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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1998
Registration No. 333-53717
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NATIONAL-OILWELL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0475815
(STATE OR OTHER JURISDICTION OF (I.R.S. Employer
INCORPORATION OR ORGANIZATION) Identification Number)
5555 San Felipe
Houston, Texas 77056
(713) 960-5100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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RICHARD L. LIONBERGER, ESQUIRE
Vice President and General Counsel
5555 San Felipe
Houston, Texas 77056
(713) 960-5100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
DAVID R. KING, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
2000 ONE LOGAN SQUARE
PHILADELPHIA, PENNSYLVANIA 19103-6993
(215) 963-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration for the
same offering: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This registration statement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
PROSPECTUS
SUBJECT TO COMPLETION DATED SEPTEMBER 23, 1998
OFFER TO EXCHANGE ALL OUTSTANDING
6 7/8% SENIOR NOTES DUE 2005
($150,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 6 7/8% SENIOR NOTES DUE 2005, SERIES B
of
NATIONAL-OILWELL, INC.
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New
York City time on October 30, 1998 (as such date may be extended, the
"Expiration Date").
National-Oilwell Inc. ("National-Oilwell" or the "Company") hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal"), to exchange $1,000 principal amount of its 6 7/8% Senior Notes
due July 1, 2005, Series B (the "Exchange Notes"), for each $1,000 principal
amount of its outstanding 6 7/8% Senior Notes due July 1, 2005 (the "Old Notes"
and together with the Exchange Notes, the "Notes") of which an aggregate
principal amount of $150,000,000 is outstanding. See "The Exchange Offer."
The Company will accept for exchange pursuant to the Exchange Offer any
and all Old Notes that are validly tendered prior to 5:00 p.m., New York City
time, on the Expiration Date. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange
Offer is not conditioned upon any amount of the Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain customary
conditions, which may be waived by the Company, and to the terms and provisions
of the Registration Rights Agreement (as defined below). See "The Exchange
Offer."
The Old Notes were issued in a transaction (the "Offering") pursuant to
which the Company issued an aggregate of $150,000,000 principal amount of the
Old Notes. The Old Notes were sold by the Company to Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities Inc. and
Morgan Stanley & Co. Incorporated (the "Initial Purchasers") on June 26, 1998
(the "Closing Date") pursuant to a Purchase Agreement, dated June 23, 1998 (the
"Purchase Agreement") among the Company and the Initial Purchasers. The Initial
Purchasers subsequently resold the Old Notes in reliance on Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"). The Company and the
Initial Purchasers also entered into the Registration Rights Agreement dated as
of June 26, 1998 (the "Registration Rights Agreement"), pursuant to which the
Company granted certain registration rights for the benefit of the holders of
the Old Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement with respect to
the Old Notes. See "The Exchange Offer -- Purpose and Effect."
The Old Notes were, and the Exchange Notes will be, issued under the
Indenture, dated as of June 26, 1998 (the "Indenture"), between the Company and
The Bank of New York, as trustee (in such capacity, the "Trustee"). The Bank of
New York is acting as Exchange Agent in connection with the Exchange Offer (in
such capacity, the "Exchange Agent").
The form and terms of the Exchange Notes will be identical in all
material respects to the form and terms of the Old Notes, except that (i) the
Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, (ii) holders of Exchange
Notes will not be entitled to the additional interest payable in certain events
under the terms of the Registration Rights, Agreement in respect of any Old
Notes (the "Additional Interest") and (iii) holders of Exchange Notes will not
be, and upon the consummation of the Exchange Offer, holders of Old Notes will
no longer be, entitled to certain other rights under the Registration Rights
Agreement intended for the holders of unregistered securities; provided,
however, that (i) if, because of any changes in law, rules or regulations of the
Securities and Exchange Commission (the "Commission") or applicable
interpretations thereof by the staff of the Commission, the Company is not
permitted to effect the Exchange Offer, (ii) if for any other reason this
Registration Statement is not declared effective by November 23, 1998 or the
Exchange Offer is not consummated by December 23, 1998, (iii) if a holder is
advised by counsel that it is not permitted by Federal securities laws or
Commission policy to participate in the Exchange Offer or does not receive
Exchange Notes that are fully tradeable pursuant to the Exchange Offer without
restriction or limitation as to holding period or volume or (iv) upon the
request of the Initial Purchasers acquiring a majority of the initial aggregate
principal amount of the Old Notes (but only with respect to any Old Notes which
the Initial Purchasers acquired directly from the Company), the Company is
required to file a shelf registration statement pursuant to Rule 415 under the
Securities Act generally for the benefit of such holder of Old Notes (the "Shelf
Registration Statement"), and such holders will be entitled to receive
Additional Interest following the occurrence of certain defined events of
default in connection with the filing of such Shelf Registration Statement. The
Exchange Offer shall be deemed consummated upon the occurrence of written or
oral notice by the Company to the Exchange Agent that it has accepted validly
tendered Old Notes for exchange and the delivery by the Company to the Trustee
of Exchange Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes that were validly tendered by holders thereof
pursuant to the Exchange Offer. See "The Exchange Offer -- Termination of
Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description of
Exchange Notes."
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SEE "RISK FACTORS" BEGINNING ON PAGE 11 A
DISCUSSION OF CERTAIN RISKS THAT HOLDERS SHOULD
CONSIDER IN EVALUATING THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is ________, 1998
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The Exchange Notes will bear interest at a rate equal to 6 7/8% per
annum from and including their date of issuance. Interest on the Exchange Notes
is payable semiannually on January 1 and July 1 of each year (each, an "Interest
Payment Date") beginning January 1, 1999. Holders whose Old Notes are accepted
for exchange will have the right to receive interest accrued thereon from the
date of their original issuance to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes. Interest on the Old Notes accepted for exchange will
cease to accrue on the day prior to the issuance of the Exchange Notes. The
Exchange Notes will mature on July 1, 2005. See "Description of Exchange
Notes -- General."
The Exchange Notes may be redeemed, in whole or in part, at the option
of the Company at any time prior to maturity upon payment of the principal
amount thereof, together with unpaid interest accrued to the redemption date and
a "Make-Whole Premium" as defined herein. See "Description of the Exchange
Notes -- Redemption."
Based on interpretation of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof without further compliance with the
registration and prospectus delivery provisions of the Securities Act. However,
any purchaser of Notes who is an "affiliate" of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes, or any broker-dealer who purchased the Notes from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act,
(i) will not be able to rely on the interpretation by the staff of the
Commission set forth in the above referenced no-action letters, (ii) will not be
able to tender the Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes, unless such sale or transfer
is made pursuant to an exemption from such requirements. The Company does not
intend to seek its own no-action letter, and there is no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Notes as it has in such no action letter to third parties.
Each holder of the Notes who wishes to exchange the Notes for the
Exchange Notes in the Exchange Offer will be required to make certain
representations, including that (i) it is neither an affiliate of Company nor a
broker-dealer tendering Notes acquired directly from the Company for its own
account, (ii) any Exchange Notes to be received by it shall be acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. In addition, in connection with any resales of Exchange
Notes, any Initial Purchaser or other broker-dealer which makes a market in the
Old Notes and exchanges Old Notes in the Exchange Offer for Exchange Notes (a
"Participating Broker-Dealer") must deliver a prospectus meeting the
requirements of the Securities Act. The staff of the Commission has taken the
position that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Old Notes) with this prospectus.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers to use this prospectus in connection with the
resale of Exchange Notes received in exchange for Old Notes acquired by such
Participating Broker-Dealers for their own account as a result of market-making
or other trading activities.
The Company will not receive any proceeds from the Exchange Offer, but,
pursuant to the Registration Rights Agreement, the Company will bear certain
registration expenses. No underwriter is being utilized in connection with the
Exchange Offer.
The Old Notes were issued originally in global form (the "Global Old
Note"). The Global Old Note was deposited with, or on behalf of, The Depository
Trust Company ("DTC"), as the initial depository with respect to the Old Notes
(in such capacity, the "Depositary"). As of the date of this Prospectus, Cede &
Co., nominee for DTC, was the sole registered holder of the Old Notes.
Beneficial interests in the Global Old Note are shown on, and transfers thereof
are effected only through, records maintained by the Depositary and its
participants. The use of the Global Old Note to represent certain of the Old
Notes permits the Depositary's participants, and anyone holding a beneficial
interest in an Old Note registered in the name of such a participant, to
transfer interests in the Old Notes electronically in accordance with the
Depositary's established procedures without the need to transfer a physical
certificate. Except as provided below, the Exchange Notes will also be issued
initially as a note in global form (the "Global Exchange Note," and together
with the Global Old Note, the "Global Notes") and deposited with, or on behalf
of, the Depositary.
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TABLE OF CONTENTS
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PAGE
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Disclosure Regarding Forward-Looking Statements...................................................................1
Available Information.............................................................................................2
Incorporation of Certain Documents by Reference...................................................................2
Prospectus Summary................................................................................................3
Risk Factors.....................................................................................................11
The Exchange Offer...............................................................................................14
Capitalization...................................................................................................22
National-Oilwell, Inc. And Subsidiaries Selected Consolidated Financial Data.....................................23
Business.........................................................................................................25
Management.......................................................................................................30
Description of Exchange Notes....................................................................................33
Certain United States Federal Income Tax Consequences to Holders of Exchange Notes ..............................41
Plan of Distribution.............................................................................................43
Legal Matters....................................................................................................44
Experts..........................................................................................................44
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains or has incorporated by reference, statements
that are not historical facts or statements of current condition and are
forward-looking statements. Such statement may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"forecasts," "estimates," "plans," "continues," "may," "will," "should,"
"anticipates," or "intends," or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy or intentions. Such
statements address, among other things, statements under "Prospectus Summary"
and "Risk Factors" as well as in the Prospectus generally. Although
National-Oilwell believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from National-Oilwell's expectations are
disclosed under "Risk Factors" and in this Prospectus generally, as well as in
the documents incorporated by reference herein. Given these uncertainties,
current or prospective investors are cautioned not to place undue reliance on
any such forward-looking statements. The Company disclaims any obligation or
intent to update any such factors or forward-looking statement to reflect future
events or developments.
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AVAILABLE INFORMATION
The Company is subject to the information requirement of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission can be inspect at the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the regional offices of the Commission at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, New York, New York 10048. Copies
of such material may be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Company's Common Stock is listed on the New
York Stock Exchange and reports, proxy statements and other information
regarding the Company can be inspected at the offices of the New York Stock
Exchange, 22 Broad Street, New York, New York 10006. The Commission maintains a
web site that contains all information filed electronically. The address of the
Commission's web site is http://www.SEC.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission are incorporated by reference herein:
(i) Annual Report on Form 10-K for the year ended December 31,
1997;
(ii) Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998; and
(iii) Current Report on Form 8-K filed on June 17, 1998, as amended
by a Form 8-K/A filed on August 17, 1998.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to consummation of the Exchange Offer shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in this Prospectus or
in a document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
THE COMPANY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM
A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL REQUEST
OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT
THIS PROSPECTUS INCORPORATES. WRITTEN OR ORAL REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO THE COMPANY TO THE ATTENTION OF M. GAY MATHER, MANAGER, INVESTOR
RELATIONS, NATIONAL-OILWELL, INC., 5555 SAN FELIPE, HOUSTON, TEXAS 77056
(TELEPHONE (713) 960-5422). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY OCTOBER 23, 1998.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
or incorporated by reference in this Prospectus. Prospective investors should
also review carefully the information set forth under "Risk Factors."
Unless the context otherwise requires, (i) all references to
"National-Oilwell" or the "Company" are to National-Oilwell, Inc. and its
subsidiaries, and (ii) all references to activities of, and financial
information with respect to, National-Oilwell are presented on a combined basis,
including with respect to periods prior to the consummation of the September 25,
1997 business combination (the "Dreco Combination") with Dreco Energy Services
Ltd. ("Dreco").
THE COMPANY
National-Oilwell is a worldwide leader in the design, manufacture and
sale of machinery, equipment and downhole products used in oil and gas drilling
and production, as well as in the distribution to the oil and gas industry of
maintenance, repair and operating products. The Company manufactures and
assembles drilling machinery, including drawworks, mud pumps and power swivels
(also known as "top drives"), which are the major mechanical components of
drilling rigs, as well as masts, derricks, substructures and cranes. Many of
these components are designed specifically for applications in offshore,
extended reach and deep land drilling. The Company estimates that approximately
65% of the mobile offshore rig fleet and the majority of the world's larger land
rigs (2,000 horsepower and greater) manufactured in the last twenty years
utilize drawworks, mud pumps and other drilling machinery components
manufactured by the Company.
As a result of the Dreco Combination, National-Oilwell expanded its
machinery and equipment capabilities and added a business segment that designs
and manufactures drilling motors and specialized drilling tools for rent and for
sale. Drilling motors are essential components of systems for horizontal,
directional, extended reach and performance drilling. Drilling tools include
drilling jars, shock tools and other specialized products.
The Company also provides distribution services through its network of
approximately 120 distribution service centers located near major drilling and
production activity worldwide, but principally in the United States and Canada.
These distribution service centers stock and sell a variety of expendable items
for oilfield applications and spare parts for National-Oilwell equipment. As oil
and gas companies and drilling contractors have refocused on their core
competencies and emphasized efficiency initiatives to reduce costs and capital
requirements, the Company's distribution services have expanded to offer
outsourcing and alliance arrangements that include comprehensive procurement,
inventory management and logistics support.
Over the last fifteen years, much of the demand for capital equipment
has been satisfied from the large surplus of equipment built during the late
seventies and early eighties. The Company believes that the surplus has been
reduced substantially over this period, especially for higher capacity equipment
for which National-Oilwell is a leading supplier. National-Oilwell's backlog for
capital equipment has grown to $260 million at June 30, 1998, up from $141
million at June 30, 1997. The level of backlog can be affected by volatility in
the price of oil and gas and other factors. See "Risk Factors." The Company
expects to ship a majority of the June 30, 1998 backlog by the end of 1998.
National-Oilwell believes that reasonably anticipated demand for the
Company's capital equipment in 1998 and 1999 can be met without significant
incremental capital expenditures by the Company's continuing focus on process
improvement and through the combined capabilities available after the Dreco
Combination.
National-Oilwell is incorporated in Delaware, with its principal
executive offices located at 5555 San Felipe, Houston, Texas 77056, and its
telephone number is (713) 960-5100.
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RECENT DEVELOPMENTS
On July 21, 1998, National-Oilwell completed the purchase of all the
outstanding capital stock of Roberds-Johnson Industries, Inc. ("RJI") for 1.35
million shares of National-Oilwell common stock. The transaction will be
recorded in accordance with the pooling-of-interests method of accounting. RJI
manufactures a broad range of equipment used on deep water drilling rigs,
including modular packages for production facilities, small platform drilling
packages, mud tank and engine packages and other fabricated equipment. In
addition, RJI has designed and built various models of highly automated land
rigs. RJI also provides a full rig-up facility with employees experienced in the
engineering and construction of conventional land drilling rigs.
BUSINESS STRATEGY
National-Oilwell's current business strategy is to enhance its market
positions and operating performance by:
Leveraging Its Installed Base of Higher Capacity Drilling Machinery and
Equipment. National-Oilwell believes its market position presents substantial
opportunities to capture a significant portion of expenditures for the
construction of new, higher capacity drilling rigs and equipment as well as the
upgrade and refurbishment of existing drilling rigs and equipment. The Company
believes the advanced age of the existing fleet of drilling rigs, coupled with
increasing drilling activity involving greater depths and extended reach, will
generate the demand for new equipment, especially in the higher capacity end of
the market. National-Oilwell's larger drawworks, mud pumps and power swivels
provide, in many cases, the largest capacities currently available in the
industry.
Expanding Its Downhole Products Business. National-Oilwell believes
that the strengthened marketing and distribution capabilities resulting from the
Dreco Combination provide an opportunity for growth in the rental and sale of
high-performance drilling motors and downhole tools, especially for use in
directional, horizontal, extended reach and other value-added drilling
applications.
