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                                                                    EXHIBIT 10.4

                          PREFERRED SUPPLIER AGREEMENT

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                          PREFERRED SUPPLIER AGREEMENT

         This Agreement dated April __, 2000, by and between Grant Prideco,
Inc., a Delaware corporation ("Grant Prideco"), and Weatherford International,
Inc., a Delaware corporation ("Weatherford").

                                   WITNESSETH:

         WHEREAS, Weatherford wishes to enter into a long term supply contract
with Grant Prideco for the purchase by Weatherford and its Affiliates (as
defined below) of Drill Stem Products (as defined below) on the terms and
subject to the conditions set forth herein; and

         WHEREAS, Grant Prideco and its Affiliates manufacture and produce Drill
Stem Products and desire to supply Weatherford and its Affiliates with Drill
Stem Products on the terms and subject to the conditions set forth herein;

         NOW, THEREFORE, Weatherford and Grant Prideco, each on behalf of itself
and its Affiliates, hereby agree as follows:

                             ARTICLE 1. DEFINITIONS

(a)  "AFFILIATE" means, with respect to Weatherford or Grant Prideco, any Person
     that, directly or indirectly, is in control of, is controlled by, controls
     or is under common control of Weatherford or Grant Prideco, as the case may
     be. For purposes of this definition, control shall include the ownership of
     50% or more of the legal or beneficial interest in any Person or the power
     to direct or cause the direction of the management and policies of such
     Person, whether through the ownership of voting securities, by contract or
     otherwise. A Person who is an Affiliate shall only be considered an
     Affiliate for so long as that Person meets the definition of an Affiliate.
     An officer, director, general partner, managing member or trustee of a
     Person or Affiliate of such Person shall not be considered to be an
     Affiliate unless such Person is under the direct or indirect control or
     common control of Weatherford or Grant Prideco, as the case may be. For
     purposes of clarity, neither Weatherford nor Grant Prideco shall be
     considered to be an Affiliate of the other, nor shall National Oilwell,
     Grey Wolf Inc. or any other company in which a director or officer of
     Weatherford is also a director, officer or shareholder be considered an
     Affiliate of Weatherford unless Weatherford itself controls such company.

(b)  "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or other
     day on which commercial banks in Houston, Texas are authorized or required
     to close.

(c)  Unless the context otherwise requires, "BUYER" means Weatherford and its
     Affiliates.

(d)  "DRILL STEM CREDITS" mean those Drill Stem Products purchase credits that
     have been granted to Weatherford and its Affiliates by Grant Prideco in the
     amount of $30 million pursuant to Section 6.6.

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(e)  "DRILL STEM EXPENDITURES" mean, in respect of any period, the dollar amount
     of purchases made by Weatherford and its Affiliates of Drill Stem Products
     from Persons that are not Affiliated with Weatherford at the time of
     purchase. Drill Stem Expenditures shall include (i) charges for coating and
     commissions and procurement charges that may be paid by Weatherford and its
     Affiliates for the purchase of the Drill Stem Products and (ii) any import
     or export duties paid by Weatherford or its Affiliates in respect of the
     original purchase and delivery of the Drill Stem Products. Drill Stem
     Expenditures shall exclude (i) rebates, refunds, discounts provided to
     Weatherford and its Affiliates in respect of any Drill Stem Product
     purchase (other than the Drill Stem Credits) and (ii) charges for, fees,
     taxes, shipping, shipping insurance and other similar charges and expenses.

(f)  "DRILL STEM PRODUCTS" mean (i) drill pipe, (ii) heavyweight drill pipe,
     (iii) drill collars and (iv) drill stem accessories (including, without
     limitation, pup joints, thread protectors, lift subs, lift plugs, rotary
     plugs and rotary kellys).

(g)  "DRILL STEM PURCHASE OBLIGATION" means the obligation of Weatherford and
     its Affiliates to purchase Drill Stem Products as provided in Section 2.1.

(h)  "EVENT OF FORCE MAJEURE" shall mean any circumstance not within the
     reasonable control of the party affected and that, despite the exercise of
     reasonable diligence, such party is unable to prevent, avoid or remove.
     Events of Force Majeure shall include without limitation: (i) acts of God;
     (ii) expropriation, confiscation or requisitioning of facilities or
     compliance with any law, decree, regulation, order, directive or request of
     any governmental authority or person(s) purporting to act therefor that
     affects to a degree not presently existing the supply, availability or use
     of materials, equipment or labor; (iii) acts or inaction on the part of any
     governmental authority or person purporting to act therefor; (iv) acts of
     war or the public enemy whether war be declared or not; (v) public
     disorders, insurrection, rebellion, sabotage, riots or violent
     demonstrations; (vi) explosions, fires, earthquakes or other natural
     calamities; and (vii) strikes or lockouts or other industrial action by
     workers or employees of the Supplier.

(i)  "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or
     other political subdivision thereof and any entity exercising executive,
     legislative, judicial, regulatory or administrative functions of or
     pertaining to government.

(j)  "PERSON" shall mean an individual, partnership, corporation, business
     trust, limited liability company, limited liability partnership, joint
     stock company, trust, unincorporated association, joint venture,
     Governmental Authority or other entity of whatever nature.

(k)  Unless the context otherwise requires, "SUPPLIER" means Grant Prideco and
     its Affiliates.

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                   ARTICLE 2. PURCHASE AND SUPPLY COMMITMENT

SECTION  2.1 WEATHERFORD'S PURCHASE OBLIGATION

         (a) Weatherford agrees that during the term of this Agreement it and
its Affiliates shall purchase from Grant Prideco or one of its Affiliates at
least 70% of Weatherford's and its Affiliates' total purchases of Drill Stem
Products for each calendar year during the term of this Agreement beginning with
the year 2000. Compliance with this obligation shall be based on the dollar
amount of Drill Stem Expenditures made by Weatherford and its Affiliates during
the applicable year, subject to the exceptions provided below.

         (b) Except for those orders that are needed on an expedited basis or as
may otherwise be agreed to by Grant Prideco, Weatherford agrees that all firm
orders for Drill Stem Products by Weatherford and its Affiliates shall be placed
in writing with Grant Prideco or one of its Affiliates no later than 120 days
prior to the required delivery date unless industry practice at the time of the
order has changed and shorter or longer periods become standard, in which case
the delivery period shall be adjusted accordingly. Notwithstanding the
foregoing, Grant Prideco shall provide for shorter delivery times if requested
by Weatherford and such requested delivery periods are not shorter than those
offered by Grant Prideco to its best similarly situated customers for similar
orders. Weatherford shall consult with Grant Prideco on at least a quarterly
basis with respect to Weatherford's anticipated Drill Stem Product requirements
for the following two quarters. No deposits shall be required to be placed by
Weatherford or its Affiliates with respect to any order. Grant Prideco or the
Affiliate with whom the order is placed shall either accept or reject such order
within three Business Days of receiving the order. All acceptances or rejections
shall be required to be in writing. All confirmations of acceptances shall be
pursuant to the terms of this Agreement and the terms may not be modified
through the confirmation unless signed in writing by Weatherford or the
Affiliate placing the order. All confirmations of acceptance shall provide to
Weatherford or such Affiliate the expected delivery date. Unless otherwise
instructed in writing by Grant Prideco, all orders by Weatherford shall be
directed to Randall Edwards, Houston, Texas.

         (c) In calculating the percentage of Drill Stem Products purchased by
Weatherford and its Affiliates, there shall be excluded from the calculation any
Drill Stem Expenditures for Drill Stem Products to the extent such Drill Stem
Products (i) are purchased by Weatherford or one of its Affiliates for an
unAffiliated third party, (ii) are not required to be purchased from Grant
Prideco or its Affiliates under Section 2.1(e), or (iii) are acquired in
connection with the acquisition of another company or substantially all of the
operating assets of another company or division thereof provided that such
acquisition is not effected as a means to circumvent the provisions of this
Agreement.

         (d) Unless otherwise agreed to by Weatherford, all Drill Stem Products
shall be manufactured at Grant Prideco facilities approved by Weatherford and
utilizing raw materials sourced from mills approved by Weatherford from time to
time. Unless otherwise reasonably objected to by Weatherford, mills in the
United States and Western Europe that are owned or controlled by Grant Prideco
or with which it is affiliated shall be deemed approved by Weatherford.

