<PAGE>
As filed with the Securities and Exchange Commission on June 4, 1999.
Registration No. 333-_____
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
-------------------------------------------
HALLIBURTON COMPANY
(Exact name of registrant as specified in its charter.)
<TABLE>
<S> <C> <C>
Delaware 1389 75-2677995
(State or other jurisdiction of Primary Standard Industrial I.R.S. Employer Identification No.
incorporation or organization) Classification Code
</TABLE>
-------------------------------------------
<TABLE>
<S> <C>
Halliburton Company Lester L. Coleman
3600 Lincoln Plaza Executive Vice President And General Counsel
500 North Akard Street Halliburton Company
Dallas, Texas 75201-3391 3600 Lincoln Plaza
(214) 978-2600 500 North Akard Street
Dallas, Texas 75201-3391
(214) 978-2600
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of registrant's principal number, including area code, of agent for service.)
executive offices.)
</TABLE>
-------------------------------------------
Copies to:
Vinson & Elkins L.L.P.
Houston, Texas 77002-6760
Attn.: William E. Joor III
(713) 758-2582
-------------------------------------------
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES 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 statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed Proposed Maximum Amount of
of Securities Amount of Securities Maximum Offering Aggregate Offering Registration Fee
to be Registered to be Registered Price Per Share Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $2.50 3,069,899 shs.(1) $6.91(2) $21,224,985(3) $5,901
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes that all ordinary shares of PES (International) Limited ("PES"),
other than those owned indirectly by Halliburton Company ("Halliburton"), are
exchanged for shares of Halliburton common stock up to a maximum of
3,083,899 shares, pursuant to the terms of the offer described herein. The
number of shares of Halliburton common stock registered hereby was determined by
multiplying (i) 937,660, being the number of PES shares issued or to be issued
and not owned indirectly by Halliburton, by (ii) the maximum exchange ratio for
the offer (i.e., 3.27400 shares of Halliburton common stock per PES Share).
(2) There is no market for the PES shares. The proposed maximum offering price
per share of Halliburton common stock was calculated pursuant to Rule 457(f)
based on the fully diluted book value per PES share as of December 31,1998
((pound)14.044) which was converted to U.S. dollars at the currency exchange
rate in effect at the close of business on June 1, 1999 ($1.6118/(pound)1.00)
and divided by the maximum exchange ratio per PES share.
(3) Represents the proposed maximum offering price per share of Halliburton
common stock multiplied by the maximum number of shares of Halliburton common
stock issuable pursuant to the offer.
----------------------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
ii
<PAGE>
SUBJECT TO COMPLETION DATED JUNE 4, 1999
PRELIMINARY OFFER DOCUMENT
REGISTRATION STATEMENT RIDERS
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt about the action you should take, we recommend that you seek financial
advice immediately, if you are in the United Kingdom, from an independent
financial adviser duly authorized under the U.K. Financial Services Act 1986 or,
if you are elsewhere, from an appropriately authorized independent financial
adviser.
PricewaterhouseCoopers, which is authorized to conduct investment business by
the Institute of Chartered Accountants in England and Wales, has approved this
Offer Document for issue for the purpose of Section 57 of the U.K. Financial
Services Act 1986. PricewaterhouseCoopers is acting on behalf of Halliburton
Company and no one else in connection with the approval of this Offer Document
and will not be responsible to anyone other than Halliburton Company for
providing the protection afforded to customers of PricewaterhouseCoopers.
- --------------------------------------------------------------------------------
RECOMMENDED OFFER
BY
HALLIBURTON COMPANY
FOR
THE ORDINARY SHARE CAPITAL OF
PES (INTERNATIONAL) LIMITED
- --------------------------------------------------------------------------------
Halliburton Company, a Delaware corporation, whose principal executive
offices are located in Dallas, Texas ("Halliburton"), hereby offers (the
"Offer") to acquire all the ordinary shares of 10 pence each of PES
(International) Limited, a company incorporated in Scotland ("PES"), not already
owned by a subsidiary of Halliburton (but including any PES ordinary shares that
are issued during the Offer following exercise by PES of call options held by
PES relating to shares in the capital of a subsidiary of PES held by others) in
exchange for shares of Halliburton common stock on the following basis:
- up to 3.27400 shares of Halliburton common stock for every PES ordinary
share, of which:
- 1.14590 shares will be issued upon completion of the Offer; and
- 1.01494 shares will be issued 18 months later (the "First
Determination Date"), subject to potential reduction and further
delay as described below; and
iii
<PAGE>
- 1.11316 SHARES WILL BE ISSUED UP TO 36 MONTHS AFTER COMPLETION OF
THE OFFER (THE "SECOND DETERMINATION DATE"), SUBJECT TO POTENTIAL
REDUCTION AND FURTHER DELAY AS DESCRIBED BELOW.
The number of shares of Halliburton common stock issuable on the First and
Second Determination Dates will be reduced by 30% if either Laurence Kinch or
Richard Rubbo is not then employed, directly or indirectly, by PES or
Halliburton as a result of voluntary resignation or termination of employment
for cause (or, in the case of Mr. Rubbo only, his death or disappearance in
suspicious circumstances) or by 60% if both are not then so employed.
The maximum number of shares of Halliburton common stock issuable by
Halliburton to PES shareholders pursuant to the offer is 3.27400 shares per PES
ordinary share (3,069,899 shares in the aggregate) and the minimum number of
shares so issuable is 1.99714 shares per PES ordinary share (1,872,638 shares in
the aggregate). The closing sales price per share of Halliburton common stock
on the New York Stock Exchange, Inc. on __________, 1999 (the latest practicable
date prior to publication of this Offer Document) was $_______.
Halliburton Holdings Limited, a company incorporated in England and a
wholly owned subsidiary of Halliburton, currently owns approximately 26% of the
issued share capital of PES.
The terms and conditions of the Offer are contained in this Offer Document,
which should be read in conjunction with the accompanying Form of Acceptance.
See Annex II for definitions of terms used in this Offer Document.
To accept the Offer, the Form of Acceptance for PES ordinary shares must be
completed and returned as soon as possible and, in any event, so as to be
received by no later than 3:00 p.m. (London time), 10:00 a.m. (New York City
time), on ______________, 1999. The procedure for acceptance of the Offer is
set out on pages 47 to 50 of this Offer Document and in the accompanying Form of
Acceptance.
For further information regarding the Offer, please carefully read this
Offer Document and, specifically, the "risk factors" beginning on page 29. If
you have questions about the offer or would like additional copies of this offer
document, you should contact: Mr. Michael Bowyer, a director of PES, at +44
(0)1224 793000 (collect). Mr. Bowyer will not give you advice on any matter
relating to your decision whether or not to accept the offer.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE OFFER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE OF THE UNITED STATES NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFER DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Offer has been made by a U.S. corporation and while the Offer is
subject to U.S. and U.K. disclosure requirements, U.K. investors should be aware
that this document has been prepared in accordance with U.S. format and style,
which differs from U.K. format and style.
This Offer Document is dated ___________, 1999.
iv
<PAGE>
GENERAL INFORMATION
The Halliburton common stock to be issued pursuant to the Offer has been
listed on the New York Stock Exchange, Inc., subject to official notice of
issuance. The listing will become effective and dealings, for normal
settlement, will commence on the New York Stock Exchange, Inc. in the
Halliburton common stock to be issued pursuant to the Offer at completion on the
first trading day following the day on which the Offer becomes or is declared
unconditional in all respects.
FINANCIAL INFORMATION
The consolidated financial statements of, and other information about,
Halliburton appearing in this Offer Document are presented in U.S. dollars ($)
and have been prepared in accordance with U.S. generally accepted accounting
principles. Save where this Offer Document indicates to the contrary, the
consolidated financial statements of, and other information about, PES appearing
in this Offer Document are presented in pounds sterling (pound) and have been
prepared in accordance with U.K. generally accepted accounting principles. All
U.S. generally accepted accounting principles information for PES appearing in
this offer document is unaudited. U.S. generally accepted accounting principles
and U.K. generally accepted accounting principles differ in certain significant
respects (see "Summary of Differences Between U.K. and U.S. Generally Accepted
Accounting Principles.")
The mid-point of the closing spread of the dollar to pound sterling spot
rate, as shown in the Financial Times (U.K. edition) on __________, 1999, the
latest practicable date prior to the posting of this Offer Document, was
_______. The noon buying rate in New York City for cable transfers in pounds
sterling as certified for customs purposes by the Federal Reserve Bank of New
York on that date was ________ . This information is provided for the
convenience of the reader and may differ from the actual rates in effect during
the periods covered by the PES financial information discussed herein.
RESPONSIBILITY
The Directors and certain Executive Officers of Halliburton, i.e., the
Chief Executive Officer, the Chief Financial Officer and the Chief Accounting
Officer, accept responsibility for the information contained in this Offer
Document. To the best of the knowledge and belief of the Directors and such
Executive Officers of Halliburton (who have taken all reasonable care to ensure
that this is the case), the information contained in this Offer Document does
not contain any misstatement of a material fact or omit to state a material fact
necessary to make the statements made not misleading.
v
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT ARE THE BENEFITS OF THE TRANSACTION?
A: Halliburton believes that the business of PES is complementary to that of
Halliburton and that benefits will result from combining them. Halliburton
expects the combination will assist Halliburton Energy Services, Inc., a
wholly owned subsidiary of Halliburton, in its objective to become the
preferred provider of real time reservoir solutions worldwide, to the
benefit of all the stockholders of Halliburton (including the former PES
shareholders).
Q: WHAT DO I NEED TO DO NOW?
A: If you wish to accept this Offer after you have read and considered
carefully the information included in this Offer Document, please fill out
and sign the enclosed Form of Acceptance and return the relevant
documentation to the appropriate address shown on page 47.
Q: IF I HAVE SOLD OR OTHERWISE TRANSFERRED ALL OF MY PES ORDINARY SHARES, WHAT
DO I DO?
A: Please send this Offer Document and the accompanying Form of Acceptance as
soon as possible to the purchaser or transferee.
Q: HOW DO I SELL MY HALLIBURTON SHARES THAT I RECEIVE PURSUANT TO THE OFFER?
A: Your shares of Halliburton common stock issuable pursuant to the Offer will
be listed on the New York Stock Exchange and will (unless you elect to
receive a physical stock certificate) be registered directly and
electronically in your name on the stock transfer records maintained by
Halliburton's stock transfer agent. You may sell any or all your shares
through a stock brokerage firm or (unless you have elected to receive a
physical stock certificate) through the stock transfer agent. The latter,
however, will aggregate sell orders and execute them at least once a week
or more often if volume dictates. If you are a U.K. shareholder, you
should use a stock brokerage firm with a U.S. affiliate to avoid a second
sales commission.
Q: HOW SOON AFTER RECEIVING MY HALLIBURTON SHARES MAY I SELL SUCH SHARES?
A: All Halliburton common stock received by PES shareholders will be freely
transferable immediately.
vi
<PAGE>
Q: CAN I WITHDRAW MY ACCEPTANCE OF THE OFFER?
A: No. Once you have validly accepted the Offer, no withdrawals will be
permitted unless the Offer is not declared unconditional on or before
________, 1999, in which event, your PES ordinary shares will be returned
to you promptly.
Q: WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED?
A: Halliburton intends to complete the transaction as soon as possible. For
the transaction to occur, the PES shareholders must approve the suspension
of certain provisions of the articles of association of PES at an
extraordinary general meeting and the other conditions to the Offer must be
satisfied. If the PES shareholders approve the suspension of those
provisions of the articles of association of PES and the other conditions
to the Offer are satisfied, Halliburton expects to complete the transaction
promptly after the PES extraordinary general meeting, which will be held on
_________, 1999.
Q: WHAT ARE THE TAX CONSIDERATIONS OF THE TRANSACTION?
A: Halliburton anticipates that the PES shareholders who are subject to U.K.
taxation will be entitled to receive "roll-over" treatment for U.K. capital
gains tax purposes. Those PES shareholders who are subject to U.S. federal
income tax will recognize gain or loss on the exchange of PES ordinary
shares for Halliburton common stock measured by the difference between the
fair market value of the Halliburton common stock to be received and the
holder's U.S. tax basis in the PES ordinary shares exchanged. A portion of
any such gain may be taxed as ordinary interest income.
Q: WILL I HAVE AN OPPORTUNITY TO ASK QUESTIONS OF MANAGEMENT OF HALLIBURTON
AND PES?
A: Yes. Halliburton and PES intend to hold an information meeting to which
all PES shareholders will be invited by separate invitation.
Q: WHO CAN HELP ANSWER MY OTHER QUESTIONS?
A: If you have more questions about the transaction, you should contact Mr.
Michael Bowyer, a director of PES, at +44 (0) 1224 793000 (collect) or your
own independent financial adviser. Mr. Bowyer will not give you advice on
any matter relating to your decision whether or not to accept the Offer.
vii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECOMMENDED OFFER................................................................................................ iii
GENERAL INFORMATION.............................................................................................. v
FINANCIAL INFORMATION............................................................................................ v
RESPONSIBILITY................................................................................................... v
QUESTIONS AND ANSWERS ABOUT THE OFFER............................................................................ vi
SUMMARY.......................................................................................................... 1
The Offer............................................................................................... 1
The Recommendation of the PES Board..................................................................... 17
PES Optionholders....................................................................................... 18
Terms and Conditions of the Offer....................................................................... 18
Absence of Rights of Withdrawal......................................................................... 19
Procedures for Accepting the Offer...................................................................... 20
Compulsory Acquisition.................................................................................. 20
The Companies........................................................................................... 20
Halliburton Company..................................................................................... 20
PES (International) Limited............................................................................. 21
Halliburton's Plans for PES............................................................................. 23
PES Extraordinary General Meeting....................................................................... 24
Interests of Certain PES Directors and Shareholders..................................................... 25
Regulatory Approvals.................................................................................... 26
United Kingdom Tax Consequences......................................................................... 26
United States Tax Consequences.......................................................................... 27
Power of Attorney....................................................................................... 27
Risk Factors ........................................................................................... 27
Listing of Halliburton Common Stock..................................................................... 28
Appraisal Rights........................................................................................ 29
Action to be Taken...................................................................................... 29
Securities Laws in General.............................................................................. 29
Tenders and Acceptance.................................................................................. 30
</TABLE>
viii
<PAGE>
<TABLE>
<S> <C>
SUMMARY SELECTED FINANCIAL DATA.................................................................................. 31
Summary Selected Historical Financial Information of Halliburton........................................ 31
Summary Selected Historical Financial Information of PES................................................ 33
Summary Unaudited Pro Forma Combined Financial Information.............................................. 35
Market Price and Dividend Information................................................................... 35
Comparative Per Share Data.............................................................................. 37
CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS................................................................... 39
RISK FACTORS..................................................................................................... 42
Risks Relating to the Offer............................................................................. 42
Risks Specific to Halliburton........................................................................... 42
BACKGROUND TO AND REASONS FOR THE OFFER.......................................................................... 46
THE PES BOARD'S REASONS FOR
RECOMMENDING THE OFFER; RECOMMENDATION OF THE PES BOARD................................................. 51
THE OFFER........................................................................................................ 52
General................................................................................................. 52
Options................................................................................................. 57
Conditions to the Offer................................................................................. 57
Terms of the Offer...................................................................................... 59
Procedures for Accepting the Offer...................................................................... 59
No Rights of Withdrawal................................................................................. 63
Settlement.............................................................................................. 63
Method of Selling Halliburton Common Stock.............................................................. 64
Recapitalization........................................................................................ 65
Compulsory Acquisition; Appraisal Rights................................................................ 65
Interests of Certain Persons in the Offer............................................................... 66
Irrevocable Undertakings................................................................................ 68
Fees and Expenses of the Offer.......................................................................... 69
Certain Regulatory Approvals and Legal Matters.......................................................... 69
Accounting Treatment.................................................................................... 70
THE WARRANTY AGREEMENT........................................................................................... 70
Completion.............................................................................................. 70
Warranties.............................................................................................. 71
Agreement to Pay........................................................................................ 71
Restrictive Covenants...................................................................................
Pre-completion Matters.................................................................................. 71
Governing Law........................................................................................... 72
AGREEMENTS WITH CERTAIN PES SHAREHOLDERS AND DIRECTORS........................................................... 72
PES Shareholders........................................................................................ 72
PES Directors........................................................................................... 73
</TABLE>
ix
<PAGE>
<TABLE>
<S> <C>
TAX CONSEQUENCES OF THE OFFER AND COMPULSORY ACQUISITION......................................................... 73
United Kingdom Tax Consequences......................................................................... 73
United States Federal Tax Consequences.................................................................. 75
Other Jurisdictions..................................................................................... 76
General................................................................................................. 81
PES EXTRAORDINARY GENERAL MEETING................................................................................ 76
INFORMATION REGARDING HALLIBURTON COMPANY........................................................................ 79
General Development of Business......................................................................... 79
Financial Information About Business Segments........................................................... 79
Description of Services and Products.................................................................... 79
Markets and Competition................................................................................. 80
Customers and Backlog................................................................................... 80
Raw Materials........................................................................................... 81
Research, Development and Patents....................................................................... 81
Seasonality............................................................................................. 81
Employees............................................................................................... 82
Regulation.............................................................................................. 82
HALLIBURTON COMPANY SELECTED FINANCIAL DATA...................................................................... 83
HALLIBURTON MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................................... 85
Halliburton / Dresser Merger............................................................................ 85
Business Environment.................................................................................... 85
Results of Operations - 1999 Compared to 1998........................................................... 88
Results of Operations - 1998 Compared to 1997 and 1996.................................................. 90
Liquidity and Capital Resources......................................................................... 94
Financial Instrument Market Risk........................................................................ 96
1998 Special Charges.................................................................................... 97
Environmental Matters................................................................................... 98
Year 2000 Issue......................................................................................... 98
Accounting Pronouncements............................................................................... 99
INFORMATION REGARDING PES (INTERNATIONAL) Limited................................................................ 100
Description of Products and Services.................................................................... 100
Acquisition of Well-Equip Limited....................................................................... 102
Acquisition of 26% Stake in PES by Holdings ............................................................ 102
Markets and Competition................................................................................. 102
PES SELECTED CONSOLIDATED FINANCIAL INFORMATION.................................................................. 103
SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ............................................................... 105
</TABLE>
x
<PAGE>
<TABLE>
<S> <C>
PES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................................................. 107
Business Environment................................................................................... 107
Results of operations - 1998 compared to 1997 and 1996................................................ 107
Liquidity and Capital Resources........................................................................ 109
Financial Instrument Market Risk....................................................................... 110
The Year 2000 issue.................................................................................... 110
MANAGEMENT OF HALLIBURTON....................................................................................... 111
SECURITY OWNERSHIP AND DEALINGS BY CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF HALLIBURTON.......................................................................... 115
DESCRIPTION OF HALLIBURTON CAPITAL STOCK........................................................................ 118
General................................................................................................ 118
Halliburton Common Stock............................................................................... 118
Rights to Purchase Preferred Stock..................................................................... 118
Halliburton Preferred Stock............................................................................ 120
Certain Provisions of Halliburton Charter and Bylaws................................................... 121
Transfer Agent and Registrar........................................................................... 122
COMPARATIVE RIGHTS OF SHAREHOLDERS.............................................................................. 123
General................................................................................................ 123
Voting Rights.......................................................................................... 123
Actions by Written Consent............................................................................. 123
Special Meeting of Shareholders........................................................................ 124
Sources and Payment of Dividends....................................................................... 124
Rights of Purchase and Redemption...................................................................... 125
Rights of Appraisal.................................................................................... 125
Pre-emptive Rights..................................................................................... 125
Amendment of Governing Instruments..................................................................... 126
Shareholders' Votes on Certain Reorganizations......................................................... 127
Certain Provisions Relating to Share Acquisitions...................................................... 127
Disclosure of Interests................................................................................ 128
Classification of the Halliburton Board of Directors................................................... 128
Removal of Directors................................................................................... 128
Liability of Directors................................................................................. 128
Indemnification of Officers and Directors.............................................................. 129
Shareholders' and Class Action Suits................................................................... 129
LEGAL MATTERS................................................................................................... 130
EXPERTS......................................................................................................... 130
WHERE YOU CAN FIND MORE INFORMATION............................................................................. 131
</TABLE>
xi
<PAGE>
<TABLE>
<S> <C>
HALLIBURTON COMPANY CONSOLIDATED FINANCIAL STATEMENTS........................................................... 134
PES (INTERNATIONAL) LIMITED DIRECTORS' REPORT
AND FINANCIAL STATEMENTS 31 MARCH 1997.......................................................................... 179
PES (INTERNATIONAL) LIMITED DIRECTORS' REPORT
AND FINANCIAL STATEMENTS 31 MARCH 1998.......................................................................... 204
</TABLE>
xii
<PAGE>
<TABLE>
<S> <C>
ANNEX I
CONDITIONS OF THE OFFER ........................................................................ Annex I-1
ANNEX II
DEFINITIONS..................................................................................... Annex II-1
ANNEX III
LETTER FROM THE CHAIRMAN OF PES TO PES SHAREHOLDERS............................................. Annex III-1
ANNEX IV
RELEVANT PROVISIONS OF COMPANIES ACT 1985....................................................... Annex IV-1
</TABLE>
<PAGE>
SUMMARY
This Summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the Offer
fully and for a more complete description of the legal terms of the Offer, you
should read carefully this entire document and the documents to which we have
referred you. See "Where You Can Find More Information" on page 124. FOR THE
DEFINITIONS OF CAPITALIZED TERMS USED IN THIS OFFER DOCUMENT, PLEASE SEE
"DEFINITIONS" IN ANNEX II.
The Offer (pages 39 through 57)
General. Halliburton hereby offers to acquire your existing PES ordinary
shares and, if applicable, while the Offer remains open for acceptance, any PES
ordinary shares that you acquire (a) upon exercise of any options that you hold
under the PES share option schemes, or (b) upon exercise by PES of call options
held by PES relating to shares in the capital of a subsidiary of PES not held by
PES, all on the basis set forth in this Offer Document.
The consideration payable pursuant to the Offer comprises Halliburton
common stock and consists of an initial, fixed element and two deferred,
partially contingent elements. The latter are subject to the contingencies
described below, specifically the extent to which two designated key executives
of PES remain in the employ of PES, Halliburton or a subsidiary of either
company at the dates of determination regarding the contingent payments.
To accept the Offer, you must complete the Form of Acceptance for PES
ordinary shares and return it to the receiving agent, Cameron McKenna (Ref:
TLP/AJS), Mitre House, 160 Aldersgate Street, London, EC1A 4DD United Kingdom,
in the enclosed reply paid envelope as soon as possible and, in any event, so as
to be received by no later than 3:00 p.m. (London time), 10:00 a.m. (New York
City time), on ______________, 1999. The procedure for acceptance of the Offer
is set out on pages 47 through 50 of this Offer Document and in the accompanying
Form of Acceptance.
If you sign and return the Form of Acceptance in accordance with the
instructions on the form, you will be deemed to have accepted the Offer for all
your holding of PES ordinary shares unless you specifically elect in the Form of
Acceptance to accept the Offer in respect of a specified part only of your
holding. The Offer is made on the terms and subject to the conditions set out
and referred to in this Offer Document and in the Form of Acceptance which
accompanies this Offer Document.
Consideration.
Under the Offer, holders of PES ordinary shares will receive:
- up to 3.27400 shares of Halliburton common stock for every PES
ordinary share, of which:
- 1.14590 shares will be issued promptly after completion of the
Offer; and
1
<PAGE>
- 1.01494 shares will be issued promptly after a date 18 months
after completion of the Offer (the "First Determination Date"),
subject to potential reduction or further delay, or both, as
described below if either Laurence Kinch or Richard Rubbo, each
of whom is a director of PES, or both, are not employed by PES,
Halliburton or a subsidiary of either company on the First
Determination Date as a result of voluntary resignation or
termination of employment for cause (or, in the case of Mr. Rubbo
only, his death or disappearance in suspicious circumstances);
and
- 1.11316 shares will be issued promptly after a date up to 36
months after completion of the Offer (the "Second Determination
Date"), subject to potential reduction or further delay, or both,
as described below if either Mr. Kinch or Mr. Rubbo, or both, are
not employed by PES, Halliburton or a subsidiary of either
company on the Second Determination Date as a result of voluntary
resignation or termination of employment for cause (or, in the
case of Mr. Rubbo only, his death or disappearance in suspicious
circumstances).
The phrases "voluntary resignation", "termination of employment for cause"
and "death or disappearance in suspicious circumstances", as used in this Offer,
are defined in the Definitions attached to this Offer Document as Annex II.
The shares of Halliburton common stock issuable following the First and
Second Determination Dates will be reduced as follows if either Mr. Kinch or Mr.
Rubbo, each of whom is a director of PES, or both, are not then employed by PES,
Halliburton or a subsidiary of either company as a result of voluntary
resignation or termination of employment for cause (or, in the case of Mr. Rubbo
only, his death or disappearance in suspicious circumstances):
- If either one of them is not so employed on the First Determination
Date, the numbers of shares issuable following the First and Second
Determination Dates will be reduced by 30%. If neither of them is so
employed on the First Determination Date, the numbers of shares
issuable following the First and Second Determination Dates will be
reduced by 60%.
- If both of them are employed on the First Determination Date but
either one of them is not so employed on the Second Determination
Date, the full number of shares will be issued following the First
Determination Date and the number of shares issuable following the
Second Determination Date will be reduced by 30%. If both of them are
employed on the First Determination Date but neither of them is so
employed on the Second Determination Date, the full number of shares
will be issued on the First Determination Date and the number of
shares issuable on the Second Determination Date will be reduced by
60%.
The Second Determination Date will be the third anniversary of completion
of the Offer unless before that date Halliburton has decided (in its sole
discretion) that PES has achieved the technology transfer and development plan,
2
<PAGE>
in which event the Second Determination Date will be accelerated to the date 30
months following completion of the Offer or, if later, the date of achievement
of such objectives. The technology transfer and development plan has been filed
as an exhibit to the registration statement of which this Offer Document
constitutes a part and is on display at the London and Aberdeen offices of the
receiving agent Cameron McKenna.
If the employment of Mr. Kinch or Mr. Rubbo, directly or indirectly, with
Halliburton shall have been terminated (either summarily or with the giving of
notice) prior to a particular Determination Date but as at that Determination
Date there is a dispute that has yet to be resolved as to whether or not they
had voluntarily resigned or had their employment terminated for cause, then the
number of shares of Halliburton common stock to be issued on that Determination
Date shall be reduced by 30% (or 60% as appropriate) with any further
Halliburton common stock that should have been issued on that Determination Date
pursuant to the Offer being issued within seven days of that dispute being
finally resolved in accordance with those procedures.
If Mr. Rubbo has ceased to be employed, directly or indirectly, by
Halliburton prior to a particular Determination Date as a result of his death or
disappearance in suspicious circumstances, then the number of shares of
Halliburton common stock to be issued following that Determination Date shall be
reduced by 30% with any further Halliburton common stock that should have been
issued following that Determination Date pursuant to the Offer being issued
during or at the end of the two year period following the date of his death or
disappearance. For information regarding the persons to whom such shares will
be issued, see "The Offer - General" and Part I of Annex I.
As of April 1, 1999 (the date the exchange ratio was fixed), the Offer
valued the entire issued share capital of PES, on a fully diluted basis, at
approximately $___ million ((Pounds)99.526 million). Based on the closing sales
price, as reported on the NYSE Composite Tape, of $____ per share of Halliburton
common stock on _________, 1999 (the latest practicable date prior to the
publication of this Offer Document):
- assuming issuance of the maximum number of shares of Halliburton
common stock pursuant to the Offer, the Offer values each PES ordinary
share at $____ ((Pounds)____) and the entire issued share capital of
PES, on a fully diluted basis, at $______ ((Pounds)_____); and
- assuming issuance of the minimum number of shares of Halliburton
common stock pursuant to the Offer, the Offer values each PES ordinary
share at $____ ((Pounds)____) and the entire issued share capital of
PES, on a fully diluted basis, at $____ ((Pounds)____)
in each case based on an exchange rate of (Pounds)1.00 to $_____. Halliburton
Holdings Limited, a wholly owned subsidiary of Halliburton, currently owns of
record and beneficially 334,360 PES ordinary shares, being approximately 26% of
the issued ordinary share capital of PES.
The amount of consideration to be offered for each PES ordinary share was
determined as a result of arm's-length negotiations between directors of PES
unaffiliated with Halliburton and officers of a division of Halliburton Energy
Services, Inc., a Halliburton subsidiary. See the section entitled "Background
to and Reasons for the Offer" beginning on page 33 in this Offer Document for a
discussion of the matters considered by, and the negotiations between, the
parties.
All Halliburton common stock issued to you pursuant to the Offer will be
validly issued, fully paid and nonassessable (i.e., Halliburton may not assess
you for any additional payment for such shares)
3
<PAGE>
and will rank pari passu in all respects with Halliburton common stock already
outstanding ; provided, however, that holders of Halliburton common stock
received in the Offer will not, in that capacity, receive the dividend declared
by the Halliburton board of directors on May 18, 1999 and payable to
stockholders of record as of June 3, 1999. If you accept the Offer, Halliburton
will not issue fractional shares of Halliburton common stock to you; rather, the
aggregate number of shares to be issued to you promptly following completion of
the Offer and following each of the First and Second Determination Dates for
your aggregate holding of PES ordinary shares will be rounded down to the next
whole share of Halliburton common stock. The Halliburton common stock to be
issued pursuant to the Offer will not be subject to any set-off by Halliburton
except as otherwise provided in the Warranty Agreement in the case of the
parties thereto.
If there is, at any time on or after the date of this Offer, any
subdivision or consolidation of all or any of the common stock of Halliburton,
or the number of shares of common stock of Halliburton in issue increases as a
result of the making of a stock dividend or similar capitalization of reserves,
the number of shares of Halliburton common stock to be issued in terms of this
Offer (and not issued as at the date of such subdivision, consolidation, stock
dividend or similar capitalization) shall be adjusted so as to ensure that the
proportion of the entire issued common stock of Halliburton to be issued in
terms of this Offer (and then remaining unissued) shall be the same as it would
have been but for such subdivision, consolidation, stock dividend or similar
capitalization.
If you accept the Offer, you will thereby warrant that Halliburton will
acquire good title to all PES ordinary shares sold by you pursuant to the Offer,
free and clear of all liens, claims and encumbrances and will succeed to all
your rights now or hereafter attaching to such shares, including the right to
all dividends and distributions hereafter declared and paid or made with respect
to such shares.
Halliburton stockholders will not, in that capacity receive or exchange any
securities pursuant to the Offer.
The Recommendation of the PES Board (pages 38 and 39)
The PES board of directors (other than the two members of the PES board of
directors who have been appointed by Halliburton Holdings Limited and who have
taken no part in the deliberations of the PES board of directors on the matter)
is of the opinion that the terms of the Offer are fair and reasonable to, and in
the best interests of, PES. In forming this opinion, the PES board of directors
considered the following factors as the most important to its decision:
- the board's view that a business combination of PES with Halliburton
will provide PES with access to the worldwide customer base of
Halliburton and to its financial strength, thereby permitting PES to
develop more rapidly its emerging oil and gas well completion
technology, including its Surface Controlled Reservoir Analysis and
Management System;
- the board's view that the oil and gas well completion technology of
PES will complement the oil and gas well completion technology of
Halliburton, thereby enhancing the well service capability of the
combined group of companies and
4
<PAGE>
benefitting the holders of Halliburton common stock (including the
former PES shareholders);
- the fact that the transaction offers the PES shareholders an
opportunity to hold an equity interest in the combined business;
- the fact that completion of the Offer will provide to the current PES
shareholders and to persons who acquire PES ordinary shares upon
exercise of outstanding options a market for their investment that was
not previously available to them; and
- in addition to the foregoing favorable matters, the PES board of
directors also considered the negative effect of the currently
depressed market for oil and gas on Halliburton and its common stock;
in evaluating this factor, the PES board of directors also noted the
likely effect of that market on the operations and development of PES.
THE PES BOARD OF DIRECTORS (OTHER THAN THOSE DIRECTORS APPOINTED BY
HALLIBURTON HOLDINGS LIMITED WHO DID NOT PARTICIPATE IN THE DELIBERATIONS)
UNANIMOUSLY RECOMMENDS THAT PES SHAREHOLDERS ACCEPT THE OFFER. YOUR ATTENTION
IS DRAWN TO THE PES LETTER RELATING TO THIS OFFER ATTACHED AS ANNEX III.
Two of the directors of PES, Messrs. Mark McCurley and James Renfroe, are
nominees of Halliburton Holdings Limited. As such, they excused themselves from
all proceedings of the PES board of directors at which the Offer or any
recommendation of the PES board of directors with respect to the Offer were
considered, and they did not participate in any vote with respect thereto.
Each of the directors of PES who owns PES ordinary shares has given to
Halliburton his irrevocable undertaking (i) to accept the Offer and (ii) to vote
in favor of the resolution to be proposed at the extraordinary general meeting
of PES shareholders to be held during the Offer period, details of which are set
forth under "PES Extraordinary General Meeting" on pages 68 and 69.
PES Optionholders
The Offer extends to any PES ordinary shares acquired by PES optionholders
pursuant to the exercise of options granted under the PES share option schemes
up to the last date on which the Offer remains open for acceptance or such other
date (being not later than _______, 1999) as Halliburton may decide.
If you are a PES optionholder, you will receive a separate letter
explaining the alternative courses of action open to you.
Terms and Conditions of the Offer (pages 68 through 69)
Halliburton's obligation to complete the Offer is subject to the
satisfaction or waiver by it of several conditions. These conditions include:
5
<PAGE>
- the receipt by Halliburton of valid acceptances representing not less
than 90% (or such lesser percentage above 33% as Halliburton may
decide prior to the Offer being declared unconditional) of PES
ordinary shares to which the Offer relates. If Halliburton should
determine that it will accept such a lesser percentage of PES ordinary
shares as a condition to the Offer (which it currently does not intend
to do), Halliburton will announce and notify all PES shareholders that
it will do so at least five U.S. business days in advance of the
scheduled expiration of the Offer and, in any event, no later than
five U.S. business days in advance of the Offer being declared
unconditional. Moreover, Halliburton will extend the Offer for an
additional ten U.S. business days from the date of such announcement.
In that event, however, no withdrawal rights will be granted to permit
PES shareholders to withdraw their acceptances during the extended
Offer period. Accordingly, any PES shareholders who are unwilling to
accept the Offer at such reduced acceptance level may wish to delay
accepting the Offer until the fifth business day immediately preceding
the scheduled expiration of the Offer;
- the approval by PES shareholders of a resolution authorizing the
suspension of certain provisions of the articles of association of PES
that would interfere with Halliburton's ability to purchase PES
ordinary shares pursuant to the Offer;
- the continued employment through completion of the Offer of the
following nine key employees: L. W. Kinch, M. L. Bowyer, D. W.
Whiteford, R. P. Rubbo, S. C. Owens, M. J. Fleming, C. Smith, B.
Bouldin and N. Arizmendi; and
- certain conditions relating to PES, including the condition that there
has been no material adverse change in the business, assets or
prospects of PES since the date of this Offer Document.
The Offer will be open for acceptance until _________, 1999, or such longer
period as Halliburton may determine (any such period to expire not later than
________, 1999), during which time, all conditions to the Offer must have been
satisfied or waived by Halliburton. Upon satisfaction or waiver of the
conditions, the Offer will be declared unconditional. The Offer will then be
extended for a subsequent period of ten U.S. business days, during which time
PES shareholders who have not accepted the Offer may do so.
To review the entire set of conditions relating to the Offer, see Annex I.
Absence of Rights of Withdrawal (page 50)
PES shareholders will not be able to withdraw their acceptances once they
have validly accepted the Offer, unless the Offer is not declared unconditional
on or before ________, 1999, in which event the PES shares will be returned to
the PES shareholders promptly. If Halliburton agrees to accept valid acceptances
of a lesser percentage (but not less than 33%) of the PES ordinary shares to
which the Offer relates as satisfying the condition of the Offer (which it
currently does not expect to do), Halliburton will extend the initial Offer
period for a minimum of ten additional U.S. business days. In that event,
however, no rights of withdrawal
6
<PAGE>
will be granted to permit PES shareholders to withdraw their acceptances during
the extended Offer period. In any event, Halliburton will not close the Offer
before the end of the initial Offer Period.
Procedures for Accepting the Offer (pages 47 through 50)
In order to accept the Offer, you must complete the Form of Acceptance and
return the completed form to Cameron McKenna, U.K. counsel to Halliburton but in
its capacity as the receiving agent, together with the relevant share
certificate(s) or other documents of title. You may direct questions concerning
the procedures for accepting the Offer to Cameron McKenna, in its capacity as
receiving agent, Attn.: Andrew Sheach or Thomas Page, at +44 (0) 171 367 3000.
Cameron McKenna will not give you advice on any matter relating to your decision
whether or not to accept the Offer.
You do not need to take any action in order to reject the Offer.
Compulsory Acquisition (page 53)
If, on or before ___________, 1999, Halliburton acquires PES ordinary
shares representing in the aggregate at least 90% of the PES ordinary shares to
which the Offer relates, Halliburton intends to acquire compulsorily the
remainder of the issued ordinary share capital of PES on the same terms as the
Offer, in accordance with U.K. law. In addition and without regard to the
intentions of Halliburton, a holder of any remaining PES ordinary shares may,
under these circumstances and in accordance with U.K. law, compel Halliburton to
acquire his PES ordinary shares on the same terms as the Offer.
The Companies (pages 70 through 103)
Halliburton Company
3600 Lincoln Plaza
500 North Akard Street
Dallas, Texas 75201-3391
U.S.A.
General Development of Business. Halliburton's predecessor was established
in 1919 and incorporated under the laws of the State of Delaware in 1924.
Halliburton provides energy services, engineering and construction services and
manufactures products for the energy industry. Halliburton's revenues for the
year ended December 31, 1998 were $ 17.4 billion. At _______, 1999, the latest
practicable date prior to publication of this Offer Document, the market
capitalization of Halliburton was $ ______ and it employed approximately 98,000
employees as of March 31, 1999. Information related to acquisitions and
dispositions is set forth in Note 14 to the consolidated financial statements of
Halliburton included in this Offer Document.
Financial Information About Business Segments. Halliburton is comprised of
three business segments. See Note 2 to the annual consolidated financial
statements and Note 2 to the quarterly consolidated financial statements
(unaudited) of Halliburton included in this Offer Document for financial
information about these three business segments.
Description of Services and Products. The following is a summary which
briefly describes Halliburton's services and products for each business segment.
7
<PAGE>
The Energy Services Group segment provides a wide range of services,
products and integrated solutions to customers in the business of exploration,
development and production of oil and natural gas. The Energy Services Group
operates worldwide, serving major oil companies, independent operators and
national oil companies. The segment includes Halliburton Energy Services (HES),
which offers pressure pumping equipment and services, logging and perforating
products and services, drilling systems and services, drilling fluid systems,
drill bits, specialized completion and production equipment and services and
well control products and services; Brown & Root Energy Services, which provides
upstream oil and gas engineering, procurement and construction, project
management and production services, subsea construction, fabrication and
installation of onshore and offshore pipelines, offshore and production
platforms, marine engineering and other marine related projects; Landmark
Graphics Corporation, which provides integrated exploration and production
information systems and professional services; and Halliburton Energy
Development (HED), which creates business opportunities for the development,
production and operation of oil and gas fields in conjunction with Halliburton's
customers. In March 1999, HED was combined with HES.
The Engineering and Construction Group segment provides: conceptual design,
process design, detailed engineering, procurement, project and construction
management; construction of chemical and petrochemical plants, refineries,
liquefied natural gas (LNG) and gas processing facilities, pulp and paper mills,
metal processing plants, airports, water and wastewater systems; technical and
economic feasibility studies; site evaluation; repair and refitting of
submarines and surface ships; operations and maintenance services, and
engineering, logistics and wastewater management services for commercial
industry, utilities and government customers.
The Dresser Equipment Group segment designs, manufactures and markets
highly engineered products and systems for oil and gas producers, transporters,
processors, distributors and users throughout the world. Products and systems
of this segment include compressors, turbines, generators, electric motors,
pumps, engines and power systems, valves and controls, instruments, meters and
pipe couplings, blowers and gasoline dispensing systems.
PES (International) Limited
34 Albyn Place
Aberdeen AB10 1FW
United Kingdom
General Development of Business. The origins of the PES Group date back to
June of 1985 when Petroleum Engineering Services Limited was formed, in
Aberdeen, Scotland, to provide well completion and intervention products,
services and solutions to the oil and gas industry. Since that time, PES has
established a strong reputation for innovation in the field of sub-surface oil
and gas well engineering.
Essentially a niche market player, PES' success has resulted largely from
its focus on the design of well completion and well intervention products to
improve well life cycle economics. In 1993, to cater to the group's
international expansion plans, PES (International) Limited was established as
the group holding company.
The PES client base consists of almost all of the major international oil
companies.
8
<PAGE>
PES continues to be headquartered in Aberdeen, Scotland.
The following summary briefly describes PES' products and services.
Description of Products and Services. PES' core business is the design,
manufacture and supply of oil and gas well completion and intervention products,
services and solutions.
Well completion products form part of the well bore through which the oil
and gas flows from the reservoir to the surface and assist with the control of
flow and the safety of the well. Well intervention products are normally
installed in the well bore, at some point after the well has been completed, to
perform specific functions during remedial well operations. Well intervention
products are normally used for a limited period of time. The product line that
historically contributed most to PES' growth is its well intervention product
line, for many years firmly established in the North Sea and now gaining
acceptance in key international markets.
The requirement for Annular Safety Valves (ASVs) following the Piper Alpha
incident provided an opportunity for PES to participate in this new market along
with the major suppliers (at the time), Baker Oil Tools, Camco International,
Halliburton and AVA/Guiberson. The first PES system was installed in early 1992
for Elf Enterprise and its success led to repeat orders from Elf and subsequent
orders from other customers. Since 1992, PES has made significant gains and is
now a leading supplier of ASVs, although this market segment has been declining.
In addition to its well intervention and Annular Safety Valve business, PES
has developed various high performance well completion products to capitalize on
market opportunities not being addressed by other equipment suppliers.
One of PES' most notable innovations is its Surface Controlled Reservoir
Analysis and Management System ("SCRAMS"). SCRAMS allows a well operator to
evaluate and control production from individual zones in a multi-zone producing
well without the need for well intervention. The potential benefits from real
time production management using SCRAMS are significant and include reduced
operating expenditure, reduced production downtime and enhanced ultimate
hydrocarbon recovery.
The main application for SCRAMS is high value wells (e.g. horizontal,
multi-lateral, remote and sub-sea wells). PES has obtained patent and copyright
protection for many of the key features of SCRAMS.
To date, nine SCRAMS systems have been installed in production wells and
demand is growing. PES is currently developing (in conjunction with
Halliburton) a new SCRAMS Interval Control valve which has infinitely variable
control capability and which represents a further major advance in the area of
production optimization. To facilitate world wide exploitation of SCRAMS, PES
formed a "Smart Well" Strategic Alliance with Halliburton Energy Services in
April of 1997 and through the Alliance, PES has effectively gained access to the
global market for SCRAMS through the 100+ Halliburton facilities world wide. It
should be noted that a number of teething problems were encountered on early
9
<PAGE>
installations. These problems have, however, been addressed as the system has
evolved to create a more robust and enhanced design. Over the past 5 years, PES
has made a substantial investment in SCRAMS.
In addition to SCRAMS, PES has developed other technologies which have had,
or are likely to have, a significant future impact on the industry. PES has a
growing portfolio of new products that are finding application in locations as
diverse as Colombia and Brunei.
Due to its geographic location, PES initially concentrated on servicing the
North Sea and European markets and developed a strong reputation for innovation
and responsiveness with its target clients. PES then began to investigate
opportunities further afield with various international oil companies.
Markets and Competition. More than 50% of PES' turnover is now derived from
export markets, and PES has established bases in Norway, Denmark, France, Italy,
Australia, and the U.S. PES currently provides products and services to
operators in the following countries: U.K., Norway, Denmark, Italy, Nigeria,
Angola, Gabon, U.S., Colombia, Argentina, Brunei, Malaysia, Australia, Papua New
Guinea, New Zealand, Indonesia, Oman, Qatar, and Abu Dhabi.
While sales are generally coordinated directly by PES, in certain countries
PES operates with the support of third party agents who provide additional
contact with clients and provide assistance with in-country logistics.
PES' competitors vary according to the niche markets served but include
Baker Oil Tools, Camco International, Halliburton Energy Services, Petroline,
and Maritime Well Service. The direct competition between Halliburton Energy
Services and PES is very limited.
PES' business in some countries may be adversely affected by unsettled
political conditions, expropriation or other governmental actions, exchange
control and currency problems. PES believes that the geographic diversification
of its business activities reduces the risk that loss of business in any one
country would be material to the conduct of its operations taken as a whole.
Halliburton's Plans for PES
If Halliburton acquires all of the outstanding ordinary share capital of
PES, Halliburton plans to integrate PES into the Energy Services Group which
operates Halliburton's oil and gas well services business. Further, the intent
is for the PES Group to reside within the Production Enhancement and Completion
and Production Services Product Service Line to maximize the combined
performance of PES and the Energy Services Group through:
- retaining the strengths of PES in rapid technology development,
innovation, and commercialization; and
- leveraging the global strengths of the Energy Services Group in
operations, business development, shared services, manufacturing and
technology.
10
<PAGE>
It is Halliburton's expectation that, through PES' position in intelligent
well product offerings, the acquisition of PES will aid Halliburton in its
desire to become the leader in the provision of real time reservoir solutions.
Halliburton has confirmed to the PES board of directors that the existing
employment rights, including pension rights, of employees of PES will be fully
safeguarded.
PES Extraordinary General Meeting (pages 68 and 69)
Purpose. Accompanying this Offer Document is a notice convening an
extraordinary general meeting of PES at which a special resolution will be
proposed:
- to suspend, for the purposes of the Offer, the pre-emption rights of
the PES shareholders on transfers of PES ordinary shares that are
conferred by Article 10 of the articles of association of PES; and
- to suspend, for the purposes of the Offer, the obligation of a person,
who has acquired a majority of the PES ordinary shares in issue, to
make a cash offer to acquire the remaining shares.
Each element of the resolution is designed to facilitate the Offer. The
purpose of the first element is to exclude the acquisition of PES ordinary
shares pursuant to the Offer from preemptive rights of PES shareholders. The
purpose of the second element is to enable Halliburton to effect the compulsory
acquisition by using Halliburton common stock rather than cash.
Date, Time and Place of the Extraordinary General Meeting. The
extraordinary general meeting will be held on __________, _________, 1999 at
______________, ____________, U.K., commencing at 10:00 a.m., U.K. time.
Shareholders Entitled to Vote; Votes Required. Only persons on the register
of members of PES on the date of the extraordinary general meeting are entitled
to vote at the extraordinary general meeting. As at the date of this Offer
Document, there are 1,266,540 PES ordinary shares in issue. Unless a poll is
requested, each member will be entitled to one vote on the resolution proposed
at the extraordinary general meeting. On a poll, each PES shareholder present at
the meeting in person or by proxy will be entitled to one vote for each PES
ordinary share held.
11
<PAGE>
It is a condition of the Offer that the resolution is passed. The PES
directors who own PES ordinary shares and certain other PES shareholders have
given irrevocable undertakings to vote in favor of the resolution in respect of
their beneficial holdings of PES ordinary shares representing, in the aggregate,
87.57% of the issued ordinary share capital of PES.
The resolution to be put before the extraordinary general meeting must be
passed by a majority of not less than three-fourths of such members as (being
entitled to do so) vote in person or by proxy at the meeting. If a PES
shareholder abstains, it will have no effect on the vote on the proposal.
You may direct all questions concerning the extraordinary general meeting
to Mr. Michael Bowyer, a director of PES, at + 44 (0)1224 79 3000.
Interests of Certain PES Directors and Shareholders (pages 53 through 56)
If you are a PES shareholder, you should be aware, in considering the
recommendation of the PES board of directors and in determining whether or not
to accept the Offer in respect of your PES ordinary shares, that certain
directors and shareholders of PES may have interests in the Offer that are
different from yours and from their interests as PES shareholders. These include
the following:
- PES Share Option Schemes. The Offer will extend to any PES ordinary
shares unconditionally acquired while the Offer remains open for
acceptance pursuant to the exercise of options issued under the PES
share option schemes or otherwise. Halliburton will offer PES
optionholders the opportunity to roll over their PES options into
options for Halliburton common stock subject to the same exercise
price as the existing PES share option schemes and on the same
exchange ratio as the Offer.
- Service Agreements. Each of the directors of PES, other than Messrs.
McCurley and Renfroe, being the directors nominated by Halliburton
Holdings Limited, a subsidiary of Halliburton, has become a party to a
service agreement with PES, a PES subsidiary or a Halliburton
subsidiary that will become effective on completion of the Offer and
will supersede any prior service agreement to which such director is a
party. The form of the service agreements has been filed as an exhibit
to the registration statement of which this Offer Document is a part
and copies of the executed service agreements will be on display at
the offices of Cameron McKenna in London and Aberdeen until the end of
the Offer period. For the addresses of these offices and a list of the
documents there displayed, see "Where You Can Find More Information"
on page 124. For information regarding the terms of these service
agreements, see "The Offer -- Interests of Certain Persons in the
Offer on pages 53 to 56".
- Irrevocable Undertakings. All the directors of PES, other than Messrs.
McCurley and Renfroe, together with certain other PES shareholders,
have entered into irrevocable undertakings with Halliburton in
contemplation of the Offer. Pursuant to these irrevocable
undertakings, these directors and PES shareholders, who collectively
own 633,570 PES ordinary shares, representing 50.02% of the issued
share capital of PES, have agreed:
12
<PAGE>
- that, in the case of those who are PES shareholders, they will
accept the Offer;
- that, in the case of those who are PES shareholders, they will
vote in favor of the resolution to be proposed at the
extraordinary general meeting of PES shareholders to facilitate
completion of the Offer; and
- that, in the case of those who are optionholders under the PES
share option schemes, they will surrender their PES options in
exchange for options over Halliburton common stock.
The irrevocable undertakings have been filed as exhibits to the
registration statement of which this Offer Document is a part and will
be on display at the offices of Cameron McKenna in London and Aberdeen
until the end of the Offer period. For information regarding the terms
of these irrevocable agreements, see "The Offer--Interests of Certain
Persons in the Offer" on pages 53 through 56.
- Warranty Agreement. All the directors of PES, other than Messrs.
McCurley and Renfroe, together with two other key employees, namely
Brett Bouldin and Napoleon Arizmendi, who are also PES shareholders,
have entered into a warranty agreement with Halliburton in
contemplation of the Offer. Pursuant to this agreement, these PES
directors (but not Messrs. Bouldin or Arizmendi) have, in reliance
upon Halliburton's undertaking to make the Offer and to issue the
Halliburton common stock required thereby, given numerous
representations and warranties regarding PES and related matters to
Halliburton. The warranty agreement contains a provision requiring
each of the individual signatories, other than Messrs. Kinch, Rubbo
and Fleming, to pay liquidated damages to Halliburton, by way of
adjustment to the consideration receivable by them in terms of this
Offer and their acceptance of it. If such individual resigns
voluntarily from the Halliburton group of companies or is terminated
for cause within three years after completion of the Offer. The
warranty agreement has been filed as an exhibit to the registration
statement of which this Offer Document is a part and will be on
display at the offices of Cameron McKenna in London and Aberdeen until
the end of the Offer period. For information regarding the terms of
this agreement, see "The Offer--Interests of Certain Persons in the
Offer" on pages 53 through 56.
Regulatory Approvals (page 57)
Halliburton and PES do not expect that the Offer will require the approval
of any governmental authority that, if not received, would prevent the
completion of the Offer.
United Kingdom Tax Consequences (pages 62 and 63)
If you accept the Offer, it is envisaged that the sale by you of PES
ordinary shares in exchange for Halliburton common stock pursuant to the Offer
or, thereafter, pursuant to compulsory acquisition will qualify for "roll-over"
treatment for U.K. capital gains tax purposes.
Liability to U.K. taxation arising from your acceptance of the Offer will
depend on your individual circumstances. For information on U.K. taxation with
regard to the Offer and the holding
13
<PAGE>
of Halliburton common stock see "Tax Consequences of the Offer and Compulsory
Acquisition - United Kingdom Tax Consequences" on pages 62 and 63.
If you require any advice about your particular taxation position, or if
you are subject to taxation in a jurisdiction other than the United Kingdom, you
should consult your own independent professional tax adviser without delay.
United States Tax Consequences (pages 63 through 67)
The exchange of PES Shares for Halliburton Common Stock pursuant to the
Offer and compulsory acquisition generally will be taxable for U.S. federal
income tax purposes to PES shareholders. For information on U.S. taxation with
regard to the Offer and the holding of Halliburton common stock, see "Tax
Consequences of the Offer and Compulsory Acquisition - U.S. Federal Tax
Consequences" on pages 63 through 67.
Since current Halliburton stockholders are not receiving or exchanging
securities, the Offer should have no effect on such stockholders for United
States income tax purposes.
The tax consequences of the Offer and compulsory acquisition for you may
depend on the facts of your own situation. You should consult your tax advisors
for a full understanding of the tax consequences of the Offer for you.
Power of Attorney
In considering this Offer, your attention is drawn to "The Offer--
Procedures for Accepting the Offer - Forms of Acceptance" on pages 48 and 49
which states that by signing the Form of Acceptance you grant to any executive
officer of Halliburton a power of attorney in connection with the implementation
of the Offer.
Risk Factors (pages 29 through 32)
There are risk factors that you should consider in evaluating whether to
accept the Offer. These risk factors include:
- the fact that the number of shares of Halliburton common stock that
you will receive pursuant to the Offer will not fluctuate with changes
in the price of Halliburton common stock; accordingly, the market
value of shares of Halliburton common stock, when issued pursuant to
the Offer, may be higher or lower than the market value of such shares
at the time the Offer was negotiated and at the time you accept the
Offer;
- the fact that your receipt of up to 60% of the portion of the
Halliburton common stock to be issued on a deferred basis is subject
to conditions beyond your control;
- the fact that the shares of Halliburton common stock to be issued to
you will be denominated in U.S. dollars and that the NYSE is the only
major stock exchange on which such stock will be listed for trading.
Accordingly, for so long as you retain any Halliburton common stock,
any dividends payable to you will be paid in U.S. dollars and, if you
wish to realize the value of your investment by selling your
Halliburton
14
<PAGE>
common stock, the sale proceeds will be realized in U.S. dollars. The
rate of exchange between the U.S. dollar and most other currencies
varies and, accordingly, the value of any dividend received or the
proceeds from the sale of your Halliburton common stock may, after the
conversion from U.S. dollars to your local currency, be less than you
anticipated;
- the fact that your receipt of the Halliburton common stock
constituting the deferred portions of the Offer consideration (and
thus your ability to realize any benefit therefrom) will be deferred
for extended periods of 18 months and up to 36 months;
- the fact that the business of Halliburton is heavily dependent upon
the capital budgets of its customers, including the major and
independent oil and gas companies and national oil companies, which
are, in turn, heavily dependent upon volatile oil and gas commodity
prices;
- the fact that one of Halliburton's business strategies is to acquire
operations and assets that are complementary to its existing
businesses and that acquiring these operations and assets involves
financial, operational and legal risks;
- risks generally associated with combining the operations of Dresser
Industries, Inc., formerly a large publicly owned company that was
acquired by Halliburton on September 29, 1998, with those of
Halliburton;
- risks associated with the fact that Halliburton's operations in
countries other than the United States and the United Kingdom
accounted for approximately 45.8% and 51.7% of Halliburton's
consolidated revenues during 1997 and 1998, respectively, including
the risks of expropriation, confiscatory taxation and nationalization,
political and economic instability, armed conflict and civil
disturbance, currency fluctuations, devaluations and conversion
restrictions, adverse tax policies and governmental activities that
may limit or disrupt markets, restrict payments or the movement of
funds or result in the deprivation of contract rights;
- significant foreign exchange risks arising from Halliburton's
international operations because a substantial portion of its
consolidated revenues (as well as the related consolidated operating
expenses) are in foreign currencies; and
- environmental risks entailed in Halliburton's well service operations
which routinely involve the handling of significant amounts of waste
materials, some of which are classified as hazardous substances.
Listing of Halliburton Common Stock
The Halliburton common stock that is issuable pursuant to the Offer has
been listed on the New York Stock Exchange, Inc., subject to official notice of
issuance.
15
<PAGE>
Appraisal Rights (page 53)
PES shareholders do not have appraisal rights, i.e., statutory rights of
shareholders under the laws of certain jurisdictions of incorporation arising in
connection with certain business combination transactions to have the shares
held by such shareholders valued by an independent appraiser and purchased by
the issuer at the appraised value. If Halliburton acquires PES ordinary shares
representing in the aggregate at least 90% of the share capital of PES to which
the Offer relates, PES shareholders whose securities were not acquired pursuant
to the Offer will be entitled to certain rights under the U.K. Companies Act
1985, including the right to compel Halliburton to acquire such securities on
the same terms as the Offer.
Action to be Taken
Your attention is drawn to the further information in this document and to
the Form of Acceptance. To accept the Offer you must complete and return the
enclosed Form of Acceptance in accordance with the instructions printed thereon.
The procedure for acceptance is set out in more detail under "The Offer -
Procedures for Accepting the Offer" on pages 47 through 50 and in the Form of
Acceptance, but, in summary, is as follows:
To accept the Offer, you must:
- complete and sign the Form of Acceptance in accordance with the
instructions contained therein;
- obtain a witness to the signature of such PES shareholder; and
- return the Form of Acceptance, together with the relevant share
certificate(s) and/or other documents of title, to Cameron McKenna in
its capacity as receiving agent, (Ref: TLP/AJS) Mitre House, 160
Aldersgate Street, London EC1A 4DD United Kingdom, so as to be
received no later than 3:00 p.m., U.K. time, on ____________, 1999.
To review certain of your rights under the U.K. Companies Act 1985, see
Annex IV.
The Offer is governed by English law.
Securities Laws in General
The Offer is not subject to the U.S. tender offer rules applicable to
securities registered under the U.S. Securities Exchange Act of 1934 (the
"Exchange Act") or to The City Code on Takeovers and Mergers in the U.K. The
Offer is, however, subject to the U.K. Financial Services Act 1986, the U.K.
Companies Act 1985, the U.S. Securities Act of 1933 (the "Securities Act") and
certain antifraud provisions of the Exchange Act.
Halliburton has filed a registration statement (of which this Offer
Document constitutes a part) relating to the offer, sale and delivery of the
Halliburton common stock issuable pursuant to the Securities Act with the
Securities and Exchange Commission in the U.S. (the "Commission") and that
16
<PAGE>
registration statement has become effective under the Securities Act. As a
consequence, all Halliburton common stock received by holders of PES ordinary
shares in the Offer will be freely transferable in the U.S.
Tenders and Acceptance
As used in this Offer Document, the term "acceptance" when used in relation
to the Offer shall be synonymous with "tender" and the term "purchase" shall
include an acquisition by an exchange of shares.
17
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
Summary Selected Historical Financial Information of Halliburton
The following summary financial information should be read in conjunction
with the historical financial statements of Halliburton and the related notes
contained elsewhere herein and in the annual reports and other information that
have been previously filed with the Securities and Exchange Commission. See
"Where You Can Find More Information." The extracts from the consolidated
financial statements of, and other information about, Halliburton appearing in
this Offer Document are presented in U.S. dollars ($) and have been prepared in
accordance with U.S. generally accepted accounting principles. U.S. generally
accepted accounting principles and U.K. generally accepted accounting principles
differ in certain significant respects. (See "Summary of Differences Between
U.K. and U.S. Generally Accepted Accounting Principles".)
HALLIBURTON (a)
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31
--------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
-------- --------- -------- --------- --------- ---------- ---------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Revenues:
Energy Services Group...................... $ 4,977.5 $ 5,307.7 6,515.4 $ 8,504.7 $ 9,009.5 $ 2,284.8 $ 1,753.4
Engineering and Construction Group......... 3,562.3 3,736.5 4,720.7 4,992.8 5,494.8 1,347.3 1,508.1
Dresser Equipment Group.................... 2,452.0 2,467.4 2,710.5 2,779.0 2,848.8 622.7 663.1
--------- --------- -------- --------- --------- --------- ---------
Total revenues........................... $10,991.8 $11,511.6 13,946.6 $16,276.5 $17,353.1 $ 4,254.8 $ 3,924.6
========= ========= ======== ========= ========= ========= =========
Operating income:
Energy Services Group..................... $ 405.8 $ 544.5 698.0 $ 1,019.4 $ 971.0 $ 283.0 $ 56.7
Engineering and Construction Group........ 71.0 96.6 134.0 219.0 237.2 59.0 58.4
Dresser Equipment Group................... 198.1 200.7 229.3 248.3 247.8 39.4 53.6
Special charges and credits (b)........... (24.6) (8.4) (85.8) (16.2) (980.1) - -
General corporate......................... (56.2) (70.8) (72.3) (71.8) (79.4) (20.3) (16.5)
--------- --------- -------- --------- --------- --------- ---------
Total operating income (b)............... 594.1 762.6 903.2 1,398.7 396.5 361.1 152.2
Nonoperating income (expense), net (c)....... 323.1 (32.6) (72.2) (85.6) (117.7) (23.0) (3.2)
--------- --------- -------- --------- --------- --------- ---------
Income from continuing operations before
income taxes, minority interest and change
in accounting method....................... 917.2 730.0 831.0 1,313.1 278.8 338.1 149.0
Provision for income taxes (d)............... (346.9) (247.0) (248.4) (491.4) (244.4) (127.3) (59.6)
Minority interest in net income of
consolidated subsidiaries.................. (33.1) (20.7) (24.7) (49.3) (49.1) (7.4) (8.4)
--------- --------- -------- --------- --------- --------- ---------
Income (loss) from continuing operations..... $ 537.2 $ 462.3 557.9 $ 772.4 $ (14.7) $ 203.4 $ 81.0
========= ========= ======== ========= ========= ========= =========
Basic income (loss) per share:
Continuing operations..................... $ 1.25 $ 1.07 1.30 $ 1.79 $ (0.03) $ 0.46 $ 0.18
Net income (loss)......................... $ 1.26 $ 0.88 1.30 $ 1.79 $ (0.03) $ 0.46 $ 0.14
Diluted income (loss) per share:
Continuing operations..................... $ 1.24 $ 1.07 1.29 $ 1.77 $ (0.03) $ 0.46 $ 0.18
Net income (loss)......................... $ 1.26 $ 0.88 1.29 $ 1.77 $ (0.03) $ 0.46 $ 0.14
Cash dividends per share (e),(f)............. $ 0.50 $ 0.50 0.50 $ 0.50 $ 0.50 $ 0.125 $ 0.125
Average common shares outstanding (basic)(e). 430.6 431.1 429.2 431.1 438.8 438.1 439.7
Average common shares outstanding
(diluted)(e)............................... 431.5 432.3 432.1 436.1 438.8 442.5 441.8
Consolidated Balance Sheet Data:
Net working capital.......................... $ 2,196.7 $ 1,476.7 1,501.0 $ 1,982.9 $ 2,079.4 $ 1,945.1 $ 2,248.9
Total assets................................. 8,521.0 8,569.4 9,586.8 10,701.8 11,112.0 10,988.4 10,819.6
Property, plant and equipment, net........... 2,047.0 2,285.0 2,554.0 2,766.4 2,921.6 2,847.5 2,891.0
Long-term debt (including current
maturities).................................. 1,119.8 666.8 958.0 1,304.3 1,428.2 1,304.6 1,422.9
Shareholders' equity......................... 3,722.5 3,577.0 3,741.4 4,316.9 4,061.2 4,431.6 4,054.0
Total capitalization......................... 4,905.9 4,377.9 4,830.1 5,671.7 6,004.4 6,003.6 6,187.0
Shareholders' equity per share (e)........... 8.63 8.29 8.78 9.86 9.23 10.12 9.21
</TABLE>
18
<PAGE>
__________________
(a) Prior year information presented has been restated for the merger of Dresser
Industries, Inc. with a subsidiary of Halliburton. Beginning in 1998,
Dresser's year-end of October 31 has been conformed to Halliburton's
calendar year-end. Periods through December 1997 contain Dresser's
information on a fiscal year-end basis combined with Halliburton's
information on a calendar year-end basis.
(b) Operating income includes the following special charges and credits:
- 1994: $24.6 million, including merger costs ($27.3 million), restructuring
costs ($6.2 million) and litigation ($9.5 million), net of litigation and
insurance recoveries ($18.4 million).
- 1995: $8.4 million, including restructuring costs ($4.7 million) and write-
off of acquired in-process research and development costs ($3.7 million).
- 1996: $85.8 million, including merger costs ($12.4 million), restructuring,
merger and severance costs ($62.1 million) and write-off of acquired in-
process research and development costs ($11.3 million).
- 1997: $16.2 million, including acquisition costs ($8.6 million),
restructuring of joint ventures ($18.0 million), write-downs on impaired
assets and early retirement incentives ($21.6 million) and losses from the
sale of assets ($9.7 million), net of gain on extension of joint venture
($41.7 million).
- 1998: $980.1 million, including asset related charges ($509.4 million),
personnel reductions ($234.7 million), facility consolidations ($126.2
million), merger transaction costs ($64.0 million) and other merger related
costs ($45.8 million).
(c) Nonoperating income in 1994 includes a gain of $275.7 million from the sale
of an interest to Western Atlas International, Inc. and a gain of $102.0
million from the sale of Halliburton's natural gas compression business.
(d) Provision for income taxes in 1996 includes tax benefits of $43.7 million
due to the recognition of net operating loss carryforwards and the
settlement of various issues with the Internal Revenue Service.
(e) Weighted average shares, cash dividends paid per share and shareholders'
equity per share have been restated to reflect the two-for-one common stock
split declared on June 9, 1997 and effected in the form of a stock dividend
paid on July 21, 1997.
(f) Represents Halliburton amounts prior to the merger with Dresser.
19
<PAGE>
Summary Selected Historical Financial Information of PES
The summary below sets forth selected historical financial data with respect
to PES. You should read this together with the historical financial statements
and notes thereto of PES contained elsewhere herein. The extracts from the
consolidated financial statements of, and other information about, PES appearing
in this Offer Document are presented in pounds sterling ((Pounds)) and have been
prepared in accordance with U.K. generally accepted accounting principles. U.K.
generally accepted accounting principles and U.S. generally accepted accounting
principles differ in certain significant respects. (See "Summary of Differences
Between U.K. and U.S. Generally Accepted Accounting Principles".)
