PRODUCTION OPERATORS CORP
11302 TANNER ROAD
HOUSTON, TEXAS 77041
January 13, 1997
Dear Stockholders:
The Annual Meeting of the Stockholders of Production
Operators Corp will be held at 10:00 a.m., Central Standard
Time, on Wednesday, February 26, 1997, at the offices of
Production Operators Corp, 11302 Tanner Road, Houston, Texas
77041. The Board of Directors cordially invites you to
attend this meeting.
Enclosed with this letter are the formal notice of
meeting, the proxy statement, a proxy card and a copy of the
Annual Report of the Company for the fiscal year ended
September 30, 1996.
Please feel free to contact us if you have any questions
about the meeting or its agenda. If you do not plan to
attend the meeting in person, your prompt completion and
return of the enclosed proxy would be appreciated.
Sincerely,
Carl W. Knobloch, Jr.
Chairman of the Board
<PAGE>
TABLE OF CONTENTS
Page
Notice............................................. 3
Proxy Statement.................................... 4
Voting Rights.................................... 4
Management....................................... 5
Election of Directors.......................... 5
The Board of Directors and Its Committees...... 7
Five Percent Stockholders...................... 7
Knobloch Group................................. 8
Compensation Committee Report.................. 8
Executive Compensation......................... 11
Description of the Company's Compensation
Plans for Key Officers........................ 11
Stock Option Grant Table....................... 14
Stock Option Exercises and Stock Option
Value Table................................... 15
Corporate Performance Graph.................... 16
Interest in Certain Transactions............... 16
Amendment to Article 4 of the Certificate of
Incorporation (Proposal 2)................... 17
Independent Auditors .............................. 18
1998 Annual Meeting ............................... 18
Annual Report on Form 10-K ........................ 18
Other Matters ..................................... 18
<PAGE>
PRODUCTION OPERATORS CORP
11302 TANNER ROAD
HOUSTON, TEXAS 77041
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of the Stockholders of Production
Operators Corp, a Delaware corporation (the "Company"), will
be held at the offices of Production Operators Corp, 11302
Tanner Road, Houston, Texas 77041, on Wednesday, February 26,
1997, at 10:00 a.m., Central Standard Time, for the following
purposes:
(1) To elect eight directors;
(2) In connection with a proposed 2-for-1 stock split,
in the form of a 100% Common Stock dividend, to
vote on the approval of an amendment to the
Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock
from 15,000,000 shares to 25,000,000 shares, as
described in the accompanying proxy statement; and
(3) To transact such other business as may properly
come before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business
on January 6, 1997, as the record date for the determination
of stockholders entitled to notice of and to vote at this
meeting or any adjournment thereof. The stock transfer books
will not be closed.
By Order of the Board of Directors
Carla Knobloch
Secretary
Dated: January 13, 1997
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE URGED
TO PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED POSTAGE PAID ENVELOPE.
<PAGE>
PRODUCTION OPERATORS CORP
11302 TANNER ROAD
HOUSTON, TEXAS 77041
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by and on behalf of the
Board of Directors of Production Operators Corp (the
"Company"), whose principal executive offices are located at
11302 Tanner Road, Houston, Texas 77041, for use at the Annual
Meeting of Stockholders to be held February 26, 1997 (the
"Annual Meeting"), or any adjournment thereof, pursuant to the
foregoing notice of said meeting. This proxy statement and
the enclosed form of proxy were first sent or given to
stockholders of the Company on or about January 13, 1997.
Any stockholder giving a proxy has the power to revoke it at
any time prior to the exercise thereof by filing with the
Secretary of the Company a written revocation; filing a duly
executed proxy bearing a later date with the Secretary of the
Company; or attending the meeting and voting in person. All
shares represented by each properly executed and unrevoked
proxy received by the Company in time for the meeting will be
voted in accordance with the instructions contained therein.
If no instructions are given on an executed and returned form
of proxy, the proxies intend to vote the shares represented
thereby in favor of each of the proposals to be presented to
and voted upon by the stockholders as set forth herein, and in
accordance with their best judgment on any other matter that
may properly come before the meeting.
This proxy solicitation will be conducted principally by
mail and the expenses of soliciting proxies will be borne by
the Company. Proxies may also be solicited personally or by
telephone by officers and regular employees of the Company,
but such persons will not receive any special compensation for
any such services. Arrangements will be made with brokerage
houses, custodians, nominees and other fiduciaries to send
proxy material to the beneficial owners of stock held of
record by such persons and the Company may reimburse them for
their reasonable out-of-pocket expenses.
VOTING RIGHTS
The authorized capital stock of the Company consists of
15,000,000 shares of Common Stock, $1.00 par value per share
(the "Common Stock"), and 500,000 shares of Preference Stock,
no par value. On January 6, 1997, the record date for
determining stockholders entitled to notice of and to vote at
the Annual Meeting and any adjournments or postponements
thereof, there were issued and outstanding (exclusive of
treasury shares) 10,200,400 shares of Common Stock. Each
outstanding share of Common Stock will be entitled to one vote
at the meeting. No Preference Stock has been issued. No
stockholder is entitled to cumulative voting rights.
Abstentions are counted in the number of shares present in
person or represented by proxy for purposes of determining
whether a proposal has been approved, whereas broker nonvotes
are not counted for those purposes. A majority of the
outstanding shares of Common Stock of the Company entitled to
vote, represented in person or by proxy, shall constitute a
quorum at the 1997 Annual Meeting of Stockholders.
<PAGE>
MANAGEMENT
Election of Directors
The By-Laws of the Company provide for a maximum of fifteen
directors. Eight directors will be elected at the Annual
Meeting to serve for the ensuing year and until their
successors are elected and qualified. The persons named in
the enclosed form of proxy, or their substitutes, intend to
vote the shares represented by the proxies for only such eight
nominees. All of the nominees were elected to the Board of
Directors at the last Annual Meeting of Stockholders. The
proxies may be voted with discretionary authority for the
election of other persons as directors in case any of the
listed nominees is unable to serve for any unexpected reason.
Management is unaware of any such reason.