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         (e) Weatherford and its Affiliates shall not be required to purchase
any particular Drill Stem Products, and Weatherford's purchase obligation under
this Section 2.1 shall not apply, under the following circumstances:

                    (i)     Grant Prideco is unable to assure Weatherford and
                            its Affiliates of the delivery of that Drill Stem
                            Product at the location required by Weatherford or
                            an Affiliate of Weatherford within the time period
                            required by Weatherford or such Affiliate;

                    (ii)    The purchase of that Drill Stem Product by
                            Weatherford or its Affiliate would constitute a
                            violation of law or regulation;

                    (iii)   Grant Prideco is unable to assure Weatherford and
                            its Affiliate that such Drill Stem Product meets the
                            product specification and technical requirements of
                            Weatherford or such Affiliate;

                    (iv)    Weatherford or its Affiliate reasonably requires the
                            Drill Stem Product on an expedited basis and Grant
                            Prideco is unable to provide the Drill Stem Product
                            within the time required, provided Weatherford or
                            such Affiliate provides Grant Prideco with such
                            reasonable opportunity as may be practical under the
                            circumstances to satisfy such requirement;

                    (v)     There is a local content requirement for such Drill
                            Stem Product in the market or location in which such
                            Drill Stem Product is to be used;

                    (vi)    There is a requirement by the rental customer of
                            Weatherford or its Affiliate for a Drill Stem
                            Product manufactured by another company and
                            Weatherford or such Affiliate does not already have
                            in inventory such Drill Stem Product that could be
                            used for such customer without unreasonable cost or
                            delay;

                    (vii)   Grant Prideco or one of its Affiliates does not
                            accept and confirm the order for the Drill Stem
                            Product within the time period required in Section
                            2.1(b), provided that Weatherford or such Affiliate
                            that placed the order places an order for such Drill
                            Stem Product with another manufacturer within ten
                            days after the date on which Grant Prideco and its
                            Affiliates were required to accept or reject the
                            order; or

                    (viii)  If at the time of the purchase or the placement of
                            the order for the purchase, Grant Prideco is in
                            material breach of this Agreement.

         (f) Weatherford agrees to cause its Affiliates to comply with the terms
of this Agreement and to purchase from Grant Prideco and its Affiliates Drill
Stem Products as provided herein.

         (g) In the event Weatherford and its Affiliates do not purchase the
required amount of Drill Stem Products from Grant Prideco and its Affiliates
during any calendar year, Weatherford shall be required to pay to Grant Prideco
an amount of cash equal to the product of (x) the amount of Drill Stem
Expenditures paid by Weatherford and its Affiliates to third parties during the
calendar

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year for Drill Stem Products that would have been required to have been paid to
Grant Prideco and its Affiliates to comply with the Drill Stem Purchase
Obligation for that year (with the calculation to be based on an assumption that
the Drill Stem Expenditures paid to the other parties were paid to Grant Prideco
and its Affiliates) and (y) 40%. The payment to be made by Weatherford in such
case shall be paid no later than 120 days following the end of the calendar year
for which the payment is to be made, with interest thereon from January 1 of the
year following the year for which the payment relates to the date of payment.
Interest shall be at an annual rate of 8% compounded quarterly.

SECTION 2.2 GRANT PRIDECO'S SUPPLY OBLIGATION

         (a) Grant Prideco agrees to use its commercially reasonable efforts to
provide directly or through one or more of its Affiliates Weatherford's and its
Affiliates' requirements of Drill Stem Products as provided in Section 2.1.

         (b) Grant Prideco agrees that such Drill Stem Products shall be
provided to Weatherford and its Affiliates on delivery and pricing terms equal
to or better than those provided to Grant Prideco's and its Affiliates' best
rental tool customer or customers that are purchasing the Drill Stem Products
for rental purposes (but taking into account any expedited delivery
requirements, special order requests or unusual delivery requirements that
reasonably should increase pricing and taking into account order quantity) for
the same or similar Drill Stem Products. Weatherford shall not be obligated to
provide any deposits, letters of credit or similar items to obtain such terms
and shall not be obligated to purchase any minimum quantities or amounts to be
eligible for such terms other than, subject to the provisions of Section 2.1,
the obligation provided herein that at least 70% of Weatherford's and its
Affiliates' total purchases of Drill Stem Products are purchased from Grant
Prideco and its Affiliates during each calendar year during the term of this
Agreement beginning with the year 2000. Weatherford and its Affiliates shall be
entitled to apply any Drill Stem Credits held by them against the purchase price
of any Drill Stem Products to be purchased by them from Grant Prideco and its
Affiliates subject to a maximum of 20% of the purchase price of any Drill Stem
Products being satisfied with a Drill Stem Credit.

         (c) Grant Prideco agrees to purchase used drill pipe from Weatherford
and its Affiliates from time to time to the extent Grant Prideco and its
Affiliates are then offering to customers the right to trade in or sell used
drill pipe to Grant Prideco and its Affiliates. The terms of such purchases
shall be terms at least as good as the terms offered to Grant Prideco's and its
Affiliates' best rental tool customer or customers that are purchasing the Drill
Stem Products for rental purposes (but taking into account any expedited
delivery requirements, special order requests or unusual delivery requirements
that reasonably should increase pricing and taking into account order quantity).
Grant Prideco and its Affiliates may prorate purchases to the extent limitations
are placed on the quantities to be purchased by it.

         (d) Grant Prideco agrees to cause its Affiliates to comply with the
terms of this Agreement and to supply Weatherford and its Affiliates with Drill
Stem Products as provided herein.

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SECTION 2.3 COMPLIANCE REPORT

         (a) Grant Prideco shall be entitled to obtain on request an annual
certificate of Weatherford, signed by the Chief Financial Officer or Chief
Accounting Officer of Weatherford, certifying Weatherford's and its Affiliates'
compliance with the terms of this Agreement and setting forth (i) the total
Drill Stem Expenditures during such calendar year and (ii) the amount of Drill
Stem Expenditures made by Weatherford and its Affiliates from (x) Grant Prideco
and its Affiliates and (y) other parties. This certificate may be requested
within 60 days following the end of the calendar year to which it relates and
must be provided to Grant Prideco within 120 days following the end of the
calendar year to which it relates.

         (b) Weatherford shall be entitled to obtain on request an annual
certificate of Grant Prideco, signed by the Chief Financial Officer or Chief
Accounting Officer of Grant Prideco, certifying Grant Prideco's and its
Affiliates' compliance with the terms of this Agreement. This certificate may be
requested within 60 days following the end of the calendar year to which it
relates and must be provided to Weatherford within 120 days following the end of
the calendar year to which it relates.

SECTION 2.4 ADDITIONAL PRODUCTS

         Weatherford and Grant Prideco agree to discuss from time to time the
addition to this Agreement of other products manufactured by Grant Prideco and
its Affiliates, including rental tubulars and casing. Neither party shall be
obligated to agree to such additions, and the addition of other products to this
Agreement will be subject to the parties agreeing in writing in their sole
discretion on the specific products, pricing, delivery and specifications of the
products to be so added.

                                ARTICLE 3. TERMS

         Unless otherwise agreed in writing with respect to any particular
purchase order for Drill Stem Products, the following terms shall apply to sales
of Drill Stem Products by a Supplier to a Buyer during the term of this
Agreement.

SECTION 3.1 PAYMENT

         Payment of the price for the Drill Stem Product shall be made in U.S.
Dollars (or through utilization of Drill Stem Credits) in accordance with
payment terms offered to its best rental tool customers (excluding payment terms
associated with warranty claims, disputed claims, workouts, isolated promotional
sales, sales of slow moving inventory and other similar situations).

SECTION 3.2 DELIVERY PERIODS

         All periods for delivery of Drill Stem Products shall commence on the
date on which the applicable purchase order is delivered by Buyer and shall be
not less than 120 days, unless industry practice changes and shorter or longer
periods become standard, in which case the delivery period shall be adjusted
accordingly. Notwithstanding the foregoing, Grant Prideco shall provide for
shorter

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delivery times if requested by Weatherford and such requested delivery periods
are not shorter than those offered by Grant Prideco to its best rental tool
customers for similar orders.

SECTION 3.3 WARRANTY

         All Drill Stem Products sold to Weatherford and its Affiliates pursuant
to this Agreement shall be sold subject to Grant Prideco's and its Affiliates
then standard warranty provided to its customers for the Drill Stem Product
sold. To the extent Grant Prideco or its Affiliates provides to certain of its
customers a more favorable warranty for Drill Stem Products (other than in
connection with isolated sales or tenders), Grant Prideco and its Affiliates
shall provide such more favorable warranty to Weatherford and its Affiliates for
such Drill Stem Products of the type and nature to which such more favorable
warranty is provided.

SECTION 3.4 FORCE MAJEURE

         (a) The parties' failure to perform their obligations under a purchase
contract shall not be deemed a breach of the obligation arising from the
purchase contract if such failure is caused by or the result of an Event of
Force Majeure.

         (b) Immediately following the date of commencement of any Event of
Force Majeure, if either party desires to invoke such Event of Force Majeure as
a cause for delay in the performance of any obligation under the purchase
contract, it shall advise the other party in writing of such date and the nature
and expected duration of such Event of Force Majeure. Within a reasonable time
following the date of termination of such Event of Force Majeure, the party
having invoked such Event of Force Majeure as a cause for such delay shall
submit to the other party reasonable proof of the nature of such delay. The
parties shall thereupon consult with one another concerning the effect of such
delay upon the relevant schedule of delivery and the schedule of delivery shall
be equitably adjusted by the parties to take into account such effect and the
ability of the affected party to avoid or minimize overall delays resulting from
the Event of Force Majeure. Both parties shall make all reasonable efforts to
prevent and reduce to a minimum and mitigate the effect of any delay occasioned
by any Event of Force Majeure including recourse to alternate acceptable sources
of Drill Stem Products.

