<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 4, 2000
REGISTRATION NO. 333-91605
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NATIONAL-OILWELL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 76-0475815
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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10000 RICHMOND AVE.
HOUSTON, TEXAS 77042
(713) 346-7500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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STEVEN W. KRABLIN
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
10000 RICHMOND AVE.
HOUSTON, TEXAS 77042
(713) 346-7500
(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
1701 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103-2921
(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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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, JANUARY 4, 2000
PROSPECTUS
OFFER BY
NATIONAL-OILWELL, INC.
TO PURCHASE ALL OF THE OUTSTANDING SHARES OF
HITEC ASA
National-Oilwell, Inc., a Delaware (U.S.) corporation, is making this offer
to shareholders of Hitec ASA, a Norwegian corporation, to acquire all of the
outstanding shares of Hitec in exchange for cash and shares of National Oilwell
common stock pursuant to the Merger Agreement dated October 10, 1999 between
National Oilwell and Hitec.
This offer expires at 12:00 midnight (Norwegian time) on February 4, 2000
unless extended by National Oilwell. Acceptances of the offer may be revoked at
any time up until the expiration time. To accept the offer, a Hitec shareholder
must complete and return the accompanying acceptance form and authorize First
Securities ASA to deposit the Hitec shares in a separate account established for
purposes of the offer.
Each shareholder of Hitec who accepts the offer will receive for each share
of Hitec:
- NOK 3.95152 in cash
- .2125904 share of National Oilwell common stock
Cash will be paid in lieu of any fractional share of National Oilwell. Ten
percent of the National Oilwell shares deliverable to each Hitec shareholder
will be held in escrow for one year as security to protect National Oilwell
against certain potential liabilities of Hitec and against any breaches of
representations and warranties made by Hitec under the merger agreement.
Hitec received a grant of tax relief from the Norwegian Royal Ministry of
Finance for tax on potential gain occurring upon the exchange of Hitec shares
for National Oilwell shares. Capital gain will be taxed only upon the disposal
of the National Oilwell shares. The tax relief does not apply to the cash
portion of the offer consideration.
The completion of the offer is subject to satisfaction of a number of
conditions, including:
- the receipt by National Oilwell of valid and unconditional acceptances of
the offer by holders of shares representing more than 90% of the
outstanding shares of Hitec;
- the approval of the acquisition of Hitec by National Oilwell by the Royal
Norwegian Ministry of Industry and Trade; and
- other customary conditions.
National Oilwell is also offering to substitute options to purchase shares of
National Oilwell common stock for options to purchase shares of Hitec held by
employees of Hitec.
THE BOARD OF DIRECTORS OF HITEC HAS UNANIMOUSLY RECOMMENDED THE OFFER TO
SHAREHOLDERS OF HITEC, AND A GROUP OF HITEC SHAREHOLDERS HOLDING APPROXIMATELY
40% OF THE HITEC SHARES HAS AGREED TO ACCEPT THE OFFER.
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PLEASE REVIEW THE SECTION OF THIS PROSPECTUS CALLED "RISK FACTORS" ON PAGE 9 FOR
A DESCRIPTION OF THE RISK ASSOCIATED WITH OWNERSHIP OF NATIONAL OILWELL COMMON
STOCK.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this Prospectus is , 1999
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.......................................... 3
EXCHANGE RATE DATA.......................................... 7
COMPARATIVE PER SHARE INFORMATION........................... 8
RISK FACTORS................................................ 9
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............. 12
THE OFFER................................................... 13
ADDITIONAL INFORMATION WITH RESPECT TO THE OFFER............ 17
OPTIONHOLDERS............................................... 21
INTERESTS OF HITEC EXECUTIVE OFFICERS AND DIRECTORS IN THE
OFFER..................................................... 21
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION............................................... 22
DESCRIPTION OF THE MERGER AGREEMENT......................... 24
COMPARISON OF THE RIGHTS OF THE STOCKHOLDERS OF HITEC AND
NATIONAL-OILWELL.......................................... 31
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS....... 38
NATIONAL-OILWELL SELECTED FINANCIAL DATA.................... 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION OF NATIONAL-OILWELL.............. 45
BUSINESS OF NATIONAL-OILWELL................................ 52
DIRECTORS AND EXECUTIVE OFFICERS OF NATIONAL-OILWELL........ 57
HITEC SELECTED FINANCIAL DATA............................... 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HITEC........................ 59
BUSINESS OF HITEC........................................... 64
OWNERSHIP OF HITEC.......................................... 70
INFORMATION REGARDING JON GJEDEBO........................... 71
LEGAL MATTERS............................................... 72
EXPERTS..................................................... 72
WHERE YOU CAN FIND MORE INFORMATION......................... 73
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A: MERGER AGREEMENT................................ A-1
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National Oilwell is making this offer only to shareholders of Hitec located
in Norway and in the United States and other jurisdictions, if any, where the
offer and sale of shares of National Oilwell pursuant to the offer would be
lawful. We are not offering shares of our common stock in any jurisdiction where
the offer is not permitted.
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National Oilwell has not authorized anyone to provide you with information
that is different from what is contained in this Prospectus. The information in
this Prospectus may not be correct at any time after its date.
---------------------
THIS PROSPECTUS INCORPORATES INFORMATION ABOUT NATIONAL OILWELL AS
DESCRIBED UNDER "DIRECTORS AND EXECUTIVE OFFICERS OF NATIONAL OILWELL" ON PAGE
57. UPON REQUEST, NATIONAL OILWELL WILL PROVIDE TO YOU AT NO COST A COPY OF THE
DOCUMENT WHICH IS INCORPORATED INTO THIS PROSPECTUS BY REFERENCE. YOU SHOULD
DIRECT WRITTEN OR ORAL REQUESTS FOR COPIES TO GAY MATHER, DIRECTOR OF
COMMUNICATIONS, NATIONAL-OILWELL, INC., 10000 RICHMOND AVE., HOUSTON, TEXAS
77042 (TELEPHONE NUMBER +1 713-346-7775). COPIES OF OUR DOCUMENTS FILED WITH THE
SEC CAN ALSO BE FOUND ON OUR WEBSITE, WWW.NATOIL.COM. IN ORDER TO OBTAIN TIMELY
DELIVERY, SHAREHOLDERS OF HITEC MUST REQUEST THE INFORMATION NO LATER THAN FIVE
BUSINESS DAYS BEFORE THE EXPIRATION TIME OF THE OFFER. THEREFORE, THE REQUEST
SHOULD BE MADE NOT LATER THAN JANUARY 27, 2000.
2
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PROSPECTUS SUMMARY
This summary highlights selected information about National Oilwell, Hitec
and the offer. To understand the offer fully, and for a more complete
description of the legal terms of the offer, you should carefully read this
entire document and the documents attached as appendices. We have included page
references parenthetically to direct you to a more complete description of the
topics presented in this summary.
NATIONAL-OILWELL, INC. (PAGE 52)
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.
National Oilwell was incorporated in Delaware in 1995. Its principal
executive offices are located at 10000 Richmond Avenue, 4th Floor, Houston Texas
77042-4200, and its telephone number is +1 713-346-7500.
HITEC ASA (PAGE 64)
Hitec is a leading supplier of advanced systems and solutions for the oil
and gas drilling industry. The product range includes advanced computer
controlled drilling machinery, control systems and instrumentation, as well as
complete turn key drilling facilities.
Hitec was incorporated in 1985. Its principal offices are located at
Lagerveien 8, 4069 Stavanger, Norway, and its telephone number is 47 51 81 81
81.
REASONS FOR THE OFFER (PAGE 17)
National Oilwell believes that bringing together Hitec, a leading provider
of integrated control systems, and National Oilwell, a leading provider of
equipment and components for high performance drilling systems, creates the
potential for development of a new generation of drilling machinery.
Furthermore, Hitec's control, instrumentation and pipe handling systems will
significantly enhance National Oilwell's product offering and increase the
ability to develop and successfully market new products.
Hitec's drilling business has grown over the last few years in both
revenues and profitability. Several new products with a global potential have
been developed. Hitec's management believes that Hitec's current limited
distribution and presence internationally could have limited or slowed the
potential growth within the drilling business and that a combination with
National Oilwell will give Hitec access to a strong distribution network and
enhance the possibility of a more profitable growth in the drilling business.
WHAT HITEC SHAREHOLDERS WILL RECEIVE UPON COMPLETION OF THE OFFER (PAGE 13)
In the offer, you will receive .2125904 share of National Oilwell common
stock and cash of NOK 3.95152 for each share of Hitec. National Oilwell will not
issue fractional shares. Instead, you will receive cash for any fractional share
of National Oilwell common stock owed to you.
INDEMNIFICATION AND ESCROW ACCOUNT (PAGES 14 AND 29)
By accepting the offer, you agree to indemnify National Oilwell for certain
potential liabilities relating to the drilling business and certain potential
losses arising from, among other things, breach of the representations and
warranties made by Hitec in the merger agreement.
As security for the indemnification obligations, ten percent of the
National Oilwell shares you receive will be placed in an escrow account for a
one year period commencing on date of the completion of the offer.
3
<PAGE> 5
MANDATORY CASH OFFER; MANDATORY REDEMPTION (PAGE 15)
In the event that National Oilwell completes the offer, Norwegian law
requires that National Oilwell make a further offer to acquire any remaining
shares for cash.
The method of determining the cash offer price is prescribed by Norwegian
law, but National Oilwell and the Oslo Stock Exchange have not agreed on the
effect, if any, of the fact that 10% of the shares of National Oilwell common
stock deliverable to Hitec shareholders are being placed in escrow.
If National Oilwell completes the offer and the mandatory cash offer and
holds more than 90% of the outstanding shares of Hitec, National Oilwell will be
entitled to redeem the shares held by Hitec shareholders who have not accepted
the offer or the mandatory cash offer. In connection with such a redemption,
Hitec shareholders will be entitled to have the value of their shares determined
by a court.
HITECVISION AND THE NON-DRILLING BUSINESS (PAGE 16)
Immediately prior to the completion of the offer, the non-drilling business
of Hitec will be sold by Hitec to HitecVision AS, a newly formed company.
HitecVision is giving to each shareholder of Hitec the right to subscribe for
shares of HitecVision. Cybernetix AS, a company controlled by Jon Gjedebo, Chief
Executive Officer of Hitec, will own at least 40% of the shares of HitecVision.
OPTIONHOLDERS (PAGE 21)
In connection with the offer, National Oilwell is making an offer to the
employees of the drilling business of Hitec to exchange the options they hold to
purchase shares of Hitec for options to purchase shares of National Oilwell.
DETERMINATIONS OF BOARDS OF DIRECTORS (PAGE 13)
National Oilwell. The board of directors of National Oilwell has
unanimously approved the offer and the merger agreement.
Hitec. The board of directors of Hitec has unanimously approved the offer
and the merger agreement and has recommended the offer to Hitec shareholders. A
group of Hitec shareholders holding approximately 40% of the outstanding shares
has agreed to accept the offer.
CERTAIN TAX CONSEQUENCES (PAGE 16)
Hitec received a grant of tax relief from the Norwegian Royal Ministry of
Finance that applies to the potential gain occurring upon the exchange of Hitec
shares for National Oilwell shares. See "The Offer -- Tax Treatment of the Offer
under Norwegian Law" beginning on page 16 and "Additional Information with
Respect to the Offer -- Certain Norwegian Income and Wealth Tax Consequences to
Norwegian Shareholders" beginning on page 19.
Additionally, the ownership and disposition of National Oilwell common
stock by non-United States holders is subject to certain United States federal
income tax consequences. See "Additional Information with Respect to the Offer
- -- Certain U.S. Federal Income Tax Consequences to Non-United States Holders"
beginning on page 17.
ACCOUNTING TREATMENT (PAGE 20)
National Oilwell intends to treat the acquisition of Hitec through the
offer as a purchase for financial reporting purposes. This treatment means that
the assets, liabilities and results of operations of Hitec will be included with
those of National Oilwell only for periods after the offer is completed. It also
means that National Oilwell will value the assets acquired and liabilities
assumed of Hitec at their fair market value.
4
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GOVERNMENTAL APPROVALS (PAGE 27)
The receipt of certain governmental approvals is a condition to the
completion of the offer. National Oilwell cannot predict whether we will obtain
all required governmental approvals.
CONDITIONS TO THE COMPLETION OF THE OFFER (PAGE 27)
National Oilwell will complete the offer only if the conditions to the
completion of the offer that the parties agreed to in the merger agreement are
satisfied or in some cases waived. One of the conditions to the completion of
the offer is that National Oilwell receive valid and unconditional acceptances
for at least 90% of the outstanding shares of Hitec. National Oilwell may choose
to waive this condition and complete the offer if it receives acceptances for
66.7% of the outstanding shares of Hitec.
TERMINATION OF THE MERGER AGREEMENT (PAGE 27)
The boards of directors of National Oilwell and Hitec can mutually agree to
terminate the merger agreement and the offer at any time, and there are other
circumstances in which National Oilwell and Hitec can terminate the merger
agreement independently.
LISTING OF NATIONAL OILWELL COMMON STOCK AND DE-LISTING OF HITEC COMMON STOCK
(PAGE 20)
National Oilwell common stock is listed on the New York Stock Exchange.
Following completion of the offer and the mandatory cash offer to Hitec
shareholders, Hitec common stock will no longer be traded on the Oslo Stock
Exchange or otherwise be publicly traded.
COMPARATIVE RIGHTS OF HOLDERS OF NATIONAL OILWELL COMMON STOCK AND HITEC COMMON
STOCK (PAGE 31)
National Oilwell is organized under the laws of the State of Delaware in
the United States, and Hitec is a Norwegian corporation. The rights of
stockholders under the Delaware General Corporation Law and rights of
shareholders under Norwegian law differ in many respects. You should read
"Comparison of the Rights of the Stockholders of Hitec ASA and National Oilwell"
for a discussion of how your rights as a National Oilwell stockholder will
differ from your rights as a Hitec shareholder.
INTERESTS OF HITEC EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER (PAGE 21)
You should note that Jon Gjedebo, Hitec's president and chief executive
officer, will become an executive officer and director of National Oilwell.
Certain executive officers of Hitec, as well as other employees of Hitec,
will be entitled to incentive and severance payments upon completion of the
offer.
5
<PAGE> 7
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
We present the following summary unaudited pro forma financial information
to give you a better picture of what the results of operations and financial
position of the combined business of National Oilwell and Hitec may have been
for the year ended December 31, 1998 and the nine months ended September 30,
1999 if the offer had been completed at the beginning of each period. We
prepared the unaudited pro forma statement of operations and balance sheet
information by adding or combining the historical pro forma results of each
company with adjustments. The companies may have performed differently if they
were actually combined. You should not rely on the unaudited pro forma
information as being indicative of the historical results that we would have had
or the future results we will experience after the completion of the offer. You
should read the following table in conjunction with the historical consolidated
financial statements of National Oilwell and Hitec beginning on page F-1 of this
prospectus and the "Unaudited Pro Forma Consolidated Financial Statements"
beginning on page 38 of this prospectus.
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<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $600,878 $1,369,927
Net income.................................................. 2,349 74,088
Net income per share:
Basic..................................................... $ 0.04 1.18
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Diluted................................................... $ 0.04 1.18
======== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................... $ 12,138
Working capital............................................. 301,905
Total assets................................................ 896,998
Long term debt, excluding current portion................... 200,078
Total stockholders' equity.................................. 511,909
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EXCHANGE RATE DATA
The following table sets forth, for the periods indicated, certain exchange
rates based on the high and low noon buying rates in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York. The rates quoted are the number of United States
dollars per one NOK. On December 31, 1999, the exchange rate based on the noon
buying rate in New York City for cable transfers of NOK expressed in United
States dollars, as certified for customs purposes by the Federal Reserve Bank of
New York, was $.1248 per one NOK.
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NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
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1999 1998 1998 1997 1996 1995 1994
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Exchange Rate at end of period... $.1292 $.1351 $.1319 $.1356 $.1569 $.1582 $.1478
Average Exchange Rate during
period(1)...................... .1286 .1321 .1324 .1411 .1548 .1578 .1417
High Exchange Rate during
period......................... .1248 .1202 .1202 .1289 .1511 .1468 .1320
Low Exchange Rate during
period......................... .1352 .1363 .1367 .1577 .1587 .1635 .1540
</TABLE>
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(1) The average for the period was calculated by averaging the daily noon buying
rates during the relevant period.
7
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COMPARATIVE PER SHARE INFORMATION
National Oilwell's common stock is listed on the New York Stock Exchange.
On October 8, 1999, the last full trading day on the NYSE prior to the public
announcement of the proposed offer, National Oilwell's common stock closed at
$12.50 per share. On December 31, 1999, National Oilwell's common stock closed
at $15.69 per share.
Hitec's common stock is listed on the Oslo Stock Exchange. On October 8,
1999, the last full trading day on the OSE prior to the public announcement of
the proposed offer, Hitec's common stock closed at NOK 24.80 per share. On
December 30, 1999, Hitec's common stock closed at NOK 25.60 per share.
We have set forth below consolidated net income (loss) and book value per
share data of National Oilwell and the Hitec on an historic basis (converted to
U.S. dollars in the case of Hitec using the average exchange rate for the
applicable period or the exchange rate at the relevant date) for National
Oilwell on a pro forma basis giving effect to the acquisition of Hitec and on a
pro forma basis per Hitec equivalent share. The Hitec equivalent share pro forma
data was computed by multiplying the National Oilwell pro forma combined
information by .2125904, the exchange ratio in the offer.
The net income (loss) per share is computed on the basis of weighted
average shares outstanding. Fully diluted net income per share is not presented
because common stock equivalents did not result in material dilution, had no
dilutive effect and did not result in material dilution.
You should read the information set forth below in conjunction with the
audited and unaudited consolidated financial statements of National Oilwell and
Hitec and the Unaudited Pro Forma Financial Information contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE NINE AT OR FOR THE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
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NATIONAL OILWELL -- HISTORICAL
Net income (loss) per share......................... $(0.02) $1.26
Book value per share................................ 6.73 7.17
HITEC GROUP -- HISTORICAL
Net income per share................................ 0.08 0.21
Book value per share................................ 1.77 1.72
NATIONAL OILWELL UNAUDITED PRO FORMA COMBINED
Net income per share................................ 0.04 1.18
Book value per share................................ 7.71 Not computed
HITEC PER SHARE EQUIVALENT
Net income per share................................ 0.01 0.25
Book value per share................................ 1.64 Not computed
</TABLE>
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RISK FACTORS
RISKS RELATING TO THE OFFER
National Oilwell may not be able to integrate the operations of Hitec and
realize the potential benefits of the offer.
Integration of the operations of National Oilwell and Hitec will present
significant challenges. The integration of managers from each company will
result in changes affecting all employees and the operations of both companies.
Differences in management approach and corporate culture may strain employee
relations. The success of the merger will also depend on the ability of National
Oilwell and Hitec to integrate business strategies. If National Oilwell and
Hitec are not able to integrate their respective operations successfully,
National Oilwell may not achieve the anticipated financial benefits of the
offer.
Hitec's obligation to pay a termination fee and expenses and acceptances of
the offer by Hitec shareholders holding 40% of the outstanding common stock
may deter competing proposals.
Hitec may terminate the agreement if it receives and accepts a competing
proposal which is superior to the proposed offer, but Hitec must then pay
National Oilwell a termination fee of $5.0 million. Additionally, Hitec must pay
to National Oilwell a termination fee of $5.0 million if the agreement is
terminated and prior to termination Hitec received a competing offer that is
completed prior to December 31, 2000. The obligation to pay a termination fee
may deter third parties from making competing bids for Hitec.
Certain shareholders of Hitec holding approximately 40% of the outstanding
common stock of Hitec have agreed to accept the offer. These acceptances may be
revoked only upon the termination of the agreement. These agreements make it
more difficult for a third party to acquire Hitec and therefore may deter third
parties from making a competing offer for Hitec.
There are conflicts of interest and benefits of the merger to insiders who
recommend you vote in favor of the merger.
As discussed below under "Interests of Hitec Executive Officers and
Directors in the Offer," Jon Gjedebo, Hitec's president and chief executive
officer, will become an executive officer and director of National Oilwell
following the completion of the offer. In addition, executive officers of Hitec
will receive incentive and severance payments upon completion of the merger. All
of these individuals may have interests in the offer that are different from, or
in addition to, your interests as shareholders.
RISKS RELATING TO NATIONAL OILWELL
National Oilwell Depends on the Oil and Gas Industry
National Oilwell is very dependent upon the oil and gas industry and its
willingness to explore for and produce oil and gas. The industry's willingness
to explore and produce depends upon the prevailing view of future product
prices. Many factors affect the supply and demand for oil and gas and therefore
influence product prices, including:
- level of production from known reserves;
- cost of producing oil and gas;
- level of drilling activity;
- worldwide economic activity;
- national government political requirements;
- development of alternate energy sources; and
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<PAGE> 11
- environmental regulation.
If there is a significant reduction in demand for drilling services, in cash
flows of drilling contractors or in rig utilization rates, then demand for
National Oilwell's products will drop.
Oil and Gas Prices Are Volatile
Oil and gas prices have been volatile over the last ten years, ranging from
less than $11 per barrel to over $40 per barrel. Oil prices were low in 1998,
generally ranging from $11 to $16 per barrel. In 1999 oil prices recovered to
more normal historical levels but there is no assurance that oil prices will
remain at these levels for any length of time. Spot gas prices have also been
volatile over the last ten years, ranging from less than $1.00 per mcf of gas to
above $3.00. Gas prices were moderate in 1998 generally ranging from $1.80 to
$2.20 per mcf. In 1999 gas prices have experienced an upward trend but still
remain volatile.
These price changes have caused many 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 that we manufacture. In the second half of 1998, lower oil prices
slowed production and new drilling, particularly in areas where the per barrel
cost of production is high. This slowdown quickly affected National Oilwell's
distribution business and subsequently negatively impacted the products and
technology segment. While oil and gas commodity prices have been higher in 1999,
this may not have a positive impact on the businesses of National Oilwell.
National Oilwell cannot predict future oil and gas prices or the effect prices
will have on exploration and production levels.
National Oilwell's Industry Is Highly Competitive
The oilfield products and services industry is highly competitive. The
following competitive actions can each affect the revenues and earnings of
National Oilwell:
- price changes;
- new product and technology introductions; and
- improvements in availability and delivery.
National Oilwell competes with many companies. Some of these companies may
possess greater financial resources than National Oilwell or offer certain
products that National Oilwell does not have.
National Oilwell Faces Potential Product Liability and Warranty Claims
Customers use some of National Oilwell's products in potentially hazardous
drilling, completion and production applications that can cause:
- injury or loss of life;
- damage to property, equipment or the environment; and
- suspension of operations.
National Oilwell has what it believes to be the amounts and types of
insurance coverage which are consistent with normal industry practice. However,
National Oilwell's insurance does not protect it against all liabilities.
National Oilwell cannot guarantee that its insurance will be adequate to cover
all liabilities National Oilwell may incur. National Oilwell also cannot assure
that it will be able to maintain its insurance in the future at levels it thinks
are necessary and at rates it considers reasonable. Particular types of
insurance coverage may not be available in the future.
National Oilwell may be named as a defendant in product liability or other
lawsuits asserting potentially large claims if an accident occurs at a location
where its equipment and services have been
10
<PAGE> 12
used. National Oilwell is currently party to legal and administrative
proceedings. National Oilwell cannot predict the outcome of these proceedings,
nor the effects any negative outcomes may have on it.
Foreign and Domestic Political Developments and Governmental Regulations Can
Affect National Oilwell
Many aspects of National Oilwell's operations are affected by political
developments, including restrictions on the ability to do business in various
foreign jurisdictions. National Oilwell is also subject to foreign and domestic
government regulations, such as regulations relating to oilfield operations,
worker safety and environmental protection.
In addition, National Oilwell depends on demand for its products and
services from the oil and gas industry, and is therefore affected by any changes
in laws and regulations that affect the oil and gas industry. If laws or
regulations are adopted which hinder exploration for or production of oil and
gas, National Oilwell's operations could suffer. National Oilwell cannot predict
the extent to which its future operations may be affected by political
developments, new legislation or new regulations.
Environmental Regulations Can Affect National Oilwell
Many foreign, federal, state, provincial and local environmental laws and
regulations affect the operations of National Oilwell, as well as the operations
of our customers. The technical requirements of these laws and regulations are
becoming increasingly expensive, complex and stringent. These laws and
regulations may sanction National Oilwell for damages to natural resources or
threats to public health and safety. These laws can also make National Oilwell
liable for the actions of others, or for our prior acts that were legal at the
time.
Violations of laws or regulations may result in any one or more of the
following:
- revocation of permits;
- corrective action orders;
- administrative or civil penalties; or
- criminal prosecution.
Certain environmental laws may subject National Oilwell to joint and
several liability for spills or releases of hazardous substances. This means
that National Oilwell could be forced to pay an entire judgment even in a case
in which it was only partially responsible for the damage. National Oilwell
could also be sued for personal injuries or property damage as a result of
alleged exposure to hazardous substances, as well as damage to natural
resources.
Instability of Foreign Markets Could Have a Negative Impact on the Revenues of
National Oilwell
Some of the revenues of National Oilwell depend upon customers in the
Middle East, Africa, Southeast Asia, South America and other international
markets. These revenues are subject to risks of instability of foreign economies
and governments. National Oilwell's sales can be affected by laws and
regulations limiting exports to particular countries and sometimes export laws
and regulations of one jurisdiction contradict those of another.
National Oilwell is exposed to the risks of changes in exchange rates
between the U.S. dollar and foreign currencies. National Oilwell does not
currently engage in or plan to engage in any significant hedging or currency
trading transactions designed to compensate for adverse currency fluctuations.
National Oilwell May Not Be Able to Successfully Manage Its Growth
National Oilwell acquired three companies in 1997, five in 1998 and two in
1999. National Oilwell also intends to acquire additional companies in the
future, whenever feasible. National Oilwell cannot
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<PAGE> 13
predict whether suitable acquisition candidates will be available on reasonable
terms. Further, National Oilwell may not have access to adequate funds to
complete any desired acquisitions. Once acquired, National Oilwell cannot
guarantee that it will successfully integrate the operations of the acquired
companies.
Combining organizations could interrupt the activities of some or all of
the businesses of National Oilwell, and have a negative impact on operations.
Recent acquisitions and recent growth in revenues have placed significant
demands on National Oilwell to do the following:
- improve the combined entity's operational, financial and management
information systems;
- develop further the management skills of National Oilwell's managers and
supervisors; and
- continue to train, motivate and effectively manage National Oilwell's
employees.
If National Oilwell fails to effectively manage its growth, its results could
suffer.
National Oilwell May Incur Problems with Its Financing
In 1998 National Oilwell issued 6 7/8% senior notes due July 1, 2005. As a
result of this issuance National Oilwell has become more leveraged. As of
September 30, 1999, National Oilwell had a total of $194.6 million of debt, and
a total of $391.9 million of stockholders' equity. National Oilwell's leverage
requires National Oilwell to use some of its cash flow from operations for
payment of interest on its debt. National Oilwell's leverage may also make it
more difficult to obtain additional financing in the future. Further, National
Oilwell's leverage could make it more vulnerable to economic downturns and
competitive pressures.
Potential Future Sale of Shares of National Oilwell Could Affect Its Market
Price
Future sales of shares of National Oilwell by stockholders or option
holders could have a negative effect on the market price of National Oilwell
stock. At September 30, 1999, National Oilwell had outstanding options to
purchase a total of 2,083,849 of its shares at prices ranging from $5.63 to
$28.81 per share. Certain stockholders have certain rights to cause National
Oilwell to file a registration statement with the SEC to allow the sale of their
shares, and some also have the right to be included in any registration
statements National Oilwell does file. The following is a list of the amount of
shares subject to registration rights:
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Inverness/Phoenix LLC............................... 9,300,562
First Reserve Corporation........................... 8,370,494
Other Stockholders.................................. 3,134,510
</TABLE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains, or has incorporated by
reference, forward-looking statements. Statements that are not historical facts,
including statements about our beliefs and expectations, are forward-looking
statements. Forward-looking statements typically are identified by use of terms
such as "may," "will," "expect," "anticipate," "estimate," and similar words,
although some forward-looking statements are expressed differently. You should
be aware that our actual results could differ materially from those contained in
the forward-looking statements due to a number of factors, including changes in
oil and gas prices, customer demand for our products and worldwide economic
activity. You should also consider carefully the statements under "Risk Factors"
which address additional factors that could cause our actual results to differ
from those set forth in the forward-looking statements. Given these
uncertainties, current or prospective investors are cautioned not to place undue
reliance on any such forward-looking statements. We disclaim any obligation or
intent to update any such factors or forward-looking statement to reflect future
events or developments.
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<PAGE> 14
THE OFFER
RECOMMENDATIONS AND ACCEPTANCES
The respective boards of directors of each of National Oilwell and Hitec
have determined that it is in the best interests of their respective
stockholders to combine the businesses of National Oilwell and Hitec. The
respective boards also have determined that an offer by National Oilwell to
purchase your shares of Hitec common stock is an effective method to accomplish
this goal. The board of directors of Hitec has unanimously recommended to you
that you accept the offer. Additionally, a group of Hitec shareholders holding
approximately 40% of the outstanding shares of Hitec has agreed to accept the
offer. This group includes Jon Gjedebo, the President and Chief Executive
Officer of Hitec, Mosvold Farsund AS, a shareholder of Hitec, Svennevik Invest
AS, a shareholder of Hitec, Ole Saetre, a Vice President of Hitec and Folke
Hermansen, a director of Hitec.
On November 29, 1999, the Board of Directors of Hitec made the following
recommendation to the Hitec shareholders:
To the shareholders of Hitec ASA (Hitec)
Hitec has entered into a Merger Agreement with NOI in which NOI has
undertaken to make an offer for all outstanding shares in Hitec. As part of
the agreement all Hitec's non-drilling businesses, assets and liabilities
will be sold to HitecVision. Hitec's shareholders will be invited to
participate in HitecVision's business on a pro rata basis through an
issuance of shares in HitecVision directed to them.
NOI has agreed to offer 0,2125904 NOI-shares together with NOK 3,95152
per Hitec share. Hitec's shareholders will receive a prospectus from NOI
regarding the offer, the agreement and the NOI shares offered, as well as a
prospectus from HitecVision and Hitec regarding the invitation to continue
as shareholders in the non-drilling business.
A combination of Hitec's drilling business with NOI gives Hitec access
to a strong international presence and distribution network. In the Board's
opinion such access will enable Hitec to penetrate the market with its
technological products much more effectively than Hitec could have done on
its own. The Agreement with NOI also creates a long-term owner for Hitec's
non-drilling business.
The Merger Agreement has taken into consideration the interest of the
employees of the Hitec Group. In the Board's opinion both the employees of
the drilling business and the non-drilling business will benefit from the
Agreement.
President and Director Jon Gjedebo, Mosvold Farsund (represented on
the Board by Director Geir Larsen), all other Directors who own shares in
Hitec directly or indirectly as well as Executive Vice President Ola Saetre
have agreed to accept the offer from NOI.
The Board recommends the shareholders of Hitec to accept the offer
from NOI.
Stavanger, November 29, 1999
The Board of Hitec ASA
CONSIDERATION TO BE RECEIVED IN THE OFFER
National Oilwell is making an offer to the Hitec shareholders to acquire
all of the outstanding shares of Hitec in exchange for National Oilwell common
stock and certain cash consideration. The offer is
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<PAGE> 15
subject to the conditions described herein. If you accept the offer, and
National Oilwell completes the offer, you will receive for each shares of Hitec:
- .2125904 share of National Oilwell common stock; and
- NOK 3.95152 in cash.
If you choose to accept the offer, you must accept the offer with respect
to ALL, and not a portion, of your shares of Hitec common stock. If you accept
the offer, you will receive payment for your shares of Hitec common stock upon
completion of the offer, which will occur promptly after all conditions to
completion of the offer have been satisfied or waived. In the event you would be
entitled to receive a fractional share of National Oilwell, you will instead
receive a cash payment for that fractional share. The cash payment for any
fractional share will be based on the average of the closing prices of the
National Oilwell common stock on the New York Stock Exchange for the last ten
(10) trading days ending on the second trading day prior to the offer expiration
date.
ACCEPTANCE OF THE OFFER
With this prospectus, we are delivering to you an acceptance form. To
accept the offer, you must sign and return the acceptance form to First
Securities ASA. The acceptance form authorizes First Securities ASA to transfer
your shares of Hitec to a special account established for the offer. Upon
completion of the offer, First Securities ASA will deliver your Hitec shares to
National Oilwell and will deliver your shares of National Oilwell and cash to
you or as you may direct. If the offer is not completed and the merger agreement
is terminated, your Hitec shares will be returned to you by First Securities
ASA.
ESCROW ACCOUNT
If you accept the offer, 10% of your shares will be subject to certain
obligations to indemnify National Oilwell with respect to:
- certain liabilities relating to the drilling business of Hitec; and
- certain losses arising out of, among other things, any breach of the
representations and warranties made by Hitec in the merger agreement.
As security for the indemnification obligations, ten percent (10%) of the
National Oilwell shares deliverable to you will be placed in an escrow account
for a period of one year from the completion of the offer. At the expiration of
the escrow period, after subtracting amounts paid to satisfy any liabilities and
losses, your portion of the escrow account will be returned to you. For more
information regarding indemnification obligations and the escrow account, see
"Description of the Merger Agreement -- Indemnification and Escrow Account."
OFFER EXPIRATION DATE
The offer will expire at 12:00 midnight Norway time on February 4, 2000
unless the expiration date is extended by National Oilwell. A public
announcement of any extension will be made by National Oilwell and Hitec.
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<PAGE> 16
REVOCATION OF ACCEPTANCES
You may withdraw your acceptance of the offer at any time up to the
expiration time by notifying First Securities ASA in writing at the address set
forth below:
First Securities ASA
Stranden 3
P.O. Box 1441 Vika
0112 Oslo, Norway
Fax No.: 47 23 23 80 01
Notice must actually be received by First Securities by the expiration time
in order to be effective.
After the expiration time, you will be unable to withdraw your acceptance.
If the offer is not completed by March 4, 2000 (60 days from the date of the
commencement of the offer), however, you will again have the right to withdraw
your acceptance of the offer.
COMPLETION OF THE OFFER
Completion of the offer will occur after all conditions have been satisfied
or waived. The conditions include receipt of approvals from the Norwegian Royal
Ministry of Industry and Trade. National Oilwell and Hitec will make the
necessary filings with the Ministry as soon as sufficient acceptances have been
received to satisfy the Ministry that the transaction is likely to be completed
(but not later than the expiration date of the offer). The Ministry has up to 30
days to consider the matters. National Oilwell and Hitec currently expect that
completion will occur promptly after the expiration of this period.
CONDITIONS TO COMPLETION OF THE OFFER
National Oilwell will not accept the shares of Hitec, and the offer will
not be completed until certain conditions are satisfied. Conditions which remain
to be satisfied include, but are not limited to:
- the receipt by National Oilwell of valid and unconditional acceptances of
at least 90% of the outstanding shares of Hitec; provided that National
Oilwell may waive this condition if it receives valid and unconditional
acceptances of at least 66.7% of the outstanding shares of Hitec; and
- approvals from the Royal Norwegian Ministry of Trade, as described above.
You can find more information about the conditions to the completion of the
offer under "Summary of the Agreement -- Conditions to Obligations of National
Oilwell and Hitec to Complete the Offer."
MANDATORY OFFER; MANDATORY REDEMPTION
In the event that National Oilwell completes the offer, Norwegian law
requires that National Oilwell make a further mandatory offer to acquire any
remaining shares of Hitec for cash within thirty (30) days of the completion of
the offer. National Oilwell will not be required to make this mandatory cash
offer unless it receives valid and unconditional acceptances of more than 90% of
the outstanding shares of Hitec or it chooses to waive this condition and
complete the offer if it receives acceptances for 66.7% of the outstanding
shares of Hitec. Pursuant to Norwegian law, the mandatory cash offer price shall
be:
- at least as high as the highest price paid by National Oilwell for Hitec
shares; or
- if it is clear that the market price is higher than such price paid by
National Oilwell, the market price.
National Oilwell and the Oslo Stock Exchange have not agreed on the effect,
if any, of the fact that 10% of the shares of National Oilwell common stock
deliverable to accepting Hitec shareholders will be deposited into escrow. Upon
completion of the offer (and the mandatory cash offer), if National Oilwell
holds more than 90% of the outstanding shares of Hitec, National Oilwell may
conduct a compulsory redemption of any remaining minority shareholders.
Norwegian law requires that National Oilwell offer the minority shareholders a
redemption price for their Hitec shares, which normally will be equal to the
mandatory offer price. National Oilwell must deposit this amount in a bank
licensed to operate in Norway.
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<PAGE> 17
Additionally, National Oilwell must notify all minority shareholders of the
compulsory redemption and the redemption price to be offered, and publish this
information in a national newspaper in Norway. The minority shareholders who do
not accept the redemption price must notify National Oilwell within two months
after the publication of the advertisement that they do not accept the
compulsory offer and will request a valuation of the redemption price by a
Norwegian court.
In the event any minority shareholder makes a request for a valuation, the
Norwegian court will determine a value for the shares at the redemption date.
The court could set the value at an amount either greater than, less than or
equal to the mandatory offer price. The court will normally award interest to
the minority shareholders on their claims from the redemption date until the
case is settled and payment is made.
HITECVISION AND THE NON-DRILLING BUSINESS
Hitec's non-drilling business consists of activities of some subsidiaries
of Hitec and minority shareholdings in Roxar ASA and Navis ASA. This business
does not relate closely to the business of National Oilwell. Therefore,
Cybernetix AS, a company controlled by Jon Gjedebo, chief executive officer of
Hitec, formed HitecVision AS. Pursuant to an Asset Purchase Agreement dated
October 10, 1999 between Hitec and HitecVision, Hitec has agreed to sell the
non-drilling business to HitecVision for a cash consideration of NOK 148.7
million. The sale of the non-drilling business will occur immediately prior to
the completion of the offer, and you will have the opportunity to participate in
the non-drilling business as described below.
HitecVision is offering to the Hitec shareholders the right to subscribe to
one share in HitecVision for each share of Hitec you own for a cash
consideration of NOK 3.95152 per share. If you accept the HitecVision offer, you
may use the cash consideration received from National Oilwell upon completion of
the offer to pay for your subscription of shares in HitecVision. More
information about the HitecVision offer is contained in the offer document of
HitecVision that is being mailed to shareholders of Hitec along with this
prospectus. National Oilwell did not play any part in the preparation of such
offer document, and it is the sole responsibility of HitecVision.
Jon Gjedebo, Ole Saetre, an officer of Hitec and Mosvold Farsund AS, a
shareholder of Hitec, have agreed through Cybernetix to commit their share of
the cash payable by National Oilwell for their Hitec shares, i.e. NOK 59.3
million, as equity in HitecVision. Furthermore, Cybernetix AS has agreed to
guarantee for NOK 89.4 million in an issuance of further shares in Hitec Vision.
These commitments will together secure a total equity of NOK 148.7 million in
HitecVision. Jon Gjedebo owns 27.75%, Mosvold Farsund AS owns 9.93%, and Ola
Saetre owns 2.44% of the shares in Hitec. Accordingly Cybernetix will at a
minimum own 40% of HitecVision.
Depending on what interest Hitec's other shareholders have in HitecVision,
as evidenced by their subscription of HitecVision shares, Cybernetix may own in
excess of 40% of Hitec Vision.
TAX TREATMENT OF THE OFFER UNDER NORWEGIAN LAW
Hitec received a grant of tax relief from the Norwegian Royal Ministry of
Finance for tax on potential gain occurring upon the exchange of Hitec shares
for National Oilwell shares. Under the grant, the tax cost for the National
Oilwell shares received by Hitec shareholders will equal the tax cost of the
Hitec shares sold in the offer. Capital gain will be taxed only upon the
disposal of the National Oilwell shares, without any deduction for foreign
taxes. The grant of tax relief does not apply to the cash portion of the offer.
Accordingly, the cash portion of the offer will be subject to capital gains
taxation. Hitec shareholders will therefore have to pay tax on all or part of
the cash portion of the offer. The size of the capital gains will depend on the
cost price of each individual shareholder. What portion of the taxable capital
gain will be allocated to the cash part of the offer has not yet been clearly
established. In the event such clarification is not obtained from the Ministry
of Finance, the allocation of capital gains between the share portion of the
offer and the cash portion of the offer will be an issue each Hitec shareholder
will have to clarify with his own tax advisor. See "Additional Information With
Respect to the Offer -- Certain Norwegian and Wealth Tax Consequences to
Norwegian Shareholders" on page 19 for a brief description of applicable
Norwegian tax law.
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<PAGE> 18
ADDITIONAL INFORMATION WITH RESPECT TO THE OFFER
BACKGROUND AND REASONS FOR THE MERGER AGREEMENT
Hitec and National Oilwell's Dreco subsidiary have cooperated on projects
for more than 10 years. In August, 1998, National Oilwell and Hitec entered into
a joint venture agreement that has further expanded the business relationship
between the companies. Negotiations on the current transaction commenced in May
1999 and were completed in October 1999. Both parties believe that the
combination of National Oilwell and Hitec, which have complementary products and
strengths, should create a basis for further growth and synergies.
FINANCING OF THE OFFER BY NATIONAL OILWELL
To the extent necessary, National Oilwell intends to finance the cash
portion of the offer of NOK 148.7 million, or approximately U.S. $19.0 million,
through its existing bank credit facility.
Proceeds from the sale by Hitec of its non-drilling business to HitecVision
will be immediately available to pay off debt incurred to finance the
transaction or to invest at the discretion of National Oilwell. The consolidated
net debt position of the National Oilwell will be unchanged as a result of the
transaction, with the exception of the acquisition of any existing debt of
Hitec.
EMPLOYEES
Following the completion of the offer, some employees of Hitec and its
subsidiaries will be transferred to HitecVision or a relevant company in the
HitecVision group. The parties anticipate that all or substantially all
employees will remain employed by Hitec and its subsidiaries or will become
employed by HitecVision and its subsidiaries.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of National
Oilwell common stock by non-United States holders. This discussion is not a
complete analysis of all of the potential tax considerations relating to the
ownership and disposition of National Oilwell common stock. This discussion is
based upon the Internal Revenue Code of 1986, as amended, Treasury Regulations,
United States Internal Revenue Service rulings and judicial decisions now in
effect, all of which are subject to change (possibly with retroactive effect) or
different interpretations. This discussion does not address all aspects of
federal income and estate taxation that may be relevant to a particular
non-United States holder's decision to own National Oilwell common stock. We
have not, nor has Hitec, requested an opinion of legal counsel or an IRS ruling
regarding the federal income or estate tax consequences of the ownership or
disposition of National Oilwell common stock by non-United States holders. WE
ADVISE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE UNITED STATES FEDERAL,
STATE AND LOCAL AND NON-UNITED STATES TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF NATIONAL OILWELL COMMON STOCK.
As used herein, "non-United States holder" means a corporation, individual
or partnership that is, as to the United States, a foreign corporation, a
non-resident alien individual or a foreign partnership, or any estate or trust
that is not subject to United States taxation on income from sources outside the
United States and that is not effectively connected with the conduct of a trade
or business within the United States.
Dividends paid to a non-United States holder of National Oilwell common
stock will be subject to withholding of United States federal income tax at a
30% rate or such lower rate as may be specified by
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<PAGE> 19
an applicable income tax treaty. The United States federal income tax
withholding rate on dividends paid to a non-United States holder is limited to
15% under Article 8 of the Norway-United States Income Tax Treaty, provided the
non-United States holder:
- is a resident of Norway, within the meaning of the Treaty; and
- does not have a permanent establishment in the United States with respect
to which the dividends are effectively connected.
Under currently effective Treasury Regulations (through December 31, 2000),
dividends paid to an address in a foreign country are presumed to be paid to a
resident of the country in determining the applicability of a treaty for those
purposes, provided that the paying corporation has no actual knowledge that its
records are incorrect with respect to the non-United States holder's address.
For all payments on or after January 1, 2001, a non-United States holder must
furnish certain forms to the paying corporation to obtain the benefit of any
applicable tax treaty providing for a lower rate of withholding tax on
dividends. These forms must provide, under penalties of perjury, the requested
information, including the non-United States holder's name, permanent residence,
and taxpayer identification number. However, except as may be otherwise provided
in an applicable income tax treaty, a non-United States holder will be taxed at
ordinary United States federal income tax rates (on a net income basis) on
dividends that are effectively connected with the conduct of a trade or business
of the non-United States holder within the United States and will not be subject
to the withholding tax described above. Certain certification requirements must
be complied with to claim an exemption from withholding on effectively connected
dividends. If the non-United States holder is a foreign corporation, it also may
be subject to a United States branch profits tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty on effectively
connected dividends. A non-United States holder that is eligible for a reduced
rate of United States withholding tax pursuant to an income tax treaty may apply
for a refund of any excess amounts withheld by filing an appropriate claim for
refund with the IRS. National Oilwell has not declared or paid dividends on
National Oilwell common stock since its incorporation and does not anticipate
paying dividends on National Oilwell common stock at any time in the foreseeable
future.
Non-United States holders generally will not be subject to United States
federal income tax in respect of gain recognized on a disposition of National
Oilwell common stock unless
- the gain is effectively connected with a trade or business conducted by
the non-United States holder within the United States (in which case the
branch profits tax described in the preceding paragraph also may apply if
the holder is a foreign corporation);
- in the case of a non-United States holder who is a non-resident alien
individual and holds National Oilwell common stock as a capital asset,
the holder is present in the United States for 183 or more days in the
taxable year of the disposition and certain other conditions are met;
- the non-United States holder is subject to tax pursuant to the provisions
of the United States federal tax law applicable to certain United States
expatriates; or
- National Oilwell is or has been a "United States real property holding
corporation" for federal income tax purposes and, if National Oilwell
common stock is considered "regularly traded" during the year of the
disposition of National Oilwell common stock, the non-United States
holder held directly or indirectly at any time during the five-year
period ending on the date of disposition more than five percent of the
outstanding National Oilwell common stock.
Generally, this last rule for stock in United States real property holding
corporations takes precedence over relief provided by tax treaties. However,
non-United States holders who would be subject to United States federal income
tax with respect to gain recognized on a sale or other disposition of National
Oilwell common stock should consult applicable treaties, which may provide
different rules.
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<PAGE> 20
National Oilwell common stock that is owned or treated as being owned at
the time of death by a non-United States holder who is a non-resident alien
individual will be included in the holder's gross estate for United States
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
Generally, dividends paid to non-United States holders outside the United
States that are subject to the 30% or treaty-reduced rate of withholding tax
will be exempt from the 31% backup withholding tax. As a general matter,
information reporting and backup withholding will not apply to a payment by or
through a foreign office of a foreign broker of the proceeds of a sale of
National Oilwell common stock effected outside the United States. However,
information reporting requirements (but not backup withholding) will apply to a
payment by or through a foreign office of a broker of the proceeds of a sale of
National Oilwell common stock effected outside the United States where that
broker:
- is a United States person;
- is a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States; or
- is a "controlled foreign corporation" as defined in the Code (generally,
a foreign corporation controlled by United States shareholders), unless
the broker has documentary evidence in its records that the holder is a
non-United States holder and certain conditions are met or the holder
otherwise establishes an exemption.
Payment by a United States office of a broker of the proceeds of a sale of
National Oilwell common stock is subject to both backup withholding and
information reporting unless the holder certifies, under penalties of perjury,
to the payor in the manner required as to its status as an exempt foreign person
establishes another exemption.
For purposes of this exemption, an exempt foreign person
- is neither a citizen nor a resident of the United States (and has not
elected to be treated as a United States resident under Section 6013 of
the Code);
- has not lost his or her United States citizenship within the last 10
years with one of the principal purposes of such loss being the avoidance
of United States taxes;
- has not been, and does not reasonably expect at the time the form is
submitted to be, present in the United States for 183 or more days (or is
a beneficiary of a tax treaty with the United States that exempts gains
from the transaction from United States federal income tax); and
- is not, and does not reasonably expect at the time the form is submitted
to be, engaged in a United States trade or business during the year of
the transaction (or is a beneficiary of a tax treaty with the United
States that exempts gains from the transaction from United States federal
income tax).
Amounts withheld under the backup withholding rules do not constitute a
separate United States federal income tax. Rather, any amounts withheld under
the backup withholding rules will be allowed as a refund or credit against the
holder's United States federal income tax liability, if any, provided the
required information or appropriate claim for refund is filed with the IRS.
CERTAIN NORWEGIAN INCOME AND WEALTH TAX CONSEQUENCES TO NORWEGIAN SHAREHOLDERS
The information below is based on current Norwegian tax law. The
information provided is of a general nature and for general guidance only. Each
shareholder is urged to seek legal advice to determine his own tax position.
Net Wealth
Individual shareholders are subject to net wealth tax in Norway on shares
in United States companies. According to the Treaty, Norway has an exclusive
right to net wealth taxation on shares owned by
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Norwegian residents. Listed shares in United States companies are valued at 100%
of the stock exchange price at January 1st in the assessment year. The marginal
net wealth tax rate is presently 1.1%.
Dividends paid by United States companies to Norwegian Shareholders
Dividends are subject to income tax in both Norway and the United States.
According to the Treaty between the United States and Norway, the United States
taxation is limited to a withholding tax at 15% (provided that the shares are
not attributed to a fixed place of business in the United States). Norway will
credit the United States withholding tax against the Norwegian taxes that fall
on the dividends. Dividends are taxed as "ordinary income" in Norway, at the
present rate of 28%.
