DELAWARE 3533 76-0476605
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
Of incorporation or Classification Code Number) Identification No.)
organization) THREE ALLEN CENTER
333 CLAY STREET, SUITE 3460
HOUSTON, TEXAS 77002
(713) 652-0582
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive officer)
CINDY B. TAYLOR
THREE ALLEN CENTER
333 CLAY STREET, SUITE 3460
HOUSTON, TEXAS 77002
(713) 652-0582
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
SCOTT N. WULFE JOE S. POFF
VINSON & ELKINS L.L.P. BAKER BOTTS L.L.P.
1001 FANNIN, SUITE 2300 910 LOUISIANA
HOUSTON, TEXAS 77002-6760 HOUSTON, TEXAS 77002
(713) 758-2222 (713) 229-1234
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CALCULATION OF REGISTRATION FEE
============================================================================================================
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share...................... $201,250,000 $53,130
============================================================================================================
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(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
EXPLANATORY NOTE
This registration statement contains two forms of prospectus to be used in connection with the offering of common stock, par value $.01 per share, of Oil States International, Inc.: one to be used in connection with an underwritten offering of such stock in the United States and Canada and one to be used in a concurrent international offering of such stock. The U.S. prospectus for the offering in the United States and Canada follows immediately after this explanatory note. After the U.S. prospectus are the alternate pages for the international prospectus. A copy of the complete U.S. prospectus and international prospectus in the forms in which they are used after effectiveness will be filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 10, 2000
PROSPECTUS
SHARES
This is Oil States International, Inc.'s initial public offering. Oil States International is selling shares, and Oil States International stockholders are selling shares. The U.S. underwriters are offering shares in the U.S. and Canada, and the international managers are offering shares outside the U.S. and Canada.
We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol "OIS."
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
PER SHARE TOTAL
--------- -----
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Oil States International...... $ $
Proceeds, before expenses, to the selling stockholders...... $ $
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The U.S. underwriters may also purchase up to an additional shares from Oil States International at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. The international managers may similarly purchase up to an additional shares from Oil States International.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2000.
----------------------
MERRILL LYNCH & CO. CREDIT SUISSE FIRST BOSTON
SIMMONS & COMPANY
INTERNATIONAL
----------------------
The date of this prospectus is , 2000.
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[DESCRIPTION OF GRAPHICS FOR INSIDE COVER]
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 1
Risk Factors................................................ 9
Cautionary Statement Regarding Forward-Looking Statements... 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Historical and Pro Forma Financial Information..... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 28
Management.................................................. 43
Related Party Transactions.................................. 50
Principal Stockholders...................................... 55
Selling Stockholders........................................ 56
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 61
Material United States Federal Tax Consequences to
Non-United States Holders of Common Stock................. 62
Underwriting................................................ 66
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 69
Index to Financial Statements............................... F-1
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You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus and may not contain all the information that is important to you. To learn more about the offering and our business, you should read the entire prospectus, including our pro forma and historical financial statements and related notes appearing elsewhere in this prospectus. Unless we indicate otherwise, the information contained in this prospectus assumes that the underwriters' over-allotment options are not exercised.
Concurrently with the closing of this offering, Oil States International, Inc. will combine with Sooner Inc., HWC Energy Services, Inc. and PTI Group Inc., a transaction which we refer to as the "Combination." SCF-III, L.P. currently owns a majority interest in Oil States, HWC and PTI, and SCF-IV, L.P. currently owns a majority interest in Sooner. L.E. Simmons & Associates, Incorporated is the ultimate general partner of SCF-III, L.P. and SCF-IV, L.P., each of which is a private equity fund that focuses on investments in the energy industry. We refer to SCF-III, L.P. and SCF-IV, L.P. collectively as "SCF." In this prospectus, the terms "we," "us" and "our" refer to Oil States International, Inc. and, unless the context otherwise requires, its subsidiaries, including Sooner, HWC and PTI, after giving effect to the Combination. The term "Oil States" refers to Oil States International, Inc. and, unless the context otherwise requires, its subsidiaries prior to the Combination.
OUR COMPANY
We are a leading provider of specialty products and services to oil and gas drilling and production companies throughout the world. We focus our business and operations in a substantial number of the world's most active and fastest growing oil and gas producing regions, including the Gulf of Mexico, Canada, West Africa, the Middle East, South America and Southeast Asia. Our customers include many of the major and independent oil and gas companies and other oilfield services companies. During 1999, we had pro forma revenues of $487.4 million and earnings before interest, taxes, depreciation and amortization, or EBITDA, of $35.5 million, and for the quarter ended March 31, 2000, we had pro forma revenues of $158.7 million and EBITDA of $23.3 million, in each case giving effect to the Combination.
We operate in three principal business segments and have established a leadership position in each.
Offshore Products
Through our offshore products segment, we are a leading provider of connection technology for offshore oil and gas development and production systems and facilities. We provide to the offshore oil and gas drilling and producing industry:
- technologically advanced bearings and connector products used in offshore drilling and production systems;
- subsea pipeline fittings and remote pipeline intervention systems; and
- blow-out preventor stack assembly, integration, testing and repair services.
Offshore development and production activities require specialized products and services, including the ones we provide. With our connector technology, developed through our history of technological innovation, and our research and development capabilities, we have the ability to custom design and manufacture components used in a wide range of offshore applications.
Tubular Services
Through our tubular services segment, we are the largest distributor of tubular goods, which consist of casing, production tubing and line pipe, and are a provider of associated finishing and logistics services to the oil and gas industry. We provide the following services:
- distribution of premium tubing and casing;
- threading, remediation, logistical and inventory management services; and
- e-commerce capabilities to facilitate pricing, ordering and tracking.
Our extensive inventory of tubulars enables us to quickly meet our customers' requirements and minimizes their need to maintain their own tubular inventory. Also, we have a proprietary inventory tracking system that allows us to operate our tubular services segment more efficiently and provides the structure on which our e-commerce capabilities are centered.
Well Site Services
Through our well site services segment, we are an industry leader in hydraulic workover and well control services and a leading provider of remote site accommodations, catering and logistics services in the United States and Canada. We provide:
- workover services, which enhance oil and gas production flow;
- specialty drilling services;
- pressure control services and equipment;
- tool rentals;
- remote site accommodations, catering and logistics services; and
- the design, manufacture and installation of remote site accommodation facilities.
We believe we have competitive advantages in our hydraulic workover and well control operations over other means of well intervention due to lower mobilization and demobilization costs, lower retrofit costs, reduced shut-in time and small deckspace requirements for our hydraulic workover units. Additionally, our remote site services offer our customers fully integrated remote site operations. We believe our remote site service capability, coupled with our extensive field service infrastructure and short response time, gives us an advantage over our competitors.
Benefits of the Combination
We expect the combination of our existing operations to create additional growth opportunities through geographic expansion and marketing leverage. Each of our segments has exposure to some, but not all, of the industry's growth markets. Our presence in these growth markets provides us an opportunity to cross-sell our products and services to our customers using our existing facilities and operations. Our leading positions in these diversified products and services enable us to participate in each of the exploration, development and production phases of the oil and gas cycle, which reduces our dependence on any one phase. Our tubular services and well site services segments are primarily used in the exploration and development phases of the oil and gas cycle. Our offshore products are used primarily in the development and production phases of the cycle.
We have a proven history of growth through acquisitions. Over the last four years, we have completed acquisitions of over 15 different companies or business units. These acquisitions allowed us to strengthen our positions in the tubular services and well site services markets and to broaden our product lines in our offshore products segment. We believe that with our increased size and access to the capital markets, we will be able to further expand our operations and product offerings through strategic acquisitions.
OUR INDUSTRY
We operate in the oilfield service industry, which provides products and services to oil and gas exploration and production companies for use in the drilling for and production of oil and gas. Demand for our products and services largely depends on the financial condition of our customers and their willingness to spend capital on the exploration and development of oil and gas. We believe that spending for incremental production will be driven by increased demand for oil and gas throughout the world. The report of the Energy Information Agency of the U.S. Department of Energy entitled "International Energy Outlook 2000" (the "EIA Report") forecasts that world oil consumption will increase at an annual rate of approximately 2% from 1997 through 2020 and that world gas consumption will increase at an annual rate of approximately 3% over the same period. The projected increase in demand for oil is based on worldwide economic and population growth, primarily in developing countries. The projected increase in gas consumption over this period is expected to result from higher demand across residential, industrial and commercial sectors, as well as from the increasing use of gas as a source of fuel for electric power generation, particularly in North and South America. We believe that drilling activity has the potential to grow faster than the demand for oil and gas due to increasing depletion rates and the decreasing size of remaining hydrocarbon reserves. Increasing depletion rates have the effect of requiring more wells to be developed to maintain a given level of supply.
Oil and gas operators are increasingly focusing their exploration and development efforts on frontier areas, particularly deepwater offshore areas. According to One Offshore, Inc., a leader in offshore oil and gas news reporting and analysis, the number of wells drilled in water depths greater than 1,500 feet has increased from 39 in 1990 to 211 in 1999. The number of hydrocarbon discoveries in water depths greater than 1,500 feet has shown similar gains, increasing from nine in 1990 to 66 in 1999.
We believe that oil and gas exploration and production companies will respond to demand increases by expanding their activities and spending more capital, particularly in frontier areas that offer potentially higher future production and that have not yet been exploited, including deepwater Gulf of Mexico, Canada, West Africa, the Middle East, South America and Southeast Asia. We already have an established presence in these areas. In addition to what we believe to be positive industry fundamentals, we believe the following sector-specific trends enhance the growth potential of our business:
- Increased drilling in offshore areas, particularly deepwater areas, increases the need for floating exploration and production systems. Our offshore products segment provides technology critical to floating rigs such as drill ships and semi-submersibles as well as floating production systems such as tension leg platforms, Spars and floating production, storage and offloading (FPSO) vessels.
- Increased drilling of deeper, horizontal and offshore wells positively impacts demand for tubular products. Deeper wells generate considerably more revenues for our tubular services segment than shallower wells since deeper wells require more, higher quality and larger diameter pipe. Generally, operators utilize higher grade, premium tubulars and connectors for casing and tubing in deep wells, horizontal wells and offshore wells since the cost of a pipe failure is higher than in a shallow vertical land well and because the mechanical stresses on the pipe in deeper, deviated or horizontal wells are much greater.
- Rising offshore rig utilization and day rates will benefit hydraulic workover and well control services and cause our hydraulic units to become more competitive for offshore workovers. We also expect to benefit from trends towards underbalanced workovers since this technique results in less damage to reservoir formations than conventional workovers, and towards underbalanced drilling since it results in less formation damage, higher rates of penetration and longer bit life.
- Increased exploration and development activities in frontier areas will benefit our remote site accommodations, catering and logistics services.
OUR GROWTH STRATEGY
We intend to grow our revenue and profitability while continuing to provide our customers with consistent, superior services and dependable, high-quality products. We believe we can implement our growth strategy using our existing facilities and equipment without incurring significant capital costs because we currently have available capacity to accommodate future growth. We describe the key elements of our growth strategy below.
- Capitalize on activity in deepwater and frontier areas. To produce oil and gas efficiently in deepwater and frontier regions, exploration and production companies will require the types of specialized products and services that we offer. Our engineering and manufacturing expertise and the products and services we provide position us for growth in these environments.
- Capitalize on increasing activity in our current geographic markets. We currently have activities in several key growth areas, including the Gulf of Mexico, Canada, West Africa, the Middle East, South America and Southeast Asia. Our well-established presence and strong customer relationships should allow us to capitalize on growth trends in these geographic markets.
- Leverage our market presence to sell complementary products and services. Because we are combining several business segments, we have an opportunity provided by our presence in key areas around the world to provide additional products and services to our customers. Each of our segments has exposure to some, but not all, of these areas. We intend to use our market strength to expand our product and service offerings to our customers in these regions.
- Develop and provide technologically advanced products and services to our customers. We are a technological leader in each of the business segments in which we operate. As oil and gas exploration and production activities move toward deeper water offshore and more remote areas onshore, technological advances will become increasingly important to oil and gas producers. We plan to maintain our leadership position in providing highly engineered products and services to our customers to capitalize on these market trends.
- Continue to make acquisitions in each of our business segments. We intend to make selective acquisitions of companies and assets in geographic and product markets that complement our existing operations. We have an extensive history of completing strategic acquisitions. We intend to continue to participate in the consolidation of the business segments in which we operate to further increase our market share, streamline our costs and expand our operating capabilities.
Our principal executive offices are located at Three Allen Center, 333 Clay Street, Suite 3460, Houston, Texas 77002, and our telephone number at that address is (713) 652-0582.
THE OFFERING
Common stock offered:
By Oil States International
U.S. offering................................. shares
International offering........................ shares
-----------------
Total.................................... shares
By the selling stockholders
U.S. offering................................. shares
International offering........................ shares
-----------------
Total.................................... shares
Shares outstanding after the offering.............. shares
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Use of proceeds.................... We estimate that our net proceeds from
this offering without exercise of the
over-allotment options will be
approximately $138 million. We intend to
use these net proceeds as follows:
- approximately $103 million to retire
outstanding preferred stock of
subsidiaries and subordinated
indebtedness;
- approximately $31 million to upgrade
facilities and to expand our product
and service offerings; and
- the balance to repurchase shares in the
Combination from non-accredited
shareholders and to make payments to
certain persons in consideration for
the termination of their pre-emptive
stock purchase rights.
We will not receive any proceeds from the
sale of shares by the selling
stockholders.
Risk factors....................... See "Risk Factors" and other information
included in this prospectus for a
discussion of factors you should
carefully consider before deciding to
invest in shares of our common stock.
Proposed NYSE symbol............... "OIS"
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The number of shares outstanding after the offering excludes 3,700,000 shares reserved for issuance under our 2000 Equity Participation Plan, of which options to purchase 1,225,224 shares at a weighted average exercise price of $7.44 per share have been issued as of June 30, 2000, giving effect to the Combination. In connection with this offering, we intend to grant additional options under this plan to purchase an aggregate of shares at an exercise price equal to the initial public offering price. The number of shares outstanding after the offering includes 2,985,805 shares to be issued for the conversion of warrants to purchase shares of Sooner common stock, 1,781,734 shares to be issued for the conversion of preferred stock issued by HWC and 9,921,150 shares issuable upon the exchange of exchangeable shares issued to former shareholders of PTI in the Combination. The number of shares outstanding after the offering assumes that the underwriters' over-allotment options are not exercised. If the over-allotment options are exercised in full, we will issue and sell an additional shares.
PRESENTATION OF FINANCIAL INFORMATION AND OTHER DATA
Prior to the offering, SCF owns majority interests in Oil States, Sooner, HWC and PTI. Concurrently with the closing of the offering, the Combination will close and HWC, PTI and Sooner will merge with wholly owned subsidiaries of Oil States. As a result, HWC, PTI and Sooner will become our wholly owned subsidiaries. The mergers of HWC and PTI into Oil States will be accounted for using reorganization accounting for entities under common control. The acquisition of the minority interests of Oil States, HWC and PTI and the merger of Sooner will be accounted for using the purchase method of accounting. In connection with the Combination and the offering, Oil States will effect a three-for-one reverse stock split of its common stock.
HISTORICAL FINANCIAL INFORMATION AND OTHER DATA
The historical financial statements and related financial and other data included in this prospectus reflect the businesses of Oil States, HWC, PTI and Sooner, including its predecessor Sooner Pipe & Supply Co., prior to the Combination. The historical information included in this prospectus does not reflect the proposed three-for-one reverse stock split discussed above.
PRO FORMA FINANCIAL AND OTHER INFORMATION
In addition to the historical financial information and other data, this prospectus includes our unaudited combined reorganized financial statements for 1997 and 1998 and our unaudited pro forma combined financial statements for 1999 and for the three months ended March 31, 2000, each reflecting the reorganization of our company due to the mergers of HWC and PTI with wholly owned subsidiaries of Oil States, each from the date on which it came under common control with Oil States. Our unaudited pro forma combined financial statements for 1999 and for the three months ended March 31, 2000 also reflect:
- our acquisitions of the minority interests of Oil States, HWC and PTI in the Combination;
- our acquisition of Sooner in the Combination;
- the proposed three-for-one reverse stock split of Oil States common stock; and
- our sale of shares of common stock in the offering and the application of the net proceeds to us from the offering as described in "Use of Proceeds."
Because these companies have historically been operated separately, the historical and pro forma financial information and operating data included in this prospectus may not provide an accurate indication of:
- what our actual results would have been if the transactions presented on a pro forma basis had actually been completed as of the dates presented; or
- what our future results of operations are likely to be.
SUMMARY FINANCIAL INFORMATION
The following tables present selected unaudited pro forma financial information of our company for the periods shown. The unaudited pro forma statement of operations and other financial data give effect to:
- our offering of shares at $ per share and the application of the net proceeds to us as described in "Use of Proceeds";
- the proposed three-for-one reverse stock split of Oil States common stock;
- the combination of Oil States, HWC and PTI, excluding the minority interest of each company, as entities under common control (from the dates such common control was established) using reorganization accounting ("as if" pooling of interest accounting);
- the acquisition of the minority interests of Oil States, HWC and PTI in the Combination using the purchase method of accounting as if the acquisition occurred on January 1, 1999 and 2000; and
- the acquisition of Sooner in the Combination using the purchase method of accounting as if the acquisition occurred on January 1, 1999 and 2000.
The unaudited pro forma combined, acquisitions and offering balance sheet data give effect to the Combination, acquisitions and to this offering as if each had been completed on March 31, 2000.
The unaudited pro forma income statement and other financial data presented below are not necessarily indicative of the results that actually would have been achieved had these transactions been completed as described above or that may be achieved in the future. You should read the following information with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the historical financial statements and related notes and the unaudited pro forma combined financial statements and related notes included elsewhere in this prospectus. The unaudited pro forma combined amounts presented below were derived from related audited financial statements and have been combined using reorganization accounting for Oil States, HWC and PTI as entities under common control from the date common control was established. For PTI, the date of common control was January 8, 1997, and for HWC, the date was November 14, 1997.
PRO FORMA COMBINED,
ACQUISITIONS AND
OFFERING(1)
------------------------
THREE PRO FORMA COMBINED(3)
MONTHS -------------------------------
ENDED YEAR ENDED YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, -------------------------------
2000 1999(2) 1999 1998 1997
--------- ------------ --------- -------- --------
(IN THOUSANDS)
COMBINED STATEMENT OF OPERATIONS DATA:
Revenue............................... $158,652 $487,380 $ 267,110 $359,034 $216,259
Expenses
Costs of sales...................... 122,741 400,609 194,822 261,767 151,012
Selling, general and
administrative................... 12,666 48,858 38,667 48,305 23,718
Depreciation and amortization....... 8,755 35,116 20,275 18,201 8,973
Other expense (income).............. (11) 2,448 2,448 4,928 (122)
-------- -------- --------- -------- --------
Operating income (loss)............... 14,501 349 10,898 25,833 32,678
-------- -------- --------- -------- --------
Net interest expense.................. (2,359) (7,518) (12,496) (15,301) (8,710)
Other income (expense)................ 61 (4,933) (1,297) 115 (368)
-------- -------- --------- -------- --------
Income (loss) before income taxes..... 12,203 (12,102) (2,895) 10,647 23,600
Income tax (expense) benefit.......... (3,956) 4,320 (4,654) (9,745) (11,319)
-------- -------- --------- -------- --------
Income (loss) from continuing
operations before minority
interest............................ 8,247 (7,782) (7,549) 902 12,281
Minority interest, net of taxes....... (7) (31) 501 2,988 (6,869)
-------- -------- --------- -------- --------
Income (loss) from continuing
operations.......................... $ 8,240 $ (7,813) $ (7,048) $ 3,890 $ 5,412
======== ======== ========= ======== ========
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footnotes on following page
PRO FORMA COMBINED,
ACQUISITIONS AND
OFFERING(1)
------------------------
THREE PRO FORMA COMBINED(3)
MONTHS -------------------------------
ENDED YEAR ENDED YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, -------------------------------
2000 1999(2) 1999 1998 1997
--------- ------------ --------- -------- --------
(IN THOUSANDS)
OTHER FINANCIAL DATA:
EBITDA(4)............................. $ 23,256 $ 35,465 $ 31,173 $ 44,034 $ 41,651
Net income (loss) before goodwill
amortization(5)..................... 12,333 9,073 (4,144) 6,698 6,415
Capital expenditures.................. 11,297 36,145 14,375
Net cash provided by (used in)
operating activities................ 5,170 7,469 19,348
Net cash provided by (used in)
investing activities................ 112,227 (61,864) (67,217)
Net cash provided by (used in)
financing activities................ (116,122) 42,473 101,696
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PRO FORMA
COMBINED,
ACQUISITIONS PRO FORMA COMBINED(3)
AND OFFERING(1) ------------------------------
--------------- AT DECEMBER 31,
AT MARCH 31, ------------------------------
2000 1999 1998 1997
--------------- -------- -------- --------
(IN THOUSANDS)
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 5,615 $ 3,216 $ 6,034 $ 21,039
Net property and equipment...................... 180,589 142,242 138,374 95,033
Total assets.................................... 726,898 355,544 499,025 433,499
Total long-term debt............................ 99,233 120,290 109,495 171,002
Redeemable preferred stock...................... -- 25,064 20,150 22,650
Total stockholders' equity...................... 471,517 66,953 81,344 98,679
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(1) Includes the results of Sooner, the acquisition of the minority interests of Oil States, HWC and PTI in the Combination and the offering and use of proceeds on a pro forma combined basis assuming the transactions occurred on January 1, 2000 and 1999, respectively, for statement of operations and other data purposes and on March 31, 2000 for balance sheet purposes.
(2) Includes the pro forma adjustments for acquisitions completed by HWC and Sooner during 1999 assuming those transactions occurred January 1, 1999.
(3) Includes the results of Oil States, HWC and PTI on a pro forma combined basis using the reorganization method of accounting for entities under common control from the dates common control was established for statement of operations and other data purposes and on December 31, 1999, 1998 and 1997, respectively, for balance sheet purposes.
(4) EBITDA consists of operating income (loss) before depreciation and amortization expense. EBITDA is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, our EBITDA calculation may not be comparable to other similarly titled measures of other companies. We have included EBITDA as a supplemental disclosure because it may provide useful information regarding our ability to service debt and to fund capital expenditures.
(5) Net income (loss) before goodwill amortization consists of net income (loss) before amortization expense. Net income (loss) before goodwill amortization is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.
RISK FACTORS
Before you invest in our common stock, you should understand the high degree of risk involved. You should consider carefully the following risks and other information in this prospectus before you decide to purchase shares of our common stock. If any of the adverse events described below actually occur, our business, financial condition and operating results could be materially adversely affected. As a result, the trading price of our common stock could decline and you may lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS AND OPERATIONS
DEMAND FOR OUR PRODUCTS AND SERVICES DEPENDS ON OIL AND GAS INDUSTRY ACTIVITY AND EXPENDITURE LEVELS.
We depend upon the oil and gas industry and its willingness to make expenditures to explore for, develop and produce oil and gas. If these expenditures decline, our business will suffer. The industry's willingness to explore, develop and produce depends largely upon the prevailing view of future product prices. Many factors affect the supply and demand for oil and gas and therefore influence product prices, including:
- the level of production;
- the levels of oil and gas inventories;
- the expected cost of developing new reserves;
- the cost of producing oil and gas;
- the level of drilling activity;
- worldwide economic activity;
- national government political requirements, including the ability of the Organization of Petroleum Exporting Companies (OPEC) to set and maintain production levels and prices for oil;
- the cost of developing alternate energy sources;
- environmental regulation; and
- tax policies.
If there is a significant reduction in demand for drilling services, in cash flows of drilling contractors or in drilling rig utilization rates, then demand for our products and services will decrease.
BECAUSE THE OIL AND GAS INDUSTRY IS CYCLICAL, OUR RESULTS MAY FLUCTUATE.
Oil prices have been volatile over the last ten years, ranging from less than $11 per barrel to over $40 per barrel. Spot gas prices have also been volatile, ranging from less than $1.00 per Mcf to above $4.00 per Mcf. These price changes have caused oil and gas companies and drilling contractors to change their strategies and expenditure levels. While oil and gas commodity prices have been on an upward trend in 1999 and 2000, oil and gas prices could decrease in the future, and exploration and development activities and expenditures could decrease or not increase in proportion to increases in oil and gas prices. In addition, Oil States, Sooner, HWC and PTI have experienced in the past, and we may experience in the future, significant fluctuations in operating results.
WE HAVE INCURRED LOSSES IN THE PAST. WE MAY INCUR LOSSES IN THE FUTURE.
We incurred a loss from continuing operations in 1999. We cannot assure you that we will be profitable in the future.
OUR INDUSTRY IS HIGHLY COMPETITIVE.
We sell our products and services in highly competitive markets. In some of our business segments, we compete with the oil and gas industry's largest integrated oilfield services providers. These companies have
greater financial resources than we do. In addition, some of our business segments may face competition from Internet business-to-business service providers. We expect the number of these providers to increase in the future. Our business will be adversely affected to the extent that these providers are successful in reducing purchases of our products and services.
We believe that the principal competitive factors in the market areas that we serve are price, product and service quality, safety, availability of equipment and technical proficiency. Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better prices, features, performance or other competitive characteristics than our products and services. Competitive pressures or other factors also may result in significant price competition that could have a material adverse effect on our results of operations and financial condition.
DISRUPTIONS IN THE POLITICAL AND ECONOMIC CONDITIONS OF THE FOREIGN COUNTRIES IN WHICH WE OPERATE COULD ADVERSELY AFFECT OUR INCOME.
Like most multinational oilfield service companies, we have operations in various international areas, including parts of West Africa and South America. Our operations in these areas increase our exposure to risks of war, local economic conditions, political disruption, civil disturbance and governmental policies that may:
- disrupt our operations;
- restrict the movement of funds or limit repatriation of profits;
- lead to U.S. government or international sanctions; and
- limit access to markets for periods of time.
Some areas, including West Africa and parts of South America, have experienced political disruption in the past. Disruptions may occur in the future in our foreign operations, and losses caused by these disruptions may occur that will not be covered by insurance.
WE ARE SUSCEPTIBLE TO SEASONAL EARNINGS VOLATILITY DUE TO ADVERSE WEATHER CONDITIONS IN OUR REGIONS OF OPERATIONS.
Our operations are directly affected by seasonal differences in weather in the areas in which we operate, most notably in Canada and the Gulf of Mexico. Our Canadian remote site logistics operations are significantly focused on the winter months when the winter freeze in remote regions permits exploration and production activity to occur. The spring thaw in these frontier regions restricts operations in the spring months and, as a result, adversely affects our operations and sales of products and services in the second and third quarters. Our operations in the Gulf of Mexico are also affected by weather patterns. Weather conditions in the Gulf Coast region generally result in higher drilling activity in the spring, summer and fall months with the lowest activity in the winter months. In addition, summer and fall drilling activity can be restricted due to hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast. As a result, full year results are not likely to be a direct multiple of any particular quarter or combination of quarters.
WE DEPEND ON TECHNICAL PERSONNEL.
We believe that our success depends upon our ability to employ and retain technical personnel. Our ability to expand our operations depends in part on our ability to increase our skilled labor force. The demand for skilled workers is high, and the supply is limited. A significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the wage rates that we must pay or both. If either of these events were to occur, our cost structure could increase and our growth potential could be impaired.
IF WE DO NOT DEVELOP NEW COMPETITIVE TECHNOLOGIES AND PRODUCTS, OUR REVENUES MAY DECLINE.
The markets for some of our products and services, particularly our offshore products, are characterized by continual technological developments. As a result, substantial improvements in the scope and quality of product function and performance can occur over a short period of time. If we are not able to design, develop and produce commercially competitive products in a timely manner in response to changes in technology, our business and revenues will be adversely affected.
THE LEVEL AND PRICING OF TUBULAR GOODS IMPORTED INTO THE UNITED STATES COULD DECREASE DEMAND FOR OUR TUBULAR GOODS INVENTORY AND ADVERSELY IMPACT OUR RESULTS OF OPERATIONS.
U.S. law currently restricts imports of low-cost tubular goods from a number of foreign countries into the U.S. tubular goods market, resulting in higher prices for tubular goods than might otherwise be obtained in the absence of these restrictions. If these restrictions were to be lifted or if the level of imported low-cost tubular goods were to otherwise increase, our tubular services segment could be adversely affected to the extent that we then have higher-cost tubular goods in inventory. If prices were to decrease significantly, we might not be able to profitably sell our inventory of tubular goods. In addition, significant price decreases could result in a longer holding period for some of our inventory, which could also have a material adverse effect on our tubular services segment.
IF WE WERE TO LOSE A SIGNIFICANT SUPPLIER OF OUR TUBULAR GOODS, WE COULD BE ADVERSELY AFFECTED.
In 1999, we purchased from a single supplier approximately 17% of the tubular goods we distributed and from three suppliers approximately 36% of such tubular goods. If we were to lose any of these suppliers or if production at one or more of the suppliers were interrupted, our tubular services segment and our overall business, financial condition and results of operations could be adversely affected. If the extent of the loss or interruption were sufficiently large, the impact on us would be material.
WE ARE SUBJECT TO EXTENSIVE AND COSTLY ENVIRONMENTAL LAWS AND REGULATIONS WHICH MAY REQUIRE US TO TAKE ACTIONS THAT WILL ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our business is significantly affected by stringent and complex foreign, federal, state and local laws and regulations governing the discharge of substances into the environment or otherwise relating to environmental protection. We could be exposed to liability for cleanup costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties. Environmental laws and regulations have changed in the past, and it is reasonable to expect additional changes in the future. If existing regulatory requirements or enforcement policies change, we may be required to make significant unanticipated capital and operating expenditures.
Any failure by us to comply with applicable environmental laws and regulations may result in governmental authorities taking actions against our business that could adversely impact our operations and financial condition, including the:
- issuance of administrative, civil and criminal penalties;
- denial or revocation of permits or other authorizations;
- reduction or cessation in operations; and
- performance of site investigatory, remedial or other corrective actions.
Our business exposes us to the risk that harmful substances may escape into the environment, which could result in personal injury or loss of life and damage to or destruction of property. Moreover, our current and past activities could result in our facing substantial environmental, regulatory and other liabilities, including the costs of cleanup of contaminated sites and site closure obligations. While we believe that our business is in substantial compliance with applicable environmental laws and regulations, we cannot assure you that our operations will continue to comply with all such laws and regulations in the future.
WE MAY NOT HAVE ADEQUATE INSURANCE FOR POTENTIAL LIABILITIES.
Our operations are subject to many hazards. We face the following risks under our insurance coverage:
- we may not be able to continue to obtain insurance on commercially reasonable terms;
- we may be faced with types of liabilities that will not be covered by our insurance, such as damages from environmental contamination;
- our insurance carriers may not be able to meet their obligations under the policies;
- the dollar amount of any liabilities may exceed our policy limits; and
- we do not maintain full coverage against the risk of interruption of our business.
Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on our results of operations or consolidated financial position.
WE ARE SUBJECT TO LITIGATION RISKS THAT MAY NOT BE COVERED BY INSURANCE.
In the ordinary course of business, we become the subject of various claims and litigation. We maintain insurance to cover many of our potential losses, and we are subject to various self-retentions and deductibles under our insurance. It is possible, however, that an unexpected judgment could be rendered against us in cases in which we could be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for such matters.
OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT, THE LOSS OF WHOM COULD DISRUPT OUR BUSINESS OPERATIONS. LOSS OF KEY MEMBERS OF OUR MANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS.
We depend on the continued employment and performance of Douglas E. Swanson and other key members of management. If any of our key managers resign or become unable to continue in their present roles and are not adequately replaced, our business operations could be materially adversely affected. We do not maintain any "key man" life insurance for any of our officers. See "Management."
IF WE HAVE TO WRITE OFF A SIGNIFICANT AMOUNT OF GOODWILL, OUR EARNINGS WILL BE NEGATIVELY AFFECTED.
Our pro forma balance sheet as of March 31, 2000 included goodwill representing 45% of our total assets giving effect to the Combination and the offering. We have recorded goodwill because we paid more for some of our businesses than the fair market value of the tangible and separately measurable intangible net assets of those businesses. Generally accepted accounting principles require us to amortize goodwill over the periods we benefit from the acquired assets, to review unamortized goodwill for impairment in value periodically and to charge against earnings portions of our goodwill if circumstances indicate that the carrying amount will not be recoverable. If we were to determine that the remaining balance of goodwill was impaired, we would be required to take an immediate non-cash charge to earnings with a corresponding effect on stockholders' equity.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a variety of intellectual property rights that we use in our offshore products and well site services segments. We may not be able to successfully preserve these intellectual property rights in the future and these rights could be invalidated, circumvented or challenged. Technological developments may also reduce the value of our intellectual property. In addition, the laws of some foreign countries in which our products and services may be sold do not protect intellectual property rights to the same extent as the laws of the United States. The failure of our company to protect our proprietary information and any successful intellectual property challenges or infringement proceedings against us could adversely affect our competitive position.
RISKS RELATED TO THE COMBINATION AND OUR RELATIONSHIP WITH SCF
BECAUSE WE WILL BE A NEWLY COMBINED COMPANY WITH NO COMBINED OPERATING HISTORY, NEITHER OUR HISTORICAL NOR OUR PRO FORMA FINANCIAL AND OPERATING DATA MAY BE REPRESENTATIVE OF OUR FUTURE RESULTS.
We are a newly combined company with no combined operating history. Our lack of a combined operating history may make it difficult to forecast our future operating results. The historical financial statements included in this prospectus reflect the separate historical results of operations, financial position and cash flows of Oil States, Sooner, HWC and PTI prior to the Combination. The unaudited pro forma financial information included in this prospectus is based on the separate businesses of Oil States, Sooner, HWC and PTI prior to the Combination. As a result, the historical and pro forma information may not give you an accurate indication of what our actual results would have been if the Combination had been completed at the beginning of the periods presented or of what our future results of operations are likely to be. In addition, our future results will depend on our ability to integrate our operations, efficiently manage our combined facilities and execute our business strategy.
WE MAY NOT BE ABLE TO INTEGRATE OUR OPERATIONS EFFECTIVELY AND EFFICIENTLY.
Integrating the operations and management of Oil States, Sooner, HWC and PTI will be a complex process, and we cannot assure you that this integration will be completed rapidly or will achieve the benefits we expect from the Combination. Moreover, the integration will require significant management attention, which may temporarily distract us from our focus on the daily operations of the combined company. If we do not successfully integrate the operations of Oil States, Sooner, HWC and PTI, or if there is any significant delay in achieving this integration, our business could suffer after the Combination.
SCF WILL CONTROL THE OUTCOME OF STOCKHOLDER VOTING AND MAY EXERCISE ITS VOTING POWER IN A MANNER ADVERSE TO YOU.
After the offering, SCF will hold approximately % of the outstanding common stock of our company. Accordingly, SCF will be in a position to control the outcome of matters requiring a stockholder vote, including the election of directors, adoption of amendments to our certificate of incorporation or bylaws or approval of transactions involving a change of control. The interests of SCF may differ from yours, and it may vote its common stock in a manner that may adversely affect you.
SCF'S OWNERSHIP INTEREST AND PROVISIONS CONTAINED IN OUR CERTIFICATE OF INCORPORATION COULD DISCOURAGE A TAKEOVER ATTEMPT, WHICH MAY REDUCE OR ELIMINATE THE LIKELIHOOD OF A CHANGE OF CONTROL TRANSACTION AND, THEREFORE, YOUR ABILITY TO SELL YOUR SHARES FOR A PREMIUM.
In addition to SCF's controlling position, provisions contained in our certificate of incorporation, such as a classified board, limitations on the removal of directors, on stockholder proposals at meetings of stockholders and on stockholder action by written consent and the inability of stockholders to call special meetings, could make it more difficult for a third party to acquire control of our company. Our certificate of incorporation also authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could increase the difficulty for a third party to acquire us, which may reduce or eliminate your ability to sell your shares of common stock at a premium. See "Description of Capital Stock."
TWO OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO DIRECTORS OF SCF.
After completion of the offering, two of our directors also will be current directors or officers of the general partner of SCF. This may create conflicts of interest because these directors have responsibilities to SCF and its owners. Their duties as directors or officers of the general partner of SCF may conflict with their duties as directors of our company regarding corporate opportunities, business dealings between SCF and us and other matters. For example, SCF has investments in other oilfield service companies that may compete with us, and SCF or its affiliates may invest in other such companies in the future. As a result, conflicts may arise if opportunities that may be beneficial to more than one company are presented to our directors who are
also directors or officers of the general partner of SCF. The resolution of these conflicts may not always be in our or your best interest.
SCF HAS NO OBLIGATION TO OFFER US CORPORATE OPPORTUNITIES.
If an opportunity in the oilfield services industry is presented to a person who is an officer or director of both SCF and our company, SCF has no obligation to communicate or offer the opportunity to us and may pursue the opportunity as it sees fit, unless it was presented to that person solely in, and as a direct result of, that person's service as a director or officer of our company.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the pre-offering pro forma net tangible book value per share of our common stock. If you buy our common stock in the offering, you will experience immediate and substantial dilution. The dilution will be approximately $ per share in pro forma net tangible book value. See "Dilution."
THE PRICE OF OUR STOCK MAY BE SUBJECT TO FLUCTUATIONS.
The initial public offering price was determined by negotiations among us and the underwriters based on numerous factors. The market price of our common stock after this offering may vary from the initial public offering price, and you may not be able to resell your shares at or above the initial public offering price.
The market price of our common stock is likely to be volatile and could change for a variety of reasons, such as:
- the volatility of the oil and gas industry;
- operating results that vary from the expectations of securities analysts and investors;
- changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
- the operational, regulatory, market and other risks discussed in this section;
- announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
- volatility in the securities markets; and
- changes in general economic conditions and interest rates.
We cannot control many of these factors.
THE AVAILABILITY OF SHARES OF OUR COMMON STOCK FOR FUTURE SALE COULD DEPRESS OUR STOCK PRICE.
The availability of a substantial number of shares of our common stock for sale after the offering could adversely affect the market price of our common stock by significantly increasing the supply of common stock to the market. This increased supply could cause the market price of our common stock to decline significantly.
After the offering, we will have outstanding shares of our common stock (including 2,985,805 shares to be issued for the conversion of warrants to purchase shares of Sooner common stock and 1,781,734 shares to be issued for the conversion of shares of preferred stock issued by HWC), and we will have reserved 3,700,000 shares of our common stock for issuance under our 2000 Equity Participation Plan. In addition, 9,921,150 shares will be issuable upon the exchange of exchangable shares issued to former shareholders of PTI in the Combination. All of the shares of common stock sold in the offering will be freely tradable without restriction under the federal securities laws unless purchased by one of our affiliates. The
remaining shares of outstanding common stock, including shares held by SCF and its affiliates, will be "restricted securities" under the Securities Act and will be subject to restrictions on the timing, manner and volume of sales.
We, our officers and directors, SCF and other shareholders have agreed not to sell any shares of common stock for a period of 180 days after the date of the prospectus without the prior written consent of Merrill Lynch & Co. The lock-up to which we are a party does not restrict us from issuing common stock under our existing benefit plans, including our 2000 Equity Participation Plan. Merrill Lynch & Co. has sole discretion to waive any of the provisions of any of these lock-up agreements. Upon expiration of the lock-up period, the shares outstanding and owned by SCF and any of its or our affiliates may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or any applicable exemption under the Securities Act. Under a registration rights agreement between SCF and our company, among others, SCF and its affiliates have the right to require us to register their shares following the lock-up period, and other shareholders have the right to include their shares in registration statements that we file. The possibility that SCF or any of its or our affiliates may dispose of shares of our common stock, or the announcement or completion of any such transaction, could have an adverse effect on the market price of our common stock. See "Shares Eligible for Future Sale."
THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK.
No market for our common stock existed prior to this offering. Although we intend to apply to have our shares of common stock listed on the New York Stock Exchange, we cannot assure you that a viable trading market for our common stock will be developed or be sustained.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements that do not directly or exclusively relate to historical facts. Such statements are "forward-looking statements." You can typically identify forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "project," "believe," "anticipate," "expect," "estimate," "potential," "plan," "forecast" and other similar words.
All statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.
The forward-looking statements in this prospectus reflect our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Known risks include, but are not limited to, those listed in the "Risk Factors" section and elsewhere in this prospectus.
In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this prospectus might not occur or might occur to a materially different extent or at a materially different time than described in this prospectus. Except as required by law, we undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise.
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering, based upon an assumed initial public offering price of $ , will be approximately $138 million, after deducting underwriting discounts and commissions and estimated offering expenses. If the underwriters' over-allotment options are exercised in full, our net proceeds will be approximately $ million. We will not receive any of the proceeds from the sale of shares by the selling stockholders. We intend to use the net proceeds to us as follows:
- approximately $103 million to purchase and retire outstanding preferred stock of subsidiaries and subordinated indebtedness, bearing dividends or interest at rates ranging from 3.1% to 13.5% per year (with a weighted average rate of 8.1% per year at July 31, 2000) and having maturities ranging from April 30, 2001 to June 30, 2008;
- approximately $31 million to upgrade facilities and to expand our product and service offerings; and
- the balance to repurchase shares in the Combination from non-accredited shareholders and to make payments to certain persons in consideration for the termination of their pre-emptive stock purchase rights.
Pending these uses, we intend to invest the net proceeds in short-term interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock since our inception, although we have declared a dividend payable in the form of a promissory note. We do not, however, intend to declare or pay any cash dividends on our common stock in the foreseeable future. Instead, we currently intend to retain our earnings, if any, to finance our business and to use for general corporate purposes. Our board of directors has the authority to declare and pay dividends on the common stock, in its discretion, as long as there are funds legally available to do so. Our existing credit facilities restrict the payment of dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on a pro forma combined basis giving effect to the Combination; and
- as adjusted for our sale of shares of our common stock in the offering at an assumed initial public offering price of $ and the application of the estimated net proceeds to us from the offering of $138 million.
You should read the information below in conjunction with "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," our unaudited pro forma combined financial statements and related notes and the historical financial statements and related notes included elsewhere in this prospectus.
AT MARCH 31, 2000
-----------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Long-term debt.............................................. $176,204 $
Redeemable preferred stock.................................. 25,211
Stockholders' equity:
Preferred stock........................................... 1,625
Common stock, par value $.01 per share, 200,000,000 shares
authorized; shares issued and outstanding pro
forma combined; shares issued and outstanding, as
adjusted(1)............................................ 60,065
Additional paid-in capital................................ 286,272
Retained earnings (loss).................................. (23,614)
Cumulative translation adjustment......................... (1,790)
-------- --------
Total stockholders' equity........................ 322,558
-------- --------
Total capitalization.............................. $523,973 $
======== ========
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(1) Does not include shares of common stock issuable upon exercise of options to be outstanding under our 2000 Equity Participation Plan upon completion of the offering.
DILUTION
If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share and the net tangible book value per share after this offering. Our unaudited pro forma combined net tangible book value as of March 31, 2000 was $ per share of common stock, after giving effect to the Combination. Net tangible book value per share is determined by dividing our tangible net worth, which is our tangible assets less total liabilities, by the total number of outstanding shares of common stock. After giving effect to the sale of shares of common stock in this offering and our receipt of the estimated net proceeds, our pro forma net tangible book value at March 31, 2000 would have been $ per share. This represents an immediate increase in the pro forma combined net tangible book value of $ per share to existing stockholders, including those receiving shares in the Combination, and an immediate dilution to you. The following table illustrates the per share dilution to you:
Assumed initial public offering price per share............. $
Pro forma combined net tangible book value per share at
March 31, 2000.........................................
Increase per share attributable to new investors..........
------
Pro forma combined net tangible book value per share after
this offering.............................................
------
Dilution per share to new investors......................... $
======
|
The following table sets forth, as of March 31, 2000, on the pro forma combined basis described above, the number of shares of common stock purchased from us, the total consideration paid for those shares and the average price per share paid by existing stockholders and by new investors:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------- ------- -------------- ------- ---------
(IN THOUSANDS)
Existing stockholders............... % $ % $
New investors.......................
------- --- -------- ---
Total..................... 100% $ 100%
======= === ======== ===
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These computations assume that no additional shares are issued upon exercise of the underwriters' over-allotment options or outstanding stock options granted under our 2000 Equity Participation Plan. As of June 30, 2000, options to purchase 1,225,224 shares of common stock at a weighted average exercise price of $7.44 per share have been granted under the 2000 Equity Participation Plan, giving effect to the Combination. See "Management -- Equity Participation Plan." In the event the remaining shares currently subject to the underwriters' over-allotment options and outstanding options under the 2000 Equity Participation Plan were included in the calculations above, the unaudited pro forma combined net tangible book value per share before this offering would be $ , the unaudited pro forma net tangible book value per share after this offering would be $ and the dilution per share to new investors would be $ . In addition, the average price per share paid by existing stockholders would increase to $ per share.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following tables set forth selected historical and unaudited pro forma financial information of our company for the periods shown. The pro forma statement of operations and other financial data give effect to:
- our offering of shares at $ per share and the application of the net proceeds to us as described in "Use of Proceeds";
- the proposed three-for-one reverse stock split of Oil States common stock;
- the combination of Oil States, HWC and PTI, excluding the minority interest of each company, as entities under common control (from the dates such common control was established) using reorganization accounting ("as if " pooling of interest accounting);
- the acquisition of the minority interests of Oil States, HWC and PTI in the Combination using the purchase method of accounting as if the acquisition occurred on January 1, 1999 and 2000; and
- the acquisition of Sooner in the Combination using the purchase method of accounting as if the acquisition occurred on January 1, 1999 and 2000.
The unaudited pro forma combined balance sheet data give effect to the Combination and to this offering as if each had been completed on March 31, 2000.
The pro forma statement of operations and other financial data presented below are not necessarily indicative of the results that actually would have been achieved had these transactions been completed as described above or that may be achieved in the future. You should read the following information with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the historical financial statements and related notes and the unaudited pro forma combined financial statements and related notes included elsewhere in this prospectus. The historical amounts for 1995 and 1996, presented below, represent financial information of Oil States and its predecessor derived from audited financial statements as of December 31, 1996 and 1995 and for the year ended December 31, 1996 and the five months ended December 31, 1995. The pro forma combined amounts presented below were derived from related audited financial statements and have been combined using reorganization accounting for Oil States, HWC and PTI as entities under common control from the date common control was established. For PTI, the date of common control was January 8, 1997, and for HWC, the date was November 14, 1997.
PRO FORMA COMBINED,
ACQUISITIONS AND OFFERING(1) PRO FORMA
----------------------------- COMBINED(3)
THREE MONTHS -----------------
PRO FORMA COMBINED(3)
THREE MONTHS ------------------------------
ENDED YEAR ENDED ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, ----------------- ------------------------------
2000 1999(2) 2000 1999 1999 1998 1997
------------- ------------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenue........................... $158,652 $487,380 $88,226 $71,314 $267,110 $359,034 $216,259
Expenses
Costs of sales.................. 122,741 400,609 59,018 50,439 194,822 261,767 151,012
Selling, general and
administrative................ 12,666 48,858 10,487 10,791 38,667 48,305 23,718
Depreciation and
amortization(6)............... 8,755 35,116 5,188 4,873 20,275 18,201 8,973
Other expense (income).......... (11) 2,448 (11) (33) 2,448 4,928 (122)
-------- -------- ------- ------- -------- -------- --------
Operating income (loss)........... 14,501 349 13,544 5,244 10,898 25,833 32,678
-------- -------- ------- ------- -------- -------- --------
Net interest income (expense)..... (2,359) (7,518) (2,777) (3,008) (12,496) (15,301) (8,710)
Other income (expense)............ 61 (4,933) 61 (61) (1,297) 115 (368)
-------- -------- ------- ------- -------- -------- --------
Income (loss) before income
taxes........................... 12,203 (12,102) 10,828 2,175 (2,895) 10,647 23,600
Income tax (expense) benefit...... (3,956) 4,320 (5,226) (1,833) (4,654) (9,745) (11,319)
-------- -------- ------- ------- -------- -------- --------
Income (loss) from continuing
operations before minority
interest........................ 8,247 (7,782) 5,602 342 (7,549) 902 12,281
Minority interest................. (7) (31) (2,576) (8) 501 2,988 (6,869)
-------- -------- ------- ------- -------- -------- --------
Income (loss) from continuing
operations...................... $ 8,240 $ (7,813) $ 3,026 $ 334 $ (7,048) $ 3,890 $ 5,412
======== ======== ======= ======= ======== ======== ========
Income (loss) from continuing
operations per common share(7)
Basic........................... $ $ $ 0.09 $ -- $ (0.21) $ 0.11 $ 0.16
======== ======== ======= ======= ======== ======== ========
Diluted......................... $ $ $ 0.09 $ -- $ (0.20) $ 0.11 $ 0.16
======== ======== ======= ======= ======== ======== ========
Average shares outstanding(7)
Basic........................... 34,067 34,067 34,067 34,067 34,067
======== ======== ======= ======= ======== ======== ========
Diluted......................... 34,848 34,848 34,848 34,848 34,848
======== ======== ======= ======= ======== ======== ========
HISTORICAL
----------------------------------------
SEVEN
FIVE MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
1996(4) 1995(4)(5) 1995(4)(5)
------------ ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenue........................... $580,255 $170,030 $179,241
Expenses
Costs of sales.................. 484,403 141,496 147,127
Selling, general and
administrative................ 88,147 26,015 27,134
Depreciation and
amortization(6)............... -- -- 2,008
Other expense (income).......... -- 1,062 --
-------- -------- --------
Operating income (loss)........... 7,705 1,457 2,972
-------- -------- --------
Net interest income (expense)..... (5,988) (481) 1,029
Other income (expense)............ 750 -- (626)
-------- -------- --------
Income (loss) before income
taxes........................... 2,467 976 3,375
Income tax (expense) benefit...... (4,510) (334) (773)
-------- -------- --------
Income (loss) from continuing
operations before minority
interest........................ (2,043) 642 2,602
Minority interest................. (1,807) (52) --
-------- -------- --------
Income (loss) from continuing
operations...................... $ (3,850) $ 590 $ 2,602
======== ======== ========
Income (loss) from continuing
operations per common share(7)
Basic...........................
Diluted.........................
Average shares outstanding(7)
Basic...........................
Diluted.........................
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footnotes on following page
PRO FORMA COMBINED,
ACQUISITIONS AND OFFERING(1) PRO FORMA
----------------------------- COMBINED(3)
THREE MONTHS -----------------
PRO FORMA COMBINED(3)
THREE MONTHS ------------------------------
ENDED YEAR ENDED ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, ----------------- ------------------------------
2000 1999(2) 2000 1999 1999 1998 1997
------------- ------------- ------- ------- -------- -------- --------
(IN THOUSANDS)
OTHER DATA:
EBITDA(8)............................ $ 23,256 $ 35,465 $18,732 $10,117 $ 31,173 $ 44,034 $ 41,651
Net income (loss) before goodwill
amortization(9).................... 12,333 9,073 3,718 1,056 (4,144) 6,698 6,415
Capital expenditures................. 3,665 2,239 11,297 36,145 14,375
Net cash provided by (used in)
operating activities............... (2,400) 1,918 5,170 7,469 19,348
Net cash provided by (used in)
investing activities............... (6,708) (2,423) 112,227 (61,864) (67,217)
Net cash provided by (used in)
financing activities............... 10,119 (1,734) (116,122) 42,473 101,696
HISTORICAL
------------------------------------
SEVEN
FIVE MONTHS MONTHS
ENDED ENDED
DECEMBER 31, JULY 31,
1996(4) 1995(4)(5) 1995(4)(5)
-------- ------------ ----------
(IN THOUSANDS)
OTHER DATA:
EBITDA(8)............................ $ 15,000 $ 3,717 $ 4,980
Net income (loss) before goodwill
amortization(9).................... (3,471) 671 2,602
Capital expenditures................. 9,737 552
Net cash provided by (used in)
operating activities............... (1,062) (2,641)
Net cash provided by (used in)
investing activities............... (26,522) (64,425)
Net cash provided by (used in)
financing activities............... 32,240 69,516
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PRO FORMA
COMBINED,
ACQUISITIONS AND PRO FORMA PRO FORMA COMBINED(3) HISTORICAL
OFFERING(1) COMBINED(3) ------------------------------ -------------------
---------------- ------------ AT DECEMBER 31,
AT MARCH 31, AT MARCH 31, ----------------------------------------------------
2000 2000 1999 1998 1997 1996(4) 1995(4)
---------------- ------------ -------- -------- -------- -------- --------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ 5,615 $ 3,668 $ 3,216 $ 6,034 $ 21,039 $ 6,834 $ 2,450
Net property and equipment............... 180,589 144,419 142,242 138,374 95,033 37,905 16,856
Total assets............................. 726,898 379,259 355,544 499,025 433,499 278,579 191,773
Long-term debt and capital leases,
excluding current portion.............. 99,233 119,851 120,290 109,495 171,002 75,606 51,726
Redeemable preferred stock of
subsidiaries........................... -- 25,211 25,064 20,150 22,650 14,300 14,300
Total stockholders' equity............... 471,517 69,898 66,953 81,344 98,679 32,969 29,122
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(1) Includes the results of Sooner, the acquisition of the minority interests of Oil States, HWC and PTI in the Combination and the offering and use of proceeds on a pro forma combined basis assuming the transactions occurred on January 1, 2000 and 1999, respectively, for statement of operations and other data purposes and on March 31, 2000 for balance sheet purposes.
(2) Includes the pro forma adjustments for acquisitions completed by HWC and Sooner during 1999 assuming those transactions occurred January 1, 1999.
(3) Includes the results of Oil States, HWC and PTI on a pro forma combined basis using the reorganization method of accounting for entities under common control from the dates common control was established for statement of operations and other data purposes and on December 31, 1999, 1998 and 1997, respectively, for balance sheet purposes.
(4) Includes results of operations associated with entities sold in 1999. Operations for these entities were segregated as discontinued operations in the 1997, 1998 and 1999 statements of operations.
(5) On August 1, 1995, we acquired all of the outstanding common stock of Continental Emsco from LTV Corporation. The financial information for the seven months ended July 31, 1995 relates to the predecessor operations.
(6) Depreciation and amortization was not separately disclosed in the audited consolidated statement of operations for the five-month period ended December 31, 1995 and the year ended December 31, 1996. The amount of depreciation and amortization, as disclosed in the audited consolidated statement of cash flows, was $2,260 and $7,295, respectively.
(7) Share and per share data have been retroactively restated to reflect a three-for-one reverse stock split for Oil States and also to reflect the effects of the Combination. Share and per share data are not presented for the predecessor entities prior to the Combination as such data are not meaningful.
(8) EBITDA consists of operating income (loss) before depreciation and amortization expense. EBITDA is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, the EBITDA calculation herein may not be comparable to other similarly titled measures of other companies. We have included EBITDA as a supplemental disclosure because it may provide useful information regarding our ability to service debt and to fund capital expenditures.
(9) Net income (loss) before goodwill amortization consists of net income (loss) before amortization expense. Net income (loss) before goodwill amortization is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this prospectus. The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of various factors, including those described in "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We provide a broad range of products and services to the oil and gas industry through our offshore products, tubular services and well site services business segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to spend capital on the exploration and development of oil and gas reserves. Demand for our products and services by our customers is highly sensitive to current and expected oil and natural gas prices. Our offshore products segment is a leading provider of highly engineered and technically designed products for offshore oil and gas development and production systems and facilities. Sales of our offshore products and services depend upon repairs and upgrades of existing drilling rigs, construction of new drilling rigs and the development of offshore production systems. We are particularly influenced by deepwater drilling and production activities. Through our tubular services division, we distribute premium tubing and casing. Sales of tubular products and services depend upon the overall level of drilling activity and the mix of wells being drilled. Demand for tubular products is positively impacted by increased drilling of deeper horizontal and offshore wells that generally require premium tubulars and connectors, large diameter pipe and longer and additional tubular and casing strings. In our well site services business segment, we provide hydraulic well control services, pressure control equipment and rental tools and remote site accommodations, catering and logistics services. Demand for our well site services depends upon the level of worldwide drilling and workover activity.
Beginning in late 1996 and continuing through the early part of 1998, stabilization of oil and gas prices led to increases in drilling activity as well as the refurbishment and new construction of drilling rigs. In the second half of 1998, crude oil prices began a precipitous fall and reached levels below $11 per barrel in early 1999. With this decline in pricing, many of our customers substantially reduced their capital spending and related activities. This industry downturn continued through most of 1999. The rig count in the United States and Canada, as measured by Baker Hughes Incorporated, fell from 1,481 rigs in February 1998 to 558 rigs in April 1999. This downturn in activity had a material adverse effect on demand for our products and services, and our operations suffered as a result.
The price of crude oil has increased significantly over the last 12 months due to improved demand for oil and supply reductions by OPEC member countries. This improvement in crude oil pricing has led to increases in the rig count, particularly in Canada and the United States. As of July 14, 2000, the rig count in the United States and Canada, as measured by Baker Hughes, was 1,216. Demand for our well site services has begun to recover with the overall improvement in industry fundamentals. Our offshore products segment has not recovered with the general market. We believe that our offshore products segment lags the general market recovery because its sales related to offshore construction and production facility development generally occur later in the cycle. Worldwide construction activity continues at a very low level currently, but we expect it to increase substantially as construction activity in the shallow water regions of the Gulf of Mexico resumes and as the industry increasingly pursues deeper water drilling and development projects.
Consolidation among both major and independent oil and gas companies has affected exploration, development and production activities, particularly in international areas. These companies have focused on integration activities and cost control measures over the last several months. As a result, we believe that capital spending within the industry has lagged the improvement in crude oil prices.
RECENT EVENTS
Prior to the offering, SCF-III, L.P. owns majority interests in Oil States, HWC and PTI and SCF-IV, L.P. owns a majority interest in Sooner. Concurrently with the closing of the offering, the Combination will close, and HWC, PTI and Sooner will merge with wholly owned subsidiaries of Oil States. As a result, HWC, Sooner and PTI will become our wholly owned subsidiaries. The financial results of Oil States, HWC and PTI have been combined for the three years in the period ended December 31, 1999 using reorganization accounting ("as if" pooling of interests method). These operations represent two of our business segments, offshore products and well site services. Concurrent with the closing of the offering, Oil States will acquire Sooner, and the acquisition will be accounted for using the purchase method of accounting. The pro forma combined financial statements for the year ended December 31, 1999 and the quarter ended March 31, 2000 reflect the acquisition of Sooner. After consummation of the Sooner acquisition, we will report under three business segments.
RESULTS OF OPERATIONS
Prior to consummation of the Sooner acquisition, we reported under two business segments, offshore products and well site services. Information for these two segments is presented below.
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ --------------------------
2000 1999 1999 1998 1997
------- ------- ------ ------ ------
(IN MILLIONS)
Revenues
Offshore Products................... $ 27.9 $ 38.5 $154.3 $230.0 $113.9
Well Site Services.................. 60.3 32.8 112.8 129.0 102.4
------ ------ ------ ------ ------
Total....................... $ 88.2 $ 71.3 $267.1 $359.0 $216.3
====== ====== ====== ====== ======
Operating Income (Loss)
Offshore Products................... $ 5.3 $ 5.8 $ 22.6 $ 46.7 $ 26.7
Well Site Services.................. 18.7 10.2 27.0 27.4 29.7
Selling, General and Administrative
Expense.......................... (10.5) (10.8) (38.7) (48.3) (23.7)
------ ------ ------ ------ ------
Total....................... $ 13.5 $ 5.2 $ 10.9 $ 25.8 $ 32.7
====== ====== ====== ====== ======
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Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31, 1999.
Revenues. Revenues increased by $16.9 million, or 23.7%, to $88.2 million for the three months ended March 31, 2000 from $71.3 million for the three months ended March 31, 1999. Well site services revenues increased by $27.5 million, or 83.8%, partially offset by a decrease in offshore products revenues of $10.6 million, or 27.5%. Of the $27.5 million increase in well site services revenues, $18.5 million was generated from our remote site accommodations, catering and logistics services and modular building construction services, $3.7 million was generated from our hydraulic workover units, $2.8 million was generated from our drilling operations and $2.5 million was generated from our rental tool operations. The significant improvement in revenues from our remote site accommodations, catering and logistics services and modular building construction services was due to the strong level of Canadian drilling activity during the first quarter of 2000, which resulted in increased demand for our drilling camps and related catering services. The increased revenues in our hydraulic workover units and drilling rigs resulted from higher utilization during the period and contributions from the operation of various hydraulic workover assets that were acquired in the fourth quarter of 1999 and were not, therefore, in operation for us in the prior period. The acquisitions contributed $2.4 million of the $3.7 million revenue increase in our hydraulic workover operations. The $2.5 million increase in our rental tool revenues was largely due to increases in activity levels and the acquisition of additional rental tool facilities on March 31, 1999. These revenue increases were partially offset by declines in our offshore products segment due to a significant downturn in construction related activity.
Cost of Goods Sold. Cost of goods sold increased by $8.6 million, or 17.1%, to $59.0 million for the three months ended March 31, 2000 from $50.4 million for the three months ended March 31, 1999. Cost of goods
sold increased in our well site services segment by $18.5 million, but was partially offset by a decrease of $9.9 million in our offshore products segment. The changes from the 1999 period to the 2000 period were caused by the same factors influencing revenues. Our gross profit margin improved from 29.3% during the quarter ended March 31, 1999 to 33.1% during the quarter ended March 31, 2000 due to cost reductions in our offshore products segment made in response to the market downturn in offshore construction activity.
Selling, General and Administrative Expenses. During the quarter ended March 31, 2000, selling, general and administrative expenses decreased $0.3 million, or 2.8%, to $10.5 million compared to $10.8 million during the quarter ended March 31, 1999. Selling, general and administrative expenses in our offshore products segment declined $0.8 million, partially offset by a $0.5 million increase in our well site services segment. We reduced costs in our offshore products segment in response to the market downturn in offshore construction activity.
Depreciation and Amortization. Depreciation and amortization totaled $5.2 million during the quarter ended March 31, 2000 compared to $4.9 million in the quarter ended March 31, 1999. The 6.5% increase was primarily related to asset acquisitions and capital expenditures made in our well site services segment on March 31, 1999 and in the fourth quarter of 1999.
Operating Income (Loss). Our operating income (loss) equals revenues less cost of goods sold, selling, general and administrative expense and depreciation and amortization. Operating income (loss) is comprised of the operating income of each of our segments and the portion of selling, general and administrative expenses which are not allocated to the segments. Our operating income increased by $8.3 million to $13.5 million for the three months ended March 31, 2000 from $5.2 million for the same period in 1999. Operating income for the first quarter of 2000 for our offshore products segment decreased $0.5 million to $5.3 million from $5.8 million during the same period in 1999, and operating income from our well site services segment increased $8.5 million from $10.2 million for the three months ended March 31, 1999 to $18.7 million for the same period in 2000. Selling, general and administrative expense was $10.5 million in the first quarter of 2000 compared to $10.8 million incurred during the first quarter of 1999.
Interest Expense. Interest expense totaled $2.8 million during the quarter ended March 31, 2000 compared to $3.0 million during the quarter ended March 31, 1999. The $0.2 million decrease in interest expense primarily related to a reduction in average debt balances outstanding in our offshore products segment with funds generated from asset sales.
Other Income and Expense. Other income consisted primarily of interest income received on invested cash and was not significant in either quarter during 1999 or 2000.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998.
Revenues. Revenues decreased by $91.9 million, or 25.6%, to $267.1 million for the year ended December 31, 1999 from $359.0 million for the year ended December 31, 1998. Offshore products revenues decreased by $75.7 million, or 32.9%, and well site services revenues decreased by $16.2 million, or 12.6%. The decrease in our offshore products revenues resulted from an overall market downturn during 1999 and affected all of our offshore products business lines, including our connector products, marine construction activities and marine winches. The decrease in our well site services revenues was primarily due to lower demand for our remote accommodations, catering and logistics services.
Cost of Goods Sold. Cost of goods sold decreased by $67.0 million, or 25.6%, to $194.8 million for the year ended December 31, 1999 from $261.8 million for 1998. Cost of goods sold decreased by $54.1 million, or 30.8%, in our offshore products segment and by $12.9 million, or 15.0%, in our well site services segment. The changes in cost of goods sold were the same as the factors influencing revenues. Our gross profit margin remained level at 27.1% in both 1998 and 1999 despite the reduction in activity over the period. Margins deteriorated somewhat in offshore products, but were offset by margin improvements in well site services, particularly in our accommodations, catering and logistics services.
Selling, General and Administrative Expenses. During the year ended December 31, 1999, selling, general and administrative expenses decreased $9.6 million, or 19.9%, to $38.7 million compared to
$48.3 million incurred during 1998. Selling, general and administrative expenses in our offshore products segment declined $7.5 million, or 22.9%, while expenses in our well site services segment declined $2.1 million, or 13.8%. We reduced costs in all segments in response to the general industry downturn that occurred during 1999.
Depreciation and Amortization. Depreciation and amortization totaled $20.3 million during 1999 compared to $18.2 million during 1998. The increase of $2.1 million, or 11.5%, was primarily related to an expansion of our well site services operations. We acquired our rental tool operations during May 1998 and expanded our operations through an acquisition in April 1999.
Operating Income (Loss). Our operating income decreased by $14.9 million to $10.9 million during the year ended December 31, 1999 compared to $25.8 million for the same period in 1998. Operating income for our offshore products segment during 1999 decreased $24.1 million to $22.6 million from $46.7 million during 1998. Operating income for our well site services segment decreased $0.4 million during the same period. Selling, general and administrative expense was $38.7 million during 1999 compared to $48.3 million during 1998, a decrease of $9.6 million.
Interest Expense. Interest expense totaled $12.8 million during 1999 compared to $15.9 million during 1998. Of the $3.1 million decrease in interest expense, $2.5 million resulted from a decrease in average debt balances outstanding in our offshore products segment due to the proceeds from asset sales being used to repay debt.
Other Income and Expense. Other income consisted of interest income received on invested cash in 1998 and 1999. In addition, $1.3 million of other expense was recorded during 1999 in our offshore products segment related to the net loss on sale of certain assets and securities.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997.
Revenues. Revenues increased by $142.7 million, or 66.0%, to $359.0 million for the year ended December 31, 1998 from $216.3 million in 1997. Our offshore products revenues increased by $116.1 million, or 101.9%, to $230.0 million for 1998 compared to $113.9 million in 1997. This significant revenue increase resulted from a strong market recovery during 1998 that affected almost all of our offshore products business lines, including our connector products, marine construction activity and marine winches, and from acquisitions made during the third quarter of 1997 and the first quarter of 1998. Our well site services revenues increased $26.6 million, or 26.0%, to $129.0 million for the year ended December 31, 1998 from $102.4 million during 1997. This revenue increase resulted primarily from our hydraulic well control and drilling operations, which were both acquired in November 1997 and contributed very little to 1997 operating results. This increase in revenues was partially offset by an $8.4 million reduction in our accommodations, catering and logistics operations due to reductions in activity levels over the period.
Cost of Goods Sold. Cost of goods sold increased by $110.8 million, or 73.4%, to $261.8 million for the year ended December 31, 1998 from $151.0 million during 1997. Cost of goods sold increased by $94.3 million, or 115.6%, in our offshore products segment and by $16.5 million, or 23.7%, in our well site services segment. The changes in cost of goods sold resulted from the same factors that affected revenues during the period. However, our gross profit margin decreased from 30.2% during 1997 to 27.1% during the year ended December 31, 1998. Margins deteriorated in our offshore products segment from 28.4% during 1997 to 23.5% during 1998, primarily due to cost increases in marine construction activities and our marine winch business.
Selling, General and Administrative Expenses. During the year ended December 31, 1998, selling, general and administrative expenses increased by $24.6 million, or 103.7%, to $48.3 million compared to $23.7 million incurred during 1997. Selling, general and administrative expenses in our offshore products and well site services segments increased $16.1 million and $8.5 million, or 96.1% and 121.6%, respectively, over the same period. Costs increased in all areas as the market activity increased. Of the $8.5 million increase in our well site services segment, $6.6 million was related to our hydraulic well control and drilling operations, both of which were acquired in November 1997, and our rental tool operations, which were acquired in May 1998.
Depreciation and Amortization. Depreciation and amortization totaled $18.2 million during the year ended December 31, 1998 compared to $9.0 million during 1997. Of the increase of $9.2 million, $7.2 million related to increases in our well site services segment and the remaining $2.0 million increase was from our offshore products segment. The $7.2 million increase in our well site services segment was related to asset acquisitions and additional capital expenditures made for hydraulic workover assets, rental tools and drilling rigs.
Operating Income (Loss). Our operating income decreased by $6.9 million to $25.8 million during the year ended December 31, 1998 compared to $32.7 million during 1997. Our operating income decreased even though our revenues increased $142.7 million. Operating income for our offshore products segment increased by $20.0 million from 1997 to 1998, partially offset by a $2.3 million reduction in operating income from our well site services segment over the same period. Included in the 1998 results is a $5.3 million charge related to a write-down of an investment in our Chilean operations by our well site services segment. Selling, general and administrative expense was $48.3 million during 1998 compared to $23.7 million during 1997, an increase of $24.6 million.
Interest Expense. Interest expense totaled $15.9 million during 1998 compared to $8.8 million during 1997. Of the $7.1 million increase in interest expense, $4.1 million related to our well site services segment and $3.0 million related to our offshore products segment. The increases resulted from higher average debt balances outstanding during the period resulting from acquisitions.
Other Income and Expenses. Other income consisted primarily of interest income received on invested cash in 1997 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund capital expenditures, such as expanding and upgrading our manufacturing facilities and equipment, increasing our rental tool and workover assets, increasing our accommodation units, and funding new product developments, and to fund general working capital needs. In addition, capital is needed to fund strategic business acquisitions. Our primary sources of funds have been cash flow from operations, proceeds from borrowings under our bank facilities and private capital investments.
Cash was provided from operations during 1999, 1998 and 1997 in the amounts of $5.2 million, $7.5 million and $19.3 million, respectively. Cash provided by operations funded ongoing and increased needs for working capital over the period. During the first quarter of 2000, cash of $2.4 million was used in operations primarily due to a net loss in our offshore products segment and working capital increases in our well site services segment used to fund our activities in Canada during a period of peak drilling activities.
Capital expenditures were $11.3 million, $36.1 million and $14.4 million in 1999, 1998 and 1997, respectively. In addition, $3.7 million was spent for capital expenditures during the three months ended March 31, 2000. Capital expenditures during the three year period from 1997 to 1999 consisted principally of purchases of rental assets for our well site services segment, the purchase of certain offshore products equipment and the expansion of our offshore products facility in Houma, Louisiana.
During 1999, we sold all of the operating assets of CE Distribution Services, Inc. (CEDS), CE Drilling Products, Inc., CE Mobile Equipment, Inc., and our 51.8% investment in CE Franklin. Accordingly, for the periods presented, the results of CEDS, CE Drilling, CE Mobile and CE Franklin are shown as discontinued operations. Proceeds from the sale of these discontinued operations was $102.4 million. In addition, the marketable securities acquired in connection with the sale of our investment in CE Franklin were sold for $24.4 million. Proceeds from these asset sales were applied to reduce outstanding bank debt.
Net cash was provided by investing activities in the amount of $112.2 million during 1999, primarily as a result of the asset sales referred to above. Net cash was used in investing activities in the amounts of $61.9 million and $67.2 million during 1998 and 1997, respectively. The cash used related primarily to capital expenditures and acquisitions during the periods.
Net cash was used in financing activities in the amount of $116.1 million during 1999, primarily as a result of reductions in bank debt outstanding. Net cash was provided by financing activities in 1998 and 1997 in the amounts of $42.5 million and $101.7 million, respectively. Cash raised during this period was used to fund capital expenditures and acquisitions.
In connection with the offering, we plan to repay $81.1 million of subordinated debt of Oil States and Sooner that was outstanding at March 31, 2000. In addition, we plan to retire a total of $21.8 million of preferred stock of Oil States that was outstanding at March 31, 2000.
We currently have several credit agreements in place. In our offshore products segment, we have a credit agreement that provides for borrowings totaling $25.9 million for our U.S. operations. The agreement provides for $4.9 million of term advances and up to $21.0 million of borrowings on a revolving basis. The agreement has a scheduled maturity date of March 1, 2003. Borrowings under the agreement carry variable interest rates payable monthly based upon the prime rate or the Eurodollar rate plus 2.25% for the revolving loans. As of June 30, 2000, $9.7 million was outstanding under the facility in our offshore products segment. Our offshore products segment has an overdraft credit facility which provides for borrowings of up to 5.0 million pounds sterling to support its operations in the United Kingdom. The facility has a renewal date of March 2, 2001 and provides for interest payable quarterly at the bank's variable base interest rate plus 1.9%. As of June 30, 2000, $3.6 million was outstanding under the United Kingdom facility. In our well site services segment, we have three facilities. One of the facilities is a bank line of credit for up to $20.0 million based upon a borrowing base, of which $11.9 million was outstanding as of June 30, 2000. The facility matures on May 1, 2003. Interest is payable monthly at the banks' prime rate or LIBOR plus a margin ranging from 0% for base rate debt to up to 3% for LIBOR based loans. In addition, we have bank term debt with the same maturity date and interest terms as the $20.0 million line of credit. At June 30, 2000, $13.5 million was outstanding on the term facility. We also have two credit facilities, one in Canada and one in the U.S., covering our accommodations, catering and logistics services business. A portion of the Canadian facility is designated as an overdraft facility, and the remainder is restricted based upon the level of trade accounts receivable and inventory. This facility provides for up to $44.5 million in borrowings. Interest is calculated at the Canadian prime rate plus a margin of up to 0.5% per year or the bankers acceptance rate plus a margin ranging from 1% to 1.5% per year. As of June 30, 2000, $23.1 million was outstanding under the Canadian facility. The U.S. facility, on which $3.5 million is currently drawn, is structured as a bridge term loan. Interest is calculated at the U.S. prime rate plus a margin of up to 0.25% per year or Libor plus a margin ranging from 2.25% to 3.25% per year. Our tubular products segment also has a $50.0 million credit agreement, which includes a $5.0 million term note. The revolving line of credit agreement expires on July 2, 2003. This line of credit is subject to a borrowing base of eligible accounts receivable and inventory. The credit agreement bears interest at prime or adjusted Eurodollar rate plus 1.75%. As of June 30, 2000, $27.7 million was outstanding under this facility.
We intend to consolidate the above credit agreements into one consolidated facility in connection with the Combination and the offering. We anticipate securing a facility that provides for $150 million to $175 million in available credit capacity. If we are unable to secure this facility on terms we find acceptable, we will be required to obtain consents under the facilities described above in connection with the Combination and the offering.
As of December 31, 1999 and June 30, 2000, we were in compliance with all covenants and financial tests under our various credit facilities. At June 30, 2000, $46.1 million was available to be drawn under our existing facilities.
We believe that the proceeds of this offering, cash from operations, and available borrowings under our credit facilities will be sufficient to meet our liquidity needs for the foreseeable future. If our plans or assumptions change or are inaccurate, or we make any acquisitions, we may need to raise additional capital. We may not be able to raise additional funds, or may not be able to raise such funds on favorable terms.
TAX MATTERS
For the year ended December 31, 1999, we had deferred tax assets, net of deferred tax liabilities, of approximately $29 million for federal income tax purposes before application of valuation allowances. Our primary deferred tax assets are net operating loss carry forwards, or NOLs, which total approximately
$122 million. A valuation allowance is currently provided against the majority of our NOLs. The NOLs expire over the period through 2018. Our NOLs are currently limited under Section 382 of the Internal Revenue Code due to a change of control that occurred during 1995. However, approximately $55 million of NOLs are available for use currently if sufficient income is generated. We anticipate that the Combination will enable us to use a portion of our NOLs that have previously been reserved with a valuation allowance.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. A company may also implement the statement as of the beginning of any fiscal quarter after issuance; however, SFAS No. 133 cannot be applied retroactively. We have not yet determined the timing of adoption of SFAS No. 133. We believe that SFAS No. 133 will not have a material impact on our results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest rate risk. We have long-term debt and revolving lines of credit subject to the risk of loss associated with movements in interest rates.
At December 31, 1999, we had floating rate obligations totaling approximately $94 million which include amounts borrowed under our U.S. revolving lines of credit and long-term notes payable. These floating-rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates. If the floating interest rate were to increase by 1% from December 31, 1999 levels, our combined interest expense would increase by a total of approximately $55,000 per month.
At December 31, 1999, we had one interest rate swap arrangement in the amount of $1.7 million that effectively fixed the interest rate at 6.8%. This arrangement expired as of March 31, 2000.
Foreign currency exchange rate risk. Our operations are conducted in various countries around the world in a number of different currencies. As such, our earnings are subject to change due to movements in foreign currency exchange rates when transactions are denominated in currencies other than the U.S. dollar, which is our functional currency. In order to mitigate the effects of exchange rate risks, we generally pay a portion of our expenses in local currencies and a substantial portion of our contracts provide for collections from customers in U.S. dollars. As of December 31, 1999, we had Canadian dollar-denominated debt totaling approximately $34 million.
We have not hedged any foreign currency exposure at December 31, 1999 or March 31, 2000.
CHANGE OF ACCOUNTANTS
The financial statements of Oil States as of December 31, 1998 and 1999 and for the three years ended December 31, 1999 were audited by Arthur Andersen LLP. We have engaged Ernst & Young LLP to audit our consolidated financial statements in the future. The reports of Arthur Andersen LLP for the past two years did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The engagement of Ernst & Young LLP has been approved by our board of directors. Ernst & Young LLP have audited the consolidated financial statements of Sooner Inc. as of June 30, 1999 and for the year ended June 30, 1999 and Sooner Pipe & Supply Corporation as of July 2, 1998 and for the period from August 1, 1997 to July 2, 1998.
BUSINESS
OUR COMPANY
We are a leading provider of specialty products and services to oil and gas drilling and production companies throughout the world. We focus our business and operations in a substantial number of the world's most active and fastest growing oil and gas producing regions, including the Gulf of Mexico, Canada, West Africa, the Middle East, South America and Southeast Asia. Our customers include many of the major and independent oil and gas companies and other oilfield service companies. We operate in three principal business segments, offshore products, tubular services and well site services, and have established a leadership position in each.
We expect the combination of our existing operations to create additional growth opportunities through geographic expansion and marketing leverage. Each of our segments has exposure to some, but not all, of the industry's growth markets. Our presence in these growth markets provides us an opportunity to cross-sell our products and services to our customers using our existing facilities and operations. Our leading positions in these diversified products and services enable us to participate in each of the exploration, development and production phases of the oil and gas cycle, which reduces our dependence on any one phase. Our tubular services and well site services segments are primarily used in the drilling and workover phases of the oil and gas cycle. Our offshore products are used primarily in the construction and development phases of the cycle.
OUR INDUSTRY
We operate in the oilfield service industry, which provides products and services to oil and gas exploration and production companies for use in the drilling for and production of oil and gas. Demand for our products and services largely depends on the financial condition of our customers and their willingness to spend capital on the exploration and development of oil and gas. We believe that spending for incremental production will be driven by increased demand for oil and gas throughout the world. The EIA Report forecasts that world oil consumption will increase at an annual rate of approximately 2% from 1997 through 2020 and that world gas consumption will increase at an annual rate of approximately 3% over the same period. The projected increase in demand for oil is based on worldwide economic and population growth, primarily in developing countries. The projected increase in gas consumption over this period is expected to result from higher demand across residential, industrial and commercial sectors, as well as from the increasing use of gas as a source of fuel for electric power generation, particularly in North and South America. We believe that drilling activity has the potential to grow faster than the demand for oil and gas due to increasing depletion rates and the decreasing size of remaining hydrocarbon reserves. Increasing depletion rates have the effect of requiring more wells to be developed to maintain a given level of supply.
Oil and gas operators are increasingly focusing their exploration and development efforts on frontier areas, particularly deepwater offshore areas. According to One Offshore, Inc., the number of wells drilled in water depths greater than 1,500 feet has increased from 39 in 1990 to 211 in 1999. The number of hydrocarbon discoveries in water depths greater than 1,500 feet has shown similar gains, increasing from nine in 1990 to 66 in 1999.
We believe that oil and gas exploration and production companies will respond to demand increases by expanding their activities and spending more capital, particularly in frontier areas that offer potentially higher future production and that have not yet been exploited, including deepwater Gulf of Mexico, Canada, West Africa, the Middle East, South America and Southeast Asia. We already have an established presence in these areas. In addition to what we believe to be positive industry fundamentals, we believe the following sector-specific trends enhance the growth potential of our business:
- Increased drilling in offshore areas, particularly deepwater areas, increases the need for floating exploration and production systems. Our offshore products segment provides technology critical to floating rigs such as drill ships and semi-submersibles as well as floating production systems such as tension leg platforms, Spars and FPSO vessels.
- Increased drilling of deeper, horizontal and offshore wells positively impacts demand for tubular products. Deeper wells generate considerably more revenues for our tubular services segment than shallower wells since deeper wells require more, higher quality and larger diameter pipe. Generally, operators utilize higher grade, premium tubulars and connectors for casing and tubing in deep wells, horizontal wells and offshore wells since the cost of a pipe failure is higher than in a shallow vertical land well and because the mechanical stresses on the pipe in deeper, deviated or horizontal wells are much greater.
- Rising offshore rig utilization and day rates will benefit hydraulic workover and well control services and cause our hydraulic units to become more competitive for offshore workovers. We also expect to benefit from trends towards underbalanced workovers since this technique results in less damage to reservoir formations than conventional workovers, and towards underbalanced drilling since it results in less formation damage, higher rates of penetration and longer bit life.
- Increased exploration and development activities in frontier areas will benefit our remote site accommodations, catering and logistics services.
OUR GROWTH STRATEGY
We intend to grow our revenue and profitability while continuing to provide our customers with consistent, superior services and dependable, high-quality products. We believe we can implement our growth strategy using our existing facilities and equipment and without incurring significant capital costs, because we currently have available capacity to accommodate future growth. We describe the key elements of our growth strategy below.
- Capitalize on activity in deepwater and frontier areas. To produce oil and gas efficiently in deepwater and frontier regions, exploration and production companies will require the types of specialized products and services that we offer. Our engineering and manufacturing expertise and the products and services we provide position us for growth in these environments.
- Capitalize on increasing activity in our current geographic markets. We currently have activities in several key growth areas, including the Gulf of Mexico, Canada, West Africa, the Middle East, South America and Southeast Asia. Our well-established presence and strong customer relationships should allow us to capitalize on growth trends in these geographic markets.
- Leverage our market presence to sell complementary products and services. Because we are combining several business segments, we have an opportunity provided by our presence in key areas around the world to provide additional products and services to our customers. Each of our segments has exposure to some, but not all, of these areas. We intend to use our market strength to expand our product and service offerings to our customers in these regions.
- Develop and provide technologically advanced products and services to our customers. We are a technological leader in each of the business segments in which we operate. As oil and gas exploration and production activities move toward deeper water offshore and more remote areas onshore, technological advances will become increasingly important to oil and gas producers. We plan to maintain our leadership position in providing highly engineered products and services to our customers to capitalize on these market trends.
- Continue to make acquisitions in each of our business segments. We intend to make selective acquisitions of assets in geographic and product markets that complement our existing operations. We have an extensive history of completing strategic acquisitions. We intend to continue to participate in the consolidation of the business segments in which we operate to further increase our market share, streamline our costs and expand our operating capabilities.
We have a proven history of growth through acquisitions. Over the last four years, we have completed acquisitions of over 15 different companies or business units. These acquisitions allowed us to strengthen our positions in the tubular services and well site services markets and to broaden our product lines in our offshore
products segment. We believe that with our increased size and access to the capital markets, we will be able to further expand our operations and product offerings through strategic acquisitions.
OFFSHORE PRODUCTS
Overview
Through our offshore products segment, we design and manufacture cost-effective, technologically advanced products for the offshore energy industry. Our products are used in both shallow and deepwater producing regions and include flex-element technology, advanced connector systems, blow-out preventor stack integration and repair services, offshore equipment and installation services and subsea pipeline products. We have facilities in Arlington, Houston and Lampasas, Texas; Houma, Louisiana; Scotland; Brazil; England and Singapore.
Offshore Products Market
The market for our offshore products and services depends primarily upon drilling rig refurbishments and upgrades, new rig construction and development of infrastructure for offshore production activities. As demand for oil and gas increases and related drilling and production increases in offshore areas throughout the world, particularly in deeper water, we expect spending on these activities to increase, resulting in improved demand for our offshore products and services. We expect offshore drilling and production to increase as a result of a number of factors that continue to enhance the economics of offshore drilling and production, including:
- the opportunity to discover larger oil and gas reservoirs in these areas as compared to previously exploited regions;
- technological advances in complex well drilling and production equipment that is required in these areas, including those introduced by our company;
- improved seismic data collection and interpretation techniques; and
- improved drilling techniques.
We believe that these factors will facilitate the exploration for and development of new reserves in deepwater areas, promote the development of oil and gas fields that were previously considered commercially marginal and extend development and production of reserves from existing fields.
The upgrade of existing rigs to equip them with the capability to drill in deeper water and the construction of new deepwater-capable rigs require specialized products and services like the ones we provide. According to information from One Offshore, Inc., construction of deepwater-capable rigs, tension leg platforms, Spars and FPSO vessels is currently expected to increase significantly in the next three years. At June 30, 2000, there were approximately 57 semisubmersible rigs and 26 drillship-type rigs worldwide capable of drilling in greater than 2,450 feet of water. It is anticipated that by the year 2001 there will be 70 semi-submersible rigs and 30 drillship-type rigs capable of this deepwater drilling. In addition, there are three new tension leg platforms and five new Spars scheduled for completion by the year 2003. At the end of 1999, there were only 11 tension leg platforms and three Spars in operation worldwide. The number of FPSO vessels is currently expected to increase from 58 FPSOs in operation worldwide at the end of 1999 to 86 by the year 2003, and the number of floating production semisubmersibles is anticipated to increase from 34 to 39 over the same period. We believe that the construction, installation, operation and refurbishment from time to time of these facilities will result in increased demand for many of the products and services provided by our offshore products segment. An increase in the number of wells drilled and produced in deepwater is anticipated to increase the demand for our deepwater offshore equipment and services.
Products and Services
Our offshore products segment provides a broad range of highly engineered technical products and services for use in offshore drilling and development activities. In addition, this segment provides onshore oil and gas, defense and general industrial products and services.
Our offshore products segment has a history of innovation and creative applications of existing technologies. For example:
- in 1955, we developed the first flexible load bearings for bridges, which represents the first use of a laminated bearing for a structural application;
- in 1966, we invented HydroCouple, the first coupling for connecting plain-end pipe under water;
- in the 1970s, we applied our laminated bearing technology to create laminated bearings and seals for flexible pipeline bearings, flexible drilling risers and nuclear submarines;
- in the 1980s, we developed a number of new technologically innovative products, including our Merlin connector, a non-rotational connector that is widely used in tension leg platform tethers, and Hydra-Lok, a system for installing pile-to-structure connections in offshore platforms and templates; and
- in the 1990s, we developed a diverless connection for use in depths of over 5,000 feet and we analyzed, constructed and installed the first rigid, extended length, free-hanging riser.
We have the capability to design and build manufacturing and testing systems for many of our new products and services. These testing and manufacturing facilities enable us to provide reliable, technologically advanced products and services. Our Aberdeen facility provides a wide range of structural testing including full-scale product simulations.
Offshore Development and Drilling Activities. We design, manufacture, fabricate, inspect, assemble, repair, test and market subsea equipment and offshore vessel and rig equipment. Our products are components of equipment used on marine vessels, floating rigs and jack-ups, and for the drilling and production of oil and gas wells on offshore fixed platforms and mobile production units including floating platforms and FPSO vessels. We believe that sales of our equipment for new rig building and offshore infrastructure development will be important sources of future revenues. Our products and services include:
- flexible bearings and connector products;
- subsea pipeline products;
- marine winches, mooring systems and rig equipment;
- blowout preventor stack assembly, integration, testing and repair services; and
- fixed platform products and services.
FLEXIBLE BEARINGS AND CONNECTOR PRODUCTS. We are the principal supplier of flexible bearings, or FlexJoints(TM), to the offshore oil and gas industry. We also supply connections and fittings that join lengths of large diameter conductor or casing used in offshore drilling operations. FlexJoints(TM) are flexible bearings that permit movement of riser pipes or tension leg platform tethers under high tension and pressure. They are used on drilling, production and export risers and are used increasingly as offshore production moves to deeper water areas. Drilling riser systems provide the vertical conduit between the floating drilling vessel and the subsea wellhead. Through the drilling riser, equipment is guided into the well and drilling fluids are returned to the surface. Production riser systems provide the vertical conduit from the subsea wellhead to the floating production platform. Oil and gas flows to the surface for processing through the production riser. Export risers provide the vertical conduit from the floating production platform to the subsea export pipelines. FlexJoints(TM) are a critical element in the construction and operation of production and export risers on floating production systems in deepwater.
Floating production systems, including tension leg platforms, Spars and FPSO systems, are a significant means of producing oil and gas, particularly in deepwater environments. We provide many important products for the construction of these systems. A tension leg platform is a floating platform that is moored by vertical pipes, or tethers, attached to both the platform and the sea floor. Our FlexJoint(TM) tether bearings are used at the top and bottom connections of each of the tethers, and our Merlin connectors are used to join shorter pipe segments to form long pipes offshore. A Spar is a floating vertical cylindrical structure which is approximately six to seven times longer than its diameter and is anchored in place.
SUBSEA PIPELINE PRODUCTS. We design and manufacture a variety of fittings and connectors used in offshore oil and gas pipelines. Our products are used for new construction, maintenance and repair applications. New construction fittings include:
- forged steel Y-shaped connectors for joining two pipelines into one;
- pressure-balanced safety joints for protecting pipelines from anchor snags or a shifting sea-bottom;
- electrical isolation joints; and
- hot tap clamps that allow new pipelines to be joined into existing lines without interrupting the flow of petroleum product.
We provide diverless connection systems for subsea flowlines and pipelines. Our proprietary metal-to-metal sealing system is preferred by many oil companies. Our HydroTech connectors are most commonly used for final hook-up of subsea production systems and allow pipelines and flowlines to be connected to production equipment on the sea floor. They also are used in diverless pipeline repair systems and in future pipeline tie-in systems. Our lateral tie-in sled, which is installed with the original pipeline, allows a subsea tie-in to be made quickly and efficiently using proven HydroTech connectors without costly offshore equipment mobilization and without shutting off product flow.
We are a leader in providing pipeline repair hardware, especially in deepwater applications beyond the depth of diver intervention. Our products include:
- repair clamps used to seal leaks and restore the structural integrity of a pipeline;
- mechanical connectors used in repairing subsea pipelines without having to weld;
- misalignment flanges and swivel ring flanges; and
- pipe recovery tools for recovering dropped or damaged pipelines.
MARINE WINCHES, MOORING SYSTEMS AND RIG EQUIPMENT. We design, engineer and manufacture marine winches, mooring systems and rig equipment. Our Skagit winches are specifically designed for mooring floating and semi-submersible drilling rigs and positioning pipelay and derrick barges, anchor handling boats and jack-ups. We also design and fabricate rig equipment such as automatic pipe racking and blow-out preventor handling equipment. Our engineering teams and manufacturing capability, coupled with skilled service technicians who install and service our products, provide our customers with a broad range of equipment and services to support their operations.
BOP STACK ASSEMBLY, INTEGRATION, TESTING AND REPAIR SERVICES. We design and fabricate lifting and protection frames and offer system integration of blow-out preventor stacks and subsea production trees. We can provide complete turnkey and design fabrication services. We also design and manufacture a variety of custom subsea equipment, such as riser flotation tank systems, guide bases, running tools, and manifolds. We also offer blow-out preventor and drilling riser testing and repair services.
FIXED PLATFORM PRODUCTS AND SERVICES. We provide equipment for securing subsea structures and offshore platform jackets, including our Hydra-Lok hydraulic system. The Hydra-Lok tool, which has been successfully used at depths of 3,000 feet, does not require diver intervention or guidelines.
We also provide cost-effective, standardized leveling systems for offshore structures that are anchored by foundation piles, including subsea templates, subsea manifolds and platform jackets.
Other Products and Services. Our offshore products segment also produces a variety of products for use in applications beyond the offshore oil and gas industry. For example, we provide:
- downhole products for onshore drilling and production;
- elastomer products for use in both offshore and onshore oilfield activities;
- metal-elastomeric FlexJoints(TM) used in a variety of military, marine and aircraft applications; and
- technology used in drum-clutches and brakes for heavy-duty power transmission in the mining, paper, logging and marine industries.
Backlog. Backlog in our offshore products segment at June 30, 2000 was $38.0 million compared to backlog of $53.9 million at June 30, 1999. Our backlog consists of firm customer purchase orders for which satisfactory credit or financing arrangements exist and delivery is scheduled. Our backlog has decreased $15.9 million from June 30, 1999 due primarily to a $12.0 million reduction of our marine winches, mooring systems and drilling equipment backlog. The reduction in backlog reflects the current low activity level for new drilling rig construction.
Regions of Operations
Our offshore products segment provides products and services to customers in the major offshore oil and gas producing regions of the world, including the Gulf of Mexico, the North Sea, Brazil, Southeast Asia and West Africa.
Customers and Competitors
Our three largest customers in the offshore products markets in 1999 were Global Marine Inc., Noble Drilling Corporation and FMC Corporation. Our main competitors include AmClyde Engineered Products Company, Inc., Dril-Quip, Inc., Cooper Cameron Corporation, Stolt Offshore and Coflexip Stena Offshore.
Growth Initiatives
We intend to grow our offshore products segment by pursuing the following initiatives:
- Product Line Development. We intend to continue developing our product line by finding new applications for our existing technologies and by developing new products. New applications for our existing products could include new FlexJoint(TM) applications, the use of our Merlin connector in subsea pipelines and new Hydra-Lok applications. New products currently under development include diverless subsea pipeline products.
- Expand Project Workscope. We intend to expand the range of services that we offer in connection with our offshore products. We believe that we can obtain higher margins and provide more complete customer service by participating in all aspects of our customers' purchasing decisions, including design, engineering, installation and service.
TUBULAR SERVICES
Overview
Through our tubular services segment, we are the largest distributor of oil country tubular goods, or OCTG, and are a provider of associated finishing and logistics services to the oil and gas industry. Oil country tubular goods consist of casing, production tubing and line pipe. Through our tubular services segment, we:
- distribute premium tubing and casing;
- provide threading, remediation, logistical and inventory services; and
- offer e-commerce pricing, ordering and tracking capabilities.
In 1999, we acquired the tubular divisions of Continental Emsco, Wilson Supply and National-Oilwell, Inc. These transactions expanded our presence in key market segments and increased our coverage of the diversified marketplace for OCTG. We believe we now serve one of the widest customer bases in the industry, ranging from major oil companies to small independents.
Through our key relationships with more than 20 manufacturers of oilfield specialty and line pipe, we deliver tubular products and ancillary services to oil and gas companies, drilling contractors and consultants around the world. We estimate that we currently have the largest OCTG distribution market share in the United States, based on tonnage shipped as a percentage of estimated OCTG consumed in the marketplace. Despite being a leading distributor of OCTG, we estimate that our U.S. market share is currently approximately 20%. Because the United States OCTG distribution market is fragmented and composed of many small companies, we believe that there are opportunities for us to increase our market share.
OCTG Market
Our tubular services segment primarily provides casing and tubing. Casing forms the structural wall in oil and gas wells to provide support and prevent caving during drilling operations. Casing is used to protect water-bearing formations during the drilling of a well. Casing is generally not removed after it has been installed in a well. Production tubing, which is used to bring oil and gas to the surface, may be replaced during the life of a producing well.
A key indicator of domestic demand for OCTG is the average number of drilling rigs operating in the United States. According to Baker Hughes, the average United States rig counts in 1997, 1998 and 1999 were 943, 843 and 625, respectively. The active rig count in the United States fell to 488 in April 1999. However, drilling activity accelerated in the second half of 1999, and by year-end 771 rigs were active, compared to 621 at the end of 1998. As of July 14, 2000, 928 rigs were active in the United States. The OCTG market at any point in time is also affected by the level of inventories maintained by manufacturers, distributors and end users. In addition, in recent years the focus of drilling activity has been shifting towards less explored, deeper geological formations and deepwater locations which offer potentially prolific reserves. Demand for tubular products is positively impacted by increased drilling of deeper, horizontal and offshore wells. Deeper wells require incremental tubular feet and enhanced mechanical capabilities to ensure the integrity of the well. Deeper wells generate more revenues for our tubular services segment than shallower wells since deeper wells require more, higher quality and larger diameter pipe. Premium tubulars are used in horizontal drilling to withstand the increased bending and compression loading associated with a horizontal well. Since the cost of a pipe failure is typically higher in an offshore well than in a land well, offshore operators typically specify premium tubulars, which provide us with higher margins, for the completion of offshore wells.
Products and Services
Tubular Products and Services. We distribute all types of OCTG produced by both domestic and foreign manufacturers to major and independent oil and gas exploration and production companies and other OCTG distributors. We do not manufacture any of the tubular goods that we distribute. We operate our tubular
services segment from a total of 11 facilities and have offices strategically located near areas of oil and gas exploration and development activity in the United States, Scotland and Nigeria.
We maintain the industry's largest on-the-ground inventory in more than 75 yards in the United States, Scotland and Nigeria, giving us the flexibility to fill our customers' orders from our own stock or directly from the manufacturer. We have a proprietary inventory management system, designed specifically for the OCTG industry, that enables us to track our product shipments down to the individual pipe stem. This proprietary system integrates our main domestic facility, the A-Z Terminal in Crosby, Texas, with our overseas facilities in Nigeria and Scotland.
The purchasing volumes, customer base and management experience of our tubular services segment provides us with financial and commercial advantages in our dealings with tubular manufacturers. As a leading distributor of tubular goods, we believe that we are able to negotiate more favorable supply contracts with manufacturers. We have distribution relationships with all major domestic and international steel mills and believe we have good working relationships with leading mills such as U.S. Steel Group, Lone Star Technologies, Inc. and Maverick Tube Corporation.
A-Z Terminal. Our A-Z Terminal pipe maintenance and storage facility in Crosby, Texas is equipped to provide a full range of tubular services, giving us a customer service capability that we believe is unique in the industry. Set on 109 acres, the ISO 9002-certified facility has more than 1,400 pipe racks and two double-ended thread lines. We have exclusive use of a permanent third-party inspection center within the facility. The facility also includes indoor chrome storage capability and patented pipe cleaning machines.
We offer services at our A-Z Terminal facility typically outsourced by other distributors, including the following: threading, inspection, cleaning, cutting, logistics, rig returns, installation of float equipment and non-destructive testing. In addition, we have the use of two rail spurs, one of which allows us to deliver tubular products from our facility directly to the Alaskan North Slope.
E-commerce. On February 14, 2000, we launched the website www.soonerpipe.com. The website allows customers to access the features provided by our proprietary inventory management system which is designed specifically to handle tubular products. The key features of www.soonerpipe.com are as follows:
- real-time order tracking from the originating steel mill, through logistical services to final delivery;
- confidential price and delivery quotation requests from up to five different tubular distributors, which save the customer time and effort in obtaining the best value for a particular order;
- our entire catalog of in-stock and special order OCTG and line pipe;
- product catalog searches by several different criteria, including size, weight and grade of pipe;
- ability to select a number of value-added pipe logistics services, including threading, third-party inspection, cleaning, cutting and accessory equipment available from our A-Z Terminal facility; and
- extensive customer reporting features and financial information and invoicing.
The operation of www.soonerpipe.com provides us with the capability to serve customers around the world 24 hours a day, seven days a week.
Tubular Products and Services Sales Arrangements. We provide our tubular products and logistics services through a variety of arrangements, including spot market sales, alliance agreements and international supply/logistics agreements. During 1999, the spot market accounted for a majority of our sales of tubular products and logistics services.
We also provide our tubular products and services to independent and major oil and gas companies under alliance agreements. Although our alliance agreements are not as profitable as the spot market, they provide us with more stable and predictable revenues and an improved ability to forecast required inventory levels, which allows us to manage our inventory more efficiently. These agreements also provide us with the opportunity to grow our tubular services segment within our alliance customer base.
Regions of Operations
Our tubular services segment provides tubular products and services to customers in the United States, the Gulf of Mexico, Canada, Nigeria, Venezuela, Ecuador, Colombia, Guatemala and the United Kingdom.
Customers, Suppliers and Competitors
Our three largest customers in the tubular distribution market in 1999 were Exxon Mobil Corporation, Unocal Corporation and Conoco Inc., and our three largest suppliers were U.S. Steel Group, Maverick Tube Corporation and Lone Star Technologies, Inc. The tubular services distribution market is fragmented, and our main competitors are Vinson Supply Co., Red Man Pipe & Supply Co., Inc. and Total Premier.
Growth Initiatives
We intend to pursue the following initiatives to grow our tubular services segment:
- Expand E-Commerce Initiative. We believe that www.soonerpipe.com has the potential to deliver incremental revenues through the addition of customers and through the introduction of efficiencies into the ordering process. We intend to optimize the website and to educate our current and prospective customers on the benefits of e-commerce applications in the tubular goods industry.
- Partner with Small Brokerage Suppliers. A subset of the tubular goods distribution market is composed of small brokerage-type suppliers who broker tubular products and services for their customers. We intend to pursue arrangements with these broker-dealers under which we would become their sole supplier of tubular products and services at prices lower than they could otherwise obtain in the market.
- Expand Internationally. Our United States operations essentially provide for the outsourcing of tubular inventory logistics, management and storage functions by our customers. We believe that similar outsourcing arrangements can be developed in international locations and that these arrangements could create an area of potential growth for the tubular goods we distribute.
WELL SITE SERVICES
Overview
Our well site services segment provides a broad range of products and services that are used to establish and maintain the flow of oil and gas from a well throughout its lifecycle. Our services include workover services, drilling services, rental equipment, remote site accommodations, catering and logistics services and modular building construction services. We use our fleet of workover and drilling rigs, rental equipment, remote site accommodation facilities and related equipment to service well sites for oil and natural gas companies. Our products and services are used in both onshore and offshore applications through the exploration, development, production and abandonment phases of a well's life. Additionally, our remote site accommodations, catering and logistics services are employed in a variety of mining and related natural resource applications.
Well Site Services Market
Recently, demand for our workover and drilling rigs, rental equipment and remote site accommodations, catering and logistics services has increased due to improved cash flow of oil and gas producers. We expect activity levels to continue to improve with favorable oil and gas prices for producers.
Demand for our workover services is impacted significantly by offshore activity both in the United States and international areas. Our hydraulic workover units compete with jackup rigs for shallow water workover projects. With the recent increases in dayrates of jackup rigs, our hydraulic workover units are more attractive to operators due to their cost and performance attributes relative to our competitors.
Demand for our drilling services is influenced by both oil and gas shallow onshore United States drilling activity. According to Baker Hughes, the average United States rig counts in 1997, 1998 and 1999 were 943, 843 and 625, respectively. The active rig count in the United States fell to 488 in April 1999. However, drilling activity accelerated in the second half of 1999, and by year-end 771 rigs were active, compared to 621 at the end of 1998. As of July 14, 2000, 928 rigs were active in the United States. Increased drilling activity typically leads to higher drilling rates. Given the cost advantages of our semi-automated drilling rigs, we believe our drilling fleet is well positioned to benefit from further increases in drilling activity.
Our hydraulic drilling and workover rigs are capable of providing underbalanced drilling and workover services. Underbalanced drilling and workover can lead to increased rates of penetration, longer drill bit life and reduced risk of damage to the formation. In recent years, oil and gas operators have increasingly utilized underbalanced services, a trend which we believe will continue in the future.
We expect demand for our rental services to benefit from increasing exploration and development activity in the U.S. Gulf Coast area and the Gulf of Mexico.
We expect a large portion of incremental spending by oil and gas producers to be directed toward oil and gas development in the remote locations of Western Canada and the deepwater areas of the Gulf of Mexico. Our remote accommodations, catering and logistics business supplies products and services to companies engaged in operations in these frontier areas.
Products and Services
Workover Services. We provide a broad range of workover products and services primarily to customers in the U.S., Canada, Venezuela, the Middle East and West Africa. Workover products and services are used in operations on a producing well to restore or increase production. Workover services are typically used during the development, production and abandonment stages of the well. These products and services include hydraulic workover units for offshore workover operations and snubbing operations in pressure situations.
A hydraulic workover unit is a specially designed rig used for vertically moving tubulars in and out of a wellbore using hydraulic pressure. This unit is used for servicing wells with no pressure at the surface and also has the unique ability of working safely on wells under pressure. This feature allows these units to be used for underbalanced drilling and workover and also in well control applications. When the unit is snubbing, it is pushing pipe or tubulars into the well bore against well bore pressures. Because of their small size and ability to work on wells under pressure, hydraulic workover units offer several advantages over traditional well servicing methods, including:
- reduced mobilization and demobilization costs;
- reduced cost and time of retrofit to offshore platforms;
- reduced production shut-in time;
- reduced deck space requirement; and
- live well intervention capability for underbalanced drilling situations.
We currently have 31 hydraulic workover units, 27 of which are "stand alone" units and four of which are "rig assist" units. Of these 31 units, 16 are located in the U.S., four are located in each of the Middle East, Venezuela and Canada and three are located in West Africa. Utilization of our hydraulic workover units varies from period to period. As of June 30, 2000, eight of our hydraulic workover units were working or under contract. Typically, our hydraulic workover units are contracted on a short-term dayrate basis. The length of time to complete a job depends on many factors, including the number of wells and the type of workover or pressure control situation involved. Usage of our hydraulic workover units is also affected by the availability of trained personnel. With our current level of trained personnel, we estimate that we have the capability to crew and operate 14 to 17 simultaneous jobs involving our hydraulic workover units.
Our three largest customers in workover services in 1999 were Chevron Corporation, Petroleos de Venezuela, S.A. and Operaciones de Produccion y Exploracion Nacionales, S.A. We have also entered into a non-exclusive preferred supplier alliance agreement with Schlumberger Oilfield Services Group under which we provide hydraulic workover services to Schlumberger, as and when deemed mutually beneficial, on a worldwide basis. Our main competitors in workover services are Halliburton Company, Cudd Pressure Control, Inc. and Nabors Industries, Inc.
Drilling Services. Our drilling services business is located in Odessa, Texas and Wooster, Ohio and provides drilling services for shallow to medium depths ranging from 2,000 to 9,000 feet. Drilling services are typically used during the exploration and development stages of a field. We have a total of 12 semi-automatic drilling rigs with hydraulic pipe handling booms and lift capacities ranging from 200,000 to 300,000 pounds. Nine of these drilling rigs are located in Odessa, Texas and three are located in Wooster, Ohio. As of June 30, 2000, 11 of the 12 rigs were in operation.
We market our drilling services directly to a diverse customer base, consisting of both major and independent oil companies. Our semi-automatic rigs offer several competitive advantages, including:
- our rigs operate with a two-man crew rather than the four-man crew typically required by others;
- our rigs require only 60 feet by 100 feet of deckspace;
- our rigs require significantly fewer truck loads for delivery to the well site;
- our rigs do not require casing crews;
- our top drive units offer better drilling efficiency than conventional rotary units; and
- our rigs offer various safety benefits, including minimal pipehandling, no derrick man and no rotary table and chains.
Our largest customers in drilling services in 1999 included Anadarko Petroleum Corporation and Chevron Corporation. Our main competitors are Nabors Industries, Inc., Patterson Energy Inc. and Key Energy Services, Inc. The land drilling business is very fragmented and consists of a small number of large companies and many smaller companies.
Rental Services. Our rental services business provides a wide range of products for use in the offshore and onshore oil and gas industry, including:
- wireline and coiled tubing pressure control equipment;
- pipe recovery systems; and
- surface-based pressure control equipment used in production operations.
Our rental services are used during the exploration, development, production and abandonment stages. We provide rental services at 12 U.S. distribution points in Texas, Louisiana and Oklahoma. We provide rental services on a day rental basis with rates varying depending on the type of equipment and the length of time rented.
Our three largest customers in rental services in 1999 were Schlumberger Ltd., Baker Hughes Incorporated and Halliburton Company.
Remote Site Accommodations, Catering and Logistics and Modular Building Construction. We are a leading provider of fully integrated products and services required to support a workforce at a remote location, including workforce accommodations, food services, remote site management services and modular building construction. We provide complete design, manufacture, installation, operation and redeployment logistics services for oil and gas drilling, oil sands mining, diamond mining, pipeline construction, offshore construction, disaster relief services or any other industry that requires remote site logistics projects. Our remote site products and services operations are primarily focused in Canada and the Gulf of Mexico. During the peak of
our operating season, we typically provide logistics services in over 200 separate locations throughout the world to remote sites with populations of 20 to 2,000 persons.
Our remote site logistics products and services business offers several competitive advantages, including:
- an extensive inventory of over 2,400 building units in Canada and the Gulf of Mexico;
- established field service infrastructure;
- extensive remote site logistics capabilities; and
- the ability to mobilize equipment to remote sites on short notice.
Remote Site Accommodations, Catering and Logistics Services. We sell and lease portable living quarters, galleys, diners and offices and provide portable generator, water sewage systems and catering services as part of our remote site logistics services. We provide various client-specific building configurations to customers for use in both onshore and offshore applications. We provide our integrated remote site logistics services to customers under long-term and short-term contractual arrangements which include the provision of:
- sanitation, janitorial and laundry services;
- security services;
- maintenance services;
- installation services and planning;
- transportation and communications; and
- power, fuel supply, lighting and refrigeration services.
Modular Building Construction. We design, construct and install a variety of portable modular buildings, including housing, kitchens, recreational units and offices for the Canadian and Gulf of Mexico markets. Our designers work closely with our clients to build structures that best serve their needs.
Our Canadian manufacturing operations primarily support our Canadian remote site logistics business through the construction and refurbishing of remote site rental units.
We also design and construct steel and ultra-light weight aluminum modular buildings and accommodation units for lease or sale to the offshore oil and gas industry located primarily in the Gulf of Mexico. These buildings are designed to meet the challenges encountered in harsh saltwater environments and include U.S. Coast Guard-approved buildings. These modular buildings save valuable deck space because they can be stacked three high, while still maintaining their structural integrity in high winds. The structural integrity of our metal accommodation units provide significant safety advantages over the wood and fiberglass composite units that some of our competitors provide.
In 1999, our three largest customers in remote site accommodations, catering and logistics and modular building construction were Syncrude Canada, Ltd., Ensign Resource Service Group Inc. and Precision Drilling Corporation. Our main competitors are Atco Structures Limited, Great West Catering Ltd. and Abbeyville Offshore Inc. However, we do not believe that any of our competitors provides fully integrated remote site logistics services to the same extent as we currently provide.
Growth Initiatives
We intend to pursue the following initiatives to grow our well site services business:
- Develop new products. New product developments, such as offshore skidable racking structures, can be built around the hydraulic workover unit to improve the competitiveness for both multiple well projects and higher level workovers.
- Improve market share in well control projects. We believe that we can improve our market share in emergency well control projects through the use of partnerships with engineering companies, major service providers and providers of emergency response services.
- Expand our rental fleet. We plan to expand our rental fleet to target deepwater operations.
- Provide additional services and equipment. We plan to provide additional services and equipment to onshore and offshore remote sites in various geographic locations.
GOVERNMENT REGULATION
Our business is significantly affected by foreign, federal, state and local laws and regulations relating to the oil and natural gas industry, worker safety and environmental protection. Changes in these laws, including more stringent administrative regulations and increased levels of enforcement of these laws and regulations, could significantly affect our business. We cannot predict changes in the level of enforcement of existing laws and regulations or how these laws and regulations may be interpreted or the effect changes in these laws and regulations may have on us or our future operations or earnings. We also are not able to predict whether additional laws and regulations will be adopted.
We depend on the demand for our products and services from oil and natural gas companies. This demand is affected by changing taxes, price controls and other laws and regulations relating to the oil and gas industry generally, including those specifically directed to oilfield and offshore operations. The adoption of laws and regulations curtailing exploration and development drilling for oil and natural gas in our areas of operation could also adversely affect our operations by limiting demand for our products and services. We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations or enforcement.
Some of our employees who perform services on offshore platforms and vessels are covered by the provisions of the Jones Act, the Death on the High Seas Act and general maritime law. These laws operate to make the liability limits established under states' workers' compensation laws inapplicable to these employees and permit them or their representatives generally to pursue actions against us for damages or job-related injuries with no limitations on our potential liability.
Our operations are subject to numerous foreign, federal, state and local environmental laws and regulations governing the manufacture, management and/or disposal of materials and wastes in the environment and otherwise relating to environmental protection. Numerous governmental agencies issue regulations to implement and enforce these laws, for which compliance is often costly and difficult. The violation of these laws may result in the denial or revocation of permits, issuance of corrective action orders, assessment of administrative and civil penalties and even criminal prosecution. We believe that we are in compliance in all material respects with applicable environmental laws and regulations. Further, we do not anticipate that compliance with existing laws and regulations will have a material effect on our consolidated financial statements.
We generate wastes, including hazardous wastes, that are subject to the federal Resource Conservation and Recovery Act, or RCRA, and comparable state statutes. The United States Environmental Protection Agency, or EPA, and state agencies have limited the approved methods of disposal for some types of hazardous and nonhazardous wastes. Some wastes handled by us in our field service activities that currently are exempt from treatment as hazardous wastes may in the future be designated as "hazardous wastes" under RCRA or other applicable statutes. This would subject us to more rigorous and costly operating and disposal requirements.
The federal Comprehensive Environmental Response, Compensation, and
Liability Act, or CERCLA or the "Superfund" law, and comparable state statutes
impose liability, without regard to fault or legality of the original conduct,
on classes of persons that are considered to have contributed to the release of
a hazardous substance into the environment. These persons include the owner or
operator of the disposal site or the site where the release occurred and
companies that disposed of or arranged for the disposal of the hazardous
substances at the site where the release occurred. Under CERCLA, these persons
may be subject to joint and
several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. We may operate properties upon which activities involving the handling of hazardous substances or wastes may have been conducted by third parties not under our control. These properties may be subject to CERCLA, RCRA and analogous state laws. Under these laws and related regulations, we could be required to remove or remediate previously discarded hazardous substances and wastes or property contamination that was caused by these third parties. These laws and regulations may also expose us to liability for our acts that were in compliance with applicable laws at the time the acts were performed.
Our operations may result in discharges of pollutants to waters. The Federal Water Pollution Control Act and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants into state waters or waters of the United States. The discharge of pollutants is prohibited unless permitted by the EPA or applicable state agencies. In addition, the Oil Pollution Act of 1990 imposes a variety of requirements on responsible parties related to the prevention of oil spills and liability for damages, including natural resource damages, resulting from such spills in waters of the United States. A responsible party includes the owner or operator of a facility or vessel, or the lessee or permittee of the area in which an offshore facility is located. The Federal Water Pollution Control Act and analogous state laws provide for administrative, civil and criminal penalties for unauthorized discharges and, together with the Oil Pollution Act, impose rigorous requirements for spill prevention and response planning, as well as substantial potential liability for the costs of removal, remediation, and damages in connection with any unauthorized discharges.
Although we believe that we are in substantial compliance with existing laws and regulations, there can be no assurance that substantial costs for compliance will not be incurred in the future. Moreover, it is possible that other developments, such as the adoption of stricter environmental laws, regulations and enforcement policies, could result in additional costs or liabilities that we cannot currently quantify.
FACILITIES
The following table presents information about our principal facilities. Except as indicated below, we own all of these facilities.
APPROXIMATE
SQUARE
LOCATION FOOTAGE/ACREAGE DESCRIPTION
-------- --------------- -----------
United States
Houston, Texas (lease).................... 3,095 Principal executive offices
Arlington, Texas.......................... 11,264 Offshore products business office
Arlington, Texas.......................... 55,853 Offshore products manufacturing facility
Arlington, Texas (lease).................. 42,491 Offshore products manufacturing facility
Arlington, Texas.......................... 44,780 Elastomer Technology Center
Arlington, Texas.......................... 60,000 Molding and aerospace facilities
Houston, Texas (lease).................... 16,000 Offshore products manufacturing facility
Houston, Texas............................ 65,105 Offshore products manufacturing facility
Houston, Texas (lease).................... 54,050 Offshore products manufacturing facility
Lampasas, Texas........................... 47,500 Molding facility for offshore products
Crosby, Texas............................. 109 acres Tubular yard
Belle Chasse, Louisiana (lease)........... 20,000 Accommodations manufacturing facility
Lafayette, Louisiana (lease).............. 9 acres Accommodations equipment yard
Houma, Louisiana (lease).................. 24,000 Accommodations manufacturing facility
Houma, Louisiana.......................... 24,000 Hydraulic well control yard and office
Houma, Louisiana.......................... 8,400 Well control office and training facility
Houma, Louisiana.......................... 64,659 Offshore products manufacturing facility
Broussard, Louisiana...................... 19,000 Rental tool warehouse
Odessa, Texas............................. 14,240 Tubular warehouse
Odessa, Texas............................. 7,500 Office and warehouse in support of
drilling operations
Alvin, Texas.............................. 20,450 Rental tool warehouse
International
Nisku, Alberta............................ 33,000 Accommodations manufacturing facility
Edmonton, Alberta......................... 31,000 Accommodations office and warehouse
Aberdeen, Scotland (lease)................ 56,021 Offshore products manufacturing facility
Bathgate, Scotland........................ 28,000 Offshore products manufacturing facility
Spruce Grove, Alberta..................... 15,000 Accommodations facility and equipment yard
Grande Prairie, Alberta................... 18,000 Accommodations facility and equipment yard
Peace River, Alberta...................... 80 acres Accommodations equipment yard
Aberdeen, Scotland (lease)................ 6,260 Tubular yard
Barrow, England........................... 14,551 Offshore products manufacturing facility
Singapore, Asia (lease)................... 13,411 Offshore products warehouse and yard
Macae, Brazil (lease)..................... 18,729 Offshore products manufacturing facility
Port Harcourt, Nigeria (lease)............ 376,727 Tubular yard
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We have five tubular sales offices and a total of 12 rental supply and distribution points in Texas, Louisiana and Oklahoma. Most of these office locations provide sales, technical support and personnel services to our customers. We also have various offices supporting our business segments which are both owned and leased.
LEGAL PROCEEDINGS
We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters. Although we can give no assurance about the outcome of these or any other pending legal and administrative
proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our financial condition or results of operations.
EMPLOYEES
As of June 30, 2000, we had 1,847 full-time employees, 865 of whom are in our offshore products segment, 93 of whom are in our tubular services segment and 889 of whom are in our well site services segment. In addition, we are party to collective bargaining agreements covering approximately 275 employees located in Canada. We believe relations with our employees are good.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information regarding our executive officers and directors:
NAME AGE POSITION(S)
---- --- -----------
L.E. Simmons.......................... 53 Chairman of the Board
Douglas E. Swanson.................... 61 Director, President and Chief
Executive Officer
Cindy B. Taylor....................... 38 Senior Vice President -- Chief
Financial Officer and Treasurer
Robert W. Hampton..................... 48 Vice President -- Finance and
Accounting
Michael R. Chaddick................... 53 Vice President -- Tubular Services
Christopher E. Cragg.................. 39 Vice President -- Tubular Services
Howard Hughes......................... 57 Vice President -- Offshore Products
Sandy Slator.......................... 56 Vice President -- Well Site Services
Jay Trahan............................ 54 Vice President -- Well Site Services
Mark G. Papa(1)....................... 53 Director
Gary L. Rosenthal(1).................. 50 Director
Andrew L. Waite....................... 39 Director
Stephen A. Wells...................... 56 Director
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(1) Mr. Papa and Mr. Rosenthal will be appointed to our board of directors in connection with the closing of the Combination and the offering.
We describe briefly below the business experience of our executive officers and directors.
L.E. Simmons is Chairman of the Board of our company. Mr. Simmons is the founder, Chairman of the Board and President of L.E. Simmons & Associates, Incorporated, a private equity fund manager and the ultimate general partner of SCF. Mr. Simmons has held these positions since 1989. Prior to founding L.E. Simmons & Associates, Incorporated, he co-founded Simmons & Company International and served as President of Energy Ventures. Mr. Simmons also serves as a director of Varco International, Inc. and Zions Bancorporation. He received a M.B.A. from the Harvard University Graduate School of Business Administration.
Douglas E. Swanson is a director of our company and has served as President and Chief Executive Officer since January 2000. From January 1992 to August 1999, Mr. Swanson served as Chairman of the Board and Chief Executive Officer of Cliffs Drilling Company. He currently serves as a director of HWC, Sooner, R&B Falcon Corporation and Varco International, Inc. He holds a degree from Cornell College and is a Certified Public Accountant.
Cindy B. Taylor is Senior Vice President -- Chief Financial Officer and Treasurer of our company. She has held this position since May 2000. From August 1999 to May 2000, Mrs. Taylor was the Chief Financial
Officer of L.E. Simmons & Associates, Incorporated. Mrs. Taylor served as the Vice President -- Controller of Cliffs Drilling Company from July 1992 to August 1999 and as a senior manager with Ernst & Young, LLP from January 1984 to July 1992. She received a B.B.A. from Texas A&M University and is a Certified Public Accountant.
Robert W. Hampton will be appointed Vice President -- Finance and Accounting of our company upon completion of the offering. Mr. Hampton is Vice President and Chief Financial Officer of HWC Energy Services Inc., a position he has held since February 1998. Mr. Hampton joined HWC from Tidewater Inc., where he was based in Aberdeen and was Area Manager for the North Sea Operations from March 1996 to February 1998. He served as Vice President, Treasurer and Chief Financial Officer of Hornbeck Offshore from 1990 to March 1996, when it was acquired by Tidewater. Mr. Hampton worked at Price Waterhouse from 1973 to 1986. Mr. Hampton is a Certified Public Accountant and received his B.S. degree from the Pennsylvania State University.
Michael R. Chaddick will be appointed Vice President -- Tubular Services of our company upon completion of the offering. Mr. Chaddick is Executive Vice President -- Chief Operating Officer of Sooner, a position he has held since June 1999. From May 1992 to June 1999, he served as President of the Wilson Supply Company Division of Wilson Industries, Inc. He served as Vice President -- Tubular Services for Wilson from February 1982 until May 1992 and was the General Manager of Tubular Services from November 1980 until February 1982. Prior to joining Wilson, Mr. Chaddick spent 11 years with U.S. Steel in various sales and management capacities. He currently serves as a director of Sooner. He received a B.B.A. degree from the University of Texas at Arlington.
Christopher E. Cragg will be appointed Vice President -- Tubular Services of our company upon completion of the offering. Mr. Cragg is Executive Vice President -- Chief Financial Officer of Sooner, a position he has held since December 1999. From April 1994 to June 1999, he was Vice President and Controller of Ocean Energy, Inc. and its predecessor companies. Mr. Cragg served as Manager -- Internal Audit with Cooper Industries from April 1993 to April 1994 and as a senior manager with Price Waterhouse from August 1982 to April 1992. He currently serves as a director of Sooner. He received a B.B.A. degree from Southwestern University and is a Certified Public Accountant.
Howard Hughes will be appointed Vice President -- Offshore Products of our company upon completion of the offering. Mr. Hughes is President of Oil States, a position he has held since September 1989. Prior to that, Mr. Hughes served in various managerial and executive positions with Oil States since April 1976. He holds a B.S. degree from the University of Houston.
Sandy Slator will be appointed Vice President -- Well Site Services of our company upon completion of the offering. Mr. Slator is President and Chief Executive Officer of PTI, a position he has held since January 2000. From February 1999 to November 1999, Mr. Slator was a founding partner of River View Venture Partners, an Edmonton-based venture capital group. From March 1998 to January 1999, Mr. Slator was an associate of Lambridge Capital Partners, an Edmonton-based investment banking group. From September 1996 to June 1997, Mr. Slator was a founding partner of NetCovergence, Inc., a private technology related company. From 1989 to April 1996, Mr. Slator served as President and Chief Executive Officer of Vencap Equities Alberta Ltd., a publicly traded venture capital company. Mr. Slator served on the board of PTI from 1984 until 1994.
Jay Trahan will be appointed Vice President -- Well Site Services of our company upon completion of the offering. Mr. Trahan is President and Chief Executive Officer of HWC, a position he has held since January 1998. He has 30 years of experience in the oil and gas industry. From 1996 to January 1998, Mr. Trahan served as President of Baker Hughes Solutions; from 1993 to 1996, he served as President to Baker Hughes Inteq; from 1990 to 1993, he served as President of Baker Sand Control; and from 1988 to 1990 he served as Vice President of Worldwide Operations for Baker Sand Control. He currently serves as a director of HWC.
Mark G. Papa will become a director of our company upon the completion of the offering. Mr. Papa has served as Chairman of the Board and Chief Executive Officer of EOG Resources, Inc., an exploration and
production company, since August 1999. From February 1994 to August 1999, he held a number of management positions with EOG Resources, Inc. He has a petroleum engineering degree from the University of Pittsburgh and a M.B.A. degree from the University of Houston.
Gary L. Rosenthal will become a director of our company upon the completion
of the offering. Mr. Rosenthal is co-founder and President of Heaney Rosenthal
Inc., a private investment company, a position he has held since October 1994.
He also serves as Chairman of the Board, Chief Executive Officer and President
of AXIA Inc., a diversified manufacturing company. He has held these positions
since July 1998. He currently serves as a director of HWC, Diamond Products
International, Inc. and Texas Petrochemical Holdings, Inc. He holds J.D. and
A.B. degrees from Harvard University.
Andrew L. Waite is a director of our company. Mr. Waite is a Managing Director of L.E. Simmons & Associates, Incorporated and has been an officer of that company since October 1995. He was previously Vice President of Simmons & Company International, where he served from August 1993 to September 1995. From 1984 to 1991, Mr. Waite held a number of engineering and management positions with the Royal Dutch/Shell Group. He currently serves as a director of HWC, Sooner, WorldOil.com Inc. and Canyon Offshore, Inc. He received a M.B.A. from the Harvard University Graduate School of Business Administration and a M.S. degree from the California Institute of Technology.
Stephen A. Wells is a director of our company. Mr. Wells is the president of Wells Resources, Inc., a privately owned oil, gas and ranching company, and has served in that position since 1983. From April 1999 to October 1999, Mr. Wells served as a director and Chief Executive Officer of Avista Resources, Inc. From October 1993 to February 1996, he was a director and Chief Executive Officer of Coastwide Energy Services, Inc. From March 1992 to September 1994, he was a director and Chief Executive Officer of Grasso Corporation. Mr Wells currently is a director of Pogo Producing Company and is the Chairman of the Board of GRT Inc.
CLASSIFIED BOARD
Our board of directors will be divided into three classes. The directors will serve staggered three-year terms. Terms of the Class I directors will expire at the annual meeting of stockholders to be held in 2001. The terms of the directors of the other two classes will expire at the annual meetings of stockholders to be held in 2002 (Class II) and 2003 (Class III). At each annual meeting of stockholders, one class of directors will be elected for a full term of three years to succeed that class of directors whose terms are expiring. The directors so elected may be removed only for cause. Upon the completion of the offering, the classification of directors will be as follows:
- Class I -- Mr. Simmons and Mr. Swanson;
- Class II -- Mr. Rosenthal and Mr. Waite;
- Class III -- Mr. Papa and Mr. Wells.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of this offering, our board of directors will establish an audit committee and a compensation committee.
The functions of the audit committee will be to:
- recommend annually to our board of directors the appointment of our independent auditors;
- discuss and review in advance the scope and the fees of our annual audit and review the results of the annual audit with our independent auditors;
- review and approve non-audit services of our independent auditors;
- review the adequacy of and compliance with our major accounting and financial reporting policies;
- review our management's procedures and policies relating to the adequacy of our internal accounting controls and compliance with applicable laws relating to accounting practices; and
- review our risk management policies and activities.
The audit committee will consist solely of independent directors.
The functions of the compensation committee will be to review and approve:
- annual salaries;
- bonuses;
- grants of restricted stock and stock options under our 2000 Equity Participation Plan and other stock incentive plans adopted from time to time for all executive officers and key members of our management staff; and
- the terms and conditions of all employee benefit plans or changes to these plans.
The compensation committee will consist solely of non-employee directors.
BOARD COMPENSATION
Directors who are also our employees do not receive a retainer or fees for service on our board of directors or any committees. Directors who are not employees will receive after the offering an annual fee of $15,000 and fees of $1,500 for attendance at each meeting of our board of directors, $1,000 for each committee meeting attended in person and $500 for each committee meeting attended telephonically. Directors who are not employees will receive options to purchase 5,000 shares of our common stock upon election to the board of directors (or, for our non-employee directors who will continue on the board of directors, upon completion of the offering) and additional options to purchase 5,000 shares at each annual meeting after which they continue to serve. These options will be granted under the 2000 Equity Participation Plan, will vest in four annual installments and will expire ten years from the date of grant. In the event of a change in control, the options will vest in accordance with the plan. The exercise price of these options will be the fair market value at the date of grant. All of our directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of our board of directors or committees and for other reasonable expenses related to the performance of their duties as directors.
EXECUTIVE COMPENSATION
The following table presents information regarding the compensation of our Chief Executive Officer and our four other most highly compensated executive officers. These five persons are collectively referred to in this prospectus as the "named executive officers."
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- --------- -------- ------------
Douglas E. Swanson(1)...................................... $375,000
President and Chief Executive Officer
Cindy B. Taylor(1)......................................... $200,000
Senior Vice President --
Chief Financial Officer and Treasurer
Howard Hughes(2)........................................... $225,000 $73,163 $10,890(3)
Vice President --
Offshore Products
Jay Trahan(2).............................................. $200,000 -- --
Vice President --
Well Site Services
Robert W. Hampton(2)....................................... $135,000 -- --
Vice President --
Finance and Accounting
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(1) Reflects expected annualized salary for 2000. Mr. Swanson and Ms. Taylor joined our company in January 2000 and May 2000, respectively.
(2) Reflects compensation paid for 1999.
(3) Reflects payments made to the Oil States 401(k) plan on behalf of Mr. Hughes to fund base retirement contributions, 401(k) matching contributions and discretionary profit sharing contributions.
2000 EQUITY PARTICIPATION PLAN
We have adopted an Equity Participation Plan. The plan provides for the grant of any combination of:
- stock options (including both incentive stock options and nonqualified stock options);
- restricted stock;
- performance awards;
- dividend equivalents;
- deferred stock; and
- stock payments.
The purpose of the plan is to strengthen our ability to attract, motivate and retain directors and employees. The principal features of the plan are described below.
Reservation of Shares. We have reserved 3,700,000 shares of common stock for issuance under the plan. The shares available under the plan may be either previously unissued shares or treasury shares. In the event of certain corporate reorganizations, recapitalizations or other specified corporate transactions affecting us or our common stock, proportionate adjustments may be made to the number of shares available for grant under the plan, the applicable maximum share limitations under the plan, and the number of shares and prices
under outstanding awards at the time of the event. If any portion of an award expires, lapses or is canceled without being fully exercised, the shares which were subject to the unexercised portion of the award will continue to be available for issuance under the plan. The maximum number of shares which may be subject to options, restricted stock or deferred stock granted under the plan to any individual in any calendar year is 400,000. The maximum value of any performance awards which may be granted under the plan to any individual in any calendar year is $2,500,000. As of June 30, 2000, giving effect to the Combination, options to purchase 1,225,224 shares at a weighted average exercise price of $7.44 per share were outstanding. In connection with the offering, we intend to grant additional options under the plan to purchase an aggregate of shares at an exercise price equal to the initial public offering price.
Administration. The plan will be administered by the compensation committee. Subject to limitations, the compensation committee has the authority to determine:
- the persons to whom awards are granted,
- the types of awards to be granted,
- the time at which awards will be granted,
- the number of shares, units or other rights subject to each award,
- the exercise, base or purchase price of an award (if any),
- the time or times at which the award will become vested, exercisable or payable, and
- the duration of the award.
The compensation committee also has the power to interpret the plan and make factual determinations and may provide for the acceleration of the vesting or exercise period of an award at any time prior to its termination or upon the occurrence of specified events.
Change of Control. Unless otherwise provided in a particular award agreement, in the event of a "change of control" (as defined in the plan):
- all outstanding awards automatically will become fully vested immediately prior to the change of control, or at an earlier time set by the committee;
- all restrictions, if any, with respect to all outstanding awards will lapse; and
- all performance criteria, if any, with respect to all outstanding awards will be deemed to have been met at their target level.
Amendment. Stockholder approval is required to amend the plan to increase the number of shares as to which awards may be granted, except for adjustments resulting from stock splits and the like. The compensation committee can amend, modify, suspend or terminate the plan in all other respects, unless the action would otherwise require stockholder approval. Amendments of the plan will not, without the consent of the participant, affect a participant's rights under an award previously granted, unless the award itself otherwise expressly so provides. The plan expires in 2010.
DEFERRED COMPENSATION PLAN
We have adopted a nonqualified deferred compensation plan that will permit our directors and selected key employees to elect to defer all or a part of their cash compensation from us until the termination of their status as a director or employee. The plan will be administered by the compensation committee. Our directors will be eligible to participate in the plan, and we expect that all of our officers will be eligible to participate. Participating employees who are not also one of our directors will be eligible to receive from us a matching deferral under the nonqualified deferred compensation plan that will compensate them for contributions they could not receive from us under our 401(k) plan due to the various limits imposed on 401(k) plans by the U.S. federal income tax laws.
Participants in our nonqualified deferred compensation plan will be able to invest contributions made to the nonqualified deferred compensation plan in investment funds to be selected by the compensation committee. We may establish a grantor trust to hold the amounts deferred under the plan by our officers and directors. All amounts deferred under the plan will remain subject to the claims of our creditors.
Participants will receive a lump sum distribution only upon termination of the participant's service with us and our affiliates. The compensation committee may, however, approve in-service withdrawals by participants to cover an unforeseen financial emergency of the participant.
ANNUAL INCENTIVE COMPENSATION PLAN
We also intend to adopt an annual incentive compensation plan to be effective January 1, 2001. The annual incentive compensation plan will be administered by the compensation committee and will be available to our executive officers and certain key members of management. Awards under the plan will be based on meeting annual objective performance standards relating to our performance or, in some cases, to the performance of a particular business segment or individual performance. At least 80% of the performance standards for our executive officers are expected to be based on our earnings before interest, taxes, depreciation and amortization.
EXECUTIVE AGREEMENTS
Prior to the Combination, Mr. Trahan and Mr. Hampton have employment agreements with HWC. In connection with the closing of the Combination and the offering, their employment agreements will be terminated, and we will enter into separate executive agreements with the named executive officers, including Mr. Trahan and Mr. Hampton.
These new agreements will provide protection in the event of a qualified termination, which is defined as an involuntary termination of the executive officer by us other than for cause or a voluntary termination by the executive for good reason. If the qualified termination occurs during the 24-month period following a change of control, the agreements will provide for a lump sum payment to the executive officer based on the executive officer's base salary and target annual bonus amount. In addition, in that circumstance, the agreements will provide that all restricted stock awards will become vested, that all restrictions on such awards will lapse and that outstanding stock options will vest and remain exercisable for the remainder of their terms. The executive officer will also be entitled to certain health benefits, vesting of all deferred compensation amounts, outplacement services and to be made whole for any excise taxes incurred with respect to severance payments that are excess parachute payments under the Internal Revenue Code. If a qualified termination occurs other than during the 24-month period following a change of control, the executive agreements will provide for payments based on the executive officer's base salary and target annual bonus amount.
The executive agreements will have an initial term ranging from one to three years and will be extended automatically on a daily basis for a maximum additional period of three years, unless notice of non-extension is given, in which case the agreement will terminate on the anniversary of the date notice is given. To receive benefits under the executive agreement, the executive officer will be required to execute a release of certain claims against us. The terms of Mr. Swanson's executive agreement are summarized below.
Douglas E. Swanson. Under the terms of Mr. Swanson's executive agreement, he will be entitled to receive a lump sum payment equal to three times his base salary and target annual bonus amount if a qualified termination occurs during the 24-month period following a change of control. If a qualified termination occurs other than during the 24-month period following a change of control, Mr. Swanson will be entitled to receive a lump sum payment equal to two times his base salary and target annual bonus amount. In addition, we intend to award to Mr. Swanson restricted stock with a value of approximately $2.5 million in connection with the Combination and the offering.
Cindy B. Taylor. Under the terms of Ms. Taylor's executive agreement, she will be entitled to receive a lump sum payment equal to two times her base salary and target annual bonus amount if a qualified termination occurs during the 24-month period following a change of control. If a qualified termination occurs
other than during the 24-month period following a change of control, Ms. Taylor will be entitled to receive a lump sum payment equal to one and a half times her base salary and target annual bonus amount.
All Other Named Executive Officers. Under the terms of each other named executive officer's executive agreement, the named executive officer will be entitled to receive a lump sum payment equal to one and a half times his base salary and target annual bonus amount if a qualified termination occurs during the 24-month period following a change of control. If a qualified termination occurs other than during the 24-month period following a change of control, the executive officer will be entitled to receive a lump sum payment equal to his base salary and target annual bonus amount.
OPTION GRANTS
In connection with the Combination, all outstanding options under the Oil States, HWC, Sooner and PTI option plans will be converted into options issued under our 2000 Equity Participation Plan. In connection with this offering, we intend to grant additional options under this plan to purchase an aggregate of shares at an exercise price equal to the initial public offering price. Following the Combination and the offering, options to purchase shares of our common stock will be outstanding under the 2000 Equity Participation Plan.
The following table contains information concerning stock options held by the named executive officers as of December 31, 1999, giving effect to the Combination. No stock options were exercised in 1999 by any named executive officer.
OPTION VALUES AT DECEMBER 31, 1999
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS (NUMBER OF SHARES) IN-THE-MONEY OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Douglas E. Swanson............................ -- -- -- --
Cindy B. Taylor............................... -- -- -- --
Howard Hughes................................. 33,050 9,167 $ $
Jay Trahan.................................... 52,038 156,017
Robert W. Hampton............................. 21,669 65,007
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(1) Prior to this offering, there was no public market for common stock and, therefore, the values of each unexercised in-the-money stock option is calculated as the difference between the estimated initial public offering price of $ per share and the exercise price of the stock option.
RELATED PARTY TRANSACTIONS
OFFERING BY SELLING STOCKHOLDERS
We are paying the expenses of the offering by the selling stockholders, other than the underwriting discounts, commissions and transfer taxes with respect to shares of stock sold by the selling stockholders and the fees and expenses of any attorneys, accountants and other advisors separately retained by them.
THE COMBINATION
The Combination will close concurrently with the closing of the offering. Prior to the Combination, SCF owns a majority interest in each of Oil States, HWC, Sooner and PTI. In the Combination, subsidiaries of Oil States will merge into each of HWC and Sooner. Most of the current shareholders of HWC and Sooner (including SCF) will receive shares of Oil States common stock, and a few non-accredited shareholders will receive cash. In addition, PTI will merge into a Canadian subsidiary of Oil States, the current PTI
shareholders that are located in the United States (including SCF) will receive cash or shares of Oil States common stock and the current PTI shareholders that are located in Canada will receive exchangeable shares of that Canadian subsidiary that are exchangeable for shares of our common stock. For more information on the PTI exchangeable share transaction, see "Description of Capital Stock -- Special Voting Stock" and "-- Exchangeable Shares." Following the closing of the Combination and the offering, none of HWC, Sooner or PTI or any of their shareholders will have any obligations to indemnify us for losses that we suffer relating to the Combination. Following the closing of the Combination and the offering:
- HWC, Sooner and PTI will be our wholly owned subsidiaries;
- the former shareholders of HWC, Sooner and PTI, other than those that receive cash, will hold shares of our common stock or shares of one of our Canadian subsidiaries exchangeable for shares of our common stock; and
- SCF will hold approximately % of our outstanding common stock.
The following table illustrates the consideration to be paid in shares of our common stock upon the closing of the Combination, on a fully diluted basis, to the shareholders (including SCF) of each of HWC, Sooner, and PTI.
PERCENTAGE OF TOTAL OUTSTANDING
----------------------------------
COMPANY SHARES BEFORE OFFERING AFTER OFFERING
------- ---------- ---------------- ---------------
HWC.......................................... 7,936,920 22.8% %
Sooner....................................... 7,874,913 22.6% %
PTI.......................................... 9,921,150 28.4% %
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Prior to the Combination, SCF owns 7,657,327 shares of Oil States common stock, after taking into account a three-for-one reverse stock split. In the Combination, SCF will receive, in consideration of its ownership interests in HWC, PTI and Sooner, 18,534,971 additional shares for a total of 26,192,298 shares, or % of the total outstanding after the Combination and the offering on a fully diluted basis.
