of sales and services 377,743 302,997 725,062 584,449 Research and engineering 8,877 7,241 16,770 13,284 Marketing 15,638 13,411 29,769 26,147 General and administrative 16,903 13,862 32,803 27,560 Goodwill amortization 3,375 3,368 6,749 6,737 ---------- ---------- ------------ ----------- Total operating expenses 422,536 340,879 811,153 658,177 ---------- ---------- ------------ ----------- Operating income 127,125 49,876 228,186 87,398 Interest expense (3,773) (5,015) (7,817) (11,984) Interest income 470 163 873 249 Other income (expense) - net (1,471) (861) (2,735) (1,410) ---------- ---------- ------------ ----------- Income before income taxes 122,351 44,163 218,507 74,253 Income tax expense 41,599 14,839 74,292 24,467 ---------- ---------- ------------ ----------- Net income $ 80,752 $ 29,324 $ 144,215 $ 49,786 ========== ======== ========== ========== Earnings per share: Basic $ .98 $ .38 $ 1.76 $ .66 Diluted $ .96 $ .34 $ 1.72 $ .60 Weighted average shares outstanding: Basic 82,039 76,717 82,044 75,699 Diluted 83,819 84,933 83,871 83,226 Proforma earnings per share (See Note 2): Basic $ $.49 $ .19 $ .88 $ .33 Diluted $ $.48 $ .17 $ .86 $ .30 Proforma weighted average shares outstanding (See Note 2): Basic 164,078 153,434 164,088 151,398 Diluted 167,638 169,866 167,742 166,452
See Notes to Unaudited Consolidated Condensed Financial Statements 3 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION (In thousands) March 31, September 30, 2001 2000 ---------- ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 8,376 $ 6,472 Receivables - net 445,911 348,106 Inventories: Product 64,326 57,988 Work-in-process 2,647 1,408 Parts 61,819 53,399 ---------- ---------- Total inventories 128,792 112,795 Deferred income taxes 14,032 15,632 Other current assets 26,826 23,373 ---------- ---------- Total current assets 623,937 506,378 Property - net 608,941 585,394 Deferred income taxes 142,345 199,795 Goodwill - net 482,823 476,237 Other assets 15,588 17,429 ---------- ---------- $1,873,634 $1,785,233 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 167,941 $ 147,581 Short-term borrowings and current portion of long-term debt 34,829 34,100 Accrued employee compensation and benefits 47,935 48,536 Income and other taxes 23,518 22,771 Accrued insurance 12,461 11,557 Other accrued liabilities 69,887 72,546 ---------- ---------- Total current liabilities 356,571 337,091 Long-term debt 126,631 141,981 Deferred income taxes 9,524 7,966 Other long-term liabilities 128,242 128,424 Stockholders' equity 1,252,666 1,169,771 ---------- ---------- $1,873,634 $1,785,233 ========== ========== See Notes to Unaudited Consolidated Condensed Financial Statements 4 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated Capital Other Common In Excess Treasury Unearned Retained Comprehensive Stock Of Par Stock Compensation Earnings Income Total ------- ---------- ---------- ------------- --------- ------------- ------- (in thousands) Balance, September 30, 2000 $ 8,688 $ 948,859 $ (165,154) $ (3,433) $ 376,270 $ 4,541 $ 1,169,771 Comprehensive income: Net income 144,215 Other comprehensive income, net of tax: Cumulative translation adjustments (597) Comprehensive income 143,618 Reissuance of treasury stock for: Stock options 33,991 (22,204) 11,787 Stock purchase plan 8,052 (2,727) 5,325 Stock performance awards (1,814) 1,397 419 2 Acquisition 267 171 438 Treasury stock purchased (81,019) (81,019) Recognition of unearned compensation 2,744 2,744 Revaluation of stock performance awards 677 (677) Stock performance grant 4,141 (4,141) ------- --------- ---------- --------- --------- ------- ----------- Balance, March 31, 2001 $ 8,688 $ 951,863 $ (202,466) $ (5,507) $ 496,144 $ 3,944 $ 1,252,666 ======= ========= ========== ========= ========= ======= ===========
See Notes to Unaudited Consolidated Condensed Financial Statements 5 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands)
Six Months Ended March 31, 2001 2000 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $144,215 $ 49,786 Adjustments to reconcile net income to cash provided by operating activities: Minority interest 3,055 1,593 Amortization of unearned compensation 2,744 2,190 Depreciation and amortization 51,493 51,784 Deferred income taxes 59,299 16,148 Changes in: Receivables (94,379) (42,471) Inventories (15,510) (9,476) Accounts payable 19,966 12,880 Other current assets and liabilities (6,131) (25,590) Other - net 2,974 (7,629) -------- --------- Net cash provided by operating activities 167,726 49,215 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (74,809) (32,589) Proceeds from disposal of assets 7,718 123,308 Acquisition of business, net of cash acquired (10,996) -------- --------- Net cash provided by (used for) investing activities (78,087) 90,719 CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of borrowings - net (23,830) (325,489) Proceeds from issuance of stock 17,114 187,211 Purchase of treasury stock (81,019) -------- --------- Net cash used for financing activities (87,735) (138,278) Increase in cash and cash equivalents 1,904 1,656 Cash and cash equivalents at beginning of period 6,472 3,924 -------- --------- Cash and cash equivalents at end of period $ 8,376 $ 5,580 ======== =========
See Notes to Unaudited Consolidated Condensed Financial Statements 6 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Note 1 General In the opinion of management, the unaudited consolidated condensed financial statements for BJ Services Company (the "Company") include all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial position and statement of stockholders' equity as of March 31, 2001, and the results of operations for each of the three-month and six-month periods ended March 31, 2001 and 2000 and cash flows for each of the six-month periods ended March 31, 2001 and 2000. The consolidated condensed statement of financial position at September 30, 2000 is derived from the September 30, 2000 audited consolidated financial statements. Although management believes the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and the cash flows for the six-month period ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year. Certain amounts for fiscal 2000 have been reclassified to conform to the current year presentation. Note 2 Earnings Per Share Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares outstanding during each period and the assumed exercise of dilutive stock options and warrants less the number of treasury shares assumed to be purchased with the exercise proceeds using the average market price of the Company's common stock for each of the periods presented. 7 The following table presents information necessary to calculate earnings per share for the periods presented (in thousands except per share amounts):
Three Months Ended Six Months Ended March 31, March 31, 2001 2000 2001 2000 ------- ------- -------- -------- Net income $80,752 $29,324 $144,215 $ 49,786 Weighted-average common shares outstanding 82,039 76,717 82,044 75,699 ------- ------- -------- -------- Basic earnings per share $ .98 $ .38 $ 1.76 $ .66 ======= ======= ======== ======== Weighted-average common and dilutive potential common shares outstanding: Weighted-average common shares outstanding 82,039 76,717 82,044 75,699 Assumed exercise of stock options 1,780 2,054 1,827 1,854 Assumed exercise of warrants 6,162 5,673 ------- ------- -------- -------- 83,819 84,933 83,871 83,226 ------- ------- -------- -------- Diluted earnings per share $ .96 $ .34 $ 1.72 $ .60 ======= ======= ======== ========
At a special meeting of stockholders on May 10, 2001, the Company's stockholders approved an amendment to the Company's charter increasing the number of authorized shares of common stock from 160 million to 380 million shares. As a result, a 2 for 1 stock split approved by the Board of Directors on March 22, 2001 (to be effected in the form of a stock dividend) will be distributed on or about May 31, 2001 to stockholders of record as of May 17, 2001. Accordingly, proforma information is provided in the financial statements for all periods presented for shares outstanding and earnings per share amounts to reflect the increased number of common shares to be outstanding resulting from the stock split. Note 3 Segment Information The Company has three business segments: U.S./Mexico Pressure Pumping, International Pressure Pumping and Other Oilfield Services. The U.S./Mexico Pressure Pumping Services segment includes cementing services and stimulation services (consisting of fracturing, acidizing, sand control, nitrogen, coiled tubing and downhole tools services) that are provided throughout the United States and Mexico. The International Pressure Pumping Services segment also includes cementing and stimulation services provided in over 40 countries in the major oil and natural gas producing areas of Latin America, Europe, Africa, Southeast Asia, Canada and the Middle East. The Other Oilfield Services segment consists of specialty chemicals, tubular services and process and pipeline services provided in the U.S. and internationally. 8 The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company's annual financial statement footnotes. The Company evaluates the performance of its operating segments based on operating income excluding goodwill amortization and unusual charges. Intersegment sales and transfers are not significant. Summarized financial information concerning the Company's segments is shown in the following table. The "Corporate" column includes corporate general and administrative expenses and goodwill amortization. Business Segments
U.S./Mexico International Other Pressure Pressure Oilfield Pumping Pumping Services Corporate Total ------------------ ------------------ ------------- --------------- ---------------- (in thousands) Three months ended March 31, 2001 Revenues $290,964 $211,410 $ 46,839 $ 448 $ 549,661 Operating income (loss) 95,649 40,153 6,001 (14,678) 127,125 Three months ended March 31, 2000 Revenues $173,913 $176,741 $ 39,947 $ 154 $ 390,755 Operating income (loss) 28,261 31,861 271 (10,517) 49,876 Six months ended March 31, 2001 Revenues $544,878 $399,173 $ 94,748 $ 540 $1,039,339 Operating income (loss) 171,561 68,812 12,205 (24,392) 228,186 Identifiable assets 432,955 623,972 119,872 696,835 1,873,634 Six months ended March 31, 2000 Revenues $340,501 $322,151 $ 82,593 $ 330 $ 745,575 Operating income (loss) 57,389 45,475 4,322 (19,788) 87,398 Identifiable assets 327,673 608,250 112,202 748,668 1,796,793
Three Months Ended Six Months Ended March 31, March 31, --------------------------------- ------------------------------------ 2001 2000 2001 2000 ------------- --------------- --------------- ---------------- Total operating profit for reportable segments $127,125 $49,876 $228,186 $ 87,398 Interest income (expense) - net (3,303) (4,852) (6,944) (11,735) Other income (expense) - net (1,471) (861) (2,735) (1,410) -------- ------- -------- -------- Income before income taxes $122,351 $44,163 $218,507 $ 74,253 ======== ======= ======== ========
9 Note 4 Comprehensive Income The components of comprehensive net income, net of tax, are as follows in thousands:
Three Months Ended Six Months Ended March 31, March 31, 2001 2000 2001 2000 ------- ------- -------- ------- Net income attributable to common stockholders $80,752 $29,324 $144,215 $49,786 Change in cumulative translation adjustment (699) (302) (597) (627) ------- ------- -------- ------- Comprehensive net income $80,053 $29,022 $143,618 $49,159 ======= ======= ======== =======