The following table sets forth information, as of December
1, 1996, concerning persons nominated as directors, including
their beneficial ownership, as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "1934 Act"),
of shares of Common Stock and beneficial ownership of Common
Stock by all executive officers and directors as a group. The
officers and directors have sole voting and investment power
with respect to such shares, except as otherwise noted.
<TABLE>
<CAPTION>
Common Stock
Year Beneficially
First Owned and %
Director Nominees and Elected a Certain Other of Total as of
5-Year Employment History Age Director Directorships<F4> Dec. 1, 1996<F5>
<S> <C> <C> <C> <C>
F. E. ELLIS<F1><F2><F3> 63 1990 2,000*
Retired in 1988; previously
Executive Vice President of
Conoco, Inc., an integrated
petroleum company, Houston,
Texas
JORGE E. ESTRADA M. 49 1995 Pride Petroleum
Vice President of Pride Services, Inc.,
International, a subsidiary Houston,Texas
of Pride Petroleum, an
energy drilling and
workover service company,
since July 1993 and
President and CEO of
JEMPSA, a diversified
entertainment company,
Buenos Aires, Argentina
C. RAHL GEORGE<F2><F3> 77 1964 5,350*
Retired in 1982; previously
Chairman of the Board and
Chief Executive Officer of
Rhodes, Inc., a retail
furniture company, Atlanta,
Georgia
JOHN R. HUFF<F2><F3> 50 1991 Oceaneering
Chairman of Oceaneering International,Inc.,
International, Inc. Houston, Texas; BJ
("OII"), an underwater Services Company,
services company primarily Houston, Texas;
for the offshore oil and Triton Energy
gas industry, Houston, Limited, Dallas,
Texas since August 1990; Texas
President and CEO of OII
since August 1986
<PAGE>
<CAPTION>
Common Stock
Year Beneficially
First Owned and %
Director Nominees and Elected a Certain Other of Total as of
5-Year Employment History Age Director Directorships<F4> Dec. 1, 1996<F5>
<S> <C> <C> <C> <C>
CARL W. KNOBLOCH, JR.<F1> 66 1960 1,421,921<F6>
Chairman of the Board of 13.9%
the Company since May 1,
1961 and President of the
Company from October 1,
1986 through July 5, 1994
HENRY E. LONGLEY<F2><F3> 63 1987 328,000<F7>
President of Longley Supply 3.2%
Company, wholesale plumbing
supply business,
Wilmington, North Carolina
D. JOHN OGREN<F1> 53 1994 74,978*
President of the Company
since July 5, 1994;
previously Senior Vice
President of E.I. duPont
and Company and Conoco,
Inc. and President and CEO
of DuPont Canada
LESTER VARN, 72 1964 Laclede Steel 233,020<F8>
JR.<F1><F2><F3> Company, St. Louis, 2.3%
President of Varn Missouri
Investment Company, holding
and management company for
land and securities
investment, Jacksonville,
Florida
Shares owned by all 2,107,002
directors and executive 20.4%
officers as a group (10
persons)<F9>
The information in the table is based on statements to the Company by
the individuals.
__________
*Less than one percent
<FN>
<F1> Member of the Executive Committee.
<F2> Member of the Stock Option and Executive Compensation Committee.
<F3> Member of the Audit Committee.
<F4> The directorships shown are with companies registered under
Section 12 of the 1934 Act or subject to the reporting requirements of
Section 15(d) of the 1934 Act or registered under the Investment
Company Act of 1940.
<F5> The number of shares includes shares beneficially owned as
defined in Rule 13d-3 promulgated under the 1934 Act.
<F6> Reference is made to "Five Percent Stockholders" regarding Mr.
Knobloch's stock ownership.
<F7> Mr. Longley has sole voting and dispositive power as to 230,000
shares and shares voting and dispositive power with respect to 80,000
shares as one of three trustees of the Profit Sharing Pension Plan of
Longley Supply Company. Mr. Longley disclaims beneficial ownership of
18,000 shares held in the name of his wife, Anne Penton Longley, which
are included in the table.
<F8> Included in the table are 75,944 shares held by Mr. Varn and his
brother, George Varn, as co-trustees of a trust for the benefit of
Lester Varn, Jr. Mr. Varn disclaims any beneficial ownership of the
following shares included in the table: 75,974 shares held by a trust
of which Mr. Varn and his brother are co-trustees for the benefit of
his brother; 3,036 shares held by trusts of which Mr. Varn and his
brother are co-trustees for the benefit of Mr. Varn's two children and
one of his brother's children; and 4,355 shares held by trusts of
which Mr. Varn, his brother and his mother are co-trustees, one trust
for the benefit of his mother and the other for the benefit of his and
his brother's children. Mr. Varn is co-owner with his brother and
their children of three companies and a profit-sharing plan that hold
71,687 shares, which are included in the table.
<F9> For directors, nominees and officers as a group, the number of
shares includes 116,271 shares which are subject to options issued
under the Company's 1980 and 1992 Long-Term Incentive Plans that are
exercisable or become exercisable within 60 days of December 1, 1996.
</FN>
</TABLE>
The Board of Directors and Its Committees
The Board of Directors has Executive, Audit, and Stock
Option and Executive Compensation Committees. The
membership on these committees by the directors standing for
election is shown in the table. The Board of Directors does
not have a nominating committee or other committee
performing a similar function. During the last fiscal year,
the Board of Directors met five times, the Audit Committee
met three times, the Stock Option and Executive Compensation
Committee met three times and the Executive Committee met
once. All directors attended more than 90% of the meetings
of the Board of Directors and the respective committees on
which they served.
The Executive Committee is composed of two directors who
are employees and two directors who are not employees.
Notwithstanding the broad powers conferred upon the
Executive Committee, as a matter of policy, material matters
are normally passed upon by the Board of Directors as a
whole and all developments of major significance are
reported promptly to the Board.