TRANSACTIONS BEFORE THE COMBINATION
Transactions with our Directors and Officers
L.E. Simmons, the Chairman of our board of directors, is also the majority owner, Chairman of the Board and President of L.E. Simmons & Associates, Incorporated, the ultimate general partner of SCF, our majority shareholder. Andrew L. Waite, one of our directors, is also a Managing Director and an officer of L.E. Simmons & Associates, Incorporated. Cindy B. Taylor, our Chief Financial Officer, was also the Chief Financial Officer of L.E. Simmons & Associates, Incorporated from August 1999 until May 2000. As a majority shareholder of each of Oil States, HWC, Sooner and PTI prior to the Combination, SCF has been involved in a number of transactions with each of these companies, as described further below.
Transactions with Significant Shareholders
Oil States. During 1997, Oil States entered into loan agreements for unsecured promissory notes totaling $24.8 million with EnSerCo, L.L.C., a limited liability company that is owned 50% by SCF. Oil States also paid commitment fees totaling $400,000 to EnSerCo during 1997. These notes, which were paid in full in March 1998, accrued interest at rates ranging from 10% to 12% per year.
Effective December 31, 1997, Oil States acquired from SCF and other stockholders options to purchase from Oil States its common shares of CE Franklin, Ltd., a former majority-owned subsidiary of Oil States that was sold in 1999. Oil States issued 500,000 shares (before consideration of the proposed three-for-one reverse stock split) of its Class A common stock, valued at $2.0 million, in exchange for these options. Oil States issued an additional 500,000 shares (before consideration of the proposed three-for-one reverse stock
split) of its common stock to SCF and the other stockholders in March 2000 due to certain performance conditions specified in the transaction which were not attained.
In August and December 1997, SCF acquired 2,001,550 shares (before consideration of the proposed three-for-one reverse stock split) of Oil States at a weighted average price of $7.94 per share through two rights offerings extended to all Oil States shareholders. In February and March 1998, SCF acquired 910,600 shares (before consideration of the proposed three-for-one reverse stock split) of Oil States at a weighted average price of $10.00 per share through two rights offerings extended to all Oil States shareholders. In 2000, Oil States issued 3,642,400 shares (before consideration of the proposed three-for-one reverse stock split) of its common stock to SCF due to certain performance conditions specified in the 1998 rights offerings which were not attained.
In December 1998, Oil States declared a $25.0 million dividend to the holders of Oil States common stock in the form of a subordinated note payable to SCF-III, L.P., acting as agent for such holders. Interest accrues at the rate of 6% per year. Principal and interest are due on December 31, 2005. At June 30, 2000, the outstanding balance of the note, including principal and accrued interest, was approximately $27.3 million. We intend to pay the entire balance of the note with proceeds from the offering. See "Use of Proceeds."
L.E. Simmons & Associates, Incorporated, the ultimate general partner of SCF, has served as financial advisor to Oil States from time to time before the Combination. Oil States paid professional advisory fees and out-of-pocket expenses of approximately $118,000 in 1999, $11,000 in 1998 and $217,000 in 1997 to L.E. Simmons & Associates, Incorporated. We do not anticipate that we will continue to use these services following the offering and the Combination.
Between May 1996 and June 1997, Oil States issued three subordinated promissory notes, totaling $10.9 million, to entities affiliated with Hunting Oilfield Services (International), Ltd. in connection with the acquisition of assets. Prior to the Combination, an affiliate of Hunting Oilfield Services is the holder of greater than 5% of the common stock of Oil States. Of the total of $10.9 million, $10.4 million is due on May 17, 2001, and the remaining $500,000 is due September 30, 2001. These notes accrue interest at rates of 7.75% in 1998, 8.25% in 1999, and 8.50% thereafter. Accrued interest is payable on March 31 of each year; however, interest payments are only required to be made if cumulative EBITDA thresholds are met. Oil States did not meet EBITDA thresholds for 1999. As of December 31, 1999, interest of $903,000 had been accrued but not paid. Interest does not accrue on any accrued interest that is not paid due to the failure to meet any EBITDA threshold. All unpaid accrued interest is payable on the maturity date of the notes. We intend to pay the entire balance of the notes with proceeds from the offering. See "Use of Proceeds".
In February and March 1998, Hunting Oilfield services purchased 104,867 shares (before consideration of the proposed three-for-one reverse stock split) of Oil States at a weighted average price of $10.00 per share through two rights offerings extended to all Oil States shareholders. In January 1998, Hunting purchased an additional 44,900 shares (before consideration of the proposed three-for-one reverse stock split) of Oil States at $10.00 per share pursuant to the November 1997 rights offering. In 2000, Oil States issued 419,468 shares (before consideration of the proposed three-for-one reverse stock split) of its common stock to Hunting due to certain performance conditions specified in the two rights offerings which were not attained.
During 1999, Hunting Oilfield Services provided indemnification payments to Oil States in the amount of $1.8 million for a liability incurred in 1998 relating to assets sold to Oil States in 1996.
During 1998, Oil States acquired assets from Sooner Pipe & Supply Corporation, the predecessor of Sooner and an entity under common control with Oil States, for $3.8 million. Oil States issued a promissory note in the amount of $2.0 million to Sooner Pipe & Supply in connection with the acquisition. In May 1999, Oil States sold all of its tubular assets to Sooner Pipe & Supply for $7.4 million in cash and other noncash consideration of $5.1 million, including the cancellation of the $2.0 million promissory note.
HWC. In November 1997, HWC issued 20,400 shares of its common stock to SCF for an aggregate purchase price of $20.4 million. HWC issued an additional 4,000 shares of common stock to SCF in May 1998 for an aggregate purchase price of $6.0 million.
In April 1999, HWC issued 2,000 shares of its Series A Convertible Preferred Stock to SCF for an aggregate purchase price of $2.0 million. The preferred stock accrues dividends at an annual rate of 6.5%. SCF can convert the preferred stock, including accrued but unpaid dividends through June 30, 2000, at any time into shares of HWC common stock. In connection with the Combination, SCF will convert the preferred stock, including accrued but unpaid dividends through June 30, 2000, into shares of HWC common stock.
In November 1999, HWC issued 2,650 shares of its Series B Convertible Preferred Stock to SCF for an aggregate purchase price of $2.7 million. The preferred stock accrues dividends at an annual rate of 6.5%. SCF can convert the preferred stock, including accrued but unpaid dividends through June 30, 2000, at any time into shares of HWC common stock. In connection with the Combination, SCF will convert the preferred stock, including accrued but unpaid dividends through June 30, 2000, into shares of HWC common stock.
Sooner. In July 1998, Sooner issued a junior subordinated promissory note to SCF in the original principal amount of $15.1 million, 15,137 shares of common stock and 15,137 warrants to purchase common stock in return for $30.2 million from SCF. In May and June 1999, Sooner issued additional promissory notes to SCF in the aggregate principal amount of $6.3 million, 6,250 shares of common stock and 6,250 warrants to purchase common stock in return for $12.5 million from SCF. The notes mature on June 30, 2008 and accrue interest annually at the rate of 6%. As of June 30, 2000, the outstanding balance, including principal and accrued interest, was $23.6 million. We intend to pay the entire balance of the notes with proceeds from the offering. See "Use of Proceeds."
In 1998 and 1999, Sooner issued warrants to SCF to purchase shares of Sooner common stock. The warrants are exercisable into an aggregate of 21,387 shares of Sooner common stock at an exercise price of $1,000 per share, subject to adjustment upon the occurrence of specified events. In connection with the closing of the Combination, the SCF warrants will be exchanged for Sooner common stock.
REGISTRATION RIGHTS
Former Shareholders of Oil States, HWC, Sooner and PTI. Upon completion of the offering, we will enter into an amended and restated registration rights agreement with SCF, other stockholders of Oil States and the former shareholders of HWC and Sooner that held registration rights with respect to their shares of common stock of these companies. This agreement will give SCF the right, on five occasions, to demand that we register all or any portion of their shares of our common stock for sale under the Securities Act. SCF may not make a demand prior to the expiration of the 180 day lock-up period. The shares to be included in any demand registration by SCF must have an estimated aggregate gross offering price of at least $50.0 million. Despite a registration demand by SCF, we may delay filing of the registration statement to register its shares of our common stock for a maximum of 45 days from the date we receive the registration demand if:
- at the time we receive the registration demand, we are engaged in confidential negotiations or other confidential business activities that we would be required to disclose in the registration statement (and that we would not otherwise be required to disclose) and our board of directors determines in good faith that such disclosure would not be in our best interests or the best interests of our stockholders; or
- prior to receiving the registration demand, our board of directors has determined to undertake a registered public offering of our securities and we have taken substantial steps and are proceeding with reasonable diligence to effect the offering.
In addition, SCF may not require us to file a registration statement within 180 days after the effectiveness of a registration statement related to a demand registration made by SCF. Further, if we propose to register any of our common stock under the Securities Act (except for shares of common stock issued in connection with acquisitions and benefits plans) or if SCF exercises a demand, the other holders of registration rights under the registration rights agreement will have the right to include their shares of common stock in the registration, subject to limitations. The registration rights agreement also gives the former shareholders of PTI the right to register their shares of common stock in the registration, subject to the same limitations.
The agreement provides customary registration procedures. We have agreed to pay all costs and expenses (other than fees, discounts and commissions of underwriters, brokers and dealers and capital gains, income and transfer taxes, if any) related to the registration and sale of shares of our common stock by any holder of registration rights under the registration rights agreement in any registered offering. The rights of the holders of registration rights under the registration rights agreement are assignable under limited circumstances and terminate, other than the demand rights held by SCF, at any time when they and their affiliates own less than 2% of our outstanding common stock and are eligible to sell such common stock pursuant to Rule 144(k) under the Securities Act or, in the case of the former shareholders of PTI, when a registration statement for their benefit has been declared effective by the Securities and Exchange Commission. The demand rights held by SCF terminate on the tenth anniversary of the agreement.
The registration rights agreement contains customary indemnification and contribution provisions by us for the benefit of the selling stockholders and any underwriters. Each selling stockholder has agreed to indemnify us and any underwriter solely with respect to information provided by the stockholder, with such indemnification being limited to the net proceeds from the offering received by the stockholder.
Former Shareholders of PTI. We have agreed with the former shareholders of PTI that if any of our shares of common stock to be issued to them in exchange for the exchangeable shares of our Canadian subsidiary require us to take any action under any Canadian or United States law before those shares of common stock may be issued or in order that those shares of common stock may be freely traded after issuance (other than any restrictions on transfer by reason of a holder being a "control person" under Canadian law or an "affiliate" under United States law), we will, beginning after the first anniversary date of the closing of this offering or earlier under limited circumstances, take all such actions as are necessary and permitted by law.
CONFLICTS OF INTEREST
Generally, directors and officers have a fiduciary duty to manage their company in a manner beneficial to the company and its stockholders. Two of our directors are current directors or officers of the ultimate general partner of SCF. In certain circumstances, an action beneficial to the general partner of SCF may be detrimental to our interests, which may create conflicts of interest. See "Risk Factors -- Risks Related to the Combination and Our Relationship with SCF."
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 30, 2000, information regarding shares beneficially owned, giving effect to the Combination and as adjusted to reflect the sale of the common stock offered by this prospectus, by:
- each person who we know to be the beneficial owner of more than five percent of our outstanding shares of common stock;
- each of the named executive officers;
- each of our directors; and
- all current directors and executive officers as a group.
To our knowledge, except as indicated in the footnotes to this table or as provided by applicable community property laws, upon consummation of this offering, the persons named in the table have sole voting and investment power with respect to the shares of common stock indicated.
BENEFICIAL OWNERSHIP
---------------------------------------------
PERCENTAGE
--------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) SHARES BEFORE OFFERING AFTER OFFERING
---------------------------------------- ---------- --------------- --------------
SCF-III, L.P........................................... 19,712,221 56.6% %
600 Travis, Suite 6600
Houston, Texas 77002
SCF-IV, L.P............................................ 6,480,077 18.6% %
600 Travis, Suite 6600
Houston, Texas 77002
L.E. Simmons(2)........................................ 26,192,298 75.2% %
Douglas E. Swanson..................................... -- -- --
Cindy B. Taylor........................................ -- -- --
Michael R. Chaddick(3)................................. 39,712 * *
Christopher E. Cragg(3)................................ 17,650 * *
Howard Hughes(3)....................................... 70,900 * *
Sandy Slator(3)........................................ 37,730 * *
Jay Trahan(3).......................................... 197,910 * *
Robert W. Hampton(3)................................... 82,370 * *
Mark G. Papa........................................... -- -- --
Gary L. Rosenthal(3)................................... 15,288 * *
Andrew L. Waite(4)..................................... -- -- --
Stephen A. Wells(3).................................... 18,678 * *
All directors and executive officers as a group (12
persons)(2)(3)(4).................................... 26,672,536 76.5% %
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* Less than one percent.
(1) Unless otherwise indicated, the address of each beneficial owner is c/o Oil States International, Inc., Three Allen Center, 333 Clay Street, Suite 3460, Houston, Texas 77002.
(2) The shares indicated as being beneficially owned by Mr. Simmons are owned directly by SCF-III, L.P. and SCF-IV, L.P. Mr. Simmons serves as Chairman of the Board and President of L.E. Simmons & Associates, Incorporated, the ultimate general partner of both SCF-III, L.P. and SCF-IV, L.P. As such, Mr. Simmons may be deemed to have voting and dispositive power over the shares beneficially owned by SCF-III, L.P. and SCF-IV, L.P. Mr. Simmons disclaims beneficial ownership of the shares owned by SCF-III, L.P. and SCF-IV, L.P.
(3) Includes shares issuable upon exercise of options to purchase shares of our common stock as follows: Messrs. Chaddick - 39,712; Cragg - 17,650; Hughes - 37,633; Slator - 12,577; Trahan - 104,012; Hampton - 43,338; Rosenthal - 1,156 and Wells - 2,383.
(4) Mr. Waite serves as Managing Director of L.E. Simmons & Associates,
Incorporated, the ultimate general partner of both SCF-III, L.P. and SCF-IV,
L.P. As such, Mr. Waite may be deemed to have voting and dispositive power
over the shares beneficially owned by SCF-III, L.P. and SCF-IV, L.P. Mr.
Waite disclaims beneficial ownership of the shares owned by SCF-III, L.P.
and SCF-IV, L.P.
SELLING STOCKHOLDERS
The following table sets forth, as of June 30, 2000, information regarding shares beneficially owned by all selling stockholders, giving effect to the issuance of shares of Oil States common stock in the Combination and as adjusted to reflect the sale of the common stock offered by the prospectus.
To our knowledge, except as indicated in the footnotes to this table or pursuant to applicable community property laws, upon consummation of this offering, the persons named in the table have sole voting and investment power with respect to the shares of common stock indicated.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
NAME AND ADDRESS OF ------------------- NUMBER OF SHARES -------------------
BENEFICIAL OWNERS NUMBER PERCENT BEING OFFERED NUMBER PERCENT
------------------- -------- -------- ---------------- -------- --------
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DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of 200,000,000 shares of common stock, par value $.01 per share, and 25,000,000 shares of preferred stock, par value $.01 per share. Upon completion of this offering, we will have outstanding shares of common stock (including 2,985,805 and 1,781,734 shares, respectively, to be issued for the conversion of warrants to purchase shares of Sooner common stock and preferred stock issued by HWC), and one share of preferred stock issued and outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Because holders of common stock do not have cumulative voting rights, the holders of a majority of the shares of common stock can elect all of the members of the board of directors standing for election, subject to the rights, powers and preferences of any outstanding series of preferred stock. Subject to the rights and preferences of any preferred stock that we may issue in the future, the holders of common stock are entitled to receive:
- dividends as may be declared by our board of directors; and
- all of our assets available for distribution to our common stockholders in liquidation, pro rata, based on the number of shares held.
There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable.
PREFERRED STOCK
Subject to the provisions of our certificate of incorporation and legal limitations, our board of directors has the authority, without further vote or action by the stockholders:
- to issue up to 25,000,000 shares of preferred stock in one or more series; and
- to fix the rights, preferences, privileges and restrictions of our preferred stock, including provisions related to dividends, conversion, voting, redemption, liquidation and the number of shares constituting the series or the designation of that series, which may be superior to those of the common stock.
Other than the share of special voting stock to be issued in connection with the Combination as described below in "-- Special Voting Stock," there will be no shares of preferred stock outstanding upon the closing of the offering, and we have no present plans to issue any other preferred stock.
The issuance of shares of preferred stock by our board of directors as described above may adversely affect the rights of the holders of our common stock. For example, preferred stock may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. The issuance of shares of preferred stock may discourage third-party bids for our common stock or may otherwise adversely affect the market price of the common stock. In addition, the preferred stock may enable our board of directors to make more difficult or to discourage attempts to obtain control of our company through a hostile tender offer, proxy contest, merger or otherwise, or to make changes in our management.
EXCHANGEABLE SHARES
In the Combination, the outstanding common shares of PTI held by Canadian residents will ultimately be exchanged for exchangeable shares to be issued by PTI HoldCo, one of our wholly owned Canadian subsidiaries that, upon the closing of the Combination, will indirectly hold all the outstanding capital stock of PTI. The exchangeable shares may generally be exchanged at any time after the first anniversary of the closing of the Combination at the option of the holders for our common stock on a share-for-share basis subject to adjustment in the case of alterations to our common stock, plus the amount of any declared but unpaid dividends on our common stock. Upon the closing of the Combination, there will be 9,921,150 exchangeable shares outstanding, which will be exchangeable for a total of 9,921,150 shares of our common stock. The following is a summary of the principal terms and rights of the exchangeable shares which affect us and the holders of our common stock.
Holders of exchangeable shares are entitled to:
- receive dividends equal to the dividends paid by us on shares of our common stock;
- provide directions to the holder of our special voting stock as to the manner in which the special voting stock should be voted on any matter on which holders of our common stock are entitled to vote. See "-- Special Voting Stock" below.
Subject to applicable law, exchangeable shares will be exchanged for shares of our common stock on a share-for-share basis, plus an amount equal to all declared and unpaid dividends on such exchangeable shares, whenever:
- the holders of exchangeable shares request us or PTI HoldCo to exchange or redeem their exchangeable shares;
- PTI HoldCo is liquidated, dissolved or wound-up;
- PTI HoldCo becomes insolvent or bankrupt, has a receiver appointed or a similar event occurs;
- we become involved in voluntary or involuntary liquidation, dissolution or winding-up proceedings;
- PTI HoldCo elects to redeem all of the exchangeable shares, provided the request is made after the fifth anniversary of the closing of the offering;
- PTI HoldCo elects to redeem all of the exchangeable shares, provided the request is made after either the third anniversary of the closing of the offering and the number of outstanding exchangeable shares is less than 10% of the number outstanding upon the closing of the Combination or the fourth anniversary of the closing of the offering and the number of outstanding exchangeable shares is less than 20% of the number outstanding upon the closing of the Combination;
- a change of control transaction occurs and the board of directors of PTI HoldCo determines in good faith and in its sole discretion, that it is not reasonable to substantially replicate the terms and conditions of the exchangeable shares in connection with the change of control transaction and that redemption of all of the outstanding exchangeable shares is commercially or legally necessary to enable the completion of the change of control transaction;
- the holders of exchangeable shares fail to pass a resolution regarding any matter on which they are entitled to vote as shareholders of PTI HoldCo and which has been proposed by the board of directors of PTI HoldCo, other than any resolution to amend the exchangeable share provisions, the support agreement or the voting and exchange trust agreement; or
- the holders of the exchangeable shares fail to take any action required to approve or disapprove any change to their rights if the approval or disapproval of such change would be required to maintain the economic or legal equivalence of the exchangeable shares and our common stock.
Whenever a holder of exchangeable shares has the right to require PTI HoldCo to redeem the holder's exchangeable shares or whenever PTI HoldCo has the right or is required to redeem the outstanding exchangeable shares, the exchangeable shares to be redeemed will be subject to the overriding right of our company or OSI ULC, one of our wholly owned Canadian subsidiaries, to purchase such exchangeable shares. The consideration to be paid by us or OSI ULC, as the case may be, will be identical to the consideration to be paid by PTI HoldCo upon any such redemption. We expect to exercise the overriding right to purchase the exchangeable shares whenever it arises.
Unless we take action to ensure that the holders of exchangeable shares receive an equivalent economic benefit, and subject to applicable law, we may not:
- issue or distribute assets, debt instruments or shares of, or securities convertible into, our common stock to the holders of the then outstanding shares of our common stock;
- effect a forward or reverse stock split or similar transaction;
- effect a merger, reorganization, consolidation or other transaction involving or affecting our common stock; or
- reclassify or otherwise change our common stock.
In the event of any proposed tender offer, share exchange offer, issuer bid, take-over bid or similar transaction affecting our common stock, we must use reasonable efforts to take all actions necessary or desirable to enable holders of exchangeable shares to participate in the transaction to the same extent and on an economically equivalent basis as the holders of our common stock. We have also agreed to take various actions to protect the rights of the holders of the exchangeable shares to receive the same dividends as are paid on our common stock and to exchange shares of our common stock for exchangeable shares.
SPECIAL VOTING STOCK
In connection with the acquisition of PTI, our board of directors authorized a class of preferred stock, referred to as "special voting stock," consisting of one share. The special voting stock will be issued to
Montreal Trust Company of Canada, which will hold the share as trustee for the benefit of the holders of the exchangeable shares described above. Except as otherwise required by law or our certificate of incorporation:
- the special voting stock will be entitled to the number of votes attached to the number of shares of our common stock issuable upon the exchange of all the outstanding exchangeable shares;
- each holder of exchangeable shares will be able to direct the trustee to vote that number of votes that are attached to the number of shares of OSI common stock issuable upon the exchange of the exchangeable shares held by that holder;
- the special voting stock may be voted in the election of directors and on all other matters submitted to a vote of our common stockholders; and
- the holder of the special voting stock will not be entitled to receive dividends.
In the event of any liquidation, dissolution or winding up of our company, the holder of the special voting stock will not be entitled to any of our assets available for distribution to stockholders. We may redeem the special voting stock for a nominal amount when:
- the special voting stock has no votes attached to it because there are no exchangeable shares outstanding that are not owned by us or our subsidiaries; and
- there are no shares of stock, debt, options or other agreements that could give rise to the issuance of any additional exchangeable shares to any person other than us or any of our subsidiaries.
ANTI-TAKEOVER PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation and bylaws contain several provisions that could delay or make more difficult the acquisition of us through a hostile tender offer, open market purchases, proxy contest, merger or other takeover attempt that a stockholder might consider in his or her best interest, including those attempts that might result in a premium over the market price of our common stock.
Written Consent of Stockholders
Our certificate of incorporation provides that, on and after the date when SCF ceases to own a majority of the shares of our outstanding securities entitled to vote in the election of directors, any action by our stockholders must be taken at an annual or special meeting of stockholders, and stockholders cannot act by written consent. Until that date, any action required or permitted to be taken by our stockholders may be taken at a duly called meeting of stockholders or by the written consent of stockholders owning the minimum number of shares required to approve the action.
Special Meetings of Stockholders
Subject to the rights of the holders of any series of preferred stock, our bylaws provide that special meetings of the stockholders may only be called by the chairman of the board of directors or by the resolution of a majority of our board of directors.
Advance Notice Procedure for Director Nominations and Stockholder Proposals
Our bylaws provide that adequate notice must be given to nominate candidates for election as directors or to make proposals for consideration at annual meetings of stockholders. Notice of a stockholder's intent to nominate a director must be delivered to or mailed and received at our principal executive offices as follows:
- for an election to be held at the annual meeting of stockholders, not later than 120 calendar days prior to the anniversary date of the immediately preceding annual meeting of stockholders; and
- for an election to be held at a special meeting of stockholders, not later than the later of (1) 90 calendar days prior to the special meeting or (2) 10 calendar days following the public announcement of the special meeting.
Notice of a stockholder's intent to raise business at an annual meeting must be received at our principal executive offices not later than 90 calendar days prior to the anniversary date of the preceding annual meeting of stockholders.
These procedures may operate to limit the ability of stockholders to bring business before a stockholders meeting, including the nomination of directors and the consideration of any transaction that could result in a change in control and that may result in a premium to our stockholders.
Classified Board of Directors
Our certificate of incorporation divides our directors into three classes serving staggered three-year terms. As a result, stockholders will elect approximately one-third of the board of directors each year. This provision, when coupled with the provision of our restated certificate of incorporation authorizing only the board of directors to fill vacant or newly created directorships or increase the size of the board of directors and the provision providing that directors may only be removed for cause, may deter a stockholder from gaining control of our board of directors by removing incumbent directors or increasing the number of directorships and simultaneously filling the vacancies or newly created directorships with its own nominees.
RENOUNCEMENT OF BUSINESS OPPORTUNITIES
Our certificate of incorporation provides that, as long as SCF continues to own at least 20% of our common stock, we have renounced any interest in specified business opportunities. In particular, SCF and its affiliates may pursue opportunities in the oilfield services industry for their own account or present such opportunities to SCF's other portfolio companies. SCF and its affiliates have no obligation to offer such opportunities to us, even if doing so would have a competitive impact on us. In general, SCF is permitted to pursue opportunities for its own account or to present opportunities to its other portfolio companies, including those companies in competition with us, provided:
- the business opportunity is not identified through the disclosure of information by or on behalf of our company or as a direct result of a person's service as an officer or director of our company; and
- the opportunity is developed and pursued solely through SCF's own personnel and not through us.
If an opportunity in the oilfield services industry is presented to a person who is an officer or director of both SCF and our company, SCF has no obligation to communicate or offer the opportunity to us and may pursue the opportunity as it sees fit, unless it was presented to that person solely in, and as a direct result of, that person's service as a director or officer of our company.
AMENDMENT OF THE BYLAWS
Our board of directors may amend or repeal the bylaws and adopt new bylaws. The holders of common stock may amend or repeal the bylaws and adopt new bylaws by a majority vote.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our directors will not be personally liable to our company or our stockholders for monetary damages for breach of fiduciary duty as a director, except, if required by Delaware law, for liability:
- for any breach of the duty of loyalty to our company or our stockholders;
- for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law;
- for unlawful payment of a dividend or unlawful stock purchases or redemptions; and
- for any transaction from which the director derived an improper personal benefit.
As a result, neither we nor our stockholders have the right, through stockholders' derivative suits on our behalf, to recover monetary damages against a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior, except in the situations described above.
DELAWARE TAKEOVER STATUTE
Under the terms of our certificate of incorporation and as permitted under Delaware law, we have elected not to be subject to Delaware's anti-takeover law. This law provides that specified persons who, together with affiliates and associates, own, or within three years did own, 15% or more of the outstanding voting stock of a corporation could not engage in specified business combinations with the corporation for a period of three years after the date on which the person became an interested stockholder. The law defines the term "business combination" to encompass a wide variety of transactions with or caused by an interested stockholder, including mergers, asset sales and other transactions in which the interested stockholder receives or could receive a benefit on other than a pro rata basis with other stockholders. With the approval of our stockholders, we may amend our certificate of incorporation in the future to become governed by the anti-takeover law. This provision would then have an anti-takeover effect for transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for the shares of our common stock. By opting out of the Delaware anti-takeover law, a transferee of SCF could pursue a takeover transaction that was not approved by our board of directors.
LISTING
We intend to file an application to have our common stock listed on the New York Stock Exchange under the symbol "OIS."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is , and its telephone number is .
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, in the public market could adversely affect prevailing market prices. Sales of substantial amounts of our common stock in the public market after any restrictions on sale lapse could adversely affect the prevailing market price of our common stock and impair our ability to raise equity capital in the future.
Upon completion of the offering, shares of our common stock will be outstanding (including 2,985,805 and 1,781,734 shares, respectively, to be issued for the conversion of warrants to purchase shares of Sooner common stock and the conversion of preferred stock issued by HWC). The shares sold in the offering, plus any shares issued upon exercise of the underwriters' over-allotment options, will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act or by a person who is subject to a lock-up agreement as described below.
Of the shares outstanding upon completion of the offering, shares issued in the Combination and shares held by the stockholders of Oil States will be "restricted securities" within the meaning of Rule 144. Restricted securities may be sold in the public market only if the sale is registered or if it qualifies for an exemption from registration, such as under Rule 144 under the Securities Act, which is summarized below. Sales of restricted securities in the public market, or the availability of such shares for sale, could adversely affect the market price of our common stock.
Under Rule 144, beginning 90 days after the date of this prospectus, a person, or persons whose shares are aggregated, who has beneficially owned "restricted securities" for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after the offering; and
- the average weekly trading volume of the common stock on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale with the SEC.
Sales under Rule 144 are also subject to other requirements regarding the manner of sale, notice and availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been one of our "affiliates" at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner other than an affiliate) is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. An aggregate of shares outstanding at the consummation of the offering may be sold immediately under Rule 144(k) without so complying. All of these shares are subject to the lock-up provisions described below.
Because SCF is among our affiliates, subject to exercise of its registration rights described under "Related Party Transactions -- Registration Rights Agreement," the Rule 144 restrictions and requirements would be applicable to SCF's shares for as long as it retains affiliate status.
Each of our company, our executive officers and directors, SCF and other stockholders has agreed that, without the prior written consent of Merrill Lynch & Co. on behalf of the underwriters, it will not, during the period ended 180 days after the date of this prospectus, sell shares of common stock or take certain related actions, subject to limited exceptions, all as described under "Underwriting."
Upon completion of the offering, we expect that options to purchase shares of common stock will have been granted under our 2000 Equity Participation Plan. We intend to file a registration statement on Form S-8 under the Securities Act as soon as practicable to register shares of common stock reserved for issuance under that plan. This registration will permit the resale of these shares by nonaffiliates in the public market without restriction under the Securities Act, upon completion of the lock-up period described above. Shares registered under the Form S-8 registration statement held by affiliates will be subject to Rule 144 volume limitations.
In addition, holders of shares of our common stock have registration rights with respect to their shares. We have also agreed to file a registration statement, one year after the closing of the Combination, for the benefit of the shareholders of PTI who will receive exchangeable shares in the Combination. Registration of the shares of our common stock issuable on exchange of the exchangeable stock would enable these shares to be freely tradable without registration under the Securities Act, unless held by an affiliate. See "Related Party Transactions -- Registration Rights."
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of the material U.S. federal income and estate tax considerations with respect to the ownership and disposition of common stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder" is any beneficial owner of common stock other than
- a citizen or resident of the United States,
- a corporation, partnership or other entity created or organized in the United States or under the laws of the United States or of any state thereof,
- an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or
- a trust whose administration is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust.
This discussion is based on current provisions of the Internal Revenue Code, Treasury Regulations promulgated under the Internal Revenue Code, judicial opinions, published positions of the Internal Revenue Service, and all other applicable authorities, all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of income and estate taxation or any aspects of state, local, or non-U.S. taxes, nor does it consider any specific facts or circumstances that may apply to a particular Non-U.S. Holder that may be subject to special treatment under the U.S. federal tax laws, such as insurance companies, tax-exempt organizations, financial institutions, brokers, dealers in securities, and U.S. expatriates.
Prospective investors are urged to consult their tax advisors regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of acquiring, holding and disposing of shares of common stock.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to U.S.
withholding tax at a rate of 30% of the gross amount, or a lower rate prescribed
by an applicable income tax treaty, unless the dividends are effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States. Dividends that are effectively connected with such a U.S. trade
or business generally will not be subject to U.S. withholding tax if the
Non-U.S. Holder files the required forms, including Internal Revenue Service
Form 4224, Form W-8ECI, or any successor form, with the payor of the dividend,
and generally will be subject to U.S. federal income tax on a net income basis,
in the same manner as if the Non-U.S. Holder were a resident of the United
States. An applicable treaty may also require the dividends attributable to a
permanent establishment in the United States to be subject to United States tax
on a net income basis. A Non-U.S. Holder that is a corporation may be subject to
an additional branch profits tax at a rate of 30%, or such lower rate as may be
specified by an applicable income tax treaty, on the repatriation from the
United States of its "effectively connected earnings and profits," subject to
adjustments. To determine the applicability of a tax treaty providing for a
lower rate of withholding under the currently effective Treasury Regulations,
dividends paid to an address in a foreign country are presumed to be paid to a
resident of that country absent knowledge to the contrary. Under Treasury
Regulations (the "Final Regulations") generally effective for payments made
after December 31, 2000, however, a Non-U.S. Holder will be required to satisfy
certification requirements in order to claim a reduced rate of withholding under
an applicable income tax treaty. In addition, under the Final Regulations, in
the case of common stock held by a foreign partnership, the certification
requirement would generally be applied to the partners of the partnership
(unless the partnership agrees to become a "withholding foreign partnership")
and the partnership would be required to provide certain information. The Final
Regulations also provide "look-through" rules for tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of U.S. federal income tax withholding under a tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service.
GAIN ON SALE OR OTHER DISPOSITION OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of the holder's shares of common stock so long as:
- the gain is not effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States;
- if the Non-U.S. Holder is an individual, the Non-U.S. Holder holds shares of common stock as a capital asset, and either is not present in the United States for 183 days or more in the taxable year of disposition or does not have a "tax home" in the United States for U.S. federal income tax purposes and meets certain other requirements;
- the Non-U.S. Holder is not subject to tax under the provisions of the Internal Revenue Code regarding the taxation of U.S. expatriates; and
- we are not a United States real property holding corporation.
We believe that we are not currently a United States real property holding corporation, and we do not expect to become one in the future based on our anticipated business operations.
ESTATE TAX
Common stock owned or treated as owned by an individual who is not a citizen or resident, as defined for U.S. federal estate tax purposes, of the United States at the time of death will be includible in the individual's gross estate for U.S. federal estate tax purposes and therefore may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
We must report annually to the Internal Revenue Service and to each non-U.S. Holder the amount of dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the Non-U.S. Holder resides or is established.
Under current law, U.S. backup withholding tax (which generally is imposed at the rate of 31% on applicable payments to persons that fail to furnish the information required under the U.S. information reporting requirements) and information reporting requirements generally will not apply to dividends paid on common stock to a Non-U.S. Holder at an address outside the United States. Backup withholding and information reporting generally will apply, however, to dividends paid on common stock to a Non-U.S. Holder at an address in the United States if the holder fails to establish an exemption or to provide certification of its non-U.S. status and other required information to the payor.
Under current law, the payment of proceeds from the disposition of common stock to or through a U.S. office of a broker will be subject to information reporting and backup withholding, unless the beneficial owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Holder or otherwise establishes an exemption. The payment of proceeds from the disposition of common stock to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. In the case of proceeds from a disposition of common stock paid to or through a non-U.S. office of a broker that is
- a U.S. person,
- a "controlled foreign corporation" for U.S. federal income tax purposes, or
- a foreign person 50% or more of whose gross income from a specified period is effectively connected with a U.S. trade or business,
information reporting, but not backup withholding, will apply unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder and other conditions are satisfied, or the beneficial owner otherwise establishes an exemption, and the broker has no actual knowledge to the contrary.
Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of common stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless the recipient
satisfies the certification requirements of the Final Regulations by proving its
non-
U.S. status or otherwise establishes an exemption. Under the Final Regulations, the sale of common stock outside of the U.S. through a non-U.S. broker will also be subject to information reporting if the broker is a foreign partnership and at any time during its tax year:
- one or more of its partners are United States persons, as defined for U.S. federal income tax purposes, who in the aggregate hold more than 50% of the income or capital interests in the partnership, or
- the foreign partnership is engaged in a U.S. trade or business.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder can be refunded or credited against the Non-U.S. Holder's U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner.
Each prospective Non-U.S. Holder of common stock should consult that holder's own tax adviser with respect to the federal, state, local and foreign tax consequences of the acquisition, ownership and disposition of common stock.
UNDERWRITING
We intend to offer the shares in the U.S. and Canada through the U.S. underwriters and elsewhere through the international managers. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation and Simmons & Company International are acting as U.S. representatives of the U.S. underwriters named below. Subject to the terms and conditions described in a U.S. purchase agreement among us, the selling stockholders and the U.S. underwriters, and concurrently with the sale of shares to the international managers, we and the selling stockholders have agreed to sell to the U.S. underwriters, and each of the U.S. underwriters has agreed to purchase from us and the selling stockholders, the number of shares listed opposite its name below.
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Credit Suisse First Boston Corporation......................
Simmons & Company International.............................
--------
Total..........................................
========
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We and the selling stockholders have also entered into an international purchase agreement with the international managers for sale of the shares outside the U.S. and Canada for whom Merrill Lynch International, Credit Suisse First Boston (Europe) Limited and Simmons & Company International are acting as lead managers. Subject to the terms and conditions in the international purchase agreement, and concurrently with the sale of shares to the U.S. underwriters under the U.S. purchase agreement, we and the selling stockholders have agreed to sell to the international managers, and the international managers severally have agreed to purchase from us and the selling stockholders, an aggregate of shares in the offering. The initial public offering price per share and the total underwriting discount per share are identical under the U.S. purchase agreement and the international purchase agreement.
The U.S. underwriters and the international managers have agreed to purchase all of the shares sold under the U.S. and international purchase agreements if any of these shares are purchased. If an underwriter defaults, the U.S. and international purchase agreements provide that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreements may be terminated. The closings for the sale of shares to be purchased by the U.S. underwriters and the international managers are conditioned on one another.
We, some of our subsidiaries and the selling stockholders have agreed to indemnify the U.S. underwriters and the international managers against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the U.S. underwriters and international managers may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreements, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised us and the selling stockholders that the U.S. underwriters propose initially to offer the shares to the public at the initial public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. The U.S. underwriters may
allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After the initial public offering, the public offering price, concession and discount may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to Oil States and the selling stockholders. The information assumes either no exercise or full exercise by the U.S. underwriters and the international managers of their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price............................ $ $ $
Underwriting discount............................ $ $ $
Proceeds, before expenses, to Oil States......... $ $ $
Proceeds, before expenses, to the selling
stockholders................................... $ $ $
|
The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by Oil States.
OVER-ALLOTMENT OPTION
We have granted an option to the U.S. underwriters to purchase up to additional shares at the public offering price less the underwriting discount. The U.S. underwriters may exercise this option for 30 days from the date of this prospectus solely to cover any over-allotments. If the U.S. underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreements, to purchase a number of additional shares proportionate to that U.S. underwriter's initial amount reflected in the above table.
We have also granted an option to the international managers, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares to cover any over-allotments on terms similar to those granted to the U.S. underwriters.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an intersyndicate agreement that provides for the coordination of their activities. Under the intersyndicate agreement, the U.S. underwriters and the international managers may sell shares to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell shares will not offer to sell or sell shares to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, except in the case of transactions under the intersyndicate agreement. Similarly, the international managers and any dealer to whom they sell shares will not offer to sell or sell shares to U.S. persons or Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions under the intersyndicate agreement.
NO SALES OF SIMILAR SECURITIES
We, the selling stockholders, our executive officers and directors, current stockholders of Oil States and other stockholders receiving shares in the Combination have agreed, with exceptions, not to sell or transfer any common stock for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Specifically, we and these other individuals have agreed not to directly or indirectly:
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock, other than under our 2000 Equity Participation Plan,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the common stock, or
- enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
NEW YORK STOCK EXCHANGE LISTING
We intend to apply to list our common stock on the New York Stock Exchange under the symbol "OIS." In order to meet the requirements for listing on that exchange, the U.S. underwriters and the international managers have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us and the U.S. representatives and lead managers. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:
- the valuation multiples of publicly traded companies that the U.S. representatives and the lead managers believe to be comparable to us,
- our financial information,
- the history of, and the prospects for, our company and the industry in which we compete,
- an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues,
- the present state of our development, and
- the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the U.S. representatives may engage in transactions that stabilize the price of our common stock, such as bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the common stock in connection with the offering, i.e., if they sell more shares than are listed on the cover of this prospectus, the U.S. representatives may reduce that short position by purchasing shares in the open market. The U.S. representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. Purchases of the common stock to stabilize its price or to reduce a short position may cause the price of the common stock to be higher than it might be in the absence of such purchases.
The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriter's short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from
the underwriters and selling group members who sold those shares. The imposition of a penalty bid may also affect the price of the shares in that it discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters makes any representation that the U.S. representatives or the lead managers will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this prospectus will be passed on for us by Vinson & Elkins L.L.P., Houston, Texas. Certain legal matters relating to the common stock offered by this prospectus will be passed on for the underwriters by Baker Botts L.L.P., Houston, Texas.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of Sooner Inc. as of and for the year ended June 30, 1999 and Sooner Pipe & Supply Corporation as of July 2, 1998 and for the period from August 1, 1997 to July 2, 1998, as set forth in their reports. We have included the financial statements of Sooner Inc. and Sooner Pipe & Supply Corporation in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's reports, given upon their authority as experts in accounting and auditing.
The financial statements of Oil States Industries, Inc. as of December 31, 1998 and 1999 and for the three years in the period ended December 31, 1999 included in this prospectus have been audited by Arthur Andersen LLP, independent public accountants, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of HWC Energy Services, Inc., and subsidiaries as of December 31, 1999 and 1998 and for the two years then ended and the period from November 14, 1997 (inception) through December 31, 1997 included in this prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report dated July 14, 2000 and appearing on page F-78 with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report.
The financial statements of PTI Group Inc. as of December 31, 1998 and 1999 and for the two years in the period ended December 31, 1999 and the 358 days in the period ended December 31, 1997 included in this prospectus have been audited by PricewaterhouseCoopers LLP, independent chartered accountants in Canada, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act for the common stock being sold in this offering. This prospectus constitutes a part of that registration statement. This prospectus does not contain all of the information included in the registration statement and the exhibits and schedules to the registration statement because we have omitted some parts in
accordance with the rules and regulations of the SEC. For further information about us and the common stock being sold in this offering, you should refer to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus regarding the contents of any agreement, contract or other document referred to are not necessarily complete; we refer you in each instance to the copy of the contract or document filed as an exhibit to the registration statement. Each statement is qualified by reference to the exhibit. The registration statement, including related exhibits and schedules, may be inspected without charge at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any part of the registration statement may be obtained after payment of fees prescribed by the SEC.
You may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC. The address of the site is www.sec.gov.
We intend to furnish holders of our common stock with annual reports containing audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. We intend to furnish other reports as we may determine or as may be required by law.
INDEX TO FINANCIAL STATEMENTS
PRO FORMA
Oil States International, Inc.
Unaudited Pro Forma Combined Balance Sheet at March 31,
2000................................................... F-4
Unaudited Pro Forma Combined Statement of Operations for
the Three Months Ended March 31, 2000.................. F-6
Unaudited Pro Forma Combined Statement of Operations for
the Year Ended December 31, 1999....................... F-7
Unaudited Combined Statement of Operations for the Year
Ended December 31, 1998................................ F-8
Unaudited Combined Statement of Operations for the Year
Ended December 31, 1997................................ F-9
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-10
HISTORICAL
Oil States International, Inc. and subsidiaries (formerly
named CONEMSCO, Inc.)
Consolidated Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999.................................. F-14
Consolidated Statements of Operations for the Three Month
Periods Ended March 31, 2000 and 1999 (unaudited)...... F-15
Consolidated Statements of Comprehensive Loss for the
Three Month Periods Ended March 31, 2000 and 1999
(unaudited)............................................ F-16
Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 2000 and 1999 (unaudited)...... F-17
Notes to Unaudited Consolidated Financial Statements...... F-18
Report of Independent Public Accountants.................. F-23
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997....................... F-24
Consolidated Balance Sheets at December 31, 1999 and
1998................................................... F-25
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for the Years Ended
December 31, 1999, 1998 and 1997....................... F-26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997....................... F-27
Notes to Consolidated Financial Statements................ F-28
PTI Group Inc.
Auditors' Report.......................................... F-52
Consolidated Statements of Earnings for the Years Ended
December 31, 1999 and 1998, the 358 day period ended
December 31, 1997 and the Three Month Periods Ended
March 31, 2000 and 1999 (unaudited).................... F-53
Consolidated Balance Sheets at December 31, 1999 and 1998
and March 31, 2000 (unaudited)......................... F-54
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1999 and 1998, the 358 day
period ended December 31, 1997 and the Three Month
Period Ended March 31, 2000 (unaudited)................ F-55
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998, the 358 day period ended
December 31, 1997 and the Three Month Periods Ended
March 31, 2000 and 1999 (unaudited).................... F-56
Notes to Consolidated Financial Statements................ F-57
HWC Energy Services, Inc. and Subsidiaries
Consolidated Balance Sheet at March 31, 2000
(unaudited)............................................ F-72
Consolidated Statements of Operations for the Three Month
Periods Ended March 31, 2000 and 1999 (unaudited)...... F-73
|
Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2000 and 1999
(unaudited).......................................................................................... F-74
Notes to Unaudited Consolidated Financial Statements.................................................... F-75
Report of Independent Public Accountants................................................................ F-78
Consolidated Balance Sheets at December 31, 1999 and 1998............................................... F-79
Consolidated Statements of Operations for the Period from November 14, 1997 (Inception) through December
31, 1997 and each of the Years Ended December 31, 1998 and 1999...................................... F-80
Consolidated Statements of Stockholders' Equity for the Period from November 14, 1997 (Inception)
through December 31, 1997 and each of the Years Ended December 31, 1998 and 1999..................... F-81
Consolidated Statements of Cash Flows for the Period from November 14, 1997 (Inception) through December
31, 1997 and each of the Years Ended December 31, 1998 and 1999...................................... F-82
Notes to Consolidated Financial Statements.............................................................. F-83
Sooner Inc.
Report of Independent Auditors.......................................................................... F-96
Consolidated Balance Sheets at June 30, 1999 and March 31, 2000 (unaudited)............................. F-97
Consolidated Statements of Operations for the period from July 3, 1998 (Inception) through June 30, 1999
and the Three and Nine Month Periods Ended March 31, 2000 and 1999 (unaudited)....................... F-98
Consolidated Statements of Stockholders' Equity for the period from July 3, 1998 (Inception) through
June 30, 1999 and the Nine Month Period Ended March 31, 2000 (unaudited)............................. F-99
Consolidated Statements of Cash Flows for the period from July 3, 1998 (Inception) through June 30, 1999
and the Three and Nine Month Periods Ended March 31, 2000 and 1999 (unaudited)....................... F-100
Notes to Consolidated Financial Statements.............................................................. F-101
Sooner Pipe & Supply Co.
Report of Independent Auditors.......................................................................... F-112
Consolidated Balance Sheet at July 2, 1998.............................................................. F-113
Consolidated Statement of Operations for the period from August 1, 1997 through July 2, 1998............ F-114
Consolidated Statement of Stockholders' Equity for the period from August 1, 1997 through July 2,
1998................................................................................................. F-115
Consolidated Statement of Cash Flows for the period from August 1, 1997 through July 2, 1998............ F-116
Notes to Consolidated Financial Statements.............................................................. F-117
|
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following tables set forth certain unaudited pro forma combined financial information for our company giving effect to:
- the combination of Oil States International, Inc., HWC Energy Services, Inc. and PTI Group Inc. (the "Controlled Group") as entities under the common control of SCF-III L.P., based upon reorganization accounting ("as if" pooling of interest accounting) effective from the dates each of these entities became controlled by SCF-III;
- the conversion of the common stock held by the minority interests of each entity in the Controlled Group into shares of our common stock, based on the purchase method of accounting;
- the conversion of all of the outstanding common stock of Sooner Inc. into shares of our common stock, based on the purchase method of accounting; and
- our sale of shares of common stock (the "Offering") and the application of the net proceeds to us as described in "Use of Proceeds."
The unaudited pro forma combined balance sheet as of March 31, 2000 was prepared based upon the unaudited historical financial statements of the Controlled Group and gives effect to:
- our acquisition of minority interests of the Controlled Group;
- our acquisition of Sooner Inc.;
- the proposed three-for-one reverse stock split of Oil States common stock; and
- our sale of shares in the Offering,
as if these transactions had occurred on March 31, 2000. The unaudited pro forma combined statements of operations for the years ended December 31, 1997 and 1998 were prepared based upon the historical financial statements of the Controlled Group, adjusted to conform accounting policies. The unaudited pro forma combined statements of operations for the year ended December 31, 1999 and the three-month period ended March 31, 2000 were prepared based upon the historical financial statements of the Controlled Group, adjusted to conform accounting policies, and give effect to:
- our acquisition of minority interests of the Controlled Group;
- our acquisition of Sooner Inc.; and
- our sale of shares in the Offering,
as if these transactions had occurred on January 1, 1999 and 2000, respectively.
The pro forma adjustments represent management's preliminary determination of purchase accounting adjustments and are based upon available information and certain assumptions that management considers reasonable under the circumstances. Consequently, the amounts reflected in the unaudited combined financial information are subject to change. Management does not expect that differences between the preliminary and final purchase price allocation will have a material impact on the combined company's financial position or results of operations. In addition, the unaudited pro forma combined financial statements do not reflect any cost savings or other financial synergies which may be realized in the future as a result of these transactions.
The unaudited pro forma combined financial statements do not purport to be indicative of the results that would have been obtained had the transactions described above been completed on the indicated dates or that may be obtained in the future. The unaudited pro forma combined financial statements should be read in conjunction with the historical financial statements and notes thereto included elsewhere in this prospectus.
PRO FORMA COMBINED BALANCE SHEET
AT MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
HISTORICAL PRO FORMA HISTORICAL
------------------------------------------ ---------------------- -----------
OIL STATES PTI COMBINING
INTERNATIONAL, HWC ENERGY GROUP ADJUSTMENTS COMBINED
INC. SERVICES, INC. INC. (NOTE 1) GROUP SOONER INC.
-------------- -------------- -------- ----------- -------- -----------
Current assets
Cash and cash equivalents........ $ 1,697 $ 1,495 $ 476 $ $ 3,668 $ 1,184
Accounts receivable, net......... 38,236 13,383 34,263 85,882 21,104
Accrued interest receivable...... -- -- -- -- 2
Deferred taxes................... -- -- -- -- 802
Refundable income taxes.......... -- -- -- -- 24
Inventories...................... 30,051 -- 3,840 33,891 60,455
Prepaid expenses and other
current assets................. 1,572 1,892 359 3,823 1,019
-------- -------- -------- -------- -------- --------
Total current assets....... 71,556 16,770 38,938 -- 127,264 84,590
-------- -------- -------- -------- -------- --------
Accounts and notes receivable...... -- -- -- -- 2,694
Debt issuance costs, net of
accumulated amortization......... -- -- -- -- 97
Property plant and equipment,
net.............................. 41,367 52,528 50,524 144,419 5,170
Goodwill, net...................... 45,359 31,013 28,674 (253)(A) 104,793 13,229
Investments, at cost............... -- -- -- -- 2,204
Other long term assets............. 1,939 591 -- 253(A) 2,783 392
-------- -------- -------- -------- -------- --------
Total assets............... $160,221 $100,902 $118,136 $ -- $379,259 $108,376
======== ======== ======== ======== ======== ========
PRO FORMA
---------------------------------------------------------------
MINORITY COMBINED,
SOONER INC. INTEREST OFFERING ACQUISITIONS
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS AND
(NOTES 1(A) AND 2) (NOTE 3) (NOTE 4) OFFERING
------------------ ----------- ----------- -------------
Current assets
Cash and cash equivalents........ $ $ $ 763(A) $ 5,615
Accounts receivable, net......... 106,986
Accrued interest receivable...... 2
Deferred taxes................... 802
Refundable income taxes.......... 24
Inventories...................... 94,346
Prepaid expenses and other
current assets................. 4,842
-------- -------- -------- --------
Total current assets....... -- -- 763 212,617
-------- -------- -------- --------
Accounts and notes receivable...... 2,694
Debt issuance costs, net of
accumulated amortization......... (97) 0
Property plant and equipment,
net.............................. 31,000(A) 180,589
Goodwill, net...................... 138,800 68,700 325,522
Investments, at cost............... 2,204
Other long term assets............. 97 3,272
-------- -------- -------- --------
Total assets............... $138,800 $ 68,700 $ 31,763 $726,898
======== ======== ======== ========
|
PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED)
AT MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------------------------ ---------------------- ----------- -----------
OIL STATES PTI COMBINING SOONER INC.
INTERNATIONAL, HWC ENERGY GROUP ADJUSTMENTS COMBINED ADJUSTMENTS
INC. SERVICES, INC. INC. (NOTE 1) GROUP SOONER INC. (NOTE 2)
-------------- -------------- -------- ----------- -------- ----------- -----------
Current liabilities
Accounts payable and accrued
liabilities................. $ 48,747 $ 6,312 $ 11,076 $ $ 66,135 $ 32,034 $
Postretirement healthcare and
other benefits.............. 1,300 -- -- 1,300 --
Income taxes payable.......... -- 734 3,285 4,019 127
Current portion of long-term
debt........................ 4,424 7,651 19,264 31,339 1,156
Deferred income tax
liability................... -- -- 260 260 --
Other current liabilities..... -- 733 -- 733 --
-------- -------- -------- -------- -------- -------- --------
Total current
liabilities........... 54,471 15,430 33,885 -- 103,786 33,317 --
-------- -------- -------- -------- -------- -------- --------
Long term debt.................. 56,240 32,169 31,442 119,851 56,353
Deferred income taxes........... 698 11,289 9,631 21,618 --
Postretirement healthcare and
other benefits................ 7,777 -- -- 7,777 --
Other liabilities............... 4,413 119 -- 4,532 --
-------- -------- -------- -------- -------- -------- --------
Total liabilities....... 123,599 59,007 74,958 -- 257,564 89,670 --
-------- -------- -------- -------- -------- -------- --------
Minority interest............... 132 -- -- 26,454(B) 26,586 --
Redeemable preferred stock...... 20,150 5,061 -- 25,211 --
Stockholders' equity
Convertible preferred stock... 1,625 -- -- 1,625 --
Common stock.................. 224 37,925 21,789 59,938 -- 79
Additional paid-in capital.... 55,223 -- -- (23,536)(B) 31,687 23,676 138,721
Retained earnings (deficit)... (40,249) (1,112) 22,717 (2,918)(B) (21,562) (4,970)
Cumulative translation
adjustments................. (483) 21 (1,328) (1,790) --
Accumulated other
comprehensive loss.......... -- -- -- -- --
Treasury stock................ -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total stockholders'
equity................ 16,340 36,834 43,178 (26,454) 69,898 18,706 138,800
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity................ $160,221 $100,902 $118,136 $ -- $379,259 $108,376 $138,800
======== ======== ======== ======== ======== ======== ========
PRO FORMA
------------------------------------------
MINORITY COMBINED,
INTEREST OFFERING ACQUISITIONS
ADJUSTMENTS ADJUSTMENTS AND
(NOTE 3) (NOTE 4) OFFERING
----------- ----------- -------------
Current liabilities
Accounts payable and accrued
liabilities................. $ $ 375(AH) $ 98,544
Postretirement healthcare and
other benefits.............. 1,300
Income taxes payable.......... 4,146
Current portion of long-term
debt........................ (4,100)(A) 28,395
Deferred income tax
liability................... 260
Other current liabilities..... 733
-------- -------- --------
Total current
liabilities........... -- (3,725) 133,378
-------- -------- --------
Long term debt.................. (76,971)(A) 99,233
Deferred income taxes........... (11,289)(E) 10,329
Postretirement healthcare and
other benefits................ 7,777
Other liabilities............... 4,532
-------- -------- --------
Total liabilities....... -- (91,985) 255,249
-------- -------- --------
Minority interest............... (26,454) 132
Redeemable preferred stock...... (25,211)(AB) --
Stockholders' equity
Convertible preferred stock... (1,625)(A) --
Common stock.................. 48 (59,649)(ABG) 416
Additional paid-in capital.... 92,188 198,944 (ABHG) 485,216
Retained earnings (deficit)... 2,918 11,289(E) (12,325)
Cumulative translation
adjustments................. (1,790)
Accumulated other
comprehensive loss.......... --
Treasury stock................ --
-------- -------- --------
Total stockholders'
equity................ 95,154 148,959 471,517
-------- -------- --------
Total liabilities and
stockholders'
equity................ $ 68,700 $ 31,763 $726,898
======== ======== ========
|
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
HISTORICAL PRO FORMA HISTORICAL
--------------------------------------- ---------------------- -----------
HWC
OIL STATES ENERGY COMBINING
INTERNATIONAL, SERVICES, PTI ADJUSTMENTS COMBINED
INC. INC. GROUP INC. (NOTE 1) GROUP SOONER INC.
-------------- --------- ---------- ----------- -------- -----------
Revenue............................. $27,920 $17,380 $42,926 $ $88,226 $70,426
Expenses
Costs of sales.................... 22,050 10,258 27,866 (1,156)(A) 59,018 63,723
Selling, general and
administrative.................. 6,361 3,028 1,690 (592)(A) 10,487 2,350
Depreciation and amortization..... -- 1,849 1,591 1,748(A) 5,188
Other expense (income)............ (11) -- -- (11)
------- ------- ------- ------- ------- -------
Operating income (loss)............. (480) 2,245 11,779 -- 13,544 4,353
------- ------- ------- ------- ------- -------
Interest income..................... 49 21 -- 70 105
Interest expense.................... (1,192) (854) (801) (2,847) (1,101)
Other income (expense).............. -- 61 -- 61 --
------- ------- ------- ------- ------- -------
Earnings before income taxes...... (1,623) 1,473 10,978 -- 10,828 3,357
Income tax (expense) benefit........ 82 (649) (4,659) (5,226) --
------- ------- ------- ------- ------- -------
Net Income (loss) before minority
interests......................... (1,541) 824 6,319 -- 5,602 3,357
Minority interests.................. (7) -- -- (2,569)(C) (2,576) --
------- ------- ------- ------- ------- -------
Net income (loss)................... $(1,548) $ 824 $ 6,319 $(2,569) $ 3,026 $ 3,357
======= ======= ======= ======= ======= =======
Net income (loss) per common
share.............................
Basic.............................
Diluted...........................
Average shares outstanding..........
Basic.............................
Diluted...........................
PRO FORMA
-----------------------------------------------------------------
MINORITY
SOONER INC. INTEREST OFFERING COMBINED,
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ACQUISITIONS
(NOTES 1(C) AND 2) (NOTE 3) (NOTES 3 AND 4) AND OFFERING
------------------ ----------- --------------- ------------
Revenue............................. $ $ $ $158,652
Expenses
Costs of sales.................... 122,741
Selling, general and
administrative.................. (407) 236(D) 12,666
Depreciation and amortization..... 2,707 860 8,755
Other expense (income)............ (11)
------- ----- ------ --------
Operating income (loss)............. (2,300) (860) (236) 14,501
------- ----- ------ --------
Interest income..................... 175
Interest expense.................... 1,414(C) (2,534)
Other income (expense).............. 61
------- ----- ------ --------
Earnings before income taxes...... (2,300) (860) 1,178 12,203
Income tax (expense) benefit........ 1,270(I) (3,956)
------- ----- ------ --------
Net Income (loss) before minority
interests......................... (2,300) (860) 2,448 8,247
Minority interests.................. -- -- 2,569 (7)
------- ----- ------ --------
Net income (loss)................... $(2,300) $(860) $5,017 $ 8,240
======= ===== ====== ========
Net income (loss) per common
share............................. $
Basic.............................
Diluted...........................
Average shares outstanding..........
Basic.............................
Diluted...........................
|
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
(UNAUDITED)
HISTORICAL PRO FORMA
------------------------------------ ---------------------------------------------------
HWC GROUP
OIL STATES ENERGY PTI COMBINING ACQUISITION COMBINED
INTERNATIONAL, SERVICES, GROUP ADJUSTMENTS COMBINED ADJUSTMENTS GROUP WITH
INC. INC. INC. (NOTE 1) GROUP (NOTE 5) ACQUISITIONS
-------------- --------- ------- ----------- -------- ----------- ------------
Revenue.................... $154,330 $42,274 $70,506 $ $267,110 $8,296 $275,406
Expenses
Costs of sales........... 126,751 26,848 46,160 (4,937)(A) 194,822 4,639 199,461
Selling, general and
administrative......... 27,819 9,364 4,023 (2,539)(A) 38,667 222 38,889
Depreciation and
amortization........... -- 6,543 6,256 7,476(A) 20,275 809 21,084
Other expense (income)... 2,448 -- -- 2,448 -- 2,448
-------- ------- ------- ------- -------- ------ --------
Operating income (loss).... (2,688) (481) 14,067 -- 10,898 2,626 13,524
-------- ------- ------- ------- -------- ------ --------
Interest income............ 264 36 -- 300 300
Interest expense........... (7,077) (2,565) (3,154) (12,796) (410) (13,206)
Other income (expense)..... (1,309) 12 -- (1,297) (1,297)
-------- ------- ------- ------- -------- ------ --------
Earnings before income
taxes.................. (10,810) (2,998) 10,913 -- (2,895) 2,216 (679)
Income tax (expense)
Benefit.................. (1,145) 753 (4,262) (4,654) (753) (5,407)
-------- ------- ------- ------- -------- ------ --------
Net income (loss) before
minority interests....... (11,955) (2,245) 6,651 -- (7,549) 1,463 (6,086)
Minority interests......... (31) -- -- 532(C) 501 -- 501
-------- ------- ------- ------- -------- ------ --------
Net income (loss) from
continuing operations
attributable to common
shares................... $(11,986) $(2,245) $ 6,651 $ 532 $(7,048) $1,463 $ (5,585)
======== ======= ======= ======= ======== ====== ========
Net income (loss) per
common share
Basic....................
Diluted..................
Average shares outstanding
Basic....................
Diluted..................
HISTORICAL PRO FORMA
---------- ------------------------------------------------------------------------
SOONER INC. MINORITY COMBINED,
SOONER INC. ACQUISITION INTEREST OFFERING ACQUISITIONS
SOONER ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS AND
INC. (NOTE 2) (NOTE 6) (NOTE 3) (NOTES 3 AND 4) OFFERING
---------- ----------- ----------- ----------- --------------- ------------
Revenue.................... $159,256 $ $52,718 $ $ $487,380
Expenses
Costs of sales........... 148,847 52,301 400,609
Selling, general and
administrative......... 7,297 1,727 945(D) 48,858
Depreciation and
amortization........... 1,058 9,300 234 3,440 35,116
Other expense (income)... -- -- 2,448
-------- ------- ------- ------- ------- --------
Operating income (loss).... 2,054 (9,300) (1,544) (3,440) (945) 349
-------- ------- ------- ------- ------- --------
Interest income............ -- 300
Interest expense........... -- 5,388(C) (7,818)
Other income (expense)..... (3,636) (4,933)
-------- ------- ------- ------- ------- --------
Earnings before income
taxes.................. (1,582) (9,300) (1,544) (3,440) 4,443 (12,102)
Income tax (expense)
Benefit.................. (627) 540 9,814(I) 4,320
-------- ------- ------- ------- ------- --------
Net income (loss) before
minority interests....... (2,209) (9,300) (1,004) (3,440) 14,257 (7,782)
Minority interests......... -- -- -- -- (532) (31)
-------- ------- ------- ------- ------- --------
Net income (loss) from
continuing operations
attributable to common
shares................... $ (2,209) $(9,300) $(1,004) $(3,440) $13,725 $ (7,813)
======== ======= ======= ======= ======= ========
Net income (loss) per
common share
Basic.................... $
Diluted.................. $
Average shares outstanding
Basic....................
Diluted..................
|
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)
HISTORICAL PRO FORMA
-------------------------------------------- ----------------------
OIL STATES HWC COMBINING
INTERNATIONAL, ENERGY PTI ADJUSTMENTS
INC. SERVICES, INC. GROUP INC. (NOTE 1) COMBINED
-------------- -------------- ---------- ----------- --------
Revenue.............................. $229,984 $42,616 $86,434 $ -- $359,034
Expenses
Cost of sales...................... 180,203 27,885 58,030 (4,351)(A) 261,767
Selling, general &
administrative.................. 36,171 7,408 8,114 (3,388)(A) 48,305
Depreciation and amortization...... -- 4,650 5,812 7,739(A) 18,201
Other expense (income)............. (335) -- 5,263 -- 4,928
-------- ------- ------- ------- --------
Operating income..................... 13,945 2,673 9,215 -- 25,833
-------- ------- ------- ------- --------
Interest income...................... 323 235 -- -- 558
Interest expense..................... (9,616) (2,507) (3,736) -- (15,859)
Other (income) expense............... -- 115 -- -- 115
-------- ------- ------- ------- --------
Earnings before income tax......... 4,652 516 5,479 -- 10,647
Income tax expense................... (3,711) (550) (5,484) (9,745)
-------- ------- ------- ------- --------
Net income from continuing operations
before minority interest,
discontinued operations and
extraordinary loss................. 941 (34) (5) -- 902
Minority interest.................... (31) -- -- 3,019(C) 2,988
-------- ------- ------- ------- --------
Net income from continuing operations
before extraordinary loss.......... 910 (34) (5) 3,019 3,890
Income from discontinued
operations......................... 1,733 -- -- -- 1,733
Estimated loss on sales of
discontinued operations............ (22,099) -- -- -- (22,099)
-------- ------- ------- ------- --------
Net income before extraordinary
loss............................... (19,456) (34) (5) 3,019 (16,476)
Extraordinary loss on debt
restructuring...................... (617) -- -- -- (617)
-------- ------- ------- ------- --------
Net loss........................... (20,073) (34) (5) 3,019 (17,093)
Preferred dividends.................. -- -- -- -- --
-------- ------- ------- ------- --------
Net loss attributable to common
shares.......................... $(20,073) $ (34) $ (5) $ 3,019 $(17,093)
======== ======= ======= ======= ========
|
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
HISTORICAL PRO FORMA
-------------------------------------------- ----------------------
OIL STATES HWC COMBINED
INTERNATIONAL, ENERGY PTI ADJUSTMENTS
INC. SERVICES, INC. GROUP INC. (NOTE 1) COMBINED
-------------- -------------- ---------- ----------- --------
Revenue............................. $113,925 $7,459 $94,875 $ -- $216,259
Expenses
Cost of sales..................... 84,249 4,561 64,894 (2,692)(A) 151,012
Selling, general &
administrative................. 19,783 827 6,176 (3,068)(A) 23,718
Depreciation and amortization..... -- 304 2,909 5,760(A) 8,973
Other expense (income)............ (122) -- -- -- (122)
-------- ------ ------- ------- --------
Operating income.................... 10,015 1,767 20,896 -- 32,678
-------- ------ ------- ------- --------
Interest income..................... 120 12 -- -- 132
Interest expense on long-term
debt.............................. (6,628) (225) (1,989) -- (8,842)
Other (income) expense.............. -- (368) -- -- (368)
-------- ------ ------- ------- --------
Earnings before income taxes...... 3,507 1,186 18,907 -- 23,600
Income tax expense.................. (3,148) (642) (7,529) -- (11,319)
-------- ------ ------- ------- --------
Net income from continuing
operations before minority
interest and discontinued
operations........................ (359) 544 11,378 -- 12,281
Minority interest................... (1,099) -- -- (5,770)(C) (6,869)
-------- ------ ------- ------- --------
Net income from continuing
operations........................ (740) 544 11,378 (5,770) 5,412
Income from discontinued
operations........................ 9,386 -- -- -- 9,386
-------- ------ ------- ------- --------
Net income........................ 8,646 544 11,378 (5,770) 14,798
Preferred dividends................. -- -- -- -- --
-------- ------ ------- ------- --------
Net income attributable to common
shares......................... $ 8,646 $ 544 $11,378 $(5,770) $ 14,798
======== ====== ======= ======= ========
|
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The reorganization accounting method ("as if" pooling of interest method) has been used in the preparation of the unaudited pro forma combined financial statements to reflect the combination of entities in the Controlled Group. Under this method of accounting, the historical financial statements of HWC Energy Services, Inc. and PTI Group Inc. are combined with Oil States International, Inc. as of March 31, 2000, for each year in the three-year period ended December 31, 1999 and for the three-month period ended March 31, 2000, in each case from the date each became controlled by SCF-III, L.P. (November 14, 1997 for HWC and January 8, 1997 for PTI). The pro forma adjustments below include those necessary to conform accounting policies, as if these companies had been combined from the date of common control.
The purchase method of accounting has been used to reflect the acquisition of the minority interests of each company in the Controlled Group concurrent with the closing of the Offering. The purchase price is based on the fair value of the shares owned by the minority interests, estimated at the mid-range of the expected initial public offering price per share. Under this accounting method, the excess of the purchase price over the fair value of the assets and liabilities allocable to the minority interests acquired has been reflected as goodwill. The estimated fair values of assets and liabilities are preliminary and subject to change. For purposes of the pro forma combined financial statements, the goodwill recorded in connection with this transaction is being amortized over 20 years using the straight-line method based on management's evaluation of the nature and duration of customer relationships and considering competitive and technological developments in the industry. The unaudited pro forma combined balance sheet as of March 31, 2000 and statements of operations for the year ended December 31, 1999 and the three-month period ended March 31, 2000 have been adjusted for the effects of purchase accounting, as described below.
The purchase method of accounting also has been used to reflect the acquisition of the outstanding common stock of Sooner Inc. concurrent with the closing of the Offering. The purchase price is based on the fair value of the shares of Sooner Inc., estimated at the mid-range of the expected initial public offering price per share. The excess of the purchase price over the fair value of the assets and liabilities of Sooner Inc. has been reflected as goodwill. The estimated fair values of assets and liabilities are preliminary and subject to change. For purposes of the pro forma combined financial statements, the goodwill recorded in connection with this transaction is being amortized over 15 years using the straight-line method based on management's evaluation of the nature and duration of customer relationships and considering competitive and technological developments in the industry. The unaudited pro forma combined balance sheet as of March 31, 2000 and statements of operations for the year ended December 31, 1999 and the three-month period ended March 31, 2000 includes the unaudited historical financial statements of Sooner Inc., converted to a calendar year end and adjusted for the effects of purchase accounting, as presented below.
NOTE 1 -- COMBINING ADJUSTMENTS
(A) To reclassify Oil States International, Inc. debt issuance costs for purposes of the unaudited pro forma combined balance sheet and depreciation and amortization for purposes of the unaudited pro forma combined statement of operations to conform to the financial presentation of the Controlled Group.
(B) To record minority interest, as follows (in thousands):
OIL STATES HWC ENERGY
INTERNATIONAL, INC. SERVICES, INC. PTI GROUP INC. TOTAL
------------------- -------------- --------------- -------
Retained earnings................ $(5,447) $ (212) $ 8,577 $ 2,918
Additional paid-in capital....... 12,074 7,426 4,036 23,536
------- ------ ------- -------
$ 6,627 $7,214 $12,613 $26,454
======= ====== ======= =======
|
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(C) To reflect the minority interest in (income) loss and related tax effect of the Controlled Group for each of the periods presented below (in thousands):
OIL STATES HWC
INTERNATIONAL, ENERGY PTI GROUP
INC. SERVICES, INC. INC. TOTAL
-------------- -------------- --------- -------
Year Ended December 31, 1997............ $ (959) $ (82) $(4,729) $(5,770)
====== ===== ======= =======
Year Ended December 31, 1998............ $3,011 $ 6 $ 2 $ 3,019
====== ===== ======= =======
Year Ended December 31, 1999............ $2,910 $ 430 $(2,808) $ 532
====== ===== ======= =======
Three months ended March 31, 2000....... $ 241 $(142) $(2,668) $(2,569)
====== ===== ======= =======
|
NOTE 2 -- ACQUISITION OF SOONER INC.
To reflect the acquisition of all outstanding common shares of Sooner Inc. in exchange for Oil States International, Inc. Common Stock (in millions):
Purchase price.............................................. $
Less: Book value of net assets acquired.....................
------
Goodwill.................................................... $138.8
======
Amortization for the three month period ended March 31,
2000...................................................... $ 2.3
======
Amortization for the twelve month period ended December 31,
1999...................................................... $ 9.3
======
|
NOTE 3 -- ACQUISITION OF MINORITY INTERESTS
To reflect the acquisition of the minority interest of each company in the Controlled Group in exchange for shares of Oil States International, Inc. Common Stock and elimination of the historical amounts reflected for the combined group (in millions):
OIL STATES HWC
INTERNATIONAL, ENERGY PTI GROUP
INC. SERVICES, INC. INC. COMBINED
-------------- -------------- --------- --------
Fair value of the minority interests.... $29.2 $30.8 $35.1 $95.1
Minority interests' (book value)........ 6.6 7.2 12.6 26.4
----- ----- ----- -----
Additional goodwill..................... $22.6 $23.6 $22.5 $68.7
===== ===== ===== =====
Amortization of the additional goodwill
for the three month period ended March
31, 2000.............................. $ .28 $ .30 $ .28 $ .86
===== ===== ===== =====
Amortization of the additional goodwill
for the twelve month period ended
December 31, 1999..................... $1.13 $1.18 $1.13 $3.44
===== ===== ===== =====
|
NOTE 4 -- OFFERING
(A) To reflect the sale of shares of Oil States International, Inc. Common Stock in the Offering with anticipated net proceeds of $138 million. Net proceeds will be used to reduce outstanding subordinated debt by $81.1 million, redeem preferred stock of $21.8 million, repurchase common stock from non-accredited shareholders and certain shareholders holding pre-emptive stock purchase rights for $3.8 million and to make capital expenditures of $31.0 million.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(B) To reflect the conversion of $5.1 million of HWC preferred stock into Oil States International, Inc. Common Stock.
(C) To adjust interest expense for debt repaid with Offering proceeds.
(D) To adjust for costs associated with the new corporate office.
(E) To adjust deferred income tax liabilities for the impact of the Combination on the valuation allowance applied to net operating losses.
(F) To eliminate preferred stock dividends due to the elimination of the preferred stock (see B above).
(G) To adjust for the par value of $.01 of Oil States International, Inc. Common Stock.
(H) To record transaction costs associated with the Offering.
(I) To adjust the income tax expense for the elimination of deferred taxes due to the formation of the consolidated group.
NOTE 5 -- GROUP ACQUISITIONS
To reflect the following acquisitions as if such acquisitions had occurred on January 1, 1999.
On March 31, 1999 HWC Energy Services, Inc. acquired all of the outstanding stock of C&H Rental Tools, Inc., and C&H Specialty Company, Inc. (collectively, C&H). C&H provided rental equipment for drilling and workover operations in Louisiana and offshore in the Gulf of Mexico. We paid cash of approximately $2.4 million and $820,000 in principal amount of subordinated promissory notes. Funding for the transaction was received from the issuance of preferred stock.
On November 30, 1999 HWC Energy Services, Inc. acquired 12 snubbing units and related equipment from Schlumberger and Target. Consideration paid for the acquisitions included $3.7 million of cash and subordinated notes in aggregate principal amount of $4.5 million. Funding for the transactions was received from the issuance of preferred stock.
Details of the pro forma adjustments for HWC are as follows (in thousands):
SCHLUMBERGER LTD. TARGET C&H RENTALS, INC. TOTAL
----------------- ------ ----------------- ------
Revenue.............................. $6,025 $894 $1,377 $8,296
Expenses
Cost of sales...................... 3,324 528 787 4,639
Selling, general &
administrative.................. -- 222 -- 222
Other expense (income)............. --
Depreciation and amortization...... 530 158 121 809
------ ---- ------ ------
Operating income (loss).............. 2,171 (14) 469 2,626
------ ---- ------ ------
Interest expense..................... (341) (56) (13) (410)
------ ---- ------ ------
Earnings (loss) from continuing
operations before income
taxes........................... 1,830 (70) 456 2,216
Income tax (expense) benefit......... (622) 24 (155) (753)
------ ---- ------ ------
Income from continuing operations.... $1,208 $(46) $ 301 $1,463
====== ==== ====== ======
|
The Schlumberger and Target acquisitions consisted of asset purchases. The C&H acquisition was a stock purchase. The difference between the C&H purchase price and the fair market value of the assets and liabilities acquired was not material to the combined group.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SOONER INC. ACQUISITION ADJUSTMENT
To reflect the acquisitions by Sooner Inc. in May and June 1999 of the tubular product distribution businesses from Continental Emsco, Wilson Supply and National-Oilwell, Inc. Total consideration paid for these acquisitions was $36.6 million.
Details of the pro forma adjustments for Sooner Inc. are as follows (in thousands):
CONTINENTAL
EMSCO WILSON SUPPLY NATIONAL-OILWELL, INC. TOTAL
----------- ------------- ---------------------- -------
Revenue.......................... $11,639 $18,705 $22,374 $52,718
Expenses
Costs of sales................. 11,544 17,795 22,962 52,301
Selling, general &
administrative.............. 400 650 677 1,727
Depreciation and
amortization................ 68 83 83 234
------- ------- ------- -------
Operating income (loss).......... (373) 177 (1,348) (1,544)
Income tax (expense) benefit..... 131 (62) 472 540
------- ------- ------- -------
Net Income (loss).............. $ (242) $ 115 $ (876) $(1,004)
======= ======= ======= =======
|
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,697 $ 1,537
Accounts receivable, net.................................. 35,353 33,315
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 2,883 5,838
Inventories, net.......................................... 30,051 25,566
Prepaid expenses and other current assets................. 1,572 1,433
-------- --------
Total current assets.............................. 71,556 67,689
PROPERTY, PLANT, AND EQUIPMENT, net......................... 41,367 42,430
INTANGIBLE ASSETS, net...................................... 45,359 45,593
OTHER NONCURRENT ASSETS..................................... 1,939 2,006
-------- --------
Total assets...................................... $160,221 $157,718
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 11,902 $ 11,288
Accrued liabilities....................................... 30,695 32,291
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 6,150 5,359
Postretirement healthcare and other benefits.............. 1,300 1,300
Current portion of long-term debt and capital lease
obligations............................................ 4,424 2,963
-------- --------
Total current liabilities......................... 54,471 53,201
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 56,240 52,542
DEFERRED INCOME TAXES....................................... 698 704
OTHER LIABILITIES:
Postretirement healthcare and other benefits.............. 7,777 7,741
Other noncurrent liabilities.............................. 4,413 4,597
MINORITY INTEREST........................................... 132 225
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.................................. 20,150 20,150
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.0001 par value:
Class A, authorized and issued 16,250 shares, at
liquidation value of $100............................. 1,625 1,625
Common stock, $.01 par value:
Class A, authorized 30,000,000 shares, issued
27,154,672 shares at March 31, 2000 and 22,363,245
shares at December 31, 1999........................... 224 224
Class B, authorized 1,150,000 shares but none issued... -- --
Paid-in capital........................................... 55,223 55,550
Accumulated deficit....................................... (40,249) (38,701)
Cumulative translation adjustment......................... (483) (140)
-------- --------
Total stockholders' equity........................ 16,340 18,558
-------- --------
Total liabilities and stockholders' equity........ $160,221 $157,718
======== ========
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
REVENUES:
Product................................................... $20,572 $27,638
Service and other......................................... 7,348 10,864
------- -------
27,920 38,502
COST OF GOODS SOLD:
Product................................................... 15,676 22,075
Service and other......................................... 6,374 9,996
------- -------
22,050 32,071
------- -------
Gross profit...................................... 5,870 6,431
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES............... 6,361 7,182
OTHER INCOME................................................ (11) (33)
------- -------
Operating loss.................................... (480) (718)
INTEREST EXPENSE............................................ (1,192) (1,465)
INTEREST INCOME............................................. 49 56
------- -------
Loss before income taxes and minority interest.... (1,623) (2,127)
INCOME TAX BENEFIT (PROVISION).............................. 82 (112)
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES.... (7) (8)
------- -------
NET LOSS.................................................... $(1,548) $(2,247)
======= =======
NET LOSS PER SHARE -- BASIC AND DILUTED..................... $ (0.08) $ (0.12)
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING -- BASIC AND DILUTED.... 24,917 22,361
======= =======
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
NET LOSS.................................................... $(1,548) $(2,247)
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustment................... (343) (655)
------- -------
COMPREHENSIVE LOSS.......................................... $(1,891) $(2,902)
======= =======
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,548) $(2,247)
Adjustments to reconcile net loss from continuing
operations to net cash (used in) provided by operating
activities --
Minority interest in (income) loss of consolidated
subsidiaries, net of distributions.................... (93) 8
Depreciation and amortization.......................... 1,748 1,853
Provision for losses on receivables.................... 86 71
Gain on disposal of assets............................. (6) (7)
Other non-cash items................................... 11 --
Changes in operating assets and liabilities --
Accounts receivable.................................. (2,221) 10,217
Net change in billings, costs, and estimated earnings
on uncompleted contracts............................ 3,749 4,460
Inventories.......................................... (4,635) (6,057)
Accounts payable and accrued liabilities............. (978) 564
Prepaid expenses and other........................... 6 (3,570)
------- -------
Net cash (used in) provided by operating
activities...................................... (3,881) 5,292
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions, excluding capitalized lease assets.... (459) (794)
Other, net................................................ 75 6
------- -------
Net cash used in investing activities............. (384) (788)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank debt................................ 25,066 3,367
Payments on bank debt..................................... (19,751) (7,330)
Other debt payments....................................... -- (450)
Payments on capitalized lease obligations................. (100) (153)
Preferred stock dividends................................. -- (509)
Other, net................................................ (229) (17)
------- -------
Net cash provided by (used in) financing
activities...................................... 4,986 (5,092)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (25) (28)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM
CONTINUING OPERATIONS..................................... 696 (616)
NET CASH USED IN DISCONTINUED OPERATIONS.................... (536) (353)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,537 2,624
------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,697 $ 1,655
======= =======
|
The accompanying notes are an integral part of these consolidated condensed financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The consolidated condensed financial statements included herein are unaudited; however, they include all adjustments of a normal recurring nature, which, in the opinion of management, are necessary to present fairly the Consolidated Balance Sheet of Oil States International, Inc. (Oil States) and its wholly and majority-owned subsidiaries (collectively, the Company) at March 31, 2000, the Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999, the Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2000 and 1999, and the Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999. Although management believes that the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to the Company's organization and footnote disclosures normally included in annual audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 1999 and notes thereto. The results of operations and the cash flows for the three-month period ended March 31, 2000 are not necessarily indicative of the results to be expected for the entire year.
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts at March 31, 2000 and December 31, 1999, is presented below (in thousands):
2000 1999
------- -------
Accounts receivable --
Trade..................................................... $34,225 $31,832
Other..................................................... 2,850 3,142
Allowance for doubtful accounts........................... (1,722) (1,659)
------- -------
$35,353 $33,315
======= =======
|
2000 1999
------- -------
Inventories --
Raw materials............................................. $ 9,872 $ 9,498
Work in process........................................... 13,835 9,870
Finished goods and purchased products..................... 11,104 10,818
------- -------
Total inventories................................. 34,811 30,186
Inventory reserves.......................................... (4,760) (4,620)
------- -------
$30,051 $25,566
======= =======
|
3. LONG-TERM DEBT
On March 1, 2000, the Company entered into a new credit agreement (the 2000 Agreement) providing for borrowings totaling $25.9 million for US operations. From the proceeds of the initial borrowings, all US borrowings under the Company's prior credit facility were repaid. The 2000 Agreement provides for $4.9 million of term advances and up to $21.0 million of borrowings on a revolving basis to the Company. The 2000 Agreement provides for the issuance of letters of credit, such issuance reducing the amount available for borrowing under the revolving portion of the facility. At March 31, 2000, $12.0 million was available to borrow under the revolving portion of the 2000 Agreement. Revolving credit loans of $158,000 and term advances of $4.9 million were outstanding under this facility at March 31, 2000. There were also $3.8 million in letters of credit outstanding at March 31, 2000. The 2000 Agreement has a scheduled termination date of March 1, 2003. The term advances are payable in 59 monthly principal installments of $81,740 with the
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
remainder due March 1, 2003. Borrowings under the 2000 Agreement carry variable interest rates payable monthly based upon prime, or eurodollar rate plus 2.25%, for the revolving loans and prime plus 0.25%, or eurodollar rate plus 2.5%, for the term loans. The commitment fee on the unused portion of the revolving facility is 0.375% per annum. The 2000 Agreement is secured by substantially all of the Company's assets and contains customary representations and warranties and events of default. The 2000 Agreement also requires compliance with a number of affirmative, negative, and financial covenants, including a limitation on the incurrence of indebtedness and a requirement that the Company maintain a specified net worth.
On March 3, 2000, the Company entered into a new overdraft credit facility providing for borrowings totaling L5.0 million for UK operations, which converted to approximately $7.9 million. Revolving credit loans under this facility were $4.7 million at March 31, 2000. Interest is payable quarterly at a margin of 1.90% per annum over the bank's variable base rate. All borrowings under this facility are payable on demand. The UK facility is renewable with a scheduled review date of March 2, 2001. The Company intends to renew this facility at that time.
4. INCOME (LOSS) PER SHARE
In thousands, except per share amounts:
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
Net loss.................................................... $(1,548) $(2,247)
Less: Preferred stock dividends............................. (327) (327)
------- -------
Loss available to common shareholders....................... $(1,875) $(2,574)
======= =======
Net loss per share -- basic and diluted..................... $ (0.08) $ (0.12)
======= =======
Weighted average shares outstanding -- basic and diluted.... 24,917 22,361
======= =======
|
Basic loss per share amounts are based on the weighted average number of common shares outstanding during the period. Diluted income per share would include additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued, however no additional common shares were included in the calculation of diluted income per share as the effect of the outstanding securities was anti-dilutive. Excluded from the computation of diluted earnings per share are securities outstanding at March 31, 2000 and 1999 that could potentially dilute basic earnings per share of 1.2 million shares and 2.0 million shares of common stock, respectively.
The Company issued 1,072,828 shares of the Company's Class A common stock at a purchase price of $10 per share pursuant to offerings to its existing stockholders, on a pro-rata basis, in January and March 1998. Each stockholder that purchased stock pursuant to those offerings was to receive additional shares in the event that there was no initial public offering of the Company's stock in 1998 and an earnings-per-share threshold was not reached. The formula for determining the number of additional shares to be issued, which was based on the Company's 1998 earnings per share, could not be properly calculated due to the Company's negative earnings per share in 1998. As an alternative, in December 1999, the Board of Directors approved the issuance of four additional shares for each share purchased in connection with the January and March 1998 stock offerings. In addition, the stockholders that did not purchase stock pursuant to those offerings were offered the right to purchase a pro-rata portion of additional shares in accordance with their stock holdings at a share price of $2 per share plus a 12% annual interest factor taken into consideration from the time of those offerings. In February 2000, the Company issued 4,291,427 of additional shares related to those offerings. Those offerings are also subject to certain preemptive rights in favor of the holders of the Company's Series A
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
and Series B Exchangeable Preferred Stock to purchase Class A common stock at fair value. To date, no Class A common stock has been issued pursuant to those rights as they relate to the offerings in 1998. The Company does not expect that the amount of additional shares to be issued pursuant to such preemptive rights will be material to the Company's financial position.
Effective December 31, 1997, the Company acquired all options to purchase the common stock of CE Franklin Ltd. held by certain of its stockholders in exchange for 500,000 shares of its Class A common stock at an aggregate value of $2 million. The number of shares issued to these stockholders was to be increased in the event that there was no initial public offering of the Company's stock in 1998 and an earning-per-share threshold was not reached. The formula for determining the number of additional shares to be issued, which was based on the Company's 1998 earnings per share, could not be properly calculated due to the Company's negative earnings per share in 1998. As an alternative, the Company issued 500,000 additional shares to these stockholders in March 2000.
5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for the three months ended March 31, 2000 and 1999, for interest and income taxes was as follows (in thousands):
2000 1999
---- ------
Interest.................................................... $899 $2,773
Income taxes, net of refunds................................ 63 15
|
The following noncash transactions have been excluded from the consolidated statements of cash flows for the three months ended March 31, 2000 and 1999 (in thousands):
2000 1999
---- ----
Assets financed through capital lease obligations........... $17 $22
|
6. SEGMENT AND RELATED INFORMATION
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Company has identified the following reportable segments: Elastomer Products, Engineered and Industrial Products, Marine Construction, and Marine Winches. Elastomer Products manufactures well servicing and production components and provides elastomer molding. Engineered and Industrial Products provides technically advanced solutions for drilling, production, and structural projects including flex joints, Merlin connectors, and elastaflex clutches. Marine Construction provides products and services for fixed platform installation and decommissioning and pipeline construction including rotary selector valves and concrete mats. Marine Winches designs and manufactures deep water mooring systems for offshore drilling vessels, floating production systems and barges. They also design and refurbish a complete line of marine winches and other deck machinery for the offshore service boat industry. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit, and the management at the time of the acquisition was retained.
Financial information by industry segment for each of the three months ended March 31, 2000, and 1999, is summarized below in thousands. The Company evaluates performance and allocates resources based on EBITDA, which is calculated as operating income adding back depreciation and amortization. Calculations of EBITDA should not be viewed as a substitute to calculations under generally accepted accounting
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
principles, in particular operating income and net income. In addition, EBITDA calculations by one company may not be comparable to another company.
ENGINEERED CORPORATE
ELASTOMER AND INDUSTRIAL MARINE MARINE AND
PRODUCTS PRODUCTS CONSTRUCTION WINCHES ELIMINATIONS TOTAL
--------- -------------- ------------ ------- ------------ -------
2000
Revenues from unaffiliated
customers.................. $2,651 $12,548 $7,089 $ 5,632 $ -- $27,920
====== ======= ====== ======= ======= =======
EBITDA....................... 386 1,786 603 (247) (1,260) 1,268
Depreciation and
amortization............... (59) (530) (575) (435) (149) (1,748)
------ ------- ------ ------- ------- -------
Operating income (loss)...... 327 1,256 28 (682) (1,409) (480)
====== ======= ====== ======= ======= =======
Capital expenditures......... -- 93 209 147 10 459
====== ======= ====== ======= ======= =======
1999
Revenues from unaffiliated
customers.................. $2,027 $18,152 $8,482 $ 9,841 $ -- $38,502
====== ======= ====== ======= ======= =======
EBITDA....................... 248 3,371 92 (1,338) (1,238) 1,135
Depreciation and
amortization............... (60) (669) (647) (330) (147) (1,853)
------ ------- ------ ------- ------- -------
Operating income (loss)...... 188 2,702 (555) (1,668) (1,385) (718)
====== ======= ====== ======= ======= =======
Capital expenditures......... 26 184 512 34 38 794
====== ======= ====== ======= ======= =======
|
Financial information by geographic segment for each of the three months ended March 31, 2000 and 1999, is summarized below in thousands. Revenues in the US include export sales. Revenues are attributable to countries based on the location of the entity selling the products or performing the services.
UNITED UNITED
STATES KINGDOM SINGAPORE TOTAL
------- ------- --------- -------
Revenues from unaffiliated customers
2000.......................................... $20,518 $6,219 $1,183 $27,920
1999.......................................... 30,671 7,269 562 38,502
|
7. SUBSEQUENT EVENTS
On July 21, 2000, the Company obtained a waiver from the holder of the Series A Cumulative Preferred Stock totaling $14.4 million, extending the optional redemption date to the earlier of April 30, 2001 or upon the occurrence of a registered public offering of capital. On July 29, 2000 and July 31, 2000, the Company renegotiated terms with the holders of certain subordinated debt totaling $7.0 million and $7.0 million, respectively. Original maturities of the subordinated debt extending through February 2003 were accelerated to the earlier of April 30, 2001 or upon the occurrence of a registered public offering of capital stock, in exchange for the holders waiving their rights to scheduled maturities of principal and interest which were due prior to April 30, 2001. Additionally, scheduled principal payments on other long-term debt totaling $15.5 million become due during 2001.
Management's current projections indicate that there will not be sufficient cash flow from operations to fund these obligations. Management is currently developing a plan whereby the Company will be combined with other companies under common majority ownership, and the stock of the combined company would be sold in an initial public offering. The proceeds of the offering would be used, in part, to reduce the existing debt obligations. If management is unsuccessful in that effort, then management's plans would be to restructure its debt obligations as well as generate additional cash flow through asset sales.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
On July 31, 2000, the Company authorized the amendment of the provisions of its Series A Convertible Cumulative Preferred Stock to permit the Company to redeem such stock at any time upon three days' notice at its stated liquidation value of $100 per share, plus accrued dividends, and to provide that the Company must redeem such stock upon the earlier of the date that is six months from the completion of a registered public offering of the Company's capital stock or the date of the Company's first annual shareholders' meeting after such completion.
On July 31, 2000, the Company authorized and approved the terms and conditions of the Combination Agreement between the Company, HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner, Inc., Merger Sub-Sooner, Inc. and PTI Group Inc.
On July 31, 2000, the Company authorized the amendment of its Certificate of Incorporation to increase the total number of shares of capital stock it has the authority to issue to 225 million shares, consisting of 25 million shares of preferred stock, par value $0.0001 per share and 200 million shares of common stock, par value $0.01 per share, to cancel and retire its Class B Common Stock, none of which is currently outstanding, and to redesignate all of its Class A Common Stock as "Common Stock."
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Oil States International, Inc.:
We have audited the accompanying consolidated balance sheets of Oil States International, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of CE Franklin Ltd., a majority-owned subsidiary, which represented 6% and 5% of total consolidated assets in 1998 and 1997, respectively. CE Franklin Ltd. was sold on May 28, 1999, and was classified as discontinued operations prior to its sale. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for CE Franklin Ltd., is based solely on the report of other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
As discussed in Note 20, on July 21, 2000, the Company obtained a waiver from the holder of the Series A Cumulative Preferred Stock totaling $14.4 million, extending the optional redemption date to the earlier of April 30, 2001 or upon the occurrence of a registered public offering of capital stock. On July 29, 2000 and July 31, 2000, the Company renegotiated terms with the holders of certain subordinated debt totaling $7.0 million and $7.0 million, respectively. Original maturities of the subordinated debt extending through February 2003 were accelerated to the earlier of April 30, 2001 or upon the occurrence of a registered public offering of capital stock, in exchange for the holders waiving their rights to scheduled maturities of principal and interest which were due prior to April 30, 2001. Additionally, scheduled principal payments on other long-term debt totaling $15.5 million become due during 2001. Management's current projections indicate that there will not be sufficient cash flow from operations to fund these obligations. Management is currently developing a plan whereby the Company will be combined with other companies under common majority ownership, and the stock of the combined company would be sold in an initial public offering. The proceeds of the offering would be used, in part, to reduce the existing debt obligations. If management is unsuccessful in that effort, then management's plans would be to restructure its debt obligations as well as generate additional cash flow through asset sales.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Oil States International, Inc., and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas
July 31, 2000
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
-------- -------- -------
REVENUES:
Product................................................... $120,950 $177,264 $88,373
Service and other......................................... 33,380 52,720 25,552
-------- -------- -------
154,330 229,984 113,925
COST OF GOODS SOLD:
Product................................................... 101,340 144,115 68,291
Service and other......................................... 25,411 36,088 15,958
-------- -------- -------
126,751 180,203 84,249
-------- -------- -------
Gross profit...................................... 27,579 49,781 29,676
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES............... 27,819 36,171 19,783
OTHER EXPENSE (INCOME)...................................... 2,448 (335) (122)
-------- -------- -------
Operating (loss) income........................... (2,688) 13,945 10,015
INTEREST EXPENSE............................................ (7,077) (9,616) (6,628)
INTEREST INCOME............................................. 264 323 120
OTHER EXPENSE............................................... (1,309) -- --
-------- -------- -------
(Loss) income from continuing operations before
income taxes, minority interest, discontinued
operations, and extraordinary item.............. (10,810) 4,652 3,507
INCOME TAX PROVISION........................................ (1,145) (3,711) (3,148)
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES.... (31) (31) (1,099)
-------- -------- -------
(Loss) income from continuing operations before
discontinued operations and extraordinary
item............................................ (11,986) 910 (740)
DISCONTINUED OPERATIONS:
Income from discontinued operations (net of income tax
expense of $549 and $7,813 in 1998 and 1997)........... -- 1,733 9,386
Estimated and realized losses on sales of discontinued
operations including pretax provision of $12,977 in
1998 for operating losses during phaseout period (net
of income tax expense of $215 in 1999 and income tax
benefit of $115 in 1998)............................... (5,715) (22,099) --
EXTRAORDINARY LOSS ON DEBT RESTRUCTURING, net of income tax
benefit of $0 in 1999 and $75 in 1998..................... (927) (617) --
-------- -------- -------
NET (LOSS) INCOME........................................... $(18,628) $(20,073) $ 8,646
======== ======== =======
INCOME (LOSS) PER SHARE -- BASIC AND DILUTED:
Loss from continuing operations before discontinued
operations and extraordinary item...................... $ (0.59) $ (0.01) $ (0.11)
Discontinued operations................................... (0.26) (0.93) 0.53
Extraordinary item........................................ (0.04) (0.03) --
-------- -------- -------
Net (loss) income................................. $ (0.89) $ (0.97) $ 0.42
======== ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING -- BASIC AND DILUTED.... 22,362 22,056 17,808
======== ======== =======
|
The accompanying notes are an integral part of these consolidated financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,
-------------------
1999 1998
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,537 $ 2,624
Accounts receivable, net.................................. 33,315 48,291
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 5,838 735
Inventories, net.......................................... 25,566 36,353
Net assets of discontinued operations held for sale....... -- 129,539
Prepaid expenses and other current assets................. 1,433 3,861
-------- --------
Total current assets.............................. 67,689 221,403
PROPERTY, PLANT, AND EQUIPMENT, net......................... 42,430 50,476
INTANGIBLE ASSETS, net...................................... 45,593 47,401
OTHER NONCURRENT ASSETS..................................... 2,006 4,716
-------- --------
Total assets...................................... $157,718 $323,996
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 11,288 $ 26,027
Accrued liabilities....................................... 32,291 30,460
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 5,359 10,330
Postretirement healthcare and other benefits.............. 1,300 1,765
Current portion of long-term debt and capital lease
obligations............................................ 2,963 120,804
Income taxes payable...................................... -- 1,570
-------- --------
Total current liabilities......................... 53,201 190,956
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 52,542 59,040
DEFERRED INCOME TAXES....................................... 704 847
OTHER LIABILITIES:
Postretirement healthcare and other benefits.............. 7,741 7,903
Other noncurrent liabilities.............................. 4,597 4,851
MINORITY INTEREST........................................... 225 194
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.................................. 20,150 20,150
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.0001 par value:
Class A, authorized and issued 16,250 shares, at
liquidation value of $100............................. 1,625 1,625
Common stock, $.01 par value:
Class A, authorized 30,000,000 shares, issued
22,363,245 shares at December 31, 1999, and 22,361,350
shares at December 31, 1998........................... 224 224
Class B, authorized 1,150,000 shares but none issued... -- --
Paid-in capital........................................... 55,550 58,052
Accumulated deficit....................................... (38,701) (20,073)
Cumulative translation adjustment......................... (140) 385
Treasury stock, 23,422 Class A common shares at cost at
December 31, 1998...................................... -- (158)
-------- --------
Total stockholders' equity........................ 18,558 40,055
-------- --------
Total liabilities and stockholders' equity........ $157,718 $323,996
======== ========
|
The accompanying notes are an integral part of these consolidated financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
CUMULATIVE COMPREHENSIVE
PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY INCOME
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT STOCK (LOSS) TOTAL
--------- ------ -------- ----------- ----------- -------- ------------- --------
BALANCE, December 31, 1996...... $ -- $168 $ 36,958 $ (4,678) $ 521 $ -- $ 32,969
Net income.................... -- -- -- 8,646 -- -- $ 8,646
Currency translation
adjustment.................. -- -- -- -- (2,201) -- (2,201)
--------
Comprehensive income.......... $ 6,445 6,445
========
Issuance of shares............ 1,625 38 31,361 -- -- -- 33,024
Shares issued for CE Franklin
options..................... -- 5 2,995 (3,000) -- -- --
Preferred stock dividends..... -- -- (254) (968) -- -- (1,222)
------ ---- -------- -------- ------- ----- --------
BALANCE, December 31, 1997...... 1,625 211 71,060 -- (1,680) -- 71,216
Net loss...................... -- -- -- (20,073) -- -- $(20,073)
Currency translation
adjustment.................. -- -- -- -- 2,065 -- 2,065
--------
Comprehensive loss............ $(18,008) (18,008)
========
Issuance of shares............ -- 13 13,222 -- -- -- 13,235
Preferred stock dividends..... -- -- (1,230) -- -- -- (1,230)
Common stock dividend......... -- -- (25,000) -- -- -- (25,000)
Purchase of Class A common
stock held in treasury at
cost........................ -- -- -- -- -- (158) (158)
------ ---- -------- -------- ------- ----- --------
BALANCE, December 31, 1998...... 1,625 224 58,052 (20,073) 385 (158) 40,055
Net loss...................... -- -- -- (18,628) -- -- $(18,628)
Currency translation
adjustment.................. -- -- -- -- (525) -- (525)
--------
Comprehensive loss............ $(19,153) (19,153)
========
Issuance of shares from
treasury.................... -- -- (493) -- -- 789 296
Preferred stock dividends..... -- -- (1,308) -- -- -- (1,308)
Dividend in kind to
shareholder................. -- -- (701) -- -- -- (701)
Purchase of Class A common
stock held in treasury at
cost........................ -- -- -- -- -- (631) (631)
------ ---- -------- -------- ------- ----- --------
BALANCE, December 31, 1999...... $1,625 $224 $ 55,550 $(38,701) $ (140) $ -- $ 18,558
====== ==== ======== ======== ======= ===== ========
|
The accompanying notes are an integral part of these consolidated financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (18,628) $ (20,073) $ 8,646
Adjustments to reconcile net (loss) income from continuing
operations to net cash provided by (used in) operating
activities --
Minority interest in loss (income) of consolidated
subsidiaries, net of distributions..................... 31 (89) 1,099
Depreciation and amortization........................... 7,476 7,739 5,760
Provision for losses on receivables..................... 836 1,107 517
Deferred income tax (benefit) provision................. (143) (103) 388
Loss (gain) on disposal of assets....................... 2,457 (52) (38)
Net loss (income) from discontinued operations.......... 5,715 20,366 (9,386)
Loss on sale of other businesses........................ 975 -- --
Loss on sale of marketable securities................... 334 -- --
Extraordinary loss on debt restructuring................ 927 617 --
Other non-cash items.................................... 405 253 938
Changes in operating assets and liabilities, net of
effect from acquired and divested businesses --
Accounts receivable................................... 12,775 (20,058) (11,457)
Net change in billings, costs, and estimated earnings
on uncompleted contracts............................. (9,085) (10,575) 8,684
Inventories........................................... 9,576 (2,341) (10,578)
Accounts payable and accrued liabilities.............. (13,837) 6,709 16,824
Prepaid expenses and other............................ 1,789 (1,338) (7,370)
--------- --------- --------
Net cash provided by (used in) operating
activities.......................................... 1,603 (17,838) 4,027
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired.......... -- (8,514) (13,645)
Property additions, excluding capitalized lease assets.... (2,638) (18,124) (4,076)
Proceeds from sale of discontinued operations............. 102,439 -- --
Proceeds from sale of other businesses.................... 1,976 -- --
Proceeds from sale of marketable securities............... 24,408 -- --
Other, net................................................ 560 (303) 168
--------- --------- --------
Net cash provided by (used in) investing
activities.......................................... 126,745 (26,941) (17,553)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank debt................................ 31,559 240,829 51,328
Payments on bank debt..................................... (152,830) (202,779) (33,631)
Other debt (payments) borrowings, net..................... (450) (11,249) 24,721
Payments on capitalized lease obligations................. (505) (285) (1,227)
Preferred stock dividends................................. (1,568) (1,230) (1,222)
Issuance of common stock.................................. 46 13,235 18,225
Other, net................................................ (1,556) -- --
--------- --------- --------
Net cash (used in) provided by financing
activities.......................................... (125,304) 38,521 58,194
--------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 28 107 (171)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM
CONTINUING OPERATIONS..................................... 3,072 (6,151) 44,497
NET CASH USED IN DISCONTINUED OPERATIONS.................... (4,159) (3,142) (37,222)
CASH AND CASH EQUIVALENTS, beginning of year................ 2,624 11,917 4,642
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 1,537 $ 2,624 $ 11,917
========= ========= ========
|
The accompanying notes are an integral part of these consolidated financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Oil States International, Inc. (Oil States) and its wholly and majority-owned subsidiaries (collectively, the Company). On July 20, 2000, an amendment to the Certificate of Incorporation for CONEMSCO, Inc. was filed with the State of Delaware to change the corporate name from CONEMSCO, Inc. to Oil States International, Inc. Oil States' subsidiaries include CECO Holdings, Inc. (CECO) and CECO's wholly-owned subsidiaries: Oil States Industries, Inc. and its subsidiaries (collectively, OSI) and Continental Emsco Company and its subsidiaries (collectively, Continental Emsco). OSI's wholly-owned subsidiaries are Oil States MCS, Inc., Oil States HydroTech Systems, Inc., Oil States Subsea Ventures, Inc., Oil States Skagit SMATCO, Inc., Oil States Industries (UK) Limited (OSI-UK), Oil States Industries (Asia) Pte. Ltd., and Oil States Industries do Brasil Instalacoes Maritimas Ltda. OSI also owns a 60% interest in Elastomeric Actuators, Inc., a joint venture with a third party. OSI-UK's wholly-owned subsidiaries include Oil States MCS Limited (MCS Limited), and Oil States Klaper Limited. All significant intercompany accounts and transactions between the consolidated entities have been eliminated in the accompanying consolidated financial statements.
The Company's controlling stockholder is SCF-III, L.P. (SCF). SCF is a private equity investment partnership fund which specializes in the growth and development of established companies serving the energy industry. SCF's ultimate general partner is L.E. Simmons & Associates, Incorporated, based in Houston, Texas.
The Company is a leading designer and manufacturer of a diverse range of products for offshore platforms, subsea pipelines, and defense and general industrial applications. Major product lines include flexible bearings, advanced connectors, mooring systems, winches, services for installing and removing offshore platforms, downhole production equipment, and custom molded products. Sales are made primarily to major oil companies, large and small independent oil and gas companies, drilling contractors, and well service and workover operators.
During 1999, the Company sold all of the operating assets of CE Distribution Services, Inc. (CEDS), CE Drilling Products, Inc. (CE Drilling), CE Mobile Equipment, Inc. (CE Mobile), and its 51.8% investment in CE Franklin, Ltd. (CE Franklin). Accordingly, for the periods presented, the results of CEDS, CE Drilling, CE Mobile, and CE Franklin are shown as discontinued operations. Charges for the estimated and realized losses on sale of discontinued operations of $5.7 million and $22.1 million were recorded during 1999 and 1998, respectively (see Note 17). The 1998 charge of $22.1 million includes losses from operations of $13.0 million. During the year ended December 31, 1999, the Company sold two wholly-owned subsidiaries: H.O. Mohr Research and Engineering, Inc. (H.O. Mohr) and Oil States Martec Crane Services, Inc. (Martec).
During 1998, the Company completed acquisitions of Subsea Ventures, Inc.
(SVI), subsequently renamed Oil States Subsea Ventures, Inc., and Klaper (UK)
Limited (Klaper), subsequently renamed Oil States Klaper Limited. In addition,
all Class B common stock shares were exchanged, on a one-for-one basis, for
Class A common stock shares of the Company.
During 1997, the Company completed acquisitions of HydroTech Systems, Inc. (HydroTech) subsequently renamed Oil States HydroTech Systems, Inc. and SMATCO Industries, Inc. (SMATCO) subsequently renamed Oil States Skagit SMATCO, Inc. On December 22, 1997, the Company purchased from Huntfield Trust Limited (Huntfield) its 25 percent stock ownership in OSI, a subsidiary in which the Company already owned the remaining 75 percent. The Company issued 1.0 million shares of its Class A common stock to Huntfield in consideration for the OSI stock.
As discussed in Note 20, on July 21, 2000, the Company obtained a waiver from the holder of the Series A Cumulative Preferred Stock totaling $14.4 million, extending the optional redemption date to the
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earlier of April 30, 2001 or upon the occurrence of a registered public offering of capital stock. On July 29, 2000 and July 31, 2000, the Company renegotiated terms with the holders of certain subordinated debt totaling $7.0 million and $7.0 million, respectively. Original maturities of the subordinated debt extending through February 2003 were accelerated to the earlier of April 30, 2001 or upon the occurrence of a registered public offering of capital stock, in exchange for the holders waiving their rights to scheduled maturities of principal and interest which were due prior to April 30, 2001. Additionally, scheduled principal payments on other long-term debt totaling $15.5 million become due during 2001. Management's current projections indicate that there will not be sufficient cash flow from operations to fund these obligations. Management is currently developing a plan whereby the Company will be combined with other companies under common majority ownership, and the stock of the combined company would be sold in an initial public offering. The proceeds of the offering would be used, in part, to reduce the existing debt obligations. If management is unsuccessful in that effort, then management's plans would be to restructure its debt obligations as well as generate additional cash flow through asset sales.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, investments, receivables, payables, and debt instruments. The Company believes that the carrying values of these instruments on the accompanying consolidated balance sheets approximate their fair values.
Inventories
Inventories consist of oilfield products, manufactured equipment, and spare parts for manufactured equipment. Inventories include raw materials, work in process, finished goods, labor, and manufacturing overhead. Approximately 28% and 35% of inventories at December 31, 1999 and 1998, respectively, is valued at the lower of cost or market with cost determined by the last-in, first-out (LIFO) method. Cost for the remaining inventories is determined on an average cost or specific-identification method. If the LIFO method had not been used for certain inventories, total inventories would have been approximately $522,000 higher than reported at December 31, 1999 and 1998. During 1999, the Company experienced a reduction in inventories carried on a LIFO basis. The cost of these liquidated LIFO inventories did not differ from the current cost by a material amount.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of operations.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
Deferred financing costs are amortized on a straight-line basis over the lives of the respective credit agreements. Noncompete agreements are amortized on a straight-line basis over the lives of the respective agreements. Goodwill represents the excess of the purchase price for acquired businesses over the allocated value of the related net assets. Goodwill is amortized on a straight-line basis over a 40-year life.
Impairment of Long-Lived Assets
The Company's management periodically reviews the carrying values of property, plant and equipment, goodwill, and other intangible assets for impairment in light of historic and projected operating trends and profitability, new product development, and the strategic direction of the Company.
Foreign Currency
The functional currency for the Company's foreign subsidiaries is the local currency. The financial statements of foreign subsidiaries are translated into US dollars at current rates, except for sales, costs, and expenses, which are translated at average rates during each reporting period. The cumulative effects of translating the balance sheet accounts from the functional currency into the US dollar are included in cumulative translation adjustments in the accompanying Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss).
Revenue and Cost Recognition
Revenue from the sale of products is recognized upon shipment to the customer or when all significant risks of ownership have passed to the customer, except for significant fabrication projects built to customer specifications that have a production cycle greater than six months. Revenues from such contracts are recognized under the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract (cost-to-cost method). Management believes this method is the most appropriate measure of progress on large fabrication contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
Cost of goods sold includes all direct material and labor costs and those costs related to contract performance, such as indirect labor, supplies, tools, and repairs. Selling, general, and administrative costs are charged to expense as incurred.
The asset "Costs and estimated earnings in excess of billings on uncompleted contracts" represents revenues recognized in excess of amounts billed. The liability "Billings in excess of costs and estimated earnings on uncompleted contracts" represents customer billings in excess of revenues recognized.
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are recorded based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets or liabilities are recovered or settled. The Company's earnings from foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for US federal and state income taxes has been made for these earnings. Upon distribution of foreign subsidiary earnings in the form of dividends or otherwise, the Company would be subject to both US income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with SFAS No. 109, the Company records a valuation reserve in each reporting period when management believes that it is more likely than not that any deferred tax asset created will not be realized, due to historical and anticipated results of operations. Management will evaluate the appropriateness of the reserve in the future based upon the operating results of the Company.
Receivables and Concentration of Credit Risk
Based on the nature of its customer base, the Company does not believe that it has any significant concentrations of credit risk other than its concentration in the oil and gas industry. The Company performs periodic credit evaluations of its customers' financial condition and, generally, the Company does not require significant collateral from its domestic customers. However, export sales are generally collateralized by bank letters of credit. At December 31, 1999, one customer trade receivable accounted for 12.9% of the total trade receivable balance.
Reclassifications
Certain amounts in prior years' consolidated financial statements have been reclassified to conform with the current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of a few such estimates include the costs associated with the disposal of discontinued operations, including potential future adjustments as a result of contractual agreements, revenue and income recognized on the percentage-of-completion method, and the valuation allowance recorded on net deferred tax assets. Actual results could differ from those estimates.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133 -- "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137 -- "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- an amendment of FASB Statement No. 133," which defers the effective date of SFAS No. 133 for one year. In June 2000, the FASB issued SFAS No. 138 -- "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of FASB Statement No. 133," which amended SFAS 133. The Company must implement SFAS No. 133 and 138 for fiscal year 2000 and has not yet made a determination of their impact on the financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts at December 31, 1999 and 1998, is presented below:
1999 1998
------- -------
(IN THOUSANDS)
Accounts receivable --
Trade..................................................... $31,832 $48,303
Other..................................................... 3,142 1,231
Allowance for doubtful accounts........................... (1,659) (1,243)
------- -------
$33,315 $48,291
======= =======
|
Provision for losses on receivables was $836,000, $1.1 million, and $517,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
1999 1998
------- -------
(IN THOUSANDS)
Inventories --
Raw materials............................................. $ 9,498 $10,571
Work in process........................................... 9,870 16,176
Finished goods and purchased products..................... 10,818 14,160
------- -------
Total inventories................................. 30,186 40,907
Inventory reserves.......................................... (4,620) (4,554)
------- -------
$25,566 $36,353
======= =======
|
ESTIMATED
USEFUL LIFE 1999 1998
----------- -------- --------
(IN THOUSANDS)
Property, plant, and equipment --
Land and land improvements...................... 7-20 years $ 3,074 $ 3,003
Buildings and leasehold improvements............ 2-40 years 15,742 15,498
Machinery and equipment......................... 2-29 years 34,831 39,145
Computer and office equipment................... 1-10 years 4,466 4,119
Vehicles........................................ 2-5 years 1,352 1,373
-------- --------
Total property, plant, and equipment.... 59,465 63,138
Less -- Accumulated depreciation................ (17,035) (12,662)
-------- --------
$ 42,430 $ 50,476
======== ========
|
Depreciation expense was $6.0 million, $6.3 million, and $3.6 million for the years ended December 31, 1999, 1998, and 1997, respectively.
1999 1998
------- -------
(IN THOUSANDS)
Intangible assets --
Excess of costs over net assets of businesses acquired
(net of accumulated amortization of $2,857 and $1,706
at December 31, 1999 and 1998, respectively)........... $44,977 $46,064
Other identified intangibles (net of accumulated
amortization of $708 and $636 at December 31, 1999 and
1998, respectively).................................... 616 1,337
------- -------
$45,593 $47,401
======= =======
|
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other identified intangibles include deferred financing costs, covenants not to compete, and intellectual property. Amortization expense was $1.5 million, $1.4 million, and $2.2 million for the years ended December 31, 1999, 1998, and 1997, respectively. Amortization of the deferred financing costs of $405,000, $253,000, and $938,000 for the years ended December 31, 1999, 1998, and 1997, respectively, was included in interest expense.
1999 1998
------- -------
(IN THOUSANDS)
Accrued liabilities --
Accrued losses associated with discontinued operations.... $13,237 $ 9,237
Accrued payroll related costs............................. 3,900 4,271
Accrued insurance......................................... 3,372 3,859
Accrued interest.......................................... 3,187 2,949
Warranty reserve.......................................... 2,206 1,689
Other..................................................... 6,389 8,455
------- -------
$32,291 $30,460
======= =======
|
The accrued losses associated with discontinued operations primarily includes accruals for purchase price adjustments and outstanding claims. Subsequent to December 31, 1999, approximately $8.7 million has been paid for purchase price adjustments (see Note 17).
4. ACQUISITIONS AND DISPOSITIONS
Acquisitions
On July 15, 1997, the Company acquired 100% of the stock of HydroTech located in Houston, Texas, for consideration totaling $11.6 million in cash and preferred stock. HydroTech is a full-service provider of engineered products to the offshore pipeline industry. HydroTech designs, manufactures, tests, and installs many of its products for its customers. The HydroTech acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values with the balance of the purchase price, $7.1 million, included in intangibles. During 1998, the Company repurchased certain preferred stock under the terms of the acquisition agreement, which reduced the total consideration paid by $2.5 million (see Note 9).
On July 31, 1997, the Company acquired 100% of the stock of SMATCO located in Houma, Louisiana, for consideration totaling $16.7 million comprised of cash, notes payable and convertible preferred stock. SMATCO designs and manufactures a complete line of marine winches for the offshore service boat industry. The SMATCO purchase was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values with the balance of the purchase price, $15.2 million, included in intangibles.
On February 27, 1998, the Company acquired 100% of the stock of SVI for consideration totaling $12.5 million in cash, debt, and common stock. SVI is a Houston, Texas-based company that manufactures and services auxiliary structures for subsea blowout preventors and subsea production systems. The SVI purchase was accounted for using the purchase method of accounting. Accordingly, the purchase price paid was allocated to the net assets acquired based on their estimated fair values with the balance of the purchase price, $8.4 million, included in intangibles.
On April 1, 1998, the Company acquired certain assets and liabilities of
Klaper, a company located in the United Kingdom (UK), for a purchase price of
$5.7 million. Klaper provides repair and maintenance services for blowout
preventors and drilling risers used in offshore marine drilling. The Klaper
purchase was
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values with the balance of the purchase price, $2.8 million, included in intangibles.
The following unaudited pro forma supplemental information presents consolidated results of operations as if the Company's prior year acquisitions had occurred on January 1, 1997 (in thousands, except per share amounts):
1998 1997
-------- --------
Sales....................................................... $233,880 $156,167
Income (loss) from continuing operations.................... 816 (1,853)
Income (loss) per share -- basic and diluted................ (0.02) (0.17)
|
Dispositions
On April 30, 1999, the Company sold the stock of H.O. Mohr for $1.7 million in cash. The transaction resulted in a gain on sale of $160,000.
On July 1, 1999, the Company sold all the operating assets of Martec for $100,000 in cash and $726,000 in notes receivable. The Company collected $180,000 and reserved the remaining balance of the notes as it appears that full collectibility is doubtful. The transaction resulted in a loss on sale of $1.1 million.
See Note 17 related to the disposition of businesses reported as discontinued operations.
5. LONG-TERM DEBT
As of December 31, 1999 and 1998, long-term debt consisted of the following (in thousands):
1999 1998
------- ---------
US revolving credit facilities, weighted average rate of
7.9% and 6.9% for 1999 and 1998, respectively............. $ -- $ 87,000
US term loans, weighted average rate of 7.3% and 8.4% for
1999 and 1998, respectively............................... -- 30,800
UK revolving credit facilities, weighted average rate of
7.9% and 8.8% for 1999 and 1998, respectively............. 4,539 3,254
UK term loans, weighted average rate of 7.6% and 9.2% for
1999 and 1998, respectively............................... -- 4,341
Subordinated debt........................................... 14,000 16,404
Subordinated note payable to shareholders................... 25,000 25,000
Subordinated note payable to Hunting........................ 10,949 10,949
Other debt.................................................. 100 721
------- ---------
Total debt........................................ 54,588 178,469
Less- Current maturities.................................... (2,600) (120,217)
------- ---------
Total long-term debt.............................. $51,988 $ 58,252
======= =========
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Bank Debt
On March 31, 1998, the Company entered into a new credit agreement (the 1998 Agreement) with a consortium of lenders providing for borrowings totaling $175.0 million. The 1998 Agreement provided for $35.0 million of term advances and up to $120.0 million of borrowings on a revolving basis to the Company. The 1998 Agreement also provided for $5.0 million of term advances and up to $15.0 million of borrowings on a revolving basis to UK operations. The loans to UK operations are denominated and payable in British
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pounds. The 1998 Agreement provided for the issuance of letters of credit, such issuance reducing the amount available for borrowing under the revolving portion of the credit facility. The 1998 Agreement also contained several additional options to borrow funds for temporary cash management purposes. The 1998 Agreement had a scheduled termination date of June 30, 2000.
The term advances under the 1998 Agreement contained required repayments of $1.6 million per calendar quarter, beginning on June 30, 1998. Borrowings under the 1998 Agreement carried variable interest rates based upon prime, eurodollar, or sterling rates plus a spread based upon the Company's senior debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio. The commitment fee on the unused portion of the facility was 0.375% at December 31, 1999, and was subject to change based upon the Company's senior debt to EBITDA ratio. Borrowings under the 1998 Agreement were secured by a security interest in substantially all accounts receivable and inventory of the Company in the US and the UK and a pledge of the stock of certain subsidiaries. Among other requirements, the Company was required to maintain certain financial ratios and meet certain net worth and indebtedness tests.
In 1999, the Company and the banks party thereto entered into three separate amendments (the 1999 Amendments) to the 1998 Agreement. The 1999 Amendments resulted in, but were not limited to, the following actions. The banks agreed to forbear from exercising any of their rights as a result of the Company's failure to achieve certain covenants through March 31, 2000. The scheduled termination date of the 1998 Agreement was also changed to March 31, 2000. The interest rate was increased to the bank base rate plus 0.5%. The lending commitments were incrementally reduced to $15.0 million of borrowings on a revolving basis to US operations and $10.0 million of borrowings to UK operations. Substantially all of the Company's fixed assets were pledged as additional security for the borrowings. The divestiture transactions discussed in Note 15 were approved and guidelines were established for payment of debt with the proceeds of the divestitures and the sales of the marketable securities. As a result of the divestitures and sales of the marketable securities, all of the Company's US borrowings and the UK term borrowings under the 1998 Agreement were paid in full by September 1999.
On March 1, 2000, the Company entered into a new credit agreement (the 2000 Agreement) providing for borrowings totaling $25.9 million for US operations. From the proceeds of the initial borrowings, all US borrowings during 2000 under the 1998 Agreement described above were repaid on March 1, 2000. The 2000 Agreement provides for $4.9 million of term advances and up to $21.0 million of borrowings on a revolving basis to the Company. The 2000 Agreement provides for the issuance of letters of credit, such issuance reducing the amount available for borrowing under the revolving portion of the facility. On March 1, 2000, $12.4 million was available to borrow under the revolving portion of the 2000 Agreement. The 2000 Agreement has a scheduled termination date of March 1, 2003. The term advances are payable in 59 monthly principal installments of $81,740 with the remainder due March 1, 2003. Borrowings under the 2000 Agreement carry variable interest rates payable monthly based upon prime, or eurodollar rate plus 2.25%, for the revolving loans and prime plus 0.25%, or eurodollar rate plus 2.5%, for the term loans. The commitment fee on the unused portion of the revolving facility is 0.375% per annum. The 2000 Agreement is secured by substantially all of the Company's assets and contains customary representations and warranties and events of default. The 2000 Agreement also requires compliance with a number of affirmative, negative, and financial covenants, including a limitation on the incurrence of indebtedness and a requirement that the Company maintain a specified net worth.
On March 3, 2000, the Company entered into a new overdraft credit facility providing for borrowings totaling L5.0 million for UK operations, which converted to approximately $7.9 million. Interest is payable quarterly at a margin of 1.90% per annum over the bank's variable base rate. All borrowings under this facility are payable on demand. The UK facility is renewable with a scheduled review date of March 2, 2001. The Company intends to renew this facility at that time.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In conjunction with executing the 1998 Agreement on March 31, 1998, the Company recognized an extraordinary charge, net of tax benefit, of $617,000. In conjunction with executing the 1999 Amendments during the year, the Company recognized an extraordinary charge of $927,000. These extraordinary charges are due to the write-off of deferred financing costs related to the Company's credit facilities.
Subordinated and Other Affiliated Debt
The Company has subordinated notes payable to Hunting Oilfield Services (International), Ltd. (Hunting), a related party of the Company, totaling $10.9 million. $10.4 million is due on May 17, 2001, and the remaining $500,000 is due September 30, 2001. These notes carry an interest rate of 7.75% in 1998, 8.25% in 1999, and 8.50% thereafter. Accrued interest is payable on March 31 of each year; however, interest payments are only required to be made if certain cumulative EBITDA thresholds are met. The Company did not meet EBITDA thresholds for 1999. As of December 31, 1999, interest of $903,000 had been accrued but not paid. Interest does not accrue on any accrued interest that is not payable due to the failure to meet any EBITDA threshold. All unpaid accrued interest will be payable on the maturity date of the notes.
On July 31, 1997, the Company issued subordinated promissory notes totaling $7.0 million payable to the stockholders of an acquired company. Principal on these notes is payable in the amounts of $2.0 million on July 31, 2000, $2.0 million on July 31, 2001, and $3.0 million on July 31, 2002. These notes carry an interest rate of 8.0% with interest payable on July 31 of each year, beginning July 31, 1998. If the Company is in default under any of its senior debt, the noteholders may not receive any principal or interest payments for 180 days following the default or event of default. See Note 20.
On February 28, 1998, the Company issued subordinated promissory notes totaling $7.5 million payable to former SVI stockholders in conjunction with the SVI acquisition. Principal on these notes is payable in the amounts of $500,000 on August 31, 2000, $500,000 on February 28, 2001, $1.5 million on August 31, 2001, $1.5 million on February 28, 2002, $1.5 million on August 31, 2002, and $1.5 million on February 28, 2003. Payments of $450,000 have been made as of December 31, 1999. These notes carry an interest rate of 8.0% with interest payable on the last day of February 1999 and 2000, and on each payment date thereafter. If the Company is in default under any of its senior debt, the noteholders may not receive any principal or interest payments for 180 days following the default or event of default. See Note 20.
On July 31, 1998, the Company issued a subordinated promissory note payable in the amount of $2.0 million to Sooner Pipe & Supply Corporation (Sooner), a subsidiary of SCF under common control with the Company, in conjunction with an acquisition of assets. Principal and accrued interest is payable on this note in two installments of $1.0 million plus accrued interest at 6.0% on July 31, 1999 and 2000. During 1999, this note was canceled in conjunction with the sale of certain assets to Sooner (see Notes 15 and 17).
On December 31, 1998, the Company declared a dividend in the form of a subordinated note payable to SCF-III, L.P., acting as agent for all of the common stockholders of the Company, in the amount of $25.0 million. Principal and accrued interest at 6.0% are due on December 31, 2005 (see Note 15).
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled maturities of long-term debt (other than capitalized lease obligations) as of December 31, 1999, are as follows (in thousands):
YEAR ENDING DECEMBER 31,
------------------------
2000...................................................... $ 2,600
2001...................................................... 19,488
2002...................................................... 6,000
2003...................................................... 1,500
2004...................................................... --
Thereafter................................................ 25,000
-------
$54,588
=======
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6. CAPITALIZED AND OPERATING LEASE OBLIGATIONS
The Company leases certain equipment, office space, computer equipment, automobiles, and trucks under leases which expire at various dates.
Minimum future lease obligations in effect at December 31, 1999, are as follows (in thousands):
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
2000........................................................ $ 363 $ 2,333
2001........................................................ 387 1,843
2002........................................................ 134 1,083
2003........................................................ 30 806
2004........................................................ 3 774
Thereafter.................................................. -- 4,460
----- -------
Total..................................................... 917 $11,299
===== =======
Less -- Current portion........................... (363)
-----
Noncurrent liability...................................... $ 554
=====
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Rental expense under operating leases was $2.5 million, $2.1 million, and $3.7 million for the years ended December 31, 1999, 1998, and 1997, respectively. Amortization of assets under capital lease is included in depreciation expense (see Note 3).
7. POSTRETIREMENT HEALTHCARE AND OTHER INSURANCE BENEFITS
The Company provides healthcare and other insurance benefits, primarily life, for certain active and retired employees. The healthcare plans are contributory and contain other cost-sharing features such as deductibles, lifetime maximums, and co-payment requirements. The following tables are in thousands.
1999 1998
------- -------
Changes in accumulated postretirement benefit obligation --
Benefit obligation at beginning of year................... $ 9,663 $10,644
Service cost, benefits earned during the period........... 24 27
Interest cost on accumulated postretirement benefit
obligation............................................. 615 690
Benefits paid............................................. (1,271) (1,698)
Prior service cost........................................ 942 --
------- -------
Benefit obligation at end of year......................... $ 9,973 $ 9,663
======= =======
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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 1997
---- ---- ----
Components of net periodic benefit cost --
Service cost, benefits earned during the period........... $ 24 $ 27 $ 38
Interest cost on accumulated postretirement benefit
obligation............................................. 615 690 752
Amortization of net gain.................................. -- (43) --
Amortization of prior service cost........................ 10 -- --
---- ---- ----
Total net periodic benefit cost........................... $649 $674 $790
==== ==== ====
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1999 1998
------- -------
Accumulated postretirement benefit obligation --
Retirees and dependent spouses............................ $ 9,159 $ 8,503
Fully eligible active plan participants................... 814 339
Other active plan participants............................ -- 821
------- -------
Total accumulated postretirement benefit obligation....... 9,973 9,663
Unrecognized prior service cost........................... (932) --
Unrecognized net gain..................................... -- 5
------- -------
Total liability included in the consolidated
balance sheets................................. 9,041 9,668
Less -- Current portion..................................... (1,300) (1,765)
------- -------
Noncurrent liability.............................. $ 7,741 $ 7,903
======= =======
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The healthcare plans are not funded, and the Company's policy is to pay these benefits as they are incurred.
The accumulated benefit obligation was determined under an actuarial assumption using a healthcare cost trend rate of 7.00% in 1999, gradually declining to 5.50% in the year 2001 and thereafter over the projected payout period of the benefits. The accumulated benefit obligations were determined using an assumed discount rate of 7.75% and 7.00% at December 31, 1999 and 1998, respectively. Under the plan's provisions, the Company's prescription costs are capped at annual benefit limits. Retirees are assumed to pay the portion of future prescription costs above the capped limit.
A one-percentage-point increase or decrease in the assumed healthcare cost trend rates would result in an increase of $203,000 and a decrease of $250,000, respectively, to the accumulated postretirement benefit obligation at December 31, 1999. The effect of such a change would be immaterial to net periodic benefit cost.
8. RETIREMENT PLANS
The Company sponsors a number of defined contribution plans. Participation in these plans is available to substantially all employees.
US employees of the Company participate in the CE Retirement Savings Plan (the Savings Plan). Employees are eligible to participate in the Savings Plan following their dates of hire. Additionally, under the terms of the Savings Plan, the Company contributes 2% of the employees' base pay as well as matching 100% of the first 2% and 25% of the next 4% of the employees' pretax contributions. Employees may also receive an additional discretionary profit-sharing contribution of up to an additional 75% of pretax contributions between 3% and 6% of pay, depending upon financial performance.
Employees of OSI-UK and MCS Limited participate in the Oil States Industries (UK) Limited Retirement Plan. Under the terms of this defined contribution plan, the Company contributes between 5% to 10% of each employee's base salary and may contribute an additional discretionary amount between 3% to 6%
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of each employee's base salary dependent upon OSI-UK and MCS Limited meeting certain performance targets. The percentage of Company contributions which an employee receives is based on the employee's salary level within certain salary ranges.
Employees of Oil States Klaper Limited may contribute to a personal pension arrangement. The Company may contribute an amount at their discretion. Since the acquisition of Oil States Klaper Limited in 1998, the Company has contributed between 2% to 4% of each employee's base salary.
The Company recognized expense of $1.9 million, $1.7 million, and $1.4 million related to its various defined contribution plans during the years ended December 31, 1999, 1998, and 1997, respectively.
9. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock outstanding as of December 31, 1999 and 1998, is as follows (dollar amounts in thousands):
SHARES
OUTSTANDING 1999 1998
----------- ------- -------
Series A Cumulative Preferred Stock................... 143,000 $14,300 $14,300
Series A Exchangeable Cumulative Preferred Stock...... 20,000 2,000 2,000
Series B Exchangeable Cumulative Preferred Stock...... 38,500 3,850 3,850
------- -------
$20,150 $20,150
======= =======
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Series A Cumulative Preferred Stock
As of December 31, 1999 and 1998, the Company had 143,000 shares of Series A Cumulative Preferred Stock (Series A Preferred Stock), issued and outstanding with a par value of $100 per share. The stock was issued to LTV Corporation (LTV) in conjunction with the acquisition of the Company in 1995. Holders of the Series A Preferred Stock are entitled to cumulative quarterly dividends which commenced on September 15, 1995, at the annual rate of 7.0% ($7.00 per share). As of December 31, 1999, dividends of $42,000 had been accrued but not paid. This amount is reported on the balance sheet as an accrued liability. The holders of Series A Preferred Stock are not entitled to vote, except in certain circumstances. The holders (voting separately as a class) are entitled to elect additional directors of the Company if, at any time, dividends of the Company are in arrears in an amount equal to six quarterly dividends. The Company or the holders of the Series A Preferred Stock may, at either party's option, redeem all or any part of the Series A Preferred Stock, at $100 per share (plus accrued and unpaid dividends) commencing September 15, 2000. (See Note 20). On September 15, 2005, the Company is required to redeem all of the then outstanding Series A Preferred Stock at $100 per share (plus accrued and unpaid dividends). In the event of involuntary liquidation, the holders of the Series A Preferred Stock would be entitled, after the payment of all debts, to $100 per share, plus accrued and unpaid dividends, before any distribution or payments to the common stockholders. If, upon liquidation, the remaining assets of the Company are insufficient to pay the holders of the Series A Preferred Stock the full amount to which they are entitled, the holders shall share ratably among themselves in any distributions according to the respective amounts payable if shares were paid in full.
Series A Exchangeable Cumulative Preferred Stock
On July 15, 1997, the Company issued 45,000 shares of preferred stock having a par value of $0.0001 per share, in connection with the acquisition of HydroTech. These shares designated as Series A Exchangeable Cumulative Preferred Stock (Series A Exchangeable Preferred Stock) have a liquidation value of $100 per share, plus any accrued and unpaid dividends, less any amounts due from former HydroTech stockholders. The acquisition agreement with HydroTech provided that 25,000 shares of the Series A Exchangeable Preferred Stock be placed in escrow and be released upon certain earn-out requirements. Holders of the
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series A Exchangeable Preferred Stock are entitled to cumulative annual dividends commencing on July 15, 1998, at the annual rate of 7.0% ($7.00 per share). As of December 31, 1999, dividends of $64,000 had been accrued but not paid. This amount is reported on the balance sheet as an accrued liability. Each share of Series A Exchangeable Preferred Stock is exchangeable, provided written notice is given between June 13, 2002, and July 13, 2002, into a number of shares of the Company's Class A common stock determined by dividing the liquidation value as of the conversion date by the exchange price. The exchange price is defined as $15.00 plus 80% times the excess of the fair market value of the Company's common stock on the date of exchange over $15.00. All unexchanged shares of Series A Exchangeable Preferred Stock outstanding on July 15, 2002, will automatically be redeemed at a redemption price equal to liquidation value. The Company also has the option, upon the occurrence of certain events, to redeem all or any portion of the Series A Exchangeable Preferred Stock at a redemption price equal to liquidation value. The holders of Series A Exchangeable Preferred Stock are not entitled to vote. During 1998, the Company purchased the 25,000 shares placed in escrow for $0.01 per share in accordance with the provisions of the acquisition agreement as HydroTech failed to meet certain earn-out requirements. The difference of $2.5 million was treated as a reduction in goodwill.
Series B Exchangeable Cumulative Preferred Stock
On July 15, 1997, the Company issued 38,500 shares of preferred stock having a par value of $0.0001 per share, in connection with the acquisition of HydroTech. These shares designated as Series B Exchangeable Cumulative Preferred Stock (Series B Exchangeable Preferred Stock) have a liquidation value of $100 per share, plus any accrued and unpaid dividends, less any amounts due from former HydroTech stockholders. Holders of the Series B Exchangeable Preferred Stock are entitled to cumulative annual dividends commencing on July 15, 1998, at the annual rate of 3.1% ($3.10 per share). As of December 31, 1999, dividends of $55,000 had been accrued but not paid. This amount is reported on the balance sheet as an accrued liability. Each share of Series B Exchangeable Preferred Stock is exchangeable, prior to July 15, 2004, into a number of shares of the Company's Class A common stock determined by dividing the liquidation value as of the conversion date by the exchange price of $12.80 per share. All unexchanged shares of Series B Exchangeable Preferred Stock outstanding on July 15, 2004, will automatically be redeemed at a redemption price equal to liquidation value. The Company also has the option, upon the occurrence of certain events, to redeem all or any portion of the Series B Exchangeable Preferred Stock at a redemption price equal to liquidation value. The holders of Series B Exchangeable Preferred Stock are not entitled to vote.
10. CONVERTIBLE PREFERRED STOCK
On July 31, 1997, the Company issued 16,250 shares of preferred stock having a par value of $0.0001 per share, in connection with the acquisition of SMATCO. These shares, designated as Series A Convertible Cumulative Preferred Stock (Convertible Preferred Stock), have a liquidation value of $100 per share, plus any accrued and unpaid dividends. Holders of the Convertible Preferred Stock are entitled to cumulative annual dividends commencing on July 31, 1998, at the annual rate of 3.0% ($3.00 per share). As of December 31, 1999, dividends of $20,000 had been accrued but not paid. This amount is reported on the balance sheet as an accrued liability. Each share of Convertible Preferred Stock is convertible into a number of shares of the Company's Class A common stock determined by dividing the liquidation value as of the conversion date by the conversion price of $15.00 per share. Conversion is optional, prior to August 1, 2002, subject to the occurrence of certain events. On August 1, 2002, each share of Convertible Preferred Stock outstanding shall automatically convert as described above. Upon the occurrence of certain events, the Company has the option to redeem all or any portion of unconverted Convertible Preferred Stock at liquidation value (See Note 20). The holders of Convertible Preferred Stock are not entitled to vote.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME (LOSS) PER SHARE
In thousands, except per share amounts:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- -------- --------
(Loss) income from continuing operations before
discontinued operations and extraordinary item....... $(11,986) $ 910 $ ( 740)
Less: Preferred stock dividends........................ (1,308) (1,230) (1,222)
-------- ------- -------
(Loss) income available to common shareholders from
continuing operations before discontinued operations
and extraordinary item............................... $(13,294) $ (320) $(1,962)
======== ======= =======
Income (loss) per share -- basic and diluted:
Loss from continuing operations before discontinued
operations and extraordinary item................. $ (0.59) $ (0.01) $ (0.11)
Discontinued operations.............................. (0.26) (0.93) 0.53
Extraordinary item................................... (0.04) (0.03) --
-------- ------- -------
Net (loss) income............................ $ (0.89) $ (0.97) $ 0.42
======== ======= =======
Weighted average shares outstanding -- basic and
diluted.............................................. 22,362 22,056 17,808
======== ======= =======
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Basic income (loss) per share amounts are based on the weighted average number of common shares outstanding during the period. Diluted income per share would include additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued, however no additional common shares were included in the calculation of diluted income per share as the effect of the outstanding securities was anti-dilutive. Excluded from the computation of diluted earnings per share are securities outstanding at December 31, 1999, 1998 and 1997 that could potentially dilute basic earnings per share of 1.2 million shares, 2.2 million shares, and 2.5 million shares of common stock, respectively.
The Company issued 1,072,828 shares of the Company's Class A common stock at a purchase price of $10 per share pursuant to offerings to its existing stockholders, on a pro-rata basis, in January and March 1998. Each stockholder that purchased stock pursuant to those offerings was to receive additional shares in the event that there was no initial public offering of the Company's stock in 1998 and an earnings-per-share threshold was not reached. The formula for determining the number of additional shares to be issued, which was based on the Company's 1998 earnings per share, could not be properly calculated due to the Company's negative earnings per share in 1998. As an alternative, in December 1999, the Board of Directors approved the issuance of four additional shares for each share purchased in connection with the January and March 1998 stock offerings. In addition, the stockholders that did not purchase stock pursuant to those offerings were offered the right to purchase a pro-rata portion of additional shares in accordance with their stock holdings at a share price of $2 per share plus a 12% annual interest factor taken into consideration from the time of those offerings. In February 2000, the Company issued 4,291,427 of additional shares related to those offerings. Those offerings are also subject to certain preemptive rights in favor of the holders of the Company's Series A and Series B Exchangeable Preferred Stock to purchase Class A common stock at fair value. To date, no Class A common stock has been issued pursuant to those rights as they relate to the offerings in 1998. The Company does not expect that the amount of additional shares to be issued pursuant to such preemptive rights will be material to the Company's financial position.
Effective December 31, 1997, the Company acquired all options to purchase the common stock of CE Franklin Ltd. held by certain of its stockholders in exchange for 500,000 shares of its Class A common stock at an aggregate value of $2 million. The number of shares issued to these stockholders was to be increased in
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the event that there was no initial public offering of the Company's stock in 1998 and an earning-per-share threshold was not reached. The formula for determining the number of additional shares to be issued, which was based on the Company's 1998 earnings per share, could not be properly calculated due to the Company's negative earnings per share in 1998. As an alternative, the Company issued 500,000 additional shares to these stockholders in March 2000.