Building on Distribution Strengths and Alliance/Outsourcing Trends. As
a result of efficiency initiatives, oil and gas companies and drilling
contractors are frequently seeking alliances with suppliers, manufacturers and
service providers, or outsourcing their procurement, inventory management and
logistics requirements for equipment and supplies in order to achieve cost and
capital improvements. National-Oilwell believes that it is well-positioned to
provide these services as a result of its (i) large and geographically diverse
network of distribution service centers in major oil and gas producing areas in
the United States and Canada, (ii) purchasing leverage due to the volume of
products sold, (iii) breadth of available product lines and (iv) integrated
information and process systems that enhance procurement, inventory management
and logistics activities. In addition, the strategic integration of
National-Oilwell's distribution expertise, extensive distribution network and
growing base of customer alliances may provide an increased opportunity for
cost-effective marketing of National-Oilwell's manufactured parts and equipment.
Continuing to Make Acquisitions that Enhance Its Product Line.
National-Oilwell believes that the oilfield service and equipment industry will
continue to experience consolidation as businesses seek to align themselves with
other market participants in order to gain access to broader markets and become
affiliated with integrated product offerings, and National-Oilwell plans to
participate in this trend. During 1997, the Company made three acquisitions,
including the Dreco Combination, which have enabled the Company to provide a
more complete rig package to its customers. To date in 1998, the Company has
completed the acquisitions of Speciality Tools Ltd., a company that designs and
engineers downhole tools for thru-tubing applications, Versatech International
Ltd., a company engaged in the manufacture of coiled tubing tools and equipment,
Phoenix Energy Products Holdings, Inc. ("Phoenix"), a company that manufactures
and sells several lines of products that are complementary to those of
National-Oilwell, including fluid end expendable products, solid control
equipment and pipe handling tools, and RJI.
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ISSUANCE OF THE OLD NOTES
The Old Notes were sold to the Initial Purchasers on June 26, 1998
pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold
the Old Notes in reliance on Rule 144A under the Securities Act and other
available exemptions under the Securities Act. In connection with such sale, the
Company and the Initial Purchasers also entered into the Registration Rights
Agreement pursuant to which the Company granted certain registration rights for
the benefit of the holders of the Old Notes. The Exchange Offer is intended to
satisfy certain obligations of the Company under the Registration Rights
Agreement with respect to the Old Notes. See "The Exchange Offer -- Purpose and
Effect." Capitalized terms used but not defined in this Prospectus Summary are
defined elsewhere in the Prospectus.
THE EXCHANGE OFFER
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The Exchange Offer........................ The Company is offering upon the terms and subject to the conditions set
forth herein to exchange $1,000 principal amount of Exchange Notes for each
$1,000 principal amount of the outstanding Old Notes. As of the date of this
Prospectus, $150 million in aggregate principal amount of the Old Notes is
outstanding. As of the date of this Prospectus, there is one registered holder
of the Old Notes, Cede & Co., nominee for DTC, which holds the Old Notes for
its participants. See "The Exchange Offer -- Terms of the Exchange Offer." The
terms of the Exchange Notes are identical in all material respects (including
principal amount, interest rate and maturity) to the terms of the Old Notes for
which they may be exchanged, except as described under "Prospectus
Summary -- Termination of Certain Rights." See "The Exchange Offer."
Expiration Date........................... 5:00 p.m., New York City time, on October 30, 1998 as the same may be
extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments."
Conditions of the Exchange Offer.......... The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject
to certain customary conditions, including that (i) the Exchange Offer, or
the making of an exchange by a holder, does not violate applicable law or
any applicable interpretation of the staff of the Commission and (ii) no
action or proceeding is instituted or threatened that would be reasonably
likely to materially impair the ability of the Company to proceed with the
Exchange Offer. The Company expects that the foregoing conditions will be
satisfied. All such conditions may be waived by the Company. See "The
Exchange Offer -- Conditions of the Exchange Offer."
Termination of Certain Rights............. Pursuant to the Registration Rights Agreement and the Old Notes, holders of
Old Notes have rights to receive Additional Interest upon certain events,
which Additional Interest may not exceed .25% per annum, and have certain
rights intended for the holders of unregistered securities. Holders of
Exchange Notes will not be and, upon consummation of the Exchange Offer,
holders of Old Notes will no longer be, entitled to (i) the right to
receive the Additional Interest or (ii) certain other rights under the
Registration Rights Agreement intended for holders of unregistered
securities. The Exchange Offer shall be deemed consummated upon the
occurrence of written or oral notice by the Company to the Exchange Agent
that it has accepted validly tendered Old Notes for exchange and the
delivery by the Company to the Trustee of Exchange Notes in the same
aggregate principal amount as the aggregate principal amount of
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Old Notes that were tendered by holders thereof pursuant to the Exchange Offer.
See "The Exchange Offer -- Termination of Certain Rights" and "Procedures for
Tendering Old Notes."
Shelf Registration....................... Under the Registration Rights Agreement, the Company will be required to file
a Shelf Registration Statement pursuant to Rule 415 under the Securities
Act covering Old Notes (the "Shelf Registration") if (i) because of any
changes in law, Commission rules or regulations or applicable interpretations
thereof by the staff of the Commission, the Company is not permitted to
effect the Exchange Offer, (ii) if for any other reason the Registration
Statement of which this Prospectus is a part is not declared effective by
November 23, 1998 or the Exchange Offer is not consummated by December 23,
1998, (iii) if a holder is advised by counsel that it is not permitted by
Federal securities laws or Commission policy to participate in the Exchange
Offer or does not receive Exchange Notes that are fully tradeable pursuant
to the Exchange Offer without restriction or limitation as to holding
period or volume or (iv) upon the request of the Initial Purchasers
acquiring a majority of the initial aggregate principal amount of the Old
Notes (but only with respect to any Old Notes which the Initial Purchasers
acquired directly from the Company). The Company will be required to use
its reasonable best efforts to cause any Shelf Registration to be declared
effective under the Securities Act as promptly as practicable but no later
than January 22, 1999 and, subject to certain exceptions, to keep the Shelf
Registration continuously effective under the Securities Act until the
earlier of (i) June 25, 2001 or (ii) such period ending when all Old Notes
covered by the Shelf Registration (a) have been sold in the manner set
forth and as contemplated in the Shelf Registration, (b) cease to be
outstanding or (c) become freely tradeable without restriction or
limitation as to holding period or volume.
Accrued Interest on the Old Notes......... The Exchange Notes will bear interest at a rate equal to 6 7/8% per annum
from and including their date of issuance. Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued
thereon from the date of their original issuance to, but not including, the
date of issuance of the Exchange Notes, such interest to be payable with
the first interest payment on the Exchange Notes. Interest on the Old Notes
accepted for exchange, which accrued at the rate of 6 7/8% per annum, will
cease to accrue interest on, the day prior to the issuance of the Exchange
Notes.
Additional Interest....................... Pursuant to the Registration Rights Agreement, if (i) the Registration
Statement of which this Prospectus is a part has not been declared
effective on or prior to November 23, 1998, (ii) the Exchange Offer is not
consummated on or prior to December 23, 1998, (iii) a required Shelf
Registration Statement is not declared effective on or prior to the 210th
calendar day following the Closing Date or (iv) the Registration Statement
of which this Prospectus is a part or any required Shelf Registration
Statement is filed and declared effective but shall thereafter be either
withdrawn by the Company or become subject to an effective stop order
suspending the effectiveness of such registration statement, except as
specifically permitted by the Registration Rights Agreement, without being
succeeded immediately by an additional registration statement filed and
declared effective (each such event referred to in clauses (i) through (iv)
above, a "Registration Default"), the interest rate borne by the Old
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Notes shall be increased by .25% per annum following such Registration
Default; provided that the aggregate amount of any such increase in the
interest rate on the Notes shall in no event exceed .25% per annum; and
provided, further, that if this Registration Statement is not declared
effective on or prior to November 23, 1998 and the Company shall
request holders of Old Notes to provide information for inclusion in the
Shelf Registration Statement, then Old Notes owned by holders who do
not deliver such information to the Company or who do not provide
comments on the Shelf Registration Statement when required pursuant to
the Registration Rights Agreement will not be entitled to any such
increase in the interest rate for any day after December 23, 1998.
Following the cure of all Registration Defaults, the accrual of such
Additional Interest will cease and the interest rate will revert to the
original rate.
Procedures for Tendering
Old Notes................................. Unless a tender of Old Notes is effected pursuant to the procedures for book-entry
transfer as provided herein, each holder desiring to accept the Exchange
Offer must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, have the signature thereon guaranteed if required by the
Letter of Transmittal, and mail or otherwise deliver the Letter of
Transmittal, or such facsimile, together with the Old Notes or a Notice of
Guaranteed Delivery and any other required documents (such as evidence of
authority to act, if the Letter of Transmittal is signed by someone acting
in a fiduciary or representative capacity), to the Exchange Agent at the
address set forth on the back cover page of this Prospectus prior to 5:00
p.m., New York City time, on the Expiration Date. Any beneficial owner of
the Old Notes whose Old Notes are registered in the name of a nominee, such
as a broker, dealer, commercial bank or trust company and who wishes to
tender Old Notes in the Exchange Offer, should instruct such entity or
person to promptly tender on such beneficial owner's behalf. See "The
Exchange Offer -- Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures............ Holders whose certificates for Old Notes are not immediately available or who
cannot deliver their certificates and all other required documents to the
Exchange Agent (as defined below) on or prior to the Expiration Date, or
who cannot complete the procedure for book-entry on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set
forth in the Letter of Transmittal.
Acceptance of Old Notes and Delivery
of Exchange Notes......................... Upon satisfaction or waiver of all conditions of the Exchange Offer, the Company
will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old Notes. See "The Exchange
Offer -- Acceptance of Old Notes for Exchange; Delivery of Exchange Notes."
Withdrawal Rights......................... Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. See "The Exchange Offer -- Withdrawal
Rights."
The Exchange Agent........................ The Bank of New York is the exchange agent (in such capacity, the "Exchange Agent").
The address and telephone number of the Exchange
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Agent are set forth in "The Exchange Offer -- The Exchange Agent; Assistance."
Fees and Expenses......................... All expenses incident to the Company's consummation of the Exchange Offer and
compliance with the Registration Rights Agreement will be borne by the
Company. The Company is also required to pay certain transfer taxes
applicable to the Exchange Offer. See "The Exchange Offer -- Fees and Expenses."
Resales of the Exchange
Notes..................................... Based on interpretation of the Securities Act by the staff of the Commission set
forth in several no-action letters to third parties, and subject to the
immediately following sentence, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof without further
compliance with the registration and prospectus delivery provisions of the
Securities Act. However, any purchaser of Notes who is an "affiliate" of
the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes, or any broker-dealer who
purchased the Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (i) will not be able to
rely on the interpretation by the staff of the Commission set forth in the
above referenced no-action letters, (ii) will not be able to tender the
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
any sale or transfer of the Notes, unless such sale or transfer is made
pursuant to an exemption from such requirements. The Company does not
intend to seek its own no-action letter, and there is no assurance that the
staff of the Commission would make a similar determination with respect to
the Exchange Notes as it has in such no action letter to third parties.
Each holder of the Notes who wishes to exchange the Notes for the Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of Company nor a broker-dealer
tendering Notes acquired directly from the Company for its own account,
(ii) any Exchange Notes to be received by it shall be acquired in the
ordinary course of its business, and (iii) at the time of commencement of
the Exchange Offer, it has no arrangement or understanding with any person
to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes. In addition, in connection with any resales of
Exchange Notes, any Participating Broker-Dealer must deliver a prospectus
meeting the requirements of the Securities Act. The staff of the Commission
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Notes)
with the prospectus contained in the Exchange Offer Registration Statement.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of
Exchange Notes received in exchange for Notes acquired by such
Participating Broker-Dealers for their own account as a result of
market-making or other trading activities.
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DESCRIPTION OF EXCHANGE NOTES
The form and terms of the Exchange Notes will be identical in all
material respects to the form and terms of the Old Notes, except that (i) the
Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, (ii) holders of the
Exchange Notes will not be entitled to Additional Interest and (iii) holders of
the Exchange Notes will not be, and upon consummation of the Exchange Offer,
holders of the Old Notes will no longer be, entitled to certain other rights
under the Registration Rights Agreement intended for the holders of unregistered
securities, except in certain limited circumstances. See "Exchange
Offer -- Termination of Certain Rights." The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the Trustee in
its capacity as Registrar under the Indenture of Exchange Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
were tendered by holders thereof pursuant to the Exchange Offer. See "The
Exchange Offer -- Termination of Certain Rights," " -- Procedures for Tendering
Old Notes," and "Description of Exchange Notes."
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Securities Offered........................ $150,000,000 aggregate principal amount of 6 7/8% Senior Notes due 2005, Series B.
Maturity Date............................. July 1, 2005.
Interest Payments Dates................... January 1 and July 1, of each year, commencing January 1, 1999.
Ranking................................... The Notes are unsecured senior obligations of the Company and rank pari passu in
right of payment with all other existing and future unsecured and
unsubordinated indebtedness of the Company and senior in right of payment
to all future subordinated indebtedness of the Company. The Notes are
effectively subordinated, however, to (i) all future secured obligations of
the Company to the extent of the assets securing such obligations and (ii)
all current and future borrowings and trade obligations of the subsidiaries
of the Company. The Indenture under which the Notes are issued permits the
Company and its subsidiaries to incur additional indebtedness, including
additional secured indebtedness, subject to certain conditions. See
"Description of the Exchange Notes -- General."
Redemption................................ The Notes may be redeemed, in whole or in part, at the option of the Company
at any time prior to maturity upon payment of the principal amount thereof,
together with unpaid interest accrued to the redemption date and a "Make-Whole
Premium," as defined herein. See "Description of the Exchange Notes -- Redemption."
Certain Covenants......................... The Indenture contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to (i) create certain liens, (ii)
engage in sale and leaseback transactions or (iii) engage in certain mergers,
consolidations or asset sales. See "Description of the Exchange Notes."
Absence of a Public Market for
the Exchange Notes........................ There is no existing market for the Notes and there can be no assurance as to
the liquidity of any markets that may develop for the Notes, the ability of
holders of the Notes to sell their Notes or the price at which holders would be
able to sell their Notes. Future trading prices of the Notes will depend on may
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company has been
advised by the Initial Purchasers that, subject to applicable laws and
regulations, such firms currently intend to make a market in the Notes, although
they are not obligated to do so and may discontinue any market-making activities
with respect to the Notes at any time without notice. The Company does not
intend to apply for
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listing of the Notes on any securities exchange or for quotation through the
Nasdaq National Market or any other quotation system. See "Risk Factors -- Absence
of Public Market for the Notes" and "Plan of Distribution."
</TABLE>
For more detailed information regarding the terms of the Notes, see
"Description of Exchange Notes."
RISK FACTORS
See "Risk Factors" beginning on page 11 of this Prospectus for a
discussion of certain factors which should be considered by prospective
investors in evaluating the Exchange Offer.
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<PAGE> 14
RISK FACTORS
In addition to the other information contained in this Prospectus,
holders of Notes should consider carefully the following risk factors affecting
the business of the Company.
DEPENDENCE ON OIL AND GAS INDUSTRY
National-Oilwell's businesses are substantially dependent upon the
condition of the oil and gas industry and the industry's willingness to explore
for and produce oil and gas. The degree of such willingness is generally
dependent upon the prevailing view of future product prices, which are
influenced by numerous factors affecting the supply and demand for oil and gas,
including the level of drilling activity, worldwide economic activity, interest
rates and the cost of capital, the development of alternate energy sources,
environmental regulation, tax policies, political requirements of national
governments, coordination by the Organization of Petroleum Exporting Countries
("OPEC") and the cost of producing oil and gas. Any significant reduction in
demand for drilling services, in cash flows of drilling contractors or in rig
utilization rates below current levels would result in a drop in demand for
products manufactured and sold by National-Oilwell.