<TABLE>
<CAPTION>
AUDITED UNAUDITED
--------------------------------------------------------------------------------------------------------
5 Mths to 9 Mths to 9 Mths to
31-Mar-94 31-Mar-95 31-Mar-96 31-Mar-97 31-Mar-98 31-Dec-97 31-Dec-98
Profit & loss account Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover 2,808 7,056 10,581 15,989 22,673 16,252 24,066
Cost of sales (1,067) (2,726) (5,311) (8,541) (12,719) (9,012) (14,324)
------ ------ ------ ------ ------- ------ -------
Gross profit 1,741 4,330 5,270 7,448 9,954 7,240 9,742
Admin.. expenses (1,507) (3,431) (5,207) (7,390) (10,191) (7,119) (8,676)
Other income 0 108 897 350 279 396 159
------ ------ ------ ------ ------- ------ -------
Operating profit 234 1,007 960 408 42 517 1,225
Non-Operating Income
(Expense) 12 (82) (210) (562) (1,749) (1,648) (141)
------ ------ ------ ------ ------- ------ -------
Profit before tax 246 925 750 (154) (1,707) (1,131) 1,084
Tax (67) (410) (300) (175) (373) (280) (240)
------ ------ ------ ------ ------- ------ -------
Profit after tax 179 515 450 (329) (2,080) (1,411) 844
Minority interests 0 102 565 (174) 0 0 0
------ ------ ------ ------ ------- ------ -------
Profit for year 179 617 1,015 (503) (2,080) (1,411) 844
====== ====== ====== ====== ======= ====== =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
AUDITED UNAUDITED
--------------------------------------------------------------------------------------------------------
1-Mar-94 31-Mar-95 31-Mar-96 31-Mar-97 31-Mar-98 31-Dec-97 31-Dec-98
Balance sheet (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C> <C>
Intangible fixed assets 0 0 900 2,470 2,302 2,348 2,286
Tangible fixed assets 1,240 2,026 2,130 3,247 5,099 4,429 5,675
Investments 0 0 11 146 3,432 2,835 2,835
------ ------ ------ ------- ------ ------ ------
1,240 2,026 3,041 5,863 10,833 9,612 10,796
------ ------ ------ ------- ------ ------ ------
Stock 506 1,187 1,855 2,738 6,550 5,193 6,629
Debtors 1,382 1,859 4,862 6,412 6,294 5,215 7,120
Cash 393 123 101 259 1,132 2,650 1,094
------ ------ ------ ------- ------ ------ ------
2,281 3,169 6,818 9,409 13,976 13,058 14,843
------ ------ ------ ------- ------ ------ ------
Creditors greater than
1 year (2,155) (3,043) (6,671) (10,122) (5,592) (3,823) (5,620)
Creditors less than 1 year (164) (408) (1,071) (2,041) (1,472) (1,514) (1,177)
Provisions (93) (112) (74) (54) (852) (35) (978)
------ ------ ------ ------- ------ ------ ------
NET ASSETS 1,109 1,632 2,043 3,055 16,893 17,578 17,864
====== ====== ====== ======= ====== ====== ======
Share capital 78 78 78 85 129 129 129
Share premium 0 1,200 1,200 2,459 26,961 26,961 26,961
Profit & loss account 179 (408) 569 (21) (2,218) (1,813) (1,247)
Goodwill reserve (927) (927) (927) (927) (9,768) (9,768) (9,768)
Other 1,779 1,689 1,123 1,459 1,789 1,789 1,789
------ ------ ------ ------- ------ ------ ------
EQUITY 1,109 1,632 2,043 3,055 16,893 17,298 17,864
====== ====== ====== ======= ====== ====== ======
</TABLE>
21
<PAGE>
Summary Unaudited Pro Forma Combined Financial Information
Summary unaudited pro forma combined financial information giving effect to
the proposed acquisition of PES by Halliburton is not presented because of the
immaterial effect of such combination on the consolidated financial statements
of Halliburton.
Market Price and Dividend Information
Market Prices. Halliburton common stock is traded on The New York Stock
Exchange, Inc. ("NYSE") under the symbol "HAL". There is no market for the
ordinary shares of PES, there being only approximately 55 registered holders of
such shares. The following table sets forth, for the periods indicated, the
range of high and low per share sales prices for Halliburton common stock as
reported on the NYSE Composite Tape. Prices for Halliburton common stock have
been restated to adjust mathematically for the two-for-one stock split (the
"Halliburton Stock Split") effected by means of a 100% stock dividend paid on
July 21, 1997 to holders of Halliburton common stock of record on June 26, 1997.
<TABLE>
<CAPTION>
HALLIBURTON
----------------
High Low
------- -------
<S> <C> <C>
1996*
First Quarter.......................... $ 29.63 $ 22.38
Second Quarter......................... 29.69 24.75
Third Quarter.......................... 28.81 24.75
Fourth Quarter......................... 31.81 25.63
1997*
First Quarter.......................... 37.25 29.69
Second Quarter......................... 41.94 31.63
Third Quarter.......................... 52.94 39.25
Fourth Quarter......................... 63.25 45.69
1998*
First Quarter.......................... 53.88 40.75
Second Quarter......................... 57.25 42.06
Third Quarter.......................... 45.69 26.56
Fourth Quarter......................... 39.50 26.19
1999*
First Quarter**........................ 35.88 28.25
Second Quarter**.......................
</TABLE>
_________________
* Calendar quarters. Halliburton's fiscal year ends on December 31.
** The closing sales prices for the Halliburton common stock on the first
trading day of each calendar month for the last six months, as reported on
the NYSE Composite Tape, were as follows: December 1, 1998 - $27.5625;
January 4, 1999 - $30.1875; February 1, 1999 - $28.50; March 1, 1999 -
$28.50; April 1, 1999 -$36.625; and May 3, 1999 - $45.00; and June 1,
1999 - $40.75.
On ________, 1999, the latest practicable trading day prior to the date of
posting this Offer Document, the closing per share sales price of Halliburton
common stock, as reported on the NYSE Composite Tape, was $______.
22
<PAGE>
Following the completion of the Offer, Halliburton common stock will
continue to be traded on the NYSE.
Dividends. In each of the calendar quarters indicated in the table above,
Halliburton declared and paid a cash dividend of $0.125 per share of Halliburton
common stock (adjusted mathematically for the Halliburton Stock Split). On May
18, 1999, Halliburton declared a cash dividend of $0.125 per share of
Halliburton common stock, payable to stockholders of record as of June 3, 1999.
If you receive Halliburton common stock as a result of accepting the Offer, the
date of issue of such Halliburton common stock will occur subsequent to the
record date for this dividend and, consequently, you will not be entitled to
receive this dividend.
During each of the years ended March 31, 1996, 1997 and 1998, the PES board
of directors declared and PES paid cash dividends on the class A Ordinary Shares
of PES (being the shares held by a single PES shareholder) in aggregate amounts
of (Pounds)45,000, (Pounds)45,516 and, following conversion of such class A
Ordinary Shares into PES ordinary shares in April, 1997, (Pounds)4,521,
respectively. PES did not pay any dividends in those years on the remaining PES
ordinary shares. PES did not declare or pay any cash dividends during the year
ended March 31, 1999.
The Halliburton board of directors intends to continue to consider the
payment of quarterly dividends on the outstanding shares of Halliburton common
stock. The declaration and payment of future dividends, however, will be at the
discretion of the Halliburton board of directors and will depend upon, among
other things, future earnings of Halliburton, its general financial condition,
the success of its business activities, its capital requirements and general
business conditions.
If the Offer is not completed, the PES board of directors intends to
continue to consider the payment of annual dividends on the issued PES ordinary
shares. The declaration and payment of future dividends, however, will be at
the discretion of the PES board of directors and will depend upon, among other
things, future earnings of PES, its general financial condition, the success of
its business activities, its capital requirements and general business
conditions. The PES directors who are parties to the warranty agreement
described under "The Warranty Agreement" have agreed not to permit PES to
declare or pay any dividends on the PES ordinary shares during the Offer period.
23
<PAGE>
Comparative Per Share Data
Set forth below are the income (loss)from continuing operations, cash
dividends and book value per common share data for Halliburton and PES on an
historical basis and, in the case of PES, also on a pro forma equivalent share
basis assuming the terms of the current Offer were applied retrospectively. The
pro forma data for Halliburton is immaterial and, thus, is not presented. The
pro forma equivalent share data for PES has been determined using Halliburton
historical rather than pro forma financial statements and is presented on
alternative bases, assuming alternatively a maximum and minimum issuance of
Halliburton common stock pursuant to the Offer, and, accordingly, was calculated
by multiplying the Halliburton historical per common share data by alternative
exchange ratios of 3.27400 to 1 (maximum issuance) and 1.99714 to 1 (minimum
issuance).
The information set forth below with respect to PES is expressed in pounds
sterling and for convenience in United States dollars. The latter have been
obtained by converting the financial information expressed in pounds sterling
(the functional and reporting currency) into United States dollars at the
currency exchange rate in effect at December 31, 1998, the date of the most
recent balance sheet of PES included in the Offer Document.
The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and related
notes of Halliburton and PES that are included herein.
HALLIBURTON
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Historical Data Per Common Share (a):
Income (loss) from continuing operations
Basic................................. $ 1.30 $ 1.79 $ (0.03)
Diluted............................... 1.29 1.77 (0.03)
Cash dividends............................ .50 .50 .50
Book value................................ 8.78 9.86 9.23
</TABLE>
_____________
(a) Adjusted for the Halliburton Stock Split.
24
<PAGE>
PES
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
--------------------------------------------
1996 1997 1998 1998
------------ ------------- -------------- -----------------
<S> <C> <C> <C> <C>
Historical Data Per Share (a):
Income (loss) from continuing
operations.................... (Pounds)1.30 (Pounds)(0.59) (Pounds)(1.64) (Pounds)0.67
Cash dividends.......................... 0.06 0.05 -- --
Book value.............................. 3.47 4.00 13.34 14.11
Pro Forma Data Per Equivalent Share
(Maximum Issuance):
Income (loss) from continuing
operations.................... (Pounds)0.80 (Pounds)1.09 (Pounds) (0.02) (Pounds)(0.31)
Cash dividends.......................... 1.02 1.02 1.02 0.76
Book value.............................. 17.84 20.04 18.76 18.76
Pro Forma Data Per Equivalent Share
(Minimum Issuance):
Income (loss) from continuing
operations.................... (Pounds)0.80 (Pounds)1.10 (Pounds)(0.02) (Pounds)(0.31)
Cash dividends.......................... 0.62 0.62 0.62 0.46
Book value.............................. 10.88 12.22 11.44 11.44
Pro Forma Data Per Equivalent Share
(Maximum Issuance):
Income (loss) from continuing
operations.................... $ 1.28 $ 1.76 $ (0.03) $ (0.49)
Cash dividends.......................... 1.64 1.64 1.64 1.23
Book value.............................. 28.75 32.28 30.22 30.22
Pro Forma Data Per Equivalent Share
(Minimum Issuance):
Income (loss) from continuing
operations.................... $ 1.29 $ 1.76 $ (0.03) $ (0.49)
Cash dividends.......................... 1.00 1.00 1.00 0.75
Book value.............................. 17.53 19.69 18.43 18.43
</TABLE>
___________
(a) Based on 780,780, 846,640, 1,266,540 and 1,266,540 PES ordinary shares
outstanding at March 31, 1996, 1997 and 1998, and December 31, 1998,
respectively, after giving effect to the 10 for 1 stock split effected on
October 27, 1998.
25
<PAGE>
CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS
In this document, we make forward-looking statements that include
assumptions as to how Halliburton and PES may perform in the future. You will
find many of these statements in the following sections:
- "Risk Factors" beginning on page 29;
- "The PES Board's Reasons for Recommending the Offer; Recommendation of
the PES Board" beginning on page 38;
- "Information Regarding Halliburton Company" beginning on page 70; and
- "Information Regarding PES (International) Limited" beginning on page
91.
Also, when we use words like "may," "may not," "believes," "does not
believe," "expects," "does not expect," "anticipates," "does not anticipate" and
similar expressions, we are making forward-looking statements. Such statements
should be viewed with caution.
As provided by the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995, we caution you that statements in this Offer
Document that are forward-looking and provide other than historical information
involve risks and uncertainties that may impact Halliburton's actual results of
operations. While such forward-looking information reflects our best judgement
based on current information, it involves a number of risks and uncertainties
and there can be no assurance that other factors will not affect the accuracy of
such forward-looking information. The risk factors described herein and other
factors, many of which are beyond our control, could cause actual results or
outcomes to differ materially from those expected in any forward-looking
statements of Halliburton, and, therefore, you should not place undue reliance
on any such forward-looking statements. Halliburton does not undertake any
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for management to predict all of such factors or
their effect on such projections. Furthermore, management cannot assess the
impact of each such factor on the business of Halliburton or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
While it is not possible to identify all such factors, Halliburton
continues to face many risks and uncertainties that could cause actual results
to differ from those forward-looking statements including:
. litigation, including, for example, asbestosis litigation and
environmental litigation;
. unsettled political conditions, war, civil unrest, currency controls
and governmental actions in the numerous countries in which
Halliburton conducts operations;
26
<PAGE>
. trade restrictions and economic embargoes imposed by the United States
and other countries;
. environmental laws, including those that require emission performance
standards for new and existing facilities;
. the magnitude of governmental spending for military and logistical
support of the type provided by Halliburton;
. operations in countries with significant amounts of political risk,
including Russia, Algeria and Nigeria;
. the effects of severe weather conditions, such as hurricanes and
tornadoes, on operations and facilities;
. the impact of prolonged mild weather conditions on the demand for oil
and natural gas;
. technological and structural changes in the industries served by
Halliburton;
. consolidation of customers in the oil and gas industry;
. computer software and hardware and other equipment utilizing computer
technology used by governmental entities, service providers, vendors,
customers and Halliburton that may be impacted by the Year 2000 issue;
. integration of acquired businesses, including Dresser Industries, Inc.
and its subsidiaries, into Halliburton;
. the risk inherent in the use of derivative instruments of the sort
used by Halliburton which could cause a change in value of the
derivative instruments as a result of adverse movements in foreign
exchange rates;
. changes in the price of oil and natural gas;
. changes in the price of commodity chemicals used by Halliburton;
. changes in capital spending by customers in the hydrocarbon industry
for exploration, development, production, processing, refining and
pipeline delivery networks;
. increased competition in the hiring and retention of employees in
certain areas;
. changes in capital spending by customers in the wood pulp and paper
industries for plants and equipment;
27
<PAGE>
. risks that result from entering into fixed fee engineering,
procurement and construction projects of the types provided by
Halliburton where failure to meet schedules, cost estimates or
performance targets could result in non-reimbursable costs which cause
the project not to meet expected profit margins; and
. changes in capital spending by governments for infrastructure projects
of the sort performed by Halliburton.
In addition, future trends for pricing, margins, revenues and profitability
remain difficult to predict in the industries served by Halliburton.
You should consider carefully the forward-looking statements set forth
under "Halliburton Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein and under "Business" and
"Legal Proceedings" in Halliburton's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, which sections are incorporated by reference
herein. Copies of Halliburton's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 are on display at the London and Aberdeen offices of
Cameron McKenna, the receiving agent for the Offer. See "Where You Can Find More
Information" on page 124.
28
<PAGE>
RISK FACTORS
Risks Relating to the Offer
Fixed Exchange Ratio. The terms of the Offer are such that the number of
shares of Halliburton common stock to which you will be entitled if you accept
the Offer (both with respect to the initial and deferred portions of the Offer
consideration) will not be adjusted should any increase or decrease occur in the
price of Halliburton common stock. Because the exchange ratio will not be
adjusted to reflect changes in the market value of Halliburton common stock, the
market value of shares of Halliburton common stock, when issued pursuant to the
Offer, may be higher or lower than the market value of such shares at the time
the Offer was negotiated and at the time that you accept the Offer. The market
value of shares of Halliburton common stock may fluctuate significantly
throughout the Offer period until the Completion of the Offer and the compulsory
acquisition and thereafter until the Halliburton common stock is issued to
satisfy the deferred portions of the Offer consideration due to:
- market perception of the industries in which Halliburton is engaged;
- fluctuations in the rate of exchange between the U.S. dollar and your
local currency;
- changes in the business, operations or prospects of Halliburton; and
- general market and economic conditions.
Contingent and Deferred Nature of Consideration. A substantial portion
(65%) of the shares of Halliburton common stock to be issued to you in exchange
for your PES shares is deferred and will not be issued until dates 18 months
(31%) and 36 months (34%) following Completion of the Offer (subject to the
possible acceleration of the latter date to a date no sooner than 30 months
following Completion of the Offer and subject to possible further delay as
described under "The Offer - General"). Moreover, up to 60% of the deferred
portion of such consideration is contingent upon the continued employment by
Halliburton or one of its subsidiaries of two individuals, Messrs. Kinch and
Rubbo, at the First and Second Determination Dates, a matter beyond your
control. If either Mr. Kinch or Mr. Rubbo is not so employed on the First
Determination Date, the number of shares of Halliburton common stock otherwise
issuable promptly after the First Determination Date and the Second
Determination Date will be reduced by 30% or if neither is so employed such
number of shares will be reduced by 60%. If either Mr. Kinch or Mr. Rubbo is
not so employed on the Second Determination Date, the number of shares of
Halliburton common stock otherwise issuable promptly after the Second
Determination Date will be reduced by 30% or if neither is so employed such
number of shares will be reduced by 60% (but in either case all shares issuable
after the First Determination Date will be issued).
Risks Specific to Halliburton
Volatility of Oil and Gas Prices. Demand for Halliburton's services and
products depends on conditions in the worldwide oil and natural gas industry,
particularly on the level of exploration, development and production activity
of, and the corresponding capital spending by, oil and natural gas
29
<PAGE>
companies. Such activity and expenditure levels are directly impacted by trends
in oil and natural gas prices. Prices for oil and gas are subject to large
fluctuations in response to relatively minor changes in the supply of and demand
for oil and gas, market uncertainty and a variety of other factors that are
beyond the control of Halliburton. Any prolonged reduction in oil and natural
gas prices will depress the level of exploration, development and production
activity and result in a corresponding decline in the demand for Halliburton's
oil and gas well services and products and, therefore, have a material adverse
effect on its revenues and profitability. Factors affecting the prices of oil
and natural gas include governmental regulations, global weather conditions
(such as the effects of El Nino), worldwide political, military and economic
conditions, including the ability of the Organization of Petroleum Exporting
Countries ("OPEC") to set and maintain production levels and prices, the level
of production by non-OPEC countries, the policies of various governments
regarding the exploration, development and production of their oil and natural
gas reserves and the level of demand for oil and natural gas in various
countries and geographic regions. Historically, the markets for oil and gas have
been volatile and are likely to continue to be so in the future.
In 1998, declining oil demand from developing Asian countries and a warmer
than normal winter, coupled with increases in Iraqi oil exports and increases in
other oil and gas supplies, resulted in historically high inventory levels and
lower oil prices. Oil prices that had ranged from $18 to $26 per barrel in 1997
fell to $15 to $18 per barrel in the first part of 1998. At the end of 1998,
oil prices were trading between $10 and $14 per barrel. In response to lower
oil prices and expectations for continued low oil prices in 1999, oil companies
cut upstream capital spending, particularly in the second half of 1998.
While oil prices improved somewhat in the first quarter of 1999, they are
expected to remain at relatively low levels throughout 1999. As a result,
upstream capital spending by oil companies in 1999 is expected to be
significantly lower than in 1998. Cuts in upstream capital spending in 1998
were more significant in North America and South America than in the rest of the
world. Halliburton expects customer spending in the first two quarters of 1999
to decline significantly from that of the last two quarters of 1998.
Acquisition Strategy. One of Halliburton's business strategies is to
acquire operations and assets that are complementary to its existing businesses.
Acquiring these operations and assets involves financial, operational and legal
risks. Acquisitions may result in increased depreciation and amortization
expense, increased interest expense, increased financial leverage or decreased
operating income, any of which could have a material adverse effect on
Halliburton's operating results. Acquisition risks include the difficulty of
assimilating operations and personnel of the acquired businesses and maintaining
uniform standards, controls, procedures and policies. Any inability on the part
of Halliburton to integrate and manage acquired businesses could have a material
adverse effect on its results of operations and financial condition. In
addition, other potential buyers compete with Halliburton for acquisition
candidates. That competition could cause Halliburton to pay a higher price for
acquisitions than it otherwise might have to pay or reduce its acquisition
opportunities. Halliburton can offer no assurance that it will be successful in
identifying attractive acquisition candidates, completing and financing
additional acquisitions on favorable terms or integrating the acquired
businesses or assets, if any, into its existing operations.
30
<PAGE>
Integration of Recent Acquisition of Dresser. On September 29, 1998,
Halliburton acquired Dresser Industries, Inc., a large formerly publicly owned
company that was previously operated independently. The combined managements of
Halliburton and Dresser have made substantial progress toward the complete
integration of the two companies. Nonetheless, the continuing process of
combining the companies may be disruptive to the businesses and may cause an
interruption of, or a loss of momentum in, the businesses as a result of a
number of obstacles such as:
- loss of key employees or customers;
- possible inconsistencies in standards, controls and procedures among
the companies being combined and the need to implement common company-
wide financial, accounting, information, billing and other systems;
- failure to maintain the quality of customer service that such
companies have historically provided;
- the need to coordinate geographically diverse organizations;
- incompatible technologies and equipment; and
- the resulting diversion of management's attention from the business of
Halliburton.
Risks of Conducting Business in Foreign Countries. Operations in countries
other than the United States and the United Kingdom accounted for approximately
45.8% and 51.7% of Halliburton's consolidated revenues during fiscal 1997 and
1998, respectively. Halliburton's foreign operations are subject to various
risks associated with doing business in foreign countries, such as the
possibility of expropriation, confiscatory taxation and nationalization,
political and economic instability, armed conflict and civil disturbance,
currency fluctuations, devaluations and conversion restrictions, adverse tax
policies and governmental activities that may limit or disrupt markets, restrict
payments or the movement of funds or result in the deprivation of contract
rights. Additionally, the ability of Halliburton to compete overseas may be
adversely affected by foreign governmental regulations that encourage or mandate
the hiring of local contractors or by regulations that require foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction. Halliburton is subject to taxation in many jurisdictions, and the
final determination of its tax liabilities involves the interpretation of the
statutes and requirements of various domestic and foreign taxing authorities.
Foreign income tax returns of foreign subsidiaries, unconsolidated affiliates
and related entities are routinely examined by foreign tax authorities and such
examinations may result in assessments of additional taxes or penalties or both.
Exchange Rate Risks. As a result of its international operations, a
substantial portion of Halliburton's consolidated revenues (as well as the
related consolidated operating expenses) are in foreign currencies, which
subject it to significant foreign exchange risks. These risks may adversely
affect Halliburton's operations, as well as limit its ability to reinvest
earnings from operations in one country to fund the capital needs of its
operations in other countries. In particular, because Halliburton does business
in certain countries that have "soft currencies", it may accumulate cash in
currencies that are not readily convertible into hard currency, significantly
limiting its ability to
31
<PAGE>
repatriate its profits from those countries. Halliburton historically has not
used hedging transactions to limit its exposure to risks from doing business in
foreign currencies. Halliburton has developed risk management policies that
establish guidelines for managing foreign exchange risk. As part of these
policies, Halliburton has designed a reporting process to monitor the potential
exposure on an ongoing basis. Halliburton uses the output of this process to
determine the materiality of foreign currency exposure and to determine whether
it is practical or economical to execute financial hedges. For those operations
in countries whose currencies are not readily convertible, Halliburton's ability
to hedge exposure is limited because financial hedge instruments for these
countries are nonexistent or limited and because pricing of such instruments,
where they exist, is often volatile and not necessarily efficient. To the extent
that Halliburton can match the currency in which its operating revenues are
denominated to that in which its operating expenses in a country are
denominated, Halliburton can reduce its vulnerability to exchange rate
fluctuations.
Possible Impact of Environmental and Other Governmental Regulations.
Halliburton's well service operations routinely involve the handling of
significant amounts of waste materials, some of which are classified as
hazardous substances. Halliburton's operations and facilities are subject to
numerous environmental laws, rules and regulations of the United States and
other countries, including laws concerning the containment and disposal of
hazardous substances, oil field waste and other waste materials, the use of
underground storage tanks and the use of underground injection wells. Cleanup
costs, natural resource damages and other damages arising as a result of
environmental laws, and costs associated with changes in environmental laws and
regulations, could be substantial and could have a material adverse effect on
Halliburton's consolidated results of operations. Laws protecting the
environment generally have become more stringent than in the past and are
expected to continue to do so. Sanctions for failure to comply with these laws,
rules and regulations may include administrative, civil and criminal penalties,
revocation of permits and corrective action orders. These laws sometimes apply
retroactively. In the United States, environmental laws and regulations
typically impose "strict liability," which means that in some situations
Halliburton and its subsidiaries could be exposed to liability for cleanup costs
and other damages as a result of their conduct that was lawful at the time it
occurred or the conduct of, or conditions caused by, prior operators or other
third parties. From time to time, claims have been made against Halliburton and
its subsidiaries under such laws. Changes in environmental regulations may also
negatively impact oil and natural gas exploration and production companies,
which in turn could have a material adverse effect on Halliburton.
32
<PAGE>
BACKGROUND TO AND REASONS FOR THE OFFER
On May 23rd and 25th, 1996, representatives of Halliburton Energy Services,
Halliburton's oil field services unit ("HES"), including James B. Renfroe, then
a Vice President of HES, met with representatives of PES, including Laurence
Kinch, Group Chairman of PES, at the PES offices in Aberdeen, Scotland to
explore opportunities for the two companies to work together. During these
discussions, the parties perceived that the strengths of the companies blended
well and that there were opportunities to leverage the strengths of both
organizations. The strengths of PES included innovation, rapid product
development, focused engineering resources and a SmartWell product offering.
The strengths of HES included a broad range of technology and services, a global
presence and organization, manufacturing capability and capacity and reservoir
engineering support.
Various representatives met at the HES offices in Houston, Texas on June
25, 1996 to discuss further mutual opportunities. HES personnel suggested a
joint initiative on SmartWells and a cooperative effort on technology
development for completion products. PES personnel presented other technology
initiatives. The parties reached a tentative agreement relating to SmartWells
to establish a joint marketing effort, for HES to become the operations arm of
PES and for a joint technology development and cross licensing arrangement. The
parties contemplated pursuing these objectives through an alliance arrangement.
HES agreed to prepare a letter of intent reflecting the arrangement.
On September 16, 1996, HES and PES made a joint press release regarding the
proposed alliance. The decision to make an announcement at that time was driven
by the announcement by two principal competitors of Halliburton and PES
concerning their alliance to offer intelligent well completion products to the
market place.
In a meeting held at the HES offices in Houston, Texas on November 7, 1996,
PES personnel advised HES management that the alliance of competitors was
forcing PES to change its strategy. In order for PES to be able to enhance its
business and maintain an industry leadership position, PES would require more
than an alliance. The principal alternative was a business combination between
Halliburton and PES. To that end, a further meeting was held at the HES
offices in Houston, Texas on November 26, 1996, with key members of the PES
management team and HES personnel. During this meeting, financial projections
and analysis were reviewed as well as some net present value models, all with a
view to establishing a basis for a cooperative effort other than an alliance.
On December 3, 1996, Mr. Renfroe made a presentation to the senior
management of HES regarding a potential acquisition of PES. Permission was
granted to continue the negotiations.
On December 17, 1996, key personnel of PES and HES met to discuss further
the valuation of the business of PES and potential business combination
structures that would allow PES shareholders to realize additional future
payments for their equity interest in PES if various operational and financial
objectives were achieved.
Negotiations were conducted in January 1997 near Aberdeen, Scotland for the
acquisition of all outstanding shares of PES. Although terms of an acquisition
could not be reached, a
33
<PAGE>
compromise was proposed whereby HES would invest (Pounds)20.8 million for a 26%
interest in the equity of PES.
On February 20, 1997, Mr. Renfroe presented a proposal to the Board of
Directors of Halliburton for HES to purchase a 26% interest in PES. The Board
approved the proposal.
On April 22, 1997, Halliburton Holdings Limited, a wholly owned subsidiary
of Halliburton ("Holdings"), acquired approximately 26% of the issued share
capital of PES. On that same day, HES entered into a Strategic Alliance
Agreement with PES and two of its subsidiaries for the development and
manufacture of "Intelligent Completion Systems" (the "Alliance").
From April 1997 through October 1997, HES and PES perceived that the
Alliance would be unable to realize its full potential unless it confronted and
resolved a number of issues. These included the following: (i) the ownership
issue (i.e., what dominion did each party exercise over the operations of the
Alliance?); (ii) the disclosure issue (i.e., the reluctance on the part of PES
to reveal fully technical information to HES and to engage significantly HES'
technology resources; and (iii) the organization issue (i.e., the belief of PES
that engaging HES could negatively impact the value of PES if PES were to be
acquired by a third party, resulting in the maintenance by PES of its own
manufacturing and operations despite the parties' original intent for HES to
provide manufacturing capability and to be the delivery arm for the Alliance).
A number of commercialization issues also arose over this same time period.
On October 9, 1997, Messrs. Renfroe and Kinch met in the HES offices in
Houston, Texas to discuss the relationship between PES and HES. Mr. Kinch
expressed the interest of PES shareholders in maximizing the value of their
shareholdings through a business combination of PES with HES.
On December 1, 1997, PES representatives, including Mr. Kinch, made
presentations to Edgar Ortiz, President of HES, and other HES representatives
regarding a business combination of HES and PES. The parties decided to
reconvene in January 1998 for further discussions.
In furtherance of their business combination suggestion, PES personnel made
a presentation to HES personnel on January 19, 1998, regarding business
prospects, projected revenues and ongoing projects. The parties also discussed
the issues and obstacles preventing the Alliance from realizing its full
potential. At the time, management of HES determined that HES was not ready to
move toward a business combination and that the parties should continue to
prepare a joint business plan to overcome the difficulties in the Alliance.
While in Houston for the Offshore Technology Conference, Mr. Kinch met with
Mr. Ortiz to discuss the current state of the U.S. oil and gas business in
general, the issues confronting the Alliance in particular and ways of
increasing the output of the Alliance. No agreement was achieved regarding the
Alliance issues other than to monitor its progress.
Mr. Kinch met with David J. Lesar, President and Chief Operating Officer
of Halliburton on June 5, 1998 during an operational trip by Mr. Kinch to the
U.S. They discussed issues relating to the maximization of the benefits of the
Alliance, including marketing strategies and an enhanced
34
<PAGE>
working relationship between PES and HES. They did not, however, discuss a
business combination of HES and PES. During the same trip, Mr. Kinch met with
Mr. Ortiz at the HES offices in Houston, Texas to discuss the Alliance further.
They again concluded that more could be achieved in the relationship if the
barrier of the "ownership issue" were to be resolved and agreed to maintain
close contact and to review the relationship continually.
Other PES personnel met with HES personnel in Aberdeen on June 10, 1998,
and proposed that HES should provide manufacturing and delivery of SmartWell
Systems for West Africa and South America and PES should continue to service the
North Sea, Gulf of Mexico and Asia markets. Although discussions on this
proposal continued for several months, the parties never reached agreement.
At a full meeting of the PES Board on September 9, 1998, with both of the
Holdings nominated directors of PES (Messrs. Renfroe and McCurley) in
attendance, the issues confronting the Alliance were discussed in depth. After
discussing various alternatives, the PES Board reached the same conclusion
(i.e., the potential for both organizations was being limited by shared
"ownership" of the Alliance and that single ownership was the best vehicle to
maximize its potential). Mr. Kinch advised that he would be in Houston during
October and would meet with Mr. Ortiz to discuss this issue further. These
comments were taken back to HES management and a date was set in October for
Messrs. Kinch and Ortiz to meet.
Mr. Ortiz and Mr. Kinch met on October 15, 1998 and candidly discussed the
merits of resolving the "ownership issue" through the acquisition by Halliburton
or one of its subsidiaries of the remaining issued share capital of PES. Mr.
Kinch advised Mr. Ortiz that he (Mr. Kinch) had discussed this suggestion with
several of the major PES shareholders who were receptive. Mr. Kinch also
informed Mr. Ortiz that (i) PES had been approached by a U.K. based industrial
group which had expressed interest in acquiring part or all of PES; (ii) that
Mr. Kinch's response to this U.K. group was that Halliburton held an exclusive
right to meet any other offer made for PES up to April 22, 1999; and (iii) that
the U.K. group had accepted this response but indicated that they remained very
interested in pursuing an acquisition of PES either before or after that date.
Mr. Ortiz noted this information and advised Mr. Kinch that HES would review its
position with respect to PES ownership. Thereafter, HES formed a team to study
and evaluate the potential acquisition.
Halliburton, through HES, elected to pursue the possibility of acquiring
the entirety of PES and, on November 2, 1998, senior management of both PES and
HES met at the HES offices in Houston, Texas to discuss the optimum structure
for a combined organization and the means of maximizing the strengths of PES.
Later in the day, Messrs. Ortiz and Kinch met separately with others in their
respective organizations to discuss the potential transaction. HES decided to
conduct a due diligence investigation of PES.
After the due diligence investigation was substantially completed, Messrs.
Ortiz and Kinch met again in Houston on November 24, 1998 and discussed further
the prospect of Halliburton or one of its subsidiaries acquiring PES. One of the
issues discussed was the retention and motivation of key employees following the
business combination. Mr. Kinch advised Mr. Ortiz that a PES Board meeting was
scheduled for December 9, 1998 and that it would be helpful to provide the PES
35
<PAGE>
Board members with a clarification of Halliburton's position regarding a
possible business combination.
Mr. Lesar reviewed the possible acquisition of the remaining shares of PES
with the Halliburton Board of Directors at its December 3, 1998 meeting. The
Board was not, however, asked to take any action concerning the potential
transaction at that time.
At the PES Board meeting in Aberdeen on December 9, 1998, the subject of
Halliburton acquiring total ownership of PES was discussed. The PES directors
informed Mr. Renfroe that (i) they would consider an offer from Halliburton to
acquire the rest of PES; (ii) a third party approach had been made for that
purpose; and (iii), if Halliburton did not respond within a given time with a
formal business combination proposal, the PES Board would be compelled to review
the desirability of continuing the Alliance. (The agreement pursuant to which
the Alliance was formed contains a clause permitting either party to terminate
the Alliance upon six months prior notice.) The PES Board reaffirmed that
Halliburton was their preferred partner going forward as it was felt that the
relationship built up since 1996 and the complimentary skills of the two
organizations could achieve the desired future commercial objectives.
On December 18, 1998, Mr. Ortiz proposed, in a letter to Mr. Kinch, that
negotiations contemplating a business combination of PES with HES be commenced
in Aberdeen, Scotland on January 5, 1999 and continue as needed through the
month of January. In the letter, Mr. Ortiz informed Mr. Kinch that HES would,
at the outset of those negotiations, present a definitive proposal to PES for
its consideration, which proposal would incorporate the following major
features:
. Halliburton would acquire all PES Shares it does not own.
. The purchase price would be based on a value for all of PES (including
the portion owned by Holdings) of not less than (Pounds)100 million.
. The purchase price would be paid in Halliburton Common Stock using the
market value of the stock at completion of the transaction.
. The Halliburton Common Stock to be issued to the PES Shareholders in
exchange for their PES Shares would be issued one-third on Completion
of the Offer, one-third after the expiration of 18 months and one-
third after the expiration of 36 months, in each of the latter two
instances only if PES had achieved certain mutually agreeable,
definitive and quantifiable measures of performance by the expiration
of such periods.
. The key executives and managers of PES would enter into three-year
employment agreements with PES which would contain noncompetition and
trade secret covenants.
. Following its acquisition by Halliburton, PES would focus primarily on
technology development and marketing.
36
<PAGE>
Mr. Ortiz also requested that, during the negotiation period, PES not entertain
proposals from any other prospective purchaser of the business and that PES not
solicit any such proposals. Finally, he proposed that, after January 1999,
either PES or HES could terminate negotiations by giving written notice of
termination to the other. Mr. Ortiz noted that any such transaction would
require the approval of Halliburton's Board of Directors. Upon receipt of the
letter, Mr. Kinch advised the other PES Board members regarding the proposed
negotiating plan.
On December 21, 1998, Mr. Kinch contacted Mr. Ortiz in Bogota, Colombia and
confirmed that PES was willing to enter into exclusive negotiations with
Halliburton regarding a business combination with Halliburton or one of its
subsidiaries. They agreed that these discussions would take place after the
Christmas holiday season in early January 1999. Mr. Kinch confirmed his advice
by letter dated December 23, 1998.
Commencing on January 6, 1999, HES personnel, led by Mr. Renfroe, met with
PES personnel, led by Mr. Kinch, at the HES offices in Houston, Texas for the
purpose of attempting to negotiate the proposed business combination. The PES
negotiating team included Michael Wagstaff of Schroder & Co. Inc., a financial
adviser to PES. During these negotiations, which continued through January 9,
1999, an agreement was reached on certain major issues relating to the proposed
combination. The decision was made to begin preparation of the definitive
agreements and to proceed with getting the necessary approvals from the Boards
of Directors of Halliburton and PES.
On February 18, 1999, a proposal to acquire all of the outstanding shares
of PES not owned by Holdings in exchange for shares of Halliburton Common Stock
was presented to the Halliburton Board by Mr. Renfroe. The key terms of the
proposal as presented were: (i) the aggregate purchase price for the PES shares
would be based on an equity valuation of PES at (Pounds)101 million; (ii) the
Halliburton shares would be issued in three installments: approximately one-
third at closing, one-third 18 months after closing and one-third 36 months
after closing; (iii) the number of shares issuable in the second and third
installments would be subject to adjustment based on certain specified key
managers remaining with PES; and (iv) certain key employees would enter into
employment agreements with PES. The Board approved the acquisition as proposed.
On March 30, 1999, Mr. Kinch met with Mr. Renfroe, together with
negotiators from both companies. A range of matters were identified and agreed
upon including changes to the PES Board if a business combination were to be
effected and the nature of employment contracts for executives and other staff.
The negotiation of further details of the proposed transaction was delegated to
the negotiating teams of the two companies. These negotiations continued
throughout the following day. At the conclusion of the meetings, the following
share price and currency rates were agreed for the exchange between HES and PES
stock: The PES Shares were to be valued at a fixed amount, i.e., (Pounds) ____
per PES Share; the consideration was to be Halliburton Common Stock, the price
per share of which was to be fixed at $38.437; the currency conversion rate was
to be fixed at $1.611/(Pounds)1.00. This equated to an offer of 3,130,800 shares
of Halliburton Common Stock in exchange for the 74% of the issued PES Shares not
owned by Holdings.
On April 1, 1999, Mr. Renfroe agreed, in a telephone conversation with C.
Smith, that the fixed price of Halliburton Common Stock for purposes of the
offering formula would be increased
37
<PAGE>
from $38.437 to $38.50, yielding a new total number of shares of Halliburton
Common Stock (3,125,758) to be included in the Offer. The exchange ratio and the
total number of shares were reduced on May 31, 1999 to those set forth in the
Offer to reflect an agreed reduction in the total value of PES resulting from a
determination as to obsolete inventory and a payment in settlement of an
employee's ownership interest in a subsidiary of PES.
Negotiation of the definitive and correlative agreements continued through
May 1999 and definitive documents, including the Warranty Agreement, the
Irrevocable Undertakings and the Service Agreements were executed on and as of
________, 1999.
THE PES BOARD'S REASONS FOR
RECOMMENDING THE OFFER; RECOMMENDATION OF THE PES BOARD
The PES board of directors (the "PES Board") (excluding Messrs. McCurley
and Renfroe, being the members of the PES Board nominated by Halliburton
Holdings Limited ("Holdings") and who did not participate in any proceedings of
the PES Board relating to the Offer) is of the opinion that the terms of the
Offer are fair and reasonable to, and in the best interests of, PES.
Accordingly, the PES Board unanimously recommends that the PES Shareholders
accept the Offer. In making this determination, the PES Board consulted with
PES's management and considered a number of factors, including the following:
- The belief of the PES Board that PES's and Halliburton's respective
businesses are complementary and that a range of economic, strategic
and operational benefits could arise from combining them. The PES
Board also believes that the combination of PES and Halliburton would
assist them in their aim of becoming the preferred provider of real
time reservoir solutions throughout the world.
- The likelihood of the Offer becoming unconditional, as well as the
existence of the irrevocable undertakings (the "Irrevocable
Undertakings") given by the PES Directors who own PES Shares and
certain other PES Shareholders (the "Principal Shareholders"), as the
holders of approximately 50.02% of PES's issued share capital, to
accept the Offer and to take such other actions as are set forth in
the Irrevocable Undertakings.
- The terms of the Offer, including the consideration to be paid by
Halliburton, and the terms of the warranty agreement between
Halliburton and the Executive Warrantors and Messrs. Bouldin and
Arizmendi (the "Warranty Agreement") and related documents.
- The PES Board's knowledge of the business, operations, properties,
assets, earnings and prospects of PES.
- Recent and historical trading prices for Halliburton Common Stock. The
PES Board recognizes that the Offer should enable the PES Shareholders
to obtain a security that provides a market for their interests yet
offers the opportunity of continuing their equity interest in the
combined enterprise. For information regarding the range of prices of
the Halliburton Common Stock, see "Summary Selected Financial Data--
Market Price and Dividend Information". The PES Board also considered
the absence of any trading market for the PES Shares.
38
<PAGE>
- Halliburton's historical financial statements for the years ended
December 31, 1997 and December 31, 1998.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer, the PES Board did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weights to specific
factors considered in its decision. Furthermore, the PES Board did not
articulate how each factor specifically supported its ultimate decision, except
that substantial weight was placed on the fact that the Principal Shareholders,
as the owners of approximately 50.02% of the outstanding PES Shares, were in
favor of and executed the Irrevocable Undertakings to accept the Offer and will
receive the same consideration per PES Share as other PES Shareholders.
THE PES BOARD (OTHER THAN THOSE PES DIRECTORS APPOINTED BY HOLDINGS WHO DID
NOT PARTICIPATE IN THE DELIBERATIONS) UNANIMOUSLY RECOMMENDS THAT PES
SHAREHOLDERS ACCEPT THE OFFER. THE ATTENTION OF PES SHAREHOLDERS IS DRAWN TO
THE PES LETTER RELATING TO THIS OFFER ATTACHED AS ANNEX III.
THE OFFER
General
Halliburton hereby offers to acquire your PES Shares and, if applicable,
any PES Shares that are acquired by you while the Offer remains open for
acceptance (a) upon exercise of any options that you hold under the PES Share
Option Schemes or (b) upon exercise by PES of call options held by PES relating
to shares in the capital of a subsidiary of PES not held by PES ("Call
Options").
The consideration payable pursuant to the Offer comprises an initial, fixed
element (the "Initial Element") and two deferred, contingent elements (the
"Deferred Elements"). The Deferred Elements are subject to a contingency,
described below, regarding the continued employment by PES or Halliburton or a
subsidiary of either company of two designated key executives of PES as at the
dates of determination of the contingent Deferred Elements of the Offer.
To accept the Offer, the Form of Acceptance for PES Shares must be
completed and returned to the receiving agent, Cameron McKenna (Ref: TLP/AJS),
as soon as possible and, in any event, so as to be received by no later than
3:00 p.m. (London time), 10:00 a.m. (New York City time), on ______________,
1999. The procedure for acceptance of the Offer is set out on pages 47 through
50 of this Offer Document and in the accompanying Form of Acceptance.
If you sign and return the Form of Acceptance in accordance with the
instructions, you will be deemed to have accepted the Offer for all your holding
of PES Shares unless you specifically elect in the Form of Acceptance to accept
the Offer in respect of a specified part only of your holding. The Offer is made
on the terms and subject to the conditions set out and referred to in this Offer
Document and in the Form of Acceptance which accompanies this Offer Document.
39
<PAGE>
Upon the Offer becoming unconditional ("Completion"), you will receive:
- up to 3.27400 shares of Halliburton Common Stock for every PES Share,
of which:
- 1.14590 shares will be issued promptly after Completion of the
Offer; and
- 1.01494 shares will be issued promptly after a date 18 months
after Completion of the Offer (the "First Determination Date"),
subject to potential reduction or delay, or both, as described
below if either Laurence Kinch or Richard Rubbo, each of whom is
a director of PES, or both, are not employed by the Halliburton
Group on the First Determination Date as a result of Voluntary
Resignation or Termination of Employment for Cause or, in the
case of Mr. Rubbo only, his Death or Disappearance in Suspicious
Circumstances (as such expressions are explained in the next
paragraph); and
- 1.11316 shares will be issued promptly after a date up to 36
months after Completion of the Offer (the "Second Determination
Date"), subject to potential reduction or delay, or both, as
described below if either Mr. Kinch or Mr. Rubbo, or both, are
not employed by the Halliburton Group on the Second Determination
Date as a result of Voluntary Resignation or Termination of
Employment for Cause or, in the case of Mr. Rubbo only, his Death
or Disappearance in Suspicious Circumstances.
The contractual definitions of the phrases "Termination of Employment for
Cause", "Voluntary Resignation" and "Death or Disappearance in Suspicious
Circumstances" appear in Annex II to this Offer Document.
The phrase "Termination of Employment for Cause" includes termination of
employment of an individual by a member of the Halliburton Group (whether
summarily or by notice) for matters such as (i) an act of gross misconduct,
(ii) repeated violations of his service agreement, (iii) conduct that causing
continued employment to be detrimental to a material extent to Halliburton,
(iv) a serious criminal offence, (v) an act of dishonesty materially detrimental
to the Halliburton Group and (vi) a material violation of the Halliburton code
of business conduct.
The phrase "Voluntary Resignation" includes the voluntary termination by an
individual of his employment with the Halliburton Group for a reason other than
matters such as (i) death, (ii) illness, mental disorder or injury that prevents
him from properly performing his duties as an employee and (iii) constructive
dismissal.
When used with respect to Mr. Rubbo, the phrase "Death or Disappearance in
Suspicious Circumstances" includes (i) his death from other than natural causes
or accident and (ii) his disappearance for a period of at least four weeks
without a subsequent reappearance, in each case prior to the Second
Determination Date.
The shares of Halliburton Common Stock issuable promptly after the First
and Second Determination Dates will be reduced as follows if either Mr. Kinch or
Mr. Rubbo, or both, are not
40
<PAGE>
then employed by the Halliburton Group as a result of Voluntary Resignation or
Termination of Employment for Cause or, in the case of Mr. Rubbo, his Death or
Disappearance in Suspicious Circumstances:
- If either one of them is not so employed on the First Determination
Date as a result of Voluntary Resignation or Termination for Cause or,
in the case of Mr. Rubbo, his Death or Disappearance in Suspicious
Circumstances, the numbers of shares issuable to each PES Shareholder
following the First and Second Determination Dates will be reduced by
30%. If neither of them is so employed on the First Determination Date
as a result of Voluntary Resignation or Termination for Cause or, in
the case of Mr. Rubbo, his Death or Disappearance in Suspicious
Circumstances, the numbers of shares issuable to each PES Shareholder
following the First and Second Determination Dates will be reduced by
60%.
- If both of them are employed on the First Determination Date but as a
result of Voluntary Resignation or Termination for Cause or, in the
case of Mr. Rubbo, his Death or Disappearance in Suspicious
Circumstances, either one of them is not so employed on the Second
Determination Date, the full number of shares will be issued following
the First Determination Date and the number of shares issuable
following the Second Determination Date will be reduced by 30%. If
both of them are employed on the First Determination Date but neither
of them is so employed on the Second Determination Date as a result of
Voluntary Resignation or Termination for Cause or, in the case of Mr.
Rubbo, his Death or Disappearance in Suspicious Circumstances, the
full number of shares will be issued on the First Determination Date
and the number of shares issuable on the Second Determination Date
will be reduced by 60%.
The Second Determination Date will be the third anniversary of Completion
of the Offer unless before that date Halliburton decides (in its sole
discretion) that PES has achieved the Technology Transfer and Development Plan
in which event the Second Determination Date will be accelerated to the date 30
months following Completion of the Offer or, if later, the date of such
achievement. The Technology Transfer and Development Plan has been filed as an
exhibit to the registration statement of which this Offer Document constitutes a
part and is on display at the London and Aberdeen offices of the Receiving
Agent.
If the employment of Mr. Kinch or Mr. Rubbo or both with the Halliburton
Group shall have been terminated prior to a particular Determination Date but as
at that Determination Date there is a dispute which has yet to be resolved as to
whether or not they had Voluntarily Resigned or had their employment Terminated
for Cause, then the number of shares of Halliburton Common Stock to be issued on
that Determination Date shall be reduced by 30% (or 60% as appropriate) with any
further Halliburton Common Stock that should have been issued on that
Determination Date pursuant to the Offer being issued within seven days of that
dispute being finally resolved in accordance with those procedures.
If the shares of Halliburton Common Stock that would have been issued
following the First or Second Determination Date are reduced because of the
Death or Disappearance in Suspicious Circumstances of Mr. Rubbo, those shares
will be issued by Halliburton during or at the end of the two year period
following Mr. Rubbo's death or disappearance. The contractual provisions
41
<PAGE>
governing the issuance of such shares of Halliburton Common Stock are set forth
in full in Section 2 of Annex I. In general, such shares of Halliburton Common
Stock will be issued during or at the end of the two year period as follows:
(i) if a person is criminally convicted by reason of implication in Mr. Rubbo's
death or disappearance but no allegation is made of any connection with a person
to whom Halliburton Common Stock is to be issued pursuant to the Offer, then the
shares will be issued to the persons entitled thereto under the terms of the
Offer; (ii) if a person is criminally convicted by reason of implication in Mr.
Rubbo's death or disappearance and an allegation is made of a connection with
a person who is to receive Halliburton Common Stock pursuant to the Offer, then
the shares otherwise issuable to the implicated party and his associates will be
issued to persons designated by Mr. Rubbo's personal representatives and all
other shares will be issued to the persons entitled thereto under the terms of
the Offer; and (iii) in any other circumstance, the shares otherwise issuable to
Mr. Rubbo and his family and associates will be so issued and all other shares
will be issued to charity.
As of April 1, 1999 (the date the exchange ratio was fixed), the Offer
valued the entire issued share capital of PES, on a fully diluted basis, at
approximately $___ million ((Pounds)99.526 million). Based on the closing sales
price, as reported on the NYSE Composite Tape, of $____ per share of Halliburton
Common Stock on _________, 1999 (the latest practicable date prior to the
publication of this Offer Document):
- assuming issuance of the maximum number of shares of Halliburton
Common Stock subject to the Deferred Elements of the Offer, the Offer
values each PES Ordinary Share at $____ ((Pounds)____) and the entire
issued share capital of PES, on a fully diluted basis, at $______
((Pounds)_____); and
- assuming issuance of the minimum number of shares of Halliburton
Common Stock subject to the Deferred Elements of the Offer, the Offer
values each PES Ordinary Share at $____ ((Pounds)____) and the entire
issued share capital of PES, on a fully diluted basis, at $____
((Pounds)____)
in each case based on an exchange rate of (Pounds)1.00 to $_____. Holdings
currently owns of record and beneficially 334,360 PES Shares, being
approximately 26% of the issued ordinary share capital of PES.
If the Offer becomes or is declared unconditional in all respects and
Halliburton acquires or contracts to acquire at least 90% of the PES Shares to
which the Offer relates, Halliburton will be entitled to and intends to acquire
the remaining PES Shares on the same terms as the Offer pursuant to and subject
to sections 428 through 430F of the U.K. Companies Act 1985. See "-- Compulsory
Acquisition; Appraisal Rights".
All Halliburton Common Stock issued pursuant to the Offer will be validly
issued, fully paid and nonassessable (i.e., Halliburton may not assess a former
PES Shareholder for any additional payment for such shares) and will rank pari
passu in all respects with Halliburton Common Stock already outstanding. All
Halliburton Common Stock issued pursuant to the Offer will rank for dividends
and distributions declared on or after the date of issue. If you receive
Halliburton Common Stock as a result of accepting the Offer, the date of issue
of such Halliburton Common Stock will
42
<PAGE>
occur subsequent to the record date for the dividend declared by the Halliburton
board of directors payable to stockholders of record as of June 3, 1999 and,
consequently, you will not be entitled to receive this dividend. Fractional
shares of Halliburton Common Stock will not be issued to you; rather, the
aggregate number of shares of Halliburton Common Stock to be issued to you
promptly after Completion of the Offer and each of the First and Second
Determination Dates for your aggregate holding of PES Shares will be rounded
down to the next whole share of Halliburton Common Stock. The Halliburton Common
Stock to be issued pursuant to the Offer will not be subject to any set-off by
Halliburton except as otherwise provided in the Warranty Agreement in the case
of the parties thereto.
If there is, at any time on or after the date of this Offer, any
subdivision or consolidation of all or any of the Common Stock of Halliburton,
or the number of shares of Common Stock of Halliburton in issue increases as a
result of the making of a stock dividend or similar capitalization of reserves,
the number of shares of Halliburton Common Stock to be issued in terms of this
Offer (and not issued as at the date of such subdivision, consolidation, stock
dividend or similar capitalization) shall be adjusted so as to ensure that the
proportion of the entire issued common stock of Halliburton to be issued in
terms of this Offer (and then remaining unissued) shall be the same as it would
have been but for such subdivision, consolidation, stock dividend or similar
capitalization.
If there shall be at any time after the date of this Offer (i) any merger
of any corporation with Halliburton in which the outstanding Halliburton Common
Stock is converted into shares or securities of any other corporation or into
cash, property or rights, (ii) any consolidation of Halliburton with one or more
other corporations or (iii) any sale of all or substantially all of the assets
of Halliburton in a single transaction or a series of transactions followed by a
distribution in complete liquidation and dissolution of Halliburton, then, from
and after the declaration of the Offer as unconditional, the rights of a PES
Shareholder to receive shares of Halliburton Common Stock pursuant to the Offer
(to the extent not theretofore received) shall be converted into rights to
receive the same consideration (to the extent not theretofore received), subject
to the conditions imposed with respect to receipt of the specified consideration
after the First and Second Determination Dates, that such a shareholder would
have received if such shareholder held, on the day such merger, consolidation or
sale was completed, the number of shares of Halliburton Common Stock that such
shareholder would have received on Completion of the Offer or on such
Determination Date pursuant to the Offer.
If there shall be at any time after the date of this Offer (i) any sale of
all or substantially all of the assets of Halliburton in a single transaction or
a series of transactions followed by a distribution in partial liquidation of
Halliburton or (ii) any spinoff of a part of the business of Halliburton where,
as part of the spinoff transaction, stock or other securities of any other
corporation, cash or other property is distributed to the holders of Halliburton
Common Stock, then, from and after the declaration of the Offer as
unconditional, the rights of a PES Shareholder to receive at any time after the
effective date of such sale or spinoff shares of Halliburton Common Stock
pursuant to the Offer shall (to the extent such shares have not theretofore been
received) be increased by the addition of rights to receive the same
consideration, subject to the conditions imposed with respect to receipt of the
specified consideration after the First and Second Determination Dates, that
such a shareholder would have received if such shareholder held, on the day such
sale or spinoff was completed, the number of shares of Halliburton Common Stock
that such shareholder would have received on Completion of the Offer or on such
Determination Date pursuant to the Offer.
By accepting the Offer, you warrant that Halliburton will acquire good
title to all PES Shares sold by you pursuant to the Offer, free and clear of all
liens, claims and encumbrances and will succeed to all rights now or hereafter
attaching thereto, including the right to all dividends and distributions on the
PES Shares hereafter declared and paid or made by PES.
Each of the PES Shareholders who accepts this Offer thereby waives any
claims such shareholder may have (at the date of such acceptance or at any time
thereafter) against either of Mr. Kinch and Mr. Rubbo as a consequence of the
loss of any part of the consideration due to them hereunder as a result of the
Voluntary Resignation or Termination of Employment for Cause of Mr. Kinch or Mr.
Rubbo or the Death or Disappearance in Suspicious Circumstances of Mr. Rubbo and
agrees that each of Mr. Kinch and Mr. Rubbo may rely upon and enforce such
waiver as though they were party to the contract constituted by this Offer and
such acceptance.
Halliburton stockholders will not receive or exchange any securities
pursuant to the Offer.
43
<PAGE>
The amount of consideration offered for each PES Share was determined as a
result of arm's-length negotiations between directors of PES unaffiliated with
Halliburton and officers of Halliburton Energy Services, a division of
Halliburton Energy Services, Inc., a subsidiary of Halliburton. See the section
entitled "Background to and Reasons for the Offer" in this Offer Document for a
discussion of the matters considered by, and the negotiations between, the
parties.
Options
The Offer extends to any PES Shares unconditionally acquired during the
Offer Period by PES Optionholders pursuant to the exercise of options granted
under the PES Share Option Schemes and to those unconditionally issued during
the Offer Period upon exercise by PES of the Call Options to acquire shares in
the capital of a subsidiary of PES held by persons other than PES. It is a
condition of the Offer that PES shall have exercised the outstanding Call
Options prior to Completion.
If you are a PES Optionholder, you will receive a separate letter
explaining the alternative courses of action available to you.
Conditions to the Offer
The conditions to the Offer (the "Conditions") are set out in Part A of
Annex I to this Offer Document. The following discussion of certain of the
Conditions to the Offer is subject to and qualified in its entirety by reference
to Annex I. The Offer is governed by English law.
The Offer is conditional on valid acceptances being received by the time of
expiration of the Offer Period at 3:00 p.m. (London time) and 10:00 a.m. (New
York City time) on __________, 1999 (or such later date as Halliburton may
decide) in respect of not less than 90% of the PES Shares to which the Offer
relates or such lesser percentage (but not less than 33%) of the PES Shares to
which the Offer relates as Halliburton may decide (the "Acceptance Condition").
If the Acceptance Condition is satisfied before the Offer becomes or is declared
unconditional in all respects, it must continue to be satisfied (subject to any
permitted reduction in the acceptance threshold) on the actual date the Offer
becomes or is declared unconditional in all respects, by reference to the facts
then subsisting.
HALLIBURTON MAY REDUCE THE PERCENTAGE OF PES SHARES REQUIRED TO SATISFY THE
ACCEPTANCE CONDITION (BUT NOT TO LESS THAN 33% OF THE PES SHARES TO WHICH THE
OFFER RELATES). IN SUCH EVENT, HALLIBURTON WILL ANNOUNCE, AT LEAST FIVE U.S.
BUSINESS DAYS PRIOR TO THE SCHEDULED EXPIRATION OF THE OFFER AND AT LEAST FIVE
U.S. BUSINESS DAYS PRIOR TO THE OFFER BEING DECLARED UNCONDITIONAL, BY WRITTEN
NOTICE TO ALL PES SHAREHOLDERS THAT IT HAS REDUCED THE ACCEPTANCE LEVEL UNDER
THE ACCEPTANCE CONDITION. HALLIBURTON WILL, FOLLOWING ANY SUCH ANNOUNCEMENT,
LEAVE THE OFFER OPEN FOR AT LEAST TEN U.S. BUSINESS DAYS BY, IF NECESSARY,
EXTENDING THE OFFER PERIOD. NO WITHDRAWAL RIGHTS WILL, HOWEVER, BE GRANTED
DURING THAT TEN DAY PERIOD. PES SHAREHOLDERS WHO ARE NOT WILLING TO ACCEPT THE
OFFER IF THE
44
<PAGE>
ACCEPTANCE CONDITION IS REDUCED BELOW THE 90% LEVEL SHOULD NOT ACCEPT THE OFFER
UNTIL THE FIFTH DAY IMMEDIATELY PRIOR TO THE SCHEDULED EXPIRATION OF THE OFFER.
The Offer is also conditional, among other things, on the following:
- the approval by PES Shareholders of a resolution inter alia
authorizing the suspension of certain provisions of the articles of
association of PES that would interfere with Halliburton's ability to
purchase PES Shares pursuant to the Offer;
- the continued employment through Completion of the Offer of Messrs.
Kinch and Rubbo and seven other key employees;
- the approval by the NYSE of the Halliburton Common Stock to be issued
pursuant to the Offer for listing on the NYSE, subject to official
notice of issuance;
- no stop order suspending the effectiveness of the registration
statement (of which this Offer Document is a part) having been issued
or threatened by the SEC;
- no governmental, regulatory or other relevant authority having
instituted, implemented or threatened any action that affects the
Offer, including any action that would make the Offer illegal or would
require Halliburton or PES to sell all or any material portion of its
assets;
- all authorizations necessary or appropriate for the Offer having been
obtained from all appropriate governmental and regulatory authorities;
- PES and its subsidiaries not having engaged in certain activities that
are out of the ordinary course of its business, including the issuance
of additional shares, the payment of dividends, effectuation of a
merger with any other person, any disposition of its assets, any
increase in its indebtedness and any entry into contracts or
arrangements that are likely to restrict the business of Halliburton
or PES;
- no material adverse change in the business, assets, financial or
trading position or profits or prospects of PES having occurred;
- no litigation the effect of which is or is likely to be material to
PES having been continued or instituted;
- no information concerning PES disclosed to Halliburton pursuant to the
Warranty Agreement being misleading in any material respect or
containing a material misrepresentation of fact or omitting to state a
fact necessary to make the information contained therein not
materially misleading; and
45
<PAGE>
- PES having complied with all applicable legislation that has a
material impact on PES.
For further information regarding the Conditions to the Offer, see Part A of
Annex I to this Offer Document.
Terms of the Offer
If the Offer is declared unconditional, the Offer will be extended for an
additional period of ten U.S. business days. Halliburton reserves the right
(but will not be obliged) at any time to extend the time and date for
fulfillment of the Acceptance Condition, provided that Halliburton may not
extend the Offer Period beyond ___________, 1999. Halliburton acknowledges that
Rule 14e-1(d) under the Exchange Act provides that an extension must be
accompanied by a public announcement, which shall include disclosure of the
approximate number of PES Shares for which valid acceptances have been received
to date, issued by 2:00 p.m. (London time) and 9:00 a.m. (New York City time) on
the next U.S. business day after the scheduled expiration date of the Offer. If
Halliburton makes an announcement that the Offer will remain open until further
notice, Halliburton will make a further announcement and copy it to all PES
Shareholders not less than ten U.S. business days before closing the Offer.
If all the Conditions are satisfied, fulfilled or, where permitted, waived
within the time permitted, payment for PES Shares that have been sold pursuant
to the Offer will be made as provided under "-- Settlement".
Procedures for Accepting the Offer
This section should be read together with the notes on the Form of
Acceptance. The provisions of this section shall form a part of the Form of
Acceptance, and the Form of Acceptance shall be deemed to form part of the terms
of the Offer.
All PES Shareholders, including persons in the U.S. who hold PES Shares,
have been sent a Form of Acceptance, which they must use to accept the Offer.
Completion of Form of Acceptance. To accept the Offer, you must complete
Boxes 1 and 2 and, if appropriate, Boxes 3, 4 and, if necessary, Box 5. In all
cases you must sign Box 1 of the Form of Acceptance in the presence of a
witness, who should also sign in accordance with the instructions printed
thereon. If you have any questions as to how to complete the Form of
Acceptance, please telephone either Andrew Sheach or Thomas Page of Cameron
McKenna, in its capacity as the receiving agent, at +44 (0)171 367 3000 (the
"Receiving Agent"). Cameron McKenna will not provide advice to you on any
matter relating to your decision whether or not to accept the Offer.
Return of Form of Acceptance. Completed Forms of Acceptance should be
returned in the enclosed reply paid envelope to the Receiving Agent, Cameron
McKenna (Ref: TLP/AJS), together with the relevant share certificate(s) and/or
other document(s) of title as soon as possible, but in any event so as to arrive
no later than 3:00 p.m. (London time), 10:00 a.m. (New York City time) on
46
<PAGE>
________, 1999. No acknowledgment of receipt of documents will be given by or
on behalf of Halliburton. The instructions printed on the Form of Acceptance are
deemed to form part of the terms of the Offer. The Form of Acceptance should be
sent to the Receiving Agent, Cameron McKenna (Ref: TLP/AJS), Mitre House, 160
Aldersgate Street, London EC1A 4DD United Kingdom.
Documents of Title. A completed and signed Form of Acceptance should be
accompanied by the share certificate(s) and/or other document(s) of title for
the relevant PES Shares. No acknowledgment of receipt of documents will be
given. If you have lost your PES Ordinary Share certificate(s) and/or other
document(s) of title, you should contact Michael L. Bowyer, a director of PES
(telephone +44 (0) 1224 793000), for a letter of indemnity for lost share
certificate(s) and/or other documents of title which, when completed in
accordance with the instructions given, should be returned by mail to the
Receiving Agent as indicated above. If your share certificates are held by the
Company Secretary of PES, your acceptance of the Offer will constitute your
authority to him to deliver your certificates on your behalf.
Minors. If you are under 16 years of age, the Form of Acceptance must be
completed and signed by one of your parents on your behalf. In order to provide
proof of the parents' entitlement to sign on your behalf, they will need to
include a copy of your birth certificate and their passport, both copies of
which must be notarized or certified by a solicitor or other person acceptable
to Halliburton to be true copies of the original.
Lost Share Certificates. If your share certificates or documents of title,
or both, are not readily available, the Form of Acceptance should nevertheless
be completed and signed and returned as indicated above. The share certificates
and other documents of title should be forwarded as soon as possible thereafter.
The consideration due under the Offer may not be paid until such documents, or
an indemnity in lieu thereof satisfactory to Halliburton, is received.
Halliburton reserves the right to treat acceptances of the Offer as valid even
though not complete in all respects or not accompanied by the relevant share
certificates or other documents of title.
If you are in any doubt as to the action you should take, we recommend that
you seek your own personal financial advice immediately from your stockbroker,
bank manager, solicitor, accountant or other independent financial adviser duly
authorized (in
the case of PES Shareholders resident in the U.K.) under the U.K. Financial
Services Act 1986.
Forms of Acceptance. Each PES Shareholder by whom, or on whose behalf, a
Form of Acceptance is executed thereby irrevocably undertakes to and agrees with
Halliburton (so as to bind him, his personal representatives, heirs, successors
and assigns) to the following effect:
- the execution of the Form of Acceptance constitutes, with effect from
the Offer becoming or being declared unconditional in all respects,
the irrevocable appointment of any executive officer of Halliburton as
such PES Shareholder's attorney and an irrevocable instruction to that
attorney to complete and execute all or any forms of transfer and
other documents whatsoever at the attorney's discretion in relation to
any PES Shares in respect to which the Offer has been accepted or
deemed to be accepted in favor of Halliburton or such other person or
persons as Halliburton may direct and
47
<PAGE>
to deliver such forms of transfer or other documents of title relating
to such PES Shares for registration and to do all such other acts and
things as may, in the reasonable opinion of such attorney, be
necessary or expedient for the purpose of, or in connection with,
vesting in Halliburton or such other persons as it may direct such PES
Shares;
- after the Offer becomes or is declared unconditional in all respects,
Halliburton shall be entitled to exercise any votes attaching to any
PES Shares in respect of which the Offer has been accepted or deemed
to be accepted on that Form of Acceptance and any other rights and
privileges attaching to such PES Shares, including the right to
requisition a general meeting of PES, and the execution of a Form of
Acceptance will constitute an authority and request to PES from the
relevant PES Shareholder to send any notice that may be required to be
sent to him as a member of PES, after the Offer becomes or is declared
unconditional in all respects, to Halliburton at its registered
office, and an authority to Halliburton to sign any consent to short
notice of a general meeting on his behalf or to execute a form of
proxy in respect of such shares appointing any person determined by
Halliburton to attend general meetings of PES or its members or any of
them and to exercise the votes attaching to such shares on his behalf,
or both save that the foregoing rights conferred on Halliburton may
not be exercised to the extent that such exercise would adversely
affect the legal or tax position of any PES Shareholder;
- he will not execute a proxy for or attend any general meeting of PES,
once the authority provided for in the preceding paragraph has come
into effect;
- the appointment and authority in this paragraph shall be irrevocable
and apply only to PES Shares in respect of which the Offer has been
accepted or deemed to be accepted on the Form of Acceptance; and
- he grants powers of attorney and authorities on the terms conferred by
or referred to in this paragraph, which are given by way of security
for the performance of the obligations of such PES Shareholders and
which shall be irrevocable in the United Kingdom in accordance with
section 4 of the U.K. Powers of Attorney Act 1971, and agrees to
ratify each and everything done by his attorney in exercise of his
powers and authorities hereunder.
Any Form of Acceptance received prior to the passing of the special
resolution to amend the PES articles of association referred to under "PES
Extraordinary General Meeting" shall be deemed to have been given conditional
only upon the passing of such resolution.
General. All communications, notices, certificates, documents of title,
other documents, transfers and remittances to be delivered by or sent to or from
PES Shareholders will be delivered by or sent to or from them (or their
designated agents) at their risk.
48
<PAGE>
Acceptance of the Offer will be deemed to constitute a warranty by the
acceptor that such acceptance is not, and will not result in, a breach of the
laws of any jurisdiction to which such acceptor is subject.
Acceptance of the Offer by an acceptor on behalf of a PES Shareholder who
is under 16 years of age will be deemed to constitute a warranty by the acceptor
that the acceptor is a legitimate parent of the relevant PES Shareholder and is
entitled to accept the Offer on behalf of such PES Shareholder.
Acceptance of the Offer will also be deemed to constitute a warranty by the
acceptor that the PES Shares in respect of which the Offer is accepted by the
acceptor are sold by the acceptor free from all claims, liens, charges and
encumbrances and together with all rights attaching thereto.
The Offer and all acceptances thereof will be governed by and construed in
accordance with English law.