SECTION 3.5 RESOLUTION OF DISPUTES

         All disputes, controversies or claims arising out or in connection with
any purchase agreement for Drill Stem Products, including any questions as to
the existence, validity, termination, discharge, breach or enforceability of the
purchase agreement arising thereunder, shall be finally settled by the
procedures outlined in Section 5.2.

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                          ARTICLE 4. TERM; TERMINATION

SECTION 4.1 DURATION

         (a) This Agreement shall become effective as of the date hereof and,
subject to earlier termination as provided in Section 4.2 or extension as
provided in Section 4.1(b), shall continue in effect until March 31, 2003.

         (b) This Agreement shall automatically be extended for a period of one
year if neither party provides the other party with written notice of its desire
for this Agreement not to be so extended on or prior to March 31, 2003.
Thereafter, this Agreement shall be extended for successive one-year periods
unless a party provides notice to the other party of its desire that this
Agreement not be so extended on or prior to March 31 of the year in which the
Agreement is to otherwise terminate.

SECTION 4.2       RIGHT TO TERMINATE

         The parties may terminate this Agreement for the reasons and as
provided in this section.

          (a)  Default

         If a party fails to observe or perform any of its material promises,
agreements or undertakings under this Agreement, and fails to remedy any such
breach within 120 days of notice to do so from the other party, then the
aggrieved party may, upon expiration of the 120-day notice period, give written
notice of termination of this Agreement either forthwith or at a future date
designated by the aggrieved party.

          (b)  Bankruptcy, Liquidation

         If either of the parties shall become voluntarily or involuntarily the
subject of proceedings under any bankruptcy or insolvency law, or other law or
procedure for the relief of financially distressed debtors, or is unable, or
admits in writing its inability, to pay its debts as they mature, or takes or
suffers any action for its liquidation or dissolution other than in the context
of a merger of consolidation, or has a receiver or liquidator appointed for all
or any part of its assets and, in the event any act of the aforesaid character
is involuntary, the consequences thereof are not cured within 60 days, the party
not affected by such circumstances may give to the affected party written notice
of its decision immediately to terminate this Agreement. In the event that such
notice is not given for any reason, the affected party shall remain fully
responsible for its obligations set forth in this Agreement at the times
required.

SECTION 4.3 SURVIVAL

         The provisions of Articles 5 and 6 shall survive any termination of
this Agreement.

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                       ARTICLE 5. GOVERNING LAW; DISPUTES

SECTION 5.1 GOVERNING LAW

         This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Texas, without regard to or the application of
the rules of conflicts of laws set forth in such laws.

SECTION 5.2 SOLUTION OF DISPUTES

         (a) In the event there shall exist any dispute or controversy with
respect to this Agreement or any matter relating hereto or the transactions
contemplated hereby, the parties hereto agree to seek to resolve such dispute or
controversy by mutual agreement. If the parties hereto are unable to resolve
such dispute or controversy by agreement within 90 days following notice by any
party hereto of the nature of such dispute or controversy setting forth in
reasonable detail the circumstances and basis of such dispute or controversy,
the parties agree that such dispute or controversy be resolved by binding
arbitration pursuant to the provisions of this Section 5.2 and in accordance
with the then-current Commercial Arbitration Rules of the American Arbitration
Association. If a party elects to submit such matter to arbitration, such party
shall provide notice to the other party of its election to do so, which notice
shall name one arbitrator. Within 10 Business days after the receipt of such
notice, the other party shall provide written notice to the electing party
naming a second arbitrator. The two arbitrators so appointed shall name a third
arbitrator, or failing to do so, a third arbitrator shall be appointed pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.

     (b)  All arbitration proceedings shall be held in Houston, Texas.

         (c) Each arbitrator selected to act hereunder shall be qualified by
education and experience to pass on the particular question in dispute and shall
be independent and not Affiliated with any of the parties hereto or an associate
thereof. A person associated or affiliated with the legal counsel for either of
the parties or their Affiliates will not be considered independent.

         (d) The arbitrators shall resolve all disputes in controversy in
accordance with the Texas substantive law. All statutes of limitations that
would otherwise be applicable shall apply to any arbitration proceeding. The
arbitrators shall not be authorized to order any equitable remedies and shall
only be empowered to make monetary awards and determinations with respect to
compliance by a party and its Affiliates in accordance with the terms hereof.

         (e) The arbitrators appointed pursuant to this Section 5.2 shall
promptly hear and determine (after due notice and hearing and giving the parties
reasonable opportunity to be heard) the questions submitted, and shall endeavor
to render their decision within 60 days after appointment of the third
arbitrator or as soon as practical thereafter. If within such period a decision
is not rendered by the board or a majority thereof, new arbitrators may be named
and shall act hereunder at the election of either party in like manner as if
none had previously been named.

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         (f) The decision of the arbitrators, or a majority thereof, made in
writing, shall absent manifest error be final and binding upon the parties
hereto as to the questions submitted, and each party shall abide by such
decision.

         (g) The cost of the arbitration shall be borne by the parties thereto
as unanimously determined by the arbitrators.

         (h) NOTWITHSTANDING THE AGREEMENT BY THE PARTIES TO ARBITRATION, EITHER
PARTY MAY SEEK FROM A COURT OF COMPETENT JURISDICTION INJUNCTIVE AND OTHER
EQUITABLE RELIEF IN AID OF ARBITRATION. EACH PARTY HERETO ON ITS OWN BEHALF AND
ON BEHALF OF ITS AFFILIATES IRREVOCABLY AGREES THAT ANY SUCH RELIEF SHALL FIRST
BE SOUGHT IN FEDERAL OR STATE COURT IN HARRIS COUNTY, TEXAS.

                            ARTICLE 6. MISCELLANEOUS

SECTION 6.1 ASSIGNMENT

         This Agreement shall be binding upon and shall inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
duly permitted assigns. Neither Weatherford or any of its Affiliates nor Grant
Prideco or any of its Affiliates may assign their rights and/or obligations
under this Agreement other than with the express written consent of the other
party. Nothing in this Section 6.1 shall be deemed to prohibit a merger,
consolidation or conversion of Weatherford or Grant Prideco or a sale of all or
substantially all of the business operations of Weatherford or Grant Prideco as
long as the successor to the obligations of Weatherford or Grant Prideco assumes
Weatherford's or Grant Prideco's, as the case may be, obligations hereunder.

SECTION 6.2 WAIVER

         The failure of either party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver of any right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any waiver must be made in writing.

SECTION 6.3 NOTICES

         All notices and other communications (other than communications in the
ordinary course of business relating to purchases and sales of Drill Stem
Products) to be given or made hereunder shall be in writing and shall be (a)
personally delivered with signed receipt obtained acknowledging delivery; (b)
transmitted by postage prepaid registered mail, return receipt requested (air
mail if international); or (c) transmitted by facsimile; to a party at the
address set out below (or at such other address as it may have provided
notification for the purposes hereof to the other party hereto in accordance
with this Section).

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      If to Supplier:                  Grant Prideco, Inc.
                                       1450 Lake Robbins Drive, Suite 600
                                       The Woodlands, Texas 77380
                                       Fax number: (281) 297-8569
                                       Attention:   President

      If to Buyer:                     Weatherford International, Inc.
                                       515 Post Oak Boulevard, Suite 600
                                       Houston, TX 77027
                                       Fax Number: (713) 693-4484
                                       Attention:   General Counsel

                                       With a copy to:
                                       Fulbright & Jaworski L.L.P.
                                       1301 McKinney, Suite 5100
                                       Houston, Texas 77010-3095
                                       Fax number: (713) 651-5246
                                       Attention:   Charles L. Strauss

SECTION 6.4 SEVERABILITY

         Any provision of this Agreement that is determined by arbitration as
provided herein or a court of competent jurisdiction to be invalid, illegal or
unenforceable shall be ineffective to the extent of such invalidity, illegality
or unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable, so long as the material purposes of
this Agreement can be determined and effectuated. Should any provision of this
Agreement be so declared invalid, illegal or unenforceable, the parties shall
agree on a valid provision to substitute for it.

SECTION 6.5 ENTIRE AGREEMENT

         This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes any existing agreements
between them whether oral or written. In case of a conflict between this
Agreement and a purchase order or purchase order confirmation contemplated
hereunder, the terms of this Agreement shall govern unless the parties otherwise
agree in writing. The terms of this Agreement shall only be amended, modified or
supplemented as set forth herein or in writing signed by or on behalf of each
party.

