Document:

Form of letter agreement - options to purchase stock for non-employee directors

 Exhibit 10.38 
 BJ SERVICES COMPANY 
 2003 INCENTIVE PLAN 
 TERMS AND CONDITIONS 
 STOCK OPTION
FOR DIRECTORS 
 The terms and conditions set forth below are hereby incorporated by reference into the attached award agreement
(“Agreement”) by and between BJ Services Company (the “Company”) and the director named therein (the “Director”). Terms defined in the 2003 Incentive Plan (the “Plan”) are used herein with the same meaning.

  

	1.	The Director has agreed to serve on the Company’s Board of Directors (“Board”) and to accept the grant of one or more stock options, as designated on the attached
award agreement (“Option”), in accordance with the terms and provisions of the Plan and the Agreement. 

  

	2.	The Option shall become vested (exercisable) and expire in accordance with the following schedule: 

  

					
	 Number of Shares
	  	 Vesting Date
	  	 Expiration Date

	 1/3 of the Option	  	one year from the Date of Grant	  	seven years from Date of Grant
			
	 1/3 of the Option	  	two years from the Date of Grant	  	seven years from Date of Grant
			
	 1/3 of the Option	  	three years from the Date of Grant	  	seven years from Date of Grant

  

	3.	In the event of the Director’s termination by reason of Retirement, death or Disability, the Option shall become immediately vested in full on such date to the extent not
already vested; provided that, the Option shall not vest upon Retirement unless one year has elapsed from the Date of Grant. As discussed in more detail in Section 10, the Director must exercise the vested Options within 36 months after
termination by reason of Retirement, death or Disability. 

  

	4.	To the extent vested, the Option may be exercised in whole or in part or in two or more successive parts; provided, however, that the Option shall not be exercisable
following the seventh anniversary of the Date of Grant or the earlier termination of such Option as provided herein. 

  

	5.	The Director agrees that the Company may withhold any federal, state or local taxes upon the exercise of the Option, at such time and upon such terms and conditions as required by
law and as provided by the Plan. Notwithstanding anything herein to the contrary, the Company shall not be obligated to issue any shares of Common Stock pursuant to the exercise of the Option until the Director has satisfied such withholding
obligations or made arrangements for satisfying such obligations that are acceptable to the Company. 

	6.	The Option may be exercised from time to time by a notice in writing of such exercise which states the Date of Grant set forth in the Agreement and the number of shares in respect
of which the Option is being exercised. Such notice shall be delivered to the Secretary of the Company or addressed to the Secretary of the Company at its corporate offices in Houston, Texas. An election to exercise shall be irrevocable. The date of
exercise shall be the date the notice is hand-delivered or received by the Secretary, whichever is applicable. 

  

	7.	An election to exercise an Option shall be accompanied by the tender of the full purchase price of the shares of Common Stock for which the election is made. Payment may be made by
(i) cash or check, (ii) by tendering to the Company shares of Common Stock of the Company already owned and paying any remaining amount of the exercise price by cash or check, or (iii) by delivering to the Company and to a broker a
notice and instructions to such broker to deliver to the Company cash or a check. If the Director desires to tender Common Stock already owned by the Director as payment, the Director must notify the Secretary in the written notice of exercise of
such desire and, subject to the Secretary’s confirmation that the Director is the record holder of such number of shares, it shall not be necessary for the Director to tender stock certificates to effectuate such payment of the exercise price.
The value of the number of shares tendered to exercise the Option cannot exceed the Option’s exercise price, and such tendered shares shall be valued at the Common Stock Price per share on the trading day prior to the date of exercise of the
Option. 

  

	8.	The Option may be transferred (in whole or in part) by the Director to (1) the spouse, children or grandchildren of the Director (“Immediate Family Members”),
(2) a trust or trusts for the exclusive benefit of the Immediate Family Members and if applicable, the Director, or (3) a partnership in which such Immediate Family Members and, if applicable, the Director are the only partners. Except as
provided in the preceding sentence, the Option is not transferable by the Director, otherwise than by will or the laws of descent and distribution, and may be exercised during the lifetime of the Director only by the Director.

