-----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, HXHBodC4pMaYKqyrJE4JRiJcYGtrNfRkA9YiaCoTdcVBF66HnYhwLIbttCGI9EBA lwFSOEpzO8IuOmm4wQo9ig== 0000912057-00-023816.txt : 20000515 0000912057-00-023816.hdr.sgml : 20000515 ACCESSION NUMBER: 0000912057-00-023816 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 628476 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 10-Q 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, 2000 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 INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (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 82,949,604 shares of the registrant's common stock, $.10 par value, outstanding as of May 10, 2000. 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, 2000 and 1999 3 Consolidated Condensed Statement of Financial Position - March 31, 2000 (Unaudited) and September 30, 1999 4 Consolidated Condensed Statement of Cash Flows (Unaudited) - Six months ended March 31, 2000 and 1999 5 Notes to Unaudited Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 PART II - OTHER INFORMATION 19
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, 2000 1999 2000 1999 --------- --------- --------- --------- Revenue $ 390,755 $ 269,601 $ 745,575 $ 564,036 Operating expenses: Cost of sales and services 301,501 226,327 581,707 469,538 Research and engineering 7,251 6,036 13,297 12,628 Marketing 14,201 12,961 27,683 25,810 General and administrative 14,558 12,041 28,753 22,821 Goodwill amortization 3,368 3,382 6,737 6,764 Unusual charge 18,128 39,695 --------- --------- --------- --------- Total operating expenses 340,879 278,875 658,177 577,256 --------- --------- --------- --------- Operating income (loss) 49,876 (9,274) 87,398 (13,220) Interest expense (5,015) (7,746) (11,984) (15,401) Interest income 163 223 249 299 Other income (expense) - net (861) (376) (1,410) (507) --------- --------- --------- --------- Income (loss) before income taxes 44,163 (17,173) 74,253 (28,829) Income tax expense (benefit) 14,839 (5,786) 24,467 (10,416) --------- --------- --------- --------- Net income (loss) $ 29,324 $ (11,387) $ 49,786 $ (18,413) ========= ========= ========= ========= Earnings (loss) per share: Basic $ .38 $ (.16) $ .66 $ (.26) Diluted $ .35 $ (.16) $ .60 $ (.26) Weighted average shares outstanding: Basic 76,717 70,708 75,699 70,690 Diluted 84,933 70,708 83,226 70,690
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 3 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS)
MARCH 31, SEPTEMBER 30, 2000 1999 ---------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 5,580 $ 3,924 Receivables - net 339,795 297,975 Inventories: Product 54,879 64,995 Work in process 1,362 2,116 Parts 50,522 30,176 ---------- ---------- Total inventories 106,763 97,287 Deferred income taxes 16,397 15,668 Other current assets 27,346 24,109 ---------- ---------- Total current assets 495,881 438,963 Property - net 591,593 659,717 Deferred income taxes 190,007 201,774 Goodwill - net 482,983 489,736 Other assets 36,329 34,574 ---------- ---------- $1,796,793 $1,824,764 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 141,302 $ 128,422 Short-term borrowings and current portion of long-term debt 83,181 150,452 Accrued employee compensation and benefits 38,313 37,749 Income and other taxes 23,869 25,439 Accrued insurance 11,462 12,041 Other accrued liabilities 76,488 91,043 ---------- ---------- Total current liabilities 374,615 445,146 Long-term debt 164,546 422,764 Deferred income taxes 6,735 6,578 Other long-term liabilities 135,248 73,187 Stockholders' equity 1,115,649 877,089 ---------- ---------- $1,796,793 $1,824,764 ========== ==========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 4 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED MARCH 31, 2000 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 49,786 $ (18,413) Adjustments to reconcile net income (loss) to cash provided by operating activities: Amortization of unearned compensation 2,190 180 Depreciation and amortization 51,784 48,194 Deferred income taxes (benefit) 16,148 (20,323) Unusual charge - non cash 23,051 Changes in: Receivables (42,471) 42,159 Inventories (9,476) 6,897 Accounts payable 12,880 (33,045) Other current assets and liabilities (25,590) (17,623) Other - net (6,036) (6,564) --------- --------- Net cash provided by operating activities 49,215 24,513 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (32,589) (72,631) Proceeds from disposal of assets 123,308 2,197 --------- --------- Net cash provided by (used for) investing activities 90,719 (70,434) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayment of) borrowings - net (325,489) 43,204 Proceeds from issuance of stock 187,211 2,192 --------- --------- Net cash provided by (used for) financing activities (138,278) 45,396 Increase (decrease) in cash and cash equivalents 1,656 (525) Cash and cash equivalents at beginning of period 3,924 1,625 --------- --------- Cash and cash equivalents at end of period $ 5,580 $ 1,100 ========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 5 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 as of March 31, 2000, and the results of operations for each of the three-month and six-month periods ended March 31, 2000 and 1999 and cash flows for each of the six-month periods ended March 31, 2000 and 1999. The consolidated condensed statement of financial position at September 30, 1999 is derived from the September 30, 1999 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, 2000 are not necessarily indicative of the results to be expected for the full year. 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 from the proceeds using the average market price of the Company's common stock for each of the periods presented. 6 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, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Net income (loss) $ 29,324 $ (11,387) $ 49,786 $ (18,413) Weighted-average common shares outstanding 76,717 70,708 75,699 70,690 ----------- ----------- ----------- ----------- Basic earnings (loss) per share $ .38 $ (.16) $ .66 $ (.26) =========== =========== =========== =========== Weighted-average common and dilutive potential common shares outstanding: Weighted-average common shares outstanding 76,717 70,708 75,699 70,690 Assumed exercise of stock options 2,054 1,210 1,854 1,172 Assumed exercise of warrants 6,162 1,068 5,673 957 ----------- ----------- ----------- ----------- 84,933 72,986(1) 83,226 72,819(1) ----------- -------------- ----------- ----------- Diluted earnings (loss) per share $ .35 $ (.16) $ .60 $ (.26) =========== =========== =========== ===========
(1) Antidilutive because the Company incurred a net loss in this period. As discussed in Note 7, in fiscal 2000 the Company has executed common stock transactions, including the April 2000 issuance of 9,575,704 shares of common stock upon exercise of warrants. Had these transactions occurred on October 1, 1999, basic earnings per share for the three and six-month periods ended March 31, 2000 would have been $.36 and $.61, respectively, while diluted earnings per share would have been $.35 and $.60, respectively. 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) which are provided throughout the United States and Mexico. The International Pressure Pumping Services segment also includes cementing and stimulation services which are provided to over 40 countries in the major international 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 selected U.S. and international regions. The accounting policies of the segments are the same as those described in the summary of 7 significant accounting policies in the Company's annual report. 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, goodwill amortization and unusual charges not allocated to segments. BUSINESS SEGMENTS
U.S./MEXICO INTERNATIONAL OTHER PRESSURE PRESSURE OILFIELD PUMPING PUMPING SERVICES CORPORATE TOTAL ----------------- ----------------- ------------ -------------- -------------- (IN THOUSANDS) 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 THREE MONTHS ENDED MARCH 31, 1999 Revenues $99,007 $132,606 $37,831 $157 $269,601 Operating income (loss) (7,864) 17,404 3,112 (21,926) (9,274) 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 416,635 608,250 112,202 659,706 1,796,793 SIX MONTHS ENDED MARCH 31, 1999 Revenues $224,300 $257,205 $82,030 $501 $564,036 Operating income (loss) (4,923) 29,948 8,703 (46,948) (13,220) Identifiable assets 385,202 525,110 110,419 699,150 1,719,881
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------------ ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Total operating profit (loss) for reportable segments $ 49,876 $ (9,274) $ 87,398 $(13,220) Interest income (expense) - net (4,852) (7,523) (11,735) (15,102) Other income (expense) - net (861) (376) (1,410) (507) -------- -------- -------- -------- Income (loss) before income taxes $ 44,163 $(17,173) $ 74,253 $(28,829) ======== ======== ======== ========
8 NOTE 4 COMPREHENSIVE INCOME The components of comprehensive net income (loss), net of tax, are as follows in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 2000 1999 2000 1999 -------------- ----------- ------------ -------- Net income (loss) attributable to common stockholders $ 29,324 $ (11,387) $ 49,786 $ (18,413) Change in cumulative translation adjustment (302) (5,411) (627) (3,500) ------------- ------------ ------------ ------------ Comprehensive net income (loss) $ 29,022 $ (16,798) $ 49,159 $ (21,913) ============ ============ =========== ============
NOTE 5 UNUSUAL CHARGE During the six months ended March 31, 1999, the Company recorded a pretax unusual charge of $39.7 million ($26.0 million after tax, or $.36 per diluted share) to reflect changes in its operations as a result of the downturn in oilfield drilling activity. The components of the unusual charge are as follows (in thousands): Asset impairments (non cash) $23,051 Severance and related benefits 12,798 Facility closures and other 3,846 --------- $39,695 =========