SECTION 6.6 DRILL STEM CREDITS

         (a) Grant Prideco hereby grants to Weatherford and its Affiliates drill
stem purchase credits in the aggregate amount of $30 million, which Weatherford
and its Affiliates may apply against the purchase price of Drill Stem Products
during the term of this Agreement. Weatherford shall utilize such credit by
giving written notice to Grant Prideco at the time of payment of the invoice
relating to the applicable Drill Stem Products, which notice shall set forth the
invoice (or

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related invoices) for which the Drill Stem Credits are being utilized and the
amount of such credit being utilized.

         (b) Drill Stem Credits can be utilized to satisfy only up to 20% of the
invoice amount for each applicable invoice, with the remaining invoice amount
being due in accordance with its terms.

         (c) On a quarterly basis, Grant Prideco shall provide Weatherford with
a summary of the Drill Stem Credits balance and a statement of activity with
respect to the Drill Stem Credits. The parties shall work in good faith to
reconcile any discrepancies between the parties' records.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.

GRANT PRIDECO, INC.                         WEATHERFORD INTERNATIONAL, INC.

By:                                         By:
   --------------------------                  --------------------------
Name:                                       Name:
     ------------------------                    ------------------------
Title:                                      Title:
      -----------------------                     -----------------------

                                      -12-<PAGE>   1
                                                                    EXHIBIT 10.5

                               GRANT PRIDECO, INC.
                           2000 EMPLOYEE STOCK OPTION
                            AND RESTRICTED STOCK PLAN

<PAGE>   2

                               GRANT PRIDECO, INC.
                           2000 EMPLOYEE STOCK OPTION
                            AND RESTRICTED STOCK PLAN

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            Section
                                                                                                            -------
ARTICLE I - PLAN
<S>                                                                                                         <C>
         Purpose................................................................................................1.1
         Effective Date of Plan.................................................................................1.2

ARTICLE II - DEFINITIONS

         Affiliate..............................................................................................2.1
         Agreement..............................................................................................2.2
         Award..................................................................................................2.3
         Board of Directors.....................................................................................2.4
         Code...................................................................................................2.5
         Committee..............................................................................................2.6
         Company................................................................................................2.7
         Disability.............................................................................................2.8
         Employee...............................................................................................2.9
         Exchange Act..........................................................................................2.10
         Fair Market Value.....................................................................................2.11
         Incentive Stock Option................................................................................2.12
         Nonqualified Stock Option.............................................................................2.13
         Option................................................................................................2.14
         Optionee..............................................................................................2.15
         Plan..................................................................................................2.16
         Restricted Period.....................................................................................2.17
         Restricted Stock......................................................................................2.18
         Restricted Stock Award................................................................................2.19
         Retained Distributions................................................................................2.20
         Stock.................................................................................................2.21
         Ten Percent Shareholder...............................................................................2.22

ARTICLE III - ELIGIBILITY

ARTICLE IV - STOCK SUBJECT TO THE PLAN
</TABLE>

                                       -i-

<PAGE>   3

<TABLE>
<S>                                                                                                         <C>
ARTICLE V - GENERAL PROVISIONS RELATING TO ALL OPTIONS

         Authority to Grant Options ............................................................................5.1
         Non-Transferability....................................................................................5.2
         Changes in the Company's Capital Structure.............................................................5.3
         No Rights As a Stockholder.............................................................................5.4
         Tax Withholding........................................................................................5.5

ARTICLE VI - VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS

         Option Price...........................................................................................6.1
         Duration of Options....................................................................................6.2
         Maximum Value of Stock Subject to Options Which are Incentive Stock Options............................6.3
         Amount Exercisable.....................................................................................6.4
         Exercise of Options....................................................................................6.5
         Exercise Following Termination of Employment...........................................................6.6
         Substitution Options...................................................................................6.7

ARTICLE VII - GENERAL PROVISIONS RELATING TO ALL RESTRICTED STOCK AWARDS

         Authority to Grant Awards..............................................................................7.1
         Transferability and Rights with Respect to Restricted Stock............................................7.2
         Withholding Tax........................................................................................7.3
         Changes in Company's Capital Structure.................................................................7.4

ARTICLE VIII - VARIABLE PROVISIONS RELATING TO SPECIFIC RESTRICTED STOCK AWARDS

         Vesting of Restricted Stock............................................................................8.1
         Consequence of Vesting.................................................................................8.2

ARTICLE IX - REQUIREMENTS OF LAW

ARTICLE X - ADMINISTRATION

ARTICLE XI - AMENDMENT OR TERMINATION OF PLAN
</TABLE>

                                      -ii-

<PAGE>   4

<TABLE>
<S>                                                                                                         <C>
ARTICLE XII - MISCELLANEOUS

         No Establishment of a Trust Fund......................................................................12.1
         No Employment Obligation..............................................................................12.2
         Written Agreement.....................................................................................12.3
         Indemnification of the Committee and the Board of Directors...........................................12.4
         Gender................................................................................................12.5
         Headings..............................................................................................12.6
         Other Compensation Plans..............................................................................12.7
         Other Awards..........................................................................................12.8
         Section 83(b) Elections...............................................................................12.9
         Distribution Agreement Options.......................................................................12.10
         Governing Law........................................................................................12.11
</TABLE>

                                      -iii-

<PAGE>   5

                                    ARTICLE I

                                      PLAN

         1.1 PURPOSE. The Plan is maintained for certain employees of the
Company and its Affiliates and is intended to advance the best interests of the
Company, its Affiliates, and its stockholders by providing those persons who
have substantial responsibility for the management and growth of the Company and
its Affiliates with additional incentives and an opportunity to obtain or
increase their proprietary interest in the Company, thereby encouraging them to
continue in the employ of the Company or any of its Affiliates.

         1.2 EFFECTIVE DATE OF PLAN. The Plan is effective on the effective date
of the distribution by Weatherford International, Inc. to its stockholders of
all the outstanding shares of stock of the Company.

                                   ARTICLE II

                                   DEFINITIONS

         The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout the Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.

         2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain. The
term "subsidiary corporation" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the action or transaction, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.

         2.2 "AGREEMENT" means a written agreement setting forth the terms of an
Award.

         2.3 "AWARD" means an Option or a Restricted Stock Award granted under
the Plan.

         2.4 "BOARD OF DIRECTORS" means the board of directors of the Company.

         2.5 "CODE" means the Internal Revenue Code of 1986, as amended.

         2.6 "COMMITTEE" means the Compensation Committee of the Board of
Directors or other committee designated by the Board of Directors to administer
the Plan.

                                      -1-
<PAGE>   6

         2.7 "COMPANY" means Grant Prideco, Inc.

         2.8 "DISABILITY" means a mental or physical disability which, in the
opinion of a physician selected by the Committee, shall prevent the Employee
from earning a reasonable livelihood with the Company or any Affiliate and which
can be expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months and which: (a) was not
contracted, suffered or incurred while the Employee was engaged in, or did not
result from having engaged in, a felonious criminal enterprise; (b) did not
result from alcoholism or addiction to narcotics; and (c) did not result from an
injury incurred while a member of the Armed Forces of the United States for
which the Employee receives a military pension.

         2.9 "EMPLOYEE" means a person employed by the Company or any Affiliate.

         2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         2.11 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
closing sales price of the Stock on that date on the principal securities
exchange on which the Stock is listed; or (b) if the Stock is not listed on a
securities exchange, the average of the high and low bid quotations for the
Stock on that date as reported by the National Association of Securities Dealers
Automated Quotation National Market System; or (c) if neither of the foregoing
is applicable, an amount determined by the Committee in its sole discretion.

         2.12 "INCENTIVE STOCK OPTION" means an Option that is intended by the
Committee to meet the requirements of section 422 of the Code or any successor
provision.

         2.13 "NONQUALIFIED STOCK OPTION" means an Option granted pursuant to
the Plan which does not qualify as an Incentive Stock Option.

         2.14 "OPTION" means the right to purchase Stock at a price to be
specified and upon terms to be designated by the Committee pursuant to the Plan.
An Option shall be designated by the Committee as an Incentive Stock Option or a
Nonqualified Stock Option.

         2.15 "OPTIONEE" means a person to whom an Option is granted.

         2.16 "PLAN" means the Grant Prideco, Inc. 2000 Employee Stock Option
and Restricted Stock Plan, as set out in this document and as it may be amended
from time to time.

         2.17 "RESTRICTED PERIOD" means the period designated by the Committee
during which Restricted Stock may not be sold, assigned, transferred, pledged,
or otherwise encumbered.

         2.18 "RESTRICTED STOCK" means those shares of Stock issued pursuant to
a Restricted Stock Award which are subject to the restrictions, terms, and
conditions set forth in the related Agreement.

         2.19 "RESTRICTED STOCK AWARD" means an award of Restricted Stock
pursuant to Section 7.1.

                                      -2-
<PAGE>   7

         2.20 "RETAINED DISTRIBUTIONS" means any securities or other property
(other than regular cash dividends) distributed by the Company in respect of
Restricted Stock during any Restricted Period.

         2.21 "STOCK" means the common stock of the Company, $.01 par value (or
such other par value as may be designated by act of the Company's stockholders)
or, in the event that the outstanding shares of common stock are later changed
into or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.