  

	9.	In the event of the termination of the Director’s membership on the Board (whether voluntary or involuntary), for any reason other than death, Disability, Cause (as defined
below) or Retirement, the Option outstanding on such date of termination, to the extent vested on such date, may be exercised by the Director (or in the event of the Director’s death, by the Director’s estate or by the person or persons
who acquire the right to exercise the Option by bequest or inheritance (“Heir”)) within three months following such termination, but, except as provided in paragraph 13 hereof, not thereafter; provided, however, in no event shall
the Option be exercisable after the seventh anniversary of the Date of Grant. To the extent the Option is not vested on the Director’s date of termination, the Option or the portion thereof that is not vested on such date shall automatically
lapse and be cancelled unexercised as of the Director’s date of termination. 

  

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	10.	In the event of the Director’s termination from the Board by reason of death, Disability or Retirement, the Option granted herein may be exercised by the Director (or in the
event of the Director’s death, the Director’s Heir) within the 36-month period following such termination, but not thereafter, and in no event shall the Option be exercisable after the seventh anniversary of the Date of Grant.

  

	11.	In the event the Director’s directorship is terminated as a result of his removal from the Board for (A) fraud, theft or embezzlement committed against the Company or a
subsidiary, affiliated entity or customer of the Company, (B) the Director’s willful misconduct in the performance of his duties as a Director, or (C) the Director’s final conviction of a felony (any one of such events,
“Cause”), the Option shall automatically lapse in full and be cancelled unexercised as of that date. 

  

	12.	In the event of a change in the capitalization of the Company due to a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of shares,
or similar event, the terms of the Agreement shall be adjusted by the Committee to reflect such change, and the determination of the Committee shall be final and binding. 

  

	13.	Upon the occurrence of a Change of Control, notwithstanding any other provision in the Plan or the Agreement to the contrary, the Option shall automatically become vested and
exercisable in full on such date and shall be immediately exercisable in full for such period as provided in the Plan. Further, in the event of a Change of Control, the following provisions also apply to the Option: 

  

	 	a)	Publicly Traded Stock Transaction. If the consideration offered to shareholders of the Company in connection with a Change of Control consists of publicly traded shares of
the common stock (the “New Stock”) of an entity acquiring the Company or the parent company of an entity acquiring the Company (the “Acquiring Entity”), upon the occurrence of such Change of Control, the Acquiring Entity will
assume the Option and the Option will become an option (a “New Option”) to purchase a number of shares of New Stock, with the number of shares subject to the New Option and the exercise price thereof to be determined in accordance with
Article XI of the Plan. The New Option will otherwise be subject to the same terms and conditions as the Option, except that the New Option will be exercisable until the seventh anniversary of the Date of Grant regardless of any termination of the
Director’s membership on the Board of Directors of the Company or the Board of Directors of the Acquiring Entity following the Change of Control. 

  

	 	b)	 Other Transaction. If the consideration offered to shareholders of the Company in connection with a Change of Control consists of cash or of New Stock that
is not publicly traded, upon the occurrence of the Change of Control, the Director will surrender the Option to the Acquiring Entity in return for a payment in cash equal to the Black-Scholes value of the Option as of the date of the Change of
Control, without discount for risk of 

  

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forfeiture and non-transferability. Such Black-Scholes valuation will be performed on a basis consistent with the methodology set forth in Article XI of the
Plan. 

  

	14.	Nothing in the Agreement or in the Plan shall confer any right on the Director to continue as a member of the Board. 

  

	15.	Notwithstanding any other provision of the Plan or the Agreement, the Director agrees that the Director will not exercise the Option and the Company shall not be obligated to issue
any shares of Common Stock, if the Committee determines such issuance would violate any state or federal law or the rules or regulations of any governmental regulatory body or agreement between the Company and any national securities exchange upon
which the Common Stock is listed. 