The asset impairment of $23.1 million primarily related to certain equipment previously utilized in the Company's U.S. operations which was held for sale, or had been decommissioned and salvaged for spare parts. The severance and related benefits costs related to the involuntary termination of approximately 1,100 employees worldwide. The facility closures and other costs primarily represent remaining lease obligations related to the closure of several locations in the oil producing regions of the U.S. and also one location in Latin America, and costs incurred during the first six months of fiscal 1999 for the relocation of equipment and personnel resulting from the closing of these facilities. Except for the remaining lease obligations of $.5 million related to the closure of locations, all expenditures for this provision were made as of September 30, 1999. The unexpended provision for remaining lease obligations related to the closure of locations was $.3 million at March 31, 2000. NOTE 6 COMMITMENTS AND CONTINGENCIES In December 1999, the Company completed a transaction involving the transfer of certain pumping service equipment assets. The Company received $120.0 million, which was used to pay outstanding bank debt. The equipment will be used to provide services to the Company's customers for which the Company will pay a service fee over a period of at least six, but not more than twelve years. The transaction generated a deferred gain for book purposes, included in other long-term liabilities, of approximately $63 million, which is being amortized over ten years. Minimum annual 9 service fee commitments related to this transaction are $12,865,000 for each of the years ended September 30, 2000, 2001, 2002, 2003 and 2004, and $59,814,000 in the aggregate thereafter. NOTE 7 STOCKHOLDERS' EQUITY In October 1999, the Company reissued 4,027,972 shares of treasury stock through a private placement with certain financial institutions. The proceeds from the private placement of $144.0 million were used to pay down outstanding debt. The Company also entered into privately negotiated option agreements pursuant to which it repurchased an equivalent number of shares in April 2000 for a total of $149.0 million. The Company utilized proceeds of approximately $144 million from the exercise of outstanding warrants to fund the repurchase. These warrants were exercised in April 2000 at an exercise price of $15 per share. Each warrant represented the right to purchase two shares. A total of 9,575,704 shares of common stock were issued upon exercise of these warrants. NOTE 8 NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). 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. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 and therefore had no effect on the Company's fiscal 2000 financial statements. Management is currently evaluating what, if any, additional adjustment or disclosure may be required when this statement is adopted in fiscal 2001. 10 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. U.S. drilling activity levels bottomed out in April 1999 and subsequently recovered to exceed the previous year levels by October 1999. Despite the recovery in the latter half of fiscal 1999, the U.S. average fiscal 1999 active rig count represented the lowest in history and was down 34% from the average level during both fiscal 1997 and 1998. The recovery in U.S. drilling has continued in fiscal 2000. For the six-month period ended March 31, 2000, the active U.S. rig count averaged 772 rigs, a 24% increase over the same period in fiscal 1999. Most of this increase came from rigs drilling for gas, which increased 32% from the same period of the previous year. The average number of rigs drilling for oil remained relatively constant. Drilling activity outside North America has historically been less volatile than domestic drilling activity. Due to low oil prices during most of the year, international drilling activity also reached record low levels during 1999 as each of the Company's international regions experienced double-digit activity declines. While Canadian drilling activity began to recover during the last half of 1999, drilling activity in most other international regions is not expected to recover until at least mid-2000. Active international drilling rigs (excluding Canada) averaged 574 rigs during the six-month period ended March 31, 2000, a decrease of 12% from the same period of the previous year. The North Sea and Asia Pacific regions have experienced the largest declines. Due primarily to the recovery in oil prices, however, Canadian drilling activity continued the recovery begun in late 1999, averaging 408 active drilling rigs for the six-month period ended March 31, 2000, up 66% from the same period of the previous year. ACQUISITION On June 28, 1999, the Company completed the acquisition of selected assets and subsidiaries of Fracmaster Ltd. ("Fracmaster"), an oilfield services company based in Calgary, Alberta with operations in Canada, the United States, Russia and China. The acquisition was completed for a total purchase price of $78.4 million. In the near-term, the acquisition of Fracmaster has primarily impacted the Company's operations in Canada. 11 RESULTS OF OPERATIONS The following table sets forth selected key operating statistics reflecting industry rig count and the Company's financial results:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 2000 1999 2000 1999 -------- -------- -------- -------- Rig Count: (1) U.S 770 552 772 621 International 1,056 910 982 897 Revenue per rig (in thousands) $ 214.0 $ 184.4 $ 425.1 $ 371.8 Revenue per employee (in thousands) $ 46.9 $ 36.6 $ 91.6 $ 73.4 Percentage of gross profit to revenue (2) 22.8% 16.1% 22.0% 16.8% Percentage of research and engineering expense to revenue 1.9% 2.2% 1.8% 2.2% Percentage of marketing expense to revenue 3.6% 4.8% 3.7% 4.6% Percentage of general and administrative expense to revenue 3.7% 4.5% 3.9% 4.0%
(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, 2000 was $390.8 million, an increase of 45% from prior year's second fiscal quarter. For the six-month period ended March 31, 2000, the Company's revenue was $745.6 million, an increase of 32% from the same period of fiscal 1999. The increases were primarily due to increased North American drilling and workover activity and benefits from the acquisition of Fracmaster Ltd. in June 1999. Also contributing to the revenue increase was an improvement in U.S. revenue per active rig. This occurred because independent oil companies, with whom the Company has a stronger market position, contributed most of the rise in U.S. drilling activity. In addition, the Company's average job size increased during this period due to larger fracturing treatments. Management expects the Company to continue to achieve revenue improvement in each of the remaining quarters of fiscal 2000 compared with the same quarter of the previous year. OPERATING INCOME: For the quarter ended March 31, 2000, the Company's operating income was $49.9 million compared to an operating loss of $9.3 million in the same period of the previous year. For the six months ended March 31, 2000, the Company recorded operating income of $87.4 million compared to an operating loss of $13.2 million in the first half of fiscal 1999. The prior year's loss was primarily a result of the Company's recording a pretax unusual charge of $39.7 million ($.36 per diluted share after-tax), comprised of $12.8 million of severance costs, $23.1 million of asset writedowns and $3.8 million of other costs associated with the downturn in the oilfield services industry. The Company's gross profit margins increased to 22.8% from 16.1% in the prior year's second fiscal quarter. For the six months ended March 31, 2000, the Company's 12 gross profit margins increased to 22.0% from 16.8% for the same period of fiscal 1999. The margin improvement is primarily a result of increased North American drilling and workover activity and the impact of cost reduction programs implemented during 1999. Such margin improvement was partially offset by increased research and engineering, marketing and general and administrative expenses which increased by $5.0 million and $8.5 million compared with the prior year's second quarter and six-month periods, respectively, due primarily to higher accruals for incentive bonuses which are based upon the Company's earnings and stock price. Each of those other operating expenses, however, declined as a percentage of revenue for both the three and six-month periods. OTHER: Interest expense decreased by $2.7 million and $3.4 million, respectively, compared with the same three and six-month periods of the previous year due to lower borrowings resulting from improved cash flows as well as an equipment refinancing transaction and a private placement of common stock, both of which were completed in the Company's first fiscal quarter (see also Capital Resources and Liquidity). INCOME TAXES: The Company's effective tax rate for the six-month period ended March 31, 2000 increased to 33% from 30% in the same year earlier period (excluding unusual charges) due to increased profitability in the higher tax jurisdictions of North America. Including unusual charges, the Company's effective tax rate for the six-month period ended March 31, 1999 was 36%, the higher rate primarily being a result of writedowns in the U.S. and lower North American profits which are taxed at a higher effective rate than the Company's average international rate. 