The Audit Committee is composed of five members, all of
whom are nonemployee directors. The Audit Committee, among
its functions, reviews the scope of the independent
auditors' examination and the Company's financial policies
and accounting systems and controls. The Audit Committee
also reviews with the firm of independent auditors, its
audit procedures, management letters and other significant
facets of the annual audit made by the auditors and advises
the Board of Directors of the adequacy of the audit by said
independent auditors. The Audit Committee reviews
retrospectively all fees paid to independent auditors.
The Stock Option and Executive Compensation Committee is
composed of five members, all of whom are nonemployee
directors. The Stock Option and Executive Compensation
Committee administers the 1992 Long-Term Incentive Plan and
grants awards under the Plan. It is also responsible for
approving compensation guidelines and reviewing the total
compensation for executives of the Company or subsidiaries
whose aggregate annual cash compensation exceeds $75,000.
Nonemployee directors who serve on the Executive
Committee are paid annual fees of $12,000 each, other
nonemployee directors are paid annual fees of $10,000 each
and Committee Chairmen receive an annual payment of $1,000.
Nonemployee directors also receive $1,000 for each day in
attendance at a meeting for or in consultation with the
Company. Members of the Board of Directors who are
employees of the Company do not receive extra compensation
for serving as directors.
Five Percent Stockholders
The persons or entities known to the Company to own
beneficially more than 5% of the Common Stock is a group of
stockholders including Carl W. Knobloch, Jr. and members of
his family (the "Knobloch Group") and based on the most
recent 13G filings, two other entities.
According to information contained in the most recent
annual filings with the SEC pursuant to Section 13G of the
1934 Act, Putnam Investments, Inc. and Denver Investment
Advisors LLC were the beneficial owners of over 5% of the
Company's stock. Certain Putnam investment managers are
considered beneficial owners in the aggregate of 878,381
shares or 8.7% of shares outstanding. Denver Investment
Advisors LLC's 13G reported beneficial ownership of 809,650
shares or 7.94% of shares outstanding. According to these
13G filings, such shares were acquired in the ordinary
course of business and were not acquired for the purpose of
and do not have the effect of changing or influencing the
control of the Company.
Knobloch Group
The Knobloch Group, on April 9, 1987, filed with the
Securities and Exchange Commission (the "SEC") a Schedule
13D, the latest amendment to which was filed on February 15,
1989 (Amendment No. 4). The Knobloch Group holds shares of
the Common Stock at December 1, 1996 as follows:
<TABLE>
<CAPTION>
Name Number of Shares Percent of Class
<S> <C> <C>
Carl W. Knobloch, Jr. 1,421,925<F1> 13.9%
Emily C. Knobloch 1,112,800<F2> 10.8%
William R. Knobloch 892,208<F3> 8.7%
Total 2,090,633<F4> 20.4%<F4>
<FN>
<F1> Mr. Knobloch has sole voting and dispositive power as to
15,000 shares; shares voting and dispositive power as a co-
trustee with his wife, Emily C. Knobloch, as to 1,106,314 shares;
shares voting and dispositive power as a co-trustee with his
brother, William R. Knobloch, as to 223,500 shares; shares voting
and dispositive power as a co-trustee with his sister-in-law,
Audrey Knobloch, as to 5,000 shares; has 5,210 shares vested in
his account in the Company's Employee Stock Ownership Plan; has
the right to acquire 66,500 shares through the exercise of stock
options that are exercisable or become exercisable within 60 days
of December 1, 1996; and has 401 shares of restricted stock. Mr.
Knobloch disclaims beneficial ownership of the following shares
included in the table: 223,500 shares held by trusts of which
Mr. Knobloch is a co-trustee with William R. Knobloch for the
benefit of three nephews, two nieces and the three children of
Carl W. Knobloch, Jr.; 206,400 shares held by a trust of which
Mr. Knobloch is co-trustee with Emily C. Knobloch for the benefit
of Mrs. Knobloch; 5,000 shares held by a trust of which Mr.
Knobloch is co-trustee with Audrey Knobloch for the benefit of
his brother, William R. Knobloch; and 15,000 shares held by Mr.
Knobloch as trustee of three trusts for the benefit of two
nephews and one niece. Mr. Knobloch's business address is:
Production Operators Corp, 11302 Tanner Road, Houston, Texas
77041.
<F2> Emily C. Knobloch shares voting and dispositive power as a
co-trustee with Carl W. Knobloch, Jr. as to 1,106,314 shares and
as a co-trustee with William R. Knobloch as to 6,486 shares.
Mrs. Knobloch disclaims beneficial ownership of the following
shares included in the table: 899,914 shares held by a trust of
which Mrs. Knobloch is co-trustee with Carl W. Knobloch, Jr. for
the benefit of Carl W. Knobloch, Jr.; and 6,486 shares held by a
trust of which Mrs. Knobloch is co-trustee with William R.
Knobloch for the benefit of a sister of Carl W. Knobloch, Jr. and
William R. Knobloch. Mrs. Knobloch's address for business
purposes is: Production Operators Corp, 11302 Tanner Road,
Houston, Texas 77041.
<F3> William R. Knobloch has sole voting and dispositive power
as to 658,122 shares; shares voting and dispositive power as co-
trustee with Carl W. Knobloch, Jr. as to 223,500 shares; shares
voting and dispositive power as co-trustee with Emily C. Knobloch
as to 6,486 shares; and shares voting and dispositive power as
co-general partner with Audrey Knobloch as to 4,100 shares.
William R. Knobloch disclaims beneficial ownership of the
following shares included in the table: 617,548 shares held by
trusts of which he is trustee for the benefit of four nieces and
one nephew; 223,500 shares held by trusts of which he is co-
trustee with Carl W. Knobloch, Jr. for the benefit of four
nieces, one nephew and the three children of William R. Knobloch;
6,486 shares held by a trust of which he is co-trustee with Emily
C. Knobloch for the benefit of his sister; and 4,100 shares held
by a partnership of which he and his wife, Audrey Knobloch are
general partners for the benefit of their grandchildren. William
R. Knobloch's residence address is: 452 Country Club Road, New
Canaan, Connecticut 06840.