According to the Treaty and Norwegian tax legislation, a Norwegian company
owning more than 10% of the capital of a United States company, is further
entitled to a credit against Norwegian taxes for the dividends proportionate
part of underlying United States corporation tax. The tax credit is limited to
the Norwegian taxes that fall on such dividends.
To obtain credit in Norwegian taxes for taxes paid in the United States,
the Norwegian shareholders must provide documentation proving that withholding
taxes actually has been paid in the United States and that United States
withholding taxes are creditable in Norwegian taxes. Such documentation may be
required by the tax authorities to be translated into Norwegian and notarially
certified.
Capital Gains and Loss
Capital gains on the disposition of shares is subject to income tax in
Norway as "ordinary income," at a present tax rate of 28%. Capital loss is
deductible against "ordinary income." Capital gains/losses are computed as the
difference between the amount received and the purchase price (cost price).
According to the Treaty, Norway has an exclusive right to tax capital gains
on shares owned by Norwegian residents. However, if the shareholder within the
last 12 months before the disposition owned more than 25% of the shares, and
more than 50% of the company's assets at the end of the last three income years
are physically in the United States, the United States has an exclusive right to
tax capital gains on the disposition of such shares.
A FIFO principle will apply. Accordingly the shares that are acquired first
are regarded as those that are sold first.
ACCOUNTING TREATMENT
National Oilwell will account for the acquisition of Hitec as a purchase,
as this term is used under U.S. generally accepted accounting principles.
Accordingly, from and after the completion of the offer, Hitec's consolidated
results of operations (excluding the non-drilling business) will be included in
National Oilwell's consolidated results of operations.
NEW YORK STOCK EXCHANGE LISTING; DE-LISTING OF HITEC COMMON STOCK FROM THE OSLO
STOCK EXCHANGE
National Oilwell common stock is listed on the New York Stock Exchange.
Following the completion of the offer and the subsequent mandatory offer
made to Hitec shareholders, Hitec common stock is expected to be de-listed from
the Oslo Stock Exchange, where it is currently listed.
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<PAGE> 22
OPTIONHOLDERS
In connection with the offer, National Oilwell is making an offer to
persons who will remain employees of Hitec and its subsidiaries following the
completion of the offer to exchange their options to purchase shares of Hitec
for options to purchase shares of National Oilwell. There are 657,501 options to
purchase common stock held by employees who will remain as employees of Hitec
and its subsidiaries following completion of the offer. These options are
currently exercisable at NOK 20 per share of Hitec on December 1, 2000. National
Oilwell will exchange these options to purchase shares of Hitec into options to
purchase National Oilwell common stock at the rate of 0.2125904 shares of
National Oilwell common stock for each share of Hitec and a price of NOK
94.077612 per share of National Oilwell common stock.
Hitec will convert those options to purchase shares of Hitec held by Hitec
employees who will become employees of HitecVision and its subsidiaries
following the completion of the offer into cash without regard to whether such
options can be exercised currently. The purchase price for each option will be
based on the premium paid by National Oilwell over and above NOK 20 for each
share of Hitec in relation to the average of the closing prices of National
Oilwell common stock on the New York Stock Exchange during the last ten (10)
trading days ending on the second trading day prior to the expiration date of
the offer. Hitec will bear the cost of this conversion.
INTERESTS OF HITEC EXECUTIVE OFFICERS AND DIRECTORS IN THE OFFER
In considering the recommendation of the Hitec board of directors with
respect to the offer, Hitec shareholders should be aware that directors and
executive officers of Hitec may have interests in the offer that are different
from, or in addition to, the interests of Hitec shareholders generally.
Following the completion of the offer, Jon Gjedebo, Hitec's President and
Chief Executive Officer, will become Executive Vice President and Chief
Technology Officer of National Oilwell. Additionally, Mr. Gjedebo will be
appointed to the board of directors of National Oilwell following the completion
of the offer. National Oilwell has agreed to nominate Mr. Gjedebo for
re-election as a director at the next annual meeting of shareholders of National
Oilwell. Mr. Gjedebo is also expected to enter into an employment agreement with
National Oilwell prior to the completion of the offer. The terms of this
employment agreement will be finalized prior to the completion of the offer.
Ole Ertvaag (Chief Financial Officer of Hitec) and Ola Saetre (Executive
Vice President of Hitec) have been granted severance pay and incentive pay by
Hitec, payable after completion of the offer. Rune Kvernberg (Executive Vice
President of Hitec) has been granted severance pay payable after completion of
the offer. In addition to these executive officers, several other employees of
Hitec were granted similar severance pay and incentive bonuses. These
arrangements were approved by the Board of Directors of Hitec in order to
compensate employees for helping to assure a successful completion of the offer
and a successful transition in connection with the transfer of the non-drilling
business to HitecVision, after the completion of the Offer.
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<PAGE> 23
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
MARKET PRICE DATA
National Oilwell
National Oilwell common stock is listed on the New York Stock Exchange
(ticker symbol: NOI). As of November 19, 1999, there were 329 holders of record
of National Oilwell common stock. The following table sets forth the high and
low sales prices of National Oilwell common stock as reported on the New York
Stock Exchange for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1999
First Quarter.............................................. $ 13.69 $ 8.50
Second Quarter............................................. 14.50 10.00
Third Quarter.............................................. 18.50 13.00
Fourth Quarter............................................. 16.07 12.50
1998
First Quarter.............................................. $ 34.00 $ 23.88
Second Quarter............................................. 39.75 25.94
Third Quarter.............................................. 29.13 7.75
Fourth Quarter............................................. 17.69 8.81
1997
First Quarter.............................................. $ 19.32 $ 14.00
Second Quarter............................................. 28.88 15.82
Third Quarter.............................................. 37.50 25.07
Fourth Quarter............................................. 44.44 27.88
</TABLE>
On December 31, 1999, the closing price of National Oilwell common stock on
the New York Stock Exchange was $15.69.
Hitec
Hitec common stock is listed on the Oslo Stock Exchange (ticker symbol:
HIT). As of November 19, 1999, there were approximately 1,962 holders of Hitec
common stock. The following table sets forth in Norwegian kroner, or NOK, the
high and low sales prices of Hitec common stock as reported on the Oslo Stock
Exchange for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1999
First Quarter.............................................. NOK 16.00 NOK 10.00
Second Quarter............................................. 22.50 12.40
Third Quarter.............................................. 28.00 17.50
Fourth Quarter............................................. 28.40 20.00
1998
First Quarter.............................................. NOK 53.00 NOK 36.00
Second Quarter............................................. 51.00 28.00
Third Quarter.............................................. 32.00 13.00
Fourth Quarter............................................. 16.30 8.00
1997
First Quarter.............................................. NOK 46.00 NOK 26.60
Second Quarter............................................. 42.00 31.00
Third Quarter.............................................. 55.00 40.00
Fourth Quarter............................................. 59.00 36.00
</TABLE>
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<PAGE> 24
On October 8, 1999, the last trading day prior to announcement of the
offer, the closing price of Hitec common stock in the Oslo Stock Exchange was
NOK 24.80.
On December 30, 1999, the closing price of Hitec common stock on the Oslo
Stock Exchange was NOK 25.60.
DIVIDEND POLICIES
National Oilwell has never paid cash dividends and anticipates that it will
not pay cash dividends on National Oilwell common stock in the foreseeable
future.
Hitec has not paid any cash dividends in recent years, other than a
dividend for 1994, which was paid in 1995. Annually, its Board of Directors
considers whether to propose to the Annual General Meeting of Shareholders that
a dividend be declared.
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<PAGE> 25
DESCRIPTION OF THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement
between National Oilwell and Hitec with respect to the offer, and is not an
exhaustive description. You should read the agreement carefully. A copy of the
merger agreement, including Annex 1 thereto, is attached as Appendix A to this
prospectus.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties of Hitec
customary for a transaction of this nature in the United States relating to,
among other things:
- Hitec's organization capitalization and authority to enter into the
agreement;
- the enforceability of the merger agreement as a binding obligation of
Hitec;
- any conflicts between the merger agreement and any of Hitec's other
material contracts, any law, or any of Hitec's charter or bylaw
provisions;
- required filings and consents;
- Hitec's financial statements, accounting policies and books and records;
- material liabilities or obligations incurred by Hitec or any Hitec
subsidiary with respect to the drilling business since June 30, 1999
other than in the ordinary course of business;
- Hitec's conduct of its business since December 31, 1998 and the absence
of any material adverse effect on the drilling business of Hitec; and
- intellectual property used by Hitec with respect to the drilling
business.
The merger agreement also includes representations and warranties by
National Oilwell as to:
- National Oilwell organization, capitalization and authority to enter into
the agreement;
- the enforceability of the merger agreement as a binding obligation of
National Oilwell;
- any conflicts between the merger agreement and any of National Oilwell's
other material contracts, any law, or any of National Oilwell's charter
or bylaw provisions;
- required filings and consents;
- National Oilwell's submission of all required filings with the SEC and
the availability of all documents filed by National Oilwell with the SEC
since December 31, 1998 to Hitec;
- National Oilwell's financial statements, accounting policies and books
and records; and
- National Oilwell's conduct of its business since December 31, 1998 and
the absence of any material adverse effect on National Oilwell.
MATERIAL COVENANTS
The merger agreement contains various covenants made by National Oilwell
and Hitec. Certain of those covenants are set forth below.
Conduct of Hitec's Business. Hitec made certain covenants concerning the
conduct of its business from the date of execution of the merger agreement until
the completion of the offer or the termination of the merger agreement
(whichever is relevant), including but not limited to, obtaining National
Oilwell's consent prior to:
- amending or proposing to amend its charter or bylaws;
- changing its capitalization;
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<PAGE> 26
- merging or consolidating with or into any other corporation or changing
in any manner the rights of its capital stock or the character of its
business;
- entering into or modifying any material contract, lease or agreement
other than in the ordinary course of business; and
- conducting the drilling business other than in the ordinary course of
business and in compliance with all applicable laws and regulations.
Regardless of any restrictions in the merger agreement regarding Hitec and
the conduct of its business, Hitec may take the actions necessary to restructure
and sell the non-drilling business to HitecVision in accordance with the terms
of the Asset Purchase Agreement.
Conduct of National Oilwell's Business. National Oilwell made certain
covenants concerning the conduct of its business from the date of execution of
the merger agreement until the completion of the offer or the termination of the
merger agreement (whichever is relevant), including that it will refrain from:
- declaring or paying any dividends or making any other distributions to
the holders of its common stock;
- changing in any respect the rights of its capital stock or materially
changing the character of its business; and
- subdividing or in any manner reclassifying the National Oilwell common
stock unless appropriate adjustments are made to the shares of National
Oilwell common stock to be paid to the Hitec shareholders who accept the
offer.
Registration Statement and Stock Exchange Matters. National Oilwell agreed
to prepare and file the registration statement of which this prospectus is a
part with the SEC and to use its reasonable best efforts to cause it to become
effective. National Oilwell and Hitec agreed to promptly furnish all information
reasonably requested in connection therewith. The parties also agreed to
cooperate in obtaining all necessary approvals of the Oslo Stock Exchange.
National Oilwell agreed to list the shares issuable in the offer on the New York
Stock Exchange.
Access to Information; Due Diligence. National Oilwell agrees to give Hitec
necessary information and access to its business, management and advisors to
permit Hitec to conduct its due diligence to verify that there are no material
adverse findings in relation to the business of National Oilwell. Hitec agrees
to give National Oilwell necessary information and access to its business,
management and advisors to permit National Oilwell to conduct its due diligence
to verify that there are no material adverse findings in relation to the
drilling business.
Confidentiality. National Oilwell and Hitec agree to use all reasonable
efforts to keep confidential any information which either of them may have or
acquire (either before or after the date of the merger agreement):
- regarding the customers, business, assets or affairs of the other party;
or
- as a result of the negotiations relating to the merger agreement and/or
the offer, or the exercise of rights or the performance of obligations
under the merger agreement, regarding the customers, business, assets or
affairs of the other party.
Neither National Oilwell or Hitec may use any confidential information for its
own business purpose or disclose such confidential information to a third party
without the consent of the other party. The confidentiality obligation does not
apply to any confidential information which is:
- publicly available or becomes publicly available otherwise than as a
result of a breach of the merger agreement;
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<PAGE> 27
- lawfully in the possession of the receiving party prior to its disclosure
to the receiving party by the disclosing party and is or becomes free
from any restriction on its subsequent disclosure or use by the receiving
party; or
- required to be disclosed by any law, rule or regulation (including any
order of a court of competent jurisdiction).
Employee Benefits and Hitec Options. Following the completion of the offer,
National Oilwell confirms that the employees of the drilling group may
participate in the employee benefit plans of National Oilwell if such
participation is allowed under the plans and applicable law. Senior management
of the drilling group will be eligible to participate in management incentive
programs on the same terms as those offered to National Oilwell managers of a
similar level.
Following the completion of the offer, options will be converted as
follows:
- employees of Hitec who remain drilling group employees will have the
right to convert their options to purchase Hitec shares into options to
purchase National Oilwell shares with no change in their existing vesting
or exercise schedule at a conversion rate of 0.2125904 National Oilwell
shares for each Hitec share at a price of NOK 94.077612 per National
Oilwell share; and
- employees of Hitec who will not remain drilling group employees will have
their options to purchase Hitec shares converted into cash, without
regard to whether such options can be exercised currently, at a rate per
option based on the premium paid by National Oilwell in the offer over
and above NOK 20 for each share of Hitec in relation to the average of
the closing prices of National Oilwell shares on the New York Stock
Exchange for the last ten (10) trading days ending on the second trading
day prior to the offer expiration date.
Expenses. National Oilwell and Hitec agree to cooperate to minimize costs
and expenses in connection with the merger agreement and the offer. Hitec agrees
to pay all legal, accounting and financial advisory fees and all other
transaction costs incurred by Hitec; provided, however, that upon completion,
HitecVision will reimburse all costs that exceed MNOK 15.0. Additionally, Hitec
agrees to pay upon completion of the offer any management incentive payments
approved by Hitec, and HitecVision will reimburse Hitec for one-half of such
payments that aggregate up to MNOK 8.0, and for all such costs exceeding MNOK
8.0. Management redundancy costs incurred by Hitec will be paid by Hitec upon
completion of the offer, and HitecVision will reimburse all costs that exceed
MNOK 3.3. With regard to all other expenses, National Oilwell and Hitec agree to
pay its own costs and expenses in connection with the transactions contemplated
by the merger agreement, except as the merger agreement provides otherwise. See
"The Merger Agreement -- Termination; Termination Fees and Expenses."
Corporate Matters. National Oilwell agrees that it will enter into an
employment agreement with Jon Gjedebo. Mr. Gjedebo will hold the position of
Executive Vice President & Chief Technology Officer of National Oilwell.
Further, Mr. Gjedebo will be appointed to the Board of Directors of National
Oilwell at the meeting of the Board of Directors next following the completion
of the offer, and shall be nominated for reelection at the next annual meeting
of stockholders of National Oilwell.
CONDITIONS TO OBLIGATIONS OF NATIONAL OILWELL TO MAKE THE OFFER
The merger agreement contains various conditions to the obligations of
National Oilwell to make the offer, including:
- the completion by National Oilwell of its due diligence of Hitec, without
the finding of a material deviation;
- the accuracy of the representations and warranties of Hitec as of the
date of the merger agreement and as of the offer date, except for such
inaccuracies which would not have a material adverse effect on the
drilling business and which are not remedied by Hitec;
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<PAGE> 28
- the performance in all material respects by Hitec of its obligations
under the merger agreement which are required to be performed prior to
the offer date;
- the completion by Hitec of its due diligence of National Oilwell, without
the finding of a material deviation;
- the effectiveness of the registration statement of which this prospectus
is a part; and
- the execution of the underwriting agreement for the equity funding of
HitecVision.
CONDITIONS TO OBLIGATIONS OF NATIONAL OILWELL AND HITEC TO COMPLETE THE OFFER
The merger agreement contains various conditions to the obligations of
National Oilwell and Hitec to complete the offer, including:
- the completion of the transactions contemplated by the Asset Purchase
Agreement;
- the receipt by National Oilwell of valid and unconditional acceptances of
the offer representing more than 90% of the issued shares and votes of
Hitec;
- the receipt by Hitec of confirmation from the Royal Ministry of Finance
that the sale of the Hitec shares to National Oilwell by the shareholders
will not be subject to capital gains tax in Norway until the disposition
of the offer shares (Hitec has declared that this condition has been
satisfied by the receipt of the ruling described above);
- the grant to National Oilwell of all necessary governmental approvals;
- the approval of the acquisition of Hitec by National Oilwell by the Royal
Norwegian Ministry of Industry and Trade;
- the approval of the acquisition of the non-drilling business by
HitecVision by the Royal Norwegian Ministry of Industry and Trade; and
- the absence of any governmental order, stay, decree, judgment or
injunction which makes the completion of the offer illegal or otherwise
prohibits the completion of the offer.
- the accuracy of the representations and warranties of Hitec as of the
date of the merger agreement and as of the date of the completion of the
offer, except for such inaccuracies which would not have a material
adverse effect with respect to the drilling group and which are not
capable of being remedied by Hitec;
- the performance by Hitec in all material respects of its obligations
required to be performed prior to the completion of the offer.
- the accuracy of the representations and warranties of National Oilwell as
of the date of the merger agreement and as of the date of the completion
of the offer, except for such inaccuracies which would not have a
material adverse effect with respect to the drilling group and which are
not capable of being remedied by National Oilwell; and
- the performance by National Oilwell in all material respects of its
obligations required to be performed prior to the completion of the
offer.
TERMINATION; TERMINATION FEES AND EXPENSES
The merger agreement provides that the offer may be abandoned and the
merger agreement may be terminated at any time prior to the completion of the
offer, in various manners including:
- by National Oilwell upon fifteen (15) days notice, if National Oilwell
makes any findings in its due diligence investigation that in the
aggregate have or could reasonably be expected to have in the future, a
material deviation (defined as a negative effect according to Norwegian
GAAP on the net equity of the drilling group of more than 2% of the
transaction value); provided, however, that
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<PAGE> 29
Hitec has the right to remedy the material deviation within ten (10) days
of notification of the material deviation;
- by Hitec upon fifteen (15) days notice, if Hitec makes any findings in
its due diligence investigation that in the aggregate have or could
reasonably be expected to have in the future, a material deviation
(defined as a negative effect according to United States GAAP on the net
equity of National Oilwell of more than 2% of the transaction value);
provided, however, that National Oilwell has the right to remedy the
material deviation within ten (10) days of notification of the material
deviation;
- by the mutual written consent of National Oilwell and Hitec;
- by either National Oilwell or Hitec if the conditions to the making of
the offer have not been fulfilled or waived on or before February 15,
2000, as long as the party requesting such termination did not, by its
failure to fulfill an obligation under the merger agreement, cause the
failure of the conditions to be fulfilled on or before such date;
- by Hitec, if valid and unconditional acceptances representing more than
66.7% of the issued shares and votes of Hitec have not been obtained
within 42 days of the offer date;
- by either National Oilwell or Hitec, if the conditions to the completion
of the offer have not been fulfilled or waived within 90 days of the
offer date or a later date not exceeding 150 days following the offer
date to which National Oilwell may extend the offer expiration date;
- by either National Oilwell or Hitec, if any court of competent
jurisdiction or governmental entity has entered a final and nonappealable
order, injunction or decree preventing the consummation of the offer;
- by Hitec, if a competing offer to purchase at least a majority of the
Hitec shares, otherwise acquire Hitec or acquire all or substantially all
of the assets of Hitec or the drilling group (a "competing offer"), is
made to Hitec or the Hitec shareholders prior to the offer expiration
date, and the board of directors determines that the competing offer is
more favorable to the shareholders than the offer (a "superior offer")
and recommends the competing offer to the shareholders for acceptance;
provided, however, that Hitec has given at least ten (10) days prior
written notice of the superior offer to National Oilwell and National
Oilwell has not amended its offer so that the competing offer is no
longer a superior offer; and provided, further that no termination by
Hitec under these circumstances shall be effective unless Hitec pays the
termination fee described below; and
- by Hitec, if prior to the completion of the offer National Oilwell is
acquired by another corporation or entity, or merged or consolidated with
or into any other corporation with a market capitalization of at least
10% of National Oilwell.
If the merger agreement is terminated, it becomes void and neither National
Oilwell nor Hitec nor any of their representatives has any liability or further
rights or obligations under the agreement other than the remedies described
below. However, if any party wilfully breaches any of its representations or
warranties, or breaches any of its covenants or agreements under the merger
agreement, it remains fully liable to the other parties for that breach.
If Hitec terminates the merger agreement because Hitec or the Hitec
shareholders receive a competing offer, Hitec will pay National Oilwell a
termination fee of $5.0 million. Additionally, if the merger agreement is
terminated and Hitec had previously received a competing offer that a person
could reasonably conclude is more favorable to the Hitec shareholders than this
offer, and the competing offer is subsequently completed prior to December 31,
2000, Hitec will pay National Oilwell a termination fee of $5.0 million within
five (5) days of completion of the competing offer.
If National Oilwell terminates the merger agreement because it is acquired
by any other corporation, or merged or consolidated with another corporation,
National Oilwell will pay a termination fee of $5.0 million to Hitec.
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<PAGE> 30
INDEMNIFICATION AND ESCROW ACCOUNT
By accepting the offer, you agree to assume certain obligations to
indemnify National Oilwell with respect to certain liabilities related to the
drilling business, including but not limited to, the following:
- liabilities other than reasonable and customary warranty expenses with
respect to products delivered by Hitec prior to completion;
- pending or future legal disputes relating to the operations prior to
completion, other than legal disputes related to existing orders where
work is in progress as of completion;
- certain environmental liabilities under Norwegian law relating air,
groundwater, surface water, soil, natural resources and the regulation of
pollutants or contaminants;
- liabilities with respect to violations of or default under applicable
law;
- liabilities with respect to certain tax matters;
- liabilities with respect to certain intellectual property matters; and
- liabilities with respect to employee claims for damages related to events
occurring prior to the completion of the offer.
Additionally, by accepting the offer, you agree to assume certain obligations to
indemnify National Oilwell with respect to losses arising out of:
- any breach of the representations and warranties of Hitec set forth in
the merger agreement;
- any receivables on the balance sheet of the drilling business as of the
completion date not being collectible in the recorded amounts; or
- the contractual basis for the revenue element with respect to "work in
progress" of the drilling business as of the completion date not being
correct.
All Hitec shareholders who accept the offer will be jointly, on a pro rata
basis, liable for such indemnification obligations. As security for the
indemnification obligations under the merger agreement, you and each other Hitec
shareholder who accepts the offer will have 10% of the National Oilwell shares
received as consideration in the offer placed in an escrow account. Your
liability and the liability of each accepting shareholder will be limited to the
shares placed in escrow. Your shares will remain in escrow for a period of one
year from the completion of the offer.
The liability of the accepting shareholders shall apply only to the extent
that the liability for all claims for indemnified matters of at least NOK
100,000 exceed an aggregate of NOK 8,000,000 and then only up to an amount equal
to the value of the shares placed in escrow.
Additionally, the accepting shareholders shall be liable to National
Oilwell only to the extent that indemnified matters would not have been covered
by insurance based on the insurance policies maintained by Hitec as of the
completion date.
As soon as practicable after the expiration of the escrow period, any
National Oilwell shares remaining in the escrow account will be distributed to
the Hitec shareholders who accepted the offer. If at that time any unresolved
claims of National Oilwell against the escrow are pending, National Oilwell
shares having a value equal to the maximum amount of the claims will be retained
in escrow until the claims are resolved, and the balance of the shares will be
distributed. The value of the remaining National Oilwell shares will be
determined based on the closing share price of National Oilwell common stock on
the New York Stock Exchange on the last trading day prior to the expiration of
the escrow period.
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<PAGE> 31
Following the expiration of the escrow period, HitecVision will assume
certain liabilities and indemnification obligations with respect to tax and
environmental issues for a period expiring on the expiration of the applicable
statute of limitations and the fifth anniversary of the completion date,
respectively.
30
<PAGE> 32
COMPARISON OF THE RIGHTS OF THE STOCKHOLDERS OF
HITEC AND NATIONAL-OILWELL
Hitec is incorporated under the laws of Norway and National Oilwell is
incorporated under the laws of the State of Delaware. If you accept our offer to
acquire your shares of Hitec ASA and the conditions to the completion of the
Offer set forth in the Merger Agreement are satisfied, you will become a
National Oilwell common stockholder. Hitec's common shareholders' rights are
governed by Norwegian law. Once you become a National Oilwell common
stockholder, your rights as such will be governed by the Delaware General
Corporation Law and by National Oilwell's certificate of incorporation and
bylaws. The material differences between the rights of Hitec common shareholders
and National Oilwell common stockholders, resulting from differences in the
respective governing documents and the applicable law, are summarized below.
You should not rely on this summary as an exhaustive list or a detailed
description of the provisions it discusses. This summary is qualified in its
entirety by the respective corporate governance documents of Hitec and National
Oilwell and by applicable law.
CAPITAL STOCK
Hitec's Articles of Association currently authorize 37,631,044 shares of
common stock and no shares of preferred stock.
National Oilwell's certificate of incorporation currently authorizes
75,000,000 shares of common stock, par value $.01 per share, and 10,000,000
shares of preferred stock. As of October 10, 1999, an aggregate of 58,258,955
shares of National Oilwell's common stock were outstanding, 2,083,846 shares of
National Oilwell's common stock were subject to issuance pursuant to outstanding
options granted to current or previous employees of National Oilwell, and no
National Oilwell preferred shares were outstanding.
MERGERS, SALES OF ASSETS AND OTHER TRANSACTIONS
Norwegian law provides that certain extraordinary corporate transactions,
such as a merger, a de-merger, any reclassification of stock or a voluntary
liquidation of a company, require the affirmative vote of two-thirds of the
shares represented at any duly convened meeting of the shareholders held for
such purpose, unless the company's Articles of Association require a higher
percentage. Hitec ASA's Articles of Association do not include such provisions.
A sale of all or substantially all the assets of a company can, however, be
decided by the company's board of directors without the approval of the
shareholders in a general meeting.
Under the Delaware General Corporation Law, a merger, consolidation or sale
of all, or substantially all, of a corporation's assets must be approved by the
board of directors and by a majority, unless the certificate of incorporation
requires a higher percentage, of the corporation's outstanding stock entitled to
vote. However, a constituent corporation surviving a merger, unless its
certificate of incorporation provides otherwise, does not require a
stockholders' vote if:
- the merger agreement does not amend the surviving corporation's
certificate of incorporation;
- each share of stock of the surviving corporation outstanding immediately
prior to the merger is to be an identical outstanding or treasury share
of the surviving corporation after the merger; and
- the number of shares the surviving corporation will issue in the merger
plus the number of shares initially issuable upon conversion of any other
shares, securities or obligations to be issued in the merger does not
exceed 20% of the shares outstanding immediately prior to the merger.
DISSENTERS' RIGHTS
Norwegian law does not provide for the right of shareholders to demand and
receive payment for the fair value of their shares in the event of a merger or
consolidation. However, a minority shareholder may
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<PAGE> 33
demand redemption of his shares at fair market value if the majority shareholder
owns more than 90% of the shares of the company. The minority shareholder has
the right to have the redemption price set by a Norwegian court if he does not
accept the redemption price offered by the majority shareholder.
Under the Delaware General Corporation Law, except as it provides
otherwise, stockholders have the right to demand and receive payment of the fair
value of their stock in the event of a merger or consolidation. However, except
as the Delaware General Corporation Law provides otherwise, stockholders do not
have appraisal rights if, among other things, the consideration they receive for
their shares consists of:
- shares of stock of the corporation surviving or resulting from such
merger or consolidation;
- shares of stock of any other corporation which, at the record date fixed
to determine stockholders entitled to vote on the merger or
consolidation, were either listed on a national securities exchange or
designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc.
or were held of record by more than 2,000 stockholders;
- cash in lieu of fractional shares of the corporations described in the
above two clauses; or
- any combination of shares of stock and cash in lieu of fractional shares
of the corporations described in the above three clauses.
TAKEOVER LEGISLATION
Pursuant to the Norwegian Public Companies Act, transactions between
companies in the same group of companies shall be made at an arms-length basis.
A company may not, without the consent of its shareholders, enter into a
transaction with a shareholder, or parties related to a shareholder, in which
the company purchases assets or services from the shareholder with a value of
more than 5% of the company's share capital. This provision does not apply to
ordinary business agreements on standard terms made within the company's
ordinary course of business.
With some exceptions, Section 203 of the Delaware General Corporation Law
prohibits a Delaware corporation from engaging in a business combination with an
interested stockholder for three years following the time such person becomes an
interested stockholder. An interested stockholder is a person or group owning
15% or more of the corporation's outstanding voting stock through rights to vote
or acquire such stock and that person's affiliates.
The three-year moratorium which Section 203 imposes on business
combinations does not apply if:
- prior to the date at which the stockholder became an interested
stockholder, the corporation's board of directors approved either the
business combination or the transaction which resulted in the person
becoming an interested stockholder;
- the interested stockholder owned 85% of the corporation's voting stock
upon consummation of the transaction which made him or her an interested
stockholder; or
- on or after the date a stockholder becomes an interested stockholder, the
board approves the business combination, which is also approved at a
stockholder meeting by two-thirds of the voting stock not owned by the
interested stockholder.
A Delaware corporation may elect to opt out of, and not be governed by,
Section 203 through a provision in its original certificate of incorporation or
an amendment to its certificate of incorporation or bylaws, if the amendment is
approved by the vote of a majority of the shares entitled to vote. With a
limited exception, such an amendment would not become effective until 12 months
following its adoption. National Oilwell has not opted out of Section 203.
32
<PAGE> 34
AMENDMENTS TO CHARTERS
Norwegian law provides that certain extraordinary corporate transactions,
such as an amendment to the articles of association, an increase or decrease in
the share capital, or the issuance of warrants or convertible securities,
require the affirmative vote of two-thirds of the shares represented at any duly
convened meeting of the shareholders held for such purpose, unless the Articles
of Association require a higher percentage.
The board of directors of Hitec may change the share capital stated in the
Articles of Association in the event of an issue of shares that previously has
been authorized at a general meeting of shareholders, but may not otherwise make
administrative changes to the Articles of Association.
Under the Delaware General Corporation Law, unless a corporation's
certificate of incorporation provides otherwise, a proposed amendment requires
an affirmative vote of a majority of all shares entitled to vote on the matter.
If any such amendment would adversely affect the rights of any stockholders of a
particular class or series of stock, the vote of the majority of all outstanding
shares of that class or series, voting as a class, is also necessary to
authorize the amendment.
AMENDMENTS TO BYLAWS
Under Norwegian law, a Norwegian company has Articles of Association but no
bylaws.
Under the Delaware General Corporation Law, the power to adopt, alter and
repeal the bylaws is vested in the stockholders, except to the extent that the
certificate of incorporation vests concurrent power in the board of directors.
National Oilwell's certificate of incorporation grants such concurrent power to
the board of directors.
PREEMPTIVE RIGHTS
Under Norwegian law, shareholders of a Norwegian company have preemptive
rights with respect to the issuance of additional share capital of the company.
The shareholders may void the preemptive rights with respect to any given share
issuance upon the affirmative vote of two-thirds of the shares represented at
any duly convened general meeting of the shareholders.
Under the Delaware General Corporation Law, stockholders do not possess
preemptive rights unless the corporation's certificate of incorporation
specifically grants such rights. National Oilwell's certificate of incorporation
does not grant general preemptive rights to common stockholders.
DIVIDENDS
Under the Norwegian Public Companies Act, any payment of any dividend must
be based on a resolution adopted at a general meeting of shareholders.
Shareholders at a general meeting may not adopt a resolution authorizing the
payment of a higher dividend than that proposed by the board of directors.
Dividends may be paid only out of "free equity" as stated in the latest
audited and approved annual accounts. "Free equity" is the equity remaining
after the deduction of:
- the issued share capital;
- the company's share premium account;
- shares owned by the company;
- the company's loans to shareholders; and
- the book value of goodwill, deferred tax assets and activated research
and development costs as shown in the balance sheet.
Dividends may not be paid if the equity of the company is less than 10% of
the book value of the company's assets.
33
<PAGE> 35
However, the company may pay out additional equity to the shareholders
subject to a two-month creditor notification period, provided that the equity of
the company based on the most recent audited financial statements is at least
equal to the outstanding share capital.
Under the Delaware General Corporation Law, a corporation's board of
directors may authorize it to make distributions to its stockholders, subject to
any restrictions in its certificate of incorporation, either:
- out of surplus; or
- if there is no surplus, out of net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.
However, the corporation may not make a distribution out of net profits if its
capital is less than the amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets, until such deficiency has been repaired. In addition, the Delaware
General Corporation Law generally provides that a corporation may redeem or
repurchase its shares only if such redemption or repurchase would not impair the
corporation's capital. National Oilwell's certificate of incorporation grants
certain senior rights to distributions to the holders of Class A Common Stock,
but does not otherwise modify the Delaware General Corporation Law provisions
regarding the payment of dividends.
STOCKHOLDER ACTION
Under Norwegian law, all actions required or permitted to be taken at a
shareholders' meeting must be taken at a duly convened shareholders' meeting.
Under the Delaware General Corporation Law, unless a corporation's
certificate of incorporation provides otherwise, any action required or
permitted to be taken at a stockholders' meeting may be taken without a meeting,
without prior notice and without a vote if a written consent, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote upon such action
were present and voted. National Oilwell's certificate of incorporation
expressly provides that after October 15, 1996, no action required or permitted
to be taken at a common stockholders' meeting may be taken without a meeting.
National Oilwell's certificate of incorporation also provides that after October
15, 1996, the power of common stockholders to consent in writing is specifically
denied.
SPECIAL STOCKHOLDERS' MEETINGS
Norwegian law provides that shareholder meetings may be called by the board
of directors and can be requested by shareholders representing at least 5% of
the shares, with notice to be delivered at least two weeks prior to such
meeting.
The Delaware General Corporation Law provides that a special stockholders'
meeting may be called by the corporation's board of directors or by such person
or persons as the certificate of incorporation or the bylaws may authorize.
National Oilwell's certificate of incorporation provides that the following
persons may call a special meeting:
- the chairman of the board of directors;
- the president; or
- the board of directors pursuant to a resolution approved by a majority of
the members of the board then in office.
National Oilwell's certificate of incorporation does not permit the stockholders
to call a special meeting.
34
<PAGE> 36
NUMBER AND ELECTION OF DIRECTORS
Norwegian law provides that the number of directors be set in the company's
Articles of Association. The Articles may state a maximum and a minimum number
of directors. A public limited company must have at least three directors. The
directors of a company shall be elected by the shareholders of the company by a
majority of the shares represented and entitled to vote at such meeting and that
the board of directors of a company cannot fill a vacancy on the board of
directors.
The Articles of Association may, however, provide that up to one-half of
the directors of the company may be appointed in a manner other than through a
shareholders meeting.
The Delaware General Corporation Law permits a corporation's certificate of
incorporation or bylaws to contain provisions governing the number and terms of
directors. However, if the certificate of incorporation contains provisions
fixing the number of directors, such number may be changed only by an amendment
to the certificate of incorporation. Directors may be elected at the annual
stockholders' meeting, or at a different stockholders' meeting if the
corporation's bylaws so provide. Stockholders also may elect directors by
written consent in lieu of a stockholders' meeting. If the stockholders' written
consent electing the directors is not unanimous, the consent may substitute for
the meeting only if every position on the board available to be filled at that
time is vacant, and the consent fills all the vacant positions. National
Oilwell's certificate of incorporation provides that the number of directors
shall be fixed by a resolution adopted by a majority of the board of directors,
but in no event may the board consist of less than three directors. National
Oilwell's certificate of incorporation also provides that the board will be
divided into three classes whose terms have staggered expiration dates.
REMOVAL OF DIRECTORS
Norwegian law provides that directors of a Norwegian company can be removed
by a majority vote of the shares entitled to vote at any meeting of the
shareholders for such purpose.
The Delaware General Corporation Law provides that a director or directors
may be removed with or without cause by the holders of a majority of the shares
then entitled to vote at an election of directors, except that:
- members of a classified board may be removed only for cause, unless the
certificate of incorporation provides otherwise; and
- in the case of a corporation having cumulative voting, if less than the
entire board is to be removed, no director may be removed without cause
if the votes cast against his or her removal would be sufficient, if
cumulatively voted, to elect such director at an election of the entire
board of directors or of the class of directors to which such director
belongs.
National Oilwell's certificate of incorporation provides that a director of
any class of directors may be removed only for cause, by an affirmative vote of
stockholders holding 80% of the outstanding shares of the class or series of
stock entitled to vote at an election of directors of that class or series.
VACANCIES
Under Norwegian law, unless no deputy director has been elected by the
shareholders meeting, the remaining directors are obliged to convene a
shareholders meeting in order to fill any vacancies in the board of directors.
Under the Delaware General Corporation Law, unless the corporation's
certificate of incorporation or bylaws provides otherwise, vacancies on the
board of directors and newly created directorships resulting from an increase in
the authorized number of directors may be filled by:
- a majority of the directors then in office, although less than a quorum;
or
- by the sole remaining director.
35
<PAGE> 37
However, in the case of a classified board, vacancies and newly created
directorships may be filled by a majority of the directors elected by such
class, or by the sole remaining director so elected. If the board is classified,
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class to which they belong, and until
their successors have been duly elected and qualified. In addition, if,
immediately prior to the filling of any such vacancy or newly created
directorship, the directors in office constitute less than a majority of the
whole board, the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least 10% of the total number of
outstanding shares entitled to vote for such directors, summarily order an
election to fill any such vacancy or newly created directorship, or replace the
directors chosen by the directors then in office.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Neither Norwegian law nor the Articles of Association of Hitec ASA contain
any provisions concerning indemnification by Hitec ASA of members of its board
of directors.
Under the Delaware General Corporation Law, a corporation may not indemnify
any director, officer, employee or agent made or threatened to be made a party
to any threatened, pending or completed proceeding unless such person acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the corporation's best interests. Further, with respect to any
criminal proceeding, such person must have had no reasonable cause to believe
that his or her conduct was unlawful. National Oilwell's certificate of
incorporation and bylaws contain provisions which require National Oilwell to
indemnify such persons to the full extent the Delaware General Corporation Law
permits.
The Delaware General Corporation Law also establishes several mandatory
rules for indemnification. In the case of a proceeding by or in the right of the
corporation, such as a stockholder derivative suit, the corporation may
indemnify an officer, director, employee or agent if such person acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to,
the corporation's best interests. However, no person adjudged to be liable to
the corporation may be indemnified unless, and only to the extent that, the
Delaware Court of Chancery or the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses the court deems proper. If a director or
officer is successful, on the merits or otherwise, in defense of any proceeding
subject to the Delaware General Corporation Law's indemnification provisions,
the corporation must indemnify him or her for reasonable incurred expenses,
including attorney's fees.
The Delaware General Corporation Law require National Oilwell to advance
reasonable expenses to a director or officer after such person provides an
undertaking to repay National Oilwell upon a determination that he or she has
not met the required standard of conduct.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
Under the Norwegian Public Companies Act, directors are liable towards the
company for any loss suffered by the company as a result of the director's
negligence of wilful misconduct. Under Norwegian law, this liability may not be
limited. However, under general principles of Norwegian law, the directors will
only be liable for any reasonably foreseeable net loss as a result of negligent
actions or omissions.
The Delaware General Corporation Law provides that a corporation's
certificate of incorporation may include a provision limiting a director's
personal liability, to the corporation or its stockholders, for monetary damages
for breach of the director's fiduciary duty. However, no such provision can
eliminate or limit liability for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
- violation of certain provisions of the Delaware General Corporation Law;
36
<PAGE> 38
- any transaction from which the director derived an improper personal
benefit; or
- any act or omission prior to the adoption of such a provision in the
certificate of incorporation.
National Oilwell's certificate of incorporation contains a provision eliminating
its directors' personal liability for monetary damages to the full extent
permitted under the Delaware General Corporation Law.
DIRECTORS WITH CONFLICTING INTERESTS
Under Norwegian law, a director may not participate in any decision in
which the director in question has a special interest. A decision by the board
in which a director with special interest has participated may be void if the
director's participation has influenced the decision. However, the company
cannot claim towards a third party in good faith that an authorization by the
board of directors of a transaction with such third party is not binding on the
company because of the disqualified director's participation in the decision.
Under the Delaware General Corporation Law, certain contracts or
transactions in which one or more of a corporation's directors or officers have
an interest are neither void nor voidable solely on that basis, solely because
such directors or officers participate in the meeting in which the transaction
is authorized or solely because any such director's or officer's votes are
counted for such purpose, provided certain conditions are met. These conditions
include obtaining the required approval and fulfilling the requirements of good
faith and full disclosure. Under the Delaware General Corporation Law, either:
- the stockholders or the board of directors must approve any such contract
or transaction after full disclosure of the material facts; or
- the contract or transaction must have been fair to the corporation at the
time it was approved. If board approval is sought, the contract or
transaction must be approved by a majority of disinterested directors,
which may be less than a majority of the board's quorum.
37
<PAGE> 39
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements have
been prepared using the purchase method of accounting under U.S. GAAP.
Accordingly, such statements were prepared as if National Oilwell and Hitec were
combined as of September 30, 1999 for balance sheet purposes and as of the
beginning of the period for each statement of operations.
The following unaudited pro forma consolidated balance sheet as of
September 30, 1999 and the statements of operations for the nine-month periods
ended September 30, 1999 are based on the unaudited consolidated financial
statements of National Oilwell and Hitec and include, in the opinion of
management of both companies, all adjustments necessary to present fairly the
results as of and for such periods. The following unaudited pro forma
consolidated statement of operations for the year ended December 31, 1998 is
derived from, and should be read in conjunction with, the audited consolidated
financial statements of National Oilwell and Hitec and the related notes
thereto. Hitec's financial statements were conformed to U.S. GAAP for
presentation in the pro forma statements. Norwegian Kroner (NOK) were converted
to U.S. dollars at the exchange rates of 7.70 NOK per U.S. dollar for September
30, 1999 and the nine months then ended and 7.55 NOK per U.S. dollar for the
year ended December 31, 1998.
As part of the transaction, Hitec will sell the non-drilling business to
HitecVision immediately prior to the completion of the offer. The effects of the
disposition of the non-drilling business on operating results have been included
to more clearly show the results of combining National Oilwell with Hitec's
drilling business.
The unaudited pro forma consolidated financial statements are presented for
illustrative purposes only and are not necessarily indicative of actual results
of operations or financial position that would have been achieved had the
transaction been consummated at the beginning of the periods or at the dates
presented, nor are they necessarily indicative of future results.
38
<PAGE> 40
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
(A)
LESS: DISPOSAL
OF HITEC'S
NON-DRILLING PRO FORMA PRO FORMA
NATIONAL OILWELL HITEC GROUP BUSINESS ADJUSTMENTS COMBINED
---------------- ----------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...... $ 15,579 $ 3,987 $(17,425) $(24,853)(B,D) $ 12,138
Accounts receivables........... 172,849 32,864 8,133 -- 197,580
Unbilled revenues.............. -- 15,193 9,854 -- 5,339
Inventories.................... 232,554 6,256 1,441 -- 237,369
Deferred taxes................. 7,206 -- -- -- 7,206
Prepaid and other current
assets...................... 9,061 -- -- -- 9,061
-------- -------- -------- -------- --------
Total current assets... 437,249 58,300 2,003 (24,853) 468,693
Property, plant and equipment,
net............................ 108,321 22,422 13,602 -- 117,141
Deferred taxes................... 15,553 -- -- 2,821(C) 18,374
Goodwill......................... 165,136 20,665 19,307 110,679(B,D) 277,173
Property held for sale........... 10,258 -- -- -- 10,258
Other assets..................... 5,200 33,763 33,604 -- 5,359
-------- -------- -------- -------- --------
$741,717 $135,150 $ 68,516 $ 88,467 $896,998
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt........................ $ 22 $ 3,815 $(13,913) $ -- $ 17,750
Accounts payable............... 89,803 7,714 2,846 -- 94,671
Customer prepayments........... 5,263 3,487 2,838 -- 5,912
Accrued compensation........... 4,610 3,416 1,503 -- 6,523
Other accrued liabilities...... 40,549 12,663 11,280 -- 41,932
-------- -------- -------- -------- --------
Total current
liabilities.......... 140,247 31,095 4,554 -- 166,788
Long term debt................... 194,608 18,426 12,956 -- 200,078
Deferred taxes................... 2,528 13,732 8,768 (1,934) 5,558
Other liabilities................ 12,426 371 132 -- 12,665
-------- -------- -------- -------- --------
Total liabilities...... 349,809 63,624 26,410 (1,934) 385,089
Commitments and contingencies
Minority interests............... 4,449 4,449 -- --
Stockholders' equity:
Common stock issued and
outstanding.................... 583 4,887 -- (4,807)(D) 663
Additional paid-in capital....... 246,807 33,573 -- 67,036(D) 347,416
Accumulated other comprehensive
income......................... (12,849) -- -- -- (12,849)
Retained earnings................ 157,367 28,617 37,657 28,352(D) 176,679
-------- -------- -------- -------- --------
391,908 67,077 37,657 90,581 511,909
-------- -------- -------- -------- --------
$741,717 $135,150 $ 68,516 $ 88,647 $896,998
======== ======== ======== ======== ========
</TABLE>
39
<PAGE> 41
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDING SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(A)
LESS: DISPOSAL
OF HITEC'S
NON-DRILLING PRO FORMA PRO FORMA
NATIONAL OILWELL HITEC GROUP BUSINESS ADJUSTMENTS COMBINED
---------------- ----------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues...................... $546,932 $114,791 $56,566 $(4,279)(E) $600,878
Cost of revenues.............. 442,339 87,557 45,793 (4,279)(E) 479,824
-------- -------- ------- ------- --------
Gross profit.................. 104,593 27,234 10,773 -- 121,054
Selling, general, and
administrative.............. 90,873 19,253 11,072 2,116(F) 101,170
-------- -------- ------- ------- --------
Operating income.............. 13,720 7,981 (299) (2,116) 19,884
Interest and financial
costs....................... (11,429) (2,883) (1,960) -- (12,352)
Interest income............... 560 1,522 1,421 -- 661
Other income (expense), net... (2,452) (6,291) (6,291) -- (2,452)
-------- -------- ------- ------- --------
Income before income taxes.... 399 329 (7,129) (2,116) 5,741
Provision for income taxes.... 1,379 855 (1,158) -- 3,392
-------- -------- ------- ------- --------
Net income before minority
interest.................... (980) (526) (5,971) (2,116) 2,349
Minority interest............. -- (3,483) (3,483) -- --
-------- -------- ------- ------- --------
Net income.................... $ (980) $ 2,957 $(2,488) $(2,116) $ 2,349
======== ======== ======= ======= ========
Net income per share:
Basic....................... $ (0.02) $ 0.04
======== ========
Diluted..................... $ (0.02) $ 0.04
======== ========
Weighted average shares
outstanding:
Basic....................... 58,246 66,246
======== ========
Diluted..................... 58,269 66,408
======== ========
</TABLE>
40
<PAGE> 42
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDING DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(A)
LESS: DISPOSAL
OF HITEC'S
NON-DRILLING PRO FORMA PRO FORMA
NATIONAL OILWELL HITEC GROUP BUSINESS ADJUSTMENTS COMBINED
---------------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................... $1,271,914 $182,228 $62,998 $(21,217)(E) $1,369,927
Cost of revenues............ 990,341 146,169 51,276 (21,217)(E) 1,064,017
---------- -------- ------- -------- ----------
Gross profit................ 281,573 36,059 11,722 -- 305,910
Selling, general, and
administrative............ 142,628 26,358 14,156 2,821(F) 157,651
Special charge.............. 16,433 -- -- -- 16,433
---------- -------- ------- -------- ----------
Operating income............ 122,512 9,701 (2,434) (2,821) 131,826
Interest and financial
costs..................... (13,901) (2,271) (1,290) -- (14,882)
Interest income............. 1,025 1,048 737 -- 1,336
Other income (expense),
net....................... (280) 5,628 5,628 -- (280)
---------- -------- ------- -------- ----------
Income before income
taxes..................... 109,356 14,106 2,641 (2,821) 118,000
Provision for income
taxes..................... 40,402 6,557 3,047 -- 43,912
---------- -------- ------- -------- ----------
Net income before minority
interest.................. 68,954 7,549 (406) (2,821) 74,088
Minority interest........... -- (172) (172) -- --
---------- -------- ------- -------- ----------
Net income.................. $ 68,954 $ 7,721 $ (234) $ (2,821) $ 74,088
========== ======== ======= ======== ==========
Net income per share:
Basic..................... $ 1.26 $ 1.18
========== ==========
Diluted................... $ 1.26 $ 1.18
========== ==========
Weighted average shares
outstanding:
Basic..................... 54,700 62,700
========== ==========
Diluted................... 54,882 63,021
========== ==========
</TABLE>
41
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(A) This column reflects the sale of the non-drilling assets to HitecVision
immediately prior to completion of the offer for cash of MNOK 148.7
(U.S. $19.3 million).
(B) To record the estimated business combination costs of $5.5 million
representing one-time professional and advisory fees directly related to
the transaction, as well as consolidation and other integration costs. The
one-time business combination costs are not reflected in the Unaudited Pro
Forma Consolidated Statements of Operations since the charges are
non-recurring in nature.