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, 2000 increased by 76% and 52%, respectively, from the same year earlier periods. The Company's U.S. operations contributed all of the increase, up 60% for the first six months of fiscal 2000 compared to the same period of fiscal 1999 despite drilling activity increasing only 24% during the same period. Such improvement resulted primarily from a resumption of business from independent operators due to higher commodity prices and from larger fracturing treatments. U.S. workover activity, especially coiled tubing and acidizing work, also was strong during the three and six-month periods ended March 31, 2000, increasing 39% and 21%, respectively, over the same periods of the previous year. U.S./Mexico pressure pumping operating income was $28.3 million in the second quarter of fiscal 2000 compared to an operating loss of $7.9 million in the same period of the previous year. For the six-month period ended March 31, 2000, U.S./Mexico pressure pumping operating income was $57.4 million, compared to an operating loss of $4.9 million during the same year earlier period. The improvements were due primarily to increased drilling and workover business, combined with better utilization of personnel and equipment as a result of cost reduction measures implemented in fiscal 1999. Pricing during the quarter improved by approximately 3%, both on a year-over-year and a sequential quarter basis primarily as a result of a price book increase implemented during November 1999. 13 INTERNATIONAL PRESSURE PUMPING SEGMENT Due to record Canadian drilling activity along with revenue generated from the former Fracmaster operations in Canada and Russia, international pressure pumping revenue increased by 33% compared with the second fiscal quarter of 1999. For the six-month period ended March 31, 2000, international pressure pumping revenue increased by 25% over the same period of fiscal 1999. Excluding Canada, where revenues increased 139%, international pressure pumping revenues for the six-month period ended March 31, 2000 were down only 4% compared with the same period of the prior year despite a 12% decline in drilling activity. Continued weakness in drilling activity most significantly impacted the Company's operations in its Europe/Africa and Asia Pacific regions. As a result of new contracts and improving activity in selected locations, management believes activity levels have reached bottom and is expecting sequential quarterly revenue increases in its international pressure pumping revenues (excluding Canada) during the remainder of fiscal 2000. Operating income margins for the Company's international pressure pumping operations were 18.0% of revenue for the quarter ended March 31, 2000 compared to 13.1% for the same fiscal quarter of 1999. For the six-month period ended March 31, 2000, operating income margins were 14.1%, relatively unchanged from those in the same period of the prior year. Operating income margins in Canada increased as a result of efficiencies gained through full equipment and personnel utilization due to the increased activity. These gains, however, were mostly offset by lower pricing outside North America and margin decreases in the Company's Europe/Africa region due to reduced North Sea activity (where the Company's vessel operations have a relatively high fixed cost base), and shutdown costs incurred in closing a facility in Germany during the first quarter of fiscal 2000. Additionally, the operating income margins for selected international locations were negatively impacted by startup costs incurred for delayed projects. OTHER SERVICES SEGMENT Revenue during the second fiscal quarter for the Company's other service lines, which primarily consist of specialty chemicals, tubular services and process and pipeline services, increased 6% from the same period of the previous year, effectively offsetting the revenue shortfall experienced in the first quarter versus the prior year's first quarter. Operating income margins as a percentage of revenue for these service lines declined to 5.2% in the six-month period ended March 31, 2000 versus 10.6% in the same period of the prior year. The tubular services line contributed most of the decrease since this service line, which normally contributes a higher profit margin percentage than the others in this segment, experienced revenue declines from the previous year as it was more heavily impacted by the drop in international drilling activity, most significantly in the North Sea. Also contributing to the operating income decline were job delays and higher startup costs in the process and pipeline services group for new projects that are beginning in the third fiscal quarter. 14 CAPITAL RESOURCES AND LIQUIDITY Net cash provided from operating activities for the six months ended March 31, 2000 was $49.2 million, an increase of $24.7 million from the comparable prior year's figure. Higher profitability was partially offset by increases in working capital, as a result of the rapid revenue growth in North America. This is in contrast to the liquidation of working capital balances in the same year-earlier period, due to the activity downturn in the first half of 1999. Net cash provided by investing activities for the six-month period was $90.7 million, compared to a net use of cash for investing activities in the year earlier period of $70.4 million. The increase is 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, which was used to repay outstanding bank debt. As a result of the reduced debt, the Company is realizing a reduction in annual interest expense of approximately $7 million. The equipment is being used to provide services to the Company for its customers for which the Company is paying a service fee for a period of at least six, but not more than twelve, years. The transaction generated a deferred gain for book purposes of approximately $63 million, which is carried in "Other long-term liabilities", and is being amortized over a ten-year period. The taxable gain of $79.7 million was completely offset with net operating loss carryforwards. Excluding this transaction, investing activities declined by $41.2 million due primarily to the curtailment of capital spending beginning in mid-year 1999 caused by the depressed business environment. Capital expenditures for fiscal 2000 are expected to be well below the fiscal 1999 spending of $110.6 million. The actual amount of 2000 capital expenditures, currently estimated at $70 -80 million (excluding acquisitions), will be primarily geared towards maintenance capital and U.S. offshore and international expansion opportunities and are expected to be funded by cash flows from operating activities. Cash flows used for financing activities for the six months ended March 31, 2000 was $138.3 million, compared to cash flows provided by financing activities in the comparable year earlier period of $45.4 million. Together with the proceeds received from the sale of equipment discussed above and approximately $43 million received from the exercise of stock options, the Company used $144.0 million received through the private placement of 4.0 million shares of common stock to reduce outstanding debt by $325.5 million. In connection with the private placement, the Company also entered into privately negotiated option agreements pursuant to which it repurchased an equivalent number of shares in April 2000 for a total of $149.0 million. In April 2000, the Company utilized proceeds of $143.6 million from the exercise of outstanding warrants combined with borrowings under existing credit facilities, to fund the repurchase. A total of 4,787,852 warrants, at an exercise price of $15 per share (each warrant represented the right to purchase two shares) , were exercised before their expiration date of April 13, 2000, leaving only 8,224 issued and outstanding warrants which expired unexercised. The exercise of the warrants resulted in the issuance of 9,575,704 shares of common stock. 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 15 down outstanding borrowings or fund the Company's stock repurchase program. The Company has a committed, unsecured bank credit facility (the "Bank Credit Facility") which consists of a six-year term loan of approximately $70.2 million (currently drawn partially 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. At March 31, 2000, borrowings outstanding under the Bank Credit Facility totaled $70.2 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 $15.7 million, $31.3 million and $23.2 million in the years ending September 30, 2000, 2001 and 2002, respectively. In addition to the committed facility, the Company had $123.8 million in various unsecured, discretionary lines of credit at March 31, 2000, which expire at various dates in 2000. 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, 2000, there was $53.0 million in outstanding borrowings under these lines of credit. The Company also has issued and outstanding $125.0 million of unsecured 7% Notes due 2006. The Company's interest-bearing debt decreased to 18.2% of its total capitalization March 31, 2000, compared to 39.5% at September 30, 1999, due to repayment of borrowings from the proceeds received from the equipment sale and the private placement of common stock. 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. 16 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 and Year 2000 readiness, all of which are subject to certain risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms and phrases such as "expect," "estimate," "project," "believe," 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, 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. 17 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 were no foreign exchange contracts outstanding at March 31, 2000. All items described are non-trading and are stated in U.S. dollars (in thousands).