<F4> Adjusted to reflect overlap of shares owned by trusts as to
which more than one of Carl W. Knobloch, Jr., Emily C. Knobloch
and William R. Knobloch serves as trustee. Includes 66,500
shares which Carl W. Knobloch, Jr. has the right to acquire
through the exercise of stock options that are exercisable or
become exercisable within 60 days of December 1, 1996.
</FN>
</TABLE>
<PAGE>
Compensation Committee Report
The Stock Option and Executive Compensation Committee
(the "Committee") is composed of five members, all of whom
are independent, outside directors who are not eligible to
participate in any of the management compensation programs.
The Committee interprets and administers, with
recommendations from management, the 1992 Long-Term
Incentive Plan and makes all final determinations as to
grants under the Plan. The Committee also reviews and
approves compensation guidelines and reviews the total
compensation for executives of the Company and its
subsidiaries whose aggregate annual cash compensation
exceeds $75,000.
The basic philosophy underlying the development and
administration of the Company's annual and long-term
compensation program is to align the efforts of senior
management with the interests of the Company's stockholders.
Key elements of this philosophy are:
Establishing compensation programs that will (i) attract
and retain individuals of outstanding ability and (ii)
recognize excellent individual performance and (iii)
provide focus on the performance of the Company as
measured against annual and long-term objectives
Providing significant equity-based incentives for
executives to ensure that they are motivated over the
long term to respond to the Company's business
challenges and opportunities from the prospective of an
owner with an equity stake in the business
Rewarding executives consistent with gains in
stockholder value
There are three major components of the Company's
compensation program: Base salary, annual variable
compensation and long-term incentive awards. The criteria for
determining base salaries are an individual employee's
performance over the prior year, internal considerations and
salaries of comparative positions at similar companies. The
Target Variable Compensation Plan, approved by the Stock
Option and Executive Compensation Committee in May 1995,
replaces the Key Employee Bonus Plan and is the vehicle by
which executives can earn variable compensation annually based
on Company performance. Under the Target Variable Compensation
Plan, a threshold minimum Company performance level, based on
achieving the lesser of a percentage of the profit plan or a
defined return on equity (ROE) objective, must be reached in
order for any variable compensation to be paid. The ROE
objective is determined by reference to the Standard & Poor's
600 index with the Company's minimum ROE target set at the
median ROE for the S&P 600 companies. There are then three
levels of Company performance, namely threshold, target and
maximum, determined by profit plan and ROE objectives which
define guidelines for percentage of salary that can be paid as
a bonus. Given the overall Company's performance ranking and
the resulting percentage of base salary guideline, individual
awards are determined based on an equal weighting of business
unit performance versus the profit plan and success in
reaching specific individual, personal objectives.
Stock option or long-term incentive awards granted pursuant
to the stockholder-approved 1992 Long-Term Incentive Plan are
designed to attract and retain employees who contribute to
the Company's success by enabling those persons to participate
in that success and growth through an equity stake in the
Company. Stock option grants to executive officers are made
at the discretion of the Committee and reflect the relative
value of the individual's position as well as the current
performance and continuing contribution of that individual to
the Company. Typically, options granted are non-qualified
options with the exercise price equalling the market value of
the underlying common stock on the date of grant and are
exercisable for 10 years vesting 25% at the end of each year
after the date of grant. The Company's long-term performance
ultimately determines compensation from stock options, since
stock options only have value if the stock price appreciates
in value from the date the options are granted. The Company
has not utilized below-market options, stock appreciation
rights, phantom stock or performance units.
Senior executives have recommended stock ownership
guidelines to attain over a five-year period. These shares
are to be acquired through open market purchases, the Employee
Stock Ownership Plan, shares held from stock option exercises
and share awards under the Target Variable Compensation Plan.
Neither Mr. Knobloch nor Mr. Ogren have ever sold any
Production Operators' stock.
The Committee periodically retains independent compensation
consultants to compare base salary and incentive compensation
programs for the Company's executive officers with those of
other firms of comparable size.
In 1996 the Company's revenues and net income from
continuing operations improved significantly and the return on
equity increased to 11.9% from 10.3% last year. This 1996
performance exceeded threshold or minimum level payouts by a
small margin under the Company's Target Variable Compensation
Plan. In 1996 long-term incentive awards were granted through
non-qualified stock options. The individual option grants
reflected the relative value of the individual's position and
their current performance. Mr. Knobloch, the Company's
Chairman of the Board of Directors (and President until June
1994), recommended for the past five years that he receive no
options in order to maximize the availability of options for
awards to other members of management. The Committee approved
Mr. Knobloch's recommendation based on their mutual agreement
to maximize the opportunity for other key members of
management who are not yet significant owners to increase
their equity interest in the Company. The Committee approved
a salary increase for Mr. Knobloch, whose last increase was in
1992. Mr. Knobloch received a bonus award of $37,980 based on
the Company's 1996 performance as dictated by the guidelines
in the Target Variable Compensation Plan.
On June 16, 1994 the Committee and the Board of Directors
approved the election of D. John Ogren as President of the
Company and a director. Based on the Company's fiscal 1996
results, Mr. Ogren received a bonus award of $34,815 in
accordance with the guidelines in the Target Variable
Compensation Plan. For his 1996 long-term compensation, Mr.
Ogren was granted 10,520 options at the closing market price
of the Company's stock on the date of grant.
The Committee believes the policies and programs described
in this Report appropriately align the Company's executive
compensation with corporate performance and the interests of
shareholders.