(C) To record the future tax benefits associated with the sale of the
non-drilling assets to HitecVision. A portion of the deferred tax asset
generated serves to reduce deferred tax liabilities.
(D) To record the issuance of 8,000,000 shares of National Oilwell common
stock, at an assumed market price of $15 per share, and the payment of MNOK
148.7 (U.S. $19.3 million) to acquire all outstanding shares of Hitec.
National Oilwell would incur the necessary debt to fund the cash portion of
the purchase of Hitec. Hitec would have received MNOK 148.7 of cash
resulting from the sale of the non-drilling assets to HitecVision
immediately prior to the completion of the offer. The cash held by Hitec
would then be used to satisfy any debt incurred by National Oilwell as a
result of the transaction. Therefore, cash and debt are not impacted on a
consolidated, net basis.
(E) To eliminate revenues and cost of revenues for sales of product from
National Oilwell to Hitec.
(F) To record the amortization of goodwill as if the transaction had closed on
the first day of the period. The goodwill is assumed to have a useful life
of 40 years.
42
<PAGE> 44
NATIONAL-OILWELL SELECTED FINANCIAL DATA
National Oilwell combined with Dupre Supply Company and Dupre
International, Inc. (collectively "Dupre") on July 1, 1999 and Dreco Energy
Services Ltd. ("Dreco") on September 25, 1997, both pursuant to
pooling-of-interests accounting. As a result of the differing year ends of
National Oilwell and Dreco prior to the combination of the companies, the
balance sheets 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 Dreco as of November 30, 1996 and for the twelve months ended
November 30, 1996. Data for the two years ended August 31, 1995 reflect the
operations of Dreco and Dupre only, as National Oilwell did not exist as a
corporation prior to January 1, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED, YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, AUGUST 31,(1)
-------------------- ---------------------------------- -------------------
1999 1998 1998 1997(2) 1996(3) 1995 1994
-------- -------- ---------- ---------- -------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue.................................... $546,932 $977,711 $1,271,914 $1,097,406 $822,443 $129,634 $111,726
Operating income (loss)(4)................. 13,720 114,304 122,512 91,786 30,534 11,203 (8,666)
Income (loss) before taxes and
extraordinary loss(5).................... 399 105,364 109,356 86,145 19,428 13,045 (6,338)
Income (loss) before extraordinary
loss(5).................................. (980) 66,243 68,954 54,827 12,695 8,493 (6,362)
Net income (loss).......................... (980) 66,243 68,954 54,204 8,695 8,493 (6,362)
Income (loss) per share before
extraordinary loss(5)
Basic.................................... (0.02) 1.22 1.26 1.03 0.30 0.60 (0.50)
Diluted.................................. (0.02) 1.21 1.26 1.02 0.30 0.59 (0.50)
Net income (loss) per share
Basic.................................... (0.02) 1.22 1.26 1.02 0.20 0.60 (0.50)
Diluted.................................. (0.02) 1.21 1.26 1.01 0.20 0.59 (0.50)
OTHER DATA:
Depreciation and amortization.............. 15,661 15,236 20,598 15,443 9,219 4,907 5,203
Capital expenditures....................... 12,004 19,609 29,241 34,783 15,796 6,666 6,041
BALANCE SHEET DATA:
Working capital............................ 297,002 347,881 364,130 255,610 171,608 35,090 19,814
Total assets............................... 741,717 836,811 855,888 602,993 376,523 87,208 79,463
Long-term debt, less current maturities.... 194,608 223,529 221,198 61,719 39,302 2,183 1,580
Stockholders' equity....................... 391,908 359,692 393,299 284,208 173,099 51,584 40,605
</TABLE>
- ---------------
(1) Data for the two years ended August 31, 1995 reflect the operations of Dreco
and Dupre only, as the operations of National Oilwell were acquired from a
predecessor partnership as of January 1, 1996 and, in accordance with
generally accepted accounting principles, cannot be combined prior to that
date. Data for Dupre are as of December 31, 1994 and December 31, 1995.
(2) In order to conform Dreco's fiscal year end to National Oilwell's December
31 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 fiscal year end to 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 December 1998, National Oilwell recorded a $16,433,000 charge related to
personnel reductions and facility closures and a $5,600,000 charge related
to the writedown to the lower of cost or market of certain tubular
inventories. In September 1997, National Oilwell recorded a $10,660,000
charge related to merger expenses incurred in connection with the
combination with Dreco. In October 1996, National Oilwell recorded
$16,611,000 in charges related to the cancellation of management
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<PAGE> 45
agreements and expenses related to special incentive plans that terminated
upon the occurrence of the initial public offering of its common stock.
(5) National Oilwell recorded extraordinary losses in September 1997 of $623,000
(net of $376,000 income tax benefit) and in October 1996 of $4,000,000 (net
of $2,400,000 income tax benefit) due to the write-offs of deferred debt
issuance costs.
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<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION OF NATIONAL OILWELL
INTRODUCTION
National Oilwell is a worldwide leader in the design, manufacture and sale
of machinery and equipment and in the distribution of maintenance, repair and
operating products used in oil and gas drilling and production. National
Oilwell's revenues are directly related to the level of worldwide oil and gas
drilling and production activities and the profitability and cash flow of oil
and gas companies and drilling contractors, which in turn are affected by
current and anticipated prices of oil and gas. Beginning in late 1997, oil
prices declined to less than $15 per barrel due to concerns about excess
production, less demand from Asia due to an economic slowdown and warmer than
average weather in many parts of the United States. The resulting lower demand
for products and services had an increasingly negative effect on the
Distribution Services business throughout 1998 and on both segments in 1999. Oil
prices have recovered since late July 1999 to a range of $20-$25 per barrel.
National Oilwell expects its revenues to increase if its customers gain
confidence in sustained commodity prices at this level and as their cash flows
from operations improve allowing them to purchase products sold by National
Oilwell.
National Oilwell conducts its operations through the following segments:
PRODUCTS AND TECHNOLOGY
The Products and Technology segment designs and manufactures a large line
of proprietary products, including drawworks, mud pumps, power swivels,
electrical control systems and downhole motors and tools, as well as complete
land drilling and well servicing rigs, and structural components such as cranes,
masts, derricks and substructures for offshore rigs. A substantial installed
base of these products results in a recurring replacement parts and maintenance
business. Sales of new capital equipment can result in large fluctuations in
volume between periods depending on the size and timing of the shipment of
orders. This segment also designs and manufactures drilling motors and
specialized drilling tools for rent and sale. In addition, the segment provides
drilling pump expendable products for maintenance of National Oilwell's and
other manufacturers' equipment.
Effective January 1, 1999, National Oilwell changed the structure of its
internal organization and now includes the former Downhole Products segment as a
product line within the Products and Technology segment. Prior year segment
information for the nine months ended September 30, 1998 has been restated to
reflect this change. National Oilwell sold its drill bit product line in June
1999 for approximately $12 million, recording a pre-tax loss of $1.0 million
($0.6 million after-tax). Revenues and operating income recorded in 1999 for the
drill bit operations were $6.1 million and $0.1 million, respectively.
On July 8, 1999, National Oilwell acquired the assets of CE Drilling
Products, Inc. for approximately $65 million in cash, financed primarily by
borrowing $57 million under its revolving credit facility. This business
involves the manufacture, sale and service of drilling machinery and related
parts. The transaction has been accounted for under the purchase method of
accounting.
DISTRIBUTION SERVICES
Distribution Services revenues result primarily from the sale of
maintenance, repair and operating supplies ("MRO") from National Oilwell's
network of distribution service centers and, prior to July 1999, from the sale
of well casing and production tubing. These products are purchased from numerous
manufacturers and vendors, including National Oilwell's Products and Technology
segment. National Oilwell sold its tubular product line in June 1999 for
approximately $15 million, generating a pre-tax loss of $0.9 million ($0.5
million after-tax). Revenues and operating loss recorded in 1999 for the tubular
operations were $23.6 million and $0.6 million, respectively.
On July 1, 1999, National Oilwell purchased 100% of the outstanding stock
of Dupre Supply Company and Dupre International Inc. in exchange for 1,920,000
shares of National Oilwell common
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<PAGE> 47
stock. These companies are leading suppliers of pipe, fittings, valves and valve
automation services and complement the existing operations of the Distribution
Services segment. This transaction has been accounted for under the
pooling-of-interests method of accounting and, accordingly, historical financial
statements have been restated.
RESULTS OF OPERATIONS
Operating results by segment are as follows (in millions):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ----------------------------
1999 1998 1998 1997 1996
------ ------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
Revenues:
Products and Technology.................... $264.1 $554.8 $ 729.9 $ 440.8 $295.1
Distribution Services...................... 305.0 479.3 608.5 722.7 579.3
Eliminations............................... (22.2) (56.4) (66.5) (66.1) (52.0)
------ ------ -------- -------- ------
Total.............................. $546.9 $977.7 $1,271.9 $1,097.4 $822.4
====== ====== ======== ======== ======
Operating Income:
Products and Technology.................... $ 24.0 $107.4 $ 136.6 $ 79.0 $ 34.8
Distribution Services...................... (6.2) 11.9 8.9 32.1 20.5
Corporate.................................. (4.1) (5.0) (6.6) (8.7) (8.2)
------ ------ -------- -------- ------
13.7 114.3 138.9 102.4 47.1
Special Charge............................. -- -- 16.4 10.7 16.6
------ ------ -------- -------- ------
Total.............................. $ 13.7 $114.3 $ 122.5 $ 91.7 $ 30.5
====== ====== ======== ======== ======
</TABLE>
Nine months ended September 30, 1999 compared to results for the nine months
ended September 30, 1998
Products and Technology. Revenues for the Products and Technology segment
decreased by $138.4 million (66%) in the third quarter of 1999 as compared to
the same quarter in 1998 due primarily to reduced sales of major capital
equipment and drilling replacement parts. Sales of new mud pumps, drawworks, SCR
systems, power swivels and rigs were $5.9 million in the third quarter of 1999
compared to $99.8 million in the same period in 1998. Operating income decreased
by $35.4 million in the third quarter compared to the same quarter in 1998 due
principally to the lower revenue volume partially offset by a $9.0 million
reduction in selling and administrative expenses resulting from cost reduction
initiatives completed in early 1999.
Products and Technology revenues in the first nine months of 1999 decreased
$290.7 million as compared to 1998 due primarily to the reduced demand for new
capital equipment, drilling replacement parts and downhole motor and tool sales.
Operating income decreased by $83.3 million in the first nine months of 1999
compared to 1998 as a result of the decline in revenues offset in part by a
$13.4 million reduction in selling and administrative expenses.
Backlog of the Products and Technology capital products was $49 million at
September 30, 1999, up from $26 million at June 30, 1999, but down from $159
million at September 30, 1998. Substantially all of the current backlog is
expected to be shipped by the end of March 2000.
Distribution Services. Distribution Services revenues during the third
quarter of 1999 fell short of the comparable 1998 period by $37.3 million. This
27% decrease reflects the reduced demand for MRO products precipitated primarily
by lower oil prices and the sale of the tubular product line in the second
quarter of 1999. Revenues in the tubular product line accounted for $28 million
of this decline with MRO sales in the United States comprising the majority of
the remaining shortfall, offset partially by a $13 million increase in Canadian
revenues. Operating income in the third quarter of 1999 was $2.5 million
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<PAGE> 48
below the third quarter of 1998. A $5.6 million reduction in base margin due to
the decline in revenues was partially offset by $3.1 million in reduced
operating expenses.
Revenues for the Distribution Services segment fell $174.2 million in the
first nine months of 1999 when compared to the prior year, reflecting the
significant decrease in oil prices between the periods. Despite a revenue growth
in Canada of approximately $28 million, sales in the United States showed a $187
million decline including a tubular business reduction of $103 million.
Operating income was $18.2 million lower in the first nine months of 1999 when
compared to 1998 and is attributable to the lower revenue levels offset, in
part, by reduced operating costs of approximately $9 million.
Corporate. Corporate costs during the third quarter of 1999 of $1.3 million
and the first nine months of 1999 of $4.1 million were lower than the same
periods of the prior year due to cost reduction initiatives completed in early
1999.
Interest Expense. Interest expense decreased during the three months ending
September 30, 1999 when compared to the same period in 1998 due to reduced debt
levels. For the first nine months of 1999, interest expense increased as 6.875%
unsecured senior notes that were issued to fund the acquisition of Phoenix
Energy Products Holdings, Inc. in June 1998 were outstanding for the full
period.
Year ended December 31, 1998 compared to results for the year ended December
31, 1997
Products and Technology. Revenues for the Products and Technology segment
increased by $289.1 million over 1997 primarily due to increased sales of major
capital equipment and drilling spares. Specifically, the sale of complete rig
packages, mud pumps, cranes and SCR equipment were substantially greater than
the prior year. Revenues generated by acquisitions completed in 1998 totaled
approximately $48 million during the year.
Operating income increased by $57.6 million in 1998 compared to the prior
year due principally to the increased sales volume. Operating income as a
percentage of revenues increased due to higher prices and manufacturing and
operating cost efficiencies resulting from the higher volumes. Various
acquisitions completed in 1998 contributed $2.6 million in operating profit
during the year.
Backlog of the Products and Technology capital products was $77 million at
December 31, 1998 compared to $270 million at December 31, 1997. Substantially
all of the current backlog is expected to be shipped by June 30, 1999.
Distribution Services. Distribution Services revenues during 1998 fell
short of the comparable 1997 period by $114.2 million. This 16% decrease
reflects the reduced demand for tubular and general rig operating supplies
precipitated by the significant decrease in oil prices. North American revenues
were off approximately 16%, with tubular revenues roughly two-thirds of the
level achieved in 1997. Operating income in 1998 was approximately $23 million
below 1997, due to reduced margins from the decline in revenues partially offset
by reduced operating expenses, and the recording of a $5.6 million charge
related to the writedown to lower of cost or market of certain tubular
inventories.
Corporate. Corporate charges represent the unallocated portion of
centralized and executive management costs. Corporate charges decreased
substantially in 1998 compared to 1997 due to the elimination of duplicate
corporate costs that existed prior to the actual combination with Dreco.
Special Charges. During the fourth quarter of 1998, National Oilwell
recorded a special charge of $16.4 million ($10.4 million after tax, or $0.20
per share) related to operational changes resulting from the depressed market
for the oil and gas industry. The components of the special charge are as
follows (in millions):
<TABLE>
<S> <C>
Asset impairments........................................... $ 5.4
Severance................................................... 5.6
Facility closures and exit costs............................ 5.4
-----
$16.4
=====
</TABLE>
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<PAGE> 49
The cash and non-cash elements of the charge approximate $11.0 million and
$5.4 million, respectively. Breakdown of the charge by business segment is:
<TABLE>
<S> <C>
Products and Technology..................................... $12.5
Distribution Services....................................... 3.0
Corporate................................................... .9
-----
$16.4
=====
</TABLE>
The asset impairment losses of $5.4 million consists primarily of the
shutdown of four North American manufacturing facilities. Assets related to
these non-productive facilities which are not in service totaling $10.0 million
have been reclassified on the balance sheet to property held for sale and have
been written down to their estimated fair value, less cost of disposal.
Severance costs of $5.6 million relate to the involuntary termination of
approximately 200 employees, most of whom are located in North America. Facility
closure costs of $5.4 million consists principally of lease cancellation and
facility exit costs. Substantially all of the actions associated with this
charge were fully implemented before the end of the first quarter of 1999.
Interest Expense. Interest expense increased during 1998 when compared to
the prior year due to the incurrence of debt to finance the Phoenix acquisition.
Income Taxes. National Oilwell is subject to U.S. federal, state, and
foreign taxes and recorded a combined tax rate of 37% in 1998 and 36% in 1997.
National Oilwell has net operating tax loss carryforwards in the United States
that could reduce future tax expense by up to $6.8 million. Additional loss
carryforwards in Europe generally would reduce goodwill if realized in the
future. Due to the uncertainty of future utilization, all of the potential
benefits described above have been fully reserved. During 1998, National Oilwell
realized a tax benefit of $2.6 million from its U.S. carryforwards, but closure
of certain operations may significantly reduce future realization. National
Oilwell's combined tax rate in 1998 would have been 39% if these carryforwards
were excluded.
Year ended December 31, 1997 compared to results for the year ended December
31, 1996
Products and Technology. Revenues during 1997 increased $145.7 million over
1996 primarily due to increased demand for drilling capital equipment and spare
parts as well as fluid end expendable parts and motors and tools. Acquisitions
in 1997 other than Dreco accounted for $51.2 million of the increase. Operating
income for this segment increased by $44.2 million when compared to the prior
year with 1997 acquisitions other than Dreco accounting for $19.7 million of
this incremental income and the remainder due to the higher activity levels.
Backlog of the Products and Technology capital products was $270 million at
December 31, 1997 compared to $38 million at December 31, 1996.
Distribution Services. Distribution Services revenues in 1997 exceeded 1996
by $143.4 million. This 25% increase reflects the increased spending levels of
National Oilwell's alliance partners and other customers. Incremental sales of
maintenance, repair and operating supplies ($65.4 million), tubular products
($58.0 million), drilling spares ($8.1 million) and fluid end expendable parts
and related pumps ($8.0 million) accounted for the majority of this increase.
Operating income in 1997 exceeded the prior year by $11.6 million (57%) as an
increase in operating expenses offset part of the incremental margin.
Corporate. Corporate charges represent the unallocated portion of
centralized and executive management costs. Corporate charges in 1997 were
comparable to 1996.
Special Charges. During 1997, National Oilwell recorded a $10.7 million
charge ($8.1 million after tax) related to various professional fees and
integration costs incurred in connection with the combination with Dreco.
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<PAGE> 50
During 1996, National Oilwell incurred certain one-time expenses in
connection with its initial public offering of common stock, as follows: (i) a
management services agreement was terminated at a cost of $4.4 million ($2.8
million after tax) and (ii) expenses and payout under National Oilwell's Value
Appreciation Plans, which resulted in National Oilwell recording an expense of
$12.2 million ($7.6 million after tax). The Value Appreciation Plans required
the issuance of 681,852 shares of common stock and payment of $6.4 million in
cash.
Interest Expense. Interest expense in 1997 was substantially lower than in
1996 due to lower amounts of debt outstanding and lower interest rates under the
new credit facilities.
Income Taxes. National Oilwell is subject to U.S. federal, state, and
foreign taxes and recorded a combined tax rate of 36% in 1997 and 35% in 1996.
Extraordinary Losses. In the third quarter of 1997, National Oilwell
replaced its existing credit facility and recorded a charge of $1.0 million
($0.6 million after tax) due to the write-off of deferred debt costs. In the
fourth quarter of 1996, the credit facility established in connection with the
acquisition of National Oilwell was replaced, resulting in the write-off of $6.4
million ($4.0 million after tax) in deferred debt costs.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, National Oilwell had working capital of $297
million, a decrease of $67 million from December 31, 1998. Significant declines
in accounts receivable and inventory of $129 million and $21 million were offset
by a reduction in accounts payable of $42 million, customer prepayments on
orders of $20 million and accrued liabilities of $14 million.
At December 31, 1998, National Oilwell had working capital of $364.1
million, an increase of $108.5 million from December 31, 1997. Significant
components of National Oilwell's assets are accounts receivable and inventories.
Accounts receivable, including unbilled revenues, increased by $91.3 million and
inventories increased $5.3 million during 1998. Decreases in accounts payable of
$20.7 million and customer prepayments of $12.3 million were offset by an
increase in other accrued liabilities of $27.9 million.
Total capital expenditures were $12 million during the first nine months of
1999 compared to $16.9 million in the first nine months of 1998. Enhancements to
information and inventory control systems represent a large portion of these
capital expenditures. National Oilwell has sufficient existing manufacturing
capacity to meet currently anticipated demand through 2000 for its products and
services.
Total capital expenditures were $29.2 million during 1998, $34.8 million in
1997 and $15.8 million in 1996. Additions and enhancements to the downhole
rental tool fleet and information management and inventory control systems
represent a large portion of these capital expenditures. Capital expenditures
are expected to decline to approximately $15-16 million in 1999, which will
include approximately $7 million necessary to complete the installation of a new
information system for the Distribution Services group.
National Oilwell has a five-year unsecured $125 million revolving credit
facility, which is available for acquisitions and general corporate purposes.
The credit facility provides for interest at prime or LIBOR plus 0.625%, subject
to adjustment based on National Oilwell's Capitalization Ratio, as defined. The
credit facility contains financial covenants and ratios regarding minimum
tangible net worth, maximum debt to capital and minimum interest coverage.
Availability under this facility was $69 million at September 30, 1999, after
consideration of $13 million in outstanding letters of credit.
National Oilwell believes that cash generated from operations and amounts
available under the credit facility will be sufficient to fund operations,
working capital needs, capital expenditure requirements and financing
obligations. National Oilwell also believes any significant increase in capital
expenditures caused by any need to increase manufacturing capacity can be funded
from operations or through debt financing.
National Oilwell intends to pursue acquisition candidates, but the timing,
size or success of any acquisition effort and the related potential capital
commitments cannot be predicted. National Oilwell
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<PAGE> 51
expects to fund future acquisitions primarily with cash flow from operations and
borrowings, including the unborrowed portion of the credit facility or new debt
issuances or from the issuance of equity securities. There can be no assurance
that additional financing for acquisitions will be available at terms acceptable
to National Oilwell.
Inflation has not had a significant impact on National Oilwell's operating
results or financial condition in recent years.
YEAR 2000
The year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
On September 1, 1999, National Oilwell's Distribution Services segment
completed the initial installation of SAP, its principal business system.
Virtually all of its North American operating outlets are now conducting
business on this Year 2000 compliant system. Costs incurred during 1998 and 1999
to reach this milestone approximated $17 million. National Oilwell's Products &
Technology segment's primary operating system is Y2K compliant. In addition,
National Oilwell has achieved year 2000 date conversion compliance in all of its
other critical systems, including networks and infrastructure. Personal
computers that were not Y2K compliant have been replaced or upgraded.
Excluding the cost to install the SAP operating system, the total cost of
the year 2000 readiness approximated $1.0 million. The Year 2000 review covered
internal computer systems and process control systems, as well as embedded
systems in products sold by National Oilwell. In addition, National Oilwell has
communicated with its significant suppliers, customers and business partners and
has not identified any significant Year 2000 concerns.
Management believes that with its installation of new systems, conversion
to new software and modifications to existing software, the year 2000 issue will
pose no significant operational problems for National Oilwell. While there can
be no assurance that National Oilwell has identified every possible problem,
none are anticipated that could have an adverse effect on National Oilwell's
financial position.
MARKET RISK DISCLOSURE
National Oilwell is subject to market risk exposure related to changes in
interest rates on its credit facility which is comprised of revolving credit
notes in the United States and Canada. A portion of the borrowings are
denominated in Canadian funds which could expose National Oilwell to market risk
with exchange rate movements, although such is mitigated by National Oilwell's
substantial operations in Canada. These instruments carry interest at a
pre-agreed upon percentage point spread from either the prime interest rate or
LIBOR. Under its credit facility, National Oilwell may, at its option, fix the
interest rate for certain borrowings based on a spread over LIBOR for 30 days to
6 months. At December 31, 1998, National Oilwell had $55.6 million outstanding
under its credit facility. Based on this balance, an immediate change of one
percent in the interest rate would cause a change in interest expense of
approximately $0.6 million on an annual basis. National Oilwell's objective in
maintaining variable rate borrowings is the flexibility obtained regarding early
repayment without penalties and lower overall cost as compared with fixed-rate
borrowings.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. National
Oilwell expects to adopt the new Statement effective January 1, 2001. The
Statement will require National Oilwell to recognize all derivatives on the
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<PAGE> 52
balance sheet at fair value. National Oilwell does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.
In April 1998, the AICPA issued SOP 98-5, Reporting the Costs of Start-up
Activities. The SOP was effective for fiscal years beginning after December 15,
1998 and requires that the costs associated with such activities be expensed as
incurred. The adoption of the new statement will not have a significant effect
on earnings or the financial position of National Oilwell.
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<PAGE> 53
BUSINESS OF NATIONAL OILWELL
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.
National Oilwell 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 and
substructures. Many of these components are designed specifically for more
demanding applications, which include 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's Products
and Technology segment.
Through its Products and Technology segment, National Oilwell designs and
manufactures drilling motors and specialized drilling tools for rent and 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.
National Oilwell also provides distribution services through its network of
distribution service centers located in the United States and Canada and near
major drilling and production activity worldwide. These distribution service
centers stock and sell a variety of expendable items for oilfield applications
and spare parts for equipment manufactured by National Oilwell. Distribution
services also offer outsourcing and alliance arrangements that include
comprehensive procurement, inventory management and logistics support.
BUSINESS STRATEGY
National Oilwell's short term business strategy during the current
depressed conditions for oil and gas industry is to reduce its operating costs,
generate cash from its balance sheet to repay debt and provide for future
strategic acquisitions and emerge from the current environment in a relatively
stronger position than its competitors.
National Oilwell's longer term 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. Over the next
few years, the advanced age of the existing fleet of drilling rigs, coupled with
drilling activity involving greater depths and extended reach, is expected to
generate demand for new equipment, especially in the higher capacity end of the
market. National Oilwell's larger drawworks, mud pumps and power swivels often
provide the largest capacities currently available in the industry. The large
installed base of National Oilwell equipment also provides recurring demand for
spare parts and expendable products necessary for proper and efficient
operation.
Expanding Its Downhole Products Business
National Oilwell believes that directional, horizontal, extended reach and
other value-added drilling applications are economically justifiable and will
therefore increase, providing an opportunity for growth in the rental and sale
of high-performance drilling motors and downhole tools.
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<PAGE> 54
Building on Distribution Strengths and Alliance/Outsourcing Trends
National Oilwell has developed and implemented integrated information and
process systems that enhance procurement, inventory management and logistics
activities. 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:
- large and geographically diverse network of distribution service centers
in major oil and gas producing areas;
- purchasing leverage due to the volume of products sold;
- breadth of available product lines; and
- information systems that offer customers enhanced online and onsite
services.
In addition, the integration of its distribution expertise, extensive network
and growing base of customer alliances provides 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. During 1997 and 1998,
National Oilwell made a total of eight acquisitions and plans to continue to
participate in this trend.
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 components are essential to the pumping of fluids and hoisting,
supporting and rotating of 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 often replaced during the
upgrade and refurbishment of existing rigs.
Masts, derricks and substructures are designed and manufactured for use on
land rigs and on fixed and mobile offshore platforms, and are suitable for
drilling applications to depths of up to 30,000 feet or more. 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.
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 drilling and well servicing
rigs designed for the North Slope of Alaska and Arctic, 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.
Distribution Services
National Oilwell provides distribution services through its network of over
125 distribution service centers. 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
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<PAGE> 55
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 sales of
tubular goods are made through National Oilwell's direct sales force and have
historically been concentrated in North America.
Strategic alliances are significant to the Distribution Services 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 its smaller pumps and parts sales, are
made through its direct sales force and distribution service centers. Sales to
foreign state-owned oil companies are typically made in conjunction with agent
or representative arrangements. National Oilwell's downhole products are
generally rented in Canada and Venezuela and marketed worldwide through its own
sales force and through commissioned representatives. Distribution sales are
made through the Company's network of distribution service centers. Customers
for 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 each of its segments with a large number
of companies, none of which are dominant in that particular segment.
Manufacturing and Backlog
National Oilwell has manufacturing facilities located in the United States
and Canada. The manufacture of parts or purchase of components is also
outsourced to qualified subcontractors. The 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 materials.
Sales of products are made on the basis of written orders and oral
commitments. The Company's backlog for equipment at December 31, 1998 was $77
million as compared to $270 million at
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<PAGE> 56
December 31, 1997 and $38 million at December 31,1996. Substantially all of the
current backlog will be shipped by the end of the second quarter of 1999. The
reduction in new orders for capital equipment will have a negative effect on
operating results in 1999.
Distribution Suppliers
National Oilwell obtains products sold by its Distribution Services
business from a number of suppliers, including its own Products and Technology
segment. No single supplier of products is significant to the company. National
Oilwell has not experienced and does not expect a shortage in products or
tubular goods that it sells.
Engineering
National Oilwell maintains a staff of engineers and technicians to:
- design and test new products, components and systems for use in drilling
and pumping applications;
- enhance the capabilities of existing products; and
- assist the Company'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 6,000
horsepower active heave compensating drawworks and a dual derrick system 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, the Company 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.
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<PAGE> 57
PROPERTIES
National Oilwell owns or leases approximately 150 facilities worldwide,
including the following principal manufacturing and administrative facilities:
<TABLE>
<CAPTION>
APPROXIMATE
BUILDING
SPACE
LOCATION (SQUARE FOOT) DESCRIPTION STATUS
- -------- ------------- ----------- ------
<S> <C> <C> <C>
Houston, Texas................ 260,000 Manufactures drilling
machinery and equipment Leased
Galena Park, Texas............ 188,000 Fabricates drilling components
and rigs Owned
Houston, Texas................ 178,000 Manufactures SCR systems Owned
Edmonton, Alberta, Canada..... 162,000 Manufactures downhole tools Owned
McAlester, Oklahoma........... 117,000 Manufactures pumps and
expendable parts Owned
Houston, Texas................ 100,000 Administrative offices Leased
Marble Falls, Texas........... 65,000 Manufactures drilling
expendable parts Owned
Edmonton, Alberta, Canada..... 57,000 Manufactures drilling
machinery and equipment Owned
Rosenberg, Texas.............. 44,000 Manufactures downhole tools Leased
</TABLE>
National Oilwell owns or leases five satellite repair and manufacturing
facilities that refurbish and manufacture new equipment and parts and
approximately 125 distribution service centers worldwide. Management believes
that the capacity of facilities is adequate to meet demand currently anticipated
for the next year.
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<PAGE> 58
DIRECTORS AND EXECUTIVE OFFICERS OF NATIONAL OILWELL
Set forth below is certain information regarding each of National Oilwell's
current directors and executive officers.
<TABLE>
<S> <C>
Joel V. Staff........................ Mr. Staff has served as the President and Chief Executive
Officer of National Oilwell since 1993 and Chairman of the
Board since January 1996.
Howard I. Bull....................... Mr. Bull has served as a Director of National Oilwell since
January 1996.
James C. Comis III................... Mr. Comis has served as a Director of National Oilwell since
January 1996.
W. McComb Dunwoody................... Mr. Dunwoody has served as a Director of National Oilwell
since January 1996.
James J. Fasnacht.................... Mr. Fasnacht has served as Vice President of National
Oilwell since 1993 and as Group President, Distribution
Services since April 1997.
Jerry N. Gauche...................... Mr. Gauche has served as Vice President-Organizational
Effectiveness of National Oilwell since January 1994.
Ben A. Guill......................... Mr. Guill has served as a Director of National Oilwell since
May 1999.
Honor Guiney......................... Ms. Guiney has served as Vice President and Chief
Information Officer of National Oilwell since April 1999.
Steven W. Krablin.................... Mr. Krablin has served as Vice President and Chief Financial
Officer of National Oilwell since January 1996.
William E. Macaulay.................. Mr. Macaulay has served as a Director of National Oilwell
since January 1996.
Merrill A. Miller, Jr. .............. Mr. Miller has served as Vice President since July 1996 and
as Group President, Products and Technology of National
Oilwell since April 1997.
Frederick W. Pheasey................. Mr. Pheasey has served as a Director and Executive Vice
President of National Oilwell since September 1997.
</TABLE>
The address for each director and executive officer of National Oilwell is
10000 Richmond Avenue, Houston, Texas 77042.
Additional information regarding the directors, executive officers and
principal stockholders of National Oilwell is contained in its Proxy Statement
dated April 20, 1999 with respect to the 1999 Annual Meeting of Stockholders of
National Oilwell, which is incorporated by reference into this prospectus.
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HITEC SELECTED FINANCIAL DATA
The Hitec Selected Financial Data should be read in conjunction with
Hitec's Consolidated Financial Statements and the notes thereto, which are
included elsewhere in this Prospectus. The Hitec Consolidated Financial
Statements have been prepared in accordance with accounting principles generally
accepted in Norway.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ----------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ----- ---- ----- ---- ----
(IN MILLIONS OF NOK, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue.................................... 867 1,014 1,376 803 469 519 238
Operating income or loss................... 60 36 73 12 (14) 57 17
Share in associated companies.............. (48) 47 43 199 1 1 (1)
Income or loss before taxes................ 3 78 107 215 (15) 59 16
Minority share of net income............... 21 1 1 (62) 0 0 0
Net income or loss......................... 22 56 58 90 (12) 43 11
Income per share, fully diluted............ 0.59 1.47 1.55 2.44 (0.34) 1.46 0.44
BALANCE SHEET DATA:
Total assets............................... 1,041 1,021 1,184 949 477 488 127
Long-term liabilities -- interest
bearing.................................. 142 134 122 111 108 1 3
Shareholders' equity....................... 516 488 492 430 274 222 76
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HITEC
INTRODUCTION
Hitec is a leading provider of innovative and technologically advanced
systems and solutions to the oil and gas exploration, development and production
industry, as well as to the shipping industry. Hitec designs, engineers,
constructs and installs customized solutions and develops and applies advanced
technology to create products which enhance traditional methods used in the
drilling process. Hitec has a number of operating companies within the Products
& Technology and Engineering & Construction segments.
In recent years Hitec's advanced products for the oil and gas industry have
gained wider acceptance. This led to growth in order intake in 1997 and early
1998, in particular from customers outside Norway. As sales consist primarily of
capital equipment with a production time of 6 to 24 months, these orders have in
turn resulted in growth in revenues and net income in 1998 and 1999. Hitec's
revenues are however also influenced by the level of worldwide oil and gas
drilling and production activities and the profitability and cash flow of oil
and gas companies and companies directly or indirectly providing services and
equipment to the oil companies, which in turn are affected by current and
anticipated prices of oil and gas. Beginning in late 1997, current and near term
expectations for oil prices declined. The resulting lower demand for products
and services has had a negative impact on Hitec's order intake in late 1998 and
1999, and a corresponding reduction in revenues and net income from the second
half 1999. Oil prices have recovered since late July 1999 to a range of $20-$25
per barrel. Hitec expects its revenues to increase if its customers gain
confidence in sustained commodity prices at this level and as their cash flows
from operations improve allowing them to purchase products sold by Hitec.
A substantial part of revenues stems from sales of new capital equipment.
This can result in certain fluctuations in volume between periods depending on
the size and timing of production of orders. As noted above, the low oil prices
prevailing in 1998 and the corresponding reduction in the level of new orders
are having a negative impact on operating results in the second half of 1999.
Hitec conducts is operations through its drilling and non-drilling
businesses as follows:
THE DRILLING BUSINESS
The Drilling business is principally conducted through the companies Hitec
Drilling & Marine Systems AS, Maritime Industry Service AS and certain
subsidiaries in USA, Canada, Great Britain and Brazil.
Hitec Drilling & Marine Systems is the largest company in the Group. Its
core business is the production of control and data acquisition systems for
drilling rigs and drilling equipment, including the state-of-the-art
Cyberbase(TM) operator station. HDMS' other key products include the ActiveHeave
Drilling(TM) heave compensating drawworks, and remote controlled and automated
systems to control the drilling process. HDMS also acts as a project manager in
developing entire drilling packages to meet a customer's specific needs.
Maritime Industry Service is a supplier of solutions and services related
to upgrading, modifying, maintaining and repairing offshore drilling rigs and
platforms. Companies and offices in Great Britain, Brazil, Canada and USA act
mainly as sales and service offices for the Drilling Business and for other
Drilling Business companies in the Group.
THE NON-DRILLING BUSINESS
The Non-Drilling Business consists of a number of companies providing
equipment and services to a variety of customers both within the oil and gas and
related services industries, and in other, non oil and gas related, industries.
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<PAGE> 61
ASSOCIATED COMPANIES
Hitec has owned equity interests in Navis ASA and Roxar ASA since their
establishment. During the period 1996 to 1998, Hitec also owned 40% of Advanced
Production and Loading AS, a Norwegian company. A portion of Hitec's equity
interest in Navis is owned through a 51% owned subsidiary, giving rise to a
minority share. Through the third quarter of 1999, Hitec has accounted for these
companies as associated companies using the equity method. Changes in the equity
of these companies has therefore influenced Hitec's income.
RESULTS OF OPERATIONS
Operating results are as follows (in NOK millions):
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- -------------------
1999 1998 1998 1997 1996
----- ------ ----- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues........................................... 867 1,014 1,376 803 469
=== ===== ===== === ===
Operating Income................................... 71 46 73 12 (14)
=== ===== ===== === ===
</TABLE>
Nine months ended September 30, 1999 compared to results for the nine months
ended September 30, 1998
Hitec ASA
Revenues. Revenues for the first nine months of 1999 decreased by NOK 147
million compared to the first nine months of 1998 primarily due to decreased
revenues from the Drilling business. The market for drilling technology has
remained weak throughout 1999 and order intake has been low. The decrease in
revenues relate primarily to reduced volume from complete integrated drilling
modules. Revenues generated by acquisitions completed in 1999 totaled
approximately NOK 60 million during the year.
Operating Income. Operating income for the first nine months of 1999
increased by NOK 25 million compared to the first nine months of 1998 primarily
due to increased margins in the Drilling business. Operating income as a
percentage of revenues increased due to the mix of products, and due to the
effects of standardization and repeat sales of certain products. Acquisitions
completed in 1999 had a negative impact of NOK 7 million on operating profit
during the year.
Order Backlog. The order backlog was NOK 492 million at September 30, 1999
compared to NOK 767 million at September 30, 1998. Of the order backlog at
September 30, 1999 approximately NOK 190 million relate to the Drilling
business. A majority of the current backlog is expected to be earned by the
first quarter of 2000.
Associated companies. Loss from associated companies was NOK 48 million at
September 30, 1999 compared to net income of NOK 47 million at September 30,
1998. The 1999 loss consists primarily of losses totalling NOK 72 million caused
by reductions in the equity value of Hitec's shares due to the issue price of
two share issuances of Navis ASA and a gain of NOK 25 million on the sale of
approximately 1.9 million shares in Roxar ASA. After taxes and accounting for
the minority's share in the ownership of the Navis shares, the total effect of
these transactions on net income is a loss of NOK 4 million. Net income at
September 30, 1998 relate primarily to the sale of all shares in a non-listed
Norwegian company (Advanced Production and Loading AS).
The Drilling Business
Revenues. Revenues for the first nine months of 1999 were NOK 440 million,
a decrease of NOK 208 million compared to the first nine months of 1998. The
decrease is primarily due to a lower level of new orders for drilling equipment
in the preceding period, and in particular reduced volume from complete
integrated drilling modules. The market for drilling technology has remained
weak throughout 1999.
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<PAGE> 62
Operating Income. Operating income was NOK 63 million for the first nine
months of 1999, an increase of NOK 16 million compared to the first nine months
of 1998. The increase is primarily due to increased margins. Operating income as
a percentage of revenues increased due to the mix of products; and due to the
effects of standardization and repeat sales of certain products.
Year ended December 31, 1998 compared to results for the year ended December
31, 1997
Hitec ASA
Revenues. Revenues during 1998 increased NOK 573 million over 1997
primarily due to increased demand for drilling-related capital equipment. During
1998 two projects including complete integrated drilling modules were active
compared to only one in the preceding year. Coupled with higher products
activity (especially derived from the addition of the new active heave
compensating drawworks). Acquisitions in 1998 accounted for NOK 114 million of
the increase.
Operating Income. Operating income increased by NOK 61 million when
compared to the prior year with 1998 acquisitions accounting for NOK 11 million
of this incremental income and the remainder due to the higher activity levels
and higher margins.
Order Backlog. The order back log was NOK 678 million and NOK 792 million
at December 31, 1998 and December 31, 1997, respectively.
Associated Companies. At December 31, 1998 net income from associated
companies was reduced to NOK 43 million compared to net income of NOK 199
million at December 31, 1997. The 1997 net income stems from the increase in
equity value of Navis ASA and Roxar ASA investments, both of which were subject
to initial public offerings and stock listings during 1997.
Income Taxes. Hitec is subject to Norwegian corporation tax (28%), and
foreign taxes and recorded a combined tax rate of 47% in 1998 compared to a
combined tax rate of 29% in 1997. The reason for the high 1998 effective tax
rate is extraordinary amortization of non-deductible goodwill in relation to
sale of all shares held in Advanced Production and Loading AS.
The Drilling Business
Revenues. Revenues during 1998 were NOK 901 million, an increase of NOK 455
million over 1997. This was primarily due to increased international demand for
Hitec's drilling technology, leading to higher products activity (especially
derived from the break through of the new active heave compensating drawworks
(ActiveHeave Drilling(TM))). In addition, during 1998 two projects related to
complete integrated drilling modules were active compared to only one in the
preceding year.
Operating Income. Operating income increased to NOK 92 million, an increase
of NOK 66 million when compared to the prior year, due to both higher activity
levels and higher margins. The acquisition of Maritime Industry Service AS,
completed in January 1998, contributed revenues of 85 MNOK and net income of NOK
7 million.
Year ended December 31, 1997 compared to results for the year ended December
31, 1996
Hitec ASA
Revenues. Revenues during 1997 increased NOK 334 million over 1996
primarily due to increased demand for drilling capital equipment.
Operating Income. Operating income increased by NOK 26 million in 1997 when
compared to the prior year due to the higher activity levels.
Income Taxes. Hitec is subject to Norwegian corporation tax (28%), and
foreign taxes and recorded a combined tax rate of 29% in 1997 compared to a
combined tax rate of 27% in 1996.
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The Drilling Business
Revenues. Revenues during 1997 were NOK 446 million, an increase of NOK 270
million over 1996, primarily due to increased demand for drilling capital
equipment.
Operating Income. Operating income was NOK 26 million during 1997, an
increase of NOK 35 million when compared to the prior year. The increase was
primarily due to the higher activity levels.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, Hitec had working capital of NOK 209 million and a
current ratio of 1.87 to 1 compared to NOK 280 million and a current ratio of
1.95 to 1 at September 30, 1998. The decrease in working capital is primarily
caused by a NOK 98 million investment in long term financial assets during the
fourth quarter of 1998. At December 31, 1998 the comparative figures were NOK
155 million and 1.38 to 1.0 respectively. The increase during 1999 is partially
affected by the increase in long term debt relating to financing of properties
already on the balance sheet at December 31, 1998.
Net cash flows from operations were NOK 44 million at September 30, 1999
compared with a negative net cash flow of NOK 81 million at September 30, 1998.
The improved cash flow from operations stems partially from the reduced activity
whereas 1998 saw a significant increase in activity. Net cash flows from
operations were negative by NOK 76 million at December 31, 1998 and positive by
NOK 16 million at December 31, 1997 respectively.
Cash reserves including unused overdraft facilities were NOK 124 million at
September 30, 1999 compared to NOK 224 million at September 30, 1998. At
December 31, 1998 and 1997 the comparable cash reserves were NOK 85 million and
NOK 122 million respectively. The low level of cash reserves at December 31,
1998 was caused by the fact that several large accounts receivable fell due in
January of 1999. Net interest bearing debt amounted to NOK 131 million at
September 30, 1999, NOK 30 million at September 30, 1998, NOK 182 million at
December 31, 1998 and NOK 10 million at December 31, 1997. Hitec's gross
interest bearing debt at September 30, 1999 primarily consists of secured
property financing of NOK 92 million that bear interest at a rate of one month
NIBOR +0.75% and bank overdraft that bears interest at a rate of one month NIBOR
+0.65%.
Total capital expenditures were NOK 37 million during the first nine months
of 1999 compared to NOK 60 million and NOK 36 million for the years ended
December 31, 1998 and 1997 respectively. Property investments (including
enhancements) amounted to approximately NOK 20 million during the first nine
months of 1999, NOK 35 million in 1998 and NOK 21 million in 1997. The high
investment level during 1997 and 1998 reflects the increased activity during
these years.
Hitec believes that cash generated from operations and amounts available
under the credit facility will be sufficient to fund operations, working capital
needs, capital expenditure requirements and financing obligations at current
level of activity. Hitec also believes any significant increase in capital
expenditures caused by any need to increase manufacturing capacity can be funded
from operations or through debt financing.
Inflation has not had a significant impact on Hitec's operating results or
financial condition in recent years.
YEAR 2000
The year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Hitec has carried out an evaluation of the effects the year 2000 issue
could have on the Group.
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<PAGE> 64
Internal computer systems that do not fulfil the year 2000 compatibility
requirements have been or will be replaced during the course of 1999. Hitec
mainly uses standard software from recognized suppliers.
Certain of Hitec's own products use computer systems. Most products
delivered since March 1997 are year 2000 compatible. Customers owning older
systems, or more recent systems that are not year 2000 compatible, have to the
extent possible been contacted and informed that such systems that are still in
use should be upgraded or replaced.
Hitec is applying certain limited measures to verify year 2000 compliance
with suppliers and clients. Management believes that the Group has no suppliers
of such importance that any problems at the relevant company could threaten the
Group's activities.
MARKET RISK DISCLOSURE
Hitec is subject to market risk exposure related to changes in interest
rates on its credit facility and borrowings, primarily denominated in NOK. These
instruments carry interest at a pre-agreed upon percentage point spread from
NIBOR (Norwegian Inter Bank Offered Rate). At September 30, 1999, Hitec had NOK
162 million outstanding under its credit facility and borrowings. Based on this
balance, an immediate change of one percent in the interest rate would cause a
change in interest expense of approximately NOK 1.62 million on an annual basis.
Hitec's objective in maintaining variable rate borrowings is the flexibility
obtained regarding early repayment without penalties and lower overall cost as
compared with fixed-rate borrowings.
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BUSINESS OF HITEC
INTRODUCTION AND SUMMARY
Hitec is a leading provider of innovative and technologically advanced
systems and solutions to the oil and gas exploration, development and production
industry, as well as to the shipping industry. Hitec designs, engineers,
constructs and installs customized solutions and develops and applies advanced
technology to create products which enhance traditional methods used in the
drilling process. Hitec has a number of operating companies within its two main
segments: Products & Technology and Engineering & Construction.
Hitec's head office is located in Stavanger, Norway. Hitec conducts its
operations through the coordinated activities of its holding company and
operating subsidiaries, which are primarily located in Norway. The most
significant operating subsidiaries are described below; certain insignificant
companies are not described.
HISTORY
Hitec was founded in Norway in 1985 by Jon Gjedebo, Hitec's President and
Chief Executive Officer. Hitec initially concentrated on the production of
control systems and instrumentation, particularly for the drilling industry.
Around 1990 Hitec began building lightweight drilling facilities and pipe
handling systems, expanding into its current strategy of developing products
applying innovative technology. Hitec was listed on the Oslo Stock Exchange
1994, the same year it introduced the Cyberbase operator station. Since 1995
Hitec has expanded both internationally and in terms of new applications of its
control systems expertise.
PRODUCTS & TECHNOLOGY COMPANIES
Hitec Drilling & Marine Systems AS
Hitec Drilling & Marine Systems is the largest company in the Group. HDMS
was established on January 1, 1999 as part of a reorganization of the Hitec
Group. HDMS continues most of the previous operations of Hitec ASA, which
following the reorganization serves solely as a holding company.
HDMS designs, engineers, builds and installs drilling systems and
solutions. HDMS' core business in this area is the production of control and
data acquisition systems for drilling rigs and drilling equipment. Based on
HDMS' technology for such systems it also develops and markets certain automated
or remote controlled machinery for use on drilling rigs. HDMS is also a leading
supplier in Norway of complete drilling packages for fixed and mobile platforms,
drilling rigs and drillships.
One of HDMS' key products is computer-based drilling instrumentation. In
1994, Hitec created the Cyberbase(TM)operator station, in which traditional
gauges, lamps and other drilling instrumentation are replaced by software on
computer screens, and traditional switches, handles and levers are replaced by
computer keypads and joysticks placed in the armrests of the operator's chair.
The Cyberbase(TM) operator station form the basis of the current
state-of-the-art driller's cabins, and Hitec believes that the product has a
significant share of the world market for drilling controls for new offshore
drilling rigs.
HDMS has developed a range of machinery used for handling drill pipe and
casing. Such remote controlled and automated systems play an important role in
making the handling of drill pipe and casing less hazardous and time-consuming,
thereby increasing efficiency and lowering cost.
Together with National Oilwell, Hitec has designed the ActiveHeave
Drilling(TM) system ("AHD") to permit drilling from semisubmersible drilling
rigs and drillships based on advanced computer control of the drawworks. The AHD
uses the drawworks to compensate for the heaving motion of the vessel. The AHD
has several advantages over traditional systems including its ability to offset
higher waves than conventional systems, provide a lower vessel center of gravity
and handle heavier loads. As a result, semis and drillships using the AHD can
drill in poorer weather conditions and in deeper waters.
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<PAGE> 66
HDMS designs turn key drilling packages which may include a derrick and
associated machinery including drawworks, top drive and drillpipe handling
machinery; the drillers cabin, instrumentation and control systems; the drilling
mud circulation system including mud pumps, mixing systems and tanks; additional
drilling equipment and supporting steel structures.
HDMS also engages in certain non-drilling activities. These include the
DataVision department of HDMS, a provider of services and solutions within
technical animation, visualization and virtual reality; product group Marine, a
supplier of control systems for ships and process plants; and product group
Environment, a supplier of control systems for water, wastewater and
incineration plants.
As of September 30, 1999, HDMS had 253 employees. In connection with the
sale of the non-drilling business to HitecVision, approximately 60 of these
employees will be transferred to HitecVision.