Any omission to dispatch this Offer Document to, or any failure to receive
the same by, any person to whom the Offer is made or should be made shall not
invalidate the Offer in any way. Halliburton reserves the right to treat
acceptances of the Offer as valid if received by or on behalf of it at any place
or places determined by it.
Validity of Acceptance. Notwithstanding the provisions of this Offer
Document above, Halliburton reserves the right to treat as valid in whole or in
part any acceptance of the Offer that is not entirely in order or that is not
accompanied by the relevant PES Share certificate or certificates or other
documents of title. In that event, no issue of Halliburton Common Stock under
the Offer will be made until after the relevant PES Share certificate or
certificates or other documents of title or indemnities satisfactory to
Halliburton have been received. Immediately prior to the satisfaction of the
Acceptance Condition, the Receiving Agent will certify to Halliburton the number
of PES Shares for which valid acceptances have been received and not validly
withdrawn pursuant to the Offer.
Overseas Holders. The attention of PES Shareholders who are citizens or
residents of jurisdictions outside the U.K. or the U.S. is drawn to the fact
that, as indicated above, acceptance of the Offer will be deemed to constitute a
warranty by the accepting PES Shareholder that such acceptance is not, and will
not result in, a breach of the laws of the jurisdiction to which such PES
Shareholder is subject. If you are in any doubt as to the procedure for
acceptance of the Offer with respect to PES Shares, please contact the Receiving
Agent, Cameron McKenna (Attn: Mr. Andrew Sheach or Mr. Thomas Page), by
telephone at +(44) (0) 171 367 3000 or at the address above. Any questions or
requests for assistance or additional copies of the Offer Document or the Form
of Acceptance may be directed to the Receiving Agent, Cameron McKenna. Cameron
McKenna will not provide advice to PES Shareholders on any matter relating to
their decision as to whether to accept the Offer.
Action to Be Taken. The Form of Acceptance should be returned as soon as
possible in the enclosed reply paid envelope and, in any event, so as to be
received by mail or by hand by the Receiving Agent, Cameron McKenna (ref:
TLP/AJS), at its address set out on page 125 no later than 3:00 p.m. (London
time), or 10:00 a.m. (New York City time) on _________, 1999.
49
<PAGE>
No Rights of Withdrawal
PES Shareholders will not be able to withdraw their acceptances once they
have validly accepted the Offer, unless the Offer is not declared unconditional
on or before ________, 1999, in which event the PES Shares will be returned to
the PES Shareholders promptly. While Halliburton has no current intention of
reducing the Acceptance Condition from 90% to no less than 33%, if it should do
so, it will announce the modification by written notice to all PES Shareholders
at least five U.S. business days prior to the scheduled expiration of the Offer
and at least five U.S. business days prior to the Offer being declared
unconditional and leave the Offer open for at least ten U.S. business days
thereafter by extending the Offer Period if necessary. No withdrawal rights
will, however, be granted during that ten day period to PES Shareholders who
theretofore accepted the Offer. In any event, Halliburton will not close the
Offer before the end of the initial Offer Period.
Settlement
General. Subject to the Offer becoming or being declared unconditional in
all respects, settlement of the consideration to which any PES Shareholders is
entitled under the Initial Element of the Offer will be effected (i), in the
case of acceptances received, complete in all respects, by the date on which the
Offer becomes or is declared unconditional in all respects, as promptly as
practicable after such date but in no event later than 14 days after such date,
or (ii), in the case of acceptances of the Offer received, complete in all
respects, after the date on which the Offer becomes or is declared unconditional
in all respects but while it remains open for acceptance, as promptly as
practicable after such receipt but in no event later than 14 days of such
receipt. In all cases, Halliburton Common Stock issued pursuant to the Offer
will be issued only after timely receipt by the Receiving Agent of certificates
evidencing such PES Shares (or, in the case of a mutilated, lost or stolen
certificate, an indemnity in form acceptable to Halliburton in lieu thereof), a
properly completed and duly executed Form of Acceptance and any other documents
required by the Form of Acceptance. Halliburton will make a public announcement
on ________, __________, 1999 and on the business day following each date on
which the Offer Period is scheduled to expire as to whether or not the
conditions to the Offer have been satisfied or, where permitted, waived and give
oral or written notice thereof to Cameron McKenna, as the recipient of the PES
Shares of those PES Shareholders who have accepted the Offer.
The Deferred Elements shall be paid or satisfied no later than thirty days
from the First Determination Date (in the case of the First Deferred Element)
and from the Second Determination Date (in the case of the Second Deferred
Element), save for any part thereof the payment of which is delayed for the
reasons described under "The Offer - General". Any such delayed element will be
satisfied within 30 days of the date the relevant dispute is resolved.
Delivery of Halliburton Common Stock. Halliburton acknowledges that Rule
14e-1(c) under the Exchange Act provides that an offeror must pay the
consideration offered or return the securities deposited by, or on behalf of,
shareholders promptly after the termination or withdrawal of the offer. If the
Offer does not become or is not declared unconditional in all respects or
tendered PES Shares are not purchased because of an invalid acceptance, share
certificates and other documents of title will be returned by mail, as promptly
as practicable after the Offer lapsing, but in no event later than 14 days
thereafter, to the person or agent whose name and address is set out on the Form
of Acceptance or, if none is set out, to the first named holder at his
registered address.
50
<PAGE>
All documents and remittances sent by, to or from PES Shareholders or their
appointed agents will be sent at their own risk.
The Halliburton Common Stock to be issued pursuant to the Offer will be
validly issued, fully paid and nonassessable, i.e., credited as fully paid, and
will rank pari passu in all respects with the existing Halliburton Common Stock,
including the right to receive all dividends and distributions declared with a
record date after the date of issuance of such stock. (Holders of Halliburton
Common Stock received in the Offer will not be entitled to receive the dividend
on Halliburton Common Stock declared on May 18, 1999 payable to stockholders of
record on June 3, 1999 because the date of issue will occur subsequent to such
record date.) The Halliburton Common Stock to be issued pursuant to the Offer
has been listed on the NYSE, subject to official notice of issuance. Dealings,
for normal settlement, will commence on the NYSE in the Halliburton Common Stock
to be issued pursuant to the Offer on the first trading day following the day on
which the Offer becomes or is declared unconditional in all respects.
Direct Registration of Halliburton Common Stock. In September and October
1998, Halliburton adopted and implemented a direct registration (book entry)
program with respect to record ownership of Halliburton Common Stock. Direct
registration is a service that allows shares to be owned, reported and
transferred electronically without having a physical stock certificate issued.
Persons who acquire shares of Halliburton Common Stock will not receive a
physical stock certificate (unless certificates are requested); rather,
ownership of such shares is recorded in the names of such persons electronically
on Halliburton's books and records. Direct registration is intended to
alleviate problems relating to stolen, misplaced or lost stock certificates and
to reduce the paperwork relating to the transfer of ownership of Halliburton
Common Stock. Under direct registration, the voting, dividend and other rights
and benefits of holders of Halliburton Common Stock remain the same as with
holders of certificates.
If you have accepted the Offer, upon Completion of the Offer, Halliburton
will issue the appropriate shares of Halliburton Common Stock to you through
direct registration rather than issuing a physical stock certificate unless you
give specific instructions to do otherwise. You may give such instruction by
checking Box 5 on the Form of Acceptance at the time you accept the Offer.
The requirements for transferring book entry shares are the same as for
shares represented by a physical stock certificate except that, with direct
registration, there is no certificate to surrender. Halliburton Common Stock
owned through the direct registration program may be sold and transferred
through a stock broker or through ChaseMellon Shareholder Services, L.L.C., the
transfer agent for the Halliburton Common Stock.
Method of Selling Halliburton Common Stock.
In order to utilize the services of a stock broker, a holder of Halliburton
Common Stock must first add the appropriate stock broker information to the
direct registration account maintained by the transfer agent. Thereafter, such
a holder may by telephone transfer Halliburton Common Stock to a brokerage
account at such stock broker and then may sell or transfer such shares by giving
instructions to the broker.
51
<PAGE>
Alternatively, shares of Halliburton Common Stock owned through direct
registration may be sold or transferred through the services of the transfer
agent. Sales will be made through the transfer agent when practicable, but at
least once each week. The transfer agent cannot accept instructions to sell
shares on a specific day or at a specific price. The price per share will be the
average price per share of all such Halliburton Common Stock sold during the
period by the transfer agent for holders of book entry shares.
Former PES Shareholders who become holders of Halliburton Common Stock as a
result of the Offer will be able to sell all or a portion of such Halliburton
Common Stock through the auspices of the NYSE. The NYSE is the only major stock
exchange on which the Halliburton Common Stock is listed. In order to sell
shares of Halliburton Common Stock, holders of such stock who are resident or
located in the U.K. should establish a private account at a stock brokerage firm
located in the U.K. and place a sale order through such stock brokerage firm.
Halliburton is advised that, upon receipt of such an order, the U.K. stock
brokerage firm will contact a U.S. broker/dealer firm that is a member firm of
the NYSE and place the sell order through that firm; that the U.S. broker/dealer
will execute the order through the NYSE; that payment will be made to the U.S.
broker/dealer in U.S. dollars; that, after deducting the broker/dealer's
commission, the U.S. broker/dealer will purchase pounds sterling with the net
sale proceeds at the then current currency exchange rate and forward the pounds
sterling to the U.K. stock brokerage firm for the account of the seller.
Halliburton is advised that if the U.K. stock brokerage firm is affiliated with
the U.S. broker/dealer such a transaction will entail only a single brokerage
commission; if they are not so affiliated, the U.K. holders of Halliburton
Common Stock may incur an additional brokerage commission. If you are in any
doubt about the action you should take to sell your Halliburton Common Stock,
you should (if you are resident in the U.K.) seek advice from an independent
financial adviser duly authorized under the U.K. Financial Services Act 1986 or
(if you reside elsewhere) an appropriately qualified financial adviser.
Recapitalization
If, on or after the date hereof and prior to Completion, PES should split,
combine or otherwise change any PES Shares or its capitalization (other than as
a result of issuance of any PES Shares upon exercise of the Call Options), or
disclose that it has taken any such action, then Halliburton may make such
adjustments to the exchange ratio and other terms of the Offer as it deems are
fair and appropriate to reflect such split, combination or other change.
Compulsory Acquisition; Appraisal Rights
If:
as a result of the Offer, Halliburton acquires PES Shares representing at
least 90% of the PES Shares to which the Offer relates, then Halliburton
will be entitled and intends to effect a Compulsory Acquisition to compel
the acquisition of the remainder of the outstanding PES Shares on the same
terms as the Offer in accordance with sections 428 through 430F of the U.K.
Companies Act 1985; or
52
<PAGE>
at any time after the Offer has become unconditional, Halliburton acquires
PES Shares representing at least 90% of the PES Shares to which the Offer
relates, a PES Shareholder will be entitled to require Halliburton to
acquire his or her PES Shares on the same terms as the Offer in accordance
with sections 430A and 430B of the U.K. Companies Act 1985.
PES Shareholders do not have appraisal rights as a result of the Offer. If
the Compulsory Acquisition can be effected by Halliburton, however, PES
Shareholders whose PES Shares have not been acquired pursuant to the Offer will
be entitled to certain rights under the U.K. Companies Act 1985, including the
right to compel Halliburton to acquire such PES Shares on the same terms as the
Offer. For the full text of the applicable provisions of the U.K. Companies Act
1985, see Annex IV of this Offer Document.
Interests of Certain Persons in the Offer
In considering the recommendation by the PES Board with respect to the
Offer, PES Shareholders should be aware that certain members of the PES Board as
well as certain other PES Shareholders, may have certain interests that are
different from, or in addition to, the interests of PES shareholders as such.
The PES Board recognized such interests and determined that such interests
neither supported nor detracted from the fairness of the Offer to PES
shareholders as a whole.
Halliburton Designated Directors of Pes. In connection with the acquisition
by Holdings of 26% of the outstanding PES Shares on April 22, 1997, the PES
Articles of Association were amended to provide that so long as any member of
the Halliburton Group owns 10% or more of the then current issued share capital
of PES, Halliburton shall be entitled to appoint two persons as directors of
PES. In the exercise of that right, Holdings, acting on behalf of Halliburton,
has appointed Messrs. McCurley and Renfroe to the PES Board.
Neither Mr. McCurley nor Mr. Renfroe owns any PES Shares and neither of
them participated in any of the deliberations of the PES Board relating to the
Offer.
Pes Share Option Schemes. The Offer will extend to any PES Shares
unconditionally acquired while the Offer remains open for acceptance pursuant to
the exercise of options issued under the PES Share Option Schemes or otherwise.
In connection with the Offer, Halliburton will offer PES Optionholders the
opportunity to surrender their PES Options in exchange for options for
Halliburton Common Stock ("Halliburton Options"). The Halliburton Options will
entitle the holder to acquire the same number of shares of Halliburton Common
Stock he would have acquired had he exercised the surrendered PES Option at the
outset of the Offer and accepted the Offer at the same exercise price provided
in the surrendered PES Option. Each Halliburton Option will become exercisable
for the same portions of such number of shares of Halliburton Common Stock at
the same times as provided in the Offer. Such number of shares of Halliburton
Common Stock will be subject to reduction on the same basis as provided in the
Offer. In addition, if an employee holding a Halliburton Option "voluntarily
resigns" or is "terminated for cause" (the definitions of which terms are
similar to those of the corresponding terms as set forth in Annex II), 30% of
the maximum number of his Halliburton Options will lapse. If such an employee's
employment is otherwise terminated, the Halliburton Option will continue to be
exercisable.
53
<PAGE>
As part of the Irrevocable Undertaking given by each Principal Shareholder
who holds PES Options, each such Principal Shareholder confirmed that he would
surrender his PES Options in exchange for Halliburton Options. PES has agreed
that it will not make any amendments to the PES Share Option Schemes while the
Offer is pending. Detailed information regarding the alternatives available to
PES Optionholders will be mailed to PES Optionholders with this Offer Document.
Service Agreements. Each of the seven PES Directors who is not affiliated
with Halliburton (each of whom is also an employee of PES or one of its
subsidiaries) has executed a service agreement with PES or a subsidiary of PES
or Halliburton that will become effective upon Completion of the Offer. In
general, these service agreements:
. have a three year term commencing upon Completion of the Offer and, on
conclusion of the term, are terminable by either party upon three
months' notice;
. provide for participation by each key employee/director in the group
life insurance program of the employer and in the health
insurance programs of the employer;
. include covenants by the key employee/directors against disclosure of
confidential information;
. include noncompetition covenants by the key employee/directors;
. include provisions clarifying the rights of the parties as regards
intellectual property; and
. provide for the right of the employer to terminate the agreement for
specified causes.
In addition, the following directors/key employees will be entitled under the
provisions of the applicable service agreement to the following annual salary,
bonus and pension benefits:
<TABLE>
<CAPTION>
Name Annual Salary Bonus Pension Benefit
---- ------------- ----- ---------------
<S> <C> <C> <C>
Laurence Kinch (Pounds)78,000 (Pounds) 0 - 39,000 (Pounds)4,680
Richard Rubbo $ 125,000 $ 0 - 62,500 $ 5,000
Michael L. Bowyer (Pounds)75,920 (Pounds) 0 - 37,960 (Pounds)4,555
Michael J. Fleming $ 125,000 $ 16,667 - 41,667(1) $ 5,000
Steven C. Owens $ 120,000 $ 0 - 60,000 $ 4,800
Colin Smith (Pounds)65,625 (Pounds) 0 - 32,813 (Pounds)3,938
Drummond W. Whiteford (Pounds)73,000 (Pounds)9,733 - 24,333(1) (Pounds)4,380
</TABLE>
_______________
(1) These bonuses will be paid in two instalments subject to
achievement of milestones identified in the applicable bonus plan.
54
<PAGE>
Irrevocable Undertakings. The Principal Shareholders have entered into
the Irrevocable Undertakings requiring those who hold PES Shares to accept the
Offer for their PES Shares and to vote in favor of the resolution to be proposed
at the EGM. The Principal Shareholders own beneficially, in the aggregate,
633,570 PES Shares which represent 50.02% of the issued share capital of PES.
The Irrevocable Undertakings will continue to be binding even if a competing
offer is made. See "Agreements with Certain PES Shareholders and Directors --
PES Shareholders". In addition, pursuant to the Irrevocable Undertakings, those
of the Principal Shareholders who hold PES Options have undertaken to surrender
such PES Options in exchange for new options over Halliburton Common Stock.
In addition, pursuant to the Irrevocable Undertakings, each PES
Director (other than the Holdings nominees, Messrs. Mark McCurley and James
Renfroe) has undertaken, subject to his fiduciary duties, to recommend the Offer
to PES Shareholders. These Directors own beneficially, in the aggregate, 473,670
PES Shares which represent 37.4% of the issued share capital of PES. See
"Agreements with Certain PES Shareholders and Directors -- PES Directors".
PES Trustees Limited, which holds PES Shares for transfer to PES
Optionholders on exercise of their options under the PES Share Option Schemes,
has entered into an Irrevocable Undertaking requiring it (i) to accept the Offer
in respect of those PES Shares that are no longer required to meet its
obligations under the PES Share Option Schemes as a result of any of the PES
Optionholders agreeing to surrender his PES Options in exchange for Halliburton
Options, and (ii) to vote in favor of the resolution to be proposed at the
extraordinary general meeting of PES. PES Trustees Limited holds, in the
aggregate, 141,130 PES Shares, which represent 11.14% of the issued share
capital of PES, of which 135,964 PES Shares are subject to the PES Options.
Warranty Agreement. In consideration of the offer by Halliburton to
acquire all of the issued ordinary share capital of PES, certain PES
Shareholders or Optionholders (the "Executive Warrantors") and Messrs. Bouldin
and Arizmendi have entered into an agreement (the "Warranty Agreement") with
Halliburton. The Warranty Agreement contains various joint and several
representations and warranties of each of the Executive Warrantors to
Halliburton relating to the organization, operations, condition (financial and
otherwise), business, assets and properties of the PES Group. The Executive
Warrantors have also agreed to cause the PES Group to operate in compliance with
the provisions of the Warranty Agreement during the Offer Period.
In addition, each of the Executive Warrantors has agreed not to
compete with the PES Group, in any parts of the world in which the PES Group
operates, not to employ or offer to employ any director or employee of the PES
Group or any member of the Halliburton Group, solicit away or deal with any
person who is or has been a client, customer or supplier of the PES Group or the
Halliburton Group, for the longer of (i) three years from Completion and (ii)
one year from the date on which an Executive Warrantor ceases to be employed by
a member of the Halliburton Group (including the PES Group).
For further information, see "The Warranty Agreement".
55
<PAGE>
General. Except as otherwise stated in this Offer Document, (i) there
have not been any contracts, transactions or negotiations between Halliburton,
any of its subsidiaries or, to the best knowledge of Halliburton, any of the
directors or executive officers of Halliburton with PES or any of its directors,
officers or affiliates concerning a merger, consolidation or acquisition, a
tender offer or other acquisition of securities; an election of directors or a
sale or other transfer of a material amount of assets, (ii) there are no current
or proposed material contracts, arrangements, understandings or relationships
between Halliburton, its controlling persons or subsidiaries or, to the best
knowledge of Halliburton, any of the persons listed under "Security Ownership
and Dealings By Certain Beneficial Owners and Management of Halliburton" with
respect to any PES Shares. See "Background to and Reasons for the Offer".
Neither Halliburton nor any of its controlling persons or subsidiaries or, to
the best knowledge of Halliburton, any of the persons listed under "Security
Ownership and Dealings By Certain Beneficial Owners and Management of
Halliburton" owns of record any PES Shares (other than Holdings, which owns
approximately 26% of the currently issued share capital of PES).
Fees and Expenses of the Offer
In connection with the services rendered by PricewaterhouseCoopers, as
the authorized person approving this Offer Document for the purposes of Section
57 of the U.K. Financial Services Act 1986, Halliburton has agreed to pay
PricewaterhouseCoopers its fees for such services which are estimated to be
between (Pounds)75,000 and (Pounds)90,000 and will not exceed (Pounds)90,000. In
addition, Halliburton has agreed that the limit of liability of
PricewaterhouseCoopers to Halliburton and its subsidiaries for any and all
losses, damages and costs incurred by Halliburton and its subsidiaries in
connection with this engagement of PricewaterhouseCoopers shall be
(Pounds)1,000,000 except that no such limit would apply in the case of losses,
damages and costs resulting from fraud or dishonesty.
Halliburton has retained Cameron McKenna, which firm is acting as U.K.
counsel to Halliburton, also to act as the Receiving Agent in connection with
the Offer. The Receiving Agent will receive reasonable compensation for its
services, will be reimbursed for certain reasonable out-of-pocket expenses and
will be indemnified against certain liabilities in connection therewith,
including certain liabilities under the U.S. federal securities laws. The
Receiving Agent has not been retained to make solicitations or recommendations.
Halliburton will not pay any fees or commissions to any broker or dealer or any
other person for soliciting acceptances of the Offer from PES Shareholders.
Halliburton has agreed, pursuant to the Warranty Agreement, to pay up
to (Pounds)750,000, plus U.K. value added tax, to discharge the fees and
expenses incurred by PES in relation to the Offer to its legal, accounting and
financial advisors.
Certain Regulatory Approvals and Legal Matters
Except for any actions of the Securities and Exchange Commission
required for Halliburton to comply with U.S. securities laws, neither
Halliburton nor PES is aware of (i) any license or regulatory permit that
appears to be material to the business of the PES Group taken as a whole and
that might be adversely affected by Halliburton's acquisition of PES as
contemplated herein or (ii) any approval or other action by any domestic or
foreign governmental, administrative or regulatory
56
<PAGE>
agency or authority that appears to be material to PES and its subsidiaries,
taken as a whole, and that is required for the acquisition of ownership of PES
Shares by Halliburton as contemplated herein. Should any such approval or other
action be required, Halliburton currently contemplates that such approval or
other action will be sought. There can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions attached thereto or that failure to obtain any such
approval or other action might not result in consequence adverse to PES's
business.
PES has no assets or operations in the U.S. other than those owned or
operated by PES Incorporated, a wholly owned subsidiary located in the U.S. The
latter are not sufficiently large to subject the Offer to the filing
requirements of the Hart-Scott-Rodino Antitrust Improvement Act of 1976. The
Offer does not fall within the scope of the EC Merger Control Regulation
(Regulation 4064/89/EC), as the relevant turnover threshold conditions are not
met.
THE WARRANTY AGREEMENT
The following description does not purport to be complete and is
qualified in its entirety by reference to the Warranty Agreement, a copy of
which is filed as an exhibit to the registration statement of which this Offer
Document constitutes a part and a copy of which is on display at the London and
Aberdeen offices of the Receiving Agent.
Warranties
In consideration of the Offer by Halliburton to acquire all of the
issued ordinary share capital of PES, certain PES Shareholders or Optionholders
(the "Executive Warrantors") have entered into an agreement (the "Warranty
Agreement") between the Executive Warrantors and Halliburton.
The Warranty Agreement contains various joint and several
representations and warranties granted by each of the Executive Warrantors to
Halliburton relating to, among other things, (i) the organization of PES and its
subsidiaries and similar corporate matters, (ii) the capitalization of PES and
its subsidiaries, (iii) the audited and unaudited financial statements of PES
and its subsidiaries, (iv) the absence of certain events since the date of the
audited financial statements, (v) various employment matters, (vi) the status of
material contracts to which PES or one of its subsidiaries is a party, (vii) the
status of loans and financial facilities of PES and its subsidiaries, (viii)
liabilities of PES and its subsidiaries to the Executive Warrantors, (ix)
authority of the Executive Warrantors to enter into the Warranty Agreement, (x)
intellectual property matters relating to PES and its subsidiaries, (xi) taxes
of PES and its subsidiaries, (xii) various insolvency matters, (xiii) the
57
<PAGE>
properties of PES and its subsidiaries and (xiv) certain environmental
matters. The representations and warranties relating to matters other than
taxation expire on the date falling three months after delivery of the audited
consolidated financial statements of Halliburton for the year ending December
31, 2000 and in the case of taxation matters on the sixth anniversary of the
date of the Warranty Agreement. The aggregate liability of the Executive
Warrantors with respect to such representations and warranties is limited to
(Pounds)10,000,000.
Agreement To Pay
Four PES Directors (being M. L. Bowyer, D. W. Whiteford, S. C. Owens and C.
Smith), who are also Executive Warrantors, and two key employees (being B.
Bouldin and N. Arizmendi), who are parties to the Warranty Agreement but are not
Executive Warrantors, have agreed that they will continue their employment with
PES for at least three years following Completion of the Offer. Any such
employee who "voluntarily resigns" or whose employment is "terminated for cause"
(the definitions of which terms are similar to those of the corresponding terms
as set forth in Annex II) will be obligated to pay to Halliburton liquidated
damages in an amount equal to (a) 30% of the market value of the maximum number
of shares of Halliburton Common Stock to be issued to him and his immediate
family pursuant to the Offer or (b) $1,000,000, whichever is less. The
termination of employment of any of these six employees will have no effect on
the shares of Halliburton Common Stock to be issued pursuant to the Offer to the
other PES Shareholders.
The continued employment of these six key employees, together with Messrs.
Kinch, Rubbo and Fleming, through the Offer Period is also a Condition of the
Offer. See "The Offer -Conditions to the Offer".
Restrictive Covenants
Each of the Executive Warrantors has agreed not to engage, directly or
indirectly, in any activity or business in any parts of the world in which PES
and its subsidiaries operate, employ or offer to employ any director or employee
of PES or any of its subsidiaries or any member of the Halliburton Group,
solicit away or deal with, in direct competition with the business conducted by
the PES Group, any person who is or has, during the two years preceding the date
of the Warranty Agreement, been a client, customer or supplier of the PES Group
or the Halliburton Group, for the longer of (i) three years from Completion and
(ii) one year from the date on which an Executive Warrantor ceases to be
employed by a member of the Halliburton Group (including the PES Group).
Pre-completion Matters
The Executive Warrantors agreed that pending Completion of the Offer they
will so far as they are able cause PES (i) to provide Halliburton with monthly
financial statements of PES and its subsidiaries, (ii) to operate the business
of each Group Company in the ordinary and usual course and with a view to a
profit and (iii) not to pass any shareholders resolution except as may be
required by the Warranty Agreement.
The Executive Warrantors agreed to ensure that, pending Completion of the
Offer, there will be no (i) sale or any agreement for sale of any part of the
business or assets of any member of the PES Group except in the ordinary course
of business of the particular company, (ii) creation or issue
58
<PAGE>
or agreement to create or issue any mortgage or charge upon any of the assets
of any member of the PES Group or incurrence by any member of the PES Group of
any indebtedness, other than normal trade credit or indebtedness on overdraft to
bankers, (iii) dismissal or change in the remuneration or employment or the
terms thereof of any of the directors or senior employees of any member of the
PES Group, (iv) material litigation or arbitration proceedings commenced by any
member of the PES Group regarding its assets or business, (v) material amendment
to current insurance policies of any member of the PES Group and that such
policies shall be maintained in full force and effect pending Completion, (vi)
declaration or payment of any dividend or distribution to the shareholders of
any member of the PES Group, (vii) incurrence, with certain exceptions, of any
new capital expenditures in excess of (Pounds)50,000 or (viii) changes in the
authorized or issued share capital of any member of the PES Group other than the
exercise of the Call Option.
Completion
Each Executive Warrantor will, on or prior to Completion, repay all amounts
owing to any member of the PES Group by the particular Executive Warrantor or by
his associates (other than advances made in the normal course of business).
The Executive Warrantors have agreed that, at or as soon as practicable
following Completion, they will take a variety of actions necessary or desirable
to accomplish the orderly transfer of ownership of the PES Group to Halliburton.
Governing Law
The Warranty Agreement is to be governed by and construed in accordance
with the law of Scotland and the parties thereto submit to the jurisdiction of
the courts of Scotland.
AGREEMENTS WITH CERTAIN PES SHAREHOLDERS AND DIRECTORS
PES Shareholders
Certain PES Shareholders and PES Optionholders have entered into the
Irrevocable Undertakings as set forth in the following table:
<TABLE>
<CAPTION>
Shares Underlying
Name of Security Holder PES Shares PES Options Totals Percentage*
- ----------------------- ---------- ----------------- ------ ----------
<S> <C> <C> <C> <C>
L. W. Kinch 300,000 -0- 300,000 23.69%
M. L. Bowyer 3,170 21,610 24,780 1.96%
F. A. Bowyer (1) 2,290 -0- 2,290 0.18%
P. A. Bowyer (1) 1,180 -0- 1,180 0.09%
S. E. Bowyer (1) 1,180 -0- 1,180 0.09%
D. W. Whiteford 131,620 -0- 131,620 10.39%
J. Whiteford (2) 15,290 -0- 15,290 1.21%
R. P. Rubbo -0- 15,600 15,600 1.23%
J. M. Rubbo (3) 100,750 -0- 100,750 7.95%
S. C. Owens 37,570 3,900 41,470 3.27%
M. J. Fleming -0- 2,500 2,500 0.20%
C. Smith 1,310 15,220 16,530 1.31%
Anna Smith (4) 1,820 -0- 1,820 0.14%
Anne A. Smith (4) 1,820 -0- 1,820 0.14%
G. A. Smith (4) 1,820 -0- 1,820 0.14%
M. R. Smith (4) 1,820 -0- 1,820 0.14%
B. Bouldin 18,780 1,000 19,780 1.56%
N. Arizmendi 13,150 -0- 13,150 1.04%
</TABLE>
________________
* Evidences the percentage of the current issued share capital of PES
represented by the aggregate of the PES Shares held and the PES Shares
underlying the PES Options.
(1) Member of the family of M. L. Bowyer.
(2) Member of the family of D. W. Whiteford.
(3) Member of the family of R. P. Rubbo.
(4) Member of the family of C. Smith.
The PES Shareholders who entered into the Irrevocable Undertakings gave
their irrevocable consent to the mailing of the Offer Document and gave to
Halliburton certain undertakings in which, among other things, they agreed:
- to accept the Offer in respect of all PES Shares held by them;
- whether conditionally or unconditionally, not to sell, transfer, charge,
pledge or grant any option over or otherwise dispose or permit the
disposition of any or all of the
59
<PAGE>
PES Shares to which the Irrevocable Undertaking relates prior to the
lapsing or withdrawal of the Offer;
- in the case of those who hold PES Options, that they will surrender
their PES Options in exchange for new options over shares of Halliburton
Common Stock; and
- that until the Offer closes, lapses or is withdrawn, they will vote as
instructed by Halliburton on any resolution to enable the Offer to
become unconditional if it were passed or rejected at a general meeting
of PES.
PES Trustees Limited, which holds PES Shares for transfer to PES
Optionholders on exercise of their options under the PES Share Option Schemes,
has entered into an Irrevocable Undertaking requiring it (i) to accept the Offer
in respect of those PES Shares that are no longer required to meet its
obligations under the PES Share Option Schemes as a result of any of the PES
Optionholders agreeing to surrender his PES Options in exchange for Halliburton
Options, and (ii) to vote in favor of the resolution to be proposed at the
extraordinary general meeting of PES. PES Trustees Limited holds, in the
aggregate, 141,130 PES Shares, which represent 11.14% of the issued share
capital of PES, of which 135,964 PES Shares are subject to the PES Options.
The Irrevocable Undertakings continue to be binding in the event of a
competing higher offer. They will lapse, however, if the Offer is modified
(other than by a reduction of the acceptance condition from 90% to not less than
33% of the PES Shares to which the Offer relates) or is withdrawn by
Halliburton. The Irrevocable Undertakings given by the Principal Shareholders
are governed by English law. The Irrevocable Undertakings have been filed as
exhibits to the registration statement of which this Offer Document constitutes
a part and are on display at the London and Aberdeen offices of the Receiving
Agent. See "Where You Can Find More Information".
PES Directors
The PES Directors (other than Messrs. McCurley and Renfroe, the nominees of
Holdings), in their Irrevocable Undertakings, have additionally and irrevocably
undertaken:
- to recommend the Offer to PES Shareholders subject to their fiduciary
duties;
- that until the Offer lapses or is withdrawn they shall refrain from
taking any action to impede, prevent or delay the Offer becoming
unconditional; and
- upon the Offer becoming unconditional, and subject to their fiduciary
duties, to vote in accordance with Halliburton's instructions on any
resolution in connection with the Offer at any meeting of the PES Board.
TAX CONSEQUENCES OF THE OFFER AND COMPULSORY ACQUISITION
United Kingdom Tax Consequences
The following statements are intended as a general guide only to the
position under current U.K. law and Inland Revenue practice as at the date of
this document and relate only to certain limited aspects of the U.K. taxation
position of PES Shareholders who are the beneficial owners of
60
<PAGE>
those PES Shares, who are resident or ordinarily resident in the U.K. for tax
purposes and who hold their PES Shares as an investment (otherwise than under a
personal equity plan or individual savings account). The taxation position of
special classes of taxpayers such as banks, insurance companies and collective
investment schemes is not considered below. Certain claims or elections may be
required to be made before the tax treatment envisaged below will apply. Any PES
Shareholders who are unsure of their taxation position should seek independent
professional advice.
Taxation of Capital Gains. Liability to U.K. taxation on capital gains
("CGT") will depend on the individual circumstances of PES Shareholders. A PES
Shareholder who is neither resident nor ordinarily resident in the U.K. for U.K.
tax purposes is not subject to CGT unless he carries on a trade, profession or
vocation in the U.K. through a branch or agency and the assets disposed of are
situated in the U.K. and are used in or held for the purposes of the branch or
agency or are acquired for use by the branch or agency.
A PES Shareholder who, either alone or together with persons connected with
him, does not hold more than 5% of, or of any class of, the share capital of PES
will not be treated as making a disposal or part disposal for the purposes of
the U.K. taxation of capital gains when he receives shares of Halliburton Common
Stock as consideration for his PES Shares. Instead, he will be treated as
having acquired those shares of Halliburton Common Stock at the same time and
for the same consideration as his PES Shares and any gains that would otherwise
have arisen on a disposal of that part of his PES Shares will be "rolled-over"
into the shares of Halliburton Common Stock. A charge to capital gains tax will
arise on disposal of the Halliburton Common Stock.
PES Shareholders who receive shares of Halliburton Common Stock and, either
alone or together with persons connected with them, hold more than 5% of, or any
class of, the share capital of PES are advised that an application for clearance
that the transaction is, inter alia, for bona fide commercial reasons has been
made to the board of the Inland Revenue pursuant to section 138 of the Taxation
of Chargeable Gains Act 1992 and that such clearance has been given and,
accordingly, the benefit of the above "roll-over" treatment should be available
to such holders of PES Shares.
Holders of PES Shares are also advised that an application has been made to
the Inland Revenue under section 707 of the Income and Corporation Taxes Act
1988 in respect of the Offer and that such clearance has been given.
A subsequent disposal of shares of Halliburton Common Stock may result in a
liability to CGT, depending on individual circumstances.
Taxation of Dividends. U.K. residents and taxpaying holders of shares of
Halliburton Common Stock who receive dividends in respect of those shares will
be treated as receiving income from overseas possessions equal to the gross
amount of such dividends (i.e., including any withholding tax deducted) and, as
such, will be subject to U.K. income tax or (in the case of companies)
corporation tax.
The U.S. currently imposes a dividend withholding tax of 30%. Under the
income tax treaty between the U.S. and the U.K. (the "Treaty"), however, this
withholding is reduced to 15% of the gross amount of the dividends for U.K.
resident persons.
61
<PAGE>
In order to obtain the benefit of the Treaty so that dividends may be paid
subject to the reduced withholding tax, U.K. resident holders of shares of
Halliburton Common Stock must make a claim which must be certified by the Inland
Revenue and approved by the U.S. tax authorities. Depending upon their precise
individual circumstances, U.K. resident holders of shares of Halliburton Common
Stock should have the sums withheld under the Treaty treated as a tax credit for
the purposes of the U.K. taxation.
Stamp Duty and Stamp Duty Reserve Tax. No stamp duty or stamp duty reserve
tax will be payable by holders of PES Shares as a result of accepting the Offer
or selling or transferring PES Shares. No stamp duty or stamp duty reserve tax
will be payable by holders of PES Shares on the transfer on sale of (or an
agreement to transfer) shares of Halliburton Common Stock.
United States Federal Tax Consequences
The following discussion summarizes the material United States federal tax
consequences of the Offer and the Compulsory Acquisition to PES and holders of
PES Shares. The discussion is based on the Internal Revenue Code of 1986, as
amended, Treasury Regulations adopted and proposed thereunder, and
administrative and judicial interpretations as of the date hereof, all of which
are subject to change, possibly on a retroactive basis. The discussion does not
address all aspects of United States federal taxation, including, without
limitation, aspects of United States federal income taxation that may be
applicable to particular shareholders (including financial institutions,
insurance companies, tax-exempt organizations, dealers in securities, or holders
of securities held as part of a "straddle", "hedge" or "conversion
transaction"). The discussion also does not address the United States federal
income tax consequences of the Offer and the Compulsory Acquisition to holders
of options to purchase PES Shares. In addition, it does not address the state,
local or foreign tax consequences of the Offer and the Compulsory Acquisition,
if any. HOLDERS OF PES SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE AND LOCAL, AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF THE OFFER AND THE COMPULSORY ACQUISITION AND OF OWNING AND
DISPOSING OF SHARES OF HALLIBURTON COMMON STOCK.
Taxable Nature of Exchange. The exchange of PES Shares for shares of
Halliburton Common Stock will be a taxable transaction for United States federal
income tax purposes. In general, a holder of PES Shares will recognize gain (or
loss) measured by the difference between his tax basis in the PES Shares and the
fair market value of the Halliburton Common Stock to be received; a portion of
such fair market value may be taxed as ordinary interest income. In the case of
a holder who is an individual and who holds the PES Shares as a capital asset,
such gain (exclusive of the portion taxed as interest) generally will be subject
to tax at a maximum 20% rate if the PES Shares have been held for more than one
year.
Installment Reporting. Gain recognized on the exchange of PES Shares for
shares of Halliburton Common Stock generally is to be reported on the
installment method unless the taxpayer elects out of installment reporting.
Under the installment method of reporting applicable to contingent payment
sales, gain is taken into account in each of the taxable years in which the
taxpayer receives shares of Halliburton Common Stock. With respect to the
Initial Element and each of the Deferred Elements, such gain would be computed
as the excess of the fair market value of the shares of Halliburton Common Stock
received (exclusive of the portion taxed as ordinary interest income as
described below) over an allocable portion of the taxpayer's tax basis in his
PES Shares. If such fair market value is less than the basis allocated to that
taxable year, the unrecovered portion of the basis allocated to that year is
carried forward to the next taxable year in which shares of Halliburton Common
Stock are received. If with respect to the Second Element the fair market value
of the shares of Halliburton Common Stock received (exclusive of the portion
taxed as ordinary interest income as described below) is less than the basis
allocated to that taxable year, a capital loss would be recognized. A capital
loss recognized by an individual taxpayer may not be carried back to offset
capital gain in prior years but can only offset (except for a small amount of
ordinary income) capital gain in the year in which the capital loss is
recognized and in future taxable years. A taxpayer using the installment method
of reporting may be required to pay interest under section 453A of the Code on
the tax deferred by reason of his use of the installment method.
Imputed Interest. Because the Deferred Elements will be received after the
date of Completion, they are subject to the imputed interest rules of either
section 483 or section 1274 of the Code. Under section 483 of the Code, a
portion of each Deferred Element will be taxed as ordinary interest income to
the holder, and the balance of the Deferred Element will be treated as the
principal component with the consequences described above. The interest amount
with respect to each Deferred Element will equal the excess of the fair market
value of the shares of Halliburton Common Stock received over the present value
of such fair market value as of the date of Completion, calculated using as the
discount rate the applicable federal rate ("AFR"). The AFR is a rate
reflecting an average of market yields on Treasury debt obligations for
different ranges of maturities that is published monthly by the Internal Revenue
Service. The relevant AFR will be the lowest AFR in effect during the 3-month
period ending with the month that includes the date of Completion, and the
maturity range of the relevant AFR will correspond to the period from the date
of Completion to the date the amount is received.
Under section 1274 of the Code, because the amount of each Deferred Element
is a function of the fair market value of Halliburton Common Stock at the time
of receipt, it is likely that each Deferred Element will be treated as a
contingent debt instrument in its entirety, even though a minimum number of
Halliburton Shares will be received with each Deferred Element. If so treated,
the amount of each Deferred Element would be discounted by the AFR from the date
of payment to the date of Completion, and the present value of the payment so
determined would be treated as the principal component of the payment, with the
consequences described above. The amount of the payment in excess of its
present value so determined would be taxed as ordinary interest income in the
year of payment.
In the case of a holder of PES Shares who is not a citizen or resident of
the United States, the amount treated as interest as described above generally
will be subject to the withholding of U.S. income tax at the rate of 30%. The
rate of withholding tax may, however, be reduced, or the tax eliminated, by the
provisions of an applicable income tax treaty if such holder files an Internal
Revenue Service Form W-8BEN establishing eligibility for the benefits of such
treaty. The income tax treaty between the United States and the United Kingdom
generally eliminates such withholding tax in the case of interest derived and
beneficially owned by a resident of the United Kingdom.
EACH HOLDER OF PES SHARES THAT IS SUBJECT TO UNITED STATES FEDERAL INCOME
TAX IS URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO (I) THE EFFECT OF
INSTALLMENT REPORTING ON HIS TRANSACTION, (II) THE POSSIBLE INTEREST CHARGE
UNDER SECTION 453A OF THE CODE ON TAX DEFERRED BY REASON OF INSTALLMENT
REPORTING, (III) THE EFFECT OF ELECTING OUT OF INSTALLMENT REPORTING, AND (IV)
THE APPLICABILITY OF THE IMPUTED INTEREST RULES OF SECTION 483 OR 1274 OF THE
CODE TO HIS TRANSACTION.
Backup Withholding. Payments in connection with the Offer or the
Compulsory Acquisition may be subject to back-up withholding at a 31% rate.
Backup withholding generally applies if the holder of PES Shares (a) fails to
furnish his social security number or other taxpayer identification number
("TIN"), (b) furnishes an incorrect TIN, (c) fails properly to report interest
or dividends or (d) under certain circumstances, fails to provide a certified
statement, signed under penalties of perjury, that the TIN provided is his
correct number and that he is not subject to backup withholding. Backup
withholding is not an additional tax but merely an advance payment; any amounts
withheld from a payment to a holder of PES Shares under the backup withholding
rules will be allowed as a credit against such holder's United States federal
income tax liability, provided that the required information is furnished to the
Internal Revenue Service. Certain persons, including corporations, generally
are exempt from backup withholding.
Taxation of Dividends on Halliburton Common Stock. Distributions on
Halliburton Common Stock paid in cash will be treated as dividends and taxed as
ordinary income to the extent of Halliburton's current and accumulated earnings
and profits (as determined for United States federal income tax purposes). To
the extent that the amount of any distribution to a holder exceeds Halliburton's
current and accumulated earnings and profits allocable to such distribution,
such distribution will be treated as a return of capital, thus reducing the
holder's tax basis in his Halliburton Common Stock; any distribution in excess
of the holder's tax basis in his Halliburton Common Stock will be taxed as
capital gain and will be long-term capital gain if the holder's holding period
for such Halliburton Common Stock is more than one year. Payment of dividends
may be subject to backup withholding under circumstances similar to those
described above.
Sale or Exchange of Halliburton Common Stock. Upon the sale, exchange, or
other taxable disposition of Halliburton Common Stock, a holder generally will
recognize gain or loss equal to the difference between the sum of cash plus the
fair market value of any other property received on such disposition and such
holder's tax basis in his Halliburton Common Stock. Gain or loss recognized on
the disposition of Halliburton Common Stock generally will be capital gain or
loss. In the case of a holder who is an individual, such capital gain generally
will be subject to tax at a maximum 20% rate if the Halliburton Common Stock has
been held for more than one year.
Taxation of Non-U.S. Holders of Halliburton Common Stock. The following is
a general discussion of the principal United States federal income and estate
tax consequences of the ownership and disposition of Halliburton Common Stock
applicable to a Non-U.S. Holder. A "Non-U.S. Holder" is any person other than
(i) an individual who is a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any State thereof, (iii) an estate the
income of which is includible in gross income for U.S. federal income tax
purposes regardless of its source, or (iv) a trust which is subject to the
jurisdiction of a United States court and the control of a United States person.
Dividends. Generally, dividends paid to a Non-U.S. Holder of Halliburton
Common Stock will be subject to the withholding of U.S. income tax at the rate
of 30% of the amount of the dividend, or at a lower applicable treaty rate.
Dividends paid to a resident of the United Kingdom are generally subject to U.S.
withholding tax at a rate of 15%. See "--United Kingdom Tax Consequences of the
Offer". If, however, the dividend is effectively connected with the conduct of a
trade or business within the United States by a Non-U.S. Holder (or in the case
of an applicable tax treaty is attributable to a permanent establishment of a
Non-U.S. Holder in the United States), the dividend will be subject to regular
U.S. federal income tax; in the case of a Non-U.S. Holder that is a corporation,
the dividend also may be subject to a branch profits tax (at the rate of 30% or
a lower applicable treaty rate), which generally is imposed with respect to a
foreign corporation's repatriation from the United States of its effectively
connected earnings and profits. Halliburton must report annually to the Internal
Revenue Service and to each Non-U.S. Holder the amount of dividends paid to, and
the tax withheld with respect to, each Non-U.S. Holder. These reporting
requirements apply regardless of whether withholding was reduced by an
applicable tax treaty. Copies of these information returns may also be made
available under the provisions of a treaty or information exchange agreement
with the tax authorities in the country in which the Non-U.S. Holder resides.
U.S. backup withholding tax generally will not apply to dividends paid on
Halliburton Common Stock to a Non-U.S. Holder at an address outside the United
States unless the payor has knowledge that the payee is a United States person.
Sale or Exchange. A Non-U.S. Holder will not be subject to U.S. federal
income tax on any gain recognized upon the sale (or other disposition) of
Halliburton Common Stock unless (i) such gain is effectively connected with the
conduct of a trade or business within the United States by such holder, (ii)
such holder is an individual who has been present in the United States for at
least 183 days during the taxable year of the disposition, the Halliburton
Common Stock is a capital asset and either (a) such individual's "tax home" for
federal income tax purposes is in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, (iii) such holder is an individual who lost
U.S. citizenship to avoid U.S. tax, or (iv) Halliburton is or has been a "United
States real property holding corporation" for federal income tax purposes and
either the Halliburton Common Stock is not regularly traded on an established
securities market or the Non-U.S. Holder owned, directly or pursuant to certain
attribution rules at any time during the five-year period ending on the date of
disposition, more than 5% of Halliburton's Common Stock.
Payment of the proceeds from a sale of Halliburton Common Stock to or
through a U.S. office of a broker will be subject to information reporting and
backup withholding unless the owner certifies as to its status as a Non-U.S.
Holder under penalties of perjury or otherwise establishes an exemption.
Payment of the proceeds from a sale of Halliburton Common Stock to or through a
non-U.S. office of a broker generally will not be subject to information
reporting or backup withholding; however, if such broker is (i) a United States
person, (ii) a "controlled foreign corporation" for U.S. tax purposes, or (iii)
a foreign person that derives 50% or more of its gross income from the conduct
of a trade or business in the United States, such payment will be subject to
information reporting (but currently not backup withholding) unless such broker
has documentary evidence in its records that the owner is a Non-U.S. Holder and
certain other conditions are met or the owner otherwise establishes an
exemption. Any amounts withheld under the backup withholding rules will be
credited against the Non-U.S. Holder's federal income tax liability, if any, or
refunded, provided the required information is furnished to the Internal Revenue
Service.
Estate Tax. The fair market value of Halliburton Common Stock owned (or
treated as owned) by an individual at the time of his death will be includible
in his gross estate for U.S. federal estate tax purposes and thus may be subject
to U.S. estate tax, even though the individual at the time of death is neither a
citizen of nor domiciled in the United States, unless an applicable estate tax
treaty provides otherwise.
75
<PAGE>
Other Jurisdictions
Those PES Shareholders subject to the income or other taxation laws and
regulations of jurisdictions other than the U.K. and the U.S. should consult
their individual tax advisers as to the tax consequences of the Offer and the
Compulsory Acquisition to them.
General
The above information on U.K. and U.S. taxation does not constitute
taxation advice and is of a general nature only. if you are in any doubt as to
your taxation position or your liability to taxation in any other jurisdiction,
you should consult an appropriate independent professional advisor.
PES EXTRAORDINARY GENERAL MEETING
Date and Time
A notice of extraordinary general meeting of PES Shareholders (the "EGM")
is included with this Offer Document as posted to each PES Shareholder. The EGM
of PES Shareholders will be held on ____________, _______________, 1999, at
______________________, __________, _________ commencing at ___:00 a.m. local
time.
76
<PAGE>
Purpose
At the EGM, the PES Shareholders will be asked to consider adopting a
resolution:
- to suspend, for the purposes of the Offer, the pre-emption rights of
PES shareholders on transfers of PES Shares that are conferred by
Article 10 of the articles of association of PES; and
- to suspend, for the purposes of the Offer, the obligation of a person,
who has acquired a majority of the PES Shares in issue, to make a cash
offer to acquire the remaining shares.
Each element of the resolution is designed to facilitate the Offer. The
purpose of the first element is to exclude the acquisition of PES Shares
pursuant to the Offer from preemptive rights of PES Shareholders. The purpose
of the second element is to enable Halliburton to effect the Compulsory
Acquisition by using Halliburton Common Stock rather than cash.
It is a Condition of the Offer that the resolution must be passed. The
Principal Shareholders have given the Irrevocable Undertakings to vote in favor
of such resolution in respect of their beneficial holdings of, in the aggregate,
633,570 PES Shares representing 50.02% of the issued ordinary share capital of
PES. In addition, PES Trustees Limited has given an Irrevocable Undertaking to
vote in favor of such resolution in respect of its holding of 141,130 PES
Shares, representing a further 11.14% of the issued share capital of PES, and
Holdings will also vote in favor of the resolution in respect of its holding of
334,360 PES Shares, representing a further 26.4% of the issued share capital of
PES.
Procedure
Only persons on the register of members of PES on the date of the EGM are
entitled to vote at the EGM. On the date of this Offer Document, there were
1,266,540 PES Shares in issue. Unless a poll is requested, each member will be
entitled to one vote on the resolution proposed at the EGM. On a poll each PES
Shareholder present at the meeting in person or by proxy will be entitled to one
vote for each PES Share held.
77
<PAGE>
The resolution to be put before the EGM must be passed by a majority of
not less than three-fourths of such members as (being entitled to do so) vote in
person or by proxy at the meeting. If a PES Shareholder abstains, it will have
no effect on the vote on the proposal.
PES Shareholders may direct all questions concerning the EGM to Michael
Bowyer, a director of PES, at +44 (0) 1224 793000.
78
<PAGE>
INFORMATION REGARDING HALLIBURTON COMPANY
General Development Of Business
Halliburton's predecessor was established in 1919 and incorporated under
the laws of the State of Delaware in 1924. Halliburton provides energy
services, engineering and construction services and manufactures products for
the energy industry. Information related to acquisitions and dispositions is
set forth in Note 14 to the consolidated financial statements of Halliburton
included elsewhere herein.
Financial Information About Business Segments
Halliburton is comprised of three business segments. See Note 2 to the
consolidated financial statements of Halliburton included elsewhere herein for
financial information about these three business segments.
Description Of Services And Products
The following is a summary which briefly describes Halliburton's services
and products for each business segment.
The Energy Services Group segment provides a wide range of services,
products and integrated solutions to customers in the exploration, development
and production of oil and natural gas. The Energy Services Group operates
worldwide, serving major oil companies, independent operators and national oil
companies. The segment includes Halliburton Energy Services (HES), which offers
pressure pumping equipment and services, logging and perforating products and
services, drilling systems and services, drilling fluid systems, drill bits,
specialized completion and production equipment and services and well control
products and services; Brown & Root Energy Services, which provides upstream oil
and gas engineering, procurement and construction, project management and
production services, subsea construction, fabrication and installation of
onshore and offshore pipelines, offshore and production platforms, marine
engineering and other marine related projects; Landmark Graphics Corporation,
which provides integrated exploration and production information systems and
professional services; and Halliburton Energy Development (HED), which creates
business opportunities for the development, production and operation of oil and
gas fields in conjunction with Halliburton's customers. In March 1999, HED was
combined with HES.
The Engineering and Construction Group segment provides: conceptual
design, process design, detailed engineering, procurement, project and
construction management; construction of chemical and petrochemical plants,
refineries, liquefied natural gas (LNG) and gas processing facilities, pulp and
paper mills, metal processing plants, airports, water and wastewater systems;
technical and economic feasibility studies; site evaluation; repair and
refitting of submarines and surface ships; operations and maintenance services,
and engineering, logistics and wastewater management services for commercial
industry, utilities and government customers.
79
<PAGE>
The Dresser Equipment Group segment designs, manufactures and markets
highly engineered products and systems for oil and gas producers, transporters,
processors, distributors and users throughout the world. Products and systems of
this segment include compressors, turbines, generators, electric motors, pumps,
engines and power systems, valves and controls, instruments, meters and pipe
couplings, blowers and gasoline dispensing systems.
Markets And Competition
Halliburton is one of the world's largest diversified energy services and
engineering and construction services companies. Halliburton's services and
products are sold in highly competitive markets throughout the world.
Competitive factors impacting sales of Halliburton's services and products are:
price, service (including the ability to deliver services and products on an "as
needed, where needed" basis), product quality, warranty and technical
proficiency. A growing number of customers are now indicating a preference for
integrated services and solutions. These integrated solutions, in the case of
the Energy Services Group, relate to all phases of exploration, development and
production of oil and gas, and in the case of the Engineering and Construction
Group, relate to all phases of design, procurement, construction project
management and maintenance of a facility. Demand for these types of integrated
solutions is based primarily upon quality of service, technical proficiency and
value created.
Halliburton conducts business worldwide in over 120 countries. Since the
markets for Halliburton's services and products are so large and cross many
geographic lines, a meaningful estimate of the number of competitors cannot be
made. These markets are, however, highly competitive with many substantial
companies operating in each market. Generally, Halliburton's services and
products are marketed through its own servicing and sales organizations. A
small percentage of sales of the products of the Energy Services Group and
Dresser Equipment Group is made by supply stores and third-party
representatives.
Operations in some countries may be adversely affected by unsettled
political conditions, expropriation or other governmental actions, and exchange
control and currency problems. Halliburton believes the geographic
diversification of its business activities reduces the risk that loss of its
operations in any one country would be material to the conduct of its operations
taken as a whole. Information regarding Halliburton's exposures to foreign
currency fluctuations, risk concentration and financial instruments used to
minimize risk is included under "Halliburton Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in Note 15 to the
consolidated financial statements of Halliburton included elsewhere herein.
Customers And Backlog
In 1998, 1997, and 1996, respectively, 85%, 84% and 81% of Halliburton's
revenues were derived from the sale of products and services to, including
construction for, the energy industry. Approximately 10% of the total backlog
at December 31, 1998 was for equipment manufacturing contracts. The following
schedule summarizes the backlog of engineering and construction projects and
equipment manufacturing contracts at December 31, 1998 and 1997:
80
<PAGE>
<TABLE>
<CAPTION>
Millions of dollars 1998 1997
--------------------------------------- ------- -------
<S> <C> <C>
Firm orders $10,472 $12,087
Government orders firm but not yet
funded, letters of intent and contracts
awarded but not signed 705 591
------- -------
Total $11,177 $12,678
======= =======
</TABLE>
Halliburton estimates that 65% of the backlog existing at December 31,
1998 will be completed during 1999. Halliburton's backlog excludes contracts for
recurring hardware and software maintenance and support services. Backlog is not
necessarily indicative of future operating results because backlog figures are
subject to substantial fluctuations. Arrangements included in backlog are in
many instances extremely complex, nonrepetitive in nature and may fluctuate in
contract value. Many contracts do not provide for a fixed amount of work to be
performed and are subject to modification or termination by the customer. Due to
the size of certain contracts, the termination or modification of any one or
more contracts or the addition of other contracts may have a substantial and
immediate effect on backlog.
Raw Materials
Raw materials essential to Halliburton's business are normally readily
available. Where Halliburton is dependent on a single supplier for any
materials essential to its business, Halliburton is confident that it could make
satisfactory alternative arrangements in the event of an interruption in the
supply of such materials.
Research, Development And Patents
Halliburton maintains an active research and development program to assist
in the improvement of existing products and processes, the development of new
products and processes and the improvement of engineering standards and
practices that serve the changing needs of its customers. Information relating
to expenditures for research and development is included in Note 1 and Note 2 to
the consolidated financial statements of Halliburton included elsewhere herein.
Halliburton owns a large number of patents and has pending a substantial
number of patent applications covering various products and processes.
Halliburton is also licensed under patents owned by others. Halliburton does
not consider a particular patent or group of patents to be material to its
business.
Seasonality
Weather and natural phenomena can temporarily affect the performance of
Halliburton's services. Winter months in the Northern Hemisphere tend to affect
operations negatively, but the widespread geographical locations of
Halliburton's operations serve to mitigate the seasonal nature of its business.
81
<PAGE>
Employees
At March 31, 1999, Halliburton employed approximately 98,000 people.
Regulation
Halliburton is subject to various environmental laws and regulations.
Compliance with such requirements has not substantially increased capital
expenditures, adversely affected Halliburton's competitive position or
materially affected its earnings. Halliburton does not anticipate any material
adverse effects in the foreseeable future as a result of existing environmental
laws and regulations. Note 10 to the consolidated financial statements of
Halliburton included elsewhere herein discusses Halliburton's involvement as a
potentially responsible party in the remedial activities to clean up several
"Superfund" sites.
82
<PAGE>
HALLIBURTON COMPANY
SELECTED FINANCIAL DATA(a)
Millions of dollars and shares except per share and employee data
<TABLE>
<CAPTION>
Years ended December 31 Unaudited March 31
------------------------------------------------------------------ ----------------------
1994 1995 1996 1997 1998 1998 1999
- ------------------------------------ --------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Net revenues
Energy Services Group $ 4,977.5 $ 5,307.7 $ 6,515.4 $ 8,504.7 $ 9,009.5 $ 2,284.8 $ 1,753.4
Engineering and Construction Group 3,562.3 3,736.5 4,720.7 4,992.8 5,494.8 1,347.3 1,508.1
Dresser Equipment Group 2,452.0 2,467.4 2,710.5 2,779.0 2,848.8 622.7 663.1
--------- --------- --------- --------- --------- --------- ---------
Total revenues $10,991.8 $11,511.6 $13,946.6 $16,276.5 $17,353.1 $ 4,254.8 $ 3,924.6
========= ========= ========= ========= ========= ========= =========
Operating Income:
Energy Services Group $ 405.8 $ 544.5 $ 698.0 $ 1,019.4 $ 971.0 $ 283.0 $ 56.7
Engineering and Construction Group 71.0 96.6 134.0 219.0 237.2 59.0 58.4
Dresser Equipment Group 198.1 200.7 229.3 248.3 247.8 39.4 53.6
Special charges and credits (b) (24.6) (8.4) (85.8) (16.2) (980.1) - -
General corporate (56.2) (70.8) (72.3) (71.8) (79.4) (20.3) (16.5)
--------- --------- --------- --------- --------- --------- ---------
Total operating income (b) 594.1 762.6 903.2 1,398.7 396.5 361.1 152.2
Nonoperating income (expense), 323.1 (32.6) (72.2) (85.6) (117.7) (23.0) (3.2)
net (c) --------- --------- --------- --------- --------- --------- ---------
Income From Continuing Operations
Before Income Taxes, Minority
Interest And Change In
Accounting Method 917.2 730.0 831.0 1,313.1 278.8 338.1 149.0
Provision for income taxes (d) (346.9) (247.0) (248.4) (491.4) (244.4) (127.3) (59.6)
Minority interest in net income
of consolidated subsidiaries (33.1) (20.7) (24.7) (49.3) (49.1) (7.4) (8.4)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations $ 537.2 $ 462.3 $ 557.9 $ 772.4 $ (14.7) $ 203.4 $ 81.0
========= ========= ========= ========= ========= ========= =========
Basic Income (Loss) Per Common
Share:
Continuing operations $ 1.25 $ 1.07 $ 1.30 $ 1.79 $ (0.03) $ 0.46 $ 0.18
Net income (loss) 1.26 0.88 1.30 1.79 (0.03) 0.46 0.14
Diluted Income (Loss) Per Share:
Continuing operations 1.24 1.07 1.29 1.77 (0.03) 0.46 0.18
Net income (loss) 1.26 0.88 1.29 1.77 (0.03) 0.46 0.14
Cash dividends per share (e), (f) 0.50 0.50 0.50 0.50 0.50 0.125 0.125
Return on average shareholders'
equity 15.47% 10.43% 15.25% 19.17% (0.35%) 4.6% 1.5%
Financial Position:
Net working capital $ 2,196.7 $ 1,476.7 $ 1,501.0 $ 1,982.9 $ 2,079.4 $ 1,945.1 $ 2,248.9
Total assets 8,521.0 8,569.4 9,586.8 10,701.8 11,112.0 10,988.4 10,819.6
Property, plant and equipment, net 2,047.0 2,285.0 2,554.0 2,766.4 2,921.6 2,847.5 2,891.0
Long-term debt (including current
maturities) 1,119.8 666.8 958.0 1,304.3 1,428.2 1,304.6 1,422.9
Shareholders' equity 3,722.5 3,577.0 3,741.4 4,316.9 4,061.2 4,431.6 4,054.0
Total capitalization 4,905.9 4,377.9 4,830.1 5,671.7 6,004.4 6,003.6 6,187.0
Shareholders' equity per share (e) 8.63 8.29 8.78 9.86 9.23 10.12 9.21
Average common shares outstanding
(basic) (e) 430.6 431.1 429.2 431.1 438.8 438.1 439.7
Average common shares outstanding
(diluted) (e) 431.5 432.3 432.1 436.1 438.8 442.5 441.8
Other Financial Data:
Cash flows from operating
activities $ 793.1 $ 1,094.6 $ 864.2 $ 833.1 $ 454.1 $ 76.9 $ 173.7
Capital expenditures 432.1 591.5 731.1 880.1 914.3 227.1 142.8
Long-term borrowings
(repayments), net (120.8) (482.2) 287.4 285.5 123.3 -- --
Depreciation and amortization
expense 487.6 466.4 497.7 564.3 587.0 147.8 143.6
Payroll and employee benefits 4,222.3 4,188.0 4,674.3 5,478.9 5,880.1 N/A N/A
Number of employees (g) 86,500 89,800 93,000 102,000 107,800 N/A 98,000
</TABLE>
______________________
(a) Prior year information presented has been restated for the acquisition by
merger (the "Merger") of Dresser Industries, Inc. ("Dresser") on September
29, 1998. Beginning in 1998, Dresser's year-end of October 31 has been
conformed to Halliburton's calendar year-end. Periods through December
1997 contain Dresser's information on a fiscal year-end basis combined with
Halliburton's information on a calendar year-end basis.
(b) Operating income includes the following special charges and credits:
83
<PAGE>
1998 - $980.1 million: asset related charges ($509.4 million), personnel
reductions ($234.7 million), facility consolidations ($126.2 million),
merger transaction costs ($64.0 million), and other related costs ($45.8
million);
1997 - $16.2 million: acquisition costs ($8.6 million), restructuring of
joint ventures ($18.0 million), write-downs on impaired assets and early
retirement incentives ($21.6 million), losses from the sale of assets ($9.7
million), net of gain on extension of joint venture ($41.7 million);
1996 - $85.8 million: merger costs ($12.4 million), restructuring, merger
and severance costs ($62.1 million), and write-off of acquired in-process
research and development costs ($11.3 million);
1995 - $8.4 million: restructuring costs ($4.7 million) and write-off of
acquired in-process research and development costs ($3.7 million); and
1994 - $24.6 million: merger costs ($27.3 million), restructuring costs
($6.2 million), litigation ($9.5 million), net of litigation and insurance
recoveries ($18.4 million).
(c) Nonoperating income in 1994 includes a gain of $275.7 million from the sale
of an interest to Western Atlas International, Inc. and a gain of $102.0
million from the sale of Halliburton's natural gas compression
business.
(d) Provision for income taxes in 1996 includes tax benefits of $43.7 million
due to the recognition of net operating loss carry forwards and the
settlement of various issues with the Internal Revenue Service.
(e) Weighted average shares, cash dividends paid per share and shareholders'
equity per share have been restated to reflect the two-for-one common stock
split declared on June 9, 1997, and effected in the form of a stock
dividend and paid on July 21, 1997.
(f) Represents Halliburton amounts prior to the merger with Dresser.
(g) Does not include employees of 50% or less owned affiliated companies.
84
<PAGE>
HALLIBURTON MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Halliburton / Dresser Merger
On September 29, 1998, the acquisition (the "Merger") of Dresser
Industries, Inc. ("Dresser") by Halliburton was completed. The Merger was
accounted for using the pooling of interests method of accounting for business
combinations. Accordingly, Halliburton's financial statements have been
restated to include the results of Dresser for all periods presented. See Note
14 to the annual consolidated financial statements included elsewhere herein.
Prior to the Merger, Dresser was a diversified company with operations in three
business segments: Petroleum Products and Services; Engineering Services; and
Energy Equipment. Prior to the Merger, Halliburton operated in two business
segments, the Energy Group and the Engineering and Construction Group.
Following the Merger, Halliburton is organized around three business segments:
Energy Services Group; Engineering and Construction Group; and Dresser Equipment
Group.
Management of Halliburton believes the Merger provides Halliburton with the
opportunity to better meet customer needs, to improve its technology, to
strengthen its product service lines, to cut costs, and to position Halliburton
for the future.
Business Environment
Halliburton operates in over 120 countries around the world to provide a
variety of energy services, energy equipment and engineering and construction
services to energy, industrial and governmental customers. The industries
served by Halliburton are highly competitive with many substantial competitors.
Operations in some countries may be affected by unsettled political conditions,
expropriation or other governmental actions, exchange controls and currency
devaluations. Halliburton believes the geographic diversification of its
business activities reduces the risk that loss of its operations in any one
country would be material to its consolidated results of operations.
The majority of Halliburton's revenues are derived from the sale of
services and products, including construction activities, to the energy
industry. Halliburton offers a comprehensive range of integrated and discrete
services and products as well as project management for oil and natural gas
activities throughout the world.
Declines in energy industry activities that started in 1998 continued
during the first quarter of 1999, particularly in the areas of exploration and
development of hydrocarbons. The average worldwide rotary rig count in the
first quarter of 1999 was 35% lower than in the first quarter of 1998. The
average U.S. rotary rig count in the first quarter of 1999 was 43% lower
compared to the first quarter of 1998 and continued to decline into the second
quarter of 1999. These declines in activity and reduced capital spending by the
Halliburton's customers negatively impacted Halliburton's results for the
quarter, particularly within the Energy Services Group segment.
The downstream oil and gas business which is serviced by both the
Engineering and Construction Group and the Dresser Equipment Group segments was
not as severely affected by the
85
<PAGE>
industry downturn due to the longer term nature of projects and continuing
maintenance requirements. Both of these two segments also benefitted from
activities unrelated to the energy industry.
Other major changes in the energy industry include the announced
integration of several major oil companies that have further delayed capital
spending programs. The integrations may identify excess capacity in some areas
which could affect the markets for some of Halliburton's products and services.
Halliburton has seen some effect of these integrations in the first quarter of
1999 resulting in delayed projects and reduced use of software products. Longer
term effects will depend on the results of rationalization efforts on the part
of the Halliburton's customers.
Management still believes in the long-term fundamentals of the energy
industry and that steadily rising population and greater industrialization
efforts will continue to propel global growth, particularly in developing
nations, and these factors will cause increasing demand for oil and natural gas
to supply growing needs for refined products, petrochemicals, fertilizers and
power.