F. E. Ellis Henry E. Longley
C. Rahl George Lester Varn, Jr., Chairman
John R. Huff
Executive Compensation
Summary Compensation Table
The following table shows the compensation for services
rendered to the Company and its subsidiaries in all capacities
for the three fiscal years ended September 30, 1996 of the
four executive officers of the Company:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Awards
Securities
Name of Individual Variable Underlying All Other
and Capacities in Compen- Options Compen-
Which Served Salary sation<F1> (# Shares) sation<F2>
<S> <C> <C> <C> <C> <C>
CARL W. KNOBLOCH, JR. 1996 $193,333 $37,980 -- $14,868
Chairman and Director 1995 159,996 26,495 -- 11,853
of Registrant 1994 159,996 -- -- 12,027
D. JOHN OGREN 1996 216,667 34,815 10,520 14,300
President and Director 1995 200,000 27,600 12,570 7,805
of Registrant 1994 50,000 -- 41,237 --
THOMAS R. REINHART 1996 127,296 14,789 5,212 23,320
Vice President of 1995 122,400 14,092 6,590 22,686
Registrant and 1994 115,002 12,000 6,300 23,697
Executive Vice
President of
Production Operators,
Inc. (subsidiary)
JOHN B. SIMMONS 1996 88,542 13,610 1,880 4,314
Treasurer of 1995 28,413 -- -- --
Registrant and of 1994 -- -- -- --
Production Operators,
Inc. (subsidiary)
<FN>
<F1> Mr. Knobloch, Mr. Ogren, Mr. Reinhart and Mr. Simmons are eligible to
receive variable compensation under the Target Variable Compensation Plan of
Production Operators, Inc. Continuance of the Target Variable Compensation
Plan is subject to annual review by the Board of Directors of the
subsidiary. This annual variable compensation is awarded 50% in restricted
stock and 50% in cash. Restricted stock awards are valued at the Company's
closing stock price on the grant date.
<F2> All other compensation consists of Company-matched Thrift Plan
contributions, Employee Stock Ownership Plan (ESOP) allocations and
supplemental retirement and death benefit plan contributions.
</FN>
</TABLE>
<PAGE>
Company's Compensation Plans for Key Officers
Salary
Salaries of officers are reviewed annually and
compensation guidelines for employees whose salaries exceed
$75,000 annually are reviewed and approved by the Stock
Option and Executive Compensation Committee.
Target Variable Compensation Plan
The Target Variable Compensation Plan (TVCP), approved
by the Stock Option and Executive Compensation Committee in
May 1995, replaces the Key Employee Bonus Plan and is the
vehicle by which executives can earn variable compensation
annually based on Company performance. Under the Target
Variable Compensation Plan, a threshold minimum Company
performance level, based on achieving the lesser of a
percentage of the profit plan or a defined return on equity
(ROE) objective, must be reached in order for any variable
compensation to be paid. The ROE objective is determined by
reference to the Standard & Poor's 600 index with the
Company's minimum ROE target set at the median ROE for the
S&P 600 companies. There are then three levels of Company
performance, namely threshold, target and maximum,
determined by profit plan and ROE objectives that define
guidelines for percentage of salary that can be paid as a
bonus. Given the overall Company's performance ranking and
the resulting percentage of base salary guideline,
individual awards are determined based on an equal weighting
of business unit performance versus the profit plan and
success in reaching specific individual, personal
objectives. Eighty-six key personnel currently participate
in the Target Variable Compensation Plan. Annually the
Compensation Committee approves the payout guidelines for
the TVCP, the Chairman and the President. The individual
awards are administered by the President and the key
employee's supervisor. Awards for the fiscal year ended
September 30, 1996 were as follows: Mr. Knobloch --
$37,980; Mr. Ogren -- $34,815; Mr. Reinhart -- $14,789; Mr.
Simmons -- $13,610; all executive officers as a group --
$101,194 and all employees as a group -- $488,046. Awards
to executive officers under the Target Variable Compensation
Plan for the fiscal year ended September 30, 1996 are
included in the compensation table.
Thrift Plan
The Company has a tax-qualified thrift plan (the "Thrift
Plan") to encourage the employees of the Company and its
subsidiary, Production Operators, Inc., to save for their
retirement or other contingencies. All employees are
eligible to participate in the Thrift Plan after one year of
service and may contribute up to 6% of base pay to the
Thrift Plan. The Company contributes 50% of the amount
contributed by the employees. An employee may contribute up
to an additional 6% but without the 50% matching
contribution by the employer. Contributions are invested in
various types of investments selected by the employee.
Employees become vested in employer contributions after 6
years of service. Employees may withdraw vested Company
contributions upon termination of employment, retirement or
death. The Company's contributions to the Thrift Plan
during the fiscal year ended September 30, 1996 were as
follows: Mr. Knobloch -- $4,750; Mr. Ogren -- $3,475; Mr.
Reinhart -- $1,416; Mr. Simmons -- $250; all executive
officers as a group -- $9,891 and all employees as a group -
- $323,000.
Employee Stock Ownership Plan
The Company adopted an Employee Stock Ownership Plan
(the "ESOP") effective October 1, 1988. Trustees of the
ESOP purchased 358,000 shares of the Common Stock. The
total purchase price of $3,222,000 was financed by an
initial Company contribution of $322,000 together with a
seven-year term bank borrowing of $2,900,000. This loan was
repaid in full during fiscal 1994. In July 1993 the
Company's Board of Directors authorized a loan to the ESOP
to purchase up to 200,000 shares of the Common Stock. The
Trustees have purchased 162,000 shares for $3,925,000. The
Company will fund the repayment requirements by contributing
the amount that otherwise would have been contributed to the
Company's Profit Sharing Plan and such other amounts as may
be authorized by the Board of Directors. All employees
participate and do not directly contribute to the ESOP.
Individual employee allocations are based on years of
service and annual base earnings. Employees vest 20% after
3 years of service and at the rate of 20% per year
thereafter, becoming fully vested after 7 years of service.
Withdrawal of vested shares of stock may be made upon
termination of employment, retirement or death. For the
fiscal year ended September 30, 1996, the cost of the shares
allocated to accounts were as follows: Mr. Knobloch --
$10,118; Mr. Ogren -- $10,825; Mr. Reinhart -- $6,694; Mr.
Simmons -- $4,064; all executive officers as a group --
$31,701 and all employees as a group -- $891,000.