Note 5 New Accounting Standards Effective October 1, 2000, the Company adopted Financial Accounting Standards Board Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. This statement requires recognition of all derivatives as either assets or liabilities in the statement of financial position and their measurement at fair value. The adoption of SFAS 133 did not have a material impact on the Company's financial position or results of operations. Note 6 Business Acquisition In February 2001, the Company completed the acquisition of Preeminent Energy Services ("Preeminent") for a total purchase price of $21.4 million (including transaction costs) in cash and Company common stock. The transaction may be summarized as follows: Cash paid $11,614 Stock issued 438 Debt assumed 9,311 ------- Total purchase price 21,363 Fair Value of Net Assets Acquired 8,026 ------- Goodwill $13,337 ======= This acquisition was accounted for using the purchase method of accounting. Accordingly, the results of Preeminent's operations are included in the consolidated condensed statement of operations beginning February 1, 2001. The assets and liabilities of Preeminent have been recorded in the Company's consolidated condensed statement of financial position at estimated fair market value as of February 1, 2001 with the remaining purchase price reflected as goodwill, which is being amortized on a straight-line basis over 40 years. The allocation of the purchase price is preliminary, as valuation and other studies have not been finalized. It is not expected that the final allocation of purchase price will produce materially different results from those presented herein. Proforma 10 financial information is not presented as the Company's management does not believe that this acquisition is material to the Company's consolidated financial statements. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company's operations are primarily driven by the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. Drilling activity, in turn, is largely dependent on the price of oil and natural gas. This situation often leads to volatility in the Company's revenues and profitability, especially in the United States and Canada, where the Company historically has generated in excess of 50% of its revenues. Due to "aging" oilfields and lower-cost sources of oil internationally, drilling activity in the United States has declined more than 75% from its peak in 1981. Record low drilling activity levels were experienced in 1986, 1992 and again in early 1999. Despite a recovery in the latter half of fiscal 1999, the U.S. average fiscal 1999 active rig count represented the lowest in history. The recovery in U.S. drilling continued throughout fiscal 2000 and into fiscal 2001 due to exceptionally strong oil and natural gas prices. For the six-month period ended March 31, 2001, the active U.S. rig count averaged 1,106 rigs, a 43% increase over the same period in fiscal 2000. For the three-month period ended March 31, 2001, the active U.S. rig count averaged 1,139 rigs, which is the highest average quarterly U.S. rig count since 1986. Drilling activity outside North America has historically been less volatile than domestic drilling activity and the downturn and recovery cycles tend to lag those of North America. While Canadian drilling activity began to recover during the latter part of fiscal 1999, activity in most of the other international regions has only recently begun to recover from the 1999 record lows. The recovery in Canadian drilling activity continued into fiscal 2001 with active rigs averaging 445 rigs during the six-month period ending March 31, 2001, a 9% increase over the same period of the previous fiscal year. For the quarter ended March 31, 2001, Canadian drilling activity averaged 515 rigs, 7.4% higher than the same period of the prior year. Active international drilling rigs (excluding Canada) averaged 717 rigs during the six-month period ended March 31, 2001, a 25% increase over the comparable period of fiscal 2000. For the three-month period ended March 31, 2001, international drilling rigs (excluding Canada) averaged 724 rigs, a 26% increase over the same period of fiscal 2000. 12 Results of Operations The following table sets forth selected key operating statistics reflecting industry rig counts and the Company's financial results:
Three Months Ended Six Months Ended March 31, March 31, 2001 2000 2001 2000 --------- ----------- ----------- ------------- Rig Count: (1) U.S. 1,139 770 1,106 772 International 1,239 1,056 1,162 982 Revenue per rig (in thousands) $231.1 $214.0 $458.2 $425.1 Revenue per employee (in thousands) $ 56.1 $ 46.7 $108.2 $ 91.3 Percentage of gross profit to revenue (2) 31.3% 22.5% 30.2% 21.6% Percentage of research and engineering expense to revenue 1.6% 1.9% 1.6% 1.8% Percentage of marketing expense to revenue 2.8% 3.4% 2.9% 3.5% Percentage of general and administrative expense to revenue 3.1% 3.5% 3.2% 3.7%
(1) Industry estimate of drilling activity as measured by average active rigs. (2) Gross profit represents revenue less cost of sales and services. Revenue: The Company's revenue for the quarter ended March 31, 2001 was $549.7 million, an increase of 41% from the previous year's second fiscal quarter and the highest quarterly revenue in the Company's history. For the six- month period ended March 31, 2001, the Company's revenue was $1.0 billion, an increase of 39% from the same period of fiscal 2000. These record results were attributable to continued improvements in U.S. drilling activity and pricing, and gradually increasing international drilling activity. Management expects the Company to continue to achieve revenue improvement in each of the remaining quarters of fiscal 2001 compared with the same quarters of the previous year. Operating Income: For the quarter ended March 31, 2001, the Company's operating income was $127.1 million, compared to operating income of $49.9 million in the second quarter of fiscal 2000. For the six months ended March 31, 2001, the Company recorded operating income of $228.2 million compared to $87.4 million in the first half of fiscal 2000. The Company's gross profit margins for the quarter increased to 31.3% from 22.5% in the prior year's second fiscal quarter. For the six months ended March 31, 2001, the Company's gross profit margins increased to 30.2% from 21.6% for the same period of fiscal 2000. The margin improvements were primarily a result of improved U.S. pricing, better equipment utilization, and labor efficiencies and more than offset a $2.6 million impairment write-down of idle operating assets identified for disposal. These efficiencies are reflected in the increase in both revenue per rig and revenue per employee during the first six months of fiscal 2001 compared to the same period of fiscal 2000. Partially offsetting the 13 improved margins were increases in research and engineering, marketing and general and administrative expenses which increased by $6.9 million and $12.4 million compared with the prior year's second quarter and six-month period, respectively, due primarily to higher accruals for incentive plans, which are based upon the Company's earnings and stock price. Each of these operating expenses, however, declined as a percentage of revenue for both the three and six-month periods. Other: Interest expense decreased by $1.2 million and $4.2 million, respectively, compared with the same three and six-month periods of the previous year due to lower outstanding debt. This was a result of the application of improved free cash flow from operations. The proceeds of the exercise of warrants reduced outstanding debt in the previous fiscal year. Borrowings and interest expense are expected to continue to decrease in 2001 because of expected continued strong cash flow from operations. Income Taxes: The Company's effective tax rate for the six-month period ended March 31, 2001 increased to 34% from 33% in the same period of last year primarily as a result of increased profitability in the higher tax jurisdictions of North America. U.S./Mexico Pressure Pumping Segment The Company's U.S./Mexico pressure pumping revenues for the three and six- month periods ended March 31, 2001increased by 67% and 60%, respectively, from the same prior year periods. Each of the Company's major U.S. service lines, including cementing, stimulation, coiled tubing and downhole tools, showed revenue increases, and all U.S. operating regions realized revenue increases in excess of 50% compared with the prior year's second quarter. These increases are primarily due to increased drilling activity and improved pricing. U.S. drilling activity for the quarter ended March 31, 2001 increased by 48% over the same quarter of fiscal 2000, to an average of 1,139 active rigs (79% of which were drilling for natural gas) during the quarter. This represents the highest average quarterly rig count since 1986. For the six months ended March 31, 2001, the U.S. active rig count averaged 1,106, a 43% increase over the same period of the previous fiscal year. U.S. workover activity levels also increased, up 16% during the first six months of fiscal 2001 compared to the same period of fiscal 2000. The stronger activity levels also allowed the Company to capture most of its September 2000 and a portion of its March 2001 price book increases. Also during the quarter, the Company completed the acquisition of Preeminent Energy Services, a Louisiana based coiled tubing company, which strengthened the Company's existing Gulf Coast and South Texas capabilities. As a result of the price improvement and the expected continuation of strong drilling and workover activity levels, management believes that revenues generated by its U.S./Mexico pressure pumping operations during the remaining two quarters of fiscal 2001 will continue to substantially exceed those in the comparable periods of fiscal 2000. Operating income for the Company's U.S./Mexico pressure pumping operations was $95.6 million in the second quarter of fiscal 2001 compared to $28.3 million in the same period of fiscal 2000. For the six-month period ended March 31, 2001, U.S./Mexico pressure pumping operating income was $171.6 million, compared to $57.4 million during the same year earlier 14 period. The improvements were due primarily to improved pricing, better equipment utilization, and labor efficiencies. On a year-over-year basis, pricing improved approximately 24% as a result of price book increases implemented during September 2000 and March 2001. On a sequential basis, pricing improved approximately 6% from the previous quarter. International Pressure Pumping Segment Revenue for the Company's international pressure pumping operations for the quarter and six-month periods ended March 31, 2001 increased 20% and 24%, respectively, compared with the same periods of the previous fiscal year. These were due primarily to an increase in Canadian gas drilling, increased stimulation activity in several international regions and contributions from geographic expansions. For the quarter ended March 31, 2001, each of the Company's international regions except Europe/Africa showed year-over-year revenue increases, with its Russia/China region up 57%, Asia Pacific region up 30%, Latin America region up 43%, Middle East region up 46%, and Canada region up 11%. While the Europe/Africa region recorded a 6% decline in revenue, this was solely due to an abnormally slow quarter for North Sea vessel stimulation work caused by project delays. For the six-month period ended March 31, 2001, all of the Company's international regions showed year-over-year revenue increases. As a result of new contracts and improving activity in selected locations, management expects revenue increases for each of its international regions throughout the remainder of fiscal 2001 when compared to the same quarter of fiscal 2000. As a result of the improved activity, operating income for the Company's international pressure pumping operations was $40.2 million in the second quarter of fiscal 2001 compared to $31.9 million in the same quarter of fiscal 2000. For the six months ended March 31, 2001, operating income was $68.8 million, an increase of $23.3 million over the same period of fiscal 2000. In addition to the improved activity, operating margins improved slightly due to startup costs in selected international locations that negatively impacted operating margins in the first six months of the previous year. Other Services Segment Revenue for the Company's other service lines, which consist of specialty chemicals, tubular services and process and pipeline services, increased 17% in the second quarter of fiscal 2001 compared to the same period of the prior year due primarily to increased activity from the process and pipeline inspection service line in Canada and Europe. For the six months ended March 31, 2001, revenue for these combined service lines increased 15% over the same period of fiscal 2000 due primarily to geographic expansions. Operating income for these service lines was $6.0 million (12.8% of revenue) in the three-month period ended March 31, 2001 compared to $.3 million (.7% of revenue) in the same period of fiscal 2000. For the six-month period ended March 31, 2001, operating income for the Company's other service lines was $12.2 million, an increase of $7.9 million over the same period of fiscal 2000. Operating income margins in the Company's tubular service and process and pipeline service lines benefited most from the increased revenue as they were better able to cover their relatively high 15 fixed cost base. Also contributing to the percentage increase in margins was the impact of startup