VOLATILITY OF OIL AND GAS PRICES
Oil and gas prices and activity have been characterized by significant
volatility over the last approximately twenty years. Since 1986, spot oil prices
(West Texas Intermediate) have ranged from a low of approximately $11 per barrel
in 1986 to a high of approximately $40 per barrel in 1991. Oil prices have
generally been under downward pressure to date in 1998, with spot prices
generally within a range of $12-$16 per barrel. Spot gas prices (Henry Hub) have
ranged from lows below $1.00 per mcf of gas in 1992 to highs above $3.00 per mcf
in 1996 and 1997. There has also been downward pressure on gas prices to date in
1998, and prices have generally been within a range of $1.80 to $2.20 per mcf.
These price changes have caused numerous shifts in the strategies and
expenditure levels of oil and gas companies and drilling contractors,
particularly with respect to decisions to purchase major capital equipment of
the type manufactured by National-Oilwell. Moreover, uncertainty with respect to
the stability and direction of future prices has often led to deferral of such
expenditures. Recent expectations of lower oil prices generally have the effect
of slowing production and new drilling, particularly in areas where the per
barrel cost of production is high. This slowdown has a more immediate effect on
parts of National-Oilwell's distribution business but can also affect the
downhole products and products and technology segments if lower prices are
expected to continue for extended periods. No assurance can be given as to the
future price levels of oil and gas or the volatility thereof, or that the future
price of oil and gas will be sufficient to support current levels of exploration
and production.
HIGHLY COMPETITIVE INDUSTRY
The oilfield products and services industry is highly competitive. The
revenues and earnings of National-Oilwell can each be affected by competitive
actions such as price changes, introduction of new technologies and products or
improved availability and delivery. National-Oilwell competes with a large
number of companies, some of which may offer certain more technologically
advanced products, possess greater financial resources and have more extensive
and diversified operations.
POTENTIAL PRODUCT LIABILITY AND WARRANTY CLAIMS
Certain products of National-Oilwell and its predecessors are used in
potentially hazardous drilling, completion and production applications that can
cause personal injury or loss of life, damage to property, equipment or the
environment and suspension of operations. National-Oilwell maintains insurance
coverage in such amounts and against such risks as it believes to be in
accordance with normal industry practice. Such insurance does not, however,
provide coverage for all liabilities (including liabilities for certain events
involving pollution), and there can be no assurance that such insurance will be
adequate to cover all losses or liabilities that may be incurred by
National-Oilwell in its operations. Moreover, no assurance can be given that
National-Oilwell will, in the future, be able to maintain insurance
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<PAGE> 15
at levels it deems adequate and at rates it considers reasonable or that
particular types of coverage will be available. Litigation arising from a
catastrophic occurrence at a location where equipment and services of
National-Oilwell or its predecessors have been used may, in the future, result
in National-Oilwell being named as a defendant in product liability or other
lawsuits asserting potentially large claims. National-Oilwell is a party to
various legal and administrative proceedings which have arisen from its
businesses. No assurance can be given with respect to the outcome of these or
any other pending legal and administrative proceedings and the effects such
outcomes may have on National-Oilwell.
IMPACT OF POLITICAL DEVELOPMENTS AND GOVERNMENTAL REGULATIONS
Many aspects of National-Oilwell's operations are affected by political
developments, including restrictions on the ability to do business in various
foreign jurisdictions, and are subject to both domestic and foreign governmental
regulation, including those relating to oilfield operations, worker safety and
the protection of the environment. In addition, National-Oilwell depends on the
demand for its services from the oil and gas industry and, therefore, is
affected by any changes in taxation, price controls or other laws and
regulations that affect the oil and gas industry generally. The adoption of laws
and regulations curtailing exploration for or production of oil and gas for
economic or other policy reasons could adversely affect National-Oilwell's
operations. National-Oilwell cannot determine the extent to which its future
operations and earnings may be affected by political developments, new
legislation, new regulations or changes in existing regulations.
IMPACT OF ENVIRONMENTAL REGULATIONS
The operations of National-Oilwell and its customers are affected by
numerous foreign, federal, state, provincial and local environmental laws and
regulations. The technical requirements of these laws and regulations are
becoming increasingly expensive, complex and stringent. These laws may impose
penalties or sanctions for damages to natural resources or threats to public
health and safety. Such laws and regulations may also expose National-Oilwell to
liability for the conduct of or conditions caused by others, or for acts of
National-Oilwell or its predecessors that were in compliance with all applicable
laws at the time such acts were performed. Sanctions for noncompliance may
include revocation of permits, corrective action orders, administrative or civil
penalties and criminal prosecution. Certain environmental laws provide for joint
and several liability for remediation of spills and releases of hazardous
substances. In addition, National-Oilwell may be subject to claims alleging
personal injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources.
RISK OF CERTAIN FOREIGN MARKETS
Certain of National-Oilwell's revenues result from the sale of products
to customers for ultimate destinations in the Middle East, Africa, Southeast
Asia and other international markets and are subject to risks of instability of
foreign economies and governments. Furthermore, National-Oilwell's sales can be
affected by laws and regulations limiting exports to particular countries. In
certain cases, export laws and regulations of one jurisdiction may contradict
those of another.
National-Oilwell attempts to limit its exposure to foreign currency
fluctuations by limiting the amount of sales denominated in currencies other
than United States dollars, Canadian dollars and British pounds.
National-Oilwell has not engaged in and does not currently intend to engage in
any significant hedging or currency trading transactions designed to compensate
for adverse currency fluctuations among those or any other foreign currencies.
INTEGRATION OF ACQUISITIONS AND MANAGEMENT OF GROWTH
National-Oilwell completed four acquisitions in 1997 and has completed
four acquisitions to date in 1998. In addition, the Company expects to evaluate
and, where feasible, make additional strategic acquisitions in the future. There
can be no assurance that suitable acquisition candidates will be available, that
acquisitions can be completed on reasonable terms, that the Company will
successfully integrate the operations of any acquired entities or that the
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Company will have access to adequate funds to effect any desired acquisitions.
In addition, the process of combining the organizations could cause the
interruption of, or a loss of momentum in, the activities of some or all of the
companies' businesses, which could have an adverse effect on their combined
operations. The Dreco Combination and recent growth in revenues and backlog have
placed significant demands on the Company and its management to improve the
combined entity's operational, financial and management information systems, to
develop further the management skills of the Company's managers and supervisors,
and to continue to train, motivate and effectively manage the Company's
employees. The failure of the Company to manage its growth effectively could
have a material adverse effect on the Company.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is no existing market for the Notes and there can be no assurance
as to the liquidity of any markets that may develop for the Notes, the ability
of holders of the Notes to sell their Notes or the price at which holders would
be able to sell their Notes. Future trading prices of the Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities. The Company
has been advised by the Initial Purchasers that, subject to applicable laws and
regulations, such firms currently intend to make a market in the Notes, although
they are not obligated to do so and may discontinue any market-making activities
with respect to the Notes at any time without notice.
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<PAGE> 17
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchasers on
June 26, 1998, pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act. The Company and the Initial Purchasers also entered into the Registration
Rights Agreement pursuant to which the Company agreed with respect to the Old
Notes to (i) cause a Registration Statement to be filed with the Commission
under the Securities Act concerning the Exchange Offer, (ii) use its reasonable
best efforts (a) to cause such Registration Statement to be declared effective
by the Commission by November 23, 1998 and (b) to cause the Exchange Offer to be
consummated by December 23, 1998. This Exchange Offer is intended to satisfy the
Company's exchange offer obligations under the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions
set forth herein and in the accompanying Letter of Transmittal, to exchange
$1,000 in principal amount of the Exchange Notes for each $1,000 in principal
amount of the outstanding Old Notes. The Company will accept for exchange any
and all Old Notes that are validly tendered on or prior to 5:00 p.m., New York
City time, on the Expiration Date. Tenders of the Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
customary conditions which may be waived by the Company, and to the terms and
provisions of the Registration Rights Agreement. See "-- Conditions of the
Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of August 20, 1998, $150,000,000 aggregate principal amount of the
Old Notes was outstanding and there was one registered holder of the Old Notes,
Cede & Co., nominee for DTC, which held the Old Notes for its participants. Only
a holder of the Old Notes (or such holder's legal representative or
attorney-in-fact) may participate in the Exchange Offer. There will be no fixed
record date for determining holders of the Old Notes entitled to participate in
the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering of Old
Notes and for the purposes of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be October 30, 1998 at 5:00 p.m., New York
City time, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the Expiration Date shall be the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 10:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
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<PAGE> 18
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer or (iii) if any of
the conditions set forth below under "Conditions of the Exchange Offer" shall
not have been satisfied, to terminate the Exchange Offer, by giving oral or
written notice of such delay, extension, or termination to the Exchange Agent.
The Company reserves the right, in its sole discretion, to amend the terms of
the Exchange Offer in any manner. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendments by means of a prospectus supplement that will
be distributed to the registered holders of the Old Notes.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount
of Old Notes being tendered for exchange. However, the Exchange Offer is subject
to certain customary conditions, including without limitation that (i) the
Exchange Offer, or the making of an exchange by a holder, does not violate
applicable law or any applicable interpretation of the staff of the Commission
and (ii) no action or proceeding is instituted or threatened that would be
reasonably likely to materially impair the ability of the Company to proceed
with the Exchange Offer.
The Company expects that the foregoing conditions will be satisfied.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of such rights and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
TERMINATION OF CERTAIN RIGHTS
Pursuant to the Registration Rights Agreement and the Old Notes,
holders of Old Notes have rights to receive Additional Interest and have certain
rights intended for the holders of unregistered securities. Holders of Exchange
Notes will not be and, upon consummation of the Exchange Offer, holders of Old
Notes will no longer be, entitled to (i) the right to receive Additional
Interest or (ii) certain other rights under the Registration Rights Agreement
intended for holders of unregistered securities. The Exchange Offer shall be
deemed consummated upon the occurrence of the delivery by the Company to the
Registrar of Exchange Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that were tendered by holders thereof
pursuant to the Exchange Offer.
SHELF REGISTRATION
The Company will be required to file the Shelf Registration Statement
pursuant to Rule 415 under the Securities Act covering the Old Notes if (i)
because of any changes in law, Commission rules or regulations or applicable
interpretations thereof by the staff of the Commission, the Company is not
permitted to effect the Exchange Offer, (ii) if for any other reason the
Registration Statement of which this Prospectus is a part is not declared
effective by November 23, 1998 or the Exchange Offer is not consummated by
December 23, 1998, (iii) if a holder is advised by counsel that it is not
permitted by Federal securities laws or Commission policy to participate in the
Exchange Offer or does not receive Exchange Notes that are fully tradeable
pursuant to the Exchange Offer without restriction or limitation as to holding
period or volume or (iv) upon the request of the Initial Purchasers acquiring a
majority of the initial aggregate principal amount of the Old Notes (but only
with respect to any Old Notes which the Initial Purchasers acquired directly
from the Company).
ACCRUED INTEREST ON THE OLD NOTES
The Exchange Notes will bear interest at a rate equal to 6 7/8% per
annum from and including their date of issuance. Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereon
from the date of their original issuance to, but not including, the date of
issuance of the Exchange Notes, such interest to be payable with the first
interest payment on the Exchange Notes. Interest on the Old Notes accepted for
exchange,
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which interest accrued at the rate of 6 7/8% per annum, will cease to accrue on
the day prior to the issuance of the Exchange Notes.
ADDITIONAL INTEREST
Pursuant to the Registration Rights Agreement, if (a) the Registration
Statement of which this Prospectus is a part has not been declared effective on
or prior to November 23, 1998, (b) the Exchange Offer is not consummated on or
prior to December 23, 1998, (c) a required Shelf Registration Statement is not
declared effective on or prior to the 210th calendar day following the Closing
Date or (d) this Registration Statement or any required Shelf Registration
Statement is filed and declared effective but shall thereafter be either
withdrawn by the Company or become subject to an effective stop order suspending
the effectiveness of such registration statement, except as specifically
permitted by the Registration Rights Agreement, without being succeeded
immediately by an additional registration statement filed and declared effective
(each such event referred to in clauses (a) through (d) above, a "Registration
Default"), the interest rate borne by the Old Notes shall be increased by .25%
per annum following such Registration Default; provided that the aggregate
amount of any such increase in the interest rate on the Notes shall in no event
exceed .25% per annum; and provided, further, that if this Registration
Statement is not declared effective on or prior to November 23, 1998 and the
Company shall request holders of Old Notes to provide information for inclusion
in the Shelf Registration Statement, then Old Notes owned by holders who do not
deliver such information to the Company or who do not provide comments on the
Shelf Registration Statement when required pursuant to the Registration Rights
Agreement will not be entitled to any such increase in the interest rate for any
day after December 23, 1998. Following the cure of all Registration Defaults,
the accrual of such additional interest will cease and the interest rate will
revert to the original rate.
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit such Old Notes,
together with a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. THE
METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's book-entry
transfer system may make bookentry delivery of the Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account in accordance with
DTC's procedures for such transfer. In connection with a book-entry transfer,
DTC participants may, in lieu of physically completing and signing the Letter of
Transmittal and delivering it to the Depositary, electronically transmit their
acceptance through Automated Tender Offer Program ("ATOP"), and DTC will then
edit and verify the acceptance and send an Agent's Message to the Exchange
Agent. Delivery of tendered Notes must be made to the Depositary pursuant to the
book-entry delivery procedures set forth below or the tendering DTC participant
must comply with the guaranteed delivery procedures set forth below.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the book-entry
confirmation, which states that DTC has received an express acknowledgment from
each participant in DTC tendering the Old Notes and that such participants have
received the Exchange Offer and agree to be bound by the terms of the Exchange
Offer and the Company may enforce such agreement against such participants.
16
<PAGE> 20
Each signature on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Old Notes surrendered for
exchange pursuant hereto are tendered (i) by a registered holder of the Old
Notes who has not completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" in the Letter
of Transmittal or (ii) by an Eligible Institution (as defined below). In the
event that a signature on a Letter of Transmittal or a notice of withdrawal, as
the case may be, is required to be guaranteed, such guarantee must be by a firm
which is a member of a registered national securities exchange or the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or otherwise be an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (collectively, "Eligible Institutions"). If the Letter of
Transmittal is signed by a person other than the registered holder of the Old
Notes, the Old Notes surrendered for exchange must either (i) be endorsed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution, or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution. The term "registered holder" as used herein with respect to the Old
Notes means any person in whose name the Old Notes are registered on the books
of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company, or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If any Letter of Transmittal, endorsement, bond power, power of
attorney or any other document required by the Letter of Transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
Any beneficial owner of the Old Notes whose Old Notes are registered in
the name of a nominee, such as a broker, dealer, commercial bank or trust
company and who wishes to tender Old Notes in the Exchange Offer should contact
such registered holder promptly and instruct such registered holder to tender on
such beneficial owner's behalf. If such beneficial owner wishes to tender
directly, such beneficial owner must, prior to completing and executing the
Letter of Transmittal and tendering Old Notes, make appropriate arrangements to
register ownership of the Old Notes in such beneficial owner's name. Beneficial
owners should be aware that the transfer of registered ownership may take
considerable time.