12. INCOME TAXES
The components of the income tax provision for continuing operations before extraordinary items for the years ended December 31, 1999, 1998, and 1997, consist of the following (in thousands):
1999 1998 1997
------ ------ ------
Current --
Federal.................................................. $1,058 $1,306 $1,275
State.................................................... (62) 226 (24)
Foreign.................................................. 292 2,282 1,509
------ ------ ------
1,288 3,814 2,760
------ ------ ------
Deferred --
Federal.................................................. (239) -- 607
State.................................................... -- -- 69
Foreign.................................................. 96 (103) (288)
------ ------ ------
(143) (103) 388
------ ------ ------
Total provision.................................. $1,145 $3,711 $3,148
====== ====== ======
|
The provision for taxes for continuing operations, before extraordinary items, differs from an amount computed at statutory rates as follows for the years ended December 31, 1999, 1998, and 1997 (in thousands):
1999 1998 1997
------- ------ ------
Federal tax expense at statutory rates.................... $(3,675) $1,581 $1,192
Foreign income tax rate differential...................... 151 (202) (127)
Nondeductible expenses.................................... 835 623 91
Net operating loss not benefited.......................... 2,741 -- --
Net utilization of net operating loss not benefited....... -- -- (373)
State taxes............................................... (62) 29 46
Amortization of noncompete agreement...................... -- -- 567
Adjustment of valuation allowance......................... 1,279 1,250 1,588
Other..................................................... (124) 430 164
------- ------ ------
Net income tax provision........................ $ 1,145 $3,711 $3,148
======= ====== ======
|
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant items giving rise to the deferred tax assets and liabilities as of December 31, 1999 and 1998, are as follows (in thousands):
1999 1998
------- --------
Deferred tax assets --
Net operating loss carryforward........................... $39,646 $ 42,946
Allowance for doubtful accounts........................... 570 424
Inventory................................................. 798 858
Employee benefits......................................... 2,799 3,305
Other, net................................................ 3,423 1,581
------- --------
Total deferred tax assets................................. 47,236 49,114
Less -- Valuation allowance............................... (44,558) (46,511)
------- --------
Net deferred tax assets................................... 2,678 2,603
------- --------
Deferred tax liability --
Depreciation.............................................. (2,893) (3,014)
Other..................................................... (489) (436)
------- --------
Total deferred tax liability.............................. (3,382) (3,450)
------- --------
Net deferred tax liability................................ $ (704) $ (847)
======= ========
|
For income tax reporting purposes, the Company has net operating loss carryforwards of approximately $116.6 million for regular income taxes which will expire in the years 2000 through 2018. The Company's net operating loss carryforwards are subject to limitations under Section 382 of the Internal Revenue Code of 1986. Based on these limitations, the years the carryforwards expire, and the uncertainty in achieving levels of taxable income required for their utilization, the Company has provided a valuation allowance on these carryforwards. The Company has a federal alternative minimum tax net operating loss carryforward of $84.1 million which will expire in the years 2000 through 2018.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the years ended December 31, 1999, 1998, and 1997, for interest and income taxes from continuing and discontinued operations was as follows (in thousands):
1999 1998 1997
------ ------- ------
Interest.................................................. $6,677 $ 9,681 $8,225
Income taxes, net of refunds.............................. 3,251 10,977 4,416
|
The following noncash transactions have been excluded from the consolidated statements of cash flows for the years ended December 31, 1999, 1998, and 1997 (in thousands):
1999 1998 1997
------- ------ -------
Common stock issued for acquisitions..................... $ -- $1,000 $16,333
Preferred stock issued for acquisitions.................. -- -- 9,975
Debt issued for acquisitions............................. -- 7,450 7,000
Noncash consideration received for businesses sold....... 57,421 -- --
Assets financed through capital lease obligations........ 158 273 627
|
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had no acquisitions in 1999. Components of cash used for acquisitions as reflected in the consolidated statements of cash flows for the year ended December 31, 1998 and 1997, are summarized as follows (in thousands):
1998 1997
------- --------
Fair value of assets acquired, excluding cash............... $26,634 $ 44,541
Liabilities assumed......................................... (9,670) (13,921)
Noncash consideration....................................... (8,450) (16,975)
------- --------
Cash used in acquisition of businesses...................... $ 8,514 $ 13,645
======= ========
|
14. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, lawsuits, and other proceedings relating to a wide variety of matters. While uncertainties are inherent in the final outcome of such matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management believes that the resolution of such uncertainties and the incurrence of such costs will not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity.
LTV, the former owner of the Company, under the terms of the stock purchase agreement, has indemnified the Company of all claims and contingencies, threatened or pending, relating to business activities prior to August 1, 1995. Specifically, claims involving environmental remediation, product warranty, legal actions, workers' compensation issues, and various federal, state, and sales tax matters related to pre-August 1995 business transactions are the financial responsibility of LTV. The financial responsibilities are initially satisfied through the reserves assumed as part of the acquisition. To the extent that claims exceed $2.2 million, the original allowance, all amounts will be paid by LTV.
The Company has warranted certain items related to the sale of CE Drilling and CEDS (see Note 17), subject to certain threshold amounts defined in the respective agreements. The Company believes all amounts have been properly reflected in the accompanying consolidated financial statements.
15. RELATED-PARTY TRANSACTIONS
SCF, from time to time, serves as financial advisor as the Company explores future opportunities for mergers, acquisitions, or divestitures. Professional advisory fees and out-of-pocket expenses totaling approximately $118,000, $11,000 and $217,000 were paid to L.E. Simmons & Associates, Incorporated, in 1999, 1998 and 1997, respectively.
In the normal course of business, the Company transacts with Hunting. However, these amounts were insignificant for the years presented.
On December 31, 1998, the Company declared a $25.0 million dividend in the form of a subordinated note payable to SCF-III, L.P., acting as agent for all common stockholders of the Company (see Note 5).
During 1998, the Company acquired certain assets from Sooner, an entity under common control with the Company, for $3.8 million. These assets were sold during 1999 and are included in discontinued operations (see Notes 5 and 17).
During 1999, Hunting indemnified the Company for a liability incurred in 1998 relating to assets sold to the Company in 1996 for $1.8 million.
During 1997, the Company entered into loan agreements with EnSerCo, L.L.C. (EnSerCo), for unsecured promissory notes totaling $24.8 million. The Company also paid commitment fees totaling $400,000 to EnSerCo during 1997, as specified in the agreements. EnSerCo is a limited liability company that provides
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
various forms of capital to the energy service and equipment industry. Affiliates of Enron Capital & Trade Resources Corp. own 50% of EnSerCo while the remaining 50% is owned by SCF-III, L.P. (see Note 5). On March 31, 1998, these notes were paid in full.
16. STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which requires the Company to record stock-based compensation at fair value. The Company has adopted the disclosure requirements of SFAS No. 123 and has elected to record employee compensation expense in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company accounts for its employee stock-based compensation plan under APB Opinion No. 25 and its related interpretations. Accordingly, any deferred compensation expense is recorded for stock options based on the excess of the market value of the common stock on the date the options were granted over the aggregate exercise price of the options. This deferred compensation is amortized over the vesting period of each option. The Company is authorized to grant two million stock options under the 1996 Equity Participation Plan (the Stock Option Plan) to employees, consultants, and directors with amounts, exercise prices, and vesting schedules determined by the Company's compensation committee. As the exercise price of options granted under the Stock Option Plan have been equal to or greater than the market price of the Company's stock on the date of grant, no compensation expense related to this plan has been recorded. Had compensation expense for its Stock Option Plan been determined consistent with SFAS No. 123, the Company's net income (loss) and earnings per share at December 31, 1999, 1998, and 1997, would have been as follows (in thousands, except per share amounts):
1999 1998 1997
-------- -------- ------
Net loss --
As reported.......................................... $(18,628) $(20,073) $8,646
Pro forma............................................ (18,331) (20,722) 8,570
Pro forma income (loss) per share -- basic and
diluted.............................................. $ (0.88) $ (1.00) $ 0.41
|
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
--------------------------
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
Balance at December 31, 1996................................ 865,800 $2.09
Granted................................................... 924,650 6.58
Exercised................................................. -- --
Forfeited................................................. (58,900) 2.09
---------
Balance at December 31, 1997................................ 1,731,550 4.53
Granted................................................... 227,500 8.68
Exercised................................................. (3,750) 2.09
Forfeited................................................. (371,400) 6.31
---------
Balance at December 31, 1998................................ 1,583,900 4.60
Granted................................................... -- --
Exercised................................................. (138,017) 2.09
Forfeited................................................. (840,983) 4.75
---------
Balance at December 31, 1999................................ 604,900 4.95
=========
Exercisable at December 31, 1997............................ 381,192 2.09
Exercisable at December 31, 1998............................ 823,072 3.40
Exercisable at December 31, 1999............................ 449,275 4.12
|
At December 31, 1999, 1,253,333 options were available for future grant under the Stock Option Plan. The exercise price of options outstanding under the Stock Option Plan at December 31, 1999, ranged from $2.09 to $10.00 per share with a weighted average of approximately $4.12 per share. The weighted average contractual life of options outstanding at December 31, 1999, was 4.86 years.
The weighted average fair values of options granted during 1998 and 1997 were $1.11 per share and $0.69 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1998 and 1997, respectively: risk-free interest rates of 5.5% and 6.3%, no expected dividend yield, expected lives of 5.1 years and 6.1 years, and no expected volatility.
17. DISCONTINUED OPERATIONS
On May 28, 1999, in one transaction, CEDS sold all of its distribution net assets for two senior subordinated notes receivable totaling $30.0 million and the Company sold its 51.8% investment in CE Franklin for marketable securities with a fair market value of $24.7 million on the date of sale. The combined transaction resulted in a loss on sale of approximately $17.2 million, net of income tax benefit of $185,000. Included in the loss on sale is a provision for operating losses of $12.4 million, net of income tax benefit of $805,000, recorded during the phase out period. In June 1999, one of the senior subordinated notes in the amount of $14.5 million, plus accrued interest at LIBOR plus 2.75%, was paid in full. In July 1999, the second senior subordinated note in the amount of $15.5 million, plus accrued interest at LIBOR plus 2.75%, was paid in full. Subsequent to May 28, 1999, all of the marketable securities were sold at a loss of $334,000. On June 21, 2000, the Company returned $1.8 million of the purchase price to the buyer for indemnification of certain post-closing liabilities. Additional adjustments to the purchase price are possible and management believes the accrued amounts are adequate to cover any exposure.
On May 28, 1999, in a separate transaction, CEDS sold all of its "oil country tubular" related assets to Sooner (see Note 15) for cash of $7.4 million and $2.0 million of noncash consideration for the cancellation of the subordinated promissory note discussed in Note 5, resulting in a loss on sale of $701,000. The loss on
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sale of the assets to Sooner was treated as a dividend in-kind to SCF, as the Company and Sooner are entities under common control. As a result of the above-mentioned transactions, CEDS ceased operations in 1999.
On July 7, 1999, CE Drilling sold all of its operating net assets, which included the net assets of CE Mobile, for $65.0 million in cash resulting in a loss on sale of $4.9 million, net of income tax expense of $70,000. Included in the loss on sale is operating income of $261,000, net of income tax expense of $12,000, recorded during the phase out period. The purchase price was subject to certain adjustments as defined in the agreement. During 1999, an additional accrual of $5.7 million, net of income tax expense of $215,000, was recorded primarily to accrue for a revision of the purchase price. On April 17, 2000, the Company settled the purchase price adjustment and returned $6.9 million of the purchase price to the buyer; however, there are some outstanding claims which remain to be settled. As a result of the above-mentioned transaction, CE Drilling and CE Mobile ceased operations in 1999.
The results of CEDS, CE Franklin, CE Drilling, and CE Mobile are shown as discontinued operations with 1998 and 1997 restated. Components of amounts reflected in the accompanying consolidated balance sheets and consolidated statements of operations and cash flows as of and for the years ended December 31, 1999, 1998, and 1997, are presented in the following table (in thousands):
1998
--------
Balance sheet data --
Current assets......................................... $197,818
Property, plant, and equipment, net.................... 37,145
Intangible assets, net................................. 19,270
Other noncurrent assets................................ 1,759
Current liabilities.................................... (75,422)
Noncurrent liabilities................................. (51,031)
--------
Net assets of discontinued operations.................... $129,539
========
|
1999 1998 1997
-------- -------- --------
Operations data --
Revenues........................................... $141,489 $564,691 $679,468
Costs and expenses................................. 147,385 554,090 654,182
-------- -------- --------
Operating (loss) income............................ (5,896) 10,601 25,286
Interest expense..................................... 2,371 8,041 4,069
Other expense........................................ 4,710 278 4,018
Income tax (benefit) expense......................... (793) 549 7,813
Amount reserved in 1998 for 1999 losses.............. (12,184) -- --
-------- -------- --------
Income from discontinued operations................ $ -- $ 1,733 $ 9,386
======== ======== ========
Cash flow data-
Cash flows from operations......................... $(12,251) $ 13,655 $(33,393)
Cash flows from investing activities............... -- (10,834) (25,628)
Cash flows from financing activities............... 8,092 (5,963) 21,799
-------- -------- --------
Net cash used in discontinued operations........... $ (4,159) $ (3,142) $(37,222)
======== ======== ========
|
18. SEGMENT AND RELATED INFORMATION
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Company has identified the following reportable segments: Elastomer Products, Engineered and Industrial Products, Marine Construction, and Marine Winches. Elastomer Products manufactures well
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
servicing and production components and provides elastomer molding. Engineered and Industrial Products provides technically advanced solutions for drilling, production, and structural projects including flex joints, Merlin connectors, and elastaflex clutches. Marine Construction provides products and services for fixed platform installation and decommissioning and pipeline construction including rotary selector valves and concrete mats. Marine Winches designs and manufactures deep water mooring systems for offshore drilling vessels, floating production systems and barges. They also design and refurbish a complete line of marine winches and other deck machinery for the offshore service boat industry. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit, and the management at the time of the acquisition was retained.
Financial information by industry segment for each of the three years ended December 31, 1999, 1998 and 1997, is summarized below in thousands. The Company evaluates performance and allocates resources based on EBITDA, which is calculated as operating income adding back depreciation and amortization. Calculations of EBITDA should not be viewed as a substitute to calculations under generally accepted accounting principles, in particular operating income and net income. In addition, EBITDA calculations by one company may not be comparable to another company. Depreciation and amortization amounts do not include amortization of deferred financing costs (see Note 3). Total assets do not include intercompany balances. The net assets of discontinued operations of $129.5 million and $145.9 million are included in the Corporate and Eliminations amounts in 1998 and 1997, respectively. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
ENGINEERED
AND CORPORATE
ELASTOMER INDUSTRIAL MARINE MARINE AND
PRODUCTS PRODUCTS CONSTRUCTION WINCHES ELIMINATIONS TOTAL
--------- ---------- ------------ ------- ------------ --------
1999
Revenues from unaffiliated
customers.................. $ 8,082 $73,856 $27,646 $44,746 $ -- $154,330
======= ======= ======= ======= ======== ========
EBITDA....................... 921 15,485 (1,331) (6,166) (4,121) 4,788
Depreciation and
amortization............... (234) (2,560) (2,468) (1,626) (588) (7,476)
------- ------- ------- ------- -------- --------
Operating income (loss)...... 687 12,925 (3,799) (7,792) (4,709) (2,688)
======= ======= ======= ======= ======== ========
Capital expenditures......... 73 613 1,218 606 128 2,638
======= ======= ======= ======= ======== ========
Total assets................. 4,986 55,523 36,823 48,461 11,925 157,718
======= ======= ======= ======= ======== ========
1998
Revenues from unaffiliated
customers.................. $ 8,825 $92,007 $51,930 $77,222 $ -- $229,984
======= ======= ======= ======= ======== ========
EBITDA....................... 111 18,653 5,129 2,341 (4,550) 21,684
Depreciation and
amortization............... (235) (3,195) (2,475) (1,118) (716) (7,739)
------- ------- ------- ------- -------- --------
Operating (loss) income...... (124) 15,458 2,654 1,223 (5,266) 13,945
======= ======= ======= ======= ======== ========
Capital expenditures......... 74 6,510 2,439 8,550 551 18,124
======= ======= ======= ======= ======== ========
Total assets................. 5,560 69,595 51,669 52,897 144,275 323,996
======= ======= ======= ======= ======== ========
|
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENGINEERED
AND CORPORATE
ELASTOMER INDUSTRIAL MARINE MARINE AND
PRODUCTS PRODUCTS CONSTRUCTION WINCHES ELIMINATIONS TOTAL
--------- ---------- ------------ ------- ------------ --------
1997
Revenues from unaffiliated
customers.................. $11,742 $57,457 $27,642 $17,084 $ -- $113,925
======= ======= ======= ======= ======== ========
EBITDA....................... 744 10,289 3,967 1,805 (1,030) 15,775
Depreciation and
amortization............... (214) (1,122) (3,598) (318) (508) (5,760)
------- ------- ------- ------- -------- --------
Operating income (loss)...... 530 9,167 369 1,487 (1,538) 10,015
======= ======= ======= ======= ======== ========
Capital expenditures......... 619 576 2,183 679 19 4,076
======= ======= ======= ======= ======== ========
Total assets................. 8,110 35,899 51,879 34,113 162,132 292,133
======= ======= ======= ======= ======== ========
|
Financial information by geographic segment for each of the three years ended December 31, 1999, 1998, and 1997, is summarized below in thousands. Revenues in the US include export sales. Revenues are attributable to countries based on the location of the entity selling the products or performing the services. Total assets are attributable to countries based on the physical location of the entity and its operating assets and do not include intercompany balances and the net assets of discontinued operations.
NET ASSETS OF
UNITED UNITED DISCONTINUED
STATES KINGDOM SINGAPORE OPERATIONS TOTAL
-------- ------- --------- ------------- --------
1999
Revenues from unaffiliated customers......... $124,259 $26,995 $3,076 $ -- $154,330
Total assets................................. 126,118 29,334 2,266 -- 157,718
1998
Revenues from unaffiliated customers......... $178,346 $45,256 $6,382 $ -- $229,984
Total assets................................. 148,087 42,161 4,209 129,539 323,996
1997
Revenues from unaffiliated customers......... $ 77,094 $34,214 $2,617 $ -- $113,925
Total assets................................. 111,464 32,311 2,428 145,930 292,133
|
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. VALUATION ALLOWANCES
Activity in the valuation accounts was as follows (in thousands):
BALANCE AT CHARGED TO TRANSLATION BALANCE AT
BEGINNING COST AND AND END
OF PERIOD EXPENSES DEDUCTIONS OTHER, NET OF PERIOD
---------- ---------- ---------- ----------- ----------
YEAR ENDED DECEMBER 31, 1999:
Reserve for doubtful accounts
receivable......................... $ 1,243 $ 836 $ (347) $(73) $ 1,659
Provision for operating loss during
phaseout period included in net
assets of discontinued
operations......................... 12,977 -- (12,977) -- --
Estimated loss on sale of discontinued
operations......................... 9,237 4,000 -- -- 13,237
Reserve for severance................. 535 -- (483) -- 52
YEAR ENDED DECEMBER 31, 1998:
Reserve for doubtful accounts
receivable......................... $ 1,082 $ 1,124 $ (1,149) $186 $ 1,243
Provision for operating loss during
phaseout period included in net
assets of discontinued
operations......................... -- 12,977 -- -- 12,977
Estimated loss on sale of discontinued
operations......................... -- 9,237 -- -- 9,237
Reserve for severance................. -- 535 -- -- 535
YEAR ENDED DECEMBER 31, 1997:
Reserve for doubtful accounts
receivable......................... $ 618 $ 517 $ (53) $ -- $ 1,082
|
20. SUBSEQUENT EVENTS
On July 21, 2000, the Company obtained a waiver from the holder of the Series A Cumulative Preferred Stock (see Note 9) whereby the holder waived its rights to an optional redemption provided for in the certificate of designations on September 15, 2000. The holder can request redemption at the earlier of April 30, 2001 or after the completion of a registered public offering. Dividends will increase from 7% to 12% effective as of September 15, 2000, as consideration for the holder executing the waiver.
On July 29, 2000 and July 31, 2000, the Company renegotiated terms with the holders of certain subordinated debt totaling $7.0 million and $7.0 million, respectively. Original maturities of the subordinated debt extending through February 2003 were accelerated to the earlier of April 30, 2001 or upon the occurrence of a registered public offering of capital stock, in exchange for the holders waiving their rights to scheduled maturities of principal and interest which were due prior to April 30, 2001. Interest will increase from 8% to prime plus 4% until the principal is paid in full.
On July 31, 2000, the Company authorized the amendment of the provisions of its Series A Convertible Cumulative Preferred Stock to permit the Company to redeem such stock at any time upon three days' notice at its stated liquidation value of $100 per share, plus accrued dividends, and to provide that the Company must redeem such stock upon the earlier of the date that is six months from the completion of a registered public offering of the Company's capital stock or the date of the Company's first annual shareholders' meeting after such completion.
On July 31, 2000, the Company authorized and approved the terms and conditions of the Combination Agreement between the Company, HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner, Inc., Merger Sub-Sooner, Inc. and PTI Group Inc.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 31, 2000, the Company authorized the amendment of its Certificate of Incorporation to increase the total number of shares of capital stock it has the authority to issue to 225 million shares, consisting of 25 million shares of preferred stock, par value $0.0001 per share and 200 million shares of common stock, par value $0.01 per share, to cancel and retire its Class B Common Stock, none of which is currently outstanding, and to redesignate all of its Class A Common Stock as "Common Stock."
AUDITORS' REPORT
To the Shareholders and Directors of
PTI Group Inc.
We have audited the consolidated balance sheets of PTI Group Inc. as at December 31, 1999 and 1998 and the consolidated statements of earnings, shareholders' equity and cash flows for the years ended December 31, 1999, 1998 and the 358 day period ended December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 1999 and 1998 and the results of its operations and its cash flows for the years ended December 31, 1999, 1998 and the 358 day period ended December 31, 1997 in accordance with United States generally accepted accounting principles.
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Edmonton, Alberta
July 7, 2000
PTI GROUP INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE-MONTH PERIOD ENDED PERIOD ENDED
MARCH 31, DECEMBER 31,
------------------------- ------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
REVENUE
Services.............................. $38,134 $23,366 $63,328 $76,130 $70,191
Manufacturing......................... 4,792 1,105 7,178 10,304 24,684
------- ------- ------- ------- -------
42,926 24,471 70,506 86,434 94,875
------- ------- ------- ------- -------
EXPENSES
Direct and operating costs
Services.............................. 23,858 13,630 40,883 49,806 46,340
Manufacturing......................... 4,008 724 5,277 8,224 18,554
Selling, general and administrative... 1,690 1,915 4,023 8,114 6,176
Special charge........................ -- -- -- 5,263 --
Depreciation.......................... 1,400 1,296 5,364 4,820 2,378
Amortization of goodwill.............. 191 223 892 992 531
------- ------- ------- ------- -------
EARNINGS FROM OPERATIONS................ 11,779 6,683 14,067 9,215 20,896
Interest on long-term debt............ 616 645 2,350 2,092 1,605
Other interest........................ 185 393 804 1,644 384
------- ------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES............ 10,978 5,645 10,913 5,479 18,907
------- ------- ------- ------- -------
INCOME TAXES
Current............................... 4,136 2,026 3,937 4,366 6,558
Deferred.............................. 523 69 325 1,118 971
------- ------- ------- ------- -------
4,659 2,095 4,262 5,484 7,529
------- ------- ------- ------- -------
NET EARNINGS (LOSS) FOR THE PERIOD...... 6,319 3,550 6,651 (5) 11,378
======= ======= ======= ======= =======
BASIC AND DILUTED EARNINGS PER COMMON
SHARE................................. $ 0.81 $ 0.46 $ 0.85 -- $ 1.53
======= ======= ======= ======= =======
|
The accompanying notes are an integral part of these financial statements.
PTI GROUP INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
----------- ------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash.................................................. $ 476 $ 656 $ 2,268
Trade accounts receivable -- less allowance of $578,
$328 and $310...................................... 34,263 16,173 12,656
Inventories........................................... 3,840 4,388 4,457
Prepaid expenses...................................... 359 503 801
Income taxes receivable............................... -- 445 80
-------- ------- -------
38,938 22,165 20,262
PROPERTY, PLANT AND EQUIPMENT........................... 50,524 46,898 43,574
GOODWILL................................................ 28,674 28,035 25,525
-------- ------- -------
$118,136 $97,098 $89,361
======== ======= =======
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness..................................... $ 10,714 $ 7,573 $ 9,550
Trade accounts payable and accrued liabilities........ 8,302 3,871 7,153
Accrued compensation.................................. 2,774 2,390 2,388
Income taxes payable.................................. 3,285 -- --
Current portion of long-term debt..................... 8,550 5,384 5,794
Deferred tax liabilities.............................. 260 333 326
-------- ------- -------
33,885 19,551 25,211
LONG-TERM DEBT.......................................... 31,442 31,432 27,285
DEFERRED TAX LIABILITIES................................ 9,631 9,096 8,268
-------- ------- -------
74,958 60,079 60,764
-------- ------- -------
CONTINGENCIES
SHAREHOLDERS' EQUITY
COMMON SHARES
Authorized
Unlimited
Issued and outstanding
7,787,630 shares................................... 21,789 21,789 21,789
RETAINED EARNINGS....................................... 22,717 16,398 9,747
ACCUMULATED OTHER COMPREHENSIVE LOSS.................... (1,328) (1,168) (2,939)
-------- ------- -------
43,178 37,019 28,597
-------- ------- -------
$118,136 $97,098 $89,361
======== ======= =======
|
The accompanying notes are an integral part of these financial statements.
PTI GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
SHAREHOLDERS' EQUITY
--------------------------------------------
ACCUMULATED
NUMBER OF OTHER
SHARES COMMON RETAINED COMPREHENSIVE
OUTSTANDING SHARES EARNINGS INCOME (LOSS) TOTAL
----------- ------- -------- ------------- -------
BALANCE -- JANUARY 8, 1997.............. 7,500,000 $18,840 $ -- $ -- $18,840
Comprehensive income
Net earnings -- 1997............... 11,378 11,378
Other comprehensive loss........... (1,430) (1,430)
-------
Comprehensive income............... 9,948
Common shares issued for cash......... 200,000 737 737
--------- ------- ------- ------- -------
BALANCE -- DECEMBER 31, 1997............ 7,700,000 19,577 11,378 (1,430) 29,525
Comprehensive loss
Net loss-- 1998.................... (5) (5)
Other comprehensive loss........... (1,509) (1,509)
-------
Comprehensive loss................. (1,514)
Common shares issued for business
acquisition........................ 218,000 1,964 1,964
Common shares issued for cash......... 130,000 903 903
Common shares repurchased for cash.... (260,370) (655) (1,626) (2,281)
--------- ------- ------- ------- -------
BALANCE -- DECEMBER 31, 1998............ 7,787,630 21,789 9,747 (2,939) 28,597
Comprehensive income
Net earnings -- 1999............... 6,651 6,651
Other comprehensive income......... 1,771 1,771
-------
Comprehensive income............... 8,422
--------- ------- ------- ------- -------
BALANCE -- DECEMBER 31, 1999............ 7,787,630 21,789 16,398 (1,168) 37,019
Comprehensive income (unaudited)
Net earnings -- 1st quarter 2000... 6,319 6,319
Other comprehensive loss........... (160) (160)
-------
Comprehensive income............... 6,159
--------- ------- ------- ------- -------
BALANCE -- MARCH 31, 2000 (UNAUDITED)... 7,787,630 $21,789 $22,717 $(1,328) $43,178
========= ======= ======= ======= =======
|
The accompanying notes are an integral part of these financial statements.
PTI GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE-MONTH PERIOD ENDED
MARCH 31, PERIOD ENDED DECEMBER 31,
------------------------- -------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- -------- ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net earnings (loss) for the period... $ 6,319 $ 3,550 $ 6,651 $ (5) $ 11,378
Items not affecting cash
Depreciation...................... 1,368 1,327 5,179 4,745 2,378
Amortization of goodwill.......... 191 223 892 992 531
Deferred income taxes............. 523 69 325 1,118 971
Loss (gain) on sale of
equipment....................... 32 (31) 185 75 --
Special charge.................... -- -- -- 5,263 --
-------- ------- ------- -------- --------
8,433 5,138 13,232 12,188 15,258
Changes in operating assets and
liabilities Trade accounts
receivable........................ (18,632) (6,688) (3,984) 7,841 (4,006)
Inventories....................... 565 886 4,434 50 (248)
Prepaid expenses.................. 149 162 (4,023) 76 (1,116)
Trade accounts payable and accrued
compensation.................... 4,974 (920) (4,439) (1,452) 391
Income taxes payable/receivable... 3,837 (676) (410) (1,063) 640
-------- ------- ------- -------- --------
(674) (2,098) 4,810 17,640 10,919
-------- ------- ------- -------- --------
INVESTING ACTIVITIES
Purchase of property, plant and
equipment......................... (1,963) (705) (5,919) (13,059) (9,236)
Business acquisitions................ (3,500) -- (1,148) (9,692) (7,487)
Proceeds from sale of equipment...... 374 90 1,031 1,509 538
-------- ------- ------- -------- --------
(5,089) (615) (6,036) (21,242) (16,185)
-------- ------- ------- -------- --------
FINANCING ACTIVITIES
Bank indebtedness.................... 3,141 (4,588) (1,972) 1,633 7,156
Increase in long-term debt........... 4,870 7,012 9,412 7,826 --
Repayment of long-term debt.......... (2,430) (220) (7,864) (2,862) (1,891)
Issuance of common shares............ -- -- -- 903 737
Repurchase of common shares.......... -- -- -- (2,281) --
-------- ------- ------- -------- --------
5,581 2,204 (424) 5,219 6,002
-------- ------- ------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................. 2 (25) 38 (48) (37)
-------- ------- ------- -------- --------
INCREASE (DECREASE) IN CASH............ (180) (534) (1,612) 1,569 699
CASH -- BEGINNING OF PERIOD............ 656 2,268 2,268 699 --
-------- ------- ------- -------- --------
CASH -- END OF PERIOD.................. $ 476 $ 1,734 $ 656 $ 2,268 $ 699
======== ======= ======= ======== ========
|
The accompanying notes are an integral part of these financial statements.
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company was formed on January 8, 1997 as a result of the amalgamation of PTI Group Inc. and 712955 Alberta Ltd. ("Alberta"), a special purpose company formed to acquire PTI Group Inc. Alberta was capitalized with debt of $13,301,000 and share capital of $17,313,000. Alberta acquired 100% of the shares of PTI Group Inc. in a leveraged buyout transaction for cash consideration of $30,593,000 and the issuance of 2,814,000 common shares:
Net assets acquired, at assigned values (in thousands):
Working capital........................................... $ 7,777
Property, plant and equipment............................. 22,954
Goodwill.................................................. 21,957
Long-term debt............................................ (16,438)
Deferred income taxes..................................... (4,130)
--------
32,120
Issuance of 2,814,000 Alberta shares........................ (1,527)
--------
30,593
Bank indebtedness acquired as part of working capital....... 783
--------
Net cash invested........................................... $ 31,376
========
|
The acquisition was accounted for using the partial purchase method, under which new basis of accounting was utilized for 74.64% of net assets (representing the cash portion of the consideration) and predecessor basis of accounting was utilized for 25.36% of net assets.
After the amalgamation, Alberta changed its' name to PTI Group Inc. ("PTI"). These financial statements reflect the results of PTI from January 8, 1997.
The Company is a supplier of integrated housing, food, site management and logistics support services to remote sites utilized by natural resource and other industries primarily in Canada and the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates made by management include the estimated useful lives of property, plant, equipment and goodwill for purposes of depreciation and amortization. The consolidated financial statements been prepared within the framework of the accounting policies summarized below.
a) Principles of consolidation
The consolidated financial statements include the accounts of the company and its wholly owned subsidiary companies ("the Company"). All significant intercompany transactions and balances have been eliminated.
b) Revenue recognition
Revenue from the sale of products is recognized upon delivery to the customer and revenue from the rental of products and delivery of services is recognized on performance.
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue from manufacturing contracts in excess of three months is recognized by the percentage of completion method based on the percentage of total costs incurred to total expected costs. Provision for estimated losses, if any, is made in the period such losses are estimable.
c) Cash
The Company considers cash to be all highly liquid investments with a maturity of three months or less at the date of original issue.
d) Inventories
Inventories are valued at the lower of cost, determined on the first in, first out method and net realizable value.
e) Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:
Buildings................................................... 20 years Rental equipment............................................ 10 to 25 years Vehicles -- transport....................................... 10 years Vehicles -- service......................................... 3 to 5 years Computer equipment.......................................... 3 years |
Office and shop equipment are depreciated at 20% per annum using the diminishing balance method. Within rental equipment, installation costs related to open camps are depreciated over the terms of the related leases.
The recoverability of property, plant and equipment is assessed annually based on estimated future cash flows.
f) Goodwill
Goodwill is recorded at cost and amortized on a straight-line basis over 40 years. The recoverability of goodwill is assessed annually based on estimated future cash flows. Accumulated amortization was $2,606,000 (unaudited) at March 31, 2000 (December 31, 1999 -- $2,415,000; December 31, 1998 -- $1,523,000).
g) Income taxes
The Company follows the liability method of accounting for income taxes. Under this method, current income taxes reflect the estimated income taxes payable for the current year. Deferred income tax assets and liabilities reflect temporary differences between the tax and accounting bases of assets and liabilities, as well as the benefit of losses available to be carried forward to future years for tax purposes, to the extent that they are likely to be realized.
h) Translation of foreign currencies
These financial statements have been prepared using the U.S. dollar as the reporting currency. The functional currency for the Canadian, United States and Chilean operations is the local currency. The United States dollar is the functional currency of the Company's Cypriot operations. Accordingly, the financial statements of the non-United States functional currency operations have been translated using the current
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rate method. Under this method, assets and liabilities denominated in foreign currencies are translated at the rates prevailing at the balance sheet date. Revenue and expenses are translated at weighted average rates throughout the year. Translation gains and losses are included in accumulated other comprehensive income (loss) and constitute the entire balance of this account. There is no resulting tax from these translation gains and losses.
For all operations, gains or losses from remeasuring foreign currency transactions into the functional currency are included in income.
i) Concentration of credit risk
The Company grants credit to certain of its customers, which operate primarily in the oil and gas industry. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Allowances are maintained for potential credit losses; such credit losses have historically been within management's expectations.
j) Stock-based compensation
Compensation expense relating to stock options issued to employees and directors is measured using the intrinsic value method of accounting. Pro-forma disclosures using the fair value method are provided in note 9.
3. INVENTORIES
Inventories consist of (in thousands):
DECEMBER 31,
MARCH 31, ---------------------------
2000 1999 1998
----------- ------------ ------------
(UNAUDITED)
Food and consumable supplies.................... $2,137 $2,512 $2,650
Accommodation construction materials and spare
parts......................................... 1,005 1,102 1,032
Rental repair parts and shop supplies........... 698 774 775
------ ------ ------
$3,840 $4,388 $4,457
====== ====== ======
|
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of (in thousands):
MARCH 31, 2000
--------------------------------
ACCUMULATED
COST DEPRECIATION NET
------- ------------ -------
(UNAUDITED)
Land.................................................. $ 1,145 $ -- $ 1,145
Buildings............................................. 3,394 536 2,858
Rental equipment...................................... 54,122 10,949 43,173
Vehicles.............................................. 2,222 823 1,399
Office, shop and computer equipment................... 3,066 1,117 1,949
------- ------- -------
$63,949 $13,425 $50,524
======= ======= =======
|
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
--------------------------------
ACCUMULATED
COST DEPRECIATION NET
------- ------------ -------
Land.................................................. $ 1,152 $ -- $ 1,152
Buildings............................................. 3,417 357 3,060
Rental equipment...................................... 49,269 9,843 39,426
Vehicles.............................................. 2,375 910 1,465
Office, shop and computer equipment................... 2,837 1,042 1,795
------- ------- -------
$59,050 $12,152 $46,898
======= ======= =======
|
DECEMBER 31, 1998
--------------------------------
ACCUMULATED
COST DEPRECIATION NET
------- ------------ -------
Land.................................................. $ 933 $ -- $ 933
Buildings............................................. 2,601 214 2,387
Rental equipment...................................... 40,823 5,083 35,740
Rental equipment under capital lease.................. 1,705 265 1,440
Vehicles.............................................. 2,287 509 1,778
Office, shop and computer equipment................... 1,898 602 1,296
------- ------ -------
$50,247 $6,673 $43,574
======= ====== =======
|
5. BANK INDEBTEDNESS
On July 5, 2000, the Company signed an Amended and Restated Credit Agreement ("Amended Agreement") that includes a revolving operating credit facility with Canadian banks. A portion of the facility is designated as the overdraft facility and the remainder of the facility is restricted by a margin limit based on the level of trade accounts receivable and inventory. This facility is available to the Company through direct advances, subject to the limits, and at the interest rates as described:
MARCH 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------ ------------------
US CDN US CDN US CDN
DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS
------- ------- ------- ------- ------- -------
(UNAUDITED)
(TABLE IN THOUSANDS)
Operating credit facility
Maximum facility.................. 10,318 15,000 17,313 25,000 16,260 25,000
Overdraft facility................ 2,064 3,000 3,463 5,000 3,252 5,000
------ ------ ------ ------ ------ ------
Amount subject to margin limits... 8,254 12,000 13,850 20,000 13,008 20,000
====== ====== ====== ====== ====== ======
Margin available.................. 8,254 12,000 8,207 11,851 6,436 9,896
Amount drawn...................... 7,566 11,000 2,770 4,000 -- --
------ ------ ------ ------ ------ ------
Amount available.................. 688 1,000 5,437 7,851 6,436 9,896
====== ====== ====== ====== ====== ======
Applicable interest rates
Canadian prime based rate......... 7.00%+(0.00%-0.50%) 6.50% 6.80%
Bankers' acceptances based rate... 5.30%+(1.00%-1.50%) 5.20%+1.00% 5.10%+1.00%
Libor advance rate................ n/a 5.80%+1.00% 5.10%+1.00%
|
Included in bank indebtedness at December 31, 1999 is a $1,000,000 revolving credit facility with a US bank. This facility was available through direct advances with applicable U.S. interest rates being either
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prime based (8.50% +/-.25%) or Libor based (5.80% + 2.25% to 3.25%). This facility was fully drawn at March 31, 2000 ($200,000 at December 31, 1999).
In 1998, an operating facility was in place with a bank in Chile for an amount up to the Chilean peso equivalent of $8,000,000. The facility was supported by an $8,000,000 standby letter of credit issued by the company's Canadian bank to the Chilean lender. Interest accrued at 2% above the daily average funding cost of the Chilean banking market (approximately 25% at December 31, 1998). At December 31, 1998, drawings of $6,615,000 were outstanding. This facility was fully paid off in 1999.
6. LONG-TERM DEBT
Long-term debt consists of (in thousands):
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
----------- ------------ ------------
(UNAUDITED)
Term revolving facility bank loan
Canadian dollar denominated (Cdn$46.0
million at March 31, 2000, Cdn$43.6
million at December 31, 1999, Cdn$21.0
million at December 31, 1998).......... $31,635 $30,188 $13,655
United States dollar denominated.......... -- 1,654 6,007
Acquisition facility bank loan.............. -- -- 6,504
Mortgages................................... 183 972 1,246
Notes payable
Canadian dollar denominated
(Cdn$0.3 million at March 31, 2000 and
December 31, 1999,
Cdn$nil at December 31, 1998).......... 206 208 --
United States dollar denominated.......... 3,332 2,332 3,500
Bridge term loan............................ 3,500 -- --
Term loan................................... 722 1,005 --
Obligation under capital leases............. 414 457 2,167
------- ------- -------
39,992 36,816 33,079
Less: Current portion....................... 8,550 5,384 5,794
------- ------- -------
$31,442 $31,432 $27,285
======= ======= =======
|
Under the Amended Agreement, the scheduled loan repayments on the term revolving facility bank loan consist of quarterly installments of $866,000 (Cdn$1,250,000), with the first payment due on August 31, 2000. The current portion as of March 31, 2000 and December 31, 1999 has been recorded based on the terms of the Amended Agreement. The Company can apply surplus cash to the outstanding loan balance at any time. The unused portion of this facility was approximately $2,785,000 (Cdn$4,021,000) at December 31, 1999 and $663,000 (Cdn$1,020,000) at December 31, 1998.
Amounts drawn against the term revolving facility are available through direct advances and bankers' acceptances. The interest rate depends on the ratio of the company's total debt to its earnings before interest, taxes, depreciation and amortization for the preceding 12 months and ranges from the Canadian prime rate (6.50% at December 31, 1999, 6.75% at December 31, 1998) plus .50% to 1.00% for direct advances, and market rate (5.20% at December 31, 1999, 5.10% at December 31, 1998) plus stamping fees of 1.50% to 2.00% for bankers' acceptances.
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company fixed the interest rate at approximately 6.80% at December 31, 1999 (7.70% at December 31, 1998) on a portion of the term revolving facility bank loan utilizing an interest rate swap arrangement. The arrangement, for a notional amount of $1,731,000 at December 31, 1999 ($3,463,000 at December 31, 1998), reduced to $nil on March 31, 2000. The fair value of this arrangement approximates the carrying value.
Collateral provided against the term revolving facility is a general security agreement, a fixed and floating charge debenture of $138,504,000 (Cdn$200,000,000) on the assets of the Company excluding existing priority charges described below, pledge of all shares directly held in the capital stock of subsidiaries, joint and several guarantees from subsidiaries, assignment of accounts receivable, postponement of claim by the shareholders and assignment of insurance proceeds.
The acquisition facility bank loan was a revolving term facility, which was fully drawn at December 31, 1998. In 1999, this facility was combined with the term revolving facility bank loan.
Mortgages bore interest at approximately 7.50%, had annual payments of $160,000 and collateral was provided by related land and buildings, which had a net book value of $1,889,000 at December 31, 1999 and $1,839,000 at December 31, 1998. The remaining mortgage at March 31, 2000 was paid out on the signing of the Amended Agreement through further drawdowns on the term revolving facility.
In connection with the acquisition of Norwel Developments Limited (note 10), the Company issued a promissory note in the amount of $202,000 (Cdn$300,000), repayable in ten equal semi-annual payments of $20,200 (Cdn$30,000) commencing May 7, 2000. This note bears interest at a floating rate of Canadian prime plus 1.00% and the Company has not provided collateral.
In connection with the acquisition of General Marine Leasing, Inc.(note 10), the Company issued a promissory note in the amount of $3,500,000, repayable in three equal annual instalments commencing June 16, 1999. At December 31, 1999, the balance outstanding was $2,332,000. This note bears interest at 7.00% and the Company has not provided collateral.
In connection with the acquisition of International Quarters, L.L.C. (note 10), the Company issued a promissory note in the amount of $1,000,000, repayable in two equal annual payments of $500,000 commencing February 8, 2001. This note bears interest at 7.50% and the company has not provided collateral.
Also, as part of the acquisition of International Quarters, L.L.C., the Company executed a Bridge term loan in the amount of $3,500,000 repayable on September 1, 2000. This loan bears interest at United States prime (at March 31, 2000 -- 7.00% +/-.25%) or Libor (at March 31, 2000 -- 6.10% + 2.25% to 3.25%) and the Company has pledged assets including accounts receivable and inventory as collateral.
The term loan bears interest at 7.50%, is repayable monthly over three years, commencing June 1999, with annual payments of $333,000. Collateral provided is a first charge on certain assets in the United States, up to the amount of the loan.
Obligations under capital leases bear interest at 8.60%, have annual payments of $87,000 and collateral provided is the related equipment, which has a net book value approximating the obligation.
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal repayments of long-term debt are (in thousands):
2000....................................................... $ 5,384
2001....................................................... 5,197
2002....................................................... 3,850
2003....................................................... 3,716
2004....................................................... 3,670
Thereafter................................................. 14,999
-------
$36,816
=======
|
7. INCOME TAXES
The domestic and foreign components of earnings before income taxes were as follows (in thousands):
MARCH 31, DECEMBER 31,
------------------------- ------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
Domestic................................ $10,238 $4,238 $ 4,861 $11,565 $18,051
Foreign................................. 740 1,407 6,052 (6,086) 856
------- ------ ------- ------- -------
$10,978 $5,645 $10,913 $ 5,479 $18,907
======= ====== ======= ======= =======
|
The components of the provision for income taxes consist of (in thousands):
MARCH 31, DECEMBER 31,
------------------------- ----------------------------
2000 1999 1999 1998 1997
----------- ----------- ------ ------ ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
Current
Domestic................................ $3,954 $1,415 $2,053 $3,553 $6,558
Foreign................................. 182 611 1,884 813 --
------ ------ ------ ------ ------
4,136 2,026 3,937 4,366 6,558
------ ------ ------ ------ ------
Deferred
Domestic................................ 576 123 561 1,268 971
Foreign................................. (53) (54) (236) (150) --
------ ------ ------ ------ ------
523 69 325 1,118 971
------ ------ ------ ------ ------
$4,659 $2,095 $4,262 $5,484 $7,529
====== ====== ====== ====== ======
|
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31,
MARCH 31, -----------------
2000 1999 1998
----------- ------- -------
(UNAUDITED)
Deferred tax assets
Property, plant and equipment....................... $ 953 $ 960 $ 901
Loss carryforwards.................................. 445 448 354
Valuation allowance................................. (1,398) (1,408) (1,255)
------- ------- -------
-- -- --
------- ------- -------
Deferred tax liabilities
Inventories......................................... 260 333 326
Property, plant and equipment....................... 9,631 9,096 8,268
------- ------- -------
9,891 9,429 8,594
------- ------- -------
Net deferred tax liability............................ $ 9,891 $ 9,429 $ 8,594
======= ======= =======
|
Deferred tax assets relating to property, plant and equipment and loss carryforwards relate to the Company's Chilean operation. Since they can only be realized against income earned in Chile, a valuation allowance has been provided.
The difference between the effective tax rate reflected in the provision for income taxes and the applicable statutory rate is as follows:
MARCH 31, DECEMBER 31,
------------------------- ----------------------------
2000 1999 1999 1998 1997
% % % % %
----------- ----------- ------ ------ ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
Combined Canadian federal and
provincial income tax rate........ 44.6 44.6 44.6 44.6 44.6
Manufacturing and processing profits
deduction......................... (2.2) (3.9) (2.7) (16.1) (5.3)
Non-deductible amortization......... 1.3 0.1 3.1 7.9 2.5
Foreign losses not recognized....... -- 0.2 0.3 71.7 --
Reduced foreign tax rates........... (1.3) (3.9) (6.2) (8.0) (2.0)
---- ---- ---- ----- ----
Effective income tax rate........... 42.4 37.1 39.1 100.1 39.8
==== ==== ==== ===== ====
|
Undistributed earnings of the Company's United States subsidiaries amounted to $3,088,000 and $271,000 at December 31, 1999 and December 31, 1998, respectively. Those earnings are considered to be permanently reinvested and, accordingly, no provision for income taxes has been made. Distribution of these earnings in the form of dividends or otherwise may result in both Canadian federal taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable in the United States.
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHARE CAPITAL
The Company has authorized an unlimited number of common shares with no par value.
The following table sets forth the weighted average basic and diluted shares outstanding for purposes of the earnings per share calculations:
MARCH 31, DECEMBER 31,
------------------------- ------------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
Denominator for basic earnings per
share -- weighted average shares.... 7,787,630 7,787,630 7,787,630 7,828,110 7,676,923
Effect of dilutive securities stock
options............................. 13,098 12,082 12,423 16,103 2,132
--------- --------- --------- --------- ---------
Denominator for diluted earnings per
share............................... 7,800,728 7,799,712 7,800,053 7,844,213 7,679,055
========= ========= ========= ========= =========
|
9. STOCK OPTIONS
At December 31, 1999 the Company has options outstanding to certain employees and directors as follows:
WEIGHTED
WEIGHTED EXERCISABLE AVERAGE
WEIGHTED AVERAGE AS OF EXERCISE
TOTAL AVERAGE REMAINING DECEMBER 31, PRICE OF
OUTSTANDING RANGE OF EXERCISE CONTRACTUAL 1999 EXERCISABLE
# EXERCISE PRICES PRICE LIFE # OPTIONS
----------- --------------- -------- ----------- ------------ -----------
(IN YEARS)
60,000 $3.46 - $6.93 $4.96 3.48 28,000 $3.46
|
In March 2000, the Company granted additional options which expire August 31, 2005 as follows (unaudited):
WEIGHTED
WEIGHTED AVERAGE
AVERAGE EXERCISE
TOTAL REMAINING PRICE OF
OUTSTANDING RANGE OF CONTRACTUAL EXERCISABLE
# EXERCISE PRICES LIFE OPTIONS
----------- --------------- ----------- -----------
(IN YEARS)
70,000 $6.88 - $13.76 10.56 $5.42
|
The following table summarizes option activity:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE PER
# SHARE
--------- ---------
Balance -- January 8, 1997.................................. --
Options granted............................................. 28,000 $3.46
------- -----
Balance -- December 31, 1997................................ 28,000 3.46
======= =====
Balance -- December 31, 1998................................ 28,000 3.46
Options granted............................................. 32,000 6.28
------- -----
Balance -- December 31, 1999................................ 60,000 4.96
Options granted............................................. 70,000 10.56
------- -----
Balance -- March 31, 2000 (unaudited)....................... 130,000 $8.02
======= =====
|
Using the intrinsic value method of accounting, no compensation expense results from the granting of options to December 31, 1999. During the quarter ended March 31, 2000, options were granted at an exercise
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price below estimated fair market value at the date of the grant. These options result in compensation expense of $600,000 which is being amortized over 5 years.
The per share weighted-average fair value of stock options granted during
1999 and 1997 was $7.22 and $3.92 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1999 -- risk-free interest rate of 4.60%, expected life of 5 years and expected
volatility of 0.00%; 1997 -- risk-free interest rate of 5.00%, expected life of
5 years and expected volatility of 0.00%.
Had the Company determined compensation cost based on the fair value at the date of grant for its stock options under SFAS 123, net earnings (loss) would have been $6,634,000 (basic EPS $0.86), $(9,000) (basic EPS $0.00), and $11,374,000 (basic EPS $1.46) for the periods ended 1999, 1998 and 1997, respectively. These pro forma earnings reflect compensation cost amortized over the options' vesting period and may not be indicative of the effects in future years.
10. BUSINESS ACQUISITIONS
On September 1, 1997, the Company formed a subsidiary company in Chile ("PTI Chile") to acquire all assets and operations of a Chilean company.
On June 16, 1998, the Company acquired all outstanding shares of General Marine Leasing, Inc.
On July 24, 1998, the Company acquired all outstanding shares of 465750 B.C. Ltd.
On November 7, 1999, the Company acquired all outstanding shares of Norwel Developments Limited.
These acquisitions were accounted for using the purchase method, with the results of operations included in the consolidated financial statements from the effective dates of purchase. Details of the acquisitions are as follows (in thousands):
GENERAL
MARINE 465750 NORWEL
LEASING, B.C. DEVELOPMENTS
PTI CHILE INC. LTD. LIMITED
--------- -------- ------ ------------
Net assets acquired, at assigned values:
Working capital........................... $ -- $ 1,301 $ 260 $ --
Property, plant and equipment............. 7,487 8,646 1,252 932
Goodwill.................................. -- 8,189 -- 718
Long-term debt............................ -- (295) -- --
Deferred income taxes..................... -- (3,153) -- (305)
------ ------- ------ ------
7,487 14,688 1,512 1,345
Non-cash consideration
Note payable to vendor.................... -- (3,500) -- (202)
Shares of PTI ............................ -- (1,964) -- --
Accounts payable.......................... -- (750) -- --
------ ------- ------ ------
Cash consideration.......................... 7,487 8,474 1,512 1,143
Less: Cash acquired......................... -- 239 55 (5)
------ ------- ------ ------
Net cash invested........................... $7,487 $ 8,235 $1,457 $1,148
====== ======= ====== ======
|
In 1999, contingent consideration of $750,000, based on the achievement of certain earnings levels, was recorded in full satisfaction of the acquisition of General Marine Leasing, Inc. This additional consideration was assigned to goodwill.
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents unaudited selected financial information for the Company and the above acquired companies on a pro forma basis, assuming the companies had been combined at the beginning of the year prior to the year of acquisition:
DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
Revenue (in thousands).......................... $71,629 $91,443 $104,037
Net earnings (in thousands)..................... 6,576 753 13,073
Basic earnings per share........................ 0.84 0.09 1.79
|
On February 28, 2000, the Company acquired substantially all the operating assets and business of International Quarters L.L.C. for cash consideration of $3.5 million and a note payable of $1.0 million. The acquisition has been accounted for as a purchase resulting in assigned amounts of $3.5 million for property, plant and equipment and goodwill of $1.0 million. The transaction does not have a material effect on the Company's results of operations.
11. SPECIAL CHARGE
In the third quarter of 1998, the Company recorded an asset impairment provision of $5,263,000, based on the fair market value of the long-lived assets of its Chilean operations.
12. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company's operations consist of four segments: PTI Services, Travco, GML and Chile. The PTI Services segment provides logistics and support services to work crews in remote areas. These services include the transport and maintenance of modular mobile structures ("camps"), and the delivery and preparation of food and living services, collectively referred to as camp catering services. Travco manufactures camps for sale and for use by the PTI Services segment. GML provides camp catering services, including the manufacture of camps, with its operations conducted in the United States. The Chile segment provides camp rental, maintenance and logistics services to customers within Chile and neighbouring countries.
Intersegment sales and services are accounted for at commercial prices and are eliminated on consolidation. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies of the Company. The Company evaluates performance of each reportable segment based upon its operating earnings before depreciation and amortization.
No single customer accounted for 10% or more of consolidated revenues during any of the periods presented.
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information is as follows (in thousands):
Business Segments:
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
-----------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------ ------- ------ --------
Revenue....................................... $36,401 $6,807 $ 2,604 $ -- $ 45,812
Intersegment eliminations..................... -- 2,886 -- -- 2,886
------- ------ ------- ------ --------
Revenue from external customers............... $36,401 $3,921 $ 2,604 $ -- $ 42,926
======= ====== ======= ====== ========
Operating earnings before depreciation and
amortization................................ 12,327 385 658 -- 13,370
Depreciation and amortization............... 1,591
--------
Operating earnings.......................... 11,779
--------
Capital expenditures.......................... 1,702 16 245 -- 1,963
Identifiable assets........................... 86,251 6,695 23,951 1,239 118,136
|
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
----------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------ ------- ------ -------
Revenue........................................ $20,211 $1,126 $ 3,251 $ 234 $24,822
Intersegment eliminations...................... -- 351 -- -- 351
------- ------ ------- ------ -------
Revenue from external customers................ $20,211 $ 775 $ 3,251 $ 234 $24,471
======= ====== ======= ====== =======
Operating earnings (loss) before depreciation
and amortization............................. 6,425 (30) 1,919 (112) 8,202
Depreciation and amortization.................. 1,519
-------
Operating earnings............................. 6,683
-------
Capital expenditures........................... 130 -- 575 -- 705
Identifiable assets............................ 69,883 3,279 19,279 2,040 94,481
|
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------ ------- ------ -------
Revenue........................................ $53,614 $8,515 $10,859 $ 237 $73,225
Intersegment eliminations...................... -- 2,719 -- -- 2,719
------- ------ ------- ------ -------
Revenue from external customers................ $53,614 $5,796 $10,859 $ 237 $70,506
======= ====== ======= ====== =======
Operating earnings (loss) before depreciation
and amortization............................. 14,040 578 5,879 (174) 20,323
Depreciation and amortization.................. 6,256
-------
Operating earnings............................. 14,067
-------
Capital expenditures........................... 2,785 24 3,110 -- 5,919
Identifiable assets............................ 73,884 4,176 17,828 1,210 97,098
|
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------- ------- ------- -------
Revenue...................................... $67,652 $12,258 $ 6,060 $ 3,807 $89,777
Intersegment eliminations.................... -- 3,343 -- -- 3,343
------- ------- ------- ------- -------
Revenue from external customers.............. $67,652 $ 8,915 $ 6,060 $ 3,807 $86,434
======= ======= ======= ======= =======
Operating earnings (loss) before
depreciation, amortization and special
charge..................................... 18,612 695 2,409 (1,426) 20,290
Depreciation and amortization................ 5,812
Special charge............................... 5,263 5,263
-------
Operating earnings........................... 9,215
-------
Capital expenditures......................... 10,418 127 1,318 1,196 13,059
Identifiable assets.......................... 66,337 3,108 16,245 3,671 89,361
|
358 DAY PERIOD ENDED DECEMBER 31, 1997
------------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------- ------- ------ --------
Revenue...................................... $67,503 $30,909 $ -- $3,506 $101,918
Intersegment eliminations.................... -- 7,043 -- -- 7,043
------- ------- ------- ------ --------
Revenue from external customers.............. $67,503 $23,866 $ -- $3,506 $ 94,875
======= ======= ======= ====== ========
Operating earnings before depreciation and
amortization............................... 18,161 4,817 -- 827 23,805
Depreciation and amortization................ 2,909
--------
Operating earnings........................... 20,896
--------
Capital expenditures......................... 8,796 440 -- -- 9,236
Identifiable assets.......................... 66,695 4,137 -- 9,434 80,266
|
Geographic Areas:
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
Revenues from:
Unaffiliated customers.................... $ 2,869 $39,265 $ 792 $ -- $42,926
Inter area sales.......................... -- 172 -- (172) --
------- ------- ------ ----- -------
Total revenue..................... $ 2,869 $39,437 $ 792 $(172) $42,926
======= ======= ====== ===== =======
Long-lived assets........................... 22,580 55,379 1,239 -- 79,198
|
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
Revenues from:
Unaffiliated customers.................... $ 3,415 $19,951 $1,105 $ -- $24,471
Inter area sales.......................... -- 273 -- (273) --
------- ------- ------ ----- -------
Total revenue..................... $ 3,415 $20,224 $1,105 $(273) $24,471
======= ======= ====== ===== =======
Long-lived assets........................... 15,663 51,900 1,456 -- 69,019
|
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
Revenues from:
Unaffiliated customers.................... $11,417 $55,333 $3,756 $ -- $70,506
Inter area sales.......................... -- 888 -- (888) --
------- ------- ------ ----- -------
Total revenue..................... $11,417 $56,221 $3,756 $(888) $70,506
======= ======= ====== ===== =======
Long-lived assets........................... 17,277 56,408 1,248 -- 74,933
|
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
Revenues from:
Unaffiliated customers.................... $ 7,027 $72,186 $7,221 $ -- $86,434
Inter area sales.......................... -- 1,334 -- (1,334) --
------- ------- ------ ------- -------
Total revenue..................... $ 7,027 $73,520 $7,221 $(1,334) $86,434
======= ======= ====== ======= =======
Long-lived assets........................... 14,567 52,760 1,772 -- 69,099
|
358 DAY PERIOD ENDED DECEMBER 31, 1997
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
Revenues from:
Unaffiliated customers.................... $ 112 $87,521 $7,242 $ -- $94,875
Inter area sales.......................... -- 2,492 -- (2,492) --
------- ------- ------ ------- -------
Total revenue..................... $ 112 $90,013 $7,242 $(2,492) $94,875
======= ======= ====== ======= =======
Long-lived assets........................... -- 49,294 6,680 -- 55,974
|
13. STATEMENTS OF CASH FLOWS
The following information supplements the Consolidated Statements of Cash Flows (in thousands):
MARCH 31, DECEMBER 31,
------------------------- ----------------------------
2000 1999 1999 1998 1997
----------- ----------- ------ ------ ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
Cash paid during the period for:
Interest................................ $576 $ 585 $2,504 $1,950 $1,605
Income taxes............................ 410 2,710 4,286 5,253 6,027
|
14. FINANCIAL INSTRUMENTS
Financial instruments include cash, trade accounts receivable, income taxes receivable, current liabilities other than deferred tax liabilities and long-term debt.
The carrying value of the above noted current items approximate their fair value due to their short-term maturity. The carrying value of long-term debt approximates its fair value as it primarily bears interest at floating or short-term fixed rates.
Trade accounts receivable include balances from a large number of customers. The company assesses the credit worthiness of its customers on an ongoing basis as well as monitoring the amount and age of balances outstanding, and views the credit risks on these amounts as normal for the industry.
PTI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is exposed to foreign currency fluctuations in relation to its foreign operations and also has trade accounts receivable and long-term debt denominated in foreign currencies; however, the Company does not believe these exposures are material to its overall operations. The Company has entered into forward exchange contracts to minimize its exposure to fluctuations in foreign exchange rates on trade accounts receivable. Gains and losses on forward exchange contracts are included in earnings on settlement. There are no contracts outstanding at December 31, 1999 and 1998.
The Company utilizes financial instruments to reduce its exposure to fluctuations in interest rates. Gains and losses on interest rate swaps (note 6) are taken to income throughout the period of the arrangements. As at December 31, 1999, 81% of the Company's total long-term debt was in floating rate or short-term fixed borrowings, meaning an assumed 1% change in market interest rates would affect interest expense by approximately $298,000 on an annualized basis.
15. CONTINGENCIES
The Company is involved in various claims and pending or threatened legal actions involving a variety of matters. The total liability on these matters at December 31, 1999 cannot be determined; however, in the opinion of management, any ultimate liability, to the extent not otherwise provided for, should not materially affect the financial position, liquidity or results of operations of the company.
16. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, subsequently amended by FAS 138. The Company expects to adopt the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. The Company has not completed its evaluation but currently does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin no. 101 (as amended), relating to revenue recognition. The Company has not determined the potential impact of this pronouncement on its results of operations.
17. SUBSEQUENT EVENT
The Company has entered into a combination agreement with Oil States International, Inc., HWC Energy Services Inc. and Sooner Inc. to combine the four companies. The terms of the agreement provide for the exchange of 100% of the PTI common shares for cash, Oil States International, Inc. common shares or PTI exchangeable shares, which can be converted into Oil States International, Inc. common shares. The merger has been approved by the board of directors of PTI and is subject to various conditions, including approvals by the shareholders of all companies and regulatory approvals in both the United States and Canada.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31,
2000
-----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,495
Accounts receivable, net of allowance for doubtful
accounts of $205....................................... 13,383
Prepaid expenses and other current assets................. 1,892
--------
Total current assets.............................. 16,770
PROPERTY AND EQUIPMENT, net................................. 52,528
GOODWILL, net............................................... 31,013
OTHER LONG-TERM ASSETS...................................... 591
--------
Total assets...................................... $100,902
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 7,651
Accounts payable and accrued expenses..................... 6,312
Income taxes payable...................................... 734
Deferred income tax liability............................. --
Other current liabilities................................. 733
--------
Total current liabilities......................... 15,430
BANK DEBT................................................... 23,674
NOTES PAYABLE TO FORMER OWNERS.............................. 7,995
CONVERTIBLE NOTES PAYABLE................................... 500
DEFERRED TAX LIABILITY...................................... 11,289
OTHER LIABILITIES........................................... 119
--------
Total liabilities................................. 59,007
COMMITMENTS AND CONTINGENCIES:
REDEEMABLE PREFERRED STOCK:
Par value $.01, 5,800 shares authorized, 4,862 issued and
outstanding at March 31, 2000; $5,061 aggregate
liquidation preference at March 31, 2000............... 5,061
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000,000 shares authorized,
33,484 shares issued and outstanding as of March 31,
2000................................................... 37,925
Additional paid-in capital................................ --
Currency translation adjustment........................... 21
Retained earnings (deficit)............................... (1,112)
--------
Total stockholders' equity........................ 36,834
--------
Total liabilities and stockholders' equity........ $100,902
========
|
The accompanying notes are an integral part of these consolidated financial statements.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES.................................................... $17,380 $8,341
COST OF SERVICES:
Operating costs........................................... 10,258 5,217
Depreciation and amortization............................. 1,849 1,501
------- ------
Gross profit...................................... 5,273 1,623
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 3,028 2,344
------- ------
Income (loss) from operations..................... 2,245 (721)
OTHER:
Equity in net income of affiliate......................... 56 (12)
Interest income........................................... 21 9
Interest expense.......................................... (854) (570)
Other income (expense).................................... 5 (49)
------- ------
INCOME (LOSS) BEFORE INCOME TAXES........................... 1,473 (1,343)
PROVISION (BENEFIT) FOR INCOME TAXES........................ 649 (374)
------- ------
NET INCOME (LOSS) BEFORE PREFERRED DIVIDENDS................ 824 (969)
PREFERRED STOCK DIVIDENDS................................... (81) --
------- ------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS....... $ 743 $ (969)
======= ======
|
The accompanying notes are an integral part of these consolidated financial statements.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers.............................. $ 17,373 $ 8,315
Cash paid to suppliers and employees...................... (14,362) (8,429)
Cash paid for interest.................................... (913) (556)
Cash paid for income taxes................................ 25 (610)
Other..................................................... 32 4
-------- -------
Net cash provided by (used in) operating
activities....................................... 2,155 (1,276)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (1,243) (740)
Cash used in acquisitions, net of cash acquired........... -- (331)
Other..................................................... 8 51
-------- -------
Net cash used in investing activities............. (1,235) (1,020)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt.......................................... 909 3,833
Repayment of debt......................................... (1,478) (2,679)
Other..................................................... 121
-------- -------
Net cash provided by (used in) financing
activities....................................... (448) 1,154
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS:.................... 472 (1,142)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,023 1,142
-------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,495 $ --
======== =======
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 824 $ (969)
Depreciation and amortization............................. 1,833 1,501
Equity in earnings of affiliates.......................... (56) 12
Other..................................................... 32 182
Deferred taxes............................................ (113) (229)
Change in current assets and liabilities-
Increase (decrease) in accounts receivable............. (7) (18)
Increase in prepaid expenses and other current
assets................................................ (256) 215
Increase (decrease) in accounts payable and accrued
expenses.............................................. (757) (1,267)
Increase (decrease) in income taxes payable............ 787 (750)
Increase (decrease) in other current liabilities....... (132) 47
-------- -------
Net cash provided by (used in) operating
activities....................................... $ 2,155 $(1,276)
======== =======
NONCASH TRANSACTIONS:
Issuance of debt for assets............................... -- $ 820
Issuance of common or preferred stock for stock of
acquired subsidiary.................................... -- 2,000
Stock dividend issued on redeemable preferred stock....... $ 81 $ --
|
The accompanying notes are an integral part of these consolidated financial statements.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company and its wholly-owned subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. The unaudited consolidated financial statements included in this report reflect all the adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the year.
The financial statements included in this report should be read in conjunction with the Company's 1999 audited consolidated financial statements and accompanying notes included elsewhere herein.
2. ACQUISITIONS
On March 31, 1999, the Company completed the acquisition of all of the outstanding stock of C&H Rental Tools, Inc., and C&H Specialty Company, Inc. (collectively, C&H). The Company paid cash of approximately $2.4 million and $820,000 in subordinated promissory notes. C&H provides rental equipment for drilling and workover operations in Louisiana and offshore in the Gulf of Mexico. In addition, the C&H purchase agreement provides for the payment of certain contingent consideration based on the earnings of the acquired business during the period from January 1, 1999, through December 31, 2000. Payment on the contingent consideration is due by March 31, 2001. Any contingent consideration will be based on an agreed-upon percentage of earnings above targeted levels and could total a maximum of $2,120,000. The contingent consideration is not included in the acquisition cost total above but will be recorded when future earnings requirements are met. Subsequent to March 31, 2000, the earnings of the acquired business met specified targets and the Company recorded additional consideration and a liability to the former C&H owners of $2,120,000.
Effective on November 30, 1999, the Company completed the acquisition of 12 snubbing units and related equipment from two unrelated vendors for total consideration of $3.7 million cash and subordinated notes held by one of the vendors in the amount of $4.5 million. The snubbing units are similar to those currently operated by the Company and were located in Europe, Africa, the Middle East and Canada when acquired. The purchase agreement contained a preestablished rate which would be charged to the buyers upon future leasing of the equipment and such amounts paid by the buyers will be applied as payment of the debt obligations.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following at March 31, 2000 (unaudited) (in thousands):
ESTIMATED
LIVES
(IN YEARS)
----------
Land........................................................ $ 684
Rental tools................................................ 5-7 21,732
Equipment................................................... 5-13 34,139
Buildings and improvements.................................. 25 4,000
Vehicles.................................................... 3-5 2,019
Furniture, fixtures and equipment........................... 5 635
-------
63,209
Less- Accumulated depreciation.............................. 10,681
-------
Property and equipment, net....................... $52,528
=======
|
Depreciation expense recorded for the three months and March 31, 2000 was $1,615 and is included in the total cost of services section of the accompanying unaudited consolidated statements of operations.
4. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position.
Insurance
The Company carries a broad range of insurance coverage, including general and business auto liability, commercial property, workers' compensation and a general umbrella policy.
5. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and debt. The carrying value of those instruments reported in the balance sheet are considered to estimate their respective fair values based on comparisons to market rates having the same or similar maturities and collateral requirements offered to the Company. Management believes the carrying amounts of these accounts approximate fair value as of March 31, 2000.
6. RISK CONCENTRATION
The Company has material receivables, denominated in U.S. dollars, from various Venezuelan customers. The Company's policy is to manage its exposure to credit risk through credit approvals and limits. Historically, write-offs for doubtful accounts have been insignificant.
7. INDUSTRY SEGMENT INFORMATION
The Company has three operating business segments: the hydraulic well control segment, the specialty rental tool segment, and the oil and gas well drilling segment. The hydraulic well control segment provides hydraulic workover (snubbing) units and crews for emergency well control situations and in selected
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
markets, various hydraulic well control solutions involving well drilling and workover and completion activities. The specialty rental tool segment provides rental equipment for drilling and workover operations. The oil and gas well drilling segment includes the operation of 12 shallow well land drilling rigs with automated pipe handling. The Company's nonoperating segment consists of corporate activities and minority investment in an unconsolidated subsidiary. The segments of the Company are based on the groupings of similar businesses acquired since the inception of the Company in 1997.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company's audited financials appearing elsewhere herein. There are no intersegment sales. Information about the Company's segments are as follows:
STATEMENT OF OPERATIONS INFORMATION
QUARTER ENDED
MARCH 31
----------------
2000 1999
------- ------
(IN THOUSANDS)
Revenues --
Hydraulic well control.................................... $ 7,607 $3,897
Specialty rental tools.................................... 5,828 3,315
Oil and gas well drilling................................. 3,945 1,129
General corporate......................................... -- --
------- ------
$17,380 $8,341
======= ======
Income (loss) from operations
Hydraulic well control.................................... $ 1,126 $ (480)
Specialty rental tools.................................... 923 229
Oil and gas well drilling................................. 365 (301)
General corporate......................................... (169) (169)
------- ------
$ 2,245 $ (721)
======= ======
|
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of HWC Energy Services, Inc., and Subsidiaries:
We have audited the accompanying consolidated balance sheets of HWC Energy Services, Inc. (a Texas corporation), and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 1999 and 1998, and the period from November 14, 1997 (Inception) through December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of HWC Energy Services, Inc., and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years ended December 31, 1999 and 1998, and for the period from November 14, 1997 (Inception) through December 31, 1997, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
July 14, 2000
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
------------------
1999 1998
-------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,023 $ 1,142
Accounts receivable, net of allowance for doubtful
accounts of $296 and $204, respectively................ 13,373 7,684
Prepaid expenses and other current assets................. 1,635 1,508
-------- -------
Total current assets.............................. 16,031 10,334
PROPERTY AND EQUIPMENT, net................................. 52,914 44,324
GOODWILL, net............................................... 31,203 30,404
OTHER LONG-TERM ASSETS...................................... 580 606
-------- -------
Total assets...................................... $100,728 $85,668
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 4,017 $ 6,445
Accounts payable and accrued expenses..................... 7,066 4,913
Income taxes payable...................................... -- 688
Deferred income tax liabilities........................... -- 98
Other current liabilities................................. 812 1,527
-------- -------
Total current liabilities......................... 11,895 13,671
BANK DEBT................................................... 23,606 15,015
NOTES PAYABLE TO FORMER OWNERS.............................. 12,210 7,655
CONVERTIBLE NOTES PAYABLE................................... 500 500
DEFERRED TAX LIABILITIES.................................... 11,401 10,392
OTHER LIABILITIES........................................... 129 --
-------- -------
Total liabilities................................. 59,741 47,233
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK
Par value $.01, 5,800 shares authorized, 4,795 shares
issued and outstanding at December 31, 1999; $4,914
aggregate liquidation preference at December 31,
1999................................................... 4,914 --
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000,000 shares authorized,
33,484 shares issued and outstanding as of December 31,
1999 and 1998.......................................... 37,925 37,925
Additional paid-in capital................................ -- --
Cumulative translation adjustment......................... 4 --
Retained earnings (deficit)............................... (1,856) 510
-------- -------
Total stockholders' equity........................ 36,073 38,435
-------- -------
Total liabilities and stockholders' equity........ $100,728 $85,668
======== =======
|
The accompanying notes are an integral part of these consolidated financial statements.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE
PERIOD FROM
NOVEMBER 14,
1997
YEAR ENDED (INCEPTION),
DECEMBER 31, THROUGH
----------------- DECEMBER 31,
1999 1998 1997
------- ------- ------------
REVENUES.................................................... $42,274 $42,616 $7,459
COST OF SERVICES:
Operating costs........................................... 26,848 27,885 4,561
Depreciation and amortization............................. 6,543 4,650 304
------- ------- ------
Gross profit...................................... 8,883 10,081 2,594
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 9,364 7,408 827
------- ------- ------
Income (loss) from operations..................... (481) 2,673 1,767
OTHER:
Equity in earnings of affiliate........................... 52 87 --
Interest income........................................... 36 235 12
Interest expense.......................................... (2,565) (2,507) (225)
Other income (expense).................................... (40) 28 (368)
------- ------- ------
INCOME (LOSS) BEFORE INCOME TAXES........................... (2,998) 516 1,186
PROVISION (BENEFIT) FOR INCOME TAXES........................ (753) 550 642
------- ------- ------
NET INCOME (LOSS) BEFORE PREFERRED DIVIDENDS................ (2,245) (34) 544
PREFERRED STOCK DIVIDENDS................................... (121) -- --
------- ------- ------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS....... $(2,366) $ (34) $ 544
======= ======= ======
|
The accompanying notes are an integral part of these consolidated financial statements.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL CUMULATIVE RETAINED
---------------- PAID-IN TRANSLATION EARNINGS
SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) TOTAL
------ ------- ---------- ----------- --------- -------
BALANCE, November 14, 1997
(Inception)........................ -- $ -- $ -- $ -- $ -- $ --
SALE OF STOCK FOR CASH............. 20,400 20,400 -- -- -- 20,400
ISSUANCE OF STOCK IN ACQUISITION
TRANSACTION........................ 3,600 3,600 -- -- -- 3,600
NET INCOME......................... -- -- -- -- 544 544
------ ------- ---- ---- ------- -------
BALANCE, December 31, 1997......... 24,000 24,000 -- -- 544 24,544
SALE OF STOCK TO EXISTING
STOCKHOLDERS....................... 2,817 2,425 -- -- -- 2,425
ISSUANCE OF STOCK IN ACQUISITION
TRANSACTIONS....................... 6,667 11,500 -- -- -- 11,500
NET LOSS........................... -- -- -- -- (34) (34)
------ ------- ---- ---- ------- -------
BALANCE, December 31, 1998......... 33,484 37,925 -- -- 510 38,435
PREFERRED STOCK DIVIDEND........... -- -- -- -- (121) (121)
COMPREHENSIVE LOSS:
Net loss......................... -- -- -- -- (2,245) (2,245)
Cumulative translation
adjustment.................... -- -- -- 4 -- 4
------ ------- ---- ---- ------- -------
Total comprehensive
loss................... -- -- -- 4 (2,245) (2,241)
------ ------- ---- ---- ------- -------
BALANCE, December 31, 1999......... 33,484 $37,925 $ -- $ 4 $(1,856) $36,073
====== ======= ==== ==== ======= =======
|
The accompanying notes are an integral part of these consolidated financial statements.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE PERIOD FROM
NOVEMBER 14, 1997
YEAR ENDED DECEMBER 31, (INCEPTION), THROUGH
----------------------- DECEMBER 31,
1999 1998 1997
---------- ---------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers............................. $ 37,350 $ 50,473 $ 7,459
Cash paid to suppliers and employees..................... (35,604) (40,274) (2,476)
Cash paid for interest................................... (2,429) (2,661) (225)
Interest income received................................. 36 235 12
Foreign exchange gain (loss)............................. 20 (79) (370)
Other income received (paid)............................. (46) 1,618 2
Cash paid for income taxes............................... (570) (1,645) --
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... (1,243) 7,667 4,402
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets................................. (2,740) (4,962) (1,063)
Proceeds from sale (disposition) of fixed assets......... 327 620 898
Cash used in acquisitions, net of cash acquired.......... (6,069) (9,339) (33,314)
-------- -------- --------
Net cash used in investing activities............ (8,482) (13,681) (33,479)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt......................................... 11,787 14,001 17,100
Repayment of debt........................................ (6,974) (27,693) --
Proceeds from issuance of stock, net of issuance costs... 4,793 12,425 20,400
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... 9,606 (1,267) 37,500
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS:................... (119) (7,281) 8,423
CASH AND CASH EQUIVALENTS, beginning of period............. 1,142 8,423 --
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 1,023 $ 1,142 $ 8,423
======== ======== ========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss)........................................ $ (2,245) $ (34) $ 544
Depreciation and amortization............................ 6,543 4,650 304
Equity in earnings of affiliates......................... (52) (87) --
Other.................................................... (70) 249 (101)
Deferred taxes........................................... (701) 56 (71)
Loss on asset sales................................... 15 18 --
Change in current assets and liabilities --
(Increase) decrease in accounts receivable.......... (4,925) 7,811 5,791
(Increase) decrease in prepaid expenses and other
current assets................................... (147) (245) (387)
Increase (decrease) in accounts payable and accrued
expenses......................................... 1,785 (2,920) (3,110)
Increase (decrease) in income taxes payable......... (622) (673) 713
Increase (decrease) in accrued interest............. 136 (150) --
Increase (decrease) in other current liabilities.... (960) (1,008) 719
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... $ (1,243) $ 7,667 $ 4,402
======== ======== ========
NONCASH TRANSACTIONS:
Issuance of debt for acquisitions........................ $ 5,320 $ 5,340 $ 7,009
Issuance of common stock for acquisitions................ -- 1,500 3,600
Preferred stock dividends................................ 121 -- --
|
The accompanying notes are an integral part of these consolidated financial statements.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
HWC Energy Services, Inc. (the Parent) (a Texas corporation), and subsidiaries (collectively, the Company) provide worldwide well control services and drilling and rental equipment to the oil and gas industry. The headquarters of HWC Energy Services, Inc., is in Houston, Texas, and the Company operates primarily in Texas, Louisiana, Ohio, Oklahoma and New Mexico, along with foreign operations in Venezuela, the Middle East, Africa and Canada. Its hydraulic well control operations provide, globally, hydraulic workover (snubbing) units for emergency well control situations and in selected markets, various hydraulic well control solutions involving well drilling and workover and completion activities. In West Texas and Ohio, the Company's Capstar Drilling, Inc., subsidiary operates shallow well drilling rigs with automated pipe handling capabilities. Specialty Rental Tools and Supply, Inc. operates from 12 locations in Texas, Louisiana and Oklahoma to provide rental equipment for drilling and workover operations. The Company utilizes underbalanced drilling techniques to enhance drilling performance.
The Company's level of activity depends largely on the condition of the oil and gas industry and, in particular, the level of capital expenditures by oil and gas companies for drilling services in the Company's operating areas. These expenditures are influenced by prevailing oil and gas prices, expectations about future demand and prices, the cost of exploring, producing and developing oil and gas reserves, the discovery rates of new oil and gas reserves, political and economic conditions, governmental regulations and the availability and cost of capital.
2. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Capstar Drilling, Inc. (Capstar), Specialty Rental Tools and Supply, Inc. (Specialty), and HWC Holdings, Inc. (Holdings), and a 28.6 percent investment in Signa Engineering Corporation (Signa). The Company's investment in Signa (see Note 6) is accounted for using the equity method of accounting. All significant intercompany transactions have been eliminated in consolidation.
Basis of Accounting and Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated over the remaining lives of the assets. Upon retirement or disposition of property and equipment,
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations.
The Company periodically evaluates its long-lived assets held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable and a provision for possible loss is made if required. Based on the Company's review, the carrying value of its assets are recoverable and no impairment losses have been recorded for the periods presented.
Goodwill
Goodwill represents the excess of cost over fair market value of net assets acquired and is being amortized on a straight-line basis over an estimated useful life of 40 years. Goodwill is shown net of accumulated amortization of $1.5 million and $654,000 at December 31, 1999 and 1998, respectively. The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the expected future undiscounted cash flow of the businesses acquired over the remaining amortization period, the carrying amount of the goodwill is reduced by the estimated shortfall. Based on the Company's review, the carrying value of its goodwill is recoverable and no impairment losses have been recorded for the periods presented.
Foreign Currency Translation
The accounting records of one of the Company's subsidiaries are maintained and prepared in Canadian dollars. Accordingly, the Canadian dollar is the functional currency and is translated to U.S. dollars for financial reporting purposes. The accounts of the foreign subsidiary have been remeasured into U.S. dollars using the exchange rate for balances at the end of the period and the average exchange rate for transactions occurring during the period. The resulting net translation gains and losses are reported in the equity section of the balance sheet under the caption "cumulative translation adjustment."
The accounting records of the Company's subsidiary in Venezuela are maintained in Venezuelan bolivars. The accounts of the Venezuelan subsidiary have been remeasured into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." Accordingly, the Venezuelan bolivars are translated to U.S. dollars for financial reporting purposes by using the U.S. dollar as the functional currency and exchange gains and losses, as well as translation gains and losses, are reported in income and expenses. The resulting net exchange and translation gains (losses) for the years ended December 31, 1999 and 1998, and for the period from November 14, 1997 (inception) through December 31, 1997 were $20,000, $(79,000), and $(370,000), respectively.
Comprehensive Income
Comprehensive income is defined by SFAS No. 131, "Reporting Comprehensive Income," and is net income including direct adjustments to stockholders' equity. The cumulative translation adjustment of the Company's Canadian subsidiary is the only such direct adjustment applicable to the Company and is only applicable to the year ended December 31, 1999.
Revenue Recognition
The Company recognizes revenues from contracts as they are earned, either on the basis of the footage drilled or number of days worked at the contractual rate per day. Revenues from rental tools are recognized as they are earned, based on daily rental rates.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are recorded based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets or liabilities are recovered or settled.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supercedes and amends a number of existing accounting standards. The Company currently does not employ derivative instruments and believes that the adoption of SFAS No. 133, required originally in the year 2000, amended by SFAS No. 137 and extended into the year 2001, will not have a material impact on the Company's financial position or results of operations.
3. ACQUISITIONS
On November 17, 1997, the Company acquired 100 percent of the common stock of Brazeal, Inc., which was conducting business as CapStar. The total purchase price was $12.0 million and consisted of cash of $10.0 million and notes issued to the former Brazeal, Inc. shareholders of $2.0 million.
On November 20, 1997, the Company, through a wholly owned subsidiary, acquired 100 percent of the stock of Hydraulic Well Control, Inc., and certain affiliated companies (HWC) for total consideration of $34.4 million. The purchase consideration consisted of cash of $26.5 million, notes issued to the former shareholders of $5.0 million, stock of the Company valued at $3.6 million and assumed liabilities of $0.7 million. The transaction was accounted for using the purchase method of accounting. HWC operates hydraulic well control equipment worldwide.
On May 1, 1998, the Company acquired all of the outstanding shares of Specialty, an unaffiliated company, for approximately $24.3 million, including transaction costs. The consideration for the shares was funded by a senior bank note of $12.5 million, approximately $2.8 million in subordinated promissory notes payable to the existing Specialty stockholders, assumption of approximately $1.2 million of debt and cash proceeds from the sale of stock of $6.0 million. Existing Specialty stockholders were also issued shares of the Company's common stock valued at $1.5 million.
On June 14, 1998, Capstar acquired the assets of Peek and Rowan, Inc., and an affiliated company (Peek and Rowan), companies in a similar line of business as Capstar, for approximately $5.7 million, including transaction costs. The purchase price was funded by approximately $1.2 million in subordinated promissory notes payable to Peek and Rowan, a convertible promissory note in the amount of $500,000 and cash proceeds from the sale of stock of $4.0 million.
On December 31, 1998, Specialty acquired the assets of A & B Rental Tools, Inc. (A & B), a company in a similar line of business as Specialty, for $1.8 million. The purchase price was funded by a subordinated promissory note payable to the former A & B stockholders and $900,000 in cash. For the year ended December 31, 1998, the operations of Peek and Rowan and Specialty have been included in the consolidated financial statements for the periods from their acquisition dates.
On March 31, 1999, the Company completed the acquisition of all of the outstanding stock of C&H Rental Tools, Inc., and C&H Specialty Company, Inc. (collectively, C&H). The Company paid cash of approximately $2.4 million and $820,000 in subordinated promissory notes. C&H provides rental equipment for drilling and workover operations in Louisiana and offshore in the Gulf of Mexico. In addition, the C&H
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase agreement provides for the payment of certain contingent consideration based on the earnings of the acquired business during the period from January 1, 1999, through December 31, 2000. Payment on the contingent consideration is due by March 31, 2001. Any contingent consideration will be based on an agreed-upon percentage of earnings above targeted levels and could total a maximum of $2,120,000. The contingent consideration is not included in the acquisition cost total above but will be recorded when future earnings requirements are met.
Effective on November 30, 1999, the Company completed the acquisition of 12 snubbing units and related equipment from two unrelated vendors for total consideration of $3.7 million cash and subordinated notes held by one of the vendors in the amount of $4.5 million. The snubbing units are similar to those currently operated by the Company and were located in Europe, Africa, the Middle East and Canada when acquired. The purchase agreement contained a preestablished rate which would be charged to the buyers upon future leasing of the equipment and such amounts paid by the buyers will be applied as payment of the debt obligations.
The acquisitions during 1999 and 1998 were accounted for using the purchase method of accounting and have included the application of "pushdown" accounting to the individual company's financial statements. Accordingly, an allocation of the purchase price has been assigned to the assets and liabilities based upon the estimated fair value of those assets and liabilities as of the acquisition date. Such allocation is based on the Company's internal evaluation of such assets and supplemented by independent appraisals. The balances included in the Consolidated Balance Sheets related to the current year acquisitions are based upon preliminary information and are subject to change when additional information concerning final asset and liability valuations is obtained. Material changes in the preliminary allocations are not anticipated.
The operations of the acquired businesses and assets are included in the Company's consolidated operations from the respective acquisition dates. The Company's revenues and net income on an unaudited pro forma basis, assuming the acquisitions occurred on January 1, 1998, would be as follows (in thousands):
YEAR ENDED
DECEMBER 31,
-----------------
1999 1998
------- -------
Revenues (unaudited)........................................ $50,570 $66,567
Net income (loss) (unaudited)............................... (782) 1,862
|
The pro forma results include adjustments for the amortization of the intangibles presented above and interest expense on debt assumed to be issued to finance the purchases. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been completed as of January 1, 1998, nor are they necessarily indicative of future consolidated results.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following table presents a detail of activity for the Company's allowance for doubtful accounts (in thousands):
FOR THE
PERIOD FROM
NOVEMBER 14,
1997
YEAR ENDED (INCEPTION),
DECEMBER 31, THROUGH
------------- DECEMBER 31,
1999 1998 1997
----- ----- ------------
Balance at beginning of period.......................... $ 204 $ 170 $ --
Additions to cost and expenses........................ 326 136 170
Deductions for uncollectible receivables written
off................................................ (234) (102) --
----- ----- ----
Balance at end of period................................ $ 296 $ 204 $170
===== ===== ====
|
5. PROPERTY AND EQUIPMENT:
The Company's property and equipment consists of the following (in thousands):
DECEMBER 31,
ESTIMATED -----------------
LIVES 1999 1998
---------- ------- -------
(IN YEARS)
Land................................................... -- $ 517 $ 517
Rental tools........................................... 5-7 21,278 11,252
Equipment.............................................. 5-13 33,232 27,739
Buildings and improvements............................. 25 4,143 3,771
Vehicles............................................... 3-5 2,052 2,332
Furniture, fixtures and equipment...................... 5 926 2,733
------- -------
62,148 48,344
Less- Accumulated depreciation......................... (9,234) (4,020)
------- -------
Property and equipment, net.................. $52,914 $44,324
======= =======
|
Depreciation expense recorded for the years ended December 31, 1999 and 1998, and for the period from November 14, 1997 (Inception), through December 31, 1997, was $5.6 million, $3.8 million and $0.3 million, respectively, and is included in the total cost of services section of the accompanying consolidated statements of operations.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
DECEMBER 31,
------------------
1999 1998
------- -------
Bank line of credit, up to $20.0 million available based
upon a borrowing base consisting of a percentage of
eligible accounts receivable, real estate and certain
fixed assets Interest payable monthly at the bank's prime
rate or LIBOR plus from 1.00% to 3.00% and an unused
commitment fee ranging from 0.25% to 0.50% based on the
ratio of debt to earnings before depreciation, interest
and taxes. The weighted average interest rate at December
31, 1999, was 8.23%
Amounts outstanding are due May 1, 2003..................... $10,750 $ --
Bank term debt. Interest is the same rate as the above bank
line of credit. Principal of $762 is repayable quarterly
through March 31, 2003. Balance due at maturity, May 1,
2003...................................................... 14,986 18,060
Bank line of credit, up to $500 (Canadian dollars) available
at the Company's option. Interest is payable monthly at
the bank's prime rate plus 0.25%. Amounts outstanding are
due on demand............................................. -- --
Bank term debt. Interest is payable monthly at the bank's
prime rate plus 0.50%. Principal of $300 (Canadian
dollars) is repayable consisting of $200 due at the end of
April and $50 at the end of July and October each year.
Balance due at maturity, December 2, 2004................. 1,038 --
Subordinated unsecured notes payable due March 31, 2000.
Interest payable annually at 7.00%.......................... 690 1,190
Subordinated unsecured notes payable due $1,000, under
certain circumstances, about March 31, 1999, and the
balance due November 7, 1999. Interest payable quarterly
at 7.50%.................................................. -- 2,000
Subordinated unsecured notes payable due January 31, 2001.
Interest payable quarterly at 7.00%......................... 4,215 4,215
Subordinated unsecured note payable due May 1, 2002.
Interest payable quarterly at 7.00%......................... 2,750 2,750
Subordinated note payable secured by certain rental tools
purchased from A & B Rental Tools, Inc., on December 31,
1998. Interest at 8.00% due at maturity on June 30,
1999...................................................... -- 900
Subordinated notes payable due November 30, 2005. Interest
accrues at 7.00% annually. Principal and interest are
payable at a fixed amount for each day certain equipment
is utilized............................................... 4,500 --
Subordinated note payable due September 30, 2003. Interest
payable quarterly at 6.50%................................ 820 --
Convertible subordinated unsecured note payable due June 15,
2001. Interest payable quarterly at 5.00%. Convertible by
holder into 200 shares of common stock.................... 500 500
Notes payable to various credit corporations, payable in
monthly installments of principal and interest at various
interest rates, maturing through fiscal year 2001......... 84 --
------- -------
Total debt........................................ 40,333 29,615
Less -- Current portion........................... (4,017) (6,445)
------- -------
Long-term debt.................................... $36,316 $23,170
======= =======
|
Amounts owed the bank are secured by substantially all the assets of the Company and its subsidiaries. Each of the Company's subsidiaries as well as the Company are guarantors under the bank credit agreements.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The bank credit agreement contains certain financial and other covenants that, among other things, restrict the amount of dividends the Company may pay and the amount of debt the Company can incur. The Company is required to pay an unused commitment fee ranging from 0.25% to 0.5% per annum of the amount of the unused commitment from the bank line of credit.
Future maturities of long-term debt at December 31, 1999, are as follows (in thousands):
2000...................................................... $ 4,017
2001...................................................... 8,126
2002...................................................... 6,077
2003...................................................... 17,707
2004...................................................... 281
Thereafter................................................ 4,125
-------
$40,333
=======
|
7. INVESTMENT IN AFFILIATE
In January 1998, the Company purchased 28.6 percent of the outstanding common stock of Signa for approximately $760,000. The total amount paid was classified as goodwill at the acquisition date based on the book value of Signa on the acquisition date. Signa provides a complete range of comprehensive integrated petroleum engineering services to include feasibility studies, evaluations, planning, permitting, engineering, design, implementation, geotechnical, field operations, production services accounting, training, expert witness testimony, animated graphics, environmental engineering and project management to clients worldwide. The Company accounts for its investment in Signa using the equity method. During 1999 and 1998, the Company recognized its share of Signa's net income as equity in earnings of affiliate totaling $52,000 and $87,000, respectively.
8. REDEEMABLE PREFERRED STOCK
In connection with the 1999 acquisition of C&H, the Company issued 2,145 shares of a new Series A class of redeemable convertible preferred stock (Redeemable Series A Preferred Stock). The shares are redeemable with a liquidation preference of $1,000 per share. The preferred shares accrue dividends at the rate of 6.5 percent per annum. As of December 31, 1999, 2,145 shares were outstanding. The Company elected to accrue the cumulative unpaid dividends totaling $106,000 at December 31, 1999. The Redeemable Series A Preferred Stock shall be redeemed as a whole by the Company on March 31, 2004, at a redemption price of $1,000 per share, plus all accrued and unpaid dividends to the date of the redemption. The holders of the Redeemable Series A Preferred Stock have the right to convert, at any time, all or any shares into common stock of the Company based on the liquidation value of the preferred stock, including accrued but unpaid dividends, on such date based upon preestablished formulas defined in the agreement.
In connection with the 1999 acquisition of two unrelated vendors, the Company issued 2,650 shares of a new Series B class of redeemable convertible preferred stock (Redeemable Series B Preferred Stock). The shares are redeemable with a liquidation preference of $1,000 per share. The preferred shares accrue dividends at the rate of 6.5 percent per annum. As of December 31, 1999, 2,650 shares were outstanding. The Company elected to accrue the cumulative unpaid dividends totaling $15,000 at December 31, 1999. The Redeemable Series B Preferred Stock shall be redeemed as a whole by the Company on October 30, 2004, at a redemption price of $1,000 per share, plus all accrued and unpaid dividends to the date of the redemption. The holders of the Redeemable Series B Preferred Stock have the right to convert, at any time, all or any shares into common stock of the Company based on the liquidation value of the preferred stock, including accrued but unpaid dividends, on such date based upon preestablished formulas defined in the agreement.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
Provision (benefit) for income taxes is as follows (in thousands):
YEAR ENDED FOR THE PERIOD FROM
DECEMBER 31, NOVEMBER 14, 1997
--------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
------- ---- --------------------
Current --
Federal...................................... $ (49) $266 $486
State........................................ (3) -- 7
Non-U.S. .................................... -- 228 220
------- ---- ----
(52) 494 713
Deferred, federal.............................. (701) 56 (71)
------- ---- ----
Total................................ $ (753) $550 $642
======= ==== ====
|
Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate tax rate to income before income taxes as follows (in thousands):
YEAR ENDED FOR THE PERIOD FROM
DECEMBER 31, NOVEMBER 14, 1997
--------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
------- ---- --------------------
Federal provision (benefit) at the statutory
rate......................................... $(1,019) $180 $415
State provision (benefit), net of federal
benefit...................................... (59) -- 26
Increase (decrease) resulting from-
Goodwill amortization not deductible......... 277 221 15
Meals and entertainment...................... 100 69 --
Foreign taxes in excess of US statutory
rate...................................... -- 28 122
Other, net................................... (52) 52 64
------- ---- ----
$ (753) $550 $642
======= ==== ====
|
The acquisition transactions were not taxable, thus the resulting goodwill amortization is not deductible, causing permanent differences between income tax expense on both book and tax bases for the years ended December 31, 1999 and 1998, and future periods.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred income tax liabilities consist primarily of the following (in thousands):
DECEMBER 31,
--------------------
1999 1998
-------- --------
Deferred income tax assets --
Other..................................................... $ 107 $ 343
-------- --------
Total deferred income tax assets.................. 107 343
-------- --------
Deferred income tax liabilities --
Property and equipment.................................... (11,266) (10,598)
Other intangibles......................................... (192) (203)
Other..................................................... (50) (32)
-------- --------
Total deferred income tax liabilities............. (11,508) (10,833)
-------- --------
Net deferred income tax liabilities......................... $(11,401) $(10,490)
======== ========
|
The net deferred income tax assets and liabilities are comprised of the following (in thousands):
DECEMBER 31,
--------------------
1999 1998
-------- --------
Deferred income tax assets --
Current................................................... $ -- $ --
Long-term................................................. 107 343
-------- --------
Total deferred income tax assets.................. 107 343
-------- --------
Deferred income tax liabilities --
Current................................................... -- (98)
Long-term................................................. (11,508) (10,735)
-------- --------
Total deferred income tax liabilities............. (11,508) (10,833)
-------- --------
Net deferred income tax assets (liabilities).............. $(11,401) $(10,490)
======== ========
|
10. STOCK OPTIONS
At December 31, 1999, the Company had stock options outstanding as follows:
NUMBER OF EXERCISE WEIGHTED AVERAGE
OPTIONS PRICE RANGE EXERCISE PRICE
--------- --------------- ----------------
Outstanding at December 31, 1997........... -- -- --
Granted.................................... 2,640 $1,000 - $1,500 $1,083
-----
Outstanding at December 31, 1998........... 2,640 1,000 - 1,500 1,083
Granted.................................... 430 1,000 - 1,500 1,116
Forfeited.................................. (335) 1,000 - 1,500 1,090
-----
Outstanding at December 31, 1999........... 2,735 $1,000 - $1,500 $1,097
=====
|
Options are exercisable based on a vesting period of three to four years.
Options issued during the year ended December 31, 1999 and 1998, have a remaining life of six years and five years, respectively.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for its stock option program in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company has adopted the Financial Accounting Standard Board's SFAS No. 123, "Accounting for Stock-Based Compensation," which requires entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income disclosures for employee stock option grants made as if the fair value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of ABP Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. The fair value of each option grant is estimated on the date of grant using the Minimum Value option pricing model with the following assumptions used for grants in 1999 and 1998, respectively: risk-free interest rate of 7.5%, no volatility and expected lives of 6 years. Had compensation cost been recorded based on SFAS No. 123, the Company's net loss would have been $2.6 million and $353,000 for the years ended December 31, 1999 and 1998, respectively.
11. RELATED PARTY
In accordance with prior purchase agreements, the Company made debt payments in 1999, 1998 and from November 14, 1997 (inception) through December 31, 1997, of approximately $--, $794,000 and $-- to a former owner of HWC, Inc., a subsidiary of the Parent. Additionally, the Company also paid consulting fees of approximately $353,000, $72,000 and $16,000 in 1999, 1998 and from November 14, 1997 (inception) through December 31, 1997, respectively, to three former owners of HWC, Inc., pursuant to the HWC, Inc., purchase agreement.
In 1999, the Company incurred additional debt related to current-year acquisitions as discussed in Note 3.
As of December 31, 1999 and 1998, the Company has an aggregate debt balance of approximately $13.5 million and $11.6 million, respectively, due to former owners.
12. LEASES
The Company leases certain vehicles and equipment under noncancelable operating leases expiring within the next three years. Rent expense was approximately $513,000, $497,000 and $13,000 for the years ended December 31, 1999 and 1998 and for the period from November 14, 1997 (Inception), through December 31, 1997, respectively.
Future commitments under noncancelable operating leases as of December 31, 1999, are as follows (in thousands):
2000........................................................ $299
2001........................................................ 153
2002........................................................ 24
----
$476
====
|
13. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in legal actions arising in the ordinary course of business. Management does not believe the outcome of such legal actions will have a material adverse effect on the Company's financial position or results of operations.
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Insurance
The Company carries a broad range of insurance coverage, including general and business auto liability, commercial property, workers' compensation and a general umbrella policy.
14. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and debt. The carrying value of those instruments reported in the balance sheet are considered to estimate their respective fair values based on comparisons to market rates having the same or similar maturities and collateral requirements offered to the Company. Management believes the carrying amounts of these accounts approximate fair value as of December 31, 1999.
15. SIGNIFICANT CUSTOMERS AND RISK CONCENTRATION
During the years ended December 31, 1999 and 1998, and for the period from November 14, 1997 (Inception), through December 31, 1997, the Company had sales to one customer which accounted for 12 percent, 13 percent and 8 percent, respectively, of total revenues.
The Company has material receivables, denominated in U.S. dollars, from various Venezuelan customers. The Company's policy is to manage its exposure to credit risk through credit approvals and limits. Historically, write-offs for doubtful accounts have been insignificant.
16. INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION
The Company has three operating business segments: the hydraulic well control segment, the specialty rental tool segment, and the oil and gas well drilling segment. The hydraulic well control segment provides hydraulic workover (snubbing) units and crews for emergency well control situations and in selected markets, various hydraulic well control solutions involving well drilling and workover and completion activities. The specialty rental tool segment provides rental equipment for drilling and workover operations. The oil and gas well drilling segment includes the operation of 12 shallow well land drilling rigs with automated pipe handling. The Company's nonoperating segment consists of corporate activities and minority investment in an unconsolidated subsidiary. The segments of the Company are based on the groupings of similar businesses acquired since the inception of the Company in 1997.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. There are no intersegment sales. Information about the Company's segments are as follows (in thousands):
FOR THE PERIOD FROM
YEAR ENDED DECEMBER 31, NOVEMBER 14, 1997
----------------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
--------- --------- --------------------
Revenues --
Hydraulic well control.................... $15,956 $23,647 $ 5,348
Specialty rental tools.................... 17,253 9,939 --
Oil and gas well drilling................. 9,065 9,030 2,111
General corporate......................... -- -- --
------- ------- -------
$42,274 $42,616 $ 7,459
======= ======= =======
|
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD FROM
YEAR ENDED DECEMBER 31, NOVEMBER 14, 1997
----------------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
--------- --------- --------------------
Income (loss) from operations --
Hydraulic well control.................... $ (977) $ 1,781 $ 1,491
Specialty rental tools.................... 1,209 1,478 --
Oil and gas well drilling................. (170) (18) 276
General corporate......................... (543) (568) --
------- ------- -------
$ (481) $ 2,673 $ 1,767
======= ======= =======
Capital expenditures --
Hydraulic well control.................... $ 4,424 $ 1,985 $31,141
Specialty rental tools.................... 2,995 28,297 --
Oil and gas well drilling................. 322 6,323 13,638
General corporate......................... 3 797 --
------- ------- -------
$ 7,744 $37,402 $44,779
======= ======= =======
Depreciation and amortization --
Hydraulic well control.................... $ 2,522 $ 2,337 $ 248
Specialty rental tools.................... 2,770 1,276 --
Oil and gas well drilling................. 1,173 991 56
General corporate......................... 78 46 --
------- ------- -------
$ 6,543 $ 4,650 $ 304
======= ======= =======
|
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ---------
Total assets --
Hydraulic well control.................................... $ 46,460 $34,569
Specialty rental tools.................................... 34,411 29,985
Oil and gas well drilling................................. 19,586 19,913
General corporate......................................... 271 1,201
-------- -------
$100,728 $85,668
======== =======
|
The following table presents consolidated revenues by country (in thousands):
FOR THE PERIOD FROM
YEAR ENDED DECEMBER 31, NOVEMBER 14, 1997
----------------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
--------- --------- --------------------
United States............................... $35,545 $34,487 $4,133
Venezuela................................... 6,097 2,246 502
India....................................... -- 2,807 2,425
North Sea................................... -- 3,076 399
Other Non-U.S. ............................. 632 -- --
------- ------- ------
$42,274 $42,616 $7,459
======= ======= ======
|
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents net long-lived assets by country (in thousands):
DECEMBER 31,
------------------
1999 1998
------- -------
United States............................................... $75,093 $74,220
Venezuela................................................... 953 850
India....................................................... -- 32
North Sea................................................... -- 232
Other Non-U.S. ............................................. 8,651 --
------- -------
$84,697 $75,334
======= =======
|
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
Sooner Inc.
We have audited the accompanying consolidated balance sheet of Sooner Inc. as of June 30, 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sooner Inc. at June 30, 1999 and the consolidated results of its operations and its cash flows for the year ended June 30, 1999 in conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Tulsa, Oklahoma
August 13, 1999
SOONER INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
MARCH 31, JUNE 30,
2000 1999
----------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,184 $ 4,852
Accounts receivable -- trade, net of allowance for
doubtful accounts of $196 (unaudited) and $196......... 21,104 16,955
Accrued interest receivable............................... 2 20
Tubular goods inventories................................. 60,455 56,928
Refundable income taxes................................... 24 32
Deferred taxes............................................ 802 802
Prepaid expenses and other................................ 1,019 1,319
-------- --------
Total current assets.............................. 84,590 80,908
Property, plant and equipment............................... 5,995 5,497
Accumulated depreciation.................................... (825) (412)
-------- --------
5,170 5,085
Goodwill, net of accumulated amortization of $1,250
(unaudited) and $526...................................... 13,229 13,953
Accounts and notes receivable............................... 2,694 1,609
Investments, at cost........................................ 2,204 2,204
Debt issuance costs, net of accumulated amortization of $52
(unaudited) and $30....................................... 97 119
Deposits and other assets................................... 392 273
-------- --------
Total assets...................................... $108,376 $104,151
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade................................. $ 30,200 $ 9,802
Income taxes payable...................................... 127 203
Accrued liabilities....................................... 925 1,147
Accrued taxes other than income taxes..................... 909 1,257
Current portion of long-term notes payable................ 156 156
Current portion of subordinated long-term notes payable to
related parties........................................ 1,000 4,000
-------- --------
Total current liabilities......................... 33,317 16,565
Long-term notes payable..................................... 25,817 41,093
Long-term subordinated notes payable to related parties..... 30,536 33,243
-------- --------
Total long term liabilities....................... 56,353 74,336
Stockholders' equity:
Common stock, $.01 per value; 100,000 shares authorized,
23,702 shares issued and outstanding................... -- --
Capital in excess of par value............................ 23,676 23,701
Accumulated deficit....................................... (4,970) (10,451)
-------- --------
Total stockholders' equity........................ 18,706 13,250
-------- --------
Total liabilities and stockholders' equity........ $108,376 $104,151
======== ========
|
See accompanying notes.
SOONER INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARES AND EARNINGS PER SHARE)
THREE MONTH PERIOD NINE MONTH PERIOD
ENDED ENDED
MARCH 31, MARCH 31, FOR THE
------------------------- ------------------------- YEAR ENDED
2000 1999 2000 1999 JUNE 30, 1999
----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales.......................... $70,426 $23,755 $174,842 $ 77,683 $108,768
Operating costs and expenses:
Cost of sales.................... 63,723 22,761 159,253 78,057 108,613
Selling, general and
administrative expenses..... 2,350 1,287 6,834 4,812 7,395
------- ------- -------- -------- --------
66,073 24,048 166,087 82,869 116,008
------- ------- -------- -------- --------
Operating income (loss)............ 4,353 (293) 8,755 (5,186) (7,240)
Other income (expense):
Investment and other income...... 105 24 303 101 613
Interest expense................. (1,101) (907) (3,561) (3,418) (4,420)
------- ------- -------- -------- --------
(996) (883) (3,258) (3,317) (3,807)
------- ------- -------- -------- --------
Income (loss) before income
taxes............................ 3,357 (1,176) 5,497 (8,503) (11,047)
Provision for (benefit from) income
taxes:
Current.......................... (490) 16 (1,698) 173
Deferred......................... -- -- -- -- (769)
------- ------- -------- -------- --------
-- (490) 16 (1,698) (596)
------- ------- -------- -------- --------
Net income (loss).................. $ 3,357 $ (686) $ 5,481 $ (6,805) $(10,451)
======= ======= ======== ======== ========
Income (loss) per common share:
Basic and diluted................ $141.78 $(39.93) $ 231.41 $(396.05) $(589.62)
======= ======= ======== ======== ========
Weighted average shares
outstanding................... 23,677 17,182 23,685 17,182 17,725
======= ======= ======== ======== ========
|
See accompanying notes.
SOONER INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- --------
Issuance of 17,182 shares of common stock at
formation of Company on July 2, 1998............. $-- $17,182 $ -- $ 17,182
Issuance of 6,520 shares of common stock........... -- 6,519 -- 6,519
Net loss........................................... -- -- (10,451) (10,451)
--- ------- -------- --------
Balance at June 30, 1999........................... -- 23,701 (10,451) 13,250
Issuance of 25 shares of common stock
(unaudited)...................................... 25 25
Repurchase and cancellation of 50 shares of common
stock (unaudited)................................ (50) (50)
Net income (unaudited)............................. -- -- 5,481 5,481
--- ------- -------- --------
Balance at March 31, 2000 (unaudited).............. $-- $23,676 $ (4,970) $ 18,706
=== ======= ======== ========
|
See accompanying notes.
SOONER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
MARCH 31, MARCH 31, FOR THE
------------------------- ------------------------- YEAR ENDED
2000 1999 2000 1999 JUNE 30, 1999
----------- ----------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Operating activities
Net income (loss) from operations..... $ 3,357 $ (686) $ 5,481 $ (6,805) $(10,451)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization
expense........................... 407 122 1,205 688 1,055
(Gain) loss on disposition of
assets............................ 5 301 45 76 (256)
Noncash interest expense capitalized
as additional notes payable
principal......................... 543 414 1,676 1,654 2,065
Changes in assets and liabilities:
Accounts and accrued interest
receivable..................... (1,547) 2,989 (5,216) 11,403 5,382
Tubular goods inventories......... (8,159) 9,177 (3,527) 30,326 36,428
Accounts payable and accrued
liabilities.................... 10,498 (3,414) 19,827 (21,418) (16,111)
Income taxes...................... (106) (484) (68) (1,916) (630)
Prepaid expenses and other........ 41 (25) 182 217 296
------- ------- -------- -------- --------
Net cash provided by operating
activities................... 5,039 8,394 19,605 14,225 17,778
Investing activities
Purchases of property, plant and
equipment........................... (379) (65) (684) (222) (622)
Proceeds from sale of assets.......... 1 (73) 94 1,589 2,905
Purchases of businesses, less cash
acquired of $459.................... -- -- -- (59,641) (96,235)
Other................................. -- (80) -- (617) 84
------- ------- -------- -------- --------
Net cash provided by (used in)
investing activities......... (378) (218) (590) (58,891) (93,868)
Financing activities
Proceeds from issuance of notes
payable............................. -- -- -- 55,286 88,469
Payment of debt issuance costs........ -- -- -- (149) (149)
Issuance of 15,136 shares of common
stock............................... -- -- -- 15,136 15,136
Issuance of 6,350 shares of common
stock............................... -- -- -- -- 6,350
Issuance of 25 shares of common stock
(unaudited)......................... -- -- 25 -- --
Repurchase and cancellation of 50
shares of common stock
(unaudited)......................... -- -- (50) -- --
Debt payments on notes payable........ (6,274) (6,865) (22,658) (22,623) (28,864)
------- ------- -------- -------- --------
Net cash provided by (used in)
financing activities......... (6,274) (6,865) (22,683) 47,650 80,942
------- ------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents.................... (1,613) 1,311 (3,668) 2,984 4,852
Cash and cash equivalents at beginning
of period........................... 2,797 1,673 4,852 -- --
------- ------- -------- -------- --------
Cash and cash equivalents at end of
period.............................. $ 1,184 $ 2,984 $ 1,184 $ 2,984 $ 4,852
======= ======= ======== ======== ========
Cash paid during period for
interest............................ $ 557 $ 424 $ 1,880 $ 1,781 $ 2,355
======= ======= ======== ======== ========
|
See accompanying notes.
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Sooner Inc. is a distributor of oilfield tubular products and was formed on July 2, 1998 to acquire Sooner Pipe and Supply Corporation and subsidiaries (collectively the "Company"). The Company's operations are located primarily in the United States ("U.S."). In addition, the Company has sales and marketing subsidiaries located in the United Kingdom ("U.K."), Canada, Nigeria and Venezuela. The majority of sales are to large fully-integrated and independent oil companies headquartered in the U.S. The Company generally does not require collateral on trade receivables from these companies.
The acquisition of the common stock of Sooner Pipe and Supply Corporation on July 2, 1998 was accounted for using the purchase method, whereby the Company allocated the purchase price of $81,693,000 based on the estimated fair value of the net assets acquired. The excess of the purchase price over the fair value of the acquired net assets of $7,432,000 is recorded as goodwill. As the Company was formed on the date of the acquisition of Sooner Pipe & Supply Corporation, results of operations are included in the financial statements since the date of the acquisition and the formation of the Company.
The acquisition was financed with cash and noncash proceeds from the issuance of debt and equity. Cash proceeds were as follows (in thousands):
Revolving line of credit.................................... $24,827
Term note payable........................................... 5,000
Junior subordinated notes payable........................... 15,137
Issuance of 15,136 shares of common stock of the Company.... 15,136
-------
$60,100
=======
|
Noncash proceeds reflect debt and equity issued to the former owner of Sooner Pipe & Supply Corporation and were as follows (in thousands):
Senior subordinated note payable............................ $10,000
Senior subordinated contingent note payable................. 7,500
Junior subordinated note payable............................ 2,047
Issuance of 2,046 shares of common stock of the Company..... 2,046
-------
$21,593
=======
|
Consolidation
The accompanying financial statements include Sooner Inc. and all subsidiaries. All significant intercompany balances and transactions, including any profits in inventory, are eliminated in consolidation.
Use of Estimates
Preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates.
Cash Equivalents
The Company includes as cash equivalents all certificates of deposit and U.S. treasury securities with original maturities of 90 days or less.
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
Inventories
Inventories are priced at lower of cost or market using the first-in, first-out (FIFO) cost method.
Property, Plant and Equipment
Depreciation is computed on the straight-line method at varying rates by asset classification. Assets of foreign subsidiaries are depreciated on straight-line and accelerated methods over their estimated useful lives. Amortization of leasehold improvements is computed on the straight-line method over the life of the lease. Depreciation expense was $499,000 for the year ended June 30, 1999.
Capital additions and major renewals and betterments are capitalized as incurred and are depreciated over the estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed, and any resulting gain or loss is reflected in other income for the period. Normal repairs and maintenance are expensed to current operations as incurred.
Goodwill and Other Intangible Assets
Goodwill, which represents the excess of cost over fair value of assets of businesses acquired, is amortized on a straight-line basis over a 15 year period. Debt issuance costs are amortized on a straight-line basis over the life of the Company's revolving credit agreement which expires on July 2, 2003. Amortization expense was $556,000 for the year ended June 30, 1999.
Impairment of Long-Lived Assets
The Company evaluates the long-lived assets, including related intangibles, of identifiable business activities for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on management's estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value for the assets and recording a provision for loss if the carrying value is greater than fair value.
For assets identified to be disposed of in the future, the carrying value of these assets is compared to the estimated fair value less the cost to sell to determine if an impairment is required. Until the assets are disposed of, an estimate of the fair value is redetermined when related events or circumstances change.
Incentive Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and related interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Foreign Currency Remeasurement
The Company has foreign subsidiaries operating in the United Kingdom, Canada, Nigeria and Venezuela. For its foreign subsidiaries, the functional currency is considered to be the U.S. dollar. The foreign currency transaction adjustments are also included in determining net income or loss. Included in loss before
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
income taxes is net foreign exchange remeasurement and transaction expense of $21,000 for the year ended June 30, 1999.
Income Taxes
The Company provides deferred income taxes on temporary differences between the financial statement and tax bases of assets and liabilities. No deferred U.S. income taxes have been provided on the undistributed earnings (approximately $4,320,000 at June 30, 1999) of the foreign subsidiaries since it is the Company's intention to indefinitely reinvest those earnings to finance the continued growth and development of those entities. Under present tax law, such an amount would be subject to U.S. income taxes at prevailing tax rates less foreign tax credits if remitted to the parent company.
Revenue Recognition
Net sales are recognized when oilfield tubular products are shipped or, if terminal services are also provided by the Company, when risk of ownership has passed to a customer. Terminal fees of $2,500,000 were recognized for the year ended June 30, 1999 on a monthly basis as earned.
Earnings Per Share
Basic earnings per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined on the assumption that outstanding stock options have been converted using the treasury stock method. For purposes of computing earnings per share in a loss period, common stock equivalents are excluded from the computation of weighted average common shares outstanding because their effect is antidilutive.
New Accounting Standards
In March 1998, Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Software Developed or Obtained for Internal Use," was issued. This SOP requires capitalization of certain costs incurred in connection with an internal-use software project. The Company adopted the SOP on July 1, 1999. Neither the Company's financial position, results of operations nor cash flows were significantly impacted by this SOP.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up Activities". The SOP is effective for fiscal years beginning after December 15, 1998, and requires start-up costs capitalized prior to that date be written off and any future start-up costs to be expensed as incurred. The Company adopted the SOP on July 1, 1999. The adoption of the SOP did not have a material impact on the Company's financial position, results of operations or cash flows.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued which requires that all derivative instruments be recorded as assets or liabilities on the balance sheet at fair value. SFAS No. 133 was adopted by the Company on July 1, 2000. The Company's financial position, results of operations or cash flows were not significantly impacted by this SFAS when adopted.
2. ACQUISITIONS
During May and June 1999, the Company acquired three oilfield tubular products distribution businesses for $36,594,000. The acquisitions were accounted for using the purchase method in which the Company allocated the purchase price based on the estimated fair values of the assets acquired. The excess of the purchase price over the fair value of the acquired assets is recorded as goodwill. Results of operations from the acquisitions are included in the accompanying consolidated financial statements from the dates of acquisition.
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
The effect of the acquisitions at the purchase dates on the consolidated financial statements was as follows (in thousands):
Accounts Receivable......................................... $ 1,002
Inventory................................................... 28,545
Goodwill.................................................... 7,047
-------
Cash used for acquisitions.................................. $36,594
=======
|
The following selected unaudited pro forma information (in thousands, except per share amounts) is provided to present a summary of the combined results of the Company as if the acquisitions discussed above had occurred at the beginning of the year ended June 30, 1999, giving effect to purchase accounting adjustments. The pro forma data is for informational purposes only and may not necessarily reflect the results of operations had the acquired businesses operated as part of the Company for the full year ended June 30, 1999 and for the three and nine month periods ending March 31, 1999.
FOR THE FOR THE
NINE MONTHS THREE MONTHS FOR THE
ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, JUNE 30,
1999 1999 1999
----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales......................................... $223,852 $59,626 $271,784
Net loss.......................................... (3,954) (1,277) (8,554)
Basic and diluted loss per share.................. (230.12) (74.32) (360.90)
|
3. INVESTMENTS
Investments at June 30, 1999 consist primarily of a 20% interest in common stock of an oilfield tubular products company. The investment is carried at cost ($2,059,000 at June 30, 1999), as the Company does not have the ability to exercise significant influence over the operating and financial policies of the company. The investment was obtained by the Company in a noncash transaction in exchange for a note receivable and accrued interest owed the Company from a related party who purchased certain inventory and real estate from the Company for $3,804,000. A cash payment of $1,850,000 was made on August 31, 1998 with the remaining balance represented by a $1,954,000 subordinated 6% note receivable.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, and related estimated useful lives consists of the following (in thousands):
MARCH 31, JUNE 30, ESTIMATED
2000 1999 USEFUL LIVES
----------- -------- ------------
(UNAUDITED)
Land............................................... $ 689 $ 689
Land improvements.................................. 134 134 20
Buildings.......................................... 1,012 1,012 9-40
Machinery and equipment............................ 1,993 1,978 6-10
Office equipment................................... 1,521 961 6-10
Automotive equipment............................... 232 380 5
Improvements to leased premises.................... 414 343 9
------ ------
$5,995 $5,497
====== ======
|
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
5. COMMITMENTS
The Company leases office space for periods to 2002. The related rent expense for the year ended June 30, 1999 totaled $815,000. At June 30, 1999 minimum annual rentals under noncancelable leases are as follows (in thousands):
2000........................................................ $ 650
2001........................................................ 385
2002........................................................ 3
------
1,038
Less noncancelable sublease to stockholder.................. (374)
------
$ 664
======
|
6. STOCK AGREEMENTS
The Company adopted a Stock Option Plan (the "Plan") that provides for the issuance of options to key employees to purchase the Company's common stock. The exercise price of all the outstanding options is $1,000, which has been determined to be not less than the fair value of a share of common stock at the grant date. Options under the Plan vest and become exercisable in four annual installments beginning one year after the grant date, and expire six years after the grant date. The Company granted 875 options in the year ended June 30, 1999. No options were canceled or exercised in the year ended June 30, 1999. The weighted average remaining life of the options is 5.4 years. There were no options exercisable at June 30, 1999.
SFAS No. 123 requires proforma disclosures of net income as if the Company has accounted for the employee stock options under the fair value method of SFAS No. 123. The fair value of these options are estimated at the date of grant using the "minimum value" option pricing model with the following weighted average assumptions for the year ended June 30, 1999: risk-free interest rate of 5.75%, dividend yield of zero and expected life of each option of four years.
Option valuation models require the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Using the "minimum value" option valuation model, the weighted average grant date value of options granted during the year ended June 30, 1999 was $205 per option.
For purposes of proforma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's proforma net loss and basic and diluted loss per share for the year ended June 30, 1999 is $(10,468,000) and $(590.58), respectively.
The Company also issued during the year ended June 30, 1999 common stock subscriptions to key employees to purchase 325 shares of common stock of the Company for $1,000 per share. Two employees purchased a total of 100 shares of common stock during the year ended June 30, 1999 for $100,000. The opportunity to purchase the remaining 225 subscription shares expired unexercised in July 1999.
7. PROFIT SHARING PLANS
The Company has a contributory profit sharing plan in which substantially all U.S. employees are eligible to participate. The plan provides for annual Company contributions of a discretionary amount determined by the Board of Directors, provided however that the amount of such contribution shall not exceed the maximum amount deductible by the Company under the provisions of the Internal Revenue Code. Company contributions to the plan were $104,000 during the year ended June 30, 1999.
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
8. FOREIGN OPERATIONS
The following is a summary of the financial data of the foreign subsidiaries (in thousands):
MARCH 31, JUNE 30,
2000 1999
----------- --------
(UNAUDITED)
Current assets.............................................. $12,692 $16,137
Intercompany receivable..................................... 1,959 2,091
Property, plant and equipment,.............................. 521 585
Other assets................................................ 2,689 1,595
------- -------
Total assets...................................... $17,861 $20,408
======= =======
Current liabilities......................................... $ 963 $ 3,476
Intercompany payable........................................ 10,864 11,563
Stockholders' equity........................................ 6,034 5,369
------- -------
Total liabilities and stockholders' equity........ $17,861 $20,408
======= =======
|
NINE MONTH PERIOD THREE MONTH PERIOD
ENDED ENDED FOR THE
MARCH 31, MARCH 31, YEAR ENDED
------------------------- ------------------------- JUNE 30,
2000 1999 2000 1999 1999
----------- ----------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Sales (net of
intercompany).............. $7,448 $18,984 $2,755 $8,776 $31,511
====== ======= ====== ====== =======
Net income................... $ 665 $ 1,565 $ 446 $ 823 $ 3,345
====== ======= ====== ====== =======
|
9. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as of June 30, 1999 are as follows (in thousands):
Deferred tax assets:
Book over tax accrued liabilities......................... $ 245
Book over tax reserves for inventory and accounts
receivable............................................. 2,114
Tax over book inventory capitalization.................... 112
Net operating loss carryforward........................... 2,031
-------
Total deferred tax assets......................... 4,502
Less valuation allowance.................................... (3,700)
-------
Net deferred tax assets..................................... $ 802
=======
|
A reconciliation of the U.S. statutory tax rate at June 30, 1999 to the consolidated benefit from income taxes is as follows (in thousands):
Expected federal income tax benefit at current statutory
rates..................................................... $(3,756)
Increase in valuation allowance............................. 3,700
State income tax benefit, net of federal benefit............ (582)
Income of foreign subsidiaries taxed at different rates,
including foreign net operating loss carryforwards
utilized.................................................. (40)
Other....................................................... 82
-------
Benefit from income taxes................................... $ (596)
=======
|
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
The Company has a U.S. net operating loss carryforward of $5,209,000, which will expire in 2014 if not utilized prior to that time.
10. LONG-TERM NOTES PAYABLE
Long-term debt and notes payable consist of the following (in thousands):
MARCH 31, JUNE 30,
2000 1999
----------- --------
(UNAUDITED)
Revolving line of credit.................................... $25,817 $41,093
Term note payable........................................... 156 156
Senior subordinated notes payable........................... 5,273 9,772
Senior subordinated contingent note payable................. 515 2,845
Junior subordinated notes payable........................... 25,749 24,626
------- -------
57,510 78,492
Less current portion........................................ 1,156 4,156
------- -------
$56,354 $74,336
======= =======
|
The Company has a $50,000,000 credit agreement, with priority to the senior
subordinated notes payable, senior subordinated contingent note payable and
junior subordinated notes payable. Total borrowings under the revolving line of
credit, the $5,000,000 term note payable and any letters of credit cannot exceed
$50,000,000. Aggregate letters of credit cannot exceed $5,000,000. The term note
payable requires monthly installment payments through June 30, 2000. The
revolving line of credit and letter of credit accommodations expire on July 2,
2003. The line of credit is subject to a borrowing base of eligible accounts
receivable and inventory which was approximately $40,647,000 (unaudited) at
March 31, 2000 and $44,089,000 at June 30, 1999. The credit agreement bears
interest at the First Union National prime rate (7.75% at June 30, 1999), or
adjusted Eurodollar rate as defined in the agreement plus 1.75% (no Eurodollar
loans were outstanding at June 30, 1999), depending upon whether the loans are
Prime Rate or Eurodollar Rate loans when borrowed, as defined in the agreement.
The credit agreement is secured by all of the accounts receivable, inventory and
property, plant and equipment of the Company as defined in the credit agreement
($86,729,000 (unaudited) at March 31, 2000 and $78,968,000 at June 30, 1999)
plus all common stock of the subsidiaries of the Company. The credit agreement
also requires the Company to maintain a minimum net worth and restricts the
payment of cash dividends, incurrence of additional debt or sale of property,
plant and equipment as defined in the credit agreement. A 1/4% per annum unused
commitment fee is charged monthly on the unused portion of the credit agreement
plus a $2,000 monthly service fee.
The Company had a $10,000,000 senior subordinated note payable and a $7,500,000 senior subordinated contingent note payable as defined in the stock purchase agreement between the former owner of Sooner Pipe & Supply Corporation and Sooner Inc. The senior subordinated note payable was subsequently amended and restated in the year ended June 30, 1999 into two senior subordinated notes payable (Notes A and B) of $5,000,000 each. Principal payments on Note A are due in five equal quarterly installments of $1,000,000 on the first day of January, April, July and October, commencing July 1, 1999. Accrued interest is payable on October 1, 2000. Principal payments on Note B are due in seven quarterly installments of $500,000 less any inventory prepayment amount as defined by the agreement on the last day of January, April, July and October commencing on January 31, 2001. The final payment on Note B is due July 31, 2002 in an amount equal to the outstanding principal balance of the note plus accrued interest. The senior subordinated notes payable have priority over the senior subordinated contingent note payable and junior subordinated notes payable and bear interest at a rate dependent upon the existence of outstanding borrowings on the credit agreement discussed above. If a balance is outstanding on the credit agreement, the senior subordinated note payable
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
bears interest at that rate plus .25% (8% at June 30, 1999). If no amounts are outstanding against the credit agreement, the notes bear interest at an annual rate of 7.7%. However, the interest rate shall never be lower than that of any indebtedness incurred in conjunction with a designated transaction as defined by the agreement. In the event of default, the notes will bear an interest rate of 9.7%.
The senior subordinated contingent note payable bears interest at a non-compounding rate of 6% per annum and has priority over the junior subordinated notes payable. Principal and interest payments on the senior subordinated contingent note payable are limited to 37.5% of the quarterly proceeds from the previous calendar quarter's sale of any portion of $20,000,000 of designated inventory, as defined in the stock purchase agreement. The other 62.5% of the quarterly proceeds from the sale of the designated inventory must be applied as payment against the senior subordinated Note B as identified above. The lender has the option, with ten days written notice, of demanding final payment of $750,000 on the senior subordinated contingent note payable when the value of the designated inventory has been reduced to $2,000,000. The value of the designated inventory at June 30, 1999 was $7,586,000.
At formation, the Company entered into two junior subordinated notes payable with its stockholders for $17,184,000. During May and June 1999, the Company entered into additional junior subordinated notes payable to its stockholders for $6,250,000. All junior subordinated notes bear an interest rate of 6% compounded annually and are due on June 30, 2008. A $169,000 junior subordinated note payable and 170 shares of $.01 par value common stock were issued in exchange for a portion of the scheduled July 1, 1999 payment on the senior subordinated Note A described above and represents a noncash transaction. The unpaid interest on the senior and junior subordinated notes payable is capitalized as additional principal in a noncash transaction until due. The amount capitalized for the three and nine months ended March 31, 2000 were $543,000 (unaudited) and $1,676,000 (unaudited), respectively and for the year ended June 30, 1999 was $2,065,000.
In connection with the issuance of the junior subordinated notes payable, the Company also issued 26,104 warrants to purchase common stock, par value $.01 per share. The warrants are exercisable at $1,000 per share and expire between July 2, 2000 and June 30, 2008.
At June 30, 1999, annual maturities of long-term notes payable were as follows (in thousands):
2000...................................................... $ 4,156
2001...................................................... 4,846
2002...................................................... 2,000
2003...................................................... 42,864
2004...................................................... --
Thereafter................................................ 24,626
-------
$78,492
=======
|
11. FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its fair-value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet approximate fair value due to the short-term maturity of these instruments.
Noncurrent accounts and notes receivable: As the maturity of these receivables is less than three years, fair value is estimated to approximate historically recorded amounts.
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
Investments at cost: Fair value is estimated to approximate historically recorded amounts as the investments are primarily in a non-publicly traded company for which it is not practicable to estimate its fair value.
Long-term notes payable: The fair value of the Company's long-term notes payable is based on the prices of similar securities with similar terms and credit ratings. The carrying amount and fair value of the Company's long-term notes payable is $78,492,000 and $79,197,000, respectively, at June 30, 1999.
12. LEGAL CONTINGENCIES
The Company is involved in various claims and legal actions arising in the ordinary course of business. Management does not believe that the ultimate resolution of these matters will have a material impact on the Company's financial position, results of operations or cash flows.
13. SEGMENT DISCLOSURES
The Company evaluates performance based upon segment income (loss) before income taxes which includes revenues from external and internal customers, operating costs and expenses, and depreciation and amortization. The accounting policies of the segments are the same as those described in Note 1. Intersegment sales are generally accounted for at the cost of the selling segment.
The Company's geographical reporting segments are based on product shipment origin for revenues and physical location for other items. Other includes operations in Venezuela and Canada. Long-lived assets are comprised of property, plant and equipment, goodwill and other intangible and non-current assets (in thousands).
AS OF AND FOR THE NINE MONTHS ENDED MARCH 31, 2000
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
-------- ------- ------ ------ ------------ --------
(UNAUDITED)
Revenues:
External....................... $167,394 $ 4,095 $2,973 $ 380 $ -- $174,842
Intersegment................... 2,565 -- -- -- (2,565) --
-------- ------- ------ ------ -------- --------
Total.................. 169,959 4,095 2,973 380 (2,565) 174,842
Income (loss) before income
taxes.......................... 12,560 463 188 30 (7,744) 5,497
Total assets..................... 155,880 12,377 3,282 2,201 (65,364) 108,376
Long-lived assets................ 75,077 3,002 208 -- (54,501) 23,786
Additions to long-lived assets... 620 32 32 -- -- 684
Depreciation and amortization.... 1,082 -- -- -- -- 1,082
|
AS OF AND FOR THE NINE MONTHS ENDED MARCH 31, 1999
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
-------- ------- ------ ------ ------------ --------
(UNAUDITED)
Revenues:
External....................... $ 57,622 $ 8,320 $8,504 $3,237 $ -- $ 77,683
Intersegment................... 2,911 -- -- -- (2,911) --
-------- ------- ------ ------ -------- --------
Total.................. 60,533 8,320 8,504 3,237 (2,911) 77,683
Income (loss) before income
taxes.......................... (11,034) 1,686 483 (19) 381 (8,503)
Total assets..................... 108,276 12,267 6,121 3,207 (54,972) 74,899
Long-lived assets................ 49,293 3,223 110 1 (40,201) 12,426
Additions to long-lived assets... 193 3 26 -- -- 222
Depreciation and amortization.... 605 -- -- 2 -- 607
|
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
-------- ------- ------ ------ ------------ --------
(UNAUDITED)
Revenues:
External....................... $ 67,671 $ 2,249 $ 507 $ (1) $ -- $ 70,426
Intersegment................... 1,048 -- -- -- (1,048) --
-------- ------- ------ ------ -------- --------
Total.................. 68,719 2,249 507 (1) (1,048) 70,426
Income (loss) before income
taxes.......................... 7,394 408 22 17 (4,483) 3,358
Total assets..................... 155,880 12,377 3,282 2,201 (65,364) 108,376
Long-lived assets................ 75,077 3,002 208 -- (54,501) 23,786
Additions to long-lived assets... 372 7 -- -- -- 379
Depreciation and amortization.... 365 -- -- -- -- 365
|
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
-------- ------- ------ ------ ------------ --------
(UNAUDITED)
Revenues:
External....................... $ 14,979 $ 4,707 $2,589 $1,480 $ -- $ 23,755
Intersegment................... 744 -- -- -- (744) --
-------- ------- ------ ------ -------- --------
Total.................. 15,723 4,707 2,589 1,480 (744) 23,755
Income (loss) before income
taxes.......................... (2,087) 1,029 83 75 (276) (1,176)
Total assets..................... 108,276 12,267 6,121 3,207 (54,972) 74,899
Long-lived assets................ 49,293 3,223 110 1 (40,201) 12,426
Additions to long-lived assets... 65 -- -- -- -- 65
Depreciation and amortization.... 94 -- -- -- -- 94
|
AS OF AND FOR THE YEAR ENDED JUNE 30, 1999
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
------- ------- ------- ------ ------------ --------
(UNAUDITED)
Revenues:
External....................... $77,256 $14,726 $12,134 $4,652 $ -- $108,768
Intersegment................... 3,421 -- -- -- (3,421) --
------- ------- ------- ------ -------- --------
Total.................. 80,677 14,726 12,134 4,652 (3,421) 108,768
Income (loss) before income
taxes.......................... (20,647) 2,894 645 (21) 6,082 (11,047)
Total assets..................... 142,063 10,844 5,554 4,010 (58,320) 104,151
Long-lived assets................ 67,819 2,152 29 -- (46,757) 23,243
Additions to long-lived assets... 26,632 742 45 20 -- 27,439
Depreciation and amortization.... 851 185 16 3 -- 1,055
|
SOONER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)
The Company had net sales greater then 10% of total net sales to the following customers by segment:
NINE MONTH PERIOD THREE MONTH PERIOD FOR THE
ENDED ENDED YEAR
------------------------- ------------------------- ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 2000 1999 1999
----------- ----------- ----------- ----------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Nigeria -- Mobil Producing.... -- 8,178 -- 4,707 $14,723
U.K. -- Mobil North Sea....... -- 8,400 -- 2,560 12,134
U.S. -- ARCO Alaska, Inc. ... -- 11,290 -- 2,729 11,925
U.S. -- UNOCAL............... -- 8,511 -- 2,780 11,072
|
14. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Various computer and other equipment may also have embedded Year 2000 issues.
The Company has completed an assessment and has modified or replaced portions of its software so that it's computer systems will function properly with respect to dates in the year 2000 and thereafter. In addition, communications are ongoing with third parties with which the Company's systems interface or rely on to determine the extent to which those companies are addressing their Year 2000 compliance. The Year 2000 project costs have not been significant.
Based upon what the Company has done to date related to Year 2000 compliance, it does not believe the Year 2000 issue, including any failure by third parties to mitigate their own Year 2000 issues, has or will materially impact the Company's financial position or results of operations. However, due to the general uncertainty inherent in the Year 2000 issue, the Company cannot ensure its ability to timely and cost effectively resolve problems associated with the Year 2000 issue that may affect its operations and business, or expose it to third party liability.
REPORT OF INDEPENDENT AUDITORS
To the Stockholder of
Sooner Pipe & Supply Corporation
We have audited the accompanying consolidated balance sheet of Sooner Pipe & Supply Corporation as of July 2, 1998 and the related consolidated statements of operations, stockholder's equity, and cash flows for the period from August 1, 1997 to July 2, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Sooner Pipe & Supply Corporation at July 2, 1998 and the consolidated results of its operations and its cash flows for the period from August 1, 1997 to July 2, 1998, in conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Tulsa, Oklahoma
August 14, 1998
SOONER PIPE & SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEET
JULY 2, 1998
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 459
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$250.................................................. 19,809
Affiliates............................................. 57
Accrued interest receivable............................... 3
Deferred income taxes..................................... 76
Income tax receivable..................................... 491
Inventories............................................... 27,695
Prepaid expenses and other................................ 1,599
--------
Total current assets.............................. 50,189
Property, plant and equipment............................... 17,664
Accumulated depreciation and amortization................... (12,297)
--------
5,367
Investments and other assets:
Accounts and notes receivable............................. 3,037
Deposits and other assets................................. 502
--------
3,539
--------
Total assets...................................... $ 59,095
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable -- trade................................. $ 23,215
Accrued liabilities....................................... 1,343
Accrued taxes other than income taxes..................... 1,589
--------
Total current liabilities......................... 26,147
Stockholder's equity:
Common stock, $100 par value; 10,000 shares authorized,
7,000 shares issued.................................... 700
Capital in excess of par value............................ 1
Retained earnings......................................... 34,017
Treasury stock............................................ (1,770)
--------
Total stockholder's equity........................ 32,948
--------
Total liabilities and stockholder's equity........ $ 59,095
========
|
See accompanying notes.
SOONER PIPE & SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM AUGUST 1, 1997 TO JULY 2, 1998
(IN THOUSANDS, EXCEPT SHARES AND EARNINGS PER SHARE)
Net sales................................................... $185,098
Operating costs and expenses:
Cost of sales............................................. 161,774
Terminal operating expenses............................... 3,725
Selling, general and administrative expenses.............. 21,828
--------
187,327
--------
Operating loss.............................................. (2,229)
Other income (expense):
Investment income......................................... 863
Interest expense.......................................... (52)
Other..................................................... 498
--------
1,309
--------
Loss before income taxes.................................... (920)
Provision for income taxes:
Current................................................... (334)
Deferred.................................................. 338
--------
4
--------
Net loss.................................................... $ (924)
========
Loss per common share:
Basic and diluted......................................... $(132.00)
Weighted average shares outstanding....................... 7,000
|
See accompanying notes.
SOONER PIPE & SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD AUGUST 1, 1997 THROUGH JULY 2, 1998
(IN THOUSANDS)
CAPITAL IN
EXCESS OF
COMMON PAR RETAINED TRANSLATION TREASURY
STOCK VALUE EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ----------- -------- --------
Balance at August 1, 1997....... $700 $1 $ 54,024 $ 14 $(1,770) $ 52,969
Net loss........................ -- -- (924) -- -- (924)
Dividends Declared.............. -- -- (19,083) -- -- (19,083)
Currency Translation
Adjustment.................... -- -- -- (14) -- (14)
---- -- -------- ---- ------- --------
Balance at July 2, 1998......... $700 $1 $ 34,017 $ -- $(1,770) $ 32,948
==== == ======== ==== ======= ========
|
See accompanying notes.