EXPECTED MATURITY DATES FAIR VALUE 2000 2001 2002 2003 THEREAFTER TOTAL MARCH 31, 2000 ---- ---- ---- ---- ---------- ----- -------------- SHORT TERM BORROWINGS Bank borrowings; US$ denominated $2,627 $2,627 $2,627 Average variable interest rate - 10.00% at March 31, 2000 Bankers' acceptance notes; Canadian $ denominated $47,864 $47,864 $47,864 Average variable interest rate - 5.79% at March 31, 2000 Bank borrowings; Deutsche mark denominated $1,004 $1,004 $1,004 Average variable interest rate - 4.00% at March 31, 2000 LONG TERM BORROWINGS Current term loan; Canadian $ $15,684 15,684 $31,368 $31,368 denominated Variable interest rate - 5.76% at March 31, 2000 Current Leases: US $ denominated $318 $318 $318 Variable interest rate - 6.18% at March 31, 2000 Non-current term loan; Canadian $ denominated $15,684 23,182 $38,866 $38,866 Variable interest rate - 5.76% at March 31, 2000 Non-current leases; US $ denominated $614 383 128 $1,125 $1,125 Variable interest rate - 6.18% at March 31, 2000 7% Series B Notes - US$ denominated $124,555 $124,555 $118,870 Fixed interest rate - 7%
18 PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None 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 27, 2000 in Houston, Texas. All nominated directors were elected, and amendments to the BJ Services Company 1990 Stock Incentive Plan, the BJ Services Company 1995 Incentive Plan and the BJ Services Company 1997 Incentive Plan were approved. (i) Directors elected at the Annual Meeting:
Votes in Votes Favor Withheld ----- -------- CLASS I DIRECTORS John R. Huff 61,873,299 6,219,678 R. A. LeBlanc 61,853,224 6,239,753 Michael E. Patrick 61,870,763 6,222,214
Directors with terms of office continuing after the Annual Meeting: CLASS II DIRECTORS Don D. Jordan Michael McShane 19 CLASS III DIRECTORS L. William Heiligbrodt James L. Payne J. W. Stewart
Votes in Votes Favor Withheld ----- -------- (ii) Amendment to the BJ Services Company 1990 Stock Incentive Plan 64,680,223 3,361,347 (iii) Amendment to the BJ Services Company 1995 Incentive Plan 64,673,829 3,341,076 (iv) Amendment to the BJ Services Company 1997 Incentive Plan 64,492,842 3,520,918
Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) EXHIBITS. 10.28 Form of Amended and Restated Executive Severance Agreement between BJ Services Company and certain executive officers. 27.1 Financial Data Schedule (b) REPORTS ON FORM 8-K. None 20 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 12, 2000 BY\s\Michael Mcshane ---------------------------------------------- Michael McShane Senior Vice President, Finance, Chief Financial Officer and Director (Principal Financial Officer) Date: May 12, 2000 BY\s\Matthew D. Fitzgerald ---------------------------------------------- Matthew D. Fitzgerald Vice President and Controller (Principal Accounting Officer) 21 EX-10.28 2 EXHIBIT 10.28 EXECUTIVE SEVERANCE AGREEMENT THIS EXECUTIVE SEVERANCE AGREEMENT, made and entered into effective as of ___________________________, 2000 (the "Agreement"), is by and between BJ SERVICES COMPANY, a Delaware corporation (the "Company"), and ___________________________ (the "Employee"). WITNESSETH: WHEREAS, Employee has rendered outstanding service to the Company and Employee's experience and knowledge of the affairs of the Company, and Employee's reputation and contacts are extremely valuable to the Company; and WHEREAS, in recognition of Employee's service to the Company and as an inducement to Employee to continue in the employ of the Company, the Company has offered Employee, among other things, this Agreement, and Employee has accepted the Company's offer; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and Employee hereby agree as follows. 1. TERM. This Agreement shall commence on the date hereof and shall continue until December 31, 2000; PROVIDED, HOWEVER, that commencing on January 1, 2001 and on each January 1st thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least one year prior to such January 1st date the Company shall have given written notice to Employee that the term of this Agreement shall cease to be so extended PROVIDED FURTHER that, this Agreement shall automatically terminate in all events upon the termination of the Employee's employment for any reason prior to the commencement of the Protected Period, except as set forth in Section 2. Notwithstanding anything in this Agreement to the contrary however, this Agreement may not be terminated and shall remain in full force and effect for at least two (2) years following a Change in Control, and such additional time as may be necessary to give effect to its terms. 2. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. Employee shall be entitled to the benefits specified in Sections 3(iii) and 4 if (i) a Change in Control occurs while Employee is employed by the Company, and this Agreement is in effect, and (ii) during the Protected Period Employee's employment is terminated without Cause by the Company, for Good Reason by Employee, or by Employee without Good Reason with the consent of the Company's Board of Directors ("Board"). If Employee's employment is terminated due to Disability or death, or for Cause, then Employee shall not be entitled to any benefits under this Agreement except as specified in Sections 3(i) and 3(ii) . No benefits hereunder are payable prior to the date on which a Change in Control occurs unless otherwise approved by the Board of Directors of the Company. For purposes of this Agreement, the "Protected Period" shall mean the period of time beginning with the Change in Control and ending on the second anniversary of such Change in Control; PROVIDED, HOWEVER, if Employee's employment with the Company terminates prior to, but within six months of, the date on which a Change in Control occurs, and it is reasonably demonstrated by Employee that such termination of employment was (i) by the Company in connection with or in anticipation of the Change in Control or (ii) by Employee under circumstances which would have constituted Good Reason if the circumstances arose on or after the Change in Control, then for all purposes of this Agreement the Change in Control shall be deemed to have occurred, and the Protected Period shall be deemed to have commenced, on the date immediately prior to the date of such termination of Employee's employment. (i) DISABILITY. If, as a result of Employee's incapacity due to physical or mental illness, Employee shall have been absent from Employee's duties with the Company on a full-time basis for 180 consecutive calendar days, and within 30 days after written Notice of Termination (as defined hereinafter) Employee shall not have returned to the full-time performance of Employee's duties, the Company may thereafter notify Employee of termination, which notice shall, for purposes of this Agreement, constitute termination of Employee's employment for "Disability"; PROVIDED, HOWEVER, a termination of Employee's employment for Disability under this Agreement shall not by itself alter or impair (A) Employee's rights as a "disabled employee" or otherwise under any of the Company's employee benefit plans or (B) Employee's status as an "employee" for any other purpose. (ii) CAUSE. The Company may terminate Employee's employment for Cause. For the purposes of this Agreement, the Company shall have "Cause" to terminate Employee's employment hereunder only (A) upon the willful and continued failure by Employee to perform substantially Employee's duties with the Company, other than any such failure resulting from Employee's incapacity due to physical or mental illness, which failure continues unabated after a demand for substantial performance is delivered to Employee by the Board that specifically identified the manner in which the Board believes that Employee has not substantially performed Employee's duties, (B) if Employee willfully engages in gross misconduct materially and demonstrably injurious to the Company or (C) upon fraud, misappropriation or embezzlement related to the business of the Company on the part of Employee. For purposes of this paragraph, an act or failure to act on Employee's part shall be considered "willful" if done or omitted to be done by Employee otherwise than in good faith and without reasonable belief that Employee's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated by the Company for Cause unless and until the Company shall have delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board, at a meeting of the Board called and held for the purpose (after reasonable notice to Employee and an opportunity for Employee, together with Employee's counsel, to be heard before the Board), finding that in the good-faith opinion of the Board Employee was guilty of conduct constituting Cause hereunder and specifying the particulars thereof in reasonable detail. (iii) GOOD REASON. Employee may terminate Employee's employment for Good Reason. For purposes of this Agreement "Good Reason" shall mean any of the following: (A) Employee is assigned any duties materially inconsistent with Employee's positions, duties, responsibilities and status with the Company immediately