By tendering, each registered holder will represent to the Company
that, among other things (i) the Exchange Notes to be acquired in connection
with the Exchange Offer by the Holder and each beneficial owner of the Old Notes
are being acquired by the holder and each beneficial owner in the ordinary
course of business of the holder and each beneficial owner, (ii) the holder and
each beneficial owner are not participating, do not intend to participate, and
have no arrangement or understanding with any person to participate, in the
distribution (within the meaning of the Securities Act) of the Exchange Notes,
(iii) the holder and each beneficial owner acknowledge and agree that any person
participating in the Exchange Offer for the purpose of distributing the Exchange
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
staff of the Commission set forth in no-action
17
<PAGE> 21
letters that are discussed herein under "-- Resales of the Exchange Notes,"
(iv) that if the holder is a broker-dealer that acquired Old Notes for its own
account as a result of market-making or other trading activities, it will
deliver a prospectus in connection with any resale of Exchange Notes acquired in
the Exchange Offer, provided that, by delivering, the broker-dealer will not be
deemed to admit that it is an underwriter within the meaning of the Securities
Act, (v) the holder and each beneficial owner understand that a secondary,
resale transaction described in clause (iii) above should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Commission, and (vi)
neither the Holder nor any Beneficial Owner is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company except as otherwise disclosed to
the Company in writing. In connection with a book-entry transfer, each
participant will confirm that it makes the representations and warranties
contained in the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures, if the Holder desires to tender Old
Notes other than by book-entry transfer, (i) such tender must be made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent must
receive from such Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes, the certificate number or numbers of any Old Notes which
will not be tendered by book-entry transfer, and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five business days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form for transfer, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, and all other documents required by this Letter, are
received by the Exchange Agent within five business days after the date of
execution of the Notice of Guaranteed Delivery. In the case of a book-entry
transfer, pursuant to the guaranteed delivery procedures set forth in the Letter
of Transmittal (i) the tender must be made through an Eligible Institution, (ii)
prior to the Expiration Date, the Exchange Agent must receive confirmation from
the Depositary of receipt by the Depositary of a Notice of Guaranteed Delivery
via ATOP, by which the tendering Holder will expressly acknowledge the receipt
of, and agree to be bound by, the Notice of Guaranteed Delivery including a
guarantee that book-entry confirmation will be received by the Exchange Agent
within five business days after the date of transmittal of the Notice of
Guaranteed Delivery, and (iii) book-entry confirmation must be received by the
Exchange Agent within five business days after the date of the transmittal of
the Notice of Guaranteed Delivery via ATOP. Any Holder who wishes to tender Old
Notes pursuant to the Guaranteed Delivery Procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Old Notes prior to 5:00 p.m., New York City time,
on the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all the conditions to the Exchange
Offer, the Company will accept any and all Old Notes that are properly tendered
in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered
promptly after acceptance of the Old Notes. For purposes of the Exchange Offer,
the Company shall be deemed to have accepted validly tendered Old Notes, when,
as, and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal and all other required documents (or of
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC); provided, however, that the Company reserves the
absolute right to waive any defects or irregularities in the tender or
conditions of the Exchange Offer. If any tendered Old Notes are not accepted for
any reason, such unaccepted Old Notes will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
18
<PAGE> 22
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written
notice to the Exchange Agent at its address set forth on the back cover page of
this Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by a bond power in the name of the
person withdrawing the tender, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon Guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture, and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the depositor,
pursuant to such documents of transfer. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, in its sole discretion. The Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are withdrawn will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering Old Notes" at any time on or prior to the Expiration Date.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and,
except as described under "-- Shelf Registration," holders of Old Notes who do
not tender their Old Notes will not have any further registration rights under
the Registration Rights Agreement or otherwise. Accordingly, any holder of Old
Notes that does not exchange that holder's Old Notes for Exchange Notes will
continue to hold the untendered Old Notes and will be entitled to all the rights
and subject to the limitations applicable thereto under the Indenture, except to
the extent such rights or limitations, by their terms, terminate or cease to
have further effectiveness as a result of the Exchange Offer.
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company or any subsidiary thereof, (ii) pursuant
to an effective registration statement under the Securities Act, (iii) for so
long as the Old Notes are eligible for resale pursuant to Rule 144A under the
Securities Act, to a person it reasonably believes is "qualified institutional
buyer" within the meaning of Rule 144A under the Securities Act (a "QIB") that
purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on 144A, (iv) pursuant to
offers and sales to non-U.S. persons in an "offshore transaction" within the
meaning of Regulation S under the Securities Act, (v) to an institutional
"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that, prior to such transfer, furnishes to the Trustee, a signed
letter containing certain representations relating to the restrictions on
transfer of the Old Notes evidenced thereby (the form of which letter can be
obtained from the Trustee) or (vi) pursuant to any other available exemption
from the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of its property
or the property of such investor account or accounts be at all times within its
or their control and in compliance with any applicable state securities laws.
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Old Notes could be adversely
affected.
THE EXCHANGE AGENT; ASSISTANCE
The Bank of New York is the Exchange Agent. All tendered Old Notes,
executed Letters of Transmittal and other related documents should be directed
to the Exchange Agent. Requests for assistance and requests for additional
copies of the Prospectus, the Letter of Transmittal and other related documents
should be addressed to the Exchange Agent as follows:
19
<PAGE> 23
<TABLE>
<S> <C> <C>
By Hand or Overnight Delivery: By Facsimile: By Registered or Certified Mail:
(for Eligible Institutions only)
The Bank of New York The Bank of New York
101 Barclay Street (212) 815-6339 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level To Confirm by telephone Attn: Carolle Montreuil
Attn: Carolle Montreuil or for Information Call: Reorganization Section
Reorganization Section (212) 815-3738
</TABLE>
FEES AND EXPENSES
All fees and expenses incident to the performance of or compliance with
the Registration Rights Agreement by the Company will be borne by the Company,
including, without limitation: (i) all Commission, stock exchange or National
Association of Securities Dealers, Inc. (the "NASD") registration and filing
fees, (ii) all fees and expenses incurred in connection with compliance with
state securities or blue sky laws and compliance with the rules of the NASD
(including reasonable fees and disbursements of one firm of legal counsel for
any underwriters or Holders in connection with blue sky qualification of any of
the Exchange Notes and any filings with the NASD), (iii) all expenses of any
persons in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto relating to the performance of and compliance with the
Registration Rights Agreement, (iv) all rating agency fees, (v) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (vi) the fees and expenses of the Trustee, and any escrow agent or
custodian and (vii) any fees and expenses of any special experts retained by the
Company in connection with any Registration Statement, but excluding
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of Old Notes by a holder.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Old Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss will be recognized by the Company for
accounting purposes. The expenses of the Exchange Offer will be amortized over
the term of the Exchange Notes.
RESALES OF THE EXCHANGE NOTES
Based on interpretation of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof
20
<PAGE> 24
without further compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any purchaser of Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing the Exchange Notes, or any broker-dealer who
purchased the Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (i) will not be able to rely
on the interpretation by the staff of the Commission set forth in the above
referenced no-action letters, (ii) will not be able to tender the Notes in the
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Notes, unless such sale or transfer is made pursuant to an
exemption from such requirements. The Company does not intend to seek its own
no-action letter, and there is no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Notes as it has
in such no action letter to third parties.
Each holder of the Old Notes who wishes to exchange the Old Notes for
the Exchange Notes in the Exchange Offer will be required to make certain
representations, including that (i) it is neither an affiliate of Company nor a
broker-dealer tendering Notes acquired directly from the Company for its own
account, (ii) any Exchange Notes to be received by it shall be acquired in the
ordinary course of its business, and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. In addition, in connection with any resales of Exchange
Notes, any Participating Broker-Dealer must deliver a prospectus meeting the
requirements of the Securities Act. The staff of the Commission has taken the
position that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Notes) with this prospectus.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers to use this prospectus in connection with the
resale of Exchange Notes received in exchange for Notes acquired by such
Participating Broker-Dealers for their own account as a result of market-making
or other trading activities. See "Plan of Distribution."
21
<PAGE> 25
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1998. This table should be read in conjunction with the consolidated
financial statements of the Company, which are incorporated by reference into
this Prospectus. See "National-Oilwell, Inc. and Subsidiaries Selected
Consolidated Financial Data."
<TABLE>
<CAPTION>
ACTUAL
-------
<S> <C>
Cash and cash equivalents $ 27.0
=======
Long-term debt, including current portion
Senior Credit Facility......................... $ 65.3
Notes.......................................... 150.0
Total debt.............................. 215.3
Stockholders' equity............................. 320.1
-------
Total capitalization.................... $ 535.4
=======
</TABLE>
The Exchange Offer would not have any effect on the Company's
capitalization.
22
<PAGE> 26
NATIONAL-OILWELL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
As a result of the differing year ends of National-Oilwell and Dreco
prior to the Dreco Combination, the balance sheet and results of operations for
dissimilar year ends have been combined pursuant to pooling-of-interests
accounting. National-Oilwell's results of operations for the year ended December
31, 1997 include Dreco's results of operations for the six months ended May 31,
1997 and the six months ended December 31, 1997. Data for the year ended
December 31, 1996 includes the operations of National-Oilwell for the twelve
months ended and as of December 31, 1996 combined pursuant to
pooling-of-interests accounting with the operations of Dreco for the twelve
months ended and as of November 30, 1996. Data for the three years ended August
31, 1995 reflect the operations of Dreco only, as the operations of
National-Oilwell were acquired from a predecessor as of January 1, 1996 and, in
accordance with generally accepted accounting principles, cannot be combined.
Data for the six months ended June 30, 1997 includes the operations of
National-Oilwell for the six months ended and as of June 30, 1997 combined
pursuant to pooling-of-interests accounting with the operations of Dreco for the
six months ended and as of May 31, 1997. The unaudited consolidated financial
statements of National-Oilwell include, in the opinion of National-Oilwell's
management, all adjustments, consisting of normal recurring accruals, necessary
to present fairly the results of such periods. The data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference herein from the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 and
from the Company's Quarterly Report on Form 10-Q for the three months ended June
30, 1998.
Except for data as of June 30, 1998 and for the six months then ended, the
following data does not reflect the acquisition of Phoenix, which was completed
on June 2, 1998 and was accounted for under the purchase method of accounting.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31, YEAR ENDED AUGUST 31,(1)
-------- ------------ ------------------------
1998 1997(2) 1997(2) 1996(3) 1995 1994 1993
---- ------ ------ ------ ---- ---- ----
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues......................... $596,695 $440,760 $1,005,572 $761,816 $86,875 $ 79,663 $93,981
Operating income (loss) before
special items(4)............... 75,179 34,638 97,899 44,110 10,059 (9,253) 3,133
Operating income (loss)(4)....... 75,179 34,638 87,239 27,499 10,059 (9,253) 3,133
Income (loss) before taxes and
extraordinary loss(5).......... 71,643 32,260 82,482 16,718 12,196 (6,709) 6,061
Income (loss) before
extraordinary loss(5).......... 44,948 20,764 51,281 10,147 7,789 (6,682) 7,386
Net income (loss)................ 44,948 20,764 50,658 6,147 7,789 (6,682) 7,386
OTHER DATA:
Depreciation and amortization.... 8,780 6,509 14,744 8,775 4,558 4,926 4,481
Capital expenditures............. 9,368 12,216 32,605 15,166 6,435 5,932 6,167
EBITDA before special
items(6)....................... 83,959 41,147 112,643 52,885 14,617 (4,327) 7,614
Ratio of earnings to fixed
charges(7)..................... 22.7x 12.1x 14.8x 2.4x 96.3x -- (7) 11.9x
Ratio of EBITDA to interest
expense........................ 28.1x 16.2x 21.4x 4.8x 228.4x -- (6) 15.0x
BALANCE SHEET DATA:
Working capital.................. 315,427 229,501 252,137 168,897 32,992 18,292 27,725
Total assets............ 807,154 468,763 567,511 352,518 72,355 69,323 74,047
Long-term debt, less current
maturities..................... 214,002 69,268 61,565 39,136 1,987 1,440 2,857
Owners' equity................... 320,125 239,586 277,688 169,016 48,957 38,690 46,626
</TABLE>
- - - ----------
(1) Data for the three years ended August 31, 1995 reflect the operations
of Dreco only, as the operations of National-Oilwell were acquired from
a predecessor as of January 1, 1996 and, in accordance with generally
accepted accounting principles, cannot be combined.
23
<PAGE> 27
(2) In order to conform Dreco's fiscal year end to match National-Oilwell's
year end, the results of operations for the month of June 1997 have
been included directly in stockholders' equity. Dreco's revenues and
net income were $13.4 million and $0.9 million for the month.
(3) In order to conform Dreco's August 31 fiscal year end to a period
within 93 days of National-Oilwell's December 31 year end, the results
of operations for the period from September 1, 1995 through November
30, 1995 have been included directly in stockholders' equity.
Dreco's revenues and net income were $33.4 million and $3.2 million for
such period.
(4) In September 1997, National-Oilwell recorded a $10,660,000 charge
related to merger expenses incurred in connection with the Dreco
Combination. In October 1996, National-Oilwell recorded $16,611,000 in
charges related to the cancellation of management agreements and
expenses related to special incentive plans that terminated upon the
occurrence of its initial public offering of Common Stock.
(5) National-Oilwell recorded extraordinary losses of $623,000 net of
income tax benefit of $376,000 in September 1997, and of $4,000,000 net
of income tax benefit of $2,400,000 in October 1996, due to the
write-off of deferred debt costs.
(6) EBITDA before special items means earnings before special items,
interest expense, income taxes, depreciation and amortization. EBITDA
is not intended to represent cash flows for the period and should not
be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. EBITDA is presented as supplemental disclosure and the
Company believes it is frequently used to analyze companies and as a
measure of a company's ability to service its debt.
(7) The ratio of earnings to fixed charges is calculated by dividing (i)
income (loss) before income taxes and extraordinary loss plus fixed
charges by (ii) fixed charges. Fixed charges consist of interest
incurred (expensed or capitalized), amortization of deferred financing
costs and the portion of rental expense which is deemed representative
of interest. If the special charges in 1997 and 1996 were also added to
earnings, the ratio of earnings to fixed charges would have been 16.6x
and 3.8x, respectively. Additional income before income taxes necessary
to attain a ratio of 1.0x for 1994 would have been $6.7 million.
24
<PAGE> 28
BUSINESS
GENERAL
National-Oilwell is a worldwide leader in the design, manufacture and
sale of machinery, equipment and downhole products used in oil and gas drilling
and production, as well as in the distribution to the oil and gas industry of
maintenance, repair and operating products. The Company manufactures and
assembles drilling machinery, including drawworks, mud pumps and power swivels
(also known as "top drives"), which are the major mechanical components of
drilling rigs, as well as masts, derricks, substructures and cranes. Many of
these components are designed specifically for applications in offshore,
extended reach and deep land drilling. The Company estimates that approximately
65% of the mobile offshore rig fleet and the majority of the world's larger land
rigs (2,000 horsepower and greater) manufactured in the last twenty years
utilize drawworks, mud pumps and other drilling machinery components
manufactured by National-Oilwell.
As a result of the Dreco Combination, National-Oilwell expanded its
machinery and equipment capabilities and also added a business segment that
designs and manufactures drilling motors and specialized drilling tools for rent
and for sale. Drilling motors are essential components of systems for
horizontal, directional, extended reach and performance drilling. Drilling tools
include drilling jars, shock tools and other specialized products.
The Company also provides distribution services through its network of
approximately 120 distribution service centers located near major drilling and
production activity worldwide, but principally in the United States and Canada.
These distribution service centers stock and sell a variety of expendable items
for oilfield applications and spare parts for National-Oilwell equipment. As oil
and gas companies and drilling contractors have refocused on their core
competencies and emphasized efficiency initiatives to reduce costs and capital
requirements, the Company's distribution services have expanded to offer
outsourcing and alliance arrangements that include comprehensive procurement,
inventory management and logistics support.
The relative revenues, before eliminations, and operating income
contribution of the three segments is summarized as follows (in thousands):
<TABLE>
<CAPTION>
PRODUCTS AND DOWNHOLE DISTRIBUTION
TECHNOLOGY PRODUCTS SERVICES
---------- -------- --------
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
Total revenues............................... $308,164 $35,523 $289,433
Operating income............................. 57,433 11,783 9,070
YEAR ENDED DECEMBER 31, 1997
Total revenues............................... $371,841 $69,012 $630,899
Operating income............................. 53,453 25,551 27,581
</TABLE>
CURRENT INDUSTRY ENVIRONMENT
Drilling activity worldwide increased significantly from early 1996
through the end of 1997, with demand for oil and gas rising and inventories
comparatively low. In addition, increased use of 3-D seismic, directional
drilling and other technologies lowered the cost of finding and developing
hydrocarbons. As a result of these industry conditions, drilling contractors
experienced improved utilization and profitability, and the resulting cash flows
enabled these contractors to replace and upgrade the aging drilling rig fleet.