SOONER PIPE & SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM AUGUST 1, 1997 TO JULY 2, 1998
(IN THOUSANDS)
Operating activities
Net loss from operations.................................. $ (924)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 889
Gain on disposition of assets.......................... (53)
Changes in assets and liabilities:
Accounts and accrued interest receivable............. 1,660
Inventories.......................................... (10,461)
Accounts payable and accrued liabilities............. 1,717
Income taxes......................................... 328
Other................................................ (1,246)
--------
Net cash used in operating activities............. (8,090)
Investing activities
Purchases of investment securities........................ (13,507)
Maturities and sales of investment securities............. 8,512
Purchases of property, plant and equipment................ (2,180)
Proceeds from sale of assets.............................. 1,019
Other..................................................... (2,280)
--------
Net cash used in investing activities............. (8,436)
Financing activities
Dividends paid............................................ (5,000)
--------
Net decrease in cash and cash equivalents................. (21,526)
Cash and cash equivalents at beginning of period.......... 21,985
--------
Cash and cash equivalents at end of period................ $ 459
========
Supplemental disclosure of cash flows:
Income taxes refunded, net................................ $ 618
Noncash dividends declared and paid....................... $ 14,083
|
See accompanying notes.
SOONER PIPE & SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is a distributor of oilfield tubular and general products. The Company's operations are located primarily in the United States ("U.S."). In addition, the Company has sales and marketing subsidiaries located in the United Kingdom ("U.K."), Canada, Nigeria and Barbados. The majority of sales are to large fully-integrated and independent oil companies headquartered in the U.S. The Company generally does not require collateral on trade receivables from these companies.
Consolidation
The accompanying financial statements include Sooner Pipe & Supply Corporation and all subsidiaries (collectively the "Company"). All significant intercompany balances and transactions, including any profits in inventory, are eliminated in consolidation.
Use of Estimates
Preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates.
Cash Equivalents
The Company includes as cash equivalents all certificates of deposit and U.S. treasury securities with original maturities of 90 days or less.
Inventories
Inventories are priced at lower of cost or market. Inventories held in the U.S. are valued primarily at LIFO and those held outside the U.S. are valued primarily at FIFO.
Property, Plant and Equipment
Depreciation is computed on the straight-line and declining balance methods at varying rates by asset classification. Assets of foreign subsidiaries are depreciated on straight-line and accelerated methods over their estimated useful lives. Amortization of leasehold improvements is computed on the straight-line method over the life of the lease.
Capital additions and major renewals and betterments are capitalized as incurred and are depreciated over the estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed, and any resulting gain or loss is reflected in other income for the period. Normal repairs and maintenance are expensed to current operations as incurred.
Impairment of Long-Lived Assets
The Company evaluates the long-lived assets of identifiable business activities for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on management's estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value for the assets and recording a provision for loss if the carrying value is greater than fair value.
SOONER PIPE & SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
For assets identified to be disposed of in the future, the carrying value of these assets is compared to the estimated fair value less the cost to sell to determine if an impairment is required. Until the assets are disposed of, an estimate of the fair value is redetermined when related events or circumstances change.
Foreign Currency Remeasurement
The Company has foreign subsidiaries operating in the United Kingdom, Canada, Nigeria and Barbados. For its foreign subsidiaries, the functional currency is considered to be the U.S. dollar, and therefore inventory, fixed assets and stockholder's equity are translated into U.S. dollars at historical exchange rates while other balance sheet accounts are remeasured into U.S. dollars at exchange rates in effect at year-end. The resulting remeasurement adjustments are included in determining net income or loss. Income and expense accounts are remeasured at average rates of exchange during the period, except depreciation, which is translated at historical exchange rates. The foreign currency transaction adjustments are also included in determining net income or loss. Included in loss before income taxes is net foreign exchange remeasurement and transaction expense of $186,000 for the period from August 1, 1997 to July 2, 1998.
Income Taxes
The Company is included in its ultimate parent's consolidated U.S. federal income tax return. Provision for income taxes is computed at existing statutory rates without regard to separate return limitations.
The Company provides deferred income taxes on temporary differences between the financial statement and tax bases of assets and liabilities. No deferred U.S. income taxes have been provided on the undistributed earnings (approximately $833,000 at July 2, 1998) of the foreign subsidiaries since it is the Company's intention to indefinitely reinvest those earnings to finance the continued growth and development of those entities. Under present tax law, such an amount would be subject to U.S. income taxes at prevailing tax rates less foreign tax credits if remitted to the parent company.
Revenue Recognition
Net sales are recognized when oilfield tubular products are shipped or, if terminal services are also provided by the Company, when risk of ownership has passed to a customer. Terminal fees of $3,395,000 were recognized in the period from August 1, 1997 to July 2, 1998 on a monthly basis as earned.
Investment Securities
Management determines the appropriate classification of government debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are designated as held-to-maturity as the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Interest on securities classified as held-to-maturity is also included in investment income. All of the Company's investment securities were paid to the Company's parent as a noncash dividend in the period from August 1, 1997 to July 2, 1998.
Earnings Per Share
Basic earnings per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined on the assumption that outstanding stock options have been converted using the treasury stock method. For purposes of computing earnings per share in a loss year, common stock equivalents are excluded from the computation of weighted average common shares outstanding because their effect is antidilutive.
SOONER PIPE & SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
New Accounting Standards
In March 1998, Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Software Developed or Obtained for Internal Use," was issued. This SOP requires capitalization of certain costs incurred in connection with an internal-use software project. Adoption of this SOP is not required until fiscal 2000. Neither the Company's financial position, results of operations nor cash flows are expected to be significantly impacted by this SOP.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up Activities". The SOP is effective for fiscal years beginning after December 15, 1998, and requires start-up costs capitalized prior to that date be written off and any future start-up costs to be expensed as incurred. The Company has determined that the impact of the adoption of the SOP will not materially impact the Company's financial position, results of operations or cash flows.
In June 1998, Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued which requires that all derivative instruments be recorded as assets or liabilities on the balance sheet at fair value. SFAS No. 133 is not required to be adopted by the Company until July 1, 2000. The Company's financial position, results of operations or cash flows are not expected to be significantly impacted by this SFAS when adopted.
2. INVENTORIES
Inventories consist of the following at July 2, 1998 (in thousands):
Tubular goods............................................... $26,429
Oilfield supplies........................................... 1,266
-------
$27,695
=======
|
During the period from August 1, 1997 to July 2, 1998, LIFO inventory quantities were reduced resulting in a partial liquidation of the LIFO bases, the effect of which decreased the net loss, after income taxes, by $1,912,000. Inventories stated under the LIFO method were $14,996,000 at July 2, 1998. If the FIFO method had been used, inventories would have been $45,405,000 higher than reported at July 2, 1998.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, and related estimated useful lives consists of the following at July 2, 1998:
COST ESTIMATED
(IN THOUSANDS) USEFUL LIVES
-------------- ------------
Land........................................................ $ 1,295
Land improvements........................................... 2,096 20
Buildings................................................... 3,729 9-40
Machinery and equipment..................................... 6,088 6-10
Office equipment............................................ 2,764 6-10
Automotive equipment........................................ 1,286 5
Improvements to leased premises............................. 406 9
-------
$17,664
=======
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SOONER PIPE & SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. COMMITMENTS
The Company leases office space, store buildings and land for periods to 2002. The related rent expense for the period from August 1, 1997 to July 2, 1998 totaled $1,328,000. At July 2, 1998 minimum annual rentals under noncancellable leases are as follows (in thousands):
1999....................................................... $1,004
2000....................................................... 920
2001....................................................... 685
2002....................................................... 74
------
$2,683
======
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5. PROFIT SHARING PLANS
The Company has a contributory profit sharing plan in which substantially all U.S. employees are eligible to participate. The plan provides for annual Company contributions of a discretionary amount determined by the Board of Directors, provided however that the amount of such contribution shall not exceed the maximum amount deductible by the Company under the provisions of the Internal Revenue Code. Company contributions to the plan of $256,000 were charged against earnings in the period from August 1, 1997 to July 2, 1998.
6. FOREIGN OPERATIONS
The following is a summary of the financial data of the foreign subsidiaries as of July 2, 1998 and for the period from August 1, 1997 to July 2, 1998 (in thousands):
Current assets.............................................. $19,136
Intercompany receivable..................................... 612
Property, plant and equipment, net of accumulated
depreciation.............................................. 529
Other assets................................................ 3,197
-------
Total assets...................................... $23,474
=======
Current liabilities......................................... $ 3,262
Intercompany payable........................................ 18,252
Stockholder's equity........................................ 1,960
-------
Total liabilities and stockholder's equity........ $23,474
=======
Sales (net of intercompany)................................. $22,927
=======
Net income.................................................. $ 1,101
=======
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7. FOREIGN CURRENCY HEDGES
The Company enters into forward exchange contracts to hedge certain foreign currency transactions for periods consistent with the terms of the underlying transactions. The Company does not engage in speculation, nor does the Company hedge non-transaction related balance sheet exposure. While the forward contracts affect the Company's results of operations, they do so only in connection with the underlying transactions. As a result, they do not subject the Company to risk from exchange rate movements because gains and losses on these contracts offset losses and gains on the transactions being hedged. At July 2, 1998, the Company had $1,700,000 of foreign exchange contracts outstanding in Canadian dollars.
SOONER PIPE & SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The forward exchange contracts generally have maturities that do not exceed six months. Based on July 2, 1998 exchange rates and the various maturity dates of the foreign currency forward contracts, the Company estimates the aggregate contract value to be representative of the fair value of these items at July 2, 1998.
8. INCOME TAXES
The components of the provision (benefit) for income taxes for the period from August 1, 1997 to July 2, 1998 is as follows (in thousands):
Current:
Federal................................................... $(691)
State..................................................... 3
Foreign................................................... 354
-----
(334)
Deferred -- federal......................................... 338
-----
Total provision............................................. $ 4
=====
|
Significant components of the Company's deferred tax liabilities and assets at July 2, 1998 consist of the following (in thousands):
Deferred tax assets:
Book over tax accrued liabilities......................... $71
Other..................................................... 5
---
Total deferred tax assets......................... $76
===
|
A reconciliation of the U.S. Statutory tax rate at July 2, 1998 to the consolidated provision for income taxes is as follows (in thousands):
Expected federal income tax benefit at current statutory
rates..................................................... $(313)
State income tax provision, net of federal impact........... 1
Nondeductible expenses...................................... 155
Income of foreign subsidiaries, taxed at different rates.... 234
Other....................................................... (73)
-----
Provision for income taxes.................................. $ 4
=====
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9. FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet approximate fair value due to the short-term maturity of these instruments.
Noncurrent accounts and notes receivable: As the maturity of these receivables is less than three years, fair value is estimated to approximate historically recorded amounts.
SOONER PIPE & SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. LEGAL CONTINGENCIES
The Company is involved in various claims and legal actions arising in the ordinary course of business. Management does not believe that the ultimate resolution of these matters will have a material impact on the Company's financial position, results of operations or cash flows.
11. SEGMENT DISCLOSURES
The Company evaluates performance based upon segment income (loss) before income taxes which includes revenues from external and internal customers, operating costs and expenses, and depreciation and amortization. The accounting policies of the segments are the same as those described in Note 1. Intersegment sales are generally accounted for at the cost of the selling segment.
The Company's geographical reporting segments are based on product shipment origin for revenues and physical location for other items. Long-lived assets are comprised of property, plant and equipment and other non-current assets.
U.S. NIGERIA U.K. CANADA BARBADOS ELIMINATIONS TOTAL
-------- ------- ------ ------- -------- ------------ --------
(IN THOUSANDS)
Revenues:
External................... $162,172 $ 2,766 $3,323 $16,837 $ -- $ -- $185,098
Intersegment............... 9,409 -- -- -- -- (9,409) --
-------- ------- ------ ------- ------- -------- --------
Total.............. 171,581 2,766 3,323 16,837 -- (9,409) 185,098
Income (loss) before income
taxes...................... (1,679) 297 (95) 677 778 (898) (920)
Total assets............... 60,101 14,783 6,257 2,365 68 (24,479) 59,095
Long-lived assets............ 10,910 3,578 93 21 -- (5,696) 8,906
Additions to long-lived
assets..................... 1,504 2,934 7 15 -- -- 4,460
Depreciation and
amortization............... 708 164 12 5 -- -- 889
|
During fiscal 1999, the Company had net sales greater than 10% of total sales to the following customers by segment (in thousands):
U.S. -- G.B. Tubulars, Inc. ................................ $23,990 U.S. -- UNOCAL.............................................. 23,480 |
12. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Various computer and other equipment may also have embedded Year 2000 issues.
The Company has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company estimates that approximately 91% of the required conversions are complete, and based on the current plan of action, the Company does not believe the Year 2000 project costs will be significant.
Management estimates that the Year 2000 project will be completed no later than December, 1998, which is prior to any anticipated impact on its operating systems.
The Company believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such
SOONER PIPE & SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company.
In addition, communications are ongoing with other companies with which the Company's systems interface or rely on to determine the extent to which those companies are addressing their Year 2000 compliance.
13. SUBSEQUENT EVENTS
As a result of the sale of the Company on July 2, 1998, the Company has entered into or guaranteed various debt agreements to finance the acquisition of the Company by the new owners ("Sooner Inc."). The Company entered into a $50,000,000 credit agreement which is guaranteed by Sooner Inc. and includes a $40,000,000 revolving line of credit (a borrowing of $35,000,000 occurred on July 2, 1998), a $5,000,000 term note payable in monthly installments with final maturity on June 30, 2000, and $5,000,000 in letter of credit accommodations. Interest is payable at the First Union National Bank Prime Rate, or adjusted Eurodollar rate as defined in the agreement plus 1.75%, per annum depending on whether the revolver loans are Prime Rate or Eurodollar Rate loans when borrowed, as defined in the agreement. The revolving line of credit and letter of credit accommodations expire on July 2, 2003.
The Company also guaranteed and assumed a $10,000,000 senior subordinated note and a $7,500,000 senior subordinated contingent note, as defined in the sale agreement, between Sooner Inc. and the Company's parent. The $10,000,000 note bears interest at the same rate as the $50,000,000 credit agreement noted above and matures on July 2, 1999. The $7,500,000 note bears interest at 6% per annum and is payable in quarterly installments based on 37.5% of the quarterly proceeds from the sale of $20,000,000 of designated inventory as identified in the sale agreement. The other 62.5% of the quarterly proceeds from the sale of such inventory must be applied as payment against the $5,000,000 term note and the $10,000,000 note as identified above.
The Company also sold certain inventory and real estate to a related party of Sooner Inc. on July 31, 1998 for $3,804,000. This amount is contingent upon settlement of the valuation of the inventory sold. A payment of $1,850,000 will be made on August 31, 1998 with the remainder being represented by a $1,954,000 subordinated 6% note due to the Company in annual installments of $977,000, plus interest, with final maturity on July 31, 2000.
Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
SHARES
OIL STATES INTERNATIONAL, INC.
COMMON STOCK
PROSPECTUS
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
SIMMONS & COMPANY
INTERNATIONAL
, 2000
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 10, 2000
PROSPECTUS
SHARES
This is Oil States International, Inc.'s initial public offering. Oil States International is selling shares, and Oil States International stockholders are selling shares. The international managers are offering shares outside the U.S. and Canada, and the U.S. underwriters are offering shares in the U.S. and Canada.
We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol "OIS."
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
PER SHARE TOTAL
--------- -----
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Oil States International...... $ $
Proceeds, before expenses, to the selling stockholders...... $ $
|
The international managers may also purchase up to an additional shares from Oil States International at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. The U.S. underwriters may similarly purchase up to an additional shares from Oil States International.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2000.
----------------------
MERRILL LYNCH INTERNATIONAL CREDIT SUISSE FIRST BOSTON
SIMMONS & COMPANY
INTERNATIONAL
----------------------
The date of this prospectus is , 2000.
|
UNDERWRITING
We intend to offer the shares outside the U.S. and Canada through the international managers and in the U.S. and Canada through the U.S. underwriters. Merrill Lynch International, Credit Suisse First Boston (Europe) Limited and Simmons & Company International are acting as lead managers for the international managers named below. Subject to the terms and conditions described in an international purchase agreement among us, the selling stockholders and the international managers, and concurrently with the sale of shares to the U.S. underwriters, we and the selling stockholders have agreed to sell to the international managers, and each of the international managers has agreed to purchase from us and the selling stockholders, the number of shares listed opposite its name below.
NUMBER
INTERNATIONAL MANAGER OF SHARES
--------------------- ---------
Merrill Lynch International.................................
Credit Suisse First Boston (Europe) Limited.................
Simmons & Company International.............................
--------
Total..........................................
========
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We and the selling stockholders have also entered into a U.S. purchase agreement with the U.S. underwriters for sale of the shares in the U.S. and Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation and Simmons & Company International are acting as U.S. representatives. Subject to the terms and conditions in the U.S. purchase agreement, and concurrently with the sale of shares to the international managers under the international purchase agreement, we and the selling stockholders have agreed to sell to the U.S. underwriters, and the U.S. underwriters severally have agreed to purchase from us and the selling stockholders, an aggregate of shares in the offering. The initial public offering price per share and the total underwriting discount per share are identical under the international purchase agreement and the U.S. purchase agreement.
The international managers and the U.S. underwriters have agreed to purchase all of the shares sold under the international and U.S. purchase agreements if any of these shares are purchased. If an underwriter defaults, the U.S. and international purchase agreements provide that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreements may be terminated. The closings for the sale of shares to be purchased by the international managers and the U.S. underwriters are conditioned on one another.
We, some of our subsidiaries and the selling stockholders have agreed to indemnify the international managers and the U.S. underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the international managers and U.S. underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreements, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The lead managers have advised us and the selling stockholders that the international managers propose initially to offer the shares to the public at the initial public offering price listed on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. The international managers may allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After the initial public offering, the public offering price, concession and discount may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to Oil States and the selling stockholders. The information assumes either no exercise or full exercise by the international managers and the U.S. underwriters of their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price............................ $ $ $
Underwriting discount............................ $ $ $
Proceeds, before expenses, to Oil States......... $ $ $
Proceeds, before expenses, to the selling
stockholders................................... $ $ $
|
The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by Oil States.
OVER-ALLOTMENT OPTION
We have granted an option to the international managers to purchase up to additional shares at the public offering price less the underwriting discount. The international managers may exercise this option for 30 days from the date of this prospectus solely to cover any over-allotments. If the international managers exercise this option, each international manager will be obligated, subject to conditions contained in the purchase agreements, to purchase a number of additional shares proportionate to that international manager's initial amount reflected in the above table.
We have also granted an option to the U.S. underwriters, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares to cover any over-allotments on terms similar to those granted to the international managers.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an intersyndicate agreement that provides for the coordination of their activities. Under the intersyndicate agreement, the international managers and the U.S. underwriters may sell shares to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the intersyndicate agreement, the international managers and any dealer to whom they sell shares will not offer to sell or sell shares to U.S. or Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions under the intersyndicate agreement. Similarly, the U.S. underwriters and any dealer to whom they sell shares will not offer to sell or sell shares to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, except in the case of transactions under the intersyndicate agreement.
NO SALES OF SIMILAR SECURITIES
We, the selling stockholders, our executive officers and directors, current stockholders of Oil States and other stockholders receiving shares in the Combination have agreed, with exceptions, not to sell or transfer any common stock for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Specifically, we and these other individuals have agreed not to directly or indirectly:
- offer, pledge, sell, or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock, other than under our 2000 Equity Participation Plan,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the common stock, or
- enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
NEW YORK STOCK EXCHANGE LISTING
We intend to apply to list our common stock on the New York Stock Exchange under the symbol "OIS." In order to meet the requirements for listing on that exchange, the U.S. underwriters and the international managers have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us and the U.S. representatives and lead managers. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:
- the valuation multiples of publicly traded companies that the U.S. representatives and the lead managers believe to be comparable to us,
- our financial information,
- the history of, and the prospects for, our company and the industry in which we compete,
- an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues,
- the present state of our development, and
- the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the U.S. representatives may engage in transactions that stabilize the price of our common stock, such as bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the common stock in connection with the offering, i.e., if they sell more shares than are listed on the cover of this prospectus, the U.S. representatives may reduce that short position by purchasing shares in the open market. The U.S. representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. Purchases of the common stock to stabilize its price or to reduce a short position may cause the price of the common stock to be higher than it might be in the absence of such purchases.
The U.S. representatives may also impose a penalty bid on underwriters and selling group members. This means that if the U.S. representatives purchase shares in the open market to reduce the underwriter's short position or to stabilize the price of such shares, they may reclaim the amount of the selling concession from the underwriters and selling group members who sold those shares. The imposition of a penalty bid may also affect the price of the shares in that it discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters makes any representation that the U.S. representatives or the lead managers will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
UK SELLING RESTRICTIONS
Each international manager has agreed that:
- it has not offered or sold and will not offer or sell any shares of common stock to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the common stock in, from or otherwise involving the United Kingdom; and
- it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of common stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 as amended by the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or is a person to whom such document may otherwise lawfully be issued or passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of common stock, or the possession, circulation or distribution of this prospectus or any other material relating to our company, the selling stockholders or shares of our common stock in any jurisdiction where action for that purpose is required. Accordingly, the shares of our common stock may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the shares of common stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price on the cover page of this prospectus.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions.
Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
SHARES
OIL STATES INTERNATIONAL, INC.
COMMON STOCK
PROSPECTUS
MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
SIMMONS & COMPANY
INTERNATIONAL
, 2000
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fees.
Securities and Exchange Commission registration fee......... $53,130
NASD filing fee............................................. 20,625
NYSE listing fee............................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Printing expenses........................................... *
Transfer Agent fees......................................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
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* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise), against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.
The Company's certificate of incorporation provides that indemnification shall be to the fullest extent permitted by the DGCL for all current or former directors or officers of the Company.
As permitted by the DGCL, the certificate of incorporation provides that directors of the Company shall have no personal liability to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except (1) for any breach of the director's duty of loyalty to the Company or its
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stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (3) under Section 174 of the DGCL or (4) for any transaction from which a director derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has not sold any securities, registered or otherwise, within the past three years, except as set forth below. The information set forth below reflects the Company's 50 for 1 stock split effected on January 8, 1998.
In August 1997, the Company issued a total of 1,212,150 shares of its Common Stock to its shareholders of record as of July 29, 1997 who subscribed to the Company's offering of Common Stock as of such date to such shareholders (the "August 1997 Subscription"). The consideration paid by such shareholders was $6.60 per share.
In connection with the August 1997 Subscription, the Company issued a total of 40,000 shares of Common Stock to certain former stockholders of HydroTech Systems, Inc. in satisfaction of pre-emptive rights held by such persons. The consideration paid by such persons was $6.60 per share.
In December 1997, the Company issued a total of 832,500 shares of Common Stock to its shareholders of record as of November 11, 1997 who subscribed to the Company's offering of Common Stock as of such date to such shareholders (the "December 1997 Subscription"). The consideration paid by such shareholders was $10.00 per share.
In connection with the December 1997 Subscription, the Company issued a total of 10,250 shares of Common Stock to certain former stockholders of HydroTech Systems, Inc. in satisfaction of pre-emptive rights held by such persons. The consideration paid by such persons was $10.00 per share.
Also in December 1997, the Company issued a total of 133,000 shares of Common Stock to the shareholders of Gregory Rig Service and Sales, Inc. ("Gregory") in partial consideration for the purchase of all of the issued and outstanding shares of common stock of Gregory.
Also in December 1997, the Company issued 1,000,000 shares of Common Stock to the Huntfield Trust Limited ("Huntfield") in consideration for the purchase of 400 shares of the common stock of a wholly owned subsidiary of the Company, which shares were issued to Huntfield as partial consideration for the purchase of assets from Huntfield in May 1996.
Also in December 1997, the Company issued a total of 500,000 shares of Common Stock to SCF-III, L.P., Chase Manhattan Investment Holdings, L.P. and Bovaird Supply Company in consideration for outstanding options held by such entities to purchase the common stock of CE Franklin Ltd., a former majority owned subsidiary of the Company (the "CE Franklin Transaction").
In January 1998, the Company issued 15,000 shares of Common Stock to James Cauble ("Cauble") pursuant to the terms of an employment agreement for $10.00 per share. In so doing, the Company relied on the provisions of Rule 701 promulgated under the Securities Act in claiming exemption for the offering, sale and delivery of such securities from registration under the Securities Act. Pursuant to the terms of an employment severance agreement with Cauble, the Company repurchased such shares in November 1999.
Also in January 1998, the Company issued 44,900 shares of Common Stock to Huntfield pursuant to the December 1997 Subscription for $10.00 per share.
In February 1998, the Company issued a total of 424,158 shares of Common Stock to its shareholders of record as of January 23, 1998 who subscribed to the Company's offering of Common Stock as of such date to such shareholders (the "February 1998 Subscription"). The consideration paid by such shareholders was $10.00 per share.
Also in February 1998, the Company issued a total of 100,000 shares of Common Stock to the shareholders of Subsea Ventures, Inc. ("Subsea Ventures") in partial consideration for the purchase of all of the issued and outstanding shares of common stock of Subsea Ventures.
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In March 1998, the Company issued a total of 648,670 shares of Common Stock to its shareholders of record as of March 12, 1998 who subscribed to the Company's offering of Common Stock as of such date to such shareholders (the "March 1998 Subscription"). The consideration paid by such shareholders was $10.00 per share.
In April 1998, the Company issued a total of 75,000 shares of Common Stock to the shareholders of Klaper (UK) Limited ("Klaper") in partial consideration for the purchase of all of the issued and outstanding shares of common stock of Klaper.
In May 1998, the Company issued 775,000 shares of Common Stock to Chase Manhattan Investment Holdings, L.P. in exchange for 775,000 shares of the Company's Class B common stock, which were issued in 1995. In so doing, the Company relied on the exchange of existing securities provisions of Section 3(a)(9) of the Securities Act in claiming exemption for the offering, sale and delivery of such securities from registration under the Securities Act.
From August 1998 to November 1998, the Company issued a total of 141,767 shares of Common Stock to certain employees upon the exercise of employment stock options held by such employees. The exercise price of such options was $2.094 per share. In so doing, the Company relied on the provisions of Rule 701 promulgated under the Securities Act in claiming exemption for the offering, sale and delivery of such securities from registration under the Securities Act.
In February 2000, the Company issued a total of 4,291,312 shares of Common Stock to its shareholders who purchased shares in the February 1998 Subscription and the March 1998 Subscription, pursuant to certain performance conditions specified in such subscriptions which were not attained. No additional consideration was received for such shares.
Also in February 2000, the Company issued 500,000 shares of Common Stock to SCF-III, L.P., Chase Manhattan Investment Holdings, L.P. and Bovaird Supply Company in accordance with certain performance conditions specified in the CE Franklin Transaction which were not attained. No additional consideration was received for such shares.
Also in February 2000, the Company issued 45 shares of Common Stock to Oran Tarlton ("Tarlton") pursuant to an offering to shareholders who did not purchase Common Stock in the February 1998 Subscription. The consideration paid by Tarlton was $2.46 per share.
Also in February 2000, the Company issued 70 shares of Common Stock to Tarlton pursuant to an offering to shareholders who did not purchase Common Stock in the March 1998 Subscription. The consideration paid by Tarlton was $2.44 per share.
Except as specifically stated otherwise in the preceding paragraphs, in offering, selling and issuing the securities described above, the Company relied on, among other things, the private placement provisions of Section 4(2) of the Securities Act.
In connection with the closing of the Combination, the Company will issue a total of 7,600,830, 7,606,110 and 5,933,703 shares of Common Stock (after giving further effect to the proposed three for one reverse stock split to be effected in connection with the Combination and the offering) to the former shareholders of HWC Energy Services, Inc. ("HWC") and Sooner Inc. ("Sooner") and the former shareholders of PTI Group Inc. ("PTI") resident in the United States in consideration for all of the issued and outstanding shares of common stock of HWC and Sooner and the common shares of PTI held by such shareholders, respectively. In so doing, the Company will rely on the private placement provisions of Rule 506 of Regulation D promulgated under the Securities Act in claiming exemption for the offering, sale and delivery of such securities from registration under the Securities Act.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
1.1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation
3.2* -- Amended and Restated Bylaws
4.1* -- Form of common stock certificate
4.2 -- Form of Amended and Restated Registration Rights
Agreement
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Combination Agreement dated as of July 31, 2000 by and
among Oil States International, Inc., HWC Energy
Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger
Sub-Sooner, Inc. and PTI Group Inc.
10.2 -- Form of Plan of Arrangement of PTI Group Inc.
10.3 -- Form of Support Agreement between Oil States
International, Inc. and PTI Holdco
10.4 -- Form of Voting and Exchange Trust Agreement by and among
Oil States International, Inc., PTI Holdco and Montreal
Trust Company of Canada
10.5* -- 2000 Equity Participation Plan
10.6* -- Deferred Compensation Plan
10.7* -- Annual Incentive Compensation Plan
10.8* -- Executive Agreement dated as of , 2000 between
Oil States International, Inc. and Douglas E. Swanson
10.9* -- Executive Agreement dated as of , 2000 between
Oil States International, Inc., and Cindy B. Taylor
10.10* -- Form of Executive Agreement between Oil States
International, Inc. and all other Named Executive
Officers
21.1* -- List of subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP (Houston, Texas)
23.3 -- Consent of Arthur Andersen LLP (Dallas, Texas)
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5* -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
23.6 -- Consent of Mark G. Papa to serve as director
23.7 -- Consent of Gary L. Rosenthal to serve as director
24.1 -- Powers of Attorney for Directors (included in signature
page)
27.1 -- Financial Data Schedule
|
* To be filed by amendment.
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(b) Financial Statement Schedule
All schedules are omitted because the information is contained in the Financial Statements or Notes.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the undersigned registrant pursuant to the foregoing provisions described in Item 14 or otherwise, the undersigned registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the undersigned registrant of expenses incurred or paid by a director, officer or controlling person of the undersigned registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the undersigned registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(b) To provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(c) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the undersigned registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(d) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on the 9th day of August, 2000.
Oil States International, Inc.
By: /s/ DOUGLAS E. SWANSON ---------------------------------- Name: Douglas E. Swanson Title: President and Chief Executive Officer |
The undersigned directors and officers of Oil States International, Inc. (the "Company") do hereby constitute and appoint Douglas E. Swanson and Cindy B. Taylor, and each of them, with full power of substitution, our true and lawful attorneys-in-fact and agents to do any and all acts and things in our name and behalf in our capacities as directors and officers, and to execute any and all instruments for us and in our names in the capacities indicated below which such person may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, as amended (the "Act") and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this registration statement, including specifically, but not limited to, power and authority to sign for us, or any of us, in the capacities indicated below and any and all amendments (including pre-effective and post-effective amendments or any other registration statement filed pursuant to the provision of Rule 462(b) under the Act) hereto; and we do hereby ratify and confirm all that such person or persons shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DOUGLAS E. SWANSON President, Chief Executive August 9, 2000
----------------------------------------------------- Officer and Director
Douglas E. Swanson (Principal Executive
Officer)
/s/ CINDY B. TAYLOR Chief Financial Officer August 9, 2000
----------------------------------------------------- (Principal Financial
Cindy B. Taylor Officer)
/s/ ROBERT W. HAMPTON Vice President -- Finance and August 9, 2000
----------------------------------------------------- Accounting (Principal
Robert W. Hampton Accounting Officer)
/s/ L.E. SIMMONS Chairman of the Board August 9, 2000
-----------------------------------------------------
L.E. Simmons
/s/ DAVID ALTHOFF Director August 9, 2000
-----------------------------------------------------
David Althoff
Director
-----------------------------------------------------
Russell Hawkins
|
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SIGNATURE TITLE DATE
--------- ----- ----
Director
-----------------------------------------------------
Dennis Proctor
/s/ ANDREW L. WAITE Director August 9, 2000
-----------------------------------------------------
Andrew L. Waite
/s/ STEPHEN A. WELLS Director August 9, 2000
-----------------------------------------------------
Stephen A. Wells
/s/ JAMES D. WOODS Director August 9, 2000
-----------------------------------------------------
James D. Woods
|
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INDEX TO EXHIBITS
1.1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation
3.2* -- Amended and Restated Bylaws
4.1* -- Form of common stock certificate
4.2 -- Form of Amended and Restated Registration Rights
Agreement
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Combination Agreement dated as of July 31, 2000 by and
among Oil States International, Inc., HWC Energy
Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger
Sub-Sooner, Inc. and PTI Group Inc.
10.2 -- Form of Plan of Arrangement of PTI Group Inc.
10.3 -- Form of Support Agreement between Oil States
International, Inc. and PTI Holdco
10.4 -- Form of Voting and Exchange Trust Agreement by and among
Oil States International, Inc., PTI Holdco and Montreal
Trust Company of Canada
10.5* -- 2000 Equity Participation Plan
10.6* -- Deferred Compensation Plan
10.7* -- Annual Incentive Compensation Plan
10.8* -- Executive Agreement dated as of , 2000 between
Oil States International, Inc. and Douglas E. Swanson
10.9* -- Executive Agreement dated as of , 2000 between
Oil States International, Inc., and Cindy B. Taylor
10.10* -- Form of Executive Agreement between Oil States
International, Inc. and all other Named Executive
Officers
21.1* -- List of subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP (Houston, Texas)
23.3 -- Consent of Arthur Andersen LLP (Dallas, Texas)
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5* -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
23.6 -- Consent of Mark G. Papa to serve as director
23.7 -- Consent of Gary L. Rosenthal to serve as director
24.1 -- Powers of Attorney for Directors (included in signature
page)
27.1 -- Financial Data Schedule
|
* To be filed by amendment.
EXHIBIT 4.2
FORM OF AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "Agreement"), dated as of ___________ ___, 200_, by and among Oil States International, Inc., a Delaware corporation ("OSI"), HWC Energy Services, Inc., a Texas corporation ("HWC"), Sooner Inc., a Delaware corporation ("Sooner"), and each of the holders of OSI Common Stock, HWC Common Stock, and Sooner Common Stock listed on the signature pages hereto, is entered into in connection with that certain Combination Agreement (the "Combination Agreement") dated as of July 31, 2000 and among OSI, HWC, Sooner and PTI Group, Inc., an Alberta corporation ("PTI") and the other parties thereto. Capitalized terms that are used but not defined herein shall have the meanings set forth in the Combination Agreement.
RECITALS
WHEREAS, OSI, HWC, Sooner and PTI have entered into the Combination Agreement, pursuant to which, among other things, the holders of HWC Common Stock will receive shares of OSI Common Stock in the HWC Merger and the holders of Sooner Common Stock will receive shares of OSI Common Stock in the Sooner Merger; and
WHEREAS, certain of the holders of OSI Common Stock, HWC Common Stock and Sooner Common Stock enjoy various registration rights with respect to such shares currently owned by them (the "Existing Registration Rights"); and
WHEREAS, Article X of the Combination Agreement provides for the execution of this Amended and Restated Registration Rights Agreement which will amend and restate the Existing Registration Rights; and
WHEREAS, the Holders of the Existing Registration Rights wish to relinquish such rights as of the Effective Time in consideration of receiving the amended and restated registration rights contemplated by this Agreement;
WHEREAS, this Agreement shall be effective only upon the consummation of the OSI Initial Public Offering.
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements herein contained, the parties hereto agree as follows:
SECTION 1 DEFINITIONS. The terms set forth below in this Section 1 shall have the meanings ascribed to them below or in the part of this Agreement referred to below:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the general rules and regulations under the Exchange Act.
"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the States of Texas or New York are authorized by law to close.
"Demand Holder" means SCF-III, L.P., a Delaware limited partnership, SCV-IV, L.P., a Delaware limited partnership, or any of their respective successors and each transferee of their OSI Common Stock to whom the right to cause a Demand Registration has been expressly assigned in writing directly or indirectly (in a chain of title) from SCF-III, L.P. or SCF-IV, L.P.
"Demand Registration" has the meaning set forth in Section 2(a) below.
"Demand Request" has the meaning set forth in Section 2(a) below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Registration Rights" has the meaning set forth in the recitals above.
"Holders" means those Persons set forth on the signature pages hereto, each of whom currently owns Registrable Securities; provided, however that a Person shall cease to be a Holder at any time after 180 days after the OSI Initial Public Offering if and when such Person owns OSI Common Stock and OSI Common Stock Equivalents representing less than two percent of the outstanding OSI Common Stock and such Person may dispose of all Registrable Securities then owned by such Person pursuant to Rule 144(k) (or any successor rule) under the Securities Act; provided, further however, that a Person (other than a Demand Holder) shall cease to be a Holder after the second anniversary hereof if the Company requests in writing that such Person confirm in writing that such Person remains a Holder and such Person fails to so confirm within 30 days of such notice.
"HWC Common Stock" shall mean the common stock, par value $.01 per share, of HWC Energy Services, Inc., a Texas corporation.
"Indemnified Party" has the meaning set forth in Section 7(c) below.
"Indemnifying Party" has the meaning set forth in Section 7(c) below.
"Inspectors" has the meaning set forth in Section 5(i) below.
"Material Adverse Effect" has the meaning set forth in Section 2(d) below.
"OSI Common Stock" shall mean the Class A common stock, par value $.01 per share, of OSI.
"OSI Common Stock Equivalents" means (without duplication with any other OSI Common Stock or OSI Common Stock Equivalents) rights, warrants, options, convertible securities, or exchangeable securities or indebtedness, or other rights, exercisable for or convertible or exchangeable into, directly or indirectly, OSI Common Stock or securities convertible or exchangeable into OSI Common Stock, whether at the time of issuance or upon the passage of time or the occurrence of some future event.
"OSI Initial Public Offering" means the initial public offering of OSI Common Stock contemplated by an OSI registration statement filed to effect such offering.
"Person" means any natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank trust company, land trust, business trust, or other organization, whether or not a legal entity, and any government or agency or political subdivision thereof.
"Piggyback Registration" has the meaning set forth in Section 3(a) below.
"Piggyback Securities" has the meaning set forth in Section 3(b) below.
"PTI Exchangeable Shares" has the meaning set forth in the Combination Agreement.
"PTI Registration Statement" has the meaning set forth in Section 3(a) below.
"Records" has the meaning set forth in Section 5(i) below.
"Registrable Securities" means (i) the OSI Common Stock issued in
connection with the Combination Agreement in exchange for shares of HWC Common
Stock or Sooner Common Stock to which, in each case, Existing Registration
Rights were attached, (ii) the OSI Common Stock issued prior to the date hereof
to which Existing Registration Rights are attached and (iii) any OSI Common
Stock and any other securities issued or issuable with respect to such
securities by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
reorganization; provided, that any Registrable Security will cease to be a
Registrable Security when (a) a registration statement covering such Registrable
Security has been declared effective by the SEC and it has been disposed of
pursuant to such effective registration statement, (b) such Registrable Security
is sold under circumstances in which all of the applicable conditions of Rule
144 (or any similar provisions then in force) under the Securities Act are met,
(c) (i) such Registrable Security has been otherwise transferred and (ii) OSI
has delivered a new certificate or other evidence of ownership for it not
bearing any legend with respect to registration and (iii) such Registrable
Security may be resold without subsequent registration under the Securities Act,
or (d) such Registrable Security has ceased to be a Registrable Security in
accordance with the proviso to the definition of Holder provided for herein.
"Registration Expenses" has the meaning set forth in Section 6 below.
"Requesting Holders" means the Demand Holder or group of Demand Holders acting in concert to make a Demand Request.
"Required Filing Date" has the meaning set forth in Section 2(a)(ii) below.
"SEC" means the Securities and Exchange Commission or any successor governmental agency.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Selling Holder" means a Holder who is selling Registrable Securities pursuant to a registration statement under the Securities Act.
"Sooner Common Stock" shall mean the common stock, par value $.01 per share, of Sooner Inc., a Delaware corporation.
"Subsidiary" means (i) any corporation or other entity a majority of the capital stock of which having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions is at the time owned, directly or indirectly, with power to vote, by OSI or any direct or indirect Subsidiary of OSI or (ii) a partnership in which OSI or any direct or indirect Subsidiary is a general partner.
"Underwriter" means a securities dealer which purchases any Registrable Securities as principal and not as part of such dealer's market-making activities.
SECTION 2 DEMAND REGISTRATION.
(a) Request for Registration.
(i) From and after the expiration of the lock-up period agreed to by OSI in connection with the OSI Initial Public Offering, any Demand Holder may make a written request of OSI (a "Demand Request") for registration under the Securities Act (a "Demand Registration") of the sale of all or part of its Registrable Securities; provided that the Registrable Securities proposed to be sold by the Requesting Holders must have an estimated aggregate gross offering price of at least $50,000,000.
(ii) Each Demand Request shall specify the type and number of shares of Registrable Securities proposed to be sold. Subject to Section 4(c), OSI shall file the Demand Registration as soon as reasonably practicable but in any event within 60 days after receiving a Demand Request (the "Required Filing Date") and shall use all commercially reasonable efforts to cause the same to be declared effective by the SEC as promptly as practicable after such filing. Subject to Section 2(b), if OSI has effected five Demand Registrations in response to the request of a Demand Holder, then OSI shall not be obligated to respond to further Demand Registrations in respect of Demand Holders pursuant to this Section. OSI shall not be obligated to effect more than one Demand Registration in any six month period.
(b) Effective Registration and Expenses. Each registration that becomes effective will be counted as a Demand Registration. A registration will not count as a Demand Registration until it has become effective unless (i) prior to such effective time the Requesting Holders withdraw all their Registrable Securities for any reason other than (A) the inability or unreasonable delay of OSI in having such registration statement become effective or (B) the disclosure of material adverse information regarding OSI that was not known by such Requesting Holders at the time the request for such Demand Registration was
made and (ii) the Requesting Holders elect not to pay all of OSI's Registration Expenses in connection with such withdrawn registration. If, after such registration has become effective, an offering of Registrable Securities pursuant to a registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will not count as a Demand Registration; provided, however, that upon the termination or release of such stop order, injunction or interference, such registration will again be counted as a Demand Registration.
(c) Selection of Underwriters. The offering of Registrable Securities pursuant to a Demand Registration may be in the form of a "firm commitment" underwritten offering. OSI shall select the book-running managing Underwriter and such additional Underwriters to be used in connection with the offering; provided that such selections shall be subject to the consent of Requesting Holders owning a majority of the Registrable Securities subject to such Demand Registration, which consent shall not be unreasonably withheld.
(d) Priority on Demand Registrations. No securities to be sold for the account of any Person (including OSI) other than a Holder shall be included in a Demand Registration if the managing Underwriter or Underwriters shall advise the Requesting Holder in writing that, in its or their judgment, the inclusion of such securities may adversely affect the price or success of the offering in any significant or material respect (a "Material Adverse Effect"). Furthermore, in the event the managing Underwriter or Underwriters shall advise the Requesting Holder that even after exclusion of all securities of other Persons pursuant to the immediately preceding sentence, the amount of Registrable Securities proposed to be included in such Demand Registration by Holders electing to participate is sufficiently large to cause a Material Adverse Effect, the Registrable Securities of such Holders to be included in such Demand Registration shall be allocated pro rata among such Holders on the basis of the number of outstanding shares of OSI Common Stock requested to be included in such registration by each such Holder.
SECTION 3 PIGGYBACK REGISTRATION.
(a) If OSI proposes to file a registration statement under the Securities Act, including a Demand Registration, with respect to an offering of OSI Common Stock for cash by OSI for its own account or for the account of any of its equity holders (other than a registration statement on Form S-4 or S-8 or any substitute form that may be adopted by the SEC or any registration statement filed in connection with an exchange offer or offering of securities solely to OSI's existing security holders or any registration statement filed in connection with an exchange offer or offering of securities to holders of Exchangeable Shares) (the "PTI Registration Statement"), then OSI shall give written notice of such proposed filing to the Holders of the Registrable Securities as soon as practicable (but in no event less than 20 days before the anticipated initial filing date of such registration statement), and such notice shall offer such Holders the opportunity to register such number of Registrable Securities as each such Holder may request (a "Piggyback Registration"). On or before the 10th day following the receipt of such notice by the Holders, any Holder wishing to include any or all of its Registrable Securities in such registration statement shall give written notice to OSI stating the name of such Holder and the amount of such Holder's
Registrable Securities to be included in such registration statement. Subject to Section 3(b), OSI shall include in each such Piggyback Registration all Registrable Securities requested to be included in the registration for such offering; provided, however, that OSI may at any time withdraw or cease proceeding with such registration without the consent of any Holder of Registrable Securities, notwithstanding the request of any such Holder to participate therein in accordance with this provision, if OSI determines in its sole discretion that such action is in the best interests of OSI and its stockholders (for this purpose, the interests of the Holders shall not be considered). Each Holder of Registrable Securities shall be permitted to withdraw all or part of such Holder's Registrable Securities from a Piggyback Registration at any time prior to the effective date thereof.
(b) OSI shall use all commercially reasonable efforts to cause
the managing Underwriter or Underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included
in the registration statement for such offering under Section 3(a)
("Piggyback Securities"), to be included on the same terms and
conditions as any similar securities included therein. Notwithstanding
the foregoing, OSI shall not be required to include any Holder's
Piggyback Securities in such offering unless such Holder accepts the
terms of the underwriting agreement between OSI and the managing
Underwriter or Underwriters and otherwise complies with the provisions
of Section 8. If such offering is a Demand Registration pursuant to
Section 2(a), then the provisions of Section 2(d) shall apply. In all
other offerings that are underwritten, if the managing Underwriter or
Underwriters of such proposed underwritten offering advise OSI in
writing that in its or their opinion the total amount of securities,
including Piggyback Securities, to be included in such offering is
sufficiently large to cause a Material Adverse Effect, then in such
event the securities to be included in such offering shall be allocated
first to OSI, and then, to the extent that any additional securities
can, in the opinion of such managing Underwriter or Underwriters, be
sold without any such Material Adverse Effect, pro rata among the
holders of Piggyback Securities on the basis of the number of
outstanding shares of OSI Common Stock requested to be included in such
registration by each such Holder.
(c) Until such time as the PTI Registration Statement has been
declared effective by the SEC, the holders of PTI Exchangeable Shares
shall be deemed to be Holders hereunder for purposes of participation
in Piggyback Registrations. The holders of PTI Exchangeable Shares
shall have the same rights, duties and obligations of Holders with
respect to Piggyback Registrations and shall be subject to the same
limitations and restrictions thereon. The rights provided in this
Section 3(c) shall terminate as to any particular holder of PTI
Exchangeable Shares at such time as such holder ceases to be a holder
of PTI Exchangeable Shares.
SECTION 4 HOLDBACK AGREEMENTS.
(a) Restrictions on Public Sale by Holder of Registrable Securities. Each Holder of Registrable Securities (whether or not such Registrable Securities are included in a registration statement pursuant hereto) agrees not to effect any direct or indirect (including through derivative transactions) sale or distribution of the issue being registered or of any securities convertible into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and during such period (up to 90 days) beginning on, the date of the final prospectus used with respect to any underwritten public offering of equity securities by the Company or any Holder of Registrable Securities if and to the extent requested by the managing Underwriter or Underwriters.
(b) Restrictions on Public Sale by OSI and Others. OSI agrees not to effect any direct or indirect (including through derivative transactions) sale or distribution of any securities similar to those being registered, or any securities convertible into or exchangeable or exercisable for such securities, during the 14 days prior to, and during a period of up to 90 days, if requested by the managing underwriters, beginning on, the date of the final prospectus used with respect to any underwritten public offering of equity securities by the Company or any Holder of Registrable Securities (unless such sale or distribution is pursuant to such registration statement); provided, such restriction shall not affect OSI's ability to issue OSI Common Stock pursuant to the PTI Registration Statement.
(c) Deferral of Filing. OSI may defer the filing (but not the preparation) of a registration statement required by Section 2 if (i) at the time OSI receives the Demand Request, OSI is engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board of Directors of OSI determines in good faith that such disclosure would not be in the best interests of OSI and its stockholders, or (ii) prior to receiving the Demand Request, the Board of Directors had determined to effect a registered underwritten public offering of OSI's equity securities for OSI's account and OSI had taken substantial steps (including, but not limited to, selecting the managing Underwriter for such offering) and is proceeding with reasonable diligence to effect such offering. A deferral of the filing of a registration statement pursuant to this Section 4(c) shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) of the preceding sentence, the proposed registration for OSI's account is abandoned. In order to defer the filing of a registration statement pursuant to this Section 4(c), OSI shall promptly, upon determining to seek such deferral, deliver to each Requesting Holder a certificate signed by the President of Company stating that OSI is deferring such filing pursuant to this Section 4(c). Within twenty days after receiving such certificate, the Requesting Holder may withdraw such request by giving notice to OSI; if withdrawn, the Demand Request shall be deemed not to have been made for all purposes of this Agreement. OSI may defer the filing of a particular registration statement pursuant to this Section 4(c) for a period of 45 days in any three month period and of all registration statements for a total of 90 days during any twelve month period.
SECTION 5 REGISTRATION PROCEDURES. Whenever the Holders have requested that any Registrable Securities be registered pursuant to Section 2 hereof, OSI will, at its expense, use all commercially reasonable efforts to effect the registration and the sale of such Registrable Securities under the Securities Act in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request, OSI will as expeditiously as practicable:
(a) prepare and file with the SEC a registration statement on any form for which OSI then qualifies or which counsel for OSI shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use all commercially reasonable efforts and proceed diligently and in good faith to cause such filed registration statement to become effective under the Securities Act; provided, however, that before filing a registration statement or prospectus or any amendments or supplements thereto, OSI will furnish to all Selling Holders and to one counsel reasonably acceptable to OSI selected by the Selling Holders, copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel;
(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective pursuant to Section 2 for a period (except as provided in the last paragraph of this Section 5) of not less than 180 consecutive days or, if shorter, the period terminating when all Registrable Securities covered by such registration statement have been sold (but not before the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Selling Holders thereof set forth in such registration statement;
(c) furnish to each such Selling Holder one copy of such registration statement, and of each amendment and supplement thereto (in each case including one copy of all exhibits thereto), and such number of copies of the prospectus included in such registration statement (including each preliminary prospectus) as such Selling Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Selling Holder;
(d) notify the Selling Holders promptly, and (if requested by
any such Person) confirm such notice in writing, (i) when a prospectus
or any prospectus supplement or post-effective amendment has been
filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective under the
Securities Act and each applicable state law; (ii) of any request by
the SEC or any other federal or state governmental authority for
amendments or supplements to a registration statement or related
prospectus or for additional information; (iii) of the issuance by the
SEC of any stop order suspending the effectiveness of a registration
statement or the initiation of any proceedings for that purpose; (iv)
if at any time the representations or warranties of OSI contained in
any agreement (including any underwriting agreement) contemplated by
Section 5(h) below cease to be true and correct in any material
respect; (v) of the receipt by OSI of any notification with respect to
the suspension of the qualification or exemption from qualification of
any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (vi) of
the happening of any event which makes any statement made in such
registration statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any
material respect or that requires the making of any changes in such registration statement, prospectus or documents so that, in the case of the registration statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vii) of OSI's reasonable determination that a post-effective amendment to a registration statement would be appropriate;
(e) use every commercially reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment;
(f) cooperate with the Selling Holders and the managing Underwriter or Underwriters to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depositary Trust Company; and enable such Registrable Securities to be registered in such names as the managing Underwriter or Underwriters may request prior to any sale of Registrable Securities;
(g) use all commercially reasonable efforts to register or qualify such Registrable Securities as promptly as practicable under such other securities or blue sky laws of such jurisdictions as any Selling Holder or managing Underwriter reasonably (in light of the intended plan of distribution) requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holder or managing Underwriter to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Selling Holder; provided, however, that OSI will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (g); (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction;
(h) enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities;
(i) make available for inspection by any Selling Holder of such Registrable Securities, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any such Selling Holder or Underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of OSI (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause OSI's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement. Each Selling Holder of such Registrable Securities agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of OSI or its Affiliates unless and until such is made generally available to the public.
(j) use all commercially reasonable efforts to obtain a comfort letter or comfort letters from OSI's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters as the Selling Holders of a majority of the shares of Registrable Securities being sold or the managing Underwriter or Underwriters reasonably requests;
(k) otherwise use all commercially reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of twelve months, which twelve month period shall commence no later than three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(l) use all commercially reasonable efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by OSI are then listed or quoted on any inter-dealer quotation system on which similar securities issued by OSI are then quoted;
(m) subject to the provisions of Section 4(c) if any event contemplated by Section 5(d)(vi) above shall occur, as promptly as practicable prepare a supplement or amendment or post-effective amendment to such registration statement or the related prospectus or any document incorporated therein by reference or promptly file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and
(n) cooperate and assist in any filing required to be made with the National Association of Securities Dealers, Inc. and in the performance of any due diligence investigation by any underwriter, including any "qualified independent underwriter," or any Selling Holder.
OSI may require each Selling Holder to promptly furnish in writing to OSI such information regarding the distribution of the Registrable Securities as it may from time to time reasonably request and such other information as may be legally required in connection with such registration. Notwithstanding anything herein to the contrary, OSI shall have the right to exclude from any offering the Registrable Securities of any Selling Holder who does not comply with the provisions of the immediately preceding sentence.
Each Selling Holder agrees that, upon receipt of any notice from OSI of the happening of any event of the kind described in Section 5(d)(vi) hereof, such Selling Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5(m) hereof, and, if so directed by OSI, such Selling Holder will deliver to OSI all copies, other than permanent file copies, then in such Selling Holder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event OSI shall give such notice, OSI shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 5(b) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 5(d)(vi) hereof to the date when OSI shall make available to the Selling Holders of Registrable Securities covered by such registration statement a prospectus supplemented or amended to conform with the requirements of Section 5(m) hereof.
SECTION 6 REGISTRATION EXPENSES. Subject to the provisions in Section 2(b) above with respect to a Demand Registration, in connection with any Demand Registration or Piggyback Registration hereunder, OSI shall pay the following registration expenses (the "Registration Expenses"): (a) all registration and filing fees (including, without limitation, with respect to filings to be made with the National Association of Securities Dealers, Inc.), (b) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (c) printing expenses, (d) internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (e) the fees and expenses incurred in connection with the listing of the Registrable Securities on an exchange or the quotation of the Registrable Securities on an inter-dealer quotation system, (f) reasonable fees and disbursements of counsel for OSI and customary fees and expenses for independent certified public accountants retained by OSI (including the expenses of any comfort letters requested pursuant to Section 5(j) hereof), (g) the reasonable fees and expenses of any special experts retained by OSI in connection with such registration, (h) reasonable fees and expenses of one counsel reasonably acceptable to OSI selected by the Selling Holders incurred in connection with the registration of such Registrable Securities hereunder and (i) fees and expenses of any "qualified independent underwriter" or other independent appraiser participating in any offering pursuant to the requirements of the National Association of Securities Dealers, Inc. OSI shall not have any obligation to pay any underwriting fees, discounts, or commissions attributable to the sale of Registrable Securities, any capital gains, income or transfer taxes or, except as provided by clause (b), (h) or (i) above, any out-of-pocket expenses of the Holders (or the agents who manage their accounts) or the fees and disbursements of counsel for any Underwriter.
SECTION 7 INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by OSI. OSI agrees to indemnify and hold harmless each Selling Holder, each Person, if any, who controls such Selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the officers, directors, agents, members, general and limited partners, and employees of each Selling Holder and each such controlling person from and against any and all losses, claims, damages, liabilities, and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities or in any amendment or supplement thereto or in any preliminary prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of, or are based upon, any such untrue statement or omission or allegation thereof based upon information furnished in writing to OSI by such Selling Holder or on such Selling Holder's behalf expressly for use therein. OSI also agrees to indemnify any Underwriters of the Registrable Securities, their officers and directors and each Person who controls such Underwriters on substantially the same basis as that of the indemnification of the Selling Holders provided in this Section 7(a).
(b) Indemnification by Holder of Registrable Securities. Each Selling Holder, severally and not jointly, agrees to indemnify and hold harmless OSI, and each Person, if any, who controls OSI within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and the officers, directors, agents and employees of OSI and each such controlling Person to the same extent as the foregoing indemnity from OSI to such Selling Holder, but only with respect to information furnished in writing by such Selling Holder or on such Selling Holder's behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities. The liability of any Selling Holder under this Section 7(b) shall be limited to the aggregate cash and property received by such Selling Holder pursuant to the sale of Registrable Securities covered by such registration statement or prospectus.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought
or asserted against any Person entitled to indemnification under
Section 7(a) or 7(b) above (an "Indemnified Party") in respect of which
indemnity may be sought from any party who has agreed to provide such
indemnification (an "Indemnifying Party"), the Indemnified Party shall
give prompt written notice to the Indemnifying Party and the
Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ separate
counsel in any such action or proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the Indemnifying Party
has agreed to pay such fees and expenses or (ii) the Indemnifying Party
fails promptly to assume the defense of such action or proceeding or
fails to employ counsel reasonably satisfactory to such Indemnified
Party or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party
and Indemnifying Party (or an Affiliate of the Indemnifying Party), and
such Indemnified Party shall have been advised by counsel that there is
a conflict of interest on the part of counsel employed by the
Indemnifying Party to represent such Indemnified Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action or proceeding on behalf of such
Indemnified Party). Notwithstanding the foregoing, the Indemnifying
Party shall not, in connection with any one such action or proceeding
or separate but substantially similar related actions or proceedings in
the same jurisdiction arising out of the same general
allegations or circumstances, be liable at any time for the fees and expenses of more than one separate firm of attorneys (together in each case with appropriate local counsel). The Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without its written consent (which consent will not be unreasonably withheld), but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action of proceeding, the Indemnifying Party shall indemnify and hold harmless such Indemnified Party from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. The Indemnifying Party shall not consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release, in form and substance satisfactory to the Indemnified Party, from all liability in respect of such action or proceeding for which such Indemnified Party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 7 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between OSI on the one hand and each
Selling Holder on the other, in such proportion as is appropriate to
reflect the relative fault of OSI and of each Selling Holder in
connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of OSI on the one
hand and of each Selling Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. OSI and
the Selling Holders agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the first two
sentences of this Section 7(d). The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages,
liabilities or judgments referred to in Sections 7(a) and (b) hereof
shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7(d), no Selling
Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of
such Selling Holder were offered to the public exceeds the amount of
any damages which such Selling Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
SECTION 8 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements approved by the Person entitled hereunder to approve such arrangements, and (b) timely completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, custody agreements and other documents reasonably required under the terms of such underwriting arrangements and this Agreement.
SECTION 9 MISCELLANEOUS.
9.1 Rule 144. OSI covenants that, upon any registration statement covering Company securities becoming effective, it will file the reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the Commission thereunder, and it will take such other action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (a) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder of Registrable Securities, OSI will deliver to such Holder a written statement as to whether it has complied with such requirements.
9.2 Issuance of New Certificates. Each Holder who ceases to be a Holder may thereafter surrender any certificate or certificates of OSI Common Stock bearing legends restricting the transferability thereof and shall be entitled, upon such surrender, to receive in exchange therefor a certificate or certificates, free of such restrictive legends, representing the same number of shares of OSI Common Stock; provided, however, that prior to the issuance of such unrestricted shares of OSI Common Stock, OSI may require an opinion of its counsel, at its expense, in customary form and reasonably satisfactory to OSI to the effect that the issuance of such unrestricted shares is permitted under applicable federal and state securities laws. If any such certificate for OSI Common Stock is to be issued in a name other than that in which the surrendered certificate is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such exchange shall have paid any transfer and other taxes required by reason of such issuance of certificates of OSI Common Stock in a name other than that of the registered holder of the certificate surrendered, or shall have established to the satisfaction of OSI and its transfer agent that such tax has been paid or is not applicable.
9.3 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is, or whose stockholders or partners are, entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of the Holders of 50% or more of the Registrable Securities.
9.4 Assignment. The registration rights of Holders under this Agreement may be assigned and transferred to any transferee acquiring Registrable Securities, other than in a public offering pursuant to a registration statement or pursuant to Rule 144; provided, however, that OSI is given written notice by the Holder at the time of such transfer stating the name and address of the transferee and identifying the Registrable Securities with respect to which the rights under this Agreement are being assigned and the transferee agrees to be bound by the terms and conditions hereof and agrees to execute and deliver to OSI an acknowledgement and agreement to such effect.
This Agreement shall also be binding upon and enforceable by the heirs, executors, or other personal representatives of the Holders and the successors and assigns of OSI.
9.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered if delivered in person, by cable, telegram, telex, or telecopy and shall be deemed to have been duly given three business days after deposit with a United States post office if delivered by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows:
if to OSI:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor
Telephone: (713) 652-0588
Facsimile: (713) 652-0499
with a copy to:
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas, 75201
Attention: Maury Purnell
Telephone: (214) 740-8000
Facsimile: (214) 740-8800
if to HWC:
HWC Energy Services, Inc.
811 Dallas, Suite 1322
Houston, Texas 77002
Attention: Rob Hampton Telephone: (713) 750-0600 Facsimile: (713) 750-0058
with a copy to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P 201 St. Charles Avenue New Orleans, Louisiana 70170 Attention: Bill Masters Telephone: (504) 582-8000 Facsimile: (504) 582-8549
if to Sooner:
Sooner Inc.
1221 Lamar Street, Suite 1010
Houston, Texas 77010
Attention: Chris Cragg
Telephone: (713) 759-1200
Facsimile: (713) 759-0442
with a copy to:
Scott F. Zarrow
900 Mid-Continent Tower
401 S. Boston
Tulsa, OK 74103
Telephone: (918) 295-8054
Facsimile: (918) 295-8048
and if to a Holder, at such Holder's address as shown on OSI's stock transfer records or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt.
9.6 Governing Law. This Agreement shall be governed by and construed in accordance with the substantive law of the State of Delaware without giving effect to the principles of conflicts of law thereof.
9.7 Severability. If any term or other provisions of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any material manner to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible.
9.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original document, but all of which together shall constitute one and the same agreement.
9.9 Headings. The Section headings herein are for convenience only and are not intended to be part of or to affect the meaning or interpretation of the Agreement.
9.10 Entire Agreement; Third Party Beneficiaries. This Agreement, including the exhibits hereto and the documents, information supplied in writing, and instruments referred to herein, constitute the entire agreement and supersedes all other prior agreements, and understandings, both oral and written, among the parties or any of them, with respect to the subject matter hereof. Except as set forth in Section 3(c) hereof with respect to holders of PTI Exchangeable Shares, this Agreement shall be binding upon and inure solely to the benefit of the parties hereto, and nothing
in this Agreement and the documents, information supplied in writing, and instruments referred to herein, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. For greater certainty, Section 3(c) hereof, and the application of this Agreement contemplated thereby, shall inure to the benefit of, and shall be enforceable against the parties hereto by, the holders of PTI Exchangeable Shares.
9.11 Termination. The provisions of Sections 2, 3, 4, 5 and 6 shall terminate and be of no further force or effect on or after the tenth anniversary of the date hereof.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be executed as of the date first above written.
OIL STATES INTERNATIONAL, INC.
HWC ENERGY SERVICES, INC.
SOONER INC.
SCF III, L.P.
By: SCF II, L.P.,
its General Partner
By: L.E. Simmons & Associates, Incorporated,
its General Partner
SCF IV, L.P.
By: SCF-IV, G.P., Limited Partnership,
its General Partner
By: L.E. Simmons & Associates, Incorporated,
its General Partner
OSI REGISTRATION RIGHTS HOLDERS
David Altholff*
Charles Armbrust*
The Bovaird Supply Co.*
James Cauble*
Chase Manhattan Investment Holdings, Inc.*
J. Kelly Elliot*
Donald Gregory*
T. L. Gregory*
T. L. Gregory, Trustee for the Betty Sue Gregory
Trust*
Howard Hughes*
The Huntfield Trust Limited*
Michael Kief*
Werner Kief*
Klaper (UK) Ltd*
Menikoff Family Partnership*
J. Michael Newell*
Richard Schultz*
Stephen Wells*
James Woods*
HWC REGISTRATION RIGHTS HOLDERS
Tommy Parkhill*
Gerald Loring*
James L. Skeans*
Chad W. Parkhill Trust*
Shelly L. Parkhill Trust*
Charles Helms*
Don Cobb*
Gary Rosenthal*
Jay Trahan*
John Lauletta*
Larry Pavlicek*
Richard Broussard*
Robert W. Hampton*
Shanna Trosclair*
SOONER REGISTRATION RIGHTS HOLDERS
Zarrow Operating Company*
Stuart A. Zarrow*
Judith Z. Kishner*
Gail Z. Richards*
Foreman Investment Capital, LLC*
EXHIBIT 10.1
COMBINATION AGREEMENT
BY AND AMONG
OIL STATES INTERNATIONAL, INC.,
HWC ENERGY SERVICES, INC.,
MERGER SUB-HWC, INC.
SOONER INC.,
MERGER SUB-SOONER, INC.
AND
PTI GROUP INC.
DATED AS OF JULY 31, 2000
COMBINATION AGREEMENT
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................................................................5 ARTICLE II THE HWC MERGER........................................................................................10 Section 2.1 Purchase of HWC Common Stock and HWC Preferred Stock by OSI....................................10 Section 2.2 Merger of Merger Sub-HWC into HWC..............................................................10 Section 2.3 Effect of the Merger...........................................................................11 Section 2.4 Articles of Incorporation......................................................................11 Section 2.5 Bylaws.........................................................................................11 Section 2.6 Officers and Directors.........................................................................11 Section 2.7 Merger Sub-HWC Common Stock....................................................................11 Section 2.8 HWC Common Stock...............................................................................11 Section 2.9 HWC Preferred Stock............................................................................12 Section 2.10 HWC Stock Options..............................................................................12 Section 2.11 OSI Common Stock...............................................................................12 Section 2.12 Issuance of New Certificates...................................................................13 Section 2.13 HWC Stock Transfer Books.......................................................................13 Section 2.14 Certificate Legends............................................................................13 Section 2.15 Fractional Shares..............................................................................13 ARTICLE III THE SOONER MERGER....................................................................................14 Section 3.1 Purchase of Sooner Common Stock by OSI.........................................................14 Section 3.2 Merger of Merger Sub-Sooner into Sooner........................................................14 Section 3.3 Effect of the Sooner Merger....................................................................14 Section 3.4 Certificate of Incorporation...................................................................14 Section 3.5 Bylaws.........................................................................................14 Section 3.6 Officers and Directors.........................................................................14 Section 3.7 Merger Sub-Sooner Common Stock.................................................................14 Section 3.8 Sooner Common Stock............................................................................15 Section 3.9 Sooner Stock Options...........................................................................15 Section 3.10 Sooner Warrants................................................................................15 Section 3.11 OSI Common Stock...............................................................................16 Section 3.12 Issuance of New Certificates...................................................................16 Section 3.13 Sooner Stock Transfer Books....................................................................16 Section 3.14 Certificate Legends............................................................................16 Section 3.15 Fractional Shares..............................................................................16 ARTICLE IV THE PTI ARRANGEMENT...................................................................................17 Section 4.1 Plan of Arrangement............................................................................17 Section 4.2 Adjustments to Exchange Ratio..................................................................17 Section 4.3 Dissenting Shares..............................................................................17 Section 4.4 Other Effects of the Arrangement...............................................................18 Section 4.5 Proxy Statement................................................................................18 Section 4.6 OSI ULC, PTI Holdco, PTI Amalco, PTI Holdco Sub................................................18 |
Section 4.7 Support Agreement..............................................................................19 Section 4.8 Voting and Exchange Trust Agreement............................................................19 Section 4.9 Certificate Legends............................................................................19 ARTICLE V CLOSING................................................................................................20 Section 5.1 Time and Place.................................................................................20 Section 5.2 Deliveries at Closing..........................................................................20 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF HWC.................................................................20 Section 6.1 Organization; Qualification....................................................................20 Section 6.2 Subsidiaries...................................................................................21 Section 6.3 Capitalization.................................................................................21 Section 6.4 Authority, Authorization and Enforceability....................................................21 Section 6.5 Financial Statements...........................................................................22 Section 6.6 No Violation...................................................................................22 Section 6.7 Accuracy of Information........................................................................22 Section 6.8 Fairness Opinion...............................................................................23 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SOONER.............................................................23 Section 7.1 Organization; Qualification....................................................................23 Section 7.2 Subsidiaries...................................................................................23 Section 7.3 Capitalization.................................................................................23 Section 7.4 Authority, Authorization and Enforceability....................................................24 Section 7.5 Financial Statements...........................................................................24 Section 7.6 No Violation...................................................................................25 Section 7.7 Accuracy of Information........................................................................25 Section 7.8 Fairness Opinion...............................................................................25 ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF PTI...............................................................26 Section 8.1 Organization; Qualification....................................................................26 Section 8.2 Subsidiaries...................................................................................26 Section 8.3 Capitalization.................................................................................26 Section 8.4 Authority, Authorization and Enforceability....................................................27 Section 8.5 Financial Statements...........................................................................27 Section 8.6 No Violation...................................................................................28 Section 8.7 Accuracy of Information........................................................................28 Section 8.8 Fairness Opinion...............................................................................28 ARTICLE IX REPRESENTATIONS AND WARRANTIES OF OSI.................................................................28 Section 9.1 Organization; Qualification....................................................................28 Section 9.2 Subsidiaries...................................................................................29 Section 9.3 Capitalization.................................................................................29 Section 9.4 Authority, Authorization and Enforceability....................................................29 Section 9.5 Financial Statements...........................................................................30 Section 9.6 No Violation...................................................................................30 Section 9.7 Accuracy of Information........................................................................31 Section 9.8 Fairness Opinion...............................................................................31 |
Section 9.9 Status as a Foreign Investment Entity.........................................................31 ARTICLE X REGISTRATION RIGHTS....................................................................................31 ARTICLE XI COVENANTS.............................................................................................31 Section 11.1 Ordinary Course of Business....................................................................31 Section 11.2 Restricted Activities and Transactions.........................................................32 Section 11.3 Insurance......................................................................................33 Section 11.4 Confidentiality................................................................................34 Section 11.5 HSR and Other Regulatory Matters...............................................................34 Section 11.6 Commercially Reasonable Efforts................................................................34 Section 11.7 Access to Information..........................................................................35 Section 11.8 Section 351 Reporting..........................................................................35 Section 11.9 OSI Registration Statement.....................................................................35 Section 11.10 Blue Sky; Canadian Securities Laws.............................................................39 Section 11.11 Agreements.....................................................................................39 Section 11.12 Notification of Certain Matters................................................................39 Section 11.13 Further Assurances.............................................................................39 Section 11.14 Payment of Indebtedness........................................................................40 ARTICLE XII CONDITIONS...........................................................................................40 Section 12.1 Conditions to Obligations of Each Party........................................................40 ARTICLE XIII TERMINATION.........................................................................................42 Section 13.1 Termination....................................................................................42 Section 13.2 Effect of Termination..........................................................................43 Section 13.3 Fees and Expenses..............................................................................43 ARTICLE XIV MISCELLANEOUS........................................................................................44 Section 14.1 Waiver and Amendment...........................................................................44 Section 14.2 Nonsurvival of Representations and Warranties..................................................44 Section 14.3 Assignment.....................................................................................44 Section 14.4 Notices........................................................................................44 Section 14.5 Governing Law..................................................................................46 Section 14.6 Severability...................................................................................46 Section 14.7 Counterparts...................................................................................46 Section 14.8 Headings.......................................................................................46 Section 14.9 Enforcement of the Agreement...................................................................46 Section 14.10 Entire Agreement; Third Party Beneficiaries..................................................47 |
EXHIBITS AND SCHEDULES
Exhibit A PTI Plan of Arrangement
Exhibit B intentionally omitted
Exhibit C Support Agreement
Exhibit D Voting and Exchange Trust Agreement
Exhibit E Form of Amended and Restated Registration Rights
Agreement
Exhibit F Summary of Tax Opinion of Ernst & Young LLP (HWC,
Sooner, OSI)
Exhibit G Summary of Tax Opinion of Ernst & Young LLP (PTI)
Exhibit H Form of Omnibus Consent, Waiver and Agreement of
Shareholders of HWC
Exhibit I Form of Omnibus Consent, Waiver and Agreement of
Stockholders of Sooner
Exhibit J Form of Omnibus Voting, Waiver and Investment Agreement of
U.S. Shareholders of PTI
Exhibit K Form of Omnibus Voting, Waiver and Investment Agreement of
Certain Canadian Shareholders of PTI
Exhibit L Form of Omnibus Consent, Waiver and Agreement of
Stockholders of OSI
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Schedule 11.11 Agreements to be Terminated Schedule 11.14 Indebtedness and Preferred Stock to be Retired
COMBINATION AGREEMENT
This Combination Agreement, dated as of July 31, 2000 (the "Combination Agreement"), by and among Oil States International, Inc., a Delaware corporation ("OSI"), HWC Energy Services, Inc., a Texas corporation ("HWC"), Merger Sub-HWC, Inc., a Texas corporation, Sooner Inc., a Delaware corporation ("Sooner"), Merger Sub-Sooner, Inc., a Delaware corporation, and PTI Group Inc., an Alberta corporation ("PTI").
WITNESSETH:
WHEREAS, the parties to this Combination Agreement desire to effect a combination of the businesses conducted by OSI, HWC, Sooner and PTI;
WHEREAS, pursuant to such business combination the outstanding shares
of HWC Common Stock shall be converted into shares of OSI Common Stock (other
than the shares of HWC Common Stock held by the HWC Non-Accredited Holders,
which shall be purchased by OSI in accordance with Section 2.1 hereof); the
outstanding shares of HWC Preferred Stock shall be converted into shares of OSI
Common Stock (other than the shares of HWC Preferred Stock held by the HWC
Non-Accredited Holders, which shall be purchased by OSI in accordance with
Section 2.1 hereof); the outstanding shares of Sooner Common Stock shall be
converted into shares of OSI Common Stock (other than the shares of Sooner
Common Stock held by the Sooner Non-Accredited Holders, which shall be purchased
by OSI in accordance with Section 3.1 hereof); and the outstanding PTI Common
Shares shall be exchanged for PTI Exchangeable Shares, other than (a) the PTI
Common Shares held by holders in the United States, which shall be exchanged for
shares of OSI Common Stock (other than the PTI Common Shares held by the PTI
Non-Accredited Holders, which shall be purchased by OSI in accordance with
Section 2.1 of the PTI Plan of Arrangement), and (b) the PTI Common Shares held
by the Dissenting Shareholders; and
WHEREAS, it is contemplated that OSI will effect a reverse three for one split of the OSI Common Stock prior to the Effective Time, in which case the exchange ratios set forth herein shall be adjusted according to the provisions hereof;
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The terms set forth below in this Article I shall have the meanings ascribed to them below or in the part of this Combination Agreement referred to below:
"ABCA" shall mean the Business Corporations Act (Alberta), as amended.
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the general rules and regulations under the Exchange Act, as in effect on the date of this Combination Agreement.
"Alberta Court" shall mean the Court of Queen's Bench of Alberta.
"Associate" shall have the meaning ascribed to such term in Rule 12b-2 of the general rules and regulations under the Exchange Act, as in effect on the date of this Combination Agreement.
"Business Day" shall mean any day other than a Saturday, a Sunday or any other day when banks are not open for business in either or both of Houston, Texas and Edmonton, Alberta.
"Closing" shall have the meaning set forth in Section 5.1.
"Closing Date" shall have the meaning set forth in Section 5.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Combination Agreement" shall have the meaning specified in the opening paragraph hereof.
"Commission" shall mean the Securities and Exchange Commission.
"DGCL" shall mean the General Corporation Law of the State of Delaware, as amended.
"Dissenters" or "Dissenting Stockholders" shall have the meaning set forth in Section 4.3 hereof.
"Effective Time" shall mean (a) when used in the context of the HWC Merger, the time and date of the issuance of a certificate of merger by the Texas Secretary of State with respect to the HWC Merger or such later date as is specified in such certificate of merger, (b) when used in the context of the Sooner Merger, the filing of a certificate of merger with the Delaware Secretary of State with respect to the Sooner Merger or such later date as is specified in such certificate of merger, (c) when used in the context of the PTI Arrangement, the "Effective Time" as defined in the PTI Plan of Arrangement and (d) when used in the context of the Mergers collectively, the latest time and date of the foregoing times and dates specified in clauses (a), (b) and (c).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Final Order" shall mean the final order of the Alberta Court approving the PTI Arrangement, as such order may be amended by the Court at any time and from time to time prior to the Effective Time.
"Governmental Authorities" shall mean the country, state, province, county, city and political subdivisions in which any property of OSI, HWC, Sooner or PTI, respectively, is located or which exercises jurisdiction over any such property or entity, and any agency, department, commission, board, bureau or instrumentality of any of them which exercises jurisdiction over any such property or entity.
"Holders" shall have the meaning set forth in the Registration Rights Agreement.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
"HWC Common Stock" shall mean the common stock, par value $.01 per share, of HWC.
"HWC Disclosure Schedule" shall have the meaning set forth in Article
VII.
"HWC Merger" shall mean the merger of Merger Sub-HWC into HWC, as contemplated by Article III hereof.
"HWC Non-Accredited Holders" shall mean Don Cobb, the Chad Parkhill Trust and the Shelly Parkhill Trust and any other holder of shares of HWC Common Stock or HWC Preferred Stock who indicates that such holder is a "non-accredited investor" in the Omnibus Consent, Waiver and Agreement of Shareholders of HWC executed by such holder, the form of which is attached hereto as Exhibit H, each of which is a holder of shares of HWC Common Stock or HWC Preferred Stock as of the date of this Combination Agreement.
"HWC Option" shall have the meaning set forth in Section 2.10 hereof.
"HWC Option Plan" shall mean the HWC Energy Services, Inc. 1997 Stock Option Plan.
"HWC Preferred Stock" shall mean the preferred stock, par value $.01 per share, of HWC.
"HWC Surviving Corporation" shall have the meaning set forth in Section 2.2 hereof.
"Interim Order" shall have the meaning set forth in Section 4.1 hereof.
"Merger Entities" shall mean HWC, Sooner and New PTI.
"Merger Sub-HWC" shall mean Merger Sub-HWC, Inc., a Texas corporation and wholly-owned subsidiary of OSI.
"Merger Sub-HWC Common Stock" shall mean the common stock, par value $.01 per share, of Merger Sub-HWC.
"Merger Sub-Sooner" shall mean Merger Sub-Sooner, Inc., a Delaware corporation and wholly-owned subsidiary of OSI.
"Merger Sub-Sooner Common Stock" shall mean the common stock, par value $.01 per share, of Merger Sub-Sooner.
"Merger Subs" shall mean Merger Sub-HWC, Merger Sub-Sooner and PTI Amalco.
"Mergers" shall mean the HWC Merger, the Sooner Merger and the PTI Arrangement.
"New PTI" shall mean PTI Group, Inc., a corporation amalgamated under the ABCA pursuant to the PTI Amalgamation.
"OSI Common Stock" shall mean the Class A common stock of OSI, par value $.01 per share (the name of which will be changed by amendment to "Common Stock").
"OSI Disclosure Schedule" shall have the meaning set forth in Article X.
"OSI Initial Public Offering" shall mean the initial public offering of the OSI Common Stock contemplated by the OSI Registration Statement.
"OSI Material Adverse Effect" shall mean a material adverse effect on the combined business, operations, prospects, properties (including intangible properties), assets, operating results or condition (financial or otherwise), liabilities or reserves of OSI, HWC, Sooner, PTI and their subsidiaries, taken as a whole; provided, however, that a general decline in the business or prospects of the oilfield services industry as a whole shall not be deemed to be an OSI Material Adverse Effect.
"OSI Preferred Stock" shall mean the preferred stock of OSI, par value $.0001 per share.
"OSI Registration Statement" shall mean the Registration Statement on Form S-1 relating to the OSI Common Stock to be filed with the Commission by OSI in accordance with Section 11.9.
"OSI ULC" shall have the meaning set forth in Section 4.6 hereof.
"Piggyback Registration" shall have the meaning set forth in the Registration Rights Agreement.
"Preliminary OSI Registration Statement" shall mean the draft Registration Statement of OSI dated August 2, 2000, together with the Confidential Information Memorandum of even date therewith.
"Proxy Statement" shall have the meaning set forth in Section 4.5 hereof.
"PTI Amalco" shall have the meaning set forth in Section 4.6 hereof.
"PTI Amalgamation" shall mean the amalgamation of PTI and PTI Amalco provided for in Section 2.1(f) of the PTI Plan of Arrangement.
"PTI Arrangement" shall have the meaning set forth in Section 4.1 hereof.
"PTI Articles of Arrangement" shall mean the articles of arrangement filed with the Registrar under the ABCA giving effect to the PTI Arrangement.
"PTI Common Shares" shall mean the common shares in the capital of PTI.
"PTI Disclosure Schedule" shall have the meaning set forth in Article
VIII.
"PTI Exchangeable Shares" shall have the meaning set forth in the PTI Plan of Arrangement.
"PTI Holdco" shall have the meaning set forth in Section 4.6 hereof.
"PTI Holdco Sub" shall have the meaning set forth in Section 4.6 hereof.
"PTI Option" shall have the meaning set forth in Section 4.4 hereof.
"PTI Plan of Arrangement" shall have the meaning set forth in Section 4.1 hereof.
"PTI Registration Statement" shall have the meaning set forth in the Registration Rights Agreement.
"PTI Shareholders Meeting" shall have the meaning set forth in Section 4.5 hereof.
"Registrable Securities" shall have the meaning set forth in the Registration Rights Agreement.
"Registration Rights Agreement" shall have the meaning set forth in Article X hereof.
"Registration Rights Holders" shall mean those holders of OSI Common Stock, HWC Common Stock and Sooner Common Stock who, as of the date hereof, have registration rights with respect to such shares owned by them.
"Registration Rights Representatives" shall mean Douglas E. Swanson and Cindy B. Taylor, each of whom has been granted a power of attorney by certain or all of the Registration Rights Holders to execute the Registration Rights Agreement on behalf of such Registration Rights Holders.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Sooner Common Stock" shall mean the common stock, par value $.01 per share, of Sooner.
"Sooner Disclosure Schedule" shall have the meaning set forth in Article VI.
"Sooner Merger" shall mean the merger of Merger Sub-Sooner into Sooner, as contemplated by Article III hereof.
"Sooner Non-Accredited Holders" shall mean Joseph C. Ottaviani and any other holder of shares of Sooner Common Stock who indicates that such holder is a "non-accredited investor" in the Omnibus Consent, Waiver and Agreement of Stockholders of Sooner executed by such holder, the form of which is attached hereto as Exhibit I, each of which is a holder of shares of Sooner Common Stock as of the date of this Combination Agreement.
"Sooner Option" shall have the meaning set forth in Section 3.9 hereof.
"Sooner Option Plan" shall mean the Sooner Inc. 1998 Stock Option Plan.
"Sooner Warrants" shall have the meaning set forth in Section 3.10 hereof.
"Special Committee" shall mean a committee composed of one representative from the Boards of Directors of each of OSI, HWC, Sooner and PTI. The initial representatives designated by the Boards of Directors of OSI, HWC, Sooner and PTI, are Douglas E. Swanson, Gary Rosenthal, Andrew L. Waite and Robert J. MacLean, respectively. If a vacancy occurs on the Special Committee, the board of directors of the company with respect to which such vacancy relates shall have the right to appoint a replacement.
"subsidiary" shall mean, when used with reference to any entity, any corporation or other entity a majority of the outstanding voting securities of which are owned directly or indirectly by such entity.
"TBCA" shall mean the Business Corporation Act of the State of Texas, as amended.
ARTICLE II
THE HWC MERGER
SECTION 2.1 PURCHASE OF HWC COMMON STOCK AND HWC PREFERRED STOCK BY OSI.
(a) Immediately prior to the Effective Time, OSI shall purchase
from the HWC Non-Accredited Holders each share of HWC Common Stock held
by such holders for an aggregate purchase price equal to (x) the
initial public offering price of the OSI Common Stock in the OSI
Initial Public Offering, less underwriters' discounts and commissions
applicable to the OSI Initial Public Offering, multiplied by (y) that
number of shares of OSI Common Stock into which such shares of HWC
Common Stock would be convertible in accordance with the provisions of
Section 2.8 hereof.
(b) Immediately prior to the Effective Time, OSI shall purchase from the HWC Non-Accredited Holders each share of HWC Preferred Stock held by such holders for an aggregate purchase price equal to (x) the per share initial public offering price of the OSI Common Stock in the OSI Initial Public Offering, less underwriters' discounts and commissions applicable to the OSI Initial Public Offering, multiplied by (y) that number of shares of OSI Common Stock into which such shares of HWC Preferred Stock would have been convertible in accordance with the provisions of Section 2.9 hereof, plus the amount of accrued but unpaid dividends on such HWC Preferred Stock subsequent to June 30, 2000 (with dividends deemed to have accrued on a per diem basis).
SECTION 2.2 MERGER OF MERGER SUB-HWC INTO HWC. At the Effective Time, Merger Sub-HWC shall merge with and into HWC and the separate existence of Merger Sub-HWC shall cease. HWC shall be the surviving corporation in the HWC Merger (hereinafter sometimes referred
to as the "HWC Surviving Corporation") and its separate corporate existence, with all its purposes, objects, rights, privileges, powers and franchises, shall continue unaffected and unimpaired by the HWC Merger.
SECTION 2.3 EFFECT OF THE MERGER. The HWC Merger shall have the effects provided for in the TBCA. The HWC Surviving Corporation shall be obligated for the payment of the fair value for the shares held by any shareholder of HWC who complies with the requirements of Article 5.12 of the TBCA.
SECTION 2.4 ARTICLES OF INCORPORATION. From the Effective Time until duly amended, the Articles of Incorporation of the HWC Surviving Corporation shall be identical to the Articles of Incorporation, as amended or restated, of HWC immediately prior to the Effective Time.
SECTION 2.5 BYLAWS. From the Effective Time until duly amended, the Bylaws of the HWC Surviving Corporation shall be identical to the Bylaws of HWC immediately prior to the Effective Time.
SECTION 2.6 OFFICERS AND DIRECTORS. The duly elected officers and directors of HWC who hold office immediately prior to the Effective Time shall be the officers and directors of the HWC Surviving Corporation and shall thereafter continue to hold such positions until their successors have been duly elected.
SECTION 2.7 MERGER SUB-HWC COMMON STOCK. Each share of Merger Sub-HWC Common Stock outstanding immediately prior to the Effective Time shall, by virtue of the HWC Merger and without any further action by the holder thereof, be converted into and become one share of the common stock, par value $.01 per share, of the HWC Surviving Corporation ("HWC Surviving Corporation Common Stock"). Each certificate which immediately prior to the Effective Time represented shares of Merger Sub-HWC Common Stock shall be deemed for all purposes to represent the number of shares of HWC Surviving Corporation Common Stock into which the shares of Merger Sub-HWC Common Stock represented by such certificate shall have been converted pursuant to this Section 2.7.
SECTION 2.8 HWC COMMON STOCK.
(a) Each share of HWC Common Stock outstanding immediately prior to the Effective Time, other than the shares of HWC Common Stock purchased by OSI pursuant to Section 2.1 hereof, shall by virtue of the HWC Merger and without any further action by the holder thereof cease to be outstanding and shall be cancelled and retired and cease to exist and, subject to the right of stockholders to dissent from the HWC Merger pursuant to the TBCA, shall be converted into 520.0575 shares of OSI Common Stock, and each certificate which immediately prior to the Effective Time represented outstanding shares of HWC Common Stock shall at and after the Effective Time be deemed for all purposes to represent that number of shares of OSI Common Stock into which such shares of HWC Common Stock are convertible pursuant to this Section 2.8(a).
(b) All shares of HWC Common Stock which immediately prior to the Effective Time are held in the treasury of HWC or owned by OSI or by any subsidiaries of HWC shall at the Effective Time be cancelled and retired and cease to exist, without the payment of any consideration therefor or any conversion thereof into OSI Common Stock.
(c) The number of shares of OSI Common Stock into which a share of HWC Common Stock is convertible in the HWC Merger shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend, merger, reorganization, recapitalization or other like changes with respect to OSI Common Stock or HWC Common Stock occurring after the date hereof and prior to the Effective Time.
SECTION 2.9 HWC PREFERRED STOCK.
(a) Each share of HWC Preferred Stock issued and outstanding immediately prior to the Effective Time, other than the shares of HWC Preferred Stock purchased by OSI pursuant to Section 2.1 hereof, shall by virtue of the HWC Merger and without any further action by the holder thereof cease to be outstanding and shall be cancelled and retired and cease to exist and, subject to the right of stockholders to dissent from the HWC Merger pursuant to the TBCA, shall be converted into the number of shares of OSI Common Stock to which the holder of such share would have been entitled had such share of HWC Preferred Stock, including accrued but unpaid dividends through and including June 30, 2000, been converted to HWC Common Stock immediately prior to the Effective Time, plus the right to receive cash in the amount of accrued but unpaid dividends and dividends deemed to have accrued for any partial quarterly period calculated on a per diem basis, in each case subsequent to June 30, 2000.
(b) All shares of HWC Preferred Stock which immediately prior to the Effective Time are held in the treasury of HWC or owned by any subsidiaries of HWC shall at the Effective Time be cancelled and retired and cease to exist, without the payment of any consideration therefor or any conversion thereof into OSI Preferred Stock.
SECTION 2.10 HWC STOCK OPTIONS. Each option outstanding under the HWC Option Plan immediately prior to the Effective Time (each, an "HWC Option") shall be assumed by OSI as of the Effective Time and automatically converted into an option to purchase the number of shares of OSI Common Stock equal to the exchange ratio reflected in Section 2.8, multiplied by the number of shares of HWC Common Stock that could have been obtained immediately prior to the Effective Time upon the exercise of each such option as if such options were fully vested at such time, at an exercise price per share equal to the aggregate exercise price for the shares of HWC Common Stock purchasable pursuant to such HWC Option immediately prior to its conversion divided by the aggregate number of shares of OSI Common Stock purchasable pursuant to such HWC Option immediately after its conversion.
SECTION 2.11 OSI COMMON STOCK. All shares of OSI Common Stock issued and outstanding immediately prior to the Effective Time shall be unaffected by the HWC Merger.
SECTION 2.12 ISSUANCE OF NEW CERTIFICATES. Each holder of a certificate or certificates representing shares of HWC Common Stock or HWC Preferred Stock immediately prior to the Effective Time may thereafter surrender such certificate or certificates and shall be entitled, upon such surrender, to receive in exchange therefor a certificate or certificates representing the number of shares of OSI Common Stock into which such shares of HWC Common Stock or HWC Preferred Stock shall have been converted in accordance with Sections 2.8 or 2.9 hereof. Until so surrendered, such certificate or certificates shall be deemed to evidence the ownership of such shares of OSI Common Stock. If any such certificate for OSI Common Stock is to be issued in a name other than that in which the surrendered certificate is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such exchange shall have paid any transfer and other taxes required by reason of such issuance of certificates of OSI Common Stock in a name other than that of the registered holder of the certificate surrendered, or shall have established to the satisfaction of OSI and its transfer agent that such tax has been paid or is not applicable.
SECTION 2.13 HWC STOCK TRANSFER BOOKS. As of the Effective Time, the stock transfer books of HWC shall be deemed closed, and no transfer of shares of HWC Common Stock or HWC Preferred Stock that were outstanding immediately prior to the Effective Time shall thereafter be made or consummated.
SECTION 2.14 CERTIFICATE LEGENDS. The certificates evidencing the OSI Common Stock delivered pursuant to Section 2.12 of this Combination Agreement shall bear a legend substantially in the form set forth below and containing such other information as OSI may deem necessary or appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
SECTION 2.15 FRACTIONAL SHARES. No fractional shares of OSI Common Stock or scrip shall be issued as a result of the HWC Merger. Instead of any fractional share of OSI Common Stock which would otherwise be issuable as a result of the HWC Merger, OSI shall pay a cash adjustment in respect of such fractional interest in a per share amount equal to the initial public offering price of the OSI Common Stock.
ARTICLE III
THE SOONER MERGER
SECTION 3.1 PURCHASE OF SOONER COMMON STOCK BY OSI. Immediately prior to the Effective Time, OSI shall purchase from the Sooner Non-Accredited Holders each share of Sooner Common Stock held by such holders for a purchase price equal to (x) the per share initial public offering price of the OSI Common Stock in the OSI Initial Public Offering, less underwriters' discounts and commissions applicable to the OSI Initial Public Offering, multiplied by (y) that number of shares of OSI Common Stock into which such shares of Sooner Common Stock would be convertible in accordance with the provisions of Section 3.8 hereof.
SECTION 3.2 MERGER OF MERGER SUB-SOONER INTO SOONER. At the Effective Time, Merger Sub-Sooner shall merge with and into Sooner and the separate existence of Merger Sub-Sooner shall cease. Sooner shall be the surviving corporation in the Sooner Merger (hereinafter sometimes referred to as the "Sooner Surviving Corporation") and its separate corporate existence, with all its purposes, objects, rights, privileges, powers and franchises, shall continue unaffected and unimpaired by the Sooner Merger.
SECTION 3.3 EFFECT OF THE SOONER MERGER. The Sooner Merger shall have
the effects provided for in the DGCL. The Sooner Surviving Corporation shall be
obligated for the payment of the fair value for the shares held by any
shareholder of Sooner or Merger Sub-Sooner who complies with the requirements of
Section 262 of the DGCL.
SECTION 3.4 CERTIFICATE OF INCORPORATION. From the Effective Time until duly amended, the Certificate of Incorporation of the Sooner Surviving Corporation shall be identical to the Certificate of Incorporation, as amended or restated, of Sooner immediately prior to the Effective Time.
SECTION 3.5 BYLAWS. From the Effective Time until duly amended, the Bylaws of the Sooner Surviving Corporation shall be identical to the Bylaws of Sooner immediately prior to the Effective Time.
SECTION 3.6 OFFICERS AND DIRECTORS. The duly elected officers and directors of Sooner who hold office immediately prior to the Effective Time, shall be the officers and directors of the Sooner Surviving Corporation and shall thereafter continue to hold such positions until their successors have been duly elected.
SECTION 3.7 MERGER SUB-SOONER COMMON STOCK. Each share of Merger Sub-Sooner Common Stock outstanding immediately prior to the Effective Time shall, by virtue of the Sooner Merger and without any further action by the holder thereof, be converted into and become one share of the common stock, par value $.01 per share, of the Sooner Surviving Corporation ("Sooner Surviving Corporation Common Stock"). Each certificate which immediately prior to the Effective Time represented shares of Merger Sub-Sooner Common Stock shall be deemed for all purposes to represent the number of shares of Sooner Surviving Corporation Common Stock into which the
shares of Merger Sub-Sooner Common Stock represented by such certificate shall have been converted pursuant to this Section 3.7.
SECTION 3.8 SOONER COMMON STOCK.
(a) Each share of Sooner Common Stock outstanding immediately prior to the Effective Time, other than the shares of Sooner Common Stock purchased by OSI pursuant to Section 3.1 hereof, shall by virtue of the Sooner Merger and without any further action by the holder thereof cease to be outstanding and shall be cancelled and retired and cease to exist and, subject to the right of appraisal of stockholders pursuant to the DGCL, shall be converted into 529.4871 shares of OSI Common Stock, and each certificate which immediately prior to the Effective Time represented outstanding shares of Sooner Common Stock shall at and after the Effective Time be deemed for all purposes to represent that number of shares of OSI Common Stock.
(b) All shares of Sooner Common Stock which immediately prior to the Effective Time are held in the treasury of Sooner or owned by OSI or by any subsidiaries of Sooner shall at the Effective Time be cancelled and retired and cease to exist, without the payment of any consideration therefor or any conversion thereof into OSI Common Stock.
(c) The number of shares of OSI Common Stock into which a share of Sooner Common Stock is convertible in the Sooner Merger shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend, merger, reorganization, recapitalization or other like changes with respect to OSI Common Stock or Sooner Common Stock occurring after the date hereof and prior to the Effective Time.
SECTION 3.9 SOONER STOCK OPTIONS. Each option outstanding under the Sooner Option Plan immediately prior to the Effective Time (each, a "Sooner Option") shall be assumed by OSI as of the Effective Time and automatically converted into an option to purchase the number of shares of OSI Common Stock equal to the exchange ratio reflected in Section 3.8, multiplied by the number of shares of Sooner Common Stock that could have been obtained immediately prior to the Effective Time upon the exercise of each such option as if such options were fully vested at such time, at an exercise price per share equal to the aggregate exercise price for the shares of Sooner Common Stock purchasable pursuant to such Sooner Option immediately prior to its conversion divided by the aggregate number of shares of OSI Common Stock purchasable pursuant to such Sooner Option immediately after its conversion.
SECTION 3.10 SOONER WARRANTS. Each warrant to purchase shares of Sooner
Common Stock ("Sooner Warrants") outstanding immediately prior to the Effective
Time shall by virtue of the Sooner Merger and without any further action by the
holder thereof cease to be outstanding and shall be cancelled and retired and
cease to exist and shall be converted into 379.4871 shares of OSI Common Stock,
and the holders of the Sooner Warrants shall be entitled to receive certificates
representing the number of shares of OSI Common Stock into which the Sooner
Warrants held by such holders shall have been converted in accordance with this
Section 3.10.
SECTION 3.11 OSI COMMON STOCK. All shares of OSI Common Stock issued and outstanding immediately prior to the Effective Time shall be unaffected by the Sooner Merger.
SECTION 3.12 ISSUANCE OF NEW CERTIFICATES. Each holder of a certificate or certificates representing shares of Sooner Common Stock immediately prior to the Effective Time may thereafter surrender such certificate or certificates and shall be entitled, upon such surrender, to receive in exchange therefor a certificate or certificates representing the number of shares of OSI Common Stock into which such shares of Sooner Common Stock shall have been converted in accordance with Section 3.8 hereof. Until so surrendered, such certificate or certificates shall be deemed to evidence the ownership of such shares of OSI Common Stock. If any such certificate for OSI Common Stock is to be issued in the name other than that in which the surrendered certificate is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such exchange shall have paid any transfer and other taxes required by reason of such issuance of certificates of OSI Common Stock in a name other than that of the registered holder of the certificate surrendered, or shall have established to the satisfaction of OSI and its transfer agent that such tax has been paid or is not applicable.
SECTION 3.13 SOONER STOCK TRANSFER BOOKS. As of the Effective Time, the stock transfer books of Sooner shall be deemed closed, and no transfer of shares of Sooner Common Stock that were outstanding immediately prior to the Effective Time shall thereafter be made or consummated.
SECTION 3.14 CERTIFICATE LEGENDS. The certificates evidencing the OSI Common Stock delivered pursuant to Section 3.12 of this Combination Agreement will bear a legend substantially in the form set forth below and containing such other information as OSI may deem necessary or appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
SECTION 3.15 FRACTIONAL SHARES. No fractional shares of OSI Common Stock or scrip shall be issued as a result of the Sooner Merger. Instead of any fractional share of OSI Common Stock which would otherwise be issuable as a result of the Sooner Merger, OSI shall pay a cash adjustment in respect of such fractional interest in a per share amount equal to the initial public offering price of the OSI Common Stock.
ARTICLE IV
THE PTI ARRANGEMENT
SECTION 4.1 PLAN OF ARRANGEMENT.
As promptly as practicable after the date hereof, PTI, on a joint basis
with PTI Holdco and PTI Amalco, will apply to the Alberta Court pursuant to
Section 186 of ABCA for an interim order in form and substance reasonably
satisfactory to OSI (the "Interim Order") providing for, among other things, the
calling and holding of the PTI Shareholders Meeting for the purpose of
considering and, if deemed advisable, approving the arrangement (the "PTI
Arrangement") under Section 186 of the ABCA and pursuant to this Combination
Agreement and the PTI Plan of Arrangement substantially in the form of Exhibit A
attached hereto (the "PTI Plan of Arrangement"). If the PTI securityholders
approve the PTI Arrangement, PTI, on a joint basis with PTI Holdco and PTI
Amalco, will take the necessary steps to submit the PTI Arrangement to the
Alberta Court and apply for a final order of the Alberta Court approving the PTI
Arrangement in such fashion as the Alberta Court may direct (the "Final Order").
On the Closing Date, the PTI Articles of Arrangement shall be filed with the
Registrar under the ABCA. At the Effective Time, the PTI Arrangement and the
other transactions set out in clauses (a) through (s), inclusive, of Section 2.1
of the PTI Plan of Arrangement shall occur and shall be deemed to occur in the
order set out therein without any further act or formality.
SECTION 4.2 ADJUSTMENTS TO EXCHANGE RATIO.
The PTI Exchange Ratio (as defined in the PTI Plan of Arrangement) shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into OSI Common Stock or PTI Common Shares), merger, reorganization, recapitalization or other like change with respect to OSI Common Stock or PTI Common Shares occurring after the date hereof and prior to the Effective Time.
SECTION 4.3 DISSENTING SHARES.
Holders of PTI Common Shares may exercise rights of dissent with respect to such shares in connection with the PTI Arrangement pursuant to and in the manner set forth in Section 184 of the ABCA and Section 3.1 of the PTI Plan of Arrangement to the extent such holders have not previously waived their rights of dissent (such holders referred to as "Dissenters" or as "Dissenting Shareholders" when referring exclusively to holders of PTI Common Shares). PTI shall give OSI (i) prompt notice of any written objection to the resolution approving the PTI Arrangement and any written demands of a right of dissent, withdrawals of such objections or demands, and any other instruments served pursuant to the ABCA and received by PTI in respect of the exercise or purported exercise of rights of dissent and (ii) the opportunity to participate in all negotiations and proceedings with respect to such rights. Without the prior written consent of OSI, except as required by applicable law, PTI shall not make any payment with respect to any such rights or offer to settle or settle any such rights.
SECTION 4.4 OTHER EFFECTS OF THE ARRANGEMENT.
At the Effective Time: (a) each PTI Common Share and each option to
acquire PTI Common Shares ("PTI Option") outstanding immediately prior to the
Effective Time will be exchanged as provided in the PTI Plan of Arrangement; and
(b) the PTI Arrangement will, from and after the Effective Time, have all of the
effects provided by applicable law, including the ABCA.
SECTION 4.5 PROXY STATEMENT.
(a) As soon as practicable following the issuance of the Interim Order, PTI shall mail to the holders of PTI Common Shares and PTI Options a management information circular of PTI (the "Proxy Statement") with respect to the meeting of holders of PTI Common Shares and PTI Options relating to the PTI Arrangement and the approval of certain matters in connection therewith (the "PTI Shareholders Meeting").
(b) Each party shall promptly furnish to the other parties all information concerning such party and its securityholders as may be reasonably required in connection with any action contemplated by this Section 4.5 and shall otherwise cooperate in the preparation of the Proxy Statement. The Proxy Statement shall comply in all material respects with all applicable requirements of law.
(c) OSI and PTI shall take any action required to be taken under any applicable provincial securities laws in connection with the issuance of the PTI Exchangeable Shares and the OSI Common Stock and with the PTI Arrangement and shall use their reasonable best efforts to cause the issuance of the PTI Exchangeable Shares to comply with the requirements of Regulation S promulgated under the Securities Act and otherwise to be effected in a manner exempt from registration under the Securities Act and from the prospectus requirements of applicable Canadian securities laws; provided, however, that with respect to Canadian provincial qualifications, neither OSI nor PTI shall be required to register or qualify as a foreign corporation or reporting issuer where any such entity is not now so registered or qualified or consent to service of legal process in any jurisdiction, except as to matters and transactions arising solely from the issuance of the OSI Common Stock or the issuance of the PTI Exchangeable Shares.
SECTION 4.6 OSI ULC, PTI HOLDCO, PTI AMALCO, PTI HOLDCO SUB.
(a) On or prior to the Closing Date, OSI shall incorporate or cause to be incorporated a new unlimited liability corporation wholly owned by OSI under the Companies Act Nova Scotia ("OSI ULC").
(b) On or prior to the Closing Date, OSI shall incorporate or cause to be incorporated a new corporation wholly owned by OSI ULC under the ABCA ("PTI Holdco") and shall provide in its articles of incorporation for a class of common voting shares, unlimited in number.
(c) On or prior to the Closing Date, OSI shall incorporate or cause to be incorporated a new corporation wholly owned by PTI Holdco under the ABCA ("PTI Amalco") and shall provide for the following in its articles of incorporation:
(i) a class of common voting shares unlimited in number and designated as Class A;
(ii) a class of common voting shares unlimited in number and designated as Class B;
(iii) a class of common voting shares unlimited in number and designated as Class C; and
(iv) a class of common voting shares unlimited in number and designated as Class D,
each class having the same rights, privileges and restrictions and conditions attached thereto.
(d) On or prior to the Closing Date, OSI shall incorporate or cause to be incorporated a new corporation wholly owned by PTI Holdco under the ABCA ("PTI Holdco Sub").
(e) OSI shall cause OSI ULC, PTI Holdco, PTI Amalco and PTI Holdco Sub to complete the transactions contemplated in this Article IV and in the PTI Plan of Arrangement.
SECTION 4.7 SUPPORT AGREEMENT. At or prior to the Effective Time OSI and PTI Holdco will enter into a Support Agreement in the form and containing the terms and conditions set forth in Exhibit C attached hereto.
SECTION 4.8 VOTING AND EXCHANGE TRUST AGREEMENT. At or prior to the
Effective Time OSI and PTI Holdco will enter into a Voting and Exchange Trust
Agreement in the form and containing the terms and conditions set forth in
Exhibit D attached hereto.
SECTION 4.9 CERTIFICATE LEGENDS. The certificates evidencing the PTI Exchangeable Shares delivered pursuant to the PTI Arrangement shall bear a legend, substantially in the form set forth below and containing such other information as OSI or PTI Holdco may deem necessary or appropriate:
Legend for PTI Exchangeable Shares issued to Canadian Persons
ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS STRICTLY PROHIBITED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), PURSUANT TO REGISTRATION UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION. THE HOLDER OF THIS CERTIFICATE MAY NOT ENGAGE IN ANY HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED HEREBY EXCEPT IN COMPLIANCE WITH THE ACT.
Legend for PTI Exchangeable Shares issued to U.S. Persons
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM, WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
ARTICLE V
CLOSING
SECTION 5.1 TIME AND PLACE. The closing of the transactions contemplated hereby (the "Closing") shall be held at the offices of Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas 77002 at 10:00 a.m., Houston time, immediately following the satisfaction or waiver of the conditions contained in Article XII or at such other place or time as the parties hereto may mutually agree. The date of the Closing is referred to herein as the "Closing Date."
SECTION 5.2 DELIVERIES AT CLOSING. Subject to the provisions of Article XII hereof, at the Closing there shall be delivered the opinions, certificates and other documents required to be delivered pursuant to Article XII hereof.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HWC
HWC represents and warrants to OSI, Sooner and PTI that the statements contained in this Article VI are correct and complete as of the date of this Combination Agreement, except as set forth in the disclosure schedule delivered by HWC to OSI, Sooner and PTI on the date hereof (the "HWC Disclosure Schedule").
SECTION 6.1 ORGANIZATION; QUALIFICATION. HWC is a corporation duly organized under the TBCA and is validly existing and in good standing under the laws of the State of Texas. HWC has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. HWC is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary, except where the failure to be so qualified and in good standing will not have a material adverse effect on the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) of HWC and its subsidiaries, taken as a whole.
SECTION 6.2 SUBSIDIARIES. Each subsidiary of HWC is a corporation duly organized under the jurisdiction of its incorporation and is validly existing and in good standing under the laws of such jurisdiction. Each subsidiary of HWC has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. Each subsidiary of HWC is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary, except where the failure to be so qualified and in good standing will not have a material adverse effect on the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) of HWC and its subsidiaries, taken as a whole. Except as set forth in Section 6.2 of the HWC Disclosure Schedule, all of the issued and outstanding shares of capital stock of each subsidiary of HWC are owned (directly or indirectly) by HWC, free and clear of all liens, pledges, charges, security interests or other encumbrances ("Lien").
SECTION 6.3 CAPITALIZATION. The authorized capital stock of HWC consists of 100,000 shares of HWC Common Stock, of which 33,568 shares are issued and outstanding, and 100,000 shares of HWC Preferred Stock, of which 4,862 shares are issued and outstanding. The issued and outstanding shares of HWC Common Stock and HWC Preferred Stock are owned of record by the persons and in the amounts set forth in Section 6.3 of the HWC Disclosure Schedule. All of the outstanding shares of HWC Common Stock and HWC Preferred Stock and all of the outstanding shares of the capital stock of each subsidiary of HWC are duly authorized, validly issued, fully paid, nonassessable, and were not issued in violation of the preemptive rights of any person. Except as set forth in Section 6.3 of the HWC Disclosure Schedule, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or variants, including any right of conversion or exchange under any outstanding security, instrument or other agreement obligating HWC or any subsidiary of HWC to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of HWC or any subsidiary of HWC or obligating HWC or any subsidiary of HWC to grant, extend or enter into any such agreement or commitment.
SECTION 6.4 AUTHORITY, AUTHORIZATION AND ENFORCEABILITY. HWC has all requisite corporate power and authority to execute and deliver this Combination Agreement and each instrument required hereby to be executed and delivered by it at the Closing, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by HWC of this Combination Agreement and each instrument required hereby to be executed and delivered by it at the Closing and the performance of its obligations hereunder and thereunder have been duly and validly authorized by the board of directors of HWC, and no other corporate proceedings of HWC, other than the approval of the shareholders of HWC contemplated by Section 12.1(n) hereof, are necessary to authorize the execution and delivery of this Combination Agreement or the consummation of the transactions contemplated hereby. This Combination Agreement and each instrument required hereby have been duly executed and delivered by HWC and (assuming due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto) constitute the valid and legally binding obligations of HWC, enforceable against HWC in accordance with their terms, except that (A) such enforceability may be subject to bankruptcy, insolvency, reorganization, moratorium or other laws, decisions or equitable principles now or hereafter in effect relating to or affecting the enforcement of creditors'
rights or debtors' obligations generally, and to general equity principles, and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
SECTION 6.5 FINANCIAL STATEMENTS.
(a) The financial statements of HWC (including the related notes) appearing in the Preliminary OSI Registration Statement have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present the consolidated financial position of HWC and its subsidiaries as of the respective dates thereof and the consolidated results of operations and changes in financial position of HWC and its subsidiaries for the periods indicated.
(b) Except as reflected or reserved against in the financial statements referred to in (a) above, or in the HWC Disclosure Schedule, neither HWC nor any of its subsidiaries has any liabilities of any nature (whether accrued, absolute, contingent or otherwise) which in the aggregate could reasonably be expected to have an OSI Material Adverse Effect. Since March 31, 2000, neither HWC nor any of its subsidiaries has incurred any liabilities material to HWC and its subsidiaries, taken as a whole, except liabilities incurred in the ordinary course of business and consistent with past practice. Since March 31, 2000, there has been no material adverse change in the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) or liabilities of HWC and its subsidiaries, taken as a whole.
SECTION 6.6 NO VIOLATION. Assuming effectuation of all filings and registrations with, termination or expiration of any applicable waiting periods imposed by, and receipt of all permits and orders of Governmental Authorities required in connection with the consummation of the transactions contemplated by this Combination Agreement, and the receipt of all approvals or consents required to be obtained from third parties disclosed in Section 6.6 of the HWC Disclosure Schedule, neither the execution and delivery by HWC of this Combination Agreement or any instrument required hereby to be executed and delivered by it at the Closing nor the performance by HWC of its obligations hereunder or thereunder will (i) violate or breach the terms of or cause a default under, or result in the termination of, or accelerate the performance required by, or result in a right of termination, cancellation or acceleration of any obligation under, or result in the creation of any Lien upon any of the properties or assets of HWC or any of its subsidiaries under (A) any law, regulation or order of any Governmental Authority applicable to HWC or any of its subsidiaries, (B) HWC's or any of its subsidiary's organizational documents, including its articles of incorporation and bylaws, each as amended or restated, or (C) any contract, agreement or other instrument or obligation to which HWC or any of its subsidiaries is a party or by which it or any of its properties or assets is bound, or (ii) with the passage of time, the giving of notice or the taking of any action by a third party, have any of the effects set forth in clause (i) of this Section 6.6, except in any such case for any matters described in this Section 6.6 that would not have an OSI Material Adverse Effect.
SECTION 6.7 ACCURACY OF INFORMATION. None of the information included in the Preliminary OSI Registration Statement concerning the business, operations, financial results or
condition, assets or liabilities of HWC and its subsidiaries is false or misleading with respect to any material fact, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein not misleading.
SECTION 6.8 FAIRNESS OPINION. HWC has received the written opinion of Houlihan Lokey Howard & Zuken Financial Advisors, Inc. that the percentage of shares of OSI Common Stock to be held by the stockholders of each of HWC, OSI, PTI and Sooner as a result of the consummation of the transactions contemplated by this Combination Agreement is fair to the stockholders of each of HWC, OSI, PTI and Sooner from a financial point of view.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SOONER
Sooner represents and warrants to OSI, HWC and PTI that the statements contained in this Article VII are correct and complete as of the date of this Combination Agreement, except as set forth in the disclosure schedule delivered by Sooner to OSI, HWC and PTI on the date hereof (the "Sooner Disclosure Schedule").
SECTION 7.1 ORGANIZATION; QUALIFICATION. Sooner is a corporation duly organized under the DGCL and is validly existing and in good standing under the laws of the State of Delaware. Sooner has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. Sooner is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary, except where the failure to be so qualified and in good standing will not have a material adverse effect on the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) of Sooner and its subsidiaries, taken as a whole.
SECTION 7.2 SUBSIDIARIES. Each subsidiary of Sooner is a corporation duly organized under the jurisdiction of its incorporation and is validly existing and in good standing under the laws of such jurisdiction. Each subsidiary of Sooner has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. Each subsidiary of Sooner is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary, except where the failure to be so qualified and in good standing will not have a material adverse effect on the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) of Sooner and its subsidiaries, taken as a whole. All of the issued and outstanding shares of capital stock of each subsidiary of Sooner are owned (directly or indirectly) by Sooner, free and clear of all Liens.
SECTION 7.3 CAPITALIZATION. The authorized capital stock of Sooner consists of 100,000 shares of Sooner Common Stock, of which 26,178 shares are issued and outstanding. The issued and outstanding shares of Sooner Common Stock are owned of record by the persons and in the amounts set forth in Section 7.3 of the Sooner Disclosure Schedule. All of the outstanding shares of Sooner Common Stock and all of the outstanding shares of the capital stock of each subsidiary
of Sooner are duly authorized, validly issued, fully paid, nonassessable and were not issued in violation of the preemptive rights of any person. Except as set forth in Section 7.3 of the Sooner Disclosure Schedule, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or variants, including any right of conversion or exchange under any outstanding security, instrument or other agreement obligating Sooner or any subsidiary of Sooner to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of Sooner or any subsidiary of Sooner or obligating Sooner or any subsidiary of Sooner to grant, extend or enter into any such agreement or commitment.
SECTION 7.4 AUTHORITY, AUTHORIZATION AND ENFORCEABILITY. Sooner has all
requisite corporate power and authority to execute and deliver this Combination
Agreement and each instrument required hereby to be executed and delivered by it
at the Closing, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by Sooner of this Combination Agreement and each instrument required
hereby to be executed and delivered by it at the Closing and the performance of
its obligations hereunder and thereunder have been duly and validly authorized
by the board of directors of Sooner, and no other corporate proceedings of
Sooner, other than the approval of the stockholders of Sooner contemplated by
Section 12.1(o) hereof are necessary to authorize the execution and delivery of
this Combination Agreement or the consummation of the transactions contemplated
hereby. This Combination Agreement and each instrument required hereby have been
duly executed and delivered by Sooner and (assuming due authorization, execution
and delivery hereof and thereof by the other parties hereto and thereto)
constitute the valid and legally binding obligations of Sooner, enforceable
against Sooner in accordance with their terms, except that (A) such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium or other laws, decisions or equitable principles now or hereafter in
effect relating to or affecting the enforcement of creditors' rights or debtors'
obligations generally, and to general equity principles, and (B) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
SECTION 7.5 FINANCIAL STATEMENTS.
(a) The financial statements of Sooner (including the related notes) and its predecessor Sooner Pipe & Supply Corporation appearing in the Preliminary OSI Registration Statement have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present the consolidated financial position of Sooner and Sooner Pipe & Supply Corporation and their subsidiaries, as applicable, as of the respective dates thereof and the consolidated results of operations and changes in financial position of Sooner and Sooner Pipe & Supply Corporation and their subsidiaries, as applicable, over the periods indicated.
(b) Except as reflected or reserved against in the financial statements referred to in (a) above, or in the Sooner Disclosure Schedule, neither Sooner nor any of its subsidiaries have any liabilities of any nature (whether accrued, absolute, contingent or otherwise) which in the aggregate could reasonably be expected to have an OSI Material Adverse Effect. Since March 31, 2000, neither Sooner nor any of its subsidiaries has incurred any liabilities
material to Sooner except liabilities incurred in the ordinary course of business and consistent with past practice. Since March 31, 2000, there has been no material adverse change in the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) or liabilities of Sooner and its subsidiaries, taken as a whole.
SECTION 7.6 NO VIOLATION. Assuming effectuation of all filings and registrations with, termination or expiration of any applicable waiting periods imposed by, and receipt of all permits and orders of Governmental Authorities required in connection with the consummation of the transactions contemplated by this Combination Agreement, and the receipt of all approvals or consents required to be obtained from third parties disclosed in Section 7.6 of the Sooner Disclosure Schedule, neither the execution and delivery by Sooner of this Combination Agreement or any instrument required hereby to be executed and delivered by it at the Closing nor the performance by Sooner of its obligations hereunder or thereunder will (i) violate or breach the terms of or cause a default under, or result in the termination of, or accelerate the performance required by, or result in a right of termination, cancellation or acceleration of any obligation under, or result in the creation of any Lien upon any of the properties or assets of Sooner or any of its subsidiaries under (A) any law, regulation or order of any Governmental Authority applicable to Sooner or any of its subsidiaries, (B) Sooner's or any of its subsidiary's organizational documents, including its articles of incorporation and bylaws, each as amended or restated, or (C) any contract, agreement or other instrument or obligation to which Sooner or any of its subsidiaries is a party or by which it or any of its properties or assets is bound, or (ii) with the passage of time, the giving of notice or the taking of any action by a third party, have any of the effects set forth in clause (i) of this Section 7.6, except in any such case for any matters described in this Section 7.6 that would not have an OSI Material Adverse Effect.
SECTION 7.7 ACCURACY OF INFORMATION. None of the information included in the Preliminary OSI Registration Statement concerning the business, operations, financial results or condition, assets or liabilities of Sooner and its subsidiaries is false or misleading with respect to any material fact, contains any untrue statement of any material fact or omits to state a material fact necessary in order to make the statements therein not misleading.
SECTION 7.8 FAIRNESS OPINION. Sooner has received the written opinion of Houlihan Lokey Howard & Zuken Financial Advisors, Inc. that the percentage of shares of OSI Common Stock to be held by the stockholders of each of HWC, OSI, PTI and Sooner as a result of the consummation of the transactions contemplated by this Combination Agreement is fair to the stockholders of each of HWC, OSI, PTI and Sooner from a financial point of view.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF PTI
PTI represents and warrants to OSI, HWC and Sooner that the statements contained in this Article VIII are correct and complete as of the date of this Combination Agreement, except as set forth in the disclosure schedule delivered by PTI to OSI, HWC and Sooner on the date hereof (the "PTI Disclosure Schedule").
SECTION 8.1 ORGANIZATION; QUALIFICATION. PTI is a corporation duly organized under the ABCA and is validly existing and in good standing under the laws of the Province of Alberta. PTI has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. PTI is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes any such qualification necessary, except where the failure to be so qualified and in good standing will not have a material adverse effect on the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) of PTI and its subsidiaries, taken as a whole.
SECTION 8.2 SUBSIDIARIES. Each subsidiary of PTI is a corporation duly organized under the jurisdiction of its incorporation and is validly existing and in good standing under the laws of such jurisdiction. Each subsidiary of PTI has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. Each subsidiary of PTI is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary, except where the failure to be so qualified and in good standing will not have a material adverse effect on the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) of PTI and its subsidiaries, taken as a whole. Except as set forth in Section 8.2 of the PTI Disclosure Schedule, all of the issued and outstanding shares in the capital of each subsidiary of PTI are owned (directly or indirectly) by PTI, free and clear of all Liens.
SECTION 8.3 CAPITALIZATION. The authorized share capital of PTI consists of an unlimited number of common shares, of which 7,798,900 shares are issued and outstanding. The issued and outstanding PTI Common Shares are owned of record by the persons and in the amounts set forth in Section 8.3 of the PTI Disclosure Schedule. Except for Peter McEwen, William Nungesser and SCF-III, L.P., all of the holders of record of issued and outstanding PTI Common Shares are domiciled outside of the United States, and, to the best of PTI's knowledge, none of such holders of PTI Common Shares are United States persons. All of the outstanding PTI Common Shares and all of the outstanding shares in the capital of each subsidiary of PTI are duly authorized, validly issued, fully paid, nonassessable and were not issued in violation of the preemptive rights of any person. Except as set forth in Section 8.3 of the PTI Disclosure Schedule, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or variants, including any right of conversion or exchange under any outstanding security, instrument or other agreement obligating PTI or any subsidiary of PTI to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of the share capital of PTI or any subsidiary of PTI or obligating PTI or any subsidiary of PTI to grant, extend or enter into any such agreement or commitment.
SECTION 8.4 AUTHORITY, AUTHORIZATION AND ENFORCEABILITY. PTI has all requisite corporate power and authority to execute and deliver this Combination Agreement and each instrument required hereby to be executed and delivered by it at the Closing, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by PTI of this Combination Agreement and each instrument required hereby to be executed and delivered by it at the Closing and the performance of its obligations hereunder and thereunder have been duly and validly authorized by the board of directors and, subject to the affirmative vote of the holders of at least two-thirds of the outstanding PTI Common Shares in favor of the PTI Arrangement and the issuance of the Interim Order and the Final Order, no other corporate proceedings of PTI, other than the approvals of the shareholders of PTI contemplated by Section 12.1(j), Section 12.1(p) and Section 12.1(q) hereof, are necessary to authorize the execution and delivery of this Combination Agreement or the consummation of the transactions contemplated hereby. This Combination Agreement and each instrument required hereby have been duly executed and delivered by PTI and (assuming due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto) constitute the valid and legally binding obligations of PTI, enforceable against PTI in accordance with their terms, except that (A) such enforceability may be subject to bankruptcy, insolvency, reorganization, moratorium or other laws, decisions or equitable principles now or hereafter in effect relating to or affecting the enforcement of creditors' rights or debtors' obligations generally, and to general equity principles, and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
SECTION 8.5 FINANCIAL STATEMENTS.
(a) The financial statements of PTI (including the related notes) appearing in the Preliminary OSI Registration Statement have been prepared in accordance with generally accepted accounting principles in the United States applied on a consistent basis and fairly present the consolidated financial position of PTI and its subsidiaries as of the respective dates thereof and the consolidated results of operations and changes in financial position of PTI and its subsidiaries over the periods indicated.
(b) Except as reflected or reserved against in the financial statements referred to in (a) above, or in the PTI Disclosure Schedule, neither PTI nor any of its subsidiaries has any liabilities of any nature (whether accrued, absolute, contingent or otherwise) which in the aggregate could reasonably be expected to have an OSI Material Adverse Effect. Since March 31, 2000, neither PTI nor any of its subsidiaries has incurred any liabilities material to PTI except liabilities incurred in the ordinary course of business and consistent with past practice. Since March 31, 2000, there has been no material adverse change in the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) or liabilities of PTI and its subsidiaries, taken as a whole.
SECTION 8.6 NO VIOLATION. Assuming effectuation of all filings and registrations with, termination or expiration of any applicable waiting periods imposed by, and receipt of all permits and orders of Governmental Authorities required in connection with the consummation of the transactions contemplated by this Combination Agreement, and the receipt of all approvals or consents required to be obtained from third parties disclosed in Section 8.6 of the PTI Disclosure Schedule, neither the execution and delivery by PTI of this Combination Agreement or any instrument required hereby to be executed and delivered by it at the Closing nor the performance by PTI of its obligations hereunder or thereunder will (i) violate or breach the terms of or cause a default under, or result in the termination of, or accelerate the performance required by, or result in a right of termination, cancellation or acceleration of any obligation under, or result in the creation of any Lien upon any of the properties or assets of PTI or any of its subsidiaries under (A) any law, regulation or order of any Governmental Authority applicable to PTI or any of its subsidiaries, (B) PTI's or any of its subsidiary's organizational documents, including its articles of amalgamation and bylaws, each as amended or restated, or (C) any contract, agreement or other instrument or obligation to which PTI is a party or by which it or any of its properties or assets is bound, or (ii) with the passage of time, the giving of notice or the taking of any action by a third party, have any of the effects set forth in clause (i) of this Section 8.6, except in any such case for any matters described in this Section 8.6 that would not have an OSI Material Adverse Effect.
SECTION 8.7 ACCURACY OF INFORMATION. None of the information included in the Preliminary OSI Registration Statement concerning the business, operations, financial condition, assets or liabilities of PTI and its subsidiaries is false or misleading with respect to any material fact, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein not misleading.
SECTION 8.8 FAIRNESS OPINION. PTI has received the written opinion of Houlihan Lokey Howard & Zuken Financial Advisors, Inc. that the percentage of shares of OSI Common Stock to be held by the stockholders of each of HWC, OSI, PTI and Sooner as a result of the consummation of the transactions contemplated by this Combination Agreement is fair to the stockholders of each of HWC, OSI, PTI and Sooner from a financial point of view.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF OSI
OSI represents and warrants to HWC, Sooner and PTI that the statements contained in this Article IX are correct and complete as of the date of this Combination Agreement, except as set forth in the disclosure schedule delivered by OSI to HWC, Sooner and PTI on the date hereof (the "OSI Disclosure Schedule").
SECTION 9.1 ORGANIZATION; QUALIFICATION. OSI is a corporation duly organized under the DGCL and is validly existing and in good standing under the laws of the State of Delaware. OSI has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. OSI is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary, except where the failure to be so qualified and in good standing will not have a material adverse effect on the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) of OSI and its subsidiaries, taken as a whole.
SECTION 9.2 SUBSIDIARIES. Each subsidiary of OSI is a corporation duly organized under the jurisdiction of its incorporation and is validly existing and in good standing under the laws of such jurisdiction. Each subsidiary of OSI has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. Each subsidiary of OSI is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary, except where the failure to be so qualified and in good standing will not have a material adverse effect on the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) of OSI and its subsidiaries, taken as a whole. Except as set forth in Section 9.2 of the OSI Disclosure Schedule, all of the issued and outstanding shares of capital stock of each subsidiary of OSI are owned (directly or indirectly) by OSI, free and clear of all Liens.
SECTION 9.3 CAPITALIZATION. The authorized capital stock of OSI consists of 30,000,000 shares of OSI Common Stock, of which 27,154,672 shares are issued and outstanding, 1,150,000 shares of Class B common stock, par value $.01 per share, of which there are no shares issued and outstanding and 16,250 shares of OSI Preferred Stock, of which 16,250 shares are issued and outstanding. The issued and outstanding shares of OSI Common Stock and OSI Preferred Stock are owned of record by the persons and in the amounts set forth in Section 9.3 of the OSI Disclosure Schedule. All of the outstanding shares of OSI Common Stock and OSI Preferred Stock and all of the outstanding shares of the capital stock of each subsidiary of OSI are duly authorized, validly issued, fully paid, nonassessable, and were not issued in violation of the preemptive rights of any person. Except as set forth in Section 9.3 of the OSI Disclosure Schedule, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement obligating OSI or any subsidiary of OSI to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of OSI or any subsidiary of OSI or obligating OSI or any subsidiary of OSI to grant, extend or enter into any such agreement or commitment.
SECTION 9.4 AUTHORITY, AUTHORIZATION AND ENFORCEABILITY. OSI has all requisite corporate power and authority to execute and deliver this Combination Agreement and each instrument required hereby to be executed and delivered by it at the Closing, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by OSI of this Combination Agreement and each instrument required hereby to be executed and delivered by it at the Closing and the performance of its obligations hereunder and thereunder have been duly and validly authorized by the board of directors of OSI, and no other corporate proceedings of OSI, other than the approval of the stockholders of OSI contemplated by Section 12.1(r) hereof, are necessary to authorize the execution and delivery of this Combination Agreement or the consummation of the transactions contemplated hereby. This
Combination Agreement and each instrument required hereby have been duly executed and delivered by OSI and (assuming due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto) constitute the valid and legally binding obligations of OSI, enforceable against OSI in accordance with their terms, except that (A) such enforceability may be subject to bankruptcy, insolvency, reorganization, moratorium or other laws, decisions or equitable principles now or hereafter in effect relating to or affecting the enforcement of creditors' rights or debtors' obligations generally, and to general equity principles, and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
SECTION 9.5 FINANCIAL STATEMENTS.
(a) The historical financial statements of OSI (including the related notes) appearing in the Preliminary OSI Registration Statement have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present the consolidated financial position of OSI and its subsidiaries as of the respective dates thereof and the consolidated results of operations and changes in financial position of OSI and its subsidiaries over the periods indicated, except that the unaudited interim financial statements are subject to normal and recurring year-end adjustments which are not expected to be material in amount.
(b) Except as reflected or reserved against in the financial statements referred to in (a) above, or in the OSI Disclosure Schedule, neither OSI nor any of its subsidiaries has any liabilities of any nature (whether accrued, absolute, contingent or otherwise) which in the aggregate could reasonably be expected to have an OSI Material Adverse Effect. Since March 31, 2000, neither OSI nor any of its subsidiaries has incurred any liabilities material to OSI and its subsidiaries, taken as a whole, except liabilities incurred in the ordinary course of business and consistent with past practice. Since March 31, 2000, there has been no material adverse change in the business, operations, prospects, properties, assets, operating results or condition (financial or otherwise) or liabilities of OSI and its subsidiaries, taken as a whole.
SECTION 9.6 NO VIOLATION. Assuming effectuation of all filings and registrations with, termination or expiration of any applicable waiting periods imposed by and receipt of all permits and orders of, Governmental Authorities required in connection with the consummation of the transactions contemplated by this Combination Agreement, and the receipt of all approvals or consents required to be obtained from third parties disclosed in Section 9.6 of the OSI Disclosure Schedule, neither the execution and delivery by OSI of this Combination Agreement or any instrument required hereby to be executed and delivered by it at the Closing nor the performance by OSI of its obligations hereunder or thereunder will (i) violate or breach the terms of or cause a default under, or result in the termination of, or accelerate the performance required by, or result in a right of termination, cancellation or acceleration of any obligation under, or result in the creation of any Lien upon any of the properties or assets of OSI or any of its subsidiaries under (A) any law, regulation or order of any Governmental Authority applicable to OSI or any of its subsidiaries, (B) OSI's or any of its subsidiary's organizational documents, including its articles of incorporation and bylaws, each as amended or restated, or (C) any contract, agreement or other instrument or
obligation to which OSI or any of its subsidiaries is a party or by which it or any of its properties or assets is bound, or (ii) with the passage of time, the giving of notice or the taking of any action by a third party, have any of the effects set forth in clause (i) of this Section 9.6, except in any such case for any matters described in this Section 9.6 that would not have an OSI Material Adverse Effect.
SECTION 9.7 ACCURACY OF INFORMATION. None of the information included in the Preliminary OSI Registration concerning the business, operations, financial results or condition, assets or liabilities of OSI and its subsidiaries is false or misleading with respect to any material fact, contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein not misleading.
SECTION 9.8 FAIRNESS OPINION. OSI has received the written opinion of Houlihan Lokey Howard & Zuken Financial Advisors, Inc. that the percentage of shares of OSI Common Stock to be held by the stockholders of each of HWC, OSI, PTI and Sooner as a result of the consummation of the transactions contemplated by this Combination Agreement is fair to the stockholders of each of HWC, OSI, PTI and Sooner from a financial point of view.
SECTION 9.9 STATUS AS A FOREIGN INVESTMENT ENTITY. Should the Proposed Foreign Investment Entity Rules (as defined below) be enacted in their current form, OSI would not at the date hereof be a foreign investment entity for purposes of such rules. OSI is not presently aware of any circumstances which would cause it to become a foreign investment entity within the next five years from the date hereof. For purposes of this Section 9.9, "Proposed Foreign Investment Entity Rules" means the draft legislation released by the Minister of Finance (Canada) on June 22, 2000 in respect of foreign investment entities.
ARTICLE X
REGISTRATION RIGHTS
On or prior to the Effective Time, OSI, HWC and Sooner and the Registration Rights Representatives, on behalf of and pursuant to powers of attorney granted by the Registration Rights Holders, shall enter into an Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement") in the form attached hereto as Exhibit E, to be effective upon the consummation of the OSI Initial Public Offering.
ARTICLE XI
COVENANTS
SECTION 11.1 ORDINARY COURSE OF BUSINESS. Except as otherwise consented to in writing by a majority of the members of the Special Committee, excluding the designee of the party requesting such consent, or as otherwise contemplated herein, between the date of this Combination Agreement and the earlier to occur of the Effective Time or the termination of this Combination Agreement, each of HWC, Sooner, PTI and OSI will, and will cause its subsidiaries to, carry on its business diligently and in the ordinary and usual course and consistent with past practice, and,
without limiting the generality of the foregoing, each of HWC, Sooner, PTI and OSI will, and will cause its subsidiaries to, use commercially reasonable efforts to preserve its business organization intact, keep available the services of its present executive officers and employees and preserve its present relationships with persons having business dealings with it.
SECTION 11.2 RESTRICTED ACTIVITIES AND TRANSACTIONS. Except as otherwise contemplated herein or in the Preliminary OSI Registration Statement or in connection with the OSI Initial Public Offering or as set forth in the respective disclosure schedule of the parties hereto or as otherwise consented to in writing by a majority of the members of the Special Committee, excluding the designee of the party requesting such consent, between the date of this Combination Agreement and the earlier to occur of the Effective Time or the termination of this Combination Agreement, neither OSI, HWC, Sooner nor PTI will, nor will each such corporation allow any of its subsidiaries to:
(a) Issue or commit to issue any of its capital stock or other ownership or equity interests other than in connection with the exercise of options, warrants or convertible securities existing on the date hereof and listed in their respective Disclosure Schedule;
(b) Grant or commit to grant any options, warrants, convertible securities or other rights to subscribe for, purchase or otherwise acquire any shares of its capital stock or other ownership or equity interests other than pursuant to existing stock option plans to new employees consistent with past practice;
(c) Declare, set aside, or pay any dividend or distribution or make any other payment with respect to its capital stock or other ownership interests, except for preferred stock dividends payable in accordance with the terms of such preferred stock;
(d) Directly or indirectly redeem, purchase or otherwise acquire or commit to acquire any of its capital stock or other ownership or equity interests;
(e) Effect a split or reclassification of any of its capital stock or a recapitalization or other reorganization;
(f) Amend or otherwise alter its articles of incorporation or amalgamation, by-laws, or other governing instruments;
(g) Enter into or make any change in any of its employee benefit plans or grant any increase in compensation (other than increases in compensation in the ordinary course of business for field and office personnel who are not managers or executives), or provide any special severance arrangement involving any of its employees, officers or directors;
(h) Acquire control or ownership in any other corporation, association, joint venture, partnership, business trust or other business entity, or acquire control or ownership of all or a substantial portion of the assets of any of the foregoing for a purchase price (including any assumed liabilities) in excess of $10,000,000;
(i) Except in the ordinary course of business or as otherwise permitted under this Combination Agreement and except for budgeted capital expenditures, enter into or agree to enter into any agreement or transaction involving the incurrence of an obligation to pay an amount in excess of an aggregate of $2,500,000 prior to December 1, 2000 or an aggregate of $5,000,000 prior to May 31, 2001;
(j) Create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance on any of its assets, tangible or intangible,
except (i) as permitted under its existing credit facilities with banks
and any renewals, modifications or rearrangements thereof on terms and
conditions not materially less favorable to the respective borrower or
(ii) in the ordinary course of business consistent with past practice;
(k) Except as provided in the respective disclosure schedule or in the ordinary and usual course of business and consistent with past practice or as otherwise contemplated or permitted herein, (i) borrow, or agree to borrow any funds or voluntarily incur, assume or become subject to, whether directly or by way of guaranty or otherwise, any obligation or liability (absolute or contingent) in excess of $5,000,000, except as permitted under its existing credit facilities and in connection with any renewal, modification or rearrangement thereof which is on terms and conditions not materially less favorable to the respective borrower and which does not provide for an increase in the maximum borrowing amount, (ii) cancel or agree to cancel any debts or claims, (iii) lease, sublease, sell or transfer, agree to sublease, sell or transfer, or grant or agree to grant any preferential rights to lease or acquire, any of its assets, property or rights having a fair market value in excess of $2,500,000 or (iv) make or permit any amendment or termination of any contract, agreement, license or other right to which it is a party;
(l) Settle any threatened or pending litigation that is not fully covered by insurance other than for immaterial consideration or for an amount less than that reserved as of the date hereof for such litigation on its books and records;
(m) Enter into or agree to be bound by any agreement or permit an Affiliate to enter into or agree to be bound by any agreement with any of its directors, officers, employees or Affiliates that will continue subsequent to the Effective Time, other than as contemplated by this Combination Agreement or in the ordinary course of business consistent with past practice; or
(n) Commit itself to do any of the foregoing.
SECTION 11.3 INSURANCE. Except as otherwise consented to in writing by a majority of the members of the Special Committee, between the date of this Combination Agreement and the earlier to occur of the Effective Time or the termination of this Combination Agreement, each of OSI, HWC, Sooner and PTI will use commercially reasonable efforts to maintain in full force and effect all policies of insurance which are currently in effect (or policies with comparable coverage and comparable amounts of coverage).
SECTION 11.4 CONFIDENTIALITY. Except as contemplated by Section 11.9, each of the parties hereto will keep strictly confidential any and all information furnished to one of them or their representatives by another or their representatives in connection with the transactions contemplated by this Combination Agreement, and the business and financial reviews and investigations referred to in Section 11.7, except for information, if any, that (i) is or becomes generally available to the public in a manner other than as a result of a disclosure by the party receiving the information; (ii) was available to the receiving party on a non-confidential basis prior to its disclosure to the receiving party by the party providing the information; or (iii) is or becomes available to the receiving party on a non-confidential basis from a source other than the informing party unless that source is bound by a confidentiality agreement with the informing party. If this Combination Agreement is terminated pursuant to Section 13.1 hereof, each of the parties hereto will promptly deliver to the others or destroy (and certify as to such delivery or destruction) all originals and copies of documents, work papers and other written material concerning the others and obtained from the others, their agents, employees or representatives in connection with such negotiations and such business and financial reviews and investigations.
SECTION 11.5 HSR AND OTHER REGULATORY MATTERS. Each of the parties hereto agrees to make all necessary filings on a timely basis with respect to the HSR Act, the Investment Canada Act, the Competition Act (Canada) and other applicable laws and will use its best efforts to obtain any other regulatory approvals which may be required to consummate the transactions contemplated herein. If a shareholder of OSI, HWC, Sooner or PTI is required to make a filing under any such acts in connection with the transactions contemplated by this Combination Agreement, the filing fees of such shareholder shall be borne by the party whose stock ownership gave rise to such filing obligation.
SECTION 11.6 COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject to the conditions hereof, each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions as contemplated by this Combination Agreement and to cooperate in connection with the foregoing, including commercially reasonable efforts:
(a) to obtain any necessary waivers, consents and approvals from other parties to material notes, licenses, agreements and other instruments and obligations;
(b) to obtain any material consents, approvals, authorizations and permits required to be obtained under any federal, state, provincial or local statute, rule or regulation;
(c) to defend all lawsuits or other legal proceedings challenging this Combination Agreement or the consummation of the transactions as contemplated hereby; and
(d) to effect promptly all necessary filings and notifications including, but not limited to, filings under the HSR Act, the Investment Canada Act and the Competition Act (Canada) and prompt submissions of information requested by Governmental Authorities.
SECTION 11.7 ACCESS TO INFORMATION. From the date hereof to the Effective Time, each of the parties hereto shall cause its respective officers, directors, employees and agents to afford the officers, employees and representatives of the others, complete access at all reasonable times to its respective officers, employees, agents, properties, books and records, and shall furnish the others all financial, operating and other data and information as the others, through their officers, employees or representatives, may reasonably request.
SECTION 11.8 SECTION 351 REPORTING. The parties hereto that are located in the United States agree to report the transactions contemplated herein in a manner consistent with Section 351 of the Code.
SECTION 11.9 OSI REGISTRATION STATEMENT.
(a) Each of the parties hereto shall cooperate in the preparation and filing of the OSI Registration Statement. As promptly as is practicable following the execution of this Combination Agreement, HWC, Sooner and PTI shall cooperate with OSI to cause such OSI Registration Statement to be filed with the Commission under and pursuant to the provisions of the Securities Act for the purpose of registering OSI Common Stock for sale to the public in the OSI Initial Public Offering.