costs incurred during the first half of fiscal 2000 for new projects in the process and pipeline services group that were delayed until the prior year's third fiscal quarter. Capital Resources and Liquidity - ------------------------------- Net cash provided from operating activities for the first half of fiscal 2001 was $167.7 million, an increase of $118.5 million from the comparable period of the prior year, due primarily to higher profitability and non-cash U.S. tax expense due to loss carryforwards. This was partially offset by increases in working capital, particularly accounts receivable and inventories, caused by the rapid revenue growth in North America. Net cash used for investing activities in the first six months of fiscal 2001 was $78.1 million, compared to net cash of $90.7 million provided by investing activities in the comparable period of 2000. The prior year's net cash provided by investing activities was due primarily to proceeds received from a transaction involving the transfer of certain pumping service equipment assets in the first quarter of fiscal 2000. Subsequent to the transfer of equipment, the Company received $120.0 million that was used to repay outstanding bank debt. Excluding this prior year transaction, net cash used for 2001 investing activities increased by $48.8 million due mostly to increased capital spending and the acquisition of Preeminent Energy Services in February 2001 for net cash of $11.0 million. Projected capital expenditures for fiscal 2001 are expected to increase significantly from 2000 and are currently planned to be approximately $150 - 165 million. The 2001 capital program will primarily replace and enhance U.S. fracturing equipment and expand stimulation resources internationally. The actual amount of 2001 capital expenditures will be dependent upon the availability of external manufacturing capacity and is expected to be funded by cash flows from operating activities and available credit facilities. Management believes cash flows from operating activities and available lines of credit, if necessary, will be sufficient to fund projected capital expenditures. Cash flows used for financing activities for the six months ended March 31, 2001, were $87.7 million compared to $138.3 million in the comparable period of fiscal 2000. Financing activities in the first half of fiscal 2000 included a private placement of 4.0 million shares of common stock in October 1999 that generated proceeds of $144.0 million used to pay down outstanding debt. During the first six months of fiscal 2001, the Company purchased 1.4 million shares of its common stock at a cost of $81.0 million. Management strives to maintain low cash balances while utilizing available credit facilities to meet the Company's capital needs. Any excess cash generated has historically been used to pay down outstanding borrowings or fund the Company's stock repurchase program. The Company has a committed, unsecured bank credit facility (the "Bank Credit Facility") consisting of a six-year term loan of approximately $30.3 million (currently drawn in Canadian dollars under a provision which is renewable annually at the option of the banks), which is repayable in 22 quarterly installments that began in March 1997, and a five year U.S. $225.0 million revolving facility available through June 2001. Presently, the Company is in negotiations to replace the revolving credit facility. 16 Management expects, subject to final negotiations and the execution of a definitive credit agreement, to have a committed facility in place prior to the expiration of the existing credit facility at June 30, 2001. At March 31, 2001, borrowings outstanding under the Bank Credit Facility totaled $30.3 million, consisting solely of borrowings under the term loan. Principal reductions of term loans under the Bank Credit Facility are due in aggregate annual installments of $14.5 million and $15.8 million in the years ending September 30, 2001 and 2002, respectively. In addition to the committed facility, the Company had $146.7 million in various unsecured, discretionary lines of credit at March 31, 2001, which expire at various dates in 2001. There are no requirements for commitment fees or compensating balances in connection with these lines of credit. Interest on borrowings is based on prevailing market rates. At March 31, 2001, there was $6.5 million in outstanding borrowings under these lines of credit. Because of improved free cash flows from operations and despite the repurchase of the Company's common stock during the first quarter of fiscal 2001, the Company's total interest-bearing debt decreased to 11.4% of its total capitalization at March 31, 2001, compared to 13.1% at September 30, 2000. The Bank Credit Facility includes various customary covenants and other provisions including the maintenance of certain profitability and solvency ratios and restrictions on dividend payments under certain circumstances, none of which materially restrict the Company's activities. Management believes that the Bank Credit Facility, combined with other discretionary credit facilities and cash flows from operations, provides the Company with sufficient capital resources and liquidity to manage its routine operations, meet debt service obligations and fund projected capital expenditures. If the discretionary lines of credit are not renewed, or if borrowings under these lines of credit otherwise become unavailable, the Company expects to refinance this debt by arranging additional committed bank facilities or through other long-term borrowing alternatives. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The adoption of SFAS 133 at the beginning of fiscal year 2001 did not have a material impact on the Company's financial position or results of operations. Forward Looking Statements This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 concerning, among other things, the Company's prospects, expected revenues, expenses and profits, developments and business strategies for its operations all of which are subject to certain risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms 17 and phrases such as "expect," "estimate," "project," "believe," "achievable" and similar terms and phrases. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. Such statements are subject to general economic and business conditions, conditions in the oil and natural gas industry, weather conditions that affect conditions in the oil and natural gas industry, the business opportunities that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond the control of the Company. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. 18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The table below provides information about the Company's market sensitive financial instruments and constitutes a "forward-looking statement." The Company's major market risk exposure is changing interest rates, primarily in the United States and Canada. The Company's policy is to manage interest rates through use of a combination of fixed and floating rate debt. A portion of the Company's borrowings are denominated in foreign currencies which exposes the Company to market risk associated with exchange rate movements. When necessary, the Company enters into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. There was one foreign exchange contract outstanding at March 31, 2001 in the amount of $41.9 million. This contract was settled on April 2, 2001 with no gain or loss. All items described are non- trading and are stated in U.S. dollars.
Expected Maturity Dates Fair Value 2000 2001 2002 2003 Thereafter Total March 31, 2001 ---- ---- ---- ---- ---------- ----- -------------- (in thousands) SHORT TERM BORROWINGS Bank borrowings; US$ denominated $ 548 $ 548 $ 548 Average variable interest rate - 6.04% at March 31, 2001 Bank borrowings: Canadian $ denominated $ 2,114 $ 2,114 $ 2,114 Average variable interest rate - 6.75% at March 31, 2001 Bank borrowings; Deutsche mark $ 2,720 $ 2,720 $ 2,720 denominated Average variable interest rate - 5.16% at March 31, 2001 LONG TERM BORROWINGS Current term loan; Canadian $ denominated $ 14,563 14,563 $ 29,126 $ 29,126 Variable interest rate - 5.36% at March 31, 2001 Current Leases: US $ denominated $ 321 $ 321 $ 321 Variable interest rate - 6.18% at March 31, 2001 Non-current term loan; Canadian $ $ 1,214 $ 1,214 $ 1,214 denominated Variable interest rate - 5.36% at March 31, 2001 Non-current leases; US $ denominated $ 435 350 $ 785 $ 785 Variable interest rate - 6.18% at March 31, 2001 7% Series B Notes - US$ denominated $124,632 $ 124,632 $ 127,100 Fixed interest rate - 7%
19 PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities On March 22, 2001, the Board of Directors of BJ Services Company (the "Company") approved an amendment to the Company's Amended Certificate of Incorporation to increase the number of shares of authorized common stock of the Company, par value $0.10 per share (the "Common Stock"), from 160,000,000 shares to 380,000,000 shares (the "Charter Amendment"). The Charter Amendment was approved by the Company's stockholders at a special meeting of stockholders held on May 10, 2001. On March 22, 2001, the Board of Directors of the Company declared a stock split, which will be effected in the form of a stock dividend (the "Stock Split") on the issued shares of Common Stock. The dividend will be paid on or about May 31, 2001, in newly issued shares to stockholders of record on May 17, 2001. Stockholders of record as of the close of business on May 17, 2001, the record date for the stock split (the "Stock Split Record Date"), will receive one additional share of Common Stock for each share of Common Stock held by such stockholder on the Stock Split Record Date. After giving effect to the Stock Split, the Company's preferred share purchase rights associated with the Common Stock (the "Rights"), and certain liquidation, dividend and voting rights associated with the Company's authorized but unissued Series A Junior Participating Preferred Stock issuable upon distribution and exercise of the Rights (the "Preferred Stock") will be proportionately adjusted to reflect the effect of the Stock Split. After giving effect to such adjustments to the Rights, the number of Rights associated with each share of Common Stock has been adjusted to be one-quarter of a Right to purchase a one one- thousandth interest in a share of the Company's authorized Preferred Stock. The Rights are subject to further adjustments pursuant to their terms under certain circumstances. Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Stockholders on January 25, 2001 in Houston, Texas. All nominated directors were elected, and the BJ Services Company 2000 Incentive Plan was approved. 20 (i) Directors elected at the Annual Meeting: Votes in Votes Favor Withheld ----- -------- Class II Directors ------------------ Don D. Jordan 74,593,495 240,624 Michael McShane 74,599,969 234,150 Directors with terms of office continuing after the Annual Meeting: Class I Directors ----------------- John R. Huff R.A. LeBlanc Michael E. Patrick Class III Directors ------------------- L. William Heiligbrodt James L. Payne J.W. Stewart Votes in Votes (ii) Favor Withheld ----- --------- Adoption of the BJ Services Company 2000 Stock Incentive Plan 53,217,181 21,616,936 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. *3.5 Certificate of Amendment to Certificate of Incorporation, dated May 10, 2001. *10.28 Director's Benefit Plan effective December 7, 2000. *10.29 BJ Services Deferred Compensation Plan effective October 1, 2000 * Filed herewith 21 10.30 Amendment effective May 10, 2001 to BJ Services Company 1995 Incentive Plan (filed as Appendix B to the Company's Proxy Statement dated April 10, 2001 and incorporated herein by reference.) 10.31 Amendment effective May 10, 2001 to BJ Services Company 1997 Incentive Plan (filed as Appendix C to the Company's Proxy Statement dated April 10, 2001 and incorporated herein by reference.) 