         2.22 "TEN PERCENT SHAREHOLDER" means an individual who, at the time the
Option is granted, owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any
Affiliate. An individual shall be considered as owning the stock owned, directly
or indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust, shall be
considered as being owned proportionately by or for its stockholders, partners,
or beneficiaries.

                                      -3-
<PAGE>   8

                                   ARTICLE III

                                   ELIGIBILITY

         The individuals who shall be eligible to receive Awards shall be those
key employees of the Company or any of its Affiliates as the Committee shall
determine from time to time. The Board of Directors may designate one or more
individuals who shall not be eligible to receive any Awards under the Plan.

                                   ARTICLE IV

                            STOCK SUBJECT TO THE PLAN

         The total amount of the Stock with respect to which Awards may be
granted shall not exceed in the aggregate 10,000,000 shares. The class and
aggregate number of shares which may be subject to the Options granted under the
Plan shall be subject to adjustment under Section 5.4. The class and aggregate
number of shares which may be subject to the Restricted Stock Awards granted
under the Plan shall also be subject to adjustment under Section 7.4. Shares may
be treasury shares or authorized but unissued shares. If any Award under the
Plan shall expire or terminate for any reason without having been exercised in
full, or if any Award shall be forfeited, the shares subject to the unexercised
or forfeited portion of such Award shall again be available for the purposes of
the Plan.

                                   ARTICLE V

                   GENERAL PROVISIONS RELATING TO ALL OPTIONS

         5.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those
employees of the Company or any of its Affiliates, as it shall from time to time
determine, Incentive Stock Options or Nonqualified Stock Options under the terms
and conditions of the Plan. Subject only to any applicable limitations set out
in the Plan, the number of shares of Stock to be covered by any Option to be
granted to an employee of the Company or any of its Affiliates shall be as
determined by the Committee.

         5.2 NON-TRANSFERABILITY. Options shall not be transferable by the
Employee otherwise than by will or under the laws of descent and distribution or
pursuant to a domestic relations order, and shall be exercisable, during the
Employee's lifetime, only by the Employee.

         5.3 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any

                                      -4-
<PAGE>   9

part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.

         If the Company shall effect a subdivision or consolidation of shares or
other capital adjustment of, or the payment of a dividend in capital stock or
other equity securities of the Company on its Stock, or other increase or
reduction of the number of shares of the Stock without receiving consideration
therefor in money, services, or property, or the reclassification of its Stock,
in whole or in part, into other equity securities of the Company, then (a) the
number, class and per share price of shares of Stock subject to outstanding
Options hereunder shall be appropriately adjusted (or in the case of the
issuance of other equity securities as a dividend on, or in a reclassification
of, the Stock, the Options shall extend to such other securities) in such a
manner as to entitle an Optionee to receive, upon exercise of an Option, for the
same aggregate cash consideration, the same total number and class or classes of
shares (or in the case of a dividend of, or reclassification into, other equity
securities, such other securities) he would have held after such adjustment if
he had exercised his Option in full immediately prior to the event requiring the
adjustment, or, if applicable, the record date for determining stockholders to
be affected by such adjustment; and (b) the number and class of shares then
reserved for issuance under the Plan (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) shall be
adjusted by substituting for the total number and class of shares of stock then
received, the number and class or classes of shares of stock (or in the case of
a dividend of, or reclassification into, other equity securities, such other
securities) that would have been received by the owner of an equal number of
outstanding shares of Stock as a result of the event requiring the adjustment.
Comparable rights shall accrue to each Optionee in the event of successive
subdivisions, consolidations, capital adjustments, dividends or
reclassifications of the character described above.

         If the Company shall distribute to all holders of its shares of Stock
(including any such distribution made to non-dissenting stockholders in
connection with a consolidation or merger in which the Company is the surviving
corporation and in which holders of shares of Stock continue to hold shares of
Stock after such merger or consolidation) evidences of indebtedness or cash or
other assets (other than cash dividends payable out of consolidated retained
earnings not in excess of, in any one year period, the greater of (a) an amount
per share of Stock equal to $.01 per share of Stock (as the same may be adjusted
from time to time by the Board of Directors to reflect the effect of changes in
capitalization) and (b) two times the aggregate amount of dividends per share
paid during the preceding calendar year and dividends or distributions payable
in shares of Stock or other equity securities of the Company described in the
immediately preceding paragraph, but including stock or other securities of any
corporation or other entity owned by the Company), then in each case the Option
price shall be adjusted by reducing the Option price in effect immediately prior
to the record date for the determination of stockholders entitled to receive
such distribution by the fair market value, as determined in good faith by the
Board of Directors (whose determination shall be described in a statement filed
in the Company's corporate records and be available for inspection by any holder
of an Option) of the portion of the evidence of indebtedness or cash or other
assets so to be distributed applicable to one share of Stock; provided that in
no event shall the Option price be less than the par value of a share of Stock.
In the event such adjustment would result in the Option price being less than
the par value of a share of Stock but for the foregoing proviso, the terms of
the Option shall be appropriately adjusted so as to maintain the economic value
of the Option, including through an adjustment to the number of shares of Stock
subject to the Option and through

                                      -5-
<PAGE>   10

a provision allowing the holder of the Option to receive the evidence of
indebtedness or cash or other assets so to be distributed applicable to one
share of Stock for each share of Stock that may be purchased on the exercise of
the Option. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of the distribution retroactive to
the record date for the determination of the stockholders entitled to receive
such distribution. In addition, in the event the Company distributes shares or
other securities of a subsidiary corporation or other entity to the holders of
the Stock, the Board of Directors may, in lieu of the adjustment provided above,
make provision allowing the holder of the Option to receive the shares or
securities of the corporation or entity that is subject to the distribution.
Comparable adjustments shall be made in the event of successive distributions of
the character described above.

         If the Company shall make a tender offer for, or grant to all of its
holders of its shares of Stock the right to require the Company or any
subsidiary of the Company to acquire from such stockholders shares of Stock, at
a price in excess of the Fair Market Value (a "Put Right"), or the Company shall
grant to all of its holders of its shares of Stock the right to acquire shares
of Stock for less than the Fair Market Value (a "Purchase Right") then, in the
case of a Put Right, the Option price shall be adjusted by multiplying the
Option price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such Put Right by a fraction,
the numerator of which shall be the number of shares of Stock then outstanding
minus the number of shares of Stock which could be purchased at the Fair Market
Value for the aggregate amount which would be paid if all Put Rights are
exercised and the denominator of which is the number of shares of Stock which
would be outstanding if all Put Rights are exercised; and, in the case of a
Purchase Right, the Option price shall be adjusted by multiplying the Option
price in effect immediately prior to the record date for the determination of
the stockholders entitled to receive such Purchase Right by a fraction, the
numerator of which shall be the number of shares of Stock then outstanding plus
the number of shares of Stock which could be purchased at the Fair Market Value
for the aggregate amount which would be paid if all Purchase Rights are
exercised and the denominator of which is the number of shares of Stock which
would be outstanding if all Purchase Rights are exercised. In addition, the
number of shares subject to the Option shall be increased by multiplying the
number of shares then subject to the Option by a fraction which is the inverse
of the fraction used to adjust the Option price. Notwithstanding the foregoing,
if any such Put Rights or Purchase Rights shall terminate without being
exercised, the Option price and number of shares subject to the Option shall be
appropriately readjusted to reflect the Option price and number of shares
subject to the Option which would have been in effect if such unexercised Put
Rights or Purchase Rights had never existed. Comparable adjustments shall be
made in the event of successive transactions of the character described above.

         After the merger of one or more corporations into the Company, after
any consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company shall be the surviving corporation, each Optionee, at no additional
cost, shall be entitled to receive, upon any exercise of his Option, in lieu of
the number of shares as to which the Option shall then be so exercised, the
number and class of shares of stock or other equity securities to which the
Optionee would have been entitled pursuant to the terms of the agreement of
merger or consolidation if at the time of such merger or consolidation such
Optionee had been a holder of a number of shares of Stock equal to the number of
shares as to which the Option shall then be so exercised and, if as a result of
such merger,

                                       -6-
<PAGE>   11

consolidation or other transaction, the holders of Stock are not entitled to
receive any shares of Stock pursuant to the terms thereof, each Optionee, at no
additional cost, shall be entitled to receive, upon exercise of his Option, such
other assets and property, including cash, to which he would have been entitled
if at the time of such merger, consolidation or other transaction he had been
the holder of the number of shares of Stock equal to the number of shares as to
which the Option shall then be so exercised. Comparable rights shall accrue to
each Optionee in the event of successive mergers or consolidations of the
character described above.