  

	16.	In the event of a conflict between the terms of the Agreement and the Plan, the Plan shall be the controlling document. 

  

 4Form of letter agreement - phantom stock awarded to non-employee directors

 Exhibit 10.40 
 PHANTOM STOCK AWARD FOR DIRECTORS 
  

									
		  		  		  		  	  

					
	  
	  		  		  		  	
	  
	  		  		  		  	
	  
	  		  		  		  	

 Dear                 :

 Grant. I am pleased to inform you that the Compensation Committee (the “Committee”) of the Board of Directors of BJ Services Company (the
“Company”) has granted to you              shares of Phantom Stock pursuant to the BJ Services Company
             Incentive Plan (the “Plan”). Except as otherwise provided in this Agreement, the terms defined in the Plan are used in this Agreement with the same meaning.

 Each share of Phantom Stock represents the right to receive one share of the Company’s Common Stock, at the end of the deferral period specified
below. The shares of Phantom Stock hereby granted to you are subject to vesting as described below. 
 No Rights as a Shareholder. Until actual shares
of the Company’s Common Stock are issued to you, you will not possess any rights of a stockholder of the Company with respect to the Phantom Stock, including, but not limited to, the right to vote shares or receive dividends. 
 Deferral Period. Subject to the vesting restrictions and provisions described below, one-third
(1/3) of your Phantom Stock shares will
mature and become payable to you as of             , 20    . An additional one-third (1/3) will be payable on             ,
20     and the remaining (1/3) will be payable on             , 20    . However, all deferral periods shall end and payment for the Phantom Stock will be immediately due
and payable to you in the event of a Change of Control (as defined in Appendix A hereto). Payment in shares will be made to you on the first business day following the end of the applicable deferral period (or in the event of a Change of Control, on
the first business day following the occurrence of the Change of Control), and such payment will be deemed made on such date if it is made as soon as administratively practicable following such date. 
 Vesting. In the event that your service on the Board is terminated for any reason other than death, Disability or Retirement prior to the end of the applicable
deferral period all Phantom Stock not yet then payable will be forfeited. If your service on the Board is terminated due to death, Disability or Retirement, your Phantom Stock award will not be forfeited, but will mature at the end of the applicable
deferral period (or, if earlier, upon a Change of Control) and will become payable on the first business day following the end of the applicable deferral period (or, if earlier, the first business day following the date of the Change of Control),
and such payment will be deemed made on such date if it is made as soon as administratively practicable following such date. In the event of your death, your Phantom Stock award will be paid to the representative of your estate. 
  

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 Transferability. This award of Phantom Stock is not transferable by you and may not be pledged, assigned or
encumbered by you in any manner. However, in the event of your death, your Phantom Stock award may be transferred by your will or by the laws of descent and distribution, and your beneficiary will receive the Phantom Stock subject to the same
restrictions that are applicable to you. 
 Adjustment of Awards. In the event of a change in the capitalization of the Company due to a stock split,
stock dividend, re-capitalization, merger, consolidation, combination, or similar event, the terms of the Phantom Stock will be adjusted by the Committee to reflect the change. 
 Withholding and Issuance of Shares. Notwithstanding anything in the Plan or this award to the contrary, the Company will not be required to issue shares of Common Stock to you unless and until arrangements
satisfactory to the Company have been made for the payment of any tax amounts (federal, state, local or other) that may be required to be withheld or paid by the Company with respect to your Phantom Stock. 
 Amendment. The Committee may amend this award and may waive, amend, or accelerate any requirement or condition to the payment of the award, but may not amend the
award in a manner that would adversely affect your rights without your consent. 
 Awards Subject to Plan Terms. The terms of this Phantom Stock award
are intended to be consistent with and subject to the terms of the Plan and shall be construed accordingly. In the event of a conflict, the terms of the Plan shall control. By signing below, you agree that this award is governed by the terms of the
Plan. 
 This grant shall be void and of no effect unless you execute and return this Agreement within ninety (90) days of the above date. Please sign
and date both copies of this document and return one copy to Mia K. Mullins in the Legal Department. The other copy is for your records. 
  