10.32 Second Amendment effective May 10, 2001 to BJ Services Company 2000 Incentive Plan (filed as Appendix D to the Company's Proxy Statement dated April 10, 2001 and incorporated herein by reference.) (b) Reports on Form 8-K. None 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BJ Services Company (Registrant) Date: May 15, 2001 BY\s\Michael McShane ----------------------------------------- Michael McShane Senior Vice President, Finance, Chief Financial Officer and Director (Principal Financial Officer) Date: May 15, 2001 BY\s\James Horsch ----------------------------------------- James Horsch Controller (Principal Accounting Officer) 23 EX-3.5 2 dex35.txt CERTIFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BJ SERVICES COMPANY BJ SERVICES COMPANY, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY THAT: FIRST: At a meeting of the Board of Directors of the corporation a resolution was adopted proposing and declaring advisable the following amendment to the Certificate of Incorporation of the corporation, as amended, and calling a special meeting of stockholders of the corporation for the consideration of such amendment: RESOLVED, that Article FOURTH of the Certificate of Incorporation be amended to read as follows: "FOURTH: The total number of shares of stock which the Corporation shall have the authority to issue is 385,000,000 shares of capital stock, consisting of 5,000,000 shares of preferred stock, par value $1.00 per share (the "Preferred Stock"), and 380,000,000 shares of common stock, par value $0.10 per share (the "Common Stock"). The designations, powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the Preferred Stock shall be established by resolution of the Board of Directors pursuant to Section 151 of the General Corporation Law of the State of Delaware." SECOND: Thereafter, a special meeting of stockholders was duly called and held upon notice in accordance with Section 222 of the DGCL, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: The amendment was duly adopted in accordance with the provisions of Section 242 of the DGCL. IN WITNESS WHEREOF, BJ Services Company has caused this certificate to be signed by its authorized officer this 10th day of May, 2001. BJ SERVICES COMPANY By: _________________________________ Name: Margaret B. Shannon Title: Vice President, General Counsel and Secretary EX-10.28 3 dex1028.txt DIRECTOR'S BENEFIT PLAN BJ SERVICES COMPANY DIRECTORS' BENEFIT PLAN Effective December 7, 2000 ---------- BJ SERVICES COMPANY, a Delaware corporation (the "Company"), hereby establishes this BJ SERVICES COMPANY DIRECTORS' BENEFIT PLAN, effective as of December 7, 2000, to help attract and continue to retain highly qualified Directors for the Company by providing deferred compensation in recognition of services performed for the Company. ARTICLE I DEFINITIONS Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary: 1.1 Administrator: The person or persons appointed by the Board to administer the Plan. 1.2 Affiliate: Any person or entity who or which controls, is controlled by or is under common control with the Company. For purposes of this definition, the terms "control" and "controlled by" as used with respect to the Company or any person or entity shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Company or such person or entity, whether through the ownership of an equity interest in the Company or such person or entity, by contract or otherwise. 1.3 Applicable Interest Rate: The average of the annual rate of interest on 30-year Treasury securities for any month as published by the Federal Reserve Board (or some other prevailing interest rate selected by the Administrator), for the longer of (a) the period beginning on the Effective Date and ending upon the month preceding the Participant's Termination Date or (b) the five-year period ending on the month preceding the Participant's Termination Date. 1.4 Benefit: The benefit payable to a Participant as specified in Article III, subject to the provisions of Article IV. 1.5 Benefit Commencement Date: The date, determined under Article III, as of which a Participant begins to receive payment of his Benefit under the Plan. 1.6 Benefit Payment Period: The period, determined under Article III, over which a Benefit is to be paid under the Plan. 1.7 Board: The Board of Directors of the Company. 1.8 Company: BJ Services Company, a Delaware corporation. 1.9 Competitor: A company, corporation, enterprise, firm, limited partnership, partnership, person, sole proprietorship or any other business entity determined by the Board in its sole discretion to be competitive with the business of the Company, its Subsidiaries or its Affiliates. 1.10 Director: An individual, elected to the Board by the stockholders of the Company or by the Board under applicable corporate law, who is serving on the Board on the Effective Date or -1- is elected to the Board after the Effective Date and who is not an employee of the Company or any Subsidiary. 1.11 Effective Date: December 7, 2000. 1.12 Last Annual Retainer: The annual retainer payable by the Company to Directors in effect on a Participant's Termination Date. 1.13 Net Present Value: The lump sum amount that is equal in value to the applicable portion of a Participant's Benefit, based on an interest rate equal to the Applicable Interest Rate. 1.14 Participant: A Director who has commenced, but not terminated, participation in the Plan as provided in Article II. 1.15 Period of Service: Each period of an individual's service as a Director commencing on the effective date of his election or re-election to the Board and ending on a Termination Date, including periods commencing prior to the Effective Date. 1.16 Plan: This BJ Services Company Directors' Benefit Plan, as the same may be amended from time to time. 1.17 Subsidiary: At any given time, any other corporation of which an aggregate of 80% or more of its outstanding voting stock is owned of record or beneficially, directly or indirectly, by the Company or any other of its Subsidiaries. 1.18 Termination Date: The date on which a Director ceases to serve the Company as a Director by reason of his retirement, declination to stand for re-election, resignation, disability, removal, death or any other event. 1.19 Trust: Any trust created pursuant to the provisions of Article VIII. 1.20 Trust Agreement: The agreement establishing the Trust. 1.21 Trustee: The entity named from time to time as trustee in the Trust Agreement and its successors. 1.22 Trust Fund: The assets held under the Trust as they may exist from time to time. 1.23 Years of Service: Each full year of an individual's aggregate Periods of Service. ARTICLE II PARTICIPATION 2.1 Admission as a Participant A Director shall become a Participant on the later of the date on which he completes three Years of Service or the Effective Date. Notwithstanding the foregoing, in the event a Director dies prior to completing three Years of Service and otherwise prior to such -2- Director's Termination Date, such Director shall be considered to have been a Participant on the date of his death for all purposes under the Plan. 2.2 Termination of Participation A Participant shall cease participation in the Plan upon the earlier of his death or the completion of his Benefit Payment Period. ARTICLE III DEFERRED COMPENSATION BENEFIT 3.1 Benefit Payment Period A Participant's Benefit Payment Period shall be a period of time equal to the lesser of ten years or the total number of Years of Service completed by such Participant as of his Termination Date, and such period shall commence on such Participant's Benefit Commencement Date. 3.2 Benefit Commencement Date A Participant's Benefit Commencement Date shall be the first day of the January coincident with or next succeeding such Participant's Termination Date. The initial Benefit payment made to a Participant pursuant to the provisions of this Article III shall be made as soon as administratively practicable following the Participant's Benefit Commencement Date, and subsequent Benefit payments payable to such Participant, if any, shall be made on the anniversary of the date of such initial payment. 3.3 Benefit Amount Subject to the provisions of Article IV, a Participant shall be entitled to receive a Benefit based on his Last Annual Retainer for each of his Years of Service completed as of his Termination Date, payable in the form of equal annual cash installments during such Participant's Benefit Payment Period. The amount of the annual installment shall be determined as follows: (a) In the event that the Participant's Years of Service is ten or fewer years, the annual installment shall be equal to the Last Annual Retainer. (b) In the event that the Participant's Years of Service exceeds ten years, the annual installment shall be calculated as follows: 1. First, the Net Present Value of a series of payments equal to the Last Annual Retainer for a period of time equal to the Participant's total number of Years of Service shall be calculated. 2. Second, the annual installment shall be calculated so that the Net Present Value of a series of such annual installments paid over a period of ten years equals the Net Present Value obtained in Section 3.3(b)1. above. -3- 3.4 Resumption of Service as a Director (a) If payment of a Participant's Benefit hereunder has commenced, such payments shall be suspended on the effective date of such Participant's re-election to the Board as a Director. (b) Upon a Participant's Termination Date following his re- election to the Board, his Benefit shall be recomputed pursuant to the provisions of this Article III to reflect such Participant's additional Years of Service as a Director following his re-election to the Board and the Last Annual Retainer in effect on such Participant's most recent Termination Date; provided, however, that (i) such Benefit shall be reduced by an amount equal to the payments, if any, such Participant received prior to his re-election to the Board and (ii) such Participant's remaining Benefit Payment Period shall be determined (A) by increasing such Benefit Payment Period (but not in excess of the maximum period provided in Section 3.1) by the Participant's additional Years of Service as a Director following his re-election to the Board and (B) by reducing such Benefit Payment Period by the number of years for which Benefit payments were made prior to such Participant's re- election to the Board. ARTICLE IV BENEFIT FORFEITURES Any portion of the Benefit of a Participant not previously paid shall be forfeited to the Company upon a determination by the Board, in its sole discretion, that such Participant has, after the Effective Date, without the consent of the Board: (a) Joined the board of directors of, managed, operated, participated in a material way in, entered employment with, performed consulting (or any other) services for, or otherwise been connected in any material manner with a Competitor; or (b) Directly or indirectly acquired an equity interest of five percent or greater in a Competitor. ARTICLE V DEATH BENEFIT Upon the death of a Participant, whether before or after such Participant's Benefit Commencement Date, such Participant's beneficiary or beneficiaries (designated by such Participant under rules and procedures established by the Administrator), or in the absence of such designated beneficiary or beneficiaries, such Participant's surviving spouse, or if there is no such surviving spouse, such Participant's estate, shall be entitled to receive the remaining payments of the Benefit to which such Participant was entitled, if any. Upon the subsequent death of a Participant's beneficiary or surviving spouse who is receiving payments hereunder, any Benefit payments -4- remaining under the Plan shall be paid to the estate of such beneficiary or surviving spouse. All Benefit payments made pursuant to this Article V following the death of a Participant shall be made over such Participant's Benefit Payment Period in accordance with the provisions of Article III; provided, however, that any Benefit payments to be made to an estate as a result of the death of a Participant, his beneficiary or his surviving spouse shall be paid in a lump-sum that is the Net Present Value of such payments, with the interest rate used for such Net Present Value determined pursuant to Section 1.3 hereof, but substituting the date of such death for the Participant's Termination Date. ARTICLE VI ADMINISTRATION OF THE PLAN 6.1 Administrator The Board of Directors shall appoint an Administrator to administer the Plan who shall serve at the pleasure of the Board. The Administrator shall maintain complete and adequate records pertaining to the Plan, including, but not limited to, Participants' Benefits, amounts transferred to the Trust, reports from the Trustee and all other records which shall be necessary or desirable in the proper administration of the Plan. 6.2 Indemnification (a) The Company shall indemnify the Administrator and/or any of its delegates against the reasonable expenses, including attorneys' fees, actually and appropriately incurred by them in connection with the defense of any action, suit or proceeding, or in connection with any appeal