prior to a Change in Control, or Employee's reporting responsibilities, titles or offices are materially changed in an adverse manner from those in effect immediately prior to such Change in Control (As an 2 illustration, a change from an officer of a publicly traded company to an officer of a subsidiary of another company would be considered a material change in the Employee's reporting responsibility, title and office.) or Employee is removed from or is not re-elected or appointed to any of such material responsibilities, titles, offices or positions, except in each case in connection with the termination of Employee's employment for Cause, or Disability, or as a result of Employee's death, or by Employee for other than Good Reason and excluding an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Employee; provided, however, that if the Executive Compensation Committee of the Board of Directors of the Company makes a determination, prior to a Change in Control, that the Change in Control is a "merger of equals" for the purposes of this section 2(iii)(A), and delivers written notice to the Employee that the transaction has been designated a "merger of equals" for purposes of this section 2(iii)(A), and that shorter time periods may apply under this section, then the following additional provisions shall apply: In the event that (x) Employee remains employed as an officer of a publicly-traded company following the Change in Control but (y) an event or events occur within the first six months of the Protected Period which constitute Good Reason and Employee chooses to terminate his or her employment for Good Reason, then employee must deliver his or her Notice of Termination (as defined in paragraph (iv) below) on or before the date which is six months after the event that constituted Good Reason, or else lose the right to terminate for Good Reason based on such event or events and provided, further, that if, during the final eighteen months of the Protected Period, additional events occur which also constitute Good Reason, then Employee shall be entitled to terminate his or her employment for Good Reason at any time pursuant to the terms of this Agreement; or (B) Employee's annual rate of base salary is reduced from that in effect immediately prior to a Change in Control or as the same may be increased from time to time thereafter (such annual rate of base salary, as so increased (if applicable) but prior to such reduction, is referred to hereinafter as the "Base Salary"); or (C) the Company fails to continue the Company's annual cash bonus plan for executives as the same may be modified from time to time, but substantially in the form in effect prior to the date of the Change in Control (the "Bonus Plan"), (unless the Bonus Plan is replaced within a reasonable time with a substantively similar plan (the "Substitute Plan")) or fails to continue Employee as a participant in the Bonus Plan or the Substitute Plan, or reduces Employee's "Entry Level," "Expected Value," or "Over-Achievement" guideline percentages under the Bonus Plan or the Substitute Plan from that in effect immediately prior to a Change in Control or as increased thereafter with respect to Employee; or (D) the Company fails to continue in effect any material benefit or compensation plan, including, but not limited to, the Company's 1990 Stock Incentive Plan, 1995 Incentive Plan, 1997 Incentive Plan, qualified retirement plan, executive life insurance plan, perquisite plan, and/or health and accident plan, in which Employee is participating immediately prior to a Change in Control, or plans providing Employee with substantially similar benefits, or the Company takes any action that would materially adversely affect Employee's participation in or reduce Employee's benefits under any of such plans (excluding any such action by the Company that is required by law); or 3 (E) the Employee is required to relocate to a location more than 50 miles from where his office was located at the date of the Change in Control (except for required travel on company business to an extent substantially consistent with Employee's past business travel obligations to the Company); or (F) the Company fails to obtain the assumption of the obligation to perform this Agreement by any successor as contemplated in Section 6 hereof; or (G) any purported termination of Employee's employment by the Company that is not effected pursuant to a Notice of Termination satisfying the requirements of subparagraph (iv) below and, if applicable, the procedures described in subparagraph (ii) above; and for purposes of this Agreement, no such purported termination shall be effective; or (H) the amendment, modification or repeal of any provision of the Articles of Incorporation or Bylaws of the Company that was in effect immediately prior to such Change in Control, if such amendment, modification or repeal would materially adversely affect Employee's rights to indemnification by the Company; or (I) the Company shall violate or breach any obligation of the Company in effect immediately prior to such Change in Control, regardless whether such obligation be set forth in the Bylaws of the Company and/or in a separate agreement entered into between the Company and Employee, to indemnify Employee against any claim, loss, expense or liability sustained or incurred by Employee by reason, in whole or in part, of the fact that Employee is or was an officer or director of the Company. (iv) NOTICE OF TERMINATION. Any termination by the Company pursuant to subparagraphs (i) or (ii) above or by Employee pursuant to subparagraph (iii) above shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated. (v) DATE OF TERMINATION. "Date of Termination" shall mean (A) if Employee is terminated for Disability, 30 days after Notice of Termination is given, provided that Employee shall not have returned to the performance of Employee's duties on a full-time basis during such 30-day period, (B) if Employee's employment is terminated pursuant to subparagraph (iii) above, the date specified in the Notice of Termination, (C) with respect to a termination of employment prior to a Change in Control, the date of such termination, and (D) if Employee's employment is terminated for any other reason on or after a Change in Control, the date on which a Notice of Termination is given, PROVIDED, HOWEVER, in the event of any dispute or controversy concerning Employee's entitlement to payment under this Agreement, solely for purposes of Section 3(iii), concerning the timing of the payment of amounts under this Agreement, the "Date of Termination" shall mean the date of final resolution of such dispute or controversy. 4 3. COMPENSATION DURING DISABILITY OR UPON TERMINATION. (i) If during the Protected Period Employee fails to perform Employee's normal duties as a result of incapacity due to physical or mental illness, Employee shall continue during the period of disability to receive Employee's full Base Salary at the rate then in effect and any awards, deferred and non-deferred, payable during such period of disability under the Bonus Plan, less any amounts paid to Employee during such period of disability pursuant to the Company's sick-leave or disability program until Employee's employment is terminated for Disability pursuant to Section 2(i) hereof. This Section 3(i) shall not reduce or impair Employee's rights to terminate his employment for Good Reason (to the extent such rights existed prior to such Disability) or with the consent of the Board as otherwise provided herein. (ii) If during the Protected Period Employee's employment shall be terminated for Cause, the Company shall pay Employee's earned but unpaid Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination is given and the Company shall have no further obligations to Employee under this Agreement, except those arising hereunder or under the terms of any Company benefit plans, prior to the Date of Termination. (iii) If during the Protected Period the Company shall terminate Employee other than pursuant to Section 2(i) or 2(ii) hereof, or if during the Protected Period Employee shall terminate Employee's employment either for Good Reason or with the consent of the Board, then, subject to Section 4 and the following provisions hereof, the Company shall pay to Employee, in a single lump sum by certified or bank cashier's check within five days of such Date of Termination, the sum of the amounts specified in subparagraphs (A) through (E) below and also shall provide Employee the continued employee welfare benefits as provided in subparagraph (F) and the benefits in subparagraph (G) below: (A) an amount equal to three times the sum of (i) Employee's Base Salary and (ii) the bonus that Employee would receive using the Expected Value guideline percentage under the Bonus Plan (the "EV Bonus Amount"); (B) an amount equal to the product of (i) the higher of (a) the EV Bonus Amount or (b) the bonus that the Employee would receive under the Bonus Plan based on the performance of the Company for the then current fiscal year, as of the date of the Change in Control and (ii) a