Energy Services Group. During 1998, particularly in the second half of the
year, the energy industry experienced a downturn brought about by a combination
of factors that began in late 1997. Decreased demand in Asia for crude oil,
increases in production from OPEC producers, added production increases from
Iraq and unseasonably warm winters in North America during 1997 and 1998 all
contributed to the industry downturn experienced during 1998. Throughout 1998,
crude oil prices varied from $4 to $8 per barrel lower than 1997. Equally
important, oil prices were less than $15 per barrel for most of 1998,
particularly during the second half of the year, making many drilling programs
economically infeasible. Natural gas prices within the U.S., although
significantly lower than 1997 levels, remained above $2 per million BTU until
the third quarter of 1998. During the third quarter of 1998, natural gas prices
began a decline which, combined with additional declines in crude oil prices,
resulted in further reductions in demand for hydrocarbon exploration and
development. These factors negatively impacted the industry and Halliburton.
Overall, the industry fundamentals in 1998 were significantly weaker than 1997.
Integrated business solutions, long term overseas contracts and an
engineering and construction services backlog benefited Halliburton's revenues
throughout 1998 when compared to the industry fundamentals and worldwide rig
counts. Continued interest in deepwater drilling in the Gulf of Mexico and
projects in the North Sea, combined with U.S. natural gas prices above $2 per
million BTU benefited the industry during the first and second quarters of 1998.
As industry indicators began to significantly weaken in the third quarter of
1998, Halliburton started implementing actions to properly align its resources
to projected industry conditions.
Although 1998 was a difficult year and 1999 will also be difficult,
Halliburton believes that long term industry fundamentals will prevail. Demand
for oil and natural gas worldwide should recover and grow. Over time, the
accelerating depletion of existing production and the need for technologies that
make exploration and production economically feasible in the presence of low oil
and gas prices will provide growth opportunities. Halliburton believes that its
customers will continue to seek opportunities to lower the overall cost of
exploring, developing and enhancing the recovery of hydrocarbons through
increased utilization of integrated solutions, application of new technology and
partnering and alliance arrangements. Halliburton believes that it has good
86
<PAGE>
opportunities to expand its revenues and profit through greater participation in
larger projects that utilize its project management and integrated services
capabilities. However, uncertainty exists within the industry into the
foreseeable future.
Engineering And Construction Group. While Halliburton has seen projects
delayed and canceled in many of the areas that it serves, Halliburton expects to
see demand for its engineering and construction services continue to increase
over the long term. Halliburton believes the key to increase its revenues and
improve profit margins in the current environment will be its ability to provide
total customer satisfaction. Today's competitive environment demands
flexibility and innovation. To bring more value to its customers, Halliburton
must demonstrate its ability to partner with other service and equipment
suppliers and customers on larger projects, accept more project success risk
through total project responsibility or fixed price contracts, broaden its core
competencies, acquire and fully utilize proprietary technology and manage costs.
The Engineering and Construction Group has determined it will focus on demand in
the liquefied natural gas (LNG), fertilizer, petroleum, chemical and forest
products industries in the United States and international locations.
Halliburton also sees an expanding demand for its government services
capabilities in the United States and the United Kingdom as governmental
agencies, including local government units, continue to expand their use of
outsourcing to improve service levels and manage costs.
Dresser Equipment Group. Dresser Equipment Group's business activity is
primarily determined by activity levels within the energy industry. Products
and systems of Dresser Equipment Group include compressors, turbines,
generators, electric motors, pumps, engines and power systems, valves,
instruments, meters and pipe couplings, blowers and fuel dispensing systems.
Demand for these products is directly affected by global economic activity,
which influences demand for transportation fuels, petrochemicals, plastics,
fertilizers, chemicals and by-products of oil and gas. The environment for
sales of Dresser Equipment Group products is highly competitive and its sales
and earnings can be affected by changes in competitive prices, fluctuations in
the level of activity in major industry areas, and general economic conditions.
The group strives to be the low cost provider in this competitive environment.
Because of the impact of economic and political conditions, and uncertainty
in many parts of the world, several initiatives are in place to reduce capacity
costs and improve operating performance. Halliburton believes strong demand
still exists for products and services of Dresser Equipment Group. The key to
achieving favorable operating results over the course of the year, particularly
in light of industry conditions, will rely to a great extent on the ability of
the group to leverage the customers currently served and leverage off of the
products and service offerings of other Halliburton companies to be able to
provide integrated solutions to the expanded customer base.
In the near term, activity levels remain uncertain. In the long term
Halliburton believes the demand for the products and systems of Dresser
Equipment Group will increase due to rising population and an expanding
industrial base.
87
<PAGE>
Results of Operations - 1999 Compared to 1998
First Quarter of 1999 Compared with the First Quarter Of 1998
<TABLE>
<CAPTION>
Revenues First Quarter Increase
-------------------
Millions of dollars 1999 1998 (DECREASE)
--------- -------- ------------
<S> <C> <C> <C>
Energy Services Group................. $ 1,753 $ 2,285 $ (532)
Engineering and Construction Group.... 1,508 1,347 161
Dresser Equipment Group............... 663 623 40
-------- -------- -------
Total revenues...................... $ 3,924 $ 4,255 $ (331)
======== ======== =======
</TABLE>
Consolidated revenues decreased 8% to $3,924 million in the first quarter
of 1999 compared with $4,255 million in the same quarter of the prior year.
International revenues for the first quarter were 66% of total revenue for both
1998 and 1999.
Energy Services Group revenues were $1,753 million for the first quarter
of 1999 reflecting a 23% decrease from the same quarter of the prior year while
drilling activity as measured by the worldwide rotary rig count decreased 35%.
International revenues were 72% of total Energy Services Group revenues for the
quarter compared to 70% for the prior year quarter. Revenues for pressure
pumping, completion, logging, drill bits, drilling systems and fluids product
service lines were lower than the prior year in domestic and international
regions. The largest declines in revenues were in North America and Latin
America. Declines in revenue reflect reduced unit volume levels and continued
pricing pressures, particularly in North America.
Revenues from upstream oil and gas engineering and construction services
decreased 18% from the same period of the prior year reflecting the market
downturn in activity caused by low oil prices. The U.K. sector of the North Sea
was particularly impacted by the reduced activity levels. Revenue decreases
include the effects of higher gainshares and a larger than normal amount of
passthrough revenues in the first quarter of 1998.
Revenues from integrated exploration and production information systems
decreased 12% compared to the first quarter of 1998. Decreases in software and
hardware sales were partially offset by increased customer service revenues.
Many customers for Halliburton's information system product lines have put off
software purchases due to lower activity levels in the industry. Customer
consolidations have also resulted in purchase delays.
Engineering and Construction Group revenues increased to $1,508 million in
the first quarter of 1999 compared to $1,347 million in the same quarter of the
prior year. Revenues increased 12% due to active projects in Algeria, Norway
and Nigeria, increased activities at the Devonport Dockyard in the U.K., and
logistics support services to military peacekeeping efforts in the Balkans.
Revenue increases in liquefied natural gas (LNG), olefins and oil and gas
projects were offset by lower revenues from fertilizer and refinery plant
engineering, procurement and construction contracts. Mining and forest products
activity continue to be depressed.
Dresser Equipment Group revenues increased 6% to $663 million for the first
quarter of 1999 as compared to $623 million for the first quarter of 1998. The
compression and pumping product line reported stronger revenues for the current
quarter compared to the first quarter of 1998
88
<PAGE>
with higher revenues for original equipment manufactured items, aftermarket and
services. The largest revenue gains for this product line were experienced in
Europe. Measurement, flow control, and power systems revenues were lower than
the prior year first quarter.
<TABLE>
<CAPTION>
Operating Income First Quarter Increase
-----------------
Millions of dollars 1999 1998 (decrease)
-------- ------- ------------
<S> <C> <C> <C>
Energy Services Group............... $ 57 $ 283 $ (226)
Engineering and Construction Group.. 58 59 (1)
Dresser Equipment Group............. 54 39 15
General corporate................... (17) (20) 3
------- ------- -------
Operating income.................. $ 152 $ 361 $ (209)
======= ======= =======
</TABLE>
Consolidated operating income for the first quarter of 1999 of $152 million
declined 58% compared with $361 million in the same quarter of the prior year.
Energy Services Group operating income decreased 80% to $57 million in the
first quarter of 1999 compared with $283 million in the same quarter of the
prior year. The operating margin for the first quarter of 1999 was 3.2%
compared to the prior year first quarter operating margin of 12.4%. In spite of
significant cost reduction efforts to reduce excess personnel and consolidate
facilities, the pressure pumping, completion, logging, drill bits, drilling
systems and fluids product service lines were impacted by lower activity and
higher discounts. Operating income from upstream oil and gas engineering and
construction activities declined significantly due to lower levels of business
activity and lower manufacturing activity which carry large fixed costs. In
addition, the prior year quarter benefitted from a higher level of gainshares
which were not experienced in 1999.
Engineering and Construction Group operating income decreased slightly to
$58 million in the first quarter of 1999 compared to $59 million in the first
quarter of the prior year. Operating margins were 3.8% in the first quarter of
1999 compared to 4.4% in the prior year first quarter. Operating income
increased over the prior year quarter from engineering, procurement and
construction contracts, offset by lower activity levels in Asia Pacific and the
building construction business. The prior year first quarter included some
favorable resolutions on completed jobs.
Dresser Equipment Group operating income for the first quarter was $54
million, an increase of 38% over the prior year first quarter of $39 million.
The increase in operating income was due to a combination of factors including:
the results of cost control measures; change in product mix; and the effects of
re-aligning the businesses to current industry conditions, including reduced
capacity and reduced headcount levels. The compression and pumping product line
reported the largest increase in operating income within the group.
Nonoperating Items
Interest expense increased to $36 million in the first quarter of 1999
compared to $30 million in the same quarter of the prior year due primarily to
increased short-term borrowings.
Interest income in the first quarter of 1999 increased to $32 million from
$7 million in the first quarter of 1998 primarily due to imputed interest income
on the note receivable from the sale
89
<PAGE>
of Halliburton's interest in M-I L.L.C. and interest earned on settlement of
income tax issues in the U.S. and U.K.
The effective income tax rate increased to 40% for the first quarter of
1999 from 37.7% for the first quarter of 1998. The rate for the quarter was
adversely affected by foreign income taxes and is expected to range between 38%
and 40% for the year of 1999.
Income before the cumulative effect of the change in accounting method was
$81 million or 18 cents per diluted share, a decrease of 60% from net income of
$203 million and 46 cents per diluted share in the first quarter of 1998.
Cumulative effect of change in accounting method of $19 million after tax
or 4 cents per diluted share reflects Halliburton's adoption of SOP 98-5.
Estimated annual expense for 1999 under SOP 98-5 after recording the cumulative
effect of the change is not expected to be materially different from amounts
expensed under the prior accounting treatment. See Note 10 for additional
information. Net income for the first quarter after the cumulative effect of
change in accounting method was $62 million or 14 cents per diluted share.
Results of Operations - 1998 Compared to 1997 and 1996
REVENUES
<TABLE>
<CAPTION>
Millions of dollars 1998 1997 1996
- ------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Energy Services Group $ 9,009.5 $ 8,504.7 $ 6,515.4
Engineering and Construction Group 5,494.8 4,992.8 4,720.7
Dresser Equipment Group 2,848.8 2,779.0 2,710.5
---------- ---------- ----------
Total revenues $ 17,353.1 $ 16,276.5 $ 13,946.6
========== ========== ==========
</TABLE>
Revenues for 1998 were $17,353.1 million, an increase of 7% over 1997
revenues of $16,276.5 million and an increase of 24% over 1996 revenues of
$13,946.6 million. Approximately 65% of Halliburton's consolidated revenues
were derived from international activities in 1998 compared with 60% in 1997 and
59% in 1996.
Energy Services Group revenues were $9,009.5 million for 1998, an increase
of 6% over 1997 revenues of $8,504.7 million and an increase of 38% over 1996
revenues of $6,515.4 million. Revenues in the first half of 1998 were higher
than comparable periods of the prior two years. Revenues in the second half of
1998 were impacted by the steep decline in activity as measured by the worldwide
average rotary rig count. The yearly average worldwide rotary rig count fell
13% in 1998 compared to 1997 (including a third quarter comparative decline of
21% and a fourth quarter comparative decline of 30%) as customers of the Energy
Services Group reacted to reduced prices for their products. Revenues for
pressure pumping activities in 1998 were lower than 1997 but increased compared
to 1996. The decrease in pressure pumping activities for 1998 compared to 1997
occurred in the second half of 1998. Other product and service lines
experienced similar results in this time period. The revenue declines in 1998
compared to 1997 were more pronounced in North America, including the Gulf of
Mexico shelf, and Venezuela. Revenues from upstream oil and gas engineering
services increased in 1998 compared to 1997 and 1996, benefiting from activities
in subsea product lines and from large engineering projects. Revenues for
integrated exploration and production information systems reached record high
levels in 1998. Approximately
90
<PAGE>
67% of the Energy Services Group's revenues were derived from international
activities each year in 1998, 1997 and 1996.
Engineering and Construction Group revenues were $5,494.8 million for 1998,
an increase of 10% from 1997 revenues of $4,992.8 million and an increase of 16%
over 1996 revenues of $4,720.7 million. The increase in revenues in 1998
reflects LNG activities in Asia and Africa, an enhanced oil recovery project in
Africa, and a major ethylene project in Singapore as well as increased revenues
in Asia/Pacific from Kinhill, which was acquired in the third quarter of 1997.
See Note 14 to the annual consolidated financial statements included elsewhere
herein for additional information. For 1998 compared to 1997, revenues were
negatively impacted by the sale of the environmental services business in
December 1997 and lower activity levels for repair and refitting services for
the British Royal Navy's fleet of submarines and surface ships. For 1997
compared to 1996, revenues were aided by the consolidation of Devonport
Management Limited as a result of Halliburton's increased ownership percentage
in that subsidiary. See Note 14. Lower levels of activity under service
contracts with the U.S. Department of Defense to provide technical and
logistical support for military peacekeeping operations in Bosnia resulted in
revenue reductions of approximately $290.0 million in 1997 compared to 1996.
Dresser Equipment Group revenues were $2,848.8 million in 1998, an increase
of 3% over 1997 revenues of $2,779.0 million, and an increase of 5% over 1996
revenues of $2,710.5 million. The compression and pumping and flow control
product lines experienced small increases in revenues while the measurement and
power systems product lines reported a slight decline in revenues for 1998
compared to 1997. Most of the increase in 1997 compared to 1996 came from the
compressor joint venture with Ingersoll-Rand and the measurement product lines.
Operating Income
<TABLE>
<CAPTION>
Millions of dollars 1998 1997 1996
- ---------------------------------------------------- ----------- ---------- ---------
<S> <C> <C> <C>
Energy Services Group $ 971.0 $ 1,019.4 $ 698.0
Engineering and Construction Group 237.2 219.0 134.0
Dresser Equipment Group 247.8 248.3 229.3
General corporate (79.4) (71.8) (72.3)
----------- ----------- ---------
Operating income before special charges and credits $ 1,376.6 $ 1,414.9 $ 989.0
----------- ----------- ---------
Special charges and credits:
Asset related $ (509.4) $ (9.7) $ (0.9)
Personnel reductions (234.7) (5.6) (41.0)
Facility consolidations (126.2) (34.0) (20.2)
Merger transaction costs (64.0) (8.6) (12.4)
Other costs and credits (45.8) 41.7 (11.3)
----------- ----------- ---------
Total special charges and credits $ (980.1) $ (16.2) $ (85.8)
----------- ----------- ---------
Operating income $ 396.5 $ 1,398.7 $ 903.2
=========== =========== =========
</TABLE>
Operating income was $396.5 million for 1998 compared to $1,398.7 million
for 1997 and $903.2 million for 1996. Excluding special charges of $980.1
million, $16.2 million and $85.8 million during 1998, 1997 and 1996,
respectively, operating income for 1998 decreased by 3% from 1997 and increased
by 39% over 1996 as shown in the preceding table. See Note 7 to the annual
consolidated financial statements included elsewhere herein for additional
information on the special charges and credits.
91
<PAGE>
Energy Services Group operating income in 1998 was $971.0 million, a
decrease of 5% from 1997 operating income of $1,019.4 million and an increase of
39% over 1996 operating income of $698.0 million. Operating margins were 10.8%
in 1998 compared with 12.0% in 1997 and 10.7% in 1996. Most of the decline in
operating margins in 1998 compared to 1997 can be attributed to declines in the
completion products and pressure pumping lines, to lower activities in North
America and Venezuela, and to additional job loss provisions recorded in the
fourth quarter of 1998. Approximately 54%, 59% and 63% of the Energy Services
Group's operating income was derived from international activities for 1998,
1997 and 1996, respectively. Operating income for pressure pumping in 1998 was
about 10% lower than 1997 as activity levels were reduced in response to lower
oil and gas prices. Other product and service lines were also impacted by
reduced activity levels with only the drilling related lines having
significantly better operating results in 1998 over 1997. Operating income in
1997 for the group benefited from increased activity levels and increased prices
charged to customers, especially for pressure pumping services in North America.
Operating income for drilling fluids increased in 1997 over 1996 due to the
growth of more technically demanding wells being drilled, particularly in the
Gulf of Mexico. Operating income for upstream oil and gas engineering
activities in 1998 was about the same as 1997 results even after providing
additional provisions for project losses in the North Sea, North Africa and
Latin America related to variation orders for ongoing projects which Halliburton
does not feel will be accepted by the customer due to current industry
conditions. Energy Services Group results for 1996 include $35.0 million of
gain sharing revenue on its portion of the cost savings realized on the BP
Andrew alliance. The alliance completed the project seven months ahead of the
scheduled production of oil and achieved a $125.0 million savings compared with
the targeted cost. Operating income from pipecoating activities were
substantially improved in 1997 compared to 1996 due to higher activity levels in
the Far East, Middle East and the United States.
Engineering and Construction Group operating income for 1998 of $237.2
million increased 8% over 1997 and 77% over 1996. Operating margins were 4.3%
in 1998 compared with 4.4% for 1997 and 2.8% for 1996. Operating income in 1998
includes a favorable settlement of a claim on a Middle Eastern construction
project. Excluding this settlement, operating margins for 1998 were 4.0%.
Operating income and margins in 1998 were negatively affected by losses in the
fourth quarter on existing highway and paving business and for selected projects
which were impacted by the economic downturn in Asia. The Engineering and
Construction Group has not started any new significant jobs in Asia.
Improvement in operating income in 1997 over 1996 was realized through overhead
reductions, a focus on higher margin business lines and the consolidation of
Devonport Management Limited as a result of Halliburton's increased ownership
percentage in that subsidiary. See Note 14 to the annual consolidated financial
statements included elsewhere herein. The 1997 operating income improvements
over 1996 were aided by LNG activities and oil recovery work in Africa together
with engineering services for the fertilizer industry in Latin America.
Operating income in 1996 included a $17.1 million charge for the impairment of
the Engineering and Construction Group's investment in the Dulles Greenway toll
road extension project.
Dresser Equipment Group operating income in 1998 was $247.8 million or
almost unchanged compared to 1997 operating income of $248.3 million. Operating
income for 1998 increased 8% over 1996 operating income of $229.3 million.
Operating income was negatively impacted in 1998 by $17 million of fourth
quarter merger related expenses. Operating income in 1998 for the compression
and pumping product line increased compared to 1997 due to restructuring
92
<PAGE>
initiatives instituted in late 1997 and increased revenues. Operating income
for the flow control product line improved in 1998 over 1997 from cost
improvements, better product mix, and increased volume. Operating income for
the measurement product line decreased in 1998 due to weakness in the gas
metering business as gas utilities continued to work off their excess inventory.
The power systems product line operating income declined in 1998 compared to
1997 due to customers' reduced capital spending caused by softer demand in the
gas compression and refining markets. Operating income increased in 1997
compared to 1996 primarily from the Ingersoll-Dresser Pump joint venture (profit
improvement initiatives started in prior years); Wayne fuel dispensing systems
(introduction of new technologies) and Energy Valve (improved margins and
product mix).
General corporate expenses for 1998 were $79.4 million and include expenses
through the transition after the Merger for operating Dresser's corporate
offices as well as Halliburton's corporate offices. As a percent of
consolidated revenues, general corporate expenses were 0.5% in 1998 compared to
0.4% in 1997 and 0.5% in 1996.
Nonoperating Items
Interest expense was $136.8 million for 1998 compared to $111.3 million in
1997 and $84.6 million in 1996. The increase in 1998 over 1997 is due to the
increased level of short-term borrowings outstanding during 1998. These
borrowings, which carry a lower interest rate than Halliburton's long-term debt,
were used for working capital, capital expenditures and acquisitions. The
increase in 1997 over 1996 is due to the issuance of debt under Halliburton's
medium-term note program in 1997 and a full year's interest on $300.0 million of
long-term debentures issued in August 1996 at a higher interest rate than the
previous short-term debt.
Interest income increased to $27.8 million in 1998 compared to $21.9
million in 1997 and $26.9 million in 1996. Interest income is typically a
factor of the levels of invested cash maintained by Halliburton and its
subsidiaries.
Foreign currency gains (losses) netted to a loss of $12.4 million in 1998
compared to $0.7 million in 1997 and $19.1 million in 1996. The losses in 1998
occurred mainly in Asia/Pacific currencies. The 1996 losses were primarily due
to devaluations of the Venezuelan bolivar and costs of hedging foreign exchange
exposures of an Italian subsidiary.
Provision for income taxes was $244.4 million in 1998. The provision for
income taxes in 1998 includes a benefit of $234.1 million for special charge
items that are tax deductible. Nondeductible special charge items of $109.0
million include merger transaction costs and nondeductible goodwill which was
determined to be impaired. Excluding the special charge and applicable tax
benefits in 1998, the effective tax rate was 38.0%. The 1997 provision of $491.4
million was higher than the 1996 provision of $248.4 million due in part to
improved earnings. The effective income tax rate was 37.4% in 1997, compared
with 29.9% in 1996. The lower effective income tax rate and provision for 1996
are due to credits of $43.7 million recorded during the third quarter of 1996 to
recognize certain net operating loss carryforwards and the settlement of various
issues with the Internal Revenue Service. Excluding the tax benefits recorded in
1996, the effective income tax rate for 1996 was 35.2%. See Note 6 to the annual
consolidated financial statements included elsewhere herein.
93
<PAGE>
Minority interest in net income of consolidated subsidiaries was $49.1
million in 1998 compared to $49.3 million in 1997 and $24.7 million in 1996.
The increase in 1997 over 1996 is due primarily to Dresser Equipment Group's
ownership interests in Dresser-Rand and the Engineering and Construction Group's
ownership interests in Devonport Management Limited, which increased from
approximately 30% to 51% during March 1997.
Net income (loss) for 1998 was a loss of $14.7 million for a $0.03 diluted
loss per share. In 1997 net income of $772.4 million yielded $1.77 diluted
income per share while 1996 net income of $557.9 million yielded $1.29 diluted
income per share.
Liquidity and Capital Resources
First Quarter of 1999 Compared with the First Quarter of 1998
Halliburton ended the first quarter of 1999 with cash and equivalents of
$419 million, an increase of $216 million from the end of 1998. Higher levels
of cash were due to cash collections in the last few days of the quarter and to
higher levels of cash in consolidated joint ventures. To conform Dresser's
fiscal year-end to Halliburton's calendar year-end, Dresser's cash flows in 1998
are measured from December 31, 1997, rather than from the October 31, 1997
balances as reported on the consolidated balance sheets in Halliburton's 1998
Annual Report.
Operating activities. Cash flows from operating activities provided $174
million in the first three months of 1999, as compared to $77 million in the
first three months of 1998. Special charges for personnel reductions, facility
closures and integration costs required approximately $93 million of cash in the
first three months of the current year.
Investing activities. Capital expenditures were $143 million for the first
three months of 1999, a decrease of 37% over the same period of the prior year.
The decrease in capital spending primarily reflects the current operating
environment. Capital spending was mostly for equipment and infrastructure for
the Energy Services Group. Halliburton also continued its planned investments
in its enterprise-wide information system.
Financing activities. Cash flows from financing activities were $147
million in the first three months of 1999 compared to cash flows of $62 million
in the first three months of 1998. Halliburton borrowed $194 million net of
repayments in short-term funds consisting of commercial paper and bank loans in
the first three months of 1999. In the first three months of 1998, Halliburton
borrowed $122 million in short-term funds net of repayments consisting of
commercial paper and bank loans. Proceeds from exercises of stock options
provided cash flows of $14 million in the first three months of 1999 compared to
$30 million in the same period of the prior year.
Halliburton believes it has sufficient borrowing capacity to fund its
working capital requirements and investing activities. Halliburton's combined
short-term notes payable and long-term debt was 34.5% of total capitalization at
March 31, 1999 compared to 32.4% at December 31, 1998.
94
<PAGE>
Year ended 1998 Compared to 1997 and 1996
Halliburton ended 1998 with cash and equivalents of $202.6 million compared
with $384.1 million in 1997 and $446.0 million in 1996. To conform Dresser's
fiscal year-end to Halliburton's calendar year-end, Dresser's cash flows are
measured from December 31, 1997, rather than from the October 31, 1997 balances
included on the consolidated balance sheets.
Cash flows from operating activities were $454.1 million for 1998 compared
to $833.1 million for 1997 and $864.2 million for 1996. In 1998, the primary
use of cash for operating activities was to fund increased working capital
requirements.
Cash flows used in investing activities were $846.1 million for 1998,
$873.3 million for 1997 and $759.1 million for 1996. The majority of cash used
for investing activities during 1998 was for capital expenditures. Capital
expenditures in 1998 increased slightly over 1997 as Halliburton's continued
investment in its enterprise-wide information systems initiative offset declines
in other capital spending. Cash used in investing activities in 1997 also
includes the acquisitions of OGC of approximately $118.3 million, and Kinhill of
approximately $34.0 million, and an interest in PES (International) Limited of
approximately $33.6 million, offset by the sale of Halliburton's environmental
business for about $32.0 million. In 1996, investing activities included a
$41.3 million expenditure for Halliburton's share of the purchase price of a
subsidiary acquired by Halliburton's former 36% owned affiliate, M-I L.L.C.
Also in 1996, several other acquisitions were made which used $32.2 million of
cash.
Cash flows from financing activities provided $253.7 million in 1998 and
used $20.6 million in 1997 and $148.4 million in 1996. Halliburton issued
$150.0 million of long-term debt under its medium-term note program in 1998.
Also in 1998, Halliburton had net borrowings of short-term debt of $369.3
million and proceeds from exercise of stock options of $49.1 million. Dividends
to shareholders used $254.2 million of cash in 1998. During 1997, cash was
provided by proceeds from debt issued under Halliburton's medium-term note
program of $300.0 million plus $3.2 million of other long-term borrowings and
proceeds from the exercise of stock options of $71.5 million. Offsetting these
inflows were payments on long-term debt of $17.7 million, net repayments on
short-term borrowings of $85.8 million, payments to reacquire common stock of
$44.1 million, and dividend payments of $250.3 million. Cash used for financing
activities during 1996 consisted primarily of dividend payments of $239.6
million and payments to reacquire common stock of $235.2 million offset by
proceeds from long-term borrowings of $295.6 million and proceeds from the
exercise of stock options of $42.6 million. Halliburton's combined short-term
notes payable and long-term debt was 32%, 24% and 23% of total capitalization at
the end of 1998, 1997 and 1996, respectively.
Halliburton has the ability to borrow additional short-term and long-term
funds if necessary. See Note 8 to the annual consolidated financial statements
included elsewhere herein regarding Halliburton's various short-term lines of
credit, notes payable and long-term debt.
95
<PAGE>
Financial Instrument Market Risk
Halliburton is currently exposed to market risk from changes in foreign
currency exchange rates, and to a lesser extent, to changes in interest rates.
To mitigate market risk, Halliburton selectively hedges its foreign currency
exposure through the use of currency derivative instruments. The objective of
such hedging is to protect Halliburton's cash flows related to sales or
purchases of goods or services from fluctuations in currency rates. Inherent in
the use of derivative instruments are certain types of market risk: volatility
of the currency rates, time horizon of the derivative instruments, market cycles
and the type of derivative instruments used. Halliburton does not use
derivative instruments for trading purposes. See Note 1 to the annual
consolidated financial statements included elsewhere herein for additional
information on Halliburton's accounting policies on derivative instruments. See
Note 15 to the annual consolidated financial statements included elsewhere
herein for additional disclosures related to derivative instruments.
Foreign exchange. While Halliburton operates in over 120 countries,
Halliburton hedges only foreign currencies that are highly liquid and selects
derivative instruments or a combination of instruments whose fluctuation in
value is offset by the fluctuation in value to the underlying exposure. These
hedges generally have expiration dates that do not exceed two years. Exposures
to certain currencies are generally not hedged due primarily to the lack of
available markets or cost considerations (non-traded currencies). Halliburton
manages its foreign exchange hedging activities through a control system which
includes monitoring of cash balances in traded currencies, analytical techniques
such as value at risk estimations, and other procedures.
Interest rates. Halliburton currently has exposure to interest rate risk
from its long-term debt with interest based on LIBOR for the U.K. pound sterling
(GBP) plus 0.75% which was incurred in connection with its acquisition of the
Royal Dockyard in Plymouth, England (the Dockyard Loans). This risk is
partially offset by a compensating balance of approximately one-half of the
outstanding debt amount which earns interest at a rate equal to that of the
Dockyard Loans. The compensating balance is restricted as to use by Halliburton
and is included in other assets on Halliburton's consolidated balance sheets.
See Note 8 to the annual consolidated financial statements included elsewhere
herein for additional discussion of the Dockyard Loans.
Value at risk. Halliburton uses a statistical model to estimate the
potential loss related to derivative instruments used to hedge the market risk
of its foreign exchange exposure. The model utilizes historical price and
volatility patterns to estimate the change in value of the derivative
instruments which could occur from adverse movements in foreign exchange rates
for a specified time period at a specified confidence interval. The model is an
undiversified calculation based on the variance-covariance statistical modeling
technique and includes all foreign exchange derivative instruments outstanding
at December 31, 1998. The resulting value at risk of $2.8 million estimates,
with a 95% confidence interval, the potential loss Halliburton could incur in a
one-day period from foreign exchange derivative instruments due to adverse
foreign exchange rate changes.
Interest rate exposures. The following table represents principal amounts
at December 31, 1998, and related weighted average interest rates by year of
maturity for Halliburton's restricted cash and long-term debt obligations.
Other notes with varying interest rates of $10.2 million as shown
96
<PAGE>
in Note 8 to the annual consolidated financial statements included elsewhere
herein are excluded from the following table.
<TABLE>
<CAPTION>
Expected maturity date Fair
------------------------------------------------
Millions of dollars 1999 2000 2001 2002 2003 Thereafter Total Value
- ------------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Restricted cash - British
pound sterling 4.1 4.1 4.1 2.6 -- -- 14.9 14.9
Average variable rate 6.38% 6.17% 6.04% 5.93% -- -- 6.22%
Long-term debt:
US dollar 50.0 300.0 -- 75.0 138.6 825.0 1,388.6 1,538.0
Average fixed rate 6.27% 6.25% -- 6.30% 8.0% 7.58% 7.56%
British pound sterling
(Dockyard Loans) 8.1 8.1 8.1 5.1 -- -- 29.4 29.4
Average variable rate 6.38% 6.17% 6.04% 5.93% -- -- 6.22%
</TABLE>
Weighted average variable rates are based on implied forward rates in the
yield curve at December 31, 1998. These implied forward rates should not be
viewed as predictions of actual future interest rates. Restricted cash and the
Dockyard Loans earn interest at LIBOR (GBP) plus 0.75%. Instruments that are
denominated in currencies other than the U.S. dollar reporting currency are
subject to foreign exchange rate risk as well as interest rate risk.
1998 Special Charges
The third quarter of 1998 financial results include a pretax charge of
$945.1 million ($722.0 million after tax) to provide for consolidation,
restructuring and merger related expenses related to the merger with Dresser and
the industry downturn. Components of the charge include $509.4 million of asset
related writeoffs, writedowns and charges; $204.7 million for personnel
reduction costs covering approximately 8,100 employees; $121.2 million of
facility consolidation charges; $64.0 million of merger transaction costs; and
$45.8 million of other costs. During the fourth quarter, an additional charge
of $35.0 million ($24.0 million after tax) was taken to provide $30.0 million
for additional personnel reduction costs covering approximately 2,750 employees
and $5.0 million for additional facility consolidations.
Approximately 45% of the special charge of $980.1 million either has
resulted or will result in cash outflows. During 1998, cash outflows of
approximately $110.0 million pertained to special charge items, primarily
severance and merger transaction costs, while the remainder will be incurred in
1999.
Halliburton expects to utilize the remaining special charge reserves during
1999 with the exception of unrealized losses on facilities held for sale. See
Note 9 to the condensed consolidated financial statements for the quarter ended
March 31, 1999 included elsewhere herein for information on accrued special
charges incurred in 1998. Halliburton expects to incur merger related
incremental costs of approximately $110 million that do not qualify as accrued
special charges, including $24 million incurred in the fourth quarter of 1998
and approximately $14 million incurred during the first quarter of 1999. These
costs include relocating personnel, inventory and equipment as part of facility
consolidation efforts; implementing a company-wide common information technology
97
<PAGE>
infrastructure; merging engineering work practices; harmonizing employee benefit
programs; and developing common policies and procedures to provide best
practices.
Environmental Matters
Halliburton is involved as a potentially responsible party in remedial
activities to clean up several "Superfund" sites under applicable federal law
which imposes joint and several liability, if the harm is indivisible, on
certain persons without regard to fault, the legality of the original disposal
or ownership of the site. Although it is very difficult to quantify the
potential impact of compliance with environmental protection laws, management of
Halliburton believes that any liability of Halliburton with respect to all but
one of such sites will not have a material adverse effect on the results of
operations of Halliburton. See Note 10 to the annual consolidated financial
statements and note 6 to the condensed consolidated financial statements for
the quarter ended March 31, 1999 included elsewhere herein for additional
information on the one site.
Year 2000 Issue
The Year 2000 ("Y2K") issue is the risk that systems, products and
equipment utilizing date-sensitive software or computer chips with two-digit
date fields will fail to properly recognize the Year 2000. Such failures by
Halliburton's software and hardware or that of government entities, service
providers, suppliers and customers could result in interruptions of
Halliburton's business which could have a material adverse impact on
Halliburton.
In response to the Y2K issue, Halliburton has implemented an enterprise-
wide Year 2000 Program designed to identify, assess and address significant Y2K
issues in Halliburton's key business operations, including products and
services, suppliers, business and engineering applications, information
technology systems, facilities, infrastructure and joint venture projects.
The Year 2000 Program is a comprehensive, integrated, multi-phase process
covering information technology systems and hardware as well as equipment and
products with embedded computer chip technology. The primary phases of the
program are: (1) inventorying existing equipment and systems; (2) assessing
equipment and systems to identify those which are not Y2K ready and to
prioritize critical items; (3) remediating, repairing or replacing non-Y2K ready
equipment and systems; (4) testing to verify Y2K readiness has been achieved;
and (5) deploying and certifying.
At March 31, 1999, Halliburton was substantially complete with its
inventory and assessment phases of the Program; and was approximately 70%
complete with its remediation and testing phases of the Program; and was
approximately 50% complete with its deployment and certification phases of the
Program.
Overall Halliburton estimates that it is approximately 65% complete with
its Year 2000 Program and anticipates having its products and mission-critical
systems and equipment Y2K ready, tested, certified and deployed during the third
quarter of 1999. Business continuity plans are being developed for all parts of
the business and are also anticipated to be complete and in place by the end of
the third quarter. The balance of 1999 will be focused on any remaining
deployment, certification,
98
<PAGE>
testing and implementation of less critical items as required, and ensuring that
critical business continuity plans are adequate and ready to implement if
necessary.
Through March 31, 1999 Halliburton has incurred approximately $31 million
in costs related to its Year 2000 Program. Halliburton estimates that prior to
January 1, 2000 it will have spent approximately $50 million to address the Y2K
issue. These estimates do not include the costs associated with Halliburton
initiatives discussed below. Costs associated with the Year 2000 Program are
being treated as period costs and expensed as incurred.
Independent of, but concurrent with, the Company's Y2K review, the Company
is installing an enterprise-wide business information system which is scheduled
to replace some of the Company's key finance, administrative and marketing
software systems by the end of 1999 and is Y2K ready. In addition, and as a
separate activity, the Company is in the process of replacing and standardizing
its desktop computing equipment and software and updating its communications
infrastructure. A third party is updating the communications infrastructure.
The replacement of desktop equipment and software is an internal program based
on the Company's common office environment initiative. All hardware and
software installed as a part of these programs are Y2K ready.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and for Hedging Activities" (SFAS 133). This standard requires entities to
recognize all derivatives on the statement of financial position as assets or
liabilities and to measure the instruments at fair value. Accounting for gains
and losses from changes in those fair values are specified in the standard
depending on the intended use of the derivative and other criteria. SFAS 133 is
effective for Halliburton beginning January 1, 2000. Halliburton is currently
evaluating SFAS 133 to identify implementation and compliance methods and has
not yet determined the effect, if any, on its results of operations or financial
position.
99
<PAGE>
INFORMATION REGARDING PES (INTERNATIONAL) LIMITED
GENERAL DEVELOPMENT OF BUSINESS
The origins of the PES Group date back to June of 1985 when Petroleum
Engineering Services Limited was formed, in Aberdeen, Scotland, to provide well
completion and intervention products, services and solutions to the oil and gas
industry. Since that time, the company has established a strong reputation for
innovation in the field of sub-surface oil and gas well engineering.
Essentially a niche market player, PES' success has resulted largely from
its focus on the design of well completion and well intervention products to
improve well life cycle economics. In 1993, to cater to the group's
international expansion plans, PES (International) Limited was established as
the PES Group holding company.
The PES client base consists of almost all of the major international oil
companies.
PES continues to be headquartered in Aberdeen, Scotland.
Description of Products and Services
The following summary briefly describes PES' products and services.
PES' core business is the design, manufacture and supply of oil and gas
well completion and intervention products, services and solutions.
Well completion products form part of the well bore through which the oil
and gas flows from the reservoir to the surface and assist with the control of
flow and the safety of the well. Well intervention products are normally
installed in the well bore, at some point after the well has been completed, to
perform specific functions during remedial well operations. Well intervention
products are normally used for a limited period of time. The product line that
historically contributed most to PES' growth is its well intervention product
line, for many years firmly established in the North Sea and now gaining
acceptance in key international markets.
The requirement for Annular Safety Valves (ASVs) following the Piper Alpha
incident provided an opportunity for PES to participate in this new market along
with the major suppliers (at the time), Baker Oil Tools, Camco International,
Halliburton and AVA/Guiberson. The first PES system was installed in early 1992
for Elf Enterprise and its success led to repeat orders from Elf and subsequent
orders from other customers. Since 1992, PES has made significant gains and is
now a leading supplier of ASVs, although this market segment has been declining.
In addition to its well intervention and Annular Safety Valve business, PES
has developed various high performance well completion products to capitalize on
market opportunities not being addressed by other equipment suppliers.
100
<PAGE>
One of PES' most notable innovations is a Surface Controlled Reservoir
Analysis and Management System ("SCRAMS"). SCRAMS allows the operator to
evaluate and control production from individual zones in a multi-zone producing
well without the need for well intervention. The potential benefits from real
time production management using SCRAMS are significant and include reduced
operating expenditure, reduced production downtime and enhanced ultimate
hydrocarbon recovery.
The main application for SCRAMS is high value wells (e.g. horizontal,
multi-lateral, remote and sub-sea wells). PES has obtained patent and copyright
protection for many of the key features of SCRAMS.
To date, nine SCRAMS systems have been installed in production wells and
demand is growing. PES is currently developing (in conjunction with
Halliburton) a new SCRAMS Interval Control Valve which has infinitely variable
control capability and which represents a further major advance in the area of
production optimization. To facilitate world wide exploitation of SCRAMS, PES
formed a "Smart Well" Strategic Alliance with Halliburton Energy Services in
April of 1997 and through the Alliance, PES has effectively gained access to the
global market for SCRAMS through the 100+ Halliburton facilities world wide. It
should be noted that a number of teething problems were encountered on early
installations. These problems have, however, been addressed as the system has
evolved to create a more robust and enhanced design. Over the past 5 years, PES
has made a substantial investment in SCRAMS.
In addition to SCRAMS, PES has developed other technologies which have, or
are likely to have, significant future impact on the industry. PES has a
growing portfolio of new products that are finding application in locations as
diverse as Colombia and Brunei.
While the SCRAMS product line is likely to have the largest impact both on
the market and on PES growth plans, a number of other significant technologies
have been or are currently being developed by PES. These include:
. High Performance and HP/HT Packers;
. Hydraulically Controlled Completion Systems ("mini-hydraulics", "direct
hydraulics", "digital hydraulics");
. "ANVIL" (Disappearing Plug);
. Downhole Lubricator Valve (to facilitate intervention operation);
. Insert Gas Lift System (IGLS) (to facilitate retrofit of the production
string to gas lift without the need for a full workover);
. First Generation Downhole Robot ("smart shifting tool");
. E-Line Tractor; and
101
<PAGE>
. Open Hole Packer.
Acquisition of Well-Equip Limited
In July 1996 PES acquired an Aberdeen based company called Well-Equip which
designed and manufactured special wireline, coiled tubing and flow control
products for the oil and gas industry. At the time of the acquisition, Well-
Equip's annual turnover was approximately (Pounds)1.7 million. Subsequent to the
acquisition, the assets and resources of Well-Equip were integrated into
Petroleum Engineering Services Limited, the PES U.K. subsidiary. PES later sold
the Well-Equip wireline and coiled tubing product lines to BD Kendle Engineering
in September of 1998.
Acquisition of 26% Stake in PES by Holdings
In April of 1997, Halliburton Holdings Limited acquired a 26% stake in PES
for (Pounds)20.8 million. This acquisition coincided with the signing of the
strategic "Smart Well Alliance" between Halliburton Energy Services and PES.
Markets and Competition
Due to its geographic location, PES initially concentrated on servicing the
North Sea and European markets and developed a strong reputation for innovation
and responsiveness with its target clients. PES then began to investigate
opportunities further afield with the international oil companies.
More than 50% of PES' turnover is now derived from export markets, and PES
has established bases in Norway, Denmark, France, Italy, Australia, and the U.S.
PES currently provides products and services to operators in the following
countries: U.K., Norway, Denmark, Italy, Nigeria, Angola, Gabon, U.S., Colombia,
Argentina, Brunei, Malaysia, Australia, Papua New Guinea, New Zealand,
Indonesia, Oman, Qatar, and Abu Dhabi.
While sales are generally coordinated directly by PES, in certain countries
PES operates with the support of third party agents who provide additional
contact with the client and provide assistance with the in-country logistics.
PES' competitors vary according to the niche markets served but include
Baker Oil Tools, Camco International, Halliburton Energy Services, Petroline,
and Maritime Well Service. The direct competition between Halliburton Energy
Services and PES is very limited.
PES' business in some countries may be adversely affected by unsettled
political conditions, expropriation or other governmental actions, exchange
control and currency problems. PES believes that the geographic diversification
of its business activities reduces the risk that loss of business in any one
country would be material to the conduct of its operations taken as a whole.
102
<PAGE>
PES SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set out below is selected consolidated financial information for PES. The
profit and loss account and balance sheet information at 31 March 1994, 1995,
1996, 1997 and 1998 is extracted from the audited consolidated accounts of PES.
The information as of December 31, 1997 and 1998 and for the periods then ended
is unaudited.
<TABLE>
<CAPTION>
Audited Unaudited
----------------------------------------------------------------------- ---------------------------
5 mths to 9 mths to 9 mths to
31-Mar-94 31-Mar-95 31-Mar-96 31-Mar-97 31-Mar-98 31-Dec-97 31-Dec-98
Profit & loss account (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover 2,808 7,056 10,581 15,989 22,673 16,252 24,066
Cost of sales (1,067) (2,726) (5,311) (8,541) (12,719) (9,012) (14,324)
------ ------ ------ ------- ------- ------ -------
Gross profit 1,741 4,330 5,270 7,448 9,954 7,240 9,742
Admin. expenses (1,507) (3,431) (5,207) (7,390) (10,191) (7,119) (8,676)
Other income 0 108 897 350 279 396 159
------ ------ ------ ------- ------- ------ -------
Operating profit 234 1,007 960 408 42 517 1,225
Exceptional items 0 0 0 (154) (1,659) (1,544) 0
Interest (net) 12 (82) (221) (428) (138) (104) (141)
Income from associates 0 0 11 20 48 0 0
------ ------ ------ ------- ------- ------ -------
Profit before tax 246 925 750 (154) (1,707) (1,131) 1,084
Tax (67) (410) (300) (175) (373) (280) (240)
------ ------ ------ ------- ------- ------ -------
Profit after tax 179 515 450 (329) (2,080) (1,411) 844
Minority interests 0 102 565 (174) 0 0 0
------ ------ ------ ------- ------- ------ -------
Profit for year 179 617 1,015 (503) (2,080) (1,411) 844
Dividends (paid) 0 0 (45) (45) (4) 0 0
------ ------ ------ ------- ------- ------ -------
Retained Profit 179 617 970 (548) (2,084) (1,411) 844
====== ====== ====== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
Audited Unaudited
------------------------------------------------------------------------ ------------------------
31-Mar-94 31-Mar-95 31-Mar-96 31-Mar-97 31-Mar-98 31-Dec-97 31-Dec-98
Balance Sheet (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C> <C>
Intangible fixed assets 0 0 900 2,470 2,302 2,348 2,286
Tangible fixed assets 1,240 2,026 2,130 3,247 5,099 4,429 5,675
Investments 0 0 11 146 3,432 2,835 2,835
------ ------ ------ ------- ------- ------ -------
1,240 2,026 3,041 5,863 10,833 9,612 10,796
------ ------ ------ ------- ------- ------ -------
Stock 506 1,187 1,855 2,738 6,550 5,193 6,629
Debtors 1,382 1,859 4,862 6,412 6,294 5,215 7,120
Cash 393 123 101 259 1,132 2,650 1,094
------ ------ ------ ------- ------- ------ -------
2,281 3,169 6,818 9,409 13,976 13,058 14,843
------ ------ ------ ------- ------- ------ -------
Creditors greater than 1year (2,155) (3,043) (6,671) (10,122) (5,592) (3,823) (5,620)
Creditors less than 1 year (164) (408) (1,071) (2,041) (1,472) (1,514) (1,177)
Provisions (93) (112) (74) (54) (852) (35) (978)
------ ------ ------ ------- ------- ------ -------
Net Assets 1,109 1,632 2,043 3,055 16,893 17,298 17,864
====== ====== ====== ======= ======= ====== =======
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
Audited Unaudited
-------------------------------------------------------------- ------------------------------
31-Mar-94 31-Mar-95 31-Mar-96 31-Mar-97 31-Mar-98 31-Dec-97 31-Dec-98
Balance sheet (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C> <C>
Share capital 78 78 78 85 129 129 129
Share premium 0 1,200 1,200 2,459 26,961 26,961 26,961
Capital redemption reserve 0 10 10 10 10 10 10
Profit & loss account 179 (408) 569 (21) (2,218) (1,813) (1,247)
Goodwill reserve (927) (927) (927) (927) (9,768) (9,768) (9,768)
Acquisition reserve 1,779 1,779 1,779 1,779 1,779 1,779 1,779
Minority interests 0 (100) (666) (330) 0 0 0
------ ------ ------ ------- ------- ------ -------
Equity 1,109 1,632 2,043 3,055 16,893 17,298 17,864
====== ====== ====== ======= ======= ====== =======
</TABLE>
104
<PAGE>
SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Report of Chartered Accountants on U.S. GAAP Reconciliation
To the Board of Directors
of PES (International) Limited
Our audits of the consolidated financial statements of PES (International)
Limited referred to in our reports dated 11 August 1997 and 5 February 1999
appearing on pages 176 and 201, respectively, of the Registration Statement on
Form S-4 also included an audit of the accompanying reconciliation of
significant differences between U.S. and U.K. Generally Accepted Accounting
Principles. In our opinion, this reconciliation presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers
Aberdeen, UK
June 1, 1999
Financial Statements
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom. Such principles differ in
certain respects from U.S. GAAP. A summary of the most significant differences
applicable to the Group is set out below.
a) Statement of Operations Differences
<TABLE>
<CAPTION>
Audited Unaudited
Year ended 9 Month Period ended
31 March 31 December
------------------------------------------ ------------------------------------
1996 1997 1998 1997 1998
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
Net income (loss) reported under
U.K. GAAP 1,015 (503) (2,080) (1,411) 844
U.S. GAAP adjustments:
Amortization of goodwill - - (442) (332) (332)
Expense development costs as
incurred (705) 7 28 21 21
----- ---- ------ ------ -----
Total U.S. GAAP adjustments (705) 7 (414) (311) (311)
----- ---- ------ ------ -----
Net income (loss) under U.S. GAAP 310 (496) (2,494) (1,722) 533
===== ==== ====== ====== =====
</TABLE>
b) Equity Reconciliation
<TABLE>
<CAPTION>
Unaudited
Audited Year Ended 9 Month Period Ended
31 March 31 December
-------------------------------------- -------------------------
1996 1997 1998 1997 1998
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
Equity under U.K. GAAP 2,043 3,055 16,893 17,298 17,864
U.S. GAAP adjustments:
Capitalization of goodwill - - 8,399 8,509 8,067
Expense development costs as incurred (705) (698) (670) (677) (649)
Apply "pooling of interests" accounting to
acquisition of subsidiary 578 578 578 578 578
----- ----- ------ ------ ------
Total U.S. GAAP adjustments (127) (120) 8,307 8,410 7,996
----- -----
Equity under U.S. GAAP 1,916 2,935 25,200 25,708 25,860
===== ===== ====== ====== ======
</TABLE>
(i) Capitalization and amortization of goodwill
Prior to the introduction of U.K. Financial Reporting Standard No 10 ("FRS10")
which became effective for financial periods ending on or after 23 December
1998, under U.K. GAAP companies had the option to either write off goodwill on
acquisition directly to reserves or to capitalize and amortize such amounts. For
the period to 31 March 1998, in accordance with U.K. GAAP prior to
105
<PAGE>
the introduction of FRS10, the Group elected to write off goodwill on
acquisition amounting to (Pounds)8,841,000 direct to reserves.
Under U.S. GAAP goodwill on acquisition must be capitalized and amortized
systematically to income over the estimated period of benefit but not in excess
of 40 years. Goodwill on acquisition previously written off directly to reserves
in the financial statements has been reinstated and amortized over 20 years.
(ii) Expense development costs as incurred
Under U.K. GAAP, the capitalization and amortization of product development
costs is permissible subject to certain criteria being satisfied. Deferred costs
must be amortized systematically over the expected life of the product and the
unamortized balance must be reviewed annually for impairment and written down to
the extent necessary. During the year ended 31 March 1996, the PES Group
capitalized a total of (Pounds)730,000 in respect of development costs and is
amortizing this amount over the estimated production and commercial life of the
product.
Under U.S. GAAP deferral of product development costs is not permitted and such
costs must be expensed to income as incurred. Accordingly, development costs
capitalized by the company during the year ended 31 March 1996 have been
expensed and the related amortization charged during the periods 31 March 1996 -
1998 reversed.
(iii) Apply "pooling of interests" accounting to acquisition of subsidiary
Under U.K. GAAP, acquisitions of subsidiaries are generally accounted for using
the "purchase" or "acquisition" accounting method unless the specific criteria
for merger ("pooling of interests") accounting are met. During the period ended
31 March 1993, PES acquired as a wholly owned subsidiary, Petroleum Engineering
Services Limited ("PESL"), a company also controlled by the Principal
Shareholders of PES. Under U.K. GAAP, PES adopted purchase accounting in respect
of the acquisition of PESL, which resulted in the write off of (Pounds)927,000
of goodwill on acquisition direct to reserves and the creation of an Acquisition
Reserve of (Pounds)1.8 million in the consolidated financial statements.
Under U.S. GAAP, transactions involving the transfer of net assets or exchanges
of shares between companies under common control must be accounted for at
historical cost in a manner similar to "pooling of interests". Had the company
adopted pooling of interests accounting in respect of the acquisition of PESL,
the net assets of PESL would have been consolidated at historical cost and the
goodwill on consolidation and the Acquisition Reserve would not have arisen. In
addition, the retained earnings of PESL at the date of acquisition would have
been consolidated by the Group rather than forming part of the goodwill
calculation.
106
<PAGE>
PES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Business Environment
It has been a key part of PES's business strategy to focus on the major
international oil companies who appreciate the role that PES has played in
bringing new technology to their operations.
Since entering the market in 1986, PES concentrated predominantly on the North
Sea. The Company identified a niche market for well intervention tools with the
international oil companies operating in the North Sea. Having created a stable
client base and a sound market reputation, the Company started to develop
various high performance well completion products. PES then invested heavily in
the development of SCRAMS (Surface Controlled Reservoir Analysis and Management
System), a technology which allows a well operator to evaluate and control
individual zones in a producing well without well intervention. This system
results in reduced production downtime and operating expenditure and may also
lead to enhanced hydrocarbon recovery. PES is now recognized as the market
leader in Smart Well technology.
PES formed an Alliance with Halliburton Energy Services, Inc. in April 1997.
This has helped PES to gain access to international markets through the HES
world-wide network and allowed HES to offer their customers PES products and
technology which compliment their own product lines. Through this Alliance and
other marketing initiatives PES has been able to sustain exceptional annual
growth.
The decline in oil and gas prices in the latter half of 1998 caused a reduction
in the demand for some of PES's products and services. PES has responded by
implementing plans to reduce overhead in areas where activity levels have
declined and is currently examining other areas of cost reduction. Despite the
current reduction in activity, the improving oil price would suggest that
activity will return. The technology of PES, with its products and services
focused on offering reduced operating costs and enhanced hydrocarbon recovery,
places PES in a position to maximize market growth as the world-wide oil and gas
economy recovers.
Results of operations - 1998 compared to 1997
Revenues
Unaudited 9 months to 31 December
-------------------------------------
1998 1997
000(pounds) 000(pounds)
PES Group revenues 24,066 16,252
Revenues for the 9 months to 31 December 1998 were (pound)24.06m an increase of
48% over the revenues for the 9 months to 31 December 1997 of (pound)16.25m. The
growth in revenues resulted from the setting up of overseas local offices in
Australia, U.S., Norway, France, Italy and Denmark in the period between 1994
and 1997 with the result that new markets were opened up to the PES Group. The
market in Norway has been particularly successful. The PES Group's revenues from
customers outwith the UK has increased from 25% in 1996 to over 50% in the 9
month period to 31 December 1998.
A further reason for the growth in revenues has been the large investment made
by the PES Group in new technology between 1995 and 1998 particularly in the
area of Smart Well applications. This investment started to be realised in terms
of orders for product in the 9 month period to 31 December 1998.
Operating income
Unaudited 9 months to 31 December
--------------------------------------
1998 1997
000(pounds) 000(pounds)
Operating profit 1,225 517
Operating profit was (pound)1.23m in the 9 months to 31 December 1998 compared
to (pound)0.52m in the 9 month period to 31 December 1997. The reason for this
increase in operating income is largely due to the realisation of customer
orders for products which had been developed over the period between
1995 and 1997, particularly those for Smart Well applications.
The gross margin on sales revenues was 40.5% for the 9 months to 31 December
1998 and 44.5% for the 9 months to 31 December 1997. This reduction in gross
margin reflects the fact that in the 9 months to 31 December 1998 many of the
products sold were new high technology products which had not been made before.
The PES Group had to incur a substantial set up cost in manufacturing and
testing equipment which were fully expensed in the period.
General operating expenses were (pound)8.75m in the 9 month period to 31
December 1998 compared to (pound)7.16m in the 9 month period to 31 December
1997. The increase in general operating expenses reflects the growth in the
business both in overseas locations and to support the general expected growth
in the business as a result of new product development.
Although the profit margins were reduced as a result of increased manufacturing
costs, operating profit was improved because of the higher sales volumes.
Profit (loss) before taxation
Unaudited 9 months to 31 December
---------------------------------------
1998 1997
000(pounds) 000(pounds)
Profit (loss) before taxation 1,084 (1,131)
Profit before taxation was (pound)1.08m for the 9 months to 31 December 1998
compared to a loss of (pound)1.13m in the 9 months to 31 December 1997. In the
period to December 1997 there were exceptional costs of (pound)1.54m as a result
of a PES Group restructuring related to the acquisition of a 26% stake in the
PES Group by Halliburton Holdings Limited in April 1997. The PES Group
restructuring included a reorganisation of subsidiary shareholding structures
and the granting of share options to key personnel.
Results of operations - 1998 compared to 1997 and 1996
Revenues
Year Ended March 31
-------------------------------------
1998 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000
Group revenues 22,673 15,989 10,581
========== ======== =========
Revenues for 1998 were (Pounds)22.67m, an increase of 41% over 1997
revenues of (Pounds)15.99m and an increase of 114% over 1996 revenues of
(Pounds)10.58m. The 1997 revenues include (Pounds)1.02m of revenue resulting
from the acquisition of Well Equip Limited on 31 July 1996. Approximately
54% of PES
107
<PAGE>
Group revenue for 1998 was derived from international activities compared with
43% in 1997 and 25% in 1996.
The growth in revenues resulted from the setting up of overseas local
offices in Australia, U.S., Norway, France, Italy and Denmark over this
period which allowed for much greater local market penetration. In addition the
investment by the PES Group in developing new products, and in particular Smart
Well products, started to be recognized by customers in terms of orders and
revenue generation.
Operating income
Year Ended March 31
-------------------------------------
1998 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000
Operating income 42 408 960
======= ======= =======
Operating income was (Pounds)0.04m in 1998 compared to (Pounds)0.408m in
1997 and (Pounds)0.96m in 1996. The reduction in operating income arose because
of the expansion of the business into other international locations and the
heavy investment in developing new products.
The gross margin on sales revenue decreased from 49.8% on revenue for the
year to 31 March 1996 to 46.5% for the year to 31 March 1997 and 43.9% for the
year to 31 March 1998. Gross margin on sales for the 9 months to 31 December
1998 was 40.5% compared to 44.5% for the 9 months to 31 December 1997. The
principal reason for this reduction was the investment made in new product
development over this period and the set up costs associated with manufacturing
new high technology products for the first time. The key products that were
developed over this period were in the area of smart completions with several
million pounds invested in developing this product line. Apart from
(Pounds)0.73m of development costs which were capitalised in 1996, all
development costs have been expensed through cost of sales. During 1997 PES also
set up a manufacturing plant in Livingston, Scotland as the primary
manufacturing centre. The initial setting up of this facility had a short term
detrimental effect on profitability.
General operating expenses for 1998 were (Pounds)10.19m compared to
(Pounds)7.39m in 1997 and (Pounds)5.21m in 1996. The main reason for this
increase has been the expansion of PES both into other international locations
and also putting in place additional people and infrastructure resources to
allow for the anticipated continued growth and development plans.
Non-operating items
There were exceptional charges in 1998 of (Pounds)1.66m as a result of
group restructuring and an acquisition of a 26% stake in the PES Group by
Halliburton Holdings Limited. The group restructuring included a reorganization
of subsidiary shareholding structures and the granting of share options to key
personnel. As these share options are exercisable at a price below market value,
in accordance with the requirements of U.K. accounting regulations, the
carrying value of the PES Shares held by the ESOP was written down by
(Pounds)1.66 million. In 1997 there was an exceptional charge of (Pounds)0.15m
as a result of the sale of minority holdings in subsidiary companies to local
management at less than book value.
108
<PAGE>
Interest expense was (Pounds)0.31m in 1998 compared to (Pounds)0.44m in
1997 and (Pounds)0.23m in 1996. The movement simply reflects PES Group
borrowings over the period which increased in 1997 due to the growth of the PES
Group but reduced in 1998 due to the investment by Halliburton Holdings Limited.
Provision for taxes was (Pounds)0.373m in 1998 compared to (Pounds)0.175m
in 1997 and (Pounds)0.30m in 1996. The increase in tax payable in 1998 reflects
the fact that losses incurred in the U.K. and U.S.A. could not be offset against
profits in other overseas operations.
Minority interests in the profit or loss on ordinary activities was nil in
1998 but amounted to (Pounds)0.174m in 1997 and a credit of (Pounds)0.57m in
1996. The credit in 1996 arose due to the losses incurred by subsidiaries with
minority interests. The minority interests in the results for the year ended 31
March 1998 were nil due to the fact that all minority shareholdings were bought
out as part of the PES Group reconstruction referred to above.
Dividends amounted to (Pounds)0.004m in 1998 compared to (Pounds)0.045m in
1997 and (Pounds)0.045m in 1996. The dividends were wholly payable on the 'A'
Ordinary shares held by 3i plc which were converted to Ordinary shares in April
1997.
Liquidity and Capital Resources
Net cash outflow from operating activities amounted to (Pounds)2.0m in 1998
with an inflow of (Pounds)0.79m in 1997 and an outflow of (Pounds)0.77m in 1996.
In 1998 the primary use of cash was to fund increased working capital
requirements due to the expansion and growth of the PES Group.
Net cash flow from capital expenditure and financial investment was
(Pounds)6.8m in 1998, (Pounds)0.43m in 1997 and (Pounds)1.06m in 1996. The
expenditure in 1998 comprises net investment in plant and machinery of
(Pounds)1.9m principally in the PES Group's manufacturing facility in
Livingston. In addition there was an investment of (Pounds)4.91m into an
employee share ownership plan to act as a mechanism to incentivize key
personnel.
Net cash outflow from acquisitions was nil in 1998 but amounted to
(Pounds)0.48m in 1997 as a result of the acquisition of WellEquip Limited. The
total consideration was (Pounds)2.03m satisfied partly by cash, loan notes and
share exchange.
Cash flow from financing activities was an inflow of (Pounds)14.4m in 1998
compared to an outflow of (Pounds)0.68m in 1997 and an inflow of (Pounds)0.35m
in 1996. The inflow of (Pounds)14.4m in 1998 arose as a result of the issue of
(Pounds)16.04m of new shares issued to Halliburton Holdings Limited as part of
their acquiring a 26% stake net of repayment of borrowings of (Pounds)0.91m and
capital lease payments of (Pounds)0.75m.
PES has the ability to borrow funds through a multioption credit facility
with the Bank of Scotland. In addition loans are taken out to fund specific
assets in addition to small local loans in certain overseas entities.
109
<PAGE>
Financial Instrument Market Risk
PES is currently exposed to market risk from changes in foreign currency
exchange rates. This risk is mitigated through the operation of foreign currency
bank accounts and maximizing exposure to the pound sterling and the U.S. dollar
where most of the PES Group's expenditure base is concentrated.
The PES Group is exposed to variations in U.K. interest rates due to the
fact that most of the PES Group borrowings are U.K. sourced in pounds sterling.
The Year 2000 issue
Also known as the Millennium Bug, this is a problem which may affect not
only the obvious computer systems, but any system which incorporates microchip
processors where there is a date function which stores or processes the year as
a two digit number and so cannot properly handle the transition from 99 to 00.
There may also be issues with certain dates, e.g. 9/9/99 or with systems failing
to recognize that year 2000 is a leap year.
In response to the Y2K problem, PES has a programme in place to identify,
assess and address any risks in systems, equipment and products. The scope of
this program includes an assessment of steps being taken by equipment and
service suppliers to ensure continuity of their business.
It is expected that PES will have completed all required remedial action by
the end of September 1999.
110
<PAGE>
MANAGEMENT OF HALLIBURTON
The names and offices with Halliburton of its directors and executive
officers are set forth below:
William E. Bradford Chairman of the Board and Director
Richard B. Cheney Chief Executive Officer and Director
David J. Lesar President and Chief Operating Officer
Donald C. Vaughn Vice Chairman
Lester L. Coleman Executive Vice President and General Counsel
Gary V. Morris Executive Vice President and Chief Financial Officer
Lewis W. Powers Senior Vice President - Strategic Account
Management
Jerry H. Blurton Vice President and Treasurer
Louis A. Raspino Shared Services Vice President - Finance
R. Charles Muchmore, Jr. Vice President and Controller
Anne L. Armstrong Director
Lord Clitheroe Director
Robert L. Crandall Director
Charles J. DiBona Director
Lawrence S. Eagleburger Director
William R. Howell Director
Ray L. Hunt Director
Delano E. Lewis Director
J. Landis Martin Director
Jay A. Precourt Director
C. J. Silas Director
Richard J. Stegemeier Director
111
<PAGE>
The principal occupations of the directors of Halliburton are as follows:
Anne L. Armstrong, 71, Regent, Texas A&M University System; Member, Board
of Trustees, Center for Strategic and International Studies; Member, National
Security Advisory Board, Department of Defense; former Chairman of the
President's Foreign Intelligence Advisory Board, 1981-1990; former Ambassador to
Great Britain; joined Halliburton Company Board in 1977; Chairman of the Health,
Safety and Environment Committee and member of the Management Oversight and the
Nominating and Corporate Governance Committees; Director of American Express
Company and Boise Cascade Corporation.
William E. Bradford, 64, Chairman of the Board of Halliburton; Chairman of
the Board of Dresser Industries, Inc., 1996-1998; Chief Executive Officer of
Dresser Industries, Inc., 1995-1998; President of Dresser Industries, Inc.,
1992-1996; Chief Operating Officer of Dresser Industries, Inc., 1992-1995;
President and Chief Executive Officer of Dresser-Rand Company, a 51% joint
venture partnership, 1988-1992; Senior Vice President - Operations of Dresser
Industries, Inc., 1984-1992; joined Halliburton Company Board in 1998; Director
of Ultramar Diamond Shamrock Corporation and Kerr-McGee Corporation.
Richard B. (Dick) Cheney, 58, Chief Executive Officer, Halliburton;
Chairman of the Board and Chief Executive Officer of Halliburton, 1997-1998;
Chairman of the Board, President and Chief Executive Officer of Halliburton,
1996-1997; President and Chief Executive Officer of Halliburton, 1995; Senior
Fellow, American Enterprise Institute for Public Policy Research, 1993-1995;
United States Secretary of Defense, 1989-1993; Member, United States House of
Representatives, 1979-1989; joined Halliburton Company Board in 1995; Director
of Union Pacific Corporation, The Procter & Gamble Company and Electronic Data
Systems Corporation; Member of the Board of Trustees, American Enterprise
Institute for Public Policy Research.
Lord Clitheroe, 69, Chairman, The Yorkshire Bank, PLC; Deputy Chief
Executive, The RTZ Corporation PLC, 1987-1989; Executive Director, The RTZ
Corporation PLC, 1968-1987; joined Halliburton Company Board in 1987; Chairman
of the Management Oversight Committee and member of the Health, Safety and
Environment and the Nominating and Corporate Governance Committees.
Robert L. Crandall, 63, Chairman Emeritus, AMR Corporation/American
Airlines, Inc. (engaged primarily in the air transportation business); Chairman,
President and Chief Executive Officer, AMR Corporation and Chairman and Chief
Executive Officer, American Airlines, Inc., 1985-1998; President, American
Airlines, Inc., 1985-1995; joined Halliburton Company Board in 1986; Chairman of
the Audit Committee and member of the Compensation and the Management Oversight
Committees; Director of MediaOne Group, Inc. and Director and non-executive
Chairman of Celestica, Inc.
Charles J. DiBona, 67, President and Chief Executive Officer (retired),
American Petroleum Institute (a major petroleum industry trade association),
1979-1997; joined Halliburton Company Board in 1997; member of the Health,
Safety and Environment, the Nominating and Corporate Governance and the
Management Oversight Committees; Chairman of the Board of Trustees, Logistics
Management Institute.
112
<PAGE>
Lawrence S. Eagleburger, 68, Senior Foreign Policy Advisor, Baker,
Donelson, Bearman & Caldwell (a Washington, D.C. law firm); Chairman,
International Commission on Holocaust Era Insurance Claims; United States
Secretary of State, Department of State, 1992-1993; Acting Secretary of State,
1992; Deputy Secretary of State, 1989-1992; joined Halliburton Company Board in
1998; member of the Management Oversight and the Nominating and Corporate
Governance Committees; Director of Phillips Petroleum Company, Stimsonite,
Universal Corporation and COMSAT.