Profit Sharing Plan
The Company has a noncontributory Profit Sharing Plan
(the "Plan") for full-time employees of the Company's
domestic subsidiaries to which it may contribute annually an
amount not greater than the lesser of 5% of its annual
adjusted net profits or the maximum allowable deduction for
income tax purposes. Contributions are invested in various
types of investments selected by the employee. All
employees participate in the Plan. Individual employee
allocations are based on years of service and annual base
earnings. An employee will receive on retiring at age 65 or
thereafter, at the option of each, a lump-sum payment or an
actuarially determined periodic payment. The Plan is to
provide retirement income security for its employees. The
Plan is a tax-qualified, defined contribution plan. The
Plan is fully paid for by Production Operators, Inc., and
the accounts of employees vest 20% after 2 years of service
and at the rate of 10% per year thereafter, becoming fully
vested after 10 years of service. The normal retirement age
under the Plan is age 65. No contributions were made in
fiscal year 1996 since the amounts that otherwise would have
been contributed to this Plan were used as contributions to
the ESOP (see "Employee Stock Ownership Plan" above).
Service Continuation Agreement
The Board of Directors has approved Service Continuation
Agreements for eight key employees to provide employment
security and to minimize distractions resulting from risks
of a change in control of the Company. The principal
benefit under this Agreement, payable if the employee is
terminated or there is a change in duties and the employee
resigns within two years after the date upon which a change
in control occurs, is severance pay upon termination of 200%
of compensation if termination should occur in year one and
100% of compensation in year two. Change in duties is
defined as any one or more of the following - a significant
reduction in duties; a lower annual salary or bonus
opportunity; a reduction of employee benefits.
Supplemental Retirement and Death Benefit Plan
In fiscal 1992 the Board provided a supplemental
retirement and death benefit plan for the benefit of Mr.
Reinhart. Under the terms of the plan, Mr. Reinhart
beginning at age 65 will receive annual payments of $75,000.
Such payments are to continue for life with a 15 year
minimum. In the event of death while in the employment of
the Company but prior to retirement age, an annual death
benefit of $75,000 will be paid to the designees of Mr.
Reinhart for 15 years. The benefits payable under the plan
vest, beginning in fiscal 1997, at an annual rate of 9.09%
for Mr. Reinhart. The Company makes an annual nondeductible
funding contribution to the plan for the benefit of Mr.
Reinhart which is included in all other compensation of the
Summary Compensation Table. Benefits which may be payable
under this plan are not included in the Summary Compensation
Table.
1992 Long-Term Incentive Plan
The 1992 Long-Term Incentive Plan was approved by the
stockholders in February 1993. The Plan provides for the
Award of Stock Options, Stock Appreciation Rights,
Restricted Stock, Unrestricted Stock, Deferred Stock,
Performance Units, Other Stock-Based Awards and certain
Supplemental Grants. The Plan shall be effective for a term
of ten years after its adoption. The maximum number of
shares of Common Stock reserved and available for
distribution pursuant to the Plan shall be 700,000 shares.
This Plan is intended by the Company to replace the expired
1980 Long-Term Incentive Plan.
The purpose of the Plan is to enhance the ability of the
Company to attract and retain key employees and is intended
to stimulate the efforts of these employees by providing an
opportunity for capital appreciation and recognition of
outstanding service to the Company, all of which management
believes will contribute to the long-term growth and
profitability of the Company.
Persons eligible to participate are limited to those
officers and key employees, including those listed in the
compensation table, of the Company or its subsidiaries, who
are in positions in which their decisions, actions and
counsel significantly impact upon the performance of the
Company or its subsidiaries. Directors of the Company who
are not otherwise salaried employees of the Company are not
eligible to participate in the 1992 Plan.
All outstanding Options expire ten years after the date
of grant and become exercisable on a cumulative basis with
respect to 25% of the shares covered thereby on each of the
first four anniversaries of the date of grant. Restricted
stock vests beginning one year after grant date and is fully
vested three years after grant date. The 1980 and 1992
Plans provide for the acceleration of the vesting schedule
of outstanding Options under certain circumstances involving
a change in control of the Company.
Stock Option Grant Table
The following table sets forth certain information
concerning stock options granted during 1996 by the Company
to the four executive officers of the Company. Future
compensation resulting from option grants is based solely on
the performance of the Company's stock.
<TABLE>
1996 Option Grants
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Number of Individual Grants for Option Term<F3><F4>
Securities % of Total
Underlying Options
Options Granted Exercise Expiration
Name Granted<F1> to Employees Price<F2> Date 0% 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
C. W. Knobloch, Jr. -- -- % $ -- -- $ -- $ -- $ --
D. J. Ogren 10,520 21.93 31.375 2/28/06 -- 207,596 526,039
T. R. Reinhart 5,212 10.87 31.375 2/28/06 -- 102,841 260,619
J. B. Simmons 1,880 3.92 31.375 2/28/06 -- 37,095 94,007
<FN>
<F1> All options were granted on February 28, 1996 and become
exercisable in installments of 25% per year on each of the
first through the fourth anniversaries of the grant date. All
outstanding stock options would become fully exercisable prior
to any reorganization, merger or consolidation of the Company
where the Company is not the surviving corporation or prior to
liquidation or dissolution of the Company, unless such merger,
reorganization or consolidation provides for the assumption of
such stock options.
<F2> All grants were made at 100% of fair market value as of
date of grant. The exercise price of the options may be paid
in cash or by tendering shares of Common Stock and applicable
tax obligations may be paid by the withholding of shares of
Common Stock, instead of cash.
<F3> "Potential realizable value" is disclosed in response to
SEC rules which require such disclosure for illustration only.
The values disclosed are not intended to be, and should not be
interpreted by stockholders as representations or projections
of future value of the Company's stock or of the stock price.
These amounts, based on assumed appreciation rates of 0% and
the 5% and 10% rates prescribed by the Securities and Exchange
Commission rules are not intended to forecast possible future
appreciation, if any, of the Company's stock price. The
Company did not use an alternative formula for a grant date
valuation as it is not aware of any formula which will
determine with reasonable accuracy a present value based on
future unknown or volatile factors.
If the Company's stock price increased 5 percent per year for
10 years (disregarding dividends and assuming for purposes of
the calculation a constant number of shares outstanding), the
total increase in value of all shares outstanding would be
$201,016,009; and if the stock price increased 10 percent per
year over such period, the increase in value would be
$509,414,035. This potential realizable value is based on a
price of $31.375 on February 27, 1996 and a total of
10,187,533 shares of Common Stock outstanding.