Hitec Products AS
Hitec Products was established on January 1, 1999 as part of a
reorganization of the Hitec Group. Hitec Products is a major supplier of process
instrumentation for Norwegian oil field developments and operations. Hitec
Products is able to offer complete instrumentation packages to offshore
developments based on agreements with leading manufacturers of such instruments.
Hitec believes that Hitec Products is the market leader in Norway for the design
and assembly of hydraulic systems, which are used to convert computer signals to
machine movements, typically opening and closing valves, and are also an
important component of many control systems.
As of September 30, 1999, Hitec Products had 37 employees. Hitec Products
will be sold to HitecVision as part of the disposal of the non-drilling
business.
Hitec Marine AS
Hitec believes that Hitec Marine, which was acquired by Hitec in 1995-96,
is the leading supplier of advanced systems for offshore loading and offloading
of crude oil. Hitec Marine's products are installed worldwide on platforms,
floating production units, and shuttle tankers loading oil from production
facilities offshore.
As of September 30, 1999, Hitec Marine, including subsidiaries, had 55
employees. Hitec Marine will be sold to HitecVision as part of the disposal of
the non-drilling business.
Hitec Subsea AS
Hitec Subsea provides products and services related to remote operated
subsea work, where the most important product line is remote operated subsea
vessels ("ROVs"). Hitec acquired Hitec Subsea in 1996.
As of September 30, 1999, Hitec Subsea had 38 employees. Hitec Subsea will
be sold to HitecVision as part of the disposal of the non-drilling business.
Hitec Marine Automation AS
Hitec Marine Automation supplies navigation equipment and vessel automation
systems for naval and civilian vessels. Hitec Marine Automation was acquired by
Hitec in April 1999.
As of September 30, 1999, Hitec Marine Automation had 37 employees. Hitec
Marine Automation will be sold to HitecVision as part of the disposal of the
non-drilling business.
International Operations
The various Products & Technology companies market their products
internationally through a network of subsidiaries and agents. The subsidiaries
are located in Aberdeen, Scotland; Rio de Janeiro, Brazil; Edmonton and Calgary,
Canada; Koje City, Korea; and Houston, Texas, United States.
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<PAGE> 67
As of September 30, 1999, these international subsidiaries had 85
employees, of which 4 will be transferred to HitecVision as part of the disposal
of the non-drilling business.
ENGINEERING AND CONSTRUCTION COMPANIES
Maritime Industry Service AS
Maritime Industry Service is a supplier of solutions and services related
to upgrading, modifying, maintaining and repairing offshore drilling rigs and
platforms. Maritime Industry Service has its own manufacturing workshop, and
also performs much of its work on site on rigs and platforms offshore or
quayside.
As of September 30, 1996, Maritime Industry Service had 86 employees.
Hitec Framnaes AS
Hitec Framnaes, acquired by Hitec in 1997, is a design engineering company
which employs approximately 80 engineers. Hitec Framnaes provides design and
project management services within new newbuild and modification of ships,
including floating production units, certain types of ships' equipment, design
and modification of semisubmersible drilling rigs (mainly hull related), and
design and modification of process plant both in the oil and gas and other
industries. Additionally, Hitec Framnaes markets proprietary designs, including
designs for floating production units and semisubmersible drilling rigs, and
products such as burner booms for floating production units and mobile drilling
units.
Hitec Framnaes owns 40% of Framnaes Installation AS, an on-site
installation company for the oil and gas industry and for other industries.
Customers include shipyards, offshore module fabricators and the mechanical and
petrochemical industry in addition to offshore work for contractors and rig
operators.
As of September 30, 1999, Hitec Framnaes had 97 employees. Hitec Framnaes
will be sold to HitecVision as part of the disposal of the non-drilling
business.
Karmoy Stal AS
Karmoy Stal is a steel fabricator with a large and well-equipped facility
for steel construction work. Karmoy Stal holds a strong market position in the
regional industry, in particular aluminum and other smelters. Karmoy Stal also
has sizeable deliveries to the offshore oil and gas industry. A significant part
of the workforce, mainly skilled welders and other skilled labor, are hired out
to other companies as contract labor.
As of September 30, 1999, Karmoy Stal had 184 employees. Karmoy Stal will
be sold to HitecVision as part of the disposal of the non-drilling business.
CUSTOMERS
Hitec's major customers for drilling technology include major Norwegian and
international oil companies, drilling contractors, drilling rig builders and oil
service companies. Although the size of certain projects means that at any
particular point in time a single customer may account for a significant portion
of Hitec's revenues, the loss of any one customer would not have a material
adverse effect on Hitec.
COMPETITION
Hitec participates in markets that are characterized by intense
competition. Hitec competes with other suppliers that offer a similar range of
products and services, although no one competitor offers Hitec's complete range
of products. Contracts for systems and solutions provided by Hitec to the oil
and gas industry are traditionally put out to bid. While the cost to the
customer of purchasing, operating and maintaining the product over its lifetime
(the "Life Cycle Cost") is the major factor which influences whether Hitec is
awarded a contract, other important factors include the product's technical
features, Hitec's execution skills, experience in the technologically complex
nature of complicated projects,
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<PAGE> 68
reputation and customer relations. Although Hitec believes that it has
established an international reputation for technologically innovative products
and excellent standards, there can be no assurance that future contract awards
will be made on any basis other than Life Cycle Cost.
TECHNOLOGY AND PRODUCT DEVELOPMENT
Hitec aims to be a world leader in the development of innovative new
technology for the oil and gas industry and believes that constant innovation of
the technology developed for its products is important to its continued success.
Hitec's technology and product development activities are focused on enhancing
its existing products while seeking cost efficient methods to create new
products. Generally, Hitec's customers partially fund the development of new
technology. For a new design, Hitec initially undertakes a feasibility study.
Hitec then markets the product concept to its customers and may sell the first
product at cost so that its development costs are partially borne by the
customer.
MARKETING, SALES AND DISTRIBUTION
Hitec markets its products primarily through its own sales force, and
generally includes its engineers as part of the sales team. Hitec's subsidiaries
outside of Norway act as sales organizations in their respective countries.
Hitec also uses commission agents in a number of countries.
INTELLECTUAL PROPERTY
Hitec owns a number of Norwegian and foreign patents covering a variety of
products. Hitec does not consider any single patent to be essential for its
business. In general, Hitec relies on its industry standing and being in the
forefront of new technology development. Hitec has the right to use a number of
brand names and technological concepts such as Cyberbase(TM), C-Link(TM),
SDI(TM) and Active Heave Drilling(TM).
EMPLOYEES
As of September 30, 1999 Hitec employed 885 employees, of whom about 85
worked outside Norway.
Hitec Framnaes AS and Karmoy Stal AS are the only companies within Hitec to
have employees represented by a union. Such employees represent approximately
40% of Hitec Framnaes and approximately 80% of Karmoy Stal, in total 21% of
Hitec. There are a few agreements negotiated between management and
representatives elected by employees governing general working conditions not
covered directly by Norwegian law or employment contracts.
There has been no labor action among the employees during the past year,
and Hitec considers its relations with its employees to be good.
SUPPLIERS AND SUBCONTRACTORS
On many major projects for which Hitec acts as the project manager, a
significant portion of the work is contracted to, and a significant portion of
the equipment may be procured from, third party suppliers or vendors. For some
types of equipment, Hitec enters into contracts with subcontractors and
suppliers on a project-by-project basis; however, Hitec has frame agreements
with its main suppliers in order to standardize certain components. Such
agreements normally have a duration of one to three years. In all cases,
alternative sources are readily available.
Hitec's suppliers are located worldwide, the majority being located in
Europe while Hitec's major equipment suppliers are located in the U.S. and
Canada. The loss of any one supplier would not materially affect Hitec's
operations as alternative equipment and sub-contractors are readily available
without, Hitec believes, any significant increase in the costs of Hitec's
projects.
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<PAGE> 69
FACILITIES
The principal offices and facilities owned or leased by Hitec and their
current uses are described in the following table:
<TABLE>
<CAPTION>
FACILITY PROPERTY
LOCATION SIZE SIZE TENANCY USE
- -------- ------------ ------------ ------- -----------------------------
(SQ. METERS) (SQ. METERS)
<S> <C> <C> <C> <C>
Lagerveien 6, Stavanger, Norway... 4,000 4,000 Owned Offices/workshop
Lagerveien 14, Stavanger,
Norway.......................... 1,750 5,536 Owned Offices/workshop
Vikaveien 85, Arendal, Norway..... 2,165 6,440 Owned Offices
Sondre Kullerod, Sandefjord,
Norway.......................... 3,290 7,016 Owned Offices
Steiningsholmen, Skudeneshavn,
Norway.......................... 7,805 29,764 Owned Offices/workshop
5225 Hollister, Houston, TX USA... 2,000 10,000 Owned Offices/workshop
266 Auchmill Road, Aberdeen,
Scotland........................ 384 2,000 Owned Offices/workshop
Lagerveien 8, Stavanger, Norway... 1,535 2,535 Leased Headquarters/Offices
Lagerveien 16, Stavanger,
Norway.......................... 1,150 2,650 Leased Offices/workshop
Lagerveien 20, Stavanger,
Norway.......................... 5,000 5,471 Leased Offices
Dusavik, Norway................... 1,422 2,426 Leased Offices/workshop
</TABLE>
LEGAL PROCEEDINGS
Hitec is from time to time involved in routine litigation incidental to its
operations. Hitec does not believe that any liabilities that may result from
currently pending legal proceedings will, individually or in the aggregate, have
a material adverse effect on its business or the consolidated financial position
or future results of operations and cash flows of Hitec and its subsidiaries
taken as a whole.
MAJOR SHAREHOLDINGS OF HITEC
Hitec holds significant interests in two companies. These interests are
included in the sale of the non-drilling business to HitecVision.
Roxar ASA
Roxar ASA was formed in 1999 as the result of a merger between Smedvig
Technologies and Multi-Fluid ASA. Roxar is a global supplier of integrated field
development and reservoir management products and services to the oil and gas
industry.
Using Roxar modeling tools, the company creates accurate 3D models of
subsurface structures, and simulates fluid flow during hydrocarbon extraction.
It also provides systems to monitor, control and measure the three phase
production from the reservoir in real time.
Multi-Fluid was a former Hitec subsidiary which was spun off and listed
separately in 1997. The company's main products, now part of Roxar's product
range, were multiphase meters and water-cut meters. Hitec currently has a 13%
shareholding in Roxar ASA.
Navis ASA
Navis ASA was established in 1997 as a subsidiary of Hitec's 51% owned
subsidiary DynaSea AS, with the purpose of commercializing a new drillship
technology. Navis became a public company in 1997.
Hitec has entered into a contract with the Samsung shipyard in South Korea,
for the construction of Navis Explorer I, an advanced, dynamic drillship, based
on the Navis design. Navis Explorer I will be capable of drilling world wide at
a water depth of 3,000 m, and capable of year-round operations in harsh
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<PAGE> 70
environments. The Vessel is scheduled for delivery in the first quarter of 2000.
No contract has yet been signed for utilization of the vessel.
Navis ASA is located in Stavanger, Norway, and listed on the Oslo Stock
Exchange. Hitec has a direct ownership of 11% in Navis, as well as an indirect
ownership of 3% through 6% ownership by DynaSea AS, which is owned 51% by Hitec.
69
<PAGE> 71
OWNERSHIP OF HITEC
The table below sets forth, as of September 30, 1999, information with
respect to the beneficial ownership of Hitec's common stock by:
- each person who is known by Hitec to own beneficially more than 5% of the
outstanding shares of Hitec common stock;
- each director of Hitec;
- the chief executive officer and four other most highly compensated
executive officers of Hitec; and
- all directors and executive officers of Hitec as a group.
Unless otherwise indicated, to the knowledge of Hitec all persons listed
below have sole voting and investment power over their shares of common stock.
<TABLE>
<CAPTION>
OPTIONS/
NAME OF BENEFICIAL OWNER SHARES WARRANTS TOTAL PERCENT
- ------------------------ ---------- -------- ---------- -------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Knut Am................................................ 0 10,000 10,000 *
Geir B. Larsen(1)...................................... 20,000 10,000 30,000 *
Folke Hermansen(2)..................................... 100,000 10,000 110,000 *
Bjarte Haland.......................................... 26,000 500 26,500 *
Odd Mohus.............................................. 100 1,500 1,600 *
Charles William Pedersen............................... 0 0 0 *
Jon Gjedebo(3)......................................... 10,346,188 20,500 10,366,688 27.44%
Ole Ertvaag............................................ 0 10,500 10,500 *
Rune Kvernberg......................................... 0 10,500 10,500 *
Ola Saetre............................................. 919,972 10,500 930,472 2.74%
All directors and executive officers as a group (10
persons)............................................. 11,412,260 84,000 11,496,260 30.43%
OTHER 5% OWNERS
Styrbjorn AS(4)........................................ 10,187,188 -- 10,187,188 26.97%
Mosvold Farsund AS..................................... 3,740,000 -- 3,740,000 9.90%
</TABLE>
- ---------------
* Less than 1%
(1) Mr. Larsen owns these shares through Svennevik Invest AS, a Norwegian
company. Mr. Larsen also represents Mosvold Farsund AS, a company of which
he has been Managing Director, and which is the second largest shareholder
of Hitec with 3,740,000 shares (9.94% of the outstanding shares of common
stock) as of November 1, 1999.
(2) Mr. Hermansen owns his shares through Det Stavangerske Dampskibsselskap AS,
Norwegian company.
(3) Mr. Gjedebo owns 10,187,188 of his shares through Styrbjorn AS and 159,000
of his shares through Joto AS. Styrbjorn AS is the largest shareholder of
Hitec with 27.07% of the outstanding shares of common stock as of November
1, 1999.
(4) Styrbjorn AS is controlled by Jon Gjedebo, the Chief Executive Officer and a
director of Hitec.
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<PAGE> 72
INFORMATION REGARDING JON GJEDEBO
Following the completion of the offer, Jon Gjedebo, age 54, President and
Chief Executive Officer of Hitec since its founding in 1985, will be appointed
Executive Vice President and Chief Technology Officer of National Oilwell.
Additionally, Mr. Gjedebo will be appointed to the board of directors of
National Oilwell at the meeting of the board of directors next following
completion. National Oilwell will nominate Mr. Gjedebo for re-election as a
director at the its next annual meeting of stockholders.
The following table sets forth a summary of the compensation paid to Mr.
Gjedebo by Hitec for the last three years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------- ------------
ALL OTHER ANNUAL SHARES
COMPENSATION UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY (NOK)(1) BONUS (NOK) (NOK)(2) OPTIONS(3) COMPENSATION
- ----------------- ---- --------------- ----------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jon Gjedebo........... 1998 880,803 -- 111,502 -- --
President and Chief 1997 840,690 -- 79,570 66,800 --
Executive Officer 1996 738,035 -- 74,200 112,000 --
</TABLE>
- ---------------
(1) These amounts include an annual fee of NOK 60,000 paid to Mr. Gjedebo for
his service as a director of Hitec ASA.
(2) These amounts represent insurance premiums paid by, on or behalf of Hitec
with respect to term life insurance for Mr. Gjedebo.
(3) Mr. Gjedebo relinquished these options and Hitec subsequently made a
charitable donation of these options.
Mr. Gjedebo currently holds options to purchase 20,500 Hitec shares at a
price of NOK 20 per share. These options were granted on December 18, 1998 and
are exercisable on December 1, 2000. Mr. Gjedebo has never exercised any options
to purchase shares of Hitec ASA.
COMPENSATION AS A DIRECTOR
Mr. Gjedebo received an annual fee of NOK 60,000 for his service on the
board of Hitec Marine, a subsidiary of Hitec. In 1997, Mr. Gjedebo received an
annual fee of NOK 15,000 for his service on the board of APL, an associated
company of Hitec until 1998. In 1996, fees paid to Mr. Gjedebo as a director of
certain subsidiaries and associated companies of Hitec totalled NOK 50,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Gjedebo is the owner of Styrbjorn AS, a Norwegian limited company.
Styrbjorn controls several other Norwegian companies, including Maletempelet AS,
Joto AS, Cybernetix AS and Bifrost AS. The following is a list of related
transactions between these companies and Hitec since January 1, 1998:
- Hitec leases an office building (Lagerveien 8) from Maletempelet AS at an
annual rent of approximately NOK 3,050,000;
- Hitec leases an outdoor storage facility from Bifrost AS at an annual
rent of NOK 200,000 for 1998 and NOK 240,000 for 1999;
- Hitec has paid Cybernetix NOK 239,670 for consulting services performed
to date in 1999; and
- Hitec has paid Joto AS NOK 80,600 for consulting services performed to
date in 1999.
Additionally, in December 1998, Hitec purchased sixty percent of the shares
of Karmoy Stal AS from Joto Eiendom AS and Cybernetix AS for a total
consideration of NOK 18,000,000, which was based in
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<PAGE> 73
part on the future earnings of Karmoy Stal AS and its co-operating company
Maritime Industry Service AS, which was already a subsidiary of Hitec. Prior to
the acquisition, Hitec owned thirty percent of the outstanding shares of Karmoy
Stal. Joto Eiendom AS and Cybernetix AS also are entitled to receive NOK 900,000
each if the 1999 combined pre-tax profit of Karmoy Stal AS and Maritime Industry
Service AS exceeds NOK 18,000,000. Hitec will be required to pay NOK 900,000 to
each of Karmoy Stal AS and Maritime Industry Service AS if the combined pre-tax
profit of Karmoy Stal AS and Maritime Industry Service AS exceeds NOK 20,000,000
in 2000 and 2001. Finally, if Karmoy Stal AS and Marine Industry Service AS are
sold at any time during 1999-2001, Joto Eiendom AS and Cybernetix AS will be
entitled to receive a portion of the sales price if the sales price exceeds
certain levels.
Mr. Gjedebo is also a party to certain patent license agreements with
Hitec. Pursuant to these agreements, Mr. Gjedebo will receive a royalty payment
between one to three percent of the potential sales by Hitec of products based
on certain of Mr. Gjedebo's inventions. There is no guarantee that Hitec will
sell any of these products or that Mr. Gjedebo will receive any royalty payments
under these patent license agreements.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, will issue an
opinion as to the validity of the common stock of National Oilwell offered under
this prospectus.
EXPERTS
The consolidated financial statements of National-Oilwell, Inc. as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998, appearing in this prospectus and registration statement, have
been audited by Ernst & Young LLP, 1221 McKinney Street, Suite 2400, Houston,
Texas 77010, independent auditors, as set forth in their report thereon
appearing herein which, as to the year 1996, is based in part on the report of
Coopers & Lybrand, 1501 TD Tower, 10088 102 Avenue, Edmonton, Alberta Canada
T5J2Z1, independent auditors. The financial statements referred to above are
included in reliance upon such reports given on the authority of such firms as
experts in accounting and auditing.
The parent only and consolidated financial statements of Hitec have been
audited by Deloitte & Touche, Strandsvingen 14, 4066 Stavanger, Norway,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
72
<PAGE> 74
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the Securities and Exchange
Commission. These reports, proxy statements and other information can be read
and copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549; Midwest Regional office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained at the prescribed rates from the Public
Reference Section of the SEC at its principal office in Washington, D.C. by
calling the SEC at 1-800-732-0330. In addition, we file this material
electronically with the SEC, and the SEC maintains a Web site
(http://www.sec.gov) that contains reports, proxy statements and other
information regarding companies (including us) that file electronically with the
SEC. Our common stock is listed on the New York Stock Exchange and our reports,
proxy statements and other information can also be inspected at the office of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed with the SEC a registration statement on Form S-4, with
respect to our common stock to be issued to Hitec shareholders in connection
with the completion of the offer, and this prospectus is part of our
registration statement. For further information with respect to us and the
shares, we refer you to the registration statement and its exhibits.
73
<PAGE> 75
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NATIONAL OILWELL AND SUBSIDIARIES
Report of Ernst & Young LLP, Independent Auditors........... F-2
Report of Coopers & Lybrand, Independent Auditors of
Dreco..................................................... F-3
Consolidated Balance Sheets at December 31, 1998 and
December 31, 1997......................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1998, December 31, 1997 and December 31,
1996...................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, December 31, 1997 and December 31,
1996...................................................... F-6
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, December 31, 1997 and
December 31, 1996......................................... F-7
Notes to Consolidated Financial Statements.................. F-8
Consolidated Balance Sheets at September 30, 1999
(Unaudited) and December 31, 1998......................... F-22
Unaudited Consolidated Statements of Operations for the nine
months ended September 30, 1999 and September 30, 1998.... F-23
Unaudited Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and September 30, 1998.... F-24
Notes to Unaudited Consolidated Interim Financial
Statements................................................ F-25
HITEC ASA AND SUBSIDIARIES*
Report of Deloitte & Touche, Independent Auditors........... F-28
Directors' Report for 1998.................................. F-29
Income Statements of Hitec ASA (Parent Only) and
Consolidated Income Statements for the years ended
December 31, 1998, December 31, 1997 and December 31,
1996...................................................... F-34
Balance Sheet of Hitec ASA (Parent Only) and Consolidated
Balance Sheets at December 31, 1998 and December 31,
1997...................................................... F-35
Cash Flow Statements of Hitec ASA (Parent Only) and
Consolidated Cash Flow Statements for the years ended
December 31, 1998, December 31, 1997 and December 31,
1996...................................................... F-37
Accounting Principles....................................... F-38
Notes to Financial Statements............................... F-44
Unaudited Summary Consolidated Income Statements for the
nine months ended September 30, 1999 and September 30,
1998...................................................... F-55
Unaudited Summary Consolidated Balance Sheet at September
30, 1999.................................................. F-56
Unaudited Consolidated Cash Flow Statement for the nine
months ended September 30, 1999 and September 30, 1998.... F-57
Notes to Unaudited Consolidated Interim Financial
Statements................................................ F-58
</TABLE>
- ---------------
* The Report of Deloitte & Touche, the Directors' Report for 1998, and financial
statements of Hitec are English translations of the original Norwegian text.
F-1
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
National-Oilwell, Inc.
We have audited the accompanying consolidated balance sheets of
National-Oilwell, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit in 1996 the financial statements of Dreco Energy
Services, Ltd., a wholly-owned subsidiary, which statements reflect total
revenues of $113,195,000 for the year ended November 30, 1996. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Dreco Energy Services, Ltd.,
is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of National-Oilwell, Inc., at December 31,
1998 and 1997, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
August 19, 1999
F-2
<PAGE> 77
To the Directors of
Dreco Energy Services Ltd.
We have audited the consolidated balance sheet of Dreco Energy Services
Ltd. as at November 30, 1996 and the consolidated statements of operations,
shareholders' equity and cash flows for the twelve months ended November 30,
1996. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the company
as at November 30, 1996 and the consolidated results of its operations and its
cash flows for the twelve months then ended in accordance with generally
accepted accounting principles in the United States.
/s/ COOPERS & LYBRAND
Chartered Accountants
Edmonton, Alberta
October 21, 1997
F-3
<PAGE> 78
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 11,963 $ 20,391
Receivables, less allowance of $4,963 and $4,162.......... 301,405 210,062
Unbilled revenues......................................... -- 31,521
Inventories............................................... 253,385 216,578
Deferred taxes............................................ 16,489 9,839
Prepaid and other current assets.......................... 7,677 6,988
-------- --------
Total current assets.............................. 590,919 495,379
Property, plant and equipment, net........................ 96,174 77,921
Deferred taxes............................................ 6,757 4,919
Goodwill.................................................. 145,696 24,233
Property held for sale.................................... 9,981 --
Other assets.............................................. 6,361 541
-------- --------
$855,888 $602,993
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 8,427 $ 10,543
Accounts payable.......................................... 131,575 152,296
Customer prepayments...................................... 25,392 37,688
Accrued compensation...................................... 7,237 12,957
Other accrued liabilities................................. 54,158 26,285
-------- --------
Total current liabilities......................... 226,789 239,769
Long-term debt............................................ 221,198 61,719
Deferred taxes............................................ 4,097 2,675
Other liabilities......................................... 10,505 14,622
-------- --------
Total liabilities................................. 462,589 318,785
Commitments and contingencies
Stockholders' equity:
Common stock -- par value $.01; 57,916,785 and 53,575,782
shares issued and outstanding at December 31, 1998 and
December 31, 1997...................................... 579 536
Additional paid-in capital................................ 248,194 207,950
Accumulated other comprehensive income.................... (13,821) (7,018)
Retained earnings......................................... 158,347 82,740
-------- --------
393,299 284,208
-------- --------
$855,888 $602,993
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 79
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Revenues.................................................. $1,271,914 $1,097,406 $822,443
Cost of revenues.......................................... 990,341 880,708 693,253
---------- ---------- --------
Gross profit.............................................. 281,573 216,698 129,190
Selling, general, and administrative...................... 142,628 114,252 82,045
Special charge............................................ 16,433 10,660 16,611
---------- ---------- --------
Operating income.......................................... 122,512 91,786 30,534
Interest and financial costs.............................. (13,901) (7,088) (12,710)
Interest income........................................... 1,025 1,524 1,301
Other income (expense), net............................... (280) (77) 303
---------- ---------- --------
Income before income taxes and extraordinary loss......... 109,356 86,145 19,428
Provision for income taxes................................ 40,402 31,318 6,733
---------- ---------- --------
Net income before extraordinary loss...................... 68,954 54,827 12,695
Extraordinary loss, net of tax benefit.................... -- 623 4,000
---------- ---------- --------
Net income................................................ $ 68,954 $ 54,204 $ 8,695
========== ========== ========
Net income per share:
Basic
Net income before extraordinary loss................. $ 1.26 $ 1.03 $ 0.30
Extraordinary loss................................... -- (0.01) (0.10)
---------- ---------- --------
Net income........................................... $ 1.26 $ 1.02 $ 0.20
========== ========== ========
Net income per share:
Diluted
Net income before extraordinary loss................. $ 1.26 $ 1.02 $ 0.30
Extraordinary loss................................... -- (0.01) (0.10)
---------- ---------- --------
Net income........................................... $ 1.26 $ 1.01 $ 0.20
========== ========== ========
Weighted average shares outstanding:
Basic................................................... 54,700 53,044 41,938
========== ========== ========
Diluted................................................. 54,882 53,876 42,473
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 80
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income............................................... $ 68,954 $ 54,204 $ 8,695
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization......................... 20,598 15,443 9,219
Provision for losses on receivables................... 610 730 526
Provision for deferred income taxes................... (4,092) (3,121) (2,433)
Gain on sale of assets................................ (2,315) (2,954) (2,708)
Foreign currency transaction (gain) loss.............. (103) 602 (157)
Special charge........................................ 16,433 10,660 16,611
Extraordinary loss.................................... -- 999 6,400
Changes in assets and liabilities, net of acquisitions:.... -- -- --
Receivables.............................................. (49,524) (64,290) (30,142)
Unbilled revenues........................................ 31,521 (17,641) (8,151)
Inventories.............................................. 17,327 (71,359) (5,805)
Prepaid and other current assets......................... 3,985 1,886 (837)
Accounts payable......................................... (46,986) 51,252 9,128
Other assets/liabilities, net............................ (23,379) 23,332 (8,331)
--------- -------- ---------
Net cash provided (used) by operating
activities..................................... 33,029 (257) (7,985)
--------- -------- ---------
Cash flow from investing activities:
Purchases of property, plant and equipment............... (29,241) (34,783) (15,796)
Proceeds from sale of assets............................. 10,001 4,525 4,058
Businesses acquired, net of cash......................... (130,963) (19,253) --
Partnership acquired, net of cash........................ -- -- (106,248)
Other.................................................... -- 248 (350)
--------- -------- ---------
Net cash used by investing activities............ (150,203) (49,263) (118,336)
--------- -------- ---------
Cash flow from financing activities:
Borrowings (payments) on line of credit.................. 1,317 61,267 (86,040)
Retirement of long-term debt............................. (40,855) (41,359) --
Net proceeds from issuance of long-term debt............. 148,937 -- --
Proceeds from issuance of common stock................... -- 37,240 107,947
Proceeds from stock options exercised.................... 1,002 6,546 341
Proceeds from debt related to acquisition of Company..... -- -- 103,378
Other.................................................... (1,434) (2,134) 4,382
--------- -------- ---------
Net cash provided (used) by financing
activities..................................... 108,967 61,560 130,008
--------- -------- ---------
Effect of exchange rate losses on cash..................... (221) (4,097) (180)
--------- -------- ---------
Increase (decrease) in cash and equivalents................ (8,428) 7,943 3,507
Cash and cash equivalents, beginning of year............... 20,391 14,198 16,317
Change in cash to conform fiscal year end.................. -- (1,750) (5,626)
--------- -------- ---------
Cash and cash equivalents, end of year..................... $ 11,963 $ 20,391 $ 14,198
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 81
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED
STOCK CAPITAL INCOME EARNINGS TOTAL
------ ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Beginning Balance......................... $ 75 $ 40,134 $ (3,706) $ 18,027 $ 54,530
Net income.............................. 8,695 8,695
Currency translation adjustments........ 1,419 1,419
--------
Comprehensive income................. 10,114
Stock options exercised................... 341 341
Issuance of 17,857,698 shares............. 179 107,497 107,676
Tax benefit of options exercised.......... 1,521 1,521
Premerger dividends to Dupre
shareholders............................ (1,083) (1,083)
---- -------- -------- -------- --------
254 149,493 (2,287) 25,639 173,099
Balance at December 31, 1996.............. 54,204 54,204
Net income.............................. (4,371) (4,371)
--------
Currency translation adjustments........ 49,373
Comprehensive income
Stock options exercised................... 5 6,546 6,551
Issuance of 1,053,000 shares.............. 10 37,225 37,235
Stock issued for acquisitions............. 8 10,984 3,130 14,122
Two-for-one stock split................... 259 (259) --
Change in subsidiary's year end........... 917 917
Premerger dividends to Dupre
shareholders............................ (1,150) (1,150)
Tax benefit of options exercised.......... 3,961 3,961
---- -------- -------- -------- --------
Balance at December 31, 1997.............. 536 207,950 (7,018) 82,740 284,208
Net income.............................. 68,954 68,954
Currency translation adjustments........ (6,979) (6,979)
Unrealized losses on available-for-sale
securities........................... (473) (473)
--------
Comprehensive income................. 61,502
Stock options exercised................... 1,002 1,002
Stock issued for acquisitions............. 43 39,138 649 6,653 46,483
Tax benefit of options exercised.......... 104 104
---- -------- -------- -------- --------
Balance at December 31, 1998.............. $579 $248,194 $(13,821) $158,347 $393,299
==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 82
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
On July 1, 1999, National Oilwell acquired all the outstanding stock of
Dupre Supply Company and Dupre International Inc., a Louisiana based
distribution and valve automation business for 1.92 million shares of National
Oilwell common stock. The transaction was a tax-free exchange and was recorded
in accordance with the pooling-of-interests method of accounting. Theses
financial statements restate the previously reported results of National Oilwell
to combine the historical financial statements of Dupre in accordance with the
pooling-of-interests method of accounting.
Effective September 25, 1997, National Oilwell completed a combination with
Dreco Energy Services Ltd. The combination was accounted for as a
pooling-of-interests and the consolidated financial statements of National
Oilwell and Dreco have been combined with all prior periods restated. As a
result of the combination, each Dreco Class "A" common share outstanding was
converted into .9159 of a Dreco Exchangeable Share and approximately 14.4
million Exchangeable Shares were issued. Each Exchangeable Share is intended to
have substantially identical economic and legal rights as, and will ultimately
be exchanged on a one-for-one basis for, a share of National Oilwell common
stock. As of December 31, 1998, approximately 82% of the Exchangeable Shares had
been converted into National Oilwell common stock.
Effective January 1, 1996, National-Oilwell, Inc. acquired National
Oilwell, a general partnership. The transaction was accounted for under the
purchase method of accounting.
Information concerning common stock and per share data has been restated on
an equivalent share basis and assumes the exchange of all Exchangeable Shares
issued in connection with the combination with Dreco Energy Services Ltd., as
described below. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported and contingent amounts of assets and
liabilities as of the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other Acquisitions
On December 2, 1996, Dreco acquired 100% of the issued and outstanding
shares of Vector Oil Tool Ltd. for consideration of 778,000 Dreco common shares
and cash consideration of $1.5 million. This business involves the manufacture,
sale, rental and service of downhole motors and other products. The transaction
was accounted for using the purchase method, is reflected in the 1997 financial
statements due to the combination of differing balance sheet dates as discussed
above and did not have a material effect on National Oilwell's consolidated
financial statements.
On April 25, 1997, National Oilwell purchased the drilling controls
business of Ross Hill Controls and its affiliate, Hill Graham Controls Limited,
for $19.2 million in cash. This business involves the manufacture, sale and
service of electrical control systems used in conjunction with drilling
operations. The transaction was accounted for under the purchase method of
accounting and did not have a material effect on National Oilwell's consolidated
financial statements.
On May 15, 1997, National Oilwell acquired by merger 100% of the common
stock of PEP, Inc., a manufacturer of petroleum expendable pump products. The
Company issued 800,000 shares of common stock pursuant to the transaction which
was recorded in accordance with the pooling-of-interests method of accounting.
The transaction did not have a material effect on National Oilwell's historical
consolidated financial statements and financial statements prior to April 1,
1997 were not restated.
On May 29, 1998, National Oilwell acquired all of the capital stock of
Phoenix Energy Products Holdings, Inc. for approximately $115 million in a
business combination which was accounted for under
F-8
<PAGE> 83
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the purchase method of accounting. Phoenix manufactures and sells multiple
product lines that are complementary to those of National Oilwell. The
acquisition of the stock and the repayment of approximately $41 million in
Phoenix debt were financed primarily through the issuance of $150 million in
unsecured seven year senior notes. The excess of the purchase price over the
book value of the net assets was approximately $106 million. Assuming the
acquisition had occurred at the beginning of each period presented, pro forma
summary results of operations would have been as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues.................................................... $1,305,373 $1,179,837
Income before extraordinary item............................ 68,213 59,272
Net income.................................................. 68,197 58,532
Basis
Income before extraordinary item.......................... $ 1.25 $ 1.16
Net income................................................ 1.25 1.14
Diluted
Income before extraordinary item.......................... $ 1.24 $ 1.14
Net income................................................ 1.24 1.13
</TABLE>
The unaudited pro forma summary is not necessarily indicative of results of
operations that would have occurred had the purchase been made at the beginning
of the year or of future results of operations of the combined businesses.
The seller of Phoenix is an affiliate of First Reserve Corporation, which
is the beneficial owner of 22.9% of National Oilwell's common stock. Two
directors of National Oilwell are affiliated with First Reserve.
On July 21, 1998, National Oilwell purchased 100% of the capital stock of
Roberds-Johnson Industries, Inc., a manufacturer of a broad range of drilling
equipment, in exchange for 1.35 million shares of National Oilwell common stock.
This transaction was accounted for under the pooling-of-interests method of
accounting. The Company's financial statements prior to July 1, 1998 have not
been restated since the transaction did not have a material effect on National
Oilwell's consolidated historical financial statements.
On December 16, 1998, National Oilwell purchased the business of DOSCO, a
major Canadian oilfield distribution business, for 3 million shares of National
Oilwell common stock and a note for approximately US $6.5 million. This
transaction was accounted for under the purchase method of accounting. DOSCO has
been combined with the National Oilwell's existing Canadian distribution
business. Pro-forma information has not been provided as such amounts are not
material.
Effective July 7, 1999, National Oilwell acquired the assets and certain
operating liabilities of CE Drilling Products, Inc., a privately held company,
in a cash transaction valued at approximately $65 million. Continental Emsco
Drilling Products consists of Emsco drilling machinery and Wilson mobile rigs.
The transaction was accounted for under the purchase method of accounting and
did not have a material effect on National Oilwell's consolidated financial
statements.
Divestitures
On June 17, 1999 the Company sold its tubular product line within its
Distribution Services segment for approximately $15 million, generating a
pre-tax loss of $0.9 million ($0.5 million after-tax). The sale of this product
line did not have a material effect on National Oilwell's consolidated financial
statements.
On June 24, 1999 the Company sold its drill bit product line within its
Products & Technology segment for approximately $12 million, recording a pre-tax
loss of $1.0 million ($0.6 million after-tax).
F-9
<PAGE> 84
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues and operating income recorded in 1999 for the drill bit business was
$6.1 million and $0.1 million, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of National
Oilwell and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and balances have been eliminated in consolidation.
Fair Value of Financial Instruments
Financial instruments consist primarily of cash and cash equivalents,
receivables, payables and debt instruments. Cash equivalents include only those
investments having a maturity of three months or less at the time of purchase.
The carrying values of these financial instruments approximate their respective
fair values.
Inventories
Inventories consist of oilfield products and oil country tubular goods,
manufactured equipment, manufactured specialized drilling products and downhole
motors and spare parts for manufactured equipment and drilling products.
Inventories are stated at the lower of cost or market using the first-in,
first-out or average cost methods.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for major
improvements which extend the lives of property and equipment are capitalized
while minor replacements, maintenance and repairs are charged to operations as
incurred. Disposals are removed at cost less accumulated depreciation with any
resulting gain or loss reflected in operations. Depreciation is provided using
the straight-line method or declining balance method over the estimated useful
lives of individual items.
Intangible Assets
Deferred financing costs are amortized on a straight-line basis over the
life of the related debt security and accumulated amortization was $205,000 and
$24,000 at December 31, 1998 and 1997, respectively. Goodwill is amortized on a
straight-line basis over its estimated life of 10-40 years. Accumulated
amortization at December 31, 1998 and 1997 was $4,061,000 and $1,214,000.
Foreign Currency
The functional currency for National Oilwell's Canadian, United Kingdom,
German and Australian operations is the local currency. The cumulative effects
of translating the balance sheet accounts from the functional currency into the
U.S. dollar at current exchange rates are included in cumulative foreign
currency translation adjustments. The U.S. dollar is used as the functional
currency for the Singapore and Venezuelan operations. Accordingly, certain
assets are translated at historical exchange rates and all translation
adjustments are included in income. For all operations, gains or losses from
remeasuring foreign currency transactions into the functional currency are
included in income.
F-10
<PAGE> 85
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue from the sale and rental of products and delivery of services is
recognized upon passage of title, incurrence of rental charges or delivery of
services to the customer. Revenue is recognized on certain significant contracts
in the Products and Technology segment using the percentage of completion method
based on the percentage of total costs incurred to total costs expected.
Provision for estimated losses, if any, is made in the period such losses are
estimable.
Income Taxes
Income taxes have been provided using the liability method in accordance
with Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes.
Concentration of Credit Risk
National Oilwell grants credit to its customers, which operate primarily in
the oil and gas industry. National Oilwell performs periodic credit evaluations
of its customers' financial condition and generally does not require collateral,
but may require letters of credit for certain international sales. Reserves are
maintained for potential credit losses and such credit losses have historically
been within management's expectations.
Stock-Based Compensation
National Oilwell uses the intrinsic value method in accounting for its
stock-based employee compensation plans. Compensation costs for stock options
would be recognized over the vesting period if options were granted with an
exercise price below market on the date of grant.
Net Income Per Share
The following table sets forth the computation of weighted average basic
and diluted shares outstanding (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Denominator for basic earnings per share -- weighted
average shares............................................. 54,700 53,044 41,938
Effect of dilutive securities:
Employee stock options................................... 182 832 535
------ ------ ------
Denominator for diluted earnings per share -- adjusted
weighted average shares and assumed conversions.......... 54,882 53,876 42,473
====== ====== ======
</TABLE>
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw material and supplies................................... $ 24,304 $ 19,970
Work in process............................................. 39,991 34,849
Finished goods and purchased products....................... 189,090 161,759
-------- --------
Total............................................. $253,385 $216,578
======== ========
</TABLE>
F-11
<PAGE> 86
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. STATEMENTS OF CASH FLOWS
The following information supplements the Consolidated Statements of Cash
Flows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Cash paid during the period for:
Interest............................................... $ 6,989 $ 7,648 $9,205
Income taxes........................................... 48,003 24,405 4,538
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of (in thousands):
<TABLE>
<CAPTION>
USEFUL LIVES 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Land and improvements.............................. 2-20 Years $ 6,421 $ 6,823
Buildings and improvements......................... 5-31 Years 27,080 23,254
Machinery and equipment............................ 5-12 Years 52,774 34,550
Computer and office equipment...................... 3-10 Years 36,810 16,541
Rental equipment................................... 1-7 Years 29,217 36,982
-------- --------
152,302 118,150
Less accumulated depreciation.................... (56,128) (40,229)
-------- --------
$ 96,174 $ 77,921
======== ========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Revolving credit facilities................................. $ 55,637 $60,560
6 7/8% senior notes......................................... 150,000 --
Other....................................................... 23,988 11,702
-------- -------
229,625 72,262
Less current portion...................................... 8,427 10,543
-------- -------
$221,198 $61,719
======== =======
</TABLE>
On September 25, 1997, National Oilwell entered into a new five-year
unsecured $125 million revolving credit facility that was used in part to repay
amounts outstanding under the previous revolving credit facilities and other
indebtedness. The credit facility is available for acquisitions and general
corporate purposes and provides up to $50 million for letters of credit, of
which $16 million were outstanding at December 31, 1998. The credit facility
provides for interest at prime or LIBOR plus 0.625% (7.75% and 6.25% at December
31, 1998) subject to adjustment based on National Oilwell's Capitalization
Ratio, as defined. The credit facility contains financial covenants and ratios
regarding minimum tangible net worth, maximum debt to capital and minimum
interest coverage.
National Oilwell also has additional credit facilities totaling $22.5
million used primarily for letters of credit, of which $3.1 million were
outstanding at December 31, 1998.
In June 1998, National Oilwell sold $150 million of 6.875% unsecured senior
notes due July 1, 2005. Interest is payable on January 1 and July 1 of each
year.
F-12
<PAGE> 87
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PENSION PLANS
National Oilwell and its consolidated subsidiaries have several pension
plans covering substantially all of its employees. Defined-contribution pension
plans cover most of the U.S. and Canadian employees and are based on years of
service, a percentage of current earnings and matching of contributions. For the
years ended December 31, 1998, 1997 and 1996, pension expense for
defined-contribution plans was $3.7 million, $3.5 million and $2.3 million, and
all funding is current.
One of National Oilwell's subsidiaries in the United Kingdom has a
defined-benefit pension plan whose participants are primarily retired and
terminated employees who are no longer accruing benefits. The pension plan
assets are invested primarily in equity securities, United Kingdom government
securities, overseas bonds and cash deposits. At December 31, 1998, the plan
assets at fair market value were $43.5 million and the projected benefit
obligation was $27.3 million.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENCY GAINS ON
TRANSLATION AVAILABLE-FOR-
ADJUSTMENTS SALE SECURITIES TOTAL
----------- --------------- --------
<S> <C> <C> <C>
Beginning balance................................. $ (3,706) $ -- $ (3,706)
Currency translation adjustments.................. 1,419 -- 1,419
-------- ---- --------
Balance at December 31, 1996...................... (2,287) -- (2,287)
Currency translation adjustments.................. (4,731) -- (4,731)
-------- ---- --------
Balance at December 31, 1997...................... (7,018) -- (7,018)
Currency translation adjustments.................. (6,979) -- (6,979)
Unrealized gains on available-for-sale
securities...................................... -- 244 244
Deferred taxes relating to unrealized gains on
available-for-sale securities................... -- (68) (68)
-------- ---- --------
Balance at December 31, 1998...................... $(13,997) $176 $(13,821)
======== ==== ========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
National Oilwell leases land, buildings and storage facilities, vehicles
and data processing equipment under operating leases extending through various
dates up to the year 2004. Rent expense for the years ended December 31, 1998,
1997 and 1996 was $10.3 million, $9.0 million and $10.5 million. National
Oilwell's minimum rental commitments for operating leases at December 31, 1998,
excluding future payments applicable to facilities to be closed as part of the
1998 Special Charge, were as follows: 1999 -- $5.7 million; 2000 -- $3.4
million; 2001 -- $1.1 million; 2002 -- $0.3 million; 2003 -- $0.3 million;
thereafter -- $0.3 million
National Oilwell is involved in various claims, regulatory agency audits
and pending or threatened legal actions involving a variety of matters. The
total liability on these matters at December 31, 1998 cannot be determined;
however, in the opinion of management, any ultimate liability, to the extent not
otherwise provided for, should not materially affect the financial position,
liquidity or results of operations of National Oilwell.
National Oilwell's business is affected both directly and indirectly by
governmental laws and regulations relating to the oilfield service industry in
general, as well as by environmental and safety regulations that specifically
apply to National Oilwell's business. Laws and regulations protecting the
F-13
<PAGE> 88
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
environment have generally become more expansive and stringent in recent years
and National Oilwell believes the trend will continue. Although National Oilwell
has not incurred material costs in connection with its compliance with such
laws, there can be no assurance that other developments, such as stricter
environmental laws, regulations and enforcement policies thereunder could not
result in additional, presently unquantifiable costs or liabilities to National
Oilwell.
10. COMMON STOCK
National Oilwell has authorized 75 million shares of $.01 par value common
stock. National Oilwell also has authorized 10 million shares of $.01 par value
preferred stock, none of which is issued or outstanding.
National Oilwell's stock plans collectively authorize the grant of
restricted stock or options to purchase up to 5,832,606 shares of National
Oilwell's common stock to officers, key employees, non-employee directors and
other persons. Options granted generally vest over a 3-year period starting one
year from the date of grant and generally expire 5 years from the date of grant.
During 1996, prior to National Oilwell becoming a public company, 1,882,606
shares of restricted common stock were purchased by executive officers. These
shares are subject to restrictions on transferability and are not entitled to
receive cash dividends or distributions until such restrictions lapse.
Restrictions lapse annually on 20% of these shares beginning on January 17, 1997
or in their entirety upon the occurrence of (i) a merger or consolidation of
National Oilwell into another company, (ii) a sale of all or substantially all
the assets of National Oilwell, or (iii) a sale of all the common stock of
National Oilwell. Restrictions also lapse in their entirety upon a participant's
disability, death or involuntary termination of employment without cause. During
1998 and 1997, 112,954 and 225,906 shares of restricted stock were repurchased
by the Company pursuant to the original terms of the issuance. In accordance
with the plan, these forfeited shares may be reawarded in the future.
Options outstanding at December 31, 1998 under the stock option plans have
exercise prices between $5.62 and $28.81 per share, and expire at various dates
from March 21, 2002 to January 13, 2007. The weighted average exercise price on
the 904,511 outstanding options at December 31, 1998 is $21.74.
F-14
<PAGE> 89
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes option activity:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARE PRICE
-----------------------
INCENTIVE PRIVATE INCENTIVE PRIVATE TOTAL
PLANS AGREEMENTS PLANS AGREEMENTS OPTIONS
--------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING:
Balance at December 31, 1996........... $ 6.01 $ 7.03 663,114 201,498 864,612
Granted................................ 17.95 21.84 447,142 119,062 566,204
Cancelled.............................. 14.90 -- (132,456) -- (132,456)
Exercised.............................. 5.77 12.53 (439,208) (320,560) (759,768)
-------- -------- --------
Balance at December 31, 1997........... 13.94 -- 538,592 -- 538,592
Granted................................ 27.46 513,896 -- 513,896
Cancelled.............................. 22.82 (44,020) -- (44,020)
Exercised.............................. 9.60 (103,957) -- (103,957)
-------- -------- --------
Balance at December 31, 1998........... 21.74 -- 904,511 -- 904,511
======== ======== ========
OPTIONS EXERCISABLE:
Balance at December 31, 1996........... $ 5.72 $ 7.03 328,260 201,498 529,758
Became exercisable..................... 5.96 21.84 167,055 119,062 286,117
Exercisable cancelled.................. 5.62 -- (9,159) -- (9,159)
Exercised.............................. 5.77 12.53 (439,208) (320,560) (759,768)
-------- -------- --------
Balance at December 31, 1997........... 6.16 -- 46,948 -- 46,948
Became exercisable..................... 13.74 178,249 178,249
Exercisable cancelled.................. 22.32 (7,034) (7,034)
Exercised.............................. 9.60 (103,957) (103,957)
-------- -------- --------
Balance at December 31, 1998........... 13.97 -- 114,206 -- 114,206
======== ======== ========
</TABLE>
The weighted average fair value of options granted during 1998 was
approximately $10.23 per share as determined using the Black-Scholes
option-pricing model. Assuming that National Oilwell had accounted for its
stock-based compensation using the alternative fair value method of accounting
under FAS No. 123 and amortized the fair value to expense over the option's
vesting period, net income and earnings per share would have been affected by
$0.02 from the amounts reported. These pro forma results may not be indicative
of future effects.
The Company evaluates annually the grant of options to eligible
participants and on February 9, 1999, 1,233,889 options to purchase shares of
common stock were granted at an exercise price of $10.13, the fair value of the
common stock at that date.
In January 1996, National Oilwell established Value Appreciation Plans
intended to reward participants for enhancing the value of National Oilwell's
common stock. The company's initial public offering represented a triggering
event under these plans, resulting in a one-time charge before taxes of $12.2
million ($7.6 million after tax). National Oilwell paid $2.9 million of this
amount in cash at the time of the initial public offering and became obligated
to pay an additional $3.5 million in cash in five annual installments beginning
January 17, 1997. The balance of the obligation was payable by the issuance of
common stock. As of December 31, 1997, 365,588 shares of common stock had been
issued and another 316,264 shares of common stock were issued on or about
January 17, 1999.