William R. Howell, 63, Chairman Emeritus, J. C. Penney Company, Inc. (a
major retailer); Chairman of the Board, J. C. Penney Company, Inc., 1983-1996;
Chief Executive Officer, J. C. Penney Company, Inc., 1983-1995; joined
Halliburton Company Board in 1991; Chairman of the Compensation Committee and
member of the Management Oversight and the Audit Committees; Director of Exxon
Corporation, Warner-Lambert Company, Bankers Trust Company, Bankers Trust New
York Corporation, The Williams Companies, Inc. and Central and South West
Corporation.
Ray L. Hunt, 55, For more than five years, Chairman of the Board and Chief
Executive Officer, Hunt Oil Company (oil and gas exploration and development);
Chairman of the Board, Chief Executive Officer and President, Hunt Consolidated,
Inc. and Chairman of the Board, Chief Executive Officer and President, RRH
Corporation; joined Halliburton Company Board in 1998; member of the
Compensation and the Management Oversight Committees; Director of Electronic
Data Systems Corporation, PepsiCo, Inc., Ergo Science Incorporated, Security
Capital Group Incorporated and Federal Reserve Bank of Dallas.
Delano E. Lewis, 60, President and Chief Executive Officer (retired),
National Public Radio (produces and distributes original programming and
provides support to member stations) 1994-1998; President and Chief Executive
Officer, C&P Telephone Company, a subsidiary of Bell Atlantic Corporation, 1990-
1993; joined Halliburton Company Board in 1996; member of the Compensation, the
Health, Safety and Environment and the Management Oversight Committees; Director
of Colgate-Palmolive Company, Eastman Kodak Company, BET Holdings, Inc. and the
Poynter Institute.
J. Landis Martin, 53, For more than five years, President and Chief
Executive Officer, NL Industries, Inc. (a manufacturer and marketer of titanium
dioxide pigments) and Chairman, Titanium Metals Corporation (an integrated
producer of titanium metals); Chief Executive Officer, Titanium Metals
Corporation, since 1995; Chairman of the Board and Chief Executive Officer of
Baroid Corporation (and its predecessor), acquired by Dresser Industries, Inc.
in 1994, 1990-1994; joined Halliburton Board in 1998; member of the Audit and
the Management Oversight Committees; Director of NL Industries, Inc., Titanium
Metals Corporation, Tremont Corporation and Apartment Investment and Management
Corporation.
Jay A. Precourt, 61, Chairman of the Board, Wyoming Refining Company; Vice
Chairman and Chief Executive Officer, Tejas Gas Corporation, 1986-1998;
President, Tejas Gas Corporation, 1996-1998; joined Halliburton Company Board in
1998; member of the Health, Safety and Environment and the Management Oversight
Committees; Chairman of the Board of Founders Funds, Inc. and Director of the
Timken Company.
113
<PAGE>
C.J. Silas, 66, Chairman of the Board and Chief Executive Officer
(retired), Phillips Petroleum Company (engaged in exploration and production of
crude oil, natural gas and natural gas liquids on a worldwide basis, the
manufacture of plastics and petrochemicals and other activities), 1985-1994;
joined Halliburton Company Board in 1993; member of the Compensation, the Audit
and the Management Oversight Committees; Director of Reader's Digest
Association, Inc.
Richard J. Stegemeier, 70, Chairman Emeritus, Unocal Corporation (an
integrated petroleum company); Chairman of the Board, Unocal Corporation, 1989-
1995; Chief Executive Officer, Unocal Corporation, 1988-1994; President, Unocal
Corporation, 1985-1992; Chief Operating Officer, Unocal Corporation, 1985-1988;
joined Halliburton Company Board in 1994; Chairman of the Nominating and
Corporate Governance Committee and member of the Audit and the Management
Oversight Committees; Director of Foundation Health Corporation, Northrop
Grumman Corporation, Sempra Energy and Montgomery Watson, Inc.
114
<PAGE>
SECURITY OWNERSHIP AND DEALINGS BY CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF HALLIBURTON
The following table sets forth information with respect to persons or
groups who, to Halliburton's knowledge (based on information contained in
Schedules 13D filed with the SEC with respect to beneficial ownership at that
date), own or have the right to acquire more than five percent of the
outstanding Halliburton Common Stock as of December 31, 1998. Halliburton is not
aware of any subsequent ownership changes that would affect the information in
this table.
<TABLE>
<CAPTION>
Amount and Nature Percent
of Beneficial of
Name and Address of Beneficial Owner Ownership Class
- -------------------------------------------- ----------------- -------
<S> <C> <C>
FMR Corp.................................... 46,213,273 (1) 10.511%
82 Devonshire Street
Boston, MA 02109
Barrow, Hanley, Mewhinney & Strauss, Inc.... 22,045,960 (2) 5.00%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, TX 75204-2429
</TABLE>
_________
(1) The number of shares reported includes 40,906,307 shares beneficially owned
by Fidelity Management & Research Company, 4,628,866 shares owned by
Fidelity Management Trust Company and 678,100 shares held by Fidelity
International Limited. FMR Corp., through control of Fidelity Management &
Research Company and Fidelity Management Trust Company, has sole
dispositive power over the shares with the exception of those held
beneficially by Fidelity International Limited. FMR Corp. has sole power to
vote or to direct the vote of 3,193,666 shares of Halliburton Common Stock.
(2) Barrow, Hanley, Mewhinney & Strauss, Inc. has sole power to dispose of all
such shares, sole power to vote or to direct the vote of 4,169,700 shares
and shared power to vote or to direct the vote of 17,876,260 shares.
115
<PAGE>
The following table sets forth, as of March 22, 1999, the number of shares
of Halliburton Common Stock owned beneficially by each director of Halliburton,
each of the five mostly highly compensated executive officers of Halliburton and
all directors and executive officers of Halliburton as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
----------------------------------------------
Sole Voting
and Shared Voting
Investment or Investment Percent of
Name and Beneficial Owner Power Power (1) Class
- -------------------------------------------- ------------- --------------- ------------
<S> <C> <C> <C>
Anne L. Armstrong........................... 4,400 *
William E. Bradford (3)..................... 472,033 *
Richard B. Cheney (3)....................... 969,667 *
Lord Clitheroe.............................. 3,000 *
Lester L. Coleman (3)....................... 177,104 *
Robert L. Crandall.......................... 3,400 *
Charles J. DiBona........................... 400 *
Lawrence S. Eagleburger (3)................. 9,756 *
William R. Howell........................... 2,300 *
Ray L. Hunt (3)............................. 70,446 52,284 (2) *
David J. Lesar (3).......................... 391,782 *
Delano E. Lewis............................. 1,500 *
J. Landis Martin (3)........................ 91,145 *
Jay A. Precourt (3)......................... 7,809 *
C.J. Silas.................................. 2,400 *
Richard J. Stegemeier....................... 2,000 2,000 (2)
Donald C. Vaughn (3)........................ 193,527 *
All Directors and executive officers as
a group (23 persons) (3)............... 2,865,467 54,284 *
</TABLE>
- ---------------------
* Less than 1% of the outstanding.
(1) The Halliburton Stock Fund , an investment fund established under the
Halliburton Company Employee Benefit Master Trust to hold Halliburton
Common Stock for certain of Halliburton's profit sharing, retirement and
saving plans (the "Plans"), held 3,286,282 shares of Halliburton Common
Stock at March 12, 1999. Two executive officers not named in the above
table have beneficial interests in the Halliburton Stock Fund. Shares of
Halliburton Common Stock held in the Halliburton Stock Fund are not
allocated to any individual's account and an aggregate of 2,218 shares
which might be deemed to be beneficially owned as of March 12, 1999 by such
unnamed executive officers are not included in the table above. Shares held
in the Halliburton Stock Fund are voted by the Trustee, State Street Bank
and Trust Company, in accordance with voting instructions from the
participants. Under the terms of the Plans, a participant has the right,
from time to time, to determine whether up to 15% of his account is
invested in the Halliburton Stock Fund or in alternative investments
permitted by the Plans. The Trustee, however, determines when sales or
purchases are to be made by the Trust.
Mr. Martin has a beneficial interest in the NL Industries, Inc. Savings
Plan. Shares of Halliburton Common Stock held by that plan are not
allocated to any individual's account
116
<PAGE>
and, accordingly, 2,373 shares which might be deemed to be beneficially
owned by Mr. Martin as of February 18, 1999 are not included in the above
table.
(2) Mr. Hunt holds 52,284 shares as the trustee of trusts established for the
benefit of his children. Mr. Hunt disclaims beneficial ownership of 17,428
shares owned by another trust established for one of his children as to
which he is not a trustee. Mr. Stegemeier and his wife hold 2,000 shares as
co-trustees of a family trust and share voting and investment power with
respect to such shares.
(3) Included in the table are shares of Halliburton Common Stock that may be
purchased pursuant to outstanding stock options (and, in the case of
Messrs. Bradford and Vaughn, related restricted incentive stock awards
under certain Dresser Industries, Inc. stock compensation plans) within 60
days of the date hereof for the following: Mr. Bradford - 270,605; Mr.
Cheney - 726,667; Mr. Coleman - 139,334; Mr. Eagleburger - 499; Mr. Hunt -
499; Mr. Lesar - 185,336; Mr. Martin - 499; Mr. Precourt - 499; Mr. Vaughn
- 112,429; and five unnamed executive officers - 282,168. Until such time
as the options are exercised, the aforesaid individuals will neither have
voting nor investment power with respect to the underlying shares of
Halliburton Common Stock, but only have the right to acquire beneficial
ownership thereof through exercise of their respective options.
None of Halliburton, Holdings or any director or executive officer of
Halliburton has purchased or sold any PES Shares since March 1, 1998 and none of
PES, the PES Directors or the other Principal Shareholders of PES has purchased
or sold any PES Shares or Halliburton Common Stock since March 1, 1998.
None of the above directors and executive officers of Halliburton has
purchased or sold Halliburton Common Stock since March 1, 1998 except pursuant
to a stock compensation plan and except for Mr. Coleman who sold 10,001 shares
of Halliburton Common Stock in the market on February 4, 1999. All the following
transactions, which occurred since March 1, 1998, were effected between the
named individual, who acquired Halliburton Common Stock as an award under a
stock compensation plan or surrendered the Halliburton Common Stock to
Halliburton to discharge withholding tax liability: Mrs. Armstrong - acquired
400 shares; Mr. Bradford - acquired 50,000 shares and surrendered 13,998 shares;
Mr. Cheney - acquired 50,000 shares; Lord Clitheroe - acquired 400 shares; Mr.
Crandall - acquired 400 shares; Mr. DiBona - acquired 400 shares; Mr.
Eagleburger - acquired 6,878 shares; Mr. Howell - acquired 400 shares; Mr.
Lewis- acquired 400 shares; Mr. Precourt - acquired 1,781 shares; Mr. Silas -
acquired 400 shares; Mr. Stegemeier - acquired 400 shares; Mr. Lesar - acquired
50,000 shares and surrendered 7,408 shares; Mr. Vaughn - acquired 50,000 shares
and surrendered 5,452 shares; and Mr. Coleman - acquired 15,000 shares and
surrendered 3,143 shares (exclusive to the 10,001 shares referenced above). The
foregoing information does not include stock options granted during the period.
117
<PAGE>
DESCRIPTION OF HALLIBURTON CAPITAL STOCK
General
The following description of certain of the provisions of the restated
certificate of incorporation and bylaws of Halliburton is necessarily general
and does not purport to be complete and is qualified in its entirety by
reference to such documents, which are included as exhibits to the Registration
Statement of which this Offer Document is a part.
Halliburton Common Stock
Halliburton is authorized to issue 600,000,000 shares of Halliburton Common
Stock, par value $2.50. As of April 30, 1999, there were 440,598,000 shares of
Halliburton Common Stock issued and outstanding and approximately 33,000 holders
of record of Halliburton Common Stock. The holders of Halliburton Common Stock
are entitled to one vote for each share on all matters submitted to a vote of
stockholders. The holders of Halliburton Common Stock do not have cumulative
voting rights in the election of directors. Subject to the rights of the holders
of Halliburton Preferred Stock (as defined below), the holders of Halliburton
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors of Halliburton out of legally available
funds. In the event of liquidation, dissolution or winding up of Halliburton,
the holders of Halliburton Common Stock are entitled to share ratably in all
assets of Halliburton remaining after the full amounts, if any, to which the
holders of outstanding Halliburton Preferred Stock are entitled. The holders of
Halliburton Common Stock have no preemptive, subscription, redemptive or
conversion rights. The outstanding shares are fully paid and nonassessable. The
rights, preferences and privileges of holders of Halliburton Common Stock are
subject to those of holders of Halliburton Preferred Stock.
Rights to Purchase Preferred Stock
Halliburton is a party to that certain Restated Rights Agreement dated as
of December 1, 1996 (the "Restated Rights Agreement") pursuant to which one
preferred share purchase right (a "Right") has been distributed as a dividend
for each share of Halliburton Common Stock outstanding or issued prior to the
Distribution Date (as hereinafter defined) or termination of the Restated Rights
Agreement. Each share of Halliburton Common Stock issued upon Completion of the
Offer will be accompanied by one Right. Each Right entitles the registered
holder to purchase from Halliburton one two-hundredth of a share of Series A
Junior Participating Preferred Stock, without par value ("Halliburton Series A
Preferred Stock"), of Halliburton, at a price of $75.00 per one two-hundredth of
a share (the "Purchase Price"), subject to further adjustment. See "-Halliburton
Preferred Stock - Halliburton Series A Preferred Stock." Until the occurrence of
certain events described below, the Rights are not exercisable, will be
evidenced by the certificates for Halliburton Common Stock and will not be
transferable apart from the Halliburton Common Stock.
118
<PAGE>
Detachment of Rights; Exercise. The Rights are currently attached to all
certificates representing outstanding shares of Halliburton Common Stock and no
separate Right Certificates have been distributed. The Rights will separate from
the Halliburton Common Stock and a distribution date ("Distribution Date") will
occur upon the earlier of (i) ten business days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 15% or more of the outstanding
Voting Shares (as defined in the Restated Rights Agreement) of Halliburton, and
(ii) the tenth business day following the commencement or announcement of an
intention to commence a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a person or group of 15% or
more of such outstanding Voting Shares.
The Rights are not exercisable until the Distribution Date. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights (the "Right Certificates") will be mailed to holders of record of
Halliburton Common Stock as of the close of business on the Distribution Date
and such separate Right Certificates alone will thereafter evidence the Rights.
If a person or group were to acquire 15% or more of the Voting Shares of
Halliburton, each Right then outstanding (other than Rights beneficially owned
by the Acquiring Person which would become null and void) would become a right
to buy that number of shares of Halliburton Common Stock (or under certain
circumstances, the equivalent number of one two-hundredths of a share of
Halliburton Series A Preferred Stock) that at the time of such acquisition would
have a market value of two times the Purchase Price of the Right.
If Halliburton were acquired in a merger or other business combination
transaction or more than 50% of its consolidated assets or earning power were
sold, proper provision is required to be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a market
value of two times the Purchase Price of the Right.
Antidilution and Other Adjustments. The number of shares (or fractions
thereof) of Halliburton Series A Preferred Stock or other securities or property
issuable upon exercise of the Rights, and the Purchase Price payable, are
subject to customary adjustments from time to time to prevent dilution. The
number of outstanding Rights and the number of shares (or fractions thereof) of
Halliburton Series A Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Halliburton
Common Stock or a stock dividend on the Halliburton Common Stock payable in
Halliburton Common Stock or subdivisions, consolidations or combinations of the
Halliburton Common Stock occurring, in any such case, prior to the Distribution
Date.
Exchange Option. At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 15% or more of the
outstanding Voting Shares of Halliburton and before the acquisition by a person
or group of 50% or more of the outstanding Voting Shares of Halliburton, the
Halliburton Board of Directors may, at its option, issue Halliburton Common
Stock in mandatory redemption of, and in exchange for, all or part of the then
outstanding and exercisable Rights (other than Rights owned by such person or
group which would become null
119
<PAGE>
and void) at an exchange ratio of one share of Halliburton Common Stock (or one
two-hundredth of a share of Halliburton Series A Preferred Stock) for each two
shares of Halliburton Common Stock for which each right is then exercisable,
subject to adjustment.
Redemption of Rights. At any time prior to the first public announcement
that a person or group has become the beneficial owner of 15% or more of the
outstanding Voting Shares, the Halliburton Board of Directors may redeem all but
not less than all the then outstanding Rights at a price of $.01 per Right (the
"Redemption Price"). The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as the Halliburton Board of
Directors in its sole discretion may establish. Immediately upon the action of
the Halliburton Board of Directors ordering redemption of the Rights, the right
to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
Expiration; Amendment of Rights. The Rights will expire on December 15,
2005, unless earlier redeemed or exchanged. The terms of the Rights may be
amended by the Halliburton Board of Directors without the consent of the holders
of the Rights, including an amendment to extend the expiration date of the
Rights, and, provided a Distribution Date has not occurred, to extend the period
during which the Rights may be redeemed, except that after the first public
announcement that a person or group has become the beneficial owner of 15% or
more of the outstanding Voting Shares, no such amendment may materially and
adversely affect the interests of the holders of the Rights.
The Rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire Halliburton
without the approval of the Halliburton Board of Directors. The Rights should
not, however, interfere with any merger or other business combination that is
approved by the Halliburton Board of Directors.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Restated Rights Agreement, a
copy of which is filed as an exhibit to the Registration Statement and is
available free of charge from Halliburton.
Halliburton Preferred Stock
General. Halliburton is authorized to issue 5,000,000 shares of Preferred
Stock, without par value (the "Halliburton Preferred Stock"), of which 3,000,000
shares have been designated as Series A Junior Participating Preferred Stock
(the "Halliburton Series A Preferred Stock"). No shares of Halliburton Preferred
Stock were outstanding at ________, 1999. The Halliburton Board of Directors has
authority, without stockholder approval, to issue shares of Halliburton
Preferred Stock in one or more series and to determine the number of shares,
designations, dividend rights, conversion rights, voting power, redemption
rights, liquidation preferences and other terms of such series. The issuance of
Halliburton Preferred Stock, while providing desired flexibility in connection
with possible acquisitions and other corporate purposes, could adversely affect
the voting power of holders of Halliburton Common Stock and the likelihood that
such holders will receive dividend payments and payments upon liquidation and
could have the effect of delaying, deferring or preventing a change in control
of Halliburton. Halliburton has no present plans to issue any Halliburton
Preferred Stock.
120
<PAGE>
Series A Junior Participating Preferred Stock. The terms of the Halliburton
Series A Preferred Stock are designed so that the value of each one-hundredth of
a share purchasable upon exercise of a Right will approximate the value of one
share of Halliburton Common Stock. The Halliburton Series A Preferred Stock is
nonredeemable and will rank junior to all other series of Halliburton Preferred
Stock. Each whole share of Halliburton Series A Preferred Stock is entitled to
receive a cumulative quarterly preferential dividend in an amount per share
equal to the greater of (i) $1.00 in cash or (ii), in the aggregate, 100 times
the dividend declared on the Halliburton Common Stock. In the event of
liquidation, the holders of the Halliburton Series A Preferred Stock are
entitled to receive a preferential liquidation payment equal to the greater of
(i) $100.00 per share or (ii), in the aggregate, 100 times the payment made on
the Halliburton Common Stock, plus, in either case, the accrued and unpaid
dividends and distributions thereon. In the event of any merger, consolidation
or other transaction in which the Halliburton Common Stock is exchanged for or
changed into other stock or securities, cash or property, each whole share of
Halliburton Series A Preferred Stock is entitled to receive 100 times the amount
received per share of Halliburton Common Stock. Each whole share of Halliburton
Series A Preferred Stock is entitled to 100 votes on all matters submitted to a
vote of the stockholders of Halliburton, and holders of Halliburton Series A
Preferred Stock will generally vote together as one class with the holders of
Halliburton Common Stock and any other capital stock on all matters submitted to
a vote of stockholders of Halliburton.
Certain Provisions of Halliburton Charter and Bylaws
The Halliburton Certificate of Incorporation contains provisions
authorizing the indemnification of persons who become parties to any threatened,
pending or completed action, suit or proceeding by reason of the fact that such
person is or was a director, officer, employee or agent of Halliburton or is or
was serving at the request of Halliburton as a director, officer, employee or
agent of another corporation, partnership or other enterprise against expenses
and damages incurred thereby under the circumstances set forth therein. The
Halliburton Certificate of Incorporation also contains provisions that, in
accordance with the DGCL, limit the liability of directors of Halliburton for
breach of fiduciary duty by directors acting in such capacity. Pursuant to these
provisions, directors of Halliburton may be liable for breach of fiduciary duty
only (a) under Section 174 of the DGCL (relating to the payment of unlawful
dividends and unlawful purchases of stock of the corporation) or (b) if, in
addition to any and all other requirements for such liability, any such director
(i) shall have breached the duty of loyalty to Halliburton, (ii) in acting or
failing to act, shall not have acted in good faith or shall have acted in a
manner involving intentional misconduct or a knowing violation of law or (iii)
shall have derived an improper personal benefit.
The provisions of the Halliburton Certificate of Incorporation may be
amended or repealed by the vote of holders of a majority of the outstanding
capital stock of Halliburton entitled to vote thereon.
Except in the case of nominations by or at the direction of the Halliburton
Board of Directors, written notice must be given of any nomination of a director
(i) with respect to an election to be held at an annual meeting of stockholders,
not later than ninety days prior to the first anniversary of the immediately
preceding annual meeting and (ii) with respect to an election to be held at a
annual
121
<PAGE>
meeting of stockholders, not later than the close of business on the tenth day
following the day of notice of such meeting.
Except in the case of a national emergency, all actions taken by the
Halliburton Board of Directors, including the appointment and removal of
officers of Halliburton and the establishment and dissolution of divisions of
Halliburton, require the affirmative vote of a majority of the directors. The
Halliburton Bylaws provide that the number of directors on the Halliburton Board
of Directors may be increased or decreased with the approval of a majority of
the then-authorized number of directors. Also, newly created directorships
resulting from any increase in the authorized number of directors and any vacant
directorships may be filled by the affirmative vote of a majority of the
directors then in office.
The Halliburton Bylaws may be adopted, amended or rescinded by the vote of
a majority of the Halliburton Board of Directors or by the majority of the
outstanding shares of capital stock entitled to vote.
Transfer Agent and Registrar
The transfer agent and registrar for the Halliburton Common Stock is
ChaseMellon Shareholders Services, L.L.C.
122
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS
General
PES is a private limited company incorporated in Scotland, and Halliburton
is a corporation incorporated under the laws of the state of Delaware. As a
result of Completion of the Offer, PES shareholders will become owners of
Halliburton Common Stock. The following is a summary of material differences
between the rights of PES Shareholders and the rights of Halliburton
stockholders and of the differences between the corporate laws of Delaware and
Scotland and the companies' respective charter documents or constitutional
documents. Certain differences between the rights of holders of Halliburton
Common Stock under Delaware law and the rights of holders of PES Shares under
the laws of Scotland are not discussed below where rights afforded under
Delaware law are more favorable to stockholders than under Scots law.
Voting Rights
Under Delaware law, each stockholder is entitled to one vote per share
unless the certificate of incorporation provides otherwise. In addition, the
certificate of incorporation or by-laws may provide for cumulative voting at all
elections of directors of the corporation. Under the Halliburton by-laws,
holders of Halliburton Common Stock are entitled to one vote per share on all
matters, and cumulative voting is not permitted. A quorum consists of a majority
of the outstanding shares of common stock entitled to vote, present in person or
represented by proxy, unless otherwise required by law or the Halliburton by-
laws. Under Scots law, the voting rights of shareholders are governed by a
company's articles of association, subject to the statutory right of
shareholders to demand a poll (a vote by the number of shares held) at a general
meeting. Cumulative voting is essentially unknown under Scots law. Two members
entitled to vote and present in person constitute a quorum for the purposes of a
general meeting, unless the company's articles of association specify otherwise.
The PES articles specify that two persons entitled to vote upon the business to
be transacted and each being either a member or a proxy for a member or a duly
authorized representative of a corporation which is a member shall be a quorum.
Actions by Written Consent
Under Delaware law, unless the certificate of incorporation provides
otherwise, any action required or permitted to be taken at any meeting of
stockholders may instead be taken without a meeting, without prior notice or
without a vote if a written consent to the action is signed by the stockholders
representing the number of shares necessary to take such action at a meeting at
which all shares entitled to vote were present and voted. The Halliburton
Certificate of Incorporation does not restrict action being taken by written
consent in lieu of a meeting. Under Scots law, notwithstanding any provision of
a company's articles of association, anything that in the case of a private
company may be done by resolution of the company in general meeting may be done
without a meeting by a resolution in writing executed by or on behalf of each
member who would have been entitled to vote upon it if it had been proposed at a
general meeting at which he was present. PES is a private company. There are
also statutory provisions that allow for a written resolution of a company to be
executed by or on behalf of all the members who would be entitled to attend and
vote
123
<PAGE>
at a general meeting. There are, however, certain resolutions for which a
statutory written resolution cannot be used.
Special Meeting of Shareholders
Under the Delaware law, a special meeting of shareholders may be called by
the board of directors, and by such other person or persons as may be authorized
to do so by the certificate of incorporation or by-laws. The Halliburton by-laws
provide that a special meeting of common stockholders may be called by: (i) the
chief executive officer; (ii) the Halliburton board of directors; (iii) the
chairman of the board; or (iv) stockholders owning a majority of the outstanding
Halliburton Common Stock. Under Scots law, an extraordinary general meeting of
shareholders may be called by the board of directors or (notwithstanding any
provision to the contrary in a company's articles of association) requisitioned
by a request from shareholders holding not less than one-tenth of the paid-up
capital of the company carrying voting rights at general meetings. An ordinary
resolution requires 14 clear days notice, save for an ordinary resolution to
appoint a director which, in terms of the articles of PES, requires 21 days, and
requires a majority vote of those present and entitled to vote. An extraordinary
resolution requires 14 clear days notice and a 75% majority vote of those
present and entitled to vote. A special resolution requires 21 clear days notice
and requires a 75% majority vote of those present and entitled to vote. An
annual general meeting requires 21 clear days notice regardless of the type of
resolution to be proposed thereat. "Extraordinary resolutions" are relatively
unusual and are confined to certain matters out of the ordinary course of
business such as a proposal to wind up the affairs of the company. Proposals
that are the normal subject of "special resolutions" generally involve proposals
to change the name of the company, to alter its capital structure in certain
respects, to change or amend the right of shareholders, to permit the company to
issue new shares for cash without applying the shareholders' pre-emptive rights,
to amend the company's objects (purpose clause) and articles of association and
to carry out certain other matters where either the company's articles of
association or the U.K. Companies Act 1985 prescribes that a "special
resolution" is required. All other proposals relating to the ordinary course of
the company's business, such as the election of directors, would be subject to
an "ordinary resolution."
Sources and Payment of Dividends
Delaware law permits the payment of dividends in cash, property or common
stock out of surplus or if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared or the preceding fiscal year,
subject to any restrictions contained in the certificate of incorporation,
except that payment of dividends from such net profits is prohibited when
capital represented by common stock having a preference on distribution of
assets would be impaired thereby. The Halliburton Certificate of Incorporation
and by-laws do not restrict the payment of dividends. Under Scots law, a company
may pay dividends on its ordinary shares, subject to the prior rights of holders
of its preferred shares (if any), only out of distributable profits (namely its
accumulated, realized profits less accumulated, realized losses) and not out of
share capital, which includes share premiums (paid in surplus). Amounts credited
to the share premium account (representing the excess of the consideration for
the issue of outstanding shares over other aggregate par value of such shares)
may not be paid out as cash dividends but may be used, among other things, to
pay up unissued shares which may then be distributed to shareholders in
proportion to their holdings.
124
<PAGE>
Rights of Purchase and Redemption
Under Delaware law, a corporation may purchase or redeem its own shares out
of surplus, provided, with certain exceptions, that no repurchase or redemption
shall occur (i) when the capital is or would thereby become impaired, (ii) at a
price higher than the redemption price in the case of common stock redeemable at
the option of the corporation or (iii) where, in the case of redemption, such
redemption is not authorized by other provisions of Delaware law or the
certificate of incorporation. The Halliburton Certificate of Incorporation does
not restrict Halliburton's rights to repurchase or redeem shares. Under Scots
law, a company may issue redeemable shares if authorized to do so by its
articles of association and subject to the conditions stated therein and the
U.K. Companies Acts. Such shares may be redeemed only if fully paid. In
addition, any amount payable on redemption of any redeemable shares in excess of
the par value must be paid out of distributable profits unless the shares were
issued at a premium. In that case, any amount payable in excess of the par value
thereof may be paid out of the proceeds of a fresh issue of shares up to an
amount equal to whichever is the lesser of the aggregate of the premiums
received by the company on the issue of those shares or the amount of the
company's share premium account as at the time of the redemption, including any
sum transferred to that account in respect of premiums on the new issue. A
company may purchase its own shares including any redeemable shares, if
authorized by its articles of association and provided that such purchase has
been previously approved by an ordinary resolution of its shareholders in the
case of an on-market purchase or a special resolution in other cases. The above
provisions that apply to redemption of redeemable shares apply also to purchases
of shares.
Rights of Appraisal
Under Delaware law, common stockholders who follow prescribed statutory
procedures are entitled to dissent from certain corporate reorganizations and
instead demand payment of the fair value of their shares. Unless the certificate
of incorporation provides otherwise, dissenters do not have rights of appraisal
with respect to (a) a merger or consolidation by a corporation, the shares of
which are (i) listed on a national securities exchange or (ii) held by more than
2000 shareholders or (b) an exchange by shareholders of the constituent
corporation of their shares in such constituent corporation for (i) shares in
the surviving corporation, (ii) shares of another corporation that are publicly
listed or held by more than 2000 shareholders, (iii) cash in lieu of fractional
shares or (iv) any combination of the above, or (c) a corporation surviving a
merger if no vote of the shareholders of the surviving corporation is required
to approve the merger. Scots law does not generally provide for appraisal
rights. The U.K. Companies Act 1985, however, does allow a shareholder to apply
to the court for an order on the grounds of unfair prejudice. Also if a
shareholder applies to a court as described under "Shareholders' Votes on
Certain Reorganizations" below, the court may specify such terms for the
acquisition as it considers appropriate.
Pre-emptive Rights
Unless the certificate of incorporation expressly provides otherwise,
stockholders of a Delaware corporation do not have pre-emptive rights. The
Halliburton Certificate of Incorporation does not provide for pre-emptive
rights. Under Scots law, there are statutory pre-emption provisions which
require that, unless the company's articles of association specifically exclude
such provisions,
125
<PAGE>
new issues of ordinary shares shall be offered to existing members first, in
proportion to each member's shareholding in the company. The PES articles,
however, specifically exclude these provisions and replace them with their own
pre-emption provisions. In relation to new issues of shares, the directors are
bound to offer to any member of the company a proportion of the shares to be
issued equal to that member's proportion of the existing shares.
In relation to transfers of shares, under the PES articles the directors
are required to refuse to register a transfer of shares unless it is:
(i) a transfer to a spouse, children, a family trust, an employee benefits
trust, or a few other specified recipients;
(ii) a transfer made with the prior written consent of the holders of 95%
of the ordinary shares; or
(iii) a transfer made in accordance with the pre-emption provisions
contained in the articles. The pre-emption provisions state that shares
must be offered first to existing shareholders. If there is a proposed
transferee, the price at which the shares are offered is the proposed
consideration (or cash equivalent). If there is no intended transferee, the
price is fair value as agreed between the parties or as determined by an
independent valuer. Only after the shares have been offered to and not
bought by existing shareholders may the proposed transfer to a third party
be registered.
Amendment of Governing Instruments
Under Delaware law, the affirmative vote of a majority of the "outstanding
common stock" entitled to vote and of the shares of each class entitled to vote
on the amendment as a class is required to amend the certificate of
incorporation. In addition, the affirmative vote of a majority of the shares of
a class is required with respect to amendments that would (as to the class) (i)
increase or decrease the aggregate number of authorized shares, (ii) increase or
decrease the par value of shares, or (iii) alter or change the powers,
preferences, or special rights of shares so as to affect them adversely. In
addition, under the Halliburton Certificate of Incorporation, the corporation
may amend, alter, change or repeal any provision contained in the Halliburton
Certificate of Incorporation in the manner prescribed by statute, and all rights
and powers conferred upon common stockholders and directors are granted subject
to such power. Under Delaware law, the by-laws of a corporation may be amended
or repealed by shareholders entitled to vote, and the certificate of
incorporation may confer this power to the board of directors. The fact that
such power has been conferred upon the directors does not divest the
shareholders of their power to amend or repeal by-laws. The Halliburton
Certificate of Incorporation provides that the Halliburton board of directors is
expressly authorized to make, alter or repeal the by-laws. Under Scots law, the
shareholders have the authority to alter most provisions of a company's
memorandum and all provisions of its articles of association by special
resolution, subject to the right of dissenting shareholders holding at least 15%
of a company's share capital (or any class of it) to apply to the courts to
cancel the alterations. Under Scots law, the board of directors is not
authorized to change the memorandum or the articles of association.
126
<PAGE>
Shareholders' Votes on Certain Reorganizations
Delaware law requires a majority vote of the shares entitled to vote in
order to effectuate a merger between two Delaware corporations or between a
Delaware corporation and a corporation organized under the laws of another state
(a "foreign corporation"). Delaware law does not, however, unless otherwise
provided in the certificate of incorporation, require a vote of the shareholders
of a constituent corporation surviving the merger if (i) the merger agreement
does not amend that corporation's certificate of incorporation and (ii) each
share of that corporation's common stock outstanding immediately prior to the
effective date of the merger is identical to an outstanding or treasury share of
the surviving corporation after the merger. Any sale, lease or exchange of all
or "substantially all" of a corporation's assets requires authorization by a
majority vote of the outstanding common stock entitled to vote. Scots law
provides for schemes of arrangement, which are arrangements or compromises
between a company and any class of its shareholders (or any class of its
creditors) and are used for certain types of reconstructions, amalgamations,
capital reorganizations or takeovers. They require the approval at a special
meeting of the company of a majority in number of the shareholders representing
75% of the relevant class of shares voting, either in person or by proxy, and
the sanction of the courts. Once so approved and sanctioned, all shareholders of
the relevant class are bound by the terms of the scheme; a dissenting
shareholder would have no rights comparable to the appraisal rights described
above.
Certain Provisions Relating to Share Acquisitions
Delaware law generally prevents a corporation from entering into certain
business combinations such as mergers, consolidations and sales of assets, with
an interested stockholder (defined generally as any person or entity that is the
beneficial owner of at least 15% of a corporation's voting common stock) or its
affiliates for a period of three years after such common stockholder became an
interested common stockholder unless (i) the business combination or the
transaction in which the person becomes an interested common stockholder is
timely approved by the board of directors of the corporation prior to the person
becoming an interested common stockholder, (ii) the interested common
stockholder acquired 85% of the corporation's voting common stock in the same
transaction in which it exceeded 15% or (iii) the business combination is
approved by the board of directors and by a vote of 66 2/3% of the outstanding
voting common stock not owned by the interested common stockholder. This statute
does not apply to a corporation that so provides in an amendment to its
certificate of incorporation or by-laws adopted by a majority of its outstanding
shares at any time. Such common stockholder action does not become effective for
12 months following its adoption and would not apply to persons who were already
interested common stockholders at the time of the amendment. The Halliburton
Certificate of Incorporation does not contain such a provision. In the U.K.,
takeovers of public companies are regulated by the City Code. PES, as a private
company, is not subject to the City Code. Scots law provides that where a
takeover offer (as defined therein) is made for the shares of a company
incorporated in the U.K. and, within four months of the date of the offer the
offeror has, by virtue of acceptances of the offer, acquired or contracted to
acquire not less than nine-tenths in value of the shares to which the offer
relates, the offeror may, within two months of reaching the nine-tenths level,
by notice require shareholders who do not accept the offer to transfer their
shares on the terms of the offer. A dissenting shareholder may apply to the
court within six weeks of the date on which such notice was given objecting to
the transfer or its proposed terms. The court is unlikely (in the absence of
127
<PAGE>
unfairness fraud or oppression) to exercise its discretion to order that the
acquisition not take effect, but it may specify such terms of the transfer as it
finds appropriate. A minority shareholder is also entitled in these
circumstances to require the offeror to acquire his shares on the terms of the
offer. This is the compulsory acquisition procedure referred to in this Offer
Document.
Disclosure of Interests
There is no requirement under Delaware law relating to the disclosure of
interests of shares held by a corporation's shareholders. Shareholders of PES,
as a private company, are not subject to those requirements imposed by Scots law
on shareholders of public companies requiring notification of share holdings
that exceed specified magnitudes.
Classification of the Halliburton Board of Directors
Under Delaware law, the certificate of incorporation or initial by-law or a
by-law adopted by a vote of the shareholders may provide for the classification
of the board of directors with respect to the terms for which directors
severally hold office. The term "classified board" generally means the
specification of selected board seats for a term of more than one year (but not
more than three years), with different classes of board seats coming up for
election each year. The Halliburton Certificate of Incorporation does not
provide for such classification of the Halliburton board of directors. PES
Directors are not required to retire by rotation and hold office until they
resign or are removed from office in accordance with the PES articles. Under the
PES articles, new directors may be appointed by the existing directors either to
fill a casual vacancy or as additional directors. The members of PES may also
appoint a new director by ordinary resolution.
Removal of Directors
Under Delaware law, any director or the entire board of directors generally
may be removed, with or without cause by a majority vote of the shares then
entitled to vote at an election of directors. A director of a corporation with a
classified board of directors may, however, be removed only for cause unless the
certificate of incorporation otherwise provides. The Halliburton Certificate of
Incorporation is silent as to removal of directors. Under Scots law,
shareholders have the right to remove a director by ordinary resolution of which
special notice (28 clear days) has been given to the company. In addition to the
power of removal conferred by Scots law, the PES articles provide for a number
of circumstances in which a director is required to vacate office, including
that in which all other directors unanimously resolve that he should do so.
Liability of Directors
Delaware law permits a Delaware corporation to include in its certificate
of incorporation a provision that limits or eliminates a director's monetary
liability for certain breaches of his fiduciary duty of care in a lawsuit by or
on behalf of the corporation or in an action by shareholders of the corporation.
The Halliburton Certificate of Incorporation does contain such a provision.
Except under the limited circumstances described below under "Indemnification of
Officers and Directors," Scots law provides that any provision of a Scottish
company's articles of association or any contract with the company exempting an
officer of the company (including a director) from or indemnifying
128
<PAGE>
him or her against any liability in respect of any negligence, default, breach
of duty or breach of trust of which he or she may be guilty in relation to the
company is void. A company is permitted to purchase and maintain insurance
against such liabilities for its officers (including directors). The existence
of such insurance must be disclosed in the directors' report for each financial
year of the relevant company for as long as such insurance continues in effect.
Under the PES articles, the PES Directors have the power to obtain, and have
obtained, such insurance.
Indemnification of Officers and Directors
Delaware law provides that a corporation may, and in certain circumstances
must indemnify its officers, directors, employees or agents for expenses,
judgments or settlements actually and reasonably incurred by them in connection
with suits and other legal proceedings if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful, and must indemnify such
individuals in connection with successful defences of such actions. The
Halliburton Certificate of Incorporation and by-laws provide that directors and
officers of Halliburton and certain others will be entitled to such
indemnification, subject to certain conditions. Delaware law permits a
corporation to advance expenses to directors and officers, so long as, in the
case of officers and directors, they provide an undertaking to repay the amounts
advanced if it is ultimately determined that the officer or director was not
entitled to be indemnified. The Halliburton Certificate of Incorporation
provides for advancing expenses in the manner provided for in the Delaware law.
Under Scots law, a company may only indemnify its officers (including directors)
against any liability they may incur in defending any proceedings, whether civil
or criminal, in which judgment is given in his or her favor or in which he or
she is acquitted or in connection with any application in which relief is
granted to him or her by the court from liability for any amount otherwise
payable as a result of an acquisition of shares by a nominee of the company or
for negligence, default, breach of duty or breach of trust in relation to the
affairs of the company where he or she acted honestly and reasonably. The PES
articles provide that the directors, other officers and auditors of PES will be
entitled to the benefit of such indemnification.
Shareholders' and Class Action Suits
Under Delaware law, a common stockholder may institute a lawsuit on behalf
of the corporation. An individual shareholder also may commence a class action
suit on behalf of himself or herself and other similarly situated shareholders
where the requirements for maintaining a class action under the procedural rules
of the court in which the suit has been brought have been met. Under Scots law,
a shareholder generally has no right to sue in the name of the company; the
proper plaintiff when a wrong has been done to the company is normally the
company itself. There are exceptions to this general rule in the case of fraud
on minority shareholders or where the act complained of is illegal or ultra
vires. Scots law permits an individual shareholder to apply for a court order
where the company's affairs are being or have been conducted in a manner
unfairly prejudicial to the interests of one or more of the shareholders
(including himself or herself) or that any actual or proposed act or omission is
or would be so prejudicial. A court when granting relief has wide discretion,
including the ability to authorize civil proceedings to be brought in the name
129
<PAGE>
and on behalf of the company by a shareholder on such terms as the court may
decide. Scots law generally does not provide for class action lawsuits.
Although the above discussion sets forth information concerning the
material differences between the rights of Halliburton common stockholders and
the rights of PES shareholders, the above summary does not purport to be
complete and is qualified in its entirety by reference to the laws of Delaware
and of Scotland (and other laws or rules cited herein), the Halliburton
Certificate of Incorporation and the Halliburton by-laws, and the PES memorandum
and articles of association.
LEGAL MATTERS
The validity of the Halliburton Common Stock to be issued pursuant to the
Offer has been opined upon for Halliburton by Vinson & Elkins L.L.P., Houston,
Texas. Certain United States income tax consequences of the Offer have been
opined upon for Halliburton by Vinson & Elkins L.L.P., Houston, Texas. Certain
United Kingdom income and capital gains tax consequences of the Offer have been
opined upon for Halliburton by Cameron McKenna, London, England.
EXPERTS
The annual consolidated financial statements of Halliburton included in the
Registration Statement on Form S-4 of which this Offer Document constitutes a
part have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports. In said report, Arthur Andersen LLP states that with
respect to Dresser Industries, Inc., for each of the two years in the period
ended December 31, 1997, its opinion is based on the reports of other
independent public accountants, namely PricewaterhouseCoopers whose report
thereon appears herein. The financial statements referred to above have been
included herein in reliance on the report of such independent accountants given
on the authority of PricewaterhouseCoopers as experts in auditing and
accounting.
The consolidated financial statements of PES as of March 31, 1998 and 1997
and for the years then ended, as well as the reconciliation of significant
differences between U.S. and U.K. generally accepted accounting principles, as
included in the Registration Statement on Form S-4 of which this Offer Document
constitutes a part, have been so included in reliance on the reports with
respect thereto of PricewaterhouseCoopers, independent chartered accountants,
given on the authority of said firm as experts in auditing and accounting.
130
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Halliburton has filed with the United States Securities and Exchange
Commission (the "Commission") a registration statement on Form S-4 (the
"Registration Statement") with respect to the offering of Halliburton Common
Stock to be issued in connection with the Offer. This Offer Document constitutes
a part of the Registration Statement and, in accordance with the rules of the
Commission, omits certain of the information contained in the Registration
Statement. For such information, reference is made to the Registration Statement
and the exhibits thereto.
Halliburton files annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information that Halliburton has filed at the Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Halliburton's public filings are also available
to the public from commercial document retrieval services and at the Internet
web site maintained by the Commission at "http://www.sec.gov." Reports, proxy
statements and other information concerning Halliburton also may be inspected at
the offices of the New York Stock Exchange ("NYSE"), 20 Broad Street, New York,
New York 10005.
The Commission allows Halliburton to "incorporate by reference" information
into this Offer Document, which means that Halliburton can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this Offer Document, except for any information superseded by information
contained directly in the Offer Document. This Offer Document incorporates by
reference the documents set forth below that Halliburton has previously filed
with the Commission. These documents contain important information about
Halliburton and its financial condition.
<TABLE>
<CAPTION>
Halliburton Filings (File No. 1-3492) Period
- -------------------------------------- ------
<S> <C>
Annual Report on Form 10-K Year Ended December 31, 1998
Quarterly Report on Form 10-Q Quarter Ended March 31, 1999
Proxy Statement Annual Meeting of Stockholders - 1999
Current Reports on Form 8-K January 22, 1999; January 25, 1999;
February 18, 1999; February 19, 1999;
March 4, 1999; March 11, 1999; March 29;
1999; April 13, 1999; April 21, 1999;
April 26, 1999; and May 18, 1999.
</TABLE>
- ----------------------------------------------------------------------------
Halliburton hereby incorporates by reference additional documents that
Halliburton may file with the Commission between the date of this Offer Document
and the expiration of the Offer. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements. Any statement contained herein or in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Offer Document to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be
131
<PAGE>
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Offer Document except as so modified or superseded.
Halliburton has supplied all information contained or incorporated by
reference in this Offer Document relating to Halliburton, and PES has supplied
all such information relating to PES.
You may obtain any of such documents through the Commission or the
Commission's Internet web site described above. Documents incorporated by
reference are available from Halliburton without charge, excluding all exhibits
unless specifically incorporated by reference as an exhibit in this Offer
Document. PES Shareholders may obtain documents incorporated by reference in
this Offer Document by requesting them in writing or by telephone from
Halliburton at the following address:
HALLIBURTON COMPANY
3600 Lincoln Plaza
500 North Akard Street
Dallas, Texas 75201-3391
Attention: Investor Relations
Tel: (214) 978-2600
If you would like to request documents, please do so by ________________,
1999 to receive them before the expiration of the Offer. If you request any
incorporated documents, Halliburton will mail them to you by first-class mail,
or other equally prompt means, within one business day of receipt of your
request.
Copies of the following documents that are either incorporated by reference
in this Offer Document or filed as exhibits to the Registration Statement of
which this Offer Document constitutes a part are available for inspection at the
offices of the Receiving Agent, Cameron McKenna, in Aberdeen at Migvie House,
North Silver Street, Aberdeen AB1O 1RJ, United Kingdom, and in London at Mitre
House, 160 Aldersgate Street, London EC1A 4DD, United Kingdom during normal
business hours on any weekday, public holidays excepted, up to and including
________, 1999:
. Annual Report of Halliburton Company on Form 10-K for the fiscal year
ended December 31, 1998.
. Quarterly Report of Halliburton Company on Form 10-Q for the fiscal
quarter ended March 31, 1999.
. Current Reports of Halliburton Company on Form 8-K dated January 22,
1999; January 25, 1999; February 18, 1999; February 19, 1999; March 4,
1999; March 11, 1999; March 29, 1999; April 13, 1999; April 21, 1999;
April 26, 1999; and May 18, 1999.
. The Warranty Agreement.
. The Irrevocable Undertakings.
132
<PAGE>
. The Relevant Service Agreements for the PES Directors and two key
employees.
You should rely only on the information contained or incorporated by
reference in this Offer Document in determining whether or not to accept the
Offer. We have not authorized anyone to provide you with information that is
different from that which is contained in this Offer Document. This Offer
Document is dated ____________, 1999. You should not assume that the information
contained in this Offer Document is accurate as of any date other than that
date, and neither the mailing of this Offer Document to PES Shareholders nor the
issuance of shares of Halliburton Common Stock upon Completion of the Offer
shall create any implication to the contrary.
133
<PAGE>
HALLIBURTON COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants
To the Shareholders and Board of Directors
Halliburton Company:
We have audited the accompanying consolidated balance sheets of Halliburton
Company (a Delaware corporation) and subsidiary companies as of December 31,
1998 and 1997, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1998. We did not audit the consolidated balance sheet of Dresser
Industries, Inc., a company acquired during 1998 in a transaction accounted for
as a pooling of interests, as of December 31, 1997, and the related consolidated
statements of income, cash flows and shareholders' equity for each of the two
years in the period ended December 31, 1997, as discussed in Note 14. Such
statements are included in the consolidated financial statements of Halliburton
Company and reflect total assets of 48% for the year ended December 31, 1997,
and total revenue of 46% and 47% for the years ended December 31, 1997 and 1996,
respectively, of the related consolidated totals. These statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to amounts included for Dresser Industries, Inc. is based
solely upon the report of the other auditors. These financial statements are
the responsibility of Halliburton Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Halliburton Company and subsidiary
companies as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 25, 1999
134
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion the balance sheet, the statements of income, of cash flows
and of shareholders' equity of Dresser Industries, Inc. and subsidiaries (not
presented separately herein) present fairly in all material respects its
financial position at October 31, 1997, and the results of its operations and
its cash flows for each of the two years in the period ended October 31, 1997,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
November 26, 1997
<PAGE>
Responsibility for Financial Reporting
Halliburton Company is responsible for the preparation and integrity of its
published financial statements. The financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and, as such, include amounts based on judgments and estimates made by
management. Halliburton also prepared the other information included in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
The financial statements have been audited by the independent accounting
firm, Arthur Andersen LLP, which was given unrestricted access to all financial
records and related data, including minutes of all meetings of stockholders, the
Board of Directors and committees of the Board.
Halliburton maintains a system of internal control over financial
reporting, which is intended to provide reasonable assurance to Halliburton's
management and Board of Directors regarding the preparation of financial
statements. The system includes a documented organizational structure and
division of responsibility, established policies and procedures, including a
code of conduct to foster a strong ethical climate which is communicated
throughout Halliburton, and the careful selection, training and development of
our people. Internal auditors monitor the operation of the internal control
system and report findings and recommendations to management and the Board of
Directors. Corrective actions are taken to address control deficiencies and
other opportunities for improving the system as they are identified. The Board,
operating through its Audit Committee, which is composed entirely of Directors
who are not current or former officers or employees of Halliburton, provides
oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement
preparation. Furthermore, the effectiveness of an internal control system may
change over time.
Halliburton assessed its internal control system in relation to criteria
for effective internal control over financial reporting described in "Internal
Control-Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based upon that assessment,
Halliburton believes that, as of December 31, 1998, its system of internal
control over financial reporting met those criteria.
HALLIBURTON COMPANY
By:__________________________________ _____________________________________
Richard B. Cheney Gary V. Morris
Chief Executive Officer Executive Vice President and
Chief Financial Officer
135
<PAGE>
HALLIBURTON COMPANY
Consolidated Statements of Income
(Millions of dollars except per share data)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
Years ended December 31 March 31
-------------------------------------- ---------------------------
1998 1997 1996 1999 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Services.......................................... $ 12,089.4 $ 11,256.3 $ 9,461.1 $ 2,872.2 $ 3,009.8
Sales............................................. 5,069.9 4,857.0 4,351.7 1,024.4 1,192.1
Equity in earnings of unconsolidated affiliates... 193.8 163.2 133.8 28.0 52.9
---------- ---------- ---------- ---------- ----------
Total revenues.................................. $ 17,353.1 $ 16,276.5 $ 13,946.6 $ 3,924.6 $ 4,254.8
---------- ---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of services.................................. $ 11,058.8 $ 10,163.9 $ 8,708.0 $ 2,760.8 $ 2,728.7
Cost of sales..................................... 4,317.6 4,032.7 3,628.3 904.6 1,004.8
General and administrative........................ 600.1 665.0 621.3 107.0 160.2
Special charges and credits....................... 980.1 16.2 85.8 - -
---------- ---------- ---------- ---------- ----------
Total operating costs and expenses.............. $ 16,956.6 $ 14,877.8 $ 13,043.4 $ 3,772.4 $ 3,893.7
---------- ---------- ---------- ---------- ----------
Operating income.................................... 396.5 1,398.7 903.2 152.2 361.1
Interest expense.................................... (136.8) (111.3) (84.6) (36.4) (29.6)
Interest income..................................... 27.8 21.9 26.9 31.8 7.0
Foreign currency losses............................. (12.4) (0.7) (19.1) (0.7) (0.2)
Other nonoperating income, net...................... 3.7 4.5 4.6 2.1 (0.2)
---------- ---------- ---------- ---------- ----------
Income before incomes taxes, minority
interest, and change in accounting method.......... 278.8 1,313.1 831.0 149.0 338.1
Provision for income taxes.......................... (244.4) (491.4) (248.4) (59.6) (127.3)
Minority interest in net income of
consolidated subsidiaries.......................... (49.1) (49.3) (24.7) (8.4) (7.4)
---------- ---------- ---------- ---------- ----------
Income before accounting change..................... (14.7) 772.4 557.9 81.0 203.4
Cumulative effect of change in accounting
method, net........................................ - - - (19.0) -
---------- ---------- ---------- ---------- ----------
Net income (loss)................................... $ (14.7) $ 772.4 $ 557.9 $ 62.0 $ 203.4
========== ========== ========== ========== ==========
Basic income (loss) per common share:
Before change in accounting method.............. $ (0.03) $ 1.79 $ 1.30 $ 0.18 $ 0.46
Change in accounting method..................... - - - (0.14) -
---------- ---------- ---------- ---------- ----------
Net income.......................................... $ (0.03) $ 1.79 $ 1.30 $ 0.14 $ 0.46
========== ========== ========== ========== ==========
Diluted income per share:
Before change in accounting method.............. $ (0.03) $ 1.77 $ 1.29 $ 0.18 $ 0.46
Change in accounting method..................... - - - (0.14) -
---------- ---------- ---------- ---------- ----------
Net income.......................................... $ (0.03) $ 1.77 $ 1.29 $ 0.14 $ 0.46
========== ========== ========== ========== ==========
Weighted average common shares outstanding:
Basic........................................... 438.8 431.1 429.2 439.7 438.1
Diluted......................................... 438.8 436.1 432.1 441.8 442.5
</TABLE>
___________________
See notes to annual and quarterly financial statements.
136
<PAGE>
HALLIBURTON COMPANY
Consolidated Balance Sheets
(Millions of dollars and shares except per share data)
<TABLE>
<CAPTION>
Unaudited
December 31 March 31
----------------------- ----------------------
1998 1997 1999 1998
---------- --------- --------- ---------
Assets
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents........................................... $ 202.6 $ 384.1 $ 419.1 $ 270.7
Receivables:
Notes and accounts receivable (a)......................... 3,345.5 2,980.4 3,136.3 3,105.9
Unbilled work on uncompleted contracts.................... 514.9 407.2 507.3 418.5
---------- --------- --------- ---------
Total receivables......................................... 3,860.4 3,387.6 3,643.6 3,524.4
Inventories.................................................... 1,301.8 1,299.2 1,274.4 1,389.6
Deferred income taxes, current................................. 432.2 202.6 396.9 202.4
Other current assets........................................... 286.1 169.7 219.0 229.0
---------- --------- --------- ---------
Total current assets...................................... 6,083.1 5,443.2 5,953.0 5,616.1
Property, plant and equipment:
At cost........................................................ 6,850.1 6,646.0 6,822.4 6,805.3
Less accumulated depreciation.................................. 3,928.5 3,879.6 3,931.4 3,957.8
---------- --------- --------- ---------
Net property, plant and equipment......................... 2,921.6 2,766.4 2,891.0 2,847.5
Equity in and net advances to related companies..................... 587.0 761.2 567.5 680.0
Excess of cost over net assets acquired............................. 770.2 1,024.6 761.7 1,125.0
Deferred income taxes, noncurrent................................... 336.9 273.0 283.2 278.3
Other assets........................................................ 413.2 433.4 363.2 441.5
---------- --------- --------- ---------
Total assets................................................... $ 11,112.0 $10,701.8 $10,819.6 $10,988.4
========== ========= ========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable and current maturities of long-term debt $ 573.5 $ 57.9 $ 768.3 $ 275.7
Accounts payable............................................... 1,008.5 1,132.4 1,070.3 1,212.9
Accrued employee compensation and benefits..................... 402.2 516.1 279.0 428.5
Advance billings on uncompleted contracts...................... 513.3 638.3 472.1 683.7
Income taxes payable........................................... 245.6 335.2 186.0 315.7
Accrued special charges........................................ 426.4 13.1 265.1 53.5
Other current liabilities...................................... 834.2 767.3 663.3 701.0
---------- --------- --------- ---------
Total current liabilities................................. 4,003.7 3,460.3 3,704.1 3,671.0
Long-term debt...................................................... 1,369.7 1,296.9 1,364.7 1,296.3
Employee compensation and benefits.................................. 1,006.6 1,013.7 977.0 1,000.5
Other liabilities................................................... 500.6 450.6 535.9 453.9
Minority interest in consolidated subsidiaries...................... 170.2 163.4 183.9 135.1
---------- --------- --------- ---------
Total liabilities......................................... 7,050.8 6,384.9 6,765.6 6,556.8
---------- --------- --------- ---------
Shareholders' equity:
Common shares, par value $2.50 per share -
authorized 600.0 shares (b).................................... 1,114.7 1,134.3 1,116.1 1,135.3
Paid-in capital in excess of par value......................... 8.2 168.2 22.1 175.2
Deferred compensation.......................................... (50.6) (44.3) (46.4) (36.7)
Accumulated other comprehensive income......................... (148.8) (131.1) (180.1) (154.9)
Retained earnings.............................................. 3,236.0 3,563.4 3,243.0 3,702.8
---------- --------- --------- ---------
4,159.5 4,690.5 4,154.7 4,821.7
Less treasury stock, at cost (c)............................... 98.3 373.6 100.7 390.1
---------- --------- --------- ---------
Total shareholders' equity................................ 4,061.2 4,316.9 4,054.0 4,431.6
---------- --------- --------- ---------
Total liabilities and shareholders' equity................ $ 11,112.0 $10,701.8 $10,819.6 $10,988.4
========== ========= ========= =========
</TABLE>
________________________________
(a) Accounts receivable allowance for the year ended 1998 and 1997 and 3
months ended March 31, 1999 and March 31, 1998 equaled $76.6 million,
$58.6 million, $82.2 million and $58.8 million, respectively.
(b) Issued shares for the year ended 1998 and 1997 and 3 months ended
March 31, 1999 and March 31, 1998 equaled 445.9 million shares, 453.7
million shares, 446.4 million shares and 454.7 million shares,
respectively.
(c) Treasury stock for the year ended 1998 and 1997 and 3 months ended
March 31, 1999 and March 31, 1998 equaled 5.9 million shares, 15.8
million shares, 6.0 million shares and 15.7 million shares,
respectively.
See notes to annual and quarterly financial statements.
137
<PAGE>
HALLIBURTON COMPANY
Consolidated Statements of Cash Flows
(Millions of dollars)
<TABLE>
<CAPTION>
Unaudited
Three months ended
Year ended December 31 March 31
---------------------------- --------------------
1998 1997 1996 1999 1998
-------- -------- -------- --------- ---------
Assets
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ (14.7) $ 772.4 $ 557.9 $ 62.0 $ 203.4
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization.................... 587.0 564.3 497.7 143.6 147.8
Provision (benefit) for deferred income taxes.... (293.4) 2.6 (13.4) 77.5 (4.0)
Change in accounting methods..................... - - - 19.0 -
Distributions from (advances to) related......... (22.5) (84.6) (57.2) 12.3 (51.2)
companies, net of equity in (earnings) or
losses
Change in accrued special charges................ 413.3 (44.6) 57.7 (161.3) (4.0)
Other non-cash items............................. 272.2 59.2 33.1 67.0 6.0
Other changes, net of non-cash items:
Receivables.................................... (279.9) (408.8) (363.5) 208.1 (172.1)
Inventories.................................... (66.3) (117.1) (147.5) 36.7 (76.9)
Accounts payable............................... (45.3) (49.7) 98.8 50.1 149.8
Other working capital, net..................... (142.5) 39.9 286.9 (340.2) (133.2)
Other, net..................................... 46.2 99.5 (86.3) (1.1) 11.3
-------- -------- -------- --------- ---------
Total cash flows from operating activities.......... $ 454.1 $ 833.1 $ 864.2 $ 173.7 $ 76.9
-------- -------- -------- --------- ---------
Cash flows from investing activities:
Capital expenditures................................ (914.3) (880.1) (731.1) (142.8) (227.1)
Sales of property, plant and equipment.............. 100.0 180.6 64.4 20.7 13.9
Acquisitions of businesses, net of cash acquired.... (40.4) (161.5) (60.5) - -
Dispositions of businesses, net of cash disposed.... 7.7 37.6 21.6 37.5 0.2
Other investing activities.......................... 0.9 (49.9) (53.5) (2.0) (3.9)
-------- -------- -------- --------- ---------
Total cash flows from investing activities.......... $ (846.1) $ (873.3) $ (759.1) $ (86.6) $ (216.9)
-------- -------- -------- --------- ---------
Cash flows from financing activities:
Borrowings of long-term debt........................ 150.0 303.2 295.6 - -
Payments on long-term debt.......................... (26.7) (17.7) (8.2) (4.1) (0.2)
Net borrowings (payments) of short-term debt........ 369.3 (85.8) (7.3) 194.8 121.6
Payments of dividends to shareholders............... (254.2) (250.3) (239.6) (55.0) (66.6)
Proceeds from exercises of stock options............ 49.1 71.5 42.6 14.1 29.7
Payments to reacquire common stock.................. (19.9) (44.1) (235.2) (3.0) (17.3)
Other financing activities.......................... (13.9) 2.6 3.7 0.4 (5.1)
-------- -------- -------- --------- ---------
Total cash flows from financing activities.......... 253.7 (20.6) (148.4) 147.2 62.1
-------- -------- -------- --------- ---------
Effect of exchange rate changes on cash............... (5.4) (1.1) 1.0 (17.8) 2.3
-------- -------- -------- --------- ---------
Increase (decrease) in cash and equivalents........... (143.7) (61.9) (42.3) 216.5 (75.6)
Cash and equivalents at beginning of year *.......... 346.3 446.0 488.3 202.6 346.3
-------- -------- -------- --------- ---------
Cash and equivalents at end of year................... $ 202.6 $ 384.1 $ 446.0 $ 419.1 $ 270.7
======== ======== ======== ========= =========
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest......................................... $ 137.0 $ 106.1 $ 76.1 $ 24.5 $ 30.9
Income taxes..................................... 534.8 307.4 191.1 20.3 79.3
Non-cash investing and financing activities:
Liabilities assumed in acquisitions of $ 5.4 $ 337.1 $ 39.4 - -
businesses.......................................
Liabilities disposed of in dispositions of 23.6 205.5 9.8 - -
businesses.......................................
</TABLE>
_________________________________________________
* Cash balance at the beginning of 1998 does not agree to the prior year
ending cash balance in order to conform Dresser's fiscal year to
Halliburton's calendar year.
See notes to annual and quarterly financial statements.
138
<PAGE>
HALLIBURTON COMPANY
Consolidated Statements of Shareholders' Equity
(Millions of dollars and shares except per share data)
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Common stock (number of shares);
Balance at beginning of year 453.7 221.7 221.3
Shares issued under incentive stock plans, net of forfeitures 1.1 1.3 0.3
Cancellation of treasury stock (8.9) -- (0.1)
Shares issued in connection with acquisition -- 8.2 --
Two-for-one common stock split -- 222.5 --
Shares issued pursuant to stock warrant agreement -- -- 0.2
-------- -------- -------
Balance at end of year 445.9 453.7 221.7
======== ======== =======
Common stock (dollars);
Balance at beginning of year $1,134.3 $ 554.3 $ 553.3
Shares issued under incentive stock plans, net of forfeitures 2.7 3.2 0.9
Cancellation of treasury stock (22.3) -- (0.3)
Shares issued in connection with acquisition -- 20.5 --
Two-for-one common stock split -- 556.3 --
Shares issued pursuant to stock warrant agreement -- -- 0.4
-------- -------- -------
Balance at end of year $1,114.7 $1,134.3 $ 554.3
======== ======== =======
Paid-in capital in excess of par value;
Balance at beginning of year $ 168.2 $ 615.1 $ 593.9
Shares issued under incentive stock plans, net of forfeitures 43.0 51.4 18.3
Cancellation of treasury stock (209.3) -- (3.6)
Shares issued in connection with employee compensation plans 6.3 21.4 (1.0)
Shares issued in connection with acquisition -- 36.6 --
Two-for-one common stock split -- (556.3) --
Shares issued pursuant to stock warrant agreement -- -- 7.5
-------- -------- -------
Balance at end of year $ 8.2 $ 168.2 $ 615.1
======== ======== =======
Deferred compensation;
Balance at beginning of year $ (44.3) $ (22.9) $ (23.9)
Current year awards, net (6.3) (21.4) 1.0
-------- -------- -------
Balance at end of year $ (50.6) $ (44.3) $ (22.9)
======== ======== =======
Accumulated other comprehensive income;
Cumulative translation adjustment $ (141.4) $ (127.2) $ (93.9)
Pension liability adjustment (7.4) (3.9) (6.9)
-------- -------- -------
Balance at end of year $ (148.8) $ (131.1) $(100.8)
======== ======== =======
Cumulative translation adjustment;
Balance at beginning of year $ (127.2) $ (93.9) $(104.7)
Conforming fiscal years (14.8) -- --
Sale of M-I L.L.C. 9.4 -- --
Current year changes, net of tax (8.8) (33.3) 10.8
-------- -------- -------
Balance at end of year $ (141.4) $ (127.2) $ (93.9)
======== ======== =======
</TABLE>
See notes to annual financial statements.
139
<PAGE>
HALLIBURTON COMPANY
Consolidated Statements of Shareholders' Equity
(continued)
(Millions of dollars and shares except per share data)
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Pension liability adjustment;
Balance at beginning of year $ (3.9) $ (6.9) $ (7.0)
Current year adjustment (3.5) 3.0 0.1
-------- -------- --------
Balance at end of year $ (7.4) $ (3.9) $ (6.9)
======== ======== ========
Retained earnings;
Balance at beginning of year $ 3,563.4 $ 3,077.1 $ 2,758.8
Net income (loss) (14.7) 772.4 557.9
Cash dividends paid (254.2) (250.3) (239.6)
Cancellation of treasury stock (61.1) -- --
Pooling of interests acquisition -- (35.8) --
Conforming fiscal years 2.6 -- --
-------- -------- --------
Balance at end of year $ 3,236.0 $ 3,563.4 $ 3,077.1
======== ======== ========
Treasury stock (number of shares);
Beginning of year 15.8 8.6 5.6
Shares issued under benefit, dividend reinvestment plan and incentive (1.1) (1.5) (1.2)
stock plans, net
Shares purchased 0.1 0.7 4.3
Cancellation of treasury stock (8.9) -- (0.1)
Two-for-one common stock split -- 8.0 --
-------- -------- --------
Balance at end of year 5.9 15.8 8.6
======== ======== ========
Treasury stock (dollars);
Beginning of year $ 373.6 $ 381.4 $ 193.4
Shares issued under benefit, dividend reinvestment plan and incentive (8.5) (51.9) (43.3)
stock plans, net
Shares purchased 3.5 44.1 235.2
Cancellation of treasury stock (270.3) -- (3.9)
-------- -------- --------
Balance at end of year $ 98.3 $ 373.6 $ 381.4
======== ======== ========
Comprehensive income;
Net income (loss) $ (14.7) $ 772.4 $ 557.9
Translation rate changes, net of tax (8.8) (33.3) 10.8
Current year adjustment to minimum pension liability (3.5) 3.0 0.1
-------- -------- --------
Total comprehensive income $ (27.0) $ 742.1 $ 568.8
======== ======== ========
</TABLE>
See notes to annual financial statements.
140
<PAGE>
HALLIBURTON COMPANY
Notes to Annual Consolidated Financial Statements
Note 1. Significant Accounting Policies
Halliburton employs accounting policies that are in accordance with
generally accepted accounting principles in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires Halliburton 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.
Ultimate results could differ from those estimates.
Basis of presentation. On September 29, 1998, Halliburton completed the
acquisition of Dresser Industries, Inc. (Dresser) pursuant to the Agreement and
Plan of Merger (the Merger) dated as of February 25, 1998. The Merger was
accounted for using the pooling of interests method of accounting for business
combinations. Accordingly, Halliburton's financial statements have been
restated to include the accounts of Dresser for all periods presented. Prior to
the Merger, Dresser had a fiscal year-end of October 31. Beginning in 1998,
Dresser's fiscal year-end of October 31 has been conformed to Halliburton's
calendar year-end. Periods through December 31, 1997 contain Dresser's
information on a fiscal year-end basis combined with Halliburton's information
on a calendar year-end basis. Dresser's operating results for November and
December of 1997 are presented within the consolidated statements of
shareholders' equity as "conforming fiscal years".