<F4> No gain to the optionees is possible without an increase
in stock price, which will benefit all stockholders.
</FN>
Stock Option Exercises and September 30, 1996 Stock Option
Value Table
The following table sets forth certain information
concerning stock options exercised during 1996 by the four
executive officers of the Company and the number and value of
specified unexercised options at September 30, 1996. The
values of unexercised in-the-money stock options at September
30, 1996 shown below are presented pursuant to SEC rules. The
actual amount, if any, realized upon exercise of stock
options will depend upon the market price of the Company's
Common Stock relative to the exercise price per share of
Common Stock of the stock option at the time the stock option
is exercised. There is no assurance that the values of
unexercised in-the-money stock options reflected in this table
will be realized.
</TABLE>
<TABLE>
Aggregated Option Exercises in 1996
And Fiscal Yearend Option Values
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Options at
September 30, September 30,
1996 1996<F2>
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized<F1> Unexercisable Unexercisable
<S> <C> <C> <C> <C>
C. W. Knobloch, Jr. -- $ -- 66,500/ $1,725,750/
0 0
D. J. Ogren -- -- 23,761/ 292,245/
40,566 425,508
T. R. Reinhart -- -- 25,010/ 425,293/
14,817 144,242
J. B. Simmons -- -- 1,000/ 8,750/
4,880 35,885
<FN>
<F1> Market value of stock at exercise minus the option
price.
<F2> Market value of stock at yearend September 30, 1996
minus the option price. The closing market price of the stock
on September 30, 1996 was $36.50.
</FN>
</TABLE>
Corporate Performance Graph
The following graph compares the yearly percentage
change in the Company's cumulative total stockholder return
on its Common Stock (assuming reinvestment of dividends at
date of payment into Common Stock of the Company) with the
cumulative total return on the published Standard & Poor's
500 Stock Index and the cumulative total return on Value
Line's Oilfield Services/Equipment Industry Group over the
preceding five-year period.
The Corporate Performance Graph is being filed by hard copy
with the SEC.
Interest in Certain Transactions
The Company and C. Rahl George executed a compensation
agreement under which, if reelected, Mr. George will
continue to serve as a director of the Company and will be
paid the fees of a nonemployee director. Such agreement was
originally entered into on June 1, 1981 and subsequently
revised on October 19, 1984. As retirement compensation
from January 1, 1985, and continuing through the life of Mr.
George and his wife, Catharine Marie George, the Company
will pay $3,000 per month to him or to her if he predeceases
her. During the fiscal year ended September 30, 1996, the
Company paid Mr. George retirement compensation of $36,000.
The Company and Jorge E. Estrada M. executed an
agreement for the ownership and management of Production
Operators Argentina, S.A. ("POA") whereby POA is owned 80%
by POI and 20% by Mr. Estrada M. If reelected, Mr. Estrada
M. will serve as an employee director of Production
Operators Corp.
AMENDMENT TO ARTICLE 4 OF THE CERTIFICATE OF INCORPORATION
ADDITIONAL COMMON STOCK -
STOCK SPLIT IN THE FORM OF A 100% COMMON STOCK DIVIDEND
The Company's Board of Directors (the "Board") has
unanimously approved an amendment to the Company's
Certificate of Incorporation and recommended that the
Company's stockholders approve the proposed amendment. The
affirmative vote of the holders of a majority of the
outstanding shares of the stock of the Company that are
entitled to vote at the Annual Meeting is required to adopt
the proposed amendment. This amendment to the Company's
Certificate of Incorporation would increase the Company's
authorized Common Stock from 15,000,000 shares to 25,000,000
shares. Subject to the approval of this amendment by the
stockholders, the Board has authorized the issuance to
stockholders of record on March 1, 1997 one additional share
of Common Stock, par value $1.00 each, as a dividend on each
issued common share. The Board of Directors believes that
the stock split in the form of a 100% common stock dividend
is in the best interests of the stockholders. The stock
split will place the market price of the Common Stock in a
range more attractive to investors, particularly
individuals, and may result in a broader market for the
stock and more widespread ownership of the Company.
The Certificate of Incorporation of the Company
presently provides for authorized capital stock of
15,000,000 shares of Common Stock. There are currently
issued and outstanding 10,192,000 shares of Common Stock.
In addition, 67,000 shares are held in the Treasury. The
Company has reserved 700,000 shares for issuance under the
Company's stock option plans. The Board of Directors has
adopted a resolution recommending that the stockholders
adopt an amendment to the Company's Certificate of
Incorporation that would amend subparagraph (a) of the
Article thereof numbered "FOURTH" to read as follows:
"FOURTH: The maximum number of shares of capital stock
which the corporation shall have authority to issue is:
(a) Twenty-five million shares of Common Stock of the par
value of one dollar per share."
In connection with the stock split in the form of a 100%
stock dividend, a transfer of $1 for each additional share of
Common Stock issued, or approximately $10,259,000, will be
made from the Company's additional paid-in capital account to
its Common Stock account as of March 1, 1997, the date on
which stockholders of record will be entitled to the
additional shares, so that the additional shares to be issued
will be fully paid.
Following the increase of capital in the Common Stock
account becoming effective, certificates representing the
additional shares will be distributed by the Company to
stockholders of record as of March 1, 1997, without any
further action by the stockholders.
The Company will list on the NASDAQ National Market System
on which the Company's shares are listed the additional shares
of Common Stock to be issued. As a result of the proposed
stock split in the form of a 100% stock dividend, brokerage
commissions and transfer taxes on any subsequent trades of the
stock may increase.
In the opinion of counsel for the Company, the adoption of
the proposed amendment and the issuance of the additional
shares in connection with the stock split in the form of a
100% stock dividend will result in no gain or loss or any
other form of taxable income for United States federal income
tax purposes. The laws of jurisdictions other than the United
States may impose income taxes on the issuance of the
additional shares in connection with the stock split in the
form of a 100% stock dividend, and stockholders subject to
those laws are urged to consult their tax advisors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE AMENDMENT TO ARTICLE FOURTH OF THE CERTIFICATE OF
INCORPORATION THAT IS DESIGNATED AS PROPOSAL 2 ON THE ENCLOSED
PROXY.
INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as
the independent auditors of the Company for the current fiscal
year. Arthur Andersen LLP has served as the Company's
independent auditors since 1967. Arthur Andersen LLP plans to
have a representative present at the stockholders' meeting who
will have the opportunity to make a statement if he desires to
do so and is expected to respond to appropriate questions that
the stockholders might have.
1998 ANNUAL MEETING
Proposals of stockholders intended to be presented at the
1998 Annual Meeting of Stockholders must be received by the
Secretary of the Company at 11302 Tanner Road, Houston, Texas
77041, no later than September 5, 1997. The stockholder
should also notify the Company in writing of an intention to
appear and personally present the proposal at the meeting.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K filed
with the SEC for the most recent fiscal year, including
financial statements and schedules, will be furnished without
charge to interested persons, upon written request, to the
Secretary or Assistant Secretary of the Company at 11302
Tanner Road, Houston, Texas 77041.
OTHER MATTERS
The Board of Directors of the Company knows of no other
matters which may come before the meeting. However, if any
matters other than those referred to above should properly
come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote such proxy in accordance
with their best judgment.
PRODUCTION OPERATORS CORP
This Proxy Is Solicited By The Board Of Directors
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
stockholder of Production Operators Corp hereby constitutes
and appoints Carl W. Knobloch, Jr., F.E. Ellis and C. Rahl
George, and each of them, the true and lawful attorneys,
agents, and proxies of the undersigned, each with full power
of substitution, to vote by majority of those or their
substitutes present and acting at the meeting or, if only one
shall be present and acting at the meeting, then that one, all
of the shares of stock of the corporation that the undersigned
would be entitled, if personally present, to vote at the
meeting of stockholders of the corporation to be held on
Wednesday, February 26, 1997, at 10:00 a.m. and at any
adjournment thereof.
This proxy when properly executed will be voted in the
manner directed herein by the undersigned stockholder. If no
direction is made, this proxy will be voted for each of the
nominees for director.
See other side for directions as to voting.
Production Operators Corp
P. O. Box 11146
New York, NY 10203-0146
1. Election of Directors
/ / FOR all nominees / / WITHHOLD AUTHORITY to vote / /*EXCEPTIONS
listed below for all nominees listed below
Nominees: F. E. Ellis, J. E. Estrada M., C. R. George, J. R.
Huff, C. W. Knobloch, Jr., H. E. Longley, D. J. Ogren and L. Varn, Jr.
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, mark the "Exceptions" box and write that nominees's name
in the space provided below.)
*Exceptions________________________________________________
2. / / FOR / / AGAINST
In connection with a proposed 2-for-1 stock split, to vote on the
approval of an amendment to the Certificate of Incorporation to
increase the number of authorized shares of common stock from
15,000,000 shares to 25,000,000 shares.
3. In their discretion, upon other matters as may properly come
before the meeting and any adjournment thereof.
All shares will be voted as directed herein and, unless otherwise
directed, will be voted for the proposed amendment.
This Proxy Must be Signed Exactly as Name Appears Hereon. Each
joint owner shall sign. When signing as an attorney, executor,
administrator, trustee, etc., give full title as such. If the
signer is a corporation, please sign full corporate name by duly
authorized officer.
Dated: __________________________________ 199_
_______________________________________
_______________________________________
Signature of Stockholder
Sign, Date and Return this Proxy Promptly Using the Enclosed
Envelope.
Votes must be indicated (X) in Black or Blue Ink.
(In lieu of appointment of proxy)
PRODUCTION OPERATORS CORP
Voting Instructions by Participant/Beneficiary in ESOP
The undersigned participant/beneficiary in the Production
Operators, Inc. Employee Stock Ownership Plan (the "POI ESOP")
hereby instructs The Bank of New York, as designated Voting
Fiduciary, to vote, or to give other parties a proxy to vote,
all shares of Production Operators Corp stock allocated to the
undersigned's account in the POI ESOP at the meeting of
stockholders to be held on February 26, 1997, at 10:00 a.m.
and at any adjournment thereof.
If these instructions are properly executed, the Voting
Fiduciary will vote such shares as instructed.
If a participant/beneficiary fails to give instructions,
the Voting Fiduciary will vote such participant's shares, all
other allocated shares without instruction and all unallocated
shares held in the POI ESOP in the same proportion as the
allocated shares for which the Voting Fiduciary receives
instructions.
All participant/beneficiary instructions (or failure to
instruct) will be confidential and will not be made known to
any director, officer, employee or other agent of Production
Operators Corp or its subsidiaries.
See other side for directions as to voting.
1. Election of Directors
/ / FOR all nominees / / WITHHOLD AUTHORITY to vote
listed below for all nominees listed below
Nominees: F. E. Ellis, J. E. Estrada M., C. R. George, J. R. Huff,
C. W. Knobloch, Jr., H. E. Longley, D. J. Ogren and L. Varn, Jr.
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through that nominee's name.)
2. / / FOR / / AGAINST
In connection with a proposed 2-for-1 stock split, to vote on the
approval of an amendment to the Certificate of Incorporation to
increase the number of authorized shares of common stock from
15,000,000 shares to 25,000,000 shares.
3. In their discretion, upon other matters as may properly come
before the meeting and any adjournment thereof.
All shares will be voted as directed herein and, unless otherwise
directed, will be voted for the proposed amendment.
PROXY DEPARTMENT
NEW YORK, NY 10203-0146
This Proxy Must be Signed Exactly as Name Appears Hereon.
Each joint owner shall sign. When signing as an attorney,
executor, administrator, trustee, etc., give full title as
such. If the signer is a corporation, please sign full
corporate name by duly authorized officer.
Dated:__________________________________ 199_
______________________________________________
______________________________________________
Signature of Stockholder
Sign, Date and Return this Proxy Promptly Using the Enclosed
Envelope.
Votes must be indicated (X) in Black or Blue Ink.