(b) Each of HWC, Sooner and PTI agree to provide promptly to OSI such information concerning its business and financial statements and affairs as may be required or appropriate for inclusion in the OSI Registration Statement, or in any amendments or supplements thereto, and shall cause its counsel and auditors to cooperate with OSI's counsel and auditors in the preparation of the OSI Registration Statement. OSI agrees to use commercially reasonable efforts to have the OSI Registration Statement declared effective under the Securities Act as soon as may be practicable.
(c) Each of the parties hereto represents and warrants to the others that the OSI Registration Statement, insofar as it contains or incorporates by reference information pertaining to such party, will comply in all material respects with the requirements of the Securities Act and the applicable rules and regulations adopted thereunder, and that such information will not contain any untrue statement of material fact and will not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Each party will promptly advise the others in writing if at any time prior to the Effective Time it shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the OSI Registration Statement in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law.
(d) (i) If the gross proceeds to OSI from the OSI Initial Public Offering are expected to be greater than $150,000,000 (including any proceeds upon the exercise of any over-allotment option granted to the underwriters of the OSI Initial Public Offering in connection therewith), OSI agrees to consult in good faith with the managing underwriters
for the OSI Initial Public Offering and their counsel, and its own counsel and advisors, regarding the feasibility of including shares of OSI Common Stock having a value of up to $25,000,000 in the OSI Registration Statement for sale by the securityholders of each of:
(A) HWC, as set forth in Appendix 1 and 2 to the HWC Disclosure Schedule (other than the HWC Non-Accredited Holders);
(B) OSI, as set forth in Section 9.3(1) of the OSI Disclosure Schedule (excluding stockholders of OSI who fail to execute and deliver to OSI the Omnibus Consent, Waiver and Agreement referred to in Section 12.1(r) hereof prior to the initial filing of the OSI Registration Statement with the Commission);
(C) PTI, as set forth in Appendix I to the PTI Disclosure Schedule (other than the PTI Non-Accredited Holders); and
(D) Sooner, as set forth in Section 7.3 of the Sooner Disclosure Schedule (other than the Sooner Non-Accredited Holders)
(such eligible securityholders described in (A)-(D) above, the
"Eligible Secondary Stockholders"); provided, however, that (x)
SCF-III, L.P., (y) SCF-IV, L.P., and (z) stockholders who are expected
by OSI to be directors, officers or employees of HWC, OSI, PTI or
Sooner or any of their subsidiaries after the Effective Time shall be
deemed not to be Eligible Secondary Stockholders for purposes of this
Section 11.9(d).
(ii) Any such shares so included in the OSI Initial Public Offering would be allocated for sale by the Eligible Secondary Stockholders pro rata in accordance with their pro forma share ownership in OSI taking into account the consummation of the Mergers; provided, however, that any shares not included in the OSI Initial Public Offering at the election of any of the Eligible Secondary Stockholders shall be made available for inclusion in the OSI Initial Public Offering, pro rata as provided above, to the other Eligible Secondary Stockholders who have fully exercised their right to participate.
(iii) If the Eligible Secondary Stockholders may be entitled to include OSI Common Stock in the OSI Initial Public Offering, OSI shall give written notice to each of the Eligible Secondary Stockholders, at the address indicated in the records of HWC, Sooner, PTI, or OSI, as applicable, and each Eligible Secondary Stockholder must notify OSI in writing within 15 days of the giving of such notice if such Eligible Secondary Stockholder desires to so include shares and the maximum number of shares of OSI Common Stock to be included. No Eligible Secondary Stockholder may participate in the OSI Initial Public Offering unless such Eligible Secondary Stockholder timely completes, executes and delivers all questionnaires, powers of attorney, underwriting agreements, custody agreements and other documents in customary form that OSI or the underwriters reasonably request. Any Eligible Secondary Stockholder shall be permitted to withdraw all or part of such Eligible Secondary Stockholder's OSI Common Stock from the OSI Registration Statement at any time prior to the effective time thereof unless OSI has previously given written notice to the
Eligible Secondary Stockholders of the initial public offering price range included, or to be included (provided that such range is the range ultimately included), in the "red herring" and indicated that the Eligible Secondary Stockholders may not withdraw their OSI Common Stock after five days after the giving of such notice if the initial public offering price of OSI Common Stock in the OSI Initial Public Offering equals or exceeds the lowest price in such initial public offering price range, in which case the Eligible Secondary Stockholder may not withdraw OSI Common Stock from the OSI Registration Statement after such fifth day unless the initial public offering price is below such lowest price.
(iv) OSI shall not, and shall not be entitled to, issue and sell OSI Common Stock in the OSI Initial Public Offering for aggregate proceeds in excess of $150,000,000, including any proceeds received upon the exercise of any over-allotment option granted to the underwriters of the OSI Initial Public Offering in connection therewith, unless the Eligible Secondary Stockholders have first been given the right and opportunity to sell OSI Common Stock in the OSI Initial Public Offering having aggregate gross proceeds of at least $25,000,000, except as set forth in subparagraph (v) below.
(v) Counsel to OSI, in consultation with counsel to the Eligible Secondary Stockholder of the greatest number of shares of OSI Common Stock (the "Largest Eligible Secondary Stockholder"), may determine that shares of OSI Common Stock to be held as a result of the transactions contemplated in this Combination Agreement are not eligible for inclusion in the OSI Registration Statement because of applicable law. In the event that it is determined that no shares of OSI Common Stock held by the Eligible Secondary Stockholders are eligible for inclusion in the OSI Initial Public Offering or that the number of shares of OSI Common Stock held by the Eligible Secondary Stockholders eligible for inclusion in the OSI Initial Public Offering is such that the aggregate gross proceeds to the Eligible Secondary Stockholders shall be less than $25,000,000, the reference to "$25,000,000" in subparagraph (iv) above shall be read as a reference to the maximum aggregate gross proceeds, if any, to the Eligible Secondary Stockholders as so determined.
(vi) The underwriters and the public offering price and, subject to the foregoing provisions of this Section 11.9(d), the number of shares and any over-allotment option will be determined by the Board of Directors of OSI in its sole discretion; provided, however, that:
(A) OSI shall, and shall require the underwriters to, consult with the Largest Eligible Secondary Stockholder expeditiously and in good faith prior to determining (1) that the gross proceeds of the OSI Initial Public Offering (including any proceeds to OSI upon the exercise of any over-allotment option granted in connection therewith) are not expected to be greater than $150,000,000 and, accordingly, that no shares of OSI Common Stock held by the Eligible Secondary Stockholders are to be included in the OSI Initial Public Offering or (2) that the gross proceeds of the OSI Initial Public Offering (including any proceeds upon the exercise of any over-allotment option granted in connection therewith) are expected to be greater than $150,000,000 but less than $175,000,000 and, accordingly, that the
number of shares of OSI Common Stock held by the Eligible Secondary Stockholders to be included in the OSI Initial Public Offering shall be such that the aggregate gross proceeds to the Eligible Secondary Stockholders shall be less than $25,000,000 and
(B) the Largest Eligible Selling Stockholder shall be entitled to be present at the time that the public offering price, the number of shares and the over-allotment option are determined by OSI and the underwriters,
it being acknowledged with respect to each of clauses (A) and (B) above that such determination shall ultimately be made by the board of directors of OSI and the underwriters acting in good faith and shall not require the consent or approval of the Eligible Secondary Stockholders or any of them and it being further acknowledged that the board of directors of OSI shall be entitled to reduce the size of the OSI Initial Public Offering (and thereby reduce or eliminate the shares of OSI Common Stock otherwise eligible to be sold by the Eligible Secondary Stockholders) if it believes in good faith that such action will increase the initial public offering price per share of the OSI Common Stock in the OSI Initial Public Offering.
(vii) Subject to the foregoing provisions of this Section 11.9(d), OSI is under no obligation to include any shares of OSI Common Stock held by the Eligible Secondary Stockholders in the OSI Registration Statement.
(viii) If any shares of OSI Common Stock owned by the stockholders of OSI or to be owned by the stockholders of HWC, Sooner or PTI are included in the OSI Registration Statement, the stockholders of OSI and the former stockholders of HWC, Sooner and PTI, as the case may be, shall be required to provide, and shall be entitled to receive, indemnification customarily provided for in public offerings with selling stockholders.
(ix) For purposes of this section 11.9(d), all references to OSI Common Stock (including the relative ownership of the holders of OSI Common Stock) shall include OSI Common Stock issuable pursuant to the exchange, redemption, retraction, call or purchase of PTI Exchangeable Shares and all references to stockholders of OSI shall include holders of such PTI Exchangeable Shares. The parties acknowledge and agree that in the event that any shareholder of PTI is determined to be eligible to participate in the secondary offering contemplated by this section 11.9(d), either (A) the parties shall amend this Combination Agreement and the exhibits hereto such that such eligible PTI shareholders shall receive OSI Common Stock rather than PTI Exchangeable Shares to the extent of their participation in such secondary offering or (B) OSI shall waive, and shall cause each of OSI ULC and PTI Holdco to waive, all time periods provided for the giving of notice in connection with the exchange, redemption, retraction, call or purchase of such PTI Exchangeable Shares in order to permit the holder of such PTI Exchangeable Shares to receive the underlying OSI Common Stock in sufficient time to deliver such OSI Common Stock at or prior to the closing of such secondary offering.
(x) If, prior to such time as the PTI Registration Statement is declared effective, the Holders are offered the opportunity to include any of their Registrable Securities in a Piggyback Registration pursuant to the Registration Rights Agreement, then the holders of PTI Exchangeable Shares shall be eligible to participate in such Piggyback Registration to the same extent and on an equivalent basis as such Holders are entitled to participate pursuant to the Registration Rights Agreement. The parties acknowledge and agree that in the event that the holders of PTI Exchangeable Shares are entitled to participate in any Piggyback Registration as contemplated by this section 11.9(d)(x), OSI shall waive, and shall cause each of OSI ULC and PTI Holdco to waive, all time periods provided for the giving of notice in connection with the exchange, redemption, retraction, call or purchase of such PTI Exchangeable Shares as are necessary in order to permit the holder of such PTI Exchangeable Shares to receive the underlying OSI Common Stock in sufficient time to deliver such OSI Common Stock at or prior to the closing of such Piggyback Registration.
SECTION 11.10 BLUE SKY; CANADIAN SECURITIES LAWS. OSI will use
commercially reasonable efforts to obtain prior to the Effective Time all
necessary Blue Sky permits and approvals required to permit the distribution of
OSI Common Stock in accordance with the provisions of this Combination
Agreement. OSI shall or shall cause PTI Holdco to make application to the
applicable securities regulatory authorities in Canada for an order(s) declaring
that: (i) the first trade of PTI Exchangeable Shares by a holder thereof; (ii)
the issuance of OSI Common Stock on conversion of the PTI Exchangeable Shares;
(iii) the first trade of OSI Common Stock received on conversion of the PTI
Exchangeable Shares by a holder thereof; (iv) the issuance of OSI Common Stock
on exercise of the options to purchase shares of OSI Common Stock received in
exchange for PTI Options in the PTI Arrangement; and (v) the first trade of OSI
Common Stock received on exercise of the options to purchase shares of OSI
Common Stock received in exchange for PTI Options in the PTI Arrangement by a
holder thereof is not a distribution subject to the registration and prospectus
requirements of applicable securities laws in Canada.
SECTION 11.11 AGREEMENTS. Each of HWC, Sooner, PTI and OSI shall terminate prior to the Effective Time the agreements listed on Schedule 11.11 hereto.
SECTION 11.12 NOTIFICATION OF CERTAIN MATTERS. Each of HWC, Sooner, PTI
and OSI shall give prompt notice of (i) the occurrence or non-occurrence of any
event, the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty of such company contained herein to be untrue or
inaccurate in any material respect at or prior to the Effective Time, (ii) any
material failure of any such company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such person hereunder
and (iii) any material adverse change in the business, operations, operating
results or condition (financial or otherwise) of such party and its
subsidiaries, taken as a whole. The delivery or deemed delivery of any notice
pursuant to this Section 11.12 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
(ii) modify the conditions set forth in Article XII, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
SECTION 11.13 FURTHER ASSURANCES. The parties hereto agree to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be reasonably necessary or convenient to carry out the transactions contemplated hereby.
SECTION 11.14 PAYMENT OF INDEBTEDNESS. As promptly as practicable following the Effective Time, OSI will pay, or cause to be paid, all of the outstanding liabilities, obligations and indebtedness, and will redeem all of the preferred stock, in each case as identified on Schedule 11.14 hereto, except as otherwise provided pursuant to Schedule 11.14. In connection with such repayment of indebtedness, all associated guaranties of the stockholders of each of HWC, Sooner, PTI and OSI shall be terminated and canceled.
ARTICLE XII
CONDITIONS
SECTION 12.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. Notwithstanding any other provision of this Agreement, the respective obligations of each party to effect the Mergers and the other transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:
(a) The waiting period (and any extension thereof) applicable to the consummation of the Mergers and the other transactions contemplated herein under the HSR Act shall have expired or been terminated; the applicable waiting periods and any extensions thereof under Part IX of the Competition Act (Canada) (if any) shall have expired or the parties shall have received an advance ruling certificate pursuant to Section 102 of the Competition Act (Canada) setting out that the Commissioner of Competition under such act is satisfied he would not have sufficient grounds on which to apply for an order under Part VIII of such act in respect of the PTI Arrangement; and the PTI Arrangement shall have been determined or deemed to have been determined by the responsible minister under the Investment Canada Act to be of net benefit to Canada if such transaction is reviewable under such act;
(b) No order shall have been entered and remained in effect in any action or proceeding before any federal, foreign, state or provincial court or governmental agency or other federal, foreign, state or provincial regulatory or administrative agency or commission that would prevent or make illegal the consummation of the Mergers;
(c) The OSI Registration Statement shall be effective on the Closing Date and all post-effective amendments filed shall have been declared effective or shall have been withdrawn, and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the knowledge of the parties, threatened by the Commission;
(d) OSI and the underwriters named in the OSI Registration Statement shall have executed an underwriting agreement for a firm commitment underwriting as described in the OSI Registration Statement;
(e) All other approvals of Governmental Authorities and of non-governmental persons or entities shall have been obtained (i) the granting of which is necessary for the
consummation of the Mergers or the transactions contemplated in connection therewith and (ii) the non-receipt of which will have an OSI Material Adverse Effect;
(f) The representations and warranties of OSI, HWC, Sooner and PTI contained in this Combination Agreement shall have been true and correct as of the date of execution of this Combination Agreement, except for such failures to be true which (i) have been cured prior to the Closing Date or (ii) do not, in the aggregate, constitute an OSI Material Adverse Effect;
(g) The agreements and covenants of OSI, HWC, Sooner and PTI to be complied with or performed on or before the Closing Date pursuant to the terms hereof shall have been duly complied with or performed, except for such failures to comply or perform which do not, in the aggregate, constitute an OSI Material Adverse Effect;
(h) No OSI Material Adverse Effect shall have occurred since the date of this Agreement;
(i) HWC, Sooner and OSI shall have received the opinion of Ernst & Young, LLP covering the matters summarized in Exhibit F attached hereto, and PTI shall have received and be entitled to include in the Proxy Statement the opinion of Ernst & Young LLP covering the matters summarized in Exhibit G attached hereto;
(j) The PTI Arrangement and the other transactions contemplated hereby shall have been approved by the holders of PTI Common Shares and PTI Options in accordance with applicable law and PTI's articles of amalgamation and bylaws, and as at the Closing Date, the holders of not more than four percent of the issued and outstanding PTI Common Shares, in the aggregate, shall have validly exercised their rights of dissent under the PTI Plan of Arrangement;
(k) The Alberta Court shall have issued its final order approving the PTI Arrangement in form and substance reasonably satisfactory to OSI and PTI (such approvals not to be unreasonably withheld or delayed by OSI or PTI) and reflecting the terms hereof;
(l) The Support Agreement and the Voting and Exchange Trust Agreement shall have been executed and delivered as contemplated by Sections 4.7 and 4.8;
(m) The Registration Rights Agreement shall have been executed and delivered as contemplated by Article X;
(n) Each of the shareholders of HWC shall have executed the omnibus consent, waiver and agreement substantially in the form attached as Exhibit H hereto prior to the initial filing of the OSI Registration Statement with the Commission;
(o) Each of the stockholders of Sooner shall have executed the omnibus consent, waiver and agreement substantially in the form attached as Exhibit I hereto prior to the initial filing of the OSI Registration Statement with the Commission;
(p) Each of the shareholders of PTI that resides in the United States shall have executed the Omnibus Voting, Waiver and Investment Agreement substantially in the form attached as Exhibit J hereto prior to the initial filing of the OSI Registration Statement with the Commission;
(q) Each of the shareholders of PTI that resides in Canada and that owns greater than 1% of the outstanding PTI Common Shares and the current Chief Executive Officer and Chief Financial Officer of PTI shall have executed the Omnibus Voting, Waiver and Investment Agreement substantially in the form attached as Exhibit K hereto prior to the initial filing of the OSI Registration Statement with the Commission;
(r) The holders of at least 92.5% of the issued and outstanding OSI Common Stock shall have executed the omnibus consent, waiver and agreement substantially in the form attached as Exhibit L hereto prior to the initial filing of the OSI Registration Statement with the Commission; and
(s) All actions shall have been taken and all conditions necessary to effect each of the Mergers shall have been satisfied other than the filings with Governmental Authorities required to effect the Mergers.
ARTICLE XIII
TERMINATION
SECTION 13.1 TERMINATION. This Combination Agreement may be terminated and the Mergers and the other transactions contemplated herein may be abandoned at any time prior to the Effective Time, whether prior to or after approval by the applicable stockholders:
(a) By any party hereto in the event of an OSI Material Adverse Effect that is incapable of being cured, remedied or reversed within 90 days of such event, provided that such party or its operations are not responsible for the occurrence of such OSI Material Adverse Effect;
(b) By any party hereto if the Effective Time shall not have occurred on or before May 31, 2001 (unless the Effective Time has not occurred as the result of a breach of the terms hereof by the party desiring to exercise the termination right);
(c) By any party hereto if a final unappealable order to restrain, enjoin or otherwise prevent, or awarding substantial damages in connection with, consummation of this Combination Agreement or the transactions contemplated in connection herewith shall have been entered;
(d) By the Board of Directors of any two of OSI, HWC, Sooner or
PTI.
SECTION 13.2 EFFECT OF TERMINATION. In the event of any termination of this Combination Agreement pursuant to Section 13.1, the parties hereto shall have no obligation or liability to any other party hereto except the provisions of this Section and Sections 11.4, 13.3, 14.5, 14.6, 14.8, 14.9 and 14.10 hereof shall survive any such termination and, except as provided in this Section 13.2, all documents executed in connection with this Combination Agreement shall be null and void.
SECTION 13.3 FEES AND EXPENSES. The aggregate costs and expenses incurred by all parties hereto in connection with this Combination Agreement and the transactions contemplated herein shall be paid or reimbursed, as the case may be, by the parties hereto in accordance with the following percentages: OSI -- 26.2%; HWC -- 22.8%; Sooner -- 22.6% and PTI -- 28.4%.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 WAIVER AND AMENDMENT. Any provision of this Combination Agreement may be waived at any time by the party that is, or whose stockholders are, entitled to the benefits thereof by action of the board of directors of such party. This Combination Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of each party hereto; provided, that after this Combination Agreement has been approved and adopted by the respective shareholders of the parties hereto, this Combination Agreement may be amended only as may be permitted by applicable provisions of the TBCA, the DGCL and the ABCA.
SECTION 14.2 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation and warranty made in this Combination Agreement shall survive the Effective Time. This Section 14.2 shall not limit the term of any covenant or agreement which by its terms contemplates performance after the Effective Time.
SECTION 14.3 ASSIGNMENT. This Combination Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, devisees and assigns. Except as set forth in this Combination Agreement, this Combination Agreement shall not be assignable until after the Closing Date (except by inheritance or devise) by the parties hereto, except with the prior written consent of the other parties.
SECTION 14.4 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered if delivered in person, by cable, telegram, telex, or telecopy and shall be deemed to have been duly given three business days after deposit with a United States post office if delivered by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows:
if to OSI:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor
Telephone: (713) 652-0588
Facsimile: (713) 652-0499
with a copy to:
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas, 75201
Attention: Maury Purnell
Telephone: (214) 740-8000
Facsimile: (214) 740-8800
if to HWC:
HWC Energy Services, Inc.
811 Dallas, Suite 1322
Houston, Texas 77002
Attention: Rob Hampton Telephone: (713) 750-0600 Facsimile: (713) 750-0058
with a copy to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P 201 St. Charles Avenue
New Orleans, Louisiana 70170 Attention: Bill Masters Telephone: (504) 582-8000 Facsimile: (504) 582-8549
if to Sooner:
Sooner Inc.
1221 Lamar Street, Suite 1010
Houston, Texas 77010
Attention: Chris Cragg
Telephone: (713) 759-1200
Facsimile: (713) 759-0442
with a copy to:
Scott F. Zarrow
900 Mid-Continent Tower
401 S. Boston
Tulsa, Oklahoma 74103
Telephone: (918) 295-8054
Facsimile: (918) 295-8048
if to PTI:
PTI Group Inc.
3050 Parsons Road NW
Edmonton, Alberta T6N 1B1
Canada
Attention: Ian Morris
Telephone: (780) 463-8872
Facsimile: (780) 463-3109
with a copy to:
Fraser Milner Casgrain
2900 Manulife Place 10180 101 Street
Edmonton, Alberta T5J 3V5
Canada
Attention: Rich Miller
Telephone: (780) 423-7242
Facsimile: (780) 423-7276
or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt.
SECTION 14.5 GOVERNING LAW. This Combination Agreement shall be governed by and construed in accordance with the provisions of the ABCA, TBCA and DGCL, as appropriate, with respect to the Mergers and, with respect to other matters, in accordance with the substantive law of the State of Texas without giving effect to the principles of conflicts of law thereof.
SECTION 14.6 SEVERABILITY. If any term or other provisions of this Combination Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Combination Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner material to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Combination Agreement so as to effect the original intent of the parties as closely as possible.
SECTION 14.7 COUNTERPARTS. This Combination Agreement may be executed in counterparts, each of which shall be an original document, but all of which together shall constitute one and the same agreement.
SECTION 14.8 HEADINGS. The Section headings herein are for convenience only and are not intended to be part of or to affect the meaning or interpretation of the Agreement.
SECTION 14.9 ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Combination Agreement were not
performed in accordance with their specific terms or otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to any injunction or injunctions to prevent breaches of this Combination Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedies to which they are entitled at law or in equity. In addition, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal or state court sitting in the State of Texas in the event any dispute arises out of this Combination Agreement and agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court.
SECTION 14.10 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Combination Agreement, including the exhibits hereto and the documents, information supplied in writing, and instruments referred to herein, constitute the entire agreement and supersedes all other prior agreements, and understandings, both oral and written, among the parties or any of them, with respect to the subject matter hereof. This Combination Agreement shall be binding upon and inure solely to the benefit of the parties hereto, and nothing in this Combination Agreement, including the exhibits hereto and the documents, information supplied in writing, and instruments referred to herein, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Combination Agreement.
IN WITNESS WHEREOF, the parties to this Combination Agreement have caused it to be duly executed as of the date first above written.
OIL STATES INTERNATIONAL, INC.
By: /s/ Douglas E. Swanson
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Name: Douglas E. Swanson
-------------------------------------
Title: President & CEO
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|
HWC ENERGY SERVICES, INC.
By: /s/ Jay Trahan
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Name: Jay Trahan
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Title: President
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|
MERGER SUB-HWC, INC.
By: /s/ Douglas E. Swanson
---------------------------------------
Name: Douglas E. Swanson
-------------------------------------
Title: President
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|
SOONER INC.
By: /s/ Mike Chaddick
---------------------------------------
Name: Mike Chaddick
-------------------------------------
Title: COO
------------------------------------
|
MERGER SUB-SOONER, INC.
By: /s/ Douglas E. Swanson
---------------------------------------
Name: Douglas E. Swanson
-------------------------------------
Title: President
------------------------------------
|
PTI GROUP INC.
By: /s/ Sandy Slator
---------------------------------------
Name: R. A. (Sandy) Slator
-------------------------------------
Title: President & CEO
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|
EXHIBIT A
PTI PLAN OF ARRANGEMENT
EXHIBIT A
TO THE COMBINATION AGREEMENT
PLAN OF ARRANGEMENT PROPOSED BY PTI
UNDER SECTION 186
OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
INVOLVING AND AFFECTING
PTI AND THE HOLDERS OF ITS COMMON SHARES AND OPTIONS
AND PTI AMALCO AND THE HOLDERS OF ITS SHARES
AND PTI HOLDCO AND THE HOLDERS OF ITS SHARES
AND OSI
AND OSI ULC
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:
"ABCA" means the Business Corporations Act (Alberta), as amended;
"Amalgamation" means the amalgamation of PTI and PTI Amalco provided for in Section 2.1(b) hereof;
"Amalgamation Agreement" means the agreement attached hereto as Appendix A, setting forth the terms and conditions of the Amalgamation;
"Arrangement" means the arrangement under section 186 of the ABCA on the terms and subject to the conditions set out in this Plan of Arrangement, subject to any amendments thereto made (i) in accordance with Section 14.1 of the Combination Agreement; (ii) in accordance with Section 5.1 hereof or (iii) at the direction of the Court in the Final Order;
"Arrangement Resolution" means the special resolution passed by the Shareholders and the Optionholders at the Meeting or a resolution in writing signed by all of the Shareholders and Optionholders in lieu of the Meeting;
"Automatic Redemption Date" has the meaning provided in the Exchangeable Share Provisions;
"Business Day" has the meaning provided in the Exchangeable Share Provisions;
"Class A Common Shares" means Class A Common Shares in the capital of New PTI;
"Class B Common Shares" means Class B Common Shares in the capital of New PTI;
"Class C Common Shares" means Class C Common Shares in the capital of New PTI;
"Class D Common Shares" means Class D Common Shares in the capital of New PTI;
"Combination Agreement" means the combination agreement by and among OSI, HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger Sub-Sooner, Inc. and PTI dated as of July o, 2000, as amended and restated from time to time, providing for, among other things, this Plan of Arrangement and the Arrangement;
"Court" means the Court of Queen's Bench of Alberta;
"Depositary" means Montreal Trust Company of Canada at its principal transfer offices in Calgary, Alberta;
"Dissent Procedures" has the meaning provided in Section 3.1;
"Effective Date" means the registration date shown on the registration statement issued upon the filing of the Articles of Arrangement under the ABCA giving effect to the Arrangement;
"Effective Time" means 6:00 a.m. (Edmonton time) on the Effective Date;
"Eligible Holders" has the meaning in Section 2.2(a);
"Exchange Ratio" means 3.7731 Exchangeable Shares for each whole PTI Common Share, subject to adjustment as provided in accordance with Section 4.2 of the Combination Agreement;
"Exchangeable Share Provisions" means the rights, privileges, restrictions and conditions attaching to the Exchangeable Shares as set forth in Appendix B hereto;
"Exchangeable Shares" means the Exchangeable Shares in the capital of PTI Holdco;
"Final Order" means the final order of the Court approving the Arrangement, as such order may be amended by the Court at any time and from time to time prior to the Effective Time;
"Interim Order" means the interim order of the Court in relation to the Arrangement, as such order may be amended by the Court at any time and from time to time;
"ITA" means the Income Tax Act (Canada), as amended;
"Measurement Period" means the period of 10 consecutive Business Days ending on the third trading day prior to the OSI IPO Date;
"Meeting" means the special meeting of the Shareholders and of the Optionholders of PTI to be held, if required, to consider this Plan of Arrangement;
"New PTI" means PTI Group Inc. a corporation amalgamated under the ABCA pursuant to the Arrangement;
"New PTI Shares" means the Class A Common Shares, the Class B Common Shares, the Class C Common Shares and the Class D Common Shares;
"Non-Accredited U.S. PTI Shareholder" means Peter McEwen, a Shareholder;
"Option Agreements" mean the agreements between PTI and certain directors and officers of PTI governing the Options;
"Optionholders" means holders of Options;
"Options" means all options to purchase PTI Common Shares outstanding immediately prior to the Effective Date;
"OSI" means Oil States International, Inc., a corporation organized and existing under the laws of Delaware and any successor corporation;
"OSI Common Stock" has the meaning provided in the Exchangeable Share Provisions;
"OSI IPO" means the initial public offering of OSI Common Stock;
"OSI IPO Date" means the date the OSI IPO is completed;
"OSI IPO Price" means the price per share at which OSI Common Stock is initially offered for sale to the public under the OSI IPO;
"OSI ULC" means o, an unlimited liability company organized and existing under the laws of Nova Scotia and any successor corporation;
"PTI" means PTI Group Inc., a corporation organized and existing under the laws of Alberta;
"PTI Amalco" means o, a corporation organized and existing under the laws of Alberta and a wholly-owned subsidiary of PTI Holdco;
"PTI Amalco Common Shares" means the common shares in the capital of PTI Amalco;
"PTI Common Shares" means the common shares in the capital of PTI;
"PTI Holdco" means o, a corporation organized and existing under the laws of Alberta and a wholly-owned subsidiary of OSI ULC prior to giving effect to the Arrangement, and any successor corporation;
"PTI Holdco Sub" means o, a corporation organized and existing under the laws of Alberta and a wholly-owned subsidiary of PTI Holdco, and any successor corporation;
"Proxy Statement" means the Management Information Circular and Proxy Statement of PTI prepared in connection with the Arrangement;
"RJM" means R.J.M. Equities Inc., a Shareholder;
"Shareholders" means holders of PTI Common Shares;
"Support Agreement" means the agreement so entitled between OSI and PTI Holdco to be dated as of the Effective Date and provided for in the Combination Agreement;
"Transfer Agent" means the duly appointed transfer agent for the time being of the Exchangeable Shares, and, if there is more than one such transfer agent, then the principal Canadian transfer agent;
"Unanimous Shareholder Agreement" means the Unanimous Shareholder Agreement dated January 8, 1997 made among the Shareholders and PTI, as amended;
"U.S. PTI Shareholders" means SCF-III, L.P. and William Nungesser, each a Shareholder.
"Voting and Exchange Trust Agreement" means the agreement so entitled between OSI, PTI Holdco and the Trustee named therein to be dated as of the Effective Date and provided for in the Combination Agreement;
"Voting Share" has the meaning ascribed to such term in the Voting and Exchange Trust Agreement; and
"812375" means 812375 Alberta Ltd., a Shareholder.
1.2 SECTIONS, HEADINGS AND APPENDICES
The division of this Plan of Arrangement into sections and the insertion of headings are for reference purposes only and shall not affect the interpretation of this Plan of Arrangement. Unless otherwise indicated, any reference in this Plan of Arrangement to a section refers to the specified section of this Plan of Arrangement. Appendix A is incorporated into and forms an integral part of this Plan of Arrangement.
1.3 NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words importing the singular number include the plural and vice versa, words importing any gender include all genders and words importing persons include individuals, bodies corporate, partnerships, associations, trusts, unincorporated organizations, governmental bodies and other legal or business entities of any kind.
1.4 DATE FOR ANY ACTION
In the event that any date on or by which any action is required or permitted to be taken hereunder is not a Business Day, such action shall be required or permitted to be taken on or by the next succeeding day which is a Business Day.
1.5 CURRENCY
Unless otherwise expressly stated herein, all references to currency and payments in cash or money in this Plan of Arrangement are to United States dollars.
1.6 STATUTORY REFERENCES
Any reference in this Plan of Arrangement to a statute includes such statute as amended, consolidated or re-enacted from time to time, all regulations made thereunder, all amendments to such regulations from time to time, and any statute or regulation which supersedes such statute or regulations.
ARTICLE 2
ARRANGEMENT
2.1 ARRANGEMENT
At the Effective Time, the following transactions shall occur and shall be deemed to occur in the following order without any further act or formality:
(a) each Shareholder who has duly exercised the right of dissent as set forth in Article 3 shall be deemed to have transferred the PTI Common Shares held by such holder to PTI for cancellation and such shares shall be cancelled and any Options held by such Shareholder which have not been exercised prior to the time such Shareholder exercises such right of dissent shall be deemed to be transferred to PTI for no consideration and shall be cancelled and shall no longer be outstanding and in no case shall PTI or OSI be required to recognize such holders as Optionholders on and after the Effective Time and the names of such persons shall be deleted from the registers of Optionholders at the Effective Time;
(b) the Unanimous Shareholder Agreement shall be terminated and of no further force or effect;
(c) OSI shall acquire:
(i) all of the PTI Common Shares held by the Non-Accredited U.S. PTI Shareholder in exchange for a payment, in United States dollars, equal to the OSI IPO Price less underwriters' discounts and commissions applicable to the OSI IPO, multiplied by the Exchange Ratio multiplied by the number of PTI Common Shares held by the Non-Accredited U.S. PTI Shareholder; and
(ii) all of the PTI Common Shares held by the U.S. PTI Shareholders in exchange for the number of shares of OSI Common Stock equal to the Exchange Ratio for each whole PTI Common Share;
(d) OSI ULC shall acquire all of the PTI Common Shares acquired by OSI pursuant to Section 2.1(c) hereof in exchange for one common share in the capital of OSI ULC for each whole PTI Common Share;
(e) PTI Holdco shall acquire all of the PTI Common Shares acquired by OSI ULC pursuant to Section 2.1(d) hereof in exchange for one common share in the capital of PTI Holdco for each whole PTI Common Share;
(f) PTI and PTI Amalco shall be amalgamated pursuant to the Amalgamation Agreement to form New PTI;
(g) Upon the amalgamation of PTI and PTI Amalco to form New PTI:
(i) New PTI shall issue to PTI Holdco one Class A Common Share for each of its PTI Common Shares;
(ii) New PTI shall issue to PTI Holdco one Class A Common Share for each of its PTI Amalco Common Shares;
(iii) New PTI shall issue to 812375 one Class B Common Share for each of its PTI Common Shares;
(iv) New PTI shall issue to RJM one Class C Common Share for each of its PTI Common Shares;
(v) New PTI shall issue to each of the Shareholders other than 812375, RJM, PTI Holdco and holders of PTI Common Shares in respect of which rights of dissent have been exercised pursuant to Article 3 hereof and which have been cancelled pursuant to Section 2.1(a) hereof one Class D Common Share for each of their PTI Common Shares;
(vi) the amount added to the stated capital account maintained
for the Class A Common Shares with respect to the Class A
Common Shares issued pursuant to Sections 2.1(g)(i) and
(ii) shall be equal to the paid-up capital, for the
purposes of the ITA, of the PTI Common Shares and the PTI
Amalco Common Shares held by PTI Holdco;
(vii) the amount added to the stated capital account maintained for the Class B Common Shares with respect to the Class B Common Shares issued pursuant to Section 2.1(g)(iii) shall be equal to the paid-up capital, for the purposes of the ITA, of the PTI Common Shares held by 812375;
(viii) the amount added to the stated capital account maintained for the Class C Common Shares issued pursuant to Section 2.1(g)(iv) shall be equal to the
paid-up capital, for the purposes of the ITA, of the PTI Common Shares held by RJM;
(ix) the amount added to the stated capital account maintained for the Class D Common Shares with respect to the Class D Common Shares issued pursuant to Section 2.1(g)(v) shall be equal to the paid-up capital, for the purposes of the ITA, of the PTI Common Shares other than (A) the PTI Common Shares held by PTI Holdco, 812375 and RJM and (B) PTI Common Shares in respect of which rights of dissent have been exercised pursuant to Article 3 hereof and which have been cancelled pursuant to Section 2.1(a) hereof.
(h) The stated capital account maintained for (i) the Class B Common
Shares shall be increased by a portion of the amount credited to
New PTI's retained earnings account equal to [$6,794,359] and
(ii) the Class C Common Shares shall be increased by a portion of
the amount credited to New PTI's retained earnings account equal
to [$3,903,303];
(i) The Articles of Incorporation of PTI Holdco shall be amended to add (i) the Exchangeable Shares to the authorized capital of PTI Holdco, (ii) the Exchangeable Share Provisions and (iii) certain other provisions, set forth in Exhibit B to the Combination Agreement and to delete the private company provisions;
(j) OSI and PTI Holdco shall execute and deliver the Support Agreement;
(k) OSI, PTI Holdco and the Trustee shall execute and deliver the Voting and Exchange Trust Agreement;
(l) PTI Holdco shall acquire all of the issued and outstanding Class B Common Shares from the holders thereof in exchange for the number of Exchangeable Shares equal to the Exchange Ratio for each whole Class B Common Share;
(m) PTI Holdco shall acquire all of the issued and outstanding Class C Common Shares from the holders thereof in exchange for the number of Exchangeable Shares equal to the Exchange Ratio for each whole Class C Common Share;
(n) PTI Holdco shall acquire all of the issued and outstanding Class D Common Shares from the holders thereof in exchange for the number of Exchangeable Shares equal to the Exchange Ratio for each whole Class D Common Share;
(o) The amount added to the stated capital account maintained for the Exchangeable Shares with respect to the Exchangeable Shares issued pursuant to Section 2.1(l) shall be equal to the paid up capital, for the purposes of the ITA, of the Class B Common Shares;
(p) The amount added to the stated capital account maintained for the Exchangeable Shares with respect to the Exchangeable Shares issued pursuant to Section 2.1(m)
shall be equal to the paid up capital, for the purposes of the ITA, of the Class C Common Shares;
(q) The amount added to the stated capital account maintained for the Exchangeable Shares with respect to the Exchangeable Shares issued pursuant to Section 2.1(n) shall be equal to the paid up capital, for the purposes of the ITA, of the Class D Common Shares;
(r) Upon the transfer of New PTI Shares referred to in paragraphs
(l), (m) and (n) above:
(i) each holder of New PTI Shares shall cease to be such a holder, shall have his name removed from the register of holders of New PTI Shares and shall become a holder of the number of fully paid Exchangeable Shares to which he is entitled as a result of the transfer referred to above and such holder's name shall be added to the register of holders of Exchangeable Shares accordingly; and
(ii) PTI Holdco shall become the legal and beneficial owner of all of the New PTI Shares so transferred.
(s) OSI shall issue to and deposit with the Depositary the Voting Share in consideration of the payment to OSI of US$1, to be thereafter held by the Depositary as trustee for and on behalf of, and for the use and benefit of, the holders of the Exchangeable Shares, in accordance with the Voting and Exchange Trust Agreement.
(t) The then outstanding Options will, without any further action on the part of any Optionholder: (i) if applicable, vest in accordance with the terms and conditions of the Option Agreements, and (ii) be converted into or exchanged for an option to purchase the number of shares of OSI Common Stock determined by multiplying the number of PTI Common Shares subject to such Option at the Effective Time by the Exchange Ratio, at an exercise price per share of OSI Common Stock equal to the exercise price per share of such Option immediately prior to the Effective Time divided by the Exchange Ratio, and expressed in U.S. dollars. For the purposes of determining the exercise price per share of OSI Common Stock, the exercise price per share of PTI Common Shares subject to such Option shall be adjusted using the Canadian dollar exchange rate based upon the average of the noon buying rate expressed to the fourth decimal place for each of the Business Days in the Measurement Period as reported by the Bank of Canada. If the foregoing calculation results in a converted Option being exercisable for a fraction of a share of OSI Common Stock, then the number of shares of OSI Common Stock subject to such Option will be rounded down to the nearest whole number of shares, and the exercise price per whole share of OSI Common Stock will be as determined above. The obligations of PTI under the Options as so converted shall be assumed by OSI and OSI shall be substituted for PTI under the Option Agreements. Except as provided in this paragraph (d), the
term and all other terms and conditions of the Options in effect immediately prior to giving effect to the Arrangement shall govern the Options.
(u) PTI Holdco Sub shall acquire all of the issued and outstanding New PTI Shares from PTI Holdco in exchange for an equal number of common shares in the capital of PTI Holdco Sub.
2.2 TAX MATTERS
(a) Holders of Exchangeable Shares who acquired them pursuant to the transfers referred to above (the "Eligible Holders") shall be entitled to make an election pursuant to subsection 85(1) of the ITA and any corresponding applicable provincial legislation with respect to the transfer of their New PTI Shares to PTI Holdco as provided above by providing two signed copies of the necessary election forms to PTI Holdco within 90 days following the Effective Date, duly completed with the details of the number of shares transferred, the adjusted cost base of those shares and such agreed amounts as shall be determined by the Eligible Holders for the purposes of such elections. Thereafter, subject to the election forms complying with the provisions of the ITA and any corresponding applicable provincial legislation, the forms will be signed by PTI Holdco and returned to the Eligible Holders within 30 days of receipt of such elections by PTI Holdco for filing with Canada Customs and Revenue Agency or any corresponding applicable provincial agency.
(b) The applicable agreed amount for the purposes of any election to be made in accordance with Section 2.2(a) must comply with the following rules:
(i) the agreed amount may not be less than the fair market value, on the Effective Date, of the consideration (other than Exchangeable Shares) received by an Eligible Holder for the disposition to PTI Holdco of the New PTI Shares to which the election applies;
(ii) the agreed amount may not be less than the lesser of (A) the adjusted cost base to the Eligible Holder of the New PTI Shares to which the election applies, determined immediately before the time of the exchange, and (B) the fair market value of such New PTI Shares at that time;
(iii) the agreed amount may not exceed the fair market value of the New PTI Shares to which the election applies at the time of the exchange.
ARTICLE 3
RIGHTS OF DISSENT
3.1 RIGHTS OF DISSENT
Registered Shareholders may exercise rights of dissent with respect to their PTI Common Shares pursuant to and in the manner set forth in section 184 of the ABCA (as modified by the
Interim Order) and this Section 3.1 (the "Dissent Procedures") in connection with the Arrangement, and holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for the PTI Common Shares shall be deemed to have transferred such PTI Common Shares to PTI for cancellation on the Effective Date; or
(b) are ultimately not entitled, for any reason, to be paid the fair value for their PTI Common Shares shall be deemed to have participated in the Arrangement on the same basis as any nondissenting Shareholder, as the case may be,
but in no case shall PTI be required to recognize such holders as Shareholders on and after the Effective Time, and the names of such persons shall be deleted from the registers of Shareholders at the Effective Time.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES
At or promptly after the Effective Time, PTI Holdco shall deposit with the Depositary, for the benefit of the Shareholders who ultimately exchanged their PTI Common Shares for Exchangeable Shares pursuant to the Arrangement, certificates representing the Exchangeable Shares issued pursuant to the Arrangement upon the exchange. Upon surrender to the Depositary of a certificate which immediately prior to the Effective Time represented outstanding PTI Common Shares, and such additional documents and instruments as the Depositary may reasonably require, the holder of such surrendered certificate shall be entitled to receive in exchange therefor, and the Depositary shall forthwith deliver to such holder, a certificate representing that number (rounded down to the nearest whole number) of Exchangeable Shares which such holder has the right to receive pursuant to the Arrangement (together with any dividends or distributions with respect thereto pursuant to Section 4.2 and any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.3), and any certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of PTI Common Shares which is not registered in the transfer records of PTI, a certificate representing the proper number of Exchangeable Shares (together with any dividends or distributions with respect thereto pursuant to Section 4.2 and any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.3) shall be delivered to a transferee if the certificate representing such PTI Common Shares is presented to the Depositary, accompanied by all documents required to evidence and effect such transfer. Until surrendered as contemplated by this Section 4.1, each certificate which immediately prior to the Effective Time represented outstanding PTI Common Shares shall be deemed at any time after the Effective Time, but subject to Section 4.8, to represent only the right to receive upon such surrender (a) the certificate representing Exchangeable Shares as contemplated by this Section 4.1, (b) a cash payment in lieu of any fractional Exchangeable Shares as contemplated by Section 4.3 and (c) any dividends or distributions with a record date after the Effective Time theretofore paid or payable with respect to Exchangeable Shares as contemplated by Section 4.2.
4.2 DIVIDENDS AND OTHER DISTRIBUTIONS
No dividends or other distributions declared or made after the
Effective Time with respect to the Exchangeable Shares with a record date after
the Effective Time shall be paid to the holder of any formerly outstanding PTI
Common Shares which were not exchanged pursuant to Section 2.1, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 4.3 (and no interest will be earned and payable thereon), unless and
until the certificate representing such PTI Common Shares shall be surrendered
in accordance with Section 4.1. Subject to applicable law and to Section 4.8, at
the time of such surrender of any such certificate (or, in the case of clause
(c) below, at the appropriate payment date), there shall be paid to the holder
of the Exchangeable Shares resulting from such exchange, in all cases without
interest, (a) the amount of any cash payable in lieu of a fractional
Exchangeable Share to which such holder is entitled pursuant to Section 4.3, (b)
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such Exchangeable Shares, and
(c) the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such Exchangeable Shares.
4.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional Exchangeable Shares
shall be issued upon the surrender for exchange of certificates pursuant to
Section 4.1, and such fractional interests shall not entitle the owner thereof
to vote or to possess or exercise any rights as a security holder of PTI Holdco.
In lieu of any such fractional interests, each person entitled thereto will
receive an amount of cash (rounded to the nearest whole cent), without interest,
equal to the product of (a) such fractional interest, multiplied by (b) the OSI
IPO Price, such amount to be provided to the Depositary by PTI Holdco upon
request.
4.4 ISSUANCE OF CERTIFICATES REPRESENTING OSI COMMON STOCK
At or promptly after the Effective Time, OSI shall deposit with the
Depositary, for the benefit of the U.S. PTI Shareholders who ultimately
exchanged their PTI Common Shares for shares of OSI Common Stock pursuant to
Section 2.1(c) of the Arrangement, certificates representing the shares of OSI
Common Stock issued pursuant to the Arrangement upon the exchange. Upon
surrender to the Depositary of a certificate which immediately prior to the
Effective Time represented outstanding PTI Common Shares, and such additional
documents and instruments as the Depositary may reasonably require, the holder
of such surrendered certificate shall be entitled to receive in exchange
therefor, and the Depositary shall forthwith deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of shares of OSI Common Stock which such holder has the right to receive
pursuant to Section 2.1(c) of the Arrangement (together with any dividends or
distributions with respect thereto pursuant to Section 4.5 and any cash in lieu
of fractional Exchangeable Shares pursuant to Section 4.6), and any certificate
so surrendered shall forthwith be canceled. Until surrendered as contemplated by
this Section 4.4, each certificate held by a U.S. PTI Shareholder which
immediately prior to the Effective Time represented outstanding PTI Common
Shares shall be deemed at any time after the Effective Time, but subject to
Section 4.8, to represent only the right to receive upon such surrender (a) the
certificate representing shares of OSI Common Stock as contemplated by this
Section 4.4, (b) a cash payment in lieu of any fractional share of OSI Common
Stock
as contemplated by Section 4.6 and (c) any dividends or distributions with a record date after the Effective Time theretofore paid or payable with respect to OSI Common Stock as contemplated by Section 4.5.
4.5 DIVIDENDS AND OTHER DISTRIBUTIONS
No dividends or other distributions declared or made after the Effective Time with respect to the OSI Common Stock with a record date after the Effective Time shall be paid to the U.S. PTI Shareholder of any formerly outstanding PTI Common Shares which were not exchanged pursuant to Section 2.1, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 4.6 (and no interest will be earned and payable thereon), unless and until the certificate representing such PTI Common Shares shall be surrendered in accordance with Section 4.4. Subject to applicable law and to Section 4.8, at the time of such surrender of any such certificate (or, in the case of clause (c) below, at the appropriate payment date), there shall be paid to the holder of the shares of OSI Common Stock resulting from such exchange, in all cases without interest, (a) the amount of any cash payable in lieu of a fractional share of OSI Common Stock to which such holder is entitled pursuant to Section 4.6, (b) the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such OSI Common Stock, and (c) the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such OSI Common Stock.
4.6 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of OSI Common stock shall be issued upon the surrender for exchange of certificates pursuant to Section 4.4, and such fractional interests shall not entitle the owner thereof to vote or to possess or exercise any rights as a security holder of OSI. In lieu of any such fractional interests, each U.S. PTI Shareholder entitled thereto will receive an amount of cash (rounded to the nearest whole cent), without interest, equal to the product of (a) such fractional interest, multiplied by (b) the OSI IPO Price, such amount to be provided to the Depositary by OSI upon request.
4.7 LOST CERTIFICATES
If any certificate which immediately prior to the Effective Time
represented outstanding PTI Common Shares which were exchanged pursuant to
Section 2.1 has been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such certificate to be lost, stolen or
destroyed, the Depositary will issue in exchange for such lost, stolen or
destroyed certificate, certificates representing Exchangeable Shares (together
with any dividends or distributions with respect thereto pursuant to Section 4.2
and any cash in lieu of a fractional Exchangeable Share pursuant to Section 4.3)
or, in the case of a U.S. PTI Shareholder, certificates representing shares of
OSI Common Stock (together with any dividends or distributions with respect
thereto pursuant to Section 4.5 and any cash in lieu of a fractional share of
OSI Common Stock pursuant to Section 4.6) deliverable in respect thereof as
determined in accordance with Section 2.1. When seeking such certificate and
payment in exchange for any lost, stolen or destroyed certificate, the person to
whom certificates
representing Exchangeable Shares are to be issued shall, as a condition precedent to the issuance thereof, give a bond satisfactory to PTI Holdco, OSI and the Transfer Agent, as the case may be, in such sum as PTI Holdco or OSI may direct or otherwise indemnify PTI Holdco, OSI and the Transfer Agent in a manner satisfactory to PTI Holdco, OSI and the Transfer Agent against any claim that may be made against PTI Holdco, OSI or the Transfer Agent with respect to the certificate alleged to have been lost, stolen or destroyed.
4.8 EXTINGUISHMENT OF RIGHTS
Any certificate which immediately prior to the Effective Time
represented outstanding PTI Common Shares which were exchanged pursuant to
Section 2.1 and has not been deposited, with all other instruments required by
Section 4.1, on or prior to the sixth anniversary of the Effective Date shall
cease to represent a claim or interest of any kind or nature as a Shareholder or
a holder of Exchangeable Shares or shares of OSI Common Stock. On such date, (a)
the Exchangeable Shares (and any dividends or distributions with respect thereto
and any cash pursuant to Section 4.3) to which the former registered holder of
the certificate referred to in the preceding sentence (other than a U.S. PTI
Shareholder) was ultimately entitled (or, if the Automatic Redemption Date has
occurred, the resulting shares of OSI Common Stock) shall be deemed to have been
surrendered to PTI Holdco (or, in the event that the Automatic Redemption Date
has occurred, OSI), together with all entitlements to dividends, distributions,
cash and interest thereon held for such former registered holder, for no
consideration and such shares shall thereupon be canceled and the name of the
former registered holder shall be removed from the register of holders of such
shares; (b) the shares of OSI Common Stock (and any dividends or distributions
with respect thereto and any cash pursuant to Section 4.6) to which the former
U.S. PTI Shareholder referred to in the preceding sentence was ultimately
entitled shall be deemed to have been surrendered to OSI, together with all
entitlements to dividends, distributions, cash and interest thereon held for
such former U.S. PTI Shareholder for no consideration and such shares shall
thereupon be cancelled and the name of the former U.S. PTI Shareholder shall be
removed from the register of holders of such shares.
ARTICLE 5
AMENDMENT
5.1 PLAN OF ARRANGEMENT AMENDMENT
PTI reserves the right to amend, modify and/or supplement this Plan of Arrangement from time to time at any time prior to the Effective Time provided that any such amendment, modification or supplement must be contained in a written document that is (a) agreed to by OSI and PTI Holdco, (b) filed with the Court and, if made following the Meeting, approved by the Court and (c) communicated to Shareholders and Optionholders in the manner required by the Court (if so required).
Any amendment, modification or supplement to this Plan of Arrangement may be proposed by PTI at any time prior to or at the Meeting (provided that OSI and PTI Holdco shall have consented thereto) with or without any other prior notice or communication, and if so proposed and accepted by the persons voting at the Meeting (other than as may be required under the Interim Order), shall become part of this Plan of Arrangement for all purposes.
Any amendment, modification or supplement to this Plan of Arrangement which is approved by the Court following the Meeting shall be effective only (a) if it is consented to by PTI, (b) if it is consented to by OSI and PTI Holdco and (c) if required by the Court or applicable law, it is consented to by the Shareholders, Optionholders or the holders of Exchangeable Shares, as the case may be.
Notwithstanding the foregoing, this Plan of Arrangement may be amended in the manner contemplated by Section 11.9(d) of the Combination Agreement prior to, at or following the Meeting and prior to or following the approval of this Plan of Arrangement by the Court without notice to or the consent or approval of the Shareholders, Optionholders, holders of Exchangeable Shares, or the Court.
APPENDIX A
TO THE PLAN OF ARRANGEMENT
THIS AGREEMENT OF AMALGAMATION is made this o day of o, 2000
AMONG:
PTI GROUP INC., a corporation, amalgamated under the laws of the Province of Alberta (herein called "PTI")
OF THE FIRST PART
- and -
o ALBERTA INC., a corporation incorporated under the laws of the Province of Alberta (herein called "PTI Amalco")
OF THE SECOND PART.
RECITALS:
A. As part of an arrangement involving PTI, PTI Amalco and PTI Holdco Inc. ("PTI Holdco") (the "Arrangement") under Section 186 of the Business Corporations Act (Alberta) being Chapter B-15 of the Statutes of Alberta, 1981 (the "Act") pursuant to a Plan of Arrangement (the "Plan") which was approved by an order of the Court of Queen's Bench of Alberta on the o day of o, 2000, PTI and PTI Amalco (herein sometimes referred to jointly as the "Amalgamating Corporations" and either one of which may hereinafter be referred to as an "Amalgamating Corporation"), each being a valid and subsisting corporation in good standing under the Act, have agreed to amalgamate upon the terms and conditions and in accordance with the mode of carrying the amalgamation into effect, as set out in the Plan and in this Agreement;
B. PTI was amalgamated under the laws of Alberta the 8th day of January, 1997;
C. PTI is authorized to issue an unlimited number of common shares (the "PTI Common Shares"), of which 7,798,900 PTI Common Shares are presently issued and outstanding as fully paid and non-assessable shares in the capital of PTI;
D. PTI Amalco was incorporated under the laws of the Province of Alberta on the o day of o, 2000 and is a wholly owned subsidiary of PTI Holdco;
E. PTI Amalco is authorized to issue an unlimited number of Common Voting Shares of which o Common Voting Shares are presently issued and outstanding as fully paid and non-assessable shares in the capital of PTI Amalco;
F. Each of the Amalgamating Corporations has made full disclosure to the other of all their respective assets and liabilities.
NOW THEREFORE THIS AGREEMENT WITNESSETH that for and in consideration of the mutual promises herein contained and other good and valuable consideration, the parties agree each with the other as follows:
1. The Amalgamating Corporations shall amalgamate and continue as one corporation (herein sometimes referred to as the "Amalgamated Corporation") under the provisions of the Act upon the terms and conditions, and in accordance with the mode of carrying the amalgamation into effect, as hereinafter set out;
2. The name of the Amalgamated Corporation shall be "PTI Group Inc.";
3. The Registered Office of the Amalgamated Corporation shall be 2900, 10180 - 101 Street, Edmonton, Alberta, T5J 3V5;
4. The Amalgamated Corporation shall be authorized to issue an unlimited number of Class A Common Shares, an unlimited number of Class B Common Shares, an unlimited number of Class C Common Shares and an unlimited number of Class D Common Shares of which o Class A Common Shares, o Class B Common Shares, o Class C Common Shares and o Class D Common Shares shall be issued and outstanding on the basis hereinafter set out;
5. There shall be no restrictions on the business the Amalgamated Corporation may carry on or on the powers of the Amalgamated Corporation may exercise;
6. The right to transfer shares of the Amalgamated Corporation shall be restricted in that no shares shall be transferred without the approval of the Board of Directors;
7. The number of shareholders of the Amalgamated Corporation exclusive of persons who are in its employment and exclusive of persons who, having been formerly in the employment of the Amalgamated Corporation, were, while in that employment, and have continued after the termination of that employment to be shareholders of the Amalgamated Corporation, is limited to not more than fifty, two or more persons who are the joint registered owners of one or more shares being counted as one shareholder;
8. Any invitation to the public to subscribe for any securities of the Amalgamated Corporation shall be prohibited;
9. Upon the amalgamation of the Amalgamating Corporations and their continuance as one corporation becoming effective:
(a) the Amalgamating Corporations' property shall continue to be the property of the Amalgamated Corporation;
(b) the Amalgamated Corporation shall continue to be liable for the Amalgamating Corporations' obligations;
(c) an existing cause of action, claim or liability to the prosecution relating to one or both of the Amalgamating Corporations shall be unaffected;
(d) a civil, criminal or administrative action or proceeding pending by or against one or both of the Amalgamating Corporations may be continued to be prosecuted by or against the Amalgamated Corporation;
(e) a conviction against, or ruling, order or judgment in favour of or against, one or both of the Amalgamating Corporations may be enforced by or against the Amalgamated Corporation; and
(f) the Amalgamated Corporation's articles of amalgamation shall be deemed to be its articles of incorporation and the Amalgamated Corporation's certificate of amalgamation shall be deemed to be its certificate of incorporation;
10. The names, occupations and places of residence of the first directors and officers of the Amalgamated Corporation shall be:
NAME AND OCCUPATION ADDRESS OFFICE HELD
------------------- ------- -----------
o o Director, President and Secretary
o o Director
|
11. The foregoing first directors shall hold office until the first meeting of shareholders of the Amalgamated Corporation, or until their successors are elected or appointed. Subject to the provisions of the Act and any unanimous shareholder agreement, the Board of Directors shall manage the business and affairs of the Amalgamated Corporation;
12. The Articles of Amalgamation of the Amalgamated Corporation shall be those attached hereto as Schedule "A";
13. Until repealed, amended, altered or added to, so far as applicable, the by-laws of PTI at the time of the Amalgamation becomes effective shall be the by-laws of the Amalgamated Corporation, a copy of which is attached hereto as Schedule "B";
14. The manner of converting the authorized and issued capital of each of the Amalgamating Corporations into that of the Amalgamated Corporation shall be as follows:
(a) the Amalgamated Corporation shall issue to PTI Holdco one Class A Common Share for each of its PTI Common Shares;
(b) the Amalgamated Corporation shall issue to PTI Holdco one Class A Common Share for each of its common shares in the capital of PTI Amalco;
(c) the Amalgamated Corporation shall issue to 812375 Alberta Ltd.
("812375") one Class B Common Share for each of its PTI Common
Shares;
(d) the Amalgamated Corporation shall issue to R.J.M. Equities Inc. ("RJM") one Class C Common Share for each of its PTI Common Shares;
(e) the Amalgamated Corporation shall issue to each of the holders of PTI Common Shares, other than 812375, RJM and PTI Holdco and holders of PTI Common Shares in respect of which rights of dissent have been exercised pursuant to Article 3 of the Plan and which have been cancelled pursuant to Section 2.1(a) thereof, one Class D Common Share for each of their PTI Common Shares;
15. The Arrangement has been considered and ratified by the holders of the shares of the Amalgamating Corporations and of PTI at special meetings called for this purpose or by resolutions in writing signed by all shareholders entitled to vote on that resolution, as the case may be; and
16. To the extent that there is any conflict or inconsistency between the terms of this Agreement and the Plan the terms of the Plan shall prevail and the terms of this Agreement shall be amended accordingly.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the day and year first written above.
PTI GROUP INC.
o ALBERTA INC.
SCHEDULE "A"
ARTICLES OF AMALGAMATED CORPORATION
A. The Corporation is authorized to issue an unlimited number of Class A Common Shares, Class B Common Shares, Class C Common Shares and Class D Common Shares having attached thereto the following rights, privileges, restrictions and conditions:
I. CLASS A COMMON SHARES
1.1 Dividends
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class A Common Shares, holders of Class A Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
1.2 Liquidation
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class A Common Shares, the holders of Class A Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation pro rata with the Class B Common, Class C Common and Class D Common Shares.
1.3 Voting
(i) The holders of the Class A Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Class A Common Share held.
II. CLASS B COMMON SHARES
1.1 Dividends
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class B Common Shares, holders of Class B Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
1.2 Liquidation
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class B Common Shares, the holders of Class B Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation pro rata with the Class A Common, Class C Common and Class D Common Shares.
1.3 Voting
(i) The holders of the Class B Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Class B Common Share held.
III. CLASS C COMMON SHARES
1.1 Dividends
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class C Common Shares, holders of Class C Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
1.2 Liquidation
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class C Common Shares, the holders of Class C Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation pro rata with the Class A Common, Class B Common and Class D Common Shares.
1.3 Voting
(i) The holders of the Class C Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Class C Common Share held.
IV. CLASS D COMMON SHARES
1.1 Dividends
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class D Common Shares, holders of Class D Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
1.2 Liquidation
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class D Common Shares, the holders of Class D Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation pro rata with the Class A Common, Class B Common and Class C Common Shares.
1.3 Voting
(i) The holders of the Class D Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Class D Common Share held.
SCHEDULE "B"
BY-LAW NUMBER 1
A BY-LAW RELATING GENERALLY
TO THE TRANSACTION OF THE
BUSINESS AND AFFAIRS OF
PTI GROUP INC.
PART I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS
In the By-laws, unless the context otherwise requires:
(a) "Act" means the Business Corporations Act (Alberta), .as amended, and all regulations under the Act in force from time to time;
(b) "appoint" includes elect and vice versa;
(c) "Articles" includes the original or restated articles of incorporation, articles of amendment, articles of amalgamation, articles of continuance, articles of reorganization, articles of arrangement, articles of dissolution and articles of revival of the Corporation, and any amendment to any of them;
(d) "Board" means the board of directors of the Corporation;
(e) "By-laws" means this by-law and all other by-laws of the Corporation from time to time in force;
(f) "Corporation" means PTI Group Inc.;
(g) "Director" means an individual who is duly elected or appointed as a director of the Corporation;
(h) "Indemnified Party" has the meaning set out in section 5.2 for purposes of that section;
(i) "Officer" means any officer of the Corporation appointed by the Board; and
(j) "Shareholder" means a shareholder of the Corporation.
SECTION 1.2 INTERPRETATION
In the By-laws, except if defined in section 1.1 or the context does not permit:
(a) words and expressions defined in the Act have the meaning given to them in the Act;
(b) words importing the singular include the plural and vice versa;
(c) words importing gender include masculine, feminine and neuter genders; and
(d) words importing persons include bodies corporate.
SECTION 1.3 HEADINGS
The headings used in the By-laws are inserted for convenience of reference only. The headings are not to be considered or taken into account in construing the terms of the By-laws nor are they to be deemed in any way to clarify, modify or explain the effect of any term of the By-laws.
SECTION 1.4 BY-LAWS SUBJECT TO THE ACT, ETC.
The By-laws are subject to the Act, any unanimous shareholder agreement relating to the Corporation and the Articles, in that order.
PART II
SHAREHOLDERS
SECTION 2.1 PLACE AND TIME OF MEETINGS
Meetings of Shareholders may be held at the place within Alberta and at the time the Board determines. A meeting of Shareholders may be held outside Alberta if all the Shareholders entitled to vote at that meeting agree to holding the meeting outside Alberta. A Shareholder who attends a meeting of Shareholders held outside Alberta is deemed to have agreed to holding the meeting outside Alberta, except when the Shareholder attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held.
SECTION 2.2 CALLING OF MEETINGS
The Board must call an annual meeting of Shareholders not later than 15 months after holding the last preceding annual meeting and may at any time call a special meeting of Shareholders to be held at the place within Alberta and at the time the Board determines.
SECTION 2.3 NOTICE OF MEETINGS
Notice of the time and place of a meeting of Shareholders must be sent not less than 21 days and not more than 50 days before the meeting:
(a) to each Shareholder entitled to vote at the meeting;
(b) to each Director; and
(c) to the auditor of the Corporation.
SECTION 2.4 NOTICE TO JOINT SHAREHOLDERS
If two or more persons are registered as joint holders of any share, notice to one of those persons is sufficient notice to all of them. A notice must be addressed to all those joint holders and the address to be used by the Corporation must be the address appearing in the securities register of the Corporation in respect of that joint holding or the first address appearing if there is more than one address.
SECTION 2.5 FAILURE TO GIVE NOTICE
The accidental failure to give notice of a meeting of Shareholders to any person entitled to a notice or any error in a notice not affecting its substance does not invalidate any action taken at the meeting to which the notice relates.
SECTION 2.6 WAIVER OF NOTICE
A Shareholder or any other person entitled to attend a meeting of Shareholders may waive, in any manner, notice of a meeting of Shareholders. Attendance of a Shareholder or other person at a
meeting of Shareholders is a waiver of notice of the meeting, except when the Shareholder or other person attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
SECTION 2.7 NOTICE OF ADJOURNED MEETINGS
With the consent of the Shareholders present at a meeting of Shareholders, the chairperson may adjourn that meeting to another fixed time and place. If a meeting of Shareholders is adjourned by one or more adjournments for an aggregate of less than 30 days, it is not necessary to give notice of the adjourned meeting, other than by verbal announcement at the time of the adjournment. If a meeting of Shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting must be given as for the original meeting.
SECTION 2.8 PERSONS ENTITLED TO BE PRESENT
The only persons entitled to be present at a meeting of Shareholders are:
(a) the Shareholders entitled to vote at the meeting;
(b) any individual authorized by a resolution of the directors or governing body of a body corporate or association which is a Shareholder entitled to vote at the meeting;
(c) the Directors and Officers;
(d) the auditor of the Corporation; and
(e) any others who, although not entitled to vote, are entitled or required under any provision of the Act, any unanimous shareholder agreement, the Articles or the By-laws to be present at the meeting.
Any other person may be admitted only on the invitation of the chairperson of the meeting or with the consent of the meeting.
SECTION 2.9 MEETING BY TELEPHONE
Any person described in paragraphs (a) through (e) of section 2.8 may participate in a meeting of the Shareholders by means of telephone or other communication facilities that permit all persons participating in the meeting to hear each other. A Shareholder participating in a meeting by means of telephone or other communication facilities is deemed to be present at the meeting.
SECTION 2.10 QUORUM
A quorum of Shareholders is present at a meeting of Shareholders if the holders of a majority of the shares entitled to vote at the meeting are present in person or represented by proxy.
SECTION 2.11 LOSS OF QUORUM
If a quorum is present at the opening of a meeting of Shareholders, the Shareholders present may proceed with the business of the meeting, even if a quorum is not present throughout the meeting.
SECTION 2.12 CHAIRPERSON
The chairperson of any meeting of Shareholders will be the first mentioned of the following Officers (if appointed) present at the meeting: Chairman of the Board, President, Senior Vice-President or any other Vice-President. If none of the Chairman of the Board, President or Senior Vice-President is present at the meeting, and if more than one Vice-President is present, the first Vice-President to arrive will be chairperson of the meeting. If none of the foregoing Officers is present, the Shareholders present and entitled to vote at the meeting may choose a chairperson from among those individuals present.
SECTION 2.13 PROCEDURE AT MEETINGS
The chairperson of any meeting of Shareholders will conduct the proceedings at the meeting in all respects. The chairperson's decision on any matter or thing relating to procedure, including, without limiting the generality of the foregoing, any question regarding the validity of any instrument of proxy, is conclusive and binding upon the Shareholders.
SECTION 2.14 VOTING
Voting at a meeting of Shareholders must be by a show of hands of those present in person or represented by proxy or by a verbal poll of those present by telephone or other communication facilities. If a ballot is required by the chairperson of the meeting or is demanded by a Shareholder or proxy entitled to vote at the meeting, either before or on. the declaration of the result of a vote by a show of hands or verbal poll, voting must be by ballot. A demand for a ballot may be withdrawn at any time before the ballot is taken. If a ballot is taken on a question, a prior vote on that question by show of hands or verbal poll has no effect. At every meeting a Shareholder present in person or represented by proxy or present by telephone or other communication facilities and entitled to vote has one vote on a show of hands and, subject to the Articles, one vote on a ballot for each share held.
SECTION 2.15 DECISION ON QUESTIONS
At every meeting of Shareholders all questions proposed for the consideration of Shareholders must be decided by the majority of votes, unless otherwise required by the Act or the Articles. In the case of an equality of votes, the chairperson does not, either on a show of hands or verbal poll or on a ballot, have a casting vote in addition to the vote or votes to which the chairperson may be entitled as a Shareholder or proxy.
SECTION 2.16 RESOLUTION IN LIEU OF MEETING
A resolution in writing signed by all the Shareholders entitled to vote on that resolution is as valid as if it had been passed at a meeting of the Shareholders. A resolution in writing may be signed in one or more counterparts, all of which together constitute the same resolution. A facsimile of a signed counterpart of a resolution in writing is as valid as an originally signed counterpart.
PART III
DIRECTORS
SECTION 3.1 NUMBER OF DIRECTORS
The Board consists of that number of Directors as the Shareholders may determine from time to time by ordinary resolution, but there must not be less than the minimum and not more than the maximum number of Directors permitted by the Articles at any one time.
SECTION 3.2 ELECTION AND TERM OF OFFICE
At each annual meeting of Shareholders at which an election of Directors is required, the Shareholders, by ordinary resolution, must elect Directors to hold office for a term expiring not later than the close of the next annual meeting of Shareholders following the election.
SECTION 3.3 CALLING OF MEETINGS
The Chairman of the Board, if any, the President or any Director may call a meeting of Directors. A meeting of Directors may be held at any place within the municipality in which the registered office of the Corporation is located or at any other place determined by the Board.
SECTION 3.4 NOTICE OF MEETINGS
Notice in writing of the time and place of a meeting of Directors must be sent to each Director not less than 48 hours before the time fixed for that meeting.
SECTION 3.5 FAILURE TO GIVE NOTICE
The accidental failure to give notice of a meeting of Directors to any Director entitled to a notice or any error in a notice not affecting its substance does not invalidate any action taken at the meeting to which the notice relates.
SECTION 3.6 WAIVER OF NOTICE
A Director may waive, in any manner, notice of a meeting of Directors. Attendance of a Director at a meeting of Directors is a waiver of notice of the meeting, except when the Director attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
SECTION 3.7 MEETINGS WITHOUT NOTICE
No notice of meeting need be given:
(a) to a newly elected Board following its election at an annual or special meeting of Shareholders; or
(b) for a meeting of Directors at which a Director is appointed to fill a vacancy in the Board,
if a quorum is present.
SECTION 3.8 MEETING BY TELEPHONE
If all the Directors consent, a Director may participate in a meeting of Directors or of a committee of Directors by means of telephone or other communication facilities that permit all persons participating in the meeting to hear each other. A Director participating in a meeting by means of telephone or other communication facilities is deemed to be present at the meeting.
SECTION 3.9 QUORUM
From time to time the Directors may fix the quorum for meetings of Directors or of a committee of Directors, but unless so fixed, a majority of the Directors or of a committee of Directors constitutes a quorum and, to the extent required by the Act, no business may be transacted unless at least one-half of the Directors present are resident Canadians.
SECTION 3.10 CHAIRPERSON OF MEETINGS
The chairperson of any meeting of Directors will be the first mentioned of the following Officers (if appointed) who is a Director and is present at the meeting: Chairman of the Board, President, Senior Vice-President or any other Vice-President. If none of the Chairman of the Board, President or Senior Vice-President is present at the meeting, and if more than one Vice-President is present, the first Vice-President to arrive will be chairperson of the meeting. If none of the foregoing Officers is present, the Directors present may choose one of their number to be chairperson of the meeting.
SECTION 3.11 DECISION ON QUESTIONS
At every meeting of Directors all questions proposed for the consideration of the Directors must be decided by the majority of votes. In the case of an equality of votes, the chairperson does not have a casting vote.
SECTION 3.12 RESOLUTION IN LIEU OF MEETING
A resolution in writing signed by all the Directors entitled to vote on that resolution at a meeting of Directors or committee of Directors is as valid as if it had been passed at a meeting of Directors or committee of Directors. A resolution in writing may be signed in one or more counterparts, all of which together constitute the same resolution. A facsimile of a signed counterpart of a resolution in writing is as valid as an originally signed counterpart.
SECTION 3.13 BORROWING POWER
Without authorization of the Shareholders, the Directors may authorize the Corporation to:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the Corporation;
(c) subject to section 42 of the Act, give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and
(d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation, owned or subsequently acquired, to secure any obligation of the Corporation.
The Directors, by resolution, may delegate to a Director, a committee of Directors or an Officer all or any of the powers conferred on them by this section.
SECTION 3.14 COMPENSATION
The Corporation may pay to the Directors the remuneration fixed by the Board and may reimburse the Directors in respect of transportation and other expenses actually incurred in attending meetings of the Directors or in otherwise performing the duties of their office.
PART IV
OFFICERS
SECTION 4.1 APPOINTMENT OF OFFICERS
The Directors may designate offices of the Corporation and appoint individuals to those offices as they consider advisable. No Officer need be a Director. The same individual may hold two or more offices of the Corporation.
SECTION 4.2 TERM OF OFFICE
All Officers are subject to removal by the Directors, with or without cause. An Officer may resign at any time by giving notice to the Board.
SECTION 4.3 DUTIES OF OFFICERS
Subject to any limitations imposed by the Act, any unanimous shareholder agreement or the Articles, an Officer has all the powers and authority and must perform all the duties usually incident to, or specified by the By-laws or the Board for, the office held.
PART V
LIABILITY AND INDEMNIFICATION
SECTION 5.1 LIMITATION OF LIABILITY
Every Director and Officer in exercising the powers and discharging the duties of office must act honestly and in good faith with a view to the best interests of the Corporation and must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. No Director or Officer is liable for:
(a) the acts, omissions or defaults of any other Director or Officer or an employee of the Corporation,
(b) any loss, damage or expense incurred by the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation,
(c) the insufficiency or deficiency of any security in or upon which any of the money of the Corporation is invested,
(d) any loss or damage arising from the bankruptcy, insolvency or tortious or criminal acts of any person with whom any of the Corporation's money is, or securities or other property are, deposited,
(e) any loss occasioned by any error of judgment or oversight, or
(f) any other loss, damage or misfortune which occurs in the execution of the duties of office or in relation to it,
unless occasioned by the wilful neglect or default of that Director or Officer. Nothing in this By-law relieves any Director or Officer of any liability imposed by the Act or otherwise by law.
SECTION 5.2 INDEMNITY
Subject to the Act, the Corporation indemnifies a Director or Officer, a former Director or Officer and a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor (the "Indemnified Parties") and the heirs and legal representatives of each of them, against all costs, charges and expenses, which includes, without limiting the generality of the foregoing, the fees, charges and disbursements of legal counsel on an as-between-a-solicitor-and-his-own-client basis and an amount paid to settle an action or satisfy a judgment, reasonably incurred by an Indemnified Party, or the heirs or legal representatives of an Indemnified Party, or both, in respect of any action or proceeding to which any of them is made a party by reason of an Indemnified Party being or having been a director or officer of the Corporation or that body corporate, if:
(a) the Indemnified Party acted honestly and in good faith with a view to the best interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the Indemnified Party had reasonable grounds for believing that the Indemnified Party's conduct was lawful.
The Corporation indemnifies an Indemnified Party and the heirs and legal representatives of an Indemnified Party in any other circumstances that the Act permits or requires. Nothing in this By-law limits the right of a person entitled to indemnity to claim indemnity apart from the provisions of this By-law.
SECTION 5.3 INSURANCE
The Corporation may purchase and maintain insurance for the benefit of a person referred to in section 5.2 against the liabilities and in the amounts the Act permits and the Board approves.
ENACTED by the board the _____ day of ______________, 2000.
APPENDIX B
TO THE PLAN OF ARRANGEMENT
SHARE CAPITAL AND OTHER PROVISIONS
TO BE INCLUDED IN THE
RESTATED ARTICLES OF INCORPORATION OF PTI HOLDCO
A. SHARE CAPITAL
PROVISIONS ATTACHING TO THE COMMON SHARES
The common shares ("Common Shares") in the capital of the Corporation shall have attached thereto the following rights, privileges, restrictions and conditions:
DIVIDENDS
Subject to the prior rights of the Exchangeable Shares and any other shares ranking prior to the Common Shares, holders of Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
LIQUIDATION
Subject to the prior rights of the Exchangeable Shares and any other shares ranking prior to the Common Shares, the holders of Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation.
VOTING
The holders of the Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Common Share held.
PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES
The Exchangeable Shares in the capital of the Corporation shall have the following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these rights, privileges, restrictions and conditions:
"Act" means the Business Corporations Act (Alberta), as amended, consolidated or reenacted from time to time.
"Aggregate Equivalent Vote Amount" means, with respect to any matter, proposition or question on which holders of OSI Common Stock are entitled to vote, consent or otherwise act, the product of (i) the number of Exchangeable Shares then issued and outstanding and held by holders (other than OSI and its Subsidiaries) multiplied by (ii) the number of votes to which a holder of one share of OSI Common Stock is entitled with respect to such matter, proposition or question.
"Automatic Redemption Date" means the date for the automatic redemption
by the Corporation of Exchangeable Shares pursuant to Article 7 of these share
provisions, which date shall be the first to occur of (a) the date, if any,
selected pursuant to this clause (a) by the Board of Directors of the
Corporation, such date to be no earlier than the fifth anniversary of the
Effective Date, (b) the date selected by the Board of Directors of the
Corporation (such date to be no earlier than the third or fourth anniversary of
the Effective Date of the Arrangement) at a time when less than 10% or 20%,
respectively, of the number of Exchangeable Shares issuable on the Effective
Date (other than Exchangeable Shares held by OSI and its Subsidiaries, and as
such number of shares may be adjusted as deemed appropriate by the Board of
Directors to give effect to any subdivision or consolidation of or stock
dividend on the Exchangeable Shares, any issuance or distribution of rights to
acquire Exchangeable Shares or securities exchangeable for or convertible into
or carrying rights to acquire Exchangeable Shares, any issue or distribution of
other securities or rights or evidences of indebtedness or assets, or any other
capital reorganization or other transaction involving or affecting the
Exchangeable Shares), are outstanding, (c) the date the Board of Directors of
the Corporation selects if an OSI Control Transaction occurs and the Board of
Directors determines, in good faith and in its sole discretion, that it is not
reasonable to substantially replicate the terms and conditions of the
Exchangeable Shares in connection with such OSI Control Transaction and that the
redemption of all but not less than all of the outstanding Exchangeable Shares
is commercially or legally necessary to enable the completion of such OSI
Control Transaction in accordance with its terms, (d) the Business Day following
the day on which the holders of Exchangeable Shares fail to pass, at any meeting
or vote, a resolution regarding any matter on which the holders of Exchangeable
Shares are entitled to vote as shareholders of the Corporation and which has
been proposed by the Board of Directors of the Corporation, provided that this
clause (d) shall not apply to any resolution to amend the Exchangeable Share
Provisions, the Support Agreement or the Voting and Exchange Trust Agreement, or
(e) the Business Day following the day on which the holders of Exchangeable
Shares fail to take the necessary action at a meeting or other vote of holders
of Exchangeable Shares, if and to the extent such action is required, to approve
or disapprove, as applicable, any change to, or in the rights of the holders of,
Exchangeable Shares, if the approval or disapproval, as applicable, of such
change would be required to maintain the economic and legal equivalence of the
Exchangeable Shares and the OSI Common Stock.
"Board of Directors" means the board of directors of the Corporation and any committee thereof acting within its authority.
"Business Day" means any day other than a Saturday, a Sunday or a day when banks are not open for business in either or both of Houston, Texas and Edmonton, Alberta.
"Canadian Dollar Equivalent" means in respect of an amount expressed in a foreign currency (the "Foreign Currency Amount") at any date the product obtained by multiplying:
(a) the Foreign Currency Amount by,
(b) the noon spot exchange rate on such date for such foreign currency expressed in Canadian dollars as reported by the Bank of Canada or, in the event such spot exchange rate is not available, such spot exchange rate on such date for such foreign currency expressed in Canadian dollars as may be deemed by the Board of Directors to be appropriate for such purpose.
"Combination Agreement" means the agreement so entitled dated as of July o, 2000 by and among OSI, HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger Sub-Sooner, Inc. and PTI.
"Common Shares" means the common shares in the capital of the Corporation.
"Current Market Price" means, in respect of a share of OSI Common Stock on any date, the average of the closing price per share (computed and rounded to the third decimal point) of shares of OSI Common Stock during the period of 20 consecutive trading days ending not more than five trading days before such date on the New York Stock Exchange, or, if OSI Common Stock is not then traded on the New York Stock Exchange, on such other principal U.S. stock exchange or automated quotation system on which the OSI Common Stock is then listed or quoted, as the case may be, as may be selected by the Board of Directors for such purpose; provided, however, that if, in the opinion of the Board of Directors the public distribution or trading activity of OSI Common Stock during such period does not create a market which reflects the fair market value of a share of OSI Common Stock, then the Current Market Price of a share of OSI Common Stock shall be determined by the Board of Directors based upon the advice of such qualified independent financial advisors as the Board of Directors may deem to be appropriate, and provided further any such selection, opinion or determination by the Board of Directors shall be conclusive and binding.
"Effective Date" has the meaning ascribed thereto in the Plan of Arrangement.
"Exchangeable Share Consideration" means, with respect to each Exchangeable Share, for any acquisition of or redemption of or distribution of assets of the Corporation in respect of or purchase pursuant to these share provisions, the Plan of Arrangement, the Support Agreement or the Voting and Exchange Trust Agreement:
(a) the Current Market Price of one share of OSI Common Stock deliverable in connection with such action;
(b) a cheque or cheques payable at par at any branch of the bankers of the payor in the amount of all declared, payable and unpaid, and all undeclared but payable, cash dividends deliverable in connection with such action; and
(c) such stock or other property constituting any declared and unpaid, and all undeclared but payable, non-cash dividends deliverable in connection with such action,
provided that (i) that part of the consideration which represents (a) above, shall be fully paid and satisfied by the delivery of one share of OSI Common Stock that is freely tradeable, such share to be duly issued as a fully paid and non-assessable share, (ii) that part of the consideration which represents (c), above, unpaid shall be fully paid and satisfied by delivery of such non-cash items, and (iii) any such consideration shall be delivered free and clear of any lien, claim, encumbrance, security interest or adverse claim or interest less any tax required to be deducted and withheld therefrom and without interest.
"Exchangeable Share Price" means, for each Exchangeable Share, an amount equal to the aggregate of:
(a) the Current Market Price of a share of OSI Common Stock; plus
(b) an additional amount equal to the full amount of all cash dividends declared, payable and unpaid on such Exchangeable Share; plus
(c) an additional amount equal to all dividends declared and payable on OSI Common Stock which have not been declared on Exchangeable Shares in accordance herewith; plus
(d) an additional amount representing non-cash dividends declared, payable and unpaid on such Exchangeable Share.
"Exchangeable Shares" means the Exchangeable Shares of the Corporation having the rights, privileges, restrictions and conditions set forth herein.
"freely tradeable", with respect to OSI Common Stock, means freely transferable under Canadian provincial securities laws and U.S. federal and state securities laws (pursuant to an effective resale shelf registration statement or otherwise and assuming the reasonable cooperation of the holder or recipient of OSI Common Stock in connection with any required resale shelf registration statement), except to the extent restrictions arise by reason of a person being a "control person" of OSI for the purposes of Canadian provincial securities laws or an "affiliate" of OSI for the purposes of United States federal or state securities laws, provided any trades in such securities are conducted through the facilities of a stock exchange outside Canada.
"Liquidation Amount" has the meaning provided in Section 5.1.
"Liquidation Call Right" has the meaning provided in the Restated Articles of Incorporation of the Corporation.
"Liquidation Call Purchase Price" has the meaning provided in the Restated Articles of Incorporation of the Corporation.
"Liquidation Date" has the meaning provided in Section 5.1.
"OSI" means Oil States International, Inc., a corporation organized and existing under the laws of the State of Delaware and includes any successor corporation or any corporation in
which the holders of OSI Common Stock hold securities resulting from the application of Section 2.7 of the Support Agreement.
"OSI Call Notice" has the meaning provided in Section 6.3.
"OSI Common Stock" means the shares of common stock of OSI, with a par value of U.S. $0.01 per share, having voting rights of one vote per share, and any other securities resulting from the application of Section 2.7 of the Support Agreement.
"OSI Control Transaction" means any merger or amalgamation involving OSI, any tender offer for OSI, and any material sale of shares or rights or interests therein or thereto by OSI or similar transactions, or any proposal to do so, provided that upon completion of any such transaction the holders of OSI Common Stock immediately before such transaction would hold, directly or indirectly, less than 50% of the voting securities, or securities exchangeable or exercisable for or convertible into voting securities, of the merged or amalgamated corporation, the offeror or the purchaser, as the case may be.
"OSI Dividend Declaration Date" means the date on which the board of directors of OSI declares any dividend on the OSI Common Stock.
"OSI Special Share" means the one share of Special Voting Stock of OSI, with a par value of U.S. $0.0001, and having voting rights at meetings of holders of OSI Common Stock equal to the Aggregate Equivalent Voting Amount.
"OSI ULC" has the meaning provided in the Voting and Exchange Trust Agreement.
"PTI" means PTI Group Inc., a corporation organized and existing under the Act.
"Plan of Arrangement" means the plan of arrangement involving and affecting PTI and the holders of common shares and options, PTI Amalco and the holders of its shares, the Corporation and the holders of its shares, OSI and OSI ULC under section 186 of the Act contemplated in the Combination Agreement, as further amended and restated from time to time.
"Purchase Price" has the meaning provided in Section 6.3.
"Redemption Call Purchase Price" has the meaning provided in the Restated Articles of Incorporation of the Corporation.
"Redemption Call Right" has the meaning provided in the Restated Articles of Incorporation of the Corporation.
"Redemption Price" has the meaning provided in Section 7.1.
"Retracted Shares" has the meaning provided in subsection 6.1 (a).
"Retraction Call Right" has the meaning provided in subsection 6.1 (c).
"Retraction Date" has the meaning provided in subsection 6.1 (b).
"Retraction Price" has the meaning provided in Section 6. 1.
"Retraction Request" has the meaning provided in Section 6.1.
"Subsidiary", in relation to any person, means any body corporate, partnership, joint venture, association or other entity of which more than 50% of the total voting power of shares of stock or units of ownership or beneficial interest entitled to vote in the election of directors (or members of a comparable governing body) is owned or controlled, directly or indirectly, by such person.
"Support Agreement" means the Support Agreement between OSI and the Corporation, made as of the Effective Date.
"Transfer Agent" means the duly appointed transfer agent for the time being of the Exchangeable Shares at its offices in each of Calgary, Alberta and Toronto, Ontario.
"Trustee" means the Trustee appointed under the Voting and Exchange Trust Agreement, and any successor trustee.
"Voting and Exchange Trust Agreement" means the Voting and Exchange Trust Agreement among the Corporation, OSI and the Trustee, made as of the Effective Date.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall be entitled to a preference over the Common Shares and any other shares ranking junior to the Exchangeable Shares, with respect to the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs.
ARTICLE 3
DIVIDENDS
3.1 Subject to Section 3.2 below, a holder of an Exchangeable Share shall be entitled to receive and the Board of Directors shall, subject to applicable law, on each OSI Dividend Declaration Date, declare a dividend on each Exchangeable Share:
(a) in the case of a cash dividend declared on the OSI Common Stock, in an amount in cash for each Exchangeable Share in U.S. dollars, or the Canadian Dollar Equivalent thereof on the OSI Dividend Declaration Date, in each case corresponding to the cash dividend declared on each share of OSI Common Stock;
(b) in the case of a stock dividend declared on OSI Common Stock to be paid in shares of OSI Common Stock, in such number of Exchangeable Shares for each Exchangeable Share as is equal to the number of shares of OSI Common Stock to be paid on each share of OSI Common Stock; or
(c) in the case of a dividend declared on the OSI Common Stock in property other than cash or OSI Common Stock, in such type and amount of property for each Exchangeable Share as is the same as or economically equivalent to (to be determined by the Board of Directors as contemplated by Section 3.6 hereof) the type and amount of property declared as a dividend on each share of OSI Common Stock.
Such dividends shall be paid out of money, assets or property of the Corporation properly applicable to the payment of dividends, or out of authorized but unissued shares of the Corporation, as applicable.
3.2 In the case of a stock dividend declared on the OSI Common Stock to be paid in shares of OSI Common Stock, in lieu of declaring the stock dividend contemplated by Section 3.1(b) on the Exchangeable Shares, the Board of Directors may, in its discretion and subject to applicable law, subdivide, redivide or change (the "subdivision") each issued and unissued Exchangeable Share on the basis that each Exchangeable Share before the subdivision becomes a number of Exchangeable Shares as is equal to the sum of (i) a share of OSI Common Stock and (ii) the number of shares of OSI Common Stock to be paid as a stock dividend on each share of OSI Common Stock. In such instance, and notwithstanding any other provision hereof, such subdivision shall become effective on the effective date specified in Section 3.4 hereof without any further act or formality on the part of the Board of Directors or of the holders of Exchangeable Shares. For greater certainty, no approval of the holders of Exchangeable Shares to an amendment to the articles of the Corporation shall be required to give effect to such subdivision.
3.3 Cheques of the Corporation payable at par at any branch of the bankers of the Corporation shall be issued in respect of any cash dividends contemplated by subsection 3.1 (a) hereof and the sending of such a cheque to each holder of an Exchangeable Share (less any tax required to be deducted and withheld from such dividends paid or credited by the Corporation) shall satisfy the cash dividends represented thereby unless the cheque is not paid on presentation. Certificates registered in the name of the registered holder of Exchangeable Shares shall be issued or transferred in respect of any stock dividends contemplated by subsections 3.1 (b) or (d) hereof and the sending of such a certificate to each holder of an Exchangeable Share shall satisfy the stock dividend represented thereby or dividend payable in other securities represented thereby. Such other type and amount of property in respect of any dividends contemplated by subsection 3.1 (c) hereof shall be issued, distributed or transferred by the Corporation in such manner as it shall determine and the issuance, distribution or transfer thereof by the Corporation to each holder of an Exchangeable Share shall satisfy the dividend represented thereby. In all cases, any such dividends shall be subject to any reduction or adjustment for tax required to be deducted and withheld from such dividends, and the Corporation shall be entitled to liquidate some of the property which would otherwise be deliverable in payment of such dividends to a
particular holder of Exchangeable Shares to fund any statutory withholding obligation. No holder of an Exchangeable Share shall be entitled to recover by action or other legal process against the Corporation any dividend which is represented by a cheque that has not been duly presented to the Corporation's bankers for payment or which otherwise remains unclaimed for a period of six years from the date on which such dividend was payable.
3.4 The record date for the determination of the holders of Exchangeable Shares entitled to receive payment of, and the payment date for, any dividend declared on the Exchangeable Shares under Section 3.1 hereof shall be the same dates as the record date and payment date, respectively, for the corresponding dividend declared on the OSI Common Stock. The record date for the determination of the holders of Exchangeable Shares entitled to receive Exchangeable Shares in connection with any subdivision of Exchangeable Shares under Section 3.2 hereof and the effective date of such subdivision shall be the same dates as the record date and payment date, respectively, for the corresponding stock dividend declared on the OSI Common Stock.
3.5 If on any payment date for any dividends declared on the Exchangeable Shares under Section 3.1 hereof the dividends are not paid in full on all of the Exchangeable Shares then outstanding, any such dividends which remain unpaid shall be paid on a subsequent date or dates determined by the Board of Directors on which the Corporation shall have sufficient moneys, assets or property properly applicable to the payment of such dividends.
3.6 The Board of Directors shall determine, in good faith and in its sole discretion, economic equivalence for the purposes of Sections 3.1 and 3.2 hereof, and each such determination shall be conclusive and binding on the Corporation and its shareholders. In making each such determination, the following factors shall, without excluding other factors determined by the Board of Directors to be relevant, be considered by the Board of Directors:
(a) in the case of any stock dividend or other distribution payable in shares of OSI Common Stock, the number of such shares issued in proportion to the number of shares of OSI Common Stock previously outstanding;
(b) in the case of the issuance or distribution of any rights, options or warrants to subscribe for or purchase shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock), the relationship between the exercise price of each such right, option or warrant and the Current Market Price of a share of OSI Common Stock;
(c) in the case of the issuance or distribution of any other form of property (including without limitation any shares or securities of OSI of any class other than OSI Common Stock, any rights, options or warrants other than those referred to in Section 3.6(b) above, any evidences of indebtedness of OSI or any assets of OSI), the relationship between the fair market value (as determined by the Board of Directors in the manner above contemplated) of such property to be issued or
distributed with respect to each outstanding share of OSI Common Stock and the Current Market Price of a share of OSI Common Stock; and
(d) in all such cases, the general taxation consequences of the relevant event to holders of Exchangeable Shares to the extent that such consequences may differ from the taxation consequences to holders of OSI Common Stock as a result of differences between taxation laws of Canada and the United States (except for any differing consequences arising as a result of differing marginal taxation rates and without regard to the individual circumstances of holders of Exchangeable Shares).
3.7 Except as provided in this Article 3, the holders of Exchangeable Shares shall not be entitled to receive dividends in respect thereof.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Exchangeable Shares are outstanding, the Corporation shall not at any time without, but may at any time with, the approval of the holders of the Exchangeable Shares given as specified in Article 9 of these share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking junior to the Exchangeable Shares, other than stock dividends payable in any such other shares ranking junior to the Exchangeable Shares;
(b) redeem or purchase or make any capital distribution in respect of Common Shares or any other shares ranking junior to the Exchangeable Shares with respect to the payment of dividends or on any liquidation distribution;
(c) redeem or purchase any other shares of the Corporation ranking equally with the Exchangeable Shares with respect of the payment of dividends or on any liquidation distribution;
(d) issue any Exchangeable Shares other than by way of stock dividends to holders of Exchangeable Shares or as contemplated by the Support Agreement; or
(e) amend the articles or by-laws of the Corporation, in either case in any manner that would affect the rights or privileges of the holders of the Exchangeable Shares.
The restrictions in subsections 4.1(a), 4.1(b) and 4.1(c) above shall not apply if all dividends on the outstanding Exchangeable Shares corresponding to dividends declared with a record date on or following the effective date of the Plan of Arrangement on the OSI Common Stock shall have been declared on the Exchangeable Shares and paid in full. Nothing herein shall be interpreted to restrict the Corporation from issuing additional Common Shares to OSI or any Subsidiary of OSI.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the Corporation or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs, provided that neither OSI nor OSI ULC shall have exercised the Liquidation Call Right, a holder of Exchangeable Shares shall be entitled, subject to applicable law, to receive from the assets of the Corporation in respect of each Exchangeable Share held by such holder on the effective date of such liquidation, dissolution or winding-up (the "Liquidation Date"), before any distribution of any part of the assets of the Corporation to the holders of the Common Shares or any other shares ranking junior to the Exchangeable Shares, an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Liquidation Date (the "Liquidation Amount") in accordance with Section 5.2. In connection with payment of the Liquidation Amount, the Corporation shall be entitled to liquidate some of the OSI Common Stock which would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of Exchangeable Shares in order to fund any statutory withholding tax obligation.
5.2 Within three Business Days after the Liquidation Date, and subject to the exercise by OSI or OSI ULC of the Liquidation Call Right, the Corporation shall cause to be delivered to the holders of the Exchangeable Shares the Liquidation Amount for each such Exchangeable Share upon presentation and surrender of the certificates representing such Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of the Exchangeable Shares (provided that such presentation and surrender shall be valid if made at the office of the Transfer Agent, if any, in the province in which such holder is listed on the books of the Corporation). Payment of the total Liquidation Amount for such Exchangeable Shares shall be made by delivery to each holder, at the address of the holder recorded in the securities register of the Corporation for the Exchangeable Shares or by holding for pick up by the holder at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of Exchangeable Shares (provided that such delivery shall be made to the holder at its address recorded in the securities register of the Corporation or at the office of the transfer agent, if any, in the province in which the address of the holder recorded in the securities register of the Corporation is located), on behalf of the Corporation of the Exchangeable Share Consideration representing the total Liquidation Amount. On and after the Liquidation Date, the holders of the Exchangeable Shares shall cease to be holders of such Exchangeable Shares and shall not be entitled to exercise any of the rights of holders in respect thereof, other than the right to receive their proportionate part of the total Liquidation Amount, unless payment of the total Liquidation Amount for such Exchangeable Shares shall not be made upon presentation and surrender of share certificates in accordance with the foregoing provisions, in which case the rights of the
holders shall remain unaffected until the total Liquidation Amount has been paid in the manner hereinbefore provided. The Corporation shall have the right at any time on or after the Liquidation Date to deposit or cause to be deposited the Exchangeable Share Consideration in respect of the Exchangeable Shares represented by certificates that have not at the Liquidation Date been surrendered by the holders thereof in a custodial account or for safe keeping, in the case of non-cash items, with any chartered bank or trust company in Canada. Upon such deposit being made, the of Exchangeable Shares after such deposit shall be limited to receiving their proportionate part of the total Liquidation Amount for such Exchangeable Shares so deposited, against presentation and surrender of the said certificates held by them, respectively, in accordance with the foregoing provisions. Upon such payment or deposit of such Exchangeable Share Consideration, the holders of the Exchangeable Shares shall thereafter be considered and deemed for all purposes to be the holders of the OSI Common Stock delivered to them. Notwithstanding the foregoing, until such payment or deposit of such Exchangeable Share Consideration, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
5.3 After the Corporation has satisfied its obligations to pay the holders of the Exchangeable Shares the Liquidation Amount per Exchangeable Share, such holders shall not be entitled to share in any further distribution of the assets of the Corporation.
5.4 If OSI or OSI ULC exercises the Liquidation Call Right, each holder of Exchangeable Shares shall be obligated to sell the Exchangeable Shares held by such holder to OSI or OSI ULC, as the case may be, on the Liquidation Date on payment to such holder by OSI or OSI ULC, as the case may be, of the Exchangeable Share Consideration representing the Liquidation Call Purchase Price for each Exchangeable Share.
ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time after the effectiveness of a Registration Statement under the Securities Act of 1933 registering the issuance of shares of OSI Common Stock issuable pursuant to the provisions attaching to the Exchangeable Shares or prior thereto with the written consent of the Corporation, subject to applicable law and the exercise by OSI or OSI ULC of the Retraction Call Right (which, if exercised by OSI or OSI ULC, shall be binding on the holder of Exchangeable Shares) and otherwise upon compliance with the provisions of this Article 6, to require the Corporation to redeem any or all of the Exchangeable Shares registered in the name of such holder for an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Retraction Date (the "Retraction Price") which as set forth in Section 6.4, shall be fully paid and satisfied by the delivery by or on behalf of the Corporation of the Exchangeable Share Consideration representing such holder's Retraction Price. In connection with payment of the Retraction Price, the Corporation shall be entitled to liquidate some of the OSI Common Stock that would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of
Exchangeable Shares in order to fund any statutory withholding tax obligation. To effect such redemption, the holder shall present and surrender at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of Exchangeable Shares the certificate or certificates representing the Exchangeable Shares which the holder desires to have the Corporation redeem, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, and together with a duly executed statement (the "Retraction Request") in the form of Schedule "A" hereto or in such other form as may be acceptable to the Corporation:
(a) specifying that the holder desires to have all or any number specified therein of the Exchangeable Shares represented by such certificate or certificates (the "Retracted Shares") redeemed by the Corporation;
(b) stating the Business Day on which the holder desires to have the Corporation redeem the Retracted Shares (the "Retraction Date"), provided that the Retraction Date shall be not less than three Business Days nor more than 10 Business Days after the date on which the Retraction Request is received by the Corporation and further provided that, in the event that no such Business Day is specified by the holder in the Retraction Request, the Retraction Date shall be deemed to be the tenth Business Day after the date on which the Retraction Request is received by the Corporation; and
(c) acknowledging the overriding right (the "Retraction Call
Right") of OSI or OSI ULC to purchase all but not less than
all the Retracted Shares directly from the holder and that the
Retraction Request shall be deemed to be a revocable offer by
the holder to sell the Retracted Shares in accordance with the
Retraction Call Right on the terms and conditions set out in
Section 6.3 below.
6.2 Subject to the exercise by OSI or OSI ULC of the Retraction Call Right, upon receipt by the Corporation or the Transfer Agent in the manner specified in Section 6.1 hereof of a certificate or certificates representing the number of Exchangeable Shares which the holder desires to have the Corporation redeem, together with a Retraction Request, and provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7, the Corporation shall redeem the Retracted Shares effective at the close of business on the Retraction Date and shall cause to be delivered to such holder the total Retraction Price with respect to such shares in accordance with Section 6.4 hereof. If only a part of the Exchangeable Shares represented by any certificate are redeemed or purchased by OSI or OSI ULC pursuant to the Retraction Call Right, a new certificate for the balance of such Exchangeable Shares shall be issued to the holder at the expense of the Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation shall immediately notify OSI and OSI ULC thereof. In order to exercise the Retraction Call Right, OSI or OSI ULC must notify the Corporation in writing of its determination to do
so (the "OSI Call Notice") within two Business Days of such notification. If OSI or OSI ULC does not so notify the Corporation within such two Business Days, the Corporation will notify the holder as soon as possible thereafter that neither OSI nor OSI ULC will exercise the Retraction Call Right. If OSI or OSI ULC delivers the OSI Call Notice within such two Business Days, and provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7 hereof, the Retraction Request shall thereupon be considered only to be an offer by the holder to sell the Retracted Shares to OSI or OSI ULC, as the case may be, in accordance with the Retraction Call Right. In such event, the Corporation shall not redeem the Retracted Shares and OSI or OSI ULC, as the case may be, shall purchase from such holder and such holder shall sell to OSI or OSI ULC, as the case may be, on the Retraction Date the Retracted Shares for a purchase price per share (the "Purchase Price") equal to the Retraction Price, which as set forth in Section 6.4 hereof, shall be fully paid and satisfied by the delivery by or on behalf of OSI or OSI ULC, as the case may be, of the Exchangeable Share Consideration representing such holder's Purchase Price. For the purposes of completing a purchase pursuant to the Retraction Call Right, OSI or OSI ULC, as the case may be, shall deposit with the Transfer Agent, on or before the Retraction Date, the Exchangeable Share Consideration representing the total Purchase Price. Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, the closing of the purchase and sale of the Retracted Shares pursuant to the Retraction Call Right shall be deemed to have occurred as at the close of business on the Retraction Date and, for greater certainty, no redemption by the Corporation of such Retracted Shares shall take place on the Retraction Date. In the event that OSI or OSI ULC, as the case may be, does not deliver a OSI Call Notice within two Business Days or otherwise comply with these Exchangeable Share provisions in respect thereto, and provided that Retraction Request is not revoked by the holder in the manner specified in Section 6.7 hereof, the Corporation shall redeem the Retracted Shares on the Retraction Date and in the manner otherwise contemplated in this Article 6.
6.4 Subject to receipt by the Corporation of the Retracted Shares, OSI or OSI ULC, as the case may be, the Corporation, OSI or OSI ULC, as the case may be, shall deliver or cause the Transfer Agent to deliver to the relevant holder, at the address of the holder recorded in the securities register of the Corporation for the Exchangeable Shares or at the address specified in the holder's Retraction Request or by holding for pick up by the holder at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the holder in Schedule A hereto, in each case on or before two Business Days after the Retraction Date, the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, and such delivery of such Exchangeable Share Consideration to the Transfer Agent shall be deemed to be payment of and shall satisfy and discharge all liability for the total Retraction Price or total Purchase Price, as the case may be, except as to any cheque included therein which is not paid on due presentation.
6.5 On and after the close of business on the Retraction Date, the holder of the Retracted Shares shall cease to be a holder of such Retracted Shares and shall not be entitled to exercise any of the rights of a holder in respect thereof, other than the right to receive such holder's proportionate part of the total Retraction Price or total Purchase Price, as
the case may be, unless upon presentation and surrender of certificates in accordance with the foregoing provisions, payment of the total Retraction Price or the total Purchase Price, as the case may be, shall not be made, in which case the rights of such holder shall remain unaffected until the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, has been paid in the manner hereinbefore provided. On and after the close of business on the Retraction Date, provided that presentation and surrender of certificates and payment of the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, has been made in accordance with the foregoing provisions, the holder of the Retracted Shares so redeemed by the Corporation or purchased by OSI or OSI ULC shall thereafter be considered and deemed for all purposes to be a holder of the OSI Common Stock delivered to it. Notwithstanding the foregoing, until such payment of such Exchangeable Share Consideration to the holder, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
6.6 Notwithstanding any other provision of this Article 6, the Corporation shall not be obligated to redeem Retracted Shares specified by a holder in a Retraction Request to the extent that such redemption of Retracted Shares would be contrary to liquidity or solvency requirements or other provisions of applicable law. If the Corporation believes that on any Retraction Date it would not be permitted by any of such provisions to redeem the Retracted Shares tendered for redemption on such date, and provided that neither OSI nor OSI ULC shall have exercised the Retraction Call Right with respect to the Retracted Shares, the Corporation shall only be obligated to redeem Retracted Shares specified by a holder in a Retraction Request to the extent of the maximum number that may be so redeemed (rounded down to a whole number of shares) as would not be contrary to such provisions and shall notify the holder as soon as is reasonably practical but in any event not later than one Business Day prior to the Retraction Date as to the number of Retracted Shares which will not be redeemed by the Corporation. In any case in which the redemption by the Corporation of Retracted Shares would be contrary to liquidity or solvency requirements or other provisions of applicable law, the Corporation shall redeem Retracted Shares in accordance with Section 6.2 of these share provisions on a pro rata basis and shall issue to each holder of Retracted Shares a new certificate, at the expense of the Corporation, representing the Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 hereof. Provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7 hereof, the holder of any such Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 hereof as a result of liquidity or solvency requirements or applicable law shall be deemed by giving the Retraction Request to require OSI or OSI ULC, as the case may be, to purchase such Retracted Shares from such holder on the Retraction Date or as soon as practicable thereafter on payment by OSI or OSI ULC, as the case may be, to such holder of the Purchase Price for each such Retracted Share, all as more specifically provided in the Voting and Exchange Trust Agreement, and OSI or OSI ULC shall make such purchase.
6.7 A holder of Retracted Shares may, by notice in writing given by the holder to the Corporation before the close of business on the Business Day immediately preceding the Retraction Date, withdraw its Retraction Request in which event such Retraction Request
shall be null and void and, for greater certainty, the revocable offer constituted by the Retraction Request to sell the Retracted Shares to OSI or OSI ULC, as the case may be, shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and if neither OSI or OSI ULC exercises the Redemption Call Right (which, if exercised, shall be binding on the holders of Exchangeable Shares), the Corporation shall on the Automatic Redemption Date redeem the whole of the then outstanding Exchangeable Shares for an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Automatic Redemption Date (the "Redemption Price") which, as set forth in Section 7.3 hereof, shall be fully paid and satisfied by the delivery by or on behalf of the Corporation of the Exchangeable Share Consideration representing the total Redemption Price. In connection with payment of the Exchangeable Share Consideration representing the Redemption Price, the Corporation shall be entitled to liquidate some of the OSI Common Stock which would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of Exchangeable Shares in order to fund any statutory withholding tax obligation.
7.2 In any case of a redemption of Exchangeable Shares under this Article 7, the Corporation, or the Transfer Agent on behalf of the Corporation, shall, at least 60 days before an Automatic Redemption Date described in clause (a) or (b) of the definition of Automatic Redemption Date or at least such number of days before an Automatic Redemption Date described in clause (c), (d) or (e) of the definition of Automatic Redemption Date as the Board of Directors of the Corporation may determine to be reasonably practicable in the circumstances, send or cause to be sent to each registered holder of Exchangeable Shares a notice in writing of the redemption or possible redemption by the Corporation or the purchase by OSI or OSI ULC under the Redemption Call Right, as the case may be, of the Exchangeable Shares held by such holder. Such notice shall set out the Redemption Price or the Redemption Call Purchase Price, as the case may be, the Automatic Redemption Date and, if applicable, particulars of the Redemption Call Right. In the case of any notice given in connection with a possible Automatic Redemption Date as described in clause (c), (d) or (e) of the definition of Automatic Redemption Date, such notice will be given contingently and will be withdrawn if the contingency does not occur.
7.3 On or after the Automatic Redemption Date, and subject to the exercise by OSI or OSI ULC of the Redemption Call Right, the Corporation shall cause to be delivered to the holders of the Exchangeable Shares to be redeemed the Exchangeable Share Consideration representing the Redemption Price for each such Exchangeable Share upon presentation and surrender at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in such notice of the certificates representing such Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require (provided that such presentation and surrender shall be deemed to be valid if made at the office of the Transfer Agent, if any, in the province in which the address of the holder of Exchangeable Shares is recorded on the books of the Corporation). Payment of the total Redemption Price for such Exchangeable Shares shall be made by delivery to each holder, at the address of the holder recorded in the securities register or at any office of the Transfer Agent as may be specified by the Corporation in such notice, on behalf of the Corporation, of the Exchangeable Share Consideration representing the total Redemption Price (provided that if payment is made by delivery of the Exchangeable share Consideration to the Transfer Agent, such delivery shall be made at the office of the Transfer Agent, if any, in the province in which the address of the holder of Exchangeable Shares is recorded on the books of the Corporation). On and after the Automatic Redemption Date, the holders of the Exchangeable Shares called for redemption shall cease to be holders of such Exchangeable Shares and shall not be entitled to exercise any of the rights of holders in respect thereof, other than the right to receive their proportionate part of the Exchangeable Share Consideration representing the total Redemption Price, unless payment of the Exchangeable Share Consideration representing the total Redemption Price for such Exchangeable Shares shall not be made upon presentation and surrender of certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected until the Exchangeable Share Consideration representing the total Redemption Price has been paid in the manner hereinbefore provided. The Corporation shall have the right at any time after the sending of notice of its intention to redeem the Exchangeable Shares as aforesaid to deposit or cause to be deposited the Exchangeable Share Consideration with respect to the Exchangeable Shares so called for redemption, or of such of the said Exchangeable Shares represented by certificates that have not at the date of such deposit been surrendered by the holders thereof in connection with such redemption, in a custodial account or for safe keeping, in the case of non-cash items, with any chartered bank or trust company in Canada named in such notice. Upon the later of such deposit being made and the Automatic Redemption Date, the Exchangeable Shares in respect whereof such deposit shall have been made shall be redeemed and the rights of the holders thereof after such deposit or Automatic Redemption Date, as the case may be, shall be limited to receiving their proportionate part of the Exchangeable Share Consideration representing the total Redemption Price for such Exchangeable Shares so deposited, against presentation and surrender of the said certificates held by them, respectively, in accordance with the foregoing provisions. Upon such payment or deposit of such Exchangeable Share Consideration, the holders of the Exchangeable Shares shall thereafter be considered and deemed for all purposes to be holders of the OSI Common Stock delivered to them. Notwithstanding the foregoing, until such payment or deposit of such Exchangeable Share Consideration is made, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
7.4 If OSI or OSI ULC exercises the Redemption Call Right, each holder of Exchangeable Shares shall be obligated to sell all the Exchangeable Shares held by such holder to OSI or OSI ULC, as the case may be, on the Automatic Redemption Date against payment to
such holder by OSI or OSI ULC of the Exchangeable Share Consideration representing the Redemption Call Purchase Price for each such share.
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law and the provisions hereof, the holders of the Exchangeable Shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching to the Exchangeable Shares may be added to, changed or removed but, except as hereinafter provided, only with the approval of the holders of the Exchangeable Shares given as hereinafter specified.
9.2 Any approval given by the holders of the Exchangeable Shares to add to, change or remove any right, privilege, restriction or condition attaching to the Exchangeable Shares or any other matter requiring the approval or consent of the holders of the Exchangeable Shares shall be deemed to have been sufficiently given if it shall have been given in accordance with applicable law subject to a minimum requirement that such approval be evidenced by resolution passed by not less than 66 2/3% of the votes cast on such resolution by persons represented in person or by proxy at a meeting of holders of Exchangeable Shares (excluding Exchangeable Shares beneficially owned by OSI or its Subsidiaries) duly called and held at which the holders of at least 50% of the outstanding Exchangeable Shares at that time are present or represented by proxy. If at any such meeting the holders of at least 50% of the outstanding Exchangeable Shares at that time are not present or represented by proxy within one-half hour after the time appointed for such meeting, then the meeting shall be adjourned to such date not less than 10 days thereafter and to such time and place as may be designated by the Chairman of such meeting. At such adjourned meeting, the holders of Exchangeable Shares present or represented by proxy thereat may transact the business for which the meeting was originally called and a resolution passed thereat by the affirmative vote of not less than 66 2/3% of the votes cast on such resolution by persons represented in person or by proxy at such meeting (excluding Exchangeable Shares beneficially owned by OSI or its Subsidiaries) shall constitute the approval or consent of the holders of the Exchangeable Shares. For the purposes of this Section, any spoiled votes, illegible votes, defective votes and abstinences shall be deemed to be votes not cast.
ARTICLE 10
RECIPROCAL CHANGES, ETC. IN RESPECT OF OSI COMMON STOCK
10.1
(a) Each holder of an Exchangeable Share acknowledges that the Support Agreement provides, in part, that OSI will not:
(i) issue or distribute shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock) to the holders of all or substantially all of the then outstanding shares of OSI Common Stock by way of stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding shares of OSI Common Stock entitling them to subscribe for or to purchase shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock); or
(iii) issue or distribute to the holders of all or
substantially all of the then outstanding shares of
OSI Common Stock (A) shares or securities of OSI of
any class other than OSI Common Stock (other than
shares convertible into or exchangeable for or
carrying rights to acquire shares of OSI Common
Stock), (B) rights, options or warrants other than
those referred to in subsection 11.1 (a) (ii) above,
(C) evidences of indebtedness of OSI or (D) assets of
OSI;
unless
(iv) one or both of OSI and the Corporation is permitted under applicable law to issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets to the holders of the Exchangeable Shares; and
(v) one or both of OSI and the Corporation shall issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets simultaneously to the holders of the Exchangeable Shares.
(b) Each holder of an Exchangeable Share acknowledges that the Support Agreement further provides, in part, that OSI will not:
(i) subdivide, redivide or change the then outstanding shares of OSI Common Stock into a greater number of shares of OSI Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding shares of OSI Common Stock into a lesser number of shares of OSI Common Stock; or
(iii) reclassify or otherwise change the shares of OSI Common Stock or effect an amalgamation, merger, reorganization or other transaction involving or affecting the shares of OSI Common Stock;
unless
(iv) the Corporation is permitted under applicable law to simultaneously make the same or an economically equivalent change to, or in the rights of the holders of, the Exchangeable Shares; and
(v) the same or an economically equivalent change is simultaneously made to, or in the rights of the holders of, the Exchangeable Shares.
The Support Agreement further provides, in part, that, with the exception of certain ministerial amendments, the aforesaid provisions of the Support Agreement shall not be changed without the approval of the holders of the Exchangeable Shares given in accordance with Article 9 of these share provisions.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
11.1 The Corporation will take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to
ensure performance and compliance by OSI with all provisions of the
Support Agreement, the Voting Trust and Exchange Agreement and OSI's
Certificate of Incorporation applicable to the Corporation and OSI,
respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall
be necessary or advisable to enforce to the fullest extent possible for
the direct benefit of the Corporation all rights and benefits in favour
of the Corporation under or pursuant thereto.
11.2 The Corporation shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or obligations
under, the Support Agreement, the Voting Trust and Exchange Agreement
or OSI's Certificate of Incorporation without the approval of the
holders of the Exchangeable Shares given in accordance with Section 9.2
hereof other than such amendments, waivers and/or forgiveness as may be
necessary or advisable for the purpose of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders
of Exchangeable Shares; or
(b) making such provisions or modifications not inconsistent with
such agreement or certificate as may be necessary or desirable
with respect to matters or questions arising thereunder which,
in the opinion of the Board of Directors, it may be expedient
to make, provided that the Board of Directors shall be of the
opinion, after consultation with counsel, that such provisions
and modifications will not be prejudicial to the interests of
the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement or
certificate which, on the advice of counsel to the
Corporation, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error contained
therein, provided that the Board of
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Directors shall be of the opinion, after consultation with counsel, that such changes or corrections will not be prejudicial to the interests of the holders of the Exchangeable Shares.
ARTICLE 12
LEGEND
12.1 The certificates evidencing the Exchangeable Shares shall contain or
have affixed thereto a legend, in form and on terms approved by the
Board of Directors, with respect to the Support Agreement, the
provisions of the Articles of the Corporation relating to the
Liquidation Call Right, the Retraction Call Right and the Redemption
Call Right, and the Voting and Exchange Trust Agreement (including the
provisions with respect to the voting rights and exchange provisions
thereunder).
ARTICLE 13
MISCELLANEOUS
13.1 Any notice, request or other communication to be given to the
Corporation by a holder of Exchangeable Shares shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by
telecopy or by delivery to the registered office of the Corporation and
addressed to the attention of the President. Any such notice, request
or other communication, if given by mail, telecopy or delivery, shall
only be deemed to have been given and received upon actual receipt
thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Exchangeable Shares to
the Corporation or the Transfer Agent of certificates representing
Exchangeable Shares in connection with the liquidation, dissolution or
winding-up of the Corporation or the retraction, redemption or exchange
of Exchangeable Shares shall be made by registered mail (postage
prepaid) or by delivery to the registered office of the Corporation or
to such office of the Transfer Agent as may be specified by the
Corporation, in each case addressed to the attention of the President
of the Corporation. Any such presentation and surrender of certificates
shall only be deemed to have been made and to be effective upon actual
receipt thereof by the Corporation or the Transfer Agent, as the case
may be, and the method of any such presentation and surrender of
certificates shall be at the sole risk of the holder.
13.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in
writing and shall be valid and effective if given by mail (postage
prepaid) or by delivery to the address of the holder recorded in the
securities register of the Corporation or, in the event of the address
of any such holder not being so recorded, then at the last address of
such holder known to the Corporation. Any such notice, request or other
communication, if given by mail, shall be deemed to have been given and
received on the fifth Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received
on the date of delivery. Accidental failure or omission to give any
notice, request or other communication to one or more holders of
Exchangeable Shares shall not invalidate or
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otherwise alter or affect any action or proceeding to be or intended to
be taken by the Corporation.
13.4 For greater certainty, the Corporation shall not be required for any
purpose under these share provisions to recognize or take account of
persons who are not so recorded in such securities register.
13.5 All Exchangeable Shares acquired by the Corporation upon the redemption
or retraction thereof shall be cancelled.
13.6 For greater certainty, any payments to the holders of Exchangeable
Shares shall be net of applicable taxes, if any, and the payor shall
not be obliged to gross up or increase the amount of such payment which
would otherwise be made to take into account such taxes. Any such taxes
which have been withheld or deducted by the payor thereof shall be
remitted to the applicable tax authority within the time required for
such remittance.
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SCHEDULE "A"
RETRACTION REQUEST
To the Corporation, o ("OSI") and o ("OSI ULC")
This request is given pursuant to Article 6 of the provisions (the "Share Provisions") attaching to the Exchangeable Shares of the Corporation and all capitalized words and expressions used in this request which are defined in the Share Provisions have the meaning attributed to such words and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the Retraction Call Right referred to below, the undersigned requests the Corporation to redeem in accordance with Article 6 of the Share Provisions:
[ ] all share(s) represented by the accompanying certificate(s); or
[ ] ____________ share(s) only.
The undersigned hereby notifies the Corporation that the Retraction Date shall be ___________________. date
NOTE: The Retraction Date must be a Business Day and must not be less than three Business Days nor more than 10 Business Days after the date upon which this notice and the accompanying shares are received at the registered office of the Corporation or at any office of the Transfer Agent as may be specified in this Retraction Request. In the event that no such Business Day is correctly specified above, the Retraction Date shall be deemed to be the tenth Business Day after the date on which this request is received by the Corporation.
The undersigned acknowledges the Retraction Call Right of OSI and OSI ULC (as defined in the Share Provisions) to purchase all but not less than all the Retracted Shares from the undersigned and that this request shall be deemed to be a revocable offer by the undersigned to sell the Retracted Shares to OSI or OSI ULC, as the case may be, in accordance with the Retraction Call Right on the Retraction Date for the Retraction Price and on the other terms and conditions set out in Section 6.3 of the Share Provisions. If neither OSI nor OSI ULC, as the case may be, determines to exercise the Retraction Call Right, the Corporation will notify the undersigned of such fact as soon as possible. This retraction request, and offer to sell the Retracted Shares to OSI or OSI ULC, as the case may be, may be revoked and withdrawn by the undersigned by notice in writing given to the Corporation at any time before the close of business on the Business Date immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of liquidity or solvency provisions of applicable law, the Corporation is unable to redeem all Retracted Shares, the undersigned will be deemed to have exercised the Exchange Right (as defined in the Voting and Exchange Trust Agreement) so as to require OSI to purchase, or cause OSI ULC to purchase, the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation, OSI and OSI ULC that the undersigned has good title to, and owns, the share(s) represented by the accompanying certificate free and clear of all liens, claims, encumbrances, security interests and adverse claims or interests.
------------------------- ----------------------------------------- -----------------------------------------
Date Signature of Shareholder Guarantee of Signature
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[ ] Please check box if the legal or beneficial owner of the Retracted Shares is a non-resident of Canada.
[ ] Please check box if the securities and any cheque(s) or other non-cash assets resulting from the retraction of the Retracted Shares are to be held for pick-up by the shareholder at the principal transfer offices of Montreal Trust Company of Canada (the "Transfer Agent") in Calgary, Alberta, failing which the securities and any cheque(s) or other non-cash assets will be delivered to the shareholder in accordance with the share provisions.
[ ] Please check box if the securities and any cheque(s) or other non-cash assets resulting from the retraction of the Retracted Shares are to be held for pick-up by the shareholder at the principal transfer offices of Montreal Trust Company of Canada (the "Transfer Agent") in Toronto, Ontario, failing which the securities and any cheque(s) or other non-cash assets will be delivered to the shareholder in accordance with the share provisions.
NOTE: This panel must be completed and the accompanying certificate, together with such additional documents as the Transfer Agent may require, must be deposited with the Transfer Agent at its principal transfer offices in Calgary, Alberta or Toronto, Ontario. The securities and any cheque(s) or other non-cash assets resulting from the retraction or purchase of the Retracted Shares will be issued and registered in, and made payable to, or transferred into, respectively, the name of the shareholder as it appears on the register of the Corporation and the securities, cheque (s) and other non-cash assets resulting from such retraction or purchase will be delivered to the shareholder in accordance with the Share Provisions.
-------------------------------------------------------------------------- ------------------------------------- Name of Person in Whose Name Securities or Cheque(s) or Other Non-cash Date Assets Are To Be Registered, Issued or Delivered (please print) -------------------------------------------------------------------------- ------------------------------------- Street Address or P.O. Box Signature of Shareholder -------------------------------------------------------------------------- ------------------------------------- City, Province Signature Guaranteed by |
NOTE: If this retraction request is for less than all of the share(s) represented by the accompanying certificate, a certificate representing the remaining shares of the Corporation will be issued and registered in the name of the shareholder as it appears on the register of the Corporation or its lawful transferee.
B. OTHER PROVISIONS
1.1 Meetings
Meetings of shareholders of the Corporation shall be held in the location determined by the directors of the Corporation, and may be held in Houston, Texas, or at any location within Alberta.
1.2 Definitions
Unless there is something in the subject matter or context inconsistent therewith in Sections 1.3, 1.4 and 1.5 below, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:
"Act" means the Business Corporations Act (Alberta), as amended;
"Automatic Redemption Date" has the meaning provided in the Exchangeable Share Provisions;
"Business Day" has the meaning provided in the Exchangeable Share Provisions;
"Exchangeable Share Consideration" has the meaning provided in the Exchangeable Share Provisions;
"Exchangeable Share Price" has the meaning provided in the Exchangeable Share Provisions;
"Exchangeable Share Provisions" means the rights, privileges, restrictions and conditions attaching to the Exchangeable Shares;
"Exchangeable Shares" means the Exchangeable Shares in the capital of the Corporation;
"Liquidation Call Purchase Price" has the meaning provided in Section 1.3;
"Liquidation Call Right" has the meaning provided in Section 1.3;
"Liquidation Date" has the meaning provided in the Exchangeable Share Provisions;
"OSI" has the meaning provided in the Exchangeable Share Provisions;
"OSI Common Stock" has the meaning provided in the Exchangeable Share Provisions;
"Redemption Call Purchase Price" has the meaning provided in Section 1.4;
"Redemption Call Right" has the meaning provided in Section 1.4;
"Subsidiary" has the meaning provided in the Exchangeable Share Provisions;
"Transfer Agent" means the duly appointed transfer agent for the time being of the Exchangeable Shares, and, if there is more than one such transfer agent, then the principal Canadian transfer agent; and
"Voting and Exchange Trust Agreement" has the meaning provided in the Exchangeable Share Provisions.
1.3 Liquidation Call Right
(a) OSI or OSI ULC shall have the overriding right (the "Liquidation Call Right"), in the event of and notwithstanding any proposed liquidation, dissolution or winding-up of the Corporation as referred to in Article 5 of the Exchangeable Share Provisions, to purchase directly from all but not less than all of the holders (other than OSI or any Subsidiary thereof) of Exchangeable Shares on the Liquidation Date all but not less than all of the Exchangeable Shares held by such holders on payment by OSI or OSI ULC to each holder of the Exchangeable Share Price applicable on the last Business Day prior to the Liquidation Date (the "Liquidation Call Purchase Price") in accordance with subsection 1.3(c). In the event of the exercise of the Liquidation Call Right by OSI or OSI ULC, each holder shall be obligated to sell all the Exchangeable Shares held by such holder to OSI or OSI ULC on the Liquidation Date on payment by OSI or OSI ULC to the holder of the Liquidation Call Purchase Price for each such share.
(b) To exercise the Liquidation Call Right, OSI or OSI ULC must notify the Corporation's Transfer Agent in writing, as agent for the holders of Exchangeable Shares, and the Corporation of OSI's or OSI ULC's intention to exercise such right at least 55 days before the Liquidation Date in the case of a voluntary liquidation, dissolution or winding-up of the Corporation and at least five Business Days before the Liquidation Date in the case of an involuntary liquidation, dissolution or winding-up of the Corporation. The Transfer Agent will notify the holders of Exchangeable Shares as to whether or not OSI or OSI ULC has exercised the Liquidation Call Right forthwith after the expiry of the date by which the same may be exercised by OSI or OSI ULC. If OSI or OSI ULC exercises the Liquidation Call Right, on the Liquidation Date OSI or OSI ULC will purchase and the holders will sell all of the Exchangeable Shares then outstanding for a price per share equal to the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares pursuant to the Liquidation Call Right, OSI or OSI ULC shall deposit with the Transfer Agent, on or before the Liquidation Date, the Exchangeable Share Consideration representing the total Liquidation Call Purchase Price. Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, on and after the Liquidation Date, the right of each holder of Exchangeable Shares will be limited to receiving such holder's proportionate part of the total Liquidation Call Purchase Price payable by OSI or OSI ULC, without interest, upon presentation and surrender by the holder of certificates representing the Exchangeable Shares held by such holder and the holder shall, on and after the
Liquidation Date, be considered and deemed for all purposes to be the holder of the OSI Common Stock delivered to such holder. Upon surrender to the Transfer Agent of a certificate or certificates representing Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under the Act and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, the holder of such surrendered certificate or certificates shall be entitled to receive in exchange therefor, and the Transfer Agent on behalf of OSI shall deliver to such holder, the Exchangeable Share Consideration to which such holder is entitled. If OSI or OSI ULC does not exercise the Liquidation Call Right in the manner described above, on the Liquidation Date the holders of the Exchangeable Shares will be entitled to receive in exchange therefor the liquidation price otherwise payable by the Corporation in connection with the liquidation, dissolution or winding-up of the Corporation pursuant to Article 5 of the Exchangeable Share Provisions. Notwithstanding the foregoing, until such Exchangeable Share Consideration is delivered to the holder, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
1.4 Redemption Call Right
(a) OSI and OSI ULC shall have the overriding right (the "Redemption Call Right"), notwithstanding any proposed redemption of the Exchangeable Shares by the Corporation pursuant to Article 7 of the Exchangeable Share Provisions, to purchase directly from all but not less than all of the holders (other than OSI or any Subsidiary thereof) of Exchangeable Shares on the Automatic Redemption Date all but not less than all of the Exchangeable Shares held by each such holder on payment by OSI or OSI ULC to the holder of the Exchangeable Share Price applicable on the last Business Day prior to the Automatic Redemption Date (the "Redemption Call Purchase Price") in accordance with subsection 1.4(c). In the event of the exercise of the Redemption Call Right by OSI or OSI ULC, each holder shall be obligated to sell all the Exchangeable Shares held by the holder to OSI or OSI ULC on the Automatic Redemption Date on payment by OSI or OSI ULC to the holder of the Redemption Call Purchase Price for each such share.
(b) To exercise the Redemption Call Right, OSI or OSI ULC must notify the Transfer Agent in writing, as agent for the holders of Exchangeable Shares, and the Corporation of the OSI's or OSI ULC's intention to exercise such right not later than the date by which the Corporation is required to give notice of the Automatic Redemption Date. The Transfer Agent will notify the holders of the Exchangeable Shares as to whether or not OSI or OSI ULC has exercised the Redemption Call Right forthwith after the date by which the same may be exercised by OSI or OSI ULC. If OSI or OSI ULC exercises the Redemption Call Right, on the Automatic Redemption Date, OSI will purchase and the holders will sell all of the Exchangeable Shares then outstanding for a price per share equal to the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares pursuant to the Redemption Call Right, OSI or OSI ULC shall deposit with the Transfer Agent, on or before the Automatic Redemption Date, the Exchangeable Share Consideration representing the total Redemption Call Purchase Price. Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, on and after the Automatic Redemption Date, the rights of each holder of Exchangeable Shares will be limited to receiving such holder's proportionate part of the total Redemption Call Purchase Price payable by OSI or OSI ULC upon presentation and surrender by the holder of certificates representing the Exchangeable Shares held by such holder and the holder shall on and after the Automatic Redemption Date be considered and deemed for all purposes to be the holder of the OSI Common Stock delivered to such holder. Upon surrender to the Transfer Agent of a certificate or certificates representing Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under the Act and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, the holder of such surrendered certificate or certificates shall be entitled to receive in exchange therefor, and the Transfer Agent on behalf of OSI or OSI ULC shall deliver to such holder, the Exchangeable Share Consideration to which such holder is entitled. If OSI or OSI ULC does not exercise the Redemption Call Right in the manner described above, on the Automatic Redemption Date, the holders of the Exchangeable Shares will be entitled to receive in exchange therefor the redemption price otherwise payable by the Corporation in connection with the redemption of the Exchangeable Shares pursuant to Article 7 of the Exchangeable Share Provisions. Notwithstanding the foregoing, until such Exchangeable Share Consideration is delivered to the holder, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
1.5 Retraction Call Right
OSI or OSI ULC shall have the overriding right, notwithstanding the proposed redemption of Exchangeable Shares by the Corporation pursuant to Article 6 of the Exchangeable Share Provisions, to purchase directly from the holder (other than OSI or any Subsidiary thereof) of Exchangeable Shares all but not less than all of the Retracted Shares in accordance with Section 6.3 of the Exchangeable Share Provisions.
EXHIBIT B
INTENTIONALLY OMITTED
EXHIBIT C
SUPPORT AGREEMENT
EXHIBIT C
TO THE COMBINATION AGREEMENT
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT is entered into as of o, 2000, between Oil States International, Inc., a Delaware corporation ("OSI"), and o, an Alberta corporation ("PTI Holdco").
RECITALS
A. Pursuant to a Combination Agreement dated as of July 31, 2000, by and among OSI, HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger Sub-Sooner Inc. and PTI Group Inc. ("PTI") (such agreement, as it may be amended or restated, is hereinafter referred to as the "Combination Agreement"), the parties agreed that on the Effective Date (as defined in the Combination Agreement), OSI and PTI Holdco would execute and deliver a Support Agreement containing the terms and conditions set forth in Exhibit C to the Combination Agreement together with such other terms and conditions as may be agreed to by the parties to the Combination Agreement acting reasonably;
B. Pursuant to an arrangement (the "Arrangement") effected by Articles of Arrangement dated o, 2000 filed pursuant to the Business Corporations Act (Alberta) (or any successor or other corporate statute by which PTI may in the future be governed) (the "Act") each issued and outstanding common share of PTI (a "PTI Common Share"), other than those cancelled pursuant to the Arrangement or held by OSI, by a Subsidiary of OSI or by a U.S. shareholder of PTI, was ultimately exchanged for Exchangeable Shares of PTI Holdco (the "Exchangeable Shares");
C. The Articles of Incorporation of PTI Holdco set forth the rights, privileges, restrictions and conditions (collectively, the "Exchangeable Share Provisions") attaching to the Exchangeable Shares;
D. The parties hereto desire to make appropriate provision and to establish a procedure whereby OSI will take certain actions and make certain payments and deliveries necessary to ensure that PTI Holdco will be able to make certain payments and to deliver or cause to be delivered shares of OSI Common Stock in satisfaction of the obligations of PTI Holdco under the Exchangeable Share Provisions with respect to the payment and satisfaction of dividends, Liquidation Amounts, Retraction Prices and Redemption Prices, all in accordance with the Exchangeable Share Provisions and to ensure that the shares of OSI Common Stock are freely tradable in accordance with the provisions set out herein;
NOW, THEREFORE, in consideration of the respective covenants and agreements provided in this agreement and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINED TERMS
Each term used but not otherwise defined herein shall have the meaning attributed thereto in the Exchangeable Share Provisions, unless the context requires otherwise.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles, sections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this agreement.
1.3 NUMBER, GENDER, ETC.
Words importing the singular number only shall include the plural and vice versa. Words importing the use of any gender shall include all genders.
1.4 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this agreement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day.
ARTICLE 2
COVENANTS OF OSI AND PTI HOLDCO
2.1 COVENANTS OF OSI REGARDING EXCHANGEABLE SHARES
So long as any Exchangeable Shares are outstanding, OSI will:
(a) not declare or pay any dividend on the OSI Common Stock unless
(i) PTI Holdco shall (w) simultaneously declare or pay, as the
case may be, an equivalent dividend (as provided for in the
Exchangeable Share Provisions) on the Exchangeable Shares (an
"Equivalent Dividend"), and (x) have sufficient money or other
assets or authorized but unissued securities available to enable
the due declaration and the due and punctual payment, in
accordance with applicable law, of any Equivalent Dividend, or
(ii) PTI Holdco shall (y) subdivide the Exchangeable Shares in
lieu of stock dividend thereon (as provided for in the
Exchangeable Share Provisions) (an "Equivalent Stock
Subdivision"), and (z) have sufficient authorized but unissued
securities available to enable the Equivalent Stock Subdivision;
(b) advise PTI Holdco sufficiently in advance of the declaration by OSI of any dividend on OSI Common Stock and take all such other actions as are reasonably necessary in co-operation with PTI Holdco, to ensure that (i) the respective declaration date, record date and payment date for an Equivalent Dividend shall be the same as the declaration date, record date and payment date for the
corresponding dividend on the OSI Common Stock or, (ii) the record date and effective date for an Equivalent Stock Subdivision shall be the same as the record date and payment date for the corresponding stock dividend on the OSI Common Stock;
(c) ensure that the record date for any dividend declared on OSI Common Stock is not less than ten Business Days after the declaration date for such dividend;
(d) take all such actions and do all such things as are necessary or desirable to enable and permit PTI Holdco, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of the Liquidation Amount in respect of each issued and outstanding Exchangeable Share upon the liquidation, dissolution or winding-up of PTI Holdco or any other distribution of the assets of PTI Holdco for the purpose of winding-up its affairs, including without limitation all such actions and all such things as are necessary or desirable to enable and permit PTI Holdco to cause to be delivered shares of OSI Common Stock to the holders of Exchangeable Shares in accordance with the provisions of Article 5 of the Exchangeable Share Provisions;
(e) take all such actions and do all such things as are necessary or desirable to enable and permit PTI Holdco, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of the Retraction Price and the Redemption Price, including without limitation all such actions and all such things as are necessary or desirable to enable and permit PTI Holdco to cause to be delivered shares of OSI Common Stock to the holders of Exchangeable Shares, upon the retraction or redemption of the Exchangeable Shares in accordance with the provisions of Article 6 or Article 7 of the Exchangeable Share Provisions, as the case may be; and
(f) not exercise its vote as a direct or indirect shareholder to initiate the voluntary liquidation, dissolution or winding-up of PTI Holdco nor take any action that, or omit to take any action the omission of which, is designed to or would result in the liquidation, dissolution or winding-up of PTI Holdco.
2.2 SEGREGATION OF FUNDS
OSI will cause PTI Holdco to deposit a sufficient amount of funds in a separate account and segregate a sufficient amount of such assets and other property as is necessary to enable PTI Holdco to pay or otherwise satisfy the applicable dividends, Liquidation Amount, Retraction Price or Redemption Price, in each case for the benefit of holders from time to time of the Exchangeable Shares, and PTI Holdco will use such funds, assets and other property so segregated exclusively for the payment of dividends and the payment or other satisfaction of the Liquidation Amount, the Retraction Price or the Redemption Price, as applicable, net of any corresponding withholding tax obligations and for the remittance of such withholding tax obligations.
2.3 RESERVATION OF SHARES OF OSI COMMON STOCK
OSI hereby represents, warrants and covenants that it has irrevocably reserved for issuance and will at all times keep available, free from pre-emptive and other rights, out of its authorized and unissued capital stock such number of shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by section 2.7 hereof) (i) as is equal to the sum of (A) the number of Exchangeable Shares issued and outstanding from time to time and (B) the number of Exchangeable Shares issuable upon the exercise of all rights to acquire Exchangeable Shares outstanding from time to time and (ii) as are now and may hereafter be required to enable and permit PTI Holdco to meet its obligations hereunder, under the Voting and Exchange Trust Agreement, under the Exchangeable Share Provisions and under any other security or commitment pursuant to the Arrangement with respect to which OSI may now or hereafter be required to issue shares of OSI Common Stock.
2.4 NOTIFICATION OF CERTAIN EVENTS
In order to assist OSI to comply with its obligations hereunder, PTI Holdco will give OSI notice of each of the following events at the time set forth below:
(a) immediately, in the event of any determination by the Board of Directors of PTI Holdco to take any action which would require a vote of the holders of Exchangeable Shares for approval;
(b) immediately, upon the earlier of (i) receipt by PTI Holdco of notice of, and (ii) PTI Holdco otherwise becoming aware of, any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of PTI Holdco or to effect any other distribution of the assets of PTI Holdco among its shareholders for the purpose of winding-up its affairs;
(c) immediately, upon receipt by PTI Holdco of a Retraction Request (as defined in the Exchangeable Share Provisions);
(d) at least 45 days prior to any Automatic Redemption Date determined by the Board of Directors of PTI Holdco in accordance with clause (b) of the definition of Automatic Redemption Date in the Exchangeable Share Provisions; and
(e) in the event of any determination by the Board of Directors of PTI Holdco to institute voluntary liquidation, dissolution or winding-up proceedings with respect to PTI Holdco or to effect any other distribution of the assets of PTI Holdco among its shareholders for the purpose of winding-up its affairs, at least 30 days prior to the proposed effective date of such liquidation, dissolution, winding-up or other distribution.
2.5 DELIVERY OF SHARES OF OSI COMMON STOCK
In furtherance of its obligations hereunder, upon notice of any event which requires PTI Holdco to cause to be delivered shares of OSI Common Stock to any holder of Exchangeable Shares, OSI shall forthwith issue and deliver the requisite shares of OSI Common Stock to or to the order of the former holder of the surrendered Exchangeable Shares, as PTI Holdco shall direct. All such shares of OSI Common Stock shall be duly issued as fully paid and non-assessable and shall be free and clear of any lien, claim, encumbrance, security interest or adverse claim or interest.