F-15
<PAGE> 90
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The domestic and foreign components of income before income taxes were as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Domestic...................................... $ 58,788 $50,996 $ 3,879
Foreign....................................... 50,568 35,149 15,549
-------- ------- -------
$109,356 $86,145 $19,428
======== ======= =======
</TABLE>
The components of the provision for income taxes consisted of (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current....................................... $24,357 $17,508 $4,620
Federal..................................... 2,074 1,496 561
State....................................... 18,063 15,435 3,985
------- ------- ------
Foreign..................................... 44,494 34,439 9,166
------- ------- ------
Deferred:
Federal..................................... (4,151) (287) (3,898)
State....................................... (845) (64) (864)
Foreign..................................... 904 (2,770) 2,329
------- ------- ------
(4,092) (3,121) (2,433)
------- ------- ------
$40,402 $31,318 $6,733
======= ======= ======
</TABLE>
The difference between the effective tax rate reflected in the provision
for income taxes and the U.S. federal statutory rate was as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Federal income tax at statutory rate.......... $38,282 $30,115 $6,825
Foreign income tax rate differential.......... 237 495 176
State income tax net of federal benefit....... 1,151 919 --
Tax benefit of foreign sales corporation...... (2,547) (990) --
Nondeductible expenses........................ 1,223 2,837 1,170
Incremental U.S. tax on foreign earnings...... 2,517 -- --
Unbenefited losses............................ 2,903 209 --
Change in deferred tax valuation allowance.... (2,765) (1,617) (462)
Other......................................... (599) (650) (976)
------- ------- ------
$40,402 $31,318 $6,733
======= ======= ======
</TABLE>
F-16
<PAGE> 91
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of National Oilwell's deferred tax assets and
liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities...................................... $18,641 $14,055
Net operating loss carryforwards......................... 13,521 16,096
Other.................................................... 9,625 5,913
------- -------
Total deferred tax assets............................. 41,787 36,064
Valuation allowance for deferred tax assets........... (18,541) (21,306)
------- -------
23,246 14,758
------- -------
Deferred liabilities:
Tax over book description................................ 1,743 2,226
Other.................................................... 2,354 449
------- -------
Total deferred tax liabilities........................ 4,097 2,675
------- -------
Net deferred tax assets............................... $19,149 $12,083
======= =======
</TABLE>
In the United States, the Company has $19.9 million of net operating loss
carryforwards as of December 31, 1998, which expire at various dates through
2009. These operating losses were acquired in the combination with Dreco and are
associated with Dreco's US subsidiary. As a result of share exchanges occurring
since the combination resulting in a more than 50% aggregate change in the
beneficial ownership of Dreco, the availability of these loss carryforwards to
reduce future United States federal taxable income may have become subject to
various limitations under Section 382 of the Internal Revenue Code of 1986, as
amended. In addition, these net operating losses can only be used to offset
separate company taxable income of Dreco's US subsidiary. Since the ultimate
realization of these net operating losses is uncertain, the related potential
benefit of $6.8 million has been recorded with a full valuation allowance.
Future income tax expense will be reduced if the Company ultimately realizes the
benefit of these net operating losses.
Outside the United States, the Company has $19.8 million of net operating
loss carryforwards as of December 31, 1998 that are available indefinitely. The
related potential benefit available of $6.7 million has been recorded with a
full valuation allowance. If the Company ultimately realizes the benefit of
these net operating losses, $4.7 million would reduce goodwill and other
intangible assets and $2.0 million would reduce income tax expense.
The deferred tax valuation allowance decreased $2.8 million and $1.6
million for the period ending December 31, 1998 and December 31, 1997,
respectively, resulting from the realization of foreign net operating losses and
investment tax credits that were previously deferred. National Oilwell's
deferred tax assets are expected to be realized principally through future
earnings.
Undistributed earnings of the Company's foreign subsidiaries amounted to
$59.1 million and $44.4 million at December 31, 1998 and December 31, 1997.
Those earnings are considered to be permanently reinvested and no provision for
U.S. federal and state income taxes has been made. Distribution of these
earnings in the form of dividends or otherwise would result in both U.S. federal
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable in various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practical; however,
unrecognized foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $6.1 million
would be payable upon remittance of all previously unremitted earnings at
December 31, 1998.
F-17
<PAGE> 92
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SPECIAL CHARGES
During the fourth quarter of 1998, the Company recorded a special charge of
$16.4 million ($10.4 million after tax, or $0.20 per share) related to
operational changes resulting from the depressed market for the oil and gas
industry. The components of the special charge are as follows (in millions):
<TABLE>
<S> <C>
Asset impairments........................................... $ 5.4
Severance................................................... 5.6
Facility closures and exit costs............................ 5.4
-----
$16.4
=====
</TABLE>
The cash and non-cash elements of the charge approximate $11.0 million and
$5.4 million, respectively. Breakdown of the charge by business segment is:
<TABLE>
<S> <C>
Products and Technology..................................... $12.5
Distribution Services....................................... 3.0
Corporate................................................... .9
-----
$16.4
=====
</TABLE>
The asset impairment losses of $5.4 million consist primarily of the
shutdown of four North American manufacturing facilities. Assets related to
these non-productive facilities which are not in service totaling $10.0 million
have been reclassified on the balance sheet to property held for sale and have
been written down to their estimated fair value, less cost of disposal.
Severance costs of $5.6 million relate to the involuntary termination of
approximately 200 employees, most of which are located in North America.
Facility closure costs of $5.4 million consists principally of lease
cancellation and facility exit costs. Substantially all of the actions
associated with this charge will be fully implemented before the end of the
first quarter of 1999.
During 1997, National Oilwell recorded a $10.7 million charge ($8.1 million
after tax) related to various professional fees and integration costs incurred
in connection with the combination with Dreco.
During 1996, National Oilwell incurred certain one-time expenses in
connection with its initial public offering of common stock, as follows: (i) a
management services agreement was terminated at a cost of $4.4 million ($2.8
million after tax) and (ii) expenses and payout under National Oilwell's Value
Appreciation Plans, which resulted in National Oilwell recording an expense of
$12.2 million ($7.6 million after tax). The Value Appreciation Plans required
the issuance of 681,852 shares of common stock and payment of $6.4 million in
cash.
13. EXTRAORDINARY LOSSES
In the third quarter of 1997, the replacement of the previous credit
facility resulted in the write-off of $1.0 million ($0.6 million after tax) in
deferred financing costs related to the replaced agreement. In the fourth
quarter of 1996, another credit facility was replaced, resulting in the
write-off of $6.4 million ($4.0 million after tax) in deferred financing costs
related to the replaced agreement.
14. RELATED PARTY TRANSACTIONS
Prior to becoming a public company, National Oilwell entered into a
five-year Management Services Agreement with National Oilwell's then largest
stockholders, whereby National Oilwell would pay for senior management
assistance and other services as agreed and pay fees in connection with each
acquisition or disposition completed during a five-year period. After becoming a
public company, this
F-18
<PAGE> 93
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement was terminated pursuant to a Deferred Fee Agreement, which provides
for cash payments of up to $4.4 million. As of December 31, 1998, cash payments
aggregating $3.5 million have been made to Inverness/Phoenix LLC and First
Reserve Corporation in connection with the Deferred Fee Agreement. Future
payments totaling $900,000 will be made to Inverness/Phoenix LLC during 1999. In
addition, National Oilwell paid transaction and management fees of $2.6 million
to the Inverness/Phoenix LLC and $1.2 million to First Reserve Corporation in
connection with the purchase of the company from a previous owner.
On May 29, 1998, National Oilwell acquired Phoenix Energy Products
Holdings, Inc., an affiliate of First Reserve Corporation, as more fully
described in footnote 1.
15. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
National Oilwell's operations consist of two segments: Products and
Technology and Distribution Services. The Products and Technology segment
designs and manufactures a variety of oilfield equipment for use in oil and gas
drilling, completion and production activities. The Distribution Services
segment distributes an extensive line of oilfield supplies, oilfield equipment
and tubular products. Intersegment sales and transfers are accounted for at
commercial prices and are eliminated in consolidation. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies of the Company. The Company evaluates
performance of each reportable segment based upon its operating income,
excluding non-recurring items.
Effective January 1, 1999, the Company changed the structure of its
internal organization and now includes the former Downhole Products segment as a
product line within the Products and Technology segment. Prior year segment
information has been restated to reflect this change.
No single customer accounted for 10% or more of consolidated revenues
during the three years ended December 31, 1998.
F-19
<PAGE> 94
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information is as follows (in thousands):
Business Segments:
<TABLE>
<CAPTION>
PRODUCTS
AND DISTRIBUTION CORPORATE/
TECHNOLOGY SERVICES ELIMINATIONS(1) TOTAL
---------- ------------ --------------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Revenues from:
Unaffiliated customers.................... $663,402 $608,512 $ -- $1,271,914
Intersegment sales........................ 66,420 -- (66,420) --
-------- -------- -------- ----------
Total revenues.................... 729,822 608,512 (66,420) 1,271,914
Operating income (loss)..................... 136,594 8,911(2) (22,993) 122,512(2)
Capital expenditures........................ 14,142 14,220 879 29,241
Depreciation and amortization............... 16,511 3,047 1,040 20,598
Identifiable assets......................... 598,563 226,893 30,432 855,888
DECEMBER 31, 1997
Revenues from:
Unaffiliated customers.................... $374,673 $722,733 $ -- $1,097,406
Intersegment sales........................ 66,180 -- (66,180) --
-------- -------- -------- ----------
Total revenues.................... 440,853 722,733 (66,180) 1,097,406
Operating income (loss)..................... 79,004 32,128 (19,346) 91,786
Capital expenditures........................ 30,536 3,612 635 34,783
Depreciation and amortization............... 12,398 1,830 1,215 15,443
Identifiable assets......................... 352,372 213,056 37,565 602,993
DECEMBER 31, 1996
Revenues from:
Unaffiliated customers.................... $243,131 $579,312 $ -- $ 822,443
Intersegment sales........................ 52,007 -- (52,007) --
-------- -------- -------- ----------
Total revenues.................... 295,138 579,312 (52,007) 822,443
Operating income (loss)..................... 34,760 20,518 (24,744) 30,534
Capital expenditures........................ 14,085 1,680 31 15,796
Depreciation and amortization............... 7,070 2,094 55 9,219
Identifiable assets......................... 167,018 178,990 30,515 376,523
</TABLE>
- ---------------
(1) Operating loss of Corporate includes a special charge of $16,433 for 1998,
$10,660 for 1997 and $16,611 for 1996.
(2) Includes a $5,600 charge related to the writedown to the lower of cost or
market of certain tubular inventories.
F-20
<PAGE> 95
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Geographic Areas:
<TABLE>
<CAPTION>
UNITED
UNITED STATES CANADA KINGDOM OTHER ELIMINATIONS TOTAL
------------- -------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Revenues from:
Unaffiliated customers... $ 988,112 $196,493 $54,625 $32,684 $ -- $1,271,914
Interarea sales.......... 58,112 34,912 4,056 1,044 (98,124) --
---------- -------- ------- ------- -------- ----------
Total revenues... 1,046,224 231,405 58,681 33,728 (98,124) 1,271,914
Long-lived assets.......... 489,112 306,847 36,321 23,608 -- 855,888
DECEMBER 31, 1997
Revenues from:
Unaffiliated customers... $ 825,739 $201,360 $38,223 $32,084 $ -- $1,097,406
Interarea sales.......... 42,273 11,858 2,383 703 (57,217) --
---------- -------- ------- ------- -------- ----------
Total revenues... 868,012 213,218 40,606 32,787 (57,217) 1,097,406
Long-lived assets.......... 409,026 131,078 27,240 35,649 -- 602,993
DECEMBER 31, 1996
Revenues from:
Unaffiliated customers... $ 615,313 $146,067 $29,152 $31,911 $ -- $ 822,443
Interarea sales.......... 34,252 10,028 1,912 504 (46,696) --
---------- -------- ------- ------- -------- ----------
Total revenues... 649,565 156,095 31,064 32,415 (46,696) 822,443
Long-lived assets.......... 252,886 66,129 21,632 35,876 -- 376,523
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly results as restated to reflect the combination with
Dupre were as follows (in thousands, except per share data which have been
restated to comply with FAS 128):
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenues............................ $327,108 $320,398 $330,204 $294,204 $1,271,914
Gross Profit(1)..................... 67,204 74,911 77,300 62,158 281,573
Special Charge...................... -- -- -- 16,433 16,433
Income (loss) before taxes.......... 34,278 38,127 33,317 3,634 109,356
Net income.......................... 21,869 23,841 20,891 2,353 68,954
Net income per diluted share........ 0.40 0.44 0.38 0.04 1.26
YEAR ENDED DECEMBER 31, 1997
Revenues............................ $224,619 $256,233 $291,525 $325,029 $1,097,406
Gross Profit........................ 40,647 46,219 58,697 71,135 216,698
Special Charge...................... -- -- 10,660 -- 10,660
Income (loss) before taxes.......... 15,853 18,995 18,408 32,889 86,145
Net income before extraordinary
loss.............................. 10,462 12,890 11,140 20,335 54,827
Net income.......................... 10,462 12,890 10,517 20,335 54,204
Net income per diluted share, before
extraordinary loss................ 0.20 0.24 0.21 0.38 1.02
Net income per diluted share........ 0.20 0.24 0.19 0.38 1.01
</TABLE>
- ---------------
(1) The 4th quarter includes a $5,600 charge to the writedown to the lower of
cost or market of certain tubular inventories.
F-21
<PAGE> 96
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 15,579 $ 11,963
Receivables, less allowance of $5,482 and $4,963.......... 172,849 301,405
Inventories............................................... 232,554 253,385
Deferred income taxes..................................... 7,206 16,489
Prepaids and other current assets......................... 9,061 7,677
-------- --------
437,249 590,919
Property, plant and equipment, net.......................... 108,321 96,174
Deferred income taxes....................................... 15,553 6,757
Goodwill.................................................... 165,136 145,696
Property held for sale...................................... 10,258 9,981
Other assets................................................ 5,200 6,361
-------- --------
$741,717 $855,888
======== ========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:........................................ $ 22 $ 8,427
Current portion of long-term debt......................... 89,803 131,575
Accounts payable.......................................... 5,263 25,392
Customer prepayments...................................... 4,610 7,237
Accrued compensation...................................... 40,549 54,158
-------- --------
Other accrued liabilities................................. 140,247 226,789
Long-term debt.............................................. 194,608 221,198
Deferred income taxes....................................... 2,528 4,097
Other liabilities........................................... 12,426 10,505
-------- --------
349,809 462,589
Commitments and contingencies
Stockholders' equity:
Common stock -- par value $.01; 58,258,955 shares and
57,916,785 shares issued and outstanding at September
30, 1999 and December 31, 1998......................... 583 579
Additional paid-in capital................................ 246,807 248,194
Accumulated other comprehensive income.................... (12,849) (13,821)
Retained earnings......................................... 157,367 158,347
-------- --------
391,908 393,299
-------- --------
$741,717 $855,888
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 97
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues.................................................... $546,932 $977,711
Cost of revenues............................................ 442,339 758,295
-------- --------
Gross profit................................................ 104,593 219,416
Selling, general and administrative......................... 90,873 105,112
-------- --------
Operating income............................................ 13,720 114,304
Other income (expense):
Interest and financial costs.............................. (11,429) (9,242)
Interest income........................................... 560 750
Other..................................................... (2,452) (448)
-------- --------
Income (loss) before income taxes........................... 399 105,364
Provision (benefit) for income taxes........................ 1,379 39,121
-------- --------
Net income (loss)........................................... $ (980) $ 66,243
======== ========
Net income per share:
Basic..................................................... $ (0.02) $ 1.22
======== ========
Diluted................................................... $ (0.02) $ 1.21
======== ========
Weighted average shares outstanding:
Basic..................................................... 58,246 54,339
======== ========
Diluted................................................... 58,269 54,566
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE> 98
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income................................................ $ (980) $ 66,243
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization.......................... 15,661 15,236
Provision for losses on receivables.................... 1,663 (301)
Provision for deferred income taxes.................... (1,587) (725)
Loss (gain) on sale of assets.......................... (1,320) (2,458)
Foreign currency loss.................................. (248) (161)
Changes in assets and liabilities, net of acquisitions and
divestments:
Receivables............................................... 129,414 5,659
Inventories............................................... 21,944 (30,259)
Prepaid and other current assets.......................... (1,636) 1,664
Accounts payable.......................................... (63,098) (25,691)
Other assets/liabilities, net............................. (15,133) (18,241)
-------- ---------
Net cash provided by operating activities......... 84,680 10,966
-------- ---------
Cash flow from investing activities:
Purchases of property, plant and equipment................ (12,004) (19,609)
Proceeds from sale of assets.............................. 30,650 5,329
Business acquired, net of cash............................ (65,000) (157,739)
Cash received from business acquired...................... -- 535
-------- ---------
Net cash provided (used) by investing
activities...................................... (46,354) (171,484)
-------- ---------
Cash flow from financing activities:
Borrowings (payments) on line of credit................... (34,995) 57,511
Net proceeds from issuance of long-term debt.............. -- 148,937
Principal payments on long-term debt...................... -- (40,855)
Proceeds from stock options exercised..................... 148 1,002
-------- ---------
Net cash provided (used) by financing
activities...................................... (34,847) 166,595
-------- ---------
Effect of exchange rate loss (gain) on cash................. 137 (4,935)
-------- ---------
Increase in cash and equivalents............................ 3,616 1,142
Cash and cash equivalents, beginning of period.............. 11,963 20,391
-------- ---------
Cash and cash equivalents, end of period.................... $ 15,579 $ 21,533
======== =========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest.................................................. $ 7,687 $ 4,144
Income taxes.............................................. 12,037 42,273
</TABLE>
The accompanying notes are an integral part of these statements
F-24
<PAGE> 99
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Information concerning common stock and per share data has been restated on
an equivalent share basis and assumes the exchange of all Exchangeable Shares
issued in connection with the combination with Dreco Energy Services Ltd. The
Company employs accounting policies that are in accordance with generally
accepted accounting principles in the United States which requires Company
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The accompanying unaudited consolidated financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and applicable
rules of Regulation S-X. Accordingly, they do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Company's 1998
Annual Report on Form 10-K.
In the opinion of the Company, the consolidated financial statements
include all adjustments, all of which are of a normal, recurring nature,
necessary for a fair presentation of the results for the interim periods. The
results of operations for the nine months ended September 30, 1999 and 1998 may
not be indicative of results for the full year. No significant accounting
changes have occurred during the nine months ended September 30, 1999.
On July 1, 1999, the Company purchased 100% of the outstanding stock of
Dupre Supply Company and Dupre International Inc. in exchange for 1,920,000
shares of National Oilwell common stock. These companies are leading suppliers
of pipe, fittings, valves and valve automation services and complement the
existing operations of the Distribution Services segment. This transaction has
been accounted for under the pooling-of-interests method of accounting and,
accordingly, historical financial statements have been restated.
On July 8, 1999, the Company acquired the assets of CE Drilling Products,
Inc. for approximately $65 million in cash, financed primarily by borrowing $57
million under its revolving credit facility. This business involves the
manufacture, sale and service of drilling machinery and related parts. This
transaction has been accounted for under the purchase method of accounting.
2. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials and supplies................................. $ 18,500 $ 24,304
Work in process............................................ 27,231 39,991
Finished goods and purchased products...................... 186,823 189,090
-------- --------
Total............................................ $232,554 $253,385
======== ========
</TABLE>
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which
requires the recognition of all derivatives on the balance sheet at fair value.
The Company will adopt the new Statement effective January 1, 2001 and
anticipates it will have no significant effect on its results of operations or
financial position.
F-25
<PAGE> 100
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
4. COMPREHENSIVE INCOME
Total comprehensive income was as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Three months ended September 30............................. $(5,400) $17,798
Nine Months ended September 30.............................. (8) 59,427
</TABLE>
5. BUSINESS SEGMENTS
Effective January 1, 1999, the Company changed the structure of its
internal organization and now includes the former Downhole Products segment as a
product line within the Products and Technology segment. Prior year segment
information has been restated to reflect this change.
Segment information (unaudited) follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers
Products and Technology.................. $ 66,982 $191,285 $242,764 $512,684
Distribution Services.................... $101,263 $138,920 $304,169 $479,164
Intersegment revenues
Products and Technology.................. 5,662 19,799 21,346 42,087
Distribution Services.................... 490 106 863 106
Operating Income (loss)
Products and Technology.................. 2,755 38,154 24,043 107,370
Distribution Services.................... (633) 1,887 (6,215) 11,945
-------- -------- -------- --------
Total profit for reportable segments....... 2,122 40,041 17,828 119,315
Unallocated corporate costs................ (1,268 (1,904) (4,108) (5,011)
Net interest expense....................... (3,696) (4,820) (10,869) (8,492)
Other income (expense)..................... 247 106 (2,452) (448)
-------- -------- -------- --------
Income before income taxes................. $ (2,595) $ 33,423 $ 399 $105,364
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Total assets
Products and Technology.................................. $553,848 $617,936
Distribution Services.................................... $187,420 $184,323
</TABLE>
6. SALE OF ASSETS
Included in Other Expense are losses totaling $1.9 million from the sale of
assets related to two product lines. On June 17, 1999, the Company sold its
tubular product line for approximately $15 million, generating a pre-tax loss of
$0.9 million ($0.5 million after-tax). Revenues and operating loss recorded in
1999 for the tubular operations were $23.6 million and $0.6 million,
respectively. On June 24, 1999, the Company sold its drill bit product line for
approximately $12 million, recording a pre-tax loss of $1.0 million ($0.6
million after-tax). Revenues and operating income recorded in 1999 for the drill
bit operations were $6.1 million and $0.1 million, respectively.
F-26
<PAGE> 101
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
7. SUBSEQUENT EVENTS
On October 11, 1999, the Company announced the signing of a definitive
agreement to acquire all of the outstanding shares of Hitec ASA, a Norwegian
company, in exchange for 8 million shares of National Oilwell common stock and
NOK 148.7 million (approximately U.S. $20 million). Immediately prior to the
closing, Hitec will sell its non-drilling related business to a new company for
NOK 148.7 million. The transaction is subject to various conditions, including
regulatory approvals, and will be accounted for under the purchase method of
accounting.
F-27
<PAGE> 102
AUDITORS REPORT
We have audited the annual report and accounts for Hitec ASA for 1998
showing a net income for the year of NOK 73,529,000 for the parent company and a
consolidated net income for the year of NOK 58,303,000. The annual report and
accounts, which comprise the Directors' report, income statement, balance sheet,
cash flow statement and notes to the accounts and consolidated accounts are
presented by the company's Board of Directors and its Managing Director.
Our responsibility is to examine the company's annual report, its
accounting records and other related matters.
We have conducted our audit in accordance with relevant laws, regulations
and Norwegian generally accepted auditing standards. We have performed those
audit procedures which we have considered necessary to confirm that the annual
report and accounts are free of material misstatements. We have examined
selected parts of the evidence supporting the accounts and assessed the
accounting principles applied, the estimates made by management, and the content
and presentation of the annual report and accounts. To the extent required by
generally accepted auditing standards, we have reviewed the company's internal
control and the management of its financial affairs.
The Board of Directors' proposal for the application of the net income and
equity transfers for the year is in accordance with the requirements of the
Public Limited Companies Act.
In our opinion, the annual report and accounts have been prepared in
accordance with the requirements of the Companies Act and present fairly the
financial position of the company and the Group as of 31 December 1998 and the
result of its operations for the financial year, in accordance with generally
accepted accounting principles.
DELOITTE & TOUCHE
Stavanger, 25 February 1999
Svein Sivertsen
Statsautorisert revisor
(State Authorized Public Accountant (Norway))
F-28
<PAGE> 103
DIRECTORS REPORT FOR 1998
RECORD GROWTH
1998 was another year of strong growth for Hitec. The Group's revenues
increased by 71% to almost NOK 1.4 billion.
The Group entered 1998 with large orders for several new products. The main
challenge for the year was to produce and deliver these on schedule and on
budget. We have succeeded in this.
The Group has now started to reap the benefits from the latest years'
investment in technology development and internationalization. Operating income
grew to MNOK 73 from MNOK 12 in 1997.
Hitec's products and solutions are technological world leaders. In 1998 we
also achieved market leadership in several of our core businesses.
FROM CONCEPT TO REALITY -- AT THE RIGHT TIME AND AT THE RIGHT COST
The first "Active Heave Drilling" heave compensating drawworks system was
supplied to the drillship "Deepwater Pathfinder". The ship was handed over by
the yard on 29 September and started its first drilling operations on 31 January
1999.
In October Hitec handed over the modularised drilling rig "Rig 66" to
Phillips Petroleum Norway at the agreed time and at the agreed price. This rig
will be used for the drilling of new wells on the Eldfisk field.
Hitec has been engaged in the development of the next generation drillship
since 1995. In 1997 we established Navis ASA with the objective of
commercializing the developed technology.
Construction of Navis' first ship at the Samsung yard in Korea started up
in November 1998. Hitec has designed the ship's drilling equipment and will be
supplying much of the equipment. Building is proceeding in accordance with the
budget and the progress plan. It is expected that the ship will be delivered
during the first quarter of the year 2000.
PGS's production ship "Ramform Banff" produced it first oil in January
1999. The control systems for the production facilities and safety systems on
board have been supplied by Hitec and represent the largest control system
supplied by the company so far.
ORDER BOOK
The Group's order intake for 1998 totalled MNOK 1,114. The order book at
the turn of the year totalled MNOK 678, compared with MNOK 792 one year
previously (adjusted for changes in the Navis contract).
PROFITABILITY
In 1998 the Group's operating revenues totalled MNOK 1,376, compared with
MNOK 803 in 1997. This is an increase of 71%. The acquired companies Maritime
Industry Service AS and Karmoy Stal AS were consolidated into the Group accounts
with effect from 1 January and 1 November respectively. Excluding acquisitions,
growth was 58% compared with 1997.
Operating income before share associated companies in 1998 totalled MNOK 73
compared with MNOK 12 in 1997. The operating margin increased during the course
of the year from 0.4% in the first quarter to 10.2% in the fourth quarter.
Amortization of the company's goodwill totalled MNOK 13 in 1998.
Net income before taxes in 1998 totalled MNOK 107 including a MNOK 41 gain
from the sale of the Group's interest in Advanced Production & Loading AS (APL).
The equivalent figure for 1997 was MNOK 215 which includes the gain resulting
from reduced holdings in Multi-Fluid and Navis. Net
F-29
<PAGE> 104
financial expense for the group in 1998 was MNOK 9 compared with net financial
income of MNOK 4 in 1997.
Net income for the year totalled MNOK 58, compared with MNOK 90 in 1997.
The unusually high tax charge in 1998 is due to the fact that the taxable gain
from the sale of the shares in APL is MNOK 60 higher than the booked gain.
Information about the results of the individual companies in the group is
provided separately in this annual report, on pages 38 to 43.
CAPITAL
The Hitec Group is in good financial health.
The Group's total assets as at 31 December 1998 amounted to MNOK 1,184. The
increase of 25% from 1997 is mainly due to increased operational current assets
resulting from the Group's growth, in addition to investments in associated
companies and in properties for own use.
In 1998 the Group had a negative cash flow from operations of MNOK 76,
compared with a positive cash flow from operations of MNOK 16 in 1997.
The Group's net interest-bearing debt totals MNOK 182. Cash reserves as at
31 December 1998 totalled MNOK 85, including credit facilities of MNOK 60.
Tied-up capital at the turn of the year was unnaturally high due to the fact
that several large accounts receivable fell due in January.
A share issue in Navis ASA was implemented in November 1998 and Hitec
subscribed to shares in the amount of MNOK 98.2. In the consolidated accounts
Hitec's total interest in Navis is valued according to the equity method giving
a book value per Navis share of NOK 14.92. Navis' share price as at 31 December
1998 was NOK 6.50.
Cash flow from investments is dominated by the investment in Navis, the
sale of the APL shares and operational investments.
Shareholders equity including minority interests totalled MNOK 552 as at 31
December 1998, giving an equity ration of 47%. For comparison, shareholders
equity as at 31 December 1997 totalled MNOK 492. Further information is provided
in Note 18 to the accounts and in the section on share capital and shareholder
matters on page 32.
YEAR 2000 COMPLIANCE
Hitec has carried out an evaluation of the effects the year 2000 issue
could have on the Group.
Internal systems that do not fulfil the year 2000 compatibility
requirements will be replaced during the course of 1999. Hitec mainly uses
standard software from recognized suppliers.
Many of Hitec's own products use computer systems. These are year 2000
compatible, and most have been compatible since March 1997. We have informed our
customers about older systems that should be upgraded or replaced.
Hitec is applying limited measures to verify year 2000 compliance of
suppliers and clients. The Group has no suppliers or customers of such
importance that any problems at the relevant company could threaten the Group's
activities.
REORGANIZATION AND ACQUISITIONS
From 1 January 1999 the Hitec Group has a new organizational structure. The
parent company Hitec ASA is now a holding company with certain corporate
functions.
F-30
<PAGE> 105
The operations of the "Old" Hitec ASA have been demerged into two
newly-established companies. Hitec Drilling & Marine Systems AS continues the
business within drilling technology and marine control systems. Hitec Products
AS supplies instrumentation and hydraulic systems.
These changes have focused on improving the liquidity of the Group's assets
by creating profitable independent businesses and by identifying values and
earnings in each business.
The reorganization involves changes in financial reporting. From and
including the third quarter of 1998, key figures are reported for each of the
major companies in the Group instead of broader business areas as before. In the
opinion of the directors the new format will provide shareholders with better
information on the operations and underlying values of the companies.
In November 1998 Hitec concluded an agreement to acquire the remaining 70%
of the shares in Karmoy Stal AS. Karmoy Stal has a workforce of 225 persons and
recorded operating revenues of MNOK 137 in 1998.
Karmoy Stal, Hitec Framnaes AS and Maritime Industry Service AS constitute
the Group's new Engineering & Construction group. This has been build up into an
effective unit employing about 400 persons and with a total turnover in 1998 of
MNOK 386.
Hitec Miljo AS, which was mainly engaged in the supply of control systems
for water and wastewater treatment, was wound up in 1998.
CAPITALIZATION OF TECHNOLOGY
Hitec works actively to achieve the highest possible yield from the Group's
innovations and technology. This can be achieved through normal operations or
through the development of separately owned companies in which Hitec's holding
is gradually reduced.
Hitec's 40% holding in Advanced Production & Loading AS was sold in August
against a cash payment of MNOK 106.5. This sale resulted in a gain of MNOK 41
which is included in the item "share in associated companies" in the
consolidated accounts. The operative cooperation between APL and Hitec Marine
continues.
Hitec's previous subsidiary companies Navis ASA and Multi-Fluid ASA were
both listed on the Oslo Stock Exchange in 1997. In 1998, both these companies
continued to develop independently and Hitec has played an active part in this
development through its representation on the boards of the companies.
TECHNOLOGY
In recent years Hitec has developed and launched several new products that
today form the main basis for our business. In 1998 we have invested
considerable resources in the commercialization of these products and have been
able to record successful delivery of the first units.
Development activities in the Group have been reorganized with effect from
the turn of the year in order to focus more attention on tomorrow's products and
solutions.
The first four HiROV 3000 remote-operated subsea vehicles (ROV) were
delivered to Seateam Technology during the course of 1998. HiROV 3000 represents
a new generation ROV incorporating numerous technological innovations.
Development costs are calculated at MNOK 17.5.
The use of virtual reality in the human-machine interface will increase in
importance in our future solutions, to aid both communications, operations and
maintenance.
The present-day low oil prices are a compelling force behind the use of new
technology and new solutions to reduce the costs of productions. Hitec's unique
strength in this situation lies in the creativity and enthusiasm of our
employees, their cutting edge competence in fields such as computer technology,
remote control, electronics, hydraulics, hydrodynamics and mechanical
engineering -- in addition to their in-depth knowledge of the relevant areas of
application in the oil industry.
F-31
<PAGE> 106
INTERNATIONALIZATION
The Group's customers are to a great extent companies that operate
worldwide. Hitec's objective is to meet our customers' requirements on their own
ground, and in recent years we have therefore put considerable resources into
expanding the Group's international network.
International growth continued to be strong in 1998, and exports from
Norway and sales from the Group's foreign companies totalled MNOK 550, an
increase of 90% compared with 1997. International business now represents 40% of
Group turnover.
New offices have been established in Rio de Janeiro in Brazil and in
Calgary in Canada, and we are planning the establishment of an office in Korea
during the course of the first half of 1999. The representation office in Baku
in Azerbaijan did not provide the anticipated results and has been closed.
Our subsidiary company in Houston in the United States in now the Group's
largest overseas office. Building up the organization and developing the Group's
position in the American market has been a high priority area.
MARKET DEVELOPMENT
Hitec is positioned in market areas that have a good long-term future
outlook. Deepwater drilling, production from floaters, transport by shuttle
tankers and remote-controlled subsea operations are all expected to be growth
areas in the oil industry of the future. The markets were strong throughout most
of 1998.
Activity in the oil industry is affected by the price of oil. The low price
throughout this last year has led to a lower level of investment on the part of
the oil companies and lower demand in the market in general.
For the most part, however, Hitec's operations are connected with
exploration and development of fields in deep waters. It is expected that this
area will be affected to a lesser extent by the downturn.
Engineering & Construction business is for the most part connected with the
Norwegian market. If the low oil price continues, activity in this area may
decline during the second half of 1999.
During a period of low oil prices, many projects will be shelved or
postponed. Business will pick up again when the oil price rises, and when this
occurs Hitec will be well positioned.
THE ORGANIZATION
As at 31 December 1998 the number of employees in the Group totalled 887,
of which 306 were employed by the parent company. The comparable figures for
1997 were 478 and 217 respectively. The Board considers the working environment
to be good.
The successful company of the future will be characterized by a highly
qualified workforce cooperating across geographical borderlines. In 1998, Hitec
has implemented several measures in preparation for the working environment of
tomorrow.
Satellite offices have been established in Trondheim and Harstad, and Hitec
has recruited expertise from the engineering communities in these towns.
Employees participate in our projects over the telecom network. A similar office
was opened at Strand outside Stavanger in February 1999, and several of our
staff have now been able to reduce their daily commuting by more than two hours.
A home-PC scheme for employees has been established as part of the Group's
comprehensive training programme.
The Group's activities do not pollute the external environment to any
significant extent.
F-32
<PAGE> 107
SHAREHOLDERS
The price for the Hitec share as at 31 December 1998 was NOK 10.20,
compared with NOK 40.50 one year previously. The reduction is in line with the
development in other companies supplying to the oil industry.
During the same period, the number of shareholders increased from 1,459 to
2,319. A list of the company's major shareholders will be found on page 33.
ALLOCATION OF NET INCOME FOR THE YEAR
The Directors propose that the net income in the parent company and
intercompany contributions from subsidiaries be applied as follows:
<TABLE>
<S> <C>
Net Group contribution received............................. -4.800
Net Group contribution provided............................. 12.201
To distributable equity..................................... 66.128
------
Total allocations and intercompany contribution... 73.529
======
</TABLE>
The Board proposes to the general meeting that no dividend be declared.
With regard to remuneration to the Directors, the Chief Executive Officer and
the auditor, and to information on shareholdings, reference is made to Notes 2
and 20 to the accounts.
FUTURE PROSPECTS
During the course of the last few years, the Hitec Group has developed
products and solutions that are technological world leaders. Our objective is to
transfer this to a leading market position, and we are well on the way to
achieving this target.
In the short term the market outlook is affected by the drop in the price
of oil. Hitec's objective is profitable operation and the company will if
necessary adapt operations to meet any reduction in the volume of orders.
In view of the lower oil price we have engaged in finding profitable
applications for our core technology outside the oil industry.
Low oil prices also mean that the oil companies must take new technology
into use and look for new solutions. Hitec is in possession of this technology,
and will have an even stronger position in the new international marketplace.
The co-operation between our customers, employees, shareholders, partners
and suppliers is a decisive factor for our future success and ensures that we
are competitive and innovative. We would like to thank all those concerned for
their contribution.
Stavanger, 25 February 1999
F-33
<PAGE> 108
HITEC ASA
INCOME STATEMENT
MNOK
<TABLE>
<CAPTION>
HITEC ASA GROUP
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
- -------------------- ----------------------
1998 1997 1996 NOTE 1998 1997 1996
- ---- ---- ---- ---- ----- ---- -----
<C> <C> <C> <C> <S> <C> <C> <C>
906 491 237 3 TOTAL OPERATING REVENUES: 1,376 803 469
504 332 90 3 Cost of materials........................................... 675 476 218
116 26 29 3 Cost of services............................................ 154 43 31
140 84 83 1,2 Wages and social costs...................................... 334 177 146
12 Employer's tax related to employee share options............ -- -- 12
46 28 25 3 Other operating expenses.................................... 107 68 50
10 9 9 4 Depreciation................................................ 20 15 14
4 Amortization of goodwill.................................... 13 12 11
1 Bad debt expenses........................................... -- 1 1
- --- --- --- ----- ---- -----
816 479 249 TOTAL OPERATING EXPENSES:................................... 1,303 791 483
- --- --- --- ----- ---- -----
91 12 -12 OPERATING INCOME BEFORE SHARE ASSOCIATED COMPANIES:......... 73 12 -14
- --- --- --- ----- ---- -----
5.1 Share associated companies.................................. 43 199 1
OPERATING INCOME AFTER SHARE ASSOCIATED COMPANIES........... 116 211 -13
FINANCIAL INCOME AND FINANCIAL EXPENSES:
17 9 1 6 Financial income............................................ 8 9 3
14 3 4 6 Financial expenses.......................................... 17 5 6
3 5 -3 NET FINANCIAL INCOME:....................................... -9 4 -2
- --- --- --- ----- ---- -----
94 17 -15 NET INCOME BEFORE TAXES..................................... 107 215 -15
- --- --- --- ----- ---- -----
21 2 -4 7 Taxes....................................................... 50 63 -4
Minority share of profit/loss for the year.................. -1 62 --
- --- --- --- ----- ---- -----
74 15 -11 NET INCOME FOR THE YEAR..................................... 58 90 -12
=== === === ===== ==== =====
Net income/loss per share in NOK............................ 1.55 2.47 -0.35
Net income/loss per share in NOK -- fully diluted........... 1.55 2.44 -0.34
ALLOCATION (SETTLEMENT) OF NET INCOME (-LOSS):
7 11 -10 8 Contribution to/from Group companies........................
0 0 -38 From other restricted reserves..............................
0 2 38 To legal reserve fund.......................................
66 3 -1 To distributable equity/other equity in Group............... 58 90 -12
- --- --- --- ----- ---- -----
74 15 -11 TOTAL ALLOCATION (SETTLEMENT)............................... 58 90 -12
</TABLE>
F-34
<PAGE> 109
HITEC ASA
BALANCE SHEET
MNOK
<TABLE>
<CAPTION>
HITEC ASA GROUP
DECEMBER 31, DECEMBER 31,
- -------------- ---------------
1998 1997 NOTE 1998 1997
- ---- ---- ---- ASSETS ----- ----
<C> <C> <C> <S> <C> <C>
CURRENT ASSETS:
6 41 9 Cash and deposits........................................... 25 102
213 122 10 Current receivables......................................... 361 175
90 14 11 Current group receivables...................................
37 2 12 Inventories................................................. 47 13
103 108 13 Work in progress............................................ 128 138
- --- --- ----- ---
450 287 TOTAL CURRENT ASSETS........................................ 561 427
- --- --- ----- ---
LONG TERM ASSETS:
5.1 Investment in associated companies.......................... 310 227
6 6 1 Subordinated loan subsidiaries/pension assets............... 1
400 320 5 Shares...................................................... 2 4
17 13 4 Vehicles, machinery, equipment and technology............... 48 33
33 30 4 Land and buildings.......................................... 103 52
4 Goodwill.................................................... 158 206
- --- --- ----- ---
455 368 TOTAL LONG TERM ASSETS...................................... 622 522
- --- --- ----- ---
905 655 TOTAL ASSETS................................................ 1,184 949
=== === ===== ===
</TABLE>
F-35
<PAGE> 110
HITEC ASA
BALANCE SHEET
MNOK
<TABLE>
<CAPTION>
HITEC ASA GROUP
DECEMBER 31 DECEMBER 31
- ------------- --------------
1998 1997 NOTE 1998 1997
- ---- ---- ---------- ----- ----
<C> <C> <C> <S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
74 54 Accounts payable............................................ 102 76
2 2 Current group liabilities...................................
207 14, 16, 17 Bank overdraft.............................................. 65
20 14 Salaries, VAT payable and Social security................... 48 24
13 7 Taxes payable............................................... 12 8
84 119 15, 16, 17 Other current liabilities................................... 178 165
- --- --- ----- ---
386 202 TOTAL CURRENT LIABILITIES................................... 406 283
- --- --- ----- ---
LONG TERM LIABILITIES:
23 6 7 Deferred taxes.............................................. 103 61
76 96 16, 17 Long term liabilities -- interest bearing................... 122 111
2 2 1 Pension liabilities......................................... -- 2
- --- --- ----- ---
101 104 TOTAL LONG TERM LIABILITIES................................. 226 174
- --- --- ----- ---
MINORITY INTERESTS.......................................... 61 62
----- ---
SHAREHOLDERS' EQUITY:
38 37 18, 20 Share capital (37,631,044 shares at NOK 1).................. 38 37
270 269 18 Legal reserves..............................................
18 Revaluation reserves........................................ -- --
- --- --- ----- ---
309 307 TOTAL RESTRICTED EQUITY..................................... 38 37
109 43 18 DISTRIBUTABLE RESERVES/GROUP RESERVES....................... 454 393
- --- --- ----- ---
417 349 TOTAL SHAREHOLDERS' EQUITY.................................. 492 430
- --- --- ----- ---
905 655 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 1,184 949
=== === ===== ===
79 202 19 Guarantees.................................................. 108 202
154 96 16 Secured liabilities......................................... 201 110
</TABLE>
F-36
<PAGE> 111
HITEC ASA
STATEMENT OF CASH FLOWS
MNOK
<TABLE>
<CAPTION>
HITEC ASA GROUP
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
- ------------------ --------------------
1998 1997 1996 1998 1997 1996
- ---- ---- ---- ------ ---- ----
<C> <C> <C> <S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
820 363 287 Cash receipts from operations............................... 1,247 670 516
- -856 -381 -273 Cash disbursements to operations............................ -1,298 -649 -511
-13 Taxes paid.................................................. -19 -2 -3
Financial items
4 2 Financial inflow............................................ 8 2 3
-11 -3 -4 Financial outflow........................................... -14 -5 -6
- ---- ---- ---- ------ ---- ----
-56 -19 10 NET CASH FLOW FROM OPERATIONS (*)........................... -76 16 0
- ---- ---- ---- ------ ---- ----
CASH FLOWS FROM INVESTMENTS:
-9 -3 -1 Increase in subordinated loans to subsidiaries.............. -- -- --
-16 -15 -7 Investments in machinery and equipment...................... -60 -37 -17
Sale of fixed assets........................................ -- 1 --
-98 20 Purchase of shares in associated companies.................. -98 -21
9 Sale of shares.............................................. 107 10 --
-38 -11 -190 Purchase of shares in subsidiaries.......................... -22 -1 -189
- ---- ---- ---- ------ ---- ----
- -162 -19 -219 NET CASH FLOW FROM INVESTMENTS.............................. -73 -27 -228
- ---- ---- ---- ------ ---- ----
CASH FLOWS FROM FINANCING:
-26 -4 100 Increase/reduction in long term debt........................ -8 -5 103
Currency translation difference............................. 1 -- --
2 66 12 Net proceeds from issuance of new shares.................... 2 67 12
-24 62 112 NET CASH FLOW FROM FINANCING................................ -6 62 115
- ---- ---- ---- ------ ---- ----
- -242 23 -96 NET CHANGE IN CASH.......................................... -155 50 -113
Cash and deposits of subsidiary at acquisition.............. 14 -- 5
207 Change in bank overdraft.................................... 65 -2 2
41 18 114 Cash and deposits at 01.01.................................. 102 53 159
- ---- ---- ---- ------ ---- ----
6 41 18 CASH AND DEPOSITS AT 31.12.................................. 25 102 53
- ---- ---- ---- ------ ---- ----
(*) THIS FIGURE CAN ALSO BE CALCULATED USING:
74 15 -11 Net income/loss for the year................................ 58 90 -12
10 9 9 Depreciation/amortization................................... 33 27 25
Minority share of profit/loss for the year.................. -1 62 --
Share associated companies.................................. -43 -199 -1
-11 -7 Gain on sale of business equipment and shares............... 3 -7 --
- -146 -26 17 Changes in receivables, inventories and operational current -163 -2 -7
liabilities.................................................
17 -10 -4 Changes in deferred taxes................................... 37 46 -6
- ---- ---- ---- ------ ---- ----
-56 -19 10 NET CASH FLOW FROM OPERATIONS............................... -76 16 0
- ---- ---- ---- ------ ---- ----
</TABLE>
- ---------------
The following method has been used in the cash flow statement:
Opening balance + opening balance of acquired companies at acquisition date -
closing balance.
F-37
<PAGE> 112
HITEC ASA
ACCOUNTING PRINCIPLES
GENERAL
The annual financial statements have been prepared in accordance with the
provisions of the Norwegian Public Limited Companies Act and generally accepted
accounting principles in Norway. The principles applied are mainly the same as
in previous years. Valuation and classification principles commented on below
apply both to the Hitec ASA accounts and to the consolidated accounts.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires use of reasonable estimates and
assumptions in preparing the income statement. The assumptions made at the
closing of the accounts also affect the value of assets and liabilities and the
information given in the Notes. Actual results could differ from these
estimates.
CONSOLIDATION PRINCIPLES
The consolidated accounts show the overall financial position when the
parent company Hitec ASA and its interests in other companies are presented as a
single financial entity.
Companies for which an agreement to acquire 100% of the company's shares
has been entered into are treated as if a full takeover has taken place. See
notes 5 and 22.
SUBSIDIARIES
Interests in subsidiaries in which the Group holds more than 50% of the
shares and has a controlling influence are consolidated in accordance with the
purchase method. This means that the difference between the historical cost
price for the shares and the company's total equity at the date of purchase is
allocated to the items in the accounts which have values differing from book
values. Any residual value is recorded as goodwill in the consolidated financial
statement.
GOODWILL
Goodwill is subject to straight-line amortization in the income statement
over the period during which it is considered to be of value to the group.
Amortization of goodwill commences from the date of purchase.
ASSOCIATED COMPANIES
Interests in associated companies in which the Group has a strategic
interest and appreciable influence are included in the consolidated financial
statement using the equity method.
In the income statement, the share of the profit/loss in associated
companies is shown as a separate line item. Shares in associated companies are
included as long term assets in the balance sheet.
Internal Group receivables and liabilities and all significant
inter-company transactions, including internal gains on inventories, are
eliminated.
The balance sheet of foreign subsidiaries are translated using the rate of
exchange ruling on 31 December, while income statement items for the year is
translated using the average exchange rate for the year. Translation differences
are adjusted directly against equity.
F-38
<PAGE> 113
CLASSIFICATION
Assets and liabilities connected with production and trading are classified
as current assets and current liabilities. Assets which are not intended for
long term ownership or use, are classified as current assets. Other assets and
liabilities are classified as long term assets and long term liabilities.
CASH AND DEPOSITS
Cash and deposits include cash, bank deposits and other cash equivalents
with an original maturity date of less than three months.
RECEIVABLES
Receivables are included in the balance sheet at face value less allowance
for doubtful accounts.
FOREIGN CURRENCY
Monetary items denominated in foreign currencies are translated using the
rate of exchange ruling on 31 December, provided that such items are not subject
to hedging activities. Monetary items, receivables and payables that are hedged
(for instance through the use of forward currency contracts) are translated
using the secured exchange rate.
INVENTORIES
Inventories, consisting of procured trade goods and project goods, are
valued at the lower of cost or market value.
DEVELOPMENT COSTS
Costs related to development activities are charged to expense in the
period in which such costs occur. These costs primarily consist of costs related
to own development activities that are part of commercial projects. Acquired
intangible assets are capitalized and amortized over the expected useful lives
of the assets.
FIXED ASSETS AND DEPRECIATION
Fixed assets are valued at cost after deduction of ordinary depreciation.
Ordinary depreciation is determined on the basis of the economic life of the
business equipment.
Replacements and renewals which appreciably increase the capacity or
lifespan of the business equipment are capitalized. Costs related to repair and
maintenance are expenses.
Gains and losses on the sale of fixed assets are included as ordinary
operating items.
REVENUE RECOGNITION
Revenue is recognized in accordance with "The revenue principle." This
results in the following revenue recognition for goods, services and projects:
Goods and services:
On the sale of goods, revenue is recognized at time of delivery. On the
sale of services at an hourly rate, revenue is recognized at time of
performance.
Project revenues:
Revenues on long term construction contracts are recognized using the
percentage of completion method. The percentage of completion is calculated on
the basis of the work performed. For projects which at the time of valuation are
expected to result in a loss, the entire estimated loss is recognized
F-39
<PAGE> 114
immediately. Invoices issued to customers on account are set off in the balance
sheet against the earned value of the projects provided that the invoiced amount
for the project does not exceed the earned value. In cases where the invoiced
amount exceeds the earned value, the surplus amount is included in other current
liabilities.
GENERAL EXPENSING
Costs are allocated to expense in the same period as revenues are
recognized using the matching principle.
PENSION COSTS AND PENSION LIABILITIES
Pension costs and related pension liabilities are recorded in accordance
with the provisional Norwegian Accounting Standards for the treatment of pension
costs.