During 1998, the prices of oil and gas have declined, and, as a result of lower
oil and gas prices, contracts for drilling services are generally being renewed
currently at lower day rates than experienced in late 1997.
Over the last fifteen years, much of the demand for capital equipment
has been satisfied from the large surplus of equipment built during the late
seventies and early eighties. The Company believes that the surplus has been
reduced
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<PAGE> 29
substantially over this period, especially for higher capacity equipment for
which National-Oilwell is a leading supplier. The Company's orders for new
equipment have increased dramatically as shown below, but such orders can be
affected by volatility in the price of oil and gas and other factors. See "Risk
Factors."
[Chart Showing Capital Equipment Backlog and Revenues
In the Nine Quarters Ending June 30, 1998 ($Millions)]
DATA POINTS FOR BACKLOG AND REVENUE GRAPH
($MILLIONS)
<TABLE>
<CAPTION>
JUN-96 SEP-96 DEC-96 MAR-97 JUN-97 SEP-97 DEC-97 MAR-98 JUN-98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Backlog............. 33.8 39.2 38.2 86.0 140.8 238.6 271.2 273.0 260.0
Revenue............. 41.4 36.0 34.5 32.4 39.5 55.1 62.1 67.4 85.1
</TABLE>
National-Oilwell believes that reasonably anticipated demand for the
Company's capital equipment in 1998 and 1999 can be met without significant
incremental capital expenditures by the Company's continuing focus on process
improvement and through the combined capabilities available after the Dreco
Combination. Depending on the timing and nature of future orders, future
expansion may be required.
BUSINESS STRATEGY
National-Oilwell's current business strategy is to enhance its market
positions and operating performance by:
Leveraging Its Installed Base of Higher Capacity Drilling Machinery and
Equipment. National-Oilwell believes its market position presents substantial
opportunities to capture a significant portion of expenditures for the
construction of new, higher capacity drilling rigs and equipment as well as the
upgrade and refurbishment of existing drilling rigs and equipment. The Company
believes the advanced age of the existing fleet of drilling rigs, coupled with
increasing drilling activity involving greater depths and extended reach, will
generate demand for new equipment, especially in the higher capacity end of the
market. National-Oilwell's larger drawworks, mud pumps and power swivels
provide, in many cases, the largest capacities currently available in the
industry.
Expanding Its Downhole Products Business. National-Oilwell believes
that the strengthened marketing and distribution capabilities resulting from the
Dreco Combination provide an opportunity for growth in the rental and sale of
high-performance drilling motors and downhole tools, especially for use in
directional, horizontal, extended reach and other value-added drilling
applications.
Building on Distribution Strengths and Alliance/Outsourcing Trends. As
a result of efficiency initiatives, oil and gas companies and drilling
contractors are frequently seeking alliances with suppliers, manufacturers and
service providers, or outsourcing their procurement, inventory management and
logistics requirements for equipment and supplies in order to achieve cost and
capital improvements. National-Oilwell believes that it is well-positioned to
provide these services as a result of its (i) large and geographically diverse
network of distribution service centers in major oil and gas producing areas in
the United States and Canada, (ii) purchasing leverage due to the volume of
products sold, (iii) breadth of available product lines and (iv) integrated
information and process systems that enhance procurement, inventory management
and logistics activities. In addition, the strategic integration of
National-Oilwell's distribution expertise, extensive distribution network and
growing base of customer alliances may provide an increased opportunity for
cost-effective marketing of National-Oilwell's manufactured parts and equipment.
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<PAGE> 30
Continuing to Make Acquisitions that Enhance Its Product Line.
National-Oilwell believes that the oilfield service and equipment industry will
continue to experience consolidation as businesses seek to align themselves with
other market participants in order to gain access to broader markets and become
affiliated with integrated product offerings, and National-Oilwell plans to
participate in this trend. During 1997, the Company made three acquisitions,
including the Dreco Combination, which have enabled the Company to provide a
more complete rig package to its customers. To date in 1998 the Company has
completed the acquisitions of Speciality Tools Ltd., a company that designs and
engineers downhole tools for thru-tubing applications, Versatech International
Ltd., a company engaged in the manufacture of coiled tubing tools and equipment,
Phoenix and RJI.
OPERATIONS
Products and Technology
National-Oilwell designs, manufactures and sells the major mechanical
components for both land and offshore drilling rigs, as well as complete land
drilling and well servicing rigs. The major mechanical components include
drawworks, mud pumps, power swivels, SCR houses, traveling equipment and rotary
tables. These are the major components involved in the primary functions of
drilling oil and gas wells, which consist of pumping fluids and hoisting,
supporting and rotating the drill string. Many of these components are designed
specifically for applications in offshore, extended reach and deep land
drilling. This equipment is installed on new rigs and used in the upgrade,
refurbishment and repair of existing rigs.
While offering a complete line of conventional rigs, National-Oilwell
has extensive experience in providing rig designs to satisfy requirements for
harsh or specialized environments. Such products include North Slope of Alaska
and Arctic drilling and well servicing rigs, highly mobile drilling and well
servicing rigs for jungle and desert use, modular well servicing rigs for
offshore platforms and modular drilling facilities for North Sea platforms.
Masts, derricks and substructures are made for use on land rigs and on fixed and
mobile offshore platforms and are suitable for drilling to maximum depths up to
more than 30,000 feet. Other products include pedestal cranes, reciprocating and
centrifugal pumps and fluid end expendables for all major manufacturers' pumps.
National-Oilwell's business includes the sale of replacement parts for its own
manufactured machinery and equipment.
Downhole Products
National-Oilwell designs and manufactures drilling motors and
specialized drilling tools for rent and sale. Rentals generally involve products
that are not economical for a customer to own or maintain because of the broad
range of equipment required for the diverse hole size and depths encountered in
drilling for oil and gas. Sales generally involve products that require
infrequent service, are disposable or are sold in countries where
National-Oilwell does not provide repair and maintenance services.
National-Oilwell's drilling motors are devices placed between the drill
string and the drill bit to cause the bit to rotate without necessarily rotating
the drill string. Drilling motors are essential components in systems for
horizontal, directional, extended reach and performance drilling.
National-Oilwell often rents its drilling motors, retaining control over the
servicing and maintenance function so as to preserve their operating
reliability. National-Oilwell is continuing to enhance and broaden the range of
its drilling motors by, among other things, widening the size range offered,
reducing the initial cost and ongoing repair and maintenance cost, and
developing alternative designs of motor bearing assembly sealing systems and
speed reduction systems.
National-Oilwell manufactures hydraulic-mechanical and mechanical
drilling jars and shock tools. Drilling jars are used to assist in releasing a
drill string that becomes stuck in a well bore. A shock tool is a downhole shock
absorber that is placed low in the drill string and is intended to extend bit
life, reduce drill string failures and reduce damage to the drilling rig.
National-Oilwell also manufactures and rents or sells fishing jars, bumper subs,
reamers, stabilizers and kelly and tubing safety valves.
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<PAGE> 31
Distribution Services
National-Oilwell provides distribution services through its network of
approximately 120 distribution service centers located near major drilling and
production activity worldwide, but principally in the United States and Canada.
These distribution service centers stock and sell a variety of expendable items
for oilfield applications and spare parts for National-Oilwell equipment. As oil
and gas companies and drilling contractors have refocused on their core
competencies and emphasized efficiency initiatives to reduce costs and capital
requirements, National-Oilwell's distribution services have expanded to offer
outsourcing and alliance arrangements that include comprehensive procurement,
inventory management and logistics support. In addition, management believes
that National-Oilwell has a competitive advantage in the distribution services
business by distributing market-leading products manufactured by its Products
and Technology business.
The supplies and equipment stocked by National-Oilwell's distribution
service centers vary by location. Each distribution point generally offers a
large line of oilfield products including valves, fittings, flanges, spare parts
for oilfield equipment and miscellaneous expendable items. Most drilling
contractors and oil and gas companies typically buy such supplies and equipment
pursuant to non-exclusive contracts, which normally specify a discount from
National-Oilwell's list price for each product or product category.
National-Oilwell's tubular business is focused on the procurement,
inventory management and delivery of oil country tubular goods manufactured by
third parties. Tubular goods primarily consist of well casing and production
tubing used in the drilling, completion and production of oil and gas wells.
Well casing is used to line the walls of a well bore to provide structural
support. Production tubing provides the conduit through which the oil or gas
will be brought to the surface upon completion of the well. Substantially all of
National-Oilwell's sales of tubular goods are made through National-Oilwell's
direct sales force and have historically been concentrated in North America.
Strategic alliances constitute a growing percentage of
National-Oilwell's business and differ from standard agreements for supplies and
equipment in that National-Oilwell becomes the customer's primary supplier of
those items. In certain cases, National-Oilwell has assumed responsibility for
procurement, inventory management and product delivery for the customer,
occasionally by working directly out of the customer's facilities.
MARKETING
Substantially all of National-Oilwell's drilling machinery, equipment
and spare parts sales, and a large portion of National-Oilwell's smaller pumps
and parts sales, are made through National-Oilwell's direct sales force and
through National-Oilwell's distribution service centers. Sales to foreign
state-owned oil companies are typically made in conjunction with agent or
representative arrangements. Distribution sales are made through the Company's
network of distribution service centers. National-Oilwell's downhole products
are rented in Canada and Venezuela and marketed worldwide through its own sales
force and through commission representatives. Customers for all of
National-Oilwell's products and services include drilling and other service
contractors, exploration and production companies, supply companies and
nationally owned or controlled drilling and production companies.
COMPETITION
The oilfield services and equipment industry is highly competitive, and
National-Oilwell's revenues and earnings can be affected by price changes,
introduction of new technologies and products and improved availability and
delivery. National-Oilwell competes in one or more of its segments with a large
number of companies. See "Risk Factors -- Highly Competitive Industry."
MANUFACTURING AND BACKLOG
National-Oilwell has numerous principal manufacturing facilities
located in the United States and Canada. National-Oilwell also outsources the
manufacture of parts or purchases components from qualified subcontractors. The
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<PAGE> 32
Company's manufacturing operations require a variety of components, parts and
raw materials which National-Oilwell purchases from multiple commercial sources.
National-Oilwell has not experienced and does not expect any significant delays
in obtaining deliveries of essential components, parts or raw materials.
Sales of National-Oilwell's products are made on the basis of written
orders and oral commitments. The Company's backlog for equipment at June 30,
1998 was $260 million as compared to $141 million at June 30, 1997. The level of
backlog at any particular time is not necessarily indicative of the future
operating performance of the Company, and orders may be changed at any time. The
level of backlog can be affected by volatility in the price of oil and gas and
other factors. See "Risk Factors." A majority of the June 30, 1998 backlog is
expected to be shipped by the end of 1998. See "-- Current Industry
Environment."
DISTRIBUTION SUPPLIERS
National-Oilwell obtains products sold by its Distribution Services
business from a number of suppliers, including its own Products and Technology
segment. National-Oilwell does not believe that any one supplier of products is
material to National-Oilwell. For the year ended December 31, 1997,
National-Oilwell purchased approximately one third of its tubular requirements
pursuant to a distribution agreement with the U.S. Steel Group of USX
Corporation, and its remaining requirements from various suppliers. National-
Oilwell has not experienced and does not foresee experiencing a shortage in
products or tubular goods sold by the Company.
ENGINEERING
National-Oilwell maintains a staff of engineers and technicians to (i)
design and test new products, components and systems for use in drilling and
pumping applications, (ii) enhance the capabilities of existing products and
(iii) assist National-Oilwell's sales organization and customers with special
projects. National-Oilwell's product engineering efforts focus on developing
technology to improve the economics and safety of drilling and pumping
processes. National-Oilwell has recently developed a 1,000-ton capacity power
swivel to complement its lower capacity models, and has also introduced a 7,800
horsepower heave compensating drawworks and dual derrick systems to increase
customer efficiencies on deep water drilling rigs at extended depths and during
horizontal drilling.
PATENTS AND TRADEMARKS
National-Oilwell owns or has a license to use a number of patents
covering a variety of products. Although in the aggregate these patents are of
importance, National-Oilwell does not consider any single patent to be of a
critical or essential nature. In general, National-Oilwell depends on
technological capabilities, quality products and application of its expertise
rather than patented technology in the conduct of its business. The Company
enjoys significant product name-brand recognition, principally through its
NATIONAL-OILWELL(R), DRECO(R), ROSS HILL, TRUDRIL(R), VECTOR(R), GRIFFITH(R) and
MISSION-FLUID KING(R) trade names.
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<PAGE> 33
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages as of August 5, 1998 and position
with the Company of the directors and executive officers of National-Oilwell.
The Certificate of Incorporation of National-Oilwell currently classifies the
board of directors into three classes having staggered terms of three years
each. The periods shown for service as an employee of National-Oilwell include
service as an employee of its predecessor partnership and of Dreco.
<TABLE>
<CAPTION>
DIRECTOR'S
TERM
NAME AGE POSITION WITH THE COMPANY EXPIRING
---- --- ------------------------- ----------
<S> <C> <C> <C>
Joel V. Staff(1)...................... 54 Chairman of the Board, President and 1999
Chief Executive Officer
James J. Fasnacht..................... 43 Vice President and Group President, --
Distribution Services
W. Douglas Frame...................... 56 Vice President and Group President, Downhole --
Products
Jerry N. Gauche....................... 50 Vice President -- Organizational Effectiveness --
Steven W. Krablin..................... 48 Vice President and Chief Financial Officer --
Richard L. Lionberger................. 48 Vice President, General Counsel and Secretary --
Merrill A. Miller, Jr................. 48 Vice President and Group President, Products --
and Technology
Frederick W. Pheasey.................. 56 Executive Vice President and Director 2001
Howard I. Bull(2)(3).................. 58 Director 2001
James C. Comis III.................... 34 Director 2001
James T. Dresher(2)(3)................ 79 Director 2000
W. McComb Dunwoody(1)................. 53 Director 1999
William E. Macaulay(1)................ 52 Director 1999
Bruce M. Rothstein.................... 46 Director 2000
</TABLE>
- - - ----------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Joel V. Staff has served as the President and Chief Executive Officer
of National-Oilwell since July 1993 and Chairman of the Board since January
1996. Prior to joining National-Oilwell, Mr. Staff served as a Senior Vice
President of Baker Hughes Incorporated, a worldwide diversified oil services
company, from October 1983 to May 1993. Mr. Staff also serves as a director of
Denali Incorporated, a provider of products and services for handling critical
fluids.
James J. Fasnacht has served as Vice President since November 1993, as
Group President, Distribution Services since April 1997, as General Manager of
Pumping Systems from November 1993 to April 1997, as Human Resources Manager
from 1991 to November 1993 and in various other capacities since joining
National-Oilwell in 1979.
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<PAGE> 34
W. Douglas Frame has served as Vice President and Group President,
Downhole Products since September 1997. Prior thereto, Mr. Frame, who joined
Dreco in 1978, served in various capacities in both the drilling equipment and
downhole products groups.
Jerry N. Gauche has served as Vice President -- Organizational
Effectiveness since joining National-Oilwell in January 1994. Prior thereto, Mr.
Gauche was employed by BP Exploration, Inc., an oil and gas exploration and
production company, where he served as General Manager of Central Services from
January 1990 to September 1992 and Director of Public Affairs and Executive
Coordination from May 1988 to December 1989. From October 1992 to January 1994,
Mr. Gauche was self-employed managing his personal investments.
Steven W. Krablin has served as Vice President and Chief Financial
Officer since January 1996. Mr. Krablin served in various capacities including
Vice President -- Finance and Chief Financial Officer of Enterra Corporation, an
international oilfield service company, from November 1986 to January 1996.