	
	 Very truly yours,

	
	 J.W. Stewart

	 Chairman, President and

	 Chief Executive Officer

  

	
	  

	
	  

	 Date:                     , 2008

  

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 Appendix A – Definitions 
  

	 	1.	Acting as a Group: “Acting as a group” within the meaning of Treasury regulation section 1.409A-3(i)(5)(v)(B), (vi)(D), or (vii)(C), as applicable.

  

	 	2.	As soon as administratively practicable: For purposes of payment of your Phantom Stock, a date of distribution that is as soon as administratively practicable as determined
by the Committee following the date of payment specified under this Agreement, but in no event later than the later of (a) the 15th day of the third calendar month following the specified payment date or (b) December 31st of the
calendar year in which the specified payment date occurs. In no event will you (or, in the event of your death, your beneficiary or the representative of your estate) be permitted to designate the taxable year of the payment.

  

	 	3.	Change of Control: The occurrence of any one of the following events: 

  

	 	(a)	Any one person, or more than one person Acting as a Group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than
50% of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person Acting as a Group, is considered to own more than 50% of the total fair market value or total
voting power of the stock of the Company, the acquisition of additional stock by the same person or group does not cause a Change of Control within the meaning of this Section 3(a); and provided, further, that an increase in the percentage of
stock owned by any one person, or persons Acting as a Group, as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this Section 3(a); and
provided, further, that this Section 3(a) applies to cause a Change of Control only when there is a transfer of stock of the Company (or issuance of stock of the Company) and stock in the Company remains outstanding after the transaction; and
provided, further, that, if any person, or more than one person Acting as a Group, is considered to have met the control requirements of Section 3(b) below, the acquisition of additional stock by the same person or group will not cause a Change
of Control within the meaning of this Section 3(a); or 

  

	 	(b)	Either: 

  

	 	(i)	 Any one person, or more than one person Acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by
such person or group) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; provided, however, that if one person, or more than one person Acting as a Group, is considered to own more than
50% of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or 

  

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group will not cause a Change of Control within the meaning of this Section 3(b); and provided, further, that, if any person, or more than one person
Acting as a Group is considered to have met the control requirements of this Section 3(b), the acquisition of additional stock by the same person or group will not cause a Change of Control within the meaning of this Section 3(b); or

  

	 	(ii)	A majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board
before the date of such appointment or election; or 

  

	 	(c)	Any one person, or more than one person Acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or
group) assets from the Company that have a total “gross fair market value” equal to all or substantially of the total “gross fair market value” of all the assets of the Company immediately before such acquisition or acquisitions;
provided, however, that there is no Change of Control under this Section 3(c) where there is a Transfer to a Related Person. For purposes of this Section 3(c), “gross fair market value” means the value of the assets of the
Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. 

 For purposes of this Section 3, section 318(a) of the Code applies to determine stock ownership. The definition of Change of Control under this Section 3 is intended to comply with the applicable definitions and requirements of
section 409A(a)(2)(A)(v) of the Code and Treasury regulation section 1.409A-3(i)(5) that correspond to the change of control events described above and shall be interpreted consistently therewith. 
  

	 	4.	Transfer to a Related Person: A transfer of assets by the Company where the assets are transferred to a transferee who is, determined immediately after the transfer of assets
except where otherwise specified, either: 

  

	 	(a)	A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock; 

  

	 	(b)	An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company; 

  

	 	(c)	A person, or one or more persons Acting as a Group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or

  

	 	(d)	An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in Paragraph (c) of this Section 4.

  

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