2.6 QUALIFICATION OF SHARES OF OSI COMMON STOCK
OSI covenants that if any shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be issued and delivered hereunder (including for greater certainty, pursuant to the Exchangeable Share Provisions, or pursuant to the Exchange Right or the Automatic Exchange Rights (all as defined in the Voting and Exchange Trust Agreement)) require registration or qualification with or approval of or the filing of any document including any prospectus or similar document, the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority under any Canadian or United States federal, provincial or state law or regulation or pursuant to the rules and regulations of any regulatory authority, or the fulfillment of any other legal requirement (collectively, the "Applicable Laws") before such shares (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) may be issued and delivered by OSI to the initial holder thereof (other than PTI Holdco) or in order that such shares may be freely tradeable thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of OSI for purposes of Canadian federal or provincial securities law or an "affiliate" of OSI for purposes of United States federal or state securities law and provided such trade is conducted through facilities of a stock exchange outside Canada), OSI will in good faith expeditiously take all such actions and do all such things as are necessary and permitted by Applicable Laws to cause such shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be and remain duly registered, qualified or approved at all times in order that such shares may be issued and delivered by OSI to the initial holder thereof (other than PTI Holdco) and in order that such shares or securities may be freely tradeable thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of OSI for purposes of Canadian provincial securities law or an "affiliate" of OSI for purposes of United States federal or state securities law provided such trade is conducted through facilities of a stock exchange outside Canada) including, without limitation, the filing and maintenance of a registration statement under the Securities Act of 1933; provided, however, that notwithstanding the foregoing, OSI will not be required to take any action, including, without limitation, the filing of a registration statement, under any United States federal or state securities law in respect of the OSI Common Stock (or other shares or securities into which OSI common stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be issued and delivered hereunder (including, for greater certainty, pursuant to the Exchangeable Share Provisions, or pursuant to the Exchange Right and the Automatic Exchange Rights) until the first anniversary of the Effective Date unless such shares or securities are being, or are to be, delivered pursuant to Articles 5 or 7 of the Exchangeable Share Provisions, pursuant to the Exchange Rights or the Automatic Exchange Rights, or pursuant to the Liquidation Call Right or the Redemption Call Right. From and after the first anniversary of the Effective Date (or such earlier date as such shares or securities may be issued and delivered pursuant to
Articles 5 or 7 of the Exchangeable Share Provisions, pursuant to the Exchange Rights or the Automatic Exchange Rights or pursuant to the Liquidation Call Right or the Redemption Call Right), OSI will in good faith expeditiously take all such actions and do all such things as are necessary to cause all shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be delivered hereunder (including, for greater certainty, pursuant to Exchangeable Share Provisions, or pursuant to the Exchange Right or the Automatic Exchange Rights) to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which such shares are listed, quoted or posted for trading at such time immediately upon their issuance.
2.7 EQUIVALENCE
(a) OSI will not:
(i) issue or distribute shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock) to the holders of all or substantially all of the then outstanding shares of OSI Common Stock by way of stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding shares of OSI Common Stock entitling them to subscribe for or to purchase shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock); or
(iii) issue or distribute to the holders of all or substantially
all of the then outstanding shares of OSI Common Stock (A)
shares or securities of OSI of any class other than OSI
Common Stock (other than shares convertible into or
exchangeable for or carrying rights to acquire shares of
OSI Common Stock), (B) rights, options or warrants other
than those referred to in subsection 2.7 (a) (ii) above,
(C) evidences of indebtedness of OSI or (D) assets of OSI;
unless
(iv) one or both of OSI and PTI Holdco is permitted under applicable law to issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets to the holders of the Exchangeable Shares; and
(v) one or both of OSI and PTI Holdco shall issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities,
shares, evidences of indebtedness or other assets simultaneously to the holders of the Exchangeable Shares.
(b) OSI will not:
(i) subdivide, redivide or change the then outstanding shares of OSI Common Stock into a greater number of shares of OSI Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding shares of OSI Common Stock into a lesser number of shares of OSI Common Stock; or
(iii) reclassify or otherwise change the shares of OSI Common Stock or effect an amalgamation, merger, reorganization or other transaction involving or affecting the shares of OSI Common Stock;
unless
(iv) PTI Holdco is permitted under applicable law to simultaneously make the same or an economically equivalent change to, or in the rights of the holders of, the Exchangeable Shares; and
(v) the same or an economically equivalent change is simultaneously made to, or in the rights of the holders of, the Exchangeable Shares.
(c) OSI will ensure that the record date for any event referred to in section 2.7(a) or 2.7(b) above, or (if no record date is applicable for such event) the effective date for any such event, is not less than 10 Business Days after the date on which such event is declared or announced by OSI (with simultaneous notice thereof to be given by OSI to PTI Holdco).
(d) The Board of Directors of PTI Holdco shall determine, in good faith and in its sole discretion, economic equivalence for the purposes of any event referred to in Section 2.7(a) or 2.7(b) above and each such determination shall be conclusive and binding on OSI. In making each such determination, the following factors shall, without excluding other factors determined by the Board of Directors of PTI Holdco to be relevant, be considered by the Board of Directors of PTI Holdco:
(i) in the case of any stock dividend or other distribution payable in OSI Common Stock, the number of such shares issued in proportion to the number of shares of OSI Common Stock previously outstanding;
(ii) in the case of the issuance or distribution of any rights, options or warrants to subscribe for or purchase OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire OSI Common Stock), the relationship between the exercise price of each such right, option or warrant and the current market value (as determined by the
Board of Directors of PTI Holdco in the manner contemplated below) of a share of OSI Common Stock;
(iii) in the case of the issuance or distribution of any other form of property (including without limitation any share or securities of OSI of any class other than OSI Common Stock, any rights, options or warrants other than those referred to in Section 2.7(d)(ii) above, any evidences of indebtedness of OSI or any assets of OSI), the relationship between the fair market value (as determined by the Board of Directors of PTI Holdco in the manner above contemplated) of such property to be issued or distributed with respect to each outstanding share of OSI Common Stock and the current market value (as determined by the Board of Directors of PTI Holdco in the manner contemplated below) of a share of OSI Common Stock;
(iv) in the case of any subdivision, redivision or change of the then outstanding shares of OSI Common Stock into a greater number of shares of OSI Common Stock or the reduction, combination, consolidation or change of the then outstanding shares of OSI Common Stock into a lesser number of shares of OSI Common Stock or any amalgamation, merger, reorganization or other transaction affecting shares of OSI Common Stock, the effect thereof upon the then outstanding shares of OSI Common Stock; and
(v) in all such cases, the general taxation consequences of the relevant event to holders of Exchangeable Shares to the extent that such consequences may differ from the taxation consequences to holders of shares of OSI Common stock as a result of differences between taxation laws of Canada and the United States (except for any differing consequences arising as a result of differing marginal taxation rates and without regard to the individual circumstances of holders of Exchangeable Shares).
For purposes of the foregoing determinations, the current market value of any security listed and traded or quoted on a securities exchange shall be the average of the closing price of such security during a period of not less than 20 consecutive trading days ending not more than five trading days before the date of determination on the principal securities exchange on which such securities are listed and traded or quoted; provided, however, that if in the opinion of the Board of Directors of PTI Holdco the public distribution or trading activity of such securities during such period does not create a market which reflects the fair market value of such securities, then the current market value thereof shall be determined by the Board of Directors of PTI Holdco, in good faith and in its sole discretion, and provided further than any such determination by the Board of Directors of PTI Holdco shall be conclusive and binding on OSI.
(e) PTI Holdco agrees that, to the extent required, upon due notice from OSI, PTI Holdco will use its best efforts to take or cause to be taken such steps as may be
necessary for the purposes of ensuring that appropriate dividends are paid or other distributions are made by PTI Holdco, or subdivisions, redivisions or changes are made to the Exchangeable Shares, in order to implement the required economic equivalence with respect to the OSI Common Stock and Exchangeable Shares as provided for in this Section 2.7.
2.8 TENDER OFFERS, ETC.
In the event that a tender offer, share exchange offer, issuer bid, take-over bid or similar transaction with respect to OSI Common Stock (an "Offer") is proposed by OSI or is proposed to OSI or its shareholders and is recommended by the Board of Directors of OSI, or is otherwise effected or to be effected with the consent or approval of the Board of Directors of OSI, and the Exchangeable Shares are not redeemed by PTI Holdco or purchased by OSI or OSI ULC pursuant to the Redemption Call Right, OSI shall, expeditiously and in good faith, take all such actions and do all such things as are necessary or desirable to enable and permit holders of Exchangeable Shares to participate in such Offer to the same extent and on an equivalent basis as the holders of shares of OSI Common Stock, without discrimination, including, without limiting the generality of the foregoing, OSI will use its good faith efforts expeditiously to (and shall, in the case of a transaction proposed by OSI or where OSI is a participant in the negotiation thereof) ensure that holders of Exchangeable Shares may participate in all such Offers without being required to retract Exchangeable Shares as against PTI Holdco (or, if so required, to ensure that any such retraction shall be effective only upon, and shall be conditional upon, the closing of the Offer and only to the extent necessary to tender or deposit to the Offer).
2.9 OWNERSHIP OF OUTSTANDING SHARES
Without the prior approval of PTI Holdco and the prior approval of the holders of the Exchangeable Shares given in accordance with Section 9.2 of the Exchangeable Share Provisions, OSI covenants and agrees in favor of PTI Holdco that, as long as any outstanding Exchangeable Shares are owned by any person or entity other than OSI or any of its Subsidiaries, OSI, alone or together with any direct or indirect wholly-owned subsidiary of OSI, will be and remain the beneficial owner of all issued and outstanding securities of PTI Holdco. Notwithstanding the foregoing, OSI shall not be in violation of this Section if any person or group of persons acting jointly or in concert acquires OSI Common Stock pursuant to any merger of OSI pursuant to which OSI was not the surviving corporation.
2.10 OSI NOT TO VOTE EXCHANGEABLE SHARES
OSI covenants and agrees that it will appoint and cause to be appointed proxy holders with respect to all Exchangeable Shares held by OSI and its Subsidiaries for the sole purpose of attending each meeting of holders of Exchangeable Shares in order to be counted as part of the quorum for each such meeting. OSI further covenants and agrees that it will not, and will cause its Subsidiaries not to, exercise any voting rights which may be exercisable by holders of Exchangeable Shares from time to time pursuant to the Exchangeable Share Provisions or pursuant to the provisions of the Act with respect to any Exchangeable Shares held by it or by its Subsidiaries in respect of any matter considered at any meeting of holders of Exchangeable Shares.
2.11 DUE PERFORMANCE
On and after the Effective Date, OSI shall duly and timely perform all of its obligations provided for in connection with the Plan of Arrangement and the Articles of Incorporation of PTI Holdco, including any obligations that may arise upon the exercise of OSI's rights under the Exchangeable Share Provisions.
ARTICLE 3
GENERAL
3.1 TERM
This agreement shall come into force and be effective as of the date hereof and shall terminate and be of no further force and effect at such time as no Exchangeable Shares (or securities or rights convertible into or exchangeable for or carrying rights to acquire Exchangeable Shares) are held by any party other than OSI and any of its Subsidiaries.
3.2 CHANGES IN CAPITAL OF OSI AND PTI HOLDCO
Notwithstanding the provisions of section 3.4 hereof, at all times after the occurrence of any event effected pursuant to section 2.7 or 2.8 hereof, as a result of which either OSI Common Stock or the Exchangeable Shares or both are in any way changed, this agreement shall forthwith be amended and modified as necessary in order that it shall apply with full force and effect, mutatis mutandis, to all new securities into which OSI Common Stock or the Exchangeable Shares or both are so changed, and the parties hereto shall as soon as possible execute and deliver an agreement in writing giving effect to and evidencing such necessary amendments and modifications.
3.3 SEVERABILITY
If any provision of this agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remainder of this agreement shall not in any way be affected or impaired thereby and this agreement shall be carried out as nearly as possible in accordance with its original terms and conditions.
3.4 AMENDMENTS, MODIFICATIONS, ETC.
This agreement may not be amended, modified or waived except by an agreement in writing executed by PTI Holdco and OSI and approved by the holders of the Exchangeable Shares in accordance with Section 10.2 of the Exchangeable Share Provisions.
3.5 MINISTERIAL AMENDMENTS
Notwithstanding the provisions of section 3.4, the parties to this agreement may in writing, at any time and from time to time, without the approval of the holders of the Exchangeable Shares, amend or modify this agreement for the purposes of:
(a) adding to the covenants of either or both parties for the protection of the holders of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this agreement as may be necessary or desirable with respect to matters or questions which, in the opinion of the board of directors of each of PTI Holdco and OSI, it may be expedient to make, provided that each such board of directors shall be of the opinion that such amendments or modifications will not be prejudicial to the interests of the holders of the Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of counsel to PTI Holdco and OSI, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error; provided that the boards of directors of each of PTI Holdco and OSI shall be of the opinion that such changes or corrections will not be prejudicial to the interests of the holders of the Exchangeable Shares.
3.6 MEETING TO CONSIDER AMENDMENTS
PTI Holdco, at the request of OSI, shall call a meeting or meetings of the holders of the Exchangeable Shares for the purpose of considering any proposed amendment or modification requiring approval of such shareholders. Any such meeting or meetings shall be called and held in accordance with the by-laws of PTI Holdco, the Exchangeable Share Provisions and all Applicable Laws.
3.7 AMENDMENTS ONLY IN WRITING
No amendment to or modification or waiver of any of the provisions of this agreement otherwise permitted hereunder shall be effective unless made in writing and signed by both of the parties hereto and approved by holders of Exchangeable Shares pursuant to Section 9.2 of the Exchangeable Share Provisions.
3.8 INUREMENT
This agreement shall be binding upon and inure to the benefit of the parties hereto and each of their respective heirs, successors and assigns.
3.9 NOTICES TO PARTIES
All notices and other communications between the parties shall be in writing and shall be deemed to have been given if delivered personally or by confirmed telecopy to the parties at the following addresses (or at such other address for either such party as shall be specified in like notice):
(a) if to OSI:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
with a copy to:
Donahue, Ernst & Young LLP
1000 Ernst & Young Tower
440 - 2nd Avenue S.W.
P.O. Box 2258, station M
Calgary, Alberta T2P 5E5
Attention: Richard Peters Fax: (403) 206-5525
(b) if to PTI Holdco to:
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
Any notice or other communication given personally shall be deemed to have been given and received upon delivery thereof and if given by telecopy shall be deemed to have been given and received on the date of confirmed receipt thereof, unless such day is not a Business Day, in which case it shall be deemed to have been given and received upon the immediately following Business Day.
3.10 COUNTERPARTS
This agreement may be executed in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Executed counterparts of this agreement may be delivered by facsimile transmission.
3.11 JURISDICTION
This agreement shall be construed and enforced in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein.
3.12 ATTORNMENT
OSI agrees that any action or proceeding arising out of or relating to this agreement may be instituted in the courts of the Province of Alberta, waives any objection which it may have now or hereafter to the venue of any such action or proceeding, irrevocably submits to the jurisdiction of such courts in any such action or proceeding, agrees to be bound by any judgment of such courts and not to seek, and hereby waives, any review of the merits of any such judgment by the courts of any other jurisdiction and hereby appoints PTI Holdco at its registered office in the Province of Alberta as OSI's attorney for service of process.
IN WITNESS WHEREOF, OSI and PTI Holdco have caused this agreement to be signed by their respective officers thereunder duly authorized, all as of the date first written above.
OIL STATES INTERNATIONAL, INC.
EXHIBIT D
VOTING AND EXCHANGE TRUST AGREEMENT
EXHIBIT D
TO THE COMBINATION AGREEMENT
VOTING AND EXCHANGE TRUST AGREEMENT
THIS VOTING AND EXCHANGE TRUST AGREEMENT is entered into as of o, 2000, by and between Oil States International, Inc., a Delaware corporation ("OSI"), o, an Alberta corporation ("PTI Holdco"), and Montreal Trust Company of Canada, a Canadian trust company ("Trustee").
RECITALS:
A. Pursuant to a Combination Agreement dated as of July 31, 2000 by and among OSI, HWC Energy Services, Inc., Sooner Inc. and PTI Group, Inc. ("PTI") and such other parties referenced therein (such agreement as it may be amended or restated is hereinafter referred to as the "Combination Agreement"), the parties agreed that on the Effective Date (as defined in the Combination Agreement), OSI and PTI Holdco would execute and deliver a Voting and Exchange Trust Agreement containing the terms and conditions set forth in Exhibit D to the Combination Agreement together with such other terms and conditions as may be agreed to by the parties to the Combination Agreement acting reasonably.
B. Pursuant to an arrangement (the "Arrangement") effected by Articles of Arrangement dated o, 2000 filed pursuant to the Business Corporations Act (Alberta) (or any successor or other corporate statute by which PTI may in the future be governed) (the "Act"), each issued and outstanding common share of PTI (a "PTI Common Share"), other than those cancelled pursuant to the Arrangement or held by OSI or by a Subsidiary of OSI, was ultimately exchanged for Exchangeable Shares of PTI Holdco (the "Exchangeable Shares");
C. The Articles of Incorporation of PTI Holdco set forth the rights, privileges, restrictions and conditions attaching to the Exchangeable Shares (collectively, the "Exchangeable Share Provisions"), and a copy of such Articles of Incorporation is attached hereto as Appendix A;
D. OSI is to provide voting rights in OSI to each holder (other than OSI and its Subsidiaries) from time to time of Exchangeable Shares, such voting rights per Exchangeable Share to be equivalent to the voting rights per share of OSI Common Stock;
E. OSI is to grant to and in favor of the holders (other than OSI and its Subsidiaries) from time to time of Exchangeable Shares the right, in the circumstances set forth herein, to require OSI or OSI ULC to purchase from each such holder all or any part of the Exchangeable Shares held by the holder;
F. The parties desire to make appropriate provision and to establish a procedure whereby voting rights in OSI shall be exercisable by holders (other than OSI and its Subsidiaries) from time to time of Exchangeable Shares by and through the Trustee, which will hold legal title to and a share certificate in respect of one share of OSI Special Voting Stock (the "OSI Special Voting Stock") to which voting rights attach for the benefit of such holders of Exchangeable Shares and whereby the rights to require OSI or, at the option of OSI, OSI ULC, to purchase Exchangeable Shares from the holders thereof (other than OSI and its Subsidiaries) shall be
exercisable by such holders from time to time of Exchangeable Shares by and through the Trustee, which will hold legal title to such rights for the benefit of such holders;
G. These recitals and any statements of fact in this agreement are made by OSI and PTI Holdco and not by the Trustee;
NOW THEREFORE, in consideration of the respective covenants and agreements provided in this agreement and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this agreement, the following terms shall have the following meanings:
"Act" has the meaning in the recitals hereto;
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which holders of OSI Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of shares of
Exchangeable Shares issued and outstanding and held by Holders multiplied by
(ii) the Equivalent Vote Amount.
"Applicable Laws" has the meaning provided in Section 5.10 hereof.
"Arrangement" has the meaning provided in the recitals hereto.
"Automatic Exchange Rights" means the benefit of the obligation of OSI to effect the automatic exchange of shares of OSI Common Stock for Exchangeable Shares pursuant to Section 5.12 hereof.
"Board of Directors" means the Board of Directors of PTI Holdco.
"Business Day" has the meaning provided in the Exchangeable Share Provisions.
"Combination Agreement" has the meaning in the recitals hereto.
"Equivalent Vote Amount" means, with respect to any matter, proposition or question on which holders of OSI Common Stock are entitled to vote, consent or otherwise act, the number of votes to which a holder of one share of OSI Common Stock is entitled with respect to such matter, proposition or question.
"Exchange Right" has the meaning provided in Section 5.1(b) hereof.
"Exchangeable Share Consideration" has the meaning provided in the Exchangeable Share Provisions.
"Exchangeable Share Price" has the meaning provided in the Exchangeable Share Provisions.
"Exchangeable Share Provisions" has the meaning provided in the recitals hereto.
"Exchangeable Shares" has the meaning provided in the recitals hereto.
"freely tradeable", with respect to OSI Common Stock, means freely transferable under Canadian provincial securities laws and U.S. federal and state securities laws (pursuant to an effective resale shelf registration statement or otherwise and assuming the reasonable cooperation of the holder or recipient of OSI Common Stock in connection with any required resale shelf registration statement), except to the extent restrictions arise by reason of a person being a "control person" of OSI for the purposes of Canadian provincial securities laws or an "affiliate" of OSI for the purposes of United States federal or state securities laws, provided any trades in such securities are conducted through the facilities of a stock exchange outside Canada.
"Holder Votes" has the meaning provided in Section 4.2 hereof.
"Holders" means the registered holders from time to time of Exchangeable Shares, other than OSI and its Subsidiaries.
"Insolvency Event" means the institution by PTI Holdco of any proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or the consent of PTI Holdco to the institution of bankruptcy, insolvency, dissolution or winding-up proceedings against it, or the filing of a petition, answer or consent seeking dissolution or winding-up under any bankruptcy, insolvency or analogous laws, including without limitation the Companies' Creditors Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the failure by PTI Holdco to contest in good faith any such proceedings commenced in respect of PTI Holdco within 15 days of becoming aware thereof, or if so contested the adjudication that PTI Holdco is bankrupt or insolvent or is to be dissolved or wound-up, or the consent by PTI Holdco to the filing of any such petition or to the appointment of a receiver, or the making by PTI Holdco of a general assignment for the benefit of creditors, or the admission in writing by PTI Holdco of its inability to pay its debts generally as they become due, or PTI Holdco's not being permitted, pursuant to liquidity or solvency requirements of applicable law, to redeem any Retracted Shares pursuant to Section 6.6 of the Exchangeable Share Provisions.
"Liquidation Call Right" has the meaning provided in the Exchangeable Share Provisions.
"Liquidation Event" has the meaning provided in subsection 5.12(b) hereof.
"Liquidation Event Effective Time" has the meaning provided in subsection 5.12(c) hereof.
"List" has the meaning provided in Section 4.6 hereof.
"Officer's Certificate" means, with respect to OSI or PTI Holdco, as the case may be, a certificate signed by any one of the Chairman of the Board, the Vice-Chairman of the Board (if there be one), the President or any Vice-President of OSI or PTI Holdco, as the case may be.
"OSI" has the meaning in the recitals hereto.
"OSI Common Stock" has the meaning provided in the Exchangeable Share Provisions.
"OSI Consent" has the meaning provided in Section 4.2 hereof.
"OSI Meeting" has the meaning provided in Section 4.2 hereof.
"OSI Special Voting Stock" has the meaning provided in the recitals hereto.
"OSI ULC" means the Subsidiary of OSI incorporated under the Companies Act (Nova Scotia) for the purpose of delivering OSI Common Stock as provided for in this Agreement, the Exchangeable Share Provisions or the Support Agreement.
"PTI" has the meaning in the recitals hereto.
"PTI Stock Options" means the outstanding options entitling the holders to acquire upon exercise thereof up to o PTI Common Shares in the aggregate.
"PTI Holdco" has the meaning in the recitals hereto.
"Person" includes an individual, body corporate, partnership, company, unincorporated syndicate or organization, trust, trustee, executor, administrator and other legal representative.
"Plan of Arrangement" has the meaning provided in the Exchangeable Share Provisions.
"Redemption Call Right" has the meaning provided in the Exchangeable Share Provisions.
"Retracted Shares" has the meaning provided in Section 5.7 hereof.
"Retraction Call Right" has the meaning provided in the Exchangeable Share Provisions.
"Subsidiary" has the meaning provided in the Exchangeable Share Provisions.
"Successor" has the meaning provided in subsection 11. 1 (a) hereof.
"Support Agreement" means that certain support agreement made as of even date hereof by and between OSI and PTI Holdco.
"Trust" means the trust created by this agreement.
"Trust Estate" means the Voting Share, any other securities, the Exchange Right, the Automatic Exchange Rights and any money or other property which may be held by the Trustee from time to time pursuant to this agreement.
"Trustee" means Montreal Trust Company of Canada and, subject to the provisions of Article 10 hereof, includes any successor trustee or permitted assigns.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one share of OSI Special Voting Stock, U.S. $0.0001 par value, issued by OSI to and deposited with the Trustee, which entitles the holder of record to a number of votes at meetings of holders of OSI Common Stock equal to the Aggregate Equivalent Vote Amount.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles, sections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this agreement.
1.3 NUMBER, GENDER, ETC.
Words importing the singular number only shall include the plural and vice versa. Words importing the use of any gender shall include all genders.
1.4 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this agreement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day.
1.5 PAYMENTS
All payments to be made hereunder will be made without interest and less any tax required by Canadian law to be deducted or withheld.
ARTICLE 2
PURPOSE OF AGREEMENT
2.1 The purpose of this agreement is to create the Trust for the benefit of the Holders, as herein provided. The Trustee will hold the Voting Share in order to enable the Trustee to exercise the Voting Rights and will hold the Exchange Right and the Automatic Exchange Rights in order to enable the Trustee to exercise such rights, in each case as trustee for and on behalf of the Holders as provided in this agreement.
ARTICLE 3
VOTING SHARE
3.1 ISSUANCE AND OWNERSHIP OF THE VOTING SHARE
OSI hereby issues to and deposits with the Trustee the Voting Share to be hereafter held of record by the Trustee as trustee for and on behalf of, and for the use and benefit of, the Holders and in accordance with the provisions of this agreement. OSI hereby acknowledges receipt from the Trustee as trustee for and on behalf of the Holders of good and valuable consideration (and the adequacy thereof) for the issuance of the Voting Share by OSI to the Trustee. During the term of the Trust and subject to the terms and conditions of this agreement, the Trustee shall possess and be vested with full legal ownership of the Voting Share and shall be entitled to exercise all of the rights and powers of an owner with respect to the Voting Share, provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely for the use and benefit of the Holders in accordance with the provisions of this agreement; and
(b) except as specifically authorized by this agreement, have no power or authority to sell, transfer, vote or otherwise deal in or with the Voting Share, and the Voting Share shall not be used or disposed of by the Trustee for any purpose other than the purposes for which this Trust is created pursuant to this agreement.
3.2 LEGENDED SHARE CERTIFICATES
PTI Holdco will cause each certificate representing Exchangeable Shares to bear an appropriate legend notifying the Holders of their right to instruct the Trustee with respect to the exercise of the Voting Rights with respect to the Exchangeable Shares held by a Holder.
3.3 SAFE KEEPING OF CERTIFICATE
The certificate representing the Voting Share shall at all times be held in safe keeping by the Trustee or its agent.
3.4 HOLDERS' BENEFIT
For greater certainty, the Trustee holds the benefit of the Voting Rights for the Holders, but all other rights in respect of the Voting Share, including without limitation any rights to receive dividends on the Voting Share, are for the benefit of OSI.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 VOTING RIGHTS
The Trustee, as the holder of record of the Voting Share, shall be entitled to all of the Voting Rights, including the right to consent to or to vote in person or by proxy the Voting Share, on any matter, question or proposition whatsoever that may properly come before the stockholders of OSI at a OSI Meeting or in connection with a OSI Consent (in each case, as hereinafter defined). The Voting Rights shall be and remain vested in and exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Voting Rights only on the basis of instructions received pursuant to this Article 4 from Holders entitled to instruct the Trustee as to the voting thereof at the time at which a OSI Consent is sought or a OSI Meeting is held. To the extent that no instructions are received from a Holder with respect to the Voting Rights to which such Holder is entitled, the Trustee shall not exercise or permit the exercise of such Holder's Voting Rights.
4.2 NUMBER OF VOTES
With respect to all meetings of stockholders of OSI at which holders of shares of OSI Common Stock are entitled to vote (a "OSI Meeting") and with respect to all written consents sought by OSI from its stockholders including the holders of shares of OSI Common Stock (a "OSI Consent"), each Holder shall be entitled to instruct the Trustee to cast and exercise, in the manner instructed, a number of votes equal to the Equivalent Vote Amount for each
Exchangeable Share owned of record by such Holder on the record date established by OSI or by applicable law for such OSI Meeting or OSI Consent, as the case may be, (the "Holder Votes") in respect of each matter, question or proposition to be voted on at such OSI Meeting or to be consented to in connection with such OSI Consent.
4.3 MAILINGS TO SHAREHOLDERS
With respect to each OSI Meeting and OSI Consent, the Trustee will mail or cause to be mailed (or otherwise communicate in the same manner as OSI utilizes in communications to holders of OSI Common Stock, subject to the Trustee's ability to provide this method of communication and upon being advised in writing of such method) to each of the Holders named in the List on the same day as the initial mailing or notice (or other communication) with respect thereto is given by OSI to its stockholders:
(a) a copy of such notice, together with any proxy or information statement and related materials to be provided to holders of OSI Common Stock;
(b) a statement of the number of Holder Votes which the Holder is entitled to exercise;
(c) a statement that such Holder is entitled to instruct the Trustee
as to the exercise of the Holder Votes with respect to such OSI
Meeting or OSI Consent, as the case may be, or, pursuant to
Section 4.7 hereof, to attend such OSI Meeting and to exercise
personally the Holder Votes thereat;
(d) a statement as to the manner in which such instructions may be given to the Trustee, including an express indication that instructions may be given to the Trustee to give:
(i) a proxy to such Holder or such Holder's designee to exercise personally the Holder Votes; or
(ii) a proxy to a designated agent or other representative of the management of OSI to exercise such Holder Votes;
(e) a statement that if no voting instructions are received from the Holder, the Holder Votes to which such Holder is entitled will not be exercised;
(f) a form of direction whereby the Holder may so direct and instruct the Trustee as contemplated herein; and
(g) a statement of (i) the time and date by which such instructions
must be received by the Trustee in order to be binding upon it,
which in the case of a OSI Meeting shall not be earlier than the
close of business on the Business Day prior to such meeting, and
(ii) the method for revoking or amending such instructions.
The materials referred to above are to be provided by OSI to the Trustee, but shall be subject to review and comment by the Trustee.
For the purpose of determining Holder Votes to which a Holder is entitled in respect of any such OSI Meeting or OSI Consent, the number of Exchangeable Shares owned of record by the Holder shall be determined at the close of business on the record date established by OSI or by applicable law for purposes of determining stockholders entitled to vote at such OSI Meeting or to give written consent in connection with such OSI Consent. OSI will notify the Trustee in writing of any decision of the board of directors of OSI with respect to the calling of any such OSI Meeting or the seeking of any such OSI Consent and shall provide all necessary information and materials to the Trustee in each case promptly and in any event in sufficient time to enable the Trustee to perform its obligations contemplated by this Section 4.3.
4.4 COPIES OF STOCKHOLDER INFORMATION
OSI will deliver to the Trustee copies of all proxy materials, (including notices of OSI Meetings, but excluding proxies to vote shares of OSI Common Stock), information statements, reports (including without limitation all interim and annual financial statements) and other written communications that are to be distributed from time to time to holders of OSI Common Stock in sufficient quantities and in sufficient time so as to enable the Trustee to send those materials to each Holder, to the extent possible, at the same time as such materials are first sent to holders of OSI Common Stock. The Trustee will mail or otherwise send to each Holder, at the expense of OSI, copies of all such materials (and all materials specifically directed to the Holders or to the Trustee for the benefit of the Holders by OSI) received by the Trustee from OSI, to the extent possible, at the same time as such materials are first sent to holders of OSI Common Stock. The Trustee will make copies of all such materials available for inspection by any Holder at the Trustee's principal transfer office in the cities of Calgary and Toronto.
4.5 OTHER MATERIALS
Immediately after receipt by OSI or any stockholder of OSI of any material sent or given generally to the holders of OSI Common Stock by or on behalf of a third party, including without limitation dissident proxy and information circulars (and related information and material) and tender and exchange offer circulars (and related information and material), OSI shall use its reasonable best efforts to obtain and deliver to the Trustee copies thereof in sufficient quantities so as to enable the Trustee to forward such material (unless the same has been provided directly to Holders by such third party) to each Holder as soon as possible thereafter. As soon as practicable after receipt thereof, the Trustee will mail or otherwise send to each Holder, at the expense of OSI, copies of all such materials received by the Trustee from OSI. The Trustee will also make copies of all such materials available for inspection by any Holder at the Trustee's principal transfer office in the cities of Calgary and Toronto.
4.6 LIST OF PERSONS ENTITLED TO VOTE
PTI Holdco shall, (i) prior to each annual, general or special OSI Meeting or the seeking of any OSI Consent and (ii) forthwith upon each request made at any time by the Trustee in writing, prepare or cause to be prepared a list (a "List") of the names and addresses of the Holders arranged in alphabetical order and showing the number of Exchangeable Shares held of record by each such Holder, in each case at the close of business on the date specified by the Trustee in such request or, in the case of a List prepared in connection with a OSI Meeting or a OSI Consent, at the close of business on the record date established by OSI or pursuant to
applicable law for determining the holders of OSI Common Stock entitled to receive notice of and/or to vote at such OSI Meeting or to give consent in connection with such OSI Consent. Each such List shall be delivered to the Trustee promptly after receipt by PTI Holdco of such request or the record date for such meeting or seeking of consent, as the case may be, and in any event within sufficient time as to enable the Trustee to perform its obligations under this agreement. OSI agrees to give PTI Holdco written notice (with a copy to the Trustee) of the calling of any OSI Meeting or the seeking of any OSI Consent, together with the record dates therefor, sufficiently prior to the date of the calling of such meeting or seeking of such consent so as to enable PTI Holdco to perform its obligations under this Section 4.6.
4.7 ENTITLEMENT TO DIRECT VOTES
Any Holder named in a List prepared in connection with any OSI Meeting or any OSI Consent will be entitled (i) to instruct the Trustee in the manner described in Section 4.3 hereof with respect to the exercise of the Holder Votes to which such Holder is entitled or (ii) to attend such meeting and personally to exercise thereat (or to exercise with respect to any written consent), as the proxy of the Trustee, the Holder Votes to which such Holder is entitled.
4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT MEETING
(a) In connection with each OSI Meeting and OSI Consent, the Trustee shall exercise, either in person or by proxy, in accordance with the instructions received from a Holder pursuant to Section 4.3 hereof, the Holder Votes as to which such Holder is entitled to direct the vote (or any lesser number thereof as may be set forth in the instructions); provided, however, that such written instructions are received by the Trustee from the Holder prior to the time and date fixed by it for receipt of such instructions in the notice given by the Trustee to the Holder pursuant to Section 4.3 hereof.
(b) The Trustee shall cause such representatives as are empowered by it to sign and deliver, on behalf of the Trustee, proxies for Voting Rights to attend each OSI Meeting. Upon submission by a Holder (or its designee) of identification satisfactory to the Trustee's representatives, and at the Holder's request, such representatives shall sign and deliver to such Holder (or its designee) a proxy to exercise personally the Holder Votes as to which such Holder is otherwise entitled hereunder to direct the vote, if such Holder either:
(i) has not previously given the Trustee instructions pursuant to Section 4.3 hereof in respect of such OSI Meeting, or
(ii) submits to the Trustee's representatives written revocation of any such previous instructions.
At such OSI Meeting, the Holder exercising such Holder Votes shall have the same rights as the Trustee to speak at the meeting in respect of any matter, question or proposition, to vote by way of ballot at the meeting in respect of any matter, question or proposition and to vote at such meeting by way of a show of hands in respect of any matter, question or proposition.
4.9 DISTRIBUTION OF WRITTEN MATERIALS
Any written materials to be distributed by the Trustee to the Holders pursuant to this agreement shall be delivered or sent by mail (or otherwise communicated in the same manner as OSI utilizes in communications to holders of OSI Common Stock subject to the Trustee's ability to provide this method of communication and upon being advised in writing of such method) to each Holder at its address as shown on the books of PTI Holdco. PTI Holdco shall provide or cause to be provided to the Trustee for this purpose, on a timely basis and without charge or other expense:
(a) current lists of the Holders; and
(b) on the request of the Trustee, mailing labels to enable the Trustee to carry out its duties under this agreement.
The materials referred to above are to be provided by PTI Holdco to the Trustee, but shall be subject to review and comment by the Trustee.
4.10 TERMINATION OF VOTING RIGHTS
Except as otherwise provided herein or in the Exchangeable Share Provisions, all of the rights of a Holder with respect to the Holder Votes exercisable in respect of the Exchangeable Shares held by such Holder, including the right to instruct the Trustee as to the voting of or to vote personally such Holder Votes, shall be deemed to be surrendered by the Holder to OSI, and such Holder Votes and the Voting Rights represented thereby shall cease immediately, upon the delivery by such Holder to the Trustee of the certificates representing such Exchangeable Shares in connection with the exercise by the Holder of the Exchange Right or the occurrence of the automatic exchange of Exchangeable Shares for shares of OSI Common Stock, as specified in Article 5 hereof (unless in any case OSI or OSI ULC shall not have delivered the Exchangeable Share Consideration deliverable in exchange therefor to the Trustee for delivery to the Holders), or upon the redemption of Exchangeable Shares pursuant to Article 6 or Article 7 of the Exchangeable Share Provisions, or upon the effective date of the liquidation, dissolution or winding-up of PTI Holdco or any other distribution of the assets of PTI Holdco among its shareholders for the purpose of winding up its affairs pursuant to Article 5 of the Exchangeable Share Provisions, or upon the purchase of Exchangeable Shares from the holder thereof by OSI pursuant to the exercise by OSI of the Retraction Call Right, the Redemption Call Right or the Liquidation Call Right.
ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT AND AUTOMATIC EXCHANGE RIGHTS
OSI hereby grants to the Trustee as trustee for and on behalf of, and for the use and benefit of, the Holders:
(a) the right (the "Exchange Right"), upon the occurrence and during the continuance of an Insolvency Event, to require OSI to purchase or cause OSI ULC to purchase
from each or any Holder all or any part of the Exchangeable Shares held by the Holders; and
(b) the Automatic Exchange Rights,
all in accordance with the provisions of this agreement and the Exchangeable Share Provisions, as the case may be. OSI hereby acknowledges receipt from the Trustee as trustee for and on behalf of the Holders of good and valuable consideration (and the adequacy thereof) for the grant of the Exchange Right and the Automatic Exchange Rights by OSI to the Trustee. During the term of the Trust and subject to the terms and conditions of this agreement, the Trustee shall possess and be vested with full legal ownership of the Exchange Right and the Automatic Exchange Rights and shall be entitled to exercise and enforce for the benefit of the Holders all of the rights and powers of an owner with respect to the Exchange Right and the Automatic Exchange Rights, provided that the Trustee shall:
(c) hold the Exchange Right and the Automatic Exchange Rights and the legal title thereto as trustee solely for the use and benefit of the Holders in accordance with the provisions of this agreement; and
(d) except as specifically authorized by this agreement, have no power or authority to exercise or otherwise deal in or with the Exchange Right or the Automatic Exchange Rights, and the Trustee shall not exercise any such rights for any purpose other than the purposes for which this Trust is created pursuant to this agreement.
5.2 LEGENDED SHARE CERTIFICATES
PTI Holdco will cause each certificate representing Exchangeable Shares to bear an appropriate legend notifying the Holders of:
(a) their right to instruct the Trustee with respect to the exercise of the Exchange Right in respect of the Exchangeable Shares held by a Holder; and
(b) the Automatic Exchange Rights.
5.3 GENERAL EXERCISE OF THE EXCHANGE RIGHT
The Exchange Right shall be and remain vested in and exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Exchange Right only on the basis of instructions received pursuant to this Article 5 from Holders entitled to instruct the Trustee as to the exercise thereof. To the extent that no instructions are received from a Holder with respect to the Exchange Right, the Trustee shall not exercise or permit the exercise of the Exchange Right.
5.4 PURCHASE PRICE
The purchase price payable by OSI or OSI ULC for each Exchangeable Share to be purchased by OSI or OSI ULC under the Exchange Right shall be an amount equal to the Exchangeable Share Price on the last Business Day prior to the day of closing of the purchase and sale of such Exchangeable Share under the Exchange Right. In connection with each
exercise of the Exchange Right, OSI will provide to the Trustee an Officer's Certificate setting forth the calculation of the applicable Exchangeable Share Price for each Exchangeable Share. The applicable Exchangeable Share Price for each such Exchangeable Share so purchased may be satisfied only by OSI's issuing and delivering or causing to be delivered to the Trustee, on behalf of the relevant Holder, the applicable Exchangeable Share Consideration representing the total applicable Exchangeable Share Price.
5.5 EXERCISE INSTRUCTIONS FOR EXCHANGE RIGHT
Subject to the terms and conditions herein set forth, a Holder shall be entitled, upon the occurrence and during the continuance of an Insolvency Event, to instruct the Trustee to exercise the Exchange Right with respect to all or any part of the Exchangeable Shares registered in the name of such Holder on the books of PTI Holdco. To cause the exercise of the Exchange Right by the Trustee, the Holder shall deliver to the Trustee, in person or by certified or registered mail, at its principal transfer offices in Calgary, Alberta or at such other places in Canada as the Trustee may from time to time designate by written notice to the Holders, the certificates representing the Exchangeable Shares which such Holder desires OSI to purchase, duly endorsed in blank, and accompanied by such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of PTI Holdco and such additional documents and instruments as the Trustee may reasonably require, together with:
(a) a duly completed form of notice of exercise of the Exchange Right, contained on the reverse of or attached to the Exchangeable Share certificates, stating:
(i) that the Holder thereby instructs the Trustee to exercise the Exchange Right so as to require OSI or OSI ULC to purchase from the Holder the number of Exchangeable Shares specified therein,
(ii) that such Holder has good title to and owns all such Exchangeable Shares to be acquired by OSI or OSI ULC free and clear of all liens, claims, encumbrances, security interests and adverse claims or interests,
(iii) the names in which the certificates representing OSI Common Stock issuable in connection with the exercise of the Exchange Right are to be issued, and
(iv) the names and addresses of the persons to whom the Exchangeable Share Consideration should be delivered; and
(b) payment (or evidence satisfactory to the Trustee, PTI Holdco and OSI or OSI ULC of payment) of the taxes (if any) payable as contemplated by Section 5.8 of this agreement.
If only a part of the Exchangeable Shares represented by any certificate or certificates delivered to the Trustee are to be purchased by OSI or OSI ULC under the Exchange Right, a new certificate for the balance of such Exchangeable Shares shall be issued to the Holder at the expense of PTI Holdco.
5.6 DELIVERY OF EXCHANGEABLE SHARE CONSIDERATION; EFFECT OF EXERCISE
Promptly after receipt of the certificates representing the Exchangeable Shares which the Holder desires OSI or OSI ULC to purchase under the Exchange Right (together with such documents and instruments of transfer and a duly completed form of notice of exercise of the Exchange Right), duly endorsed for transfer to OSI, the Trustee shall notify OSI, OSI ULC and PTI Holdco of its receipt of the same, which notice to OSI, OSI ULC and PTI Holdco shall constitute exercise of the Exchange Right by the Trustee on behalf of the Holder of such Exchangeable Shares, and OSI or OSI ULC shall immediately thereafter deliver or cause to be delivered to the Trustee, for delivery to the Holder of such Exchangeable Shares (or to such other persons, if any, properly designated by such Holder), the Exchangeable Share Consideration deliverable in connection with the exercise of the Exchange Right; provided, however, that no such delivery shall be made unless and until the Holder requesting the same shall have paid (or provided evidence satisfactory to the Trustee, PTI Holdco and OSI or OSI ULC of the payment of) the taxes (if any) payable as contemplated by Section 5.8 of this agreement. Immediately upon the giving of notice by the Trustee to OSI, OSI ULC and PTI Holdco of the exercise of the Exchange Right, as provided in this Section 5.6, (i) the closing of the transaction of purchase and sale contemplated by the Exchange Right shall be deemed to have occurred, (ii) OSI or OSI ULC shall be required to take all action necessary to permit it to occur, including delivery to the Trustee of the relevant Exchangeable Share Consideration, no later than the close of business on the third Business Day following the receipt by the Trustee of notice, certificates and other documents as aforesaid and (iii) the Holder of such Exchangeable Shares shall be deemed to have transferred to OSI or OSI ULC all of its right, title and interest in and to such Exchangeable Shares and the related interest in the Trust Estate, shall cease to be a holder of such Exchangeable Shares and shall not be entitled to exercise any of the rights of a holder in respect thereof, other than the right to receive his proportionate part of the total purchase price therefor, unless such Exchangeable Share Consideration is not delivered by OSI or OSI ULC to the Trustee by the date specified above, in which case the rights of the Holder shall remain unaffected until such Exchangeable Share Consideration is delivered by OSI or OSI ULC and any cheque included therein is paid. Concurrently with such Holder ceasing to be a holder of Exchangeable Shares, the Holder shall be considered and deemed for all purposes to be the holder of the shares of OSI Common Stock delivered to it pursuant to the Exchange Right. Notwithstanding the foregoing, until the Exchangeable Share Consideration is delivered to the Holder, the Holder shall be deemed to still be a holder of the sold Exchangeable Shares for purposes of the Voting Rights with respect thereto.
5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION
In the event that a Holder has exercised its right under Article 6 of
the Exchangeable Share Provisions to require PTI Holdco to redeem any or all of
the Exchangeable Shares held by the Holder (the "Retracted Shares") and is
notified by PTI Holdco pursuant to Section 6.6 of the Exchangeable Share
Provisions that PTI Holdco will not be permitted as a result of liquidity or
solvency provisions of applicable law to redeem all such Retracted Shares,
subject to receipt by the Trustee of written notice to that effect from PTI
Holdco and provided that OSI or OSI ULC shall not have exercised the Retraction
Call Right with respect to the Retracted Shares and that the Holder has not
revoked the retraction request delivered by the Holder to PTI Holdco pursuant to
Section 6.1 of the Exchangeable Share Provisions, the retraction request will
constitute and
will be deemed to constitute notice from the Holder to the Trustee instructing the Trustee to exercise the Exchange Right with respect to those Retracted Shares which PTI Holdco is unable to redeem. In any such event, PTI Holdco hereby agrees with the Trustee and in favour of the Holder immediately to notify the Trustee of such prohibition against PTI Holdco's redeeming all of the Retracted Shares and immediately to forward or cause to be forwarded to the Trustee all relevant materials delivered by the Holder to PTI Holdco or to the transfer agent of the Exchangeable Shares (including without limitation a copy of the retraction request delivered pursuant to Section 6.1 of the Exchangeable Share Provisions) in connection with such proposed redemption of the Retracted Shares, and the Trustee will thereupon exercise the Exchange Right with respect to the Retracted Shares which PTI Holdco is not permitted to redeem and will require OSI or OSI ULC to purchase such shares in accordance with the provisions of this Article 5.
5.8 STAMP OR OTHER TRANSFER TAXES
Upon any sale of Exchangeable Shares to OSI or OSI ULC pursuant to the Exchange Right or the Automatic Exchange Rights, the share certificate or certificates representing OSI Common Stock to be delivered in connection with the payment of the total purchase price therefor shall be issued in the name of the Holder of the Exchangeable Shares so sold or in such names as such Holder may otherwise direct in writing without charge to the holder of the Exchangeable Shares so sold, provided, however, that such Holder:
(a) shall pay (and none of OSI, OSI ULC, PTI Holdco or the Trustee shall be required to pay) any documentary, stamp, transfer or other similar taxes that may be payable in respect of any transfer involved in the issuance or delivery of such shares to a person other than such Holder; or
(b) shall have established to the satisfaction of the Trustee, OSI, OSI ULC and PTI Holdco that such taxes, if any, have been paid.
PTI Holdco and the Trustee (as directed in writing by PTI Holdco) shall be entitled to deduct and withhold from any consideration otherwise payable under this Agreement to any Holder such amounts as PTI Holdco or the Trustee is required or permitted to deduct and withhold with respect to such payment under the Income Tax Act (Canada), the United States Internal Revenue Code of 1986 or any provision of provincial, state, local or foreign tax law, in each case as amended or succeeded unless such Holder provides to PTI Holdco certificates or such other assurances as are provided for under the Income Tax Act (Canada), the United States Internal Revenue Code of 1986 or such other applicable taxation provisions. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes as having been paid to the Holder in respect of which such deduction and withholding was made, provided that such withheld amounts are actually remitted to the appropriate taxing authority as and when required. To the extent that the amount so required or permitted to be deducted or withheld from any payment to a Holder exceeds the cash portion, if any, of the consideration otherwise payable to the Holder, PTI Holdco and the Trustee are hereby authorized to sell or otherwise dispose of such portion of the consideration as is necessary to provide sufficient funds to PTI Holdco or the Trustee, as the case may be, to enable it to comply with such deduction or withholding requirement and PTI Holdco or the Trustee shall notify the Holder and remit to such Holder any unapplied balance of the net proceeds of such sale.
5.9 NOTICE OF INSOLVENCY EVENT
Immediately upon the occurrence of an Insolvency Event or any event which with the giving of notice or the passage of time or both would be an Insolvency Event, PTI Holdco and OSI shall give written notice thereof to the Trustee. As soon as practicable after receiving notice from PTI Holdco or OSI of the occurrence of an Insolvency Event, the Trustee will mail to each Holder, at the expense of OSI, a notice of such Insolvency Event in the form provided by OSI, which notice shall contain a brief statement of the right of the Holders with respect to the Exchange Right.
5.10 QUALIFICATION OF OSI COMMON STOCK
OSI covenants with the Trustee for the benefit of Holders that if any shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 of the Support Agreement) to be issued and delivered pursuant to the Exchange Right or the Automatic Exchange Rights require registration or qualification with or approval of or the filing of any document including any prospectus or similar document, the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority under any Canadian or United States federal, provincial or state law or regulation or pursuant to the rules and regulations of any regulatory authority, or the fulfillment of any other legal requirement (collectively, the "Applicable Laws") before such shares (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 of the Support Agreement) may be issued and delivered by OSI to the initial holder thereof (other than PTI Holdco) or in order that such shares may be freely tradeable thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of OSI for purposes of Canadian provincial securities law or an "affiliate" of OSI for purposes of United States federal or state securities law and provided such trade is conducted through facilities of a stock exchange outside Canada), OSI will in good faith expeditiously take all such actions and do all such things as are necessary and permitted by Applicable Laws to cause such shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 of the Support Agreement) to be and remain duly registered, qualified or approved at all times in order that such shares may be issued and delivered by OSI to the initial holder thereof (other than PTI Holdco) and in order that such shares or securities may be freely tradeable thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of OSI for purposes of Canadian provincial securities law or an "affiliate" of OSI for purposes of United States federal or state securities law and provided such trade is conducted through facilities of a stock exchange outside Canada) including, without limitation, the filing and maintenance of a registration statement under the Securities Act of 1933. OSI will in good faith expeditiously take all such actions and do all such things as are necessary to cause all shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 of the Support Agreement) to be delivered pursuant to the Exchange Right or the Automatic Exchange Rights to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which such shares are listed, quoted or posted for trading at such time immediately upon their issuance.
5.11 RESERVATION OF SHARES OF OSI COMMON STOCK
OSI hereby represents, warrants and covenants with the Trustee for the benefit of the Holders that it has irrevocably reserved for issuance and will at all times keep available, free from pre-emptive and other rights, out of its authorized and unissued capital stock such number of shares of OSI Common Stock:
(a) as is equal to the sum of
(i) the number of Exchangeable Shares issued and outstanding from time to time, and
(ii) the number of PTI Stock Options outstanding on the date hereof; and
(b) as are now and may hereafter be required to enable and permit PTI Holdco to meet its obligations hereunder, under the Certificate of Incorporation of PTI Holdco, under the Support Agreement, under the Exchangeable Share Provisions and under any other security or commitment pursuant to the Arrangement with respect to which OSI may now or hereafter be required to issue shares of OSI Common Stock.
5.12 AUTOMATIC EXCHANGE ON LIQUIDATION OF OSI
(a) OSI will give the Trustee written notice of each of the following events at the time set forth below:
(i) in the event of any determination by the board of directors of OSI to institute voluntary liquidation, dissolution or winding-up proceedings with respect to OSI or to effect any other distribution of assets of OSI among its stockholders for the purpose of winding-up its affairs, at least 60 days prior to the proposed effective date of such liquidation, dissolution, winding-up or other distribution; and
(ii) immediately, upon the earlier of
(A) receipt by OSI of notice of, and
(B) OSI otherwise becoming aware of
any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of OSI or to effect any other distribution of assets of OSI among its stockholders for the purpose of winding up its affairs.
(b) Immediately following receipt by the Trustee from OSI of notice of any event (a "Liquidation Event") contemplated by Section 5.12(a) above, the Trustee will give notice thereof to the Holders. Such notice will be provided by OSI to the Trustee and shall include a brief description of the automatic exchange of
Exchangeable Shares for shares of OSI Common Stock provided for in Section 5.12(c) below.
(c) In order that the Holders will be able to participate on a pro rata basis with the holders of OSI Common Stock in the distribution of assets of OSI in connection with a Liquidation Event, immediately prior to the effective time (the "Liquidation Event Effective Time") of a Liquidation Event, all of the then outstanding Exchangeable Shares shall be automatically exchanged for shares of OSI Common Stock. To effect such automatic exchange, OSI shall be deemed to have purchased each Exchangeable Share outstanding immediately prior to the Liquidation Event Effective Time and held by Holders, and each Holder shall be deemed to have sold the Exchangeable Shares held by it at such time, for a purchase price per share equal to the Exchangeable Share Price applicable at such time. In connection with such automatic exchange, OSI will provide to the Trustee an Officer's Certificate setting forth the calculation of the Exchangeable Share Price for each Exchangeable Share.
(d) The closing of the transaction of purchase and sale contemplated by Section 5.12(c) above shall be deemed to have occurred immediately prior to the Liquidation Event Effective Time, and each Holder of Exchangeable Shares shall be deemed to have transferred to OSI all of the Holder's right, title and interest in and to such Exchangeable Shares and the related interest in the Trust Estate and shall cease to be a holder of such Exchangeable Shares, and OSI shall deliver to the Holder the Exchangeable Share Consideration deliverable upon the automatic exchange of Exchangeable Shares. Concurrently with such Holder's ceasing to be a holder of Exchangeable Shares, the Holder shall be considered and deemed for all purposes to be the holder of the shares of OSI Common Stock issued to it pursuant to the automatic exchange of Exchangeable Shares for OSI Common Stock, and the certificates held by the Holder previously representing the Exchangeable Shares exchanged by the Holder with OSI pursuant to such automatic exchange shall thereafter be deemed to represent the shares of OSI Common Stock issued to the Holder by OSI pursuant to such automatic exchange. Upon the request of a Holder and the surrender by the Holder of Exchangeable Share certificates deemed to represent shares of OSI Common Stock, duly endorsed in blank and accompanied by such instruments of transfer as OSI may reasonably require, OSI shall deliver or cause to be delivered to the Holder certificates representing the shares of OSI Common Stock of which the Holder is the holder. Notwithstanding the foregoing, until each Holder is actually entered on the register of holders of OSI Common Stock, such Holder shall be deemed to still be a holder of the transferred Exchangeable Shares for purposes of all Voting Rights with respect thereto.
ARTICLE 6
RESTRICTIONS ON ISSUANCE OF OSI SPECIAL VOTING STOCK
During the term of this agreement, OSI will not issue any shares of OSI Special Voting Stock in addition to the Voting Share.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 POWERS AND DUTIES OF THE TRUSTEE
The rights, powers and authorities of the Trustee under this agreement, in its capacity as trustee of the Trust, shall include:
(a) receipt and deposit of the Voting Share from OSI as trustee for and on behalf of the Holders in accordance with the provisions of this agreement;
(b) granting proxies and distributing materials to Holders as provided in this agreement;
(c) voting the Holder Votes in accordance with the provisions of this agreement;
(d) receiving the grant of the Exchange Right and the Automatic Exchange Rights from OSI as trustee for and on behalf of the Holders in accordance with the provisions of this agreement;
(e) exercising the Exchange Right and enforcing the benefit of the Automatic Exchange Rights, in each case in accordance with the provisions of this agreement, and in connection therewith receiving from Holders Exchangeable Shares and other requisite documents and distributing to such Holders the shares of OSI Common Stock and cheques and property, if any, to which such Holders are entitled upon the exercise of the Exchange Right or pursuant to the Automatic Exchange Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the Trust Estate as provided in this agreement;
(h) taking action at the direction of a Holder or Holders to enforce the obligations of OSI under this agreement; and
(i) taking such other actions and doing such other things as are specifically provided in this agreement.
In the exercise of such rights, powers and authorities, the Trustee shall have (and is granted) such incidental and additional rights, powers and authority not in conflict with any of the provisions of this agreement as the Trustee, acting in good faith and in the reasonable exercise of its discretion, may deem necessary, appropriate or desirable to effect the purpose of the Trust. Any exercise of such discretionary rights, powers and authorities by the Trustee shall be final, conclusive and binding upon all persons. For greater certainty, the Trustee shall have only those duties as are set out specifically in this agreement. The Trustee in exercising its rights, powers, duties and authorities hereunder shall act honestly and in good faith with a view to the best interests of the Holders and shall exercise the care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. The Trustee shall not be bound to
give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall be specifically required to do so under the terms hereof nor shall the Trustee be required to take any notice of, or to do or to take any act, action or proceeding as a result of any default or breach of any provision hereunder, unless and until notified in writing of such default or breach, which notices shall distinctly specify the default or breach desired to be brought to the attention of the Trustee and in the absence of such notice the Trustee may for all purposes of this agreement conclusively assume that no default or breach has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein.
7.2 NO CONFLICT OF INTEREST
The Trustee represents to PTI Holdco and OSI that at the date of execution and delivery of this agreement there exists no material conflict of interest in the role of the Trustee as a fiduciary hereunder and the role of the Trustee in any other capacity. The Trustee shall, within 90 days after it becomes aware that such a material conflict of interest exists, either eliminate such material conflict of interest or resign in the manner and with the effect specified in Article 10 hereof. If, notwithstanding the foregoing provisions of this Section 7.2, the Trustee has such a material conflict of interest, the validity and enforceability of this agreement shall not be affected in any manner whatsoever by reason only of the existence of such material conflict of interest. If the Trustee contravenes the foregoing provisions of this Section 7.2, any interested party may apply to the superior court of the province in which PTI Holdco has its registered office for an order that the Trustee be replaced as trustee hereunder.
7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC.
PTI Holdco and OSI irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective registrars and transfer agents, and with any such subsequent registrar or transfer agent, of the Exchangeable Shares and OSI Common Stock; and
(b) requisition, from time to time,
(i) from any such registrar or transfer agent any information readily available from the records maintained by it which the Trustee may reasonably require for the discharge of its duties and responsibilities under this agreement, and
(ii) from the transfer agent of OSI Common Stock, and any subsequent transfer agent of such shares, to complete the exercise from time to time of the Exchange Right and the Automatic Exchange Rights in the manner specified in Article 5 hereof, the share certificates issuable upon such exercise.
PTI Holdco and OSI irrevocably authorize their respective registrars and transfer agents to comply with all such requests. OSI covenants that it will supply its transfer agent with duly
executed share certificates for the purpose of completing the exercise from time to time of the Exchange Right and the Automatic Exchange Rights, in each case pursuant to Article 5 hereof.
7.4 BOOKS AND RECORDS
The Trustee shall keep available for inspection by OSI and PTI Holdco, at the Trustee's principal transfer office in Calgary, Alberta, correct and complete books and records of account relating to the Trustee's actions under this agreement, including without limitation all information relating to mailings and instructions to and from Holders and all transactions pursuant to the Voting Rights, the Exchange Right and the Automatic Exchange Rights for the term of this agreement. On or before March 31, 2001, and on or before March 31 in every year thereafter, so long as the Voting Share is on deposit with the Trustee, the Trustee shall transmit to OSI and PTI Holdco a brief report, dated as of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Right, if any, and the aggregate number of Exchangeable Shares received by the Trustee on behalf of Holders in consideration of the issue and delivery by OSI of shares of OSI Common Stock in connection with the Exchange Right, during the calendar year ended on such date; and
(c) all other actions taken by the Trustee in the performance of its duties under this agreement which it had not previously reported.
7.5 INCOME TAX RETURNS AND REPORTS
The Trustee shall, to the extent necessary, prepare and file on behalf of the Trust appropriate United States and Canadian income tax returns and any other returns or reports as may be required by applicable law or pursuant to the rules and regulations of any securities exchange or other trading system through which the Exchangeable Shares are traded and, in connection therewith, may obtain the advice and assistance of such experts as the Trustee may consider necessary or advisable. If requested by the Trustee, OSI shall retain such experts for purposes of providing such advice and assistance.
7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE
The Trustee shall exercise any or all of the rights, duties, powers or authorities vested in it by this agreement at the request, order or direction of any Holder upon such Holder's furnishing to the Trustee reasonable funding, security and indemnity against the costs, expenses and liabilities which may be incurred by the Trustee therein or thereby; provided that no Holder shall be obligated to furnish to the Trustee any such funding, security or indemnity in connection with the exercise by the Trustee of any of its rights, duties, powers and authorities with respect to the Voting Share pursuant to Article 4 hereof, subject to Section 7.15 hereof, and with respect to the Exchange Right pursuant to Article 5 hereof, subject to Section 7.15 hereof, and with respect to the Automatic Exchange Rights pursuant to Article 5 hereof. None of the provisions contained in this agreement shall require the Trustee to expend or risk its own funds or otherwise incur
financial liability in the exercise of any of its rights, powers, duties or authorities unless funded, given funds, security and indemnified as aforesaid.
7.7 ACTIONS BY HOLDERS
No Holder shall have the right to institute any action, suit or proceeding or to exercise any other remedy authorized by this agreement for the purpose of enforcing any of its rights or for the execution of any trust or power hereunder unless the Holder has requested the Trustee to take or institute such action, suit or proceeding and furnished the Trustee with the funding, security and indemnity referred to in Section 7.6 hereof and the Trustee shall have failed to act within a reasonable time thereafter. In such case, but not otherwise, the Holder shall be entitled to take proceedings in any court of competent jurisdiction such as the Trustee might have taken; it being understood and intended that no one or more Holders shall have any right in any manner whatsoever to affect, disturb or prejudice the rights hereby created by any such action, or to enforce any right hereunder or under the Voting Rights, the Exchange Right or the Automatic Exchange Rights, except subject to the conditions and in the manner herein provided, and that all powers and trusts hereunder shall be exercised and all proceedings at law shall be instituted, had and maintained by the Trustee, except only as herein provided, and in any event for the equal benefit of all Holders.
7.8 RELIANCE UPON DECLARATIONS
The Trustee shall not be considered to be in contravention of any of its rights, powers, duties and authorities hereunder if, when required, it acts and relies in good faith upon lists, mailing labels, notices, statutory declarations, certificates, opinions, reports or other papers or documents furnished pursuant to the provisions hereof or required by the Trustee to be furnished to it in the exercise of its rights, powers, duties and authorities hereunder, and such lists, mailing labels, notices, statutory declarations, certificates, opinions, reports or other papers or documents comply with the provisions of Section 7.9 hereof, if applicable, and with any other applicable provisions of this agreement.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE
PTI Holdco and/or OSI shall furnish to the Trustee evidence of compliance with the conditions provided for in this agreement relating to any action or step required or permitted to be taken by PTI Holdco and/or OSI or the Trustee under this agreement or as a result of any obligation imposed under this agreement, including, without limitation, in respect of the Voting Rights or the Exchange Right or the Automatic Exchange Rights and the taking of any other action to be taken by the Trustee at the request of or on the application of PTI Holdco and/or OSI forthwith if and when:
(a) such evidence is required by any other section of this agreement to be furnished to the Trustee in accordance with the terms of this Section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and authorities under this agreement, gives PTI Holdco and/or OSI written notice requiring it to furnish such evidence in relation to any particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of PTI Holdco and/or OSI or a statutory declaration or a certificate made by persons entitled to sign an Officer's Certificate stating that any such condition has been complied with in accordance with the terms of this agreement.
Whenever such evidence relates to a matter other than the Voting Rights or the Exchange Right or the Automatic Exchange Rights, and except as otherwise specifically provided herein, such evidence may consist of a report or opinion of any solicitor, auditor, accountant, appraiser, valuer, engineer or other expert or any other person whose qualifications give authority to a statement made by him, provided that, if such report or opinion is furnished by a director, officer or employee of PTI Holdco and/or OSI, it shall be in the form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the Trustee as evidence of compliance with a condition provided for in this agreement shall include a statement by the person giving the evidence:
(i) declaring that such person has read and understands the
provisions of this agreement relating to the condition in
question;
(ii) describing the nature and scope of the examination or
investigation upon which such person based the statutory
declaration, certificate, statement or opinion; and
(iii) declaring that such person has made such examination or
investigation as such person believes is necessary to
enable such person to make the statements or give the
opinions contained or expressed therein.
7.10 EXPERTS, ADVISERS AND AGENTS
The Trustee may:
(a) in relation to these presents act and rely on the opinion or
advice of or information obtained from or prepared by any
solicitor, auditor, accountant, appraiser, valuer, engineer or
other expert, whether retained by the Trustee or by PTI Holdco
and/or OSI or otherwise, and may employ such assistants as may be
necessary to the proper determination and discharge of its powers
and duties and determination of its rights hereunder and may pay
proper and reasonable compensation for all such legal and other
advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably
require for the proper determination and discharge of its powers
and duties hereunder, and may pay reasonable remuneration for all
services performed for it (and shall be entitled to receive
reasonable remuneration for all services performed by it) in the
discharge of the trusts hereof and compensation for all
disbursements, costs and expenses made or incurred by it in the
determination and discharge of its duties hereunder and in the
management of the Trust.
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7.11 INVESTMENT OF MONEYS HELD BY TRUSTEE
Unless otherwise provided in this agreement, any moneys held by or on behalf of the Trustee which under the terms of this agreement may or ought to be invested or which may be on deposit with the Trustee or which may be in the hands of the Trustee, may be invested and reinvested in the name or under the control of the Trustee in securities in which, under the laws of the Province of Alberta, trustees are authorized to invest trust moneys; provided that such securities are stated to mature within two years after their purchase by the Trustee, and the Trustee shall so invest such moneys on the written direction of PTI Holdco. Pending the investment of any moneys as hereinbefore provided, such moneys may be deposited in the name of the Trustee in any chartered bank in Canada or, with the consent of PTI Holdco, in the deposit department of the Trustee or any other loan or trust company authorized to accept deposits under the laws of Canada or any province thereof at the rate of interest then current on similar deposits.
7.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY
The Trustee shall not be required to give any bond or security in respect of the execution of the trusts, rights, duties, powers and authorities of this agreement or otherwise in respect of the premises.
7.13 TRUSTEE NOT BOUND TO ACT ON REQUEST
Except as in this agreement otherwise specifically provided, the Trustee shall not be bound to act in accordance with any direction or request of PTI Holdco and/or OSI or of the directors thereof until a duly authenticated copy of the instrument or resolution containing such direction or request shall have been delivered to the Trustee, and the Trustee shall be empowered to act and rely upon any such copy purporting to be authenticated and believed by the Trustee to be genuine.
7.14 AUTHORITY TO CARRY ON BUSINESS
The Trustee represents to PTI Holdco and OSI that at the date of execution and delivery by it of this agreement it is authorized to carry on the business of a trust company in the Province of Alberta but if, notwithstanding the provisions of this Section 7.14, it ceases to be so authorized to carry on business, the validity and enforceability of this agreement and the Voting Rights, the Exchange Right and the Automatic Exchange Rights shall not be affected in any manner whatsoever by reason only of such event; provided, however, the Trustee shall, within 90 days after ceasing to be authorized to carry on the business of a trust company in the Province of Alberta, either become so authorized or resign in the manner and with the effect specified in Article 10 hereof.
7.15 CONFLICTING CLAIMS
If conflicting claims or demands are made or asserted with respect to any interest of any Holder in any Exchangeable Shares, including any disagreement between the heirs, representatives, successors or assigns succeeding to all or any part of the interest of any Holder in any Exchangeable Shares resulting in conflicting claims or demands being made in connection with such interest, then the Trustee shall be entitled, at its sole discretion, to refuse to recognize
or to comply with any such claim or demand. In so refusing, the Trustee may elect not to exercise any Voting Rights, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands and, in so doing, the Trustee shall not be or become liable to any person on account of such election or its failure or refusal to comply with any such conflicting claims or demands. The Trustee shall be entitled to continue to refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting Rights, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands have been adjudicated by a final judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands have been conclusively settled by a valid written agreement binding on all such adverse claimants, and the Trustee shall have been furnished with an executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by any such adverse claimant, it may in its discretion require such claimant to furnish such surety bond or other security satisfactory to the Trustee as it shall deem appropriate fully to indemnify it as between all conflicting claims or demands.
7.16 ACCEPTANCE OF TRUST
The Trustee hereby accepts the Trust created and provided for by and in this agreement and agrees to perform the same upon the terms and conditions herein set forth and to hold all rights, privileges and benefits conferred hereby and by law in trust for the various persons who shall from time to time be Holders, subject to all the terms and conditions herein set forth.
ARTICLE 8
COMPENSATION
OSI and PTI Holdco jointly and severally agree to pay to the Trustee reasonable compensation for all of the services rendered by it under this agreement and will reimburse the Trustee for all reasonable expenses (including but not limited to taxes, compensation paid to experts, agents and advisors, and travel expenses) and disbursements, including the cost and expense of any suit or litigation of any character and any proceedings before any governmental agency, reasonably incurred by the Trustee in connection with its rights and duties under this agreement; provided that OSI and PTI Holdco shall have no obligation to reimburse the Trustee for any expenses or disbursements paid, incurred or suffered by the Trustee in any suit or litigation in which the Trustee is determined to have acted in bad faith or with negligence or willful misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 INDEMNIFICATION OF THE TRUSTEE
OSI and PTI Holdco jointly and severally agree to indemnify and hold harmless the Trustee and each of its directors, officers, employees and agents appointed and acting in accordance with this agreement (collectively, the "Indemnified Parties") against all claims, losses, damages, costs, penalties, fines and reasonable expenses (including reasonable expenses of the Trustee's legal counsel) which, without fraud, negligence, willful misconduct or bad faith on the part of such Indemnified Party, may be paid, incurred or suffered by the Indemnified Party by reason of or as a result of the Trustee's acceptance or administration of the Trust, its compliance with its duties set forth in this agreement, or any written or oral instructions delivered to the Trustee by OSI or PTI Holdco pursuant hereto. In no case shall OSI or PTI Holdco be liable under this indemnity for any claim against any of the Indemnified Parties unless OSI and PTI Holdco shall be notified by the Trustee of the written assertion of a claim or of any action commenced against the Indemnified Parties, promptly after any of the Indemnified Parties shall have received any such written assertion of a claim or shall have been served with a summons or other first legal process giving information as to the nature and basis of the claim. Subject to (ii) below, OSI and PTI Holdco shall be entitled to participate at their own expense in the defense and, if OSI or PTI Holdco so elect at any time after receipt of such notice, either of them may assume the defense of any suit brought to enforce any such claim. The Trustee shall have the right to employ separate counsel in any such suit and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Trustee unless: (i) the employment of such counsel has been authorized by OSI or PTI Holdco, such authorization not to be unreasonably withheld; or (ii) the named parties to any such suit include both the Trustee and OSI or PTI Holdco and the Trustee shall have been advised by counsel acceptable to OSI or PTI Holdco that there may be one or more legal defenses available to the Trustee that are different from or in addition to those available to OSI or PTI Holdco and that an actual or potential conflict of interest exists (in which case OSI and PTI Holdco shall not have the right to assume the defense of such suit on behalf of the Trustee, but shall be liable to pay the reasonable fees and expenses of counsel for the Trustee). This indemnity shall survive the resignation or removal of the Trustee and the termination of the trust.
9.2 LIMITATION OF LIABILITY
The Trustee shall not be held liable for any loss which may occur by reason of depreciation of the value of any part of the Trust Estate or any loss incurred on any investment of funds pursuant to this agreement, except to the extent that such loss is attributable to the fraud, negligence, willful misconduct or bad faith on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 RESIGNATION
The Trustee, or any trustee hereafter appointed, may at any time resign
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by giving written notice of such resignation to OSI and PTI Holdco specifying the date on which it desires to
resign, provided that such notice shall never be given less than 60 days before such desired resignation date unless OSI and PTI Holdco otherwise agree and provided further that such resignation shall not take effect until the date of the appointment of a successor trustee and the acceptance of such appointment by the successor trustee. Upon receiving such notice of resignation, OSI and PTI Holdco shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which shall be delivered to the resigning trustee and one copy to the successor trustee. Failing acceptance by a successor trustee, a successor trustee may be appointed by an order of the superior court of the province in which PTI Holdco has its registered office upon application of one or more of the parties hereto.
10.2 REMOVAL
The Trustee, or any trustee hereafter appointed, may be removed with or without cause, at any time on 60 days prior notice by written instrument executed by OSI and PTI Holdco, in duplicate, one copy of which shall be delivered to the trustee so removed and one copy to the successor trustee; provided that, in connection with such removal, provision is made for a replacement trustee similar to that contemplated in Section 10.1.
10.3 SUCCESSOR TRUSTEE
Any successor trustee appointed as provided under this agreement shall execute, acknowledge and deliver to OSI and PTI Holdco and to its predecessor trustee an instrument accepting such appointment. Thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor under this agreement, with like effect as if originally named as trustee in this agreement. However, on the written request of OSI and PTI Holdco or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of this agreement, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon the request of any such successor trustee, OSI, PTI Holdco and such predecessor trustee shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers.
10.4 NOTICE OF SUCCESSOR TRUSTEE
Upon acceptance of appointment by a successor trustee as provided herein, OSI and PTI Holdco shall cause to be mailed notice of the succession of such trustee hereunder to each Holder specified in a List. If OSI or PTI Holdco shall fail to cause such notice to be mailed within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of OSI and PTI Holdco.
ARTICLE 11
SUCCESSORS
11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC.
Neither OSI nor PTI Holdco shall enter into any transaction (whether by
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way of reconstruction, reorganization, consolidation, merger, transfer, sale, lease or otherwise) whereby
all or substantially all of its undertaking, property and assets would become the property of any other Person or, in the case of a merger, of the continuing corporation resulting therefrom, but may do so if:
(a) (i) such other Person or continuing corporation (the "Successor"),
by operation of law, becomes, without further action, bound by
the terms and provisions of this agreement or, if not so
bound, executes, prior to or contemporaneously with the
consummation of such transaction an agreement supplemental
hereto and such other instruments (if any) as are satisfactory
to the Trustee and in the opinion of legal counsel to the
Trustee are necessary or advisable to evidence the assumption
by the Successor of liability for all moneys payable and
property deliverable hereunder, the covenant of such Successor
to pay and deliver or cause to be delivered the same and its
agreement to observe and perform all the covenants and
obligations of OSI or PTI Holdco, as the case may be, under
this agreement; and
(ii) such transaction shall, to the satisfaction of the Trustee, be
upon such terms which substantially preserve and do not impair
in any material respect any of the rights, duties, powers and
authorities of the Trustee or of the Holders hereunder; or
(b) all Exchangeable Shares are redeemed or repurchased pursuant to
Article 7 of the Exchangeable Share Provisions or under the
Redemption Call Rights prior to or concurrently with the
consummation of such transactions.
11.2 VESTING OF POWERS IN SUCCESSOR
Whenever the conditions of Section 11. 1 hereof have been duly observed
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and performed, the Trustee, if required by Section 11.1 hereof, the Successor and OSI or PTI Holdco, as the case may be, shall execute and deliver the supplemental agreement provided for in Article 12 hereof, and thereupon the Successor shall possess and from time to time may exercise each and every right and power of OSI or PTI Holdco, as the case may be, under this agreement in the name of OSI or PTI Holdco, as the case may be, or otherwise and any act or proceeding by any provision of this agreement required to be done or performed by the board of directors or any officers of OSI or PTI Holdco may be done and performed with like force and effect by the directors or officers of such Successor.
11.3 WHOLLY-OWNED SUBSIDIARIES
Nothing herein shall be construed as preventing: (a) the amalgamation or merger of any wholly-owned subsidiary of OSI with or into OSI; or (b) the winding-up, liquidation or dissolution of any wholly-owned subsidiary of OSI provided that all of the assets of such subsidiary are transferred to OSI or another wholly-owned subsidiary of OSI, and any such transactions are hereby expressly permitted.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
12.1 AMENDMENTS, MODIFICATIONS, ETC.
Subject to Sections 12.2 and 12.4, this agreement may not be amended,
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modified or waived except by an agreement in writing executed by PTI Holdco, OSI and the Trustee and approved by the Holders in accordance with Section 9.2 of the Exchangeable Share Provisions. No amendment to or modification or waiver of any of the provisions of this agreement otherwise permitted hereunder shall be effective unless made in writing and signed by all of the parties hereto.
12.2 MINISTERIAL AMENDMENTS
Notwithstanding the provisions of Section 12.1 hereof, the parties to this agreement may in writing, at any time and from time to time, without the approval of the Holders, amend or modify this agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the protection of the Holders hereunder subject to the receipt by the Trustee of an opinion of its counsel that the addition of the proposed covenant is not prejudicial to the interests of the Holders as a whole or the Trustee;
(b) making such amendments or modifications not inconsistent with this agreement as may be necessary or desirable with respect to matters or questions which, in the opinion of the board of directors of each of OSI and PTI Holdco and in the opinion of the Trustee and its counsel, having in mind the best interests of the Holders as a whole, it may be expedient to make, provided that such boards of directors and the Trustee and its counsel shall be of the opinion that such amendments and modifications will not be prejudicial to the interests of the Holders as a whole;
(c) making such changes or corrections which, on the advice of counsel to PTI Holdco, OSI and the Trustee, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error; provided that the Trustee and its counsel and the board of directors of each of PTI Holdco and OSI shall be of the opinion that such changes or corrections will not be prejudicial to the interests of the Holders as a whole; or
(d) making such changes as may be necessary or appropriate to
implement or give effect to any assignment or assumption made
pursuant to Section 14.9 hereof.
12.3 MEETING TO CONSIDER AMENDMENTS
PTI Holdco, at the request of OSI, shall call a meeting or meetings of
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the Holders for the purpose of considering any proposed amendment or modification requiring approval pursuant hereto. Any such meeting or meetings shall be called and held in accordance with the by-laws of PTI Holdco, the Exchangeable Share Provisions and all applicable laws.
12.4 CHANGES IN CAPITAL OF OSI AND PTI HOLDCO
At all times after the occurrence of any event effected pursuant to
Section 2.7 or Section 2.8 of the Support Agreement, as a result of which either
OSI Common Stock or the Exchangeable Shares or both are in any way changed, this
agreement shall forthwith be amended and modified as necessary in order that it
shall apply with full force and effect, mutatis mutandis, to all new securities
into which OSI Common Stock or the Exchangeable Shares or both are so changed,
and the parties hereto shall execute and deliver a supplemental agreement giving
effect to and evidencing such necessary amendments and modifications.
12.5 EXECUTION OF SUPPLEMENTAL AGREEMENTS
From time to time, PTI Holdco (when authorized by a resolution of its Board of Directors), OSI (when authorized by a resolution of its board of directors) and the Trustee may, subject to the provisions of these presents, and they shall, when so directed by these presents, execute and deliver by their proper officers, agreements or other instruments supplemental hereto, which thereafter shall form part hereof, for any one or more of the following purposes:
(a) evidencing the succession of any Successors to OSI and the covenants of and obligations assumed by each such Successor in accordance with the provisions of Article 11 and the successor of any successor trustee in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the provisions of this agreement or the Voting Rights, the Exchange Right or the Automatic Exchange Rights which, in the opinion of the Trustee and its counsel, will not be prejudicial to the interests of the Holders as a whole or are in the opinion of counsel to the Trustee necessary or advisable in order to incorporate, reflect or comply with any legislation the provisions of which apply to OSI, PTI Holdco, the Trustee or this agreement;
(c) to implement or give effect to any assignment or assumption made pursuant to Section 14.9 hereof; and
(d) for any other purposes not inconsistent with the provisions of
this agreement, including without limitation to make or evidence
any amendment or modification to this agreement as contemplated
hereby, provided that, in the opinion of the Trustee and its
counsel, the rights of the Trustee and the Holders as a whole
will not be prejudiced thereby.
ARTICLE 13
TERMINATION
13.1 TERM
The Trust created by this agreement shall continue until the earliest
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to occur of the following events:
(a) no outstanding Exchangeable Shares are held by a Holder;
(b) each of PTI Holdco and OSI elects in writing to terminate the Trust and such termination is approved by the Holders of the Exchangeable Shares in accordance with Section 9.1 of the Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of Her Majesty Queen Elizabeth II of the United Kingdom of Great Britain and Northern Ireland living on the date of the creation of the Trust;
whereupon OSI may repurchase the Voting Share for cancellation, at par value.
13.2 SURVIVAL OF AGREEMENT
This agreement shall survive any termination of the Trust and shall continue until there are no Exchangeable Shares outstanding held by a Holder; provided, however, that the provisions of Articles 8 and 9 hereof shall survive any such termination of this agreement.
ARTICLE 14
GENERAL
14.1 SEVERABILITY
If any provision of this agreement is held to be invalid, illegal or
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unenforceable, the validity, legality or enforceability of the remainder of this agreement shall not in any way be affected or impaired thereby, and the agreement shall be carried out as nearly as possible in accordance with its original terms and conditions.
14.2 INUREMENT
This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns and to the benefit of the Holders.
14.3 NOTICES TO PARTIES
All notices and other communications between the parties hereunder shall be in writing and shall be deemed to have been given if delivered personally or by confirmed telecopy to the parties at the following addresses (or at such other address for such party as shall be specified in like notice):
(a) if to OSI:
Oil States International, Inc.
Three Allen Center 333 Clay
Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
with a copy to:
Donahue, Ernst & Young LLP
1000 Ernst & Young Tower
440 - 2nd Avenue S.W.
P.O. Box 2258, Station M
Calgary, Alberta T2P 5E5
Attention: Richard Peters Fax: (403) 206-5525
(b) if to PTI Holdco to:
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
(c) if to the Trustee to:
Montreal Trust Company of Canada
Suite 600, 530 - 8th Avenue S.W.
Calgary, Alberta
T2P 3S8
Attention: Manager, Stock Transfer Services Fax: (403) 267-6529
Any notice or other communication given personally shall be deemed to have been given and received upon delivery thereof, and if given by telecopy shall be deemed to have been given and received on the date of receipt thereof unless such day is not a Business Day in which case it shall be deemed to have been given and received upon the immediately following Business Day.
14.4 NOTICE TO HOLDERS
Any and all notices to be given and any documents to be sent to any Holders may be given or sent to the address of such Holder shown on the register of Holders of Exchangeable Shares in any manner permitted by the Exchangeable Share Provisions and shall be deemed to be received (if given or sent in such manner) at the time specified in such Exchangeable Share Provisions, the provisions of which Exchangeable Share Provisions shall apply mutatis mutandis to notices or documents as aforesaid sent to such Holders.
14.5 RISK OF PAYMENTS BY POST
Whenever payments are to be made or documents are to be sent to any Holder by the Trustee, by PTI Holdco or by OSI or by such Holder to the Trustee or to OSI or PTI Holdco, the
making of such payment or sending of such document sent through the mail shall be at the risk of PTI Holdco or OSI, in the case of payments made or documents sent by the Trustee or PTI Holdco or OSI, and the Holder, in the case of payments made or documents sent by the Holder.
14.6 COUNTERPARTS
This agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
14.7 JURISDICTION
This agreement shall be construed and enforced in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein.
14.8 ATTORNMENT
OSI agrees that any action or proceeding arising out of or relating to this agreement may be instituted in the courts of Alberta, waives any objection which it may have now or hereafter to the venue of any such action or proceeding, irrevocably submits to the jurisdiction of such courts in any such action or proceeding, agrees to be bound by any judgment of such courts and agrees not to seek, and hereby waives, any review of the merits of any such judgment by the courts of any other jurisdiction and hereby appoints PTI Holdco at its registered office in the Province of Alberta as OSI's attorney for service of process.
14.9 PERMITTED ASSIGNMENT
OSI may assign any or all of its rights and obligations under this
Agreement to OSI ULC, provided that each of OSI and OSI ULC shall thereafter,
jointly and severally, be liable for the performance by OSI ULC of the
obligations of OSI pursuant to this Agreement. Any and all of the obligations of
OSI may be performed and satisfied by OSI ULC, except that nothing in this
Section 14.9 will permit any change to the rights, privileges, restrictions and
conditions attaching to the Voting Share or Exchangeable Shares or to the
Exchange Right or Automatic Exchange Rights.
IN WITNESS WHEREOF, the parties hereby have caused this agreement to be duly executed as of the date first above written.
OIL STATES INTERNATIONAL, INC.
MONTREAL TRUST COMPANY OF CANADA
APPENDIX A
TO THE VOTING AND EXCHANGE TRUST AGREEMENT
[ARTICLES OF PTI HOLDCO]
EXHIBIT E
FORM OF AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
EXHIBIT E
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "Agreement"), dated as of ______________ ____, 200_, by and among Oil States International, Inc., a Delaware corporation ("OSI"), HWC Energy Services, Inc., a Texas corporation ("HWC"), Sooner Inc., a Delaware corporation ("Sooner"), and each of the holders of OSI Common Stock, HWC Common Stock, and Sooner Common Stock listed on the signature pages hereto, is entered into in connection with that certain Combination Agreement (the "Combination Agreement") dated as of July 31, 2000 and among OSI, HWC, Sooner and PTI Group, Inc., an Alberta corporation ("PTI") and the other parties thereto. Capitalized terms that are used but not defined herein shall have the meanings set forth in the Combination Agreement.
RECITALS
WHEREAS, OSI, HWC, Sooner and PTI have entered into the Combination Agreement, pursuant to which, among other things, the holders of HWC Common Stock will receive shares of OSI Common Stock in the HWC Merger and the holders of Sooner Common Stock will receive shares of OSI Common Stock in the Sooner Merger; and
WHEREAS, certain of the holders of OSI Common Stock, HWC Common Stock and Sooner Common Stock enjoy various registration rights with respect to such shares currently owned by them (the "Existing Registration Rights"); and
WHEREAS, Article X of the Combination Agreement provides for the execution of this Amended and Restated Registration Rights Agreement which will amend and restate the Existing Registration Rights; and
WHEREAS, the Holders of the Existing Registration Rights wish to relinquish such rights as of the Effective Time in consideration of receiving the amended and restated registration rights contemplated by this Agreement;
WHEREAS, this Agreement shall be effective only upon the consummation of the OSI Initial Public Offering.
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements herein contained, the parties hereto agree as follows:
SECTION 1 DEFINITIONS. The terms set forth below in this
Section 1 shall have the meanings ascribed to them below or in the part of this
Agreement referred to below:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the general rules and regulations under the Exchange Act.
"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the States of Texas or New York are authorized by law to close.
"Demand Holder" means SCF-III, L.P., a Delaware limited partnership, SCV-IV, L.P., a Delaware limited partnership, or any of their respective successors and each transferee of their OSI Common Stock to whom the right to cause a Demand Registration has been expressly assigned in writing directly or indirectly (in a chain of title) from SCF-III, L.P. or SCF-IV, L.P.
"Demand Registration" has the meaning set forth in Section 2(a) below.
"Demand Request" has the meaning set forth in Section 2(a) below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Registration Rights" has the meaning set forth in the recitals above.
"Holders" means those Persons set forth on the signature pages hereto, each of whom currently owns Registrable Securities; provided, however that a Person shall cease to be a Holder at any time after 180 days after the OSI Initial Public Offering if and when such Person owns OSI Common Stock and OSI Common Stock Equivalents representing less than two percent of the outstanding OSI Common Stock and such Person may dispose of all Registrable Securities then owned by such Person pursuant to Rule 144(k) (or any successor rule) under the Securities Act; provided, further however, that a Person (other than a Demand Holder) shall cease to be a Holder after the second anniversary hereof if the Company requests in writing that such Person confirm in writing that such Person remains a Holder and such Person fails to so confirm within 30 days of such notice.
"HWC Common Stock" shall mean the common stock, par value $.01 per share, of HWC Energy Services, Inc., a Texas corporation.
"Indemnified Party" has the meaning set forth in Section 7(c) below.
"Indemnifying Party" has the meaning set forth in Section 7(c) below.
"Inspectors" has the meaning set forth in Section 5(i) below.
"Material Adverse Effect" has the meaning set forth in Section 2(d) below.
"OSI Common Stock" shall mean the Class A common stock, par value $.01 per share, of OSI.
"OSI Common Stock Equivalents" means (without duplication with any other OSI Common Stock or OSI Common Stock Equivalents) rights, warrants, options, convertible securities, or exchangeable securities or indebtedness, or other rights, exercisable for or convertible or exchangeable into, directly or indirectly, OSI Common Stock or securities convertible or exchangeable into OSI Common Stock, whether at the time of issuance or upon the passage of time or the occurrence of some future event.
"OSI Initial Public Offering" means the initial public offering of OSI Common Stock contemplated by an OSI registration statement filed to effect such offering.
"Person" means any natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank trust company, land trust, business trust, or other organization, whether or not a legal entity, and any government or agency or political subdivision thereof.
"Piggyback Registration" has the meaning set forth in Section 3(a) below.
"Piggyback Securities" has the meaning set forth in Section 3(b) below.
"PTI Exchangeable Shares" has the meaning set forth in the Combination Agreement.
"PTI Registration Statement" has the meaning set forth in Section 3(a) below.
"Records" has the meaning set forth in Section 5(i) below.
"Registrable Securities" means (i) the OSI Common Stock issued in
connection with the Combination Agreement in exchange for shares of HWC Common
Stock or Sooner Common Stock to which, in each case, Existing Registration
Rights were attached, (ii) the OSI Common Stock issued prior to the date hereof
to which Existing Registration Rights are attached and (iii) any OSI Common
Stock and any other securities issued or issuable with respect to such
securities by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
reorganization; provided, that any Registrable Security will cease to be a
Registrable Security when (a) a registration statement covering such Registrable
Security has been declared effective by the SEC and it has been disposed of
pursuant to such effective registration statement, (b) such Registrable Security
is sold under circumstances in which all of the applicable conditions of Rule
144 (or any similar provisions then in force) under the Securities Act are met,
(c) (i) such Registrable Security has been otherwise transferred and (ii) OSI
has delivered a new certificate or other evidence of ownership for it not
bearing any legend with respect to registration and (iii) such Registrable
Security may be resold without subsequent registration under the Securities Act,
or (d) such Registrable Security has ceased to be a Registrable Security in
accordance with the proviso to the definition of Holder provided for herein.
"Registration Expenses" has the meaning set forth in Section 6 below.
"Requesting Holders" means the Demand Holder or group of Demand Holders acting in concert to make a Demand Request.
"Required Filing Date" has the meaning set forth in Section 2(a)(ii) below.
"SEC" means the Securities and Exchange Commission or any successor governmental agency.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Selling Holder" means a Holder who is selling Registrable Securities pursuant to a registration statement under the Securities Act.
"Sooner Common Stock" shall mean the common stock, par value $.01 per share, of Sooner Inc., a Delaware corporation.
"Subsidiary" means (i) any corporation or other entity a majority of the capital stock of which having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions is at the time owned, directly or indirectly, with power to vote, by OSI or any direct or indirect Subsidiary of OSI or (ii) a partnership in which OSI or any direct or indirect Subsidiary is a general partner.
"Underwriter" means a securities dealer which purchases any Registrable Securities as principal and not as part of such dealer's market-making activities.
SECTION 2 DEMAND REGISTRATION.
(a) Request for Registration.
(i) From and after the expiration of the lock-up period agreed to by OSI in connection with the OSI Initial Public Offering, any Demand Holder may make a written request of OSI (a "Demand Request") for registration under the Securities Act (a "Demand Registration") of the sale of all or part of its Registrable Securities; provided that the Registrable Securities proposed to be sold by the Requesting Holders must have an estimated aggregate gross offering price of at least $50,000,000.
(ii) Each Demand Request shall specify the type and number of shares of Registrable Securities proposed to be sold. Subject to Section 4(c), OSI shall file the Demand Registration as soon as reasonably practicable but in any event within 60 days after receiving a Demand Request (the "Required Filing Date") and shall use all commercially reasonable efforts to cause the same to be declared effective by the SEC as promptly as practicable after such filing. Subject to Section 2(b), if OSI has effected five Demand Registrations in response to the request of a Demand Holder, then OSI shall not be obligated to respond to further Demand Registrations in respect of Demand Holders pursuant to this Section. OSI shall not be obligated to effect more than one Demand Registration in any six month period.
(b) Effective Registration and Expenses. Each registration that becomes effective will be counted as a Demand Registration. A registration will not count as a Demand Registration until it has become effective unless (i) prior to such effective time the Requesting Holders withdraw all their Registrable Securities for any reason other than (A) the inability or unreasonable delay of OSI in having such registration statement become effective or (B) the disclosure of material adverse information regarding OSI that was not known by such Requesting Holders at the time the request for such Demand Registration was
made and (ii) the Requesting Holders elect not to pay all of OSI's Registration Expenses in connection with such withdrawn registration. If, after such registration has become effective, an offering of Registrable Securities pursuant to a registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will not count as a Demand Registration; provided, however, that upon the termination or release of such stop order, injunction or interference, such registration will again be counted as a Demand Registration.
(c) Selection of Underwriters. The offering of Registrable Securities pursuant to a Demand Registration may be in the form of a "firm commitment" underwritten offering. OSI shall select the book-running managing Underwriter and such additional Underwriters to be used in connection with the offering; provided that such selections shall be subject to the consent of Requesting Holders owning a majority of the Registrable Securities subject to such Demand Registration, which consent shall not be unreasonably withheld.
(d) Priority on Demand Registrations. No securities to be sold for the account of any Person (including OSI) other than a Holder shall be included in a Demand Registration if the managing Underwriter or Underwriters shall advise the Requesting Holder in writing that, in its or their judgment, the inclusion of such securities may adversely affect the price or success of the offering in any significant or material respect (a "Material Adverse Effect"). Furthermore, in the event the managing Underwriter or Underwriters shall advise the Requesting Holder that even after exclusion of all securities of other Persons pursuant to the immediately preceding sentence, the amount of Registrable Securities proposed to be included in such Demand Registration by Holders electing to participate is sufficiently large to cause a Material Adverse Effect, the Registrable Securities of such Holders to be included in such Demand Registration shall be allocated pro rata among such Holders on the basis of the number of outstanding shares of OSI Common Stock requested to be included in such registration by each such Holder.
SECTION 3 PIGGYBACK REGISTRATION.
(a) If OSI proposes to file a registration statement under the Securities Act, including a Demand Registration, with respect to an offering of OSI Common Stock for cash by OSI for its own account or for the account of any of its equity holders (other than a registration statement on Form S-4 or S-8 or any substitute form that may be adopted by the SEC or any registration statement filed in connection with an exchange offer or offering of securities solely to OSI's existing security holders or any registration statement filed in connection with an exchange offer or offering of securities to holders of Exchangeable Shares) (the "PTI Registration Statement"), then OSI shall give written notice of such proposed filing to the Holders of the Registrable Securities as soon as practicable (but in no event less than 20 days before the anticipated initial filing date of such registration statement), and such notice shall offer such Holders the opportunity to register such number of Registrable Securities as each such Holder may request (a "Piggyback Registration"). On or before the 10th day following the receipt of such notice by the Holders, any Holder wishing to include any or all of its Registrable Securities in such registration statement shall give written notice to OSI stating the name of such Holder and the amount of such Holder's
Registrable Securities to be included in such registration statement. Subject to Section 3(b), OSI shall include in each such Piggyback Registration all Registrable Securities requested to be included in the registration for such offering; provided, however, that OSI may at any time withdraw or cease proceeding with such registration without the consent of any Holder of Registrable Securities, notwithstanding the request of any such Holder to participate therein in accordance with this provision, if OSI determines in its sole discretion that such action is in the best interests of OSI and its stockholders (for this purpose, the interests of the Holders shall not be considered). Each Holder of Registrable Securities shall be permitted to withdraw all or part of such Holder's Registrable Securities from a Piggyback Registration at any time prior to the effective date thereof.
(b) OSI shall use all commercially reasonable efforts
to cause the managing Underwriter or Underwriters of a proposed
underwritten offering to permit the Registrable Securities requested to
be included in the registration statement for such offering under
Section 3(a) ("Piggyback Securities"), to be included on the same terms
and conditions as any similar securities included therein.
Notwithstanding the foregoing, OSI shall not be required to include any
Holder's Piggyback Securities in such offering unless such Holder
accepts the terms of the underwriting agreement between OSI and the
managing Underwriter or Underwriters and otherwise complies with the
provisions of Section 8. If such offering is a Demand Registration
pursuant to Section 2(a), then the provisions of Section 2(d) shall
apply. In all other offerings that are underwritten, if the managing
Underwriter or Underwriters of such proposed underwritten offering
advise OSI in writing that in its or their opinion the total amount of
securities, including Piggyback Securities, to be included in such
offering is sufficiently large to cause a Material Adverse Effect, then
in such event the securities to be included in such offering shall be
allocated first to OSI, and then, to the extent that any additional
securities can, in the opinion of such managing Underwriter or
Underwriters, be sold without any such Material Adverse Effect, pro
rata among the holders of Piggyback Securities on the basis of the
number of outstanding shares of OSI Common Stock requested to be
included in such registration by each such Holder.
(c) Until such time as the PTI Registration Statement has been declared effective by the SEC, the holders of PTI Exchangeable Shares shall be deemed to be Holders hereunder for purposes of participation in Piggyback Registrations. The holders of PTI Exchangeable Shares shall have the same rights, duties and obligations of Holders with respect to Piggyback Registrations and shall be subject to the same limitations and restrictions thereon. The rights provided in this Section 3(c) shall terminate as to any particular holder of PTI Exchangeable Shares at such time as such holder ceases to be a holder of PTI Exchangeable Shares.
SECTION 4 HOLDBACK AGREEMENTS.
(a) Restrictions on Public Sale by Holder of Registrable Securities. Each Holder of Registrable Securities (whether or not such Registrable Securities are included in a registration statement pursuant hereto) agrees not to effect any direct or indirect (including through derivative transactions) sale or distribution of the issue being registered or of any securities convertible into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and during such period (up to 90 days) beginning on, the date of the final prospectus used with respect to any underwritten public offering of equity securities by the Company or any Holder of Registrable Securities if and to the extent requested by the managing Underwriter or Underwriters.
(b) Restrictions on Public Sale by OSI and Others. OSI agrees not to effect any direct or indirect (including through derivative transactions) sale or distribution of any securities similar to those being registered, or any securities convertible into or exchangeable or exercisable for such securities, during the 14 days prior to, and during a period of up to 90 days, if requested by the managing underwriters, beginning on, the date of the final prospectus used with respect to any underwritten public offering of equity securities by the Company or any Holder of Registrable Securities (unless such sale or distribution is pursuant to such registration statement); provided, such restriction shall not affect OSI's ability to issue OSI Common Stock pursuant to the PTI Registration Statement.
(c) Deferral of Filing. OSI may defer the filing (but not the preparation) of a registration statement required by Section 2 if (i) at the time OSI receives the Demand Request, OSI is engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board of Directors of OSI determines in good faith that such disclosure would not be in the best interests of OSI and its stockholders, or (ii) prior to receiving the Demand Request, the Board of Directors had determined to effect a registered underwritten public offering of OSI's equity securities for OSI's account and OSI had taken substantial steps (including, but not limited to, selecting the managing Underwriter for such offering) and is proceeding with reasonable diligence to effect such offering. A deferral of the filing of a registration statement pursuant to this Section 4(c) shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) of the preceding sentence, the proposed registration for OSI's account is abandoned. In order to defer the filing of a registration statement pursuant to this Section 4(c), OSI shall promptly, upon determining to seek such deferral, deliver to each Requesting Holder a certificate signed by the President of Company stating that OSI is deferring such filing pursuant to this Section 4(c). Within twenty days after receiving such certificate, the Requesting Holder may withdraw such request by giving notice to OSI; if withdrawn, the Demand Request shall be deemed not to have been made for all purposes of this Agreement. OSI may defer the filing of a particular registration statement pursuant to this Section 4(c) for a period of 45 days in any three month period and of all registration statements for a total of 90 days during any twelve month period.
SECTION 5 REGISTRATION PROCEDURES. Whenever the Holders have requested that any Registrable Securities be registered pursuant to Section 2 hereof, OSI will, at its expense, use all commercially reasonable efforts to effect the registration and the sale of such Registrable Securities under the Securities Act in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request, OSI will as expeditiously as practicable:
(a) prepare and file with the SEC a registration statement on any form for which OSI then qualifies or which counsel for OSI shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use all commercially reasonable efforts and proceed diligently and in good faith to cause such filed registration statement to become effective under the Securities Act; provided, however, that before filing a registration statement or prospectus or any amendments or supplements thereto, OSI will furnish to all Selling Holders and to one counsel reasonably acceptable to OSI selected by the Selling Holders, copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel;
(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective pursuant to Section 2 for a period (except as provided in the last paragraph of this Section 5) of not less than 180 consecutive days or, if shorter, the period terminating when all Registrable Securities covered by such registration statement have been sold (but not before the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Selling Holders thereof set forth in such registration statement;
(c) furnish to each such Selling Holder one copy of such registration statement, and of each amendment and supplement thereto (in each case including one copy of all exhibits thereto), and such number of copies of the prospectus included in such registration statement (including each preliminary prospectus) as such Selling Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Selling Holder;
(d) notify the Selling Holders promptly, and (if
requested by any such Person) confirm such notice in writing, (i) when
a prospectus or any prospectus supplement or post-effective amendment
has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective under the
Securities Act and each applicable state law; (ii) of any request by
the SEC or any other federal or state governmental authority for
amendments or supplements to a registration statement or related
prospectus or for additional information; (iii) of the issuance by the
SEC of any stop order suspending the effectiveness of a registration
statement or the initiation of any proceedings for that purpose; (iv)
if at any time the representations or warranties of OSI contained in
any agreement (including any underwriting agreement) contemplated by
Section 5(h) below cease to be true and correct in any material
respect; (v) of the receipt by OSI of any notification with respect to
the suspension of the qualification or exemption from qualification of
any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (vi) of
the happening of any event which makes any statement made in such
registration statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue
in any
material respect or that requires the making of any changes in such registration statement, prospectus or documents so that, in the case of the registration statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vii) of OSI's reasonable determination that a post-effective amendment to a registration statement would be appropriate;
(e) use every commercially reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment;
(f) cooperate with the Selling Holders and the managing Underwriter or Underwriters to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depositary Trust Company; and enable such Registrable Securities to be registered in such names as the managing Underwriter or Underwriters may request prior to any sale of Registrable Securities;
(g) use all commercially reasonable efforts to register or qualify such Registrable Securities as promptly as practicable under such other securities or blue sky laws of such jurisdictions as any Selling Holder or managing Underwriter reasonably (in light of the intended plan of distribution) requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holder or managing Underwriter to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Selling Holder; provided, however, that OSI will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (g); (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction;
(h) enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities;
(i) make available for inspection by any Selling Holder of such Registrable Securities, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any such Selling Holder or Underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of OSI (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause OSI's officers, directors and employees to supply all information reasonably requested by any such Inspectors in connection with such registration statement. Each Selling Holder of such Registrable Securities agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of OSI or its Affiliates unless and until such is made generally available to the public.
(j) use all commercially reasonable efforts to obtain a comfort letter or comfort letters from OSI's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters as the Selling Holders of a majority of the shares of Registrable Securities being sold or the managing Underwriter or Underwriters reasonably requests;
(k) otherwise use all commercially reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of twelve months, which twelve month period shall commence no later than three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(l) use all commercially reasonable efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by OSI are then listed or quoted on any inter-dealer quotation system on which similar securities issued by OSI are then quoted;
(m) subject to the provisions of Section 4(c) if any event contemplated by Section 5(d)(vi) above shall occur, as promptly as practicable prepare a supplement or amendment or post-effective amendment to such registration statement or the related prospectus or any document incorporated therein by reference or promptly file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and
(n) cooperate and assist in any filing required to be made with the National Association of Securities Dealers, Inc. and in the performance of any due diligence investigation by any underwriter, including any "qualified independent underwriter," or any Selling Holder.
OSI may require each Selling Holder to promptly furnish in writing to OSI such information regarding the distribution of the Registrable Securities as it may from time to time reasonably request and such other information as may be legally required in connection with such registration. Notwithstanding anything herein to the contrary, OSI shall have the right to exclude from any offering the Registrable Securities of any Selling Holder who does not comply with the provisions of the immediately preceding sentence.
Each Selling Holder agrees that, upon receipt of any notice from OSI of the happening of any event of the kind described in Section 5(d)(vi) hereof, such Selling Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5(m) hereof, and, if so directed by OSI, such Selling Holder will deliver to OSI all copies, other than permanent file copies, then in such Selling Holder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event OSI shall give such notice, OSI shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 5(b) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 5(d)(vi) hereof to the date when OSI shall make available to the Selling Holders of Registrable Securities covered by such registration statement a prospectus supplemented or amended to conform with the requirements of Section 5(m) hereof.
SECTION 6 REGISTRATION EXPENSES. Subject to the provisions in
Section 2(b) above with respect to a Demand Registration, in connection with any
Demand Registration or Piggyback Registration hereunder, OSI shall pay the
following registration expenses (the "Registration Expenses"): (a) all
registration and filing fees (including, without limitation, with respect to
filings to be made with the National Association of Securities Dealers, Inc.),
(b) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (c) printing expenses, (d)
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (e) the fees
and expenses incurred in connection with the listing of the Registrable
Securities on an exchange or the quotation of the Registrable Securities on an
inter-dealer quotation system, (f) reasonable fees and disbursements of counsel
for OSI and customary fees and expenses for independent certified public
accountants retained by OSI (including the expenses of any comfort letters
requested pursuant to Section 5(j) hereof), (g) the reasonable fees and expenses
of any special experts retained by OSI in connection with such registration, (h)
reasonable fees and expenses of one counsel reasonably acceptable to OSI
selected by the Selling Holders incurred in connection with the registration of
such Registrable Securities hereunder and (i) fees and expenses of any
"qualified independent underwriter" or other independent appraiser participating
in any offering pursuant to the requirements of the National Association of
Securities Dealers, Inc. OSI shall not have any obligation to pay any
underwriting fees, discounts, or commissions attributable to the sale of
Registrable Securities, any capital gains, income or transfer taxes or, except
as provided by clause (b), (h) or (i) above, any out-of-pocket expenses of the
Holders (or the agents who manage their accounts) or the fees and disbursements
of counsel for any Underwriter.
SECTION 7 INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by OSI. OSI agrees to indemnify and hold harmless each Selling Holder, each Person, if any, who controls such Selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the officers, directors, agents, members, general and limited partners, and employees of each Selling Holder and each such controlling person from and against any and all losses, claims, damages, liabilities, and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities or in any amendment or supplement thereto or in any preliminary prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of, or are based upon, any such untrue statement or omission or allegation thereof based upon information furnished in writing to OSI by such Selling Holder or on such Selling Holder's behalf expressly for use therein. OSI also agrees to indemnify any Underwriters of the Registrable Securities, their officers and directors and each Person who controls such Underwriters on substantially the same basis as that of the indemnification of the Selling Holders provided in this Section 7(a).
(b) Indemnification by Holder of Registrable Securities.
Each Selling Holder, severally and not jointly, agrees to indemnify
and hold harmless OSI, and each Person, if any, who controls OSI
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act and the officers, directors, agents and
employees of OSI and each such controlling Person to the same extent
as the foregoing indemnity from OSI to such Selling Holder, but only
with respect to information furnished in writing by such Selling
Holder or on such Selling Holder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable
Securities. The liability of any Selling Holder under this Section
7(b) shall be limited to the aggregate cash and property received by
such Selling Holder pursuant to the sale of Registrable Securities
covered by such registration statement or prospectus.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought
or asserted against any Person entitled to indemnification under
Section 7(a) or 7(b) above (an "Indemnified Party") in respect of
which indemnity may be sought from any party who has agreed to provide
such indemnification (an "Indemnifying Party"), the Indemnified Party
shall give prompt written notice to the Indemnifying Party and the
Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general
allegations or circumstances, be liable at any time for the fees and expenses of more than one separate firm of attorneys (together in each case with appropriate local counsel). The Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without its written consent (which consent will not be unreasonably withheld), but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action of proceeding, the Indemnifying Party shall indemnify and hold harmless such Indemnified Party from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. The Indemnifying Party shall not consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release, in form and substance satisfactory to the Indemnified Party, from all liability in respect of such action or proceeding for which such Indemnified Party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 7 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between OSI on the one hand and each
Selling Holder on the other, in such proportion as is appropriate to
reflect the relative fault of OSI and of each Selling Holder in
connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of OSI on
the one hand and of each Selling Holder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. OSI and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred
to in the first two sentences of this Section 7(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims,
damages, liabilities or judgments referred to in Sections 7(a) and (b)
hereof shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
7(d), no Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds
the amount of any damages which such Selling Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
SECTION 8 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements approved by the Person entitled hereunder to approve such arrangements, and (b) timely completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, custody agreements and other documents reasonably required under the terms of such underwriting arrangements and this Agreement.
SECTION 9 MISCELLANEOUS.
9.1 Rule 144. OSI covenants that, upon any registration statement covering Company securities becoming effective, it will file the reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the Commission thereunder, and it will take such other action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (a) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder of Registrable Securities, OSI will deliver to such Holder a written statement as to whether it has complied with such requirements.
9.2 Issuance of New Certificates. Each Holder who ceases to be a Holder may thereafter surrender any certificate or certificates of OSI Common Stock bearing legends restricting the transferability thereof and shall be entitled, upon such surrender, to receive in exchange therefor a certificate or certificates, free of such restrictive legends, representing the same number of shares of OSI Common Stock; provided, however, that prior to the issuance of such unrestricted shares of OSI Common Stock, OSI may require an opinion of its counsel, at its expense, in customary form and reasonably satisfactory to OSI to the effect that the issuance of such unrestricted shares is permitted under applicable federal and state securities laws. If any such certificate for OSI Common Stock is to be issued in a name other than that in which the surrendered certificate is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such exchange shall have paid any transfer and other taxes required by reason of such issuance of certificates of OSI Common Stock in a name other than that of the registered holder of the certificate surrendered, or shall have established to the satisfaction of OSI and its transfer agent that such tax has been paid or is not applicable.
9.3 Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is, or whose stockholders or partners are, entitled to the benefits thereof. This Agreement may not be amended or supplemented at any time, except by an instrument in writing signed on behalf of the Holders of 50% or more of the Registrable Securities.
9.4 Assignment. The registration rights of Holders under this Agreement may be assigned and transferred to any transferee acquiring Registrable Securities, other than in a public offering pursuant to a registration statement or pursuant to Rule 144; provided, however, that OSI is given written notice by the Holder at the time of such transfer stating the name and address of the transferee and identifying the Registrable Securities with respect to which the rights under this Agreement are being assigned and the transferee agrees to be bound by the terms and conditions hereof and agrees to execute and deliver to OSI an acknowledgement and agreement to such effect.
This Agreement shall also be binding upon and enforceable by the heirs, executors, or other personal representatives of the Holders and the successors and assigns of OSI.
9.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered if delivered in person, by cable, telegram, telex, or telecopy and shall be deemed to have been duly given three business days after deposit with a United States post office if delivered by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows:
if to OSI:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor
Telephone: (713) 652-0588
Facsimile: (713) 652-0499
with a copy to:
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas, 75201
Attention: Maury Purnell
Telephone: (214) 740-8000
Facsimile: (214) 740-8800
if to HWC:
HWC Energy Services, Inc.
811 Dallas, Suite 1322
Houston, Texas 77002
Attention: Rob Hampton Telephone: (713) 750-0600 Facsimile: (713) 750-0058
with a copy to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P 201 St. Charles Avenue
New Orleans, Louisiana 70170 Attention: Bill Masters Telephone: (504) 582-8000 Facsimile: (504) 582-8549
if to Sooner:
Sooner Inc.
1221 Lamar Street, Suite 1010
Houston, Texas 77010
Attention: Chris Cragg
Telephone: (713) 759-1200
Facsimile: (713) 759-0442
with a copy to:
Scott F. Zarrow
900 Mid-Continent Tower
401 S. Boston
Tulsa, OK 74103
Telephone: (918) 295-8054
Facsimile: (918) 295-8048
and if to a Holder, at such Holder's address as shown on OSI's stock transfer records or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt.
9.6 Governing Law. This Agreement shall be governed by and construed in accordance with the substantive law of the State of Delaware without giving effect to the principles of conflicts of law thereof.
9.7 Severability. If any term or other provisions of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any material manner to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible.
9.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original document, but all of which together shall constitute one and the same agreement.
9.9 Headings. The Section headings herein are for convenience only and are not intended to be part of or to affect the meaning or interpretation of the Agreement.
9.10 Entire Agreement; Third Party Beneficiaries. This Agreement, including the exhibits hereto and the documents, information supplied in writing, and instruments referred to herein, constitute the entire agreement and supersedes all other prior agreements, and understandings, both oral and written, among the parties or any of them, with respect to the subject matter hereof. Except as set forth in Section 3(c) hereof with respect to holders of PTI Exchangeable Shares, this Agreement shall be binding upon and inure solely to the benefit of the parties hereto, and nothing
in this Agreement and the documents, information supplied in writing, and instruments referred to herein, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. For greater certainty, Section 3(c) hereof, and the application of this Agreement contemplated thereby, shall inure to the benefit of, and shall be enforceable against the parties hereto by, the holders of PTI Exchangeable Shares.
9.11 Termination. The provisions of Sections 2, 3, 4, 5 and 6 shall terminate and be of no further force or effect on or after the tenth anniversary of the date hereof.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be executed as of the date first above written.
OIL STATES INTERNATIONAL, INC.
HWC ENERGY SERVICES, INC.
SOONER INC.
SCF III, L.P.
By: SCF II, L.P.,
its General Partner
By: L.E. Simmons & Associates,
Incorporated, its General Partner
SCF IV, L.P.
By: SCF-IV, G.P., Limited Partnership,
its General Partner
By: L.E. Simmons & Associates,
Incorporated, its General Partner
OSI REGISTRATION RIGHTS HOLDERS
David Altholff*
Charles Armbrust*
The Bovaird Supply Co.*
James Cauble*
Chase Manhattan Investment Holdings, Inc.*
J. Kelly Elliot*
Donald Gregory*
T. L. Gregory*
T. L. Gregory, Trustee for the Betty Sue
Gregory Trust*
Howard Hughes*
The Huntfield Trust Limited*
Michael Kief*
Werner Kief*
Klaper (UK) Ltd*
Menikoff Family Partnership*
J. Michael Newell*
Richard Schultz*
Stephen Wells*
James Woods*
HWC REGISTRATION RIGHTS HOLDERS
Tommy Parkhill*
Gerald Loring*
James L. Skeans*
Chad W. Parkhill Trust*
Shelly L. Parkhill Trust*
Charles Helms*
Don Cobb*
Gary Rosenthal*
Jay Trahan*
John Lauletta*
Larry Pavlicek*
Richard Broussard*
Robert W. Hampton*
Shanna Trosclair*
SOONER REGISTRATION RIGHTS HOLDERS
Zarrow Operating Company*
Stuart A. Zarrow*
Judith Z. Kishner*
Gail Z. Richards*
Foreman Investment Capital, LLC*
EXHIBIT F
SUMMARY OF TAX OPINION OF ERNST & YOUNG LLP
(US HOLDERS OF HWC, SOONER, OSI AND PTI)
THIS DRAFT IS FURNISHED SOLELY TO INDICATE THE EXPECTED OPINION, ASSUMING A SATISFACTORY COMPLETION OF CERTAIN DUE DILIGENCE PROCEDURES AND REPRESENTATIONS FROM THE MANAGEMENT OF HWC, SOONER, OSI AND PTI AND FROM THE MAJORITY SHAREHOLDER.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO THE PARTICIPATING SHAREHOLDERS
SHAREHOLDERS THAT ARE UNITED STATES HOLDERS
The following is a summary of certain United States federal income tax considerations generally applicable to the Participating Shareholders that are "United States persons," as defined for United States federal income tax purposes, and that currently hold shares of HWC, Sooner or PTI as capital assets ("United States Holders"), upon entering into the proposed transactions as detailed in the Combination Agreement and Form S-1 (collectively the "Proposed Arrangement"), including the receipt and ownership of OSI Common Stock. For United States federal income tax purposes, "United States persons" are United States citizens or residents, corporations or partnerships organized under the laws of the United States or any state thereof, estates subject to United States federal income tax on their income regardless of source and trusts subject to the primary supervision of a court within the United States and control of a United States fiduciary as described in Section 7701(a)(30) of the U.S. Internal Revenue Code of 1986, as amended (the "Code").
This summary is based on United States federal income tax law in effect as of the date hereof. Although certain statutory and administrative authorities exist which address certain of the United States federal income tax consequences related to the issuance and receipt of equity interests in the common stock of a corporation, the conclusions expressed herein are subject to interpretation and are not absolutely certain. No advance income tax ruling has been sought or obtained from the United States Internal Revenue Service ("IRS") regarding the United States federal income tax consequences of any of the transactions described herein.
This summary does not address aspects of United States taxation other than United States federal income taxation, nor does it address all aspects of United States federal income taxation that may be applicable to particular United States Holders, including, without limitation, holders of stock options and holders of common shares acquired as a result of the exercise of employee stock options. In addition, this summary does not address the United States state or local tax consequences or the foreign tax consequences of the Proposed Arrangement.
UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES AND THE FOREIGN TAX CONSEQUENCES OF THE PROPOSED ARRANGEMENT.
Characterization of the Proposed Arrangement for United States Federal Income Tax Purposes. The management of OSI anticipates receiving a tax opinion from Ernst & Young LLP upon the satisfactory completion of the necessary information requests, representations, and other document requests. This opinion would provide that, based upon current statutory and administrative authorities, the Proposed Arrangement should qualify as a tax free transfer to a controlled corporation within the meaning of Section 351(a) of the Code. However, there can be no assurance that the IRS would not challenge the status of the Proposed Arrangement as a transfer to a controlled corporation or that, if challenged, a court would not agree with the IRS. The tax opinion is subject to certain customary assumptions, qualifications and similar matters and is limited solely to certain United States federal income tax consequences of the Proposed Arrangement.
The following substantially represents the anticipated federal income tax consequences of the Proposed Arrangement that OSI anticipates receiving in the tax opinion from Ernst & Young LLP.
Receipt of OSI common shares. Assuming the Proposed Arrangement qualifies under
Section 351(a) of the Code, the following federal income tax consequences should
occur: (i) except as provided below, a United States Holder of HWC, Sooner or
PTI shares who solely receives OSI common shares pursuant to the Proposed
Arrangement should not recognize any gain or loss with respect to the receipt of
such shares; (ii) except as provided below, the aggregate basis of the OSI
common shares received pursuant to the Proposed Arrangement by a United States
Holder should equal such holder's aggregate tax basis in the shares of HWC,
Sooner or PTI shares exchanged pursuant to the Proposed Arrangement reduced by
the tax basis allocated to fractional share interests for which cash is
received; (iii) the holding period for federal income tax purposes of the OSI
common shares received by a United States Holder of HWC, Sooner or PTI shares
pursuant to the Proposed Arrangement should include the holding period of the
HWC, Sooner or PTI shares exchanged therefor; and (iv) cash payments in lieu of
a fractional OSI common share should be treated as a taxable exchange of cash in
full payment for the fractional share.
EXHIBIT G
SUMMARY OF TAX OPINION OF ERNST & YOUNG LLP
(PTI)
THIS DRAFT IS FURNISHED SOLELY TO ILLUSTRATE CERTAIN OF THE EXPECTED TAX CONSIDERATIONS THAT WILL BE CONTAINED IN THE FINAL OPINION ASSUMING A SATISFACTORY COMPLETION OF CERTAIN DUE DILIGENCE PROCEDURES AND REPRESENTATIONS FROM MANAGEMENT. The matters discussed below will, along with additional matters, be set out more fully in the Income Tax Considerations section of the Management Information Circular.
The following is a brief summary of some of the Canadian federal income tax consequences to PTI Group, Inc. ("PTI") and its shareholders of the Combination Agreement and the Arrangement. It is not intended to be, and should not be construed to be, legal, business or tax advice to either PTI or any particular shareholder of PTI.
This summary assumes that PTI shareholders hold their shares of PTI as capital property for purposes of the Canadian Income Tax Act (the "Act").
TAX CONSEQUENCES TO PTI
The Combination Agreement and the Arrangement may result in an acquisition of control of PTI for Canadian income tax purposes. There are a number of tax consequences that arise if there is an acquisition of control including a deemed year end for tax purposes with all of the requisite filing requirements; realization of accrued losses; expiration of capital losses and property losses; and restrictions on the future utilization of non-capital losses.
PTI will also have a deemed year end for tax purposes on the amalgamation of PTI and PTI Amalco. There should be no other significant tax consequences to PTI as a result of the amalgamation.
As discussed below, on a redemption (including a retraction) of an Exchangeable Share by PTI Holdco, the shareholder will be deemed to have received and PTI Holdco will be deemed to have paid a dividend equal to the amount, if any, by which the redemption proceeds (the fair market value at that time of the Oil States International, Inc. ("OSI") Common Stock received by the shareholder from PTI Holdco on the redemption) exceed the paid-up capital (for purposes of the Act) of the Exchangeable Share at the time the share is redeemed. PTI Holdco will be required to pay annually a tax under Part VI.1 of the Act equal to 66 2/3% of the amount, if any, by which the total of all taxable dividends paid or deemed to have been paid on the Exchangeable Shares for the year exceeds $500,000. PTI Holdco will also be entitled to deduct, in computing taxable income, an amount equal to 9/4 of the Part VI.1 tax it is required to pay for the year. If certain conditions are met, this Part VI.1 tax and corresponding deduction may be transferred to a related Canadian corporation.
PTI SHAREHOLDERS RESIDENT IN CANADA
On the amalgamation of PTI and PTI Amalco, a PTI shareholder will be deemed to have disposed of PTI common shares owned by the PTI common shareholder for proceeds equal to the adjusted cost base of the PTI common shares to that shareholder immediately before the amalgamation; as a result, no capital gain or capital loss will generally arise for a PTI shareholder on the amalgamation. The PTI shareholder will be deemed to have acquired the shares of New PTI Group, Inc. ("New PTI") on the amalgamation at a cost equal to the proceeds of disposition of the PTI common shares referred to above.
The increase in legal stated capital of the Class B shares of New PTI will result in a deemed dividend to the Class B shareholders. The tax implications of that deemed dividend are not discussed in this summary. This increase in legal stated capital of the Class B shares will not have any adverse income tax implications to the other shareholders of New PTI or to New PTI itself.
The increase in legal stated capital of the Class C shares of New PTI will result in a deemed dividend to the Class C shareholders. The tax implications of that deemed dividend are not discussed in this summary. This increase in legal stated capital of the Class C shares will not have any adverse income tax implications to the other shareholders of New PTI or to New PTI itself.
On the transfer of the shares of New PTI by the New PTI shareholder to PTI Holdco, the New PTI shareholder and PTI Holdco will file the appropriate joint elections pursuant to the provisions of section 85(1) of the Act electing an amount (the "Elected Amount") selected by the New PTI shareholder within the limits provided for under the Act.
A New PTI shareholder who receives Exchangeable Shares of PTI Holdco and ancillary rights and benefits on the transfer of the New PTI shares to PTI Holdco will not realize a capital gain for Canadian income tax purposes on the transfer provided that the shareholder files the joint election with PTI Holdco with an Elected Amount equal to the adjusted cost base to the shareholder of the shareholder's New PTI shares and such adjusted cost base exceeds the sum of:
(i) any cash received in respect of a fractional Exchangeable Share; and
(ii) the fair market value of the ancillary rights and benefits received by such shareholder in connection with the exchange.
A New PTI shareholder will realize a capital gain to the extent that such sum, net of any reasonable costs of disposition, exceeds the adjusted cost base of the New PTI shares to the shareholder. Certain shareholders may realize a dividend rather than a capital gain. A New PTI shareholder will be required to determine the fair market value of the ancillary rights and benefits received. Any determination of value is not binding on the Canada Customs and Revenue Agency ("CCRA"). It is possible that the CCRA could take the position that the ancillary rights and benefits have a fair market value in excess of a nominal amount.
A shareholder who selects an Elected Amount greater than the adjusted cost base of the New PTI shares will realized a capital gain to the extent that elected amount, net of any reasonable costs of disposition exceeds the adjusted cost base.
On the redemption (including a retraction) of an Exchangeable Share by PTI Holdco, the shareholder of the Exchangeable Share will be deemed to have received a dividend from PTI Holdco equal to
the amount, if any, by which the redemption proceeds (the fair market value at that time of the OSI Common Stock received by the shareholder from PTI Holdco on the redemption) exceed the paid-up capital (for purposes of the Act) of the Exchangeable Share at the time the share is redeemed. The shareholder will also be considered to have disposed of the Exchangeable Share for proceeds of disposition equal to the redemption proceeds less the amount of such deemed dividend.
On the exchange of an Exchangeable Share by the shareholder thereof with OSI ULC for OSI Common Stock, the shareholder will in general realize a capital gain (or capital loss) to the extent the proceeds of disposition of the Exchangeable Share, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the holder of the Exchangeable Share. For these purposes, the proceeds of disposition will be the fair market value, at the time of the exchange, of the OSI Common Stock received on the exchange.
Because of the existence of the Redemption and Retraction Call Rights, a PTI Exchangeable Shareholder cannot control whether such shareholder will receive the OSI Common Stock by way of a redemption of the Exchangeable Shares or by way of a purchase of the Exchangeable Shares. As described above, the income tax consequences of a redemption differ from those of a purchase.
The cost of the OSI Common Stock received on the retraction, redemption or exchange of Exchangeable Shares will be equal to the fair market value of such OSI Common Stock at the time of such event, and must be averaged with the adjusted cost base of any other OSI Common Stock held at that time by the holder for the purposes of determining the adjusted cost base of all OSI Common Stock held by the holder.
On June 22, 2000, the Department of Finance released draft amendments to the Act regarding the taxation of "participating interests" of Canadian taxpayers in "foreign investment entities". The intention of the legislation is to prevent Canadian taxpayers from avoiding Canadian income tax by transferring funds to offshore accounts. Under these provisions, both a PTI Holdco Exchangeable Share and an OSI common share will be considered to be a "participating interest" in OSI. If OSI is determined to be a "foreign investment entity" there would be negative tax consequences to Canadian shareholders holding such interests. Basically, a "foreign investment entity" is a non-resident entity the "investment property" of which represents at least half of its assets. It is anticipated that OSI will not be a "foreign investment entity" on the basis that half of its assets will not be investment property and, therefore, these draft provisions should not apply.
PTI OPTIONHOLDERS
There should be no negative income tax consequences to a PTI Optionholder on the exchange of the options to acquire PTI Common shares for options to acquire OSI Common Shares..
PTI SHAREHOLDERS NOT RESIDENT IN CANADA
The transfer by the non-resident shareholders of PTI of their shares of PTI to OSI in exchange for common stock of OSI is a disposition of "taxable Canadian property" ("TCP") for Canadian income tax purposes. Any gain arising on the disposition by a non-resident of TCP is taxable in Canada, subject to the terms of any bi-lateral income tax treaty that Canada has entered into with the country
of which the disposing shareholder is resident. In particular, pursuant to the terms of the Canada - US Income Tax Convention (the "Treaty"), Canada cannot tax a gain realized by a shareholder of PTI who is a resident of the US for purposes of the Treaty. Any Canadian non-resident shareholder who is not a resident of the US for purposes of the Treaty, or of a jurisdiction with a similar treaty, will be taxable on the gain arising on the transfer. Where a partnership is a shareholder, the Canadian tax rules will generally require that these rules be applied separately to each partner of the partnership with respect to their proportionate share of the gain. Where a partnership is itself a partner in a partnership, it will be necessary to look through that partnership as well.
Regardless of whether any particular non-resident shareholder of PTI is subject to Canadian income tax on the gain, such non-resident shareholder must notify CCRA of the disposition and obtain a clearance certificate (a "Section 116 certificate") from CCRA. In the event the transferor does not obtain a Section 116 certificate, OSI as the purchaser, is required to withhold an amount equal to 33 1/3% of the cost to OSI of the shares of PTI and remit this amount to the CCRA. For these purposes, the cost of the shares of PTI will be the aggregate fair market value, at the time of the transfer, of the OSI Common Stock delivered to the PTI shareholders in exchange for their shares of PTI.
EXHIBIT H
FORM OF OMNIBUS CONSENT, WAIVER AND AGREEMENT
OF SHAREHOLDERS OF HWC
EXHIBIT H
OMNIBUS CONSENT, WAIVER AND INVESTMENT AGREEMENT
OF THE SHAREHOLDERS
OF
HWC ENERGY SERVICES INC.
The undersigned, being HWC Energy Services Inc., a Texas corporation (the "Company" or "HWC") and the holders (the "Shareholders") of the issued and outstanding shares of common stock, par value $.01 per share (the "HWC Common Stock"), Series A Cumulative Convertible Preferred Stock, par value $.01 per share, and Series B Cumulative Convertible Preferred Stock, par value $.01 per share, of the Company (the Series A and Series B Cumulative Convertible Preferred Stock being referred to herein collectively as the "HWC Preferred Stock"), do hereby consent, adopt, approve and agree as follows:
1. RECITALS.
a. The Company's board of directors (the "Board of Directors") has considered the form, terms, provisions and conditions of that certain Combination Agreement, including the exhibits thereto, by and among the Company, Oil States International, Inc., a Delaware corporation ("OSI"), Sooner Inc., a Delaware corporation ("Sooner") and PTI Group, Inc., an Alberta corporation ("PTI") and the other parties thereto, a copy of which has been provided herewith to the Shareholders.
b. The Board of Directors has determined that the Combination Agreement, including the exhibits thereto and the transactions contemplated thereby, are in the best interests of, and fair to, the Company and the Shareholders and on that basis has entered into the Combination Agreement effective as of July 31, 2000.
c. The Board of Directors has submitted the Combination Agreement to the Shareholders for approval and adoption and has recommended to the Shareholders that they so approve and adopt the Combination Agreement.
d. The Combination Agreement contemplates the execution of an Amended and Restated Registration Rights Agreement to be effective at the Effective Time, pursuant to which the existing registration rights of certain holders of OSI Common Stock, HWC Common Stock and Sooner Common Stock (the "Existing Registration Rights") granted pursuant to existing registration rights agreements (each an "Existing Registration Rights Agreement") shall be amended and restated.
e. The Combination Agreement contemplates that, prior to the Effective Time, the Company shall cause to be terminated the existing shareholders agreement between the Company and certain of the Shareholders (the "Shareholders Agreement").
f. The Combination Agreement contemplates certain other actions to be taken by the Shareholders to effect the purposes thereof.
g. Capitalized terms that are used but not defined herein have the meanings set forth in the Combination Agreement.
2. RESOLUTIONS OF SHAREHOLDERS. Acting pursuant to the provisions of Article 9.10A of the Texas Business Corporation Act (the "TBCA"), the Shareholders hereby approve and adopt the following resolutions:
APPROVAL OF COMBINATION AGREEMENT
RESOLVED, that, upon the recommendation of the Board of Directors, the Shareholders hereby approve and adopt the Combination Agreement and the transactions contemplated thereby, including, without limitation, the HWC Merger and the conversion of each issued and outstanding share of HWC Common Stock and HWC Preferred Stock into shares of OSI Common Stock in the HWC Merger.
GENERAL AUTHORITY AND RATIFICATION
RESOLVED, that the Shareholders, based upon the recommendation of the Board of Directors, hereby authorize each duly appointed officer of the Company to take all action and to prepare, execute, and deliver all documents that such officer deems appropriate or advisable in order to effect the foregoing resolutions and to consummate the transactions contemplated by the Combination Agreement and the exhibits thereto; and
RESOLVED FURTHER, that any lawful act heretofore taken by any duly appointed officer of the Company in such capacity in connection with the matters set forth in the foregoing recitals and resolutions be, and it hereby is in all respects approved, adopted, ratified and confirmed as an act of the Company.
3. WAIVER OF CERTAIN RIGHTS.
a. The Shareholders, by approving the Combination Agreement, acknowledge that they will not be entitled to rights of dissent or appraisal that they may have under Article 5.11 of the TBCA in connection with the HWC Merger and the conversion of the issued and outstanding shares of HWC Common Stock held by the Shareholders into shares of OSI Common Stock.
b. The Shareholders hereby waive any statutory or contractual preemptive or similar rights, including any rights of first offer or refusal, that they now have or may have had prior to the date hereof to purchase additional shares of HWC Common Stock.
c. Effective at the Effective Time, the Shareholders hereby waive any and all claims for damages they may have against the HWC Surviving Corporation, HWC or any of its subsidiaries.
4. REGISTRATION RIGHTS AGREEMENT AND RELATED MATTERS.
a. The Shareholders who have Existing Registration Rights with respect to the shares of HWC Common Stock owned by them and whose names are set forth on Schedule A attached hereto (the "Registration Rights Shareholders") hereby approve the Amended and Restated Registration Rights Agreement contemplated by the Combination Agreement (the "Registration Rights Agreement"), a copy of which Registration Rights Agreement has been provided to the Shareholders herewith.
b. At the Effective Time, the Registration Rights Agreement shall replace the Existing Registration Rights Agreement in its entirety and the Existing Registration Rights Agreement shall terminate and be of no further force or effect.
c. The Registration Rights Shareholders hereby constitute and appoint each of Douglas Swanson and Cindy Taylor, or either of them, their true and lawful attorney-in-fact and agent to execute the Registration Rights Agreement in their names and on their behalf.
d. The Registration Rights Agreement will be executed and become effective with respect to the Registration Rights Shareholders at the Effective Time.
e. An amendment to the Existing Registration Rights Agreement has been approved and adopted by Board of Directors to provide that no Person shall have the right to request the registration of any HWC Common Stock, or any other shares of capital stock of HWC or OSI, in connection with the OSI Initial Public Offering. The Registration Rights Shareholders hereby approve, adopt and agree to such amendment to the Existing Registration Rights Agreement, which amendment shall be effective without further action by the Registration Rights Shareholders or the Company.
f. The Registration Rights Shareholders hereby waive any rights they may have to demand or request registration of any of their HWC Common Stock, or any other shares of capital stock of HWC or OSI, in the OSI Initial Public Offering pursuant to their Existing Registration Rights.
g. In the event the Combination Agreement is terminated prior to the Effective Time in accordance with its terms, the Existing Registration Rights Agreement shall continue in full force and effect.
5. TERMINATION OF SHAREHOLDERS AGREEMENT AND RELATED MATTERS.
a. Effective immediately prior to the Effective Time, the Shareholders Agreement shall terminate and be of no further force or effect.
b. In the event the Combination Agreement is terminated prior to the Effective Time in accordance with its terms, the Shareholders Agreement shall continue in full force and effect.
6. INVESTOR REPRESENTATIONS OF SHAREHOLDERS. The undersigned Shareholders hereby represent and warrant to the Company and OSI as follows:
a. The undersigned has been furnished with, has carefully read and hereby acknowledges receipt of the Confidential Information Memorandum, dated August 2, 2000 and enclosed herewith, the Combination Agreement, including the exhibits and schedules thereto, and the draft OSI Registration Statement dated August 2, 2000 and enclosed herewith, and is familiar with and understands the terms of the transactions contemplated thereby. The undersigned has carefully considered and has, to the extent the undersigned believes such discussion necessary, discussed with the undersigned's professional legal, tax, accounting and/or financial advisors, as the case may be, the suitability of an investment in the OSI Common Stock for the undersigned's particular tax and financial situation and has determined that the OSI Common Stock to be received by the undersigned is a suitable investment for the undersigned.
b. Except as may be indicated by the undersigned below, the undersigned is an individual "ACCREDITED INVESTOR," as that term is defined in Rule 501(a) promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The undersigned has the knowledge and experience in financial and business matters necessary for evaluating the merits and risks of investing in the OSI Common Stock. THE UNDERSIGNED HAS CHECKED THE BOX BELOW INDICATING THE BASIS ON WHICH HE IS REPRESENTING HIS STATUS AS AN "ACCREDITED INVESTOR":
[ ] a bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; a broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended (the "Securities Exchange Act"); an insurance company as
defined in Section 2(13) of the Securities Act; an investment
company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of
that Act; a small business investment company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions, for
the benefit of its employees, and such plan has total assets in
excess of $5,000,000; an employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and
loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are "accredited investors";
[ ] a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
[ ] an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring securities in the proposed offering, with total assets in excess of $5,000,000;
[ ] a director or executive officer of OSI;
[ ] a natural person whose individual net worth, or joint net worth with the undersigned's spouse, at the time of this purchase exceeds $1,000,000;
[ ] a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with the undersigned's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
[ ] a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment; or
[ ] an entity in which all of the equity holders are "accredited investors" by virtue of their meeting one or more of the above standards.
IF NONE OF THE FOREGOING DESCRIPTIONS ARE APPLICABLE, CHECK THE
FOLLOWING BOX:
[ ] THE UNDERSIGNED IS NOT AN ACCREDITED INVESTOR AND THE UNDERSIGNED
HEREBY ACKNOWLEDGES AND AGREES THAT IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE MERGERS, THE UNDERSIGNED WILL SELL THE UNDERSIGNED'S SHARES OF HWC COMMON STOCK AND HWC PREFERRED STOCK FOR CASH IN ACCORDANCE WITH THE APPLICABLE PROVISIONS OF THE COMBINATION AGREEMENT.
c. The undersigned acknowledges that (i) the undersigned has had the opportunity to request copies of any documents, records, and books pertaining to this investment and (ii) any such documents, records and books which the undersigned requested have been made available for inspection by the undersigned and the undersigned's attorney, accountant or advisor.
d. The undersigned has such knowledge and experience in financial, tax and business matters so as to enable the undersigned to use the information made available to the undersigned in connection with the offering to evaluate the merits and risks of an investment in the OSI Common Stock and to make an informed investment decision with respect thereto.
e. The undersigned has had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of OSI concerning the transactions contemplated by the Combination Agreement and all such questions have been answered to the full satisfaction of the undersigned.
f. The undersigned is not participating in the transactions contemplated by the Combination Agreement as a result of or after any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or meeting.
g. If the undersigned is a natural person, the undersigned has reached the age of majority in the state in which the undersigned resides, has adequate means of providing for the undersigned's current financial needs and contingencies, is able to bear the substantial economic risks of an investment in the OSI Common Stock for an indefinite period of time, has no need for liquidity in such investment and, at the present time, could afford a complete loss of such investment.
h. The undersigned will not sell or otherwise transfer the OSI Common Stock received in connection with the HWC Merger without registration under the Securities Act and applicable state securities laws or an exemption therefrom. The OSI Common Stock has not been registered under the Securities Act or under the securities laws of any domestic or foreign jurisdiction. The undersigned represents that the undersigned is acquiring the OSI Common Stock for the undersigned's own account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of the OSI Common Stock in connection with any distribution.
i. The undersigned recognizes that investment in the OSI Common Stock involves substantial risks, including loss of the entire amount of such investment. Further, the undersigned has taken full cognizance of and understands all of the risks related to the purchase of the OSI Common Stock.
j. In addition to any other restrictive legends that may be required by the terms of the Combination Agreement, the undersigned acknowledges that the certificates representing the OSI Common Stock shall be stamped or otherwise imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM, WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE."
k. The undersigned represents and warrants that, except as set forth on Schedule B attached hereto, and except for options granted to the undersigned under the Company's 1997 Stock Option Plan, as amended, the undersigned is neither the record nor beneficial owner of any equity securities, including any warrants, options, convertible debt, rights of conversion or similar securities or rights, of HWC or any of its subsidiaries.
l. The undersigned acknowledges and understands that OSI is relying upon the foregoing representations and warranties for the purpose of compliance by OSI with Federal and state securities laws related to the issuance of OSI Common Stock pursuant to the Combination Agreement.
7. TRANSFER RESTRICTIONS AND RELATED REPRESENTATIONS OF SHAREHOLDERS.
a. The undersigned hereby acknowledges and understands that, in connection with the OSI Initial Public Offering, the representatives (the "Representatives") of the underwriters (the "Underwriters") propose to enter into an underwriting or purchase agreement (the "Purchase Agreement") with OSI, among others, providing for the public offering of shares of OSI Common
Stock. The undersigned hereby acknowledges and understands that, in connection with the entering into of such Purchase Agreement, the Representatives, on behalf of the Underwriters, will require the execution and delivery by the undersigned of an agreement (the "Lock-Up Agreement") substantially to the effect that, during a period of 180 days from the date of the Purchase Agreement, the undersigned will not, without the prior written consent of the lead manager named in the final OSI Registration Statement, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of OSI Common Stock or any securities convertible into or exchangeable or exercisable for OSI Common Stock, whether owned at the date of the Purchase Agreement or thereafter acquired by the undersigned or with respect to which the undersigned had at the date of the Purchase Agreement or thereafter acquires the power of disposition, or file any registration statement under the Securities Act with respect to any of the foregoing, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the OSI Common Stock, whether any such swap or transaction is to be settled by delivery of OSI Common Stock or other securities, in cash or otherwise. Notwithstanding the foregoing, without obtaining the prior written consent of the lead manager named in the final OSI Registration Statement, the undersigned will be permitted to transfer shares of OSI Common Stock otherwise subject to the Lock-Up Agreement to any immediate family member of the undersigned or any trust established for the benefit of any such immediate family member, provided that, prior to such transfer and as a condition thereof, the transferee shall deliver to the Representatives a written agreement to be bound by the restrictions set forth in the Lock-Up Agreement until the expiration of the aforementioned 180-day period.
b. The undersigned hereby irrevocably constitutes and appoints each of Douglas Swanson and Cindy Taylor, or either of them, as the undersigned's true and lawful attorney-in-fact and agent to execute and deliver to the Representatives in the name and on behalf of the undersigned the Lock-Up Agreement substantially to the effect set forth above and to take such other actions on behalf of the undersigned in connection with the Lock-Up Agreement as may be reasonably necessary. The undersigned hereby represents and warrants to OSI and the Underwriters (a) that each of Mr. Swanson and Ms. Taylor is irrevocably authorized to execute and deliver to the Representatives in the name and on behalf of the undersigned such a Lock-Up Agreement and to take such other actions on behalf of the undersigned in connection with the Lock-Up Agreement as may be reasonably necessary and (b) that upon such execution and delivery by such attorney-in-fact on behalf of the undersigned, such Lock-Up Agreement will constitute the legal, valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms, except as such enforceability may be (i) limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
c. Subject to any additional restrictions contained in the Shareholders Agreement, prior to the earlier of (i) the termination of the Combination Agreement or (ii) the effectiveness of the Lock-Up Agreement, no Shareholder shall sell, convey, pledge or otherwise transfer any shares of HWC Common Stock or other shares of capital stock of the Company or other securities convertible into or exchangeable for HWC Common Stock unless the transferee of any such securities executes and delivers to the Company a copy of this Omnibus Consent, Waiver and Agreement, which
execution and delivery shall evidence such transferee's intent to be bound by each of the provisions hereof.