The net pension cost for the period is included in wages and social costs
and comprises the sum of pension earnings for the period, cost of interest on
calculated obligations and anticipated yield on pension funds. Pension
obligations less the value of pension assets are shown as a net amount in the
balance sheet.
Changes in estimated deviation for pension obligations and pension assets
are distributed over the estimated remaining earning time if the deviation
exceeds 10% of gross pension obligations or pension assets, whichever is the
highest.
TAX EXPENSE AND DEFERRED TAXES
Taxes are treated in accordance with "Hoingsutkast from Norsk
RegnskapsStiftelse" (Exposure Draft) regarding income taxes. Tax expense in the
income statement include both taxes payable for the period and changes in
deferred taxes. Deferred taxes in the balance sheet comprise future tax
calculated on the temporary differences between tax values and accounting
values. The profit in the accounts is thus charged with full tax irrespective of
when tax is to be paid.
GROUP CONTRIBUTION
Group contributions are used as a tax equalizing means between Group
companies. According to Norwegian tax rules, Group contributions have tax effect
provided that more than 90% of the shares of the receiving and contributing
companies are controlled by the same owner(s).
As a general rule, Group contributions are presented net of taxes in
accordance with "Hoingsutkast from Norsk RegnskapsStiftelse" (Exposure Draft)
regarding income taxes.
F-40
<PAGE> 115
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MNOK
INTRODUCTION
The consolidated income statement for 1996 has been revised to include the
accounts for the companies that were merged into the Group in 1997. Consolidated
accounts for previous years have not been adjusted to include acquisitions made
in 1998. Pro-forma information is included in Note 23.
All figures are in MNOK unless otherwise indicated.
1. PENSIONS
Hitec ASA and certain companies in the Group have pension schemes entitling
employees to future pension benefits (benefit schemes). Benefits are based on
the number of qualifying years and salary level at retirement age. The schemes
are organized through an insurance company. Obligations cover 261 employees in
Hitec ASA (prior to the demerger of Hitec Drilling & Marine Systems AS and Hitec
Products AS) and 391 employees in the Group.
Net pension expense consists of:
<TABLE>
<CAPTION>
HITEC ASA GROUP
------------------ ------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Present value of the year's pension earnings... 4 3 3 6 4 3
Interest expense related to pension
obligations.................................. 1 1 1 1 1 1
Expected return on pension assets.............. (1) (1) (1) (2) (2) (1)
Amortization of estimated loss/gain
Employer's tax................................. 1 1
-- -- -- -- -- --
Net pension expense.................. 4 3 3 6 4 3
== == == == == ==
</TABLE>
Reconciliation of pension obligations and pension funds:
<TABLE>
<CAPTION>
31.12.98 31.12.97 31.12.98 31.12.97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Estimated accrued obligation......................... 19 16 28 24
Estimated value of pension assets.................... (17) (15) (29) (22)
Employer's tax....................................... 1
--- --- --- ---
Net pensions obligations in balance sheet (pension
assets)............................................ 2 2 (1) 2
=== === === ===
Basis for calculations:
Discount rate........................................ 7.0% 7.0% 7.0% 7.0%
Expected yield....................................... 8.0% 8.0% 8.0% 8.0%
Salary adjustment.................................... 3.3% 3.3% 3.3% 3.3%
Adjustment of basic amount........................... 3.3% 3.3% 3.3% 3.3%
Pension adjustment................................... 2.5% 2.5% 2.5% 2.5%
</TABLE>
2. REMUNERATIONS
Salary to the Chief Executive Officer was NOK 880 803 in 1998. Total
remuneration to the Board of Directors was NOK 300 000. Expensed auditor's fees
amounted to NOK 1 889 402 of which NOK 1 559 402 represents consultancy fees.
F-41
<PAGE> 116
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RELATED PARTIES TRANSACTIONS
Transactions between Group companies are derived from the ordinary course
of business, and prices used are based on arms length principles. In addition,
Hitec ASA and Group companies have had the following significant transactions
with companies and persons that in accordance with generally accepted accounting
principles are regarded as related parties:
Hitec ASA leases premises from Maletempelet AS, a company owned 100% by the
Chief Executive Officer. The contract expires in the year 2010. Yearly lease
payment amounts to MNOK 2.8.
In the spring of 1997, Hitec ASA and LMG Marin AS (a company outside the
Hitec Group of companies) (collectively "owners") established the company
DynaSea AS. DynaSea AS' objective is to own the technology developed by the two
owners. In 1997 the owners transferred this technology free of charge to DynaSea
AS. The right to use the technology has been licenced to Navis ASA.
DynaSea AS owns 9 million shares of Navis ASA stock. In addition Hitec ASA
owns 8.9 million shares of Navis ASA stock. Hitec ASA consequently owns 26%
(directly and indirectly) of the total shares issued by Navis ASA. The directly
owned shares were acquired in connection with the share issue that took place in
November of 1998 at a share issue price of NOK 11 per share.
In 1997 Hitec ASA entered into a contract to deliver drilling equipment for
use on the drillship that Navis ASA is having constructed at the Samsung yard in
Korea. Following renegotiations of the contract during the summer of 1998, total
contract value amounts to MNOK 303 plus subsequent additions. As at 31 December
1998, MNOK 164 has been recognized as revenue in the Group accounts.
In 1998 the Group had the following transactions (invoiced amounts), and
had the following balances with associated companies at the end of the year:
<TABLE>
<CAPTION>
PURCHASES SALES RECEIVABLES PAYABLES
--------- ----- ----------- --------
<S> <C> <C> <C> <C>
Navis ASA....................................... 97 27
Multi-Fluid ASA................................. 1
Framnaes Installation AS........................ 38 3 1 1
APL AS (prior to the sale of this investment)... 2
</TABLE>
4. FIXED ASSETS/GOODWILL
Fixed Assets/Goodwill -- Hitec ASA
<TABLE>
<CAPTION>
MACHINES/
FF&E*/
VEHICLES BUILDINGS LAND TOTAL
--------- --------- ---- -----
<S> <C> <C> <C> <C>
Accumulated cost at 1 January 1998.................. 40 30 3 73
Additions for the year.............................. 13 2 2 16
Disposals for the year (at cost).................... -15 -15
----- --------- -- ---
Accumulated cost as at 31 December 1998............. 37 32 5 74
Accumulated depreciation............................ -20 -4 -25
----- --------- -- ---
Book value as at 31 December 1998................... 17 27 5 50
===== ========= == ===
Total depreciation 1998............................. 8 2 10
Depreciation rate................................... 20-33% 5% 0%
</TABLE>
F-42
<PAGE> 117
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments in and sales of fixed assets in the past 5 years:
<TABLE>
<CAPTION>
VEHICLES, MACHINERY,
FF&E* BUILDINGS, LAND
------------------------- -------------------------
INVESTMENTS SALES PRICE INVESTMENTS SALES PRICE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994...................................... 7 2
1995...................................... 11 20
1996...................................... 6 2
1997...................................... 6 9
1998...................................... 13 4
</TABLE>
Fixed Assets/Goodwill -- Group
<TABLE>
<CAPTION>
MACHINES
FF&E*/
VEHICLES BUILDINGS LAND GOODWILL TOTAL
--------- --------- ---- -------- -----
<S> <C> <C> <C> <C> <C>
Accumulated cost as at 1 January 1998..... 79 48 7 229 363
Additions acquired companies (purchase
method)................................. 6 18 3 18 45
Additions for the year.................... 25 32 2 60
Disposals for the year (at cost).......... -17 -62 -79
----- -- -- ---- ----
Accumulated cost as at 31 December 1998... 93 98 11 186 389
Accumulated depreciation/amortization..... -62 -6 -36 -104
Disposals for the year.................... 16 0 8 24
----- -- -- ---- ----
Book value as at 31 December 1998......... 48 92 11 158 309
===== == == ==== ====
Depreciation/amortization 1998............ 17 3 13 33
Depreciation/amortization rate............ 15-33% 5% 0% 5-20%
</TABLE>
- ---------------
* Furniture, fixtures & equipment
Investments in and sales of fixed assets in the last 5 years:
<TABLE>
<CAPTION>
VEHICLES, MACHINERY,
FF&E* BUILDINGS, LAND
------------------------- -------------------------
INVESTMENTS SALES PRICE INVESTMENTS SALES PRICE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994...................................... 7 2
1995...................................... 17 20
1996...................................... 13 2
1997...................................... 16 1 21
1998...................................... 25 1 34
</TABLE>
Goodwill with a total book value of MNOK 158 as at 31 December 1998,
primarily stems from the acquisitions of shares in Hitec Marine AS, Hitec Subsea
AS, Hitec Drilling & Marine Systems, Ltd (Aberdeen), Maritime Industry Service
AS and Karmoy Stal AS, ref. Note 22.
Goodwill has been paid based on an appraisal of the company's historical
earnings and development, competitive position and future prospects. In
addition, market and cost related synergies are taken into consideration.
An amortization period of more than 5 years has been chosen for some of
these investments because goodwill incurred at the time of purchase is assumed
to have a commercial lifetime of more than 5 years, equivalent to the chosen
amortization period.
F-43
<PAGE> 118
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the goodwill that arose from the acquisition of all shares of Hitec
Marine AS, MNOK 61.5 related to the value of Hitec Marine's shareholding in
Advanced Production and Loading AS. During the fall of 1998, Hitec Marine AS
sold these shares. In connection with the sale of shares, remaining unamortized
goodwill of MNOK 53.8 was treated as a reduction of the gain from this sale.
Ref. also Note 5.1.
5. SHARES IN SUBSIDIARIES, ASSOCIATED COMPANIES AND OTHER SHARES
<TABLE>
<CAPTION>
SHARE CAPITAL HELD BY HITEC
----------------------------------- ---------------------------
PAR NO. OF BOOK
NOK1000 AMOUNT NUMBER VALUE SHARES VALUE %
- ------- ----------- ---------- -------- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Subsidiaries:
Hitec Marine AS.............. 4,512 4,512,000 1 4,512,000 200,319 100.0%
Karmoy Stal AS............... 3,000 30,000 100 30,000 21,900 100.0%
Maritime Industry Service
AS(1)..................... 450 450 1,000 450 11,198 100.0%
Hitec Subsea AS.............. 750 750 1,000 750 9,940 100.0%
Hitec Drilling & Marine
Systems, Inc. ............ USD 10 1,000 USD 0,01 1,000 17,912 100.0%
Hitec Drilling & Marine
Systems, Ltd.............. GBP 100 100 GBP 1 100 4,696 100.0%
Hitec Drilling & Marine
Systems, Ltda............. BRR 400,000 400,000 BRR 1 399,999 2,775 100.0%
Hitec Drilling & Marine
Systems Ltd............... CAD 75,000 75,000 CAD 1 75,000 413 100.0%
Hitec Drilling & Marine
Systems AS................ 1,000 1,000 1,000 1,000 1,000 100.0%
Hitec Miljo AS............... 1,000 100,000 10 100,000 1,000 100.0%
Hitec Products AS............ 1,000 1,000 1,000 1,000 1,000 100.0%
Hitec Baku AS................ 50 5,000 10 5,000 50 100.0%
Hitec Framnaes AS............ 50 5,000 10 5,000 50 100.0%
Engineering Consultants AS... 50 5,000 10 5,000 50 100.0%
Datavision AS................ 50 50 1,000 50 900 100.0%
Astorga Ltd.................. GBP 100 100 1 100 5,155 100.0%
DynaSea AS(2)................ 100 100 1,000 51 51 51.0%
Associates companies -- owned
by Hitec ASA:
Navis ASA(2)................. 6,901 69,006,250 0.10 8,925,666 98,182 12.9%
Multi-Fluid ASA.............. 1,972 9,862,206 0.20 4,893,861 22,484 49.6%
Other shares:
Colifast ASA................. 1,428 14,275,000 0.10 499,995 500 3.5%
SmartCity Stavanger.......... 1,385 138,500 10 10,000 100 7,6%
Other shares held by Group
companies................. 1,825
-------
Total................ 401,500
=======
</TABLE>
F-44
<PAGE> 119
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following companies are subsidiaries and associated companies of other
Group companies:
<TABLE>
<CAPTION>
SHARE CAPITAL HELD BY GROUP COMPANY
--------------------------- -------------------------
PAR NO. OF BOOK
NOK1000 AMOUNT NUMBER VALUE SHARES VALUE %
- ------- ------ ---------- ----- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Subsidiaries:
Hinderveien 5 AS(3)........... 220 2,203 100 2,203 0 100.0%
Framnaes Data AS.............. 250 2,500 100 2,500 250 100.0%
Associated companies:
Framnaes Installation AS...... 1,050 3,500 300 1,400 500 40.0%
Navis ASA..................... 6,901 69,006,250 0.10 9,000,000 900 13.0%
</TABLE>
- ---------------
(1) As at 31 December 1998 Hitec owns 91% of the shares of Maritime Industry
Service. Due to the agreement relating to the acquisition of the remaining
shares, 100% of the shares are included in the Balance Sheet, ref. Note 22.
(2) In addition to shares held directly, Hitec ASA through the 51% ownership
share of DynaSea AS controls an additional 9 million Navis ASA shares.
Adjusted for the minority share of these shares, Hitec owns a total of
13,515,666 Navis ASA shares with a total book value of MNOK 98.2 in the
company accounts of Hitec ASA. As at 31 December 1998 these same shares had
a market value MNOK 87.9. Due to low volume of shares changing hands, market
value of the shares based on trade activity is not considered to be a
representative estimate of the value of this investment. Consequently no
revaluation is done in the Company Accounts.
(3) Hinderveien 5 AS was sold in February 1999.
5.1. SHARES IN ASSOCIATED COMPANIES -- GROUP
<TABLE>
<CAPTION>
ADVANCED
MULTI-FLUID KARMOY STAL PRODUCTION & FRAMNAES
ASA AS LOADING AS(1) INSTALLATION AS NAVIS ASA SUM
----------- -------------- ------------- --------------- --------- ---
<S> <C> <C> <C> <C> <C> <C>
Holding........................ 49.62% 30.00% 40.00% 40.00% 26.00%
Value at 1 January 1998........ 36 2 9 3 176 227
Additions for the year......... 98 98
Dividends received............. 0 -0 -0
Allocated at the time of
sale/full Consolidation...... 0 -4 -53 -57
Gain on sale of shares......... 41 41
Share of profit/loss (after
taxes)....................... 3 2 3 1 -7 2
----- ----- ----- ----- ----- ---
Value at 31 December
1998............... 38 0 0 4 267 310
===== ===== ===== ===== ===== ===
Goodwill at 1 January 1998..... 9 -1 0 0 0 8
Additions...................... -1 1 0 0 0 -0
Goodwill at 31 December 1998... 8 0 0 0 0 8
Rate of Amortization........... 10% 20%
</TABLE>
- ---------------
(1) Of the goodwill that arose from the acquisition of all shares of Hitec
Marine AS, MNOK 61.5 related to the value of Hitec Marine's shareholding in
Advanced Production and Loading AS. During the fall of 1998, Hitec Marine AS
sold these shares. In connection with the sale of shares, remaining
unamortized goodwill of MNOK 53.8 was treated as a reduction of the gain
from this sale. Ref. also Note 4.
F-45
<PAGE> 120
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. FINANCIAL ITEMS
<TABLE>
<CAPTION>
HITEC ASA GROUP
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest earned.......................................... 2 8 7 8
Group contribution from Hitec Marine AS.................. 79
Writedown of shares in Hitec Marine AS................... -65
Underwriting commission, Navis share issue............... 2 2
Exchange gain............................................ 1 1
--- -- -- --
Financial income............................... 17 9 8 9
--- -- -- --
Interest expense......................................... 11 3 13 4
Depreciation of shares................................... 3 3
Other financial expenses................................. 0 0 1 1
--- -- -- --
Financial expenses............................. 14 3 17 5
=== == == ==
</TABLE>
Group contribution from Hitec Marine AS relates to the profit generated
from Hitec Marine's sale of shares in Advanced Production and Loading AS.
Consequently, Group contribution is presented as financial income.
6.1. FINANCIAL RISK AND FINANCIAL INSTRUMENTS
The Group financial strategy calls for balance between the operational and
the financial risk profiles. Considerable trade with foreign customers and
suppliers causes changes in exchange rates to have an impact on Group revenues
and expenses. In order to reduce risk of loss due to fluctuations in exchange
rates between the date at which contracts are entered into and the date at which
payments take place, hedging measures are used to protect net cash flow on a
currency by currency basis. Hedging contracts are not recorded independently in
the accounts, but affect the recording of the underlying sales and purchase
transactions.
Investments in subsidiaries (loans and equity) are as a general rule
secured through the use of financing in the same currency.
There is otherwise little use of financial derivatives.
F-46
<PAGE> 121
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. TAXES
The following specifies the differences between net income (-loss) before
taxes and tax basis for the year:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (-loss) before taxes............................. 94 17 -15
Permanent differences (including group contributions)....... -33 -11 1
Change in temporary differences related to:
Current assets/current liabilities........................ -130 93 -12
Fixed assets.............................................. 1 2 2
Other differences......................................... 68 -1
Loss carried forward...................................... -57 -34
---- --- ---
TAX BASIS FOR THE YEAR -- NORWAY............................ 44 -57
Income taxes payable (28%) -- Norway........................ 12
Taxes payable -- abroad..................................... 1
---- --- ---
TOTAL TAXES PAYABLE -- CURRENT LIABILITIES -- HITEC ASA..... 13
Taxes payable, other Group companies
Norwegian companies....................................... 12 4
Foreign companies......................................... 1 1
---- --- ---
TOTAL TAXES PAYABLE -- GROUP................................ 12 18
==== === ===
</TABLE>
Deferred taxes are calculated on the basis of the temporary differences
between book values and tax values which exist at the end of the financial year.
Deferred taxes have been calculated on temporary differences related to:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets/current liabilities.......................... 157 28
Fixed assets................................................ -3 -2
Other differences........................................... -71 -3
--- --
BASIS FOR CALCULATION OF DEFERRED TAXES..................... 83 22
--- --
DEFERRED TAXES (28%) -- LONG TERM LIABILITIES -- HITEC
ASA....................................................... 23 6
--- --
Deferred taxes other group companies:
Deferred taxes connected to reduced shareholding in
associated companies................................... 52 54
Norwegian companies....................................... 14 2
Deferred taxes derived from consolidating entries......... 14 -2
--- --
DEFERRED TAXES -- LONG TERM LIABILITIES -- GROUP............ 103 61
=== ==
</TABLE>
Pursuant to the "Horingsutkast -- Resultatskatt" (Exposure draft) issued by
Norsk RegnskapsStiftelse, regarding the Treatment of taxes, temporary tax
reducing and tax increasing differences which reverse, or can reverse in the
same period, are counterbalanced.
F-47
<PAGE> 122
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tax expense in the income statement comprises:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income taxes payable by Hitec ASA........................... 13
Tax effect related to Group contribution.................... 3
Changes in deferred taxes................................... 17 -10 -4
-- --- --
TAX EXPENSE (INCOME) IN INCOME STATEMENT -- HITEC ASA....... 21 2 -4
Taxes payable -- Group companies............................ 12 5 2
Deferred taxes derived from consolidated entries............ -3
Other changes in deferred taxes (excl. deferred taxes re.
acquisitions)............................................. 20 56 -2
-- --- --
TAX EXPENSE (INCOME) IN INCOME STATEMENT -- GROUP........... 50 63 -4
== === ==
</TABLE>
8. GROUP CONTRIBUTIONS
<TABLE>
<CAPTION>
HITEC ASA
------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Group contribution received................................. 5 10
Group contribution contributed.............................. -16 -11
Tax related to taxable Group contribution................... 3
--- --- --
GROUP CONTRIBUTION, NET..................................... -7 -11 10
=== === ==
</TABLE>
See also Note 6 which includes information about Group contribution from
Hitec Marine AS, MNOK 79.
9. CASH AND CASH EQUIVALENTS
As at 31 December 1998, restricted cash totals MNOK 6 for Hitec ASA and
MNOK 13 for the Group. In 1997 restricted cash for Hitec ASA totaled MNOK 4 and
MNOK 8 for the Group.
The bank accounts of the subsidiaries Hitec Marine AS, Hitec Subsea AS and
Hitec Framnaes AS are included in Hitec ASA's Group accounts system with Hitec
ASA as accountholder. Inasmuch as the other Group companies have net deposits,
the actual account between Hitec and the bank is higher than that shown in the
balance sheet. This is due to deposits from other companies being included in
the accounts of the respective companies instead of in an open account with
Hitec ASA.
Moreover, the Group account agreement causes the participating Group
companies to be jointly and severally liable for any balance on the legal
account of Hitec ASA.
F-48
<PAGE> 123
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CURRENT RECEIVABLES
Current receivables comprise:
<TABLE>
<CAPTION>
HITEC ASA GROUP
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accounts receivable......................................... 208 116 323 164
Allowance for doubtful accounts............................. -1 -2 -2 -3
Net accounts receivable..................................... 207 114 321 161
Prepaid project costs....................................... 18
Other current receivables................................... 1 2 18 7
VAT receivable.............................................. 4 6 4 6
--- --- --- ---
Balance........................................... 213 122 361 175
=== === === ===
</TABLE>
11. CURRENT GROUP RECEIVABLES
Current Group receivables comprise:
<TABLE>
<CAPTION>
HITEC ASA
-----------
1998 1997
---- ----
<S> <C> <C>
Group contribution receivable............................... 83 0
Short term Group financing.................................. 7 14
-- --
Balance........................................... 90 14
== ==
</TABLE>
12. INVENTORIES
Inventories comprise:
<TABLE>
<CAPTION>
HITEC ASA GROUP
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Draugen drilling rig........................................ 35 35
Other inventories........................................... 2 2 12 13
-- -- -- --
Balance........................................... 37 2 47 13
== == == ==
</TABLE>
The Draugen drilling rig is intended to be upgraded and sold, and is
included in the balance sheet at cost.
13. WORK IN PROGRESS
The accrued value of projects equals project costs incurred plus profit
based on the percentage of completion. The accounting principle is further
explained under the section "accounting principles."
Specification of work performed but not yet invoiced as at 31 December:
<TABLE>
<CAPTION>
HITEC ASA GROUP
------------ ------------
1998 1997 1998 1997
----- ---- ----- ----
<S> <C> <C> <C> <C>
Revenue earned........................................... 1,074 381 1,500 507
Invoiced on account...................................... 971 272 1,373 370
----- --- ----- ---
Balance........................................ 103 108 128 138
===== === ===== ===
</TABLE>
Invoicing on account in excess of revenue earned is included as customer
advances among other current liabilities, ref. Note 15.
F-49
<PAGE> 124
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CREDIT FACILITIES
In addition to the liquid assets included in the balance sheet, Hitec ASA
and the Group have an overdraft facility of MNOK 114 which is part of the Group
account system. In addition to this, other Group companies have overdraft
facilities totaling MNOK 11. As at 31 December 1998, the unused part of
facilities amounts to MNOK 60.
15. OTHER CURRENT LIABILITIES
Other current liabilities comprise:
<TABLE>
<CAPTION>
HITEC ASA GROUP
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Customer advances........................................... 25 56 63 74
Accrued project costs....................................... 22 62 35 64
Current interest bearing debt............................... 20 20
Other current liabilities................................... 17 1 60 27
-- --- --- ---
Balance........................................... 84 119 178 165
== === === ===
</TABLE>
16. INTEREST BEARING DEBT/SECURED LIABILITIES
The Company's and the Group's overall debt includes MNOK 154 (1997: MNOK
96) and MNOK 201 (1997: MNOK 110) secured by mortgage or other collateral. The
mortgaged Company debt is adjusted to account for other group companies'
deposits that are part of the Group account system.
The Company and Group's long-term interest bearing debt is subject to
certain covenants. At the end of 1998, none of these covenants were in default.
Security has also been pledged in respect of established guarantee facilities
and other mortgaged debt.
Book value of assets pledged as security for debt and guarantees are as
follows:
<TABLE>
<CAPTION>
HITEC ASA GROUP
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current receivables......................................... 213 122 336 175
Inventories................................................. 37 2 41 2
Work in progress............................................ 103 108 129 117
Shares in associated companies.............................. 22 38
Fixed assets................................................ 11 7
Property.................................................... 8 64 8
--- --- --- ---
Balance........................................... 383 232 620 308
=== === === ===
</TABLE>
In addition to the above, property leases and capital equipment are pledged
as security.
Repayment plan long term debt:
<TABLE>
<CAPTION>
HITEC ASA GROUP
--------- -----
<S> <C> <C>
1999........................................................ 22 27
2000........................................................ 20 25
2001........................................................ 18 23
2002........................................................ 4 9
2003........................................................ 1 5
2004 and thereafter......................................... 10 33
</TABLE>
F-50
<PAGE> 125
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. INTEREST BEARING DEBT
<TABLE>
<CAPTION>
HITEC ASA GROUP
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bank overdraft.............................................. 207 65 0
Other current liabilities................................... 20 20
Long term liabilities....................................... 76 96 122 111
--- -- --- ---
Balance........................................... 303 96 207 111
=== == === ===
</TABLE>
18. EQUITY
Hitec ASA
<TABLE>
<CAPTION>
ALLOCATION OF
EQUITY NEW GROUP NET INCOME EQUITY
1997 EQUITY CONTRIBUTION 1998 1998
------ ------ ------------ ------------- ------
<S> <C> <C> <C> <C> <C>
Share capital......................... 37 38
Legal reserve fund.................... 269 2 270
Revaluation fund
Total restricted equity............... 307 2 309
--- -- -- -- ---
Distributable reserves................ 43 -7 74 109
--- -- -- -- ---
Shareholders equity at 31 December.... 349 2 -7 74 417
=== == == == ===
</TABLE>
Group
<TABLE>
<CAPTION>
ALLOCATION OF
EQUITY NEW NET INCOME EQUITY
1997 EQUITY 1998 1998
------ ------ ------------- ------
<S> <C> <C> <C> <C>
Share capital..................................... 37 38
Group reserves.................................... 393 2 58 453
Adjustment for consolidation of Karmoy Stal AS.... 2 2
Translation differences........................... -1 -1
--- -- -- ---
Shareholders equity at 31 December................ 430 3 58 492
=== == == ===
</TABLE>
Share options
In 1998 Hitec ASA started a new share options program for employees and
Directors of Hitec ASA and subsidiaries. The option program authorizes the Board
to issue up to 2 million new shares of Hitec ASA stock during the period up to
and including 31 December 2000. At the turn of the year a total of 744 000 share
options had been granted to employees and Directors. The granted options are
exercisable in December of year 2000. The share options may be exercised at NOK
20 per share. The option program replaces the previous program that was
established in 1997 and that had an exercise price of NOK 50 per share.
Increase in share capital
At the turn of the year a total of 37 631 044 shares are issued at a par
value of NOK 1 per share. Two share issuances took place in May of 1998 through
the exercise of 126 832 and 120 000 share options respectively, based on
previously established agreements.
Based on General Meeting authorizations, the Board of Directors is
authorized to issue a total of 4 092 172 new shares.
F-51
<PAGE> 126
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Furthermore, the General Meeting has authorized the Board of Directors to
repurchase own shares with an accumulated par value that must not exceed 10% of
the share capital. This authorization expires on 30 June 2000.
RISK adjustment
Adjustment of the company's share price for Norwegian taxation purposed was
NOK 1,14 per share in 1997. The input value of shares as at 1 January 1998 is
thereby adjusted accordingly.
19. GUARANTEES
<TABLE>
<CAPTION>
HITEC ASA GROUP
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Guarantee commitments employees.............................
Completion guarantees....................................... 33 139 42 139
Group guarantees............................................ 4 13 4
Other guarantees (incl. advance guarantees)................. 42 49 63 63
-- --- --- ---
Total............................................. 79 202 108 202
== === === ===
</TABLE>
The guarantee limit in bank and insurance totals MNOK 136 for the Group.
Completion guarantees include a conditional performance guarantee in the
amount of MNOK 30 furnished for the associated company Navis ASA. In some cases
Hitec ASA has furnished guarantees for Group company customers or suppliers
(parent company guarantees), and also stands surety in relation to guarantee
institutions for withdrawals by subsidiaries on an otherwise unsecured guarantee
amount.
20. SHARES OWNED BY DIRECTORS AND THE CHIEF EXECUTIVE OFFICER (AT YEAR END)
<TABLE>
<CAPTION>
SHARE
SHARES OPTIONS
NAME POSITION OWNED OWNED
- ---- -------- ---------- -------
<S> <C> <C> <C>
Jon Gjedebo................... Chief Executive Officer and Director 10,346,188 20,500
Arve Johnsen.................. Chairman 16,000 10,000
Folke Hermansen............... Director 100,000 10,000
Geir Larsen................... Director 20,000 10,000
Sigve Sandvik................. Director (employee representative) 5,000 3,000
Svein Arne Moi................ Director (employee representative) 3,000 1,500
</TABLE>
The shares held by Jon Gjedebo represent 27.75% of the total shares issued
by Hitec ASA, and are held through the companies Styrbjorn AS and Joto AS. Folke
Hermansen holds his shares through the company Det Stavangerske
Dampskibsselskab. Geir Larsen holds his shares through the companies Svennevik
Invest AS and Breeze Chartering AS.
At the turn of the year Geir Larsen also held a total of 15,000 ad-hoc
options, but these were not exercised.
21. DISPUTES/LEGAL ACTION
Hitec ASA is not involved in court cases at the present time. Hitec ASA and
the other Group companies are involved in some contractual disputes. These
disputes are not expected to have significant influence on the financial
position of the Company or the Group.
F-52
<PAGE> 127
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. ACQUISITIONS -- 1998
The following summarized information relates to acquisitions:
<TABLE>
<CAPTION>
DATE OF SHARE OF
ACCOUNTING PURCHASE ACCOUNTING EQUITY AMORTIZATION
COMPANY INTEGRATION PRICE METHOD ACQUIRED GOODWILL PERIOD NOTE
- ------- ----------- -------- ---------- -------- -------- ------------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Maritime Industry Service AS......... 1 Jan 98 12 Purchase 100% 13 5 years 1
Karmoy Stal AS....................... 1 Nov 98 21 Purchase 70% 5 5 years 2
</TABLE>
- ---------------
Note 1: Legally Hitec ASA has only acquired 91% of the shares as at 1 January
1998, for a total cash consideration of MNOK 5. Hitec is also committed to
acquire the remaining shares of the company in two equal installments at 1
January 2000 and 1 January 2001 for a cash consideration of MNOK 3.5 at each of
these dates. 100% of the shares are therefore included in the balance sheet of
Hitec ASA, at a calculated net present value of the purchase price of MNOK 11.2.
Note 2: Prior to the purchase, Hitec ASA owned 30% of the shares of Karmoy Stal
AS. As from the date of the last share purchase, Hitec ASA owns 100% of the
shares of the company. Of a total purchase price of MNOK 21, MNOK 15 had been
paid at 31 December 1998. The remaining cash consideration is to be paid in
1999, year 2000 and year 2001.
23. PRO-FORMA ACCOUNTING INFORMATION -- 1997 AND 1998
Pro-forma accounting information presents Group accounts as arrived at had
the acquisitions described in Note 22 taken place as at 1 January 1997.
Goodwill and other excess over book values identified at the time of
acquisition is amortized and depreciated as from 1 January 1997 with the same
rates that are used in preparing the 1998 financial statements. In calculating
financial expenses related to financing the investments, the interest rate used
is the interest rate that is valid for February 1999 as provided by the Group's
main source for debt financing.
The tax effect of the above mentioned elements is accounted for.
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
ACCOUNTS PRO FORMA ACCOUNTS PRO FORMA
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Operating revenues............................ 1,376 1,485 803 933
Operating income before share of associated
companies................................... 73 81 12 10
Net income before taxes....................... 107 112 215 207
Net income.................................... 58 62 90 81
Net income per share -- NOK................... 1.55 1.65 2.47 2.22
Net income per share -- NOK -- fully
diluted..................................... 1.55 1.65 2.44 2.19
</TABLE>
F-53
<PAGE> 128
HITEC ASA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
24. BUSINESS SEGMENT INFORMATION
Business segment information is provided on pages 38 to 43 of Hitec's
annual report. The information can be summarized as follows:
1998
<TABLE>
<CAPTION>
OP. INCOME
OPERATING ADDED BEF. GOODWILL ORDER NO. OF
REVENUES VALUE AMORTIZATION RESERVES EMPLOYEES
--------- ----- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Group companies............................. 1,625 784 127 687 878
Hitec ASA (holding company) and
eliminations.............................. -140 -7 -32 -9 9
Goodwill amortization....................... (14)
----- --- --- --- ---
Sum pro forma..................... 1,485 777 81 678 887
===== === === === ===
</TABLE>
1997
<TABLE>
<CAPTION>
OP. INCOME
OPERATING ADDED BEF. GOODWILL ORDER NO. OF
REVENUES VALUE AMORTIZATION RESERVES EMPLOYEES
--------- ----- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Group companies............................. 971 436 49 852 708
Hitec ASA (holding company) and
eliminations.............................. -38 -5 -27 -10 11
Goodwill amortization....................... -15
--- --- --- --- ---
Sum pro forma..................... 933 431 7 842 719
=== === === === ===
</TABLE>
F-54
<PAGE> 129
HITEC ASA
UNAUDITED SUMMARY CONSOLIDATED INCOME STATEMENTS
MNOK
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Operating revenues.......................................... 867 1,014
Cost of materials........................................... 369 540
---- -----
Added value................................................. 498 474
Operating expenses.......................................... 408 415
Depreciation................................................ 19 13
---- -----
Operating income before goodwill amortization............... 71 46
---- -----
Operating income............................................ 60 36
Income (-loss) associated companies......................... -48 47
Net financial income (-expense)............................. -10 -5
---- -----
Net income before taxes..................................... 3 78
Minority interest in income................................. 26 -1
---- -----
Net income after taxes and minority interests............... 22 56
==== =====
Operating margin (operating income in % of operating
revenues)................................................. 7.0% 3.6%
Per Share:
Earnings per share in NOK, fully diluted.................. 0.59 1.47
</TABLE>
F-55
<PAGE> 130
HITEC ASA
UNAUDITED SUMMARY CONSOLIDATED BALANCE SHEET
MNOK
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Goodwill.................................................... 159
Fixed Assets................................................ 173
Long-term financial assets.................................. 260
Current assets.............................................. 449
-----
Total assets...................................... 1,041
=====
Shareholders' equity (incl. minority interests)............. 551
Long-term liabilities (incl. estimated taxes)............... 251
Current liabilities......................................... 239
-----
Total shareholders' equity and liabilities........ 1,041
=====
Equity ratio................................................ 53%
Current ratio............................................... 1.87
</TABLE>
F-56
<PAGE> 131
HITEC ASA
UNAUDITED SUMMARY CONSOLIDATED CASH FLOW STATEMENTS
MNOK
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from Operations:
Net income before taxes................................... 3 78
Depreciation and amortization............................. 30 24
Change in net working capital, ass. companies and est.
taxes.................................................. 11 -183
--- ----
Net cash flow from operations (A)........................... 44 -81
Net cash flow from investments (B).......................... -29 68
--- ----
Cash flows from financing:
Change in long-term liabilities........................... 22 -6
Issue of new shares....................................... 2
--- ----
Net cash flow from financing (C)............................ 22 -4
--- ----
Net change in cash (A+B+C).................................. 37 -18
Change in bank overdraft.................................... -36 24
Cash in acquired company.................................... 4 2
Cash and deposits at start of period........................ 25 102
--- ----
Cash and deposits at end of period.......................... 31 109
=== ====
</TABLE>
F-57
<PAGE> 132
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
MNOK
BUSINESS UNITS:
First Nine Months 1999:
<TABLE>
<CAPTION>
HITEC
DRILLING & HITEC INTER- MARITIME CORPORATE
MARINE HITEC HITEC HITEC MARINE NATIONAL HITEC INDUSTRY KARMOY COSTS AND
SYSTEMS PRODUCTS MARINE SUBSEA AUTOMAT COMP. FRAMNAES SERVICE STAL ELIMIN.
---------- -------- ------ ------ ------- -------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues... 421 65 112 28 60 62 47 38 92 -58
Added value.......... 225 24 36 21 3 40 41 32 65 11
Operating income
(-loss) bef.
goodwill
amortization....... 73 7 3 -2 -7 -1 -8 3 6 -3
Operating margin
(percent).......... 17.3% 11.4% 2.5% -6.7% -11.7% -1.2% -16.7% 8.6% 6.8% --
Note................. 1 1 2 3 4
</TABLE>
First Nine Months 1998:
<TABLE>
<CAPTION>
HITEC
DRILLING & HITEC INTER- MARITIME CORPORATE
MARINE HITEC HITEC HITEC MARINE NATIONAL HITEC INDUSTRY KARMOY COSTS AND
SYSTEMS PRODUCTS MARINE SUBSEA AUTOMAT COMP. FRAMNAES SERVICE STAL ELIMIN.
---------- -------- ------ ------ ------- -------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues... 591 61 115 38 -- 93 127 70 -- -81
Added value.......... 250 21 32 13 -- 41 75 45 -- -3
Operating income
(-loss) bef.
goodwill
amortization....... 56 5 5 -8 -- -6 12 7 -- -25
Operating margin
(percent).......... 9.4% 8.9% 4.8% -21.3% -- -7.0% 9.3% 10.4% -- --
Note................. 1 1 2 3 4
</TABLE>
- ---------------
Notes to business unit information:
1. Hitec Drilling & Marine Systems AS and Hitec Products AS were split out from
Hitec ASA 01.01.99. First nine months figures for 1998 shown above are
therefore pro-forma only.
2. Hitec Marine Automation was acquired with effect from April 1999, and figures
are therefore for the second and third quarter only. Figures for 1998 are not
comparable.
3. Includes Hitec Drilling & Marine Systems, Inc., USA, Hitec Drilling & Marine
Systems Ltd., Canada, Hitec Drilling & Marine Ltda, Brazil, and Hitec
Drilling & Marine Systems Ltd., UK.
4. Karmoy Stal was acquired with effect from 1 November 1998. Figures for the
first nine months of 1998 were: Operating revenues: 93 MNOK; added value: 67
MNOK; operating income: 8 MNOK; operating margin: 8.8%.
MERGER AGREEMENT WITH NATIONAL OILWELL
On the 10th of October, the Board of Hitec and the American company
National Oilwell signed an agreement to merge the drilling technology operations
of the two companies. Incurred costs related to external advisors used in this
process have not been expensed at 30 September 99.
PROFITABILITY
The Group's operating income for the first nine months was 60 MNOK, giving
an operating margin of 7.0%. Corresponding figures for the first nine months of
1998 were 36 MNOK and 3.6%. Net income after taxes and minorities' share of
income was 22 MNOK (56).
F-58
<PAGE> 133
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
Operating revenues for the first nine months were 867 MNOK (1014). Added
value was 498 MNOK (474). Goodwill amortization amounted to 11 MNOK (10). Net
financial expense for the first nine months was 10 MNOK (5).
ORDER BACKLOG
Order backlog at 30.09.99 was 492 MNOK, and 767 MNOK at 30.09.98
CAPITAL
The Group had a positive cash flow from operations of 44 MNOK for the first
nine months, against a negative cash flow of 81 MNOK for the first nine months
of 1998. Cash reserves, including unused overdraft facilities, are 124 MNOK,
while net interest-bearing debt is 131 MNOK. Shareholders' equity (incl.
minority interests) amounts to 551 MNOK (550), giving an equity ratio of 53%.
THIRD QUARTER
The Group's operating revenues for the third quarter were 237 MNOK (331).
Added value was 133 MNOK (187), and operating income 9 MNOK (20).
PRODUCT AND TECHNOLOGY COMPANIES:
Hitec Drilling & Marine Systems AS
The market for drilling technology remains weak, and order intake is not
satisfactory. Due to this, activity in Hitec Drilling & Marine Systems was low
in the third quarter. Higher oil prices have however led to an increase in the
number of inquiries, which in the longer term are expected to lead to new
orders.
With Hitec Marine Automation the company is working on several projects
within ship automation and ship bridge systems. In October, HDMS received an
order for the first series of CeCots military operator stations. Income from
this first order will cover development costs for the product.
Hitec Products AS
Activity remains high at Hitec Products, with continuing good margins.
Hitec Marine AS
The market for the company's product remains weak. The focus is still on
cost containment, and temporary lay-offs remain in force.
Hitec Subsea AS
In September, Hitec Subsea received an order for two HiROV3000 remote
operated subsea vehicles. The order will lead to increased activity in the
company.
Hitec Marine Automation AS
The company was acquired from Kvaerner in April. Marketing activities
continue both towards the military and commercial shipping markets, and several
significant orders have been received since the acquisition.
Costs related to development of new technology have been higher than
anticipated, and have led to losses for the company. The losses are expected to
continue for the next quarters.
F-59
<PAGE> 134
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL COMPANIES
Due to the general market situation, activity remains low at several of the
Group's international companies. During 1999, the cost level has been adjusted
to this.
HITEC ENGINEERING & CONSTRUCTION:
Hitec Framnaes AS
The company's market situation is still weak. Parts of the workforce have
been laid off temporarily, and further cost reducing measures are being
evaluated.
Karmoy Stal AS
The company had high activity in the first part of the third quarter, but
is now seeing a downward pressure on volume and margins.
Maritime Industry Service AS
The company has so far been able to keep its good margins. The weak market
conditions are however being felt also by this company from the end of the third
quarter.
SHAREHOLDINGS IN OTHER COMPANIES
Shareholdings in other companies include 13% in Roxar ASA and 11% in Navis
ASA, as well as 40% in Framnaes Installasjon AS. Hitec also owns 51% of DynaSea
AS, which has a shareholding of 6% in Navis ASA.
Hitec had a loss from associated companies of 48 MNOK for the first nine
months of 1999, against income of 47 MNOK for the same period of 1998. The loss
for the third quarter was 35 MNOK.
In August, Hitec sold some of its shares in Roxar ASA, resulting in a gain
of 25 MNOK before and 18 MNOK after tax. Hitec has been engaged in Multi-Fluid
(now a part of Roxar), since the company's inception more than ten years ago.
The sale is in accordance with Hitec's strategy of capitalizing developed
technologies.
In July, Navis ASA carried out one private and one public share issue. The
issue price led to an accounting loss for Hitec of 59 MNOK before and 15 MNOK
after taxes and minority share.
Since the shareholdings of both Roxar and Navis have been reduced to less
than 20%, they are no longer regarded as associated companies. The investments
are therefore from the third quarter included in the balance as ordinary
long-term financial assets. This means that the equity method is no longer used
for these investments. The book value of the shareholdings at the time of
conversion from associated companies, calculated according to the equity method,
was an average of NOK 9.75 per Navis share, and 7.88 per Roxar share. These
values have been retained in the balance sheet at 30 September 99.
As a consequence of the change from associated companies to ordinary
long-term financial assets, previously deferred revenues (share of income) from
sales to these companies have been recognized. This is a consequence of the
income having been realized in its entirety by the Hitec Group. The income thus
recognized is included in operating revenues and has a positive effect on the
operating income for the third quarter.
F-60
<PAGE> 135
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING LEGISLATION
The Oslo Stock Exchange has stated that all listed companies must provide
information on any consequences of the new Norwegian accounting legislation in
force from 1999. For Hitec, the new legislation will not have any significant
effect on the accounts for this or previous years.
FUTURE PROSPECTS
The weak market situation prevailing for the whole of the petroleum
industry is expected to lead to a further decline in volume and profitability
for Hitec in the fourth quarter. Provided that the oil price remains at current
levels, the market is expected to return to more normal levels.
F-61
<PAGE> 136
APPENDIX
A: MERGER AGREEMENT
MERGER AGREEMENT
BETWEEN
NATIONAL-OILWELL, INC.
AND
HITEC ASA
WITH RESPECT TO A RECOMMENDED OFFER BY NATIONAL-OILWELL, INC. TO ACQUIRE ALL
THE ISSUED SHARES OF HITEC ASA
A-1
<PAGE> 137
This Merger Agreement (the "Agreement") is entered into on this 10th day of
October 1999 by and between
National-Oilwell, Inc., a company incorporated and existing in accordance
with the laws of Texas, and having its registered office and principal place of
business in Houston, Texas,
and
Hitec ASA, a company incorporated and existing in accordance with the laws
of Norway, and having its registered office and principal place of business in
Stavanger, Norway.
(Each of which is hereinafter referred to as "Party" and both of which as
"Parties").
in respect of a recommended offer by NOI to acquire all the issued shares
of Hitec.
1. DEFINITIONS AND ANNEXES
1.1 In this Agreement, the following words and expressions shall have the
meanings set opposite them below:
Accepting Shareholders The Shareholders accepting the Offer
Agreement This agreement, including its Annexes and exhibits
Amount Claimed An amount claimed as defined in Section 3 of Annex
2.
Asset Purchase Agreement The Asset Purchase Agreement between Hitec and
HitecVision, entered into on the date hereof.
Business Day Any day where banks in Oslo and Houston generally
are open.
Completion The day payment for the Shares is made, as defined
in Article 3.4.
Confidential Information Has the meaning as defined in Article 15.3.
Consideration Shares The shares issued by NOI as consideration for the
Shares, as described in Article 3.2.
Cybernetix Cybernetix AS
Disclosure Schedule The disclosure schedule of Hitec delivered to NOI
contemporaneously with the execution and delivery
of this Agreement.
Drilling Business The business carried out by the Hitec Group prior
to or at the date hereof including developing,
designing, manufacturing, marketing, selling and
servicing equipment used for or to be used for
drilling for oil and gas, and of providing services
related to equipment and products for drilling for
oil and gas, excluding only the Non-Drilling
Business to be disposed of pursuant to the Asset
Purchase Agreement.
Drilling Group Hitec including Subsidiaries after the disposal of
the Non-Drilling Business.
Drilling Group Companies Companies in the Drilling Group.
Escrow Account The account referred to in Annex 1.
Escrow Agent The agent appointed according to Annex 1.
Hitec Hitec ASA
Hitec Common Shares The common shares of Hitec, as described in Article
5.1(v).
Hitec Group Hitec including Subsidiaries as it is at the date
hereof, before the transfer of the Non-Drilling
Business.
A-2
<PAGE> 138
Hitec Subsidiaries Any legal entity of which Hitec (either alone or
through or together with any other Hitec
Subsidiaries) owns, directly or indirectly, more
than 50% of the stock or other equity interests.
HitecVision HitecVision AS
Liabilities Has the meaning given to it in Annex 1, Section
1.1(a).
Material Adverse Effect A material adverse change or effect on the
financial condition, assets, liabilities or results
of operations of NOI, Hitec or the Drilling
Business (as the case may be), taken as a whole,
excluding any such effect resulting from or arising
in connection with (a) changes or conditions
generally affecting the industries in which NOI or
the Drilling Group, as the case may be, operate or
(b) changes in general economic, regulatory or
political conditions.
Material Deviation Has the meaning given to it in Articles 12.4 and
13.4.
Net Equity With respect to Hitec, the net equity of the
consolidated Hitec accounts as per 30.06.99 stated
in accordance with the definition of "Equity"
(including (i) paid in equity and (ii) retained
earnings) in the Norwegian Accounting Act dated 17
July 1998 and valued in accordance with the
principles in the Norwegian Accounting Act and
generally accepted accounting principles in Norway
(Norwegian GAAP) with respect to NOI, the net
equity (including (i) paid in equity and (ii)
retained earnings) of the consolidated NOI accounts
in accordance with US GAAP.
NOI National Oilwell Inc.
NOI Common Shares The common shares of NOI, with a par value of 0.01
NOI Common Shares The common shares of NOI, referred to in Article
7.1(v).
NOI SEC Reports The reports referred to in Article 7.1(vii)
NOI Subsidiaries Any legal entity of which NOI (either alone or
through or together with any other NOI
Subsidiaries) owns, directly or indirectly, more
than 50% of the stock or other equity interests.
Non-Drilling Business Any business other than the Drilling Business
conducted by the Hitec Group prior to or on the
date hereof.
Offer The offer to be made by NOI as described in Article
3.1.
Offer Date The date the Offer is made and distributed to all
the Shareholders.
Offer Expiry Date The last day of the period for acceptance by
Shareholders under the Offer.
Party Each of NOI and Hitec
Shareholders The shareholders of Hitec
Shares All outstanding shares of Hitec
Subsidiary Any legal entity of which another entity (either
alone or through or together with any other
Subsidiaries) owns, directly or indirectly, more
than 50% of the stock or other equity interests.
Transaction Value The aggregate of (i) 8,000,000 shares of NOI valued
at USD 12 1/2 per share and (ii) MNOK 148,7.
A-3
<PAGE> 139
1.2 This Agreement includes the following annexes, all of which form an
integral part of this Agreement:
1. Indemnification by the Accepting Shareholders of Hitec and Escrow
Account Arrangements.
2. Acceptances of the Offer by Jon Gjedebo, certain directors and
officers of Hitec and of Styrbjorn AS and Mosvold Farsund AS.
3. Press releases from NOI and Hitec.
4. Recommendation from the Board of Directors and Senior Management of
Hitec
5. Underwriting Agreement
6. Complete list of Hitec Subsidiaries
2. INTRODUCTION -- STRUCTURE OF TRANSACTION
According to the terms and conditions of this Agreement, the Parties agree
as follows:
(i) NOI, or a wholly owned Subsidiary of NOI, shall make an offer to
acquire the whole of the issued share capital of Hitec (the "Offer"). As
consideration NOI or such Subsidiary shall offer the existing shareholders
of Hitec shares in NOI and cash, as further described in Article 3 below.