Richard L. Lionberger has served as Vice President, General Counsel and
Secretary of the Company since June 1998. Prior thereto Mr. Lionberger was Vice
President, General Counsel and Secretary of Diamond Offshore Drilling, Inc., a
drilling contractor from February 1992 to June 1998.
Merrill A. Miller, Jr. has served as Vice President since July 1996, as
Group President, Products and Technology since April 1997, as General Manager of
Drilling Systems from July 1996 to April 1997 and as Vice President of
Marketing, Drilling Systems from February 1996 to July 1996. Prior thereto, Mr.
Miller was President of Anadarko Drilling Company, a drilling contractor, from
January 1995 to February 1996. From May 1980 to January 1995, Mr. Miller served
in various capacities including Vice President/U.S. Operations of Helmerich &
Payne International Drilling Co., a drilling contractor.
Frederick W. Pheasey has served as Executive Vice President and
director of National-Oilwell since September 1997. He was a co-founder of Dreco
and served in various executive capacities with Dreco and its predecessors from
1972 to September 1997, most recently as its Chairman.
Howard I. Bull has served as a Director of National-Oilwell since
January 1996. Mr. Bull was President, Chief Executive Officer and a director of
Dal-Tile International, Inc., a manufacturer and distributor of tile, from April
1994 until his retirement in June 1997. Prior thereto, Mr. Bull served at York
International Corporation, a worldwide manufacturer and distributor of air
conditioner and refrigeration equipment, as President of its Applied Systems
Division and Air Conditioning Business Group. Mr. Bull also serves as a director
of Marine Drilling Companies, Inc., an offshore drilling contractor. Mr. Bull
has an interest in one of the funds managed by Inverness/Phoenix LLC, a
principal stockholder of the Company.
James C. Comis III has served as a Director of National-Oilwell since
January 1996. He is a Managing Director of Inverness Management LLC. Through
Inverness Management LLC and its affiliates, Mr. Comis has been engaged in
sponsoring and investing in private equity transactions since 1990.
Additionally, Mr. Comis has served as Managing Director of Inverness/Phoenix LLC
since 1994. Inverness/Phoenix LLC is a principal stockholder of the Company.
James T. Dresher has served as a Director of National-Oilwell since
January 1996. Mr. Dresher was Chairman/Chief Executive Officer and principal
owner of Unidata, Inc., a Denver-based software company, from December 1991
until February 1998 and has been Chairman and owner of Glenangus, a residential
real estate development company, since 1972. Mr. Dresher serves as a director of
Ardent Software, Inc., a data management company. Mr. Dresher has an interest in
one of the funds managed by Inverness/Phoenix LLC, a principal stockholder of
the Company.
W. McComb Dunwoody has served as a Director of National-Oilwell and
Chairman of its Executive Committee since January 1996. He is a Managing
Director of Inverness Management LLC. Through Inverness Management LLC and its
affiliates, Mr. Dunwoody has been engaged in sponsoring and investing in private
equity transactions since 1981.
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<PAGE> 35
Additionally, Mr. Dunwoody has served as President and Chief Executive Officer
of Inverness/Phoenix LLC since 1994 and has been Chief Executive Officer of The
Inverness Group Incorporated since 1981. Inverness/Phoenix LLC is a principal
stockholder of the Company.
William E. Macaulay has served as a Director of National-Oilwell since
January 1996. He has been the President and Chief Executive Officer of First
Reserve Corporation, a corporate manager of private investments focusing on the
energy and energy-related sectors, since 1983. First Reserve Corporation is a
principal stockholder of the Company. Mr. Macaulay serves as a director of EVI
Weatherford Inc., an oilfield service company, Maverick Tube Corporation, a
manufacturer of steel pipe and casing, TransMontaigne Oil Company, an oil
products distribution and refining company, Cal Dive International, Inc., a
provider of subsea services in the Gulf of Mexico, Domain Energy Corporation, an
oil and gas exploration company, and Entech Industries, Inc., a manufacturer of
high-end valves used principally in sub-sea gathering systems. Mr. Macaulay
formerly served as a director of Phoenix, which was acquired by the Company on
June 2, 1998.
Bruce M. Rothstein has served as a Director of National-Oilwell since
May 1996. Mr. Rothstein is a Managing Director of First Reserve Corporation,
which he joined in 1991. First Reserve Corporation is a principal stockholder of
the Company. Mr. Rothstein serves as a director of Anker Coal Group, Inc., a
producer and marketer of coal, and Entech Industries, Inc., a manufacturer of
high-end valves used principally in sub-sea gathering systems.
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<PAGE> 36
DESCRIPTION OF EXCHANGE NOTES
The Old Notes were issued under the Indenture, in a transaction not
subject to the registration requirements of the Securities Act. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
Notes are subject to all such terms, and Holders of the Notes are referred to
the Indenture and the Trust Indenture Act for a statement thereof. The following
summary of certain provisions of the Notes and the Indenture does not purport to
be complete and is subject, and is qualified in its entirety by reference, to
all of the provisions of the Notes and the Indenture, including the definitions
therein of certain terms used below. The Indenture provides for the issuance
thereunder of the Exchange Notes. If the Exchange Offer is completed but some
Old Notes are not exchanged for Exchange Notes, such Old Notes and the Exchange
Notes will constitute a single series for all purposes of the Indenture.
References in this summary to the Notes include the Old Notes and the Exchange
Notes unless the context otherwise requires. Copies of the forms of the
Indenture and the Registration Rights Agreement are available as set forth under
"Available Information."
GENERAL
The Notes are in the aggregate principal amount of $150,000,000 and
will mature on July 1, 2005. The Notes bear interest at the rate per annum of
6 7/8%, payable semiannually on January 1 and July 1 of each year, commencing
January 1, 1999, to the Person in whose name the Note (or any predecessor Note)
is registered at the close of business on the preceding December 15 or June 15,
as the case may be. The Notes are subject to redemption prior to maturity as
described under "-- Redemption."
The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with all other unsecured and unsubordinated
indebtedness of the Company. The Indenture does not limit the Company's ability
to incur additional indebtedness.
The Company is a holding company, conducting essentially all of its
business through subsidiaries, and the Indenture does not restrict the
incurrence of debt by such subsidiaries. The Notes are effectively subordinated
to all obligations of such subsidiaries. Consequently, the rights of the Company
to receive assets of any subsidiary (and thus the ability of holders of Notes to
benefit indirectly from such assets) are subject to the prior claims of
creditors of that subsidiary.
REDEMPTION
The Notes are redeemable, at the option of the Company, at any time in
whole or from time to time in part, upon not less than 30 and not more than 60
days' notice as provided in the Indenture, on any date prior to maturity (the
"Redemption Date") at a price (the "Redemption Price") equal to 100% of the
principal amount thereof plus accrued interest to the Redemption Date (subject
to the right of holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the Redemption
Date) plus a Make-Whole Premium, if any. In no event will the Redemption Price
ever be less than 100% of the principal amount of the Notes plus accrued
interest to the Redemption Date.
The amount of the Make-Whole Premium with respect to any Note (or
portion thereof) to be redeemed will be equal to the excess, if any, of the sum
of the present values, calculated as of the Redemption Date, of: (i) each
interest payment that, but for such redemption, would have been payable on the
Note (or portion thereof) being redeemed on each Interest Payment Date occurring
after the Redemption Date (excluding any accrued interest for the period prior
to the Redemption Date); plus (ii) the principal amount that, but for such
redemption, would have been payable at the final maturity of the Note (or
portion thereof) being redeemed; over the principal amount of the Note (or
portion thereof) being redeemed.
The present values of interest and principal payments referred to above
will be determined in accordance with generally accepted principles of financial
analysis. Such present values will be calculated by discounting the amount
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<PAGE> 37
of each payment of interest or principal from the date that each such payment
would have been payable, but for the redemption, to the Redemption Date at a
discount rate equal to the Treasury Yield (as defined below) plus 20 basis
points.
The Make-Whole Premium will be calculated by an independent investment
banking institution of national standing appointed by the Company; provided,
that if the Company fails to make such appointment at least 45 days prior to the
Redemption Date, or if the institution so appointed is unwilling or unable to
make such calculation, such calculation will be made by Merrill Lynch & Co. or
if such firm is unwilling or unable to make such calculation, by an independent
investment banking institution of national standing appointed by the Trustee (in
any such case, an "Independent Investment Banker").
For purposes of determining the Make-Whole Premium, "Treasury Yield"
means a rate of interest per annum equal to the weekly average yield to maturity
of United States Treasury Notes that have a constant maturity that corresponds
to the remaining term to maturity of the Notes, calculated to the nearest 1/12th
of a year (the "Remaining Term"). The Treasury Yield will be determined as of
the third business day immediately preceding the applicable Redemption Date.
The weekly average yields of United States Treasury Notes will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States Treasury
Notes having a constant maturity that is the same as the Remaining Term, then
the Treasury Yield will be equal to such weekly average yield. In all other
cases, the Treasury Yield will be calculated by interpolation, on a
straight-line basis, between the weekly average yields on the United States
Treasury Notes that have a constant maturity closest to and greater than the
Remaining Term and the United States Treasury Notes that have a constant
maturity closest to and less than the Remaining Term (in each case as set forth
in the H.15 Statistical Release). Any weekly average yields as calculated by
interpolation will be rounded to the nearest 1/100th of 1%, with any figure of
1/200% or above being rounded upward. If weekly average yields for United States
Treasury Notes are not available in the H.15 Statistical Release or otherwise,
then the Treasury Yield will be calculated by interpolation of comparable rates
selected by the Independent Investment Banker.
If less than all of the Notes are to be redeemed, the Trustee will
select the Notes to be redeemed by such method as the Trustee shall deem fair
and appropriate. The Trustee may select for redemption Notes and portions of
Notes in amounts equal to whole multiples of $1,000.
CERTAIN DEFINITIONS
The following definitions are applicable to the discussion of the
Indenture:
"Consolidated Net Tangible Assets" means the aggregate amount of assets
included on a consolidated balance sheet of the Company, less applicable
reserves and other properly deductible items and after deducting therefrom (a)
all current liabilities (other than liabilities that, by their terms, are
extendable or renewable at the option of the obligor to a date that is 12 months
or more after the date on which such current liabilities are determined) and (b)
all goodwill, trade names, trademarks, patents, copyrights, unamortized debt
discount and expense and other like intangibles, all in accordance with
generally accepted accounting principles consistently applied.
"Lien" means, with respect to any property or asset, any mortgage,
pledge, lien, encumbrance, charge or security interest of any kind in respect of
such property or asset, whether or not filed, recorded or otherwise perfected
under applicable law, but excluding agreements to refrain from granting Liens.
"Permitted Liens" means (a) certain purchase money Liens, (b) statutory
liens or landlords', carriers', warehouseman's, mechanics', suppliers',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate
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proceedings, (c) Liens existing on property at the time of acquisition by the
Company or a Restricted Subsidiary, (d) Liens on the property or on the
outstanding shares or indebtedness of any Person at the time it becomes a
Restricted Subsidiary, (e) Liens on property of a Person existing at the time
such Person is merged or consolidated with the Company or a Restricted
Subsidiary, (f) Liens in favor of governmental bodies to secure certain progress
or advance payments, (g) Liens existing on property owned by the Company or any
of its Subsidiaries on the date of the Indenture or provided for pursuant to
agreements existing on the date of the Indenture, (h) Liens created pursuant to
the creation of trusts or other arrangements funded solely with cash or
securities of the type customarily subject to such arrangements in customary
financial practice with respect to long-term or medium-term indebtedness for
borrowed money, the sole purpose of which is to make provision for the
retirement or defeasance, without prepayment of indebtedness or (i) any
extensions, renewals or replacements in whole or in part of a Lien enumerated in
clauses (a) through (h) above.
"Person" means (a) any form of business entity, association, grouping,
trust or other form now or hereafter permitted by the laws of any state of the
United States of America or any foreign government or utilized by businesses in
the conduct of their activities and (b) a natural person, as the context may
require.
"Principal Property" means any real property, manufacturing plant,
office building, warehouse or other physical facility, or any other like
depreciable asset of the Company or of any Restricted Subsidiary, whether owned
at the date of the Indenture or thereafter acquired that in the opinion of the
Board of Directors of the Company is of material importance to the total
business conducted by the Company and its Restricted Subsidiaries, as a whole;
provided, however, that any such property shall not be deemed a Principal
Property if such property does not have a fair value in excess of 5% of the
total assets included on a consolidated balance sheet of the Company and its
Restricted Subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied.
"Restricted Subsidiary" means (a) any currently existing Subsidiary
whose principal assets and business are located in the United States or Canada
and (b) any Subsidiary that is designated by the Company to be a Restricted
Subsidiary.
"Sale and Leaseback Transaction" means the sale or transfer by the
Company or a Restricted Subsidiary of any Principal Property owned by it with
the intention of taking back a lease on such property.
"Secured Debt" means indebtedness for money borrowed by the Company or
a Restricted Subsidiary, and any other indebtedness of the Company or a
Restricted Subsidiary, on which interest is paid or payable (other than
indebtedness owed by a Restricted Subsidiary to the Company, by a Restricted
Subsidiary to another Restricted Subsidiary or by the Company to a Restricted
Subsidiary), that in any such case is secured by (a) any Lien on any Principal
Property of the Company or a Restricted Subsidiary or (b) a Lien on any shares
of stock or indebtedness of a Restricted Subsidiary that owns a Principal
Property. The amount of Secured Debt at any time outstanding shall be the amount
then owing thereon by the Company or a Restricted Subsidiary.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the Company, or the Company and one or more Subsidiaries, or any one or
more Subsidiaries, directly or indirectly own voting securities entitling any
one or more of the Company and its Subsidiaries to elect a majority of the
directors, either at all times, or so long as there is no default or contingency
which permits the holders of any other class or classes of securities to vote
for the election of one or more directors, (b) any partnership of which the
Company, or the Company and one or more of its Subsidiaries, or any one or more
Subsidiaries, is at the date of determination, a general or limited partner of
such partnership, but only if the Company and its Subsidiaries are entitled to
receive more than 50% of the assets of such partnership upon dissolution or more
than 50% of the profits of such partnership, or (c) any other Person (other than
a corporation or partnership) in which the Company, or the Company and one or
more Subsidiaries, or any one or more Subsidiaries, directly or indirectly, at
the date of determination thereof, has (x) at least a majority ownership
interest or (y) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
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LIMITATION ON LIENS
The Indenture provides that the Company will not, nor will it permit
any Restricted Subsidiary to, create, incur, issue, assume or guarantee any
Secured Debt without making effective provision whereby the Notes and any other
indebtedness of or guaranteed by the Company or any such Restricted Subsidiary
then entitled thereto, subject to applicable priorities of payment, shall be
secured by such Lien equally and ratably with any and all other obligations and
indebtedness thereby secured, so long as any such other obligations and
indebtedness shall be so secured; provided, that if any such Lien securing such
Secured Debt ceases to exist, such equal and ratable security for the benefit of
the holders of Notes shall automatically cease to exist without any further
action; provided, further, that if such Secured Debt is expressly subordinated
to the Notes, the Lien securing such subordinated Secured Debt shall be
subordinate and junior to the Lien securing the Notes with the same relative
priority as such Secured Debt shall have with respect to the Notes. The
foregoing provisions do not apply to Secured Debt that is secured by Permitted
Liens.
Notwithstanding the foregoing restrictions, the Company and its
Restricted Subsidiaries may, without equally and ratably securing the Notes,
create, incur, issue, assume or guarantee Secured Debt not otherwise permitted
or excepted if the sum of (a) the amount of such Secured Debt plus (b) the
aggregate value of Sale and Leaseback Transactions (subject to certain
exceptions described below), does not exceed 10% of Consolidated Net Tangible
Assets (as shown in the quarterly consolidated balance sheet of the Company most
recently published prior to the date of such creation, incurrence, issuance,
assumption or guarantee).