         After a merger of the Company into one or more corporations, after any
consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company is not the surviving corporation, each Optionee shall, at no additional
cost, be entitled, at the option of the surviving corporation, (i) to have his
then existing Option assumed or to have a new option substituted for the
existing Option by the surviving corporation to the transaction which is then
employing him, or a parent or subsidiary of such corporation, on a basis where
the excess of the aggregate fair market value of the shares subject to the
option immediately after the substitution or assumption over the aggregate
option price of such option is equal to the excess of the aggregate fair market
value of all shares subject to the Option immediately before such substitution
or assumption over the aggregate Option price of such shares, provided that the
shares subject to the new option must be traded on the New York or American
Stock Exchange or quoted on the National Association of Securities Dealers
Automated Quotation National Market System (or successor system) or (ii) to
receive upon any exercise of his Option, in lieu of the number of shares as to
which the Option shall then be so exercised, the securities, property and other
assets, including cash, to which the Optionee would have been entitled pursuant
to the terms of the agreement or merger or consolidation or the agreement giving
rise to the other corporate transaction if at the time of such merger,
consolidation or other transaction such Optionee had been the holder of the
number of shares of Stock equal to the number of shares as to which the Option
shall then be so exercised.

         If a corporate transaction described in section 424(a) of the Code
which involves the Company is to take place and there is to be no surviving
corporation while an Option remains in whole or in part unexercised, it shall be
cancelled by the Board of Directors as of the effective date of any such
corporate transaction but before the date each Optionee shall be provided with a
notice of such cancellation and each Optionee shall have the right to exercise
such Option in full (without regard to any limitations on exercise set forth in
or imposed by the Agreement pursuant to which such Option was granted) to the
extent it is then still unexercised during a 30-day period preceding the
effective date of such corporate transaction.

         In the event (i) the Company were to distribute to its stockholders or
otherwise divest of a majority of the stock of a subsidiary corporation that is
the principal employer of the Employee and (ii) following such distribution or
divestment the stock of the subsidiary corporation or any parent corporation of
such subsidiary corporation is listed or authorized for listing on a national
securities exchange or authorized for quotation on the National Association of
Securities Dealers Automated Quotation National Market System (or successor
system), the Board of Directors may, but shall not be required to, adjust the
terms of the Option to provide that such Option shall only represent a right to
purchase shares in such subsidiary corporation or parent corporation and the
number of shares and exercise price will be appropriately adjusted so as to
maintain the economic value of the Option.

                                      -7-
<PAGE>   12

This adjustment would be in lieu of any adjustment that might otherwise be
required under this Section 5.4 for that transaction.

         Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Stock then subject to
outstanding Options.

         5.4 NO RIGHTS AS A STOCKHOLDER. No Employee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.

         5.5 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Employee
(or other person exercising the Option) to pay the sum directly to the employer
corporation. If the Employee (or other person exercising the Option) is required
to pay the sum directly, payment in cash or by check of such sums for taxes
shall be delivered within ten days after the date of exercise. The Company shall
have no obligation upon exercise of any Option until payment has been received,
unless withholding (or offset against a cash payment) as of or prior to the date
of exercise is sufficient to cover all sums due with respect to that exercise.
The Company and its Affiliates shall not be obligated to advise an Employee of
the existence of the tax or the amount which the employer corporation will be
required to withhold. The Company may also allow for the retention of shares of
Stock issuable upon the exercise of an Option to satisfy such withholding as
specified in Section 6.4.

                                   ARTICLE VI

                VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS

         6.1 OPTION PRICE. The price at which shares of Stock may be purchased
under a Nonqualified Stock Option shall not be less than the aggregate par value
of the shares of Stock on the date the Nonqualified Stock Option is granted. The
Committee in its discretion may provide that the price at which shares of Stock
may be purchased under a Nonqualified Stock Option may be more or less than 100
percent of Fair Market Value on the date the Option is granted.

         The price at which shares of Stock may be purchased under an Incentive
Stock Option shall be not less than the Fair Market Value of the shares of Stock
on the date the Incentive Stock Option is granted. However, in the case of a Ten
Percent Shareholder, the price at which shares of Stock may be purchased under
an Incentive Stock Option shall be at least 110 percent of the Fair Market Value
of the Stock on the date the Option is granted.

         6.2 DURATION OF OPTIONS. No Option which is an Incentive Stock Option
shall be exercisable after the expiration of ten years from the date such Option
is granted. In the case of a

                                      -8-
<PAGE>   13

Ten Percent Shareholder, no Incentive Stock Option shall be exercisable after
the expiration of five years from the date the Incentive Stock Option is
granted. Unless otherwise provided in an Agreement, no Nonqualified Stock Option
shall be exercisable after one day less than ten years from the date such Option
first becomes exercisable.

         6.3 MAXIMUM VALUE OF STOCK SUBJECT TO OPTIONS WHICH ARE INCENTIVE STOCK
OPTIONS. To the extent that the aggregate Fair Market Value (determined as of
the date the Option is granted) of the Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee in any calendar
year (under the Plan and any other incentive stock option plan(s) of the Company
and any Affiliate) exceeds $100,000, the Options shall be treated as
Nonqualified Stock Options. In making this determination, Options shall be taken
into account in the order in which they were granted.

        6.4 AMOUNT EXERCISABLE - INCENTIVE OPTIONS. Each Option may be exercised
from time to time, in whole or in part, in the manner and subject to the
conditions the Committee, in its sole discretion, may provide in the Agreement,
as long as the Option is valid and outstanding under the terms of the Plan. To
the extent that the aggregate Fair Market Value (determined as of the time an
Incentive Option is granted) of the Stock with respect to which Incentive
Options first become exercisable by the Employee during any calendar year (under
the Plan and any other incentive stock option plan(s) of the Company or any
Affiliate) exceeds $100,000, the Incentive Options shall be treated as
Nonqualified Stock Options. In making this determination, Incentive Stock
Options shall be taken into account in the order in which they were granted.
Unless otherwise provided in an Agreement, (a) in the case of death or
Disability within three years of the date of grant, while the Optionee is an
Employee, each Option shall become immediately exercisable as described in
Section 6.6, and (b) in the case of retirement by an Employee within three years
of the date of grant, each Option shall become exercisable as described in
Section 6.6.

         6.5 EXERCISE OF OPTIONS. An Optionee may exercise his Option by
delivering to the Company a written notice stating (i) that he wishes to
exercise the Option on the date the notice is delivered, (ii) the number of
shares of Stock with respect to which the Option is to be exercised, (iii) the
address to which the certificate representing such shares of Stock should be
mailed, and (iv) his social security number. In order to be effective, such
written notice shall be accompanied by (i) payment of the Option price of such
shares of Stock and (ii) payment of an amount of money necessary to satisfy any
withholding tax liability that may result from the exercise of the Option. Each
such payment shall be made by cashier's check drawn on a national banking
association and payable to the order of the Company in United States dollars.

         Unless otherwise provided in an Agreement, if, at the time of receipt
by the Company of such written notice, (i) the Company has unrestricted surplus
in an amount not less than the Option price of such shares of Stock, (ii) all
accrued cumulative preferential dividends and other current preferential
dividends on all outstanding shares of preferred stock of the Company have been
fully paid, (iii) the acquisition by the Company of its own shares of Stock for
the purpose of enabling such Optionee to exercise such Option is otherwise
permitted by applicable law and without any vote or consent of any stockholder
of the Company, and (iv) there shall have been adopted, and there shall be in
full force and effect, a resolution of the Board of Directors authorizing the
acquisition by the Company of its own shares of Stock for such purpose, then the
Optionee may deliver to the

                                      -9-
<PAGE>   14

Company, in payment of the Option price of the shares of Stock with respect to
which the Option is exercised, (x) certificates registered in the name of the
Optionee that represent a number of shares of Stock legally and beneficially
owned by the Optionee (free of all liens, claims and encumbrances of every kind)
and having a fair market value on the date of receipt by the Company of such
written notice that is not greater than the Option price of the shares of Stock
with respect to which the Option is to be exercised, such certificates to be
accompanied by stock powers duly endorsed in blank by the record holder of the
shares of Stock represented by such certificates, with the signature of such
record holder guaranteed by a national banking association (or in lieu of such
certificates, other arrangements for the transfer of such shares to the Company
which are satisfactory to the Company), and (y) if the Option price of the
shares of Stock with respect to which such Option is to be exercised exceeds
such fair market value, a cashier's check drawn on a national banking
association and payable to the order of the Company in an amount, in United
States dollars, equal to the amount of such excess plus the amount of money
necessary to satisfy any withholding tax liability that may result from the
exercise of the Option. Notwithstanding the provisions of the immediately
preceding sentence, the Committee, in its sole discretion, may refuse to accept
shares of Stock in payment of the Option price of the shares of Stock with
respect to which the Option is to be exercised and, in that event, any
certificates representing shares of Stock that were received by the Company with
such written notice shall be returned to the Optionee, together with notice by
the Company to the Optionee of the refusal of the Committee to accept such
shares of Stock. Unless otherwise provided in the Agreement, the Company, upon
approval of the Committee and in its sole discretion, upon the request of the
Optionee, may retain shares of Stock which would otherwise be issued upon
exercise of an Option to satisfy any withholding tax liability that may result
from the exercise of such Option, which shares shall be valued for such purpose
at their then Fair Market Value. If, at the expiration of seven business days
after the delivery to the Optionee of such written notice from the Company, the
Optionee shall not have delivered to the Company a cashier's check drawn on a
national banking association and payable to the order of the Company in an
amount, in United States dollars, equal to the Option price of the shares of
Stock with respect to which the Option is to be exercised, such written notice
from the Optionee to the Company shall be ineffective to exercise the Option.