fraction, the numerator of which is the number of days in the current fiscal year under the Bonus Plan that have elapsed on the Date of Termination and the denominator of which is 365; (C) an amount equal to that portion of Employee's Base Salary earned, but not paid, and vacation earned, but not taken, in each case, to the Date of Termination, and all other amounts previously deferred by Employee or earned but not paid as of such date under all Company incentive or deferred compensation plans or programs; (D) an amount, with respect to all outstanding unvested and unexercisable awards that have been granted Employee after a Change in Control under the Company's 1990 Stock Incentive Plan, 1995 Incentive Plan, and 1997 Incentive Plan or any successor or similar stock 5 compensation plan, equal to the sum of (i) the value of all such unvested (or unearned) shares of Performance Stock and Performance Units (determined as if all restrictions had lapsed and all performance goals had been achieved to the fullest extent) and (ii) the excess of the exercise price of each such unexercisable option and appreciation right over the closing price of the common shares of the Company stock on the Date of Termination as reported on the national exchange on which the trading volume for such stock is highest; (E) an amount equal to three times the value of the largest annual long term incentive grant or grants made to Employee during the three years prior to the Date of Termination. For purposes of this section, "long term incentive grant" shall mean an award of stock options, performance units, or other long term incentive awards and shall refer to the initial grant, not the vesting of the award. The value of such awards shall be the value as of the date they were granted. The Black-Scholes method of valuation shall be used in the case of stock options. The value of the other awards shall be their present value on the date of grant. The Executive Compensation Committee of the Board of Directors of the Company shall have the authority to determine the value of all such awards prior to the date of the Change in Control, and any determination by them shall be final and binding. (F) the Company shall at all times during the three year period following the Date of Termination (the "Continuation Period") maintain in full force and effect for the continued benefit of Employee and Employee's eligible dependents all life (including executive life), accidental death and dismemberment, and medical and dental insurance benefits available to Employee and Employee's eligible dependents by virtue of being an employee of the Company immediately prior to such termination, PROVIDED that Employee's continued participation is possible under the general terms and provisions of such plans and programs (or any successor thereto); PROVIDED, HOWEVER, if Employee retires on the Date of Termination or if Employee would have been eligible to retire within five years of the Date of Termination, Employee's participation shall continue in such group plans and programs to the extent such group plans and programs provide benefits for retirees. In the event that participation by Employee in any such plan or program after the Date of Termination is barred pursuant to the terms thereof, the Company shall obtain at the Company's expense and without any additional cost or liability to the Employee comparable coverage under individual policies for Employee (and Employee's dependents). At the end of the Continuation Period (except as provided below with respect to COBRA benefits, if elected by Employee), the Company shall arrange to make available to Employee and his eligible dependents comparable insurance coverage by enabling Employee to convert Employee's coverage under the Company's group plans or programs to an individual policy for the benefit of Employee and Employee's eligible dependents, or to assume any individual policies obtained by the Company for Employee's benefit, with Employee paying the full premiums after the end of the Continuation Period. Nothing in this subparagraph (F) shall operate to reduce, or be construed as reducing, Employee's (or a beneficiary's) group health plan continuation rights under COBRA in any manner and upon the end of the Continuation Period Employee (or Employee's beneficiary(ies)), if otherwise eligible, will be entitled to elect COBRA continuation coverage for the full period applicable as if that were Employee's termination date. In the event Employee becomes covered by another employer's group plan or programs as a result of Employee's employment during the Continuation Period, the Company's 6 plans or programs shall be liable for benefits only to the extent such benefits are not covered by the subsequent employer's plans or programs; and (G) the Company shall, at its sole expense as incurred, provide the Employee with outplacement services the scope and provider of which shall be selected by the Employee in his or her sole discretion. As a condition to the receipt of any benefit under this Agreement, Employee must first execute and deliver to the Company a release, substantially in the form attached hereto as Attachment A, releasing the Company, its officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character that Employee may have arising out of Employee's employment with the Company or the termination of such employment, but excluding (i) any claims and causes of action that Employee may have arising under or based upon this Agreement, (ii) rights under stock-based incentive plans arising in connection with a change in control, (iii) rights under directors' and officers' indemnification insurance, and (iv) rights of indemnity under articles of incorporation, bylaws, contracts, law, or otherwise, (v) rights under Company-sponsored retirement plans, including, without limitation "401(k)" plans and "Rabbi trusts", and (vi) rights under the Company's "KEYSOP" (Key Executive Stock Option Plan) and arrangements for deferred compensation. 4. GROSS-UP OF PARACHUTE PAYMENTS. (i) To provide Employee with adequate protection in connection with his ongoing employment with the Company, this Agreement provides Employee with various benefits in the event of termination of Employee's employment with the Company during the Protected Period. If Employee's employment is terminated following a "change in control" of the Company, within the meaning of Section 28OG of the Internal Revenue Code of 1986, as amended (the "Code"), a portion of those benefits could be characterized as "excess parachute payments" within the meaning of Section 28OG of the Code. The parties hereto acknowledge that the protections set forth in this Section 4 are important, and it is agreed that Employee should not have to bear the burden of any excise tax that might be levied under Section 4999 of the Code, in the event that a portion of the benefits payable to Employee pursuant to this Agreement are treated as an excess parachute payment. The parties, therefore, have agreed as set forth in this Section 4. (ii) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution by the Company or any other person to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 4) (including, without limitation, any cost associated with any continued welfare plan coverage, welfare benefits, or any reimbursements of any arbitration or litigation costs and expenses under Section 15) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay, in accordance with Section 4(iii), an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed 7 with respect to such taxes), including, without limitation, any income or other taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (iii) Subject to the provisions of Section 4(iv), all determinations required to be made under this Section 4, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an independent public accounting firm with a national reputation that is selected by Employee (the "Accounting Firm") which shall provide detailed preliminary calculations both to the Company and to Employee within 15 business days after the receipt of notice from the Company that there has been a Payment, or such earlier time as is requested by the Employee and shall provide the actual amount of the Gross-Up Payment each year. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control of the Company, Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. (The Company shall indemnify and hold harmless Employee, on an after-tax basis, for any Excise Tax or income or other tax (including interest and penalties with respect thereto) imposed on Employee as a result of such payment of fees and expenses.) Any Gross-Up Payment, as determined pursuant to this Section 4, shall be paid by the Company on behalf of Employee to the applicable tax authorities prior to the time any such payments are due to be paid to the Internal Revenue Service. If the Accounting Firm determines that no Excise Tax is payable by Employee, it shall furnish Employee with a written opinion that failure to report the Excise Tax on Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Employee; provided, however, that such determination may be changed to reflect the outcome of a dispute under Section 4(iv). As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to Section 4(iv) and Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. (iv) Employee shall notify the Company in writing of any claim (including any threatened tax lien related to or based upon any such claim) by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due or such tax lien would be imposed). If the Company notifies Employee in writing prior to the 8 expiration of such period that it desires to contest such claim (or threatened lien), Employee shall: (A) give the Company any information reasonably requested by the Company relating to such claim (or threatened lien); (B) take such action in connection with contesting such claim (or threatened lien) as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (C) cooperate with the Company in good faith in order effectively to contest such claim (or threatened lien); and (D) permit the Company to participate in any proceedings relating to such claim (or threatened lien); PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4(iv), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Employee shall determine (but in no event shall the Company permit or direct Employee to allow a tax lien to be imposed on Employee's property); PROVIDED, FURTHER, that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee, on an interest-free basis, and shall indemnify and hold Employee harmless on an after-tax basis, from any Excise Tax or income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and FURTHER PROVIDED that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. In addition, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (v) If, after the receipt by Employee of an amount advanced by the Company pursuant to Section 4(iv), Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's complying with the requirements of Section 4(iv)) promptly pay to the Company the amount of such refund (together with any interest paid or 9 credited thereon after taxes applicable thereto). If after the receipt by Employee of an amount advanced by the Company pursuant to Section 4(iv), a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 5. NO MITIGATION OF DAMAGES AND EXPENSES. (i) The provisions of this Agreement are not intended to, nor shall they be construed to, require that Employee seek or accept other employment following a termination of employment and, except to the extent provided in Section 3(iii)(F) of this Agreement, amounts payable and welfare benefits provided under this Agreement to Employee shall not be reduced by Employee's acceptance of (or failure to seek or accept) employment with another person. The Company's obligations to make the payments and provide the welfare benefits required for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, counterclaim, recoupment, defense or other claim, rights or action that the Company may have against the Employee or others. (ii) If any contest or dispute (including, without limitation, in accordance with Section 15) shall arise under this Agreement involving termination of Employee's employment with the Company or involving the validity or enforceability of, or liability under, any provision of this Agreement, then (regardless of the outcome thereof, unless it shall be determined by a court of competent jurisdiction in a final, non-appealable decision or by an arbitrator in an arbitration proceeding in a final, non-appealable decision that Employee's employment was properly terminated for Cause within the meaning of and in accordance with Section 2(ii) hereof), the Company shall reimburse Employee, on a current basis, for all legal fees and expenses, if any, incurred by Employee in connection with such contest or dispute, together with interest in an amount equal to the three-month U. S. Treasury bill rate, from time to time in effect but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date such payment(s) become due through the date of payment thereof. 6. SUCCESSORS; BINDING AGREEMENT. (i) The Company will require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would have been required if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as Employee would be entitled hereunder if Employee terminated Employee's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as 10 aforesaid that executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (ii) This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable or benefits provided to Employee hereunder if Employee had continued to live, all such amounts and benefits, unless otherwise provided herein, shall be paid and continue to be provided in accordance with the terms of this Agreement to Employee's beneficiary. 7. NOTICE. For the purpose of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, registered and return receipt requested, postage prepaid, addressed to the respective addresses set forth on the last page of this Agreement, provided that all notices to the Company shall be directed to the office of corporate secretary of the Company, with a copy to the Secretary of the Company, or to such other address as either party shall have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 8. CHANGE IN CONTROL. For purposes of this Agreement, a Change in Control shall be deemed to have occurred upon, and shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (1) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, HOWEVER, that the following acquisitions shall not constitute a Change of Control: (v) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege, (w) any acquisition by the Company, (x) any acquisition by any employee benefit plan(s) (or related trust(s)) sponsored or maintained by the Company or any corporation controlled by the Company or (y) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, immediately following such reorganization, merger or consolidation, the conditions described in clauses (1), (2) and (3) of subparagraph (iii) of this Section 8 are satisfied, or (z) any such acquisition if the Board of Directors of the Company determines in good faith that a Person which has acquired more than a 25% interest in the Outstanding Company Common Stock or the Outstanding Company Voting Securities has done so inadvertently (including, without limitation, because such person was unaware that it beneficially owned a 25% interest) and without any intention of changing or influencing control of the Company, and such Person, as promptly as practicable (but no longer than ninety days) after being advised of such determination divested or divests himself or itself of beneficial ownership of a sufficient amount such that such Person no longer has beneficial ownership of 25% or more of either the Outstanding Company Common Stock or the Outstanding Company Voting Securities; or 11 (ii) Individuals who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Company's Board of Directors; PROVIDED, HOWEVER, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either (1) an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act), or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company's Board of Directors or (2) a plan or agreement to replace a majority of the members of the Company's Board of Directors then comprising the Incumbent Board; or (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case unless, immediately following such reorganization, merger or consolidation, (1) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation (including, without limitation, a corporation which as a result of such transaction owns the Company through one or more subsidiaries) and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding the Company, any employee benefit plan(s) (or related trust(s)) of the Company and/or its subsidiaries or any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 25% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumben Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the stockholders of the Company of (1) a complete liquidation or dissolution of the Company or (2) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which immediately following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and 12 Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company and/or its subsidiaries or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 25% or more of the Outstanding Company Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Company's Board of Directors providing for such sale or other disposition of assets of the Company. 9. EMPLOYMENT WITH AFFILIATES. Employment with the Company for purposes of this Agreement includes employment with any entity in which the Company has a direct or indirect ownership interest of 50% or more of the total combined voting power of all outstanding equity interests, and employment with any entity which has a direct or indirect interest of 50% or more of the total combined voting power of all outstanding equity interests of the Company, it being understood that for purposes of Section 2(iii)(A) hereof, "Good Reason" shall be construed to refer to the Employee's positions, duties, responsibilities (reporting and other), status, title, and office in the position or positions in which the Employee serves immediately before the Change in Control, but shall not include titles or positions with subsidiaries and affiliates of the Company that are held primarily for administrative convenience. 