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, nor will it permit
any Restricted Subsidiary to, engage in a Sale and Leaseback Transaction,
unless: (a) such Sale and Leaseback Transaction occurs within one year from the
date of completion of the acquisition of the Principal Property subject thereto
or the date of the completion of construction, development or substantial repair
or improvement, or commencement of full operations, on such Principal Property,
whichever is later, (b) the Sale and Leaseback Transaction involves a lease for
a period, including renewals, of not more than three years, (c) the Company or
such Restricted Subsidiary would be entitled to incur Secured Debt secured by a
Lien on the Principal Property subject thereto in a principal amount equal to or
exceeding the net sale proceeds from such Sale and Leaseback Transaction without
equally and ratably securing the Notes pursuant to the above covenant entitled
"Limitation on Liens," or (d) the Company or such Restricted Subsidiary, within
a one-year period after such Sale and Leaseback Transaction, applies or causes
to be applied an amount not less than the net sale proceeds from such Sale and
Leaseback Transaction to (i) the redemption of Notes or the prepayment,
repayment, reduction or retirement of any indebtedness of the Company or any of
its Subsidiaries that ranks pari passu with the Notes or (ii) the expenditure or
expenditures for Principal Property used or to be used in the ordinary course of
business of the Company or any Restricted Subsidiary.
Notwithstanding the foregoing, under the Indenture, the Company may,
and may permit each of its Restricted Subsidiaries to, effect any Sale and
Leaseback Transaction that is not excepted by clauses (a) through (d)
(inclusive) of the above paragraph, provided that, after giving effect thereto
and the application of proceeds, if any, received by the Company or any
Restricted Subsidiary as a result thereof, the net sale proceeds from such Sale
and Leaseback Transaction, together with the aggregate principal amount of all
Secured Debt then outstanding (other than the Notes) secured by Liens upon
Principal Property that are not Permitted Liens would not exceed 10% of the
Consolidated Net Tangible Assets (as shown in the quarterly consolidated balance
sheet of the Company most recently published prior to the date such Sale and
Leaseback Transaction is effected).
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company may (a) consolidate with or
merge into, or (b) sell, convey, transfer, lease or otherwise dispose of its
properties and assets substantially as an entirety to, any Person, provided that
(i) in the case of any such consolidation or merger, the Company is the
continuing entity or, if the Company is not the continuing entity, the
continuing entity is a Person organized and validly existing under the laws of
the United States, any political
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subdivision thereof or any State thereof and assumes by supplemental indenture
all of the Company's obligations on the Notes and under the Indenture, and (ii)
after giving effect to the transaction no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, shall
exist. Upon a disposition of assets described in clause (b) of the preceding
sentence, the Company will be released from any further liability under the
Notes and the Indenture.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the
Indenture with respect to the Notes: (a) failure to pay principal of or any
premium on the Notes when due; (b) failure to pay any interest on the Notes when
due, and the continuance of such default for 30 days; (c) failure to perform or
observe any other covenant of the Company in the Notes or Indenture, and the
continuance of such default for 60 days after written notice has been given by
the Trustee, or the Holders of at least 25% in principal amount of the Notes, as
provided in the Indenture; (d) indebtedness of the Company or any Subsidiary is
not paid when due within the applicable grace period, if any, or is accelerated
by the holders thereof and, in either case, the principal amount of such unpaid
or accelerated indebtedness exceeds $20 million; and (e) certain events in
bankruptcy, insolvency or reorganization of the Company.
If an Event of Default (other than an Event of Default described in
clause (e) above) shall occur and be continuing, either the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes by notice to
the Company as provided in the Indenture may declare the principal amount of all
Notes to be due and payable immediately. If an Event of Default described in
clause (e) above shall occur, the principal amount of all the Notes will
automatically, and without any action by the Trustee or any Holder, become
immediately due and payable. After any acceleration, but before a judgment or
decree for the payment of the money due has been obtained by the Trustee, the
Holders of a majority in aggregate principal amount of the Notes, by written
notice to the Trustee, may rescind and annul such acceleration and its
consequences if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture. For
information as to waiver of defaults, see "Modification and Waiver."
Subject to the provisions of the Indenture relating to the duties of
the Trustee in case an Event of Default shall occur and be continuing, the
Trustee is under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes, unless
such Holders of the Notes shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the Holders of a majority in aggregate principal amount of the Notes has the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.
No Holder of any Note has any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless (a) such Holder has previously given to
the Trustee written notice of a continuing Event of Default, (b) the Holders of
at least 25% in aggregate principal amount of the Notes have made written
request, and such Holder or Holders have offered reasonable indemnity, to the
Trustee to institute such proceeding in respect to such Event of Default as
trustee and (c) the Trustee has failed to institute such proceeding, and has not
received from the Holders of a majority in aggregate principal amount of the
Notes a direction inconsistent with such request, within 60 days after such
notice, request and offer. However, such limitations do not apply to any
proceeding which is instituted by a Holder of a Note for the enforcement of
payment of the principal of, any premium or interest on such Note on or after
the applicable due date specified in such Note.
The Company is required to furnish to the Trustee annually a statement
by certain of its officers as to whether or not the Company, to their knowledge,
is in default in the performance or observance of any of the terms, provisions
and conditions of the Indenture and, if so, specifying all such known defaults.
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MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of a majority in
principal amount of the Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Note affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any such Note, (b) reduce the principal amount of,
or any interest on, any such Note, (c) reduce the amount of principal of any
such Note payable upon acceleration of the Stated Maturity thereof, (d) change
the place or currency of payment of principal of, or interest on, any such Note,
(e) impair the right to institute suit for the enforcement of any payment on or
with respect to any such Note, (f) reduce the percentage in principal amount of
such Note, the consent of whose Holders is required for modification or
amendment of the Indenture, (g) reduce the percentage in principal amount of
such Note necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults, (h) modify such provisions with
respect to modification and waiver, (i) waive, reduce or modify a Make-Whole
Premium with respect to any Note called for redemption or (j) make changes to
the amendment and waiver provisions or to the provisions relating to waivers of
past defaults or institution of proceedings for payment of principal, any
premium or interest.
The Holders of a majority in principal amount of the Notes may waive
compliance by the Company with certain restrictive provisions of the Indenture
or waive any past default under the Indenture, except a continuing default in
the payment of principal of, any premium or interest on such Notes and covenants
and provisions of the Indenture that under the proviso in the preceding
paragraph cannot be amended without the consent of the Holder of each Note
affected thereby.
Except in certain limited circumstances, the Company is entitled to set
any day as a record date for the purpose of determining the Holders of Notes
entitled to give or take any direction, notice, consent, waiver or other action
under the Indenture, in the manner and subject to the limitations provided in
the Indenture. In certain limited circumstances, the Trustee also is entitled to
set a record date for action by Holders of Notes. If a record date is set for
any action to be taken by Holders of the Notes, such action may be taken only by
persons who are Holders of the Notes on the record date. To be effective, such
action must be taken by Holders of the requisite principal amount of the Notes
within a specified period following the record date. For any particular record
date, this period will be 180 days or such shorter period as may be specified by
the Company (or the Trustee, if it sets the record date), and may be shortened
or lengthened (but not beyond 180 days) from time to time.
SATISFACTION AND DISCHARGE; DEFEASANCE
Satisfaction and Discharge. The Indenture provides that the Company may
satisfy and discharge certain obligations to Holders of Notes which have not
already been delivered to the Trustee for cancellation and which have either
become due and payable or are by their terms due and payable within one year by
(a) depositing or causing to be deposited with the Trustee funds or U.S.
Government Obligations in an amount sufficient to pay the principal and any
premium and interest to the date of such deposit (in case of the Notes which
have become due and payable) or to the Stated Maturity, as the case may be, (b)
paying or causing to be paid all other sums payable under the Indenture with
respect to such Notes and (c) delivering to the Trustee an Officer's Certificate
relating to such satisfaction and discharge.
Defeasance and Discharge. The Indenture provides that the Company will
be discharged from all its indebtedness and obligations with respect to the
Notes (except for certain obligations to exchange or register the transfer of
the Notes, to replace stolen, lost or mutilated outstanding Notes, to maintain
paying agencies and to hold moneys for payment in trust) upon the deposit in
trust for the benefit of the Holders of the Notes of money or U.S. Government
Obligations, or both, which, through the payment of principal and interest in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of, any premium and interest on the Notes at
Stated Maturity in accordance with the terms of the Indenture and the Notes.
Such defeasance or discharge may occur only if, among other things, the Company
has delivered to the Trustee an Opinion of Counsel to the effect that the
Company has received from, or there has been published by, the United States
Internal Revenue Service a ruling, or there has been a change in tax law, in
either case to the effect that Holders of the Notes will not recognize gain or
loss
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for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit,
defeasance and discharge were not to occur.
Defeasance of Certain Covenants. The Indenture provides that the
Company may omit to comply with certain restrictive covenants, including the
covenants described under "Limitation on Liens," "Limitation on Sale and
Leaseback Transactions" and "Consolidation, Merger and Sale of Assets," in which
event certain Events of Default, which are described above in clause (c) (with
respect to such respective covenants) under "Events of Default," will no longer
constitute Events of Default. The Company, in order to exercise such option to
defease such covenants, will be required to deposit, in trust for the benefit of
the Holders of the Notes, money or U.S. Government Obligations, or both, which,
through the payment of principal and interest in respect thereof in accordance
with their terms, will provide money in an amount sufficient to pay the
principal of, any premium and interest on the Notes at Maturity in accordance
with the terms of the Indenture and the Notes. The Company will also be
required, among other things, to deliver to the Trustee an Opinion of Counsel to
the effect that Holders of the Notes will not recognize gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
obligations and will be subject to federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit
and defeasance were not to occur.
If subsequent to the completion of a defeasance of certain covenants as
described in the immediately preceding paragraph, the Notes are declared due and
payable because of the occurrence of any remaining Event of Default, the amount
of money and U.S. Government Obligations so deposited in trust would be
sufficient to pay amounts due on the Notes at Maturity but may not be sufficient
to pay amounts due on the Notes upon any acceleration resulting from such Event
of Default. In such case, the Company would remain liable for such payments.
CONCERNING THE TRUSTEE
The Bank of New York, the Trustee under the Indenture, makes loans to
the Company in the normal course of business and is a lender under the Company's
Senior Credit Facility.
BOOK-ENTRY DELIVERY AND FORM
The Exchange Notes initially are expected to be represented by one or
more permanent global certificates in definitive, fully registered form
(previously defined as the "Global Exchange Notes"). The Global Exchange Notes
will be deposited with, or on behalf of DTC and registered in the name of DTC or
a nominee of DTC. EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL
NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS, OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
A Global Note is exchangeable for definitive Notes in registered
certificated form if (i) the Depositary (A) notifies the Company that it is
unwilling or unable to continue as depository for the Global Note and the
Company thereupon fails to appoint a successor depository or (B) has ceased to
be a clearing agency registered under the Securities Exchange Act of 1934, as
amended, or (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause issuance of the Notes in certificated form. In addition,
beneficial interests in a Global Note may be exchanged for certificated Notes
upon request but only upon at least 20 days prior written notice given to the
Trustee by or on behalf of the Depositary in accordance with customary
procedures. In all cases, certificated Notes delivered in exchange for any
Global Note or beneficial interests therein will be registered in names, and
issued in any approved denominations, requested by or on behalf of the
Depositary (in accordance with its customary procedures) and will bear the
appropriate restrictive legend described under "Notice to Investors" unless the
Company determines otherwise in compliance with applicable law.
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Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes, and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
In addition, transfer of beneficial interests in the Global Notes are
subject to the applicable rules and procedures of the Depositary and its direct
or indirect participants, which may change from time to time. The Notes may be
presented for registration of transfer and exchange at the offices of the
Trustee.
DEPOSITARY PROCEDURES
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depositary's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Participants or Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of the Depositary are recorded on the records of the Participants and
Indirect Participants.
The Depositary has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the Global Notes, the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of Global Notes and (ii) ownership of such
interests in the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to Participants) or by Participants and the Indirect Participants
(with respect to other owners of beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through the Depositary, if they are Participants in such system, or indirectly
through organizations that are Participants in such system. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons may be limited to that extent.
Because the Depositary can act only on behalf of Participants, which in turn act
on behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in a Global Note to pledge such interest to persons
or entities that do not participate in the Depositary system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interest. For certain other restrictions on the
transferability of the Notes, see "-- Exchange of Book-Entry Notes for
Certificated Notes."
Payments in respect of the principal, premium, if any, and interest on
a Global Note registered in the name of the Depositary or its nominee will be
payable by the Trustee to the Depositary or its nominee in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the Notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Company, the Trustee nor any agent of the Company or
the Trustee has or will have any responsibility or liability for (i) any aspect
of the Depositary's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Notes, or for maintaining, supervising or reviewing any
of the Depositary's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Notes or
(ii) any other matter relating to the actions and practices of the Depositary or
any of its Participants or Indirect Participants.
The Depositary has advised the Company that its current practices, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with
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the payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Notes as shown on the records of the Depositary. Payments by
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will not
be the responsibility of the Depositary, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by the Depositary or its
Participants in identifying the beneficial owners of the Notes, and the Company
and the Trustee may conclusively rely on and will be protected in relying on
instructions from the Depositary or its nominee as the registered owner of the
Notes for all purposes.
Interests in the Global Notes will trade in the Depositary's Same-Day
Funds Settlement System, and secondary market trading activity in such interests
will, therefore, settle in immediately available funds, subject in all cases to
the rules and procedures of the Depositary and its Participants.
Transfers between Participants in the Depositary will be effective in
accordance with the Depositary's procedures, and will be settled in same-day
funds.
The Depositary has advised the Company that it will take any action
permitted to be taken by a Holder of Notes only at the direction of one or more
Participants to whose account the Depositary interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such Participant or Participants has or have given
direction. However, if there is an Event of Default under the Notes, the
Depositary reserves the right to exchange Global Notes for Notes in certificated
form, and to distribute such Notes to its Participants.
Although the Depositary has agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Participants in the
Depositary, it is under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Initial Purchasers or the Trustee will have any responsibility for
the performance by the Depositary or its Participants or Indirect Participants
of their respective obligations under the rules and procedures governing its
operations.
Same Day Settlement and Payment. The Indenture requires that payments
in respect of the Notes represented by the Global Note (including principal,
premium, if any, and interest) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
certificated Notes, the Company will make all payments of principal, premium, if
any, and interest by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The Company expects
that secondary trading in the certificated Notes will also be settled in
immediately available funds.
The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO HOLDERS OF EXCHANGE NOTES
This summary of certain U.S. federal income tax considerations
addresses tax considerations applicable to a holder of Exchange Notes that is a
citizen or resident of the United States or a U.S. domestic corporation or
partnership or that otherwise will be subject to U.S. federal income taxation on
a net income basis in respect of the Exchange Notes (a "U.S. Holder"). The
summary deals only with U.S. Holders that will hold Exchange Notes as capital
assets but does not address tax considerations applicable to (i) U.S. Holders
that may be subject to special tax rules, such as U.S. tax-exempt entities,
banks, insurance companies, or dealers in securities or currencies, (ii) U.S.
Holders that will hold Exchange Notes as a position in a "straddle" for tax
purposes, and (iii) U.S. Holders that have a "functional currency" other than
the U.S. Dollar. In addition, the discussion does not address special rules that
could in certain
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circumstances apply to a U.S. Holder that owns directly or by attribution 10
percent or more of the total combined voting power of all classes of stock
entitled to vote of the Company.
This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), as in effect on the date of this Offering Memorandum, as well as
regulations promulgated thereunder and existing administrative interpretations
and court decisions.
PERSONS WHO WOULD BE CONSIDERED TO BE U.S. HOLDERS AND THAT ARE
CONSIDERING THE ACQUISITION OF EXCHANGE NOTES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO
THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY OTHER JURISDICTION.