thereto, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan (including any action or failure to act constituting negligence) and against all amounts paid by them in settlement thereof and against all amounts paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in a suit of final adjudication that such individual is liable for gross negligence, fraud, deliberate dishonesty or willful misconduct in the performance of his duties. (b) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 6.2, such person (the "Indemnified Party") shall promptly notify the Company in writing. No indemnification provided for in Section 6.2(a) shall be available to any party who shall fail to give notice as provided in this Section 6.2(b) if the Company was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the Company from any liability which it may have to the Indemnified Party for contribution or otherwise than on account of the provisions of Section 6.2(a). In case any such proceeding shall be brought against any Indemnified Party and it shall notify the Company of the commencement thereof, the Company shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel satisfactory to such Indemnified Party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel at its -5- own expense. Notwithstanding the foregoing, the Company shall pay as incurred the fees and expenses of the counsel retained by the Indemnified Party in the event (i) the Company and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Company shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses or more than one separate firm for all such Indemnified Parties. Such firm shall be designated in writing by the Company. The Company shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the Company agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment. ARTICLE VII NATURE OF PLAN This Plan is intended to constitute an unfunded, unsecured promise by the Company to pay Benefits to each Participant (or his beneficiary) as herein provided out of the Company's general assets. The adoption of this Plan and any setting aside of amounts by the Company with which to discharge its obligations hereunder shall not be deemed to create a trust; legal and equitable title to any funds so set aside shall remain in the Company, and any recipient of Benefit payments hereunder shall have no security or other interest in such funds. Any and all funds so set aside shall remain subject to the claims of the general creditors of the Company, present and future. This provision shall not require the Company to set aside any funds, but the Company may set aside such funds if it chooses to do so. ARTICLE VIII FUNDING OF OBLIGATION 8.1 Funding Article VII above to the contrary notwithstanding, the Company may fund all or part of its obligation hereunder by transferring assets to a Trust if the provisions of the Trust Agreement creating the Trust require the use of the Trust's assets to satisfy claims of the Company's general unsecured creditors in the event of the Company's insolvency and provide that no Participant shall at any time have a prior claim to such assets. The assets of the Trust shall not be deemed to be assets of this Plan. 8.2 Source of Payment If a Trust is created hereunder the Administrator shall determine whether any payment to be made to a Participant under the provisions of the Plan is to be made directly by the Company, from the Trust Fund or by a combination of such sources except to the extent the provisions of the Trust Agreement specify payment from the Trust Fund. The Plan shall be deemed to authorize any payment of a Participant's Benefit from the Trust Fund to the extent such payment is required by the provisions of the Trust Agreement. -6- ARTICLE IX TERMINATION OF THE PLAN The Board of Directors may terminate the Plan at any time. Upon termination of the Plan, each Participant's Benefit shall be determined and commenced pursuant to Article III hereof, but substituting the date of such termination for the Participant's Termination Date Further, Benefit payments payable after such termination shall be paid in accordance with the provisions of Articles III and V hereof. Finally, if the Plan is terminated, Participants shall accrue no additional Benefits hereunder. ARTICLE X AMENDMENT OF THE PLAN The Board of Directors may, without the consent of Participants or their beneficiaries, amend the Plan at any time and from time to time, provided, however, that no such amendment may deprive a Participant of the right to receive his accrued Benefit or be retroactive in effect to the prejudice of any Participant. ARTICLE XI GENERAL PROVISIONS 11.1 No Preference over Creditors No Participant shall have any preference over the general creditors of the Company in the event of the Company's insolvency. 11.2 Incompetency of Payee If the Administrator receives evidence satisfactory to him that any person entitled to receive a payment hereunder is, at the time the benefit is payable, physically, mentally or legally incompetent to receive such payment and to give a valid receipt therefor, and that an individual or institution is then maintaining or has custody of such person and that no guardian, committee or other representative of the estate of such person has been duly appointed, the Administrator may direct that such payment be paid to such individual or institution maintaining or having custody of such person, and the receipt of such individual or institution shall be valid and a complete discharge for the payment of such benefit. 11.3 Direct Deposit of Payments Payments to be made hereunder may, at the written request of the Participant, be made to a bank account designated by such Participant, provided that deposits to the credit of such Participant in any bank or trust company shall be deemed payment into his hands. 11.4 Construction of Plan Wherever appropriate herein, words used in the singular shall be considered to include the plural, and words used in the plural shall be considered to include the singular. -7- The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender. 11.5 Benefits Not Assignable Benefits provided under the Plan may not be assigned or alienated, either voluntarily or involuntarily, other than by will or by the applicable laws of descent and distribution. 11.6 Controlling Law THE LAWS OF THE STATE OF TEXAS SHALL CONTROL THE INTERPRETATION AND PERFORMANCE OF THE TERMS OF THE PLAN. THE PLAN IS NOT INTENDED TO QUALIFY UNDER SECTION 401(a) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR TO COMPLY WITH THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED. EXECUTED effective as of December 7, 2000. BJ SERVICES COMPANY By: __________________________ -8- EX-10.29 4 dex1029.txt DEFERRED COMPENSATION PLAN EXHIBIT 10.29 BJ SERVICES DEFERRED COMPENSATION PLAN As Amended and Restated Effective October 1, 2000 TABLE OF CONTENTS ARTICLE PAGE I - DEFINITIONS AND CONSTRUCTION............................ 3 II - PARTICIPATION........................................... 6 III - DEFERRALS AND ALLOCATIONS OF INCOME OR LOSS EQUIVALENTS........................... 7 IV - DEEMED INVESTMENT OF FUNDS.............................. 11 V - BENEFITS................................................ 12 VI - ADMINISTRATION OF THE PLAN.............................. 15 VII - ADMINISTRATION OF FUNDS................................. 18 VIII - ADOPTING EMPLOYERS...................................... 19 IX - DISCONTINUANCE OR TERMINATION........................... 20 X - NATURE OF THE PLAN...................................... 21 XI - MISCELLANEOUS........................................... 22 -1- BJ SERVICES DEFERRED COMPENSATION PLAN W I T N E S S E T H : WHEREAS, BJ Services Company, U.S.A. (the "COMPANY"), has heretofore adopted the BJ SERVICES SUPPLEMENTAL RETIREMENT THRIFT PLAN (the "PLAN") to provide deferred compensation for a select group of management or highly- compensated employees; WHEREAS, the Company desires to restate the Plan and amend the Plan in several respects, including renaming the Plan as the "BJ Services Deferred Compensation Plan"; NOW THEREFORE, the Plan is hereby restated in its entirety as follows with no interruption of time, effective as of October 1, 2000, except as otherwise indicated herein: -2- I. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. The capitalized words or terms used in the Plan and which are not otherwise defined herein shall have the same meanings as such words or terms have in the BJ Services Retirement Thrift Plan, as the same may be amended from time to time. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary. (1) ACCOUNT: An individual account for each Member to which is credited amounts determined in accordance with Article III of the Plan. Each account shall be divided into subaccounts to reflect the Member's deferrals pursuant to Section 3.1 and/or Section 3.3 and the Employer's deferrals pursuant to Section 3.2 and/or Section 3.4 and the allocation of net income or net loss equivalents thereto pursuant to Section 3.6. Such subaccounts shall be further divided as necessary to reflect the Member's elections pursuant to Article V. (2) BASIC COMPENSATION: An amount equal to a Member's "COMPENSATION," as such term is defined under the Thrift Plan. (3) BOARD: The Board of Directors of the Company. (4) BONUS: The amount, if any, received by the Member under the annual bonus plan in which Eligible Employees participate. (5) CHAIRMAN: The Chairman of the Board. (6) CODE: The Internal Revenue Code of 1986, as amended. (7) COMMITTEE: The Benefits Committee established by the President of the Company. (8) COMPANY: BJ Services Company, U.S.A. (9) COMPENSATION: The term "COMPENSATION" shall have the same meaning as is assigned to such term under the Thrift Plan except that a Member's Compensation (A) shall include amounts which he could have received in cash in lieu of contributions made on his behalf by the Employer to this Plan pursuant to Section 3.1 and Section 3.4(a), (B) for purposes other than for Section 3.1(b), shall not be limited to the maximum amount of compensation that can be considered by the Thrift Plan pursuant to section 401(a)(17) of the Code and (C) shall include any increases as a result of job transfers or wage rate changes during the Plan Year. -3- (10) EFFECTIVE DATE: October 1, 2000 as to this restatement of the Plan. The original effective date of the Plan was December 1, 1990. (11) ELIGIBLE EMPLOYEE: Any individual who is employed by an Employer. (12) EMPLOYER: The Company and any other entity that has been designated to participate in the Plan pursuant to the provisions of Article VIII. (13) ERISA: The Employee Retirement Income Security Act of 1974, as amended. (14) EXCESS COMPENSATION: A Member's Excess Compensation for a Plan Year shall be equal to the amount by which his Compensation for such year exceeds the maximum amount of compensation that can be considered by the Thrift Plan for such year pursuant to section 401(a)(17) of the Code. (15) FISCAL YEAR: The Employer's fiscal year, which is the twelve consecutive month period commencing October 1 of each year. (16) FUND: The investment funds designated from time to time for the deemed investment of Accounts pursuant to Article IV. (17) LIMITATION: For each Plan Year, the dollar limitation in effect under section 415(c)(1)(A) of the Code for such year. (18) MEMBER: Any Eligible Employee who has become a Member pursuant to Article II until such Eligible Employee ceases to be a Member pursuant to Section 2.2. (19) MONTHLY EXCESS COMPENSATION: A Member's Monthly Excess Compensation for a Plan Year shall be equal to one-twelfth of his Excess Compensation for such year. (20) PLAN: The BJ Services Deferred Compensation Plan, as amended from time to time. (21) PLAN YEAR: The twelve consecutive month period commencing January 1 of each year. (22) THRIFT PLAN: The BJ Services Retirement Thrift Plan, as amended from time to time. (23) TRUST: The trust established for the Plan under the Trust Agreement. (24) TRUST AGREEMENT: The agreement entered into between the Company and the Trustee establishing the Trust. (25) TRUST FUND: The funds and properties held pursuant to the provisions of the Trust Agreement, together with all income, profits and increments thereto. -4- (26) TRUSTEE: The trustee or trustees qualified and acting under the Trust Agreement at any time. (27) VALUATION DATES: The last day of March, June, September and December of each Plan Year and any other interim Valuation Date determined by the Committee on a nondiscriminatory basis. Effective as of March 1, 2001, the term "Valuation Date" shall mean each day that the New York Stock Exchange is open for business. 