10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Employee and by the President or other authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provisions of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 11. VALIDITY. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect. 12. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 13. DESCRIPTIVE HEADINGS. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 13 14. CORPORATE APPROVAL. This Agreement has been approved by the Board, and has been duly executed and delivered by Employee and on behalf of the Company by its duly authorized representative. 15. ARBITRATION. (i) Except as otherwise provided in subparagraph (ii) below, any dispute or controversy arising out of or in connection with this Agreement as to the existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation, breach, continuance or termination thereof shall be submitted to arbitration pursuant to the following procedure: (A) Either party may demand such arbitration in writing after the controversy arises, which demand shall include the name of the arbitrator appointed by the party demanding arbitration, together with a statement of the matter in controversy. (B) Within 15 days after such demand, the other party shall name an arbitrator, or in default thereof, such arbitrator shall be named by the Arbitration Committee of the American Arbitration Association, and the two arbitrators so selected shall name a third arbitrator within 15 days or, in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, a third arbitrator shall be appointed by the Arbitration Committee of the American Arbitration Association. (C) The Company shall bear all arbitration costs and expenses. (D) The arbitration hearing shall be held at a site in Houston, Texas, to be agreed to by a majority of the arbitrators on 10 business days prior written notice to the parties. (E) The arbitration hearing shall be concluded within 10 days unless otherwise ordered by a majority of the arbitrators, and the award thereon shall be made within 10 days after the close of the submission of evidence. An award rendered by a majority of the arbitrators appointed pursuant to this Agreement shall be final and binding on all parties to the proceeding during the period of this Agreement, and judgment on such award may be entered by either party in the highest court, state or federal, having jurisdiction (ii) During the pendency of any dispute or controversy pursuant to this Section 15, the Company will continue to pay Employee (or reinstate) Employee's Base Salary as in effect preceding the date the Notice of Termination giving rise to the dispute was given or, if Employee's employment was terminated prior to a Change in Control, the date of such termination of employment (whichever date is applicable being the "Dispute Date") and continue (or reinstate) Employee as a participant in all compensation and employee benefit plans in which Employee was participating preceding the Dispute Date, until the dispute is finally resolved. Notwithstanding the foregoing, the Employee shall be entitled to specific performance of Employee's right to be paid during the pendency of any dispute or controversy arising under or in connection with this Agreement and the Employee's right to receive legal fees on a current basis as provided in Section 5(ii) of this Agreement, and Employee may commence a legal action 14 to enforce such right. The Company shall promptly (and in no event later than ten (10) business days after demand) reimburse Employee for any expenses reasonably incurred for attorneys' fees and disbursements in bringing such action. Amounts paid under this Section 15 are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. (iii) Except as otherwise provided, the parties stipulate that the provisions hereof shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative tribunal with respect to any controversy or dispute arising during the period of this Agreement and which is arbitrable as herein set forth. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination of this Agreement. 16. WITHHOLDING. The Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to the Employee hereunder. 17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all other prior agreements concerning the effect of a Change in Control on the relationship between the Company and Employee. IN WITNESS WHEREOF, the Company and Employee have entered into this Agreement as of the day and year first above written. BJ SERVICES COMPANY By:____________________________________ J. W. Stewart President, Chairman and Chief Executive Officer EMPLOYEE --------------------------------------- Addresses: 15 If to the Company: BJ Services Company 5500 Northwest Central Drive Houston, Texas 77092 Attention: Secretary and General Counsel If to the Employee: --------------------------------------- --------------------------------------- --------------------------------------- 16 Attachment A WAIVER AND RELEASE AGREEMENT By this Waiver and Release Agreement ("Release"), except as provided below with respect to the Executive Severance Agreement, I, _________________________ __________________________, waive and release all rights, claims, charges, demands and causes of action against BJ Services Company (the "Company"), its subsidiaries and affiliates (collectively, the "Employer"), and their officers, directors, employees and agents, of any kind or character, both past and present, known or unknown, including those arising under any state or federal statute, regulation or the common law (contract, tort or other), which relate to my employment or termination of employment with the Employer, including any alleged discriminatory employment practices, including age discrimination claims, or which relate to any other matter whatsoever, except as set out below. In exchange for this Release, I acknowledge the right to good and sufficient consideration in the form of benefits under the Executive Severance Agreement between the Company and myself, dated ______________, 2000, which provides, inter alia, for a lump sum payment, the continuation of certain welfare benefits and outplacement services. I understand that I am not entitled to receive any benefits under the Executive Severance Agreement except in return for this Release. However, this Release shall not serve to waive or release any rights or claims that I may have under the Executive Severance Agreement or that may arise after the date this Release is executed. In addition, this release shall not serve to waive or release any rights or claims that I may have with respect to (i) rights under stock-based incentive plans arising in connection with a change in control, (ii) rights under directors' and officers' indemnification insurance, (iii) rights of indemnity under articles of incorporation, bylaws, contracts, law, or otherwise, (iv) rights under Company-sponsored retirement plans, including, without limitation "401(k)" plans and "Rabbi trusts", and (v) rights under the Company's "KEYSOP" (Key Executive Stock Option Plan) and arrangements for deferred compensation. I acknowledge that the Employer has advised me to consult with an attorney prior to executing this Release. I understand that anyone who succeeds to my rights and responsibilities, such as my heirs or the executor of my estate, shall also be bound by the terms of this Release. This Release shall be interpreted and construed in accordance with and shall be governed by the laws of the State of Texas, except to the extent that Federal law may apply. I acknowledge that I have carefully read this Release, that I have had the opportunity to review it with my attorney, that I fully understand the provisions and their final and binding effect, that the only promises made to me to sign this Release are those stated herein, that this Release is the only agreement of its kind arising out of my employment relationship with the Employer and that I am signing this Release knowingly and voluntarily. After having the opportunity to consider this Release as stated above, I hereby accept the terms and conditions stated in it. 1 SIGNED AND ACCEPTED this _________day of _____________, 2000. _________________________________________ EMPLOYEE'S SIGNATURE SIGNED AND ACCEPTED this _______ day of _______________, 2000. EMPLOYER By:______________________________________ Name:____________________________________ Title:_____________________________________ 2 EX-27 3 EXHIBIT 27
5 1,000 6-MOS SEP-30-2000 OCT-01-1999 MAR-31-2000 5,580 0 339,795 23,228 106,763 495,881 1,049,307 457,714 1,796,793 374,615 0 0 0 7,814 1,107,835 1,796,793 745,575 745,575 581,707 581,707 76,470 1,986 11,984 74,253 24,467 49,786 0 0 0 49,786 .66 .60
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