         As promptly as practicable after the receipt by the Company of (i) such
written notice from the Optionee, (ii) payment, in the form required by the
foregoing provisions of this Section 6.4, of the Option price of the shares of
Stock with respect to which the Option is to be exercised, and (iii) payment, in
the form required by the foregoing provisions of this Section 6.4, of an amount
of money necessary to satisfy any withholding tax liability that may result from
the exercise of the Option, a certificate shall be issued representing the
number of shares of Stock with respect to which the Option has been so
exercised, reduced, to the extent applicable by the number of shares retained by
the Company as provided above to pay any required withholding tax, such
certificate to be registered in the name of the Optionee, provided that such
delivery shall be considered to have been made when such certificate shall have
been mailed, postage prepaid, to such optionee at the address specified for such
purpose in such written notice from the Optionee to the Company.

         6.6 EXERCISE FOLLOWING TERMINATION OF EMPLOYMENT. Unless it is
expressly provided otherwise in the Agreement or other written agreement with
the Employee that provides otherwise, an Option shall terminate as follows,
provided, however, if an Incentive Stock Option is not

                                      -10-
<PAGE>   15

exercised within specified time limits prescribed by the Code, it shall become a
Nonqualified Stock Option by operation of law:

         SEVERANCE OF EMPLOYMENT. If the Employee severs employment from the
Company and all Affiliates prior to three years from the date his Option was
granted, for any reason, with or without cause, other than for death, retirement
under the then-established rules of the Company, or as a result of his incurring
a Disability, his Option shall terminate and be immediately forfeited. If the
Employee severs employment from the Company and all Affiliates for any reason,
with or without cause, other than for death, retirement under the
then-established rules of the Company, or as a result of his incurring a
Disability on or after three years from the date his Option was granted, the
Option shall continue in effect until the date the Option is otherwise due to
expire in accordance with Section 6.2. Whether authorized leave of absence or
absence on military or government service shall constitute severance of the
employment of the Employee shall be determined by the Committee at that time.

         In determining the employment relationship between the Company and the
Employee, employment by any Affiliate shall be considered employment by the
Company, as shall employment by a corporation issuing or assuming a stock option
in a transaction to which section 424(a) of the Code applies, or by a parent
corporation or subsidiary corporation of the corporation issuing or assuming a
stock option (and for this purpose, the phrase "corporation issuing or assuming
a stock option" shall be substituted for the word "Company" in the definitions
of parent corporation and subsidiary corporation in Section 2.1, and the
parent-subsidiary relationship shall be determined at the time of the corporate
action described in section 424(a) of the Code).

         DEATH. If the Employee dies prior to three years from the date his
Option was granted, the Option shall continue in effect until ten years
following the date of the Employee's death. If the Employee dies on or after
three years from the date his Option was granted, the Option shall continue in
effect until the date the Option is otherwise due to expire in accordance with
Section 6.2. After the death of the Employee, the Employee's executors,
administrators or any persons to whom his Option may be transferred by will or
by the laws of descent and distribution shall have the right, at any time prior
to the Option's expiration to exercise it.

         RETIREMENT. If the Employee retires in good standing from the employ of
the Company under the then-established rules of the Company, prior to three
years from the date his Option was granted, the Employee shall become entitled
to exercise that portion of his Option determined by multiplying the number of
shares of Stock subject to the Option by a fraction, the numerator of which is
the Employee's total whole years of service since the Option was granted and the
denominator of which is three. To the extent that the Option is exercisable
under the preceding sentence, the Option shall be exercisable until ten years
following the date of the Employee's retirement in accordance with this Section
6.5, and the remainder of the Option shall terminate immediately. If the
Employee retires in good standing from the employ of the Company under the
then-established rules of the Company on or after three years from the date his
Option was granted, such Option shall continue until the date the Option is
otherwise due to expire in accordance with Section 6.2.

                                      -11-
<PAGE>   16

         DISABILITY. If the Employee severs from the employ of the Company as a
result of his incurring a Disability prior to three years from the date his
Option was granted, the Option shall be immediately exercisable and shall
continue in effect until ten years following the date he was severed from the
employ of the Company due to Disability. If the Employee severs from the employ
of the Company due to his Disability on or after three years from the date his
Option was granted, the Option shall continue in effect until the date the
Option is otherwise due to expire in accordance with Section 6.2.

         6.7 SUBSTITUTION OPTIONS. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of the Company, or whose employer
is about to become a parent or subsidiary corporation of the Company,
conditioned upon the employee becoming an employee of the Company or a parent or
subsidiary corporation of the Company, as a result of the merger or
consolidation of the Company with another corporation, or the acquisition by the
Company of substantially all the assets of another corporation, or the
acquisition by the Company of at least 50 percent of the issued and outstanding
stock of another corporation as the result of which it becomes a subsidiary of
the Company. The terms and conditions of the substitute Options so granted may
vary from the terms and conditions set forth in the Plan to such extent as the
Board of Directors at the time of grant may deem appropriate to conform, in
whole or in part, to the provisions of the stock options in substitution for
which they are granted.

                                   ARTICLE VII

           GENERAL PROVISIONS RELATING TO ALL RESTRICTED STOCK AWARDS

         7.1 AUTHORITY TO GRANT AWARDS. The Committee may make an Award of
Restricted Stock to selected eligible Employees. The amount of each Restricted
Stock Award and the respective terms and conditions of each Award (which terms
and conditions need not be the same in each case) shall be determined by the
Committee in its sole discretion. However, the terms and conditions of an Award
shall not be inconsistent with the terms of the Plan.

         7.2 TRANSFERABILITY AND RIGHTS WITH RESPECT TO RESTRICTED STOCK. Except
as provided herein, Restricted Stock may not be sold, assigned, transferred,
pledged, or otherwise encumbered during a Restricted Period. Any attempted sale,
assignment, transfer, pledge or encumbrance of Restricted Stock in violation of
the Plan shall be void and the Company shall not be bound thereby.

         During the Restricted Period, certificates representing the Restricted
Stock and any Retained Distributions shall be registered in the recipient's name
and may bear a restrictive legend to the effect that ownership of such
Restricted Stock (and any such Retained Distributions), and the enjoyment of all
rights appurtenant thereto are subject to the restrictions, terms, and
conditions provided in the Plan and the applicable Agreement. Such certificates
shall be deposited by the recipient with the Company, together with stock powers
or other instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock and any
securities constituting Retained Distributions which shall be forfeited in
accordance

                                      -12-
<PAGE>   17

with the Plan and the applicable Agreement. Restricted Stock shall constitute
issued and outstanding shares of Stock for all corporate purposes.

         Subject to the terms of the Plan and the Agreement with respect to the
Award, the recipient shall have the right to vote the Restricted Stock awarded
to such recipient and to receive and retain all regular cash dividends, and to
exercise all other rights, powers and privileges of a holder of Stock, with
respect to such Restricted Stock, with the exception that (i) the recipient
shall not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the restrictions applicable thereto
shall have expired, (ii) the Company shall retain custody of all Retained
Distributions made or declared with respect to the Restricted Stock (and such
Retained Distributions shall be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid, or declared shall have become vested, and such Retained
Distributions shall not bear interest or be segregated in separate accounts and
(iii) the recipient may not sell, assign, transfer, pledge, exchange, encumber,
or dispose of the Restricted Stock or any Retained Distributions during the
Restricted Period. Nothing in this Section shall prevent transfers by will or by
the applicable laws of descent and distribution.

         7.3 WITHHOLDING TAX. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state or local tax law to be withheld with respect to Restricted Stock
Awards hereunder; or the Company may require the Employee to pay such sums
directly to the employer corporation.

         The Company may meet its tax withholding obligations under the Code and
applicable state or local law arising upon the vesting of Restricted Stock by
delivering to the Restricted Stock recipient (or his estate, if applicable) a
reduced number of shares of Stock in the manner specified below. At the time of
vesting of shares of Restricted Stock, the Company shall (i) calculate the
amount of withholding tax due on the assumption that all such vested shares of
Restricted Stock are made available for delivery, (ii) reduce the number of such
shares made available for delivery so that the Fair Market Value of the shares
withheld on the vesting date approximates the amount of tax the Company is
obliged to withhold and (iii) in lieu of the withheld shares, remit cash to the
United States Treasury and other applicable governmental authorities, on behalf
of the participant, in the amount of the withholding tax due. The Company shall
withhold only whole shares of Stock to satisfy its withholding obligation. If
the Fair Market Value of the withheld shares does not equal Company's
withholding tax obligation, the Company shall withhold shares with a Fair Market
Value slightly in excess of the amount of its withholding obligation and shall
remit the excess cash to the Restricted Stock Award recipient (or his estate, if
applicable) with the shares of Stock made available for delivery. The withheld
shares of Restricted Stock not made available for delivery by the Company shall
be retained as treasury stock or will be cancelled and, in either case, the
recipient's right, title and interest in such Restricted Stock shall terminate.