1.2 NUMBER AND GENDER. Wherever appropriate herein, words used in the singular shall be considered to include the plural and the plural to include the singular. The masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender. 1.3 HEADINGS. The headings of Articles and Sections herein are included solely for convenience and if there is any conflict between such headings and the text of the Plan, the text shall control. -5- II. PARTICIPATION 2.1 ELIGIBILITY. On or after the Effective Date, the Chairman, in his sole discretion, shall select and notify in writing those Eligible Employees of the Employer who shall become Members. If an Eligible Employee who was a Member prior to a termination of employment with the Employer is rehired, such Eligible Employee shall become a Member only if such Eligible Employee is again selected to participate in the Plan by the Chairman. 2.2 CESSATION OF ACTIVE PARTICIPATION. Notwithstanding any provision herein to the contrary, an Eligible Employee who has become a Member of the Plan shall cease to be an active participant in the Plan immediately upon the earlier of (a) the date the Chairman notifies the Eligible Employee he is no longer eligible to participate in the Plan or (b) the date he is no longer an Eligible Employee. -6- III. DEFERRALS AND ALLOCATIONS OF INCOME OR LOSS EQUIVALENTS 3.1 MEMBER DEFERRALS. (a) A Member may elect to defer receipt of an integral percentage of from 1% to 100% of his Excess Compensation for a Plan Year. (b) A Member who makes the maximum Before-Tax Contributions allowable under the Thrift Plan may elect to defer receipt of amount not to exceed 12% of his Compensation, less his Before Tax Contributions to the Thrift Plan, for a Plan Year. (c) A Member may elect to defer receipt of an amount of his Compensation for a Plan Year equal to the amount of the Member's Before-Tax Contributions under the Thrift Plan distributed from the Thrift Plan during such Plan Year as a result of the limitations contained in section 401(k)(3) of the Code. (d) A Member's election to defer receipt of an amount of his Compensation pursuant to this Section shall be made by executing and filing with the Employer the forms prescribed by the Committee. If a Member makes a deferral election for a Plan Year, a corresponding reduction shall be made to his Compensation during such Plan Year. Compensation for a Plan Year not deferred pursuant to this Section shall be received by such Member in cash. (e) A Member's election to defer receipt of a portion of his Compensation shall become effective as of the first day of the Plan Year that begins on or after the election is executed by the Member and filed with the Employer. Notwithstanding the foregoing, if an Eligible Employee initially becomes a Member other than on the first day of a Plan Year, such Member's election to defer receipt of a portion of his Compensation for such Plan Year may be made no later than 30 days after he becomes a Member, but such election shall be prospective only. A Member's election shall remain in force and effect for all periods following the date of its execution until modified or terminated or until such Member terminates his employment. A Member who has elected to defer a portion of his Compensation may change his deferral election (within the limits set forth above), effective as of the first day of any subsequent Plan Year, by executing and delivering to the Employer a new election within the time period prescribed by the Committee. (f) A Member may cancel his election to defer receipt of a portion of his Compensation effective as of the first day of any subsequent Plan Year, by executing and delivering to the Employer the form prescribed by the Committee. A Member who so cancels his election may again elect to defer a portion of his Compensation, effective as of the first day of any subsequent Plan Year, by executing and delivering to the Employer a new election within the time period prescribed by the Committee. -7- 3.2 EMPLOYER DEFERRALS. (a) For each calendar month, the Employer shall credit a Member's Account with an amount which equals 50% of the deferrals made pursuant to Section 3.1(a) on behalf of such Member during such month not in excess of 6% of such Member's Excess Compensation for the payroll periods in such month with respect to which deferrals pursuant to Section 3.1(a) were made. Further, for each calendar month, the Employer shall credit a Member's Account with an amount which equals 50% of the deferrals made pursuant to Section 3.1(b) on behalf of such Member during such month not in excess of 6% of such Member's Compensation for the payroll periods in such month with respect to which deferrals pursuant to Section 3.1(b) were made. (b) For each Plan Year, the Employer shall credit a Member's Account with an amount equal to the amount forfeited by such Member under the Thrift Plan during such Plan Year as a result of the limitations contained in sections 401(k)(3) or 401(m)(2) of the Code. (c) For each calendar month, the Employer shall also credit an additional amount to the Account of each Member who is entitled to an allocation of Employer Base Contributions under the Thrift Plan for such month. The amount credited each month shall be a percentage of such Member's Monthly Excess Compensation, if any, with such percentage being equal to the percentage utilized under the Thrift Plan to determine the Member's Employer Base Contribution for such month under such plan. (d) For each calendar month, the Employer shall also credit an additional amount to the Account of each Member who is entitled to an allocation of Employer Supplemental Base Contributions under the Thrift Plan for such month. The amount credited each month shall be a percentage of such Member's Monthly Excess Compensation, if any, with such percentage being equal to the percentage utilized under the Thrift Plan to determine the Member's Employer Supplemental Base Contribution for such month under such plan. (e) Notwithstanding any provision of the Plan to the contrary, amounts credited to a Member's Account pursuant to Paragraph (c) and/or Paragraph (d) above shall become nonforfeitable in the same manner as amounts allocated to the Member's Employer Non-Matching Accounts under the Thrift Plan. Therefore, if any portion of a Member's Employer Non-Matching Accounts under the Thrift Plan is forfeited for any reason, a corresponding portion of the amounts credited to the Member's Account pursuant to Paragraph (c) and/or Paragraph (d) above shall be debited from such Account. 3.3 MEMBER DEFERRALS ATTRIBUTABLE TO BONUS. A Member may elect to defer receipt of an integral percentage of from 1% to 100% of his Bonus for any Fiscal Year under the Plan. A Member's election to defer receipt of a portion of his Bonus under the Plan shall be made by executing and filing with the Employer the forms prescribed by the Committee prior to the first day of the Fiscal Year during which such Bonus is paid and shall be irrevocable. A Member's deferral election pursuant to this Section shall be effected at the time such Bonus is paid. Bonus for a Fiscal Year not deferred pursuant to this Section shall be received by such Member in cash. -8- 3.4 DEFERRALS FOR MEMBERS WHOSE ANNUAL ADDITIONS UNDER THE THRIFT PLAN EQUAL THE LIMITATION. (a) For each calendar month in which the Employer determines that a Member's Annual Additions under the Thrift Plan equal the Limitation in effect for the Plan Year in which such month occurs, the Employer shall reduce such Member's Basic Compensation by the amount by which such Member's Cash or Deferred Contributions and/or Voluntary Contributions to the Thrift Plan must be reduced solely in order for such member's Annual Additions under the Thrift Plan to equal such Limitation. The amount by which a Member's Basic Compensation is reduced pursuant to this Paragraph shall be (1) determined based upon the Member's elections in effect at the relevant times under the Thrift Plan with respect to Cash or Deferred Contributions and/or Voluntary Contributions and (2) credited to such Member's Account under the Plan. (b) For each calendar month in which the Employer determines that a Member's Annual Additions under the Thrift Plan equal the Limitation in effect for the Plan Year in which such month occurs, the Employer shall also credit such Member's Account with an amount equal to the excess of: (1) the amount of Employer contributions which would have been allocated to the accounts of such Member under the Thrift Plan (other than to his Deferred Income Account) for such month if the provisions of the Thrift Plan were administered without regard to the limitations imposed by section 415(c) of the Code on the amount of Annual Additions, OVER (2) the amount of Employer contributions which were in fact allocated to the accounts of such Member under the Thrift Plan (other than to his Deferred Income Account) for such month. For purposes of determining the amount of Employer Matching Contributions which would have been allocated to the account of a Member under the Thrift Plan, the contributions to the Plan on a Member's behalf pursuant to Paragraph (a) above shall be deemed to have been made to the Thrift Plan. Notwithstanding any provision of the Plan to the contrary, amounts credited to a Member's Account pursuant to this Paragraph (other than amounts representing reduced allocations of Employer Matching Contributions under the Thrift Plan) shall become nonforfeitable in the same manner as amounts allocated to the Member's Employer Non-Matching Accounts under the Thrift Plan. Therefore, if any portion of a Member's Employer Non-Matching Accounts under the Thrift Plan is forfeited for any reason, a corresponding portion of the amounts credited to the Member's Account pursuant to this Paragraph (other than amounts representing reduced allocations of Employer Matching Contributions under the Thrift Plan) shall be debited from such Account. 3.5 PAYMENTS TO TRUSTEE. The Employer shall pay an amount equal to the deferrals under the Plan directly to the Trustee as soon as practicable. On or about the date of any such payment, the Committee shall be informed as to the amount of such payment. Deferrals made by a -9- Member or on the Member's behalf shall be credited to the Member's Account as received by the Trustee. 3.6 ALLOCATION OF NET INCOME OR NET LOSS EQUIVALENTS. (a) As of each Valuation Date, the Trustee shall determine the net income (or net loss) equivalents of each Fund within the Trust Fund since the immediately preceding Valuation Date. The net income (or net loss) equivalent of each Fund since the immediately preceding Valuation Date shall be ascertained by the Trustee based upon changes in the net asset value in such manner as it deems appropriate. As soon as is practicable after the end of each calendar quarter, the Trustee shall deliver a written statement of such determination as the Committee determines. (b) For purposes of allocations of net income (or net loss) equivalents, each subaccount under a Member's Account shall be divided into additional subaccounts to reflect such Member's deemed investment designation of a particular Fund or Funds pursuant to Article IV. As of each Valuation Date the net income (or net loss) equivalents of each Fund, separately and respectively, shall be allocated among the corresponding subaccounts of the Members who were deemed to have had such corresponding subaccounts on the immediately preceding Valuation Date; provided, however, that the balance credited to such subaccounts as of the immediately preceding Valuation Date shall be reduced by the amount of any payments made since the immediately preceding Valuation Date. (c) With respect to each Member whose employment is terminated for any reason, so long as there is any balance credited to his Account, such Account shall continue to receive allocations pursuant to this Section. -10- IV. DEEMED INVESTMENT OF FUNDS Each Member shall designate, in accordance with the procedures established from time to time by the Committee, the manner in which the amounts credited to his Account shall be deemed to be invested from among the Funds made available from time to time pursuant to the provisions of the Trust Agreement. With respect to each Member's Account, such Member may designate one of such Funds for the deemed investment of all the amounts credited to such Account or he may split the deemed investment of the amounts credited to such Account between such Funds in such increments as the Committee may prescribe. No other type of designation will be permitted. If a Member fails to make a proper designation, then his Account shall be deemed to be invested in the Fund or Funds designated by the Committee from time to time in a uniform and nondiscriminatory manner. A Member may change his deemed investment designation for future amounts to be credited to his Account. Any such change shall be made in accordance with the procedures established by the Committee, and the frequency of such changes may be limited by the Trustee in accordance with to the provisions of the applicable Fund or Funds. A Member may elect to convert his deemed investment designation with respect to the amounts already credited to his Account. Any such conversion shall be made in accordance with the procedures established by the Committee, and the frequency of such conversions may be limited by the Trustee in accordance with the provisions of the applicable Fund or Funds. -11- V. BENEFITS 5.1 PAYMENT ELECTION GENERALLY. Each Eligible Employee who becomes a Member on or after the Effective Date shall elect the time and form of payment of all or a portion of the amounts credited to his Account under the Plan by executing and filing with the Employer an election in the form prescribed by the Committee. Further, on or after the Effective Date, (a) any Member who had an Account under the Plan on the day prior to the Effective Date may make an initial election regarding time of payment of all or a portion of the amounts credited to his Account under the Plan or (b) any Member may revise his election regarding time or form of payment of all or a portion of the amounts credited to his Account under the Plan; provided, however, that in either case such election shall not be effective until the date that is twelve months after the date of such election. 