Principles of Consolidation. The consolidated financial statements include
the accounts of Halliburton and all majority-owned subsidiaries. All material
intercompany accounts and transactions are eliminated. Investments in other
affiliated companies in which Halliburton has at least 20% ownership and does
not have management control are accounted for on the equity method. Certain
prior year amounts have been reclassified to conform with the current year
presentation.
Revenues and Income Recognition. Halliburton recognizes revenues as
services are rendered or products are shipped. The distinction between services
and product sales is based upon the overall activity of the particular business
operation. Revenues from engineering and construction contracts are reported on
the percentage of completion method of accounting using measurements of progress
towards completion appropriate for the work performed. All known or anticipated
losses on contracts are provided for currently. Post-contract customer support
agreements are recorded as deferred revenues and recognized as revenue ratably
over the contract periods of generally one year's duration. Training and
consulting service revenues are recognized as the services are performed.
Research and Development. Research and development expenses are charged to
income as incurred. Such charges were $308.1 million in 1998, $259.2 million
in 1997 and $218.0 million in 1996.
Software Development Costs. Costs of developing software for sale are
charged to expense when incurred, as research and development, until
technological feasibility has been established for the product. Thereafter,
software development costs are capitalized until the software is ready for
general release to customers. Halliburton capitalized costs of $13.4 million
in 1998, $14.5 million
141
<PAGE>
in 1997 and $12.9 million in 1996 related to software developed for resale.
Amortization expense related to these costs was $17.5 million for 1998, $15.0
million for 1997 and $12.5 million for 1996. Once the software is ready for
release, amortization of the software development costs begins. Capitalized
software development costs are amortized over periods which do not exceed three
years.
Income Per Share. Basic income per share amounts are based on the weighted
average number of common shares outstanding during the year. Diluted income per
share includes additional common shares that would have been outstanding if
potential common shares with a dilutive effect had been issued. See Note 11 for
a reconciliation of basic and diluted income per share from continuing
operations. Prior year amounts have been adjusted for the two-for-one common
stock split declared on June 9, 1997, and effected in the form of a stock
dividend paid on July 21, 1997.
Cash Equivalents. Halliburton considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.
Receivables. Halliburton's receivables are generally not collateralized.
Notes and accounts receivable at December 31, 1998 include $33.2 million ($30.8
million at December 31, 1997) due from customers in accordance with applicable
retainage provisions of engineering and construction contracts, which will
become billable upon future deliveries or completion of such contracts. This
amount is expected to be collected during 1999. Additionally, other noncurrent
assets include $7.1 million ($7.3 million at December 31, 1997) of such
retainage which is expected to be collected in years subsequent to 1999.
Unbilled work on uncompleted contracts generally represents work currently
billable and such work is usually billed during normal billing processes in the
next month. At December 31, 1998, notes of $295.9 million ($34.4 million at
December 31, 1997) with varying interest rates are included in notes and
accounts receivable. See Note 5 for information on the note receivable generated
by the sale of M-I L.L.C. (M-I).
Inventories. Inventories are stated at the lower of cost or market. Cost
represents invoice or production cost for new items and original cost less
allowance for condition for used material returned to stock. Production cost
includes material, labor and manufacturing overhead. The cost of most
inventories is determined using either the first-in, first-out (FIFO) method or
the average cost method although the cost of U.S. manufacturing and U.S. field
service inventories is determined using the last-in, first-out (LIFO) method.
Inventories of sales items owned by foreign subsidiaries and inventories of
operating supplies and parts are generally valued at average cost.
Property, Plant and Equipment. Property, plant and equipment is reported
at cost less accumulated depreciation, which is generally provided on the
straight-line method over the estimated useful lives of the assets. Certain
assets are depreciated on accelerated methods. Accelerated depreciation methods
are also used for tax purposes, wherever permitted. Expenditures for maintenance
and repairs are expensed; expenditures for renewals and improvements are
generally capitalized. Upon sale or retirement of an asset, the related costs
and accumulated depreciation are removed from the accounts and any gain or loss
is recognized. When events or changes in circumstances indicate that assets may
be impaired, an evaluation is performed comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required. Halliburton follows the successful efforts method of accounting for
oil and gas properties. At December 31,
142
<PAGE>
1998, there were no significant oil and gas properties in the production stage
of development. Halliburton is implementing an enterprise-wide information
system. External direct costs of materials and services and payroll-related
costs of employees working solely on development of the software system portion
of the project are capitalized. Capitalized costs of the project will be
amortized over periods of three to ten years beginning when the system is placed
in service. Training costs and costs to reengineer business processes are
expensed as incurred.
Excess of Cost Over Net Assets Acquired. The excess of cost over net
assets acquired is amortized on a straight-line basis over periods not exceeding
40 years. Excess of cost over net assets acquired that is identified with
impaired assets, if any, will be evaluated using undiscounted future cash flows
as the basis for determining if impairment exists. To the extent impairment is
indicated to exist, an impairment loss will be recognized based on fair value.
Income Taxes. A valuation allowance is provided for deferred tax assets if
it is more likely than not these items will either expire before Halliburton is
able to realize their benefit, or that future deductibility is uncertain.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been realized in the financial statements or
tax returns.
Derivative Instruments. Halliburton primarily enters into derivative
financial transactions to hedge existing or projected exposures to changing
foreign exchange rates and from time to time enters into derivatives to hedge
exposures to interest rates or commodity prices. Halliburton does not enter
into derivative transactions for speculative or trading purposes. Derivative
financial instruments to hedge exposure with an indeterminable maturity date are
generally carried at fair value with the resulting gains and losses reflected in
the results of operations. Gains or losses on hedges of identifiable commitments
are deferred and recognized when the offsetting gains or losses on the related
hedged items are recognized. Deferred gains or losses for hedges which are
terminated prior to the transaction date are recognized currently. In the event
an identifiable commitment is no longer expected to be realized, any deferred
gains or losses on hedges associated with the commitment are recognized
currently. Costs associated with entering into such contracts are presented in
other assets, while deferred gains or losses are included in other liabilities
or other assets, respectively, on the consolidated balance sheets. Recognized
gains or losses on derivatives entered into to manage foreign exchange risk are
included in foreign currency gains and losses on the consolidated statements of
income, while gains or losses on interest rate derivatives and commodity
derivatives are included in interest expense and operating income, respectively.
During the years ended December 31, 1998, 1997 and 1996, Halliburton did not
enter into any significant transactions to hedge interest rates or commodity
prices.
Foreign Currency Translation. Foreign entities whose functional currency
is the U.S. dollar translate monetary assets and liabilities at year-end
exchange rates and non-monetary items are translated at historical rates.
Income and expense accounts are translated at the average rates in effect during
the year, except for depreciation and cost of product sales which are translated
at historical rates. Gains or losses from changes in exchange rates are
recognized in consolidated income in the year of occurrence. Foreign entities
whose functional currency is the local currency translate net assets at year-end
rates and income and expense accounts at average exchange rates. Adjustments
resulting from these translations are reflected in the consolidated statements
of shareholders' equity titled "cumulative translation adjustment."
143
<PAGE>
Note 2. Business Segment Information
Halliburton has three business segments. These segments are organized
around the products and services provided to the customers they serve. The
business units within each segment are evaluated on operating income, operating
margins and cash value added.
The Energy Services Group segment provides pressure pumping equipment and
services, logging and perforating, drilling systems and services, drilling
fluids systems, drill bits, specialized completion and production equipment and
services and well control. Also included in the Energy Services Group are
upstream oil and gas engineering, construction and maintenance services,
specialty pipe coating, insulation, underwater engineering services, integrated
exploration and production information systems and professional services to the
petroleum industry. The Energy Services Group has four business units:
Halliburton Energy Services, Brown & Root Energy Services, Landmark Graphics,
and Halliburton Energy Development. (In March 1999, Halliburton Energy
Development became a part of Halliburton Energy Services.) The long term
performance for these business units is linked to the long term demand for
hydrocarbons. The products and services the group provides are designed to help
discover, develop and produce hydrocarbons. The customers for this segment are
major oil companies, national oil companies and independent oil and gas
companies.
The Engineering and Construction Group segment provides engineering,
procurement, construction, project management, and facilities operation and
maintenance for hydrocarbon processing and other industrial and governmental
customers. The Engineering and Construction Group has two business units:
Kellogg-Brown & Root and Brown & Root Services. Both business units are engaged
in the delivery of engineering and construction services.
The Dresser Equipment Group segment designs, manufactures and markets
highly engineered products and systems for oil and gas producers, transporters,
processors, distributors and petroleum users throughout the world. Dresser
Equipment Group operates as one business unit.
Halliburton's equity in pretax income or losses of related companies is
included in revenues and operating income of the applicable segment.
Intersegment revenues included in the revenues of the other business segments
and sales between geographic areas are immaterial. General corporate assets not
included in a business segment are primarily comprised of receivables, deferred
tax assets, and certain other investments including the investment in
Halliburton's enterprise-wide information system.
The tables below represent Halliburton's adoption of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
144
<PAGE>
<TABLE>
<CAPTION>
Operations By Business Segment
Years ended December 31
-----------------------------------
Millions of dollars 1998 1997 1996
- --------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenues:
Energy Services Group $ 9,009.5 $ 8,504.7 $ 6,515.4
Engineering and Construction Group 5,494.8 4,992.8 4,720.7
Dresser Equipment Group 2,848.8 2,779.0 2,710.5
--------- --------- ---------
Total $17,353.1 $16,276.5 $13,946.6
========= ========= =========
Operating income:
Energy Services Group $ 971.0 $ 1,019.4 $ 698.0
Engineering and Construction Group 237.2 219.0 134.0
Dresser Equipment Group 247.8 248.3 229.3
Special charges and credits (980.1) (16.2) (85.8)
General corporate (79.4) (71.8) (72.3)
--------- --------- ---------
Total $ 396.5 $ 1,398.7 $ 903.2
========= ========= =========
Capital expenditures:
Energy Services Group $ 707.6 $ 682.9 $ 493.9
Engineering and Construction Group 33.5 61.5 105.6
Dresser Equipment Group 72.9 76.4 119.0
General corporate 100.3 59.3 12.6
--------- --------- ---------
Total $ 914.3 $ 880.1 $ 731.1
========= ========= =========
Depreciation and amortization:
Energy Services Group $ 405.4 $ 395.0 $ 338.5
Engineering and Construction Group 48.8 63.3 58.7
Dresser Equipment Group 86.8 98.6 92.8
General corporate 46.0 7.4 7.7
--------- --------- ---------
Total $ 587.0 $ 564.3 $ 497.7
========= ========= =========
Total assets:
Energy Services Group $ 6,618.1 $ 6,050.5 $ 4,999.2
Engineering and Construction Group 1,404.7 1,645.8 1,490.7
Dresser Equipment Group 1,944.2 2,115.3 2,126.8
General corporate 1,145.0 890.2 970.1
--------- --------- ---------
Total $11,112.0 $10,701.8 $ 9,586.8
========= ========= =========
Research and development:
Energy Services Group $ 220.0 $ 173.8 $ 150.1
Engineering and Construction Group 3.9 2.1 4.0
Dresser Equipment Group 84.2 83.3 63.9
--------- --------- ---------
Total $ 308.1 $ 259.2 $ 218.0
========= ========= =========
Special charges and credits:
Energy Services Group $ 721.1 $ (13.8) $ 43.1
Engineering and Construction Group 39.6 2.8 42.7
Dresser Equipment Group 21.1 27.2 --
General corporate 198.3 -- --
--------- --------- ---------
Total $ 980.1 $ 16.2 $ 85.8
========= ========= =========
</TABLE>
145
<PAGE>
Operations by Geographic Area
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------
Millions of dollars 1998 1997 1996
- ---------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
United States $ 6,132.2 $ 6,506.5 $ 5,730.0
United Kingdom 2,246.7 2,315.0 1,504.6
Other areas (over 120 countries) 8,974.2 7,455.0 6,712.0
--------- --------- ---------
Total $ 17,353.1 $16,276.5 $13,946.6
========= ========= =========
Long-lived assets:
United States $ 2,433.4 $ 2,518.9 $ 2,432.9
United Kingdom 609.9 775.0 626.9
Other areas (numerous countries) 1,055.0 982.8 956.6
--------- --------- ---------
Total $ 4,098.3 $ 4,276.7 $ 4,016.4
========= ========= =========
</TABLE>
Note 3. Inventories
Inventories at December 31, 1998 and 1997 are comprised of the following:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997
----------------------------- --------- ---------
<S> <C> <C>
Finished products and parts $ 638.3 $ 670.9
Raw materials and supplies 250.3 213.7
Work in process 561.4 535.8
Progress payments (148.2) (121.2)
-------- --------
Total $1,301.8 $1,299.2
======== ========
</TABLE>
Inventories on the last-in, first-out (LIFO) method were $167.9 million and
$195.9 million at December 31, 1998 and December 31, 1997, respectively. If the
average cost or FIFO methods had been in use for inventories on the LIFO basis,
total inventories would have been about $110.6 million and $100.8 million higher
than reported at December 31, 1998 and 1997, respectively.
Note 4. Property, Plant and Equipment
Property, plant and equipment at December 31, 1998 and 1997 is comprised of
the following:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997
------------------------------ --------- ---------
<S> <C> <C>
Land $ 142.2 $ 136.0
Buildings and property improvements 1,131.6 1,055.9
Machinery, equipment and other 5,576.3 5,454.1
-------- --------
Total $6,850.1 $6,646.0
======== ========
</TABLE>
At December 31, 1998 and 1997, machinery, equipment and other property
includes oil and gas investments of approximately $223.7 million and $101.7
million, respectively and software developed for Halliburton's enterprise wide
information system of $132.7 million and $59.5 million, respectively.
146
<PAGE>
Note 5. Related Companies
Halliburton conducts some of its operations through various joint ventures
which are in partnership, corporate and other business forms, which are
principally accounted for using the equity method.
The larger unconsolidated entities include European Marine Contractors,
Limited (EMC), Bredero-Shaw and Ingersoll-Dresser Pump (IDP). EMC which is 50%
owned by a subsidiary of Halliburton and part of the Energy Services Group,
specializes in engineering, procurement and construction of marine pipelines.
Bredero-Shaw, which is 50% owned by a subsidiary of Halliburton and part of the
Energy Services Group, specializes in pipe coating. Effective February 29,
1996, a subsidiary of Halliburton entered into an agreement to form a joint
venture with Shaw Industries Ltd. (Shaw) by contributing its Bredero Price
assets and Shaw contributing its Shaw Pipe Protection assets on a worldwide
basis. During the fourth quarter of 1997, Halliburton and Shaw agreed to a
long-term extension of their strategic pipe coating alliance, Bredero-Shaw. In
connection with the new agreement, Shaw agreed to pay a subsidiary of
Halliburton $50 million over a four-year period. This transaction resulted in a
fourth quarter pretax gain of $41.7 million which is reported in the
consolidated statements of income in the caption "special charges and credits."
For balance sheet purposes, at year-end 1997 the subsidiary of Halliburton
deconsolidated Bredero-Shaw and accounted for its 50% interest in the joint
venture as an equity investment. The subsidiary of Halliburton includes its
share of equity earnings in the results of operations beginning January 1, 1998
under the equity method. IDP which is 49% owned by a subsidiary of Halliburton
and part of the Dresser Equipment Group, manufactures a broad range of pump
products and services.
In the second quarter of 1996, M-I, formerly a 36% owned joint venture,
purchased Anchor Drilling Fluids. Halliburton's share of the purchase price was
$41.3 million and is included in cash flows from other investing activities.
Halliburton sold its 36% ownership interest in M-I to Smith International, Inc.
(Smith) on August 31, 1998. This transaction completed Halliburton's commitment
to the U.S. Department of Justice to sell its M-I interest in connection with
its merger with Dresser. The purchase price of $265 million was paid by Smith
in the form of a non-interest bearing promissory note due April 1999. This
receivable is included in "Notes and accounts receivable" on the consolidated
balance sheets. All of M-I's debt remains an obligation of M-I.
Summarized financial statements for all combined jointly-owned operations
which are not consolidated are as follows:
<TABLE>
<CAPTION>
Combined Operating Results
Millions of dollars 1998 1997 1996
----------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenues $5,244.0 $3,958.9 $3,505.5
======== ======== ========
Operating income $ 478.3 $ 407.3 $ 325.7
======== ======== ========
Net income $ 341.0 $ 316.2 $ 236.3
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Combined Financial Position
Millions of dollars 1998 1997
----------------------------------- --------- ---------
<S> <C> <C>
Current assets $1,854.2 $1,779.5
Noncurrent assets 322.3 576.0
-------- --------
Total $2,176.5 $2,355.5
======== ========
Current liabilities $1,074.6 $ 859.6
</TABLE>
147
<PAGE>
<TABLE>
<CAPTION>
Combined Financial Position
Millions of dollars 1998 1997
--------------------------------------- -------- --------
<S> <C> <C>
Noncurrent liabilities $ 118.2 $ 245.3
Minority interests 3.9 8.1
Shareholders' equity 979.8 1,242.5
-------- --------
Total $2,176.5 $2,355.5
======== ========
</TABLE>
Note 6. Income Taxes
The components of the (provision) benefit for income taxes are:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997 1996
- ------------------------ ------- ------- -------
<S> <C> <C> <C>
Current income taxes:
Federal $(301.8) $(167.2) $ (82.0)
Foreign (228.5) (306.1) (169.8)
State (7.5) (15.5) (10.0)
------- ------- -------
Total (537.8) (488.8) (261.8)
------- ------- -------
Deferred income taxes:
Federal 291.8 5.4 61.2
Foreign and state 1.6 (8.0) (47.8)
------- ------- -------
Total 293.4 (2.6) 13.4
------- ------- -------
Total $(244.4) $(491.4) $(248.4)
======= ======= =======
</TABLE>
Included in federal income taxes are foreign tax credits of $182.2 million
in 1998, $154.0 million in 1997 and $109.2 million in 1996. The United States
and foreign components of income (loss) before income taxes and minority
interests are as follows:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997 1996
- ------------------- ------- ------- ------
<S> <C> <C> <C>
United States $(306.4) $ 736.8 $484.2
Foreign 585.2 576.3 346.8
------- ------- ------
Total $ 278.8 $1313.1 $831.0
======= ======= ======
</TABLE>
The primary components of Halliburton's deferred tax assets and liabilities
and the related valuation allowances are as follows:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997
- ---------------------------------------- -------- --------
<S> <C> <C>
Gross deferred tax assets
Employee benefit plans $ 314.9 $334.4
Special charges 135.3 --
Accrued liabilities 93.5 79.4
Insurance accruals 74.8 71.5
Construction contract accounting methods 93.0 70.6
Inventory 59.8 37.4
Intercompany profit 38.5 39.3
Net operating loss carryforwards 38.5 46.7
Intangibles 30.5 --
Foreign tax credits -- 21.2
Alternative minimum tax carryforward 15.1 15.1
All other 125.7 80.1
-------- ------
Total 1,019.6 795.7
-------- ------
</TABLE>
148
<PAGE>
<TABLE>
<CAPTION>
Millions of dollars 1998 1997
- ------------------------------------------ -------- ------
<S> <C> <C>
Gross deferred tax liabilities
Depreciation and amortization 85.0 124.5
Unrepatriated foreign earnings 25.5 35.6
Safe harbor leases 10.4 11.0
All other 99.6 85.0
-------- ------
Total 220.5 256.1
-------- ------
Valuation allowances
Net operating loss carry forwards 26.3 30.7
All other 3.7 33.3
-------- ------
Total 30.0 64.0
-------- ------
Net deferred income tax asset $ 769.1 $475.6
======== ======
</TABLE>
Halliburton has provided for the potential repatriation of certain
undistributed earnings of its foreign subsidiaries and considers earnings above
the amounts on which tax has been provided to be permanently reinvested. While
these additional earnings could become subject to additional tax if repatriated,
such a repatriation is not anticipated. Any additional amount of tax is not
practicable to estimate.
Halliburton has net operating loss carryforwards which expire as follows:
1999 through 2003, $49.3 million; 2004 through 2008, $18.8 million; 2009 through
2010, $1.9 million. Halliburton also has net operating loss carryforwards of
$43.6 million with indefinite expiration dates. Reconciliations between the
actual provision for income taxes and that computed by applying the U.S.
statutory rate to income from continuing operations before income taxes and
minority interest are as follows:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997 1996
- --------------------------------------------------- --------- -------- --------
<S> <C> <C> <C>
Provision computed at statutory rate $ (97.6) $(459.6) $(290.9)
Reductions (increases) in taxes resulting from:
Tax differentials on foreign earnings (19.8) (4.3) 14.2
State income taxes, net of federal income tax benefit (7.8) (12.0) (7.0)
Net operating losses -- -- 22.7
Special charges (109.0) (3.0) (3.0)
Federal income tax settlement -- -- 16.1
Nondeductible goodwill (12.2) (12.5) (8.9)
Other items, net 2.0 -- 8.4
------- ------- -------
Total $(244.4) $(491.4) $(248.4)
======= ======= =======
</TABLE>
Halliburton has received statutory notices of deficiency for the 1990 and
1991 tax years from the Internal Revenue Service (IRS) of $92.9 million and
$16.8 million, respectively, excluding any penalties or interest. Halliburton
believes it has meritorious defenses and does not expect that any liability
resulting from the 1990 or 1991 tax years will result in a material adverse
effect on its results of operations or financial position. In 1996, Halliburton
reached settlements with the IRS for certain matters including the 1989 taxable
year. As a result of the settlement for the 1989 taxable year, Halliburton
recognized tax benefits and net income was increased by $16.1 million in 1996.
Note 7. Special Charges and Credits
Halliburton has incurred various non-recurring transactions resulting from
acquisitions, profit initiatives, and industry downturns as summarized below:
149
<PAGE>
Asset Related Charges. Asset related charges include impairments and write-
offs of intangible assets and excess and/or duplicate machinery, equipment,
inventory and capitalized software. Charges also include write-offs and lease
cancellation costs related to acquired information technology equipment replaced
with Halliburton's standard common office equipment and exit costs on other
leased assets.
Personnel Charges. Personnel charges include severance and related costs
incurred to action announced employee reductions and personnel costs related to
change of control.
Facility Consolidation Charges. Facility consolidation charges include
costs to dispose of owned properties or exit leased facilities.
Merger Transaction Charges. Merger transaction costs include investment
banking, filing fees, legal and professional fees and other merger related
costs.
Other Charges. Other charges include eliminating duplicate agents, contract
cancellation costs and eliminating other duplicate capabilities.
<TABLE>
<CAPTION>
Asset Facility Merger
Related Personnel Consolidation Transaction Other
Millions of dollars Charges Charges Charges Charges Charges Total
- ---------------------------- ------- --------- ------------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
1998 Charges to Expense
Business Segment
Energy Services Group $ 452.7 $156.7 $ 93.3 $ -- $18.4 $ 721.1
Engineering & Construction Group 7.9 19.1 7.9 -- 4.7 39.6
Dresser Equipment Group 18.1 1.4 1.6 -- -- 21.1
General corporate 30.7 57.5 23.4 64.0 22.7 198.3
------- ------ ------ ------ ----- -------
Total $ 509.4 $234.7 $126.2 $ 64.0 $45.8 $ 980.1
Utilized $(442.3) $(44.3) $ (3.4) $(59.5) $(4.2) $(553.7)
------- ------ ------ ------ ----- -------
Balance - December 31, 1998 $ 67.1 $190.4 $122.8 $ 4.5 $41.6 $ 426.4
======= ====== ====== ====== ===== =======
</TABLE>
The third quarter of 1998 financial results include a pretax charge of
$945.1 million ($722.0 million after tax) to provide for costs associated with
the Merger and industry downturn due to declining oil and gas prices. During the
fourth quarter, an additional charge of $35.0 million ($24.0 million after tax)
was taken to provide $30.0 million for additional personnel reduction costs
covering approximately 2,750 employees within the Energy Services Group and $5.0
million for additional facility consolidations within the Energy Services Group.
As a result of the Merger, Halliburton and Dresser's completion products
operations and its formation evaluation businesses have been combined, excluding
Halliburton's logging-while-drilling (LWD) business and a portion of its
measurement-while-drilling business which were required to be disposed of in
connection with a Department of Justice consent decree. See Note 14. Based on
the change in strategic direction, the outlook for the industry, the decision to
standardize equipment product offerings and the expected loss on the disposition
of the LWD business, Halliburton recorded impairments based upon anticipated
future cash flows in accordance with FAS 121. This resulted in write-downs of
excess of cost over net assets acquired of $254.2 million related to directional
drilling and formation evaluation assets acquired in 1993 from Smith
International Inc., formation evaluation assets acquired in the 1988 acquisition
of Gearhart Industries, Inc., and completion products assets acquired in
conjunction with the acquisitions of Mono Pumps and AVA
150
<PAGE>
in 1990 and 1992, respectively. In addition, $162.5 million of excess and
duplicated machinery, equipment and inventory related to formation evaluation
and completion products have been written down.
Additional asset related charges within the Energy Services Group include
excess and redundant equipment, software, inventory and excess of cost over net
assets acquired of $36.0 million related to other product lines which are
combinations of Halliburton and Dresser operations. The remaining asset related
charges include $26.0 million of write-downs of redundant or impaired equipment,
software and inventory in the Engineering and Construction and Dresser Equipment
Groups, plus $30.7 million for write-downs of information technology equipment
to be replaced with standard equipment and other duplicated shared services
assets applicable to all segments. The majority of the asset related balance of
$67.1 million at December 31, 1998 represents the write-downs to fair value less
disposal costs at the expected disposal date. The majority of the balance will
be utilized during the first and second quarters of 1999 in connection with
planned activities.
Personnel charges in 1998 reflect announced headcount reductions of 10,850
affecting all segments, corporate and shared service functions. In total,
approximately 75% of the reductions will occur within the Energy Services Group.
During 1998, Halliburton reduced employment levels, primarily operations
personnel by approximately 5,000 (approximately 3,000 within North America and
1,100 within Latin America), including 4,700 within the Energy Services Group.
The remainder will be incurred over the balance of 1999, primarily during the
first and second quarter of the year.
As a result of the Merger and the industry downturn, Halliburton plans to
vacate, sell or close over 400 service, manufacturing and administrative
facilities throughout the world. Until the properties included in the facility
consolidation charges are vacated, Halliburton plans to continue its normal
depreciation, lease costs and operating expenses which will be charged against
Halliburton's results of operations. The majority of these facilities are within
the Energy Services Group. During the fourth quarter of 1998, Halliburton sold
or returned 33 service and administrative facilities. As of December 31, 1998,
Halliburton had an additional 100 vacated properties which it is in the process
of selling, subleasing or returning to the owner.
Halliburton and Dresser merger transaction costs amounted to $64.0 million.
At December 31, 1998, $4.5 million in estimated merger transaction costs remain
to be paid.
Other charges of $45.8 million include the estimated contract exit costs
associated with the elimination of duplicate agents and suppliers in various
countries throughout the world. These costs will occur during 1999 in connection
with Halliburton's renegotiation of these contractual agreements.
At December 31, 1998, no adjustments or reversals to the remaining accrued
special charges are planned.
In the third quarter of 1997, a subsidiary of Halliburton sold certain
assets of its subsea operations to Global Industries, Inc. for $102.0 million
cash. Halliburton recognized a loss of $9.7 million ($6.3 million after tax) on
the sale. Also in the third quarter of 1997, Halliburton recorded
151
<PAGE>
merger transaction charges of $8.6 million (also $8.6 million after tax) for
costs incurred by Halliburton and NUMAR to complete the NUMAR acquisition.
In the fourth quarter of 1997, Halliburton recorded several nonrecurring
transactions. Halliburton recognized a pretax charge of $21.6 million ($14.0
million after tax) to provide $9.6 million within the Energy Services Group and
$6.4 million within the Dresser Equipment Group for various asset related
charges whose carrying value has been impaired and $5.6 million for early
retirement incentives. A subsidiary of Halliburton, along with its joint venture
partner Ingersoll-Rand Company, approved profit initiatives at Dresser-Rand
Company and Ingersoll-Dresser Pump Company. Halliburton's share of these
initiatives included facility consolidation charges of $18.0 million ($7.5
million after tax and minority interest) for the closure of a Dresser-Rand
facility in Europe, consolidation of repair and service operations and the
discontinuance of certain product lines. A subsidiary of Halliburton and Shaw
Industries, Ltd. agreed to a long-term extension of their strategic pipe coating
alliance. See Note 5. This transaction resulted in a pretax gain of $41.7
million.
Additionally, Halliburton recorded its share of personnel reduction charges
of $30.2 million recorded during the two-month period ended December 31, 1997 to
reduce employment levels by approximately 1,000 at Dresser-Rand and Ingersoll-
Dresser Pump. These costs have been recorded in the consolidated statements of
shareholders' equity as part of conforming the fiscal year of Dresser to
Halliburton's calendar year. See Note 1.
During the first quarter of 1996, Landmark recorded asset related charges
of $12.2 million ($8.7 million after tax) for the write-off of in-process
research and development activities acquired in connection with the purchase by
Landmark of certain assets and the assumption of certain liabilities of Western
Atlas International, Inc. and the write-off of related redundant assets and
activities.
During the third quarter of 1996, Halliburton recorded special charges of
$73.6 million ($50.3 million after tax), which included $41.0 million of
personnel charges to terminate approximately 1,000 employees related to
reorganization efforts within the Engineering and Construction Group and plans
to combine various administrative support functions throughout Halliburton into
shared services; $20.2 million of facility charges for restructuring certain
Engineering and Construction Group businesses, provide for excess lease space
and other items; and $12.4 million for merger transaction costs incurred in
relation to the merger with Landmark.
The special charges to net income in the third quarter of 1996 were offset
by tax credits during the same quarter of $43.7 million due to the recognition
of net operating loss carryforwards and the settlement during the quarter of
various issues with the Internal Revenue Service (IRS). Halliburton reached
agreement with the IRS and recognized net operating loss carryforwards of $62.5
million ($22.5 million in tax benefits) from the 1989 tax year. The net
operating loss carryforwards were utilized in the 1996 tax year. In addition,
Halliburton also reached agreement with the IRS on issues related to
intercompany pricing of goods and services for the tax years 1989 through 1992
and entered into an advanced pricing agreement for the tax years 1993 through
1998. As a result of these agreements with the IRS, Halliburton recognized tax
benefits of $16.1 million. Halliburton also recognized net operating loss
carryforwards of $14.0 million ($5.1 million in tax
152
<PAGE>
benefits) in certain foreign areas due to improving profitability and
restructuring of foreign operations.
Note 8. Lines of Credit, Notes Payable and Long-Term Debt
Short-term notes payable and current maturities consist of:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997
----------------------------------- ------ -----
<S> <C> <C>
Short-term notes payable $515.0 $50.5
Current maturities of long-term debt 58.5 7.4
------ -----
Total $573.5 $57.9
====== =====
</TABLE>
At year-end 1998, Halliburton had committed short-term lines of credit
totaling $550.0 million available and unused, and other short-term lines of
credit totaling $315.0 million. There were no borrowings outstanding under these
facilities. The remaining short-term debt consists primarily of $462.9 million
in commercial paper with an effective interest rate of 5.30% and $52.1 million
in foreign bank loans and overdraft facilities with varying rates of interest.
Long-term debt at the end of 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997
-------------------------------------------------------------- -------- --------
<S> <C> <C>
6.25% notes due June 2000 $ 300.0 $ 300.0
7.6% debentures due August 2096 300.0 300.0
8.75% debentures due February 2021 200.0 200.0
8% senior notes due April 2003 138.6 149.5
Medium-term notes due 1999 through 2027 450.0 300.0
Term loans at LIBOR (GBP) plus 0.75% payable in semi-annual installments through March 2002 29.4 45.9
Other notes with varying interest rates 10.2 8.9
-------- --------
1,428.2 1,304.3
Less current portion 58.5 7.4
-------- --------
Total long-term debt $1,369.7 $1,296.9
======== ========
</TABLE>
Halliburton has issued notes under its medium-term note program as follows:
<TABLE>
<CAPTION>
Amount Issue Date Due Rate Prices Yield
---------------------- ------------- ------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
$125 million 02/11/97 02/01/2027 6.75% 99.78% 6.78%
$ 50 million 05/12/97 05/12/2017 7.53% Par 7.53%
$ 50 million 07/08/97 07/08/1999 6.27% Par 6.27%
$ 75 million 08/05/97 08/05/2002 6.30% Par 6.30%
$150 million 11/24/98 12/01/2008 5.63% 99.97% 5.63%
</TABLE>
Halliburton's 8.75% debentures due February 2021 do not have sinking fund
requirements and are not redeemable prior to maturity. The medium-term notes may
not be redeemed at the option of Halliburton prior to maturity. There is no
sinking fund applicable to the notes. Each holder of the 6.75% medium-term notes
has the right to require Halliburton to repay such holder's notes, in whole or
in part, on February 1, 2007. The net proceeds from the sale of the notes were
used for general corporate purposes.
During March 1997, a subsidiary of Halliburton incurred $56.3 million of
term loans in connection with the acquisition of the Royal Dockyard in Plymouth,
England (the Dockyard Loans). The Dockyard Loans are denominated in pounds
sterling and bear interest at LIBOR (GBP) plus 0.75% payable in semi-annual
installments through March 2002. Pursuant to certain terms of the Dockyard
Loans, a subsidiary of Halliburton was initially required to provide a
compensating
153
<PAGE>
balance of $28.7 million which is restricted as to use by the subsidiary. The
compensating balance amount decreases in proportion to the outstanding debt
related to the Dockyard Loans and earns interest at a rate equal to that of the
Dockyard Loans. At December 31, 1998, the compensating balance of $14.9 million
is included in other assets in the consolidated balance sheets.
Long-term debt matures over the next five years as follows: $58.5 million
in 1999; $308.3 million in 2000; $8.3 million in 2001; $85.3 million in 2002;
and $138.8 million in 2003.
Note 9. Dresser Financial Information
Dresser Industries Inc. has ceased filing periodic reports with the
Securities and Exchange Commission. Dresser's 8% senior notes (the Notes) remain
outstanding and the Notes are fully guaranteed by Halliburton. See Note 8. As
long as the Notes remain outstanding, summarized financial information of
Dresser will be presented in periodic reports filed by Halliburton on Form 10-K
and Form 10-Q. Halliburton has not presented separate financial statements and
other disclosures concerning Dresser because management has determined such
information is not material to holders of the Notes.
In January 1999, as part of the legal reorganization associated with the
Merger, Halliburton Delaware, Inc., a first tier holding company subsidiary, was
merged into Dresser Industries, Inc. As a result of this action, the majority
of the operating assets and activities of the combined company in 1999 will be
included within the legal structure of Dresser Industries, Inc.
<TABLE>
<CAPTION>
Dresser Industries, Inc.
Financial Position December 31 October 31
-------------------------- ----------- ----------
Millions of dollars 1998 1997
-------------------------- ----------- ----------
<S> <C> <C>
Current assets $ 2,417.2 $ 2,471.6
Noncurrent assets 2,613.7 2,627.2
----------- ----------
Total $ 5,030.9 $ 5,098.8
=========== ==========
Current liabilities $ 1,388.6 $ 1,687.4
Noncurrent liabilities 1,544.4 1,535.5
Minority interest 153.5 143.7
Shareholders' equity 1,944.4 1,732.2
----------- ----------
Total $ 5,030.9 $ 5,098.8
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Dresser Industries, Inc. Twelve months ended
Operating Results December 31 October 31 October 31
------------------------ -----------------------------------
Millions of dollars 1998 1997 1996
------------------------ ---------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 8,135.7 $ 7,457.9 $ 6,561.5
========== =========== =========
Operating income $ 677.1 $ 600.6 $ 485.3
========== =========== =========
Net income $ 343.8 $ 318.0 $ 257.5
========== =========== =========
</TABLE>
Note 10. Commitments and Contingencies
Leases. At year end 1998, Halliburton and its subsidiaries were obligated
under noncancelable operating leases, expiring on various dates through 2021,
principally for the use of land, offices, equipment, field facilities, and
warehouses. Aggregate rentals charged to operations for such leases totaled
$207.1 million in 1998, $202.8 million in 1997 and $177.8 million in 1996.
Future aggregate rentals on noncancelable operating leases are as follows: 1999,
$147.3 million;
154
<PAGE>
2000, $121.0 million; 2001, $96.6 million; 2002, $83.1 million; 2003, $60.9
million; and thereafter, $150.7 million.
Asbestosis Litigation. Since 1976, Dresser and its former divisions or
subsidiaries have been involved in litigation resulting from allegations that
third parties had sustained injuries and damage from the inhalation of asbestos
fibers contained in certain products manufactured by Dresser and its former
divisions or subsidiaries or companies acquired by Dresser.
Over the last 20 years approximately 183,000 claims have been filed against
Dresser and its former divisions or subsidiaries. Claims continue to be filed
with 29,400 new claims filed in 1998. Dresser and its former divisions or
subsidiaries have entered into agreements with insurance carriers which cover,
in whole or in part, indemnity payments, legal fees and expenses for certain
categories of claims. Dresser and its former divisions or subsidiaries are in
negotiation with carriers over coverage for the remaining categories of claims.
Because these agreements are governed by exposure dates, payment type and the
product involved, the covered amount varies by individual claim. In addition,
lawsuits are pending against several carriers seeking to recover additional
amounts related to these claims.
Since 1976, Dresser and its former divisions and subsidiaries have settled
or disposed of 120,000 claims for a gross cost of approximately $89.1 million
with insurance carriers paying all but $37.0 million. Provision has been made
for the estimated exposure, based on historical experience and expected
recoveries from insurance carriers, related to the 63,400 claims which were open
at the end of 1998 including 14,000 for which settlements are pending.
Management has no reason to believe that the insurance carriers will not be able
to meet their share of future obligations under the agreements.
Pursuant to an agreement entered into at the time of the spin-off, Global
Industrial Technologies, Inc. ("Global" formerly INDRESCO, Inc.) assumed
liability for asbestos related claims filed against Dresser after July 31, 1992
relating to refractory products manufactured or marketed by the Harbison-Walker
Refractories Division of Dresser Industries, Inc. These asbestos claims are
subject to certain agreements with insurance carriers that cover expense and
indemnity payments. Global now disputes that it assumed responsibility for any
of such asbestos claims based on negligence. Global also now asserts certain
other claims relating to the insurance coverage responding to asbestos claims.
In order to resolve these assertions, Global has invoked the dispute resolution
provisions of the 1992 agreement, which require binding arbitration. On February
19, 1999 Dresser filed suit in the Delaware Chancery Court seeking an injunction
to restrain such arbitration as being barred by the Delaware statute of
limitations. Halliburton believes that these new assertions by Global are
without merit and intends to vigorously defend itself against them.
Management recognizes the uncertainties of litigation and the possibility
that a series of adverse rulings could materially impact operating results.
However, based upon Dresser's historical experience with similar claims, the
time elapsed since Dresser and its former divisions or subsidiaries discontinued
sale of products containing asbestos, and management's understanding of the
facts and circumstances that gave rise to such claims, management believes that
the pending asbestos claims will be resolved without material effect on
Halliburton's financial position or results of operations.
155
<PAGE>
Environmental. Halliburton is involved through its subsidiaries as a
potential responsible party (PRP) in remedial activities to clean up various
"Superfund" sites under applicable federal law which imposes joint and several
liability, if the harm is indivisible, on certain persons without regard to
fault, the legality of the original disposal, or ownership of the site. Although
it is very difficult to quantify the potential impact of compliance with
environmental protection laws, management of Halliburton believes that any
liability of Halliburton with respect to all but one of such sites will not have
a material adverse effect on the results of operations of Halliburton.
With respect to a site in Jasper County, Missouri (Jasper County Superfund
Site), sufficient information that would enable management to quantify
Halliburton's potential liability has not been developed and management believes
the process of determining the nature and extent of remediation at this site and
the total costs thereof will be lengthy. Brown & Root, Inc., now Kellogg Brown &
Root, Inc. (KBR), a subsidiary of Halliburton, has been named as a PRP with
respect to the Jasper County Superfund Site by the Environmental Protection
Agency (EPA). The Jasper County Superfund Site includes areas of mining activity
that occurred from the 1800s through the mid 1950s in the southwestern portion
of Missouri. The site contains lead and zinc mine tailings produced from mining
activities. KBR is one of nine participating PRPs that have agreed to perform a
Remedial Investigation/Feasibility Study (RI/FS), which, due to various delays,
is not expected to be completed until late 1999. Although the entire Jasper
County Superfund Site comprises 237 square miles as listed on the National
Priorities List, in the RI/FS scope of work, the EPA has only identified seven
areas, or subsites, within this area that need to be studied and then possibly
remediated by the PRPs. Additionally, the Administrative Order on Consent for
the RI/FS only requires KBR to perform RI/FS work at one of the subsites within
the site, the Neck/Alba subsite, which only comprises 3.95 square miles. KBR's
share of the cost of such a study is not expected to be material. In addition to
the Superfund issues, the State of Missouri has indicated that it may pursue
natural resource damage claims against the PRPs. At the present time KBR cannot
determine the extent of its liability, if any, for remediation costs or natural
resource damages on any reasonably practicable basis.
General Litigation. The purchasers of Dresser's former hand tool division
sued Dresser for fraud in connection with the October 1983 transaction. In May
1994, the jury returned a verdict awarding the plaintiffs $4.0 million in
compensatory damages and $50.0 million in punitive damages. On October 13, 1994,
the Court ordered a reduction of damages from $54.0 to $12.0 million. On October
15, 1996, the Court of Appeals issued its decision reversing the trial court's
decision as to compensatory and punitive damages and remanding the case for a
new trial on damages. On remand, the trial court ordered that the new trial
contemplated by the appellate decision be limited to compensatory damages only,
despite the express statement that punitive damages were also reversed, and
decided that the court would review the original punitive damages verdict after
the retrial on compensatory damages.
As of October, 1998 the trial was held on compensatory damages and
concluded with a jury award of $1. Following that, a hearing was held in
January, at which the judge reduced the punitive damage award from $50 million
to $650,000. The sum of $650,001 was paid during the first week of February
1999, and this case is now concluded.
Merger. In connection with the Merger, Dresser and its directors have been
named as defendants in three lawsuits filed in late February of 1998 and early
March of 1998 in the Delaware
156
<PAGE>
Court of Chancery. The lawsuits each purport to be a class action filed on
behalf of Dresser's stockholders and allege that the consideration to be paid to
Dresser's stockholders in the Merger is inadequate and does not reflect the true
value of Dresser. The complaints also each allege that the directors of Dresser
have breached their fiduciary duties in approving the Merger. One of the actions
further alleges self-dealing on the part of the individual defendants and
asserts that the directors are obliged to conduct an auction to assure that
stockholders receive the maximum realizable value for their shares. All three
actions seek preliminary and permanent injunctive relief as well as damages. On
June 10, 1998 the court issued an order consolidating the three lawsuits which
requires the plaintiffs to file an amended consolidated complaint "as soon as
practicable." To date, plaintiffs have not filed an amended complaint.
Halliburton believes that the lawsuits are without merit and intends to defend
the lawsuits vigorously.
Other. Halliburton and its subsidiaries are parties to various other legal
proceedings. Although the ultimate dispositions of such proceedings are not
presently determinable, in the opinion of Halliburton any liability that may
ensue will not be material in relation to the consolidated financial position
and results of operations of Halliburton.
Note 11. Income Per Share
<TABLE>
<CAPTION>
Millions of dollars and shares
except per share data 1998 1997 1996
------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Net income (loss) $(14.7) $772.4 $557.9
====== ====== ======
Basic weighted average shares 438.8 431.1 429.2
Effect of common stock equivalents -- 5.0 2.9
------ ------ ------
Diluted weighted average shares 438.8 436.1 432.1
====== ====== ======
Income (loss) per common share:
Basic $(0.03) $ 1.79 $ 1.30
====== ====== ======
Diluted $(0.03) $ 1.77 $ 1.29
====== ====== ======
</TABLE>
Basic income per share amounts are based on the weighted average number of
common shares outstanding during the period. Diluted income per share includes
additional common shares that would have been outstanding if potential common
shares with a dilutive effect had been issued. Diluted earnings per share for
1998 excludes 3.3 million potential common shares which were antidilutive for
earnings per share purposes. Also excluded from the computation of diluted
earnings per share are options to purchase 1.4 million shares of common stock in
1998; 1.1 million shares in 1997; and 2.6 million shares in 1996. These options
were outstanding during these respective years, but were excluded because the
option exercise price was greater than the average market price of the common
shares.
Note 12. Common Stock
On June 25, 1998, Halliburton's shareholders voted to increase
Halliburton's number of authorized shares from 400.0 million to 600.0 million.
On May 20, 1997, Halliburton's shareholders voted to increase Halliburton's
number of authorized shares from 200.0 million shares to 400.0 million shares.
On June 9, 1997, Halliburton's
157
<PAGE>
Board of Directors approved a two-for-one stock split effected in the form of a
stock dividend distributed on July 21, 1997 to shareholders of record on June
26, 1997. The par value of Halliburton's common stock of $2.50 per share
remained unchanged. As a result of the stock split, $556.3 million was
transferred from paid-in capital in excess of par value to common stock.
Historical share and per share amounts presented on the supplemental
consolidated statements of income and in the discussion below concerning stock
options and restricted stock have been restated to reflect the stock split.
Halliburton's 1993 Stock and Long-Term Incentive Plan (1993 Plan) provides
for the grant of any or all of the following types of awards: (1) stock
options, including incentive stock options and non-qualified stock options; (2)
stock appreciation rights, in tandem with stock options or freestanding; (3)
restricted stock; (4) performance share awards; and (5) stock value equivalent
awards. Under the terms of the 1993 Plan as amended, 27 million shares of
Halliburton's Common Stock have been reserved for issuance to key employees. At
December 31, 1998, 14.6 million shares were available for future grants under
the 1993 Plan.
In connection with the acquisitions of Dresser, Landmark Graphics
Corporation (Landmark) and NUMAR Corporation (NUMAR) (see Note 14), outstanding
stock options under the stock option plans maintained by Dresser, Landmark and
NUMAR were assumed by Halliburton. Stock option transactions summarized below
include amounts for the 1993 Plan, the Dresser plans using the acquisition
exchange rate of 1 share for each Dresser share, the Landmark plans using the
acquisition exchange rate of 1.148 shares for each Landmark share, and the NUMAR
plans using the acquisition exchange rate of .9664 shares for each NUMAR share.
The period from December 1997 to December 1998 includes Dresser's activities
from its fiscal year-end of October 1997 to December 1997 in order to conform
Dresser's fiscal year-end to Halliburton's calendar year-end.
158
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number of Price per Price
Stock Options Shares Share per Share
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 12,289,650 $ 2.90-29.73 $18.53
Granted 4,295,409 14.48-29.57 27.49
Exercised (2,722,828) 2.90-23.88 16.72
Forfeited (445,660) 8.71-28.09 18.81
----------
Outstanding at December 31, 1996 13,416,571 3.49-29.73 21.77
Options assumed in acquisition 854,050 3.10-22.12 12.22
Granted 2,194,972 30.69-61.50 46.18
Exercised (3,684,923) 3.10-29.56 17.95
Forfeited (395,833) 9.15-39.88 22.69
----------
Outstanding at December 31, 1997 12,384,837 3.10-61.50 26.55
Granted 4,273,368 26.19-46.50 33.07
Exercised (2,435,393) 3.10-37.88 20.84
Forfeited (397,610) 5.40-54.50 33.64
----------
Outstanding at December 31, 1998 13,825,202 $ 3.10-61.50 $29.37
==========
</TABLE>
Options outstanding at December 31, 1998 are composed of the following:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------ ----------------------
Weighted
Number of Average Weighted Number of Weighted
Shares at Remaining Average Shares at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1998 Life Price 1998 Price
- ---------------- ------------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 3.10-14.38 354,189 3.81 $10.36 354,189 $10.36
14.48-18.13 1,806,304 6.12 16.68 1,660,940 16.71
18.24-29.19 5,519,919 7.88 25.28 2,943,534 23.11
29.56-61.50 6,144,790 8.30 37.87 2,885,151 35.46
---------- ---------
$ 3.10-61.50 13,825,202 7.73 $29.37 7,843,814 $25.72
========== =========
</TABLE>
There were 6.9 million options exercisable with a weighted average exercise
price of $21.17 at December 31, 1997, and 6.5 million options exercisable with a
weighted average exercise price of $18.57 at December 31, 1996.
All stock options under the 1993 Plan, including options granted to
employees of Dresser, Landmark and NUMAR since the acquisition of such
companies, are granted at the fair market value of the Common Stock at the grant
date. Landmark, prior to its acquisition by Halliburton, had provisions in its
plans that allowed Landmark to set option exercise prices at a defined
percentage below fair market value.
The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. The weighted average assumptions and
resulting fair values of options granted are as follows:
<TABLE>
<CAPTION>
Assumptions Weighted Average
----------------------------------------------------------------
Risk-Free Expected Expected Expected Fair Value of
Interest Rate Dividend Yield Life (in years) Volatility Options Granted
---------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
1998 4.3 - 5.3% 1.2 - 2.7% 5 - 6.5 20.1 - 38.o% $ 11.63
1997 6.0 - 6.4% 1.0 - 2.7% 5 - 6.5 22.8 - 43.3% $ 17.29
1996 5.8 - 5.9% 1.6 - 2.7% 5 - 6.5 23.1 - 39.7% $ 9.44
</TABLE>
159
<PAGE>
Stock options generally expire ten years from the grant date. Stock
options vest over a three-year period, with one-third of the shares becoming
exercisable on each of the first, Second and third anniversaries of the grant
date.
Halliburton accounts for its option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards. Had compensation cost for Halliburton's
stock option programs been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SAS
123), Halliburton's pro forma net income (loss) for 1998, 1997 and 1996 would
have been $(42.6) million, $750.3 million and $547.1 million, respectively,
resulting in diluted earnings (loss) per share of $(0.10), $1.72 and $1.27,
respectively.
Restricted shares awarded under the 1993 Plan for 1998, 1997 and 1996 were
414,510; 515,650; and 363,800, respectively. The shares awarded are net of
forfeitures of 136,540; 34,900; and 34,600 shares in 1998, 1997 and 1996,
respectively. The weighted average fair market value per share at the date of
grant of shares granted in 1998, 1997 and 1996 was $34.77, $45.29 and $28.24,
respectively.
Halliburton's Restricted Stock Plan for Non-Employee Directors (Restricted
Stock Plan) allows for each non-employee director to receive an annual award of
400 restricted shares of Common Stock as a part of compensation. Halliburton
reserved 100,000 shares of Common Stock for issuance to non-employee directors.
Halliburton issued 3,200; 3,200 and 3,600 restricted shares in 1998, 1997 and
1996, respectively, under this plan. At December 31, 1998, 20,400 shares have
been issued to non-employee directors under this plan. The weighted average
fair market value per share at the date of grant of shares granted in 1998, 1997
and 1996 was $36.31, $46.06 and $26.57, respectively.
Halliburton's Employees' Restricted Stock Plan was established for
employees who are not officers, for which 200,000 shares of Common Stock have
been reserved. At December 31, 1998, 170,300 shares (net of 26,700 shares
forfeited) have been issued. Forfeitures were 1,900; 14,600 and 8,400 in 1998,
1997 and 1996, respectively, and no further grants are being made under this
plan.
Under the terms of Halliburton's Career Executive Incentive Stock Plan, 15
million shares of Halliburton's Common Stock were reserved for issuance to
officers and key employees at a purchase price not to exceed par value of $2.50
per share. At December 31, 1998, 11.7 million shares (net of 2.2 million shares
forfeited) have been issued under the plan. No further grants will be made
under the Career Executive Incentive Stock Plan.
Restricted shares issued under the 1993 Plan, Restricted Stock Plan,
Employees' Restricted Stock Plan and the Career Executive Incentive Stock Plan
are limited as to sale or disposition with such restrictions lapsing
periodically over an extended period of time not exceeding ten years. The fair
market value of the stock, on the date of issuance, is being amortized and
charged to income (with similar credits to paid-in capital in excess of par
value) generally over the average period during which the restrictions lapse.
Compensation costs recognized in income for 1998, 1997 and 1996 were $7.6
million, $7.1 million and $6.9 million, respectively. At December 31, 1998, the
unamortized amount is $50.6 million.
160
<PAGE>
Note 13. Series A Junior Participating Preferred Stock
Halliburton has previously declared a dividend of one preferred stock
purchase right (a Right) on each outstanding share of Common Stock. This
dividend is also applicable to each share of Halliburton Common Stock that was
issued subsequent to adoption of the Rights Agreement entered into with
ChaseMellon Shareholder Services, L.L.C. (the Rights Agent). Each Right entitles
its holder to buy one two-hundredth of a share of Halliburton's Series A Junior
Participating Preferred Stock, without par value, at an exercise price of $75.
These Rights are subject to certain antidilution adjustments, which have been
set out in the Rights Agreement entered into with the Rights Agent. The Rights
do not have any voting rights and are not entitled to dividends.
The Rights become exercisable in certain limited circumstances involving a
potential business combination. After the Rights become exercisable, each Right
will entitle its holder to an amount of Common Stock of Halliburton, or in
certain circumstances, securities of the acquiror, having in the aggregate, a
market value equal to two times the exercise price of the Right. The Rights are
redeemable at Halliburton's option at any time before they become exercisable.
The Rights expire on December 15, 2005. No event during 1998 made the Rights
exercisable.
Note 14. Acquisitions and Dispositions
Dresser Merger. On September 29, 1998 Halliburton completed the
acquisition of Dresser Industries, Inc. (the Merger), by converting the
outstanding Dresser common stock into an aggregate of approximately 176 million
shares of Common Stock of Halliburton. Halliburton has also reserved
approximately 7.3 million shares of common stock for outstanding Dresser stock
options and other employee and directors plans. The Merger qualified as a tax-
free exchange to Dresser's shareholders for U.S. federal income tax purposes and
was accounted for using the pooling of interests method of accounting for
business combinations. Accordingly, Halliburton's financial statements have
been restated to include the results of Dresser for all periods presented.
Beginning in 1998, Dresser's year-end of October 31 has been conformed to
Halliburton's calendar year-end. Periods through December 1997 contain
Dresser's information on a fiscal year-end basis combined with Halliburton's
information on a calendar year-end basis. For the two months ended December 31,
1997, Dresser had revenues of $1,110.2 million, operating income of $53.2
million, and net income of $35.8 million. Operating income for the two-month
period includes a pretax special charge of $30.2 million ($12.0 million after
tax and minority interest) related to Dresser's share of profit improvement
initiatives at the Dresser-Rand and Ingersoll-Dresser Pump joint ventures.
Results for the two-month period have been included in retained earnings,
and dividends of $33.2 million paid in December 1997 have been deducted from
retained earnings in the consolidated statements of shareholders' equity at
December 31, 1998 as conforming fiscal years. The change to Dresser's cumulative
translation adjustment account for the period between October 31, 1997 and
December 31, 1997 of $14.8 million is also included in the consolidated
statements of shareholders' equity as conforming fiscal years. There were no
material transactions between Halliburton and Dresser prior to the Merger.
161
<PAGE>
Combined and separate companies results of Halliburton and Dresser for the
periods preceding the merger are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended Years ended
September 30 December 31
------------- ---------------------
Millions of dollars 1998 1997 1996
- ---------------------------------- ------------- --------- ---------
<S> <C> <C> <C>
Revenues:
Halliburton $ 7,044.5 $ 8,818.6 $ 7,385.1
Dresser 6,019.5 7,457.9 6,561.5
--------- --------- ---------
Combined $13,064.0 $16,276.5 $13,946.6
========= ========= =========
Net income (loss):
Halliburton $ 359.3 $ 454.4 $ 300.4
Dresser 282.3 318.0 257.5
1998 Special charge, net of tax (722.0) -- --
--------- --------- ---------
Combined $ (80.4) $ 772.4 $ 557.9
========= ========= =========
</TABLE>
LWD Divestiture. In January 1999, in accordance with the consent decree
Halliburton entered into with the U.S. Department of Justice on September 29,
1998, an agreement was reached with W-H Energy Services, Inc. (W-H) for the sale
of Halliburton's logging-while-drilling (LWD) and related measurement-while-
drilling (MWD) business known as PathFinder and currently a part of the Energy
Services Group.
Completion of the sale of the PathFinder business was approved by the
Department of Justice on March 3, 1999. Halliburton expects to incur a loss on
the sale which is expected to be completed in March 1999. Halliburton will
provide separate LWD services through its Sperry Sun business unit, which was
acquired as part of the merger with Dresser and is now a part of Halliburton
Energy Services. In addition, Halliburton will continue to provide sonic LWD
services using its existing technologies, which it will share with PathFinder.
M-I L.L.C. Drilling Divestiture. In August 1998, Halliburton sold its 36%
interest in M-I L.L.C. (M-I) with no significant effect on net income for the
year. M-I was previously a part of the Energy Services Group. See Note 5.
Acquisition of Devonport Royal Dockyard. During March 1997, the Devonport
management consortium, Devonport Management Limited (DML), which is 51% owned by
a subsidiary of Halliburton, completed the acquisition of Devonport Royal
Dockyard plc, which owns and operates the Government of the United Kingdom's
Royal Dockyard in Plymouth, England, for approximately $64.9 million.
Concurrent with the acquisition of the Royal Dockyard, Halliburton's ownership
interest in DML increased from about 30% to 51% and DML borrowed $56.3 million
under term loans. The dockyard principally provides repair and refitting
services for the British Royal Navy's fleet of submarines and surface ships.
DML is a part of the Engineering and Construction Group.
Acquisition of OGC International and Kinhill. During April 1997,
Halliburton completed its acquisition of the outstanding common stock of OGC
International plc (OGC) for approximately $118.3 million. OGC is engaged in
providing a variety of engineering, operations and maintenance services,
primarily to the North Sea oil and gas production industry and is a part of the
Energy Services Group.
162
<PAGE>
During July 1997, Halliburton acquired all of the outstanding common stock
and convertible debentures of Kinhill Holdings Limited (Kinhill) for
approximately $34 million. Kinhill, headquartered in Australia, provides
engineering in mining and minerals processing, petroleum and chemicals, water
and wastewater, transportation and commercial and civil infrastructure. Kinhill
markets its services primarily in Australia, Indonesia, Thailand, Singapore,
India and the Philippines. Kinhill is a part of the Engineering and
Construction Group.
In 1997, Halliburton recorded approximately $99.1 million excess of cost
over net assets acquired primarily related to the purchase acquisitions of OGC
and Kinhill.
Acquisition of NUMAR. On September 30, 1997, Halliburton completed its
acquisition of NUMAR through the merger of a subsidiary of Halliburton with and
into NUMAR, the conversion of the outstanding NUMAR common stock into an
aggregate of approximately 8.2 million shares of common stock of Halliburton and
the assumption by Halliburton of the outstanding NUMAR stock options (for the
exercise of which Halliburton has reserved an aggregate of approximately 0.9
million shares of common stock of Halliburton). The merger qualified as a tax-
free exchange and was accounted for using the pooling of interests method of
accounting for business combinations. Halliburton has not restated its
financial statements to include NUMAR's historical operating results because
they were not material to Halliburton.
NUMAR's assets and liabilities on September 30, 1997 were included in
Halliburton's accounts of the same date, resulting in an increase in net assets
of $21.3 million. Headquartered in Malvern, Pennsylvania, NUMAR designs,
manufactures and markets the Magnetic Resonance Imaging Logging (MRIL(R)) tool
which utilizes magnetic resonance imaging technology to evaluate subsurface rock
formations in newly drilled oil and gas wells. NUMAR is a part of the Energy
Services Group.
Subsea Asset Sale. In June 1997, a subsidiary of Halliburton sold certain
assets of its subsea operations to Global Industries, Ltd. for $102.0 million
and recognized a loss of $6.3 million (net of tax of $3.4 million) on the sale.
SubSea is a part of the Energy Services Group.
Environmental Services Divestiture. On December 31, 1997, a subsidiary of
Halliburton sold its environmental services business to Tetra Tech, Inc. for
approximately $32 million. The sale was prompted by Halliburton's desire to
divest non-core businesses and had no significant effect on the net income for
the year. The environmental services business was previously a part of the
Engineering and Construction Group.
Landmark Graphics. In October 1996, Halliburton completed its acquisition
of Landmark through the merger of Landmark with and into a subsidiary of
Halliburton, the conversion of the outstanding Landmark common stock into an
aggregate of approximately 20.4 million shares of common stock of Halliburton
(after giving effect to Halliburton's two-for-one stock split) and the
assumption by Halliburton of the outstanding Landmark stock options. The merger
qualified as a tax-free exchange and was accounted for using the pooling of
interests method of accounting for business combinations. Halliburton's
financial statements have been restated to include the results of Landmark for
all periods presented prior to the date of completion. Landmark is now a part
of the Energy Services Group.
163
<PAGE>
Prior to its acquisition by Halliburton, Landmark had a fiscal year-end of
June 30. Landmark's results have been restated to conform with Halliburton's
calendar year-end. Combined and separate results of Halliburton and Landmark for
the periods preceding the merger are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
------------------
Millions of dollars September 30, 1996
- --------------------------------------------- ------------------
<S> <C>
Revenues:
Halliburton $5,251.5
Landmark 143.9
------------------
Combined $5,395.4
==================
Net income (loss):
Halliburton $ 201.2
Landmark (8.4)
------------------
Combined $ 192.8
==================
</TABLE>
Halliburton acquired other businesses in 1998, 1997 and 1996 for $42.0
million, $3.6 million and $32.2 million, respectively. These businesses did not
have a significant effect on revenues or earnings.
Note 15. Financial Instruments and Risk Management
Foreign Exchange Risk. Techniques in managing foreign exchange risk
include, but are not limited to, foreign currency borrowing and investing and
the use of currency derivative instruments. Halliburton selectively hedges
significant exposures to potential foreign exchange losses considering current
market conditions, future operating activities and the cost of hedging the
exposure in relation to the perceived risk of loss. The purpose of
Halliburton's foreign currency hedging activities is to protect Halliburton from
the risk that the eventual dollar cash flows resulting from the sale and
purchase of products in foreign currencies will be adversely affected by changes
in exchange rates. Halliburton does not hold or issue derivative financial
instruments for trading or speculative purposes.
Halliburton hedges its currency exposure through the use of currency
derivative instruments. Such contracts generally have an expiration date of two
years or less. Forward exchange contracts (commitments to buy or sell a
specified amount of a foreign currency at a specified price and time) are
generally used to hedge identifiable foreign currency commitments. Losses of
$1.4 million for identifiable foreign currency commitments were deferred at
December 31, 1998. Forward exchange contracts and foreign exchange option
contracts (which convey the right, but not the obligation, to sell or buy a
specified amount of foreign currency at a specified price) are generally used to
hedge foreign currency commitments with an indeterminable maturity date. None
of the forward or option contracts are exchange traded.
While hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying exposures being
hedged. The use of some contracts may limit Halliburton's ability to benefit
from favorable fluctuations in foreign exchange rates. The notional amounts of
open forward contracts and options were $595.9 million and $697.2 million at
year-end 1998 and 1997, respectively. The notional amounts of Halliburton's
foreign exchange contracts do not generally represent amounts exchanged by the
parties, and thus, are not a measure of the
164
<PAGE>
exposure of Halliburton or of the cash requirements relating to these contracts.
The amounts exchanged are calculated by reference to the notional amounts and by
other terms of the derivatives, such as exchange rates. Halliburton actively
monitors its foreign currency exposure and adjusts the amounts hedged as
appropriate.
Exposures to certain currencies are generally not hedged due primarily to
the lack of available markets or cost considerations (non-traded currencies).
Halliburton attempts to manage its working capital position to minimize foreign
currency commitments in non-traded currencies and recognizes that pricing for
the services and products offered in such countries should cover the cost of
exchange rate devaluations. Halliburton has historically incurred transaction
losses in non-traded currencies.
Credit Risk. Financial instruments that potentially subject Halliburton to
concentrations of credit risk are primarily cash equivalents, investments and
trade receivables. It is Halliburton's practice to place its cash equivalents
and investments in high quality securities with various investment institutions.
Halliburton derives the majority of its revenues from sales and services to,
including engineering and construction for, the energy industry. Within the
energy industry, trade receivables are generated from a broad and diverse group
of customers. There are concentrations of receivables in the United States and
the United Kingdom. Halliburton maintains an allowance for losses based upon
the expected collectibility of all trade accounts receivable.
There are no significant concentrations of credit risk with any individual
counterparty or groups of counterparties related to Halliburton's derivative
contracts. Counterparties are selected by Halliburton based on
creditworthiness, which Halliburton continually monitors, and on the
counterparties' ability to perform their obligations under the terms of the
transactions. Halliburton does not expect any counterparties to fail to meet
their obligations under these contracts given their high credit ratings and, as
such, considers the credit risk associated with its derivative contracts to be
minimal.
Fair Value of Financial Instruments. The estimated fair value of long-term
debt at year-end 1998 and 1997 was $1,577.6 million and $1,380.8 million,
respectively, as compared to the carrying amount of $1,428.2 million at year-end
1998 and $1,304.3 million at year-end 1997. The fair value of fixed rate long-
term debt is based on quoted market prices for those or similar instruments.
The carrying amount of variable rate long-term debt and restricted cash (see
Note 8) approximates fair value because such instruments reflect market changes
to interest rates. The carrying amount of short-term financial instruments
(cash and equivalents, receivables, short-term notes payable and accounts
payable) as reflected in the consolidated balance sheets approximates fair value
due to the short maturities of these instruments. The fair value of currency
derivative instruments which generally approximates their carrying amount based
upon third party quotes was $4.4 million receivable and $4.7 million payable at
December 31, 1998.
Note 16. Retirement Plans
Halliburton and its subsidiaries have various plans which cover a
significant number of their employees. These plans include defined contribution
plans, which provide retirement contributions in return for services rendered,
provide an individual account for each participant and have terms that specify
how contributions to the participant's account are to be determined rather than
the amount
165
<PAGE>
of pension benefits the participant is to receive. Contributions to these plans
are based on pre-tax income and/or discretionary amounts determined on an annual
basis. Halliburton's expense for the defined contribution plans totaled $151.8
million, $213.2 million, and $156.0 million in 1998, 1997 and 1996. Other
retirement plans include defined benefit plans, which define an amount of
pension benefit to be provided, usually as a function of age, years of service
or compensation. These plans are funded to operate on an actuarially sound
basis. Plan assets are primarily invested in cash, short-term investments, real
estate, equity and fixed income securities of entities domiciled in the country
of the plan's operation.
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Millions of dollars U.S. International U.S. International
- ------------------------------------------ ------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $377.6 $ 1,569.9 $386.6 $ 1,361.8
Service cost 5.4 57.3 8.1 44.6
Interest cost 27.3 111.2 29.1 102.7
Plan participants' contributions -- 14.0 -- 12.7
Effect of business combinations -- 20.7 -- --
Amendments 13.6 -- (16.6) --
Settlements/curtailments (2.3) (9.2) -- (1.9)
Currency fluctuations -- (1.7) -- (1.6)
Actuarial gain/(loss) 37.8 (5.2) 1.9 88.0
Benefits paid (29.1) (41.2) (31.5) (36.4)
------- ------------- ------- -------------
Benefit obligation at end of year $ 430.3 $ 1,715.8 $ 377.6 $ 1,569.9
======= ============= ======= =============
Change in plan assets:
Fair value of plan assets at beginning of year $ 421.4 $ 1,775.4 $ 351.0 $ 1,617.6
Actual return on plan assets 38.8 28.4 81.8 158.6
Employer contribution 17.4 25.2 20.1 25.5
Settlements (3.0) -- -- (1.9)
Plan participants' contributions -- 14.0 -- 12.7
Effect of business combinations -- 20.7 -- --
Currency fluctuations -- (5.1) -- (0.7)
Benefits paid (29.1) (41.2) (31.5) (36.4)
------- ------------- ------- -------------
Fair value of plan assets at end of year $ 445.5 $ 1,817.4 $ 421.4 $ 1,775.4
======= ============= ======= =============
Funded status: $ 15.2 $ 101.6 $ 43.8 $ 205.5
Unrecognized transition obligation 3.0 (8.1) 0.9 (10.2)
Unrecognized actuarial (gain)/loss 5.1 (59.2) (34.9) (162.7)
Unrecognized prior service cost 1.1 1.5 (17.0) 4.1
------- ------------- ------- -------------
Net amount recognized $ 24.4 $ 35.8 $ (7.2) $ 36.7
======= ============= ======= =============
</TABLE>
Halliburton recognized an additional minimum pension liability for
underfunded defined benefit plans. The additional minimum liability is equal to
the excess of the accumulated benefit obligation over plan assets and accrued
liabilities. A corresponding amount is recognized as either an intangible asset
or a reduction of shareholders' equity.