         7.4 CHANGES IN COMPANY'S CAPITAL STRUCTURE. In the event that the
issued and outstanding shares of Stock should, as a result of any stock
dividend, stock split or spin-off, recapitalization, combination or exchange of
shares, merger, consolidation, acquisition of property or stock, separation,
reclassification, reorganization, liquidation, or other similar event, be
increased or decreased or changed into or exchanged for a different number or
kind of share of stock or other

                                      -13-
<PAGE>   18

securities of the Company or of another corporation, the number and class of
additional shares or other securities which may be issued pursuant to Restricted
Stock Awards under the Plan will be appropriately adjusted by the Committee to
reflect such action. If any adjustment shall result in a fractional share, the
fraction shall be disregarded.

                                  ARTICLE VIII

        VARIABLE PROVISIONS RELATING TO SPECIFIC RESTRICTED STOCK AWARDS

         8.1 VESTING OF RESTRICTED STOCK. Restricted Stock Awards shall be
subject to such vesting restrictions, if any, as the Committee shall determine
in its sole discretion. The vesting restrictions shall be specified in the
Agreements relating to the Awards.

         8.2 CONSEQUENCE OF VESTING. Subject to Article IX, when shares of
Restricted Stock become vested, the Restricted Period shall be terminated as to
those shares, and the Company shall deliver to the Restricted Stock Award
recipient (or his estate, if applicable) a Stock certificate representing those
shares and all Retained Distributions made or declared with respect to those
shares, reduced as necessary to satisfy the Company's tax withholding
obligation.

                                   ARTICLE IX

                               REQUIREMENTS OF LAW

         The Company shall not be required to sell, issue or deliver any shares
of Stock under any Award if such sale, issuance or delivery shall constitute a
violation by the Award recipient or the Company of any provisions of any law or
regulation of any governmental authority. Each Award granted under the Plan
shall be subject to the requirements that, if at any time the Board of Directors
or the Committee shall determine that the listing, registration or qualification
of the shares upon any securities exchange or under any state or federal law of
the United States or of any other country or governmental subdivision, or the
consent or approval of any governmental regulatory body, or investment or other
representations, are necessary or desirable in connection with the issue, or
purchase or delivery of shares subject to an Award, that Award shall not be
exercised in whole or in part and no shares shall be delivered pursuant to an
Award unless the listing, registration, qualification, consent, approval or
representations shall have been effected or obtained free of any conditions not
acceptable to the Committee. Any determination in this connection by the
Committee shall be final. In the event the shares issuable or deliverable on
exercise or vesting of an Award are not registered under the Securities Act of
1933, the Company may imprint on the certificate for those shares the following
legend or any other legend which counsel for the Company considers necessary or
advisable to comply with the Securities Act of 1933:

         "The shares of stock represented by this certificate have not been
         registered under the Securities Act of 1933 or under the securities
         laws of any state and may not be sold or transferred except upon
         registration or upon receipt by the Corporation of an

                                      -14-
<PAGE>   19

         opinion of counsel satisfactory to the Corporation, in form and
         substance satisfactory to the Corporation, that registration is not
         required for a sale or transfer."

The Company may, but shall in no event be obligated to, register any securities
covered by the Plan under the Securities Act of 1933 (as now in effect or as
later amended) and, in the event any shares are registered, the Company may
remove any legend on certificates representing those shares. The Company shall
not be obligated to take any other affirmative action in order to cause the
exercise of an Award or the issuance or delivery of shares under the Award to
comply with any law or regulation or any governmental authority.

                                    ARTICLE X

                                 ADMINISTRATION

         The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan and Options shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. The Plan shall be
administered in such a manner as to permit the Options granted under it which
are designated to be Incentive Options to qualify as Incentive Options. In
carrying out its authority under the Plan, subject to the express terms of any
outstanding Option or other agreement with an Employee, the Committee shall have
full and final authority and discretion, including but not limited to the
following rights, powers and authorities, to:

                  (a) determine the Employees to whom and the time or times at
         which Options will be made,

                  (b) determine the number of shares and the purchase price of
         Stock covered in each Option, subject to the terms of the Plan,

                  (c) determine the terms, provisions and conditions of each
         Option, which need not be identical,

                  (d) accelerate the time at which any outstanding Option may be
         exercised,

                  (e) define the effect, if any, on an Option of the death,
         Disability, retirement, or termination of employment of the Employee,

                  (f) prescribe, amend and rescind rules and regulations
         relating to administration of the Plan, and

                  (g) make all other determinations and take all other actions
         deemed necessary, appropriate, or advisable for the proper
         administration of the Plan.

                                      -15-
<PAGE>   20

The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of the Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.

                                   ARTICLE XI

                        AMENDMENT OR TERMINATION OF PLAN

         The Board of Directors may amend, terminate or suspend the Plan at any
time, in its sole and absolute discretion subject to the rights of holders of
outstanding Awards at the time of such amendment, termination or suspension.

                                   ARTICLE XII

                                  MISCELLANEOUS

         12.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside
nor shall a trust fund of any kind be established to secure the rights of any
Employee under the Plan. All Employees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.

         12.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option has been granted to him.

         The decision of the Committee as to the cause of the Employee's
discharge, the damage done to the Company or an Affiliate, and the extent of the
Employee's competitive activity shall be final. No decision of the Committee,
however, shall affect the finality of the discharge of the Employee by the
Company or an Affiliate in any manner.

         12.3 WRITTEN AGREEMENT. Each Award shall be embodied in a written
Agreement which shall be subject to the terms and conditions of the Plan and
shall be signed by the Employee and the Company. The Agreement may contain any
other provisions that the Committee in its discretion shall deem advisable.

         12.4 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of the Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors against, and each
member of the Committee and the Board of Directors shall be entitled without
further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or

                                      -16-
<PAGE>   21

proceeding in which he may be involved by reason of his being or having been a
member of the Committee and/or the Board of Directors, whether or not he
continues to be a member of the Committee and/or the Board of Directors at the
time of incurring the expenses--including, without limitation, matters as to
which he shall be finally adjudged in any action, suit or proceeding to have
been found to have been negligent in the performance of his duty as a member of
the Committee or the Board of Directors. However, this indemnity shall not
include any expenses incurred by any member of the Committee and/or the Board of
Directors in respect of matters as to which he shall be finally adjudged in any
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Committee or the
Board of Directors. In addition, no right of indemnification under the Plan
shall be available to or enforceable by any member of the Committee and the
Board of Directors unless, within 60 days after institution of any action, suit
or proceeding, he shall have offered the Company, in writing, the opportunity to
handle and defend same at its own expense. This right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each member of
the Committee and the Board of Directors and shall be in addition to all other
rights to which a member of the Committee and the Board of Directors may be
entitled as a matter of law, contract, or otherwise.

         12.5 GENDER. If the context requires, words of one gender when used in
the Plan shall include the others and words used in the singular or plural shall
include the other.

         12.6 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.

         12.7 OTHER COMPENSATION PLANS. The maintenance of the Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
or arrangements, including any employment, change of control or severance
agreements, in effect with or for the Company or any Affiliate, nor shall the
maintenance of the Plan preclude the Company from establishing any other forms
of incentive or other compensation for employees of the Company or any
Affiliate.

         12.8 OTHER AWARDS. The grant of an Award shall not confer upon the
Employee the right to receive any future or other Awards under the Plan, whether
or not Awards may be granted to similarly situated Employees, or the right to
receive future Awards upon the same terms or conditions as previously granted.

         12.9 SECTION 83(b) ELECTIONS. No Employee shall exercise the election
permitted under section 83(b) of the Code with respect to an Award without
written approval of the chief financial officer of the Company. If the Committee
permits such an election with respect to any Award, the Company shall require
the Award recipient to pay the Company an amount necessary to satisfy the
Company's tax withholding obligation.

         12.10 DISTRIBUTION AGREEMENT OPTIONS. Notwithstanding any other
provision of the Plan, Nonqualified Stock Options may be granted under the Plan
in accordance with the Distribution Agreement by and between Weatherford
International, Inc. and the Company (the "Distribution Agreement") whether or
not the persons to whom such Nonqualified Stock Options are granted are
Employees. For the purpose of any Nonqualified Stock Option granted pursuant to
this Section

                                      -17-
<PAGE>   22

12.10, employment with either the Company and any of its Affiliates or
Weatherford International, Inc. and any of its subsidiaries or other affiliates
will satisfy any condition to continuing employment where discontinued
employment would cause the Nonqualified Stock Option to terminate.

         12.11 GOVERNING LAW. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Texas.

                                      -18-

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