5.2 AMOUNT OF BENEFIT. The Member, or, in the event of the death of the Member, the Member's designated beneficiary, shall be entitled to a benefit equal in value to the balance credited to the Member's Account (or subaccount thereof) as of the Valuation Date immediately preceding the date the payment of such benefit is to be made or to commence pursuant to Section 5.3. 5.3 TIME OF PAYMENT. Payment of all or a portion of the amounts credited to a Member's Account under Section 5.2 shall be made or commence as soon as administratively practicable as of the date elected by such Member pursuant to Section 5.1. A Member may elect payment of all or a portion of the amounts credited to his Account hereunder be made or commenced as of any date; provided, however, that (a) in no event shall any amount be paid earlier than the second Plan Year following the Plan Year during which such amount was credited to a Member's Account and (b) notwithstanding phrase (a), payment of all amounts credited to a Member's Account shall be made or commence as soon as administratively practicable after the date the Member's employment with the Employer and all Controlled Entities terminates for any reason. In the event a Member fails to elect the time when payment of his benefit is to be made or commenced, such payment shall be made or commence as soon as administratively practicable after the date the Member's employment with the Employer and all Controlled Entities terminates for any reason. For purposes of this Plan, a Member's employment shall not be considered to have terminated at any time when the Employer is crediting amounts to such Member's Account pursuant to either Section 3.2(c) or Section 3.4(b). 5.4 ALTERNATIVE FORMS OF BENEFIT PAYMENTS. A Member may elect to receive payments in any one of the following forms: (a) A lump sum, cash payment; (b) Annual installment payments for a term certain of either 5, 10 or 15 years payable to the Member or, in the event of such Member's death prior to the end of such term certain, to his designated beneficiary as provided in Section 5.6. -12- In the event a Member fails to elect the form in which his benefit payments are to be made, such benefit payments shall be in the form of a lump sum, cash payment to such Member or, in the event of such Member's death, to his designated beneficiary as provided in Section 5.6. If a Member dies and if the Member did elect the form in which his benefit payments are to be made, then benefit payments shall be made to the Member's designated beneficiary in the form elected by the Member. Notwithstanding any provision herein to the contrary, in the event a Member's employment with the Employer and all Controlled Entities terminates for any reason and the total amount credited to the Member's Account does not exceed $25,000, the Committee may, in its sole discretion, pay such amount in a lump sum, cash payment to such Member, or, in the event of such Member's death, to his designated beneficiary as provided in Section 5.6. 5.5 ELECTIVE WITHDRAWAL. A Member may elect at any time, by effecting the election procedure prescribed by the Committee, to withdraw as a benefit all or a portion of amounts credited to his Account pursuant to Section 3.3 (including any net income or net loss equivalents allocated thereto) as of any Valuation Date, subject to a withdrawal penalty of 10% of such withdrawn amounts as of such Valuation Date. Upon any such withdrawal, the withdrawal penalty shall be forfeited to the Employer. 5.6 DESIGNATION OF BENEFICIARIES. (a) Each Member shall have the right to designate the beneficiary or beneficiaries to receive payment of his benefit in the event of his death. Each such designation shall be made by executing the beneficiary designation form prescribed by the Committee and filing same with the Employer. Any such designation may be changed at any time by execution of a new designation in accordance with this Section. (b) If no such designation is on file at the time of the death of the Member or such designation is not effective for any reason as determined by the Committee, then the designated beneficiary or beneficiaries to receive such benefit shall be as follows: (1) If a Member leaves a surviving spouse, his benefit shall be paid to such surviving spouse; (2) If a Member leaves no surviving spouse, his benefit shall be paid to such Member's executor or administrator, or to his heirs at law if there is no administration of such Member's estate. 5.7 PAYMENT OF BENEFITS. To the extent the Trust Fund has sufficient assets, the Trustee shall pay benefits to Members or their beneficiaries, except to the extent the Employer pays the benefits directly and provides adequate evidence of such payment to the Trustee. To the extent the Trustee does not or cannot pay benefits out of the Trust Fund, the benefits shall be paid by the Employer. Any benefit payments made to a Member or for his benefit shall be debited to such Member's Account. All benefit payments shall be made in cash to the fullest extent practicable. -13- 5.8 NO LOANS. Members shall not at any time be permitted to borrow from the Trust Fund. 5.9 UNCLAIMED BENEFITS. In the case of a benefit payable on behalf of a Member, if the Committee is unable to locate the Member or beneficiary to whom such benefit is payable, upon the Committee's determination thereof, such benefit shall be forfeited to the Employer. Notwithstanding the foregoing, if subsequent to any such forfeiture the Member or beneficiary to whom such benefit is payable makes a valid claim for such benefit, such forfeited benefit shall be restored to the Plan by the Employer. 5.10 CLAIMS PROCEDURE. In the event that a Member or beneficiary's claim for a benefit under the Plan is denied or modified, the Committee shall furnish a written notice to such claimant within ninety days (or within 180 days if additional information requested by the Committee necessitates an extension of the ninety-day period) that (a) states the specific reason or reasons for such denial or modification, (b) provides specific reference to pertinent Plan provisions on which the denial or modification is based, (c) provides a description of any additional material or information necessary for the Member, his beneficiary, or representative to perfect the claim and an explanation of why such material or information is necessary and (d) explains the Plan's claim review procedure. If the Member, his beneficiary, or a representative of such Member or beneficiary desires to have such denial or modification reviewed, he must, within sixty days following receipt of the notice of such denial or modification, submit a written request for review by the Committee of its initial decision. In connection with such request, the Member, his beneficiary, or the representative of such Member or beneficiary may review any pertinent documents upon which such denial or modification was based and may submit issues and comments in writing. Within sixty days following such request for review the Committee shall, after providing a full and fair review, render its final decision in writing to the Member, his beneficiary or the representative of such Member or beneficiary stating specific reasons for such decision and making specific references to pertinent Plan provisions upon which the decision is based. If special circumstances require an extension of such sixty-day period, the Committee's decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If an extension of time for review is required, written notice of the extension shall be furnished to the Member, beneficiary, or the representative of such Member or beneficiary prior to the commencement of the extension period. Members of the Committee shall not participate in any action or determination regarding their own benefits hereunder. -14- VI. ADMINISTRATION OF THE PLAN 6.1 APPOINTMENT OF COMMITTEE. The general administration of the Plan shall be vested in the Committee which shall consist of one or more persons. 6.2 REMOVAL. At any time during his term of office, and for any reason, a member of the Committee may be removed by the Chairman. Any member of the Committee who is an Employee shall automatically cease to be a member of the Committee as of the date he ceases to be employed by the Employer or a Controlled Entity. 6.3 OFFICERS, RECORDS AND PROCEDURES. The Committee may select officers and may appoint a secretary who need not be a member of the Committee. The Committee shall keep appropriate records of its proceedings and the administration of the Plan and shall make available for examination during business hours to any Member or beneficiary such records as pertain to that individual's interest in the Plan. The Committee shall designate the person or persons who shall be authorized to sign for the Committee and, upon such designation, the signature of such person or persons shall bind the Committee. 6.4 MEETINGS. The Committee shall hold meetings upon such notice and at such time and places as it may from time to time determine. Notice to a member shall not be required if waived in writing by that member. A majority of the members of the Committee duly appointed shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting where a quorum is present shall be by vote of a majority of those present at such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent signed by all of the members of the Committee. 6.5 INDEMNITY. To the extent permitted by applicable law, the Company shall indemnify and save harmless the Board, the Chairman, the members of the Committee and each employee of the Employer who is a delegate of the Committee against any and all expenses and liabilities arising out of their discharge in good faith of responsibilities under or incident to the Plan, including any expenses and liabilities that are caused by or result from an act or omission constituting the negligence of such individual in the performance of such responsibilities, but excluding expenses and liabilities that are caused by or result from such individual's own gross negligence or willful misconduct. Expenses against which such individual shall be indemnified shall include, without limitation, the amounts of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, as such indemnities are permitted under applicable law. -15- 6.6 SELF-INTEREST OF COMMITTEE MEMBERS. No member of the Committee shall have any right to vote or decide upon any matter relating solely to himself under the Plan or to vote in any case in which his individual right to claim any benefit under the Plan is particularly involved. In any case in which a member of the Committee is so disqualified to act and the remaining members cannot agree, the Chairman shall appoint a temporary substitute member to exercise all of the powers of the disqualified member concerning the matter in which he is disqualified. 