EXCHANGE OF OLD NOTES FOR EXCHANGE NOTES
The exchange of Old Notes for Exchange Notes pursuant to the Exchange
Offer will not be a taxable event, and holders of Old Notes will not recognize
any gain or loss for federal income tax purposes. Holders of Old Notes who
acquire Exchange Notes pursuant to the Exchange Offer will have the same tax
basis in the Exchange Notes as they had in the Old Notes.
INCOME ON NOTES
The Exchange Notes will be treated as newly originated debt instruments
for federal income tax purposes and will not be issued with original issue
discount. Interest earned on the Exchange Notes will be taxed as ordinary income
and holders of the Exchange Notes will account for the interest income under the
proper method of accounting employed by such holder.
SALE, EXCHANGE OR MATURATION OF EXCHANGE NOTES
Upon the sale, exchange, retirement or other disposition of an Exchange
Note, including the receipt of the face amount of an Exchange Note at maturity,
a U.S. Holder generally will recognize gain or loss equal to the difference
between the amount realized on the sale, exchange or retirement and the U.S.
Holder's adjusted tax basis in such Exchange Note. The adjusted tax basis of an
Exchange Note for a U.S. Holder that purchased an Old Note generally will equal
the issue price of the Old Note.
Except as discussed under "Market Discount" below, gain or loss
recognized by a U.S. Holder on the sale, exchange, retirement or other
disposition of an Exchange Note generally will be long-term capital gain or loss
if the U.S. Holder has held the Note for more than eighteen months at the time
of disposition. The ability of U.S. Holders to offset capital losses against
ordinary income is limited.
BACKUP WITHHOLDING
A U.S. Holder of an Exchange Note may be subject to backup withholding
at the rate of 31% with respect to interest paid on an Exchange Note and gross
proceeds upon sale or retirement of an Exchange Note unless such holder (a) is a
corporation or other exempt recipient and, when required, demonstrates this fact
or (b) provides, when required, a correct taxpayer identification number,
certifies under the penalty of perjury that the holder is not subject to backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. Furthermore, a holder of an Exchange Note that does not
provide the holder's correct taxpayer identification number may be subject to
penalties imposed by the Internal Revenue Service (the "IRS"). Backup
withholding will be made when cash payments are made with respect to the
Exchange Note. Backup withholding is not an additional tax; any amounts so
withheld will be allowed as a refund or credit against the holder's federal
income tax liability provided that the required information is furnished to the
IRS.
42
<PAGE> 46
TREATMENT OF SUBSEQUENT PURCHASERS OF NOTES
Premium. A U.S. Holder of an Exchange Note that purchases the Exchange
Note at a cost greater than its remaining redemption amount will be considered
to have purchased the Exchange Note at a premium, and may elect to amortize such
premium (as an offset to interest income), using a constant yield method, over
the remaining term of the Exchange Note. Such election, once made, generally
applies to all Exchange Notes held or subsequently acquired by the U.S. Holder
on or after the first taxable year to which the election applies and may not be
revoked without the permission of the IRS. A U.S. Holder that elects to amortize
such premium must reduce its tax basis in an Exchange Note by the amount of the
premium amortized during its holding period. With respect to a U.S. Holder that
does not elect to amortize the bond premium, the amount of bond premium will be
included in the holder's tax basis when the Exchange Note matures or is disposed
of by the U.S. Holder.
Market Discount. If a subsequent U.S. Holder of an Exchange Note
purchases the Exchange Note at a price that is lower than its adjusted issue
price, by .025% or more of its adjusted issue price multiplied by the number of
remaining whole years to maturity, the Exchange Note will be considered to bear
"market discount" (in an amount equal to the difference between such purchase
price and such adjusted issue price) in the hands of such subsequent U.S.
Holder. In such case, gain realized by the subsequent U.S. Holder on the sale or
retirement of the Exchange Note will be treated as ordinary interest income to
the extent of the market discount that accrued on the Exchange Note while held
by such subsequent U.S. Holder. In addition, the subsequent U.S. Holder could be
required to defer the deduction of a portion of the interest paid on any
indebtedness incurred or continued to purchase or carry the Exchange Note. Also
if a subsequent U.S. Holder makes a gift of an Exchange Note, accrued market
discount, if any will be recognized as if such Holder had sold such Exchange
Note for a price equal to its fair market value. In general terms, market
discount on an Exchange Note will be treated as accruing ratably over the term
of such Exchange Note, or, at the election of the U.S. Holder, under a constant
yield method.
Alternatively, a U.S. Holder may elect to include market discount in
income currently as it accrues (on either a ratable or constant yield basis), in
which case the rule regarding deferral of interest deductions will not apply.
Such election, once made, applies to all market discount bonds acquired by the
taxpayer on or after the first day of the first taxable year to which such
election applies and may not be revoked without the consent of the IRS.
PLAN OF DISTRIBUTION
Based on interpretation of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof without further compliance with the
registration and prospectus delivery provisions of the Securities Act. However,
any purchaser of Notes who is an "affiliate" of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes, or any broker-dealer who purchased the Notes from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act,
(i) will not be able to rely on the interpretation by the staff of the
Commission set forth in the above referenced no-action letters, (ii) will not be
able to tender the Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes, unless such sale or transfer
is made pursuant to an exemption from such requirements. The Company does not
intend to seek its own no-action letter, and there is no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Notes as it has in such no action letter to third parties.
Each holder of the Notes who wishes to exchange the Notes for the
Exchange Notes in the Exchange Offer will be required to make certain
representations, including that (i) it is neither an affiliate of Company nor a
broker-dealer tendering Notes acquired directly from the Company for its own
account, (ii) any Exchange Notes to be received by it shall be acquired in the
ordinary course of its business, and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. In addition, in connection with any resales of Exchange
Notes, any Participating
43
<PAGE> 47
Broker-Dealer must deliver a prospectus meeting the requirements of the
Securities Act. The staff of the Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Notes) with this prospectus. Under the
Registration Rights Agreement, the Company is required to allow Participating
Broker-Dealers to use this prospectus in connection with the resale of Exchange
Notes received in exchange for Notes acquired by such Participating
Broker-Dealers for their own account as a result of market-making or other
trading activities.
The Company will not receive any proceeds from any sales of Exchange
Notes by broker-dealers. Any resales of Exchange Notes by broker-dealers may be
made directly to a purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on such
resales of Exchange Notes and any commissions or concessions received by such
persons may be deemed to be underwriting compensation under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must agree that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus a broker-dealer will not be
deemed to admit that it is an underwriter within the meaning of the Securities
Act. The Company has agreed to pay all expenses incident to the Exchange Offer
other than commissions or concessions of any brokers or dealers and will
indemnify Holders (including broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
By its acceptance of the Exchange Offer, any broker-dealer that
receives Exchange Notes pursuant to the Exchange Offer hereby agrees to notify
the Company prior to using the Prospectus in connection with the sale or
transfer of Exchange Notes, and acknowledges and agrees that, upon receipt of
notice from the Company of the happening of any event which makes any statement
in the Prospectus untrue in any material respect or which requires the making of
any changes in the Prospectus in order to make the statements therein not
misleading or which may impose upon the Company disclosure obligations that may
have a material adverse effect on the Company (which notice the Company agrees
to deliver promptly to such broker-dealer), such broker-dealer will suspend use
of the Prospectus until the Company has notified such broker-dealer that
delivery of the Prospectus may resume and has furnished copies of any amendment
or supplement to the Prospectus to such broker-dealer.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Morgan, Lewis & Bockius LLP,
Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of National-Oilwell at December
31, 1997 and for each of the two years then ended, appearing in
National-Oilwell's Annual Report on Form 10-K for the year ended December 31,
1997 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon, included therein, and incorporated by reference
elsewhere herein, which, for the year ended December 31, 1996, is based in part
on the report of Coopers & Lybrand, independent auditors. The financial
statements referred to above are included in reliance upon such reports given
upon the authority of such firms as experts in accounting and auditing.
The consolidated financial statements of National-Oilwell at August 31,
1995 and for the year then ended and for the three months ended November 30,
1995, appearing in National-Oilwell's Annual Report on Form 10-K for the year
ended December 31, 1997 have been audited by Coopers & Lybrand, independent
auditors, as set forth in their report thereon and incorporated by reference
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Dreco Energy Services Ltd. at
November 30, 1996 and for the year then ended, appearing in National-Oilwell's
Annual Report on Form 10-K for the year ended December 31, 1997 have been
audited by Coopers & Lybrand, independent auditors, as set forth in their
report thereon and incorporated by reference elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
44
<PAGE> 48
================================================================================
All tendered Old Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Requests for assistance and
requests for additional copies of the Prospectus, the Letter of Transmittal and
other related documents should be addressed to the Exchange Agent as follows:
By Hand or Overnight Delivery:
The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
Attn: Carolle Montreuil
Reorganization Section
By Facsimile:
(for Eligible Institutions only)
(212) 815-6339
To confirm by telephone or for
information call:
(212) 815-3738
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street, 7E
New York, New York 10286
Attn: Carolle Montreuil
Reorganization Section
(Originals of all documents submitted by facsimile should be sent promptly
by hand, overnight courier, or registered or certified mail)
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THIS
PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR BOTH TOGETHER
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL
OR BOTH TOGETHER NOR ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
================================================================================
================================================================================
OFFER TO EXCHANGE
ALL OUTSTANDING
6 7/8% SENIOR NOTES DUE 2005, SERIES B
($150,000,000 PRINCIPAL AMOUNT)
FOR 6 7/8% SENIOR NOTES DUE 2005
OF
NATIONAL-OILWELL, INC.
----------------
PROSPECTUS
----------------
, 1998
================================================================================
45
<PAGE> 49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL")
authorizes, inter alia, a corporation to 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 such person is or was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that 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. A Delaware corporation may
indemnify past or present officers and directors of such corporation or of
another corporation or other enterprise at the former corporation's request, in
an action by or in the right of the corporation to procure a judgment in its
favor under the same conditions, except that no indemnification is permitted
without judicial approval if such person is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in defense of any action referred to above, or in defense of any
claim, issue or matter therein, the corporation must indemnify him against the
expenses (including attorney's fees) which he actually and reasonably incurred
in connection therewith. Section 145 further provides that any indemnification
shall be made by the corporation only as authorized in each specific case upon a
determination by the (i) stockholders, (ii) board of directors by a majority
vote or a quorum consisting of directors who were not parties to such action,
suit or proceeding or (iii) independent counsel if a quorum of disinterested
directors so directs. Section 145 provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a person
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 145 of the DGCL also empowers National-Oilwell to purchase and
maintain insurance on behalf of any person who is or was an officer or director
of National-Oilwell against liability asserted against or incurred by him in any
such capacity, whether or not National-Oilwell would have the power to indemnify
such officer or director against such liability under the provisions of Section
145. National-Oilwell maintains a directors' and officers' liability policy for
such purposes.
Article Sixth, Part II, Section 1 of National-Oilwell's Amended and
Restated Certificate of Incorporation and Article VI of National-Oilwell's
Bylaws each provide that directors, officers, employees and agents shall be
indemnified to the fullest extent permitted by Section 145 of the DGCL.
II - 1
<PAGE> 50
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - - ------- -----------
<S> <C> <C>
4.1 -- Indenture dated as of June 26, 1998 between the Company and The Bank of New York,
as trustee, including the form of Exchange Note*
4.2 -- Registration Rights Agreement dated as of June 26, 1998 among the Company and
Merrill Lynch & Co., Chase Securities Inc. and Morgan Stanley & Co. Incorporated*
5 -- Opinion of Morgan, Lewis & Bockius LLP regarding validity of Exchange Notes*
12 -- Statement regarding computation of earnings to fixed charges ratio*
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Coopers & Lybrand
23.3 -- Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5)*
24.1 -- Powers of Attorney (included on signature pages hereof)*
25 -- Statement of Eligibility of Trustee*
</TABLE>
- - - ------------------
* Filed previously.
All schedules are omitted because they are not applicable or the
required information has been provided in the consolidated financial statements
or the notes thereto.
(c) Not applicable.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the 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 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
II - 2
<PAGE> 51
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b) or 11 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
II - 3
<PAGE> 52
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, 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 September 22, 1998.
NATIONAL-OILWELL, INC.
By: /s/ Steven W. Krablin
---------------------------------
Steven W. Krablin
Vice President and Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven W. Krablin and Richard L.
Lionberger, or either of them, his true and lawful attorney-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all registration
statements filed by National-Oilwell, Inc., a Delaware corporation, in which the
undersigned holds offices, and any amendments to the registration statement, and
to file any and all of the same, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ * Chairman of the Board of Directors September 22, 1998
- - - ----------------------------------- (Principal Executive Officer)
Joel V. Staff
/s/ Steven W. Krablin Vice President and Chief Financial Officer September 22, 1998
- - - ----------------------------------- (Principal Financial Officer and Principal
Steven W. Krablin Accounting Officer)
/s/ * Director September 22, 1998
- - - -----------------------------------
Howard I. Bull
/s/ * Director September 22, 1998
- - - -----------------------------------
James C. Comis III
</TABLE>
II - 4
<PAGE> 53
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ * Director September 22, 1998
- - - -----------------------------------
James T. Dresher
/s/ * Director September 22, 1998
- - - -----------------------------------
W. McComb Dunwoody
/s/ * Director September 22, 1998
- - - -----------------------------------
William E. Macaulay
/s/ * Director September 22, 1998
- - - -----------------------------------
Frederick W. Pheasey
/s/ * Director September 22, 1998
- - - -----------------------------------
Bruce M. Rothstein
</TABLE>
* By: /s/ Richard L. Lineberger
-----------------------------
Attorney-in-Fact
II - 5
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - - ------- -----------
<S> <C> <C>
4.1 -- Indenture dated as of June 26, 1998 between the Company and The Bank of New York,
as trustee, including the form of Exchange Note*
4.2 -- Registration Rights Agreement dated as of June 26, 1998 among the Company and
Merrill Lynch & Co., Chase Securities Inc. and Morgan Stanley & Co. Incorporated*
5 -- Opinion of Morgan, Lewis & Bockius LLP regarding validity of Exchange Notes*
12 -- Statement regarding computation of earnings to fixed charges ratio*
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Coopers & Lybrand
23.3 -- Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5)*
24.1 -- Powers of Attorney (included on signature pages hereof)*
25 -- Statement of Eligibility of Trustee*
- - - ---------------
* Filed previously.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-4) and related Prospectus of
National-Oilwell, Inc. for the registration of $150,000,000 principal amount of
6 7/8% Senior Notes due 2005, Series B and to the incorporation by reference
therein of our report dated February 5, 1998 with respect to the consolidated
financial statements of National-Oilwell, Inc. included in its Annual Report
(Form 10-K) for the year ended December 31, 1997 filed with the Securities and
Exchange Commission. We also consent to the incorporation by reference of our
report dated January 31, 1996 with respect to the consolidated financial
statements of National-Oilwell, a general partnership, and subsidiaries (the
predecessor) for the year ended December 31, 1995 also incorporated by reference
in its Annual Report (Form 10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Houston, Texas
September 22, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-4) and related Prospectus of
National-Oilwell, Inc. for the registration of $150,000,000 principal amount of
6 7/8% Senior Notes due 2005, Series B and to the incorporation by reference
therein of our report dated November 1, 1996, except as to Note 1 which is as of
September 25, 1997, with respect to the consolidated financial statements of
National-Oilwell, Inc. for the year ended August 31, 1995 and the three months
ended November 30, 1995 included in its Annual Report (Form 10-K) for the year
ended December 31, 1997 filed with the Securities and Exchange Commission.
We also consent to the incorporation by reference of our report dated
October 21, 1997 with respect to the consolidated financial statements of Dreco
Energy Services Ltd. for the twelve months ended November 30, 1996 included in
the Annual Report (Form 10-K) of National-Oilwell, Inc. for the year ended
December 31, 1997 filed with the Securities and Exchange Commission.
/s/ COOPERS & LYBRAND
Coopers & Lybrand
Chartered Accountants
Edmonton, Alberta
September 22, 1998