8. EFFECTIVENESS AND IRREVOCABILITY. The Company anticipates that this Omnibus Consent, Waiver and Investment Agreement will be executed and delivered to the Company by each Shareholder. This Omnibus Consent, Waiver and Investment Agreement will become effective at such time that the Company has received executed Omnibus Consents, Waivers and Agreements from the holders of all of the shares of HWC Common Stock issued and outstanding at such time. EACH OF THE PROVISIONS OF THIS OMNIBUS CONSENT, WAIVER AND INVESTMENT AGREEMENT SHALL BE IRREVOCABLE AND SHALL BE BINDING ON THE UNDERSIGNED AND HIS, HER OR ITS RESPECTIVE SUCCESSORS, HEIRS, PERSONAL REPRESENTATIVES AND ASSIGNS.
9. RELIANCE BY THE COMPANY, OSI AND THE UNDERWRITERS. The undersigned confirms that he, she or it understands that the Company, OSI and the Underwriters will rely upon the foregoing resolutions, representations, covenants, waivers and agreements in proceeding with the OSI Initial Public Offering.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the Company and the undersigned Shareholders have executed this irrevocable Omnibus Consent, Waiver and Investment Agreement on this day of August 2000, to become effective as provided in Section 8 above, which irrevocable Omnibus Consent, Waiver and Investment Agreement may be executed by original or facsimile signature and in one or more counterparts, each such counterpart being deemed an original document and all such counterparts together being deemed one and the same instrument.
HWC Energy Services, Inc.
SCF-III, L.P
By: SCF-II G.P., Limited Partnership,
its general partner
By: L.E. Simmons & Associates,
Incorporated, its general partner
Shelly Parkhill Trust
SCHEDULE A
REGISTRATION RIGHTS SHAREHOLDERS
SCF-III, L.P.
Tommy Parkhill
Gerald Loring
James L. Skeans
Chad W. Parkhill Trust
Shelly L. Parkhill Trust
Charles Helms
Don Cobb
Gary Rosenthal
James Woods
Jay Trahan
John Lauletta
Larry Pavlicek
Richard Broussard
Robert W. Hampton
Shanna Trosclair
SCHEDULE B
OWNERSHIP OF EQUITY SECURITIES
[omitted]
EXHIBIT I
FORM OF OMNIBUS CONSENT, WAIVER AND AGREEMENT
OF STOCKHOLDERS OF SOONER
EXHIBIT I
OMNIBUS CONSENT, WAIVER AND INVESTMENT AGREEMENT
OF THE STOCKHOLDERS
OF
SOONER INC.
The undersigned, being Sooner Inc., a Delaware corporation (the "Company" or "Sooner") and the holders (the "Stockholders") of the issued and outstanding shares of common stock of the Company, par value $.01 per share (the "Sooner Common Stock"), do hereby consent, adopt, approve and agree as follows:
1. RECITALS.
a. the Company's board of directors (the "Board of Directors") has considered the form, terms, provisions and conditions of that certain Combination Agreement, including the exhibits thereto, by and among the Company, Oil States International, Inc., a Delaware corporation ("OSI"), HWC Energy Services, Inc., a Texas corporation ("HWC") and PTI Group, Inc., an Alberta corporation ("PTI") and the other parties thereto, a copy of which has been provided herewith to the Stockholders.
b. The Board of Directors has determined that the Combination Agreement, including the exhibits thereto, and the transactions contemplated thereby are in the best interests of, and fair to, the Company and the Stockholders and on that basis has entered into the Combination Agreement effective as of July 31, 2000.
c. The Board of Directors has submitted the Combination Agreement to the Stockholders for approval and adoption and has recommended to the Stockholders that they so approve and adopt the Combination Agreement;
d. The Combination Agreement contemplates the execution of an Amended and Restated Registration Rights Agreement to be effective at the Effective Time, pursuant to which the existing registration rights of certain holders of OSI Common Stock, HWC Common Stock and Sooner Common Stock (the "Existing Registration Rights") granted pursuant to existing registration rights agreements (each an "Existing Registration Rights Agreement") shall be amended and restated.
e. The Combination Agreement contemplates that, prior to the Effective Time, the Company shall cause to be terminated the existing stockholders agreement between the Company and certain Stockholders (the "Stockholders Agreement").
f. The Combination Agreement contemplates certain other actions to be taken by the Stockholders to effect the purposes thereof.
g. Capitalized terms that are used but not defined herein have the meanings set forth in the Combination Agreement.
2. RESOLUTIONS OF THE STOCKHOLDERS. Acting pursuant to the provisions of
Section 228 of the Delaware General Corporation Law (the "DGCL"), the
Stockholders hereby adopt and approve the following resolutions:
APPROVAL OF COMBINATION AGREEMENT
RESOLVED, that, upon the recommendation of the Board of Directors, the Stockholders hereby approve and adopt the Combination Agreement and the transactions contemplated thereby, including, without limitation, the Sooner Merger and the conversion of each issued and outstanding share of Sooner Common Stock into shares of OSI Common Stock in the Sooner Merger.
GENERAL AUTHORITY AND RATIFICATION
RESOLVED, that the Stockholders, based upon the recommendation of the Board of Directors, hereby authorize each duly appointed officer of the Company to take all action and to prepare, execute, and deliver all documents that such officer deems appropriate or advisable in order to effect the foregoing resolutions and to consummate the transactions contemplated by the Combination Agreement and the exhibits thereto; and
RESOLVED FURTHER, that any lawful act heretofore taken by any duly appointed officer of the Company in such capacity in connection with the matters set forth in the foregoing recitals and resolutions be, and it hereby is in all respects approved, adopted, ratified and confirmed as an act of the Company.
3. WAIVER OF CERTAIN RIGHTS.
a. The Stockholders, by approving the Combination Agreement, acknowledge that they will not be entitled to rights of dissent or appraisal that they may have under Section 262 of the DGCL in connection with the Sooner Merger and the conversion of the issued and outstanding shares of Sooner Common Stock held by the Stockholders into shares of OSI Common Stock.
b. The Stockholders hereby waive any statutory or contractual preemptive or similar rights, including any rights of first offer or refusal, that they now have or may have had prior to the date hereof to purchase additional shares of Sooner Common Stock.
c. Effective at the Effective Time, the Stockholders hereby waive any and all claims for damages they may have against the Sooner Surviving Corporation, Sooner or any of its subsidiaries.
4. REGISTRATION RIGHTS AGREEMENT AND RELATED MATTERS.
a. The Stockholders who have Existing Registration Rights with respect to the shares of Sooner Common Stock owned by them and whose names are set forth on Schedule A attached hereto (the "Registration Rights Stockholders") hereby approve the Amended and Restated Registration Rights Agreement contemplated by the Combination Agreement (the "Registration Rights Agreement"), a copy of which Registration Rights Agreement has been provided to the Stockholders herewith.
b. At the Effective Time, the Registration Rights Agreement shall replace each Existing Registration Rights Agreement in its entirety and each Existing Registration Rights Agreement shall terminate and be of no further force or effect.
c. The Registration Rights Stockholders hereby constitute and appoint each of Douglas Swanson and Cindy Taylor, or either of them, their true and lawful attorney-in-fact and agent to execute the Registration Rights Agreement in their names and on their behalf.
d. The Registration Rights Agreement will be executed and become effective with respect to the Registration Rights Stockholders at the Effective Time.
e. An amendment to the Existing Registration Rights Agreement has been approved and adopted by Board of Directors to provide that no Person shall have the right to request the registration of any Sooner Common Stock, or any other shares of capital stock of Sooner or OSI, in connection with the OSI Initial Public Offering. The Registration Rights Stockholders hereby approve, adopt and agree to such amendment with respect to each of their respective Existing Registration Rights Agreements, which amendment shall be effective without further action by the Registration Rights Stockholders or the Company.
f. The Registration Rights Stockholders hereby waive any rights they may have to demand or request registration of any of their Sooner Common Stock, or any other shares of capital stock of Sooner or OSI, in the OSI Initial Public Offering pursuant to their Existing Registration Rights.
g. In the event the Combination Agreement is terminated before the Effective Time in accordance with its terms, the Existing Registration Rights Agreement shall continue in full force and effect.
5. EXERCISE OF WARRANTS BY CERTAIN STOCKHOLDERS. In connection with the consummation of the OSI Initial Public Offering, the Stockholders identified on Schedule B attached hereto agree to the exchange of all of their warrants to purchase Sooner Common Stock for OSI Common Stock in accordance with the Combination Agreement.
6. INVESTOR REPRESENTATIONS OF THE STOCKHOLDERS. The undersigned hereby represents and warrants to the Company and OSI as follows:
a. The undersigned has been furnished with, has carefully read and acknowledges receipt of the Confidential Information Memorandum, dated August 2, 2000 and enclosed herewith, the Combination Agreement, including exhibits and schedules thereto, and the draft OSI Registration Statement, dated August 2, 2000 and enclosed herewith, and is familiar with and understands the terms of the transactions contemplated thereby. The undersigned has carefully considered and has, to the extent the undersigned believes such discussion necessary, discussed with the undersigned's professional legal, tax, accounting and/or financial advisors, as the case may be, the suitability of an investment in the OSI Common Stock for the undersigned's particular tax and financial situation and has determined that the OSI Common Stock to be received by the undersigned is a suitable investment for the undersigned.
b. Except as may be indicated by the undersigned below, the undersigned is an individual "ACCREDITED INVESTOR," as that term is defined in Rule 501(a) promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The undersigned has the knowledge and experience in financial and business matters necessary for evaluating the merits and risks of investing in the OSI Common Stock. THE UNDERSIGNED HAS CHECKED THE BOX BELOW INDICATING THE BASIS ON WHICH HE IS REPRESENTING HIS STATUS AS AN "ACCREDITED INVESTOR":
[ ] a bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; a broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended (the "Securities Exchange Act"); an insurance company as
defined in Section 2(13) of the Securities Act; an investment
company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of
that Act; a small business investment company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions, for
the benefit of its employees, and such plan has total assets in
excess of $5,000,000; an employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and
loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are "accredited investors";
[ ] a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
[ ] an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring securities in the proposed offering, with total assets in excess of $5,000,000;
[ ] a director or executive officer of OSI;
[ ] a natural person whose individual net worth, or joint net worth with the undersigned's spouse, at the time of this purchase exceeds $1,000,000;
[ ] a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with the undersigned's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
[ ] a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment; or
[ ] an entity in which all of the equity holders are "accredited investors" by virtue of their meeting one or more of the above standards.
IF NONE OF THE FOREGOING DESCRIPTIONS ARE APPLICABLE, CHECK
THE FOLLOWING BOX:
[ ] THE UNDERSIGNED IS NOT AN ACCREDITED INVESTOR AND THE UNDERSIGNED
HEREBY ACKNOWLEDGES AND AGREES THAT IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE MERGERS, THE UNDERSIGNED WILL SELL THE UNDERSIGNED'S SHARES OF SOONER COMMON STOCK FOR CASH IN ACCORDANCE WITH THE APPLICABLE PROVISIONS OF THE COMBINATION AGREEMENT.
c. The undersigned acknowledges that (i) the undersigned has had the opportunity to request copies of any documents, records, and books pertaining to this investment and (ii) any such documents, records and books which the undersigned requested have been made available for inspection by the undersigned and the undersigned's attorney, accountant or advisor.
d. The undersigned has such knowledge and experience in financial, tax and business matters so as to enable the undersigned to use the information made available to the undersigned in connection with the offering to evaluate the merits and risks of an investment in the OSI Common Stock and to make an informed investment decision with respect thereto.
e. The undersigned has had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of OSI concerning the transactions contemplated by the Combination Agreement and all such questions have been answered to the full satisfaction of the undersigned.
f. The undersigned is not participating in the transactions contemplated by the Combination Agreement as a result of or after any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or meeting.
g. If the undersigned is a natural person, the undersigned has reached the age of majority in the state in which the undersigned resides, has adequate means of providing for the undersigned's current financial needs and contingencies, is able to bear the substantial economic risks of an investment in the OSI Common Stock for an indefinite period of time, has no need for liquidity in such investment and, at the present time, could afford a complete loss of such investment.
h. The undersigned will not sell or otherwise transfer the OSI Common Stock received in connection with the Sooner Merger without registration under the Securities Act and applicable state securities laws or an exemption therefrom. The OSI Common Stock has not been registered under the Securities Act or under the securities laws of any domestic or foreign jurisdiction. The undersigned represents that the undersigned is acquiring the OSI Common Stock for the undersigned's own account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of the OSI Common Stock in connection with any distribution.
i. The undersigned recognizes that investment in the OSI Common Stock involves substantial risks, including loss of the entire amount of such investment. Further, the undersigned has taken full cognizance of and understands all of the risks related to the purchase of the OSI Common Stock.
j. In addition to any other restrictive legends that may be required by the terms of the Combination Agreement, the undersigned acknowledges that the certificates representing the OSI Common Stock shall be stamped or otherwise imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM, WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE."
k. The undersigned represents and warrants that, except as set forth on Schedule C attached hereto, and except for options granted to the undersigned under the Company's 1998 Stock Option Plan, as amended, the undersigned is neither the record nor beneficial owner of any equity securities, including any warrants, options, convertible debt, rights of conversion or similar securities or rights, of Sooner or any of its subsidiaries.
l. The undersigned acknowledges and understands that OSI is relying upon the foregoing representations and warranties for the purpose of compliance by OSI with Federal and state securities laws related to the issuance of OSI Common Stock pursuant to the Combination Agreement.
7. TRANSFER RESTRICTIONS OF THE STOCKHOLDERS.
a. The undersigned hereby acknowledges and understands that, in connection with the OSI Initial Public Offering, the representatives (the "Representatives") of the underwriters (the "Underwriters") propose to enter into an underwriting or purchase agreement (the "Purchase Agreement") with OSI, among others, providing for the public offering of shares of OSI Common Stock. The undersigned hereby acknowledges and understands that, in connection with the entering
into of such Purchase Agreement, the Representatives, on behalf of the Underwriters, will require the execution and delivery by the undersigned of an agreement (the "Lock-Up Agreement") substantially to the effect that, during a period of 180 days from the date of the Purchase Agreement, the undersigned will not, without the prior written consent of the lead manager named in the final OSI Registration Statement, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of OSI Common Stock or any securities convertible into or exchangeable or exercisable for OSI Common Stock, whether owned at the date of the Purchase Agreement or thereafter acquired by the undersigned or with respect to which the undersigned had at the date of the Purchase Agreement or thereafter acquires the power of disposition, or file any registration statement under the Securities Act with respect to any of the foregoing, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the OSI Common Stock, whether any such swap or transaction is to be settled by delivery of OSI Common Stock or other securities, in cash or otherwise. Notwithstanding the foregoing, without obtaining the prior written consent of the lead manager named in the final OSI Registration Statement, the undersigned will be permitted to transfer shares of OSI Common Stock otherwise subject to the Lock-Up Agreement to any immediate family member of the undersigned or any trust established for the benefit of any such immediate family member, provided that, prior to such transfer and as a condition thereof, the transferee shall deliver to the Representatives a written agreement to be bound by the restrictions set forth in the Lock-Up Agreement until the expiration of the aforementioned 180-day period.
b. The undersigned hereby irrevocably constitutes and appoints each of Douglas Swanson and Cindy Taylor, or either of them, as the undersigned's true and lawful attorney-in-fact and agent to execute and deliver to the Representatives in the name and on behalf of the undersigned the Lock-Up Agreement substantially to the effect set forth above and to take such other actions on behalf of the undersigned in connection with the Lock-Up Agreement as may be reasonably necessary. The undersigned hereby represents and warrants to OSI and the Underwriters (a) that each of Mr. Swanson and Ms. Taylor is irrevocably authorized to execute and deliver to the Representatives in the name and on behalf of the undersigned such a Lock-Up Agreement and to take such other actions on behalf of the undersigned in connection with the Lock-Up Agreement as may be reasonably necessary and (b) that upon such execution and delivery by such attorney-in-fact on behalf of the undersigned, such Lock-Up Agreement will constitute the legal, valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms, except as such enforceability may be (i) limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
c. Subject to any additional restrictions contained in the Stockholders Agreement, prior to the earlier of (i) the termination of the Combination Agreement or (ii) the effectiveness of the Lock-Up Agreement, no Stockholder shall sell, convey, pledge or otherwise transfer any shares of Sooner Common Stock or other shares of capital stock of the Company or other securities convertible into or exchangeable for Sooner Common Stock unless the transferee of any such securities executes and delivers to the Company a copy of this Omnibus Consent, Waiver and
Investment Agreement, which execution and delivery shall evidence such transferee's intent to be bound by each of the provisions hereof.
8. EFFECTIVENESS AND IRREVOCABILITY. The Company anticipates that this Omnibus Consent, Waiver and Investment Agreement will be executed and delivered to the Company by each Stockholder. This Omnibus Consent, Waiver and Investment Agreement will become effective at such time that the Company has received executed Omnibus Consents, Waivers and Agreements from the holders of all of the shares of Sooner Common Stock issued and outstanding at such time. EACH OF THE PROVISIONS OF THIS OMNIBUS CONSENT, WAIVER AND INVESTMENT AGREEMENT SHALL BE IRREVOCABLE AND SHALL BE BINDING ON THE UNDERSIGNED AND HIS, HER OR ITS RESPECTIVE SUCCESSORS, HEIRS, PERSONAL REPRESENTATIVES AND ASSIGNS.
9. RELIANCE BY THE COMPANY, OSI AND THE UNDERWRITERS. The undersigned confirms that he, she or it understands that the Company, OSI and the Underwriters will rely upon the foregoing resolutions, representations, covenants, waivers and agreements in proceeding with the OSI Initial Public Offering.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the Company and the undersigned Stockholders have executed this irrevocable Omnibus Consent, Waiver and Investment Agreement on this day of August 2000, to become effective as provided in Section 8 above, which irrevocable Omnibus Consent, Waiver and Investment Agreement may be executed by original or facsimile signature and in one or more counterparts, each such counterpart being deemed an original document and all such counterparts together being deemed one and the same instrument.
Sooner, Inc.
SCF-IV, L.P
By: SCF-IV, G.P., Limited Partnership, its
general partner
By: L.E. Simmons & Associates,
Incorporated, its general partner
ZARROW OPERATING COMPANY
SCHEDULE A
REGISTRATION RIGHTS STOCKHOLDERS
SCF-IV, L.P.
Zarrow Operating Company
Stuart A. Zarrow
Judith Z. Kishner
Gail Z. Richards
Foreman Investment Capital, LLC
SCHEDULE B
WARRANT HOLDERS
[omitted]
SCHEDULE C
OWNERSHIP OF COMMON STOCK AND WARRANTS
[omitted]
EXHIBIT J
FORM OF OMNIBUS VOTING, WAIVER AND INVESTMENT AGREEMENT
OF U.S. STOCKHOLDERS OF PTI
OMNIBUS VOTING, WAIVER AND INVESTMENT
AGREEMENT OF U.S. SHAREHOLDERS OF PTI
August 2, 2000
Dear Shareholder:
RE: AGREEMENT TO VOTE IN CONNECTION WITH PLAN OF ARRANGEMENT AND RELATED
MATTERS
Oil States International, Inc. ("OSI") understands that the undersigned Shareholder is the resgistered and beneficial owner of common shares (the "Owned Shares") of PTI Group Inc. ("PTI") and options to acquire common shares of PTI (the "Subject Options") (the Owned Shares and any common shares issued on the exercise of the Subject Options are hereinafter collectively referred to as the "Shares"). Each capitalized term used but not otherwise defined herein has the meaning ascribed to it in the Combination Agreement dated as of July 31, 2000 between OSI and PTI, among others (the "Combination Agreement"). The term "PTI Arrangement" shall mean the PTI Arrangement as provided for in the Plan of Arrangement, as the Plan of Arrangement may be modified or amended pursuant to the terms of the Combination Agreement.
1. PTI ARRANGEMENT
In consideration of the execution and delivery by OSI of the Combination Agreement, the performance of its obligations thereunder and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Shareholder, the Shareholder covenants and agrees with OSI that, until the Release Date, as defined below, the Shareholder will:
(a) at the PTI Shareholders Meeting, if any, vote all of the Shareholder's Shares to approve the PTI Arrangement;
(b) execute and deliver any written resolution approving the PTI Arrangement;
(c) not exercise any rights of dissent or appraisal in respect of any resolution approving the PTI Arrangement or any aspect thereof or matter related thereto, and not to exercise any other shareholder or optionholder rights or remedies available at common law or pursuant to the Business Corporation Act (Alberta) or in any manner delay, hinder, challenge, or upset the PTI Arrangement;
(d) except as provided pursuant to the PTI Arrangement, not sell, assign, transfer or otherwise convey or dispose of any Shares except to a person that prior thereto agrees in writing to be bound by the terms of this Agreement, provided that the Shareholder shall remain liable for the performance by such person of all of the provisions of this Agreement.
For the purposes of the Agreement "Release Date" means the earlier of:
(i) the Effective Date of the PTI Arrangement; or (ii) the date the
Combination Agreement is terminated in accordance with its terms.
2. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder hereby covenants, represents and warrants to OSI, as covenants, representations and warranties that will survive completion of the transactions contemplated hereby, that:
(a) the Shareholder has been furnished with and hereby acknowledges receipt of the Confidential Information Memorandum enclosed herewith, the Combination Agreement, including the exhibits and schedules thereto, and the OSI Registration Statement and is familiar with and understands the terms of the transactions contemplated thereby. The Shareholder has carefully considered and has, to the extent the Shareholder believes such discussion necessary, discussed with professional legal, tax, accounting and/or financial advisors, as the case may be, the suitability of an investment in the OSI Common Stock for the Shareholder's particular tax and financial situation and has determined that the OSI Common Stock to be received by the Shareholder is a suitable investment for the Shareholder;
(b) except as may be indicated by the Shareholder below, the Shareholder is an individual "ACCREDITED INVESTOR," as that term is defined in Rule 501(a) promulgated under the Securities Act of 1933, as amended (the "Securities Act"), which is incorporated herein by reference. The Shareholder has the knowledge and experience in financial and business matters necessary for evaluating the merits and risks of investing in the OSI Common Stock. THE SHAREHOLDER HAS CHECKED THE BOX BELOW INDICATING THE BASIS ON WHICH HE IS REPRESENTING HIS STATUS AS AN "ACCREDITED INVESTOR":
[ ] a bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"); an insurance company as defined in Section 2(13) of the Securities Act; an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; a small business investment company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, and such plan has total assets in excess of U.S. $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of U.S. $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
[ ] a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
[ ] an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring securities in the proposed offering, with total assets in excess of U.S.$5,000,000;
[ ] a director or executive officer of OSI;
[ ] a natural person whose individual net worth, or joint net worth with the Shareholder's spouse, at the time of this purchase exceeds U.S.$1,000,000;
[ ] a natural person who had an individual income in excess of U.S.$200,000 in each of the two most recent years or joint income with the Shareholder's spouse in excess of U.S. $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
[ ] a trust with total assets in excess of U.S.$5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment; or
[ ] an entity in which all of the equity holders are "accredited investors" by virtue of their meeting one or more of the above standards.
IF NONE OF THE FOREGOING DESCRIPTIONS ARE APPLICABLE, CHECK THE
FOLLOWING BOX:
[ ] THE SHAREHOLDERS IS NOT AN ACCREDITED INVESTOR AND THE
SHAREHOLDER HEREBY ACKNOWLEDGES AND AGREES THAT IMMEDIATELY PRIOR TO THE CONSUMMATION OF MERGERS, THE SHAREHOLDER WILL SELL THE SHAREHOLDER'S OWNED SHARES IN ACCORDANCE WITH THE APPLICABLE PROVISIONS OF THE PTI ARRANGEMENT.
(c) the Shareholder is a resident of the United States of America;
(d) the Shareholder acknowledges that (i) the Shareholder has had the opportunity to request copies of any documents, records, and books pertaining to this investment and (ii) any such documents, records and books which the Shareholder requested have been made available for inspection by the Shareholder and the Shareholder's attorney, accountant or advisor;
(e) the Shareholder has such knowledge and experience in financial, tax and business matters so as to enable the Shareholder to use the information made available to the Shareholder in connection with the offering to evaluate the merits and risks of an investment in the OSI Common Stock and to make an informed investment decision with respect thereto;
(f) the Shareholder has had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of OSI concerning the transactions contemplated by the PTI Arrangement and all such questions have been answered to the full satisfaction of the Shareholder;
(g) the Shareholder is not participating in the PTI Arrangement as a result of or after any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or meeting;
(h) if the Shareholder is a natural person, the Shareholder has reached the age of majority in the state in which the Shareholder resides, has adequate means of providing for the Shareholder's current financial needs and contingencies, is able to bear the substantial economic risks of an investment in the OSI Common Stock for an indefinite period of time, has no need for liquidity in such investment and, at the present time, could afford a complete loss of such investment;
(i) the Shareholder will not resell or otherwise transfer the OSI Common Stock received in the PTI Arrangement without registration under the Securities Act and
applicable state securities laws or pursuant to an available exemption from registration under the Securities Act and applicable state securities laws. The OSI Common Stock has not been registered under the Securities Act or under the securities laws of any domestic or foreign jurisdiction. The Shareholder represents that the Shareholder is acquiring the OSI Common Stock for the Shareholder's own account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of the OSI Common Stock in connection with any distribution;
(j) the Shareholder recognizes that an investment in the OSI Common Stock involves substantial risks, including loss of the entire amount of such investment. Further, the Shareholder has taken full cognizance of and understands all of the risks related to the purchase of the OSI Common Stock;
(k) in addition to any other restrictive legends that may be required by the terms of the Combination Agreement, the Shareholder acknowledges that the certificates representing the OSI Common Stock shall be stamped or otherwise imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM, WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE."
(l) the Shareholder represents and warrants that, other than the Owned Shares and the Owned Options, the Shareholder is the record or beneficial owner of no equity securities, including any warrants, options, convertible debt, rights of conversion or similar securities or rights, of PTI;
(m) the Shareholder acknowledges and understands that OSI is relying upon the foregoing representations and warranties for the purpose of compliance by OSI with U.S. Federal and state securities laws related to the issuance of the OSI Common Stock pursuant to the PTI Arrangement;
(n) the Shareholder is duly authorized to execute and deliver this Agreement and this letter is a valid and binding agreement, enforceable against the Shareholder in accordance with its terms, and the consummation by the Shareholder of the transaction contemplated hereby will not constitute a violation of or default under, or conflict with, any contract, commitment, agreement,
understanding or arrangement of any kind to which any of the Shareholder will be a party and by which the Shareholder will be bound at the time of such consummation;
(o) subject to Section 1(d), the Shareholder is the beneficial holder of the number of Owned Shares and Subject Options set forth in the opening paragraph of this Agreement free and clear of all claims, liens, charges, encumbrances and security interests (other than those imposed by the Unanimous Shareholder Agreement (as defined in the Plan of Arrangement) or by applicable securities laws);
(p) all of the representations, warranties and covenants contained in this paragraph 2 shall be valid and true as if recited and repeated as at the Effective Time.
3. LOCK-UP AGREEMENT
The Shareholder hereby acknowledges and understands that, in
connection with the OSI Initial Public Offering, the representatives
(the "Representatives") of the underwriters (the "Underwriters")
propose to enter into an underwriting or purchase agreement (the
"Purchase Agreement") with OSI, among others, providing for the public
offering of shares of OSI Common Stock. The Shareholder hereby
acknowledges and understands that, in connection with the entering into
of such Purchase Agreement, the Representatives, on behalf of the
Underwriters, will require the execution and delivery by the
Shareholder of an agreement (the "Lock-Up Agreement") substantially to
the effect that, during a period of 180 days from the date of the
Purchase Agreement, the Shareholder will not, without the prior written
consent of the lead manager named in the final OSI Registration
Statement, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the sale of,
or otherwise dispose of or transfer any shares of OSI Common Stock or
any securities convertible into or exchangeable or exercisable for OSI
Common Stock, whether owned at the date of the Purchase Agreement or
thereafter acquired by the Shareholder or with respect to which the
Shareholder had at the date of the Purchase Agreement or thereafter
acquires the power of disposition, or file any registration statement
under the Securities Act with respect to any of the foregoing, or (ii)
enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the OSI Common Stock, whether any such swap
or transaction is to be settled by delivery of OSI Common Stock or
other securities, in cash or otherwise. Notwithstanding the foregoing,
without obtaining the prior written consent of the lead manager named
in the final OSI Registration Statement, the Shareholder will be
permitted to transfer shares of OSI Common Stock otherwise subject to
the Lock-Up Agreement to any immediate family member of the
Shareholder, any trust established for the benefit of any such
immediate family member or any corporation wholly owned by the
Shareholder or any combination of the Shareholder and any of the
foregoing, provided that, prior to such transfer and as a condition
thereof, the transferee shall deliver to the Representatives a written
agreement to be bound by the restrictions set forth in the Lock-Up
Agreement until the expiration of the aforementioned 180-day period.
The Shareholder hereby irrevocably constitutes and appoints each of Douglas Swanson and Cindy Taylor, or either of them, as the Shareholder's true and lawful attorney-in-fact and agent to execute and deliver to the Representatives in the name and on behalf of the Shareholder the Lock-Up Agreement substantially to the effect set forth above and to take such other actions on behalf of the Shareholder in connection with the Lock-Up Agreement as may be reasonably necessary. The Shareholder hereby represents and warrants to OSI and the Underwriters (a) that each of Mr. Swanson and Ms. Taylor is irrevocably authorized to execute and deliver to the Representatives in the name and on behalf of the Shareholder such a Lock-Up Agreement and to take such other actions on behalf of the Shareholder in connection with the Lock-Up Agreement as may be reasonably necessary and (b) that upon such execution and delivery by such attorney-in-fact on behalf of the Shareholder, such Lock-Up Agreement will constitute the legal, valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with its terms, except as such enforceability may be (i) limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
The Shareholder hereby confirms that he, she or it understands that the Underwriters and OSI will rely upon the foregoing in proceeding with the OSI Initial Public Offering. The foregoing shall be binding on the Shareholder and his, her or its respective successors, heirs, personal representatives and assigns.
4. AMENDMENT
Except as expressly set forth herein, this Agreement constitutes the whole of the agreement between the parties and may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the effected party.
5. ASSIGNMENT
No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of OSI.
6. NOTICE
Any notice, document or other communication required or permitted to be given to the parties under this Agreement shall be in writing and be either hand delivered or telecopied (with a following letter) as follows:
(a) to the Shareholder at the address and telecopier listed on the first page of this Agreement; and
(b) to OSI at:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
and shall be deemed to be received by the party to whom such notice is given on the date of delivery or transmission.
7. SUCCESSORS
This Agreement will be binding upon, enure to the benefit of and be enforceable by OSI Shareholder and their respective successors.
8. TIME OF THE ESSENCE
Time shall be of the essence of this Agreement.
9. APPLICABLE LAW
This Agreement shall be governed and construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable herein.
This letter may be signed by fax and in counterparts, which, together, shall be deemed to constitute one valid and binding agreement and delivery of such counterparts may be effected by means of telecopier.
Yours truly,
OIL STATES INTERNATIONAL, INC.
The foregoing is in accordance with our understanding and is agreed to as of August __, 2000.
EXHIBIT K
OMNIBUS VOTING, WAIVER AND INVESTMENT
AGREEMENT OF CERTAIN CANADIAN SHAREHOLDERS OF PTI
August 2, 2000
Dear Shareholder:
RE: AGREEMENT TO VOTE IN CONNECTION WITH PLAN OF ARRANGEMENT AND RELATED
MATTERS
Oil States International, Inc. ("OSI") understands that the undersigned Shareholder is the registered and beneficial owner of _________________ common shares (the "Owned Shares") of PTI Group Inc. ("PTI") and options to acquire _________________ common shares of PTI (the "Subject Options") (the Owned Shares and any common shares issued on the exercise of the Subject Options are hereinafter collectively referred to as the "Shares"). Each capitalized term used but not otherwise defined herein has the meaning ascribed to it in the Combination Agreement dated as of July 31, 2000 between OSI and PTI, among others (the "Combination Agreement"). The term "PTI Arrangement" shall mean the PTI Arrangement as provided for in the Plan of Arrangement, as the Plan of Arrangement may be modified or amended pursuant to the terms of the Combination Agreement.
1. PTI ARRANGEMENT
In consideration of the execution and delivery by OSI of the Combination Agreement, the performance of its obligations thereunder and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Shareholder, the Shareholder covenants and agrees with OSI that, until the Release Date, as defined below, the Shareholder will:
(a) at the PTI Shareholders Meeting, if any, vote all of the Shareholder's Shares to approve the PTI Arrangement;
(b) execute and deliver any written resolution approving the PTI Arrangement;
(c) not exercise any rights of dissent or appraisal in respect of any resolution approving the PTI Arrangement or any aspect thereof or matter related thereto, and not to exercise any other shareholder or optionholder rights or remedies available at common law or pursuant to the Business Corporation Act (Alberta) or in any manner delay, hinder, challenge, or upset the PTI Arrangement;
(d) except as provided pursuant to the PTI Arrangement, not sell, assign, transfer or otherwise convey or dispose of any Shares except to a person that prior thereto agrees in writing to be bound by the terms of this Agreement, provided that the Shareholder shall remain liable for the performance by such person of all of the provisions of this Agreement.
For the purposes of the Agreement "Release Date" means the earlier of:
(i) the Effective Date of the PTI Arrangement; or (ii) the date the
Combination Agreement is terminated in accordance with its terms.
2. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder hereby covenants, represents and warrants to OSI, as covenants, representations and warranties that will survive completion of the transactions contemplated hereby, that:
(a) the Shareholder has been furnished with and hereby acknowledges receipt of the Confidential Information Memorandum enclosed herewith, the Combination Agreement, including the exhibits and schedules thereto, and the OSI Registration Statement draft dated August 2, 2000 and is familiar with and understands the terms of the transactions contemplated thereby;
(b) except as may be indicated by the Shareholder in Appendix A hereto, the Shareholder is an individual "ACCREDITED INVESTOR," as that term is defined in Rule 501(a) promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and as set forth in Appendix A hereto. The Shareholder has the knowledge and experience in financial and business matters necessary for evaluating the merits and risks of investing in the Exchangeable Shares and the underlying OSI Common Stock.
(c) the Shareholder is a resident of Canada;
(d) the Shareholder has had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of OSI concerning the transactions contemplated by the PTI Arrangement and all such questions have been answered to the full satisfaction of the Shareholder;
(e) the Shareholder is not participating in the PTI Arrangement as a result of or after any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or meeting;
(f) the Shareholder will not resell or otherwise transfer the Exchangeable Shares or the underlying OSI Common Stock received in the PTI Arrangement except in accordance with the provisions of Regulation S promulgated under the Securities Act (which generally provides that offers and sales of securities outside of the United States are not subject to the registration and prospectus delivery requirements of the Securities Act), pursuant to registration under the Securities Act and applicable state securities laws or pursuant to an available exemption from registration under the Securities Act and applicable state securities laws. The Exchangeable Shares and the underlying OSI Common Stock have not been registered under the Securities Act or under the securities laws of any domestic or foreign jurisdiction. The Shareholder represents that the Shareholder is acquiring the Exchangeable Shares for the Shareholder's own account, for investment purposes only and with no current intention or plan to distribute, sell or otherwise dispose of the Exchangeable Shares in connection with any distribution;
(g) in addition to any other restrictive legends that may be required by the terms of the Combination Agreement, the Shareholder acknowledges that the certificates representing the Exchangeable Shares and the underlying OSI Common Stock shall be stamped or otherwise imprinted with a legend substantially in the following form:
ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS STRICTLY PROHIBITED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), PURSUANT TO REGISTRATION UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION. THE HOLDER OF THIS CERTIFICATE MAY NOT ENGAGE IN ANY HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED HEREBY EXCEPT IN COMPLIANCE WITH THE ACT.
(h) the Shareholder represents and warrants that the Shareholder is the beneficial holder of the number of Owned Shares and Subject Options set forth in the opening paragraph of this Agreement free and clear of all claims, liens, charges, encumbrances and security interests (other than those imposed by the Unanimous Shareholder Agreement (as defined in the Plan of Arrangement) and by applicable securities laws), and, other than the Owned Shares and the Owned Options, the Shareholder is the record or beneficial owner of no equity securities, including any warrants, options, convertible debt, rights of conversion or similar securities or rights, of PTI;
(i) the Shareholder is duly authorized to execute and deliver this Agreement and this letter is a valid and binding agreement, enforceable against the Shareholder in accordance with its terms, and the consummation by the Shareholder of the transaction contemplated hereby will not constitute a violation of or default under, or conflict with, any contract, commitment, agreement, understanding or arrangement of any kind to which any of the Shareholder will be a party and by which the Shareholder will be bound at the time of such consummation;
(j) the Shareholder is not a U.S. person and is not acquiring Exchangeable Shares for the account or benefit of any U.S. person. For purposes of this representation, a U.S. person has the meaning set forth in Appendix A;
(k) the Shareholder shall not engage in hedging transactions involving Exchangeable Shares or the underlying OSI Common Stock unless in compliance with the Securities Act;
(l) all of the representations, warranties and covenants contained in this paragraph 2 shall be valid and true as if recited and repeated as at the Effective Time.
3. LOCK-UP AGREEMENT
The Shareholder hereby acknowledges and understands that, in
connection with the OSI Initial Public Offering, the representatives
(the "Representatives") of the underwriters (the "Underwriters")
propose to enter into an underwriting or purchase agreement (the
"Purchase Agreement") with OSI, among others, providing for the public
offering of shares of OSI Common Stock. The Shareholder hereby
acknowledges and understands that, in connection with the entering into
of such Purchase Agreement, the Representatives, on behalf of the
Underwriters, will require the execution and delivery by the
undersigned of an agreement (the "Lock-Up Agreement") substantially to
the effect that, during a period of 180 days from the date of the
Purchase Agreement, the Shareholder will not, without the prior written
consent of the lead manager named in the final OSI Registration
Statement, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the sale of,
or otherwise dispose of or transfer any Exchangeable Shares or shares
of OSI Common Stock or any securities convertible into or exchangeable
or exercisable for Exchangeable Shares or OSI Common Stock, whether
owned at the date of the Purchase Agreement or thereafter acquired by
the Shareholder or with respect to which the Shareholder had at the
date of the Purchase Agreement or thereafter acquires the power of
disposition, or file any registration statement under the Securities
Act with respect to any of the foregoing, or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or
in part, directly or indirectly, the economic consequence of ownership
of the Exchangeable Shares or OSI Common Stock, whether any such swap
or transaction is to be settled by delivery of Exchangeable Shares or
OSI Common Stock or other securities, in cash or otherwise.
Notwithstanding the foregoing, without obtaining the prior written
consent of the lead manager named in the final OSI Registration
Statement, the Shareholder will be permitted to transfer
Exchangeable Shares or shares of OSI Common Stock otherwise subject to the Lock-Up Agreement to any immediate family member of the Shareholder, any trust established for the benefit of any such immediate family member or any corporation wholly owned by the Shareholder or any combination of the Shareholder and any of the foregoing, provided that, prior to such transfer and as a condition thereof, the transferee shall deliver to the Representatives a written agreement to be bound by the restrictions set forth in the Lock-Up Agreement until the expiration of the aforementioned 180-day period.
The Shareholder hereby irrevocably constitutes and appoints each of Douglas Swanson and Cindy Taylor, or either of them, as the Shareholder's true and lawful attorney-in-fact and agent to execute and deliver to the Representatives in the name and on behalf of the Shareholder the Lock-Up Agreement substantially to the effect set forth above and to take such other actions on behalf of the Shareholder in connection with the Lock-Up Agreement as may be reasonably necessary. The Shareholder hereby represents and warrants to OSI and the Underwriters (a) that each of Mr. Swanson and Ms. Taylor is irrevocably authorized to execute and deliver to the Representatives in the name and on behalf of the Shareholder such a Lock-Up Agreement and to take such other actions on behalf of the Shareholder in connection with the Lock-Up Agreement as may be reasonably necessary and (b) that upon such execution and delivery by such attorney-in-fact on behalf of the Shareholder, such Lock-Up Agreement will constitute the legal, valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with its terms, except as such enforceability may be (i) limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
The Shareholder hereby confirms that he, she or it understands that the Underwriters and OSI will rely upon the foregoing in proceeding with the OSI Initial Public Offering. The foregoing shall be binding on the Shareholder and his, her or its respective successors, heirs, personal representatives and assigns.
4. AMENDMENT
Except as expressly set forth herein, this Agreement constitutes the whole of the agreement between the parties and may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the effected party.
5. ASSIGNMENT
No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of OSI.
6. NOTICE
Any notice, document or other communication required or permitted to be given to the parties under this Agreement shall be in writing and be either hand delivered or telecopied (with a following letter) as follows:
(a) to the Shareholder at the address and telecopier listed on the first page of this Agreement; and
(b) to OSI at:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
and shall be deemed to be received by the party to whom such notice is given on the date of delivery or transmission.
7. SUCCESSORS
This Agreement will be binding upon, enure to the benefit of and be enforceable by OSI Shareholder and their respective successors.
8. TIME OF THE ESSENCE
Time shall be of the essence of this Agreement.
9. APPLICABLE LAW
This Agreement shall be governed and construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable herein.
This letter may be signed by fax and in counterparts, which, together, shall be deemed to constitute one valid and binding agreement and delivery of such counterparts may be effected by means of telecopier.
Yours truly,
OIL STATES INTERNATIONAL, INC.
The foregoing is in accordance with our understanding and is agreed to as of __________, 2000.
APPENDIX A
Under Rule 501(a) of the Securities Act, "accredited investor" means any person who comes within any of the following categories at the time of the sale of securities to that person:
(i) a natural person whose individual net worth, or joint net worth with the Shareholder's spouse, at the time of this purchase exceeds U.S.$1,000,000;
(ii) a natural person who had an individual income in excess of U.S.$200,000 in each of the two most recent years or joint income with the Shareholder's spouse in excess of U.S. $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
(iii) a bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"); an insurance company as defined in Section 2(13) of the Securities Act; an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; a small business investment company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, and such plan has total assets in excess of U.S. $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of U.S. $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
(iv) a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(v) an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring securities in the proposed offering, with total assets in excess of U.S.$5,000,000;
(vi) a director or executive officer of OSI;
(vii) a trust with total assets in excess of U.S.$5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person
who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment; or
(viii) an entity in which all of the equity holders are "accredited
investors" by virtue of their meeting one or more of the above
standards.
IF NONE OF THE FOREGOING DESCRIPTIONS ARE APPLICABLE, CHECK THE
FOLLOWING BOX:
[ ] THE SHAREHOLDER IS NOT AN ACCREDITED INVESTOR.
A U.S. person is:
(i) any natural person resident in the United States;
(ii) any partnership or corporation organized or incorporated under the laws of the United States;
(iii) any estate of which any executor or administrator is a U.S. person;
(iv) any trust of which any trustee is a U.S. person;
(v) any agency or branch of a foreign entity located in the United States;
(vi) any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;
(vii) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if any individual) resident in the United States; or
(viii) any partnership or corporation if (A) organized or incorporated under the laws of any foreign jurisdiction; and (B) formed by a U.S. person principally for the purpose of investing in securities not registered under the Act, unless it is organized or incorporated, and owned, by "accredited investors" (as defined in Rule 501(a) promulgated under the Securities Act) who are not natural persons, estates or trusts.
EXHIBIT L
FORM OF OMNIBUS CONSENT, WAIVER AND AGREEMENT
OF STOCKHOLDERS OF OSI
EXHIBIT L
OMNIBUS CONSENT, WAIVER AND AGREEMENT
OF THE STOCKHOLDERS
OF
OIL STATES INTERNATIONAL, INC.
The undersigned, being Oil States International, Inc., a Delaware corporation (the "Company" or "OSI") and the holders (the "Stockholders") of the issued and outstanding shares of Class A common stock, par value $.01 per share, of the Company (the "OSI Common Stock"), do hereby consent, adopt, approve and agree as follows:
1. RECITALS.
a. The Company's board of directors (the "Board of Directors") has considered the form, terms, provisions and conditions of that certain Combination Agreement, including the exhibits thereto, by and among the Company, Sooner Inc., a Delaware corporation ("Sooner"), HWC Energy Services, Inc., a Texas corporation ("HWC") and PTI Group, Inc., an Alberta corporation ("PTI") and the other parties thereto, a copy of which has been provided herewith to the Stockholders.
b. The Board of Directors has determined that the Combination Agreement, including the exhibits thereto and the transactions contemplated thereby, are in the best interests of, and fair to, the Company and the Stockholders and on that basis has entered into the Combination Agreement effective as of July 31, 2000.
c. The Board of Directors has submitted the Combination Agreement to the Stockholders for approval and adoption and has recommended to the Stockholders that they so approve and adopt the Combination Agreement.
d. The Combination Agreement contemplates the execution of an Amended and Restated Registration Rights Agreement to be effective at the Effective Time, pursuant to which the existing registration rights of certain holders of OSI Common Stock, HWC Common Stock and Sooner Common Stock (the "Existing Registration Rights") granted pursuant to existing registration rights agreements (each an "Existing Registration Rights Agreement") shall be amended and restated.
e. The Combination Agreement contemplates that, prior to the Effective Time, the Company shall cause to be terminated each of the existing stockholders agreements between the Company and certain Stockholders (each a "Stockholders Agreement").
f. The Combination Agreement contemplates certain other actions to be taken by the Stockholders to effect the purposes thereof.
g. Capitalized terms that are used but not defined herein have the meanings set forth in the Combination Agreement.
2. RESOLUTIONS OF THE STOCKHOLDERS. Acting pursuant to the provisions of
Section 228 of the Delaware General Corporation Law (the "DGCL"), the
Stockholders hereby adopt and approve the following resolutions:
APPROVAL OF COMBINATION AGREEMENT
RESOLVED, that, upon the recommendation of the Board of Directors, the Stockholders hereby approve and adopt the Combination Agreement, and the transactions contemplated thereby, including, without limitation, the issuance of shares of OSI Common Stock to the stockholders and other security holders of HWC, Sooner and PTI in accordance with the provisions of the Combination Agreement.
AMENDMENT OF CERTIFICATE OF INCORPORATION
RESOLVED, that in conjunction with the transactions contemplated by the Combination Agreement, the Stockholders, upon the recommendation of the Board of Directors, hereby approve and adopt the following amendment to the Company's Certificate of Incorporation, as amended:
Article Fourth of the Company's Certificate of Incorporation, as amended, shall be amended and restated in its entirety to provide as follows:
"The total number of shares of capital stock which
the Corporation shall have authority to issue is two hundred
twenty five million (225,000,000), consisting of 25,000,000
shares of preferred stock, par value $0.0001 per share
("Preferred Stock") and two hundred million (200,000,000)
shares of common stock, par value $0.01 per share ("Common
Stock").";
RESOLVED FURTHER, that each duly appointed officer of the Company be, and they hereby are, authorized to execute and file in the office of the Secretary of State of Delaware a Certificate of Amendment to the Company's Certificate of Incorporation, as amended, and to make such changes thereto and take or cause to be taken such other actions as such officer(s) may deem necessary, proper or convenient in order to effect the foregoing amendment in accordance with the DGCL; and
RESOLVED FURTHER, that upon the filing of the aforementioned Certificate of Amendment with the Secretary of State of Delaware, each issued and outstanding share of the Company's Class A Common Stock be, and it hereby is, redesignated as "Common Stock" and each share of Class B Common Stock, all of which are held by the Company as treasury stock and none of which are outstanding, shall be cancelled and retired.
AMENDMENT OF SERIES A CERTIFICATE OF DESIGNATION
RESOLVED, that in conjunction with the transactions contemplated by the Combination Agreement, the Stockholders, based upon the recommendation of the Board of Directors, hereby approve and adopt the following amendments to the Certificate of Designations, Powers and Rights of Series A Convertible Cumulative Preferred Stock:
To delete references to Class A Common Stock and Class B Common Stock, the definition of "Common Stock" contained in Article Two of the Certificate of Designations, Powers and Rights of Series A Convertible Cumulative Preferred Stock is hereby amended to read in its entirety as follows:
"Common Stock means Issuer's Common Stock par value $0.01 per share, and any capital stock of Issuer which has the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount or percentage."
To replace references to "Class A Common Stock" with the term "Common Stock," Section 4.1 of Article Four of the Certificate of Designations, Powers and Rights of Series A Convertible Cumulative Preferred Stock is hereby amended to read in its entirety as follows:
"4.1 Mandatory Conversion. Each share of Preferred Stock outstanding on August 1, 2002 shall be automatically converted into a number of shares of the Company's Common Stock (the "Conversion Shares"). Each share of Preferred Stock shall be convertible into a number of Conversion Shares according to the conversion ratio and the conversion procedures set forth in this Section 4.1. Subject to compliance with the conditions set forth in the remaining provisions of this Section 4, the Company shall cause certificates evidencing ownership of the Conversion Shares to be delivered to each holder of Preferred Stock on or before August 15, 2002."
To permit the holders of Series A Convertible Cumulative Preferred Stock to participate and vote in elections of the Board of Directors, Article Six of the Certificate of Designations, Powers and Rights of Series A Convertible Cumulative Preferred Stock is hereby amended to read in its entirety as follows:
"6. Voting Rights. In addition to any voting rights contained in Section 8 below or as otherwise from time to time required by law, the holders of the Preferred Stock will have the right, on an as-converted basis, to vote as a class with the holders of Common Stock of the Company on any matter upon which the holders of the Common Stock are entitled to vote. Each share of Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock would be convertible, rounded down to the nearest whole number of shares, were such share of Preferred Stock to be converted on the
record date with respect to the election at which the holders of the Common Stock are entitled to vote";
RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized, empowered and directed, by and on behalf of the Company and in its name, to execute and file a Certificate of Amendment to the Certificate of Designations, Powers and Rights of Series A Cumulative Preferred Stock in the office of the Secretary of State of Delaware and make such changes thereto and take or cause to be taken such other actions as such officer(s) may deem necessary, proper or convenient in order for the foregoing amendments to the Certificate of Designations, Powers and Rights of Series A Cumulative Preferred Stock to become effective in accordance with the DGCL.
GENERAL AUTHORITY AND RATIFICATION
RESOLVED, that the Stockholders, upon the recommendation of the Board of Directors, hereby authorize each duly appointed officer of the Company to take all action and to prepare, execute, and deliver all documents that such officer deems appropriate or advisable in order to effect the foregoing resolutions and to consummate the transactions contemplated by the Combination Agreement and the exhibits thereto; and
RESOLVED FURTHER, that any lawful act heretofore taken by any duly appointed officer of the Company in such capacity in connection with the matters set forth in the foregoing recitals and resolutions be, and it hereby is, in all respects approved, adopted, ratified and confirmed as an act of the Company.
3. FURTHER AMENDMENTS TO CERTIFICATE OF INCORPORATION. The draft OSI Registration Statement, dated August 2, 2000 and enclosed herewith, contemplates that certain further amendments will be made to the Company's Certificate of Incorporation in anticipation of the OSI Initial Public Offering. The Stockholders agree to consent to, or vote all of their respective shares of OSI Common Stock in favor of, as the case may be, any and all further amendments to the Company's Certificate of Incorporation to the extent such amendments are in substantial conformity with the descriptions of the Company's Certificate of Incorporation in the draft OSI Registration Statement.
4. WAIVER OF PREEMPTIVE AND SIMILAR RIGHTS.
a. The Stockholders hereby waive any statutory or contractual preemptive or similar rights that they now have or may have had prior to the date hereof to purchase additional shares of OSI Common Stock.
b. Each Stockholder hereby acknowledges and agrees that any statutory or contractual preemptive or similar rights (including any rights of first offer or refusal) held by or granted to any Stockholder at any time prior to the date hereof (including, without limitation, rights to purchase OSI Common Stock offered by the Company in August 1997, December 1997, January 1998 and March
1998 to the former shareholders of HydroTech Systems, Inc. pursuant to the preemptive rights granted to such former shareholders under the Agreement and Plan of Merger, dated July 15, 1997, by and among such former shareholders, the Company, HydroTech Systems, Inc., and the other parties thereto) have been fully satisfied and extinguished by the Company's issuance of shares of OSI Common Stock or other securities of the Company or by cash and that no Person, including any Stockholder, is entitled to receive any further OSI Common Stock or any other securities of the Company or cash pursuant to any such right.
c. Each Stockholder hereby acknowledges and agrees that any right to receive additional shares of capital stock or other securities of the Company in connection with any prior purchase of capital stock of the Company by any Stockholder has been fully satisfied and extinguished by the Company's issuance of shares of OSI Common Stock or other securities of the Company and that no Person, including any Stockholder, is entitled to receive any additional shares of OSI Common Stock or any other securities of the Company with respect to such prior purchases.
5. REGISTRATION RIGHTS AGREEMENTS AND RELATED MATTERS.
a. The Stockholders who have Existing Registration Rights with respect to the shares of OSI Common Stock owned by them and whose names are set forth on Schedule A attached hereto (the "Registration Rights Stockholders") hereby approve the Amended and Restated Registration Rights Agreement contemplated by the Combination Agreement (the "Registration Rights Agreement"), a copy of which Registration Rights Agreement has been provided to the Stockholders herewith.
b. At the Effective Time, the Registration Rights Agreement shall replace each of the Existing Registration Rights Agreements of the Stockholders in their entirety and each of the Existing Registration Rights Agreements shall terminate and be of no further force or effect.
c. The Registration Rights Stockholders hereby constitute and appoint each of Douglas Swanson and Cindy Taylor, or either of them, their true and lawful attorney-in-fact and agent (collectively, the "Registration Rights Agents") to execute the Registration Rights Agreement in the name of and on behalf of each Registration Rights Stockholder.
d. The Registration Rights Agreement will be executed and become effective with respect to the Registration Rights Stockholders at the Effective Time.
e. An amendment to each of the Existing Registration Rights Agreements has been approved and adopted by Board of Directors to provide that no Person shall have the right to request the registration of any OSI Common Stock, or any other shares of capital stock of the Company, in connection with the OSI Initial Public Offering. The Registration Rights Stockholders hereby approve, adopt and agree to such amendment with respect to each of their respective Existing Registration Rights Agreements, which amendment shall be effective without further action by the Registration Rights Stockholders or the Company.
f. The Registration Rights Stockholders hereby waive any rights they may have to demand or request registration of any of OSI Common Stock, or any other shares of capital stock of OSI, in the OSI Initial Public Offering pursuant to their Existing Registration Rights.
g. In the event the Combination Agreement is terminated prior to the Effective Time in accordance with its terms, each of the Existing Registration Rights Agreements shall continue in full force and effect.
6. TERMINATION OF STOCKHOLDERS AGREEMENTS AND RELATED MATTERS.
a. Effective immediately prior to the Effective Time, each Stockholders Agreement shall terminate and be of no further force or effect.
b. In the event the Combination Agreement is terminated prior to the Effective Time in accordance with its terms, each Stockholders Agreement shall continue in full force and effect.
7. TRANSFER RESTRICTIONS AND RELATED REPRESENTATIONS OF STOCKHOLDERS.
a. The undersigned hereby acknowledges and understands that, in connection with the OSI Initial Public Offering, the representatives (the "Representatives") of the underwriters (the "Underwriters") propose to enter into an underwriting or purchase agreement (the "Purchase Agreement") with OSI, among others, providing for the public offering of shares of OSI Common Stock. The undersigned hereby acknowledges and understands that, in connection with the entering into of such Purchase Agreement, the Representatives, on behalf of the Underwriters, will require the execution and delivery by the undersigned of an agreement (the "Lock-Up Agreement") substantially to the effect that, during a period of 180 days from the date of the Purchase Agreement, the undersigned will not, without the prior written consent of the lead manager named in the final OSI Registration Statement, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of OSI Common Stock or any securities convertible into or exchangeable or exercisable for OSI Common Stock, whether owned at the date of the Purchase Agreement or thereafter acquired by the undersigned or with respect to which the undersigned had at the date of the Purchase Agreement or thereafter acquires the power of disposition, or file any registration statement under the Securities Act with respect to any of the foregoing, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the OSI Common Stock, whether any such swap or transaction is to be settled by delivery of OSI Common Stock or other securities, in cash or otherwise. Notwithstanding the foregoing, without obtaining the prior written consent of the lead manager named in the final OSI Registration Statement, the undersigned will be permitted to transfer shares of OSI Common Stock otherwise subject to the Lock-Up Agreement to any immediate family member of the undersigned or any trust established for the benefit of any such immediate family member, provided that, prior to such transfer and as a condition thereof, the transferee shall deliver to the Representatives a written agreement to be bound by the restrictions set forth in the Lock-Up Agreement until the expiration of the aforementioned 180-day period.
b. The undersigned hereby irrevocably constitutes and appoints each of Douglas Swanson and Cindy Taylor, or either of them, as the undersigned's true and lawful attorney-in-fact and agent to execute and deliver to the Representatives in the name and on behalf of the undersigned the Lock-Up Agreement substantially to the effect set forth above and to take such other actions on behalf of the undersigned in connection with the Lock-Up Agreement as may be reasonably necessary. The undersigned hereby represents and warrants to OSI and the Underwriters (a) that each of Mr. Swanson and Ms. Taylor is irrevocably authorized to execute and deliver to the Representatives in the name and on behalf of the undersigned such a Lock-Up Agreement and to take such other actions on behalf of the undersigned in connection with the Lock-Up Agreement as may be reasonably necessary and (b) that upon such execution and delivery by such attorney-in-fact on behalf of the undersigned, such Lock-Up Agreement will constitute the legal, valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms, except as such enforceability may be (i) limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).
c. Subject to any additional restrictions contained in the Stockholders Agreements, prior to the earlier of (i) the termination of the Combination Agreement or (ii) the effectiveness of the Lock-Up Agreement, no Stockholder shall sell, convey, pledge or otherwise transfer any shares of OSI Common Stock or other shares of capital stock of the Company or other securities convertible into or exchangeable for OSI Common Stock unless the transferee of any such securities executes and delivers to the Company a copy of this Omnibus Consent, Waiver and Agreement, which execution and delivery shall evidence such transferee's intent to be bound by each of the provisions hereof.
d. The undersigned represents and warrants that, except as set forth on Schedule B attached hereto, and except for options granted to the undersigned under the Company's 1996 Equity Participation Plan, as amended, the undersigned is neither the record nor beneficial owner of any equity securities, including any warrants, options, convertible debt, rights of conversion or similar securities or rights, of the Company or any of its subsidiaries.
8. EFFECTIVENESS AND IRREVOCABILITY. The Company anticipates that this Omnibus Consent, Waiver and Agreement will be executed and delivered to the Company by each Stockholder. Notwithstanding the fact that less than all of the Stockholders may execute and deliver this Omnibus Consent, Waiver and Agreement, this Omnibus Consent, Waiver and Agreement will become effective at such time that the Company has received executed Omnibus Consents, Waivers and Agreements from the holders of at least 92.5% of the shares of OSI Common Stock issued and outstanding at such time. EACH OF THE PROVISIONS OF THIS OMNIBUS CONSENT, WAIVER AND AGREEMENT SHALL BE IRREVOCABLE AND SHALL BE BINDING ON THE UNDERSIGNED AND HIS, HER OR ITS RESPECTIVE SUCCESSORS, HEIRS, PERSONAL REPRESENTATIVES AND ASSIGNS.
9. RELIANCE BY THE COMPANY AND THE UNDERWRITERS. The undersigned confirms that he, she or it understands that the Underwriters and the Company will rely upon the foregoing resolutions, representations, covenants, waivers and agreements in proceeding with the OSI Initial Public Offering.
IN WITNESS WHEREOF, the Company and the undersigned Stockholders have executed this irrevocable Omnibus Consent, Waiver and Agreement on this _____ day of August 2000, to become effective as provided in Section 8 above, which irrevocable Omnibus Consent, Waiver and Agreement may be executed by original or facsimile signature and in one or more counterparts, each such counterpart being deemed an original document and all such counterparts together being deemed one and the same instrument.
Oil States International, Inc.
SCF-III, L.P
By: SCF-II, G.P., Limited Partnership,
its general partner
By: L.E. Simmons & Associates,
Incorporated, its general partner
The Bovaird Supply Co.
Chase Equity Associates, L.P.
By: Chase Capital Partners,
its general partner
The Freeman Organization, Inc.
The Betty Sue Gregory Trust
The Huntfield Trust Limited
Klaper (UK) Ltd.
SCHEDULE A
REGISTRATION RIGHTS STOCKHOLDERS
SCF-III, L.P.
David Altholff
Charles A. Armbrust
The Bovaird Supply Co.
James Cauble
Chase Equity Associates
J. Kelly Elliot
Donald Gregory
T. L. Gregory
T. L. Gregory, Trustee for the Betty Sue Gregory Trust
Howard Hughes
The Huntfield Trust Limited
Michael Kief
Werner Kief
Klaper (UK) Ltd.
Menikoff Family Partnership
J. Michael Newell
Richard A. Schultz
Stephen A. Wells
James D. Woods
SCHEDULE B
OWNERSHIP OF EQUITY SECURITIES
[omitted]
SCHEDULE 11.11
AGREEMENTS TO BE TERMINATED
All stockholders agreements, registration rights agreements, voting agreements and other agreements related to the ownership of equity interests in HWC, Sooner, PTI and OSI.
HWC
Second Amended and Restated Shareholders Agreement of HWC Energy Services, Inc. dated as of November 30, 1999 by and among HWC Energy Services, Inc. and the persons listed as "Shareholders" on the signature page thereto.
Sooner
Shareholders Agreement of Sooner Inc. dated as of July 2, 1998 by and among Sooner Inc. and the persons listed as "Initial Shareholders" on the signature page thereto, as amended.
PTI
Unanimous Shareholder Agreement dated January 8, 1997 by and among PTI Group Inc., SCF-III, L.P., Vencap, Inc., RJM Corp., Robert J. MacLean, John Bubel, Jim L. Cebuliak, R. James Needham, Gary Fortier, James E. Lorencz, Robert C. Hokanson and the remaining shareholders of PTI Group Inc., as amended.
OSI
OSI has entered into individual Stockholders Agreements and Registration Rights Agreements with certain of its stockholders. The following table identifies the stockholder parties to, and the effective dates of, such agreements. Where no date is shown with respect to a particular Stockholders Agreement or Registration Rights Agreement, no such agreement has been entered into between OSI and the stockholder parties in the corresponding column.
----------------------------------------------------------------------------------------
DATE OF REGISTRATION DATE OF STOCKHOLDERS
NAME OF STOCKHOLDER PARTIES RIGHTS AGREEMENT AGREEMENT
----------------------------------------------------------------------------------------
Charles A. Armbrust and Diana Armbrust 12/23/96 12/23/96
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David E. Althoff and Kathleen Althoff 12/23/96 12/23/96
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The Bovaird Supply Company 8/31/95 8/31/95
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Randall E. Carlson, Jr. 12/23/96
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James N. Cauble and Barbara B. Cauble 1/1/98 1/1/98
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|
----------------------------------------------------------------------------------------
DATE OF REGISTRATION DATE OF STOCKHOLDERS
NAME OF STOCKHOLDER PARTIES RIGHTS AGREEMENT AGREEMENT
----------------------------------------------------------------------------------------
Chase Manhattan Investment Holdings, 7/31/95 7/31/95
Inc.
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SCF-III, L.P. 7/31/95 7/31/95
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Alphonse J. Cooper and Marjorie B. 8/20/97
Cooper
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Lawrence A. Decker and Patricia A. 8/12/97
Decker
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Dominion Partners 8/?/97
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Gerald R. Douglas and Karen K. Douglas 8/25/97
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J. Kelly Elliott and Bobbie N. Elliott 12/23/96 12/23/96
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Donald L. Frankel and Donna J. Frankel 12/23/96 12/23/96
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G.C. Frazier and Susan Frazier 12/23/96 12/23/96
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The Freeman Organization, Inc. 11/10/97
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Don K. Gregory and Claire Gregory 12/3/97 12/3/97
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T.L. Gregory and Genevieve Gregory 12/3/97 12/3/97
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T.L. Gregory, Trustee for the Betty 12/3/97 12/3/97
Sue Gregory Trust
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Howard Hughes and Becky Hughes 12/23/96 12/23/96
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Huntfield Trust Limited 2/3/98 2/3/98
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Michael Kief 2/28/98 2/27/98
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Werner Kief and Jimmie Kief 2/28/98 2/27/98
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Klaper (UK) Limited 4/1/98 4/1/98
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Dan LaFollette 8/14/97
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Peter Little and Nancy Little 8/?/97
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Keith A. McGee and Maryanne R. McGee 11/10/98
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Menikoff Family Partnership, Ltd. 4/14/97 4/14/97
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Harvey O. Mohr and Vera L. Mohr 8/29/97
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Franco Nanni and Alole Nanni 8/12/97
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Michael Newell and Kathleen G. Newell 2/28/98 2/27/98
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Larry S. Richards 12/23/96
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Richard Schultz and Susan Schultz 2/28/98 2/27/98
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Rush Selden and Lisa Selden 8/20/97
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|
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DATE OF REGISTRATION DATE OF STOCKHOLDERS
NAME OF STOCKHOLDER PARTIES RIGHTS AGREEMENT AGREEMENT
----------------------------------------------------------------------------------------
W. Stansbury and Sandra L. Stansbury 12/23/96 12/23/96
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Dran D. Tarlton and Mary Ann Tarlton 12/31/97
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Jerry Van Pelt 12/23/96
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Waldrop Investment Co. 10/26/98
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Stephen A. Wells and Judy B. Wells 12/23/96 12/23/96
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Jeffrey L. Whipple and Mary W. Whipple 8/24/97
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Carol M. Wittman 8/15/97
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Robert H. Wittman and Teresa T. Whitman 8/30/97
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Rosalie Wittman 8/30/97
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James D. Woods and Jeanette F. Woods 12/23/96 6/13/97
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Jerry W. Woods and Gloria M. Woods 8/15/97
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|
SCHEDULE 11.14
INDEBTEDNESS AND PREFERRED STOCK TO BE RETIRED
See attached Appendix 1 to this Schedule 11.14.
OIL STATES INTERNATIONAL, INC.
SUMMARY DEBT SCHEDULE
(US DOLLARS IN
MILLIONS)
COMPANY / SECURITY DESCRIPTION
------------------------------------------------ -------------------------------------------------------------------------- -
DEBT TO BE REPAID IN THE OFFERING
OSI
Subordinated Debt:
SMATCO Note is no longer outstanding as of 5/31/00. It has already been repaid.
SMATCO Subordinated Promissory Notes $7,000,000 of principal split into five separate notes to five former
owners of SMATCO. The notes all have a fixed interest rate of 8.0% and
in aggregate have principal payments of $2 million, $2 million and $3
million on July 31st of 2000, 2001 and 2002, respectively. Held by R.
Thompson, Sr., R. Thompson, Jr., T. Thompson, Th. Thompson, and John
Ledet (none appear to be common shareholders of OSI).
SVI Subordinated Promissory Notes $7,000,000 of notes held by the former owners of Subsea Ventures. The
note has a fixed interest rate of 8.0% and a staggered redemption
starting on 8/31/00 with all of principal to be repaid by 2/23/03. Held
by Werner Kief*, Richard Schultz*, John Newell, and Michael Kief* (*
indicates OSI shareholders).
Hunting Subordinated Promissory Notes Three notes which are similarly structured with a fixed interest rate of
8.50% as of 1/1/00. The principal balances of the notes are $10.0
million, $500k and $449,248 and are all due on 5/17/01.
CONEMSCO Shareholder Note $25,000,000 of principal as a result of dividend to the shareholders of
CONEMSCO on 12/31/98. The note has non-cash interest payments accruing
at a fixed rate of 6.0%. Principal and interest are due on 12/31/05. If
SCF-III, L.P. and OSI agree prior to the Effective Time, all or a portion
of the principal and interest of this note shall remain outstanding until
such date as agreed to by SCF-III, L.P. and OSI (but not later than
12/31/05).
Preferred Stock:
LTV Series Cumulative 143,000 shares of Series A Cumulative Preferred Stock with (i) a
Preferred Stock liquidation value of $100 per share plus accrued dividends and (ii) a
fixed dividend rate of 7.0%. Mandatorily redeemable on 9/15/05 and
optionally redeemable on or after 9/15/00.
Hydrotech Series B Exchangeable 38,500 shares of Series A Exchange Cumulative Preferred Stock with a
Preferred Stock liquidation value of $100 per share plus accrued dividends. The
preferred stock has a fixed dividend rate of 3.1% and is mandatorily
redeemable on 7/15/04. The preferred stock is exchangeable into CONEMSCO
common stock at $12.80 per share (Pre-IPO reverse split). The series of
preferred stock is held by 18 former owners of Hydrotech.
Hydrotech Series A Exchangeable 20,000 shares of Series A Exchange Cumulative Preferred Stock with a
Preferred Stock liquidation value of $100 per share plus accrued dividends. The
preferred stock has a fixed dividend rate of 7.0% and is mandatorily
redeemable on 7/15/02. The preferred stock is exchangeable into CONEMSCO
common stock at $15 + 80% * (FMV $15) (Pre-IPO reverse split). The
series of preferred stock is held by 18 former owners of Hydrotech. At
the time of the transaction, 45,000 shares were issued. However, in late
1998, 25,000 shares were repurchased/revoked as a reduction in purchase
price due to Hydrotech's missing earnings estimates.
SMATCO Series A Convertible Cumulative 16,250 shares of Series A Convertible Cumulative Preferred Stock with a
Preferred Stock liquidation value of $100 per share plus accrued dividends. The
preferred stock is NOT redeemable but is convertible into CONEMSCO common
stock at $15.00 per share (Pre-IPO reverse split). Mandatory conversion
on 8/1/02. This preferred stock is held by 5 former SMATCO owners. OSI
currently anticipates that the preferred stock will be redeemed or
purchased immediately prior to the Effective Time. However, OSI reserves
the right not to redeem or purchase such shares prior to the Effective
Time. Further, OSI reserves the right not to redeem such shares in
connection with the OSI Initial Public Offering.
TOTAL OSI
PLANNED NET BALANCE
BALANCE AS OF REPAYMENT AFTER
COMPANY / SECURITY 3/31/00 WITH PROCEEDS PROCEEDS
------------------------------------------------ ------------- ------------- -------------
DEBT TO BE REPAID IN THE OFFERING
OSI
Subordinated Debt:
SMATCO $ 0.1 $ (0.1) $ 0.0
SMATCO Subordinated Promissory Notes 7.0 (7.0) 0.0
SVI Subordinated Promissory Notes 7.0 (7.0) 0.0
Hunting Subordinated Promissory Notes 10.9 (10.9) 0.0
CONEMSCO Shareholder Note 25.0 (25.0) 0.0
Preferred Stock:
LTV Series Cumulative 14.3 (14.3) 0.0
Preferred Stock
Hydrotech Series B Exchangeable 3.9 (3.9) 0.0
Preferred Stock
Hydrotech Series A Exchangeable 2.0 (2.0) 0.0
Preferred Stock
SMATCO Series A Convertible Cumulative 1.6 (1.6) 0.0
Preferred Stock
---------- ---------- ----------
TOTAL OSI $ 71.8 $ (71.8) $ 0.0
========== ========== ==========
|
SOONER
Subordinated Debt:
ZOC Senior Promissory Note Senior Subordinated Promissory Note with a interest rate equal to
Sooner's bank facility interest rate plus 0.25% (approximately
8.6% at 5/31/00). Balance of the principal is due over the next
twelve months. Held entirely by Zarrow Operating Company ("ZOC").
SCF Junior Promissory Note Junior Subordinated Promissory Note with a fixed interest rate of
6.0%. Held entirely by SCF-IV and is due on 6/30/08.
ZOC Junior Promissory Note Junior Subordinated Promissory Note with a fixed interest rate of
6.0%. Held entirely by ZOC and is due on 6/30/08.
Preferred Stock:
TOTAL SOONER
HWC
Subordinated Debt:
Preferred Stock:
TOTAL HWC
PTI
Subordinated Debt:
Preferred Stock:
TOTAL PTI
TOTAL PREFERRED STOCK AND SUB. DEBT
TO BE REPAID IN THE OFFERING USE OF PROCEEDS
PREFERRED STOCK CONVERTED
HWC
(1) Series A Preferred Stock 2,145 shares of Series A Cumulative Convertible Preferred Stock,
with (i) a liquidation value of $1,000 plus accrued dividends
and (ii) a 6.5% fixed dividend rate. Mandatorily redeemable in
2004
(1) Series B Preferred Stock 2,717 shares of Series B Cumulative Convertible Preferred Stock
with (i) a liquidation value of $1,000 plus accrued dividends and
(ii) a 6.5% fixed dividend rate. Mandatorily redeemable in 2004
Conversion of HWC Preferred Stock\
TOTAL PREFERRED STOCK AND SUB. DEBT TO BE
REPAID/CONVERTED IN THE OFFERING
SOONER
Subordinated Debt:
ZOC Senior Promissory Note $ 5.3 $ (5.3) $ 0.0
SCF Junior Promissory Note 23.3 (23.3) 0.0
ZOC Junior Promissory Note 2.4 (2.4) 0.0
Preferred Stock: 0.0 0.0 0.0
---------- ---------- ----------
TOTAL SOONER $ 31.0 $ (31.0) $ 0.0
========== ========== ==========
HWC
Subordinated Debt: $ 0.0 $ 0.0 $ 0.0
Preferred Stock: 0.0 0.0 0.0
---------- ---------- ----------
TOTAL HWC $ 0.0 $ 0.0 $ 0.0
========== ========== ==========
PTI
Subordinated Debt: $ 0.0 $ 0.0 $ 0.0
Preferred Stock: 0.0 0.0 0.0
---------- ---------- ----------
TOTAL PTI $ 0.0 $ 0.0 $ 0.0
========== ========== ==========
TOTAL PREFERRED STOCK AND SUB. DEBT
TO BE REPAID IN THE OFFERING USE OF PROCEEDS $ 102.8 $ (102.8) $ 0.0
========== ========== ==========
PREFERRED STOCK CONVERTED
HWC
(1) Series A Preferred Stock $ 2.3 $ (2.3) $ 0.0
(1) Series B Preferred Stock 2.8 (2.8) 0.0
---------- ---------- ----------
Conversion of HWC Preferred Stock\ $ 5.1 $ (5.1) $ 0.0
========== ========== ==========
TOTAL PREFERRED STOCK AND SUB. DEBT TO BE
REPAID/CONVERTED IN THE OFFERING $ 107.9 $ (107.9) $ 0.0
========== ========== ==========
|
(1) HWC preferred stock is not being refinanced, but converted. As a result, it is not a use of proceeds, but will not be outstanding after the IPO.
EXHIBIT 10.2
FORM OF
PLAN OF ARRANGEMENT PROPOSED BY PTI
UNDER SECTION 186
OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
INVOLVING AND AFFECTING
PTI AND THE HOLDERS OF ITS COMMON SHARES AND OPTIONS
AND PTI AMALCO AND THE HOLDERS OF ITS SHARES
AND PTI HOLDCO AND THE HOLDERS OF ITS SHARES
AND OSI
AND OSI ULC
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:
"ABCA" means the Business Corporations Act (Alberta), as amended;
"Amalgamation" means the amalgamation of PTI and PTI Amalco provided for in Section 2.1(b) hereof;
"Amalgamation Agreement" means the agreement attached hereto as Appendix A, setting forth the terms and conditions of the Amalgamation;
"Arrangement" means the arrangement under section 186 of the ABCA on the terms and subject to the conditions set out in this Plan of Arrangement, subject to any amendments thereto made (i) in accordance with Section 14.1 of the Combination Agreement; (ii) in accordance with Section 5.1 hereof or (iii) at the direction of the Court in the Final Order;
"Arrangement Resolution" means the special resolution passed by the Shareholders and the Optionholders at the Meeting or a resolution in writing signed by all of the Shareholders and Optionholders in lieu of the Meeting;
"Automatic Redemption Date" has the meaning provided in the Exchangeable Share Provisions;
"Business Day" has the meaning provided in the Exchangeable Share Provisions;
"Class A Common Shares" means Class A Common Shares in the capital of New PTI;
"Class B Common Shares" means Class B Common Shares in the capital of New PTI;
"Class C Common Shares" means Class C Common Shares in the capital of New PTI;
"Class D Common Shares" means Class D Common Shares in the capital of New PTI;
"Combination Agreement" means the combination agreement by and among OSI, HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger Sub-Sooner, Inc. and PTI dated as of July o, 2000, as amended and restated from time to time, providing for, among other things, this Plan of Arrangement and the Arrangement;
"Court" means the Court of Queen's Bench of Alberta;
"Depositary" means Montreal Trust Company of Canada at its principal transfer offices in Calgary, Alberta;
"Dissent Procedures" has the meaning provided in Section 3.1;
"Effective Date" means the registration date shown on the registration statement issued upon the filing of the Articles of Arrangement under the ABCA giving effect to the Arrangement;
"Effective Time" means 6:00 a.m. (Edmonton time) on the Effective Date;
"Eligible Holders" has the meaning in Section 2.2(a);
"Exchange Ratio" means 3.7731 Exchangeable Shares for each whole PTI Common Share, subject to adjustment as provided in accordance with Section 4.2 of the Combination Agreement;
"Exchangeable Share Provisions" means the rights, privileges, restrictions and conditions attaching to the Exchangeable Shares as set forth in Appendix B hereto;
"Exchangeable Shares" means the Exchangeable Shares in the capital of PTI Holdco;
"Final Order" means the final order of the Court approving the Arrangement, as such order may be amended by the Court at any time and from time to time prior to the Effective Time;
"Interim Order" means the interim order of the Court in relation to the Arrangement, as such order may be amended by the Court at any time and from time to time;
"ITA" means the Income Tax Act (Canada), as amended;
"Measurement Period" means the period of 10 consecutive Business Days ending on the third trading day prior to the OSI IPO Date;
"Meeting" means the special meeting of the Shareholders and of the Optionholders of PTI to be held, if required, to consider this Plan of Arrangement;
"New PTI" means PTI Group Inc. a corporation amalgamated under the ABCA pursuant to the Arrangement;
"New PTI Shares" means the Class A Common Shares, the Class B Common Shares, the Class C Common Shares and the Class D Common Shares;
"Non-Accredited U.S. PTI Shareholder" means Peter McEwen, a Shareholder;
"Option Agreements" mean the agreements between PTI and certain directors and officers of PTI governing the Options;
"Optionholders" means holders of Options;
"Options" means all options to purchase PTI Common Shares outstanding immediately prior to the Effective Date;
"OSI" means Oil States International, Inc., a corporation organized and existing under the laws of Delaware and any successor corporation;
"OSI Common Stock" has the meaning provided in the Exchangeable Share Provisions;
"OSI IPO" means the initial public offering of OSI Common Stock;
"OSI IPO Date" means the date the OSI IPO is completed;
"OSI IPO Price" means the price per share at which OSI Common Stock is initially offered for sale to the public under the OSI IPO;
"OSI ULC" means o, an unlimited liability company organized and existing under the laws of Nova Scotia and any successor corporation;
"PTI" means PTI Group Inc., a corporation organized and existing under the laws of Alberta;
"PTI Amalco" means o, a corporation organized and existing under the laws of Alberta and a wholly-owned subsidiary of PTI Holdco;
"PTI Amalco Common Shares" means the common shares in the capital of PTI Amalco;
"PTI Common Shares" means the common shares in the capital of PTI;
"PTI Holdco" means o, a corporation organized and existing under the laws of Alberta and a wholly-owned subsidiary of OSI ULC prior to giving effect to the Arrangement, and any successor corporation;
"PTI Holdco Sub" means o, a corporation organized and existing under the laws of Alberta and a wholly-owned subsidiary of PTI Holdco, and any successor corporation;
"Proxy Statement" means the Management Information Circular and Proxy Statement of PTI prepared in connection with the Arrangement;
"RJM" means R.J.M. Equities Inc., a Shareholder;
"Shareholders" means holders of PTI Common Shares;
"Support Agreement" means the agreement so entitled between OSI and PTI Holdco to be dated as of the Effective Date and provided for in the Combination Agreement;
"Transfer Agent" means the duly appointed transfer agent for the time being of the Exchangeable Shares, and, if there is more than one such transfer agent, then the principal Canadian transfer agent;
"Unanimous Shareholder Agreement" means the Unanimous Shareholder Agreement dated January 8, 1997 made among the Shareholders and PTI, as amended;
"U.S. PTI Shareholders" means SCF-III, L.P. and William Nungesser, each a Shareholder.
"Voting and Exchange Trust Agreement" means the agreement so entitled between OSI, PTI Holdco and the Trustee named therein to be dated as of the Effective Date and provided for in the Combination Agreement;
"Voting Share" has the meaning ascribed to such term in the Voting and Exchange Trust Agreement; and
"812375" means 812375 Alberta Ltd., a Shareholder.
1.2 SECTIONS, HEADINGS AND APPENDICES
The division of this Plan of Arrangement into sections and the insertion of headings are for reference purposes only and shall not affect the interpretation of this Plan of Arrangement. Unless otherwise indicated, any reference in this Plan of Arrangement to a section refers to the specified section of this Plan of Arrangement. Appendix A is incorporated into and forms an integral part of this Plan of Arrangement.
1.3 NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words importing the singular number include the plural and vice versa, words importing any gender include all genders and words importing persons include individuals, bodies corporate, partnerships, associations, trusts, unincorporated organizations, governmental bodies and other legal or business entities of any kind.
1.4 DATE FOR ANY ACTION
In the event that any date on or by which any action is required or permitted to be taken hereunder is not a Business Day, such action shall be required or permitted to be taken on or by the next succeeding day which is a Business Day.
1.5 CURRENCY
Unless otherwise expressly stated herein, all references to currency and payments in cash or money in this Plan of Arrangement are to United States dollars.
1.6 STATUTORY REFERENCES
Any reference in this Plan of Arrangement to a statute includes such statute as amended, consolidated or re-enacted from time to time, all regulations made thereunder, all amendments to such regulations from time to time, and any statute or regulation which supersedes such statute or regulations.
ARTICLE 2
ARRANGEMENT
2.1 ARRANGEMENT
At the Effective Time, the following transactions shall occur and shall be deemed to occur in the following order without any further act or formality:
(a) each Shareholder who has duly exercised the right of dissent as set forth in Article 3 shall be deemed to have transferred the PTI Common Shares held by such holder to PTI for cancellation and such shares shall be cancelled and any Options held by such Shareholder which have not been exercised prior to the time such Shareholder exercises such right of dissent shall be deemed to be transferred to PTI for no consideration and shall be cancelled and shall no longer be outstanding and in no case shall PTI or OSI be required to recognize such holders as Optionholders on and after the Effective Time and the names of such persons shall be deleted from the registers of Optionholders at the Effective Time;
(b) the Unanimous Shareholder Agreement shall be terminated and of no further force or effect;
(c) OSI shall acquire:
(i) all of the PTI Common Shares held by the Non-Accredited U.S. PTI Shareholder in exchange for a payment, in United States dollars, equal to the OSI IPO Price less underwriters' discounts and commissions applicable to the OSI IPO, multiplied by the Exchange Ratio multiplied by the number of PTI Common Shares held by the Non-Accredited U.S. PTI Shareholder; and
(ii) all of the PTI Common Shares held by the U.S. PTI Shareholders in exchange for the number of shares of OSI Common Stock equal to the Exchange Ratio for each whole PTI Common Share;
(d) OSI ULC shall acquire all of the PTI Common Shares acquired by OSI pursuant to Section 2.1(c) hereof in exchange for one common share in the capital of OSI ULC for each whole PTI Common Share;
(e) PTI Holdco shall acquire all of the PTI Common Shares acquired by OSI ULC pursuant to Section 2.1(d) hereof in exchange for one common share in the capital of PTI Holdco for each whole PTI Common Share;
(f) PTI and PTI Amalco shall be amalgamated pursuant to the Amalgamation Agreement to form New PTI;
(g) Upon the amalgamation of PTI and PTI Amalco to form New PTI:
(i) New PTI shall issue to PTI Holdco one Class A Common Share for each of its PTI Common Shares;
(ii) New PTI shall issue to PTI Holdco one Class A Common Share for each of its PTI Amalco Common Shares;
(iii) New PTI shall issue to 812375 one Class B Common Share for each of its PTI Common Shares;
(iv) New PTI shall issue to RJM one Class C Common Share for each of its PTI Common Shares;
(v) New PTI shall issue to each of the Shareholders other than 812375, RJM, PTI Holdco and holders of PTI Common Shares in respect of which rights of dissent have been exercised pursuant to Article 3 hereof and which have been cancelled pursuant to Section 2.1(a) hereof one Class D Common Share for each of their PTI Common Shares;
(vi) the amount added to the stated capital account maintained
for the Class A Common Shares with respect to the Class A
Common Shares issued pursuant to Sections 2.1(g)(i) and
(ii) shall be equal to the paid-up capital, for the
purposes of the ITA, of the PTI Common Shares and the PTI
Amalco Common Shares held by PTI Holdco;
(vii) the amount added to the stated capital account maintained for the Class B Common Shares with respect to the Class B Common Shares issued pursuant to Section 2.1(g)(iii) shall be equal to the paid-up capital, for the purposes of the ITA, of the PTI Common Shares held by 812375;
(viii) the amount added to the stated capital account maintained for the Class C Common Shares issued pursuant to Section 2.1(g)(iv) shall be equal to the
paid-up capital, for the purposes of the ITA, of the PTI Common Shares held by RJM;
(ix) the amount added to the stated capital account maintained for the Class D Common Shares with respect to the Class D Common Shares issued pursuant to Section 2.1(g)(v) shall be equal to the paid-up capital, for the purposes of the ITA, of the PTI Common Shares other than (A) the PTI Common Shares held by PTI Holdco, 812375 and RJM and (B) PTI Common Shares in respect of which rights of dissent have been exercised pursuant to Article 3 hereof and which have been cancelled pursuant to Section 2.1(a) hereof.
(h) The stated capital account maintained for (i) the Class B Common
Shares shall be increased by a portion of the amount credited to
New PTI's retained earnings account equal to [$6,794,359] and
(ii) the Class C Common Shares shall be increased by a portion of
the amount credited to New PTI's retained earnings account equal
to [$3,903,303];
(i) The Articles of Incorporation of PTI Holdco shall be amended to add (i) the Exchangeable Shares to the authorized capital of PTI Holdco, (ii) the Exchangeable Share Provisions and (iii) certain other provisions, set forth in Exhibit B to the Combination Agreement and to delete the private company provisions;
(j) OSI and PTI Holdco shall execute and deliver the Support Agreement;
(k) OSI, PTI Holdco and the Trustee shall execute and deliver the Voting and Exchange Trust Agreement;
(l) PTI Holdco shall acquire all of the issued and outstanding Class B Common Shares from the holders thereof in exchange for the number of Exchangeable Shares equal to the Exchange Ratio for each whole Class B Common Share;
(m) PTI Holdco shall acquire all of the issued and outstanding Class C Common Shares from the holders thereof in exchange for the number of Exchangeable Shares equal to the Exchange Ratio for each whole Class C Common Share;
(n) PTI Holdco shall acquire all of the issued and outstanding Class D Common Shares from the holders thereof in exchange for the number of Exchangeable Shares equal to the Exchange Ratio for each whole Class D Common Share;
(o) The amount added to the stated capital account maintained for the Exchangeable Shares with respect to the Exchangeable Shares issued pursuant to Section 2.1(l) shall be equal to the paid up capital, for the purposes of the ITA, of the Class B Common Shares;
(p) The amount added to the stated capital account maintained for the Exchangeable Shares with respect to the Exchangeable Shares issued pursuant to Section 2.1(m)
shall be equal to the paid up capital, for the purposes of the ITA, of the Class C Common Shares;
(q) The amount added to the stated capital account maintained for the Exchangeable Shares with respect to the Exchangeable Shares issued pursuant to Section 2.1(n) shall be equal to the paid up capital, for the purposes of the ITA, of the Class D Common Shares;
(r) Upon the transfer of New PTI Shares referred to in paragraphs
(l), (m) and (n) above:
(i) each holder of New PTI Shares shall cease to be such a holder, shall have his name removed from the register of holders of New PTI Shares and shall become a holder of the number of fully paid Exchangeable Shares to which he is entitled as a result of the transfer referred to above and such holder's name shall be added to the register of holders of Exchangeable Shares accordingly; and
(ii) PTI Holdco shall become the legal and beneficial owner of all of the New PTI Shares so transferred.
(s) OSI shall issue to and deposit with the Depositary the Voting Share in consideration of the payment to OSI of US$1, to be thereafter held by the Depositary as trustee for and on behalf of, and for the use and benefit of, the holders of the Exchangeable Shares, in accordance with the Voting and Exchange Trust Agreement.
(t) The then outstanding Options will, without any further action on the part of any Optionholder: (i) if applicable, vest in accordance with the terms and conditions of the Option Agreements, and (ii) be converted into or exchanged for an option to purchase the number of shares of OSI Common Stock determined by multiplying the number of PTI Common Shares subject to such Option at the Effective Time by the Exchange Ratio, at an exercise price per share of OSI Common Stock equal to the exercise price per share of such Option immediately prior to the Effective Time divided by the Exchange Ratio, and expressed in U.S. dollars. For the purposes of determining the exercise price per share of OSI Common Stock, the exercise price per share of PTI Common Shares subject to such Option shall be adjusted using the Canadian dollar exchange rate based upon the average of the noon buying rate expressed to the fourth decimal place for each of the Business Days in the Measurement Period as reported by the Bank of Canada. If the foregoing calculation results in a converted Option being exercisable for a fraction of a share of OSI Common Stock, then the number of shares of OSI Common Stock subject to such Option will be rounded down to the nearest whole number of shares, and the exercise price per whole share of OSI Common Stock will be as determined above. The obligations of PTI under the Options as so converted shall be assumed by OSI and OSI shall be substituted for PTI under the Option Agreements. Except as provided in this paragraph (d), the
term and all other terms and conditions of the Options in effect immediately prior to giving effect to the Arrangement shall govern the Options.
(u) PTI Holdco Sub shall acquire all of the issued and outstanding New PTI Shares from PTI Holdco in exchange for an equal number of common shares in the capital of PTI Holdco Sub.
2.2 TAX MATTERS
(a) Holders of Exchangeable Shares who acquired them pursuant to the transfers referred to above (the "Eligible Holders") shall be entitled to make an election pursuant to subsection 85(1) of the ITA and any corresponding applicable provincial legislation with respect to the transfer of their New PTI Shares to PTI Holdco as provided above by providing two signed copies of the necessary election forms to PTI Holdco within 90 days following the Effective Date, duly completed with the details of the number of shares transferred, the adjusted cost base of those shares and such agreed amounts as shall be determined by the Eligible Holders for the purposes of such elections. Thereafter, subject to the election forms complying with the provisions of the ITA and any corresponding applicable provincial legislation, the forms will be signed by PTI Holdco and returned to the Eligible Holders within 30 days of receipt of such elections by PTI Holdco for filing with Canada Customs and Revenue Agency or any corresponding applicable provincial agency.
(b) The applicable agreed amount for the purposes of any election to be made in accordance with Section 2.2(a) must comply with the following rules:
(i) the agreed amount may not be less than the fair market value, on the Effective Date, of the consideration (other than Exchangeable Shares) received by an Eligible Holder for the disposition to PTI Holdco of the New PTI Shares to which the election applies;
(ii) the agreed amount may not be less than the lesser of (A) the adjusted cost base to the Eligible Holder of the New PTI Shares to which the election applies, determined immediately before the time of the exchange, and (B) the fair market value of such New PTI Shares at that time;
(iii) the agreed amount may not exceed the fair market value of the New PTI Shares to which the election applies at the time of the exchange.
ARTICLE 3
RIGHTS OF DISSENT
3.1 RIGHTS OF DISSENT
Registered Shareholders may exercise rights of dissent with respect to their PTI Common Shares pursuant to and in the manner set forth in section 184 of the ABCA (as modified by the
Interim Order) and this Section 3.1 (the "Dissent Procedures") in connection with the Arrangement, and holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for the PTI Common Shares shall be deemed to have transferred such PTI Common Shares to PTI for cancellation on the Effective Date; or
(b) are ultimately not entitled, for any reason, to be paid the fair value for their PTI Common Shares shall be deemed to have participated in the Arrangement on the same basis as any nondissenting Shareholder, as the case may be,
but in no case shall PTI be required to recognize such holders as Shareholders on and after the Effective Time, and the names of such persons shall be deleted from the registers of Shareholders at the Effective Time.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES
At or promptly after the Effective Time, PTI Holdco shall deposit with the Depositary, for the benefit of the Shareholders who ultimately exchanged their PTI Common Shares for Exchangeable Shares pursuant to the Arrangement, certificates representing the Exchangeable Shares issued pursuant to the Arrangement upon the exchange. Upon surrender to the Depositary of a certificate which immediately prior to the Effective Time represented outstanding PTI Common Shares, and such additional documents and instruments as the Depositary may reasonably require, the holder of such surrendered certificate shall be entitled to receive in exchange therefor, and the Depositary shall forthwith deliver to such holder, a certificate representing that number (rounded down to the nearest whole number) of Exchangeable Shares which such holder has the right to receive pursuant to the Arrangement (together with any dividends or distributions with respect thereto pursuant to Section 4.2 and any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.3), and any certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of PTI Common Shares which is not registered in the transfer records of PTI, a certificate representing the proper number of Exchangeable Shares (together with any dividends or distributions with respect thereto pursuant to Section 4.2 and any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.3) shall be delivered to a transferee if the certificate representing such PTI Common Shares is presented to the Depositary, accompanied by all documents required to evidence and effect such transfer. Until surrendered as contemplated by this Section 4.1, each certificate which immediately prior to the Effective Time represented outstanding PTI Common Shares shall be deemed at any time after the Effective Time, but subject to Section 4.8, to represent only the right to receive upon such surrender (a) the certificate representing Exchangeable Shares as contemplated by this Section 4.1, (b) a cash payment in lieu of any fractional Exchangeable Shares as contemplated by Section 4.3 and (c) any dividends or distributions with a record date after the Effective Time theretofore paid or payable with respect to Exchangeable Shares as contemplated by Section 4.2.
4.2 DIVIDENDS AND OTHER DISTRIBUTIONS
No dividends or other distributions declared or made after the
Effective Time with respect to the Exchangeable Shares with a record date after
the Effective Time shall be paid to the holder of any formerly outstanding PTI
Common Shares which were not exchanged pursuant to Section 2.1, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 4.3 (and no interest will be earned and payable thereon), unless and
until the certificate representing such PTI Common Shares shall be surrendered
in accordance with Section 4.1. Subject to applicable law and to Section 4.8, at
the time of such surrender of any such certificate (or, in the case of clause
(c) below, at the appropriate payment date), there shall be paid to the holder
of the Exchangeable Shares resulting from such exchange, in all cases without
interest, (a) the amount of any cash payable in lieu of a fractional
Exchangeable Share to which such holder is entitled pursuant to Section 4.3, (b)
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such Exchangeable Shares, and
(c) the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such Exchangeable Shares.
4.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional Exchangeable Shares
shall be issued upon the surrender for exchange of certificates pursuant to
Section 4.1, and such fractional interests shall not entitle the owner thereof
to vote or to possess or exercise any rights as a security holder of PTI Holdco.
In lieu of any such fractional interests, each person entitled thereto will
receive an amount of cash (rounded to the nearest whole cent), without interest,
equal to the product of (a) such fractional interest, multiplied by (b) the OSI
IPO Price, such amount to be provided to the Depositary by PTI Holdco upon
request.
4.4 ISSUANCE OF CERTIFICATES REPRESENTING OSI COMMON STOCK
At or promptly after the Effective Time, OSI shall deposit with the
Depositary, for the benefit of the U.S. PTI Shareholders who ultimately
exchanged their PTI Common Shares for shares of OSI Common Stock pursuant to
Section 2.1(c) of the Arrangement, certificates representing the shares of OSI
Common Stock issued pursuant to the Arrangement upon the exchange. Upon
surrender to the Depositary of a certificate which immediately prior to the
Effective Time represented outstanding PTI Common Shares, and such additional
documents and instruments as the Depositary may reasonably require, the holder
of such surrendered certificate shall be entitled to receive in exchange
therefor, and the Depositary shall forthwith deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of shares of OSI Common Stock which such holder has the right to receive
pursuant to Section 2.1(c) of the Arrangement (together with any dividends or
distributions with respect thereto pursuant to Section 4.5 and any cash in lieu
of fractional Exchangeable Shares pursuant to Section 4.6), and any certificate
so surrendered shall forthwith be canceled. Until surrendered as contemplated by
this Section 4.4, each certificate held by a U.S. PTI Shareholder which
immediately prior to the Effective Time represented outstanding PTI Common
Shares shall be deemed at any time after the Effective Time, but subject to
Section 4.8, to represent only the right to receive upon such surrender (a) the
certificate representing shares of OSI Common Stock as contemplated by this
Section 4.4, (b) a cash payment in lieu of any fractional share of OSI Common
Stock
as contemplated by Section 4.6 and (c) any dividends or distributions with a record date after the Effective Time theretofore paid or payable with respect to OSI Common Stock as contemplated by Section 4.5.
4.5 DIVIDENDS AND OTHER DISTRIBUTIONS
No dividends or other distributions declared or made after the Effective Time with respect to the OSI Common Stock with a record date after the Effective Time shall be paid to the U.S. PTI Shareholder of any formerly outstanding PTI Common Shares which were not exchanged pursuant to Section 2.1, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 4.6 (and no interest will be earned and payable thereon), unless and until the certificate representing such PTI Common Shares shall be surrendered in accordance with Section 4.4. Subject to applicable law and to Section 4.8, at the time of such surrender of any such certificate (or, in the case of clause (c) below, at the appropriate payment date), there shall be paid to the holder of the shares of OSI Common Stock resulting from such exchange, in all cases without interest, (a) the amount of any cash payable in lieu of a fractional share of OSI Common Stock to which such holder is entitled pursuant to Section 4.6, (b) the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such OSI Common Stock, and (c) the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such OSI Common Stock.
4.6 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of OSI Common stock shall be issued upon the surrender for exchange of certificates pursuant to Section 4.4, and such fractional interests shall not entitle the owner thereof to vote or to possess or exercise any rights as a security holder of OSI. In lieu of any such fractional interests, each U.S. PTI Shareholder entitled thereto will receive an amount of cash (rounded to the nearest whole cent), without interest, equal to the product of (a) such fractional interest, multiplied by (b) the OSI IPO Price, such amount to be provided to the Depositary by OSI upon request.
4.7 LOST CERTIFICATES
If any certificate which immediately prior to the Effective Time
represented outstanding PTI Common Shares which were exchanged pursuant to
Section 2.1 has been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such certificate to be lost, stolen or
destroyed, the Depositary will issue in exchange for such lost, stolen or
destroyed certificate, certificates representing Exchangeable Shares (together
with any dividends or distributions with respect thereto pursuant to Section 4.2
and any cash in lieu of a fractional Exchangeable Share pursuant to Section 4.3)
or, in the case of a U.S. PTI Shareholder, certificates representing shares of
OSI Common Stock (together with any dividends or distributions with respect
thereto pursuant to Section 4.5 and any cash in lieu of a fractional share of
OSI Common Stock pursuant to Section 4.6) deliverable in respect thereof as
determined in accordance with Section 2.1. When seeking such certificate and
payment in exchange for any lost, stolen or destroyed certificate, the person to
whom certificates
representing Exchangeable Shares are to be issued shall, as a condition precedent to the issuance thereof, give a bond satisfactory to PTI Holdco, OSI and the Transfer Agent, as the case may be, in such sum as PTI Holdco or OSI may direct or otherwise indemnify PTI Holdco, OSI and the Transfer Agent in a manner satisfactory to PTI Holdco, OSI and the Transfer Agent against any claim that may be made against PTI Holdco, OSI or the Transfer Agent with respect to the certificate alleged to have been lost, stolen or destroyed.
4.8 EXTINGUISHMENT OF RIGHTS
Any certificate which immediately prior to the Effective Time
represented outstanding PTI Common Shares which were exchanged pursuant to
Section 2.1 and has not been deposited, with all other instruments required by
Section 4.1, on or prior to the sixth anniversary of the Effective Date shall
cease to represent a claim or interest of any kind or nature as a Shareholder or
a holder of Exchangeable Shares or shares of OSI Common Stock. On such date, (a)
the Exchangeable Shares (and any dividends or distributions with respect thereto
and any cash pursuant to Section 4.3) to which the former registered holder of
the certificate referred to in the preceding sentence (other than a U.S. PTI
Shareholder) was ultimately entitled (or, if the Automatic Redemption Date has
occurred, the resulting shares of OSI Common Stock) shall be deemed to have been
surrendered to PTI Holdco (or, in the event that the Automatic Redemption Date
has occurred, OSI), together with all entitlements to dividends, distributions,
cash and interest thereon held for such former registered holder, for no
consideration and such shares shall thereupon be canceled and the name of the
former registered holder shall be removed from the register of holders of such
shares; (b) the shares of OSI Common Stock (and any dividends or distributions
with respect thereto and any cash pursuant to Section 4.6) to which the former
U.S. PTI Shareholder referred to in the preceding sentence was ultimately
entitled shall be deemed to have been surrendered to OSI, together with all
entitlements to dividends, distributions, cash and interest thereon held for
such former U.S. PTI Shareholder for no consideration and such shares shall
thereupon be cancelled and the name of the former U.S. PTI Shareholder shall be
removed from the register of holders of such shares.
ARTICLE 5
AMENDMENT
5.1 PLAN OF ARRANGEMENT AMENDMENT
PTI reserves the right to amend, modify and/or supplement this Plan of Arrangement from time to time at any time prior to the Effective Time provided that any such amendment, modification or supplement must be contained in a written document that is (a) agreed to by OSI and PTI Holdco, (b) filed with the Court and, if made following the Meeting, approved by the Court and (c) communicated to Shareholders and Optionholders in the manner required by the Court (if so required).
Any amendment, modification or supplement to this Plan of Arrangement may be proposed by PTI at any time prior to or at the Meeting (provided that OSI and PTI Holdco shall have consented thereto) with or without any other prior notice or communication, and if so proposed and accepted by the persons voting at the Meeting (other than as may be required under the Interim Order), shall become part of this Plan of Arrangement for all purposes.
Any amendment, modification or supplement to this Plan of Arrangement which is approved by the Court following the Meeting shall be effective only (a) if it is consented to by PTI, (b) if it is consented to by OSI and PTI Holdco and (c) if required by the Court or applicable law, it is consented to by the Shareholders, Optionholders or the holders of Exchangeable Shares, as the case may be.
Notwithstanding the foregoing, this Plan of Arrangement may be amended in the manner contemplated by Section 11.9(d) of the Combination Agreement prior to, at or following the Meeting and prior to or following the approval of this Plan of Arrangement by the Court without notice to or the consent or approval of the Shareholders, Optionholders, holders of Exchangeable Shares, or the Court.
APPENDIX A
TO THE PLAN OF ARRANGEMENT
THIS AGREEMENT OF AMALGAMATION is made this o day of o, 2000
AMONG:
PTI GROUP INC., a corporation, amalgamated under the laws of the Province of Alberta (herein called "PTI")
OF THE FIRST PART
- and -
o ALBERTA INC., a corporation incorporated under the laws of the Province of Alberta (herein called "PTI Amalco")
OF THE SECOND PART.
RECITALS:
A. As part of an arrangement involving PTI, PTI Amalco and PTI Holdco Inc. ("PTI Holdco") (the "Arrangement") under Section 186 of the Business Corporations Act (Alberta) being Chapter B-15 of the Statutes of Alberta, 1981 (the "Act") pursuant to a Plan of Arrangement (the "Plan") which was approved by an order of the Court of Queen's Bench of Alberta on the o day of o, 2000, PTI and PTI Amalco (herein sometimes referred to jointly as the "Amalgamating Corporations" and either one of which may hereinafter be referred to as an "Amalgamating Corporation"), each being a valid and subsisting corporation in good standing under the Act, have agreed to amalgamate upon the terms and conditions and in accordance with the mode of carrying the amalgamation into effect, as set out in the Plan and in this Agreement;
B. PTI was amalgamated under the laws of Alberta the 8th day of January, 1997;
C. PTI is authorized to issue an unlimited number of common shares (the "PTI Common Shares"), of which 7,798,900 PTI Common Shares are presently issued and outstanding as fully paid and non-assessable shares in the capital of PTI;
D. PTI Amalco was incorporated under the laws of the Province of Alberta on the o day of o, 2000 and is a wholly owned subsidiary of PTI Holdco;
E. PTI Amalco is authorized to issue an unlimited number of Common Voting Shares of which o Common Voting Shares are presently issued and outstanding as fully paid and non-assessable shares in the capital of PTI Amalco;
F. Each of the Amalgamating Corporations has made full disclosure to the other of all their respective assets and liabilities.
NOW THEREFORE THIS AGREEMENT WITNESSETH that for and in consideration of the mutual promises herein contained and other good and valuable consideration, the parties agree each with the other as follows:
1. The Amalgamating Corporations shall amalgamate and continue as one corporation (herein sometimes referred to as the "Amalgamated Corporation") under the provisions of the Act upon the terms and conditions, and in accordance with the mode of carrying the amalgamation into effect, as hereinafter set out;
2. The name of the Amalgamated Corporation shall be "PTI Group Inc.";
3. The Registered Office of the Amalgamated Corporation shall be 2900, 10180 - 101 Street, Edmonton, Alberta, T5J 3V5;
4. The Amalgamated Corporation shall be authorized to issue an unlimited number of Class A Common Shares, an unlimited number of Class B Common Shares, an unlimited number of Class C Common Shares and an unlimited number of Class D Common Shares of which o Class A Common Shares, o Class B Common Shares, o Class C Common Shares and o Class D Common Shares shall be issued and outstanding on the basis hereinafter set out;
5. There shall be no restrictions on the business the Amalgamated Corporation may carry on or on the powers of the Amalgamated Corporation may exercise;
6. The right to transfer shares of the Amalgamated Corporation shall be restricted in that no shares shall be transferred without the approval of the Board of Directors;
7. The number of shareholders of the Amalgamated Corporation exclusive of persons who are in its employment and exclusive of persons who, having been formerly in the employment of the Amalgamated Corporation, were, while in that employment, and have continued after the termination of that employment to be shareholders of the Amalgamated Corporation, is limited to not more than fifty, two or more persons who are the joint registered owners of one or more shares being counted as one shareholder;
8. Any invitation to the public to subscribe for any securities of the Amalgamated Corporation shall be prohibited;
9. Upon the amalgamation of the Amalgamating Corporations and their continuance as one corporation becoming effective:
(a) the Amalgamating Corporations' property shall continue to be the property of the Amalgamated Corporation;
(b) the Amalgamated Corporation shall continue to be liable for the Amalgamating Corporations' obligations;
(c) an existing cause of action, claim or liability to the prosecution relating to one or both of the Amalgamating Corporations shall be unaffected;
(d) a civil, criminal or administrative action or proceeding pending by or against one or both of the Amalgamating Corporations may be continued to be prosecuted by or against the Amalgamated Corporation;
(e) a conviction against, or ruling, order or judgment in favour of or against, one or both of the Amalgamating Corporations may be enforced by or against the Amalgamated Corporation; and
(f) the Amalgamated Corporation's articles of amalgamation shall be deemed to be its articles of incorporation and the Amalgamated Corporation's certificate of amalgamation shall be deemed to be its certificate of incorporation;
10. The names, occupations and places of residence of the first directors and officers of the Amalgamated Corporation shall be:
NAME AND OCCUPATION ADDRESS OFFICE HELD
------------------- ------- -----------
o o Director, President and Secretary
o o Director
|
11. The foregoing first directors shall hold office until the first meeting of shareholders of the Amalgamated Corporation, or until their successors are elected or appointed. Subject to the provisions of the Act and any unanimous shareholder agreement, the Board of Directors shall manage the business and affairs of the Amalgamated Corporation;
12. The Articles of Amalgamation of the Amalgamated Corporation shall be those attached hereto as Schedule "A";
13. Until repealed, amended, altered or added to, so far as applicable, the by-laws of PTI at the time of the Amalgamation becomes effective shall be the by-laws of the Amalgamated Corporation, a copy of which is attached hereto as Schedule "B";
14. The manner of converting the authorized and issued capital of each of the Amalgamating Corporations into that of the Amalgamated Corporation shall be as follows:
(a) the Amalgamated Corporation shall issue to PTI Holdco one Class A Common Share for each of its PTI Common Shares;
(b) the Amalgamated Corporation shall issue to PTI Holdco one Class A Common Share for each of its common shares in the capital of PTI Amalco;
(c) the Amalgamated Corporation shall issue to 812375 Alberta Ltd.
("812375") one Class B Common Share for each of its PTI Common
Shares;
(d) the Amalgamated Corporation shall issue to R.J.M. Equities Inc. ("RJM") one Class C Common Share for each of its PTI Common Shares;
(e) the Amalgamated Corporation shall issue to each of the holders of PTI Common Shares, other than 812375, RJM and PTI Holdco and holders of PTI Common Shares in respect of which rights of dissent have been exercised pursuant to Article 3 of the Plan and which have been cancelled pursuant to Section 2.1(a) thereof, one Class D Common Share for each of their PTI Common Shares;
15. The Arrangement has been considered and ratified by the holders of the shares of the Amalgamating Corporations and of PTI at special meetings called for this purpose or by resolutions in writing signed by all shareholders entitled to vote on that resolution, as the case may be; and
16. To the extent that there is any conflict or inconsistency between the terms of this Agreement and the Plan the terms of the Plan shall prevail and the terms of this Agreement shall be amended accordingly.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the day and year first written above.
PTI GROUP INC.
o ALBERTA INC.
SCHEDULE "A"
ARTICLES OF AMALGAMATED CORPORATION
A. The Corporation is authorized to issue an unlimited number of Class A Common Shares, Class B Common Shares, Class C Common Shares and Class D Common Shares having attached thereto the following rights, privileges, restrictions and conditions:
I. CLASS A COMMON SHARES
1.1 Dividends
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class A Common Shares, holders of Class A Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
1.2 Liquidation
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class A Common Shares, the holders of Class A Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation pro rata with the Class B Common, Class C Common and Class D Common Shares.
1.3 Voting
(i) The holders of the Class A Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Class A Common Share held.
II. CLASS B COMMON SHARES
1.1 Dividends
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class B Common Shares, holders of Class B Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
1.2 Liquidation
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class B Common Shares, the holders of Class B Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation pro rata with the Class A Common, Class C Common and Class D Common Shares.
1.3 Voting
(i) The holders of the Class B Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Class B Common Share held.
III. CLASS C COMMON SHARES
1.1 Dividends
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class C Common Shares, holders of Class C Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
1.2 Liquidation
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class C Common Shares, the holders of Class C Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation pro rata with the Class A Common, Class B Common and Class D Common Shares.
1.3 Voting
(i) The holders of the Class C Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Class C Common Share held.
IV. CLASS D COMMON SHARES
1.1 Dividends
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class D Common Shares, holders of Class D Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
1.2 Liquidation
(i) Subject to the rights attaching to any other classes of shares ranking prior to the Class D Common Shares, the holders of Class D Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation pro rata with the Class A Common, Class B Common and Class C Common Shares.
1.3 Voting
(i) The holders of the Class D Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Class D Common Share held.
SCHEDULE "B"
BY-LAW NUMBER 1
A BY-LAW RELATING GENERALLY
TO THE TRANSACTION OF THE
BUSINESS AND AFFAIRS OF
PTI GROUP INC.
PART I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS
In the By-laws, unless the context otherwise requires:
(a) "Act" means the Business Corporations Act (Alberta), .as amended, and all regulations under the Act in force from time to time;
(b) "appoint" includes elect and vice versa;
(c) "Articles" includes the original or restated articles of incorporation, articles of amendment, articles of amalgamation, articles of continuance, articles of reorganization, articles of arrangement, articles of dissolution and articles of revival of the Corporation, and any amendment to any of them;
(d) "Board" means the board of directors of the Corporation;
(e) "By-laws" means this by-law and all other by-laws of the Corporation from time to time in force;
(f) "Corporation" means PTI Group Inc.;
(g) "Director" means an individual who is duly elected or appointed as a director of the Corporation;
(h) "Indemnified Party" has the meaning set out in section 5.2 for purposes of that section;
(i) "Officer" means any officer of the Corporation appointed by the Board; and
(j) "Shareholder" means a shareholder of the Corporation.
SECTION 1.2 INTERPRETATION
In the By-laws, except if defined in section 1.1 or the context does not permit:
(a) words and expressions defined in the Act have the meaning given to them in the Act;
(b) words importing the singular include the plural and vice versa;
(c) words importing gender include masculine, feminine and neuter genders; and
(d) words importing persons include bodies corporate.
SECTION 1.3 HEADINGS
The headings used in the By-laws are inserted for convenience of reference only. The headings are not to be considered or taken into account in construing the terms of the By-laws nor are they to be deemed in any way to clarify, modify or explain the effect of any term of the By-laws.
SECTION 1.4 BY-LAWS SUBJECT TO THE ACT, ETC.
The By-laws are subject to the Act, any unanimous shareholder agreement relating to the Corporation and the Articles, in that order.
PART II
SHAREHOLDERS
SECTION 2.1 PLACE AND TIME OF MEETINGS
Meetings of Shareholders may be held at the place within Alberta and at the time the Board determines. A meeting of Shareholders may be held outside Alberta if all the Shareholders entitled to vote at that meeting agree to holding the meeting outside Alberta. A Shareholder who attends a meeting of Shareholders held outside Alberta is deemed to have agreed to holding the meeting outside Alberta, except when the Shareholder attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held.
SECTION 2.2 CALLING OF MEETINGS
The Board must call an annual meeting of Shareholders not later than 15 months after holding the last preceding annual meeting and may at any time call a special meeting of Shareholders to be held at the place within Alberta and at the time the Board determines.
SECTION 2.3 NOTICE OF MEETINGS
Notice of the time and place of a meeting of Shareholders must be sent not less than 21 days and not more than 50 days before the meeting:
(a) to each Shareholder entitled to vote at the meeting;
(b) to each Director; and
(c) to the auditor of the Corporation.
SECTION 2.4 NOTICE TO JOINT SHAREHOLDERS
If two or more persons are registered as joint holders of any share, notice to one of those persons is sufficient notice to all of them. A notice must be addressed to all those joint holders and the address to be used by the Corporation must be the address appearing in the securities register of the Corporation in respect of that joint holding or the first address appearing if there is more than one address.
SECTION 2.5 FAILURE TO GIVE NOTICE
The accidental failure to give notice of a meeting of Shareholders to any person entitled to a notice or any error in a notice not affecting its substance does not invalidate any action taken at the meeting to which the notice relates.
SECTION 2.6 WAIVER OF NOTICE
A Shareholder or any other person entitled to attend a meeting of Shareholders may waive, in any manner, notice of a meeting of Shareholders. Attendance of a Shareholder or other person at a
meeting of Shareholders is a waiver of notice of the meeting, except when the Shareholder or other person attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
SECTION 2.7 NOTICE OF ADJOURNED MEETINGS
With the consent of the Shareholders present at a meeting of Shareholders, the chairperson may adjourn that meeting to another fixed time and place. If a meeting of Shareholders is adjourned by one or more adjournments for an aggregate of less than 30 days, it is not necessary to give notice of the adjourned meeting, other than by verbal announcement at the time of the adjournment. If a meeting of Shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting must be given as for the original meeting.
SECTION 2.8 PERSONS ENTITLED TO BE PRESENT
The only persons entitled to be present at a meeting of Shareholders are:
(a) the Shareholders entitled to vote at the meeting;
(b) any individual authorized by a resolution of the directors or governing body of a body corporate or association which is a Shareholder entitled to vote at the meeting;
(c) the Directors and Officers;
(d) the auditor of the Corporation; and
(e) any others who, although not entitled to vote, are entitled or required under any provision of the Act, any unanimous shareholder agreement, the Articles or the By-laws to be present at the meeting.
Any other person may be admitted only on the invitation of the chairperson of the meeting or with the consent of the meeting.
SECTION 2.9 MEETING BY TELEPHONE
Any person described in paragraphs (a) through (e) of section 2.8 may participate in a meeting of the Shareholders by means of telephone or other communication facilities that permit all persons participating in the meeting to hear each other. A Shareholder participating in a meeting by means of telephone or other communication facilities is deemed to be present at the meeting.
SECTION 2.10 QUORUM
A quorum of Shareholders is present at a meeting of Shareholders if the holders of a majority of the shares entitled to vote at the meeting are present in person or represented by proxy.
SECTION 2.11 LOSS OF QUORUM
If a quorum is present at the opening of a meeting of Shareholders, the Shareholders present may proceed with the business of the meeting, even if a quorum is not present throughout the meeting.
SECTION 2.12 CHAIRPERSON
The chairperson of any meeting of Shareholders will be the first mentioned of the following Officers (if appointed) present at the meeting: Chairman of the Board, President, Senior Vice-President or any other Vice-President. If none of the Chairman of the Board, President or Senior Vice-President is present at the meeting, and if more than one Vice-President is present, the first Vice-President to arrive will be chairperson of the meeting. If none of the foregoing Officers is present, the Shareholders present and entitled to vote at the meeting may choose a chairperson from among those individuals present.
SECTION 2.13 PROCEDURE AT MEETINGS
The chairperson of any meeting of Shareholders will conduct the proceedings at the meeting in all respects. The chairperson's decision on any matter or thing relating to procedure, including, without limiting the generality of the foregoing, any question regarding the validity of any instrument of proxy, is conclusive and binding upon the Shareholders.
SECTION 2.14 VOTING
Voting at a meeting of Shareholders must be by a show of hands of those present in person or represented by proxy or by a verbal poll of those present by telephone or other communication facilities. If a ballot is required by the chairperson of the meeting or is demanded by a Shareholder or proxy entitled to vote at the meeting, either before or on. the declaration of the result of a vote by a show of hands or verbal poll, voting must be by ballot. A demand for a ballot may be withdrawn at any time before the ballot is taken. If a ballot is taken on a question, a prior vote on that question by show of hands or verbal poll has no effect. At every meeting a Shareholder present in person or represented by proxy or present by telephone or other communication facilities and entitled to vote has one vote on a show of hands and, subject to the Articles, one vote on a ballot for each share held.
SECTION 2.15 DECISION ON QUESTIONS
At every meeting of Shareholders all questions proposed for the consideration of Shareholders must be decided by the majority of votes, unless otherwise required by the Act or the Articles. In the case of an equality of votes, the chairperson does not, either on a show of hands or verbal poll or on a ballot, have a casting vote in addition to the vote or votes to which the chairperson may be entitled as a Shareholder or proxy.
SECTION 2.16 RESOLUTION IN LIEU OF MEETING
A resolution in writing signed by all the Shareholders entitled to vote on that resolution is as valid as if it had been passed at a meeting of the Shareholders. A resolution in writing may be signed in one or more counterparts, all of which together constitute the same resolution. A facsimile of a signed counterpart of a resolution in writing is as valid as an originally signed counterpart.
PART III
DIRECTORS
SECTION 3.1 NUMBER OF DIRECTORS
The Board consists of that number of Directors as the Shareholders may determine from time to time by ordinary resolution, but there must not be less than the minimum and not more than the maximum number of Directors permitted by the Articles at any one time.
SECTION 3.2 ELECTION AND TERM OF OFFICE
At each annual meeting of Shareholders at which an election of Directors is required, the Shareholders, by ordinary resolution, must elect Directors to hold office for a term expiring not later than the close of the next annual meeting of Shareholders following the election.
SECTION 3.3 CALLING OF MEETINGS
The Chairman of the Board, if any, the President or any Director may call a meeting of Directors. A meeting of Directors may be held at any place within the municipality in which the registered office of the Corporation is located or at any other place determined by the Board.
SECTION 3.4 NOTICE OF MEETINGS
Notice in writing of the time and place of a meeting of Directors must be sent to each Director not less than 48 hours before the time fixed for that meeting.
SECTION 3.5 FAILURE TO GIVE NOTICE
The accidental failure to give notice of a meeting of Directors to any Director entitled to a notice or any error in a notice not affecting its substance does not invalidate any action taken at the meeting to which the notice relates.
SECTION 3.6 WAIVER OF NOTICE
A Director may waive, in any manner, notice of a meeting of Directors. Attendance of a Director at a meeting of Directors is a waiver of notice of the meeting, except when the Director attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
SECTION 3.7 MEETINGS WITHOUT NOTICE
No notice of meeting need be given:
(a) to a newly elected Board following its election at an annual or special meeting of Shareholders; or
(b) for a meeting of Directors at which a Director is appointed to fill a vacancy in the Board,
if a quorum is present.
SECTION 3.8 MEETING BY TELEPHONE
If all the Directors consent, a Director may participate in a meeting of Directors or of a committee of Directors by means of telephone or other communication facilities that permit all persons participating in the meeting to hear each other. A Director participating in a meeting by means of telephone or other communication facilities is deemed to be present at the meeting.
SECTION 3.9 QUORUM
From time to time the Directors may fix the quorum for meetings of Directors or of a committee of Directors, but unless so fixed, a majority of the Directors or of a committee of Directors constitutes a quorum and, to the extent required by the Act, no business may be transacted unless at least one-half of the Directors present are resident Canadians.
SECTION 3.10 CHAIRPERSON OF MEETINGS
The chairperson of any meeting of Directors will be the first mentioned of the following Officers (if appointed) who is a Director and is present at the meeting: Chairman of the Board, President, Senior Vice-President or any other Vice-President. If none of the Chairman of the Board, President or Senior Vice-President is present at the meeting, and if more than one Vice-President is present, the first Vice-President to arrive will be chairperson of the meeting. If none of the foregoing Officers is present, the Directors present may choose one of their number to be chairperson of the meeting.
SECTION 3.11 DECISION ON QUESTIONS
At every meeting of Directors all questions proposed for the consideration of the Directors must be decided by the majority of votes. In the case of an equality of votes, the chairperson does not have a casting vote.
SECTION 3.12 RESOLUTION IN LIEU OF MEETING
A resolution in writing signed by all the Directors entitled to vote on that resolution at a meeting of Directors or committee of Directors is as valid as if it had been passed at a meeting of Directors or committee of Directors. A resolution in writing may be signed in one or more counterparts, all of which together constitute the same resolution. A facsimile of a signed counterpart of a resolution in writing is as valid as an originally signed counterpart.
SECTION 3.13 BORROWING POWER
Without authorization of the Shareholders, the Directors may authorize the Corporation to:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the Corporation;
(c) subject to section 42 of the Act, give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and
(d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation, owned or subsequently acquired, to secure any obligation of the Corporation.
The Directors, by resolution, may delegate to a Director, a committee of Directors or an Officer all or any of the powers conferred on them by this section.
SECTION 3.14 COMPENSATION
The Corporation may pay to the Directors the remuneration fixed by the Board and may reimburse the Directors in respect of transportation and other expenses actually incurred in attending meetings of the Directors or in otherwise performing the duties of their office.
PART IV
OFFICERS
SECTION 4.1 APPOINTMENT OF OFFICERS
The Directors may designate offices of the Corporation and appoint individuals to those offices as they consider advisable. No Officer need be a Director. The same individual may hold two or more offices of the Corporation.
SECTION 4.2 TERM OF OFFICE
All Officers are subject to removal by the Directors, with or without cause. An Officer may resign at any time by giving notice to the Board.
SECTION 4.3 DUTIES OF OFFICERS
Subject to any limitations imposed by the Act, any unanimous shareholder agreement or the Articles, an Officer has all the powers and authority and must perform all the duties usually incident to, or specified by the By-laws or the Board for, the office held.
PART V
LIABILITY AND INDEMNIFICATION
SECTION 5.1 LIMITATION OF LIABILITY
Every Director and Officer in exercising the powers and discharging the duties of office must act honestly and in good faith with a view to the best interests of the Corporation and must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. No Director or Officer is liable for:
(a) the acts, omissions or defaults of any other Director or Officer or an employee of the Corporation,
(b) any loss, damage or expense incurred by the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation,
(c) the insufficiency or deficiency of any security in or upon which any of the money of the Corporation is invested,
(d) any loss or damage arising from the bankruptcy, insolvency or tortious or criminal acts of any person with whom any of the Corporation's money is, or securities or other property are, deposited,
(e) any loss occasioned by any error of judgment or oversight, or
(f) any other loss, damage or misfortune which occurs in the execution of the duties of office or in relation to it,
unless occasioned by the wilful neglect or default of that Director or Officer. Nothing in this By-law relieves any Director or Officer of any liability imposed by the Act or otherwise by law.
SECTION 5.2 INDEMNITY
Subject to the Act, the Corporation indemnifies a Director or Officer, a former Director or Officer and a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor (the "Indemnified Parties") and the heirs and legal representatives of each of them, against all costs, charges and expenses, which includes, without limiting the generality of the foregoing, the fees, charges and disbursements of legal counsel on an as-between-a-solicitor-and-his-own-client basis and an amount paid to settle an action or satisfy a judgment, reasonably incurred by an Indemnified Party, or the heirs or legal representatives of an Indemnified Party, or both, in respect of any action or proceeding to which any of them is made a party by reason of an Indemnified Party being or having been a director or officer of the Corporation or that body corporate, if:
(a) the Indemnified Party acted honestly and in good faith with a view to the best interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the Indemnified Party had reasonable grounds for believing that the Indemnified Party's conduct was lawful.
The Corporation indemnifies an Indemnified Party and the heirs and legal representatives of an Indemnified Party in any other circumstances that the Act permits or requires. Nothing in this By-law limits the right of a person entitled to indemnity to claim indemnity apart from the provisions of this By-law.
SECTION 5.3 INSURANCE
The Corporation may purchase and maintain insurance for the benefit of a person referred to in section 5.2 against the liabilities and in the amounts the Act permits and the Board approves.
ENACTED by the board the _____ day of ______________, 2000.
APPENDIX B
TO THE PLAN OF ARRANGEMENT
SHARE CAPITAL AND OTHER PROVISIONS
TO BE INCLUDED IN THE
RESTATED ARTICLES OF INCORPORATION OF PTI HOLDCO
A. SHARE CAPITAL
PROVISIONS ATTACHING TO THE COMMON SHARES
The common shares ("Common Shares") in the capital of the Corporation shall have attached thereto the following rights, privileges, restrictions and conditions:
DIVIDENDS
Subject to the prior rights of the Exchangeable Shares and any other shares ranking prior to the Common Shares, holders of Common Shares have a right to receive dividends when declared by the Board of Directors out of property of the Corporation legally available therefor.
LIQUIDATION
Subject to the prior rights of the Exchangeable Shares and any other shares ranking prior to the Common Shares, the holders of Common Shares shall, upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, be entitled to receive the remaining property and assets of the Corporation.
VOTING
The holders of the Common Shares shall be entitled to receive notice of and to attend all meetings of shareholders (other than separate meetings of other classes or series of shares), and shall be entitled to one vote for each Common Share held.
PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES
The Exchangeable Shares in the capital of the Corporation shall have the following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these rights, privileges, restrictions and conditions:
"Act" means the Business Corporations Act (Alberta), as amended, consolidated or reenacted from time to time.
"Aggregate Equivalent Vote Amount" means, with respect to any matter, proposition or question on which holders of OSI Common Stock are entitled to vote, consent or otherwise act, the product of (i) the number of Exchangeable Shares then issued and outstanding and held by holders (other than OSI and its Subsidiaries) multiplied by (ii) the number of votes to which a holder of one share of OSI Common Stock is entitled with respect to such matter, proposition or question.
"Automatic Redemption Date" means the date for the automatic redemption
by the Corporation of Exchangeable Shares pursuant to Article 7 of these share
provisions, which date shall be the first to occur of (a) the date, if any,
selected pursuant to this clause (a) by the Board of Directors of the
Corporation, such date to be no earlier than the fifth anniversary of the
Effective Date, (b) the date selected by the Board of Directors of the
Corporation (such date to be no earlier than the third or fourth anniversary of
the Effective Date of the Arrangement) at a time when less than 10% or 20%,
respectively, of the number of Exchangeable Shares issuable on the Effective
Date (other than Exchangeable Shares held by OSI and its Subsidiaries, and as
such number of shares may be adjusted as deemed appropriate by the Board of
Directors to give effect to any subdivision or consolidation of or stock
dividend on the Exchangeable Shares, any issuance or distribution of rights to
acquire Exchangeable Shares or securities exchangeable for or convertible into
or carrying rights to acquire Exchangeable Shares, any issue or distribution of
other securities or rights or evidences of indebtedness or assets, or any other
capital reorganization or other transaction involving or affecting the
Exchangeable Shares), are outstanding, (c) the date the Board of Directors of
the Corporation selects if an OSI Control Transaction occurs and the Board of
Directors determines, in good faith and in its sole discretion, that it is not
reasonable to substantially replicate the terms and conditions of the
Exchangeable Shares in connection with such OSI Control Transaction and that the
redemption of all but not less than all of the outstanding Exchangeable Shares
is commercially or legally necessary to enable the completion of such OSI
Control Transaction in accordance with its terms, (d) the Business Day following
the day on which the holders of Exchangeable Shares fail to pass, at any meeting
or vote, a resolution regarding any matter on which the holders of Exchangeable
Shares are entitled to vote as shareholders of the Corporation and which has
been proposed by the Board of Directors of the Corporation, provided that this
clause (d) shall not apply to any resolution to amend the Exchangeable Share
Provisions, the Support Agreement or the Voting and Exchange Trust Agreement, or
(e) the Business Day following the day on which the holders of Exchangeable
Shares fail to take the necessary action at a meeting or other vote of holders
of Exchangeable Shares, if and to the extent such action is required, to approve
or disapprove, as applicable, any change to, or in the rights of the holders of,
Exchangeable Shares, if the approval or disapproval, as applicable, of such
change would be required to maintain the economic and legal equivalence of the
Exchangeable Shares and the OSI Common Stock.
"Board of Directors" means the board of directors of the Corporation and any committee thereof acting within its authority.
"Business Day" means any day other than a Saturday, a Sunday or a day when banks are not open for business in either or both of Houston, Texas and Edmonton, Alberta.
"Canadian Dollar Equivalent" means in respect of an amount expressed in a foreign currency (the "Foreign Currency Amount") at any date the product obtained by multiplying:
(a) the Foreign Currency Amount by,
(b) the noon spot exchange rate on such date for such foreign currency expressed in Canadian dollars as reported by the Bank of Canada or, in the event such spot exchange rate is not available, such spot exchange rate on such date for such foreign currency expressed in Canadian dollars as may be deemed by the Board of Directors to be appropriate for such purpose.
"Combination Agreement" means the agreement so entitled dated as of July o, 2000 by and among OSI, HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger Sub-Sooner, Inc. and PTI.
"Common Shares" means the common shares in the capital of the Corporation.
"Current Market Price" means, in respect of a share of OSI Common Stock on any date, the average of the closing price per share (computed and rounded to the third decimal point) of shares of OSI Common Stock during the period of 20 consecutive trading days ending not more than five trading days before such date on the New York Stock Exchange, or, if OSI Common Stock is not then traded on the New York Stock Exchange, on such other principal U.S. stock exchange or automated quotation system on which the OSI Common Stock is then listed or quoted, as the case may be, as may be selected by the Board of Directors for such purpose; provided, however, that if, in the opinion of the Board of Directors the public distribution or trading activity of OSI Common Stock during such period does not create a market which reflects the fair market value of a share of OSI Common Stock, then the Current Market Price of a share of OSI Common Stock shall be determined by the Board of Directors based upon the advice of such qualified independent financial advisors as the Board of Directors may deem to be appropriate, and provided further any such selection, opinion or determination by the Board of Directors shall be conclusive and binding.
"Effective Date" has the meaning ascribed thereto in the Plan of Arrangement.
"Exchangeable Share Consideration" means, with respect to each Exchangeable Share, for any acquisition of or redemption of or distribution of assets of the Corporation in respect of or purchase pursuant to these share provisions, the Plan of Arrangement, the Support Agreement or the Voting and Exchange Trust Agreement:
(a) the Current Market Price of one share of OSI Common Stock deliverable in connection with such action;
(b) a cheque or cheques payable at par at any branch of the bankers of the payor in the amount of all declared, payable and unpaid, and all undeclared but payable, cash dividends deliverable in connection with such action; and
(c) such stock or other property constituting any declared and unpaid, and all undeclared but payable, non-cash dividends deliverable in connection with such action,
provided that (i) that part of the consideration which represents (a) above, shall be fully paid and satisfied by the delivery of one share of OSI Common Stock that is freely tradeable, such share to be duly issued as a fully paid and non-assessable share, (ii) that part of the consideration which represents (c), above, unpaid shall be fully paid and satisfied by delivery of such non-cash items, and (iii) any such consideration shall be delivered free and clear of any lien, claim, encumbrance, security interest or adverse claim or interest less any tax required to be deducted and withheld therefrom and without interest.
"Exchangeable Share Price" means, for each Exchangeable Share, an amount equal to the aggregate of:
(a) the Current Market Price of a share of OSI Common Stock; plus
(b) an additional amount equal to the full amount of all cash dividends declared, payable and unpaid on such Exchangeable Share; plus
(c) an additional amount equal to all dividends declared and payable on OSI Common Stock which have not been declared on Exchangeable Shares in accordance herewith; plus
(d) an additional amount representing non-cash dividends declared, payable and unpaid on such Exchangeable Share.
"Exchangeable Shares" means the Exchangeable Shares of the Corporation having the rights, privileges, restrictions and conditions set forth herein.
"freely tradeable", with respect to OSI Common Stock, means freely transferable under Canadian provincial securities laws and U.S. federal and state securities laws (pursuant to an effective resale shelf registration statement or otherwise and assuming the reasonable cooperation of the holder or recipient of OSI Common Stock in connection with any required resale shelf registration statement), except to the extent restrictions arise by reason of a person being a "control person" of OSI for the purposes of Canadian provincial securities laws or an "affiliate" of OSI for the purposes of United States federal or state securities laws, provided any trades in such securities are conducted through the facilities of a stock exchange outside Canada.
"Liquidation Amount" has the meaning provided in Section 5.1.
"Liquidation Call Right" has the meaning provided in the Restated Articles of Incorporation of the Corporation.
"Liquidation Call Purchase Price" has the meaning provided in the Restated Articles of Incorporation of the Corporation.
"Liquidation Date" has the meaning provided in Section 5.1.
"OSI" means Oil States International, Inc., a corporation organized and existing under the laws of the State of Delaware and includes any successor corporation or any corporation in
which the holders of OSI Common Stock hold securities resulting from the application of Section 2.7 of the Support Agreement.
"OSI Call Notice" has the meaning provided in Section 6.3.
"OSI Common Stock" means the shares of common stock of OSI, with a par value of U.S. $0.01 per share, having voting rights of one vote per share, and any other securities resulting from the application of Section 2.7 of the Support Agreement.
"OSI Control Transaction" means any merger or amalgamation involving OSI, any tender offer for OSI, and any material sale of shares or rights or interests therein or thereto by OSI or similar transactions, or any proposal to do so, provided that upon completion of any such transaction the holders of OSI Common Stock immediately before such transaction would hold, directly or indirectly, less than 50% of the voting securities, or securities exchangeable or exercisable for or convertible into voting securities, of the merged or amalgamated corporation, the offeror or the purchaser, as the case may be.
"OSI Dividend Declaration Date" means the date on which the board of directors of OSI declares any dividend on the OSI Common Stock.
"OSI Special Share" means the one share of Special Voting Stock of OSI, with a par value of U.S. $0.0001, and having voting rights at meetings of holders of OSI Common Stock equal to the Aggregate Equivalent Voting Amount.
"OSI ULC" has the meaning provided in the Voting and Exchange Trust Agreement.
"PTI" means PTI Group Inc., a corporation organized and existing under the Act.
"Plan of Arrangement" means the plan of arrangement involving and affecting PTI and the holders of common shares and options, PTI Amalco and the holders of its shares, the Corporation and the holders of its shares, OSI and OSI ULC under section 186 of the Act contemplated in the Combination Agreement, as further amended and restated from time to time.
"Purchase Price" has the meaning provided in Section 6.3.
"Redemption Call Purchase Price" has the meaning provided in the Restated Articles of Incorporation of the Corporation.
"Redemption Call Right" has the meaning provided in the Restated Articles of Incorporation of the Corporation.
"Redemption Price" has the meaning provided in Section 7.1.
"Retracted Shares" has the meaning provided in subsection 6.1 (a).
"Retraction Call Right" has the meaning provided in subsection 6.1 (c).
"Retraction Date" has the meaning provided in subsection 6.1 (b).
"Retraction Price" has the meaning provided in Section 6. 1.
"Retraction Request" has the meaning provided in Section 6.1.
"Subsidiary", in relation to any person, means any body corporate, partnership, joint venture, association or other entity of which more than 50% of the total voting power of shares of stock or units of ownership or beneficial interest entitled to vote in the election of directors (or members of a comparable governing body) is owned or controlled, directly or indirectly, by such person.
"Support Agreement" means the Support Agreement between OSI and the Corporation, made as of the Effective Date.
"Transfer Agent" means the duly appointed transfer agent for the time being of the Exchangeable Shares at its offices in each of Calgary, Alberta and Toronto, Ontario.
"Trustee" means the Trustee appointed under the Voting and Exchange Trust Agreement, and any successor trustee.
"Voting and Exchange Trust Agreement" means the Voting and Exchange Trust Agreement among the Corporation, OSI and the Trustee, made as of the Effective Date.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall be entitled to a preference over the Common Shares and any other shares ranking junior to the Exchangeable Shares, with respect to the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs.
ARTICLE 3
DIVIDENDS
3.1 Subject to Section 3.2 below, a holder of an Exchangeable Share shall be entitled to receive and the Board of Directors shall, subject to applicable law, on each OSI Dividend Declaration Date, declare a dividend on each Exchangeable Share:
(a) in the case of a cash dividend declared on the OSI Common Stock, in an amount in cash for each Exchangeable Share in U.S. dollars, or the Canadian Dollar Equivalent thereof on the OSI Dividend Declaration Date, in each case corresponding to the cash dividend declared on each share of OSI Common Stock;
(b) in the case of a stock dividend declared on OSI Common Stock to be paid in shares of OSI Common Stock, in such number of Exchangeable Shares for each Exchangeable Share as is equal to the number of shares of OSI Common Stock to be paid on each share of OSI Common Stock; or
(c) in the case of a dividend declared on the OSI Common Stock in property other than cash or OSI Common Stock, in such type and amount of property for each Exchangeable Share as is the same as or economically equivalent to (to be determined by the Board of Directors as contemplated by Section 3.6 hereof) the type and amount of property declared as a dividend on each share of OSI Common Stock.
Such dividends shall be paid out of money, assets or property of the Corporation properly applicable to the payment of dividends, or out of authorized but unissued shares of the Corporation, as applicable.
3.2 In the case of a stock dividend declared on the OSI Common Stock to be paid in shares of OSI Common Stock, in lieu of declaring the stock dividend contemplated by Section 3.1(b) on the Exchangeable Shares, the Board of Directors may, in its discretion and subject to applicable law, subdivide, redivide or change (the "subdivision") each issued and unissued Exchangeable Share on the basis that each Exchangeable Share before the subdivision becomes a number of Exchangeable Shares as is equal to the sum of (i) a share of OSI Common Stock and (ii) the number of shares of OSI Common Stock to be paid as a stock dividend on each share of OSI Common Stock. In such instance, and notwithstanding any other provision hereof, such subdivision shall become effective on the effective date specified in Section 3.4 hereof without any further act or formality on the part of the Board of Directors or of the holders of Exchangeable Shares. For greater certainty, no approval of the holders of Exchangeable Shares to an amendment to the articles of the Corporation shall be required to give effect to such subdivision.