<TABLE>
<CAPTION>
1998 1997
----------------------- ----------------------
Millions of dollars U.S. International U.S. International
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Amounts recognized in the consolidated balance sheet consist of:
Prepaid benefit cost $ 30.9 $ 67.4 $ 21.2 $ 73.7
Accrued benefit liability (33.7) (33.1) (38.2) (38.3)
Intangible asset 17.0 0.4 4.4 0.7
Deferred tax asset 3.7 0.2 1.9 0.2
Accumulated other comprehensive income 6.5 0.9 3.5 0.4
------- ------------- ------- -------------
Net amount recognized $ 24.4 $ 35.8 $ (7.2) $ 36.7
======= ============= ======= =============
</TABLE>
166
<PAGE>
Assumed long-term rates of return on plan assets, discount rates for
estimating benefit obligations and rates of compensation increases vary for the
different plans according to the local economic conditions. The rates used are
as follows:
<TABLE>
<CAPTION>
Weighted-average assumptions as of December 31 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected return on plan assets:
United States plans 8.5% to 9.0% 8.5% to 9.0% 8.0% to 9.0%
International plans 7.0% to 11.0% 7.0% to 13.5% 7.0% to 13.5%
Discount rate:
United States plans 7.25% to 8.0% 7.25% to 8.0% 7.0% to 8.0%
International plans 2.0% to 12.5% 7.0% to 12.5% 7.0% to 12.5%
Rate of compensation increase:
United States plans 4.5% to 5.0% 4.0% to 5.5% 4.0% to 5.5%
International plans 2.0% to 11.0% 4.0% to 11.0% 4.0% to 11.0%
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
Millions of dollars U.S. International U.S. International
----------------------------------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 5.4 $ 57.3 $ 8.1 $ 44.6
Interest cost 27.3 111.2 29.1 102.7
Expected return on plan assets (30.0) (123.0) (31.4) (127.6)
Transition amount 0.6 (1.9) (0.7) (1.8)
Amortization of prior service cost (4.0) (7.1) (1.1) (7.1)
Settlements/curtailments loss/(gain) (3.9) (2.1) 0.4 --
Recognized actuarial (gain)/loss 0.2 0.1 (0.5) (1.8)
------ ------------- ------ -------------
Net periodic benefit cost $ (4.4) $ 34.5 $ 3.9 $ 9.0
====== ============= ====== =============
</TABLE>
In 1996 the pension plans had a net service cost of $31.3 million; a net
interest cost of $73.5 million; a net actual return on plan assets of ($109.8
million); and a net amortization and deferral of $10.0 million, resulting in a
net periodic pension cost of $5 million.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $201 million, $193 million, and $123 million,
respectively, as of December 31, 1998, and $103 million, $97 million, and $51
million, respectively, as of December 31, 1997.
Postretirement Medical Plan. Halliburton offers postretirement medical
plans to certain eligible employees. In some plans Halliburton's liability is
limited to a fixed contribution amount for each participant or dependent. The
plan participants share the total cost for all benefits provided above the fixed
Company contribution and participants' contributions are adjusted as required to
cover benefit payments. Halliburton has made no commitment to adjust the amount
of its contributions; therefore, the computed accumulated postretirement benefit
obligation amount is not affected by the expected future healthcare cost
inflation rate.
Other postretirement medical plans are contributory but Halliburton
generally absorbs the majority of the costs. In these plans Halliburton may
elect to adjust the amount of its contributions. As a result the computed
accumulated postretirement benefit obligation amount is affected by the expected
future healthcare cost inflation rate. These plans have assumed health care
trend rates (weighted based on the current year benefit obligation) for 1998 of
7% which are expected to decline to 5% by 2002.
167
<PAGE>
During 1997, Halliburton adopted amendments to eliminate certain
postretirement medical benefit programs. These amendments resulted in a
curtailment gain of $11.2 million.
<TABLE>
<CAPTION>
Millions of dollars 1998 1997
------------------------------------------------- ----------- ------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 373.0 $ 394.6
Service cost 3.9 4.5
Interest cost 28.4 29.3
Plan participants' contributions 12.0 13.8
Amendments (4.4) 3.0
Settlements/curtailments (6.3) --
Actuarial gain/(loss) 36.8 (30.1)
Benefits paid (40.3) (42.1)
----------- ------------
Benefit obligation at end of year $ 403.1 $ 373.0
=========== ============
Change in plan assets
Fair value of plan assets at beginning of year $ -- $ --
Employer contribution 28.3 28.3
Plan participants' contributions 12.0 13.8
Benefits paid (40.3) (42.1)
----------- ------------
Fair value of plan assets at end of year $ -- $ --
=========== ============
Funded status $ (403.1) $ (373.0)
Unrecognized actuarial (gain)/loss (66.0) (98.7)
Unrecognized prior service cost (5.4) (6.3)
Unamortized gains from plan amendments (140.2) (155.5)
----------- ------------
Net amount recognized $ (614.7) $ (633.5)
=========== ============
Millions of dollars 1998 1997
------------------------------------------------- ----------- ------------
Amounts recognized in the consolidated balance sheets consist of:
Accrued benefit liability $ (614.7) $ (633.5)
----------- ------------
Net amount recognized $ (614.7) $ (633.5)
=========== ============
Weighted-average assumptions as of December 31 1998 1997
------------------------------------------------- ----------- ------------
Discount rate 7.0% to 8.0% 7.25% to 8.0%
Expected return on plan assets N/A N/A
Rate of compensation increase 5.0% 5.0%
Millions of dollars 1998 1997
------------------------------------------------ ----------- ------------
Components of net periodic benefit cost
Service cost $ 3.9 $ 4.5
Interest cost 28.4 29.3
Amortization of prior service cost (10.3) (10.2)
Settlements/curtailments loss/(gain) -- (11.2)
Recognized actuarial (gain)/loss (7.8) (8.8)
----------- ------------
Net periodic benefit cost $ 14.2 $ 3.6
=========== ============
</TABLE>
In 1996, the postretirement medical plans had net service cost of $4.7
million; net interest cost of $30.9 million; and net amortization and deferral
of ($20.4 million), resulting in net periodic postretirement medical cost of
$15.2 million.
168
<PAGE>
Assumed health-care cost trend rates have a significant effect on the
amounts reported for the total of the health care plans. A one-percentage-point
change in assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Point
Millions of dollars Increase Decrease
---------------------------------------------------------- ------------ -------------
<S> <C> <C>
Effect on total of service and interest cost components $ 2.7 $ (2.5)
Effect on the postretirement benefit obligation 28.5 (26.9)
</TABLE>
169
<PAGE>
HALLIBURTON COMPANY
Notes to Quarterly Financial Statements
(unaudited)
Note 1. Management Representations
The Company employs accounting policies that are in accordance with
generally accepted accounting principles in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles 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.
Ultimate results could differ from those estimates.
The accompanying unaudited condensed 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 condensed consolidated financial
statements include all adjustments necessary to present fairly the Company's
financial position as of March 31, 1999, and the results of its operations and
cash flows for the three months ended March 31, 1999 and 1998. The results of
operations for the three months ended March 31, 1999 and 1998 may not be
indicative of results for the full year. Additionally, certain prior year
amounts have been reclassified to conform with the current year presentation.
Note 2. Business Segment Information
The Company has three business segments. The Energy Services Group segment
includes pressure pumping equipment and services, logging and perforating,
drilling systems and services, drilling fluids systems, drill bits, specialized
completion and production equipment and services and well control. Also
included in the Energy Services Group are upstream oil and gas engineering,
construction and maintenance services, specialty pipe coating, insulation,
underwater engineering services, integrated exploration and production
information systems, and professional services to the petroleum industry. The
Engineering and Construction Group segment provides engineering, procurement,
construction, project management, and facilities operation and maintenance for
hydrocarbon processing and other industrial and governmental customers. The
Dresser Equipment Group segment designs, manufactures and markets highly
engineered products and systems principally for oil and gas producers,
transporters, processors, distributors and petroleum users throughout the world.
The Company's equity in pretax income or losses of related companies is
included in revenues and operating income of each applicable segment.
Intersegment revenues included in the revenues of the other business segments
are immaterial.
170
<PAGE>
The table below presents revenues and operating income by segment.
<TABLE>
<CAPTION>
Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
-------- --------
<S> <C> <C>
Revenues:
Energy Services Group.............. $1,753 $2,285
Engineering and Construction Group. 1,508 1,347
Dresser Equipment Group............ 663 623
------ ------
Total........................... $3,924 $4,255
====== ======
Operating income:
Energy Services Group.............. $ 57 $ 283
Engineering and Construction Group. 58 59
Dresser Equipment Group............ 54 39
General corporate.................. (17) (20)
------ ------
Total........................... $ 152 $ 361
====== ======
</TABLE>
Note 3. Acquisitions and Dispositions
On September 29, 1998 the Company completed the acquisition of Dresser
Industries, Inc. (Dresser) pursuant to the Agreement and Plan of Merger (the
Merger), by converting the outstanding Dresser common stock into Common Stock of
the Company. The Merger qualified as a tax-free exchange to Dresser's
shareholders for U.S. federal income tax purposes and was accounted for using
the pooling of interests method of accounting for business combinations.
Accordingly, the Company's financial statements have been restated to include
the results of Dresser for all periods presented. Beginning in 1998, Dresser's
year-end of October 31 was conformed to Halliburton's calendar year-end.
The results of operations for Halliburton and Dresser prior to the Merger
and the combined amounts are presented below:
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
Millions of dollars 1998
------------------
<S> <C>
Revenues:
Halliburton............... $ 2,355
Dresser................... 1,900
------------------
Combined............... $ 4,255
==================
Net income:
Halliburton............... $ 118
Dresser................... 85
------------------
Combined............... $ 203
==================
</TABLE>
In connection with the Merger and in compliance with a consent decree with
the United States Department of Justice, Halliburton's pre-merger worldwide
logging-while-drilling (LWD) business and related measurement-while-drilling
(MWD) business was sold in March 1999. The financial impact of the sale was
considered in the third quarter 1998 special charge. No further
171
<PAGE>
charges are anticipated in connection with the sale of this business. This
business was previously a part of the Energy Services Group.
Note 4. Inventories
<TABLE>
<CAPTION>
March 31 December 31
Millions of dollars 1999 1998
-------- -----------
<S> <C> <C>
Finished products and parts...... $ 648 $ 638
Raw materials and supplies....... 318 250
Work in process.................. 405 562
Progress payments................ (97) (148)
-------- ----------
Total.......................... $ 1,274 $ 1,302
======== ==========
</TABLE>
The cost of U.S. manufacturing and U.S. field service inventories is
determined using the last-in, first-out (LIFO) method. If the average cost
method had been in use for inventories on the LIFO basis, total inventories
would have been about $111 million higher than reported at March 31, 1999, which
is unchanged from December 31, 1998.
Note 5. Dresser Financial Information
Dresser has ceased filing periodic reports with the Securities and Exchange
Commission. Dresser's 8% senior notes (the Notes) remain outstanding and the
Notes are fully guaranteed by the Company. As long as the Notes remain
outstanding, summarized financial information of Dresser will be presented in
periodic reports filed by the Company on Form 10-K and Form 10-Q. The Company
has not presented separate financial statements and other disclosures concerning
Dresser because management has determined such information is not material to
holders of the Notes.
In January 1999, as part of the legal reorganization associated with the
Merger, Halliburton Delaware, Inc., a first tier holding company subsidiary, was
merged into Dresser. As a result of this action, the majority of the operating
assets and activities of the combined company in 1999 are included within the
legal structure of Dresser.
<TABLE>
<CAPTION>
Dresser Industries, Inc.
Financial Position March 31 December 31
Millions of dollars 1999 1998
---------- -----------
<S> <C> <C>
Current assets.................. $ 5,699 $ 2,417
Noncurrent assets............... 5,508 2,614
---------- -----------
Total...................... $ 11,207 $ 5,031
========== ===========
Current liabilities............. $ 2,766 $ 1,389
Noncurrent liabilities.......... 2,229 1,544
Minority interest............... 184 154
Shareholders' equity............ 6,028 1,944
---------- -----------
Total...................... $ 11,207 $ 5,031
========== ===========
</TABLE>
172
<PAGE>
<TABLE>
<CAPTION>
Dresser Industries, Inc. Three Months Ended
Operating Results March 31
---------------------
Millions of dollars 1999 1998
--------- ---------
<S> <C> <C>
Revenues.................................... $ 3,924 $ 1,900
-------- ---------
Operating income............................ $ 157 $ 157
-------- ---------
Income before taxes and minority interest... $ 136 $ 140
Income taxes................................ (56) (50)
Minority interest........................... (8) (4)
Change in accounting method................. (19) --
-------- ---------
Net income................................ $ 53 $ 86
======== =========
</TABLE>
Note 6. Commitments and Contingencies
Asbestosis Litigation. Since 1976, Dresser has been involved in litigation
resulting from allegations that third parties had sustained injuries and damage
from the inhalation of asbestos fibers contained in certain products
manufactured by Dresser and its former divisions or subsidiaries or companies
acquired by Dresser. Dresser has approximately 65,000 pending claims at March
31, 1999. Certain settlements, previously reported, covering approximately
7,600 claims, are carried as pending until releases are signed. The Company has
an additional 10,000 asbestos claims pending which have arisen as a result of
construction and renovation work performed by the Engineering and Construction
Group segment. During the first quarter of 1999, approximately 8,600 claims
were filed and approximately 5,500 claims against the Company were resolved.
The settlements reached during the first quarter were consistent with the
Company's historical experience. The Company continues to believe that
provisions recorded are adequate to cover the estimated loss from asbestosis
litigation.
Pursuant to an agreement entered into at the time of the spin-off, Global
Industrial Technologies, Inc. ("Global" formerly INDRESCO, Inc.) assumed
liability for asbestos related claims filed against Dresser after July 31, 1992
relating to refractory products manufactured or marketed by the Harbison-Walker-
Refractories Division of Dresser. These asbestos claims are subject to certain
agreements with insurance carriers that cover expense and indemnity payments.
Global now disputes that it assumed responsibility for any of such asbestos
claims based on negligence. Global also now asserts certain other claims
relating to the insurance coverage responding to asbestos claims. In order to
resolve these assertions, Global has invoked the dispute resolution provisions
of the 1992 agreement, which require binding arbitration. Dresser believes that
these new assertions by Global are without merit and intends to vigorously
defend itself against them. On February 19, 1999 Dresser filed suit in the
Delaware Chancery Court seeking an injunction to restrain such arbitration as
being barred by the Delaware statute of limitations. Global moved to dismiss
the Delaware lawsuit and that motion is pending a ruling by the Delaware Court.
In a separate action, Dresser learned that Global had threatened to sue the
Continental Insurance Company over insurance proceeds, and filed a lawsuit in
state court in Dallas on April 9, 1999, seeking an injunction to prevent Global
from suing Continental. Following a hearing, a Temporary Injunction was granted
on April 29, 1999. A trial date was set for December 6, 1999 for the permanent
injunction. Global has filed a Notice of Appeal from that ruling.
173
<PAGE>
Environmental. Some of the Company's subsidiaries are involved as
potentially responsible parties (PRP) in remedial activities to clean up various
"Superfund" sites under applicable Federal law which imposes joint and several
liability, if the harm is indivisible, on certain persons without regard to
fault, the legality of the original disposal, or ownership of the site.
Although it is very difficult to quantify the potential impact of compliance
with environmental protection laws, management of the Company believes that any
liability of the Company's subsidiaries with respect to all but one of such
sites will not have a material adverse effect on the results of operations of
the Company. With respect to a site in Jasper County, Missouri (Jasper County
Superfund Site), sufficient information has not been developed to permit
management to make such a determination and management believes the process of
determining the nature and extent of remediation at this site and the total
costs thereof will be lengthy. Kellogg Brown & Root, Inc. (Kellogg Brown &
Root), a subsidiary of the Company, has been named as a PRP with respect to the
Jasper County Superfund Site by the Environmental Protection Agency (EPA). In
addition to the superfund issues, the State of Missouri has indicated that it
may pursue natural resource damage claims against the PRPs. At the present time
Kellogg Brown & Root cannot determine the extent of its liability, if any, for
remediation costs or natural resource damages on any reasonably practicable
basis.
Merger Litigation. In connection with the Merger, Dresser and its
directors were named as defendants in three lawsuits filed in late February of
1998 and early March of 1998 in the Delaware Court of Chancery. The lawsuits
each purported to be a class action filed on behalf of Dresser's stockholders
and alleged that the consideration to be paid to Dresser's stockholders in the
Merger was inadequate and did not reflect the true value of Dresser. The
complaints also each alleged that the directors of Dresser breached their
fiduciary duties in approving the Merger. One of the actions further alleged
self-dealing on the part of the individual defendants and asserted that the
directors were obliged to conduct an auction to assure that stockholders
received the maximum realizable value for their shares. All three actions
sought preliminary and permanent injunctive relief as well as damages. On June
10, 1998 the court issued an order consolidating the three lawsuits which
required the plaintiffs to file an amended consolidated complaint "as soon as
practicable." On April 1, 1999 the plaintiffs filed a notice of dismissal. In
the Company's opinion, these cases are now concluded.
Other. The Company and its subsidiaries are parties to various other legal
proceedings. Although the ultimate dispositions of such proceedings are not
presently determinable, in the opinion of the Company any liability that may
ensue will not be material in relation to the consolidated financial position
and results of operations of the Company.
Note 7. Income Per Share
Basic income per share amounts are based on the weighted average number of
common shares outstanding during the period. Diluted income per share includes
additional common shares that would have been outstanding if potential common
shares with a dilutive effect had been issued. Options to purchase 3.8 million
shares of common stock which were outstanding during the three months ended
March 31, 1999 were not included in the computation of diluted net income per
share because the option exercise price was greater than the average market
price of the common shares.
174
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
Millions of dollars and shares except per share data 1999 1998
------- -------
<S> <C> <C>
Income before accounting change............................. $ 81 $ 203
------- -------
Basic weighted average shares............................... 440 438
Effect of common stock equivalents.......................... 2 5
------- -------
Diluted weighted average shares............................. 442 443
======= =======
Income per common share before change in accounting method:
Basic..................................................... $ 0.18 $ 0.46
Diluted................................................... $ 0.18 $ 0.46
</TABLE>
Note 8. Comprehensive Income
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
Millions of dollars 1999 1998
------- -------
<S> <C> <C>
Net income................................................. $ 62 $ 203
Cumulative translation adjustment, net of tax.............. (24) (9)
Current quarter adjustment to minimum pension liability.... (7) --
------- ------
Total comprehensive income................................... $ 31 $ 194
======= ======
</TABLE>
The cumulative translation adjustment of certain foreign entities and
minimum pension liability are the only comprehensive income adjustments recorded
by the Company.
Accumulated other comprehensive income at March 31, 1999 and December 31,
1998 consisted of the following:
<TABLE>
<CAPTION>
March 31 December 31
Millions of dollars 1999 1998
--------- ------------
<S> <C> <C>
Cumulative translation adjustment...............$ (166) $ (142)
Minimum pension liability....................... (14) (7)
-------- --------
Total accumulated other comprehensive income....$ (180) $ (149)
======== ========
</TABLE>
Note 9. Special Charges
During the third quarter of 1998 a pretax charge of $945 million ($722
million after tax) was taken to provide for costs associated with the Merger and
industry downturn due to declining oil and gas prices. During the fourth
quarter, an additional charge of $35 million ($24 million after tax) was taken
to provide $30 million for additional personnel reduction costs covering
approximately 2,750 employees within the Energy Services Group and $5 million
for additional facility consolidations within the Energy Services Group.
The table below includes the components of the pretax special charge and
the amounts utilized through March 31, 1999.
175
<PAGE>
<TABLE>
<CAPTION>
Asset Facility Merger
Related Personnel Consolidation Transaction Other
Charges Charges Charges Charges Charges Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Millions of dollars
1998 Charges to Expense
Business Segment:
Energy Services Group $ 453 $ 157 $ 93 $ -- $ 18 $ 721
Engineering & Construction Group 8 19 8 -- 5 40
Dresser Equipment Group 18 1 2 -- -- 21
General Corporate 30 58 23 64 23 198
------- -------- ---------- -------- ------ -----
Total 509 235 126 64 46 980
Utilized in 1998 (442) (45) (3) (60) (4) (554)
------- -------- ---------- -------- ------ -----
Balance December 31, 1998 67 190 123 4 42 426
Utilized in 1999 (34) (96) (22) (3) (6) (161)
------- -------- ---------- -------- ------ -----
Balance March 31, 1999 $ 33 $ 94 $ 101 $ 1 $ 36 $ 265
======= ======== ========== ======== ====== =====
</TABLE>
The Company utilized $34 million of asset related reserves during the first
quarter of 1999, including redundant inventory and equipment, software and other
intangible assets. The remaining balance represents the write-down to fair
value less disposal costs at the expected disposal date of redundant assets
including information technology equipment to be replaced during 1999 with the
Company's standard common office equipment.
Personnel charges in 1998 reflect announced headcount reductions of 10,850
affecting all segments, corporate and shared service functions. Since July of
1998, the Company has reduced employment levels, primarily operations personnel,
by approximately 9,500 (approximately 6,000 within North America and 1,500
within Latin America and 2,000 throughout the world), including 8,400 within the
Energy Services Group. During the first quarter of 1999, the Company reduced
headcount levels, primarily operations personnel, by approximately 4,500
including 3,700 within the Energy Services Group. The remaining reductions will
be completed in 1999 as projects are completed and facilities are closed.
As a result of the Merger and the industry downturn, the Company plans to
vacate, sell or close over 400 service, manufacturing and administrative
facilities throughout the world. Until the properties included in the facility
consolidation charges are vacated, the Company plans to continue its normal
depreciation, lease costs and operating expenses which will be charged against
the Company's results of operations. The majority of these facilities are
within the Energy Services Group. In accordance with the facility consolidation
plans, during the first quarter the Company began closing manufacturing
facilities in Longview and Duncanville, Texas. Through March 31, 1999, the
Company has sold or returned to the owner 120 service and administrative
facilities. As of March 31, 1999, the Company had 163 additional vacated
properties which it is in the process of selling, subleasing or returning to the
owner. To date, the majority of the sold, returned or vacated properties are
located within North America.
Halliburton and Dresser merger transaction costs amounted to $64 million.
As of March 31, 1999, $1 million in estimated merger transaction costs for
professional services related to the sale of Halliburton's LWD/MWD business
remain to be paid. See Note 3.
176
<PAGE>
Other charges of $46 million include the estimated contract exit costs
associated with the elimination of duplicate agents and suppliers in various
countries throughout the world. The remaining balance will be utilized during
1999 in connection with the Company's renegotiation of agency agreements,
contracts and elimination of other duplicate capabilities.
Note 10. Change in Accounting Method
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities
(SOP 98-5)." This Statement requires costs of start-up activities and
organization costs to be expensed as incurred. The Company adopted SOP 98-5
effective January 1, 1999 and recorded expense of $30 million pretax ($19
million after tax or $0.04 per diluted share). These costs, which relate to the
Energy Services Group segment, were recognized for previously capitalized
business mobilization costs and facility start-up costs associated with a new
manufacturing facility in the U.K.
177
<PAGE>
HALLIBURTON COMPANY
Quarterly Data and Market Price Information
(Unaudited)
(Millions of dollars except per share data)
<TABLE>
<CAPTION>
Quarter
------------------------------------------------------------
First Second Third Fourth Year
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 (1)
Revenues $ 4,254.8 $ 4,585.2 $ 4,224.0 $ 4,289.1 $ 17,353.1
Operating income (loss) 361.1 436.1 (577.5) 176.8 396.5
Net income (loss) (7), (8) 203.4 243.2 (527.0) 65.7 (14.7)
Earnings per share:
Basic net income (loss) per share (7), (8) 0.46 0.55 (1.20) 0.15 (0.03)
Diluted net income (loss) per share (7), (8) 0.46 0.55 (1.20) 0.15 (0.03)
Cash dividends paid per share (3) 0.125 0.125 0.125 0.125 0.50
Common stock prices (3), (4)
High 52.44 56.63 45.00 38.56 56.63
Low 42.38 42.06 26.25 26.19 26.19
1997 (1)
Revenues $ 3,602.0 $ 4,002.4 $ 4,177.0 $ 4,495.1 $ 16,276.5
Operating income (5), (6) 242.5 321.6 372.2 462.4 1,398.7
Net income (5), (6) 135.1 176.7 202.6 258.0 772.4
Earnings per share: (2)
Basic net income per share (5), (6) 0.32 0.41 0.47 0.59 1.79
Diluted net income per share (5), (6) 0.31 0.41 0.47 0.58 1.77
Cash dividends paid per share (3) 0.125 0.125 0.125 0.125 0.50
Common stock prices (2), (3), (4)
High 36.69 41.00 52.88 62.69 62.69
Low 30.00 32.06 42.00 47.25 30.00
</TABLE>
(1) Amounts for revenues, operating income, net income, and earnings per share
have been restated to reflect the merger with Dresser which was accounted
for using the pooling of interests method of accounting for business
combinations.
(2) Amounts presented reflect the two-for-one common stock split declared on
June 9, 1997, and effected in the form of a stock dividend paid on July 21,
1997.
(3) Represents Halliburton amounts prior to the merger with Dresser.
(4) New York Stock Exchange - composite transactions high and low closing stock
price.
(5) Includes pretax special charge $18.3 million ($14.9 million after tax or
$0.03 per diluted share) in the third quarter of 1997.
(6) Includes pretax special charge net gain of $2.1 million ($5.6 million after
tax and minority interest or $0.01 per diluted share) in the fourth quarter
of 1997.
(7) Includes pretax special charge of $945.1 million ($722.0 million after tax
or $1.64 per diluted share) in the third quarter of 1998.
(8) Includes pretax special charge of $35.0 million ($24.0 million after tax or
$0.05 per diluted share) million in the fourth quarter of 1998.
178
<PAGE>
PES (INTERNATIONAL) LIMITED
(Registered Number 145181)
DIRECTORS' REPORT AND FINANCIAL STATEMENTS
31 MARCH 1997
DIRECTORS' REPORT FOR THE YEAR ENDED 31 MARCH 1997
The directors present their report and audited financial statements for the
year ended 31 March 1997.
PRINCIPAL ACTIVITY AND REVIEW OF THE BUSINESS
The principal activity of the company is that of a parent company. The
group has been heavily focused on product development and expect to start to see
the benefit of this investment in the coming year. Additional emphasis has been
placed on setting up and developing systems to equip the group for its continued
growth.
The results of the company's subsidiary undertakings are reflected in the
group profit and loss account. During the year the company acquired the whole
of the issued share capital of Well Equip Limited in order to strengthen the
group's market position (Note 24).
RESULT AND DIVIDEND
The group's loss for the year amounted to (Pounds)503,145 (1996 - profit
(Pounds)1,015,198) which will be transferred from reserves. The company's
profit for the year amounted to (Pounds)614,903 (1996 -profit (Pounds)301,813).
A dividend of (Pounds)45,000 has been paid during the year and no further
dividend is proposed and the balance has been transferred to reserves.
DIRECTORS AND THEIR INTERESTS
The directors who held office during the year were as follows:
L. W. Kinch
S. J. Littleford (Resigned 19 March 1997)
D. W. Whiteford
M. L. Bowyer
G. M. McLellan (Resigned 5 April 1997)
P. Kirton (Appointed 31 July 1996, Resigned 31 March 1997)
D. Rubbo (Appointed 21 August 1996)
C. Smith (Appointed 21 August 1996)
M. Fleming (Appointed 14 November 1996)
S. Owens (Appointed 21 April 1997)
J. Renfroe (Appointed 22 April 1997)
M. McCurley (Appointed 22 April 1997)
179
<PAGE>
The interests of the directors, together with connected persons, at the
beginning and the end of the year in the issued share capital of the company was
as follows:
<TABLE>
<CAPTION>
Ordinary shares of (Pound)1 each
-------------------------------------------------
Under option
31 March 1997
31 March 1997 31 March 1996 and 31 March 1996
<S> <C> <C> <C>
L. W. Kinch 35,379 35,379 --
S. J. Littleford 3,900 3,900 --
D. W. Whiteford 17,721 17,721 --
M. L. Bowyer 870 780 1,560
D. Rubbo 974 880 1,560
C. Smith 1,109 1,000 400
S. Owens -- -- 390
</TABLE>
No share options were granted to or exercised by any director during the
year.
FIXED ASSETS
Details of movements in tangible fixed assets are shown in Note 11 of the
financial statements.
POST BALANCE SHEET EVENTS
During April 1997 the group was reorganized in order that all trading
subsidiary undertakings became 100% owned or call options were put in place such
that PES (International) Limited could exchange the minority shareholdings in
subsidiaries for its own shares at its discretion. Details are set out in Note
12.
On 22 April 1997, Halliburton Holdings Limited acquired 26% of the
company's ordinary share capital. As part of the transaction, 20,572 additional
shares were issued to Halliburton Holdings Limited for a consideration of
(Pounds)16.04 million. This resulted in a capital injection into the business
which significantly improved the financial strength of the Group.
On the same date the company granted 6,673 further share options and
sufficient funds were made available to the employee share option plan (ESOP) to
enable it to acquire shares to meet the obligations of all share options
outstanding. This allowed the company to further enhance the incentivization
programme for key members of staff.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and group and of the profit or loss of the group for that period. In
preparing those financial statements, the directors are required to:
. select suitable accounting policies and then apply them consistently;
180
<PAGE>
. make judgements and estimates that are reasonable and prudent;
. state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets
of the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
AUDITORS
The auditors, Price Waterhouse, have indicated their willingness to
continue in office and a resolution concerning their reappointment will be
proposed at the Annual General Meeting.
By Order of the Board
Stronachs
SECRETARIES 11 August 1997
181
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF
PES (INTERNATIONAL) LIMITED
We have audited the financial statements on pages 177 to 197 which have
been prepared under the historical cost convention and the accounting policies
set out on pages 181, 182 and 183.
Respective responsibilities of directors and auditors
As described on pages 174 and 175 the company's directors are responsible
for the preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the
state of the group and company's affairs as at 31 March 1997 and of the loss and
cashflows of the group for the year then ended and have been properly prepared
in accordance with the Companies Act 1985.
PRICE WATERHOUSE
Chartered Accountants
and Registered Auditors 11 August 1997
182
<PAGE>
PES (INTERNATIONAL) LIMITED
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
TURNOVER (Note 2)
Continuing operations 14,971,608 10,580,699
Acquisitions 1,017,000 --
---------- ----------
15,988,608 10,580,699
Cost of sales (8,541,187) (5,311,261)
---------- ----------
GROSS PROFIT
Continuing operations 6,927,421 5,269,438
Acquisitions 520,000 --
---------- ----------
7,447,421 5,269,438
Administrative expenses (7,389,948) (5,206,968)
Other operating income 229,189 897,225
Other income 121,483 --
---------- ----------
OPERATING PROFIT (Note 3) 408,145 959,695
Loss on partial disposal of subsidiary undertakings (Note 6) (153,978) --
Interest receivable and similar income 11,766 4,480
Income from interests in associated undertakings 20,002 11,477
Interest payable and similar charges (Note 5) (440,219) (225,458)
---------- ----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (154,284) 750,194
Tax on (loss)/profit on ordinary activities (Note 7) (175,292) (300,140)
---------- ----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAX (329,576) 450,054
Minority Interests - equity (173,569) 565,144
---------- ----------
(LOSS)/PROFIT FOR THE FINANCIAL YEAR (503,145) 1,015,198
Dividends (Note 9) (45,000) (45,516)
---------- ----------
AMOUNT TRANSFERRED (FROM)/TO RESERVES (Note 19) (548,145) 969,682
========== ==========
</TABLE>
The group had no recognized gains or losses other than those shown in the
profit and loss account above.
There is no difference between the profit on ordinary activities before
taxation and the amount transferred (from)/to reserves stated above, and their
historical cost equivalents.
No indication can be given of the contribution to operating profit from the
acquisition during the year. This is because the business and assets were
integrated into the group's operations and it is not now possible to identify
the separate contribution to operating profit of each part of the business.
183
<PAGE>
PES (INTERNATIONAL) LIMITED
GROUP BALANCE SHEET - 31 MARCH 1997
<TABLE>
<CAPTION>
1997 1996
--------------------------- --------------------------
(Pounds) (Pounds) (Pounds) (Pounds)
FIXED ASSETS
<S> <C> <C> <C> <C>
Intangible assets (Note 10) 2,470,337 900,372
Tangible assets (Note 11) 3,246,630 2,129,524
Investments (Note 12) 146,498 11,322
---------- ----------
5,863,465 3,041,218
CURRENT ASSETS
Stock (Note 13) 2,737,967 1,854,941
Debtors (Note 14) 6,412,388 4,861,780
Cash at bank and in hand (including cash held by
ESOP) 258,665 101,406
----------- ----------
9,409,020 6,818,127
CREDITORS - Amounts falling due within one
year (Note 15) (10,122,582) (6,670,912)
----------- ----------
NET CURRENT (LIABILITIES)/ ASSETS (713,562) 147,215
---------- ----------
TOTAL ASSETS LESS CURRENT
LIABILITIES 5,149,903 3,188,433
CREDITORS - Amounts falling due after more
than one year (Note 16) (2,040,719) (1,071,067)
PROVISIONS FOR LIABILITIES AND
CHARGES (Note 17) (54,239) (73,947)
---------- ----------
3,054,945 2,043,419
========== ==========
CAPITAL AND RESERVES
Called up share capital (Note 18) 84,664 78,078
Share premium account (Note 19) 2,459,350 1,200,336
Capital redemption reserve (Note 19) 9,505 9,505
Profit and loss account (Note 19) (20,821) 569,214
Reserves arising on consolidation (Note 19) (927,461) (927,461)
Acquisition reserve (Note 19) 1,779,190 1,779,190
---------- ----------
TOTAL SHAREHOLDERS' FUNDS 3,384,427 2,708,862
Equity minority interests (329,482) (665,443)
---------- ----------
3,054,945 2,043,419
========== ==========
</TABLE>
The full amounts of shareholders' funds and minority interests are attributable
to equity interests.
184
<PAGE>
PES (INTERNATIONAL) LIMITED
COMPANY BALANCE SHEET - 31 MARCH 1997
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
(Pounds) (Pounds) (Pounds) (Pounds)
FIXED ASSETS
<S> <C> <C> <C> <C>
Investments (Note 12) 2,767,579 610,600
CURRENT ASSETS
Debtors (Note 14) 2,645,763 1,554,394
Cash (including cash held by ESOP) 820 --
---------- ---------
2,646,583 1,554,394
CREDITORS - Amounts falling due within one year
(Note 15) (1,719,429) (584,764)
---------- ---------
NET CURRENT ASSETS 927,154 969,630
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES 3,694,733 1,580,230
CREDITORS - Amounts falling due after more than
one year (Note 16) (234,000) --
--------- ---------
3,460,733 1,580,230
========= =========
CAPITAL AND RESERVES
Called up share capital (Note 18) 84,664 78,078
Share premium account (Note 19) 2,459,350 1,200,336
Capital redemption reserves (Note 19) 9,505 9,505
Profit and loss account (Note 19) 907,214 292,311
--------- ---------
TOTAL SHAREHOLDERS' FUNDS (Note 20) 3,460,733 1,580,230
========= =========
</TABLE>
The full amount of shareholders' funds is attributable to equity interests.
APPROVED BY THE BOARD
ON 11 AUGUST 1997
M. L. Bowyer
DIRECTOR
185
<PAGE>
PES (INTERNATIONAL) LIMITED
GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES (Note 22) 789,434 (767,853)
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received 11,766 4,480
Interest paid (375,045) (181,436)
Interest element of finance lease rental and hire
purchase payments (65,174) (44,022)
-------- --------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF
FINANCE (428,453) (220,978)
TAXATION (87,679) (482,749)
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT
Purchase of tangible fixed assets (902,248) (493,172)
Receipts from sale of tangible fixed assets 594,638 167,841
Development expenditure capitalized -- (730,000)
Investment in ESOP (120,663) --
-------- --------
NET CASH OUTFLOW FOR CAPITAL
EXPENDITURE AND FINANCIAL
INVESTMENT (428,273) (1,055,331)
ACQUISITIONS AND DISPOSALS
Acquisition of subsidiary (Note 24) (299,650) (109,023)
Net overdraft acquired with subsidiary (192,430) --
Investment in associated undertaking -- (5,417)
Partial disposal of subsidiaries 8,408 --
-------- --------
NET CASH OUTFLOW FROM
ACQUISITIONS AND DISPOSALS (483,672) (114,440)
EQUITY DIVIDENDS PAID (45,000) (45,516)
---------- ----------
NET CASH OUTFLOW BEFORE FINANCING (683,643) (2,686,867)
FINANCING
Loan from pension fund -- 385,333
Loan from directors (71,084) 248,503
Capital element of finance lease rental and hire
purchase payments (554,169) (286,264)
Repayment of bank loans (50,792) --
-------- --------
NET CASH (OUTFLOW)/INFLOW
FROM FINANCING (676,045) 347,572
---------- ----------
DECREASE IN CASH IN THE PERIOD (1,359,688) (2,339,295)
========== ==========
(Note 25)
</TABLE>
186
<PAGE>
PES (INTERNATIONAL) LIMITED
NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 1997
1 ACCOUNTING POLICIES
(1) Accounting convention
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
(2) Consolidation
The financial statements consolidate the results of the company and its
subsidiary undertakings. The group eliminates goodwill arising on consolidation
from the consolidated financial statements on different acquisitions either
directly by immediate write off against reserves, or by capitalization and
amortization through the consolidated profit and loss account by equal annual
instalments over the estimated useful economic life of the consolidation
goodwill.
(3) Associated undertakings
The group's share of profits and tax of associated undertakings is included
in the consolidated profit & loss account, and the group's share of their net
assets is included in the consolidated balance sheet.
(4) Fixed assets and depreciation
All tangible fixed assets are stated at cost less depreciation.
Depreciation has been provided on the straight line basis at rates which
amortize fixed assets over their estimated useful lives. The depreciation rates
are as follows:
Plant and machinery 10% to 25%
Office equipment 25%
Motor vehicles 25%
Buildings 5%
Intangible assets are written off on a straight line basis over their
estimated useful lives. Details are given in Note 10 to the financial
statements.
(5) Deferred taxation
Provision is made for deferred taxation using the liability method where
there is a reasonable probability that a liability will arise in the foreseeable
future.
187
<PAGE>
(6) Foreign currencies
Assets and liabilities denominated in foreign currencies are expressed in
sterling at the rate of exchange ruling at the balance sheet date. Exchange
gains and losses arising on trading transactions are dealt with through the
profit and loss account.
The profit and loss accounts of overseas subsidiary undertakings are
translated into sterling at an average exchange rate for the year. The balance
sheets are translated at the closing rate. Exchange differences arising on
these transactions are taken to reserves.
(7) Stocks
Stocks and work in progress are stated at the lower of cost and net
realizable value.
(8) Finance leases and hire purchase agreements
Assets purchased under finance leases or hire purchase agreements are
capitalized in the balance sheet and are depreciated over their useful lives.
The interest element of the rental obligations is charged to the profit and loss
account over the period of the contract on a straight line basis.
(9) Operating leases
Expenditure on operating leases is charged to the profit and loss account
on a basis representative of the benefit derived from the asset, normally on a
straight line basis over the lease period.
(10) Pension costs
Contributions to the company's defined contribution pension scheme are
charged to the profit and loss account as incurred.
(11) Government grants
Government and local authority grants of a capital nature are credited to a
deferred income account in the balance sheet and an amount released to profit
and loss account each year over the life of the asset to which the grant
relates. Revenue grants are credited to the profit and loss account in the
period in which they are received.
(12) Research and development expenditure
Development expenditure relating to specific projects intended for
commercial exploitation is carried forward. Such expenditure is amortized over
the period expected to benefit. Expenditure on pure and applied research is
written off as incurred.
188
<PAGE>
(13) Employee Share Ownership (ESOP) Plan
As recommended in UITF Abstract 13, the company's and group's accounts
include the employee share ownership plan. The plan holds shares for the
employee share option scheme and the directors consider that the company has
control of the shares held by the plan and bears the benefits and risks. Shares
held by the plan are shown as "own shares" within fixed asset investments. The
main features of the plan are detailed in Note 12 to the financial statements.
2 TURNOVER
Turnover represents the total invoiced value of goods supplied and services
provided excluding value added tax.
The geographical analysis of the group's turnover, which is derived from
the supply of oil and gas well subsurface engineering, is as follows:
<TABLE>
<CAPTION>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
United Kingdom 9,120,608 7,976,117
Norway 2,421,000 805,006
Other Europe 1,934,000 1,093,050
Africa 558,000 8,000
Middle East 390,000 130,964
Far East & Australia 999,000 187,000
North & South America 566,000 380,562
---------- ----------
15,988,608 10,580,699
========== ==========
</TABLE>
3 OPERATING PROFIT
<TABLE>
<CAPTION>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Operating profit is stated after charging/(crediting):
Depreciation on owned assets 668,766 418,499
Depreciation on assets held under finance lease and hire purchase
agreements 319,205 216,162
Amortization of goodwill and intangible assets 101,129 35,283
Auditors' remuneration:
audit fees 31,500 20,040
non audit fees 75,120 90,675
Hire of plant and equipment 93,943 38,458
Release of local authority grants (Note 17) (1,400) (1,400)
Grant income (229,189) (252,453)
Research and development grant -- (625,000)
Non recurring legal and professional fees 293,139 --
(Gain)/loss on disposal of fixed assets (165,236) 6,576
Other income - employee share ownership plan (Note 12) (121,483) --
========== ==========
</TABLE>
Auditors' remuneration in respect of the company amounted to (Pounds)6,000
(1996 - (Pounds)5,000).
189
<PAGE>
4 STAFF COSTS
(1)
<TABLE>
<CAPTION>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Wages and salaries 5,458,897 3,955,619
Social security costs 685,818 417,520
Other pensions costs (Note 27) 230,096 206,907
---------- ----------
6,374,811 4,580,046
========== ==========
</TABLE>
During the year (Pounds)Nil (1996 - (Pounds)1,000) was paid into an
employee share ownership plan and is included in wages and salaries above.
(2) The average number of employees of the group during the year was as
follows:
<TABLE>
<CAPTION>
1997 1996
NUMBER NUMBER
<S> <C> <C>
Production 176 112
Distribution and marketing 27 25
Administration 18 17
---------- ----------
221 154
========== ==========
</TABLE>
(3) Details of directors' emoluments are as follows:
<TABLE>
<CAPTION>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Aggregate emoluments 500,717 271,160
Group pension contributions to money purchase schemes 54,217 63,075
---------- ----------
554,934 334,235
Sums paid to third parties for directors' services (Note 30) 15,200 9,600
========== ==========
Highest paid director
Aggregate emoluments 94,563 87,151
========== ==========
</TABLE>
In addition, pension contributions of (Pounds)17,500 were paid to money
purchase schemes on behalf of the highest paid director.
5 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Bank overdraft and other bank borrowings 283,901 165,942
Directors' loans 91,144 15,494
Finance lease and hire purchase interest 65,174 44,022
------- -------
440,219 225,458
======= =======
</TABLE>
190
<PAGE>
6 LOSS ON PARTIAL DISPOSAL OF SUBSIDIARY UNDERTAKINGS
During the year the group sold or gifted minority stakes in certain
subsidiary undertakings to local management. This resulted in a loss on
disposal. The group still holds a majority stake in all of the undertakings
concerned. Details of the partial disposals are as follows:-
<TABLE>
<CAPTION>
NET ASSETS DISPOSED PROCEEDS LOSS ON DISPOSAL
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
PES Norge A/S
13% gifted 1 April 1996 16,615 -- (16,615)
6% gifted 31 January 1997 33,495 -- (33,495)
PES de France
30% sold at 31 December 1996 112,276 8,408 (103,868)
-------------
(153,978)
=============
</TABLE>
Subsequent to the year end the group was reorganized as set out in Note 12.
7 TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
The tax charge/(credit) for the year comprises the following: (Pounds) (Pounds)
<S> <C> <C>
UK corporation tax at 33%
- current year (92,190) 314,628
- prior year 16,166 (172)
Overseas tax 275,737 19,603
Deferred tax at 33% (Note 17) (27,424) (34,522)
Overseas deferred tax (Note 17) (2,487) (2,151)
------- -------
169,802 297,386
Associated undertaking 5,490 2,754
------- -------
175,292 300,140
======= =======
</TABLE>
8 PROFIT FOR THE FINANCIAL YEAR
As permitted by section 230 of the Companies Act 1985, the parent company's
profit and loss account has not been included in these financial statements.
The parent company's profit for the financial year was (Pounds)614,903 (1996 -
profit (Pounds)301,813).
9 DIVIDENDS
<TABLE>
<CAPTION>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Dividends on equity shares
'A' ordinary shares paid of (Pounds)384.22 per share 45,000 45,516
====== ======
</TABLE>
191
<PAGE>
10 INTANGIBLE FIXED ASSETS
The company has no intangible fixed assets. Details relating to the group
are as follows:
<TABLE>
<CAPTION>
Development Patents Goodwill Purchased Total
costs arising on goodwill
consolidation
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Cost
At 1 April 1997 730,000 167,095 -- 38,560 935,655
Exchange -- (26,858) -- (6,198) (33,056)
Additions -- -- 1,667,861 -- 1,667,861
Acquisitions
(Note 24) -- 161,528 -- -- 161,528
------- ------- --------- ------ ---------
At 31 March 1997 730,000 301,765 1,667,861 32,362 2,731,988
======= ======= ========= ====== =========
Amortization
At 1 April 1996 25,000 8,355 -- 1,928 35,283
Charge for year 7,488 30,334 55,595 7,712 101,129
Acquisitions
(Note 24) -- 125,239 -- -- 125,239
------- ------- --------- ------ ---------
At 31 March 1997 32,488 163,928 55,595 9,640 261,651
======= ======= ========= ====== =========
Net book value
At 31 March 1997 697,512 137,837 1,612,266 22,722 2,470,337
======= ======= ========= ====== =========
At 31 March 1996 705,000 158,740 -- 36,632 900,372
======= ======= ========= ====== =========
</TABLE>
Development costs relate to a specific project undertaken by the group.
Sales of the product commenced at the end of 1995/96 and the related development
expenditure is being amortized over the estimated production and commercial life
of the product. The directors consider that the product is commercially viable
and that it will remain so over its estimated production life. Accordingly,
they are of the opinion that this provides sufficient justification to defer
costs and match them against future revenue.
Purchased goodwill arose on the acquisition of assets by a subsidiary
company, PES France SA. The goodwill in respect of this acquisition is being
amortized over five years.
Goodwill arising on consolidation represents the goodwill arising on the
acquisition of Well-Equip Limited (Note 24). The goodwill is being amortized
over a period of 20 years being the directors' estimate of the estimated useful
economic life.
Patents acquired during the year represent patent costs incurred to protect
intellectual property and were transferred to the group upon the acquisition of
Well-Equip Limited (Note 24). The costs are being written off over periods not
exceeding two years. Other patents are amortized over their estimated useful
life of eight years.
192
<PAGE>
11 TANGIBLE ASSETS
The company has no tangible fixed assets. Details relating to the group
are as follows:
<TABLE>
<CAPTION>
Long Assets In The
leasehold Office Plant and Motor course of
buildings equipment machinery vehicles construction Total
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C> <C>
Cost
At 1 April 1996 247,800 710,647 2,240,032 540,092 76,115 3,814,686
Exchange -- (2,396) (8,203) -- -- (10,599)
Additions 11,823 195,195 1,859,570 267,181 -- 2,333,769
Acquisitions -- 157,038 569,244 36,565 -- 762,847
(Note 24)
Disposals -- -- (752,855) (146,924) (76,115) (975,894)
------- --------- --------- -------- ------------- ---------
At 31 March 1997 259,623 1,060,484 3,907,788 696,914 -- 5,924,809
======= ========= ========= ======== ============= =========
Depreciation
At 1 April 1996 54,523 359,557 1,075,190 195,892 -- 1,685,162
Exchange -- (391) (2,712) -- -- (3,103)
Charge for the year 14,955 193,926 587,248 191,842 -- 987,971
Acquisitions (Note 24) -- 95,979 366,627 20,951 -- 483,557
Disposals -- -- (381,025) (94,383) -- (475,408)
------- --------- --------- -------- ------------- ---------
At 31 March 1997 69,478 649,071 1,645,328 314,302 -- 2,678,179
======= ========= ========= ======== ============= =========
Net book amount
At 31 March 1997 190,145 411,413 2,262,460 382,612 -- 3,246,630
======= ========= ========= ======== ============= =========
At 31 March 1996 193,277 351,090 1,164,842 344,200 76,115 2,129,524
======= ========= ========= ======== ============= =========
</TABLE>
The net book amount of plant and machinery includes (Pounds)1,781,901 (1996
- - (Pounds)860,887) in respect of assets held under finance and hire purchase
lease agreements.
12 INVESTMENTS
<TABLE>
<CAPTION>
The Group The Company
(Pounds) (Pounds)
At 31 March 1997
<S> <C> <C>
Shares in subsidiary undertakings (1) -- 2,644,316
Associated undertaking (2) 25,835 2,600
Own shares in ESOP (3) 120,663 120,663
------- ---------
146,498 2,767,579
======= =========
</TABLE>
(1) Shares at cost in subsidiary undertakings
<TABLE>
<CAPTION>
Company
(Pounds)
<S> <C>
At 1 April 1996 605,183
Additions during the period 2,039,133
---------
At 31 March 1997 2,644,316
=========
</TABLE>
193
<PAGE>
(2) Investment in associated undertaking
<TABLE>
<CAPTION>
GROUP COMPANY
(Pounds) (Pounds)
<S> <C> <C>
At 1 April 1996 11,322 5,417
Share of profit of associated undertaking 14,513 --
Loan repaid during year -- (2,817)
------ ------
At 31 March 1997 25,835 2,600
====== ======
</TABLE>
Associated Undertaking
----------------------
The group and the company hold a 26% interest in the ordinary shares of
Cairntoul Well Equipment Services Limited, a company registered in Scotland
which provides well equipment services.
(3) Own shares in ESOP
<TABLE>
<CAPTION>
GROUP AND
COMPANY
(Pounds)
<S> <C>
Own shares held by employee share ownership plan 120,663
=======
</TABLE>
The ESOP is funded by payments from group companies and these funds are
used to acquire shares which have been conditionally granted to certain
employees under the share option scheme. Proceeds from the disposal of such
shares on exercising of the options will be charged to revenue as incurred by
the ESOP in future years.
At 31 March 1997, the ESOP held 1,107 shares acquired at market value over
various dates. At 31 March 1997, the shares remained subject to option at
(Pounds)109 per share. The investment in own shares has been recorded at this
amount representing estimated realizable value.
The company's principal subsidiary undertakings at 31 March 1997 were as
follows:
<TABLE>
<CAPTION>
PERCENTAGE
COUNTRY OF OF NOMINAL
NATURE OF REGISTRATION/ SHARE CAPITAL
NAME OF BUSINESS INCORPORATION AND VOTING RIGHTS
<S> <C> <C> <C>
Petroleum Engineering Services Limited Oil Services Scotland 100%
PES (Netherlands) Limited Dormant Scotland 75%
PES (USA) Incorporated Oil Services USA 50%
PES Norge A/S Oil Services Norway 70%
PES Italia SRL Oil Services Italy 70%
Petroleum Engineering Services Asia Pty Limited Oil Services Australia 70%
PES de France Oil Services France 70%
PES France Oil Services France 70%
PES Trustees Limited Trustee Company Scotland 100%
PES Petroquip Limited Dormant Scotland 100%
PES Petroserv Limited Dormant Scotland 100%
PES Petrospec Limited Dormant Scotland 100%
PES Petrotorq Limited Dormant Scotland 100%
PES Petroturn Limited Dormant Scotland 76%
PES Petroseal Limited Dormant Scotland 100%
Well Equip Limited Dormant Scotland 100%
</TABLE>
PES (USA) Incorporated has been consolidated on the basis of dominant
influence.
194
<PAGE>
Well Equip Limited was acquired on 31 July 1996 and its trade, assets and
liabilities were transferred to a fellow subsidiary, Petroleum Engineering
Services Limited on the same date. Full details are provided in Note 24.
A further investment of (Pounds)5,883 in PES de France was made during the
year which when combined with additional investment by the minority
shareholders, resulted in the company's investment in PES de France remaining at
70%.
Subsequent to the year end the group was reorganized. PES (USA)
Incorporated, PES Italia SRL, PES de France and PES France became 100%
subsidiaries. PES Norge A/S and Petroleum Engineering Services Asia Pty Limited
became fully under the control of PES (International) Limited because call
options were put in place over the minority shareholdings. All changes to
shareholdings were transacted by way of a share exchange for shares in the
parent company, PES (International) Limited.
13 STOCK
<TABLE>
<CAPTION>
GROUP
---------------------
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Raw material 171,811 138,928
Work in progress 939,257 226,265
Finished goods 1,626,899 1,489,748
--------- ---------
2,737,967 1,854,941
========= =========
</TABLE>
The company had no stock at either 31 March 1997 or 1996.
14 DEBTORS
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
GROUP COMPANY GROUP COMPANY
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Trade debtors 6,194,620 -- 4,772,135 --
Amounts owed by subsidiary undertakings -- 1,994,015 -- 1,372,316
Amounts owed by associated undertakings -- -- 2,817 --
Other debtors 175,359 78 21,128 78
Prepayments and accrued income 42,409 -- 65,700 --
Dividend receivable -- 651,670 -- 182,000
--------- --------- --------- ---------
6,412,388 2,645,763 4,861,780 1,554,394
========= ========= ========= =========
</TABLE>
Amounts owed by subsidiary undertakings relate to a loan made to Petroleum
Engineering Services Limited on 24 March 1995. The loan is non interest bearing
and is repayable on demand.
195
<PAGE>
15 CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
---------------------- -------------------
Group Company Group Company
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Bank overdraft (secured) 4,592,370 1,081,400 3,075,423 500,000
Bank loan (Note 16) 15,412 -- 15,412 --
Trade creditors 1,835,603 -- 1,065,320 --
Amounts owing to subsidiary undertakings -- 750 -- 14,713
Corporation tax 381,107 98,890 248,827 70,051
Other taxation and social security 671,586 -- 371,529 --
Accruals and deferred income 1,698,856 293,139 1,330,158 --
Finance lease and hire purchase obligations (Note 21) 504,979 -- 315,740 --
Loans from directors 177,419 -- 248,503 --
ACT payable 11,250 11,250 -- --
Loan notes (Note 16) 234,000 234,000 -- --
---------- --------- --------- -------
10,122,582 1,719,429 6,670,912 584,764
========== ========= ========= =======
</TABLE>
The bank overdraft is secured by a Bond and Floating Charge over the assets
of the group. The loans from the directors have no formal repayment terms,
however, the loans were repaid in full subsequent to the year end. Interest is
charged at 3% over base rates.
16 CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Group Company Group Company
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Finance lease and hire purchase obligations (Note 21) 1,200,416 -- 413,972 --
Loan from pension fund 490,000 -- 490,000 --
Bank loan 116,303 -- 167,095 --
Loan notes 234,000 234,000 -- --
--------- ------- --------- -------
2,040,719 234,000 1,071,067 --
========= ======= ========= =======
</TABLE>
The loan from the pension fund is repayable after more than one year but
thereafter has no formal repayment terms. Interest is charged at 3% over base
rate.
The loan notes were issued on 31 July 1996 as partial consideration for the
Well-Equip acquisition (Note 24). The loan notes are charged interest at 2%
over base rates. The first tranche of (Pounds)234,000 is repayable on 31 July
1997 but was repaid early subsequent to the year end. The Second tranche of
(Pounds)234,000 is repayable on 6 April 1998.
The bank loan is repayable as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Group Company Group Company
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Less than one year 15,412 -- -- --
Between one and two years 16,358 -- 18,317 --
Between two and five years 55,347 -- 65,819 --
Five years or more 44,598 -- 82,959 --
------- --------- -------- --------
131,715 -- 167,095 --
======= ========= ======== ========
</TABLE>
196
<PAGE>
17 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1997 1996
Group Group
(Pounds) (Pounds)
<S> <C> <C>
Deferred tax 34,639 52,947
Deferred income 19,600 21,000
-------- --------
54,239 73,947
======= ========
</TABLE>
Deferred tax
The full potential liability for deferred tax calculated at a rate of 33%,
all of which has been provided, is as follows:
<TABLE>
<CAPTION>
1997 1996
Group Group
(Pounds) (Pounds)
<S> <C> <C>
Capital allowances 27,116 31,722
Other timing differences 7,523 21,225
-------- --------
34,639 52,947
======== ========
Balance at 1 April 52,947 89,620
Acquisitions (Note 24) 11,603 --
Current year credit (Note 7) (29,911) (36,673)
------- -------
Balance at 31 March 34,639 52,947
======= =======
</TABLE>
Deferred income
<TABLE>
<CAPTION>
1997 1996
Group Group
(Pounds) (Pounds)
<S> <C> <C>
Balance at 1 April 21,000 22,400
Release during year (Note 3) (1,400) (1,400)
------- ------
Balance at 31 March 19,600 21,000
======= ======
</TABLE>
18 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
Group and Company
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Authorized:
88,288 Ordinary Shares of (Pounds)1 each (1996 - 88,288) 88,288 88,288
11,712 'A' ordinary shares of (Pounds)1 each (1996 - 11,712) 11,712 11,712
------- -------
100,000 100,000
======= =======
Allotted called up and fully paid:
72,952 Ordinary Shares of (Pounds)1 each (1996 - 66,366) 72,952 66,366
11,712 'A' Ordinary Shares of (Pounds)1 each (1996 - 11,712) 11,712 11,712
------- -------
84,664 78,078
======= =======
</TABLE>
The 'A' ordinary shares have the following rights:
. A fixed cumulative preferential net cash dividend based on the
Relevant Percentage of (Pounds)128.0738 - the Relevant Percentage
being defined in the company's New Articles of Association.
197
<PAGE>
. A further cumulative preferential net cash dividend which, when added
to the first dividend above, is a set percentage of Net Profit, the
percentage and Net Profit being defined in the New Articles of
Association.
. A final cumulative preferential net cash dividend which, when added
to the dividends described above, equals the aggregate of any Initial
Ordinary Dividend and Excess Remuneration, these terms being defined
in the New Articles of Association.
On a return of assets on liquidation, capital reduction or otherwise, the
assets of the company after payment of its liabilities shall be applied as
follows:
(1) To the holders of 'A' ordinary shares - (Pounds)128.0738 per share
plus any arrears or accruals of dividend.
(2) To the holders of the ordinary shares, (Pounds)128.0738 per share.
(3) Any remaining assets distributed pari passu to all shareholders.
Conversion rights
-----------------
The holders of the 'A' ordinary shares may at any time convert the whole of
their shares into ordinary shares on a one for one basis.
Voting rights
-------------
Every issued share has one voting right.
On 31 July 1996 the company issued a further 6,586 ordinary shares as
partial consideration for the acquisition of Well-Equip Limited (Note 24).
On 22 April 1997 the company's issued share capital was increased to
126,654 ordinary shares of (Pounds)1 each with the 'A' ordinary shares being
converted into ordinary shares. This was done as a result of the group
reorganization and acquisition by Halliburton Holdings Limited of 26% of the
issued share capital.
6,745 options were granted in August 1995 to certain employees exercisable
in August 1998 at an exercise price of (Pounds)109 per share. 1,107 shares were
held in the ESOP at 31 March 1997 (Note 12). Subsequent to the year end as part
of the group reorganization, the exercise date was changed such that the options
could be exercised at any time. In addition, a further tranche of 6,673 options
were granted and sufficient funds were paid into the ESOP to meet all
outstanding share options.
198
<PAGE>
19 RESERVES
Group
<TABLE>
<CAPTION>
SHARE CAPITAL RESERVES
PREMIUM REDEMPTION PROFIT AND ARISING ON ACQUISITION
ACCOUNT RESERVE LOSS ACCOUNT CONSOLIDATION RESERVE
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
At 1 April 1996 1,200,336 9,505 569,214 (927,461) 1,779,190
Amount transferred from reserves -- -- (548,145) -- --
Issue of new shares (Note 24) 1,259,014 -- -- -- --
Exchange movement -- -- (41,890) -- --
--------- -------- ----------- ------------ ---------
At 31 March 1997 2,459,350 9,505 (20,821) (927,461) 1,779,190
========= ======== =========== ============ =========
</TABLE>
The balance on acquisition reserve represents the excess of fair value of
shares acquired in Petroleum Engineering Services Limited over the nominal value
of the consideration.
Company
<TABLE>
<CAPTION>
SHARE CAPITAL
PREMIUM PROFIT AND REDEMPTION
ACCOUNT LOSS ACCOUNT RESERVE
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
At 1 April 1996 1,200,336 292,311 9,505
Amount transferred to reserves -- 614,903 --
Premium on share issue 1,259,014 -- --
--------- -------- ---------
At 31 March 1997 2,459,350 907,214 9,505
========= ======== =========
</TABLE>
20 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997 1996
------------------------- -----------------------
GROUP COMPANY GROUP COMPANY
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
(Loss)/profit for the financial year (503,145) 659,903 1,015,198 347,329
Dividends (45,000) (45,000) (45,516) (45,516)
Share capital issued at par 6,586 6,586 -- --
Premium on share issue 1,259,014 1,259,014 -- --
Exchange movement (41,890) -- 7,032 --
--------- --------- --------- ---------
Net addition to shareholders' funds 675,565 1,880,503 976,714 301,813
Opening shareholders' funds 2,708,862 1,580,230 1,732,148 1,278,417
--------- --------- --------- ---------
Closing shareholders' funds 3,384,427 3,460,733 2,708,862 1,580,230
========= ========= ========= =========
</TABLE>
199
<PAGE>
21 FINANCE LEASE AND HIRE PURCHASE OBLIGATIONS
<TABLE>
<CAPTION>
1997 1996
Group Group
(pound) (pound)
<S> <C> <C>
Amounts payable within one year 661,402 338,433
In Second to fifth years inclusive 1,435,919 517,155
---------- ---------
2,097,321 855,588
Finance charges allocated to future periods (391,926) (125,876)
---------- ---------
1,705,395 729,712
========== =========
Falling due within one year (Note 15) 504,979 315,740
Falling due after more than one year (Note 16) 1,200,416 413,972
---------- ---------
1,705,395 729,712
========== =========
</TABLE>
The amounts are secured over the assets to which they relate.
22 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Operating profit 408,145 959,695
(Gain)/loss on disposal of fixed assets (94,152) 6,576
Depreciation 987,971 634,661
Amortization of intangible assets 101,129 35,283
Release of local authority grants (1,400) (1,400)
Increase in stock (595,154) (527,136)
Increase in debtors (862,481) (3,097,423)
Increase in creditors 846,709 1,214,859
Exchange movement (1,333) 7,032
--------- -----------
Net cash inflow/(outflow) from operating activities 789,434 (767,853)
========= ===========
</TABLE>
23 ANALYSIS OF NET DEBT
(1) Reconciliation of net cash flow to movement in net debt
<TABLE>
<CAPTION>
(Pounds)
<S> <C>
Decrease in cash in the period (Note 25) (1,359,688)
Decrease in debt and lease financing 676,045
-----------
Change in net debt resulting from cash flows (683,643)
HP and finance leases acquired with subsidiary (98,331)
New HP and finance leases (1,431,521)
Loan notes issued to finance acquisition (468,000)
-----------
Movement in net debt in the period (2,681,495)
Net debt at 1 April 1996 (4,624,739)
-----------
Net debt at 31 March 1997 (7,306,234)
===========
</TABLE>
200
<PAGE>
(2) Analysis of net debt
<TABLE>
<CAPTION>
ACQUISITION
(EXCLUDING OTHER
AT 1 APRIL CASH AND NON-CASH AT 31 March
1996 CASH FLOW OVERDRAFTS) CHANGES 1997
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Cash in hand, at bank 101,406 157,259 258,665
Overdrafts (3,075,423) (1,516,947) (4,592,370)
----------
(1,359,688)
----------
Obligations under finance leases (729,712) 554,169 (98,331) (1,431,521) (1,705,395)
Debt due within one year (263,915) 71,084 (234,000) (426,831)
Debt due after one year (657,095) 50,792 (234,000) (840,303)
----------
(676,045)
----------
---------- ---------- -------- ---------- ----------
(4,624,739) (683,643) (566,331) (1,431,521) (7,306,234)
========== ========== ======== ========== ==========
</TABLE>
During the year the group entered into HP and finance lease arrangements in
respect of assets with a capital value at inception of the leases of
(Pounds)1,431,521. These arrangements are described above as "other non-cash
changes".
24 ACQUISITIONS
On 31 July 1996 the company acquired the whole of the issued share capital
of Well-Equip Limited for a total consideration of (Pounds)2,033,250. The
consideration was satisfied by the issue of 6,586 ordinary shares of (Pounds)1
each having a value of (Pounds)192.17, the issue of (Pounds)468,000 of loan
stock and the payment of (Pounds)266,400 in cash. (Pounds)300,000 was also
loaned by the company to enable (Pounds)300,000 of 8% redeemable preference
shares at par to be redeemed immediately prior to the acquisition. On the same
date the trade, assets and liabilities of Well-Equip Limited were transferred to
a fellow subsidiary company, Petroleum Engineering Services Limited.
The assets and liabilities acquired are as follows:-
<TABLE>
<CAPTION>
(Pounds)
<S> <C>
Fixed assets:
at cost 762,847
accumulated depreciation (483,557)
Intangible assets - patents at net book value 36,289
Cash 194
Bank overdraft (192,624)
Trade debtors 654,794
Other debtors 33,333
Stock and work in progress 287,872
Trade creditors (145,922)
Corporation tax (31,496)
Hire purchase and finance lease obligations (98,331)
Other creditors (146,407)
Due to PES (International) Limited (300,000)
Deferred taxation (11,603)
----------
Net assets 365,389
Goodwill (Note 10) 1,667,861
----------
Total consideration 2,033,250
==========
</TABLE>
201
<PAGE>
<TABLE>
<S> <C>
Satisfied by:
Shares allotted 1,265,600
Cash 266,400
Loan notes 468,000
Acquisition expenses 33,250
----------
2,033,250
==========
</TABLE>
Goodwill arising on consolidation has been capitalized and is being written
off over a 20 year period being the directors' estimate of expected useful life.
In calculating the goodwill arising on acquisition, the directors have
reviewed the book values of the net assets acquired and consider that they are a
close approximation to the fair values of the net assets. Accordingly, no
adjustment has been made to the book values.
In the period from 1 July 1996, the beginning of the subsidiary's financial
year, to the date of acquisition Well Equip Limited incurred a loss of
(Pounds)8,623 and in its previous financial year, it earned a profit of
(Pounds)11,996. Well Equip Limited had no other recognized gains and losses in
either period.