(ii) Immediately prior to the completion of the Offer, Hitec shall
dispose of the Non-Drilling Business, on terms and conditions as further
described in Article 4 below and as set forth in the Asset Purchase
Agreement.
3. OFFER TO ACQUIRE THE SHARES OF HITEC -- PRINCIPAL TERMS
3.1 NOI will make an offer (the "Offer") to the shareholders of Hitec (the
"Shareholders) to acquire all of the outstanding shares in Hitec (the "Shares")
in exchange for shares of NOI Common Shares freely tradable as from Completion
and cash consideration as set forth in Section 3.2. NOI will register the shares
of NOI Common Shares with the Securities and Exchange Commission (the "SEC") on
a Registration Statement on Form S-4 (the "NOI Form S-4"). If the Offer is
submitted by a Subsidiary of NOI, NOI shall unconditionally guarantee for all
obligations of such Subsidiary under the Offer.
3.2 As consideration for the Shares, the Shareholders accepting the Offer
(the "Accepting Shareholders") will receive the following consideration:
(i) one share in NOI for each 4.7038805 shares in Hitec, (this is
determined by taking the total registered number of shares in Hitec
outstanding (37,631,044) and dividing by 8,000,000, and assumes that no
additional shares of Hitec are issued between the date of this Agreement
and Completion), and
(ii) a cash consideration of NOK 3.95152 per share in Hitec which in
aggregate will be NOK 148,700,000
The share consideration to be paid by NOI under (i) above will be made
through a new issuance of NOI Common Shares (the "Consideration Shares"). The
Consideration Shares will, when issued, have equal rights with the already
issued NOI Common Shares in every respect, including right to dividends.
No fractional shares of NOI will be issued, and the Accepting Shareholders
will instead receive cash, based on the average of the closing prices of NOI
Common Shares on the New York Stock Exchange for the last ten (10) trading days
ending on the second trading day prior to the Offer Expiry Date, in lieu of such
fractional shares.
3.3 Acceptances of the Offer shall include all of an Accepting
Shareholder's Shares.
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3.4 Payment for the Shares shall be made on the Business Day on which NOI
accepts the Shares against same day delivery of the Shares and cash (the
"Completion"). Shares of NOI shall be registered in the name and address of the
Accepting Shareholders or in the name of such brokerage firm or financial
institution as the Accepting Shareholders may direct. Share certificates and
cash shall be delivered on Completion to First Securities ASA for further
delivery to the Accepting Shareholders as they may direct.
3.5 As security for the split of responsibilities agreed to pursuant to
Article 6 and Annex 1, each Accepting Shareholder will have 10% of his
Consideration Shares placed in escrow according to the provisions of Annex 1.
All Accepting Shareholders will jointly, on a pro rata basis, be liable for the
split of responsibilities agreed pursuant to Annex 1. Each Accepting
Shareholder's liability will, however, be limited to the Consideration Shares
put in escrow by such Accepting Shareholder.
3.6 The directors and senior management of Hitec who are shareholders of
Hitec and Styrbjorn AS and Mosvold Farsund AS, have consented to accept the
Offer pursuant to acceptances attached to this Agreement as Annex 2 hereof. The
Board of Directors of Hitec will recommend the Offer to the Shareholders in a
recommendation in the format set forth in Annex 4 hereto.
4. DISPOSAL OF THE NON-DRILLING BUSINESS
4.1 Cybernetix has established HitecVision with a share capital of NOK
50,000. Prior to Completion, Cybernetix will increase the equity of HitecVision
up to an equity in cash of MNOK 62 and establish credit facilities or similar
arrangements giving HitecVision a liquidity of MNOK 148,7.
Approximately contemporaneously with the Offer, HitecVision will make an
offer to the Shareholders (excluding the Shareholders participating in
Cybernetix) on the following basis: for each share held in Hitec, the
Shareholders may elect to subscribe to one share in HitecVision for a cash
consideration of NOK 3.95152, providing HitecVision with a total of MNOK 148,7
in cash equity. With respect to those Shareholders accepting the above Offer,
the payment for their subscription of shares in HitecVision will be concluded by
directing the cash consideration of such Shareholder under the Offer to
HitecVision, according to specific authorisations given by the Shareholders
included in the offer documents.
Cybernetix (or a consortium established by Cybernetix) will underwrite and
guarantee to subscribe for those shares in HitecVision not subscribed for
according to the above, pursuant to an Underwriting Agreement in the format
attached to this Agreement as Annex 5, in order to ensure that HitecVision
receives a total of MNOK 148,7 in cash equity.
4.2 Hitec and HitecVision have entered into the Asset Purchase Agreement,
whereby the Non-Drilling Business of Hitec, subject to all conditions set forth
herein and in the Offer being satisfied or waived by the relevant Party, is sold
to HitecVision for a cash consideration of MNOK 148,7.
The purchase and sale of the Non-Drilling Business of Hitec to HitecVision
pursuant to the Asset Purchase Agreement shall be completed contemporaneously
with the Completion of the Offer. Hitec will enforce the Asset Purchase
Agreement and will not modify it or waive any provision of it without NOI's
written approval.
4.3 Included in the Disclosure Schedule of Hitec are the proforma balance
sheets of Drilling Group and HitecVision Group as of 31.12.97, 31.12.98 and
30.06.99, respectively, and the pro forma income statement of Drilling Group and
HitecVision Group for the two years ended 31.12.97 and 31.12.98 and the six
months ended 30.06.99. The Parties acknowledge that the balance sheets will be
influenced by the operations and activities of Hitec after such date. The
Parties agree that in the disposal of the Non-Drilling Business, HitecVision
shall assume and retain the economic result of the Non-Drilling Business in the
period after 30.06.99, while Hitec shall assume and retain the economic result
of the Drilling Business after 30.06.99.
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5. REPRESENTATIONS AND WARRANTIES OF HITEC
5.1 Hitec hereby represents and warrants to NOI that:
(i) Hitec and each of the Hitec Subsidiaries that is part of the
Drilling Business is an entity duly organised and validly existing under
the laws of the jurisdiction of its incorporation or organisation, has full
requisite power and authority to carry on its business as it is currently
conducted, and to own, lease and operate the properties currently owned,
leased and operated by it. Annex 6 sets forth a complete list of the Hitec
Subsidiaries, the percentage of each Subsidiary's outstanding capital stock
or other ownership interest owned by Hitec or another Hitec Subsidiary.
(ii) Hitec has all requisite corporate power and authority to enter
into this Agreement and to perform its obligations hereunder and, subject
to acceptance by the Shareholders and the fulfilment of the other
conditions as provided in this Agreement, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by Hitec have been duly authorised by all necessary corporate
action on the part of Hitec. This Agreement has been duly executed and
delivered by Hitec and is the valid and binding obligation of Hitec,
enforceable in accordance with its terms, except that such enforceability
may be subject to bankruptcy, insolvency, reorganisation or other similar
laws affecting or relating to enforcement of creditors' rights generally.
(iii) Neither the execution, delivery or performance of this Agreement
by Hitec nor the consummation of the transactions contemplated hereby will
(a) will conflict with, or result in any violations of, the articles of
incorporation or bylaws of Hitec or any equivalent document of any of the
Hitec Subsidiaries or except as disclosed in the Disclosure Schedule of
Hitec, or (b) result in any breach of or cause a default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, amendment, cancellation or acceleration of any obligation
contained in, or the loss of any material benefit under, or result in the
creation of any encumbrance upon any of the material properties or assets
of Hitec or any of the Hitec Subsidiaries under, any term, condition or
provision of any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, judgement, order, decree, statute, law, or
assets, other than (1) any such breaches, defaults, losses or encumbrances
which, individually or in the aggregate, would not have a Material Adverse
Effect with respect to the Drilling Group, or (2) any such breaches,
defaults or losses which occur solely due to the characteristics of NOI (as
a new shareholder in Hitec) and not due to the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby as such.
(iv) No consent, approval, order or authorisation of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign
(each a "Governmental Entity"), is required to be obtained by Hitec or any
of the Hitec Subsidiaries in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby
or thereby, except for the filings and approvals referred to in Articles
8.1 and 9.1.
(v) The authorised capital stock of Hitec consists of 37,631,044 Hitec
common shares, with a par value of NOK 1 ("Hitec Common Shares"). As of the
date of this Agreement, an aggregate of 1,200,000 Hitec Common Shares were
subject to issuance pursuant to outstanding options granted or to be
granted by 1 December 1999 to current or previous employees of Hitec, none
of which are exercisable prior to Completion of the Offer. The consummation
of the transactions contemplated by this Agreement will not accelerate the
vesting of any unvested options, or issuance of any unissued shares, except
as provided for in Article 17.4. All of the issued and outstanding Hitec
Common Shares have been validly issued, are fully paid and non-assessable,
were not issued in violation of the terms of any agreement or other
understanding binding upon Hitec and were issued in compliance with all
applicable corporate documents of Hitec and all applicable laws, rules and
regulations. There are, and have been, no preemptive rights with respect to
the issuance of the Hitec Common Shares other than the provisions in the
Norwegian Joint Stock Companies Act.
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(vi) There are no outstanding subscriptions, options, warrants,
convertible securities, calls, commitments, agreements or rights
(contingent or otherwise) of any character to purchase, subscribe or
otherwise acquire from Hitec any shares of, or any securities convertible
into, the capital stock of Hitec, other than as set forth in Article 17.4.
(vii) The financial statements of Hitec and the Drilling Group
referred to in Section 4.3 for the years ended 31.12.97 and 31.12.98, and
the six months ended 30.06.99 comply in all material respects with the then
applicable accounting requirements and the published rules and regulations
of the relevant Norwegian statutes with respect thereto, and were prepared
in accordance with Norwegian generally accepted accounting principles
applied at the relevant dates, except that the 30.06.99 statements do not
contain any footnotes.
(viii) There has been no change in Hitec's accounting policies or the
methods of making accounting estimates or changes in estimates that are
material to such financial statements, except as described in the notes
thereto or as disclosed in the Disclosure Schedule.
(ix) The books, records and accounts of Hitec and the Hitec
Subsidiaries (with respect to the Drilling Business) (i) have been
maintained in accordance with good business practices on a basis consistent
with prior years, (ii) are stated in reasonable detail and accurately and
fairly reflect in all material respects the transactions and dispositions
of the assets of Hitec and the Hitec Subsidiaries (with respect to the
Drilling Business) and (iii) accurately and fairly reflect in all material
respects the basis for such financial statements.
(x) Neither Hitec nor any Hitec Subsidiary (with respect to the
Drilling Business) has any material liabilities or obligations, either
accrued, absolute, contingent or otherwise, or has any knowledge of any
potential material liabilities or obligations, other than those incurred in
the ordinary course of business since 30.06.99 and that are consistent in
character with those set forth on the balance sheet of the Drilling Group
as of such date.
(xi) None of the information supplied or to be supplied by Hitec for
inclusion in the NOI Form S-4 with respect to Hitec or the Hitec
Subsidiaries will, at the time the NOI Form S-4 is declared effective,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are
made, not misleading.
(xii) As of the date of this Agreement neither Hitec nor any Hitec
Subsidiary (with respect to the Drilling Business) is, or has received any
notice that it would be with the passage of time, in default or violation
of any term, condition or provision of (a) its charter documents or bylaws;
(b) any judgement, decree or order applicable to it; or (c) any loan or
credit agreement, note, bond, mortgage, indenture, contract, agreement,
lease, license or other instrument to which Hitec or any Hitec Subsidiary
is now a party or by which it or any of its properties or assets may be
bound, except in the case of item (c) (i) for defaults and violations
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Drilling Business, or (ii) as disclosed in the Disclosure
Schedule of Hitec.
(xiii) Other than as a result of the transactions contemplated by this
Agreement or as disclosed in the Disclosure Schedule of Hitec, since
December 31, 1998, there has not been:
(a) Any Material Adverse Effect with respect to the Drilling
Business;
(b) Any material damage, destruction, or loss to the business or
properties of Hitec and the Hitec Subsidiaries (with respect to the
Drilling Business), taken as a whole, not covered by insurance;
(c) Any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of Hitec, or any
direct or indirect redemption, purchase or any other acquisition by
Hitec of any such stock;
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(d) Any change in the capital stock or in the number of shares or
classes of Hitec's authorised or outstanding capital stock; or
(e) Any other event or condition known to Hitec particularly
pertaining to and adversely affecting the operations, assets or business
of the Drilling Business (other than events or conditions which are of a
general or industry-wide nature or of general public knowledge and
reported to the Oslo Stock Exchange) or disclosed in any annex to this
Agreement which would constitute a Material Adverse Effect.
(xiv) The Disclosure Schedule of Hitec contains lists of the following
items with respect to Hitec and each of the Hitec Subsidiaries (with
respect to the Drilling Business), and Hitec has furnished to NOI or will
furnish to NOI in connection with NOI's due diligence investigation under
this Agreement true and correct copies of all documents referred to in such
lists and other documents relevant to the Drilling Business reasonably
requested by NOI;
(a) each parcel of real property owned, or subject to a contract of
purchase and sale, with a fair market value in excess of MNOK 1 with a
description of the nature and amount of any encumbrance thereon, and
each parcel of real property leased, or subject to a lease commitment,
with annual rental payments in excess of MNOK 1;
(b) all material insurance policies or bonds currently maintained,
including those covering properties, buildings, machinery, equipment,
fixtures, employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or pending on
such policies or any predecessor policies;
(c) all contracts which involve, or may involve, aggregate payments
by any party thereto of MNOK 5 or more, which are to be performed in
whole or in part after Completion of the Offer;
(d) all material bonus, incentive compensation, deferred
compensation, profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other fringe benefit plans, arrangements or
trust agreements;
(e) all material patents, trademarks, copyrights and other
intellectual property rights owned, licensed or used and where used;
(f) all material long-term and short-term promissory notes,
installment contracts, loan agreements, credit agreements, operating and
finance leases, and any other agreements relating thereto or with
respect to collateral securing the same; and
(g) all material indebtedness, liabilities and commitments of third
parties and as to which it is a guarantor, endorser, co-maker, surety or
accommodation maker, or is contingently liable therefor (excluding
liabilities as an endorser of checks and the like in the ordinary course
of business) or has otherwise provided any form of financial assistance
and all letters of credit, whether stand-by or documentary, issued by
any third party.
(xv) Except as provided in a sideletter to this Agreement or disclosed
in the Disclosure Schedule of Hitec, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will (a) result in any payment (including severance, unemployment
compensation, parachute payment, bonus or otherwise) becoming due to any
director, employee or independent contractor of Hitec or any of the Hitec
Subsidiaries or otherwise, (b) materially increase any benefits otherwise
payable under any Hitec Plan or otherwise or (c) result in the acceleration
of the time of payment or vesting of any such benefits, except as provided
in Article 17.4.
(xvi) Neither Hitec nor any Hitec Subsidiary (with respect to the
Drilling Business) has any material liabilities or obligations, either
accrued, absolute, contingent or otherwise, or has any knowledge of any
potential material liabilities or obligations not disclosed to NOI in the
Disclosure Schedule of Hitec, individually or in the aggregate, would have
a Material Adverse Effect with respect to the Drilling Business.
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(xvii) There is no claim, action, suit or proceeding pending, or to
the knowledge of Hitec threatened against Hitec or any of the Hitec
Subsidiaries, which would, if adversely determined, individually or in the
aggregate, have a Material Adverse Effect on the Drilling Business, nor is
there any judgement, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against Hitec or any of the Hitec
Subsidiaries having, or which, insofar as reasonably can be foreseen, in
the future could have, any such effect.
(xviii) There are no environmental conditions or circumstances, such
as the presence or release of any hazardous substance, on any property
presently or, to the knowledge of Hitec, previously owned or leased by
Hitec or any of the Hitec Subsidiaries that could reasonably be expected to
result in a Material Adverse Effect on the Drilling Business.
(xix) No written notice has been served on Hitec or any Hitec
Subsidiary from any entity, governmental agency or individual regarding any
existing, pending or threatened investigation or inquiry related to alleged
violations under any applicable environmental laws, or regarding any claims
for remedial obligations or contribution under any applicable environmental
laws, other than any of the foregoing which, either singly or in the
aggregate, would not result in a Material Adverse Effect on the Drilling
Business.
(xx) Neither Hitec nor any Hitec Subsidiary is in violation of or in
default with respect to, or in alleged violation of or alleged default with
respect to any other applicable law or any applicable rule or regulation,
or any writ or decree of any court or any governmental commission, board,
bureau, agency or instrumentality, or delinquent with respect to any report
required to be filed with any governmental entity, except for violations
and delinquencies which, either singly or in the aggregate, do not and are
not expected to result in a Material Adverse Effect on the Drilling
Business.
(xxi) Hitec has made, or will make, available to NOI, true, complete
and correct copies of each employee benefit plan covering active, former or
retired employees of the Hitec Group, and (a) each plan has been maintained
and administered in material compliance with its terms, (b) all required
employer contributions under any such plans have been made and the
applicable funds have been funded in accordance with the terms thereof and
no past funding liabilities exist thereunder and (c) each plan that is
required or intended to be qualified under applicable law or registered or
approved by a governmental agency or authority has been so qualified,
registered or approved by the appropriate governmental agency or authority,
and nothing has occurred since the date of the last qualification,
registration or approval to adversely affect, or cause, the appropriate
governmental agency or authority to revoke such qualification, registration
or approval.
(xxii) Except as disclosed in the Disclosure Schedule of Hitec or the
Hitec Subsidiaries own or possess licenses to use all patents, patent
applications, trademarks and service marks (including registrations and
applications therefor), trade names, copyrights and written know-how, trade
secrets and all other similar proprietary data and the goodwill associated
therewith that are material to the Drilling Business . The intellectual
property is owned or licensed by Hitec or the Hitec Subsidiaries (that are
part of the Drilling Business) free and clear of any encumbrance other than
those encumbrances set forth in the Disclosure Schedule of Hitec. Neither
Hitec nor any of the Hitec Subsidiaries has granted to any other person any
license to use any such intellectual property. Neither Hitec nor any of the
Hitec Subsidiaries has received any notice of infringement,
misappropriation or conflict with, the intellectual property rights of
others in connection with the use by Hitec and the Hitec Subsidiaries of
such intellectual property within the Drilling Business.
(xxiii) Except for goods and other property sold, used or otherwise
disposed of since December 31, 1998 in the ordinary course of business for
fair value, Hitec has good and indefeasible title to all its properties,
interests in properties and assets, real and personal, reflected in its
December 31, 1998 financial statements, free and clear of any encumbrance,
except (a) encumbrances reflected in the balance sheet of Hitec as of
December 31, 1998, (b) liens for current taxes not yet due and payable and
(c) such imperfections of title, easements and encumbrances, if any, as are
not substantial in character, amount or extent and do not and will not
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materially detract from the value, or interfere with the present use, of
the property subject thereto or affected thereby, or otherwise materially
impair business operations. All leases pursuant to which Hitec or any Hitec
Subsidiary (with respect to the Drilling Business) leases (whether as
lessee or lessor) any real or personal property are in good standing,
valid, and effective; and there is not, under any such leases, any existing
or prospective default or event of default or event which with notice or
lapse of time, or both, would constitute a default by Hitec or any Hitec
Subsidiary (with respect to the Drilling Business) and in respect to which
Hitec or a Hitec Subsidiary (with respect to the Drilling Business) has not
taken adequate steps to prevent a default from occurring. The buildings and
premises of Hitec and each of the Hitec Subsidiaries that are used in the
Drilling Business are in good operating condition and repair, subject only
to ordinary wear and tear. All major items of operating equipment of Hitec
and the Hitec Subsidiaries used in the Drilling Business are in good
operating condition and in a state of reasonable maintenance and repair,
ordinary wear and tear excepted, and are free from any known defects except
as may be repaired by routine maintenance and such minor defects as do not
substantially interfere with the continued use thereof in the normal
conduct of operations.
5.2 All representations and warranties of Hitec contained in this Agreement
will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of NOI, until the Completion of the Offer,
whereupon such representations and warranties will expire and be of no further
force or effect, except as provided in Annex 1.
6. SPLIT OF RESPONSIBILITIES OF THE DRILLING BUSINESS
6.1 Hitec agrees, on its own behalf and on behalf of the Accepting
Shareholders of Hitec, to split the responsibilities of the Drilling Business
between Hitec and the Accepting Shareholders so that the Accepting Shareholders
assume responsibility for certain liabilities of the Drilling Business and the
representations and warranties of Hitec in Article 5 of this Agreement in
accordance with the provisions of Annex 1. All Accepting Shareholders will
jointly, on a pro rata basis, be liable for such assumption of responsibilities.
As security for such liability an escrow arrangement according to Annex 1 is
established. Each Accepting Shareholder's liability is limited to the
Consideration Shares put in escrow according to the provisions of and as further
described in Annex 1.
6.2 Each Accepting Shareholder shall, when accepting the Offer, be
obligated to authorise HitecVision to act on his behalf in respect of his
liability according to Article 6.1 above and the provisions of Annex 2 and
accepting that any agreement between HitecVision and NOI or any arbitral award
or other judgement rendered concerning any claim shall be final and binding on
each Accepting Shareholder, and approving any payment to NOI made by the Escrow
Agent.
6.3 The parties agree to seek to establish a system by which the Accepting
Shareholders' interests in the Escrow Account will be made transferable,
provided this may be done in accordance with all applicable laws and without
incurring unreasonable costs on NOI or increasing its disclosure or reporting
obligations in any material way. The system chosen will be determined prior to
the Offer Date.
6.4 After expiry of the Escrow Period, HitecVision has accepted, pursuant
to the provisions of and as further described in the Asset Purchase Agreement,
to assume certain responsibilities in relation to tax and environmental issues.
7. REPRESENTATIONS AND WARRANTIES OF NOI
7.1 NOI hereby represents and warrants to NOI that:
(i) NOI and each of the NOI Subsidiaries is an entity duly organised
and validly existing under the laws of the jurisdiction of its
incorporation or organisation, has full requisite power and authority to
carry on its business as it is currently conducted, and to own, lease and
operate the properties currently owned, leased and operated by it. The NOI
SEC Reports set forth a complete list of the material NOI Subsidiaries.
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(ii) NOI has all requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder and, subject to the
conditions as provided in this Agreement, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by NOI have been duly authorised by all necessary corporate
action on the part of NOI. This Agreement has been duly executed and
delivered by NOI and is the valid and binding obligation of NOI,
enforceable in accordance with its terms, except that such enforceability
may be subject to bankruptcy, insolvency, reorganisation or other similar
laws affecting or relating to enforcement of creditors' rights generally.
(iii) Neither the execution, delivery or performance of this Agreement
by NOI will conflict with, or result in (a) any violations of, the articles
of incorporation or bylaws of NOI Subsidiaries or (b) any breach of or
cause a default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, amendment, cancellation or
acceleration of any obligation contained in, or the loss of any material
benefit under, or result in the creation of any encumbrance upon any of the
material properties or assets of NOI or any of the NOI Subsidiaries under,
any term, condition or provision of any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, judgement, order,
decree, statute, law or assets, other than any such breaches defaults,
losses, or encumbrances which individually or in the aggregate, would not
have a material adverse effect on NOI.
(iv) No consent, approval, order or authorisation of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign
(each a "Governmental Entity"), is required to be obtained by NOI or any of
the NOI Subsidiaries in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby or
thereby, except for the filings and approvals referred to in Articles 8.1
and 9.1.
(v) The authorised capital stock of NOI consists of 75,000,000 NOI
common shares, with a par value of USD 0.01("NOI Common Shares"), and
10,000,000 NOI preferred shares ("NOI Preferred Shares"). As of September
30, 1999, an aggregate of 58,258,955 NOI Common Shares were outstanding,
2,083,849 NOI Common Shares were subject to issuance pursuant to
outstanding options granted to current or previous employees of NOI and no
NOI preferred shares were outstanding. The consummation of the transactions
contemplated by this Agreement will not accelerate the vesting of any
unvested options. All of the issued and outstanding NOI Common Shares have
been validly issued, are fully paid and non-assessable, were not issued in
violation of the terms of any agreement or other understanding binding upon
NOI and were issued in compliance with all applicable corporate documents
of NOI and all applicable laws, rules and regulations.
(vi) Except as referred to in clause (v) above, as of the date of this
Agreement, there are no outstanding subscriptions, options, warrants,
convertible securities, calls, commitments, agreements or rights
(contingent or otherwise) of any character to purchase, subscribe or
otherwise acquire from NOI any shares of, or any securities convertible
into, the capital stock of NOI.
(vii) NOI has filed and made available to Hitec all forms, reports and
documents required to be filed by NOI with the SEC since December 31, 1998
(collectively, the "NOI SEC Reports").
(viii) The financial statements of NOI contained in the NOI SEC
Reports complied in all material respects with the then applicable
accounting requirements and the published rules and regulations of the
relevant United States statutes with respect thereto, and were prepared in
accordance with United States generally accepted accounting principles
applied at the time of filing.
(ix) There has been no change in NOI's accounting policies or the
methods of making accounting estimates or changes in estimates that are
material to such financial statements, except as described in the notes
thereto.
(x) The books, records and accounts of NOI and the NOI Subsidiaries
(a) have been maintained in accordance with good business practices on a
basis consistent with prior years, (b) are
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stated in reasonable detail and accurately and fairly reflect in all
material respects the transactions and dispositions of the assets of NOI
and the NOI Subsidiaries and (c) accurately and fairly reflect in all
material respects the basis for the NOI financial statements.
(xi) Other than as a result of the transactions contemplated by this
Agreement, or as set forth in the NOI SEC Reports, since December 31, 1998,
there has not been:
(a) Any Material Adverse Effect with respect to NOI;
(b) Any material damage, destruction, or loss to the business or
properties of NOI and the NOI Subsidiaries, taken as a whole, not
covered by insurance;
(c) Any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of NOI, or any direct
or indirect redemption, purchase or any other acquisition by NOI of any
such stock; or
(d) Any change in the capital stock or in the number of shares or
classes of NOI's authorised or outstanding capital stock (other than as
result of exercises of options to purchase NOI Common Shares and
issuances under NOI's value appreciation plans, and except for 1,920,000
NOI Common Shares issued in connection with the acquisition of Dupre
Supply Co. and Dupre International Inc.by NOI).
(xii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) result in any
payment (including severance, unemployment compensation, parachute payment,
bonus or otherwise) becoming due to any director, employee or independent
contractor of NOI or any of the NOI Subsidiaries or otherwise, (b)
materially increase any benefits otherwise payable under any NOI Plan or
otherwise or (c) result in the acceleration of the time of payment or
vesting of any such benefits.
(xiii) Neither NOI nor any NOI Subsidiary has any material liabilities
or obligations, either accrued, absolute, contingent or otherwise, or has
any knowledge of any potential material liabilities or obligations, which,
individually or in the aggregate, would have a Material Adverse Effect on
NOI.
(xiv) There is no claim, action, suit or proceeding pending, or to the
knowledge of NOI threatened against NOI or any of the NOI Subsidiaries,
which would, if adversely determined, individually or in the aggregate,
have a Material Adverse Effect on NOI, nor is there any judgement, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against NOI or any of the NOI Subsidiaries having, or which,
insofar as reasonably can be foreseen, in the future could have, any such
effect.
(xv) Except as disclosed in the NOI SEC Reports, there are no
environmental conditions or circumstances, such as the presence or release
of any hazardous substance, on any property presently or, to the knowledge
of NOI, previously owned or leased by NOI or any of the NOI Subsidiaries
that could reasonably be expected to result in a Material Adverse Effect on
NOI;
(xvi) Except as disclosed in the NOI SEC Reports, no written notice
has been served on NOI or any NOI Subsidiary from any entity, governmental
agency or individual regarding any existing, pending or threatened
investigation or inquiry related to alleged violations under any applicable
environmental laws, or regarding any claims for remedial obligations or
contribution under any applicable environmental laws, other than any of the
foregoing which, either singly or in the aggregate, would not result in a
Material Adverse Effect on NOI.
7.2 All representations and warranties of NOI contained in this Agreement
will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of NOI, until the Completion of the Offer,
whereupon such representations and warranties will expire and be of no further
force or effect.
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8. CONDITIONS PRECEDENT TO THE MAKING OF THE OFFER
8.1 The making of the Offer by NOI shall be conditional upon the
following:
(i) Completion by NOI of the confirmatory due diligence of Hitec in
accordance with Article 12, without NOI having found Material Deviations
(as defined in Article 12).
(ii) Each of the representations and warranties of Hitec set forth in
this Agreement shall be true and correct as of the date of this Agreement
and as of the date the Offer is made and distributed to the Shareholders
(the "Offer Date") as though made on and as of the Offer Date, except for
such inaccuracies that, individually or in the aggregate, would not have a
Material Adverse Effect with respect to the Drilling Group, and provided
further that Hitec shall have the right to remedy the relevant breach of
the representations and warranties (if capable of being remedied).
(iii) Hitec having performed in all material respects each of its
obligations set forth in this Agreement required to be performed prior to
the Offer Date.
(iv) Completion by Hitec of the confirmatory due diligence of NOI in
accordance with Article 12, without Hitec having found Material Deviations
(as defined in Article 12).
(v) The representations and warranties of each Party pursuant to the
Asset Purchase Agreement being true and correct on the Offer Date, except
for such inaccuracies that, individually or in the aggregate, would not
have a Material Adverse Effect with respect to the Drilling Group.
(vi) The NOI Form S-4 shall have been declared effective by the
Securities and Exchange Commission and shall not be the subject of any stop
order or any proceedings seeking a stop order.
(vii) The offering documentation shall, to the extent legally required
under Norwegian Law, have been approved by the Oslo Stock Exchange.
(viii) The Offer and the offering documents shall, to the extent
legally required, have been approved by any other governmental body having
authority with respect to securities law matters in jurisdictions where
Shareholders are located.
(ix) The Underwriting Agreement shall have been signed in the format
attached hereto as Annex 5.
9. CONDITIONS PRECEDENT TO THE COMPLETION OF THE OFFER
9.1 The respective obligations of NOI and Hitec to complete the Offer
shall be subject to the satisfaction or waiver by the relevant Party of each of
the following conditions:
(i) The completion of the transactions contemplated by the Asset
Purchase Agreement in accordance with its terms.
(ii) NOI receiving valid and unconditional acceptances of the Offer
representing more than 90% of the issued shares and of the votes of Hitec.
NOI shall have the option to waive this condition, provided it receives
valid and unconditional acceptances representing more than 66,7% of the
issued shares and votes of Hitec.
(iii) Hitec receiving confirmation from the Royal Ministry of Finance
that the sale of Shares to NOI by the Shareholders will not be subject to
capital gains tax in Norway until disposition of the Consideration Shares.
(iv) NOI being granted the necessary approval from all relevant
government authorities, including any approval required under the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended.
(v) NOI's acquisition of Hitec shall have been approved by the Royal
Norwegian Ministry of Industry and Trade under the Norwegian Acquisition
Act 1994, and, if necessary, by any required European governmental
authority, on conditions reasonably acceptable to NOI.
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(vi) HitecVision's acquisition of the Non-Drilling Business shall have
been approved by the Royal Norwegian Ministry of Industry and Trade
pursuant to the Norwegian Acquisition Act 1994, and, if necessary, by any
required European governmental authority on conditions reasonably
acceptable to HitecVision.
(vii) No governmental entity shall have enacted, issued or entered any
order, stay, decree, judgment or injunction which has the effect of making
the Completion of the Offer illegal or otherwise prohibiting the Completion
of the Offer.
9.2 The obligation of NOI to complete the Offer is subject to the
satisfaction of the following additional condition, which may be waived in
writing by NOI:
(i) Each of the representations and warranties of Hitec set forth in
this Agreement shall be true and correct as of the date of this Agreement
and as of the date of the Completion of the Offer as though made on and as
of the date of the Completion of the Offer, except for such inaccuracies
that, individually or in the aggregate, would not have a Material Adverse
Effect with respect to the Drilling Group, and provided further that Hitec
shall have the right to remedy the relevant breach of the representations
and warranties (if capable of being remedied).
(ii) Hitec having performed in all material respects each of its
obligations set forth in this Agreement required to be performed prior to
Completion of the Offer.
9.3 The obligation of Hitec to complete the Offer is subject to the
satisfaction of the following additional condition, which may be waived in
writing by Hitec:
(i) Each of the representations and warranties of NOI set forth in
this Agreement shall be true and correct as of the date of this Agreement
and as of the date of the Completion of the Offer as though made on and as
of the date of the Completion of the Offer, except for such inaccuracies
that, individually or in the aggregate, would not have a Material Adverse
Effect on NOI, and provided further that NOI shall have the right to remedy
the relevant breach of the representations and warranties (if capable of
being remedied).
(ii) NOI having performed in all material respects each of its
obligations set forth in this Agreement required to be performed prior to
Completion of the Offer.
9.4 With the exception of the conditions listed in this Article 9, the
Offer shall be unconditional.
10. CONDUCT OF BUSINESS OF HITEC PRIOR TO COMPLETION
10.1 Hitec agrees that from the date of this Agreement and until
Completion or termination of this Agreement (whichever is relevant), it shall
not without the consent of NOI:
(i) amend or propose to amend its charter or bylaws;
(ii) split, combine or reclassify any outstanding shares of its
capital stock, or declare, set aside or pay any dividends or make any other
distribution to the holders thereof;
(iii) issue or sell any options, warrants, convertible securities,
calls, commitments, agreements or rights (contingent or otherwise) of any
character to purchase, subscribe to, or otherwise acquire any shares in
Hitec or subdivide or in any way reclassify any shares of Hitec, other than
as stipulated in Article 17.4;
(iv) merge or consolidate with or into any other corporation or change
in any manner the rights of its capital stock or the character of its
business;
(v) other than in the ordinary course of business acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organisation or division thereof or make any
equity investments therein;
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(vi) other than in the ordinary course of business incur any
indebtedness for borrowed money or issue any debt securities;
(vii) other than in the ordinary course of business enter into or
modify any material contract, lease or agreement;
(viii) other than in the ordinary course of business directly or
indirectly, take any action which would cause its representations and
warranties contained herein to become inaccurate in any material respect;
(ix) conduct the Drilling Business other than in the ordinary course
of business and in compliance with all applicable laws and regulations;
and Hitec shall further;
(i) use its best efforts to preserve intact Hitec's market position
and business organisation and make no material changes to the
compensation or benefit payable to its senior employees; and
(ii) promptly disclose to NOI any material information with regard
to the Drilling Business contained in its representations and warranties
or any Annex hereto which, because of any event occurring after the date
hereof, is incomplete or is no longer correct as of all times after the
date hereof until the Completion of the Offer.
10.2 Notwithstanding the provisions of Article 10.1, Hitec shall be
entitled to restructure and to sell the Non-Drilling Business as detailed in the
Asset Purchase Agreement.
11. CONDUCT OF BUSINESS OF NOI PRIOR TO COMPLETION
11.1 NOI agrees that from the date of this Agreement and up until
Completion or termination of this Agreement (whichever is relevant) it shall
not:
(i) declare or pay any dividends or make any other distribution to the
holders thereof;
(ii) change in any respect the rights of its capital stock or
materially the character of its business; or
(iii) subdivide or in any manner reclassify the NOI Common Shares
unless appropriate adjustments are made to the NOI Common Shares to be paid
to the Accepting Shareholders pursuant to the Offer.
12. CONFIRMATORY DUE DILIGENCE OF HITEC
12.1 Hitec has provided NOI with various information prior to the signing
of this Agreement.
12.2 Subject to all relevant laws and regulations, Hitec will give NOI and
its advisors the necessary information and access to Hitec's business,
management and advisors to enable them to conduct their due diligence of the
Drilling Business (which may include aspects of the Non-Drilling Business only
to the extent the Non-Drilling Business could adversely affect Hitec).
12.3 The Parties agree that the scope of the due diligence-investigation
of Hitec shall be to verify that there are no material adverse findings in
relation to the Drilling Business. The main part of the due diligence
investigation will be conducted prior to the Offer Date, but NOI shall also
thereafter have access to information and to the premises of Hitec during normal
business hours.
12.4 If NOI makes any findings covered by Article 12.3, and such findings,
always according to Norwegian GAAP, in the aggregate have or could reasonably be
expected to have in the future, a negative adverse accounting effect according
to Norwegian GAAP on the Net Equity (as defined herein) of the Drilling Group of
more than 2% of the Transaction Value (a "Material Deviation"), then NOI shall,
up until the Completion Date, have the right to terminate this Agreement with 15
days notice, provided,
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however, that Hitec shall have the right to remedy the Material Deviation (if
capable of being remedied) within 10 days of being notified of the Material
Deviation, in which case NOI shall have no right to terminate this Agreement.
13. LIMITED DUE DILIGENCE OF NOI
13.1 NOI has provided Hitec with the NOI SEC Reports prior to the signing
of this Agreement
13.2 Subject to all relevant laws and regulations, NOI will give Hitec and
its advisors the necessary information and access to NOI's business, management
and advisors to enable them to complete their limited due diligence of NOI.
13.3 The Parties agree that the scope of the due diligence-investigation
of NOI shall be to verify that there are no material adverse findings in
relation to the business of NOI;
13.4 If Hitec makes any findings in its review under Article 13.3, and
such findings, always according to US GAAP, in the aggregate have or could
reasonably be expected to have in the future, a negative adverse accounting
effect according to US GAAP on the net equity of the NOI Group of more than 2%
of the Transaction Value (a "Material Deviation"), then Hitec shall, up until
the Completion Date have the right to terminate this Agreement with 15 days
notice, provided, however, that NOI shall have the right to remedy the Material
Deviation (if capable of being remedied) within 10 days of being notified of the
Material Deviation, in which case Hitec shall have no right to terminate this
Agreement.
14. PREPARATION OF NOI FORM S-4
14.1 As promptly as practicable after the execution of this Agreement, NOI
shall prepare and file with the SEC the NOI Form S-4 (together with all
amendments thereto, the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of the NOI Common Stock to be issued to the Shareholders in connection
with the Offer and the prospectus included in the Registration Statement (the
"Prospectus"). NOI or Hitec, as the case may be, shall promptly furnish all
information concerning NOI or Hitec, as the other party my reasonably request in
connection with such actions and the preparation of the Registration Statement.
NOI shall use its reasonable best efforts to cause the Registration Statement to
become effective as promptly as practicable. As promptly as practicable after
the Registration Statement Effective Date, the Prospectus and all other
materials required under Norwegian law (collectively, the "Offer Materials")
will be mailed to the Shareholders.
14.2 NOI and Hitec will also co-operate in obtaining all necessary
approvals of the Oslo Stock Exchange.
14.3 NOI will take all steps necessary to list the Consideration Shares on
the New York Stock Exchange.
15. ANNOUNCEMENTS AND CONFIDENTIALITY
15.1 Immediately after the signing of this Agreement, each Party shall
issue a press release, in the formats described in Annex 3. Immediately after
the issuance of the press releases, the top management of NOI and Hitec shall
conduct a press conference in Stavanger, and shall thereafter give a joint
investor presentation in Oslo.
15.2 After the issue of the press releases in Annex 3, and except as may
be required by law or by applicable regulations, including, without limitation,
rules and regulations of the New York Stock Exchange and the Oslo Stock Exchange
(and if so, wherever practicable, after relevant consultation between the
Parties), no announcements shall be made by either Party or its advisors without
the prior written consent and agreement to the text of the other Party, such
consent not to be unreasonably withheld or delayed.
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15.3 Each Party hereby undertakes that it shall use all reasonable
endeavours to keep confidential any information:
(a) which it may have or acquire (whether before or after the date of
this Agreement) in relation to the customers, business, assets or affairs
of the other Party, or
(b) which, in consequence of the negotiations relating to this
Agreement and/or the Offer or the exercise of its rights or performance of
its obligations hereunder, it may have or acquire (whether before or after
the date of this Agreement) in relation to the customers, business, assets
or affairs of the other Party,
and shall not use for its own business purpose or disclose to any third Party
any such information (collectively, "Confidential Information") without the
consent of the other Party to this Agreement.
15.4 The obligation of confidentiality under Article 13.3 shall not apply
to any Confidential Information which is:
(a) publicly available or becomes publicly available otherwise than as
a result of a breach of this Agreement;
(b) lawfully in the possession of the receiving Party prior to its
disclosure to the receiving Party by the disclosing Party and is or becomes
free from any restriction on its subsequent disclosure or use by the
receiving Party; or
(c) required to be disclosed by any law, rule or regulation (including
any order of a court of competent jurisdiction).
15.5 The confidentiality undertakings and restrictions set out in this
Agreement shall survive the termination or non-consummation of this Agreement.
16. TERMINATION; BREAK-UP FEE
16.1 This Agreement may be terminated and the Offer may be abandoned at
any time prior to Completion of the Offer, as follows:
(a) by NOI and Hitec, respectively, pursuant to Article 12.4 and 13.4
of this Agreement;
(b) by mutual written consent of NOI and Hitec;
(c) by either NOI or Hitec, if the conditions set forth in Article 8
of this Agreement have not been fulfilled (or waived by the relevant party)
on or before 15.02.2000; provided, however, that the right to terminate
this Agreement pursuant to this Article 16.1 (c) shall not be available to
the party whose failure to fulfil any obligation under this Agreement shall
have been the cause of, or resulted in, the failure of the conditions to be
fulfilled on or before such date;
(d) by, Hitec, if valid and unconditional acceptances representing
more than 66,7% of the issued shares and votes of Hitec have not been
obtained within 42 days of the Offer Date;
(e) by either NOI or Hitec, if the conditions set forth in Article 9
of this Agreement have not been fulfilled (or waived by the relevant party)
within 90 days of the Offer Date or such later date not exceeding 150 days
following the Offer Date to which NOI may extend the Offer Expiry Date;
(f) by either NOI or Hitec, if any order, injunction or decree
preventing the consummation of the Offer shall have been entered by any
court of competent jurisdiction or governmental entity and shall have
become final and nonappealable;
(g) by Hitec, if prior to the Offer Expiry Date a competing offer to
purchase at least a majority of the Shares or otherwise acquire Hitec or
all or substantially all of its assets or all or substantially all of the
assets of the Drilling Group (a "Competing Offer") is made to Hitec or the
Shareholders that the board of directors of Hitec determines is more
favourable to the Shareholders than the Offer
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(a "Superior Offer") and that the board of directors recommends to the
Shareholders for acceptance; provided that Hitec shall have given at least
10 days prior written notice of the Superior Offer to NOI that includes all
relevant details thereof and NOI shall not within such 10 day period have
amended the terms of its Offer so that the Competing Offer is no longer a
Superior Offer; and provided, further, that no termination pursuant to this
Article 16.1(g) shall be effective unless Hitec shall pay the Break-Up Fee
required by Article 16.3; or
(h) by Hitec, if prior to the Completion of the Offer NOI is acquired
by another corporation or entity, or merged or consolidated with or into
any other corporation with a market capitalisation of at least 10% of NOI,
in which case NOI shall pay the Break-Up Fee required by Article 16.3.
16.2 In the event of termination of this Agreement pursuant to Article
16.1, this Agreement shall forthwith become void, there shall be no liability
under this Agreement on the part of NOI or Hitec or any of their respective
representatives, and all rights and obligations of each party hereto shall
cease, except as provided in Article 16.3; provided, however, that nothing in
this Agreement shall relieve any party from liability for the wilful breach of
any of its representations and warranties or the wilful breach of any of its
covenants or agreements set forth in this Agreement.
16.3 Hitec agrees that if Hitec terminates this Agreement pursuant to
Article 16.1(g), Hitec shall pay to NOI concurrently with such termination and
as a contribution to the costs and expenses incurred by NOI, a termination fee
in the amount of USD 5,000,000 (the "Break-Up Fee").
Hitec also agrees that if this Agreement is terminated and a Competing
Offer is made before termination of this Agreement that a person could
reasonably conclude is more favourable to the Shareholders than the Offer, and
such Competing Offer is completed and consummated before 31.12.2000, Hitec will
pay to NOI within five (5) days thereafter the Break-Up Fee.
NOI agrees that if Hitec terminates this Agreement pursuant to Article
16.1(h), NOI shall pay to Hitec within five (5) days after such termination as a
contribution to the costs and expenses incurred by Hitec, a fee in the amount of
USD 5,000,000 (the "Break-Up Fee").
Any payment required to be made pursuant to this Article 16.3 shall be made
by wire transfer of immediately available funds to an account designated by the
relevant party.
17. MISCELLANEOUS
17.1 Following Completion, Jon Gjedebo shall be appointed Executive Vice
President & Chief Technology Officer of NOI, with responsibilities for
technological development and implementation. Jon Gjedebo shall hold this
position for at least three years from Completion, unless terminated by NOI for
cause. It is further agreed that Jon Gjedebo shall be appointed to the Board of
Directors of NOI at the meeting of the Board of Directors next following
completion, and shall also be nominated for re-election at the next annual
meeting of stockholders of NOI. The compensation package of Jon Gjedebo shall be
agreed between Jon Gjedebo and the chief executive officer of NOI prior to the
making of the Offer. Prior to Completion Jon Gjedebo shall enter into the
employment agreement, including non-competition provisions with NOI.
17.2 NOI confirms that it plans to continue and develop the existing
activities of the Drilling Business in Stavanger for a minimum period of three
years from Completion, and thus confirms that it has no intention to move the
existing activities of the Drilling Group from Stavanger.
17.3 The Parties shall co-operate in order to keep costs and other
expenses at a minimum. The external advisory fees of Hitec (financial, legal,
auditors), and all other transaction costs incurred by Hitec shall be paid and
borne by Hitec, and upon Completion, HitecVision shall reimburse all costs that
exceed MNOK 15,0.
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Any management incentive payments approved by Hitec shall be paid by Hitec
upon Completion, and HitecVision shall reimburse Hitec for half of such payments
that aggregate up to MNOK 8,0 and for all such costs that exceed MNOK 8,0.
Management redundancy costs of Hitec shall be paid by Hitec upon
Completion, and HitecVision shall reimburse all costs that exceed MNOK 3,3.
With the exception of the above, each Party shall carry its own costs and
expenses in connection with the transactions contemplated by this Agreement.
The Parties acknowledge that the above costs may influence the actual
balance sheets of the Drilling Group and HitecVision Group, compared to the pro
forma balance sheets set forth in the Disclosure Schedule of Hitec.
17.4 Following Completion, NOI confirms that the employees of the Drilling
Group will be allowed to participate in the employee benefit plans operated by
NOI if such participation is allowed under the rules of such plans and other
relevant laws and regulations.
Subject to all relevant laws and regulations, senior management of the
Drilling Group will be eligible to participate in any management incentive
scheme including share options, bonuses and the like offered or operated by NOI
on the same terms as those offered to managers at a similar level of the NOI
group.
Under the current option program of Hitec, the board of directors has been
given the authority to issue a total of 2,000,000 options in Hitec with a strike
price of NOK 20. 677,500 of these options have already been issued, while there
is an obligation on Hitec to issue another 522,500 options on 1 December 1999.
No options in excess of 1,200,000 will be issued. These issued options will be
handled as follows:
(i) Employees of Hitec which remain Drilling Group employees after the
Offer Completion Date will be offered the right to have their options to
purchase shares of Hitec converted into options to purchase shares of NOI
without any change in their existing vesting or exercise schedule. Options
to purchase shares of Hitec will be converted into options to purchase NOI
Common Shares at the rate of 0.21259043 NOI Common Shares for each share of
Hitec at a price of NOK 94.077612 per NOI Common Share.
(ii) Employees of Hitec which will not remain Drilling Group employees
after the Offer Completion Date will have their options to purchase shares
of Hitec converted into cash by Hitec without regard to whether they can be
exercised currently. The purchase price for each option shall be based on
the premium paid by NOI in the Offer over and above NOK 20 for each share
in Hitec in relation to the average of the closing prices of NOI Common
Shares on the New York Stock Exchange the last ten (10) trading days ending
on the second trading day prior to the Offer Expiry Day. The costs of this
conversion plus employers tax shall be borne by Hitec, and the Parties
acknowledge that this will influence on the actual balance sheets of Hitec
and HitecVision compared to the pro forma balance sheets set forth in the
Disclosure Schedule of Hitec.
17.5 The Parties will co-operate in order to supply such information and
make such submissions to such authorities as may be necessary or required in
connection with the acquisition.
17.6 HitecVision shall have the right to use the name Hitec as set forth in
the Asset Purchase Agreement.
17.7 This Agreement shall be governed by Norwegian law.
17.8 Any disagreement, difference or dispute between the Parties relating
in any way to this Agreement, the rights or obligations of the Parties hereunder
or the transactions contemplated hereby shall be settled by arbitration, held in
Oslo and in the English language in accordance with Chapter 32 of the Norwegian
Civil Procedure Act 1915 ("tvistemalsloven"). The arbitration shall be held
before a panel of three arbitrators, one of whom shall be chosen by NOI, one of
whom shall be chosen by the Hitec and one of whom (who shall be the chairman of
the panel) by the first two arbitrators so selected. In the event of any failure
by a Party to appoint its arbitrator within thirty days after the request for
arbitration is
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first given, or the failure by the first two arbitrators to appoint the third
arbitrator within thirty days after the appointment of the last of the first two
arbitrators to be appointed, such arbitrator or arbitrators shall at the request
of either Party be appointed by the Oslo City Court. Any Party may seek
judgement upon any award in any court having jurisdiction or an application may
be made to such court for the judicial acceptance of the award and for an order
of enforcement.