3.3 Cheques of the Corporation payable at par at any branch of the bankers of the Corporation shall be issued in respect of any cash dividends contemplated by subsection 3.1 (a) hereof and the sending of such a cheque to each holder of an Exchangeable Share (less any tax required to be deducted and withheld from such dividends paid or credited by the Corporation) shall satisfy the cash dividends represented thereby unless the cheque is not paid on presentation. Certificates registered in the name of the registered holder of Exchangeable Shares shall be issued or transferred in respect of any stock dividends contemplated by subsections 3.1 (b) or (d) hereof and the sending of such a certificate to each holder of an Exchangeable Share shall satisfy the stock dividend represented thereby or dividend payable in other securities represented thereby. Such other type and amount of property in respect of any dividends contemplated by subsection 3.1 (c) hereof shall be issued, distributed or transferred by the Corporation in such manner as it shall determine and the issuance, distribution or transfer thereof by the Corporation to each holder of an Exchangeable Share shall satisfy the dividend represented thereby. In all cases, any such dividends shall be subject to any reduction or adjustment for tax required to be deducted and withheld from such dividends, and the Corporation shall be entitled to liquidate some of the property which would otherwise be deliverable in payment of such dividends to a
particular holder of Exchangeable Shares to fund any statutory withholding obligation. No holder of an Exchangeable Share shall be entitled to recover by action or other legal process against the Corporation any dividend which is represented by a cheque that has not been duly presented to the Corporation's bankers for payment or which otherwise remains unclaimed for a period of six years from the date on which such dividend was payable.
3.4 The record date for the determination of the holders of Exchangeable Shares entitled to receive payment of, and the payment date for, any dividend declared on the Exchangeable Shares under Section 3.1 hereof shall be the same dates as the record date and payment date, respectively, for the corresponding dividend declared on the OSI Common Stock. The record date for the determination of the holders of Exchangeable Shares entitled to receive Exchangeable Shares in connection with any subdivision of Exchangeable Shares under Section 3.2 hereof and the effective date of such subdivision shall be the same dates as the record date and payment date, respectively, for the corresponding stock dividend declared on the OSI Common Stock.
3.5 If on any payment date for any dividends declared on the Exchangeable Shares under Section 3.1 hereof the dividends are not paid in full on all of the Exchangeable Shares then outstanding, any such dividends which remain unpaid shall be paid on a subsequent date or dates determined by the Board of Directors on which the Corporation shall have sufficient moneys, assets or property properly applicable to the payment of such dividends.
3.6 The Board of Directors shall determine, in good faith and in its sole discretion, economic equivalence for the purposes of Sections 3.1 and 3.2 hereof, and each such determination shall be conclusive and binding on the Corporation and its shareholders. In making each such determination, the following factors shall, without excluding other factors determined by the Board of Directors to be relevant, be considered by the Board of Directors:
(a) in the case of any stock dividend or other distribution payable in shares of OSI Common Stock, the number of such shares issued in proportion to the number of shares of OSI Common Stock previously outstanding;
(b) in the case of the issuance or distribution of any rights, options or warrants to subscribe for or purchase shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock), the relationship between the exercise price of each such right, option or warrant and the Current Market Price of a share of OSI Common Stock;
(c) in the case of the issuance or distribution of any other form of property (including without limitation any shares or securities of OSI of any class other than OSI Common Stock, any rights, options or warrants other than those referred to in Section 3.6(b) above, any evidences of indebtedness of OSI or any assets of OSI), the relationship between the fair market value (as determined by the Board of Directors in the manner above contemplated) of such property to be issued or
distributed with respect to each outstanding share of OSI Common Stock and the Current Market Price of a share of OSI Common Stock; and
(d) in all such cases, the general taxation consequences of the relevant event to holders of Exchangeable Shares to the extent that such consequences may differ from the taxation consequences to holders of OSI Common Stock as a result of differences between taxation laws of Canada and the United States (except for any differing consequences arising as a result of differing marginal taxation rates and without regard to the individual circumstances of holders of Exchangeable Shares).
3.7 Except as provided in this Article 3, the holders of Exchangeable Shares shall not be entitled to receive dividends in respect thereof.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Exchangeable Shares are outstanding, the Corporation shall not at any time without, but may at any time with, the approval of the holders of the Exchangeable Shares given as specified in Article 9 of these share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking junior to the Exchangeable Shares, other than stock dividends payable in any such other shares ranking junior to the Exchangeable Shares;
(b) redeem or purchase or make any capital distribution in respect of Common Shares or any other shares ranking junior to the Exchangeable Shares with respect to the payment of dividends or on any liquidation distribution;
(c) redeem or purchase any other shares of the Corporation ranking equally with the Exchangeable Shares with respect of the payment of dividends or on any liquidation distribution;
(d) issue any Exchangeable Shares other than by way of stock dividends to holders of Exchangeable Shares or as contemplated by the Support Agreement; or
(e) amend the articles or by-laws of the Corporation, in either case in any manner that would affect the rights or privileges of the holders of the Exchangeable Shares.
The restrictions in subsections 4.1(a), 4.1(b) and 4.1(c) above shall not apply if all dividends on the outstanding Exchangeable Shares corresponding to dividends declared with a record date on or following the effective date of the Plan of Arrangement on the OSI Common Stock shall have been declared on the Exchangeable Shares and paid in full. Nothing herein shall be interpreted to restrict the Corporation from issuing additional Common Shares to OSI or any Subsidiary of OSI.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the Corporation or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs, provided that neither OSI nor OSI ULC shall have exercised the Liquidation Call Right, a holder of Exchangeable Shares shall be entitled, subject to applicable law, to receive from the assets of the Corporation in respect of each Exchangeable Share held by such holder on the effective date of such liquidation, dissolution or winding-up (the "Liquidation Date"), before any distribution of any part of the assets of the Corporation to the holders of the Common Shares or any other shares ranking junior to the Exchangeable Shares, an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Liquidation Date (the "Liquidation Amount") in accordance with Section 5.2. In connection with payment of the Liquidation Amount, the Corporation shall be entitled to liquidate some of the OSI Common Stock which would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of Exchangeable Shares in order to fund any statutory withholding tax obligation.
5.2 Within three Business Days after the Liquidation Date, and subject to the exercise by OSI or OSI ULC of the Liquidation Call Right, the Corporation shall cause to be delivered to the holders of the Exchangeable Shares the Liquidation Amount for each such Exchangeable Share upon presentation and surrender of the certificates representing such Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of the Exchangeable Shares (provided that such presentation and surrender shall be valid if made at the office of the Transfer Agent, if any, in the province in which such holder is listed on the books of the Corporation). Payment of the total Liquidation Amount for such Exchangeable Shares shall be made by delivery to each holder, at the address of the holder recorded in the securities register of the Corporation for the Exchangeable Shares or by holding for pick up by the holder at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of Exchangeable Shares (provided that such delivery shall be made to the holder at its address recorded in the securities register of the Corporation or at the office of the transfer agent, if any, in the province in which the address of the holder recorded in the securities register of the Corporation is located), on behalf of the Corporation of the Exchangeable Share Consideration representing the total Liquidation Amount. On and after the Liquidation Date, the holders of the Exchangeable Shares shall cease to be holders of such Exchangeable Shares and shall not be entitled to exercise any of the rights of holders in respect thereof, other than the right to receive their proportionate part of the total Liquidation Amount, unless payment of the total Liquidation Amount for such Exchangeable Shares shall not be made upon presentation and surrender of share certificates in accordance with the foregoing provisions, in which case the rights of the
holders shall remain unaffected until the total Liquidation Amount has been paid in the manner hereinbefore provided. The Corporation shall have the right at any time on or after the Liquidation Date to deposit or cause to be deposited the Exchangeable Share Consideration in respect of the Exchangeable Shares represented by certificates that have not at the Liquidation Date been surrendered by the holders thereof in a custodial account or for safe keeping, in the case of non-cash items, with any chartered bank or trust company in Canada. Upon such deposit being made, the of Exchangeable Shares after such deposit shall be limited to receiving their proportionate part of the total Liquidation Amount for such Exchangeable Shares so deposited, against presentation and surrender of the said certificates held by them, respectively, in accordance with the foregoing provisions. Upon such payment or deposit of such Exchangeable Share Consideration, the holders of the Exchangeable Shares shall thereafter be considered and deemed for all purposes to be the holders of the OSI Common Stock delivered to them. Notwithstanding the foregoing, until such payment or deposit of such Exchangeable Share Consideration, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
5.3 After the Corporation has satisfied its obligations to pay the holders of the Exchangeable Shares the Liquidation Amount per Exchangeable Share, such holders shall not be entitled to share in any further distribution of the assets of the Corporation.
5.4 If OSI or OSI ULC exercises the Liquidation Call Right, each holder of Exchangeable Shares shall be obligated to sell the Exchangeable Shares held by such holder to OSI or OSI ULC, as the case may be, on the Liquidation Date on payment to such holder by OSI or OSI ULC, as the case may be, of the Exchangeable Share Consideration representing the Liquidation Call Purchase Price for each Exchangeable Share.
ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time after the effectiveness of a Registration Statement under the Securities Act of 1933 registering the issuance of shares of OSI Common Stock issuable pursuant to the provisions attaching to the Exchangeable Shares or prior thereto with the written consent of the Corporation, subject to applicable law and the exercise by OSI or OSI ULC of the Retraction Call Right (which, if exercised by OSI or OSI ULC, shall be binding on the holder of Exchangeable Shares) and otherwise upon compliance with the provisions of this Article 6, to require the Corporation to redeem any or all of the Exchangeable Shares registered in the name of such holder for an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Retraction Date (the "Retraction Price") which as set forth in Section 6.4, shall be fully paid and satisfied by the delivery by or on behalf of the Corporation of the Exchangeable Share Consideration representing such holder's Retraction Price. In connection with payment of the Retraction Price, the Corporation shall be entitled to liquidate some of the OSI Common Stock that would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of
Exchangeable Shares in order to fund any statutory withholding tax obligation. To effect such redemption, the holder shall present and surrender at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in Schedule A hereto or by notice to the holders of Exchangeable Shares the certificate or certificates representing the Exchangeable Shares which the holder desires to have the Corporation redeem, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, and together with a duly executed statement (the "Retraction Request") in the form of Schedule "A" hereto or in such other form as may be acceptable to the Corporation:
(a) specifying that the holder desires to have all or any number specified therein of the Exchangeable Shares represented by such certificate or certificates (the "Retracted Shares") redeemed by the Corporation;
(b) stating the Business Day on which the holder desires to have the Corporation redeem the Retracted Shares (the "Retraction Date"), provided that the Retraction Date shall be not less than three Business Days nor more than 10 Business Days after the date on which the Retraction Request is received by the Corporation and further provided that, in the event that no such Business Day is specified by the holder in the Retraction Request, the Retraction Date shall be deemed to be the tenth Business Day after the date on which the Retraction Request is received by the Corporation; and
(c) acknowledging the overriding right (the "Retraction Call
Right") of OSI or OSI ULC to purchase all but not less than
all the Retracted Shares directly from the holder and that the
Retraction Request shall be deemed to be a revocable offer by
the holder to sell the Retracted Shares in accordance with the
Retraction Call Right on the terms and conditions set out in
Section 6.3 below.
6.2 Subject to the exercise by OSI or OSI ULC of the Retraction Call Right, upon receipt by the Corporation or the Transfer Agent in the manner specified in Section 6.1 hereof of a certificate or certificates representing the number of Exchangeable Shares which the holder desires to have the Corporation redeem, together with a Retraction Request, and provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7, the Corporation shall redeem the Retracted Shares effective at the close of business on the Retraction Date and shall cause to be delivered to such holder the total Retraction Price with respect to such shares in accordance with Section 6.4 hereof. If only a part of the Exchangeable Shares represented by any certificate are redeemed or purchased by OSI or OSI ULC pursuant to the Retraction Call Right, a new certificate for the balance of such Exchangeable Shares shall be issued to the holder at the expense of the Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation shall immediately notify OSI and OSI ULC thereof. In order to exercise the Retraction Call Right, OSI or OSI ULC must notify the Corporation in writing of its determination to do
so (the "OSI Call Notice") within two Business Days of such notification. If OSI or OSI ULC does not so notify the Corporation within such two Business Days, the Corporation will notify the holder as soon as possible thereafter that neither OSI nor OSI ULC will exercise the Retraction Call Right. If OSI or OSI ULC delivers the OSI Call Notice within such two Business Days, and provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7 hereof, the Retraction Request shall thereupon be considered only to be an offer by the holder to sell the Retracted Shares to OSI or OSI ULC, as the case may be, in accordance with the Retraction Call Right. In such event, the Corporation shall not redeem the Retracted Shares and OSI or OSI ULC, as the case may be, shall purchase from such holder and such holder shall sell to OSI or OSI ULC, as the case may be, on the Retraction Date the Retracted Shares for a purchase price per share (the "Purchase Price") equal to the Retraction Price, which as set forth in Section 6.4 hereof, shall be fully paid and satisfied by the delivery by or on behalf of OSI or OSI ULC, as the case may be, of the Exchangeable Share Consideration representing such holder's Purchase Price. For the purposes of completing a purchase pursuant to the Retraction Call Right, OSI or OSI ULC, as the case may be, shall deposit with the Transfer Agent, on or before the Retraction Date, the Exchangeable Share Consideration representing the total Purchase Price. Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, the closing of the purchase and sale of the Retracted Shares pursuant to the Retraction Call Right shall be deemed to have occurred as at the close of business on the Retraction Date and, for greater certainty, no redemption by the Corporation of such Retracted Shares shall take place on the Retraction Date. In the event that OSI or OSI ULC, as the case may be, does not deliver a OSI Call Notice within two Business Days or otherwise comply with these Exchangeable Share provisions in respect thereto, and provided that Retraction Request is not revoked by the holder in the manner specified in Section 6.7 hereof, the Corporation shall redeem the Retracted Shares on the Retraction Date and in the manner otherwise contemplated in this Article 6.
6.4 Subject to receipt by the Corporation of the Retracted Shares, OSI or OSI ULC, as the case may be, the Corporation, OSI or OSI ULC, as the case may be, shall deliver or cause the Transfer Agent to deliver to the relevant holder, at the address of the holder recorded in the securities register of the Corporation for the Exchangeable Shares or at the address specified in the holder's Retraction Request or by holding for pick up by the holder at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the holder in Schedule A hereto, in each case on or before two Business Days after the Retraction Date, the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, and such delivery of such Exchangeable Share Consideration to the Transfer Agent shall be deemed to be payment of and shall satisfy and discharge all liability for the total Retraction Price or total Purchase Price, as the case may be, except as to any cheque included therein which is not paid on due presentation.
6.5 On and after the close of business on the Retraction Date, the holder of the Retracted Shares shall cease to be a holder of such Retracted Shares and shall not be entitled to exercise any of the rights of a holder in respect thereof, other than the right to receive such holder's proportionate part of the total Retraction Price or total Purchase Price, as
the case may be, unless upon presentation and surrender of certificates in accordance with the foregoing provisions, payment of the total Retraction Price or the total Purchase Price, as the case may be, shall not be made, in which case the rights of such holder shall remain unaffected until the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, has been paid in the manner hereinbefore provided. On and after the close of business on the Retraction Date, provided that presentation and surrender of certificates and payment of the Exchangeable Share Consideration representing the total Retraction Price or the total Purchase Price, as the case may be, has been made in accordance with the foregoing provisions, the holder of the Retracted Shares so redeemed by the Corporation or purchased by OSI or OSI ULC shall thereafter be considered and deemed for all purposes to be a holder of the OSI Common Stock delivered to it. Notwithstanding the foregoing, until such payment of such Exchangeable Share Consideration to the holder, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
6.6 Notwithstanding any other provision of this Article 6, the Corporation shall not be obligated to redeem Retracted Shares specified by a holder in a Retraction Request to the extent that such redemption of Retracted Shares would be contrary to liquidity or solvency requirements or other provisions of applicable law. If the Corporation believes that on any Retraction Date it would not be permitted by any of such provisions to redeem the Retracted Shares tendered for redemption on such date, and provided that neither OSI nor OSI ULC shall have exercised the Retraction Call Right with respect to the Retracted Shares, the Corporation shall only be obligated to redeem Retracted Shares specified by a holder in a Retraction Request to the extent of the maximum number that may be so redeemed (rounded down to a whole number of shares) as would not be contrary to such provisions and shall notify the holder as soon as is reasonably practical but in any event not later than one Business Day prior to the Retraction Date as to the number of Retracted Shares which will not be redeemed by the Corporation. In any case in which the redemption by the Corporation of Retracted Shares would be contrary to liquidity or solvency requirements or other provisions of applicable law, the Corporation shall redeem Retracted Shares in accordance with Section 6.2 of these share provisions on a pro rata basis and shall issue to each holder of Retracted Shares a new certificate, at the expense of the Corporation, representing the Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 hereof. Provided that the Retraction Request is not revoked by the holder in the manner specified in Section 6.7 hereof, the holder of any such Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 hereof as a result of liquidity or solvency requirements or applicable law shall be deemed by giving the Retraction Request to require OSI or OSI ULC, as the case may be, to purchase such Retracted Shares from such holder on the Retraction Date or as soon as practicable thereafter on payment by OSI or OSI ULC, as the case may be, to such holder of the Purchase Price for each such Retracted Share, all as more specifically provided in the Voting and Exchange Trust Agreement, and OSI or OSI ULC shall make such purchase.
6.7 A holder of Retracted Shares may, by notice in writing given by the holder to the Corporation before the close of business on the Business Day immediately preceding the Retraction Date, withdraw its Retraction Request in which event such Retraction Request
shall be null and void and, for greater certainty, the revocable offer constituted by the Retraction Request to sell the Retracted Shares to OSI or OSI ULC, as the case may be, shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and if neither OSI or OSI ULC exercises the Redemption Call Right (which, if exercised, shall be binding on the holders of Exchangeable Shares), the Corporation shall on the Automatic Redemption Date redeem the whole of the then outstanding Exchangeable Shares for an amount equal to the Exchangeable Share Price applicable on the last Business Day prior to the Automatic Redemption Date (the "Redemption Price") which, as set forth in Section 7.3 hereof, shall be fully paid and satisfied by the delivery by or on behalf of the Corporation of the Exchangeable Share Consideration representing the total Redemption Price. In connection with payment of the Exchangeable Share Consideration representing the Redemption Price, the Corporation shall be entitled to liquidate some of the OSI Common Stock which would otherwise be deliverable as Exchangeable Share Consideration to the particular holder of Exchangeable Shares in order to fund any statutory withholding tax obligation.
7.2 In any case of a redemption of Exchangeable Shares under this Article 7, the Corporation, or the Transfer Agent on behalf of the Corporation, shall, at least 60 days before an Automatic Redemption Date described in clause (a) or (b) of the definition of Automatic Redemption Date or at least such number of days before an Automatic Redemption Date described in clause (c), (d) or (e) of the definition of Automatic Redemption Date as the Board of Directors of the Corporation may determine to be reasonably practicable in the circumstances, send or cause to be sent to each registered holder of Exchangeable Shares a notice in writing of the redemption or possible redemption by the Corporation or the purchase by OSI or OSI ULC under the Redemption Call Right, as the case may be, of the Exchangeable Shares held by such holder. Such notice shall set out the Redemption Price or the Redemption Call Purchase Price, as the case may be, the Automatic Redemption Date and, if applicable, particulars of the Redemption Call Right. In the case of any notice given in connection with a possible Automatic Redemption Date as described in clause (c), (d) or (e) of the definition of Automatic Redemption Date, such notice will be given contingently and will be withdrawn if the contingency does not occur.
7.3 On or after the Automatic Redemption Date, and subject to the exercise by OSI or OSI ULC of the Redemption Call Right, the Corporation shall cause to be delivered to the holders of the Exchangeable Shares to be redeemed the Exchangeable Share Consideration representing the Redemption Price for each such Exchangeable Share upon presentation and surrender at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation in such notice of the certificates representing such Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require (provided that such presentation and surrender shall be deemed to be valid if made at the office of the Transfer Agent, if any, in the province in which the address of the holder of Exchangeable Shares is recorded on the books of the Corporation). Payment of the total Redemption Price for such Exchangeable Shares shall be made by delivery to each holder, at the address of the holder recorded in the securities register or at any office of the Transfer Agent as may be specified by the Corporation in such notice, on behalf of the Corporation, of the Exchangeable Share Consideration representing the total Redemption Price (provided that if payment is made by delivery of the Exchangeable share Consideration to the Transfer Agent, such delivery shall be made at the office of the Transfer Agent, if any, in the province in which the address of the holder of Exchangeable Shares is recorded on the books of the Corporation). On and after the Automatic Redemption Date, the holders of the Exchangeable Shares called for redemption shall cease to be holders of such Exchangeable Shares and shall not be entitled to exercise any of the rights of holders in respect thereof, other than the right to receive their proportionate part of the Exchangeable Share Consideration representing the total Redemption Price, unless payment of the Exchangeable Share Consideration representing the total Redemption Price for such Exchangeable Shares shall not be made upon presentation and surrender of certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected until the Exchangeable Share Consideration representing the total Redemption Price has been paid in the manner hereinbefore provided. The Corporation shall have the right at any time after the sending of notice of its intention to redeem the Exchangeable Shares as aforesaid to deposit or cause to be deposited the Exchangeable Share Consideration with respect to the Exchangeable Shares so called for redemption, or of such of the said Exchangeable Shares represented by certificates that have not at the date of such deposit been surrendered by the holders thereof in connection with such redemption, in a custodial account or for safe keeping, in the case of non-cash items, with any chartered bank or trust company in Canada named in such notice. Upon the later of such deposit being made and the Automatic Redemption Date, the Exchangeable Shares in respect whereof such deposit shall have been made shall be redeemed and the rights of the holders thereof after such deposit or Automatic Redemption Date, as the case may be, shall be limited to receiving their proportionate part of the Exchangeable Share Consideration representing the total Redemption Price for such Exchangeable Shares so deposited, against presentation and surrender of the said certificates held by them, respectively, in accordance with the foregoing provisions. Upon such payment or deposit of such Exchangeable Share Consideration, the holders of the Exchangeable Shares shall thereafter be considered and deemed for all purposes to be holders of the OSI Common Stock delivered to them. Notwithstanding the foregoing, until such payment or deposit of such Exchangeable Share Consideration is made, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
7.4 If OSI or OSI ULC exercises the Redemption Call Right, each holder of Exchangeable Shares shall be obligated to sell all the Exchangeable Shares held by such holder to OSI or OSI ULC, as the case may be, on the Automatic Redemption Date against payment to
such holder by OSI or OSI ULC of the Exchangeable Share Consideration representing the Redemption Call Purchase Price for each such share.
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law and the provisions hereof, the holders of the Exchangeable Shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching to the Exchangeable Shares may be added to, changed or removed but, except as hereinafter provided, only with the approval of the holders of the Exchangeable Shares given as hereinafter specified.
9.2 Any approval given by the holders of the Exchangeable Shares to add to, change or remove any right, privilege, restriction or condition attaching to the Exchangeable Shares or any other matter requiring the approval or consent of the holders of the Exchangeable Shares shall be deemed to have been sufficiently given if it shall have been given in accordance with applicable law subject to a minimum requirement that such approval be evidenced by resolution passed by not less than 66 2/3% of the votes cast on such resolution by persons represented in person or by proxy at a meeting of holders of Exchangeable Shares (excluding Exchangeable Shares beneficially owned by OSI or its Subsidiaries) duly called and held at which the holders of at least 50% of the outstanding Exchangeable Shares at that time are present or represented by proxy. If at any such meeting the holders of at least 50% of the outstanding Exchangeable Shares at that time are not present or represented by proxy within one-half hour after the time appointed for such meeting, then the meeting shall be adjourned to such date not less than 10 days thereafter and to such time and place as may be designated by the Chairman of such meeting. At such adjourned meeting, the holders of Exchangeable Shares present or represented by proxy thereat may transact the business for which the meeting was originally called and a resolution passed thereat by the affirmative vote of not less than 66 2/3% of the votes cast on such resolution by persons represented in person or by proxy at such meeting (excluding Exchangeable Shares beneficially owned by OSI or its Subsidiaries) shall constitute the approval or consent of the holders of the Exchangeable Shares. For the purposes of this Section, any spoiled votes, illegible votes, defective votes and abstinences shall be deemed to be votes not cast.
ARTICLE 10
RECIPROCAL CHANGES, ETC. IN RESPECT OF OSI COMMON STOCK
10.1
(a) Each holder of an Exchangeable Share acknowledges that the Support Agreement provides, in part, that OSI will not:
(i) issue or distribute shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock) to the holders of all or substantially all of the then outstanding shares of OSI Common Stock by way of stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding shares of OSI Common Stock entitling them to subscribe for or to purchase shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock); or
(iii) issue or distribute to the holders of all or
substantially all of the then outstanding shares of
OSI Common Stock (A) shares or securities of OSI of
any class other than OSI Common Stock (other than
shares convertible into or exchangeable for or
carrying rights to acquire shares of OSI Common
Stock), (B) rights, options or warrants other than
those referred to in subsection 11.1 (a) (ii) above,
(C) evidences of indebtedness of OSI or (D) assets of
OSI;
unless
(iv) one or both of OSI and the Corporation is permitted under applicable law to issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets to the holders of the Exchangeable Shares; and
(v) one or both of OSI and the Corporation shall issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets simultaneously to the holders of the Exchangeable Shares.
(b) Each holder of an Exchangeable Share acknowledges that the Support Agreement further provides, in part, that OSI will not:
(i) subdivide, redivide or change the then outstanding shares of OSI Common Stock into a greater number of shares of OSI Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding shares of OSI Common Stock into a lesser number of shares of OSI Common Stock; or
(iii) reclassify or otherwise change the shares of OSI Common Stock or effect an amalgamation, merger, reorganization or other transaction involving or affecting the shares of OSI Common Stock;
unless
(iv) the Corporation is permitted under applicable law to simultaneously make the same or an economically equivalent change to, or in the rights of the holders of, the Exchangeable Shares; and
(v) the same or an economically equivalent change is simultaneously made to, or in the rights of the holders of, the Exchangeable Shares.
The Support Agreement further provides, in part, that, with the exception of certain ministerial amendments, the aforesaid provisions of the Support Agreement shall not be changed without the approval of the holders of the Exchangeable Shares given in accordance with Article 9 of these share provisions.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
11.1 The Corporation will take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to
ensure performance and compliance by OSI with all provisions of the
Support Agreement, the Voting Trust and Exchange Agreement and OSI's
Certificate of Incorporation applicable to the Corporation and OSI,
respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall
be necessary or advisable to enforce to the fullest extent possible for
the direct benefit of the Corporation all rights and benefits in favour
of the Corporation under or pursuant thereto.
11.2 The Corporation shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or obligations
under, the Support Agreement, the Voting Trust and Exchange Agreement
or OSI's Certificate of Incorporation without the approval of the
holders of the Exchangeable Shares given in accordance with Section 9.2
hereof other than such amendments, waivers and/or forgiveness as may be
necessary or advisable for the purpose of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders
of Exchangeable Shares; or
(b) making such provisions or modifications not inconsistent with
such agreement or certificate as may be necessary or desirable
with respect to matters or questions arising thereunder which,
in the opinion of the Board of Directors, it may be expedient
to make, provided that the Board of Directors shall be of the
opinion, after consultation with counsel, that such provisions
and modifications will not be prejudicial to the interests of
the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement or
certificate which, on the advice of counsel to the
Corporation, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error contained
therein, provided that the Board of
|
Directors shall be of the opinion, after consultation with counsel, that such changes or corrections will not be prejudicial to the interests of the holders of the Exchangeable Shares.
ARTICLE 12
LEGEND
12.1 The certificates evidencing the Exchangeable Shares shall contain or
have affixed thereto a legend, in form and on terms approved by the
Board of Directors, with respect to the Support Agreement, the
provisions of the Articles of the Corporation relating to the
Liquidation Call Right, the Retraction Call Right and the Redemption
Call Right, and the Voting and Exchange Trust Agreement (including the
provisions with respect to the voting rights and exchange provisions
thereunder).
ARTICLE 13
MISCELLANEOUS
13.1 Any notice, request or other communication to be given to the
Corporation by a holder of Exchangeable Shares shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by
telecopy or by delivery to the registered office of the Corporation and
addressed to the attention of the President. Any such notice, request
or other communication, if given by mail, telecopy or delivery, shall
only be deemed to have been given and received upon actual receipt
thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Exchangeable Shares to
the Corporation or the Transfer Agent of certificates representing
Exchangeable Shares in connection with the liquidation, dissolution or
winding-up of the Corporation or the retraction, redemption or exchange
of Exchangeable Shares shall be made by registered mail (postage
prepaid) or by delivery to the registered office of the Corporation or
to such office of the Transfer Agent as may be specified by the
Corporation, in each case addressed to the attention of the President
of the Corporation. Any such presentation and surrender of certificates
shall only be deemed to have been made and to be effective upon actual
receipt thereof by the Corporation or the Transfer Agent, as the case
may be, and the method of any such presentation and surrender of
certificates shall be at the sole risk of the holder.
13.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in
writing and shall be valid and effective if given by mail (postage
prepaid) or by delivery to the address of the holder recorded in the
securities register of the Corporation or, in the event of the address
of any such holder not being so recorded, then at the last address of
such holder known to the Corporation. Any such notice, request or other
communication, if given by mail, shall be deemed to have been given and
received on the fifth Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received
on the date of delivery. Accidental failure or omission to give any
notice, request or other communication to one or more holders of
Exchangeable Shares shall not invalidate or
B-20
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otherwise alter or affect any action or proceeding to be or intended to
be taken by the Corporation.
13.4 For greater certainty, the Corporation shall not be required for any
purpose under these share provisions to recognize or take account of
persons who are not so recorded in such securities register.
13.5 All Exchangeable Shares acquired by the Corporation upon the redemption
or retraction thereof shall be cancelled.
13.6 For greater certainty, any payments to the holders of Exchangeable
Shares shall be net of applicable taxes, if any, and the payor shall
not be obliged to gross up or increase the amount of such payment which
would otherwise be made to take into account such taxes. Any such taxes
which have been withheld or deducted by the payor thereof shall be
remitted to the applicable tax authority within the time required for
such remittance.
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SCHEDULE "A"
RETRACTION REQUEST
To the Corporation, o ("OSI") and o ("OSI ULC")
This request is given pursuant to Article 6 of the provisions (the "Share Provisions") attaching to the Exchangeable Shares of the Corporation and all capitalized words and expressions used in this request which are defined in the Share Provisions have the meaning attributed to such words and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the Retraction Call Right referred to below, the undersigned requests the Corporation to redeem in accordance with Article 6 of the Share Provisions:
[ ] all share(s) represented by the accompanying certificate(s); or
[ ] ____________ share(s) only.
The undersigned hereby notifies the Corporation that the Retraction Date shall be ___________________. date
NOTE: The Retraction Date must be a Business Day and must not be less than three Business Days nor more than 10 Business Days after the date upon which this notice and the accompanying shares are received at the registered office of the Corporation or at any office of the Transfer Agent as may be specified in this Retraction Request. In the event that no such Business Day is correctly specified above, the Retraction Date shall be deemed to be the tenth Business Day after the date on which this request is received by the Corporation.
The undersigned acknowledges the Retraction Call Right of OSI and OSI ULC (as defined in the Share Provisions) to purchase all but not less than all the Retracted Shares from the undersigned and that this request shall be deemed to be a revocable offer by the undersigned to sell the Retracted Shares to OSI or OSI ULC, as the case may be, in accordance with the Retraction Call Right on the Retraction Date for the Retraction Price and on the other terms and conditions set out in Section 6.3 of the Share Provisions. If neither OSI nor OSI ULC, as the case may be, determines to exercise the Retraction Call Right, the Corporation will notify the undersigned of such fact as soon as possible. This retraction request, and offer to sell the Retracted Shares to OSI or OSI ULC, as the case may be, may be revoked and withdrawn by the undersigned by notice in writing given to the Corporation at any time before the close of business on the Business Date immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of liquidity or solvency provisions of applicable law, the Corporation is unable to redeem all Retracted Shares, the undersigned will be deemed to have exercised the Exchange Right (as defined in the Voting and Exchange Trust Agreement) so as to require OSI to purchase, or cause OSI ULC to purchase, the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation, OSI and OSI ULC that the undersigned has good title to, and owns, the share(s) represented by the accompanying certificate free and clear of all liens, claims, encumbrances, security interests and adverse claims or interests.
------------------------- ----------------------------------------- -----------------------------------------
Date Signature of Shareholder Guarantee of Signature
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[ ] Please check box if the legal or beneficial owner of the Retracted Shares is a non-resident of Canada.
[ ] Please check box if the securities and any cheque(s) or other non-cash assets resulting from the retraction of the Retracted Shares are to be held for pick-up by the shareholder at the principal transfer offices of Montreal Trust Company of Canada (the "Transfer Agent") in Calgary, Alberta, failing which the securities and any cheque(s) or other non-cash assets will be delivered to the shareholder in accordance with the share provisions.
[ ] Please check box if the securities and any cheque(s) or other non-cash assets resulting from the retraction of the Retracted Shares are to be held for pick-up by the shareholder at the principal transfer offices of Montreal Trust Company of Canada (the "Transfer Agent") in Toronto, Ontario, failing which the securities and any cheque(s) or other non-cash assets will be delivered to the shareholder in accordance with the share provisions.
NOTE: This panel must be completed and the accompanying certificate, together with such additional documents as the Transfer Agent may require, must be deposited with the Transfer Agent at its principal transfer offices in Calgary, Alberta or Toronto, Ontario. The securities and any cheque(s) or other non-cash assets resulting from the retraction or purchase of the Retracted Shares will be issued and registered in, and made payable to, or transferred into, respectively, the name of the shareholder as it appears on the register of the Corporation and the securities, cheque (s) and other non-cash assets resulting from such retraction or purchase will be delivered to the shareholder in accordance with the Share Provisions.
-------------------------------------------------------------------------- ------------------------------------- Name of Person in Whose Name Securities or Cheque(s) or Other Non-cash Date Assets Are To Be Registered, Issued or Delivered (please print) -------------------------------------------------------------------------- ------------------------------------- Street Address or P.O. Box Signature of Shareholder -------------------------------------------------------------------------- ------------------------------------- City, Province Signature Guaranteed by |
NOTE: If this retraction request is for less than all of the share(s) represented by the accompanying certificate, a certificate representing the remaining shares of the Corporation will be issued and registered in the name of the shareholder as it appears on the register of the Corporation or its lawful transferee.
B. OTHER PROVISIONS
1.1 Meetings
Meetings of shareholders of the Corporation shall be held in the location determined by the directors of the Corporation, and may be held in Houston, Texas, or at any location within Alberta.
1.2 Definitions
Unless there is something in the subject matter or context inconsistent therewith in Sections 1.3, 1.4 and 1.5 below, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:
"Act" means the Business Corporations Act (Alberta), as amended;
"Automatic Redemption Date" has the meaning provided in the Exchangeable Share Provisions;
"Business Day" has the meaning provided in the Exchangeable Share Provisions;
"Exchangeable Share Consideration" has the meaning provided in the Exchangeable Share Provisions;
"Exchangeable Share Price" has the meaning provided in the Exchangeable Share Provisions;
"Exchangeable Share Provisions" means the rights, privileges, restrictions and conditions attaching to the Exchangeable Shares;
"Exchangeable Shares" means the Exchangeable Shares in the capital of the Corporation;
"Liquidation Call Purchase Price" has the meaning provided in Section 1.3;
"Liquidation Call Right" has the meaning provided in Section 1.3;
"Liquidation Date" has the meaning provided in the Exchangeable Share Provisions;
"OSI" has the meaning provided in the Exchangeable Share Provisions;
"OSI Common Stock" has the meaning provided in the Exchangeable Share Provisions;
"Redemption Call Purchase Price" has the meaning provided in Section 1.4;
"Redemption Call Right" has the meaning provided in Section 1.4;
"Subsidiary" has the meaning provided in the Exchangeable Share Provisions;
"Transfer Agent" means the duly appointed transfer agent for the time being of the Exchangeable Shares, and, if there is more than one such transfer agent, then the principal Canadian transfer agent; and
"Voting and Exchange Trust Agreement" has the meaning provided in the Exchangeable Share Provisions.
1.3 Liquidation Call Right
(a) OSI or OSI ULC shall have the overriding right (the "Liquidation Call Right"), in the event of and notwithstanding any proposed liquidation, dissolution or winding-up of the Corporation as referred to in Article 5 of the Exchangeable Share Provisions, to purchase directly from all but not less than all of the holders (other than OSI or any Subsidiary thereof) of Exchangeable Shares on the Liquidation Date all but not less than all of the Exchangeable Shares held by such holders on payment by OSI or OSI ULC to each holder of the Exchangeable Share Price applicable on the last Business Day prior to the Liquidation Date (the "Liquidation Call Purchase Price") in accordance with subsection 1.3(c). In the event of the exercise of the Liquidation Call Right by OSI or OSI ULC, each holder shall be obligated to sell all the Exchangeable Shares held by such holder to OSI or OSI ULC on the Liquidation Date on payment by OSI or OSI ULC to the holder of the Liquidation Call Purchase Price for each such share.
(b) To exercise the Liquidation Call Right, OSI or OSI ULC must notify the Corporation's Transfer Agent in writing, as agent for the holders of Exchangeable Shares, and the Corporation of OSI's or OSI ULC's intention to exercise such right at least 55 days before the Liquidation Date in the case of a voluntary liquidation, dissolution or winding-up of the Corporation and at least five Business Days before the Liquidation Date in the case of an involuntary liquidation, dissolution or winding-up of the Corporation. The Transfer Agent will notify the holders of Exchangeable Shares as to whether or not OSI or OSI ULC has exercised the Liquidation Call Right forthwith after the expiry of the date by which the same may be exercised by OSI or OSI ULC. If OSI or OSI ULC exercises the Liquidation Call Right, on the Liquidation Date OSI or OSI ULC will purchase and the holders will sell all of the Exchangeable Shares then outstanding for a price per share equal to the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares pursuant to the Liquidation Call Right, OSI or OSI ULC shall deposit with the Transfer Agent, on or before the Liquidation Date, the Exchangeable Share Consideration representing the total Liquidation Call Purchase Price. Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, on and after the Liquidation Date, the right of each holder of Exchangeable Shares will be limited to receiving such holder's proportionate part of the total Liquidation Call Purchase Price payable by OSI or OSI ULC, without interest, upon presentation and surrender by the holder of certificates representing the Exchangeable Shares held by such holder and the holder shall, on and after the
Liquidation Date, be considered and deemed for all purposes to be the holder of the OSI Common Stock delivered to such holder. Upon surrender to the Transfer Agent of a certificate or certificates representing Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under the Act and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, the holder of such surrendered certificate or certificates shall be entitled to receive in exchange therefor, and the Transfer Agent on behalf of OSI shall deliver to such holder, the Exchangeable Share Consideration to which such holder is entitled. If OSI or OSI ULC does not exercise the Liquidation Call Right in the manner described above, on the Liquidation Date the holders of the Exchangeable Shares will be entitled to receive in exchange therefor the liquidation price otherwise payable by the Corporation in connection with the liquidation, dissolution or winding-up of the Corporation pursuant to Article 5 of the Exchangeable Share Provisions. Notwithstanding the foregoing, until such Exchangeable Share Consideration is delivered to the holder, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
1.4 Redemption Call Right
(a) OSI and OSI ULC shall have the overriding right (the "Redemption Call Right"), notwithstanding any proposed redemption of the Exchangeable Shares by the Corporation pursuant to Article 7 of the Exchangeable Share Provisions, to purchase directly from all but not less than all of the holders (other than OSI or any Subsidiary thereof) of Exchangeable Shares on the Automatic Redemption Date all but not less than all of the Exchangeable Shares held by each such holder on payment by OSI or OSI ULC to the holder of the Exchangeable Share Price applicable on the last Business Day prior to the Automatic Redemption Date (the "Redemption Call Purchase Price") in accordance with subsection 1.4(c). In the event of the exercise of the Redemption Call Right by OSI or OSI ULC, each holder shall be obligated to sell all the Exchangeable Shares held by the holder to OSI or OSI ULC on the Automatic Redemption Date on payment by OSI or OSI ULC to the holder of the Redemption Call Purchase Price for each such share.
(b) To exercise the Redemption Call Right, OSI or OSI ULC must notify the Transfer Agent in writing, as agent for the holders of Exchangeable Shares, and the Corporation of the OSI's or OSI ULC's intention to exercise such right not later than the date by which the Corporation is required to give notice of the Automatic Redemption Date. The Transfer Agent will notify the holders of the Exchangeable Shares as to whether or not OSI or OSI ULC has exercised the Redemption Call Right forthwith after the date by which the same may be exercised by OSI or OSI ULC. If OSI or OSI ULC exercises the Redemption Call Right, on the Automatic Redemption Date, OSI will purchase and the holders will sell all of the Exchangeable Shares then outstanding for a price per share equal to the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares pursuant to the Redemption Call Right, OSI or OSI ULC shall deposit with the Transfer Agent, on or before the Automatic Redemption Date, the Exchangeable Share Consideration representing the total Redemption Call Purchase Price. Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, on and after the Automatic Redemption Date, the rights of each holder of Exchangeable Shares will be limited to receiving such holder's proportionate part of the total Redemption Call Purchase Price payable by OSI or OSI ULC upon presentation and surrender by the holder of certificates representing the Exchangeable Shares held by such holder and the holder shall on and after the Automatic Redemption Date be considered and deemed for all purposes to be the holder of the OSI Common Stock delivered to such holder. Upon surrender to the Transfer Agent of a certificate or certificates representing Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under the Act and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent may reasonably require, the holder of such surrendered certificate or certificates shall be entitled to receive in exchange therefor, and the Transfer Agent on behalf of OSI or OSI ULC shall deliver to such holder, the Exchangeable Share Consideration to which such holder is entitled. If OSI or OSI ULC does not exercise the Redemption Call Right in the manner described above, on the Automatic Redemption Date, the holders of the Exchangeable Shares will be entitled to receive in exchange therefor the redemption price otherwise payable by the Corporation in connection with the redemption of the Exchangeable Shares pursuant to Article 7 of the Exchangeable Share Provisions. Notwithstanding the foregoing, until such Exchangeable Share Consideration is delivered to the holder, the holder shall be deemed to still be a holder of Exchangeable Shares for purposes of all voting rights with respect thereto under the Voting and Exchange Trust Agreement.
1.5 Retraction Call Right
OSI or OSI ULC shall have the overriding right, notwithstanding the proposed redemption of Exchangeable Shares by the Corporation pursuant to Article 6 of the Exchangeable Share Provisions, to purchase directly from the holder (other than OSI or any Subsidiary thereof) of Exchangeable Shares all but not less than all of the Retracted Shares in accordance with Section 6.3 of the Exchangeable Share Provisions.
EXHIBIT 10.3
FORM OF
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT is entered into as of o, 2000, between Oil States International, Inc., a Delaware corporation ("OSI"), and o, an Alberta corporation ("PTI Holdco").
RECITALS
A. Pursuant to a Combination Agreement dated as of July 31, 2000, by and among OSI, HWC Energy Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger Sub-Sooner Inc. and PTI Group Inc. ("PTI") (such agreement, as it may be amended or restated, is hereinafter referred to as the "Combination Agreement"), the parties agreed that on the Effective Date (as defined in the Combination Agreement), OSI and PTI Holdco would execute and deliver a Support Agreement containing the terms and conditions set forth in Exhibit C to the Combination Agreement together with such other terms and conditions as may be agreed to by the parties to the Combination Agreement acting reasonably;
B. Pursuant to an arrangement (the "Arrangement") effected by Articles of Arrangement dated o, 2000 filed pursuant to the Business Corporations Act (Alberta) (or any successor or other corporate statute by which PTI may in the future be governed) (the "Act") each issued and outstanding common share of PTI (a "PTI Common Share"), other than those cancelled pursuant to the Arrangement or held by OSI, by a Subsidiary of OSI or by a U.S. shareholder of PTI, was ultimately exchanged for Exchangeable Shares of PTI Holdco (the "Exchangeable Shares");
C. The Articles of Incorporation of PTI Holdco set forth the rights, privileges, restrictions and conditions (collectively, the "Exchangeable Share Provisions") attaching to the Exchangeable Shares;
D. The parties hereto desire to make appropriate provision and to establish a procedure whereby OSI will take certain actions and make certain payments and deliveries necessary to ensure that PTI Holdco will be able to make certain payments and to deliver or cause to be delivered shares of OSI Common Stock in satisfaction of the obligations of PTI Holdco under the Exchangeable Share Provisions with respect to the payment and satisfaction of dividends, Liquidation Amounts, Retraction Prices and Redemption Prices, all in accordance with the Exchangeable Share Provisions and to ensure that the shares of OSI Common Stock are freely tradable in accordance with the provisions set out herein;
NOW, THEREFORE, in consideration of the respective covenants and agreements provided in this agreement and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINED TERMS
Each term used but not otherwise defined herein shall have the meaning attributed thereto in the Exchangeable Share Provisions, unless the context requires otherwise.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles, sections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this agreement.
1.3 NUMBER, GENDER, ETC.
Words importing the singular number only shall include the plural and vice versa. Words importing the use of any gender shall include all genders.
1.4 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this agreement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day.
ARTICLE 2
COVENANTS OF OSI AND PTI HOLDCO
2.1 COVENANTS OF OSI REGARDING EXCHANGEABLE SHARES
So long as any Exchangeable Shares are outstanding, OSI will:
(a) not declare or pay any dividend on the OSI Common Stock unless
(i) PTI Holdco shall (w) simultaneously declare or pay, as the
case may be, an equivalent dividend (as provided for in the
Exchangeable Share Provisions) on the Exchangeable Shares (an
"Equivalent Dividend"), and (x) have sufficient money or other
assets or authorized but unissued securities available to enable
the due declaration and the due and punctual payment, in
accordance with applicable law, of any Equivalent Dividend, or
(ii) PTI Holdco shall (y) subdivide the Exchangeable Shares in
lieu of stock dividend thereon (as provided for in the
Exchangeable Share Provisions) (an "Equivalent Stock
Subdivision"), and (z) have sufficient authorized but unissued
securities available to enable the Equivalent Stock Subdivision;
(b) advise PTI Holdco sufficiently in advance of the declaration by OSI of any dividend on OSI Common Stock and take all such other actions as are reasonably necessary in co-operation with PTI Holdco, to ensure that (i) the respective declaration date, record date and payment date for an Equivalent Dividend shall be the same as the declaration date, record date and payment date for the
corresponding dividend on the OSI Common Stock or, (ii) the record date and effective date for an Equivalent Stock Subdivision shall be the same as the record date and payment date for the corresponding stock dividend on the OSI Common Stock;
(c) ensure that the record date for any dividend declared on OSI Common Stock is not less than ten Business Days after the declaration date for such dividend;
(d) take all such actions and do all such things as are necessary or desirable to enable and permit PTI Holdco, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of the Liquidation Amount in respect of each issued and outstanding Exchangeable Share upon the liquidation, dissolution or winding-up of PTI Holdco or any other distribution of the assets of PTI Holdco for the purpose of winding-up its affairs, including without limitation all such actions and all such things as are necessary or desirable to enable and permit PTI Holdco to cause to be delivered shares of OSI Common Stock to the holders of Exchangeable Shares in accordance with the provisions of Article 5 of the Exchangeable Share Provisions;
(e) take all such actions and do all such things as are necessary or desirable to enable and permit PTI Holdco, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of the Retraction Price and the Redemption Price, including without limitation all such actions and all such things as are necessary or desirable to enable and permit PTI Holdco to cause to be delivered shares of OSI Common Stock to the holders of Exchangeable Shares, upon the retraction or redemption of the Exchangeable Shares in accordance with the provisions of Article 6 or Article 7 of the Exchangeable Share Provisions, as the case may be; and
(f) not exercise its vote as a direct or indirect shareholder to initiate the voluntary liquidation, dissolution or winding-up of PTI Holdco nor take any action that, or omit to take any action the omission of which, is designed to or would result in the liquidation, dissolution or winding-up of PTI Holdco.
2.2 SEGREGATION OF FUNDS
OSI will cause PTI Holdco to deposit a sufficient amount of funds in a separate account and segregate a sufficient amount of such assets and other property as is necessary to enable PTI Holdco to pay or otherwise satisfy the applicable dividends, Liquidation Amount, Retraction Price or Redemption Price, in each case for the benefit of holders from time to time of the Exchangeable Shares, and PTI Holdco will use such funds, assets and other property so segregated exclusively for the payment of dividends and the payment or other satisfaction of the Liquidation Amount, the Retraction Price or the Redemption Price, as applicable, net of any corresponding withholding tax obligations and for the remittance of such withholding tax obligations.
2.3 RESERVATION OF SHARES OF OSI COMMON STOCK
OSI hereby represents, warrants and covenants that it has irrevocably reserved for issuance and will at all times keep available, free from pre-emptive and other rights, out of its authorized and unissued capital stock such number of shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by section 2.7 hereof) (i) as is equal to the sum of (A) the number of Exchangeable Shares issued and outstanding from time to time and (B) the number of Exchangeable Shares issuable upon the exercise of all rights to acquire Exchangeable Shares outstanding from time to time and (ii) as are now and may hereafter be required to enable and permit PTI Holdco to meet its obligations hereunder, under the Voting and Exchange Trust Agreement, under the Exchangeable Share Provisions and under any other security or commitment pursuant to the Arrangement with respect to which OSI may now or hereafter be required to issue shares of OSI Common Stock.
2.4 NOTIFICATION OF CERTAIN EVENTS
In order to assist OSI to comply with its obligations hereunder, PTI Holdco will give OSI notice of each of the following events at the time set forth below:
(a) immediately, in the event of any determination by the Board of Directors of PTI Holdco to take any action which would require a vote of the holders of Exchangeable Shares for approval;
(b) immediately, upon the earlier of (i) receipt by PTI Holdco of notice of, and (ii) PTI Holdco otherwise becoming aware of, any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of PTI Holdco or to effect any other distribution of the assets of PTI Holdco among its shareholders for the purpose of winding-up its affairs;
(c) immediately, upon receipt by PTI Holdco of a Retraction Request (as defined in the Exchangeable Share Provisions);
(d) at least 45 days prior to any Automatic Redemption Date determined by the Board of Directors of PTI Holdco in accordance with clause (b) of the definition of Automatic Redemption Date in the Exchangeable Share Provisions; and
(e) in the event of any determination by the Board of Directors of PTI Holdco to institute voluntary liquidation, dissolution or winding-up proceedings with respect to PTI Holdco or to effect any other distribution of the assets of PTI Holdco among its shareholders for the purpose of winding-up its affairs, at least 30 days prior to the proposed effective date of such liquidation, dissolution, winding-up or other distribution.
2.5 DELIVERY OF SHARES OF OSI COMMON STOCK
In furtherance of its obligations hereunder, upon notice of any event which requires PTI Holdco to cause to be delivered shares of OSI Common Stock to any holder of Exchangeable Shares, OSI shall forthwith issue and deliver the requisite shares of OSI Common Stock to or to the order of the former holder of the surrendered Exchangeable Shares, as PTI Holdco shall direct. All such shares of OSI Common Stock shall be duly issued as fully paid and non-assessable and shall be free and clear of any lien, claim, encumbrance, security interest or adverse claim or interest.
2.6 QUALIFICATION OF SHARES OF OSI COMMON STOCK
OSI covenants that if any shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be issued and delivered hereunder (including for greater certainty, pursuant to the Exchangeable Share Provisions, or pursuant to the Exchange Right or the Automatic Exchange Rights (all as defined in the Voting and Exchange Trust Agreement)) require registration or qualification with or approval of or the filing of any document including any prospectus or similar document, the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority under any Canadian or United States federal, provincial or state law or regulation or pursuant to the rules and regulations of any regulatory authority, or the fulfillment of any other legal requirement (collectively, the "Applicable Laws") before such shares (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) may be issued and delivered by OSI to the initial holder thereof (other than PTI Holdco) or in order that such shares may be freely tradeable thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of OSI for purposes of Canadian federal or provincial securities law or an "affiliate" of OSI for purposes of United States federal or state securities law and provided such trade is conducted through facilities of a stock exchange outside Canada), OSI will in good faith expeditiously take all such actions and do all such things as are necessary and permitted by Applicable Laws to cause such shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be and remain duly registered, qualified or approved at all times in order that such shares may be issued and delivered by OSI to the initial holder thereof (other than PTI Holdco) and in order that such shares or securities may be freely tradeable thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of OSI for purposes of Canadian provincial securities law or an "affiliate" of OSI for purposes of United States federal or state securities law provided such trade is conducted through facilities of a stock exchange outside Canada) including, without limitation, the filing and maintenance of a registration statement under the Securities Act of 1933; provided, however, that notwithstanding the foregoing, OSI will not be required to take any action, including, without limitation, the filing of a registration statement, under any United States federal or state securities law in respect of the OSI Common Stock (or other shares or securities into which OSI common stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be issued and delivered hereunder (including, for greater certainty, pursuant to the Exchangeable Share Provisions, or pursuant to the Exchange Right and the Automatic Exchange Rights) until the first anniversary of the Effective Date unless such shares or securities are being, or are to be, delivered pursuant to Articles 5 or 7 of the Exchangeable Share Provisions, pursuant to the Exchange Rights or the Automatic Exchange Rights, or pursuant to the Liquidation Call Right or the Redemption Call Right. From and after the first anniversary of the Effective Date (or such earlier date as such shares or securities may be issued and delivered pursuant to
Articles 5 or 7 of the Exchangeable Share Provisions, pursuant to the Exchange Rights or the Automatic Exchange Rights or pursuant to the Liquidation Call Right or the Redemption Call Right), OSI will in good faith expeditiously take all such actions and do all such things as are necessary to cause all shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to be delivered hereunder (including, for greater certainty, pursuant to Exchangeable Share Provisions, or pursuant to the Exchange Right or the Automatic Exchange Rights) to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which such shares are listed, quoted or posted for trading at such time immediately upon their issuance.
2.7 EQUIVALENCE
(a) OSI will not:
(i) issue or distribute shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock) to the holders of all or substantially all of the then outstanding shares of OSI Common Stock by way of stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding shares of OSI Common Stock entitling them to subscribe for or to purchase shares of OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire shares of OSI Common Stock); or
(iii) issue or distribute to the holders of all or substantially
all of the then outstanding shares of OSI Common Stock (A)
shares or securities of OSI of any class other than OSI
Common Stock (other than shares convertible into or
exchangeable for or carrying rights to acquire shares of
OSI Common Stock), (B) rights, options or warrants other
than those referred to in subsection 2.7 (a) (ii) above,
(C) evidences of indebtedness of OSI or (D) assets of OSI;
unless
(iv) one or both of OSI and PTI Holdco is permitted under applicable law to issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets to the holders of the Exchangeable Shares; and
(v) one or both of OSI and PTI Holdco shall issue or distribute the economic equivalent on a per share basis of such rights, options, warrants, securities,
shares, evidences of indebtedness or other assets simultaneously to the holders of the Exchangeable Shares.
(b) OSI will not:
(i) subdivide, redivide or change the then outstanding shares of OSI Common Stock into a greater number of shares of OSI Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding shares of OSI Common Stock into a lesser number of shares of OSI Common Stock; or
(iii) reclassify or otherwise change the shares of OSI Common Stock or effect an amalgamation, merger, reorganization or other transaction involving or affecting the shares of OSI Common Stock;
unless
(iv) PTI Holdco is permitted under applicable law to simultaneously make the same or an economically equivalent change to, or in the rights of the holders of, the Exchangeable Shares; and
(v) the same or an economically equivalent change is simultaneously made to, or in the rights of the holders of, the Exchangeable Shares.
(c) OSI will ensure that the record date for any event referred to in section 2.7(a) or 2.7(b) above, or (if no record date is applicable for such event) the effective date for any such event, is not less than 10 Business Days after the date on which such event is declared or announced by OSI (with simultaneous notice thereof to be given by OSI to PTI Holdco).
(d) The Board of Directors of PTI Holdco shall determine, in good faith and in its sole discretion, economic equivalence for the purposes of any event referred to in Section 2.7(a) or 2.7(b) above and each such determination shall be conclusive and binding on OSI. In making each such determination, the following factors shall, without excluding other factors determined by the Board of Directors of PTI Holdco to be relevant, be considered by the Board of Directors of PTI Holdco:
(i) in the case of any stock dividend or other distribution payable in OSI Common Stock, the number of such shares issued in proportion to the number of shares of OSI Common Stock previously outstanding;
(ii) in the case of the issuance or distribution of any rights, options or warrants to subscribe for or purchase OSI Common Stock (or securities exchangeable for or convertible into or carrying rights to acquire OSI Common Stock), the relationship between the exercise price of each such right, option or warrant and the current market value (as determined by the
Board of Directors of PTI Holdco in the manner contemplated below) of a share of OSI Common Stock;
(iii) in the case of the issuance or distribution of any other form of property (including without limitation any share or securities of OSI of any class other than OSI Common Stock, any rights, options or warrants other than those referred to in Section 2.7(d)(ii) above, any evidences of indebtedness of OSI or any assets of OSI), the relationship between the fair market value (as determined by the Board of Directors of PTI Holdco in the manner above contemplated) of such property to be issued or distributed with respect to each outstanding share of OSI Common Stock and the current market value (as determined by the Board of Directors of PTI Holdco in the manner contemplated below) of a share of OSI Common Stock;
(iv) in the case of any subdivision, redivision or change of the then outstanding shares of OSI Common Stock into a greater number of shares of OSI Common Stock or the reduction, combination, consolidation or change of the then outstanding shares of OSI Common Stock into a lesser number of shares of OSI Common Stock or any amalgamation, merger, reorganization or other transaction affecting shares of OSI Common Stock, the effect thereof upon the then outstanding shares of OSI Common Stock; and
(v) in all such cases, the general taxation consequences of the relevant event to holders of Exchangeable Shares to the extent that such consequences may differ from the taxation consequences to holders of shares of OSI Common stock as a result of differences between taxation laws of Canada and the United States (except for any differing consequences arising as a result of differing marginal taxation rates and without regard to the individual circumstances of holders of Exchangeable Shares).
For purposes of the foregoing determinations, the current market value of any security listed and traded or quoted on a securities exchange shall be the average of the closing price of such security during a period of not less than 20 consecutive trading days ending not more than five trading days before the date of determination on the principal securities exchange on which such securities are listed and traded or quoted; provided, however, that if in the opinion of the Board of Directors of PTI Holdco the public distribution or trading activity of such securities during such period does not create a market which reflects the fair market value of such securities, then the current market value thereof shall be determined by the Board of Directors of PTI Holdco, in good faith and in its sole discretion, and provided further than any such determination by the Board of Directors of PTI Holdco shall be conclusive and binding on OSI.
(e) PTI Holdco agrees that, to the extent required, upon due notice from OSI, PTI Holdco will use its best efforts to take or cause to be taken such steps as may be
necessary for the purposes of ensuring that appropriate dividends are paid or other distributions are made by PTI Holdco, or subdivisions, redivisions or changes are made to the Exchangeable Shares, in order to implement the required economic equivalence with respect to the OSI Common Stock and Exchangeable Shares as provided for in this Section 2.7.
2.8 TENDER OFFERS, ETC.
In the event that a tender offer, share exchange offer, issuer bid, take-over bid or similar transaction with respect to OSI Common Stock (an "Offer") is proposed by OSI or is proposed to OSI or its shareholders and is recommended by the Board of Directors of OSI, or is otherwise effected or to be effected with the consent or approval of the Board of Directors of OSI, and the Exchangeable Shares are not redeemed by PTI Holdco or purchased by OSI or OSI ULC pursuant to the Redemption Call Right, OSI shall, expeditiously and in good faith, take all such actions and do all such things as are necessary or desirable to enable and permit holders of Exchangeable Shares to participate in such Offer to the same extent and on an equivalent basis as the holders of shares of OSI Common Stock, without discrimination, including, without limiting the generality of the foregoing, OSI will use its good faith efforts expeditiously to (and shall, in the case of a transaction proposed by OSI or where OSI is a participant in the negotiation thereof) ensure that holders of Exchangeable Shares may participate in all such Offers without being required to retract Exchangeable Shares as against PTI Holdco (or, if so required, to ensure that any such retraction shall be effective only upon, and shall be conditional upon, the closing of the Offer and only to the extent necessary to tender or deposit to the Offer).
2.9 OWNERSHIP OF OUTSTANDING SHARES
Without the prior approval of PTI Holdco and the prior approval of the holders of the Exchangeable Shares given in accordance with Section 9.2 of the Exchangeable Share Provisions, OSI covenants and agrees in favor of PTI Holdco that, as long as any outstanding Exchangeable Shares are owned by any person or entity other than OSI or any of its Subsidiaries, OSI, alone or together with any direct or indirect wholly-owned subsidiary of OSI, will be and remain the beneficial owner of all issued and outstanding securities of PTI Holdco. Notwithstanding the foregoing, OSI shall not be in violation of this Section if any person or group of persons acting jointly or in concert acquires OSI Common Stock pursuant to any merger of OSI pursuant to which OSI was not the surviving corporation.
2.10 OSI NOT TO VOTE EXCHANGEABLE SHARES
OSI covenants and agrees that it will appoint and cause to be appointed proxy holders with respect to all Exchangeable Shares held by OSI and its Subsidiaries for the sole purpose of attending each meeting of holders of Exchangeable Shares in order to be counted as part of the quorum for each such meeting. OSI further covenants and agrees that it will not, and will cause its Subsidiaries not to, exercise any voting rights which may be exercisable by holders of Exchangeable Shares from time to time pursuant to the Exchangeable Share Provisions or pursuant to the provisions of the Act with respect to any Exchangeable Shares held by it or by its Subsidiaries in respect of any matter considered at any meeting of holders of Exchangeable Shares.
2.11 DUE PERFORMANCE
On and after the Effective Date, OSI shall duly and timely perform all of its obligations provided for in connection with the Plan of Arrangement and the Articles of Incorporation of PTI Holdco, including any obligations that may arise upon the exercise of OSI's rights under the Exchangeable Share Provisions.
ARTICLE 3
GENERAL
3.1 TERM
This agreement shall come into force and be effective as of the date hereof and shall terminate and be of no further force and effect at such time as no Exchangeable Shares (or securities or rights convertible into or exchangeable for or carrying rights to acquire Exchangeable Shares) are held by any party other than OSI and any of its Subsidiaries.
3.2 CHANGES IN CAPITAL OF OSI AND PTI HOLDCO
Notwithstanding the provisions of section 3.4 hereof, at all times after the occurrence of any event effected pursuant to section 2.7 or 2.8 hereof, as a result of which either OSI Common Stock or the Exchangeable Shares or both are in any way changed, this agreement shall forthwith be amended and modified as necessary in order that it shall apply with full force and effect, mutatis mutandis, to all new securities into which OSI Common Stock or the Exchangeable Shares or both are so changed, and the parties hereto shall as soon as possible execute and deliver an agreement in writing giving effect to and evidencing such necessary amendments and modifications.
3.3 SEVERABILITY
If any provision of this agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remainder of this agreement shall not in any way be affected or impaired thereby and this agreement shall be carried out as nearly as possible in accordance with its original terms and conditions.
3.4 AMENDMENTS, MODIFICATIONS, ETC.
This agreement may not be amended, modified or waived except by an agreement in writing executed by PTI Holdco and OSI and approved by the holders of the Exchangeable Shares in accordance with Section 10.2 of the Exchangeable Share Provisions.
3.5 MINISTERIAL AMENDMENTS
Notwithstanding the provisions of section 3.4, the parties to this agreement may in writing, at any time and from time to time, without the approval of the holders of the Exchangeable Shares, amend or modify this agreement for the purposes of:
(a) adding to the covenants of either or both parties for the protection of the holders of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this agreement as may be necessary or desirable with respect to matters or questions which, in the opinion of the board of directors of each of PTI Holdco and OSI, it may be expedient to make, provided that each such board of directors shall be of the opinion that such amendments or modifications will not be prejudicial to the interests of the holders of the Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of counsel to PTI Holdco and OSI, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error; provided that the boards of directors of each of PTI Holdco and OSI shall be of the opinion that such changes or corrections will not be prejudicial to the interests of the holders of the Exchangeable Shares.
3.6 MEETING TO CONSIDER AMENDMENTS
PTI Holdco, at the request of OSI, shall call a meeting or meetings of the holders of the Exchangeable Shares for the purpose of considering any proposed amendment or modification requiring approval of such shareholders. Any such meeting or meetings shall be called and held in accordance with the by-laws of PTI Holdco, the Exchangeable Share Provisions and all Applicable Laws.
3.7 AMENDMENTS ONLY IN WRITING
No amendment to or modification or waiver of any of the provisions of this agreement otherwise permitted hereunder shall be effective unless made in writing and signed by both of the parties hereto and approved by holders of Exchangeable Shares pursuant to Section 9.2 of the Exchangeable Share Provisions.
3.8 INUREMENT
This agreement shall be binding upon and inure to the benefit of the parties hereto and each of their respective heirs, successors and assigns.
3.9 NOTICES TO PARTIES
All notices and other communications between the parties shall be in writing and shall be deemed to have been given if delivered personally or by confirmed telecopy to the parties at the following addresses (or at such other address for either such party as shall be specified in like notice):
(a) if to OSI:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
with a copy to:
Donahue, Ernst & Young LLP
1000 Ernst & Young Tower
440 - 2nd Avenue S.W.
P.O. Box 2258, station M
Calgary, Alberta T2P 5E5
Attention: Richard Peters Fax: (403) 206-5525
(b) if to PTI Holdco to:
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
Any notice or other communication given personally shall be deemed to have been given and received upon delivery thereof and if given by telecopy shall be deemed to have been given and received on the date of confirmed receipt thereof, unless such day is not a Business Day, in which case it shall be deemed to have been given and received upon the immediately following Business Day.
3.10 COUNTERPARTS
This agreement may be executed in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Executed counterparts of this agreement may be delivered by facsimile transmission.
3.11 JURISDICTION
This agreement shall be construed and enforced in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein.
3.12 ATTORNMENT
OSI agrees that any action or proceeding arising out of or relating to this agreement may be instituted in the courts of the Province of Alberta, waives any objection which it may have now or hereafter to the venue of any such action or proceeding, irrevocably submits to the jurisdiction of such courts in any such action or proceeding, agrees to be bound by any judgment of such courts and not to seek, and hereby waives, any review of the merits of any such judgment by the courts of any other jurisdiction and hereby appoints PTI Holdco at its registered office in the Province of Alberta as OSI's attorney for service of process.
IN WITNESS WHEREOF, OSI and PTI Holdco have caused this agreement to be signed by their respective officers thereunder duly authorized, all as of the date first written above.
OIL STATES INTERNATIONAL, INC.
EXHIBIT 10.4
FORM OF
VOTING AND EXCHANGE TRUST AGREEMENT
THIS VOTING AND EXCHANGE TRUST AGREEMENT is entered into as of o, 2000, by and between Oil States International, Inc., a Delaware corporation ("OSI"), o, an Alberta corporation ("PTI Holdco"), and Montreal Trust Company of Canada, a Canadian trust company ("Trustee").
RECITALS:
A. Pursuant to a Combination Agreement dated as of July 31, 2000 by and among OSI, HWC Energy Services, Inc., Sooner Inc. and PTI Group, Inc. ("PTI") and such other parties referenced therein (such agreement as it may be amended or restated is hereinafter referred to as the "Combination Agreement"), the parties agreed that on the Effective Date (as defined in the Combination Agreement), OSI and PTI Holdco would execute and deliver a Voting and Exchange Trust Agreement containing the terms and conditions set forth in Exhibit D to the Combination Agreement together with such other terms and conditions as may be agreed to by the parties to the Combination Agreement acting reasonably.
B. Pursuant to an arrangement (the "Arrangement") effected by Articles of Arrangement dated o, 2000 filed pursuant to the Business Corporations Act (Alberta) (or any successor or other corporate statute by which PTI may in the future be governed) (the "Act"), each issued and outstanding common share of PTI (a "PTI Common Share"), other than those cancelled pursuant to the Arrangement or held by OSI or by a Subsidiary of OSI, was ultimately exchanged for Exchangeable Shares of PTI Holdco (the "Exchangeable Shares");
C. The Articles of Incorporation of PTI Holdco set forth the rights, privileges, restrictions and conditions attaching to the Exchangeable Shares (collectively, the "Exchangeable Share Provisions"), and a copy of such Articles of Incorporation is attached hereto as Appendix A;
D. OSI is to provide voting rights in OSI to each holder (other than OSI and its Subsidiaries) from time to time of Exchangeable Shares, such voting rights per Exchangeable Share to be equivalent to the voting rights per share of OSI Common Stock;
E. OSI is to grant to and in favor of the holders (other than OSI and its Subsidiaries) from time to time of Exchangeable Shares the right, in the circumstances set forth herein, to require OSI or OSI ULC to purchase from each such holder all or any part of the Exchangeable Shares held by the holder;
F. The parties desire to make appropriate provision and to establish a procedure whereby voting rights in OSI shall be exercisable by holders (other than OSI and its Subsidiaries) from time to time of Exchangeable Shares by and through the Trustee, which will hold legal title to and a share certificate in respect of one share of OSI Special Voting Stock (the "OSI Special Voting Stock") to which voting rights attach for the benefit of such holders of Exchangeable Shares and whereby the rights to require OSI or, at the option of OSI, OSI ULC, to purchase Exchangeable Shares from the holders thereof (other than OSI and its Subsidiaries) shall be
exercisable by such holders from time to time of Exchangeable Shares by and through the Trustee, which will hold legal title to such rights for the benefit of such holders;
G. These recitals and any statements of fact in this agreement are made by OSI and PTI Holdco and not by the Trustee;
NOW THEREFORE, in consideration of the respective covenants and agreements provided in this agreement and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this agreement, the following terms shall have the following meanings:
"Act" has the meaning in the recitals hereto;
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which holders of OSI Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of shares of
Exchangeable Shares issued and outstanding and held by Holders multiplied by
(ii) the Equivalent Vote Amount.
"Applicable Laws" has the meaning provided in Section 5.10 hereof.
"Arrangement" has the meaning provided in the recitals hereto.
"Automatic Exchange Rights" means the benefit of the obligation of OSI to effect the automatic exchange of shares of OSI Common Stock for Exchangeable Shares pursuant to Section 5.12 hereof.
"Board of Directors" means the Board of Directors of PTI Holdco.
"Business Day" has the meaning provided in the Exchangeable Share Provisions.
"Combination Agreement" has the meaning in the recitals hereto.
"Equivalent Vote Amount" means, with respect to any matter, proposition or question on which holders of OSI Common Stock are entitled to vote, consent or otherwise act, the number of votes to which a holder of one share of OSI Common Stock is entitled with respect to such matter, proposition or question.
"Exchange Right" has the meaning provided in Section 5.1(b) hereof.
"Exchangeable Share Consideration" has the meaning provided in the Exchangeable Share Provisions.
"Exchangeable Share Price" has the meaning provided in the Exchangeable Share Provisions.
"Exchangeable Share Provisions" has the meaning provided in the recitals hereto.
"Exchangeable Shares" has the meaning provided in the recitals hereto.
"freely tradeable", with respect to OSI Common Stock, means freely transferable under Canadian provincial securities laws and U.S. federal and state securities laws (pursuant to an effective resale shelf registration statement or otherwise and assuming the reasonable cooperation of the holder or recipient of OSI Common Stock in connection with any required resale shelf registration statement), except to the extent restrictions arise by reason of a person being a "control person" of OSI for the purposes of Canadian provincial securities laws or an "affiliate" of OSI for the purposes of United States federal or state securities laws, provided any trades in such securities are conducted through the facilities of a stock exchange outside Canada.
"Holder Votes" has the meaning provided in Section 4.2 hereof.
"Holders" means the registered holders from time to time of Exchangeable Shares, other than OSI and its Subsidiaries.
"Insolvency Event" means the institution by PTI Holdco of any proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or the consent of PTI Holdco to the institution of bankruptcy, insolvency, dissolution or winding-up proceedings against it, or the filing of a petition, answer or consent seeking dissolution or winding-up under any bankruptcy, insolvency or analogous laws, including without limitation the Companies' Creditors Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the failure by PTI Holdco to contest in good faith any such proceedings commenced in respect of PTI Holdco within 15 days of becoming aware thereof, or if so contested the adjudication that PTI Holdco is bankrupt or insolvent or is to be dissolved or wound-up, or the consent by PTI Holdco to the filing of any such petition or to the appointment of a receiver, or the making by PTI Holdco of a general assignment for the benefit of creditors, or the admission in writing by PTI Holdco of its inability to pay its debts generally as they become due, or PTI Holdco's not being permitted, pursuant to liquidity or solvency requirements of applicable law, to redeem any Retracted Shares pursuant to Section 6.6 of the Exchangeable Share Provisions.
"Liquidation Call Right" has the meaning provided in the Exchangeable Share Provisions.
"Liquidation Event" has the meaning provided in subsection 5.12(b) hereof.
"Liquidation Event Effective Time" has the meaning provided in subsection 5.12(c) hereof.
"List" has the meaning provided in Section 4.6 hereof.
"Officer's Certificate" means, with respect to OSI or PTI Holdco, as the case may be, a certificate signed by any one of the Chairman of the Board, the Vice-Chairman of the Board (if there be one), the President or any Vice-President of OSI or PTI Holdco, as the case may be.
"OSI" has the meaning in the recitals hereto.
"OSI Common Stock" has the meaning provided in the Exchangeable Share Provisions.
"OSI Consent" has the meaning provided in Section 4.2 hereof.
"OSI Meeting" has the meaning provided in Section 4.2 hereof.
"OSI Special Voting Stock" has the meaning provided in the recitals hereto.
"OSI ULC" means the Subsidiary of OSI incorporated under the Companies Act (Nova Scotia) for the purpose of delivering OSI Common Stock as provided for in this Agreement, the Exchangeable Share Provisions or the Support Agreement.
"PTI" has the meaning in the recitals hereto.
"PTI Stock Options" means the outstanding options entitling the holders to acquire upon exercise thereof up to o PTI Common Shares in the aggregate.
"PTI Holdco" has the meaning in the recitals hereto.
"Person" includes an individual, body corporate, partnership, company, unincorporated syndicate or organization, trust, trustee, executor, administrator and other legal representative.
"Plan of Arrangement" has the meaning provided in the Exchangeable Share Provisions.
"Redemption Call Right" has the meaning provided in the Exchangeable Share Provisions.
"Retracted Shares" has the meaning provided in Section 5.7 hereof.
"Retraction Call Right" has the meaning provided in the Exchangeable Share Provisions.
"Subsidiary" has the meaning provided in the Exchangeable Share Provisions.
"Successor" has the meaning provided in subsection 11. 1 (a) hereof.
"Support Agreement" means that certain support agreement made as of even date hereof by and between OSI and PTI Holdco.
"Trust" means the trust created by this agreement.
"Trust Estate" means the Voting Share, any other securities, the Exchange Right, the Automatic Exchange Rights and any money or other property which may be held by the Trustee from time to time pursuant to this agreement.
"Trustee" means Montreal Trust Company of Canada and, subject to the provisions of Article 10 hereof, includes any successor trustee or permitted assigns.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one share of OSI Special Voting Stock, U.S. $0.0001 par value, issued by OSI to and deposited with the Trustee, which entitles the holder of record to a number of votes at meetings of holders of OSI Common Stock equal to the Aggregate Equivalent Vote Amount.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles, sections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this agreement.
1.3 NUMBER, GENDER, ETC.
Words importing the singular number only shall include the plural and vice versa. Words importing the use of any gender shall include all genders.
1.4 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this agreement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day.
1.5 PAYMENTS
All payments to be made hereunder will be made without interest and less any tax required by Canadian law to be deducted or withheld.
ARTICLE 2
PURPOSE OF AGREEMENT
2.1 The purpose of this agreement is to create the Trust for the benefit of the Holders, as herein provided. The Trustee will hold the Voting Share in order to enable the Trustee to exercise the Voting Rights and will hold the Exchange Right and the Automatic Exchange Rights in order to enable the Trustee to exercise such rights, in each case as trustee for and on behalf of the Holders as provided in this agreement.
ARTICLE 3
VOTING SHARE
3.1 ISSUANCE AND OWNERSHIP OF THE VOTING SHARE
OSI hereby issues to and deposits with the Trustee the Voting Share to be hereafter held of record by the Trustee as trustee for and on behalf of, and for the use and benefit of, the Holders and in accordance with the provisions of this agreement. OSI hereby acknowledges receipt from the Trustee as trustee for and on behalf of the Holders of good and valuable consideration (and the adequacy thereof) for the issuance of the Voting Share by OSI to the Trustee. During the term of the Trust and subject to the terms and conditions of this agreement, the Trustee shall possess and be vested with full legal ownership of the Voting Share and shall be entitled to exercise all of the rights and powers of an owner with respect to the Voting Share, provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely for the use and benefit of the Holders in accordance with the provisions of this agreement; and
(b) except as specifically authorized by this agreement, have no power or authority to sell, transfer, vote or otherwise deal in or with the Voting Share, and the Voting Share shall not be used or disposed of by the Trustee for any purpose other than the purposes for which this Trust is created pursuant to this agreement.
3.2 LEGENDED SHARE CERTIFICATES
PTI Holdco will cause each certificate representing Exchangeable Shares to bear an appropriate legend notifying the Holders of their right to instruct the Trustee with respect to the exercise of the Voting Rights with respect to the Exchangeable Shares held by a Holder.
3.3 SAFE KEEPING OF CERTIFICATE
The certificate representing the Voting Share shall at all times be held in safe keeping by the Trustee or its agent.
3.4 HOLDERS' BENEFIT
For greater certainty, the Trustee holds the benefit of the Voting Rights for the Holders, but all other rights in respect of the Voting Share, including without limitation any rights to receive dividends on the Voting Share, are for the benefit of OSI.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 VOTING RIGHTS
The Trustee, as the holder of record of the Voting Share, shall be entitled to all of the Voting Rights, including the right to consent to or to vote in person or by proxy the Voting Share, on any matter, question or proposition whatsoever that may properly come before the stockholders of OSI at a OSI Meeting or in connection with a OSI Consent (in each case, as hereinafter defined). The Voting Rights shall be and remain vested in and exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Voting Rights only on the basis of instructions received pursuant to this Article 4 from Holders entitled to instruct the Trustee as to the voting thereof at the time at which a OSI Consent is sought or a OSI Meeting is held. To the extent that no instructions are received from a Holder with respect to the Voting Rights to which such Holder is entitled, the Trustee shall not exercise or permit the exercise of such Holder's Voting Rights.
4.2 NUMBER OF VOTES
With respect to all meetings of stockholders of OSI at which holders of shares of OSI Common Stock are entitled to vote (a "OSI Meeting") and with respect to all written consents sought by OSI from its stockholders including the holders of shares of OSI Common Stock (a "OSI Consent"), each Holder shall be entitled to instruct the Trustee to cast and exercise, in the manner instructed, a number of votes equal to the Equivalent Vote Amount for each
Exchangeable Share owned of record by such Holder on the record date established by OSI or by applicable law for such OSI Meeting or OSI Consent, as the case may be, (the "Holder Votes") in respect of each matter, question or proposition to be voted on at such OSI Meeting or to be consented to in connection with such OSI Consent.
4.3 MAILINGS TO SHAREHOLDERS
With respect to each OSI Meeting and OSI Consent, the Trustee will mail or cause to be mailed (or otherwise communicate in the same manner as OSI utilizes in communications to holders of OSI Common Stock, subject to the Trustee's ability to provide this method of communication and upon being advised in writing of such method) to each of the Holders named in the List on the same day as the initial mailing or notice (or other communication) with respect thereto is given by OSI to its stockholders:
(a) a copy of such notice, together with any proxy or information statement and related materials to be provided to holders of OSI Common Stock;
(b) a statement of the number of Holder Votes which the Holder is entitled to exercise;
(c) a statement that such Holder is entitled to instruct the Trustee
as to the exercise of the Holder Votes with respect to such OSI
Meeting or OSI Consent, as the case may be, or, pursuant to
Section 4.7 hereof, to attend such OSI Meeting and to exercise
personally the Holder Votes thereat;
(d) a statement as to the manner in which such instructions may be given to the Trustee, including an express indication that instructions may be given to the Trustee to give:
(i) a proxy to such Holder or such Holder's designee to exercise personally the Holder Votes; or
(ii) a proxy to a designated agent or other representative of the management of OSI to exercise such Holder Votes;
(e) a statement that if no voting instructions are received from the Holder, the Holder Votes to which such Holder is entitled will not be exercised;
(f) a form of direction whereby the Holder may so direct and instruct the Trustee as contemplated herein; and
(g) a statement of (i) the time and date by which such instructions
must be received by the Trustee in order to be binding upon it,
which in the case of a OSI Meeting shall not be earlier than the
close of business on the Business Day prior to such meeting, and
(ii) the method for revoking or amending such instructions.
The materials referred to above are to be provided by OSI to the Trustee, but shall be subject to review and comment by the Trustee.
For the purpose of determining Holder Votes to which a Holder is entitled in respect of any such OSI Meeting or OSI Consent, the number of Exchangeable Shares owned of record by the Holder shall be determined at the close of business on the record date established by OSI or by applicable law for purposes of determining stockholders entitled to vote at such OSI Meeting or to give written consent in connection with such OSI Consent. OSI will notify the Trustee in writing of any decision of the board of directors of OSI with respect to the calling of any such OSI Meeting or the seeking of any such OSI Consent and shall provide all necessary information and materials to the Trustee in each case promptly and in any event in sufficient time to enable the Trustee to perform its obligations contemplated by this Section 4.3.
4.4 COPIES OF STOCKHOLDER INFORMATION
OSI will deliver to the Trustee copies of all proxy materials, (including notices of OSI Meetings, but excluding proxies to vote shares of OSI Common Stock), information statements, reports (including without limitation all interim and annual financial statements) and other written communications that are to be distributed from time to time to holders of OSI Common Stock in sufficient quantities and in sufficient time so as to enable the Trustee to send those materials to each Holder, to the extent possible, at the same time as such materials are first sent to holders of OSI Common Stock. The Trustee will mail or otherwise send to each Holder, at the expense of OSI, copies of all such materials (and all materials specifically directed to the Holders or to the Trustee for the benefit of the Holders by OSI) received by the Trustee from OSI, to the extent possible, at the same time as such materials are first sent to holders of OSI Common Stock. The Trustee will make copies of all such materials available for inspection by any Holder at the Trustee's principal transfer office in the cities of Calgary and Toronto.
4.5 OTHER MATERIALS
Immediately after receipt by OSI or any stockholder of OSI of any material sent or given generally to the holders of OSI Common Stock by or on behalf of a third party, including without limitation dissident proxy and information circulars (and related information and material) and tender and exchange offer circulars (and related information and material), OSI shall use its reasonable best efforts to obtain and deliver to the Trustee copies thereof in sufficient quantities so as to enable the Trustee to forward such material (unless the same has been provided directly to Holders by such third party) to each Holder as soon as possible thereafter. As soon as practicable after receipt thereof, the Trustee will mail or otherwise send to each Holder, at the expense of OSI, copies of all such materials received by the Trustee from OSI. The Trustee will also make copies of all such materials available for inspection by any Holder at the Trustee's principal transfer office in the cities of Calgary and Toronto.
4.6 LIST OF PERSONS ENTITLED TO VOTE
PTI Holdco shall, (i) prior to each annual, general or special OSI Meeting or the seeking of any OSI Consent and (ii) forthwith upon each request made at any time by the Trustee in writing, prepare or cause to be prepared a list (a "List") of the names and addresses of the Holders arranged in alphabetical order and showing the number of Exchangeable Shares held of record by each such Holder, in each case at the close of business on the date specified by the Trustee in such request or, in the case of a List prepared in connection with a OSI Meeting or a OSI Consent, at the close of business on the record date established by OSI or pursuant to
applicable law for determining the holders of OSI Common Stock entitled to receive notice of and/or to vote at such OSI Meeting or to give consent in connection with such OSI Consent. Each such List shall be delivered to the Trustee promptly after receipt by PTI Holdco of such request or the record date for such meeting or seeking of consent, as the case may be, and in any event within sufficient time as to enable the Trustee to perform its obligations under this agreement. OSI agrees to give PTI Holdco written notice (with a copy to the Trustee) of the calling of any OSI Meeting or the seeking of any OSI Consent, together with the record dates therefor, sufficiently prior to the date of the calling of such meeting or seeking of such consent so as to enable PTI Holdco to perform its obligations under this Section 4.6.
4.7 ENTITLEMENT TO DIRECT VOTES
Any Holder named in a List prepared in connection with any OSI Meeting or any OSI Consent will be entitled (i) to instruct the Trustee in the manner described in Section 4.3 hereof with respect to the exercise of the Holder Votes to which such Holder is entitled or (ii) to attend such meeting and personally to exercise thereat (or to exercise with respect to any written consent), as the proxy of the Trustee, the Holder Votes to which such Holder is entitled.
4.8 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT MEETING
(a) In connection with each OSI Meeting and OSI Consent, the Trustee shall exercise, either in person or by proxy, in accordance with the instructions received from a Holder pursuant to Section 4.3 hereof, the Holder Votes as to which such Holder is entitled to direct the vote (or any lesser number thereof as may be set forth in the instructions); provided, however, that such written instructions are received by the Trustee from the Holder prior to the time and date fixed by it for receipt of such instructions in the notice given by the Trustee to the Holder pursuant to Section 4.3 hereof.
(b) The Trustee shall cause such representatives as are empowered by it to sign and deliver, on behalf of the Trustee, proxies for Voting Rights to attend each OSI Meeting. Upon submission by a Holder (or its designee) of identification satisfactory to the Trustee's representatives, and at the Holder's request, such representatives shall sign and deliver to such Holder (or its designee) a proxy to exercise personally the Holder Votes as to which such Holder is otherwise entitled hereunder to direct the vote, if such Holder either:
(i) has not previously given the Trustee instructions pursuant to Section 4.3 hereof in respect of such OSI Meeting, or
(ii) submits to the Trustee's representatives written revocation of any such previous instructions.
At such OSI Meeting, the Holder exercising such Holder Votes shall have the same rights as the Trustee to speak at the meeting in respect of any matter, question or proposition, to vote by way of ballot at the meeting in respect of any matter, question or proposition and to vote at such meeting by way of a show of hands in respect of any matter, question or proposition.
4.9 DISTRIBUTION OF WRITTEN MATERIALS
Any written materials to be distributed by the Trustee to the Holders pursuant to this agreement shall be delivered or sent by mail (or otherwise communicated in the same manner as OSI utilizes in communications to holders of OSI Common Stock subject to the Trustee's ability to provide this method of communication and upon being advised in writing of such method) to each Holder at its address as shown on the books of PTI Holdco. PTI Holdco shall provide or cause to be provided to the Trustee for this purpose, on a timely basis and without charge or other expense:
(a) current lists of the Holders; and
(b) on the request of the Trustee, mailing labels to enable the Trustee to carry out its duties under this agreement.
The materials referred to above are to be provided by PTI Holdco to the Trustee, but shall be subject to review and comment by the Trustee.
4.10 TERMINATION OF VOTING RIGHTS
Except as otherwise provided herein or in the Exchangeable Share Provisions, all of the rights of a Holder with respect to the Holder Votes exercisable in respect of the Exchangeable Shares held by such Holder, including the right to instruct the Trustee as to the voting of or to vote personally such Holder Votes, shall be deemed to be surrendered by the Holder to OSI, and such Holder Votes and the Voting Rights represented thereby shall cease immediately, upon the delivery by such Holder to the Trustee of the certificates representing such Exchangeable Shares in connection with the exercise by the Holder of the Exchange Right or the occurrence of the automatic exchange of Exchangeable Shares for shares of OSI Common Stock, as specified in Article 5 hereof (unless in any case OSI or OSI ULC shall not have delivered the Exchangeable Share Consideration deliverable in exchange therefor to the Trustee for delivery to the Holders), or upon the redemption of Exchangeable Shares pursuant to Article 6 or Article 7 of the Exchangeable Share Provisions, or upon the effective date of the liquidation, dissolution or winding-up of PTI Holdco or any other distribution of the assets of PTI Holdco among its shareholders for the purpose of winding up its affairs pursuant to Article 5 of the Exchangeable Share Provisions, or upon the purchase of Exchangeable Shares from the holder thereof by OSI pursuant to the exercise by OSI of the Retraction Call Right, the Redemption Call Right or the Liquidation Call Right.
ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT AND AUTOMATIC EXCHANGE RIGHTS
OSI hereby grants to the Trustee as trustee for and on behalf of, and for the use and benefit of, the Holders:
(a) the right (the "Exchange Right"), upon the occurrence and during the continuance of an Insolvency Event, to require OSI to purchase or cause OSI ULC to purchase
from each or any Holder all or any part of the Exchangeable Shares held by the Holders; and
(b) the Automatic Exchange Rights,
all in accordance with the provisions of this agreement and the Exchangeable Share Provisions, as the case may be. OSI hereby acknowledges receipt from the Trustee as trustee for and on behalf of the Holders of good and valuable consideration (and the adequacy thereof) for the grant of the Exchange Right and the Automatic Exchange Rights by OSI to the Trustee. During the term of the Trust and subject to the terms and conditions of this agreement, the Trustee shall possess and be vested with full legal ownership of the Exchange Right and the Automatic Exchange Rights and shall be entitled to exercise and enforce for the benefit of the Holders all of the rights and powers of an owner with respect to the Exchange Right and the Automatic Exchange Rights, provided that the Trustee shall:
(c) hold the Exchange Right and the Automatic Exchange Rights and the legal title thereto as trustee solely for the use and benefit of the Holders in accordance with the provisions of this agreement; and
(d) except as specifically authorized by this agreement, have no power or authority to exercise or otherwise deal in or with the Exchange Right or the Automatic Exchange Rights, and the Trustee shall not exercise any such rights for any purpose other than the purposes for which this Trust is created pursuant to this agreement.
5.2 LEGENDED SHARE CERTIFICATES
PTI Holdco will cause each certificate representing Exchangeable Shares to bear an appropriate legend notifying the Holders of:
(a) their right to instruct the Trustee with respect to the exercise of the Exchange Right in respect of the Exchangeable Shares held by a Holder; and
(b) the Automatic Exchange Rights.
5.3 GENERAL EXERCISE OF THE EXCHANGE RIGHT
The Exchange Right shall be and remain vested in and exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Exchange Right only on the basis of instructions received pursuant to this Article 5 from Holders entitled to instruct the Trustee as to the exercise thereof. To the extent that no instructions are received from a Holder with respect to the Exchange Right, the Trustee shall not exercise or permit the exercise of the Exchange Right.
5.4 PURCHASE PRICE
The purchase price payable by OSI or OSI ULC for each Exchangeable Share to be purchased by OSI or OSI ULC under the Exchange Right shall be an amount equal to the Exchangeable Share Price on the last Business Day prior to the day of closing of the purchase and sale of such Exchangeable Share under the Exchange Right. In connection with each
exercise of the Exchange Right, OSI will provide to the Trustee an Officer's Certificate setting forth the calculation of the applicable Exchangeable Share Price for each Exchangeable Share. The applicable Exchangeable Share Price for each such Exchangeable Share so purchased may be satisfied only by OSI's issuing and delivering or causing to be delivered to the Trustee, on behalf of the relevant Holder, the applicable Exchangeable Share Consideration representing the total applicable Exchangeable Share Price.
5.5 EXERCISE INSTRUCTIONS FOR EXCHANGE RIGHT
Subject to the terms and conditions herein set forth, a Holder shall be entitled, upon the occurrence and during the continuance of an Insolvency Event, to instruct the Trustee to exercise the Exchange Right with respect to all or any part of the Exchangeable Shares registered in the name of such Holder on the books of PTI Holdco. To cause the exercise of the Exchange Right by the Trustee, the Holder shall deliver to the Trustee, in person or by certified or registered mail, at its principal transfer offices in Calgary, Alberta or at such other places in Canada as the Trustee may from time to time designate by written notice to the Holders, the certificates representing the Exchangeable Shares which such Holder desires OSI to purchase, duly endorsed in blank, and accompanied by such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under applicable law and the by-laws of PTI Holdco and such additional documents and instruments as the Trustee may reasonably require, together with:
(a) a duly completed form of notice of exercise of the Exchange Right, contained on the reverse of or attached to the Exchangeable Share certificates, stating:
(i) that the Holder thereby instructs the Trustee to exercise the Exchange Right so as to require OSI or OSI ULC to purchase from the Holder the number of Exchangeable Shares specified therein,
(ii) that such Holder has good title to and owns all such Exchangeable Shares to be acquired by OSI or OSI ULC free and clear of all liens, claims, encumbrances, security interests and adverse claims or interests,
(iii) the names in which the certificates representing OSI Common Stock issuable in connection with the exercise of the Exchange Right are to be issued, and
(iv) the names and addresses of the persons to whom the Exchangeable Share Consideration should be delivered; and
(b) payment (or evidence satisfactory to the Trustee, PTI Holdco and OSI or OSI ULC of payment) of the taxes (if any) payable as contemplated by Section 5.8 of this agreement.
If only a part of the Exchangeable Shares represented by any certificate or certificates delivered to the Trustee are to be purchased by OSI or OSI ULC under the Exchange Right, a new certificate for the balance of such Exchangeable Shares shall be issued to the Holder at the expense of PTI Holdco.
5.6 DELIVERY OF EXCHANGEABLE SHARE CONSIDERATION; EFFECT OF EXERCISE
Promptly after receipt of the certificates representing the Exchangeable Shares which the Holder desires OSI or OSI ULC to purchase under the Exchange Right (together with such documents and instruments of transfer and a duly completed form of notice of exercise of the Exchange Right), duly endorsed for transfer to OSI, the Trustee shall notify OSI, OSI ULC and PTI Holdco of its receipt of the same, which notice to OSI, OSI ULC and PTI Holdco shall constitute exercise of the Exchange Right by the Trustee on behalf of the Holder of such Exchangeable Shares, and OSI or OSI ULC shall immediately thereafter deliver or cause to be delivered to the Trustee, for delivery to the Holder of such Exchangeable Shares (or to such other persons, if any, properly designated by such Holder), the Exchangeable Share Consideration deliverable in connection with the exercise of the Exchange Right; provided, however, that no such delivery shall be made unless and until the Holder requesting the same shall have paid (or provided evidence satisfactory to the Trustee, PTI Holdco and OSI or OSI ULC of the payment of) the taxes (if any) payable as contemplated by Section 5.8 of this agreement. Immediately upon the giving of notice by the Trustee to OSI, OSI ULC and PTI Holdco of the exercise of the Exchange Right, as provided in this Section 5.6, (i) the closing of the transaction of purchase and sale contemplated by the Exchange Right shall be deemed to have occurred, (ii) OSI or OSI ULC shall be required to take all action necessary to permit it to occur, including delivery to the Trustee of the relevant Exchangeable Share Consideration, no later than the close of business on the third Business Day following the receipt by the Trustee of notice, certificates and other documents as aforesaid and (iii) the Holder of such Exchangeable Shares shall be deemed to have transferred to OSI or OSI ULC all of its right, title and interest in and to such Exchangeable Shares and the related interest in the Trust Estate, shall cease to be a holder of such Exchangeable Shares and shall not be entitled to exercise any of the rights of a holder in respect thereof, other than the right to receive his proportionate part of the total purchase price therefor, unless such Exchangeable Share Consideration is not delivered by OSI or OSI ULC to the Trustee by the date specified above, in which case the rights of the Holder shall remain unaffected until such Exchangeable Share Consideration is delivered by OSI or OSI ULC and any cheque included therein is paid. Concurrently with such Holder ceasing to be a holder of Exchangeable Shares, the Holder shall be considered and deemed for all purposes to be the holder of the shares of OSI Common Stock delivered to it pursuant to the Exchange Right. Notwithstanding the foregoing, until the Exchangeable Share Consideration is delivered to the Holder, the Holder shall be deemed to still be a holder of the sold Exchangeable Shares for purposes of the Voting Rights with respect thereto.
5.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION
In the event that a Holder has exercised its right under Article 6 of
the Exchangeable Share Provisions to require PTI Holdco to redeem any or all of
the Exchangeable Shares held by the Holder (the "Retracted Shares") and is
notified by PTI Holdco pursuant to Section 6.6 of the Exchangeable Share
Provisions that PTI Holdco will not be permitted as a result of liquidity or
solvency provisions of applicable law to redeem all such Retracted Shares,
subject to receipt by the Trustee of written notice to that effect from PTI
Holdco and provided that OSI or OSI ULC shall not have exercised the Retraction
Call Right with respect to the Retracted Shares and that the Holder has not
revoked the retraction request delivered by the Holder to PTI Holdco pursuant to
Section 6.1 of the Exchangeable Share Provisions, the retraction request will
constitute and
will be deemed to constitute notice from the Holder to the Trustee instructing the Trustee to exercise the Exchange Right with respect to those Retracted Shares which PTI Holdco is unable to redeem. In any such event, PTI Holdco hereby agrees with the Trustee and in favour of the Holder immediately to notify the Trustee of such prohibition against PTI Holdco's redeeming all of the Retracted Shares and immediately to forward or cause to be forwarded to the Trustee all relevant materials delivered by the Holder to PTI Holdco or to the transfer agent of the Exchangeable Shares (including without limitation a copy of the retraction request delivered pursuant to Section 6.1 of the Exchangeable Share Provisions) in connection with such proposed redemption of the Retracted Shares, and the Trustee will thereupon exercise the Exchange Right with respect to the Retracted Shares which PTI Holdco is not permitted to redeem and will require OSI or OSI ULC to purchase such shares in accordance with the provisions of this Article 5.
5.8 STAMP OR OTHER TRANSFER TAXES
Upon any sale of Exchangeable Shares to OSI or OSI ULC pursuant to the Exchange Right or the Automatic Exchange Rights, the share certificate or certificates representing OSI Common Stock to be delivered in connection with the payment of the total purchase price therefor shall be issued in the name of the Holder of the Exchangeable Shares so sold or in such names as such Holder may otherwise direct in writing without charge to the holder of the Exchangeable Shares so sold, provided, however, that such Holder:
(a) shall pay (and none of OSI, OSI ULC, PTI Holdco or the Trustee shall be required to pay) any documentary, stamp, transfer or other similar taxes that may be payable in respect of any transfer involved in the issuance or delivery of such shares to a person other than such Holder; or
(b) shall have established to the satisfaction of the Trustee, OSI, OSI ULC and PTI Holdco that such taxes, if any, have been paid.
PTI Holdco and the Trustee (as directed in writing by PTI Holdco) shall be entitled to deduct and withhold from any consideration otherwise payable under this Agreement to any Holder such amounts as PTI Holdco or the Trustee is required or permitted to deduct and withhold with respect to such payment under the Income Tax Act (Canada), the United States Internal Revenue Code of 1986 or any provision of provincial, state, local or foreign tax law, in each case as amended or succeeded unless such Holder provides to PTI Holdco certificates or such other assurances as are provided for under the Income Tax Act (Canada), the United States Internal Revenue Code of 1986 or such other applicable taxation provisions. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes as having been paid to the Holder in respect of which such deduction and withholding was made, provided that such withheld amounts are actually remitted to the appropriate taxing authority as and when required. To the extent that the amount so required or permitted to be deducted or withheld from any payment to a Holder exceeds the cash portion, if any, of the consideration otherwise payable to the Holder, PTI Holdco and the Trustee are hereby authorized to sell or otherwise dispose of such portion of the consideration as is necessary to provide sufficient funds to PTI Holdco or the Trustee, as the case may be, to enable it to comply with such deduction or withholding requirement and PTI Holdco or the Trustee shall notify the Holder and remit to such Holder any unapplied balance of the net proceeds of such sale.
5.9 NOTICE OF INSOLVENCY EVENT
Immediately upon the occurrence of an Insolvency Event or any event which with the giving of notice or the passage of time or both would be an Insolvency Event, PTI Holdco and OSI shall give written notice thereof to the Trustee. As soon as practicable after receiving notice from PTI Holdco or OSI of the occurrence of an Insolvency Event, the Trustee will mail to each Holder, at the expense of OSI, a notice of such Insolvency Event in the form provided by OSI, which notice shall contain a brief statement of the right of the Holders with respect to the Exchange Right.
5.10 QUALIFICATION OF OSI COMMON STOCK
OSI covenants with the Trustee for the benefit of Holders that if any shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 of the Support Agreement) to be issued and delivered pursuant to the Exchange Right or the Automatic Exchange Rights require registration or qualification with or approval of or the filing of any document including any prospectus or similar document, the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority under any Canadian or United States federal, provincial or state law or regulation or pursuant to the rules and regulations of any regulatory authority, or the fulfillment of any other legal requirement (collectively, the "Applicable Laws") before such shares (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 of the Support Agreement) may be issued and delivered by OSI to the initial holder thereof (other than PTI Holdco) or in order that such shares may be freely tradeable thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of OSI for purposes of Canadian provincial securities law or an "affiliate" of OSI for purposes of United States federal or state securities law and provided such trade is conducted through facilities of a stock exchange outside Canada), OSI will in good faith expeditiously take all such actions and do all such things as are necessary and permitted by Applicable Laws to cause such shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 of the Support Agreement) to be and remain duly registered, qualified or approved at all times in order that such shares may be issued and delivered by OSI to the initial holder thereof (other than PTI Holdco) and in order that such shares or securities may be freely tradeable thereafter (other than any restrictions on transfer by reason of a holder being a "control person" of OSI for purposes of Canadian provincial securities law or an "affiliate" of OSI for purposes of United States federal or state securities law and provided such trade is conducted through facilities of a stock exchange outside Canada) including, without limitation, the filing and maintenance of a registration statement under the Securities Act of 1933. OSI will in good faith expeditiously take all such actions and do all such things as are necessary to cause all shares of OSI Common Stock (or other shares or securities into which OSI Common Stock may be reclassified or changed as contemplated by Section 2.7 of the Support Agreement) to be delivered pursuant to the Exchange Right or the Automatic Exchange Rights to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which such shares are listed, quoted or posted for trading at such time immediately upon their issuance.
5.11 RESERVATION OF SHARES OF OSI COMMON STOCK
OSI hereby represents, warrants and covenants with the Trustee for the benefit of the Holders that it has irrevocably reserved for issuance and will at all times keep available, free from pre-emptive and other rights, out of its authorized and unissued capital stock such number of shares of OSI Common Stock:
(a) as is equal to the sum of
(i) the number of Exchangeable Shares issued and outstanding from time to time, and
(ii) the number of PTI Stock Options outstanding on the date hereof; and
(b) as are now and may hereafter be required to enable and permit PTI Holdco to meet its obligations hereunder, under the Certificate of Incorporation of PTI Holdco, under the Support Agreement, under the Exchangeable Share Provisions and under any other security or commitment pursuant to the Arrangement with respect to which OSI may now or hereafter be required to issue shares of OSI Common Stock.
5.12 AUTOMATIC EXCHANGE ON LIQUIDATION OF OSI
(a) OSI will give the Trustee written notice of each of the following events at the time set forth below:
(i) in the event of any determination by the board of directors of OSI to institute voluntary liquidation, dissolution or winding-up proceedings with respect to OSI or to effect any other distribution of assets of OSI among its stockholders for the purpose of winding-up its affairs, at least 60 days prior to the proposed effective date of such liquidation, dissolution, winding-up or other distribution; and
(ii) immediately, upon the earlier of
(A) receipt by OSI of notice of, and
(B) OSI otherwise becoming aware of
any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of OSI or to effect any other distribution of assets of OSI among its stockholders for the purpose of winding up its affairs.
(b) Immediately following receipt by the Trustee from OSI of notice of any event (a "Liquidation Event") contemplated by Section 5.12(a) above, the Trustee will give notice thereof to the Holders. Such notice will be provided by OSI to the Trustee and shall include a brief description of the automatic exchange of
Exchangeable Shares for shares of OSI Common Stock provided for in Section 5.12(c) below.
(c) In order that the Holders will be able to participate on a pro rata basis with the holders of OSI Common Stock in the distribution of assets of OSI in connection with a Liquidation Event, immediately prior to the effective time (the "Liquidation Event Effective Time") of a Liquidation Event, all of the then outstanding Exchangeable Shares shall be automatically exchanged for shares of OSI Common Stock. To effect such automatic exchange, OSI shall be deemed to have purchased each Exchangeable Share outstanding immediately prior to the Liquidation Event Effective Time and held by Holders, and each Holder shall be deemed to have sold the Exchangeable Shares held by it at such time, for a purchase price per share equal to the Exchangeable Share Price applicable at such time. In connection with such automatic exchange, OSI will provide to the Trustee an Officer's Certificate setting forth the calculation of the Exchangeable Share Price for each Exchangeable Share.
(d) The closing of the transaction of purchase and sale contemplated by Section 5.12(c) above shall be deemed to have occurred immediately prior to the Liquidation Event Effective Time, and each Holder of Exchangeable Shares shall be deemed to have transferred to OSI all of the Holder's right, title and interest in and to such Exchangeable Shares and the related interest in the Trust Estate and shall cease to be a holder of such Exchangeable Shares, and OSI shall deliver to the Holder the Exchangeable Share Consideration deliverable upon the automatic exchange of Exchangeable Shares. Concurrently with such Holder's ceasing to be a holder of Exchangeable Shares, the Holder shall be considered and deemed for all purposes to be the holder of the shares of OSI Common Stock issued to it pursuant to the automatic exchange of Exchangeable Shares for OSI Common Stock, and the certificates held by the Holder previously representing the Exchangeable Shares exchanged by the Holder with OSI pursuant to such automatic exchange shall thereafter be deemed to represent the shares of OSI Common Stock issued to the Holder by OSI pursuant to such automatic exchange. Upon the request of a Holder and the surrender by the Holder of Exchangeable Share certificates deemed to represent shares of OSI Common Stock, duly endorsed in blank and accompanied by such instruments of transfer as OSI may reasonably require, OSI shall deliver or cause to be delivered to the Holder certificates representing the shares of OSI Common Stock of which the Holder is the holder. Notwithstanding the foregoing, until each Holder is actually entered on the register of holders of OSI Common Stock, such Holder shall be deemed to still be a holder of the transferred Exchangeable Shares for purposes of all Voting Rights with respect thereto.
ARTICLE 6
RESTRICTIONS ON ISSUANCE OF OSI SPECIAL VOTING STOCK
During the term of this agreement, OSI will not issue any shares of OSI Special Voting Stock in addition to the Voting Share.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 POWERS AND DUTIES OF THE TRUSTEE
The rights, powers and authorities of the Trustee under this agreement, in its capacity as trustee of the Trust, shall include:
(a) receipt and deposit of the Voting Share from OSI as trustee for and on behalf of the Holders in accordance with the provisions of this agreement;
(b) granting proxies and distributing materials to Holders as provided in this agreement;
(c) voting the Holder Votes in accordance with the provisions of this agreement;
(d) receiving the grant of the Exchange Right and the Automatic Exchange Rights from OSI as trustee for and on behalf of the Holders in accordance with the provisions of this agreement;
(e) exercising the Exchange Right and enforcing the benefit of the Automatic Exchange Rights, in each case in accordance with the provisions of this agreement, and in connection therewith receiving from Holders Exchangeable Shares and other requisite documents and distributing to such Holders the shares of OSI Common Stock and cheques and property, if any, to which such Holders are entitled upon the exercise of the Exchange Right or pursuant to the Automatic Exchange Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the Trust Estate as provided in this agreement;
(h) taking action at the direction of a Holder or Holders to enforce the obligations of OSI under this agreement; and
(i) taking such other actions and doing such other things as are specifically provided in this agreement.
In the exercise of such rights, powers and authorities, the Trustee shall have (and is granted) such incidental and additional rights, powers and authority not in conflict with any of the provisions of this agreement as the Trustee, acting in good faith and in the reasonable exercise of its discretion, may deem necessary, appropriate or desirable to effect the purpose of the Trust. Any exercise of such discretionary rights, powers and authorities by the Trustee shall be final, conclusive and binding upon all persons. For greater certainty, the Trustee shall have only those duties as are set out specifically in this agreement. The Trustee in exercising its rights, powers, duties and authorities hereunder shall act honestly and in good faith with a view to the best interests of the Holders and shall exercise the care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. The Trustee shall not be bound to
give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall be specifically required to do so under the terms hereof nor shall the Trustee be required to take any notice of, or to do or to take any act, action or proceeding as a result of any default or breach of any provision hereunder, unless and until notified in writing of such default or breach, which notices shall distinctly specify the default or breach desired to be brought to the attention of the Trustee and in the absence of such notice the Trustee may for all purposes of this agreement conclusively assume that no default or breach has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein.
7.2 NO CONFLICT OF INTEREST
The Trustee represents to PTI Holdco and OSI that at the date of execution and delivery of this agreement there exists no material conflict of interest in the role of the Trustee as a fiduciary hereunder and the role of the Trustee in any other capacity. The Trustee shall, within 90 days after it becomes aware that such a material conflict of interest exists, either eliminate such material conflict of interest or resign in the manner and with the effect specified in Article 10 hereof. If, notwithstanding the foregoing provisions of this Section 7.2, the Trustee has such a material conflict of interest, the validity and enforceability of this agreement shall not be affected in any manner whatsoever by reason only of the existence of such material conflict of interest. If the Trustee contravenes the foregoing provisions of this Section 7.2, any interested party may apply to the superior court of the province in which PTI Holdco has its registered office for an order that the Trustee be replaced as trustee hereunder.
7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC.
PTI Holdco and OSI irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective registrars and transfer agents, and with any such subsequent registrar or transfer agent, of the Exchangeable Shares and OSI Common Stock; and
(b) requisition, from time to time,
(i) from any such registrar or transfer agent any information readily available from the records maintained by it which the Trustee may reasonably require for the discharge of its duties and responsibilities under this agreement, and
(ii) from the transfer agent of OSI Common Stock, and any subsequent transfer agent of such shares, to complete the exercise from time to time of the Exchange Right and the Automatic Exchange Rights in the manner specified in Article 5 hereof, the share certificates issuable upon such exercise.
PTI Holdco and OSI irrevocably authorize their respective registrars and transfer agents to comply with all such requests. OSI covenants that it will supply its transfer agent with duly
executed share certificates for the purpose of completing the exercise from time to time of the Exchange Right and the Automatic Exchange Rights, in each case pursuant to Article 5 hereof.
7.4 BOOKS AND RECORDS
The Trustee shall keep available for inspection by OSI and PTI Holdco, at the Trustee's principal transfer office in Calgary, Alberta, correct and complete books and records of account relating to the Trustee's actions under this agreement, including without limitation all information relating to mailings and instructions to and from Holders and all transactions pursuant to the Voting Rights, the Exchange Right and the Automatic Exchange Rights for the term of this agreement. On or before March 31, 2001, and on or before March 31 in every year thereafter, so long as the Voting Share is on deposit with the Trustee, the Trustee shall transmit to OSI and PTI Holdco a brief report, dated as of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Right, if any, and the aggregate number of Exchangeable Shares received by the Trustee on behalf of Holders in consideration of the issue and delivery by OSI of shares of OSI Common Stock in connection with the Exchange Right, during the calendar year ended on such date; and
(c) all other actions taken by the Trustee in the performance of its duties under this agreement which it had not previously reported.
7.5 INCOME TAX RETURNS AND REPORTS
The Trustee shall, to the extent necessary, prepare and file on behalf of the Trust appropriate United States and Canadian income tax returns and any other returns or reports as may be required by applicable law or pursuant to the rules and regulations of any securities exchange or other trading system through which the Exchangeable Shares are traded and, in connection therewith, may obtain the advice and assistance of such experts as the Trustee may consider necessary or advisable. If requested by the Trustee, OSI shall retain such experts for purposes of providing such advice and assistance.
7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE
The Trustee shall exercise any or all of the rights, duties, powers or authorities vested in it by this agreement at the request, order or direction of any Holder upon such Holder's furnishing to the Trustee reasonable funding, security and indemnity against the costs, expenses and liabilities which may be incurred by the Trustee therein or thereby; provided that no Holder shall be obligated to furnish to the Trustee any such funding, security or indemnity in connection with the exercise by the Trustee of any of its rights, duties, powers and authorities with respect to the Voting Share pursuant to Article 4 hereof, subject to Section 7.15 hereof, and with respect to the Exchange Right pursuant to Article 5 hereof, subject to Section 7.15 hereof, and with respect to the Automatic Exchange Rights pursuant to Article 5 hereof. None of the provisions contained in this agreement shall require the Trustee to expend or risk its own funds or otherwise incur
financial liability in the exercise of any of its rights, powers, duties or authorities unless funded, given funds, security and indemnified as aforesaid.
7.7 ACTIONS BY HOLDERS
No Holder shall have the right to institute any action, suit or proceeding or to exercise any other remedy authorized by this agreement for the purpose of enforcing any of its rights or for the execution of any trust or power hereunder unless the Holder has requested the Trustee to take or institute such action, suit or proceeding and furnished the Trustee with the funding, security and indemnity referred to in Section 7.6 hereof and the Trustee shall have failed to act within a reasonable time thereafter. In such case, but not otherwise, the Holder shall be entitled to take proceedings in any court of competent jurisdiction such as the Trustee might have taken; it being understood and intended that no one or more Holders shall have any right in any manner whatsoever to affect, disturb or prejudice the rights hereby created by any such action, or to enforce any right hereunder or under the Voting Rights, the Exchange Right or the Automatic Exchange Rights, except subject to the conditions and in the manner herein provided, and that all powers and trusts hereunder shall be exercised and all proceedings at law shall be instituted, had and maintained by the Trustee, except only as herein provided, and in any event for the equal benefit of all Holders.
7.8 RELIANCE UPON DECLARATIONS
The Trustee shall not be considered to be in contravention of any of its rights, powers, duties and authorities hereunder if, when required, it acts and relies in good faith upon lists, mailing labels, notices, statutory declarations, certificates, opinions, reports or other papers or documents furnished pursuant to the provisions hereof or required by the Trustee to be furnished to it in the exercise of its rights, powers, duties and authorities hereunder, and such lists, mailing labels, notices, statutory declarations, certificates, opinions, reports or other papers or documents comply with the provisions of Section 7.9 hereof, if applicable, and with any other applicable provisions of this agreement.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE
PTI Holdco and/or OSI shall furnish to the Trustee evidence of compliance with the conditions provided for in this agreement relating to any action or step required or permitted to be taken by PTI Holdco and/or OSI or the Trustee under this agreement or as a result of any obligation imposed under this agreement, including, without limitation, in respect of the Voting Rights or the Exchange Right or the Automatic Exchange Rights and the taking of any other action to be taken by the Trustee at the request of or on the application of PTI Holdco and/or OSI forthwith if and when:
(a) such evidence is required by any other section of this agreement to be furnished to the Trustee in accordance with the terms of this Section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and authorities under this agreement, gives PTI Holdco and/or OSI written notice requiring it to furnish such evidence in relation to any particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of PTI Holdco and/or OSI or a statutory declaration or a certificate made by persons entitled to sign an Officer's Certificate stating that any such condition has been complied with in accordance with the terms of this agreement.
Whenever such evidence relates to a matter other than the Voting Rights or the Exchange Right or the Automatic Exchange Rights, and except as otherwise specifically provided herein, such evidence may consist of a report or opinion of any solicitor, auditor, accountant, appraiser, valuer, engineer or other expert or any other person whose qualifications give authority to a statement made by him, provided that, if such report or opinion is furnished by a director, officer or employee of PTI Holdco and/or OSI, it shall be in the form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the Trustee as evidence of compliance with a condition provided for in this agreement shall include a statement by the person giving the evidence:
(i) declaring that such person has read and understands the
provisions of this agreement relating to the condition in
question;
(ii) describing the nature and scope of the examination or
investigation upon which such person based the statutory
declaration, certificate, statement or opinion; and
(iii) declaring that such person has made such examination or
investigation as such person believes is necessary to
enable such person to make the statements or give the
opinions contained or expressed therein.
7.10 EXPERTS, ADVISERS AND AGENTS
The Trustee may:
(a) in relation to these presents act and rely on the opinion or
advice of or information obtained from or prepared by any
solicitor, auditor, accountant, appraiser, valuer, engineer or
other expert, whether retained by the Trustee or by PTI Holdco
and/or OSI or otherwise, and may employ such assistants as may be
necessary to the proper determination and discharge of its powers
and duties and determination of its rights hereunder and may pay
proper and reasonable compensation for all such legal and other
advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably
require for the proper determination and discharge of its powers
and duties hereunder, and may pay reasonable remuneration for all
services performed for it (and shall be entitled to receive
reasonable remuneration for all services performed by it) in the
discharge of the trusts hereof and compensation for all
disbursements, costs and expenses made or incurred by it in the
determination and discharge of its duties hereunder and in the
management of the Trust.
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7.11 INVESTMENT OF MONEYS HELD BY TRUSTEE
Unless otherwise provided in this agreement, any moneys held by or on behalf of the Trustee which under the terms of this agreement may or ought to be invested or which may be on deposit with the Trustee or which may be in the hands of the Trustee, may be invested and reinvested in the name or under the control of the Trustee in securities in which, under the laws of the Province of Alberta, trustees are authorized to invest trust moneys; provided that such securities are stated to mature within two years after their purchase by the Trustee, and the Trustee shall so invest such moneys on the written direction of PTI Holdco. Pending the investment of any moneys as hereinbefore provided, such moneys may be deposited in the name of the Trustee in any chartered bank in Canada or, with the consent of PTI Holdco, in the deposit department of the Trustee or any other loan or trust company authorized to accept deposits under the laws of Canada or any province thereof at the rate of interest then current on similar deposits.
7.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY
The Trustee shall not be required to give any bond or security in respect of the execution of the trusts, rights, duties, powers and authorities of this agreement or otherwise in respect of the premises.
7.13 TRUSTEE NOT BOUND TO ACT ON REQUEST
Except as in this agreement otherwise specifically provided, the Trustee shall not be bound to act in accordance with any direction or request of PTI Holdco and/or OSI or of the directors thereof until a duly authenticated copy of the instrument or resolution containing such direction or request shall have been delivered to the Trustee, and the Trustee shall be empowered to act and rely upon any such copy purporting to be authenticated and believed by the Trustee to be genuine.
7.14 AUTHORITY TO CARRY ON BUSINESS
The Trustee represents to PTI Holdco and OSI that at the date of execution and delivery by it of this agreement it is authorized to carry on the business of a trust company in the Province of Alberta but if, notwithstanding the provisions of this Section 7.14, it ceases to be so authorized to carry on business, the validity and enforceability of this agreement and the Voting Rights, the Exchange Right and the Automatic Exchange Rights shall not be affected in any manner whatsoever by reason only of such event; provided, however, the Trustee shall, within 90 days after ceasing to be authorized to carry on the business of a trust company in the Province of Alberta, either become so authorized or resign in the manner and with the effect specified in Article 10 hereof.
7.15 CONFLICTING CLAIMS
If conflicting claims or demands are made or asserted with respect to any interest of any Holder in any Exchangeable Shares, including any disagreement between the heirs, representatives, successors or assigns succeeding to all or any part of the interest of any Holder in any Exchangeable Shares resulting in conflicting claims or demands being made in connection with such interest, then the Trustee shall be entitled, at its sole discretion, to refuse to recognize
or to comply with any such claim or demand. In so refusing, the Trustee may elect not to exercise any Voting Rights, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands and, in so doing, the Trustee shall not be or become liable to any person on account of such election or its failure or refusal to comply with any such conflicting claims or demands. The Trustee shall be entitled to continue to refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting Rights, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands have been adjudicated by a final judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right or Automatic Exchange Rights subject to such conflicting claims or demands have been conclusively settled by a valid written agreement binding on all such adverse claimants, and the Trustee shall have been furnished with an executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by any such adverse claimant, it may in its discretion require such claimant to furnish such surety bond or other security satisfactory to the Trustee as it shall deem appropriate fully to indemnify it as between all conflicting claims or demands.
7.16 ACCEPTANCE OF TRUST
The Trustee hereby accepts the Trust created and provided for by and in this agreement and agrees to perform the same upon the terms and conditions herein set forth and to hold all rights, privileges and benefits conferred hereby and by law in trust for the various persons who shall from time to time be Holders, subject to all the terms and conditions herein set forth.
ARTICLE 8
COMPENSATION
OSI and PTI Holdco jointly and severally agree to pay to the Trustee reasonable compensation for all of the services rendered by it under this agreement and will reimburse the Trustee for all reasonable expenses (including but not limited to taxes, compensation paid to experts, agents and advisors, and travel expenses) and disbursements, including the cost and expense of any suit or litigation of any character and any proceedings before any governmental agency, reasonably incurred by the Trustee in connection with its rights and duties under this agreement; provided that OSI and PTI Holdco shall have no obligation to reimburse the Trustee for any expenses or disbursements paid, incurred or suffered by the Trustee in any suit or litigation in which the Trustee is determined to have acted in bad faith or with negligence or willful misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 INDEMNIFICATION OF THE TRUSTEE
OSI and PTI Holdco jointly and severally agree to indemnify and hold harmless the Trustee and each of its directors, officers, employees and agents appointed and acting in accordance with this agreement (collectively, the "Indemnified Parties") against all claims, losses, damages, costs, penalties, fines and reasonable expenses (including reasonable expenses of the Trustee's legal counsel) which, without fraud, negligence, willful misconduct or bad faith on the part of such Indemnified Party, may be paid, incurred or suffered by the Indemnified Party by reason of or as a result of the Trustee's acceptance or administration of the Trust, its compliance with its duties set forth in this agreement, or any written or oral instructions delivered to the Trustee by OSI or PTI Holdco pursuant hereto. In no case shall OSI or PTI Holdco be liable under this indemnity for any claim against any of the Indemnified Parties unless OSI and PTI Holdco shall be notified by the Trustee of the written assertion of a claim or of any action commenced against the Indemnified Parties, promptly after any of the Indemnified Parties shall have received any such written assertion of a claim or shall have been served with a summons or other first legal process giving information as to the nature and basis of the claim. Subject to (ii) below, OSI and PTI Holdco shall be entitled to participate at their own expense in the defense and, if OSI or PTI Holdco so elect at any time after receipt of such notice, either of them may assume the defense of any suit brought to enforce any such claim. The Trustee shall have the right to employ separate counsel in any such suit and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Trustee unless: (i) the employment of such counsel has been authorized by OSI or PTI Holdco, such authorization not to be unreasonably withheld; or (ii) the named parties to any such suit include both the Trustee and OSI or PTI Holdco and the Trustee shall have been advised by counsel acceptable to OSI or PTI Holdco that there may be one or more legal defenses available to the Trustee that are different from or in addition to those available to OSI or PTI Holdco and that an actual or potential conflict of interest exists (in which case OSI and PTI Holdco shall not have the right to assume the defense of such suit on behalf of the Trustee, but shall be liable to pay the reasonable fees and expenses of counsel for the Trustee). This indemnity shall survive the resignation or removal of the Trustee and the termination of the trust.
9.2 LIMITATION OF LIABILITY
The Trustee shall not be held liable for any loss which may occur by reason of depreciation of the value of any part of the Trust Estate or any loss incurred on any investment of funds pursuant to this agreement, except to the extent that such loss is attributable to the fraud, negligence, willful misconduct or bad faith on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 RESIGNATION
The Trustee, or any trustee hereafter appointed, may at any time resign
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by giving written notice of such resignation to OSI and PTI Holdco specifying the date on which it desires to
resign, provided that such notice shall never be given less than 60 days before such desired resignation date unless OSI and PTI Holdco otherwise agree and provided further that such resignation shall not take effect until the date of the appointment of a successor trustee and the acceptance of such appointment by the successor trustee. Upon receiving such notice of resignation, OSI and PTI Holdco shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which shall be delivered to the resigning trustee and one copy to the successor trustee. Failing acceptance by a successor trustee, a successor trustee may be appointed by an order of the superior court of the province in which PTI Holdco has its registered office upon application of one or more of the parties hereto.
10.2 REMOVAL
The Trustee, or any trustee hereafter appointed, may be removed with or without cause, at any time on 60 days prior notice by written instrument executed by OSI and PTI Holdco, in duplicate, one copy of which shall be delivered to the trustee so removed and one copy to the successor trustee; provided that, in connection with such removal, provision is made for a replacement trustee similar to that contemplated in Section 10.1.
10.3 SUCCESSOR TRUSTEE
Any successor trustee appointed as provided under this agreement shall execute, acknowledge and deliver to OSI and PTI Holdco and to its predecessor trustee an instrument accepting such appointment. Thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor under this agreement, with like effect as if originally named as trustee in this agreement. However, on the written request of OSI and PTI Holdco or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of this agreement, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon the request of any such successor trustee, OSI, PTI Holdco and such predecessor trustee shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers.
10.4 NOTICE OF SUCCESSOR TRUSTEE
Upon acceptance of appointment by a successor trustee as provided herein, OSI and PTI Holdco shall cause to be mailed notice of the succession of such trustee hereunder to each Holder specified in a List. If OSI or PTI Holdco shall fail to cause such notice to be mailed within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of OSI and PTI Holdco.
ARTICLE 11
SUCCESSORS
11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC.
Neither OSI nor PTI Holdco shall enter into any transaction (whether by
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way of reconstruction, reorganization, consolidation, merger, transfer, sale, lease or otherwise) whereby
all or substantially all of its undertaking, property and assets would become the property of any other Person or, in the case of a merger, of the continuing corporation resulting therefrom, but may do so if:
(a) (i) such other Person or continuing corporation (the "Successor"),
by operation of law, becomes, without further action, bound by
the terms and provisions of this agreement or, if not so
bound, executes, prior to or contemporaneously with the
consummation of such transaction an agreement supplemental
hereto and such other instruments (if any) as are satisfactory
to the Trustee and in the opinion of legal counsel to the
Trustee are necessary or advisable to evidence the assumption
by the Successor of liability for all moneys payable and
property deliverable hereunder, the covenant of such Successor
to pay and deliver or cause to be delivered the same and its
agreement to observe and perform all the covenants and
obligations of OSI or PTI Holdco, as the case may be, under
this agreement; and
(ii) such transaction shall, to the satisfaction of the Trustee, be
upon such terms which substantially preserve and do not impair
in any material respect any of the rights, duties, powers and
authorities of the Trustee or of the Holders hereunder; or
(b) all Exchangeable Shares are redeemed or repurchased pursuant to
Article 7 of the Exchangeable Share Provisions or under the
Redemption Call Rights prior to or concurrently with the
consummation of such transactions.
11.2 VESTING OF POWERS IN SUCCESSOR
Whenever the conditions of Section 11. 1 hereof have been duly observed
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and performed, the Trustee, if required by Section 11.1 hereof, the Successor and OSI or PTI Holdco, as the case may be, shall execute and deliver the supplemental agreement provided for in Article 12 hereof, and thereupon the Successor shall possess and from time to time may exercise each and every right and power of OSI or PTI Holdco, as the case may be, under this agreement in the name of OSI or PTI Holdco, as the case may be, or otherwise and any act or proceeding by any provision of this agreement required to be done or performed by the board of directors or any officers of OSI or PTI Holdco may be done and performed with like force and effect by the directors or officers of such Successor.
11.3 WHOLLY-OWNED SUBSIDIARIES
Nothing herein shall be construed as preventing: (a) the amalgamation or merger of any wholly-owned subsidiary of OSI with or into OSI; or (b) the winding-up, liquidation or dissolution of any wholly-owned subsidiary of OSI provided that all of the assets of such subsidiary are transferred to OSI or another wholly-owned subsidiary of OSI, and any such transactions are hereby expressly permitted.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
12.1 AMENDMENTS, MODIFICATIONS, ETC.
Subject to Sections 12.2 and 12.4, this agreement may not be amended,
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modified or waived except by an agreement in writing executed by PTI Holdco, OSI and the Trustee and approved by the Holders in accordance with Section 9.2 of the Exchangeable Share Provisions. No amendment to or modification or waiver of any of the provisions of this agreement otherwise permitted hereunder shall be effective unless made in writing and signed by all of the parties hereto.
12.2 MINISTERIAL AMENDMENTS
Notwithstanding the provisions of Section 12.1 hereof, the parties to this agreement may in writing, at any time and from time to time, without the approval of the Holders, amend or modify this agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the protection of the Holders hereunder subject to the receipt by the Trustee of an opinion of its counsel that the addition of the proposed covenant is not prejudicial to the interests of the Holders as a whole or the Trustee;
(b) making such amendments or modifications not inconsistent with this agreement as may be necessary or desirable with respect to matters or questions which, in the opinion of the board of directors of each of OSI and PTI Holdco and in the opinion of the Trustee and its counsel, having in mind the best interests of the Holders as a whole, it may be expedient to make, provided that such boards of directors and the Trustee and its counsel shall be of the opinion that such amendments and modifications will not be prejudicial to the interests of the Holders as a whole;
(c) making such changes or corrections which, on the advice of counsel to PTI Holdco, OSI and the Trustee, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error; provided that the Trustee and its counsel and the board of directors of each of PTI Holdco and OSI shall be of the opinion that such changes or corrections will not be prejudicial to the interests of the Holders as a whole; or
(d) making such changes as may be necessary or appropriate to
implement or give effect to any assignment or assumption made
pursuant to Section 14.9 hereof.
12.3 MEETING TO CONSIDER AMENDMENTS
PTI Holdco, at the request of OSI, shall call a meeting or meetings of
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the Holders for the purpose of considering any proposed amendment or modification requiring approval pursuant hereto. Any such meeting or meetings shall be called and held in accordance with the by-laws of PTI Holdco, the Exchangeable Share Provisions and all applicable laws.
12.4 CHANGES IN CAPITAL OF OSI AND PTI HOLDCO
At all times after the occurrence of any event effected pursuant to
Section 2.7 or Section 2.8 of the Support Agreement, as a result of which either
OSI Common Stock or the Exchangeable Shares or both are in any way changed, this
agreement shall forthwith be amended and modified as necessary in order that it
shall apply with full force and effect, mutatis mutandis, to all new securities
into which OSI Common Stock or the Exchangeable Shares or both are so changed,
and the parties hereto shall execute and deliver a supplemental agreement giving
effect to and evidencing such necessary amendments and modifications.
12.5 EXECUTION OF SUPPLEMENTAL AGREEMENTS
From time to time, PTI Holdco (when authorized by a resolution of its Board of Directors), OSI (when authorized by a resolution of its board of directors) and the Trustee may, subject to the provisions of these presents, and they shall, when so directed by these presents, execute and deliver by their proper officers, agreements or other instruments supplemental hereto, which thereafter shall form part hereof, for any one or more of the following purposes:
(a) evidencing the succession of any Successors to OSI and the covenants of and obligations assumed by each such Successor in accordance with the provisions of Article 11 and the successor of any successor trustee in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the provisions of this agreement or the Voting Rights, the Exchange Right or the Automatic Exchange Rights which, in the opinion of the Trustee and its counsel, will not be prejudicial to the interests of the Holders as a whole or are in the opinion of counsel to the Trustee necessary or advisable in order to incorporate, reflect or comply with any legislation the provisions of which apply to OSI, PTI Holdco, the Trustee or this agreement;
(c) to implement or give effect to any assignment or assumption made pursuant to Section 14.9 hereof; and
(d) for any other purposes not inconsistent with the provisions of
this agreement, including without limitation to make or evidence
any amendment or modification to this agreement as contemplated
hereby, provided that, in the opinion of the Trustee and its
counsel, the rights of the Trustee and the Holders as a whole
will not be prejudiced thereby.
ARTICLE 13
TERMINATION
13.1 TERM
The Trust created by this agreement shall continue until the earliest
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to occur of the following events:
(a) no outstanding Exchangeable Shares are held by a Holder;
(b) each of PTI Holdco and OSI elects in writing to terminate the Trust and such termination is approved by the Holders of the Exchangeable Shares in accordance with Section 9.1 of the Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of Her Majesty Queen Elizabeth II of the United Kingdom of Great Britain and Northern Ireland living on the date of the creation of the Trust;
whereupon OSI may repurchase the Voting Share for cancellation, at par value.
13.2 SURVIVAL OF AGREEMENT
This agreement shall survive any termination of the Trust and shall continue until there are no Exchangeable Shares outstanding held by a Holder; provided, however, that the provisions of Articles 8 and 9 hereof shall survive any such termination of this agreement.
ARTICLE 14
GENERAL
14.1 SEVERABILITY
If any provision of this agreement is held to be invalid, illegal or
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unenforceable, the validity, legality or enforceability of the remainder of this agreement shall not in any way be affected or impaired thereby, and the agreement shall be carried out as nearly as possible in accordance with its original terms and conditions.
14.2 INUREMENT
This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns and to the benefit of the Holders.
14.3 NOTICES TO PARTIES
All notices and other communications between the parties hereunder shall be in writing and shall be deemed to have been given if delivered personally or by confirmed telecopy to the parties at the following addresses (or at such other address for such party as shall be specified in like notice):
(a) if to OSI:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor
Fax: (713) 652-0499
with a copy to:
Donahue, Ernst & Young LLP
1000 Ernst & Young Tower
440 - 2nd Avenue S.W.
P.O. Box 2258, Station M
Calgary, Alberta T2P 5E5
Attention: Richard Peters Fax: (403) 206-5525
(b) if to PTI Holdco to:
Three Allen Center
333 Clay Street, Suite 333460
Houston, Texas 77002
Attention: Cindy B. Taylor Fax: (713) 652-0499
(c) if to the Trustee to:
Montreal Trust Company of Canada Suite 600, 530 - 8th Avenue S.W.
Calgary, Alberta
T2P 3S8
Attention: Manager, Stock Transfer Services Fax: (403) 267-6529
Any notice or other communication given personally shall be deemed to have been given and received upon delivery thereof, and if given by telecopy shall be deemed to have been given and received on the date of receipt thereof unless such day is not a Business Day in which case it shall be deemed to have been given and received upon the immediately following Business Day.
14.4 NOTICE TO HOLDERS
Any and all notices to be given and any documents to be sent to any Holders may be given or sent to the address of such Holder shown on the register of Holders of Exchangeable Shares in any manner permitted by the Exchangeable Share Provisions and shall be deemed to be received (if given or sent in such manner) at the time specified in such Exchangeable Share Provisions, the provisions of which Exchangeable Share Provisions shall apply mutatis mutandis to notices or documents as aforesaid sent to such Holders.
14.5 RISK OF PAYMENTS BY POST
Whenever payments are to be made or documents are to be sent to any Holder by the Trustee, by PTI Holdco or by OSI or by such Holder to the Trustee or to OSI or PTI Holdco, the
making of such payment or sending of such document sent through the mail shall be at the risk of PTI Holdco or OSI, in the case of payments made or documents sent by the Trustee or PTI Holdco or OSI, and the Holder, in the case of payments made or documents sent by the Holder.
14.6 COUNTERPARTS
This agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
14.7 JURISDICTION
This agreement shall be construed and enforced in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein.
14.8 ATTORNMENT
OSI agrees that any action or proceeding arising out of or relating to this agreement may be instituted in the courts of Alberta, waives any objection which it may have now or hereafter to the venue of any such action or proceeding, irrevocably submits to the jurisdiction of such courts in any such action or proceeding, agrees to be bound by any judgment of such courts and agrees not to seek, and hereby waives, any review of the merits of any such judgment by the courts of any other jurisdiction and hereby appoints PTI Holdco at its registered office in the Province of Alberta as OSI's attorney for service of process.
14.9 PERMITTED ASSIGNMENT
OSI may assign any or all of its rights and obligations under this
Agreement to OSI ULC, provided that each of OSI and OSI ULC shall thereafter,
jointly and severally, be liable for the performance by OSI ULC of the
obligations of OSI pursuant to this Agreement. Any and all of the obligations of
OSI may be performed and satisfied by OSI ULC, except that nothing in this
Section 14.9 will permit any change to the rights, privileges, restrictions and
conditions attaching to the Voting Share or Exchangeable Shares or to the
Exchange Right or Automatic Exchange Rights.
IN WITNESS WHEREOF, the parties hereby have caused this agreement to be duly executed as of the date first above written.
OIL STATES INTERNATIONAL, INC.
MONTREAL TRUST COMPANY OF CANADA
APPENDIX A
TO THE VOTING AND EXCHANGE TRUST AGREEMENT
[ARTICLES OF PTI HOLDCO]
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated August 13, 1999 and August 14, 1998, with respect to the financial statements of Sooner Inc. and Sooner Pipe & Supply Corporation, respectively, included in the Registration Statement (Form S-1) and related Prospectus of Oil States International, Inc. for the registration of __________ shares of its common stock.
August 9, 2000 /s/ ERNST & YOUNG LLP |
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report dated July 14, 2000 with respect to HWC Energy Services, Inc. and subsidiaries (and all reference to our firm) included in or made a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP Houston, Texas August 8, 2000 |
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Oil States International, Inc.
As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. (The Registration Statement filed by Oil States International, Inc. to register their initial public offering of common stock on Form S-1)
ARTHUR ANDERSEN LLP
Dallas, Texas
August 9, 2000
EXHIBIT 23.4
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Registration Statement on Form S-1 of our report dated July 7, 2000 relating to the consolidated financial statements of PTI Group Inc. for the years ended December 31, 1999, 1998 and the 358 day period ended December 31, 1997. We also consent to the reference to our firm under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Edmonton, Alberta, Canada Chartered Accountants
August 8, 2000
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EXHIBIT 23.6
CONSENT
The undersigned hereby consents to being named in the Registration Statement on Form S-1 for Oil States International, Inc. as a director to be appointed upon consummation of the initial public offering of Oil States International, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as of the 3rd day of August, 2000.
/s/ MARK G. PAPA ---------------------------- Mark G. Papa |
EXHIBIT 23.7
CONSENT
The undersigned hereby consents to being named in the Registration Statement on Form S-1 for Oil States International, Inc. as a director to be appointed upon consummation of the initial public offering of Oil States International, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as of the 9th day of August, 2000.
/s/ GARY L. ROSENTHAL --------------------------------- Gary L. Rosenthal |
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES (FORMERLY NAMED CONEMSCO, INC.) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, WHICH ARE INCLUDED IN THE PROSPECTUS CONSTITUTING PART OF THE REGISTRATION STATEMENT ON FORM S-1 TO WHICH THIS EXHIBIT IS ATTACHED. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 3 MOS | YEAR |
| FISCAL YEAR END | DEC 31 2000 | DEC 31 1999 |
| PERIOD START | JAN 01 2000 | JAN 01 1999 |
| PERIOD END | MAR 31 2000 | DEC 31 1999 |
| CASH | 1,697 | 1,537 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 37,075 | 34,974 |
| ALLOWANCES | 1,722 | 1,659 |
| INVENTORY | 30,051 | 25,566 |
| CURRENT ASSETS | 71,556 | 67,689 |
| PP&E | 59,686 | 59,465 |
| DEPRECIATION | 18,319 | 17,035 |
| TOTAL ASSETS | 160,221 | 157,718 |
| CURRENT LIABILITIES | 54,471 | 53,201 |
| BONDS | 56,240 | 52,542 |
| PREFERRED MANDATORY | 20,150 | 20,150 |
| PREFERRED | 1,625 | 1,625 |
| COMMON | 224 | 224 |
| OTHER SE | 14,491 | 16,709 |
| TOTAL LIABILITY AND EQUITY | 160,221 | 157,718 |
| SALES | 20,572 | 120,950 |
| TOTAL REVENUES | 27,920 | 154,330 |
| CGS | 15,676 | 101,340 |
| TOTAL COSTS | 22,050 | 126,751 |
| OTHER EXPENSES | 6,275 | 29,431 |
| LOSS PROVISION | 86 | 836 |
| INTEREST EXPENSE | 1,192 | 7,077 |
| INCOME PRETAX | (1,630) | (10,841) |
| INCOME TAX | (82) | 1,145 |
| INCOME CONTINUING | (1,548) | (11,986) |
| DISCONTINUED | 0 | (5,715) |
| EXTRAORDINARY | 0 | (927) |
| CHANGES | 0 | 0 |
| NET INCOME | (1,548) | (18,628) |
| EPS BASIC | (0.08) | (0.89) |
| EPS DILUTED | (0.08) | (0.89) |