6.7 COMPENSATION AND BONDING. The members of the Committee shall not receive compensation with respect to their services for the Committee. To the extent required by applicable law, or required by the Company, the members of the Committee shall furnish bond or security for the performance of their duties hereunder. 6.8 COMMITTEE POWERS AND DUTIES. The Committee shall supervise the administration and enforcement of the Plan according to the terms and provisions hereof and shall have all powers necessary to accomplish these purposes, including, but not by way of limitation, the right, power, authority and duty: (a) to make rules, regulations and bylaws for the administration of the Plan which are not inconsistent with the terms and provisions hereof, provided such rules, regulations and bylaws are evidenced in writing and copies thereof are delivered to the Trustee and to the Company; (b) to construe all terms, provisions, conditions and limitations of the Plan; (c) to correct any defect or supply any omission or reconcile any inconsistency that may appear in the Plan, in such manner and to such extent as it shall deem expedient to carry the Plan into effect for the greatest benefit of all interested parties; (d) to employ and compensate such accountants, attorneys, investment advisors and other agents and employees as the Committee may deem necessary or advisable in the proper and efficient administration of the Plan; (e) consistent with provisions of the Plan, to determine the amount, manner and time of payment of any benefits and to prescribe procedures to be followed by distributees in obtaining benefits; (f) to make a determination as to the right of any person to a benefit under the Plan; and (g) to receive and review reports from the Trustee as to the financial condition of the Trust Fund, including its receipts and disbursements. Notwithstanding the provisions of Paragraph (f) above, in the event that the Committee denies or modifies a claim for benefits by a Member or beneficiary who believes that he is entitled to such benefits, such Member or beneficiary may apply in writing directly to the Trustee for payment of such benefits. For purposes of the preceding sentence, if the Committee does not issue a written denial or modification of a claim for benefits within five business days after it receives such claim, -16- the claim shall be deemed denied. An application to the Trustee for payment of benefits shall be processed by the Trustee in accordance with the terms of the Trust Agreement. 6.9 RIGHT TO DELEGATE. The Committee may from time to time allocate to one or more of the Employer's officers, employees, or agents, and may delegate to any other person or organization, any of its powers, duties, and responsibilities with respect to the operation and administration of the Plan, including, but not limited to, the day-to-day administration of the Plan, and may employ, and authorize any person to whom any of its fiduciary responsibilities have been delegated to employ, persons to render advice with regard to any fiduciary responsibility held hereunder. Upon such designation and acceptance, the Committee shall have no liability for the acts or omissions of any such designee as long as the Committee does not violate its fiduciary responsibility in making or continuing such designation. All allocations and delegations of fiduciary responsibility shall be reviewed at least annually by the Committee, as applicable, and shall be terminable upon such notice as the Committee in its discretion deems reasonable and prudent under the circumstances. 6.10 EMPLOYER TO SUPPLY INFORMATION. The Employer shall supply full and timely information to the Committee relating to the Compensation of all Members, their ages, their retirement, death or other cause for termination of employment and such other pertinent facts as the Committee may require. The Employer shall advise the Trustee of such of the foregoing facts as are deemed necessary for the Trustee to carry out the Trustee's duties under the Plan. When making a determination in connection with the Plan, the Committee shall be entitled to rely upon the aforesaid information furnished by the Employer. -17- VII. ADMINISTRATION OF FUNDS 7.1 PAYMENT OF EXPENSES. All expenses incident to the administration of the Plan and Trust, including but not limited to, legal, accounting, Trustee fees, expenses of the Committee and the cost of furnishing any bond or security required of the Committee, may be paid by the Employer and, if not paid by the Employer, shall be paid by the Trustee from the Trust Fund. 7.2 TRUST FUND PROPERTY. All income, profits, recoveries, contributions, forfeitures and any and all moneys, securities and properties of any kind at any time received or held by the Trustee shall be held for investment purposes as a commingled Trust Fund pursuant to the terms of the Trust Agreement. The Committee shall maintain an Account in the name of each Member, but the maintenance of an Account designated as the Account of a Member shall not mean that such Member shall have a greater or lesser interest than that due him by operation of the Plan and shall not be considered as segregating any funds or property from any other funds or property contained in the commingled fund. No Member shall have any title to any specific asset in the Trust Fund. -18- VIII. DESIGNATION OF OTHER EMPLOYERS The Committee may designate any organization eligible by law to participate in the Plan as an Employer by written instrument delivered to the designated Employer. Such written instrument shall specify the effective date of such designation and shall become, as to such designated Employer and persons in its employment, a part of the Plan. Each designated Employer shall be conclusively presumed to have consented to such designation and to have agreed to be bound by the Plan upon its submitting any information pursuant to the terms of the Plan. The terms of the Plan may be modified as applied to the Employer only by written agreement between the Company and the designated Employer. Any Employer may, by appropriate action of its Board of Directors or noncorporate counterpart with written notice to the Committee, terminate its participation in the Plan. Moreover, the Committee may, in its discretion, terminate an Employer's Plan participation at any time by written notice to such Employer. -19- IX. DISCONTINUANCE OR TERMINATION 9.1 DECLARATION OF INTENT. The Employer has established the Plan with the bona fide intention and expectation that from year to year it will be able to, and will deem it advisable to, continue deferrals as herein provided. However, the Board realizes that circumstances not now foreseen, or circumstances beyond its control, may make it either impossible or inadvisable for the Employer to continue deferrals hereunder. Therefore, the Board shall have the power to discontinue deferrals under the Plan, terminate the Plan or partially terminate the Plan at any time hereafter. The Committee and the Trustee shall be notified of such discontinuance, termination or partial termination. 9.2 ADMINISTRATION OF PLAN IN CASE OF DISCONTINUANCE OR TERMINATION. (a) Upon discontinuance or termination, any previously uncredited deferrals and net income (or net loss) equivalents shall be credited among the Accounts of the Members on such date of discontinuance or termination according to the provisions of Article III, as if such date of discontinuance or termination were a Valuation Date. Thereafter, the net income (or net loss) equivalents shall continue to be allocated to the Accounts of the Members until the balances credited thereto are distributed. In the event of termination, the date of the final distribution shall be treated as a Valuation Date. (b) In the case of a total or partial termination of the Plan, and in the absence of a Plan amendment to the contrary, the balance credited to the Account of a Member for whom the Plan is terminated shall be paid to such Member or his designated beneficiary in the manner specified by the Committee, which may include the payment of a single, lump sum cash payment in full satisfaction of all such Member's or beneficiary's benefits hereunder. -20- X. NATURE OF THE PLAN The Employer intends and desires by the adoption of the Plan to recognize the value to the Employer of the past and present services of employees covered by the Plan and to encourage and assure their continued service with the Employer by making more adequate provision for their future retirement security. The establishment of the Plan is made necessary by certain benefit limitations which are imposed on the Thrift Plan by ERISA and by the Code. The Plan is intended to constitute an unfunded, unsecured promise of the Employer to pay benefits to each Member (or his beneficiary) as herein provided out of the Employer's general assets. Nevertheless, subject to the terms hereof and of the Trust Agreement, the Employer shall transfer money or other property to the Trustee and the Trustee shall pay Plan benefits to Members and their beneficiaries out of the Trust Fund. As a means of administering the assets of the Plan, the Employer has adopted the Trust pursuant to which The Chase Manhattan Bank serves as Trustee as of the Effective Date. The Employer shall remain the owner of all assets in the Trust Fund and the assets shall only be subject to the claims of Employer creditors if the Employer becomes insolvent. As used in this Article X, the Employer shall be deemed to be "INSOLVENT" if (a) the Employer is unable to pay its debts as they come due or (b) the Employer is subject to a pending proceeding as a debtor under the federal Bankruptcy Code (or any successor federal statute). Determinations as to the insolvency of the Employer shall be made in accordance with the provisions of the Trust Agreement. Further, the provisions of the Trust Agreement shall govern the disposition of the Trust Fund in the event the Employer is insolvent or in the event the Trustee receives a written notice alleging the Employer is insolvent. No Member or beneficiary shall have any preferred claim to, or any beneficial ownership interest in, any assets of the Trust Fund prior to the time such assets are paid to such Member or beneficiary as benefits. -21- XI. MISCELLANEOUS 11.1 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of this Plan shall not be deemed to be a contract between the Employer and any person or to be consideration for the employment of any person. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Employer or to restrict the right of the Employer to discharge any person at any time nor shall the Plan be deemed to give the Employer the right to require any person to remain in the employ of the Employer or to restrict any person's right to terminate his employment at any time. 11.2 ALIENATION OF INTEREST FORBIDDEN. The interest of a Member or his beneficiary or beneficiaries hereunder may not be sold, transferred, assigned, or encumbered in any manner, either voluntarily or involuntarily, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be null and void; neither shall the benefits hereunder be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person to whom such benefits or funds are payable, nor shall they be an asset in bankruptcy or subject to garnishment, attachment or other legal or equitable proceedings. The preceding notwithstanding, the Committee shall comply with the terms and provisions of an order that satisfies the requirements for a "qualified domestic relations order" as defined in section 206(d) of ERISA including an order that requires distributions to an alternate payee prior to a Member's "earliest retirement age" as such term is defined in section 206(d)(3)(E)(ii) of ERISA. 11.3 AMENDMENT. The Company may from time to time, in its discretion, amend, in whole or in part, any or all of the provisions of the Plan on behalf of the Company and all Employers; provided, however, that no amendment may be made that would impair the rights of a Member with respect to amounts already credited to his Account. 11.4 SEVERABILITY. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein. 11.5 GOVERNING LAWS. All provisions of the Plan shall be construed in accordance with the laws of Texas except to the extent preempted by federal law. -22- EXECUTED effective as of October 1, 2000. BJ SERVICES COMPANY, U.S.A. By: -------------------------------------- Name: ------------------------------- Title: ------------------------------- -23- -----END PRIVACY-ENHANCED MESSAGE-----