Notwithstanding the above, each Party may bring an action in any court of
competent jurisdiction (i) for provisional relief pending the outcome of
arbitration, including, without limitation, provisional injunctive relief or
pre-judgement attachment or sequestration of assets; (ii) to compel arbitration
or enforce any arbitral award. For purposes of any proceeding authorised by this
Article 17.8, each Party hereby consents to the non-exclusive jurisdiction of
the courts of Oslo, Norway.
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Stavanger, 10 October 1999
NATIONAL-OILWELL, INC.
By: /s/ FRED PHEASEY
--------------------------------
Name: Fred Pheasey
Title: Member of the Board
HITEC ASA
By: /s/ FOLKE HERMANSEN
--------------------------------
Name: Folke Hermansen
Title: Board Member
By: /s/ KNUT AM
--------------------------------
Name: Knut Am
Title: Chairman of the Board
By: /s/ JON GJEDEBO
--------------------------------
Name: Jon Gjedebo
Title: President & CEO
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ANNEX 1: INDEMNIFICATION BY THE ACCEPTING SHAREHOLDERS OF HITEC AND
ESCROW ACCOUNT ARRANGEMENTS
1.1 Indemnification by the Accepting Shareholders of Hitec.
(a) Subject to the provisions of this Annex 1, the Accepting Shareholders
(including any Shareholders who accept a Mandatory Offer made pursuant to the
last sentence of Section 1.2(a)) shall, jointly and on a pro rata basis,
indemnify, defend and hold harmless NOI (including Hitec and any of its
affiliates) from, against and in respect of the following claims, obligations
and liabilities whether known or unknown, absolute, fixed or contingent and
related expenses (including reasonable costs of defense and reasonable
attorneys' fees) ("Liabilities") related to the Drilling Business, with respect
to events which have occurred prior to the Completion Date:
(i) Liabilities other than reasonable and customary warranty expenses
with respect to products delivered by Hitec prior to Completion, unless the
Liability is a result of deliveries made by NOI according to a contract
between Hitec (or any of its Subsidiaries) and NOI;
(ii) All legal disputes (pending or future) relating to the operations
prior to Completion, with the exception of legal disputes related to
existing orders where work is in progress as of Completion;
(iii) Liabilities for lack of or breaches to environmental permits,
licenses, approvals and other authorizations required to conduct the
Drilling Business prior to Completion;
(iv) Liabilities due to violations of any applicable Norwegian law,
statute, rule, regulation, order or notice requirement pertaining to (1)
the condition or protection of air, groundwater, surface water, soil or
other environmental media, (2) the environment, including natural resources
or any activity which affects the environment or (3) the regulation of any
pollutants, contaminants, waste or other substances;
(v) Liabilities with respect to violations of or default with respect
to any other applicable law or any applicable rules or regulations;
(vi) Liabilities with respect to any failure to file with appropriate
governmental authorities any income, withholding, value added, sales,
employment, customs duties and any and all other tax returns, reports and
estimates for each period for which any returns, reports or estimates were
due;
(vii) Liabilities with respect to any failure to pay any taxes due and
payable (considering always the net effect of any later adjustment and not
including tax receivables that have not been recorded in the accounts of
Hitec);
(viii) Liabilities with respect to the tax provision reflected in the
financial statements of Hitec being inadequate to cover actual taxes
payable;
(ix) Liabilities with respect to violations, infringement,
misappropriation or conflict with the intellectual property rights of
others in connection with individual products delivered by Hitec prior to
Completion or individual products in production by Hitec; or
(x) Liabilities with respect to claims for damages from current and
former employees related to events that occurred prior to Completion;
(b) Subject to the provisions of this Annex 1, the Accepting Shareholders
shall, jointly and on a pro rata basis, indemnify, defend and hold harmless NOI
(including Hitec and any of its affiliates) from and against any losses, damages
and expenses reasonably incurred, including third-party claims (including
reasonable costs of defense and reasonable attorneys' fees), arising out of
(i) any breach of any of the representations and warranties on the
part of Hitec in Article 5 of the Merger Agreement,
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(ii) any receivables on the balance sheet of the Drilling Business as
of the Completion Date (which shall be recorded in a manner consistent with
the 30 June, 1999 balance sheet) not being collectible in the recorded
amounts, or
(iii) the contractual basis for the revenue element with respect to
the balance sheet item; "work in progress" on the balance sheet of the
Drilling Business as of the Completion Date (which shall be recorded in a
manner consistent with the 30 June, 1999 balance sheet) not being correct.
(c) The matters for which the Accepting Shareholders may be liable under
this Annex 1 are referred to herein as "the Indemnified Matters."
(d) By accepting the Offer, each Accepting Shareholder shall agree to
assume the liability set forth in this Section 1.1 and to all the other
provisions of this Annex, including the appointment of HitecVision as the
Shareholder Representative as provided below. The acceptance of each Accepting
Shareholder shall be incorporated in the acceptance form for the Offer.
(e) The remedies provided in this Annex will exclude any other claim for
damages or purchase price adjustment against the Accepting Shareholders
available by law, contract or otherwise.
(f) The Accepting Shareholders will have no liability hereunder unless NOI
on or before the first anniversary of the Completion Date notifies the
Shareholder Representative of an Indemnified Matter in writing, documenting the
reasons therefor.
(g) The liability of the Accepting Shareholders pursuant to this Annex 1
shall be joint and on a pro-rata basis. Each Accepting Shareholder's liability
shall be limited to the shares of NOI at any time deposited into escrow pursuant
to Section 1.3 below in respect of the Shares of such Accepting Shareholder.
(h) The liability of the Accepting Shareholders according to this Section
1.1 shall only apply to (i) individual Indemnified Matters in which the amount
involved is at least NOK 100.000 and (ii) to the extent that the aggregate
Liability for all claims for Indemnified Matters of at least NOK 100.000 exceed
NOK 8.000.000 (in each case only taking into account that part of the
Indemnified Matters not covered by insurance) in which event the Accepting
Shareholders shall be responsible only for the amount in excess of NOK 8.000.000
up to a maximum, aggregate responsibility equal to the shares of NOI placed in
escrow. Furthermore, the Accepting Shareholders shall only be liable to the
extent the Indemnified Matters would not have been covered by insurance based on
the insurance policies maintained by Hitec as of the Completion Date (provided
such policies, if necessary to provide coverage, continue to be available to
Hitec after the Completion Date at substantially equivalent cost)
(i) NOI shall be obligated to limit (including collecting applicable
amounts from others) and investigate the consequences of any Indemnified Matters
to the extent reasonable without interference or injury to the business of the
Drilling Group or other unreasonable effort or expense.
1.2 Relation to other shareholders of Hitec; extent of indemnification
(a) Following the Offer, NOI will be obligated to make an offer in cash to
the Shareholders of Hitec which have not accepted the Offer (the "Mandatory
Offer"). The Mandatory Offer may, in accordance with relevant provisions of
Norwegian law, be lower than the Offer, in order to take into account the fact
that the Accepting Shareholders have accepted to place 10% of their
Consideration Shares in escrow according to this Annex 1. The amount of the
reduction will be determined by NOI promptly following the Completion Date. NOI
may also determine to also offer the Shareholders in the Mandatory Offer shares
which will be placed in the Escrow Account on the terms and conditions set forth
in this Annex 1.
(b) As a consequence of (a) above, with respect to each Indemnified Matter,
the indemnification obtained by NOI from the Accepting Shareholders through the
Escrow Account shall only amount to such part of the Indemnified Matter which
corresponds to such part of 800,000 NOI shares which is placed in escrow
according to this Annex 2.
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(c) If a claim is made by NOI according to Section 1.3(a) before it has
been resolved how many NOI shares which will be placed in the Escrow Account
under the Mandatory Offer, any payments under the claim shall not be made until
this has been resolved.
1.3 Establishment of Escrow Account.
(a) As security for the obligations of the Accepting Shareholders under
Section 1.1 of this Annex 1, NOI shall place in escrow (the "Escrow Account")
with Den norske Bank ASA or other institution mutually agreed upon by NOI and
Hitec (the "Escrow Agent") ten percent (10%) of the shares of NOI (including
fractional shares) otherwise deliverable to each Accepting Shareholder (the
"Escrow Shares"). The Escrow Shares shall be issued by NOI together with and
simultaneously with the other Consideration Shares. The Escrow Shares shall be
issued in the name of the Escrow Agent who will hold the Escrow Shares in trust
for the Accepting Shareholders. Prior to the Offer Date, the instruction letter
to the Escrow Agent shall be executed by both NOI and the Shareholder
Representative and accepted by the Escrow Agent. Each Accepting Shareholder
shall, when accepting the Offer, agree in writing (1) that HitecVision may act
on behalf of such Accepting Shareholder (in such capacity, the "Shareholder
Representative") in respect of liability under this Annex 1 and all issues
relating to the Escrow Shares (2) to accept that any agreement between NOI and
the Shareholder Representative, or any arbitral award or other judgment rendered
concerning any claim shall be final and binding on each Accepting Shareholder
and (3) to approve any payment to NOI made by the Escrow Agent in accordance
with this Annex 1.
(b) With the exception of the limitations contained in this Annex 1, all
rights with respect to the Escrow Shares shall vest with the Accepting
Shareholders. In the event any dividend is declared or a distribution is made
with respect to the Escrow Shares, such amounts shall be paid to the Accepting
Shareholders without deductions based on any claims under this Annex (except
that any shares of common stock of NOI issued in respect of any stock split or
stock dividend shall be held by the Escrow Agent as Escrow Shares). In the event
of any merger, consolidation or share exchange involving NOI in which shares of
common stock of NOI are converted into cash, shares or other property, such
cash, shares or other property shall be retained by the Escrow Agent and shall
be deemed Escrow Shares hereunder.
1.4 Method of Asserting Claims, Etc. All claims under Section 1.1 shall be
asserted and resolved as follows:
(a) Claims by NOI.
(i) Third Party Claims. If any claim or demand for which the
Accepting Shareholders would be liable to NOI hereunder is asserted or
sought to be collected by a third party, NOI shall promptly notify
Shareholder Representative of such claim or demand, specifying the
nature of such claim or demand and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim or demand) (the "Claim
Notice"). The Shareholder Representative shall have twenty (20) days
from its receipt of the Claim Notice (the "Notice Period") to notify
NOI, as appropriate, (A) whether or not the Shareholder Representative
disputes the liability of the Accepting Shareholders with respect to
such claim or demand, and (B) if such liability is not disputed, whether
or not the Shareholder Representative on behalf of the Accepting
Shareholders desires, at their sole cost and expense, to defend NOI
against such claim or demand; provided, however, that NOI is hereby
authorized, but not obligated, prior to and during the Notice Period to
file any motion, answer or other pleading that it shall deem necessary
or appropriate to protect its interests. NOI shall furnish the
Shareholder Representative with all reasonable information (including
access to relevant records and appropriate personnel) adequate for the
Shareholder Representative to evaluate any claim or demand hereunder.
If the Shareholder Representative notifies NOI within the Notice
Period that the liability of the Accepting Shareholders with respect to
such claim is not disputed and that the Shareholder Representative on
behalf of the Accepting Shareholders desires to defend against such
claim or
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demand, the Shareholder Representative shall have the right to defend by
appropriate proceedings, which proceedings shall be promptly settled or
prosecuted to a final conclusion in such a manner as to avoid any risk
of NOI becoming subject to liability for any other matter. If NOI
desires to participate in, but not control, any such defense or
settlement, it may do so at its sole cost and expense. If, in the
reasonable opinion of NOI, any such claim involves an issue or matter
that could have a material adverse effect on the business, operations,
properties, assets or prospects of NOI, NOI shall have the right to
control the defense or settlement of any such claim and any judgment or
settlement with respect to such claim shall be included as part of the
indemnification obligations of the Accepting Shareholders. If NOI should
elect to exercise such right, the Shareholder Representative shall have
the right to participate in, but not control, the defense or settlement
of such claim at its sole cost and expense.
If the Shareholder Representative notifies NOI during the Notice
Period that it disputes the liability of the Accepting Shareholders to
NOI hereunder with respect to any such claim or demand or that it elects
not to defend NOI against the claim or demand, NOI may file any motion,
answer or other pleading that it shall deem necessary or appropriate
with respect to the matter giving rise to the liability and shall be
entitled to submit any question of the Accepting Shareholders' liability
to arbitration as provided in Section 1.5. If the Shareholder
Representative does not notify NOI during the Notice Period that it
disputes the liability of the Accepting Shareholders with respect to
such claim or demand, then the amount of any such claim or demand, or,
if the same be contested by NOI (although NOI shall have no obligation
to contest any such claim or demand), then that portion thereof as to
which such defense is unsuccessful, shall be conclusively deemed to be a
liability of the Accepting Shareholders hereunder.
If NOI controls the defense or settlement of any claim, NOI shall
not, without the prior written consent of the Shareholder
Representative, which shall not be unreasonably withheld, settle the
claim if such settlement will require payment from the Escrow Account.
If the Shareholder Representative elects to control the defense of any
claim, (A) NOI shall cooperate with the Shareholder Representative in
such defense, including preserving and making available relevant records
and making appropriate personnel reasonably available for such defense,
and (B) the Shareholder Representative shall not, without the prior
written consent of NOI, which shall not be unreasonably withheld,
consent to the entry of any judgment or enter into any settlement that
requires any action other than the payment of money which the Accepting
Shareholders will pay from the Escrow Account as provided herein.
(ii) Direct Claims. If NOI should have a claim against the
Accepting Shareholders hereunder that does not involve a claim or demand
being asserted against or sought to be collected from it by a third
party, NOI shall send a Claim Notice with respect to such claim to the
Shareholder Representative promptly after NOI acquires knowledge which
is sufficient for it to conclude that such claim will be asserted. If
the Shareholder Representative does not notify NOI within the Notice
Period that the Shareholder Representative disputes the liability of the
Accepting Shareholders with respect to such claim, the amount of such
claim shall be conclusively deemed a liability of the Accepting
Shareholders hereunder. NOI shall furnish the Shareholder Representative
with all reasonable information (including access to records and
personnel) adequate for the Shareholder Representative to evaluate any
claim or demand hereunder on behalf of the Accepting Shareholders.
If the Shareholders Representative within the Notice Period
notifies NOI that it disputes the liability of the Accepting
Shareholders with respect to such claim, or disputes the amount of such
claim, the Shareholders Representative and NOI shall meet without undue
delay to review the merits of the claim. Following such meeting, the
undisputed amount, if any, of a claim shall be settled according to
Section 1.5. The disputed amount, if any, shall on the request of either
of the Shareholders Representative and NOI, be referred to arbitration
in accordance with Section 1.6.
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(b) Notice to Escrow Agent. NOI shall deliver to the Escrow Agent a copy of
each Claim Notice NOI sends to the Shareholder Representative.
(c) Time Period. NOI shall have the right to make claims for
indemnification up until one year following the Completion Date, always
following the procedures of Section 1.1(d).
1.5 Payment. If the Accepting Shareholders are required to make any
payment under the provisions of this Annex 1, by reason of either (a) acceptance
by the Shareholder Representative of a claim by NOI or by reason of resolution
of the dispute in accordance with Section 1.5 or (b) expenses incurred by the
Shareholder Representative in defending a third-party claim, NOI may, in the
case of clause (a), and shall at the request of the Shareholder Representative
in the case of clause (b), instruct the Escrow Agent to sell Escrow Shares to
raise sufficient proceeds in order to pay to NOI the amount so accepted or
determined less any amount previously paid in respect to the claim or to pay to
the Shareholder Representative the amount of such expenses. Shares shall be sold
on the New York Stock Exchange or other principal market on which shares of NOI
are traded. The proceeds shall promptly be paid to NOI or other party entitled
thereto. Alternatively, NOI may instruct the Escrow Agent to deliver Escrow
Shares to NOI having an aggregate value equal to such amount based on the
closing price of NOI on the New York Stock Exchange or other principal market on
which shares of NOI are traded on the day such direction is given.
1.6 Arbitration. Any disagreement, difference or dispute between NOI and
the Shareholder Representative relating in any way to this Annex and the rights
or obligations hereunder shall be settled by arbitration, held in Oslo and in
the English language in accordance with Chapter 32 of the Norwegian Civil
Procedure Act 1915 ("tvistemalsloven"). The arbitration shall be held before a
panel of three arbitrators, one of whom shall be chosen by NOI, one of whom
shall be chosen by the Shareholder Representative and one of whom (who shall be
the chairman of the panel) by the first two arbitrators so selected. In the
event of any failure by a party to appoint its arbitrator within thirty days
after the request for arbitration if first given, or the failure by the first
two arbitrators to appoint the third arbitrator within thirty days after the
appointment of the last of the first two arbitrators to be appointed, such
arbitrator or arbitrators shall at the request of either party be appointed by
the Oslo City Court. NOI or the Shareholder Representative may seek judgment
upon any award in any court having jurisdiction or an application may be made to
such court for the judicial acceptance of the award and for an order of
enforcement.
Notwithstanding the above, NOI or the Shareholder Representative may bring
an action in any court of competent jurisdiction (i) for provisional relief
pending the outcome of arbitration, including, without limitation, provisional
injunctive relief or pre-judgment attachment or sequestration of assets; (ii) to
compel arbitration or enforce any arbitral award. For purposes of any proceeding
authorized by this Section 1.6, NOI and the Shareholder Representative hereby
consent to the non-exclusive jurisdiction of the courts of Oslo, Norway.
1.7 Distribution of Escrow. As soon as practicable after the expiration of
the year after the Completion Date, the Escrow Shares remaining on the Escrow
Account shall be transferred to the Accepting Shareholders. If, however, at such
date any claims under Section 1.4 are pending, the Shareholders Representative
and NOI shall promptly agree on the maximum amount of the pending claim. If the
value of the remaining Escrow Shares exceeds the agreed maximum amount of the
pending claim, the Escrow Shares reflecting such excess value shall promptly be
transferred to the Accepting Shareholders. For the purposes of this Section 1.6,
the value of the remaining Escrow Shares shall be determined based on the
closing share price of NOI on the New York Stock Exchange on the last trading
day prior to the expiration of one year from the Completion Date.
As soon as practicable, and in any event a day not later than 10 business
days after all pending claims are resolved and the amount, if any, payable to
NOI in respect thereof is distributed, the Escrow Agent shall transfer the
remaining Escrow Shares to the Accepting Shareholders.
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In any case, if neither NOI nor the Sellers Representative has initiated
arbitration proceedings in accordance with Section 1.6 above before the
expiration of three months after the first anniversary of the Completion, the
remaining Escrow Shares shall be transferred to the Accepting Shareholders.
Escrow Shares shall be registered in the same manner as other shares of NOI
delivered to the Accepting Shareholder at Completion. No fractional share of NOI
shall be delivered. In lieu thereof, NOI shall deliver to the Escrow Agent in
exchange for the fractional interests, cash (in NOK at the prevailing exchange
rate) in an amount equal to the value of such fractional interests based on the
closing price of the NOI common shares on the principal market on which such
shares are traded on the fifth business day preceding the distribution of the
Escrow Shares. The Escrow Agent shall deliver such cash to the Accepting
Shareholders entitled thereto in lieu of any fractional share.
1.8 Miscellaneous.
(a) Pro Rata Allocation. All payments from the Escrow Account shall be
borne by the Accepting Shareholders in proportion to the respective amounts
deposited in the Escrow Account for each Accepting Shareholder.
(b) Costs. All costs related to the establishment and operation of the
Escrow Account shall be borne by NOI.
(c) Amendments. The Shareholder Representative shall have the right to join
with NOI in any amendment or modification of the provisions of this Annex 1 if
the Shareholder Representative reasonably determines that it is in the best
interests of the Accepting Shareholders to do so. Each Accepting Shareholder
agrees to be bound by any such amendment or modification.
(d) Parties in Interest. Following Completion, only NOI and the Accepting
Shareholders and their respective successors and personal representatives or
heirs shall have any interest in the Escrow Shares, and neither NOI nor the
Escrow Agent shall be affected by any notice to the contrary.
(e) No Transfer of Escrow Shares. Except as expressly set forth in this
Annex, the Escrow Agent shall not sell, transfer or otherwise dispose of any of
the Escrow Shares.
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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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
2.1 -- Merger Agreement dated October 10, 1999 by and between
National-Oilwell, Inc. and Hitec ASA (Included as
Appendix A to the Prospectus)
2.2 -- Combination Agreement, dated as of May 14, 1997, as
amended, between National-Oilwell, Inc. and Dreco Energy
Services Ltd. (Annex B)(3)
2.3 -- Plan of Arrangement and Exchangeable Share Provisions
(Annex E)(3)
3.1 -- Amended and Restated Certificate of Incorporation of
National-Oilwell, Inc. (Annex D)(3)
3.2 -- By-laws of National-Oilwell, Inc. (Exhibit 3.2)(1)
</TABLE>
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<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
5 -- Opinion of Morgan, Lewis & Bockius LLP regarding legality
of securities being registered**
9.1 -- Form of Voting and Exchange Trust Agreement by and
between National-Oilwell, Inc., Dreco Energy Services
Ltd. and Montreal Trust Company of Canada (Annex G)(3)
10.1 -- Employment Agreement dated as of January 16, 1996 between
Joel V. Staff and the Company with similar agreements
with James J. Fasnacht, Jerry N. Gauche and Steven W.
Krablin and a similar agreement dated as of February 5,
1996 between Merrill A. Miller, Jr. and the Company
(Exhibit 10.1)(1)*
10.2 -- Restricted Stock Agreement between the Company and Joel
V. Staff, with similar agreements with James J. Fasnacht,
Jerry N. Gauche, Steven W. Krablin and Merrill A. Miller,
Jr. (Exhibit 10.10)(1)*
10.3 -- Stockholders Agreement among the Company and its
stockholders dated as of January 16, 1996 (Exhibit
10.3)(1)
10.4 -- Waiver and First Amendment to Stockholders Agreement
dated as of July 24, 1996 (Exhibit 10.4)(1)
10.5 -- Second Amendment to Stockholders Agreement dated as of
October 18, 1996 (Exhibit 10.17)(1)
10.6 -- Amended and Restated Stock Award and Long-Term Incentive
Plan (Exhibit 10.6)(2)*
10.7 -- Value Appreciation and Incentive Plan A (Exhibit
10.8)(1)*
10.8 -- Value Appreciation and Incentive Plan B (Exhibit
10.9)(1)*
10.9 -- First Amendment to Value Appreciation and Incentive Plan
A (Exhibit 10.15)(1)*
10.10 -- First Amendment to Value Appreciation and Incentive Plan
B (Exhibit 10.16)(1)*
10.11 -- Supplemental Savings Plan (Exhibit 10.12)(1)*
10.12 -- Loan Agreement dated September 25, 1997 (Exhibit 10.1)(4)
10.13 -- Deferred Fee Agreement (Exhibit 10.14)(1)
10.14 -- Form of Support Agreement by and between
National-Oilwell, Inc. and Dreco Energy Services Ltd.
(Annex F)(3)
23.1 -- Consent of Ernst & Young LLP**
23.2 -- Consent of Coopers & Lybrand**
23.3 -- Consent of Deloitte & Touche**
23.4 -- Consent of Morgan, Lewis & Bockius LLP (included in its
opinion filed as Exhibit 5)**
24.1 -- Powers of Attorney (included as part of the signature
page of the original filing)
99.1 -- English Translation of Norwegian Summary to be provided
to shareholders of Hitec.
</TABLE>
- ---------------
* Compensatory plan or arrangement for management or others.
** Previously filed.
(1) Filed as an Exhibit to Registration Statement No. 333-11051 on Form S-1, as
amended, initially filed on August 29, 1996
(2) Filed as an Exhibit to the National-Oilwell, Inc. Proxy Statement for the
Annual Meeting of Stockholders on May 14, 1997, filed on April 14, 1997
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<PAGE> 165
(3) Filed as an Annex to the Joint Proxy Statement/Prospectus in Post Effective
Amendment No. 1 to Registration Statement No. 333-32191 on Form S-4 filed on
August 21, 1997
(4) Filed as an Exhibit to the National-Oilwell, Inc. Quarterly Report on Form
10-Q filed on November 7, 1997
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
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
(5) that every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment 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;
II-3
<PAGE> 166
(6) 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;
(7) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 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; and
(8) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(b) 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 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.
II-4
<PAGE> 167
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Houston, state of Texas on January 4, 2000.
NATIONAL-OILWELL, INC.
By: /s/ JOEL V. STAFF
----------------------------------
Joel V. Staff
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
* Chairman of the Board of January 4, 2000
- ----------------------------------------------------- Directors (Principal
Joel V. Staff Executive Officer)
/s/ STEVEN W. KRABLIN Vice President and Chief January 4, 2000
- ----------------------------------------------------- Financial Officer
Steven W. Krablin (Principal Financial
Officer and Principal
Accounting Officer)
* Director January 4, 2000
- -----------------------------------------------------
Howard I. Bull
* Director January 4, 2000
- -----------------------------------------------------
James C. Comis III
* Director January 4, 2000
- -----------------------------------------------------
W. McComb Dunwoody
* Director January 4, 2000
- -----------------------------------------------------
Ben A. Guill
* Director January 4, 2000
- -----------------------------------------------------
William E. Macaulay
* Director January 4, 2000
- -----------------------------------------------------
Frederick W. Pheasey
*By: /s/ STEVEN W. KRABLIN
-------------------------------------------------
Steven W. Krablin
as attorney-in-fact
</TABLE>
II-5
<PAGE> 168
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
2.1 -- Merger Agreement dated October 10, 1999 by and between
National-Oilwell, Inc. and Hitec ASA (Included as
Appendix A to the Prospectus)
2.2 -- Combination Agreement, dated as of May 14, 1997, as
amended, between National-Oilwell, Inc. and Dreco Energy
Services Ltd. (Annex B)(3)
2.3 -- Plan of Arrangement and Exchangeable Share Provisions
(Annex E)(3)
3.1 -- Amended and Restated Certificate of Incorporation of
National-Oilwell, Inc. (Annex D)(3)
3.2 -- By-laws of National-Oilwell, Inc. (Exhibit 3.2)(1)
5 -- Opinion of Morgan, Lewis & Bockius LLP regarding legality
of securities being registered**
9.1 -- Form of Voting and Exchange Trust Agreement by and
between National-Oilwell, Inc., Dreco Energy Services
Ltd. and Montreal Trust Company of Canada (Annex G)(3)
10.1 -- Employment Agreement dated as of January 16, 1996 between
Joel V. Staff and the Company with similar agreements
with James J. Fasnacht, Jerry N. Gauche and Steven W.
Krablin and a similar agreement dated as of February 5,
1996 between Merrill A. Miller, Jr. and the Company
(Exhibit 10.1)(1)*
10.2 -- Restricted Stock Agreement between the Company and Joel
V. Staff, with similar agreements with James J. Fasnacht,
Jerry N. Gauche, Steven W. Krablin and Merrill A. Miller,
Jr. (Exhibit 10.10)(1)*
10.3 -- Stockholders Agreement among the Company and its
stockholders dated as of January 16, 1996 (Exhibit
10.3)(1)
10.4 -- Waiver and First Amendment to Stockholders Agreement
dated as of July 24, 1996 (Exhibit 10.4)(1)
10.5 -- Second Amendment to Stockholders Agreement dated as of
October 18, 1996 (Exhibit 10.17)(1)
10.6 -- Amended and Restated Stock Award and Long-Term Incentive
Plan (Exhibit 10.6)(2)*
10.7 -- Value Appreciation and Incentive Plan A (Exhibit
10.8)(1)*
10.8 -- Value Appreciation and Incentive Plan B (Exhibit
10.9)(1)*
10.9 -- First Amendment to Value Appreciation and Incentive Plan
A (Exhibit 10.15)(1)*
10.10 -- First Amendment to Value Appreciation and Incentive Plan
B (Exhibit 10.16)(1)*
10.11 -- Supplemental Savings Plan (Exhibit 10.12)(1)*
10.12 -- Loan Agreement dated September 25, 1997 (Exhibit 10.1)(4)
10.13 -- Deferred Fee Agreement (Exhibit 10.14)(1)
10.14 -- Form of Support Agreement by and between
National-Oilwell, Inc. and Dreco Energy Services Ltd.
(Annex F)(3)
23.1 -- Consent of Ernst & Young LLP**
23.2 -- Consent of Coopers & Lybrand**
23.3 -- Consent of Deloitte & Touche**
23.4 -- Consent of Morgan, Lewis & Bockius LLP (included in its
opinion filed as Exhibit 5)**
</TABLE>
<PAGE> 169
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
24.1 -- Powers of Attorney (included as part of the signature
page of the original filing)
99.1 -- English Translation of Norwegian Summary to be provided
to shareholders of Hitec.
</TABLE>
- ---------------
* Compensatory plan or arrangement for management or others.
** Previously filed.
(1) Filed as an Exhibit to Registration Statement No. 333-11051 on Form S-1, as
amended, initially filed on August 29, 1996
(2) Filed as an Exhibit to the National-Oilwell, Inc. Proxy Statement for the
Annual Meeting of Stockholders on May 14, 1997, filed on April 14, 1997
(3) Filed as an Annex to the Joint Proxy Statement/Prospectus in Post Effective
Amendment No. 1 to Registration Statement No. 333-32191 on Form S-4 filed on
August 21, 1997
(4) Filed as an Exhibit to the National-Oilwell, Inc. Quarterly Report on Form
10-Q filed on November 7, 1997
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.
<PAGE> 1
EXHIBIT 99.1
ENGLISH TRANSLATION OF NORWEGIAN SUMMARY TO BE PROVIDED TO SHAREHOLDERS OF HITEC
1. STATEMENTS OF RESPONSIBILITY
1.1 THE OFFEROR
This offer document consisting of a prospectus and this supplement, is intended
to provide the shareholders of Hitec ASA with a factual basis upon which to
consider the sale of their shares in Hitec ASA pursuant to this offer. With the
exception of the information relating to Hitec ASA, its subsidiaries, board of
directors and management, National-Oilwell, Inc. as offeror accepts full
responsibility for the contents of this offer document and prospectus. The
offeror confirms that the information contained herein to the best of their
knowledge is correct and in accordance with known factual circumstances, and
that no pertinent information is omitted.
Houston, 4th January 2000
National-Oilwell, Inc. as offeror
1.2 LEGAL ADVISER
Wiersholm, Mellbye & Bech ANS has been Norwegian counsel for National Oilwell.
In this respect we have reviewed this offer document and prospectus dated
[date]. We can confirm that the document in our opinion satisfies the Norwegian
laws and regulations governing voluntary offers to purchase shares in companies
listed on the Oslo Stock Exchange in exchange for shares. Further, we can
confirm that in our opinion and based on the information received, the matters
discussed in section 3 of this supplement regarding Norwegian tax law is
accurately described.
Our review does not extend to the offer document's account of commercial,
financial or accounting issues, and is furthermore limited to matters governed
by Norwegian law.
Oslo, 4th January 2000
Wiersholm, Mellbye & Bech
Harald Willumsen Andreas Mellbye
2. TERMS AND CONDITIONS OF THE OFFER
2.1 THE OFFER DOCUMENT
This offer document consists of a prospectus prepared in accordance of the US
Securities Act of 1933 (the "Prospectus"), and this supplement prepared in
order, together with the Prospectus, to fulfil the requirements of chapter 4 of
the Norwegian Securities Trading Act 1997 governing voluntary offers as well as
the prospectus requirements under chapter 5 of the act (the "Supplement").
<PAGE> 2
2.2 THE OFFEROR
National-Oilwell, Inc. ("National Oilwell") is an US company which was
incorporated in 1995 under the laws of the state of Delaware. Its principal
offices are located at 10000 Richmond Avenue, Houston, Texas 77042-4200, USA,
and its telephone number is 00 1 713 346 7500.
2.3 THE TARGET COMPANY
Hitec ASA ("Hitec")
Organisation number: 936 738 540
Registered address: Lagerveien 8, 4069 Stavanger.
The share capital of Hitec is constituted of a single class of shares and
amounts to NOK 37,631,044.-divided by 37,631,044 shares of a nominal value of
NOK 1.-.
2.4 THE OFFER
National Oilwell offers to purchase all 37,631,044 outstanding shares of Hitec,
ISIN: NO-000-3047409
The Offeror does at the time of making of this offer not own any shares in
Hitec, nor any other securities issued by Hitec.
2.5 THE OFFER CONSIDERATION
As consideration for the shares in Hitec, each accepting shareholder will for
each Hitec share receive 0.2125904 shares in National Oilwell and a cash amount
of NOK 3.95152.
10% of the shares received will be placed in escrow, and if the representations
and warranties made by Hitec in the Merger Agreement become effective, the
consideration might be reduced as described in clause 2.6.
No fractional shares of National Oilwell will be issued. Instead the Hitec
shareholders will receive a cash consideration in lieu of such fractional
shares. The cash payment for such fractional shares will be calculated based on
the average of the closing prices of the National Oilwell shares on the New York
Stock Exchange for the last ten trading days ending on the second day prior to
the offer expiration date.
2.6 ESCROW ACCOUNT
When signing the acceptance form, each accepting shareholder agree to assume
certain obligations to indemnify National Oilwell with respect to certain
liabilities relating to the drilling business of Hitec and losses arising out of
any breach of the representations and warranties made by Hitec in the Merger
Agreement (as defined in the Prospectus). Each shareholder's liability is
limited to the value of 10 percent of the National Oilwell shares such
shareholder is allotted in the offer.
These representations and warranties are more closely described under
"Description of the Merger Agreement" section in the Prospectus.
Ten percent of the National Oilwell shares each accepting Hitec shareholder will
receive as consideration when accepting the offer, will be placed in an escrow
account for a period of one year from the completion of the offer as security of
each shareholder's liability against National Oilwell. When the one-year period
is expired, the shares in the escrow account will
<PAGE> 3
be delivered to the Hitec shareholders, after deducting amounts for which the
shareholders are liable to National Oilwell pursuant to the Merger Agreement.
The Merger Agreement is attached to the Prospectus as Annex 1. As Enclosure 1
to the Merger Agreement you will find a further description of the Escrow
Account and the distribution of the Escrow. Such distribution shall be made as
soon as practicable after the expiry of the one year period. Also, if potential
claims from National-Oilwell are set forth, the Escrow shares reflecting value
in excess of such claim shall promptly be distributed to the accepting
shareholders.
2.7 CONDITIONS FOR THE OFFER
The completion of the offer is subject to the following conditions:
(a) the receipt by National Oilwell of valid and unconditional
acceptances of the offer representing more than 90% of the
shares and votes of Hitec;
(b) the completion of the Asset Purchase Agreement (as defined in
the Prospectus) between Hitec and Hitec Vision ASA;
(c) the receipt of all necessary governmental approvals from US
and Norwegian authorities;
(d) the receipt by Hitec of confirmation from the Royal Ministry
of Finance that the sale of Hitec shares to National Oilwell
will not be subject to capital gains tax in Norway until the
disposition of the National Oilwell shares received as
consideration in the offer, the Royal Ministry of Finance has
granted a tax relief for the consideration consisting of
National Oilwell shares, and Hitec has declared that this
condition is deemed satisfied by the tax relief granted by the
Ministry;
(e) the accuracy of the representation and warranties set forth in
the Merger Agreement as more closely described in the
Prospectus;
(f) certain other conditions described on page 26 and 27 in the
Prospectus.
2.8 EXPIRY OF THE OFFER
The offer period will be from 4th January 2000 until expiry at 12 midnight
4th February 2000.
The expiration date may be extended by National Oilwell.
An extension of the offer period does not constitute a new offer and
shareholders who have accepted the offer are also bound of their acceptance in
the event of an extension of the offer.
2.9 ACCEPTANCE OF THE OFFER; REVOCATION OF ACCEPTANCES
Hitec shareholders who wish to accept the offer must do so by signing and
returning the acceptance form by hand, fax or mail to:
First Securities ASA
Stranden 3
P.O. Box 1441 Vika
0112 Oslo
telephone 23 23 80 00, telefax: +47 23 23 80 01
Acceptances must cover all shares in Hitec held by the accepting shareholder.
Acceptances are valid only if the acceptance form enclosed with this offer
document is used, is completed fully and returned to and actually received by
First Securities prior to the expiration time of the offer. The Offeror reserves
the right to consider acceptances received in another form or after the
expiration time as valid and binding.
<PAGE> 4
Acceptances may be withdrawn at any time up to the end of the offer period by
notifying First Securities in writing. Notice of withdrawal must actually be
received by First Securities prior to the expiration time.
In the event that the account in VPS to which Hitec shares are credited is
encumbered, the holder of any such encumbrances must consent to the acceptance.
No confirmation will be given by the Offeror or First Securities ASA that
acceptance forms and notices of withdrawals have been received.
2.10 TRANSFER OF HITEC SHARES TO SEPARATE ACCOUNT
Upon acceptance of the offer the accepting shareholders Hitec shares will be
transferred by First Securities ASA to a separate VPS account established in the
seller's name. Upon completion of the offer First Securities will transfer the
shares to the Offeror and deliver the National Oilwell shares to the accepting
shareholder. If the offer is not completed, the Hitec shares will be transferred
back to the accepting shareholders' VPS account by First Securities.
2.11 TERMINATION OF THE OFFER
The offer may on certain conditions described under the "Description of the
Merger Agreement" section in the Prospectus, be terminated by National Oilwell
or Hitec.
2.12 FINANCING OF THE OFFER
To the extent necessary, National Oilwell will finance the cash element of the
consideration offered for the Hitec shares from its own funds and from borrowing
under its revolving credit agreement with a group of lenders. Because Hitec will
receive an equivalent amount from the sale of the non-drilling business to
HitecVision, National Oilwell's net debt on a consolidated basis will not
increase.
2.13 NOTIFICATION TO ACCEPTING SHAREHOLDERS
Notices and other information to shareholders with respect to the offer will be
published to shareholders through the Oslo Stock Exchange information system.
Proper notification shall be deemed to have been given when such notices have
been received by the Oslo Stock Exchange and distributed in the Oslo Stock
Exchange information system.
2.14 THE NATIONAL OILWELL SHARES
National Oilwell has an authorised share capital of 75,000,000 shares of common
stock par value $.01 per share, and 10,000,000 shares of preferred stock. As of
10 October 1999, 58,257,955 shares of common stock were outstanding. No
preference shares were outstanding. Current and previous employees of National
Oilwell are granted options to require the issuance of 2,083,846 shares of
ordinary stock.
The number of shares in National Oilwell issued in connection with the offer
will depend on the number of shareholders that accept the offer.
National Oilwell has not paid dividends on its common stock and anticipates
that no such payments will be made in the foreseeable future.
The shares of National Oilwell are listed on the New York Stock Exchange.
The shareholders' rights in National Oilwell are more closely described in the
"Comparison of the rights of the Stockholders of Hitec and National Oilwell"
section in the Prospectus.
2.15 RECOMMENDATION FROM THE HITEC BOARD
The Board of Hitec has in a resolution made 29 November 1999 recommended the
Offer. The recommendation reads as follows:
"To the shareholders of Hitec ASA (Hitec)
Hitec has entered into a Merger Agreement with NOI (National Oilwell) in which
NOI has undertaken to make an offer for all outstanding shares in Hitec. As
part of the agreement all Hitec's non-drilling businesses, assets and
liabilities will be sold to HitecVision. Hitec's shareholders will be invited
to participate in HitecVision's business on a pro rata basis through an issuance
of shares in HitecVision directed to them.
NOI has agreed to offer 0.2125904 NOI shares together with NOK 3.95152 per
Hitec share. Hitec's shareholders will receive a prospectus from NOI regarding
the offer, the agreement and the NOI shares offered, as well as a prospectus
from HitecVision and Hitec regarding the invitation to continue as shareholders
in the non-drilling business.
A combination of Hitec's drilling business with NOI gives Hitec access to a
strong international presence and distribution network. In the Board's opinion
such access will enable Hitec to penetrate the market with its technological
products much more effectively than Hitec could have done on its own. The
Agreement with NOI also creates a long-term owner for Hitec's non-drilling
business.
The Merger Agreement has taken into consideration the interest of the employees
of the Hitec Group. In the Board's opinion both the employees of the drilling
business and the non-drilling business will benefit from the Agreement.
President and Director Jon Gjedebo, Mosvold Farsund (represented on the Board
by Director Geir Larsen), all other Directors who own shares in Hitec directly
or indirectly as well as Executive Vice President Ola Saetre have agreed to
accept the offer from NOI.
The Board recommends the shareholders of Hitec to accept the offer from NOI.
Stavanger, November 29, 1999
The Board of Hitec ASA"
2.16 MANDATORY OFFER; COMPULSORY REDEMPTION
After the completion of the Offer, National Oilwell will make a mandatory offer
to purchase all the Hitec shares for cash to the remaining shareholders,
pursuant to the provisions of the Securities Trading Act 1997.
According to the Securities Trading Act 1997 the mandatory offer price shall be
as high as the highest price National Oilwell has paid for the Hitec shares
during the six month period prior to the day the duty to make the mandatory
offer occurred, or if clearly higher than such price, the market price.
It is not finally agreed with the Oslo Stock Exchange what impact, if any, the
escrow arrangement in this offer may have for the offer price in the mandatory
offer.
Immediately after the completion of the mandatory offer, National Oilwell will
conduct a compulsory redemption of any remaining Hitec shares pursuant to the
provisions of Section 4-25 of the Norwegian Public Limited Companies Act 1997.
2.17 CHOICE OF LAW, JURISDICTION
The offer and its acceptance are subject to Norwegian law. Any disputes that
arise in connection with the offer that cannot be resolved amicably shall be
determined by arbitration in accordance with Section 26-5 of the Norwegian Stock
Exchange Regulations of 17 January 1994 No 30 as amended.
2.18 MISCELLANEOUS
The National Oilwell shares issued as consideration to the Hitec shareholders
will not be registered in VPS.
This offer document will be sent to all shareholders of Hitec who have a VPS
registered address, with the exception of shareholders who are resident in
countries where the offer cannot lawfully be made. The offer document will be
sent to the address that is registered with VPS as at 4th January 2000.
<PAGE> 5
The employees of Hitec holding share options in Hitec will be offered to
exchange these options into options to receive National Oilwell shares.
3. NORWEGIAN TAXATION ISSUES
The information provided below is based on current Norwegian tax law and is of a
general nature and for general guidance only. Each shareholder is encouraged to
seek legal advice to determine his own tax position.
3.1 TAXATION OF THE ACCEPTING SHAREHOLDERS
An exchange of Hitec shares into National Oilwell shares and cash will for
Norwegian tax purposes be treated as a sale of Hitec shares with a consideration
consisting of National Oilwell shares and cash. The exchange of shares will
consequently in principle trigger capital gains taxation or a deductible loss.
For the calculation of the taxable gain or loss it is assumed that the value of
National Oilwell shares received as consideration should equal the stock
exchange price for those shares at the time all conditions in the offer are
either satisfied or waived.
However, Hitec sent an application to the Royal Ministry of Finance to have tax
relief on the capital gains taxation that could be triggered by an acceptance of
the offer. The Ministry has approved tax relief for the consideration
consisting of National Oilwell shares. It is a condition for the tax relief
that the tax cost price for the National Oilwell shares received shall equal the
present tax cost price for the Hitec shares surrendered. Thus, capital gain on
the disposal of the Hitec shares will as far as the share consideration is
concerned not be taxed until a future disposal of the National Oilwell shares.
The grant of tax relief does not apply to the cash portion of the offer.
Accordingly the cash portion of the offer will be subject to capital gains
taxation. Hitec shareholders will therefore have to pay tax on all or part of
the cash portion of the offer. The size of the capital gains will depend on the
cost price of each individual shareholder. What portion of the taxable capital
gain will be allocated to the cash part of the offer has not yet been clearly
established. In the event such clarification is not obtained from the Ministry
of Finance, the allocation of capital gains between the share portion of the
offer and the cash portion of the offer will be an issue each Hitec shareholder
will have to clarify with his local tax advisor.
A copy of the Ministry's Letter dated 15th December 1999 is attached to this
supplement.
3.2 NET WEALTH TAX
Norwegian shareholders will be subject to net wealth tax in Norway on their
shares in National Oilwell. According to the treaty, Norway has an exclusive
right to net wealth taxation on shares owned by Norwegian residents. Listed
shares in U.S companies are valued at 100% of the stock exchange price at
January 1st in the assessment year. The marginal net wealth tax rate is
presently 1.1%.
3.3 DIVIDENDS PAID BY U.S COMPANIES TO NORWEGIAN SHAREHOLDERS
Dividends are subject to income tax in both Norway and the Tax Treaty for the
Avoidance of Double Taxation (the "Treaty") between the U.S. and Norway, the
U.S. taxation is limited to a withholding tax of 15% (provided that the shares
are not attributed to a fixed place of business in the U.S.). Norway will credit
the U.S withholding tax against the Norwegian taxes that accrue on dividend
payments.
Dividends are taxed as "ordinary income" in Norway, at the present rate of 28%.
According to the Treaty and Norwegian tax legislation, a Norwegian company which
owns more than 10% of the capital of a U.S-company, is entitled to a credit
against Norwegian taxes for the dividend's proportionate part of the underlying
U.S. corporation tax. The tax credit is limited to the Norwegian taxes that fall
on such dividends.
To obtain credit in Norwegian taxes for taxes paid in U.S, the Norwegian
shareholders must provide documentation to the effect that withholding taxes
actually has been paid in U.S and that U.S withholding taxes are creditable in
Norwegian taxes. Such documentation may be required by the tax authorities to be
translated into Norwegian and certified by notary public.
3.4 CAPITAL GAINS AND LOSS
Capital gains on the disposition of shares is subject to income tax in Norway as
"ordinary income", at a present tax rate of 28%. Capital loss is deductible
against "ordinary income". Capital gains/losses are computed as the difference
between the amount received and the purchase price (cost price). It is
anticipated that a tax relief granted by the Norwegian Ministry of Finance will
be conditional upon a roll over of the present cost price of the Hitec shares to
the National Oilwell shares to be acquired in the offer. The cost price will not
be adjusted for changes in the taxed equity of National Oilwell (ref. the
Norwegian "RISK" regulations).
According to the Treaty, Norway has an exclusive right to tax capital gains on
shares owned by Norwegian residents. However, if the shareholder within the last
12 months before the disposition owned more than 25% of the shares, and more
than 50% of the company's assets at the end of the last three income years are
physically in the United States, the U.S. has an exclusive right to tax capital
gains on the disposition of such shares.
A FIFO principle will apply. Accordingly the first shares acquired will be
regarded as the first shares disposed of.
<PAGE> 6
DET KONGELIGE
FINANS - OG TOLLDEPARTEMENT
Bugge Arentz-Hansen & Rasmussen
Knut Brundtland
Postboks 1524 Vika
0117 OSLO
U.Off Section 5.a
Deres ref Var ref Dato
KB10023.B99/ES 99/5364 AV/KR 15.12.1999
(English Translation)
HITEC ASA - NATIONAL OILWELL INC. - APPLICATION FOR A TAX RELIEF IN ACCORDANCE
WITH THE ACT OF 9 JUNE 1961 NO. 16 PARAGRAPH 11
I
Reference is made to your letter of 29 October 1999 applying for a tax relief on
tax on potential gain that will occur for Norwegian shareholders in Hitec ASA in
the exchange of the Hitec shares to National Oilwell Inc. shares.
The merger is planned effected by National Oilwell Inc. making an offer to the
shareholders of Hitec ASA. By accepting the offer the shareholders of Hitec ASA
will dispose of the shares in this company and will receive National Oilwell
Inc. shares at a corresponding value and in addition a cash consideration of NOK
3,95 for each Hitec share.
Hitec ASA is planning to sell all non-drilling related activities to the company
HitecVision AS. The present Hitec ASA shareholders will be invited to use their
cash consideration in the offer in a share description in HitecVision. This
will be effected after the acceptance of the National Oilwell Inc.s offer by
more than 90% of the shares in Hitec ASA.
II
According to the Act of 9 June 1961 No. 16 paragraph II it is a condition for a
tax relief that the transaction is a part of a reorganisation or restructuring
of the business making such business more efficient. Further, a tax relief can
only be granted if there are special reasons for it, and that it is clear that
the tax relief will be important for the implementation of the reorganisation or
the restructuring. The tax relief could be conditioned upon certain conditions.
III
As far as the share consideration, the Ministry assumes that the conditions for
a tax relief are fulfilled.
As a condition for the tax relief the following shall apply:
1. The tax cost price for the new issued shares of National Oilwell Inc.
received as consideration for the Hitec ASA shares shall equal the tax
cost price on the shares sold as of the time of the transaction.
2. Capital gain by disposal of shares of National Oilwell Inc. shall be
taxable to Norway in accordance with Norwegian tax legislation, without
any deduction for foreign taxes.
3. The Norwegian shareholders receiving National Oilwell Inc. shares as
consideration shall send to their local tax offices a written statement
that the conditions in this tax relief are accepted. Such statement
shall be presented at the latest together with the tax return for the
income year in which Hitec ASA shares are sold.
IV
As for the cash consideration, the Ministry does not assume that the conditions
for a tax relief are fulfilled. According to the Ministrys opinion there are no
such circumstances that should indicate that a tax relief should be granted.
This goes also for the cash consideration that is used as cash infusion in the
share increase of HitecVision.
This decision is in accordance with previous practice from the Ministry.
V
Please be informed that The Ministry has not considered whether the transactions
can be made in accordance with the concession law or other relevant legislation.
A copy of this letter is sent to the Stavanger tax office.
Yours sincerely,
Ruth Didriksen
by authorisation
Manager
Jan Ove Larsen
on behalf of Anders Vatland
Senior Consultant