25 ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS AS SHOWN IN BALANCE SHEET
<TABLE>
<CAPTION>
1997 1996 CHANGE IN PERIOD
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Cash at bank and in hand 258,665 101,406 157,259
Bank overdraft (4,592,370) (3,075,423) (1,516,947)
----------- ----------- -----------
(4,333,705) (2,974,017) (1,359,688)
=========== =========== ===========
</TABLE>
26 OPERATING LEASE COMMITMENTS
The group has commitments under operating leases to make payments in the
following year as set out below:
<TABLE>
<CAPTION>
1997 1996
(Pounds) (Pounds)
<S> <C> <C>
Plant and machinery and motor vehicles:
Operating leases which expire:
Within 1 year 1,117 --
2-5 years 19,768 3,799
======= ======
</TABLE>
27 PENSION COMMITMENTS
The group operates a defined contribution pension scheme for the directors
and contributes to personal schemes on behalf of certain employees. The schemes
are administered independently of the company and are funded through policies of
assurance of annuity. The total pension cost which is charged against profit
represents contributions payable by the group and amounted to (Pounds)230,096
(1996 - (Pounds)206,907).
202
<PAGE>
28 CAPITAL COMMITMENTS
At 31 March 1997, the group was committed to entering into a long term
lease for land and buildings at an annual rental of (Pounds)53,500 per annum.
The company was also committed to making a capital contribution toward the cost
of the building of (Pounds)102,000 which was paid subsequent to the year end.
29 CONTINGENT LIABILITIES
During the year an amount of (Pounds)11,471 has been credited to the profit
and loss account. This relates to grant income from Scottish Enterprise in
respect of a research and development project, the costs of which have been
expensed. In the event the project becomes commercially viable, the amounts
will become repayable by the company. Accordingly an amount of (Pounds)11,471
has been accrued. In addition, the company will be liable to pay a 2.5% royalty
on all sales. As this future liability cannot be estimated with any degree of
precision, no provision has been made.
During 1994/95 a competitor company commenced a legal action against two
group companies and five individuals employed by PES (USA) Inc. The case is
ongoing and the directors, after taking legal advice, are confident that neither
company nor the individuals concerned will suffer any significant liability.
30 RELATED PARTY TRANSACTIONS
During the year the group incurred (Pounds)10,554 in respect of purchased
well services from Cairntoul Well Equipment Services Limited, its associated
undertaking. The balance with Cairntoul Well Equipment Services Limited at the
balance sheet date is set out in Note 14 to the financial statements.
In addition, (Pounds)15,200 was paid to Margens Business Consultancy
Limited in respect of services provided by G. M. McLellan as a director of the
company.
31 POST BALANCE SHEET EVENTS
Details of post balance sheet events are given in the directors' report.
203
<PAGE>
PES (INTERNATIONAL) LIMITED
(Registered Number 145181)
DIRECTORS' REPORT AND FINANCIAL STATEMENTS
31 MARCH 1998
DIRECTORS' REPORT FOR THE YEAR ENDED 31 MARCH 1998
The directors present their report and audited financial statements for the
year ended 31 March 1998.
PRINCIPAL ACTIVITY AND REVIEW OF THE BUSINESS
The principal activity of the company is that of a parent company. The
results of the company's subsidiary undertakings are reflected in the group
profit and loss account.
During April 1997 the group was reorganized in order that all trading
subsidiary undertakings became 100% owned or call options were put in place such
that PES (International) Limited could exchange the minority shareholdings in
subsidiaries for its own shares at its discretion. Details are set out in Notes
5 and 12.
On 22 April 1997, Halliburton Holdings Limited acquired 26% of the
company's ordinary share capital. As part of the transaction, 20,572 additional
shares were issued to Halliburton Holdings Limited for a consideration of
(Pounds)16.04 million. This resulted in a capital injection into the business
which significantly improved the financial strength of the Group.
On the same date the company granted 6,673 further share options and
sufficient funds were made available to the employee share option plan (ESOP) to
enable it to acquire shares to meet the obligations of all share options
outstanding. This allowed the company to further enhance the incentivization
programme for key members of staff.
As a result of the issue of share options through the above restructuring
exercise, in accordance with the applicable U.K. accounting requirements, the
value of the company's shares held by the ESOP was written down to the amount
receivable on exercise of the outstanding options at the specified exercise
prices. As a consequence, during the year the company charged to profit an
amount of (Pounds)1,659,472.
RESULT AND DIVIDEND
The group's loss for the year amounted to (Pounds)2,079,479 (1997 - loss
(Pounds)503,145) which will be transferred from reserves. The company's loss
for the year amounted to (Pounds)2,379,108 (1997 -profit (Pounds)614,903). A
dividend of (Pounds)4,521 has been paid during the year and no further dividend
is proposed and the balance has been transferred to reserves.
204
<PAGE>
DIRECTORS AND THEIR INTERESTS
The directors who held office during the year were as follows:
L. W. Kinch
D. W. Whiteford
M. L. Bowyer
G. M. McLellan (Resigned 5 April 1998)
D. Rubbo (Appointed 21 August 1997)
C. Smith (Appointed 21 August 1997)
M. Fleming (Appointed 14 November 1997)
S. Owens (Appointed 21 April 1998)
J. Renfroe (Appointed 22 April 1998)
M. McCurley (Appointed 22 April 1998)
The interests of the directors, together with connected persons, at the
beginning and the end of the year in the issued share capital of the company was
as follows:
<TABLE>
<CAPTION>
ORDINARY SHARES OF EACH
------------------------------------------------------
UNDER UNDER
OPTION OPTION
31 MARCH 31 MARCH 31 MARCH 31 MARCH
1998 1997 1998 1997
<S> <C> <C> <C> <C>
L. W. Kinch 30,000 35,379 -- --
D. W. Whiteford 14,691 17,721 -- --
M. L. Bowyer 782 870 2,161 1,560
D. Rubbo 10,075 974 1,560 1,560
C. Smith 1,624 1,109 1,522 400
S. Owens 3,757 -- 390 390
</TABLE>
No share options were exercised by any director during the year.
FIXED ASSETS
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and group and of the profit or loss of the group for that period. In
preparing those financial statements, the directors are required to:
. select suitable accounting policies and then apply them consistently;
. make judgements and estimates that are reasonable and prudent;
205
<PAGE>
. state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets
of the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
PES (INTERNATIONAL) LIMITED
DIRECTORS' REPORT FOR THE YEAR ENDED 31 MARCH 1998 (CONTINUED)
AUDITORS
Our auditors, Price Waterhouse, have merged with Coopers & Lybrand on 1
July 1998 and accordingly Price Waterhouse have resigned as auditors. A
resolution to appoint the new firm, PricewaterhouseCoopers, as auditors to the
company will be proposed at the Annual General Meeting.
By Order of the Board
Stronachs
SECRETARIES 5 February 1999
206
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF
PES (INTERNATIONAL) LIMITED
We have audited the financial statements on pages 202 to 219 which have
been prepared under the historical cost convention and the accounting policies
set out on pages 206, 207 and 208.
Respective responsibilities of directors and auditors
As described on pages 199 and 200 the company's directors are responsible
for the preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the
state of the group and company's affairs as at 31 March 1998 and of the loss and
cashflows of the group for the year then ended and have been properly prepared
in accordance with the Companies Act 1985.
PricewaterhouseCoopers
Chartered Accountants
and Registered Auditors 5 February 1999
207
<PAGE>
PES (INTERNATIONAL) LIMITED
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1998
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
TURNOVER (Note 2)
Continuing operations 22,672,857 14,971,608
Acquisitions -- 1,017,000
----------- ----------
22,672,857 15,988,608
Cost of sales (12,719,157) (8,541,187)
----------- ----------
GROSS PROFIT
Continuing operations 9,953,700 6,927,421
Acquisitions -- 520,000
----------- ----------
9,953,700 7,447,421
Administrative expenses (10,191,140) (7,389,948)
Other operating income 279,388 229,189
Other income -- 121,483
----------- ----------
OPERATING PROFIT (Note 3) 41,948 408,145
Continuing operations: (1,659,472) --
- - Fundamental group restructuring (Note 5)
Discontinued operations: -- (153,978)
- - Loss on partial disposal of subsidiary undertakings ----------- ----------
(LOSS)/PROFIT BEFORE INTEREST (1,617,524) 254,167
Interest receivable and similar income 172,482 11,766
Income from interests in associated undertakings 48,314 20,002
Interest payable and similar charges (Note 6) (309,719) (440,219)
----------- ----------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (1,706,447) (154,284)
Tax on loss on ordinary activities (Note 7) (373,032) (175,292)
----------- ----------
LOSS ON ORDINARY ACTIVITIES AFTER TAX (2,079,479) (329,576)
Minority Interests - equity -- (173,569)
----------- ----------
LOSS FOR THE FINANCIAL YEAR (2,079,479) (503,145)
Dividends (Note 9) (4,521) (45,000)
----------- ----------
AMOUNT TRANSFERRED FROM RESERVES (Note 19) (2,084,000) (548,145)
=========== ==========
</TABLE>
The group had no recognized gains or losses other than those shown in the
profit and loss account above.
There is no difference between the loss on ordinary activities before
taxation and the amount transferred from reserves stated above, and their
historical cost equivalents.
208
<PAGE>
PES (INTERNATIONAL) LIMITED
GROUP BALANCE SHEET - 31 MARCH 1998
<TABLE>
<CAPTION>
1998 1997
----------------------- ------------------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets (Note 10) 2,301,594 2,470,337
Tangible assets (Note 11) 5,098,931 3,246,630
Investments (Note 12) 3,431,950 146,498
---------- ----------
10,832,475 5,863,465
CURRENT ASSETS
Stock (Note 13) 6,549,627 2,737,967
Debtors (Note 14) 6,294,354 6,412,388
Cash at bank and in hand (including cash held by 1,131,984 258,665
ESOP) ---------- -----------
13,975,965 9,409,020
CREDITORS - Amounts falling due (5,592,339) (10,122,582)
within one year (Note 15) ---------- -----------
NET CURRENT ASSETS/ 8,383,626 (713,562)
(LIABILITIES) ---------- ----------
TOTAL ASSETS LESS CURRENT 19,216,101 5,149,903
LIABILITIES
CREDITORS - Amounts falling due after more (1,471,406) (2,040,719)
than one year (Note 16)
PROVISIONS FOR LIABILITIES (851,831) (54,239)
AND CHARGES (Note 17) ---------- ----------
16,892,864 3,054,945
========== ==========
CAPITAL AND RESERVES
Called up share capital (Note 18) 128,601 84,664
Share premium account (Note 19) 26,961,449 2,459,350
Capital redemption reserve (Note 19) 9,505 9,505
Profit and loss account (Note 19) (2,217,748) (20,821)
Reserves arising on consolidation (Note 19) (9,768,383) (927,461)
Acquisition reserve (Note 19) 1,779,190 1,779,190
---------- ----------
TOTAL SHAREHOLDERS' FUNDS 16,892,614 3,384,427
(Note 20)
Equity minority interests 250 (329,482)
---------- ----------
16,892,864 3,054,945
========== ==========
</TABLE>
The full amounts of shareholders' funds and minority interests are attributable
to equity interests.
209
<PAGE>
PES (INTERNATIONAL) LIMITED
COMPANY BALANCE SHEET - 31 MARCH 1998
<TABLE>
<CAPTION>
1998 1997
----------------------- ----------------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
FIXED ASSETS
Investments (Note 12) 14,527,788 2,767,579
CURRENT ASSETS
Debtors (Note 14) 11,405,249 2,645,763
Cash (including cash held by ESOP) -- 820
---------- ----------
11,405,249 2,646,583
CREDITORS - Amounts falling due within one (305,376) (1,719,429)
year (Note 15) ---------- ----------
NET CURRENT ASSETS 11,099,873 927,154
---------- ---------
TOTAL ASSETS LESS CURRENT 25,627,661 3,694,733
LIABILITIES
CREDITORS - Amounts falling due after more -- (234,000)
than one year (Note 16) ---------- ---------
25,627,661 3,460,733
========== =========
CAPITAL AND RESERVES
Called up share capital (Note 18) 128,601 84,664
Share premium account (Note 19) 26,961,449 2,459,350
Capital redemption reserves (Note 19) 9,505 9,505
Profit and loss account (Note 19) (1,471,894) 907,214
---------- ---------
TOTAL SHAREHOLDERS' FUNDS
(Note 20) 25,627,661 3,460,733
========== =========
</TABLE>
The full amount of shareholders' funds is attributable to equity interests.
APPROVED BY THE BOARD
ON 5 February 1999
M. L. Bowyer
DIRECTOR
210
<PAGE>
PES (INTERNATIONAL) LIMITED
GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 1998
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
NET CASH (OUTFLOW)/INFLOW) FROM (2,000,571) 789,434
OPERATING ACTIVITIES (Note 22)
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received 172,482 11,766
Interest paid (158,433) (375,045)
Interest element of finance lease
rental and hire purchase payments (151,286) (65,174)
---------- -----------
NET CASH OUTFLOW FROM RETURNS ON (137,237) (428,453)
INVESTMENTS AND SERVICING OF FINANCE
TAXATION (522,992) (87,679)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Purchase of tangible fixed assets (2,607,684) (902,248)
Receipts from sale of tangible fixed assets 707,359 594,638
Investment in ESOP (4,908,491) (120,663)
---------- -----------
NET CASH OUTFLOW FOR CAPITAL (6,808,816) (428,273)
EXPENDITURE AND FINANCIAL
INVESTMENT
ACQUISITIONS AND DISPOSALS
Acquisition of subsidiary -- (299,650)
Net overdraft acquired with subsidiary -- (192,430)
Partial disposal of subsidiaries -- 8,408
---------- -----------
NET CASH OUTFLOW FROM -- (483,672)
ACQUISITIONS AND DISPOSALS
EQUITY DIVIDENDS PAID (4,521) (45,000)
---------- -----------
NET CASH OUTFLOW BEFORE FINANCING (9,474,137) (683,643)
FINANCING
Issue of new shares 16,037,846 --
Loan from directors (667,419) (71,084)
Capital element of finance lease rental and hire (753,009) (554,169)
purchase payments
Repayment of other loans (236,711) (50,792)
---------- -----------
NET CASH INFLOW/(OUTFLOW)
FROM FINANCING 14,380,707 (676,045)
---------- ----------
INCREASE/(DECREASE) IN CASH IN
THE PERIOD (Note 24) 4,906,570 (1,359,688)
========== ==========
</TABLE>
211
<PAGE>
PES (INTERNATIONAL) LIMITED
NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 1998
1 ACCOUNTING POLICIES
(1) Accounting convention
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
(2) Consolidation
The financial statements consolidate the results of the company and its
subsidiary undertakings. The group eliminates goodwill arising on consolidation
from the consolidated financial statements on different acquisitions either
directly by immediate write off against reserves, or by capitalization and
amortization through the consolidated profit and loss account by equal annual
instalments over the estimated useful economic life of the consolidation
goodwill.
(3) Associated undertakings
The group's share of profits and tax of associated undertakings is included
in the consolidated profit & loss account, and the group's share of their net
assets is included in the consolidated balance sheet.
(4) Fixed assets and depreciation
All tangible fixed assets are stated at cost less depreciation.
Depreciation has been provided on the straight line basis at rates which
amortize fixed assets over their estimated useful lives. The depreciation rates
are as follows:
Plant and machinery 10% to 25%
Office equipment 25%
Motor vehicles 25%
Buildings 5%
Intangible assets are written off on a straight line basis over their estimated
useful lives. Details are given in Note 10 to the financial statements.
(5) Deferred taxation
Provision is made for deferred taxation using the liability method where
there is a reasonable probability that a liability will arise in the foreseeable
future.
212
<PAGE>
(6) Foreign currencies
Assets and liabilities denominated in foreign currencies are expressed in
sterling at the rate of exchange ruling at the balance sheet date. Exchange
gains and losses arising on trading transactions are dealt with through the
profit and loss account.
The profit and loss accounts of overseas subsidiary undertakings are
translated into sterling at an average exchange rate for the year. The balance
sheets are translated at the closing rate. Exchange differences arising on
these transactions are taken to reserves.
(7) Stocks
Stocks and work in progress are stated at the lower of cost and net
realizable value.
(8) Finance leases and hire purchase agreements
Assets purchased under finance leases or hire purchase agreements are
capitalized in the balance sheet and are depreciated over their useful lives.
The interest element of the rental obligations is charged to the profit and loss
account over the period of the contract on a straight line basis.
(9) Operating leases
Expenditure on operating leases is charged to the profit and loss account
on a basis representative of the benefit derived from the asset, normally on a
straight line basis over the lease period.
(10) Pension costs
Contributions to the company's defined contribution pension scheme are
charged to the profit and loss account as incurred.
(11) Government grants
Government and local authority grants of a capital nature are credited to a
deferred income account in the balance sheet and an amount released to profit
and loss account each year over the life of the asset to which the grant
relates. Revenue grants are credited to the profit and loss account in the
period in which they are received.
(12) Research and development expenditure
Development expenditure relating to specific projects intended for
commercial exploitation is carried forward. Such expenditure is amortized over
the period expected to benefit. Expenditure on pure and applied research is
written off as incurred.
213
<PAGE>
(13) Employee Share Ownership Plan (ESOP)
As recommended in UITF Abstract 13, the company's and group's accounts
include the employee share ownership plan. The plan holds shares for the
employee share option scheme and the directors consider that the company has
control of the shares held by the plan and bears the benefits and risks. Shares
held by the plan are shown as "own shares" within fixed asset investments. The
main features of the plan are detailed in Note 12 to the financial statements.
2 TURNOVER
Turnover represents the total invoiced value of goods supplied and services
provided excluding value added tax.
The geographical analysis of the group's turnover, which is derived from
the supply of oil and gas well subsurface engineering, is as follows:
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
United Kingdom 10,374,413 9,120,608
Norway 4,394,148 2,421,000
Other Europe 3,780,459 1,934,000
Africa 330,000 558,000
Middle East 907,045 390,000
Far East & Australia 1,687,663 999,000
North & South America 1,199,129 566,000
---------- ----------
22,672,857 15,988,608
========== ==========
</TABLE>
3 OPERATING PROFIT
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
Operating profit is stated after charging/(crediting):
<S> <C> <C>
Depreciation on owned assets 834,358 668,766
Depreciation on assets held under finance lease and hire purchase agreements 569,290 319,205
Amortization of goodwill and intangible assets 154,456 101,129
Auditors' remuneration:
audit fees 40,536 31,500
non audit fees 70,091 75,120
Hire of plant and equipment 146,781 93,943
Release of local authority grants (Note 17) (1,400) (1,400)
Grant income (279,388) (229,189)
Non recurring legal and professional fees 108,394 293,139
Gadin on disposal of fixed assets (86,252) (165,236)
Other income - employee share ownership plan -- (121,483)
======== ========
</TABLE>
Auditors' remuneration in respect of the company amounted to (Pounds)6,000
(1997 - (Pounds)6,000).
4 STAFF COSTS
(1)
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Wages and salaries 8,920,653 5,458,897
Social security costs 1,047,919 685,818
Other pensions costs (Note 26) 306,643 230,096
---------- ---------
10,275,215 6,374,811
========== =========
</TABLE>
214
<PAGE>
(2) The average number of employees of the group during the year was as
follows:
<TABLE>
<CAPTION>
1998 1997
Number Number
<S> <C> <C>
Production 242 176
Distribution and marketing 38 27
Administration 35 18
---- ----
315 221
==== ====
</TABLE>
(3) Details of directors' emoluments are as follows:
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Aggregate emoluments 656,337 500,717
Group pension contributions to money purchase schemes 55,052 54,217
------- -------
711,389 554,934
======= =======
Sums paid to third parties for directors' services -- 15,200
======= =======
Highest paid director
Aggregate emoluments 106,146 94,563
======= =======
</TABLE>
In addition, pension contributions of (Pounds)17,500 were paid to money
purchase schemes on behalf of the highest paid director.
5 EXCEPTIONAL ITEM
During April 1997, the group underwent a fundamental restructuring exercise
under which the company bought out all minority interests in its subsidiary
undertakings and Halliburton Holdings Limited acquired a 26% interest in the
ordinary shares of the company.
As part of this restructuring exercise, a number of additional options over
the company's shares were issued by the company's Employee Share Ownership Plan
(ESOP). In accordance with the requirements of UITF Abstract 13, the value of
the company's shares held by the ESOP is shown on the company and group balance
sheets as part of "investments". As result of the issue of share options in
connection with the restructuring during the year, the carrying value of the
company's shares held by ESOP was written down by (Pounds)1,659,472 in
accordance with the requirements of UITF Abstract 13.
6 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Bank overdraft and other bank borrowings 140,686 283,901
Directors' loans 2,900 91,144
Finance lease and hire purchase interest 151,286 65,174
Other interest 14,847 --
------- -------
309,719 440,219
======= =======
</TABLE>
215
<PAGE>
7 TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
The tax charge/(credit) for the year comprises the following: (Pounds) (Pounds)
<S> <C> <C>
UK corporation tax at 31% (1997 - 33%)
- current year -- (92,190)
- prior year (53,678) 16,166
Overseas tax 359,051 275,737
Deferred tax at 31% (1997 - 33%) (Note 17) 58,710 (27,424)
Overseas deferred tax (Note 17) (2,932) (2,487)
------- -------
361,151 169,802
Associated undertaking 11,881 5,490
------- -------
373,032 175,292
======= =======
</TABLE>
8 PROFIT FOR THE FINANCIAL YEAR
As permitted by section 230 of the Companies Act 1985, the parent company's
profit and loss account has not been included in these financial statements.
The parent company's loss for the financial year was (Pounds)2,379,108 (1997 -
profit (Pounds)614,903).
9 DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Dividends on equity shares
`A' ordinary shares paid of (Pounds)384.22 per share 4,521 45,000
===== ======
</TABLE>
10 INTANGIBLE FIXED ASSETS
The company has no intangible fixed assets. Details relating to the group
are as follows:
<TABLE>
<CAPTION>
Goodwill
Development arising on Purchased
costs Patents consolidation goodwill Total
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Cost
At 1 April 1997 730,000 301,765 1,667,861 32,362 2,731,988
Exchange -- (11,222) -- (3,065) (14,287)
Additions -- -- -- -- --
------- ------- --------- ------ ---------
At 31 March 1998 730,000 290,543 1,667,861 29,297 2,717,701
======= ======= ========= ====== =========
Amortization
At 1 April 1997 32,488 163,928 55,595 9,640 261,651
Charge for year 27,947 35,404 83,393 7,712 154,456
------- ------- --------- ------ ---------
At 31 March 1998 60,435 199,332 138,988 17,352 416,107
======= ======= ========= ====== =========
Net book value
At 31 March 1998 669,565 91,211 1,528,873 11,945 2,301,594
======= ======= ========= ====== =========
At 31 March 1997 697,512 137,837 1,612,266 22,722 2,470,337
======= ======= ========= ====== =========
</TABLE>
Development costs relate to a specific project undertaken by the group.
Sales of the product commenced at the end of 1995/96 and the related development
expenditure is being amortized over the estimated production and commercial life
of the product. The directors consider that the product is commercially viable
and that it will remain so over its estimated production life. Accordingly,
216
<PAGE>
they are of the opinion that this provides sufficient justification to defer
costs and match them against future revenue.
Purchased goodwill arose on the acquisition of assets by a subsidiary
company, PES France SA. The goodwill in respect of this acquisition is being
amortized over five years.
Goodwill arising on consolidation represents the goodwill arising on the
acquisition of Well-Equip Limited. The goodwill is being amortized over a
period of 20 years being the directors' estimate of the estimated useful
economic life.
Patent costs are amortized over their estimated useful life of two to eight
years.
11 TANGIBLE ASSETS
The company has no tangible fixed assets. Details relating to the group
are as follows:
<TABLE>
<CAPTION>
Long
leasehold Office Plant and Motor
buildings equipment machinery vehicles Total
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Cost
At 1 April 1997 259,623 1,060,484 3,907,788 696,914 5,924,809
Exchange -- (8,150) (31,123) -- (39,273)
Additions 264,075 449,091 3,040,676 148,823 3,902,665
Disposals (5,843) (18,032) (679,451) (453,077) (1,156,403)
------- --------- --------- -------- ----------
At 31 March 1998 517,855 1,483,393 6,237,890 392,660 8,631,798
======= ========= ========= ======== ==========
Depreciation
At 1 April 1997 69,478 649,071 1,645,328 314,302 2,678,179
Exchange -- (2,351) (11,313) -- (13,664)
Charge for the year 23,645 231,580 1,011,659 136,764 1,403,648
Disposals (449) (4,708) (245,977) (284,162) (535,296)
------- --------- --------- -------- ----------
At 31 March 1998 92,674 873,592 2,399,697 166,904 3,532,867
======= ========= ========= ======== ==========
Net book amount
At 31 March 1998 425,181 609,801 3,838,193 225,756 5,098,931
======= ========= ========= ======== ==========
At 31 March 1997 190,145 411,413 2,262,460 382,612 3,246,630
======= ========= ========= ======== ==========
</TABLE>
The net book amount of plant and machinery includes (Pounds)2,467,973 (1997
- - (Pounds)1,781,901) in respect of assets held under finance and hire purchase
lease agreements.
12 INVESTMENTS
<TABLE>
<CAPTION>
The Group The Company
(Pounds) (Pounds)
<S> <C> <C>
At 31 March 1998
Shares in subsidiary undertakings (1) -- 11,155,506
Associated undertaking (2) 62,268 2,600
Own shares in ESOP (3) 3,369,682 3,369,682
--------- ----------
3,431,950 14,527,788
========= ==========
</TABLE>
217
<PAGE>
(1) Shares at cost in subsidiary undertakings
<TABLE>
<CAPTION>
Company
(Pounds)
<S> <C>
At 1 April 1997 2,644,316
Additions during the period 8,511,190
----------
At 31 March 1998 11,155,506
==========
</TABLE>
(2) Investment in associated undertaking
<TABLE>
<CAPTION>
GROUP COMPANY
(Pounds) (Pounds)
<S> <C> <C>
At 1 April 1997 25,835 2,600
Share of profit of associated undertaking 36,433 --
------ -----
At 31 March 1998 62,268 2,600
====== =====
</TABLE>
Associated Undertaking
----------------------
The group and the company hold a 26% interest in the ordinary shares of
Cairntoul Well Equipment Services Limited, a company registered in Scotland
which provides well equipment services.
(3) Own shares in ESOP
<TABLE>
<CAPTION>
Group and
Company
(Pounds)
<S> <C>
Own shares held by employee share ownership plan 3,369,682
=========
</TABLE>
Own shares held by the ESOP are stated at the lower of cost and the
exercise price of the various options outstanding over those shares at the
balance sheet date.
The ESOP is funded by payments from group companies and these funds are
used to acquire shares which have been conditionally granted to certain
employees under the share option scheme. Proceeds from the disposal of such
shares on exercising of the options will be charged to profit when distributed
by the ESOP in future years.
218
<PAGE>
12 INVESTMENTS (CONTINUED)
The company's principal subsidiary undertakings at 31 March 1998 were as
follows:
<TABLE>
<CAPTION>
PERCENTAGE
COUNTRY OF OF NOMINAL
NATURE OF REGISTRATION/ SHARE CAPITAL
NAME OF BUSINESS INCORPORATION AND VOTING RIGHTS
<S> <C> <C> <C>
Petroleum Engineering Services Limited Oil Services Scotland 100%
PES (Netherlands) Limited Dormant Scotland 75%
PES (USA) Incorporated Oil Services USA 100%
PES Norge A/S Oil Services Norway 100%
PES Italia SRL Oil Services Italy 100%
Petroleum Engineering Services Asia Pty Limited Oil Services Australia 100%
PES de France Oil Services France 100%
PES France Oil Services France 100%
PES Trustees Limited Trustee Company Scotland 100%
PES Petroquip Limited Dormant Scotland 100%
PES Petroserv Limited Dormant Scotland 100%
PES Petrospec Limited Dormant Scotland 100%
PES Petrotorq Limited Dormant Scotland 100%
PES Petroturn Limited Dormant Scotland 76%
PES Petroseal Limited Dormant Scotland 100%
Well Equip Limited Dormant Scotland 100%
</TABLE>
Well Equip Limited was acquired on 31 July 1996 and its trade, assets and
liabilities were transferred to a fellow subsidiary, Petroleum Engineering
Services Limited on the same date.
In April 1997 the group was reorganized. PES (USA) Incorporated, PES
Italia SRL, PES de France and PES France became 100% subsidiaries. PES Norge
A/S and Petroleum Engineering Services Asia Pty Limited became fully under the
control of PES (International) Limited because call options were put in place
over the minority shareholdings. All changes to shareholdings were transacted
by way of a share exchange for shares in the parent company, PES (International)
Limited.
13 STOCK
<TABLE>
<CAPTION>
GROUP
-------------------------------------------------------
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Raw material 131,674 171,811
Work in progress 2,011,843 939,257
Finished goods 4,406,110 1,626,899
---------------------- ----------------------
6,549,627 2,737,967
====================== ======================
</TABLE>
The company had no stock at either 31 March 1998 or 1997.
14 DEBTORS
<TABLE>
<CAPTION>
1998 1997
------------------------------------ -------------------------------
GROUP COMPANY GROUP COMPANY
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Trade debtors 5,857,883 -- 6,194,620 --
Amounts owed by subsidiary undertakings -- 11,405,171 -- 1,994,015
Other debtors 274,287 78 175,359 78
Prepayments and accrued income 162,184 -- 42,409 --
Dividend receivable -- -- -- 651,670
--------------- ----------- ------------ -----------
6,294,354 11,405,249 6,412,388 2,645,763
=============== =========== ============ ===========
</TABLE>
219
<PAGE>
Amounts owed by subsidiary undertakings relate to loans made to Petroleum
Engineering Services Limited. The loans are non interest bearing and are
repayable on demand.
15 CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ------------------------------
GROUP COMPANY GROUP COMPANY
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Bank overdraft (secured) 559,119 -- 4,592,370 1,081,400
Bank loan (Note 16) 46,875 -- 15,412 --
Trade creditors 1,911,967 -- 1,835,603 --
Amounts owing to subsidiary undertakings -- -- -- 750
Corporation tax payable 174,738 10,136 381,107 98,890
Other taxation and social security 451,244 43,403 671,586 --
Accruals and deferred income 1,356,306 17,837 1,698,856 293,139
Finance lease and hire purchase obligations (Note 21) 858,090 -- 504,979 --
Loans from directors -- -- 177,419 --
ACT payable -- -- 11,250 11,250
Loan notes (Note 16) 234,000 234,000 234,000 234,000
----------- ------- -------------- ---------
5,592,339 305,376 10,122,582 1,719,429
=========== ======= ============== =========
</TABLE>
The bank overdraft is secured by a Bond and Floating Charge over the
assets of the group.
16 CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------------
GROUP COMPANY GROUP COMPANY
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Finance lease and hire purchase obligations (Note 21) 1,389,277 -- 1,200,416 --
Loan from pension fund -- -- 490,000 --
Bank loan 82,129 -- 116,303 --
Loan notes -- -- 234,000 234,000
----------- ------- -------------- -------
1,471,406 -- 2,040,719 234,000
=========== ======= ============== =======
</TABLE>
The loan notes were issued on 31 July 1996 as partial consideration for the
Well-Equip acquisition. The loan notes are charged interest at 2% over base
rates. The second tranche of (Pounds)234,000 was repaid on 6 April 1998.
The bank loan is repayable as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ------------------------------
GROUP COMPANY GROUP COMPANY
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Less than one year 46,875 -- 15,412 --
Between one and two years 33,043 -- 16,358 --
Between two and five years 49,086 -- 55,347 --
Five years or more -- -- 44,598 --
-------- ------- ------------ ---------
129,004 -- 131,715 --
======== ======= ============ =========
</TABLE>
220
<PAGE>
17 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1998 1997
GROUP GROUP
(Pounds) (Pounds)
<S> <C> <C>
Deferred tax 90,417 34,639
Deferred income 761,414 19,600
------- ------
851,831 54,239
======= ======
Deferred tax
The full potential liability for deferred tax calculated at a rate of 31%
(1997 - 33%), all of which has been provided, is as follows:
1998 1997
GROUP GROUP
(Pounds) (Pounds)
Capital allowances 90,417 27,116
Other timing differences -- 7,523
------ ------
90,417 34,639
====== ======
Balance at 1 April 34,639 52,947
Acquisitions -- 11,603
Current year charge/(credit) 30,692 (29,911)
Prior year charge 25,086 --
------ ------
Balance at 31 March 90,417 34,639
====== ======
Deferred income
1998 1997
GROUP GROUP
(Pounds) (Pounds)
Balance at 1 April 19,600 21,000
Additions 743,214 --
Release during year (Note 3) (1,400) (1,400)
------- ------
Balance at 31 March 761,414 19,600
======= ======
18 CALLED UP SHARE CAPITAL
GROUP AND COMPANY
1998 1997
(Pounds) (Pounds)
Authorized:
Ordinary Shares of (Pounds)1 each 150,000 88,288
'A' ordinary shares of (Pounds)1 each -- 11,712
------- -------
150,000 100,000
======= =======
Allotted called up and fully paid:
Ordinary Shares of (Pounds)1 each 126,654 72,952
'A' Ordinary Shares of (Pounds)1 each -- 11,712
------- -------
126,654 84,664
Called up share capital not paid:
Ordinary shares of (Pounds)1 each 1,947 --
------- -------
128,601 84,664
======= =======
</TABLE>
221
<PAGE>
On 22 April 1998 the company's issued share capital was increased to
126,654 ordinary shares of (Pounds)1 each with the 'A' ordinary shares being
converted into ordinary shares. This was done as a result of the group
reorganization and acquisition by Halliburton Holdings Limited of 26% of the
issued share capital.
Subsequent to the year end, on 27 October 1998, the company undertook a
share split exercise, issuing 10 shares of (Pounds)1 each for every share held.
19 RESERVES
Group
<TABLE>
<CAPTION>
SHARE CAPITAL PROFIT RESERVES
PREMIUM REDEMPTION AND LOSS ARISING ON ACQUISITION
ACCOUNT RESERVE ACCOUNT CONSOLIDATION RESERVE
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
At 1 April 1997 2,459,350 9,505 (20,821) (927,461) 1,779,190
Amount transferred from reserves -- -- (2,084,000) -- --
Issue of new shares 24,502,099 -- -- -- --
Exchange movement -- -- (112,927) -- --
Goodwill written off -- -- -- (8,840,922) --
---------- ----- ---------- ---------- ---------
At 31 March 1998 26,961,449 9,505 (2,217,748) (9,768,383) 1,779,190
========== ===== ========== ========== =========
</TABLE>
During April 1997 the group was restructured in order that all trading
subsidiary undertakings became 100% owned. As part of this restructuring shares
in the company were issued to minority shareholders in subsidiary undertakings
which resulted in the write off of goodwill on consolidation of approximately
(Pounds)8.8 million and the creation of additional share premium of
approximately (Pounds)8.5 million.
Also in April 1997, Halliburton Holdings Limited acquired 26% of the
company's ordinary share capital. As part of this transaction, 20,572
additional ordinary shares were issued to Halliburton Holdings Limited for a
consideration of (Pounds)16.04 million, creating additional share premium of
approximately (Pounds)16.0 million.
The balance on acquisition reserve represents the excess of fair value of
shares acquired in Petroleum Engineering Services Limited over the nominal value
of the consideration.
Company
<TABLE>
<CAPTION>
SHARE PROFIT CAPITAL
PREMIUM AND LOSS REDEMPTION
ACCOUNT ACCOUNT RESERVE
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
At 1 April 1997 2,459,350 907,214 9,505
Amount transferred to reserves -- (2,379,108) --
Premium on share issue 24,502,099 -- --
---------- ---------- -----
At 31 March 1998 26,961,449 (1,471,894) 9,505
========== ========== =====
</TABLE>
222
<PAGE>
20 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
----------------------- ---------------------
Group Company Group Company
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
(Loss)/profit for the financial year (2,079,479) (2,374,587) (503,145) 659,903
Dividends (4,521) (4,521) (45,000) (45,000)
Share capital issued at par 43,937 43,937 6,586 6,586
Premium on share issue 24,502,099 24,502,099 1,259,014 1,259,014
Exchange movement (112,927) -- (41,890) --
Goodwill written off (8,840,922) -- -- --
---------- ---------- --------- ---------
Net addition to shareholders' funds 13,508,187 22,166,928 675,565 1,880,503
Opening shareholders' funds 3,384,427 3,460,733 2,708,862 1,580,230
---------- ---------- --------- ---------
Closing shareholders' funds 16,892,614 25,627,661 3,384,427 3,460,733
========== ========== ========= =========
</TABLE>
21 FINANCE LEASE AND HIRE PURCHASE OBLIGATIONS
<TABLE>
<CAPTION>
1998 1997
GROUP GROUP
(Pounds) (Pounds)
<S> <C> <C>
Amounts payable within one year 962,236 661,402
In second to fifth years inclusive 1,706,577 1,435,919
--------- ---------
2,668,813 2,097,321
Finance charges allocated to future periods (421,446) (391,926)
--------- ---------
2,247,367 1,705,395
========= =========
Falling due within one year (Note 15) 858,090 504,979
Falling due after more than one year (Note 16) 1,389,277 1,200,416
--------- ---------
2,247,367 1,705,395
========= =========
</TABLE>
The amounts are secured over the assets to which they relate.
22 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Operating profit 41,948 408,145
Gain on disposal of fixed assets (86,252) (94,152)
Depreciation 1,403,648 987,971
Amortization of intangible assets 154,456 101,129
Receipt of local authority grants 743,213 --
Release of local authority grants (1,400) (1,400)
Increase in stock (3,811,660) (595,154)
Decrease/(increase) in debtors 118,034 (862,481)
(Decrease)/increase in creditors (489,527) 846,709
Exchange movement (73,031) (1,333)
---------- --------
Net cash (outflow)/inflow from operating activities (2,000,571) 789,434
========== ========
</TABLE>
223
<PAGE>
23 ANALYSIS OF NET DEBT
(1) Reconciliation of net cash flow to movement in net debt
<TABLE>
<CAPTION>
(Pounds)
<S> <C>
Increase in cash in the period (Note 24) 4,906,570
Decrease in debt and lease financing 1,657,139
----------
Change in net debt resulting from cash flows 6,563,709
New HP and finance leases (1,294,981)
----------
Movement in net debt in the period 5,268,728
Net debt at 1 April 1997 (7,306,234)
----------
Net debt at 31 March 1998 (2,037,506)
==========
</TABLE>
(2) Analysis of net debt
<TABLE>
<CAPTION>
Other At 31
At 1 April Non-cash March
1997 Cash Flow Changes 1998
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Cash in hand, at bank 258,665 873,319 -- 1,131,984
Overdrafts (4,592,370) 4,033,251 -- (559,119)
Obligations under finance leases (1,705,395) 753,009 (1,294,981) (2,247,367)
Debt due within one year (426,831) 145,956 -- (280,875)
Debt due after one year (840,303) 758,174 -- (82,129)
---------- --------- ---------- ----------
(7,306,234) 6,563,709 (1,294,981) (2,037,506)
========== ========= ========== ==========
</TABLE>
During the year the group entered into HP and finance lease arrangements in
respect of assets with a capital value at inception of the leases of
(Pounds)1,294,981. These arrangements are described above as "other non-cash
changes".
24 ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS AS SHOWN IN BALANCE SHEET
<TABLE>
<CAPTION>
1998 1997 Change In Period
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Cash at bank and in hand 1,131,984 258,665 873,319
Bank overdraft (559,119) (4,592,370) 4,033,251
--------- ---------- ---------
572,865 (4,333,705) 4,906,570
========= ========== =========
</TABLE>
224
<PAGE>
25 OPERATING LEASE COMMITMENTS
The group has commitments under operating leases to make payments in the
following year as set out below:
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Plant and machinery and motor vehicles:
Operating leases which expire:
Within 1 year 6,050 1,117
2-5 years 59,804 19,768
====== ======
</TABLE>
26 PENSION COMMITMENTS
The group operates a defined contribution pension scheme for the directors
and contributes to personal schemes on behalf of certain employees. The schemes
are administered independently of the company and are funded through policies of
assurance of annuity. The total pension cost which is charged against profit
represents contributions payable by the group and amounted to (Pounds)306,643
(1997 - (Pounds)230,096).
27 CONTINGENT LIABILITIES
During the year an amount of (Pounds)11,471 has been credited to the profit
and loss account. This relates to grant income from Scottish Enterprise in
respect of a research and development project, the costs of which have been
expensed. In the event the project becomes commercially viable, the amounts will
become repayable by the company. Accordingly an amount of (Pounds)11,471 has
been accrued. In addition, the company will be liable to pay a 2.5% royalty on
all sales. As this future liability cannot be estimated with any degree of
precision, no provision has been made.
28 RELATED PARTY TRANSACTIONS
During the year the group incurred (Pounds)10,542 in respect of purchased
well services from Cairntoul Well Equipment Services Limited, its associated
undertaking.
29 POST BALANCE SHEET EVENTS
Details of post balance sheet events are given in the directors' report.
225
<PAGE>
ANNEX I
CONDITIONS OF THE OFFER
1. Conditions to the Offer
1.1 The Offer is conditional upon:
1.1.1 valid acceptances having been received by the time of expiration of
the initial Offer Period at 3:00 p.m. (London time) or 10:00 a.m.
(New York City time) on . . 1999 (or such later time(s) and/or
date(s) as Halliburton may decide) in respect of not less than 90%
of the PES Shares to which the Offer relates (within the meaning of
sections 428 to 430F of the UK Companies Act 1985), or such lesser
percentage above 33% as Halliburton may decide prior to the Offer
being declared unconditional. If this threshold is satisfied before
the Offer becomes or is declared unconditional in all respects, this
condition (subject to any permitted reduction in the acceptance
threshold) must continue to be satisfied on the actual date the
Offer becomes or is declared unconditional in all respects, by
reference to the facts then subsisting;
1.1.2 the Halliburton Shares to be issued pursuant to the Offer being
approved for listing on the New York Stock Exchange, Inc., subject
to official notice of issuance;
1.1.3 no stop order suspending the effectiveness of the Registration
Statement (of which this Offer Document is a part) being issued or
threatened by the Commission;
1.1.4 other than by disclosure in the Disclosure Letter or defined in the
Warranty Agreement, no order having been made or, as the case may
be, obtained or action or proceeding having been commenced or
threatened or, by written notice to Halliburton or PES, threatened
by any government authority, court, competent regulatory body or
agency which has or could have the effect of:
(a) making the Offer illegal;
(b) prohibiting the Acquisition; or
(c) in any material respect, prohibiting the normal conduct by PES
of its business or any material part of it,
or which would require Halliburton or PES to sell all or any
material portion of its assets;
Annex I-1
<PAGE>
1.1.5 all authorizations necessary or appropriate for the Offer being
obtained from all appropriate governmental and regulatory
authorities;
1.1.6 other than by disclosure in The Disclosure Letter as defined in the
Warranty Agreement, no fact, matter or the occurrence of any event
(whether existing or occurring on or before the date of the Offer or
arising or occurring thereafter) coming to the notice of Halliburton
at any time prior to Completion (whether by reason of any disclosure
made pursuant to Clause 5 of the Warranty Agreement or otherwise)
which:
(a) constitutes a material breach of any warranty contained in
the Warranty Agreement (a "warranty") by reference to the facts and
circumstances then subsisting or if the warranties were to be
repeated on or at any time before the Offer being declared
unconditional by reference to the facts and circumstances then
subsisting or constitutes a breach by a party other than Halliburton
of clause 5 of the Warranty Agreement;
(b) affects or is likely to affect in a material adverse manner
the business, assets, trading or financial position or profits or
prospects of PES (whether or not the same would constitute a
material breach of any warranty);
(c) renders or makes the business, trading or financial
(including tax) information concerning PES provided by PES or any of
its employees, agents, or advisers to Halliburton in the reasonable
opinion of Halliburton, materially misleading or shows, in the
reasonable opinion of Halliburton, such information to contain any
material misrepresentation(s) or omissions; or
(d) constitutes a matter referred to in clause 5.4 of the
Warranty Agreement or a breach of Clause 5.2 thereof;
1.1.7 no breach having occurred of any of the terms of any of the
Irrevocable Undertakings;
1.1.8 PES not, prior to Completion (except pursuant to obligations
existing on the date hereof and disclosed to Halliburton or to the
extent previously agreed in writing by Halliburton) having issued or
allotted or agreed to issue or allot any shares in its capital,
having granted or agreed to grant any options over any shares
(issued or unissued) in its capital and not having issued or agreed
to issue any debt or other securities convertible into shares in its
capital;
1.1.9 neither PES nor any of its subsidiary undertakings engaging in any
activity that is out of the ordinary course of its business,
including PES and its subsidiary undertakings not issuing additional
shares or shares of its subsidiary undertakings, paying dividends,
merging with any other person, disposing of its assets, increasing
its indebtedness, or entering into contracts or arrangements that
are likely to restrict the business of Halliburton or the PES Group;
Annex I-2
<PAGE>
1.1.10 there not being instituted or continued any litigation the effect of
which is or is likely to be material to PES or any of its subsidiary
undertakings but excluding any disclosure made in the Disclosure
Letter as defined in the Warranty Agreement;
1.1.11 the passing at the Extraordinary General Meeting of a special
resolution in a form approved by Halliburton suspending the pre-
emption rights on transfer in the articles of association of PES and
suspending the requirement that a person who has acquired a majority
of PES's shares in issue is to make a cash offer to acquire the
remaining shares;
1.1.12 no member of the PES Group being insolvent as defined by section 123
Insolvency Act 1986 or having entered into any scheme of arrangement
or voluntary or other arrangement with any of its creditors other
than as disclosed in the Disclosure Letter as defined in the
Warranty Agreement;
1.1.13 no order having been made or resolution passed for the winding up of
any member of the PES Group and there not being outstanding any
petition for the winding up of a member of the PES Group or any
petition applying for an administration order to be made in relation
to a member of the PES Group or any receivership of the whole or any
part of the undertaking or assets of a member of the PES Group or
the equivalent of any of the foregoing in any jurisdiction outside
the United Kingdom;
1.1.14 none of the Executive Warrantors (as defined in the Warranty
Agreement) having been declared bankrupt, having made any
composition or entered into any deed of arrangement with his
creditors, or having had a petition for bankruptcy presented against
any of them;
1.1.15 none of the Executive Warrantors and neither B. Bouldin nor N.
Arizmendi (the "Key Employees") having ceased to be employed by the
PES Group and neither a member of the PES Group nor any such
Executive Warrantor nor any such Key Employee having issued any
notice terminating or purporting to terminate any such employment;
1.1.16 PES having exercised the outstanding Call Options in accordance
with their terms.
1.2 The Offer will lapse unless these conditions are fulfilled or
waived, by Halliburton, on or before the latest time for acceptance
of the Offer, being . . 1999 or such later date as Halliburton may
determine being not later than . . 1999. Halliburton reserves the
right to waive, in whole or in part, only conditions 1.1.6, 1.1.7,
1.1.8, 1.1.9, 1.1.10, 1.1.12. 1.1.13, 1.1.14, 1.1.15 and 1.1.16
above. Upon the satisfaction or waiver of the conditions, the Offer
will be declared unconditional. The Offer will then be extended for
a subsequent period of 10 days, during which time PES Shareholders
will be able to continue to accept the Offer.
Annex I-3
<PAGE>
2. Death or Disappearance in Suspicious Circumstances of Mr. Rubbo
2.1 In the event that the issue of Halliburton Common Stock in terms
of this Offer is delayed as a consequence of the Death or
Disappearance in Suspicious Circumstances of Mr. Rubbo and at any
time in the Holding Period any person is brought to trial and
subsequently criminally convicted in connection with such Death or
Disappearance in Suspicious Circumstances and during the Holding
Period or during such trial no Allegation of Connection is made,
then all of the shares of Halliburton Common Stock which would but
for the Death or Disappearance in Suspicious Circumstances have been
issued in terms of this Offer shall be issued as soon as practicable
following such conviction to the persons entitled thereto in terms
of this Offer.
2.2 In the event that the issue of common stock of Halliburton in terms
of this Offer is delayed as a consequence of the Death or
Disappearance in Suspicious Circumstances of Mr. Rubbo and at any
time in the Holding Period any person is brought to trial and
subsequently criminally convicted in connection with such Death or
Disappearance in Suspicious Circumstances and any Allegation of
Connection is made at such trial, then:
2.2.1 all of the shares of Halliburton Stock which would, but for the said
Death or Disappearance in Suspicious Circumstances, have been issued
to the Implicated Person and/or his Associates shall be issued by
Halliburton to such person or persons as may be nominated by Mr.
Rubbo's personal representatives and shall not be issued to that
Implicated Person or his Associates; and
2.2.2 the remainder of such shares of Halliburton Common Stock shall be
issued to the persons entitled thereto in terms of this Offer.
2.3 In the event that the number of shares of Halliburton Stock to be
issued in terms of this Offer is delayed as a consequence of the
Death or Disappearance in Suspicious Circumstances of Mr. Rubbo and
by the end of the Holding Period neither of the events specified in
paragraphs 2.1 or 2.2 above has occurred, then:
2.3.1 all of the shares of Halliburton Stock which would, but for the said
Death or Disappearance in Suspicious Circumstances, have been issued
to Mr. Rubbo, his Associates, or a limited partnership in which Mr.
Rubbo and his spouse are Limited Partners shall be so issued; and
2.3.2 all such remaining shares of Halliburton Common Stock shall be
issued to such charity as shall be nominated by the Board for the
time being of PES.
2.4 Mr. Rubbo has, by Irrevocable Undertaking issued to Halliburton on
the date of this Offer, authorized Halliburton to obtain copies of
all documents and other information under the control of Mr. Rubbo's
personal representatives necessary in the opinion
Annex I-4
<PAGE>
of Halliburton to enable Halliburton to determine to whom
Halliburton is obliged to issue shares in terms of this paragraph 2.
2.5 Any decision taken by Halliburton pursuant to this paragraph 2 shall
be taken in Halliburton's sole discretion and shall be conclusive
and binding on all persons for the purposes of the Offer.
Annex I-5
<PAGE>
ANNEX II
DEFINITIONS
In this Offer Document the following terms and expressions have the
following meanings (unless the context otherwise requires):
"Acquisition" shall mean the acquisition by Halliburton of PES Shares
pursuant to the Offer.
"AFR" shall mean the applicable federal rate which is a rate reflecting an
average of market yields on Treasury debt obligations for different ranges of
maturities that is published monthly by the Internal Revenue Service.
"Allegation of Connection" shall mean the making of any allegation, whether
or not proven (in a court of law, coroner's inquiry or like forum), that a named
person (in this Offer an "Implicated Person") entitled to receive shares in
terms of this Offer or options in terms of the Halliburton Stock Option Plan to
be established for PES Optionholders or an Associate of such person was
responsible for or otherwise implicated in the unlawful death of Mr. Rubbo.
"Associate" means, in connection with any Implicated Person, any spouse,
dependent or beneficiary to the estate of such person.
"Call Options" shall mean the option agreements between PES and minority
shareholders of Petroleum Engineering Services Asia Pty Limited, a subsidiary of
PES, pursuant to which PES may call for the transfer to itself of shares in that
subsidiary in exchange for the issuance to such minority shareholders of 5,480
PES Shares.
"Completion" shall mean the date upon which the Offer becomes or is
declared unconditional in all respects.
"Compulsory Acquisition" shall mean the compulsory acquisition of PES
Shares by Halliburton pursuant to Sections 429 to 430F of the U.K. Companies Act
1985 if Halliburton acquires 90% or more of the PES Shares to which the Offer
relates.
"Consideration" shall mean the consideration to be given by Halliburton to
PES Shareholders in exchange for the PES Shares pursuant to the Offer consisting
of Halliburton Common Stock issuable in the Initial Element, First Deferred
Element and Second Deferred Element.
"Death or Disappearance in Suspicious Circumstance" shall mean:
(a) the death of Mr. Rubbo resulting from anything other than:
(i) natural causes; or
(ii) accident (unless any report into that accident suggests the
possibility of foul play)
Annex II-1
<PAGE>
as evidenced by the relevant death certificate, coroner's report,
police report or other written evidence acceptable to Halliburton; or
(b) the disappearance (without a subsequent reappearance during the
Holding Period) of Mr. Rubbo for a continuous period in excess of four
weeks;
in each case at any time in the period prior to the Second Determination Date;
provided, however, that the question whether Mr. Rubbo has ceased to be employed
by reason of his Death or Disappearance in Suspicious Circumstances shall be
decided by Halliburton in its sole discretion and such decision shall be
conclusive and binding on all persons for the purposes of the Offer.
"Deferred Elements" shall mean the First Deferred Element and the Second
Deferred Element of the Consideration.
"Determination Date" shall mean either the First Determination Date or the
Second Determination Date (as the case may be).
"EGM" means an extraordinary general meeting of PES Shareholders.
"Entity Classification Election" shall mean the election by each of PES and
its subsidiaries (other than PES, Inc.) to be treated as other than a
corporation for United States tax purposes, effective as of Completion.
"Executive Warrantors" shall mean L. W. Kinch, M. L. Bowyer, D. W.
Whiteford, R. P. Rubbo, S. C. Owens, M. J. Fleming and C. Smith.
"First Deferred Element" shall mean the deferred, partially contingent
element of the Consideration issuable by Halliburton promptly after the First
Determination Date.
"First Determination Date" shall mean the date occurring 18 months after
Completion of the Offer .
"Halliburton" shall mean Halliburton Company, a Delaware corporation.
"Halliburton Common Stock" shall mean the common stock, par value $2.50, of
Halliburton.
"Halliburton Group" shall mean Halliburton and all its subsidiaries.
"Holding Period" shall mean the period of two years commencing on the date
of death of Mr. Rubbo or, in the event of his disappearance, the period of two
years commencing on the date upon which he last attended any office of the
Halliburton Group.
"Holdings" shall mean Halliburton Holdings Limited, a limited company
incorporated in England and Wales with registered number 1870934 and a wholly
owned subsidiary of Halliburton.
Annex II-2
<PAGE>
"Implicated Person" shall have the meaning set out in the definition of
"Allegation of Connection" above.
"Initial Element" shall mean that portion of the Consideration, consisting
of shares of Halliburton Common Stock, issuable by Halliburton promptly after
Completion of the Offer.
"Irrevocable Undertaking" shall mean an agreement dated ________, 1999
between a Principal Shareholder of PES or PES Trustees Limited and Halliburton
relating to the actions of the Principal Shareholder or PES Trustees Limited
with respect to the Offer.
"Non-U.S. Holder" shall mean any person other than (i) an individual who is
a citizen or resident of the United States, (ii) a corporation or partnership
created or organized in the United States or under the laws of the United Sates
or of any State thereof, (iii) an estate the income of which is includible in
gross income for U.S. federal income tax purposes regardless of its source, or
(iv) a trust which is subject to the jurisdiction of a United States court and
the control of a United States person.
"Offer" shall mean the offer, on the terms set forth in this Offer
Document, as amended from time to time, by Halliburton for the fully diluted
ordinary share capital of PES not already owned by Holdings.
"Offer Period" shall mean the period from the date of posting of this Offer
Document through ________, 1999 or such later date to which Halliburton may
extend the Offer.
"PES" shall mean PES (International) Limited, a limited company
incorporated in Scotland with registered number 145181.
"PES Assets" shall mean the stock and other assets of PES.
"PES Board" shall mean the board of directors of PES.
"PES Director" shall mean a member of the board of directors of PES.
"PES Group" shall mean PES and all its subsidiaries.
"PES Optionholder" shall mean a holder of options granted under one or more
of the PES Share Option Schemes.
"PES Share Option Schemes" shall mean the PES (International) Limited
Executive Share Option Scheme 1994, the PES (International) Limited Unapproved
Share Option Scheme and the PES (International) Limited Key Employee Share
Option Scheme.
"PES Shares" shall mean ordinary shares of 10 pence each in the capital of
PES.
"PES Shareholders" shall mean holders of PES Shares.
"Principal Shareholders" shall mean the Executive Warrantors, B. Bouldin,
N. Arizmendi and members of their respective families who hold PES Shares.
Annex II-3
<PAGE>
"Receiving Agent" shall mean Cameron McKenna (Ret: TLP/AJS) of Mitre House
160 Aldersgate Street, London EC1A 4DD United Kingdom
"Relevant Service Agreement" shall mean, in respect of any employee, the
contract of employment entered into by him with a member of the PES Group or the
Halliburton Group with effect from Completion (being one of the Agreed Form
Documents referred to in the Warranty Agreement) and for the avoidance of doubt
does not extend to or include any such contract of employment as amended
subsequent to the date upon which it was an Agreed Form.
"Second Deferred Element" shall mean the deferred, partially contingent
element of the Consideration issuable by Halliburton promptly after the Second
Determination Date occurring 36 months after Completion of the Offer unless
accelerated.
"Second Determination Date" shall mean the date occurring, subject to the
following proviso, 36 months after Completion of the Offer; provided, that, if
Halliburton (in its sole discretion) decides that PES has achieved the
milestones specified in an agreed technology transfer and development plan prior
to the end of the 36 month period, such date shall be the date of expiration of
30 months following Completion or, if later, the date of achievement of the
milestones set forth in the technology transfer and development plan.
"Termination of Employment for Cause" (or like expressions) shall mean
termination of employment (either summarily or on notice) of a person where the
ground for such termination is that the relevant person:
(i) has committed any act of gross misconduct or repeated or
continued any other material breach of his obligations under his service
agreement; or
(ii) has engaged in any conduct which, in the reasonable opinion of
the PES Board, is causing his continued employment to be
detrimental to a material extent to the interests of the Halliburton Group;
(iii) has been convicted of any criminal offence that is punishable
with six months or more imprisonment (save for any motoring offence
unless that motoring offence has been punished with actual (not suspended)
imprisonment)
(iv) has committed any act of dishonesty, whether or not relating to
his employment which is detrimental to a material extent to the interests
of the Halliburton Group;
(v) is, in the reasonable opinion of the PES Board, incompetent in
the performance of his duties (provided that failure to meet any business
plan shall not, of itself, be the sole determinant when assessing
competency); or
(vi) has committed any act amounting to gross misconduct which
materially violates the "Halliburton Company Code of Business Conduct" (as
in force on May 18, 1999);
provided always that such termination shall have been agreed in writing with the
relevant employee or approved in writing by an arbiter appointed in accordance
with his service agreement. The agreement of the relevant employee or the
approval of such an arbiter appointed in accordance with such service agreement
shall be conclusive and binding on all persons that such person has been
Terminated for Cause for the purposes of the Offer.
Annex II-4
<PAGE>
"TIN" shall mean taxpayer identification number.
"Voluntarily Resigns" or "Voluntary Resignation" (in the context of the
termination of employment of any person) shall mean where that person (the
"Relevant Employee") terminates his employment with a member of the Halliburton
Group (other than by reason of his death) either summarily or by the giving of
notice without remaining employed by another member of the Halliburton Group for
any reason whatsoever other than (a) in circumstances where his employing
company has agreed his service agreement is terminable by the Relevant Employee
without notice by reason of the conduct of his employing company or the arbiter
appointed in accordance with the service agreement of the Relevant Employee has
decided that the relevant service agreement is terminable by the Relevant
Employee without notice by reason of the conduct of his employing company; or
(b) where the Relevant Employee resigns as a consequence of illness, mental
disorder or injury which prevents him from properly performing his duties under
his service agreement (as certified by the independent medical practitioner
appointed in accordance with his service agreement). In the case of the Relevant
Employee resigning or wishing to resign as a consequence of illness, mental
disorder or injury Halliburton shall procure the appointment of such a
practitioner and make his report available to the Relevant Employee. The written
agreement of the Relevant Employee that he has Voluntarily Resigned or the
written decision of the arbiter appointed in accordance with his service
agreement that he has Voluntarily Resigned shall, in either case, be conclusive
and binding on all persons that the Relevant Employee shall have ceased to be
employed by the Halliburton Group as a result of his Voluntary Resignation for
the purposes of the Offer. The certificate of an independent medical
practitioner appointed in accordance with the service agreement of the Relevant
Employee shall be conclusive and binding on all persons as to whether or not
such Relevant Employee had resigned on grounds of illness, mental disorder or
injury for the purposes of the Offer.
"Warranty Agreement" shall mean that certain agreement dated _______, 1999
between Halliburton and the PES Directors and key employees named therein.
Annex II-5
<PAGE>
ANNEX III
LETTER FROM THE CHAIRMAN OF PES TO PES SHAREHOLDERS
[PES LOGO]
Directors: Registered Office:
L. W. Kinch 34 Albyn Place
M. L. Bowyer Aberdeen
M. J. Fleming Aberdeenshire
S. C. Owens AB10 1FW
R. P. Rubbo
C. Smith
D. W. Whiteford
R. M. McCurley
J. B. Renfroe
To PES Shareholders
and, for information only,
to the PES Optionholders
. . 1999
Dear Sir or Madam,
Recommended Offer by Halliburton for the fully diluted
ordinary share capital of PES not already owned by it or its subsidiaries
1. Introduction
It was announced today that the PES Board has reached an agreement with the
Directors of Halliburton on the terms of an Offer to be made by Halliburton
for all the issued share capital of PES not already held by its subsidiary,
Halliburton Holdings Limited.
The terms of the Offer and further information on PES and Halliburton and
their respective financial positions are set out in the Offer Document of
which this letter forms an Annex.
I am writing to explain the reasons for and background to the Offer and why
the PES Board considers the terms of the Offer to be fair and reasonable
and is recommending that PES Shareholders should accept the Offer.
The Offer is conditional upon, amongst other things, the approval of a
special resolution facilitating the Offer by the PES Shareholders at the
Extraordinary General Meeting.
Annex III-1
<PAGE>
2 Background to and Reasons for the Offer
For the background to the Offer, see "Background to and Reason for the
Offer" in the Offer Document.
The PES Board (excluding Messrs. McCurley and Renfroe, being the members of
the PES Board nominated by Holdings and who did not participate in any
proceedings of the PES Board relating to the Offer) is of the opinion that
the terms of the Offer are fair and reasonable to, and in the best
interests of, PES. In making this determination, the PES Board consulted
with PES's management, as well as its legal advisers, and considered a
number of factors, including the following:
- The belief of the PES Board that PES's and Halliburton's respective
businesses are complementary and that a range of economic, strategic
and operational benefits could arise from combining them. The PES
Board also believes that the combination of PES and Halliburton would
assist in the aim of becoming the preferred provider of real time
reservoir solutions throughout the world.
- The likelihood of the Offer becoming unconditional, as well as the
Irrevocable Undertakings given by the Principal Shareholders, as the
holders of approximately 52.2% of PES's issued share capital, to
accept the Offer and to take such other actions as are set forth in
the Irrevocable Undertakings.
- The terms of the Offer, including the Consideration and the terms of
the Warranty Agreement and related documents.
- The PES Board's knowledge of the business, operations, properties,
assets, earnings and prospects of PES.
- Recent and historical trading prices for Halliburton Shares. The PES
Board recognises that the Offer will enable the PES Shareholders to
obtain shares that are tradeable on a recognised stock exchange yet
offers the opportunity of continuing their equity interest in the
combined enterprise. For information regarding the range of prices of
the Halliburton Shares, see "Market Price and Dividend Information" on
page 22 of the Offer Document. The PES Board also considered the
absence of any formal market for the PES Shares.
- Halliburton's historical financial statements for the years ended
December 31, 1997 and December 31, 1998.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer, the PES Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to
specific factors considered in its decision. Furthermore, the PES Board did
not articulate how each factor specifically supported its ultimate
decision, except that substantial weight was placed on the fact that the
Principal Shareholders, as the owners of approximately 52.2% of the
outstanding PES Shares, will
Annex III-2
<PAGE>
receive the same consideration per PES Share as other PES Shareholders and
that they were in favor of and executed the Irrevocable Undertakings to
accept the Offer.
3. Extraordinary General Meeting of PES
Accompanying this document there is a notice convening the Extraordinary
General Meeting at which will be proposed a special resolution, to suspend,
for the purposes of the Offer, the pre-emption rights of the PES
Shareholders on transfers of PES Shares which are conferred by article 10
of the articles of association of PES and to suspend the obligation of a
person who has acquired a majority of the PES shares in issue, to make a
cash offer to acquire the remaining PES Shares and, conditionally upon
Completion of the Offer, to authorize the election to treat PES and its
non-U.S. subsidiaries as other than Corporations for U.S. federal income
tax purposes. It is a condition of the Offer that this resolution is
passed. The Principal Shareholders and PES Trustees Limited have given
Irrevocable Undertakings to vote, and Halliburton Holdings Limited will
vote, in favor of such resolution in respect of their holdings of PES
Shares representing, in aggregate, 87.57% of the issued share capital of
PES.
4. Action to be taken
PES Shareholders' attention is drawn to the further information in the
Offer Document and the Form of Acceptance. PES Shareholders who wish to
accept the Offer should follow the procedure set out in the Offer Document
and in the Form of Acceptance.
PES Optionholders are referred to the separate letter addressed to PES
Optionholders which sets out the procedure that they must follow and the
alternative courses of action available to them.
Annex III-3
<PAGE>
5. Recommendation
The PES Directors (other than Mark McCurley and James Renfroe who being PES
Directors appointed by Holdings have taken no part in the PES Board's
deliberations on this matter) consider that the Offer is in the best
interests of PES for the reasons set out in paragraph 2 above.
The PES Directors (other than Mark McCurley and James Renfroe who being PES
Directors appointed by Holdings have taken no part in the PES Board's
deliberations on this matter) unanimously recommend that PES Shareholders
accept the Offer by Halliburton to purchase their PES Shares. Those PES
Directors (other than Mark McCurley and James Renfroe), who are PES
Shareholders have irrevocably undertaken to Halliburton to accept the Offer
in respect of their own beneficial holdings of PES Shares, representing, in
aggregate, approximately 37.4% of the issued share capital of PES at the
date of this Offer Document.
6. Presentation to PES Shareholders
PES will be giving a presentation to its shareholders to explain the terms
of the Offer. This meeting will be attended and given by certain PES
Directors along with representatives from Halliburton and
PricewaterhouseCoopers and will be held at ... at ... am/pm on ... June
1999. All PES Shareholders are welcome to attend and you will be able to
put your questions in relation to the Offer and the Offer Document to the
PES Directors and representatives present. You should note, however, that
neither the PES Directors nor any of the representatives will be able to
give any investment advice or any assistance or advice as to whether or not
you should accept the Offer.
Yours faithfully,
_______________________________________
Laurence Kinch
Chairman
Annex III-4
<PAGE>
ANNEX IV
RELEVANT PROVISIONS OF COMPANIES ACT 1985
PART XIII A
TAKEOVER OFFERS
428. TAKEOVER OFFERS
(1) In this Part of this Act "takeover offer" means an offer to acquire
all the shares, or all the shares of any class or classes, in a
company (other than shares which at the date of the offer are already
held by the offeror), being an offer on terms which are the same in
relation to all the shares to which the offer relates or, where those
shares include shares of different classes, in relation to all the
shares of each class.
(2) In subsection (1) "shares" means shares which have been allotted on
the date of the offer but a takeover offer may include among the
shares to which it relates all or any shares that are subsequently
allotted before a date specified in or determined in accordance with
the terms of the offer.
(3) The terms offered in relation to any shares shall for the purposes of
this section be treated as being the same in relation to all the
shares or, as the case may be, all the shares of a class to which the
offers relates notwithstanding any variation permitted by subsection
(4).
(4) A variation is permitted by this subsection where:
(a) The law of a country or territory outside the United Kingdom
precludes an offer of consideration in the form or any of the
forms specified in the terms in question or precludes it except
after compliance by the offeror with conditions with which he is
unable to comply or which he regards as unduly onerous; and
(b) the variation is such that the persons to whom an offer of
consideration in that form is precluded are able to receive
consideration otherwise than in that form but of substantially
equivalent value.
(5) The reference is subsection (1) to shares already held by the offeror
includes a reference to shares which he has contracted to acquire but
that shall not be construed as including shares which are the subject
of a contract binding the holder to accept the offer when it is made,
being a contract entered into by the holder either for no
consideration and under seal or for no consideration other than a
promise by the offeror to make the offer.
Annex IV-1
<PAGE>
(6) In the application of subsection (5) to Scotland the words "and under
seal" shall be omitted.
(7) Where the terms of an offer make provision for their revision and for
acceptances on the previous terms to be treated as acceptances on the
revised terms, the revision shall not be regarded for the purposes of
this Part of this Act as the making of a fresh offer and references in
this Part of this Act to the date of the offer shall accordingly be
construed as references to the date on which the original offer was
made.
(8) In this Part of this Act "the offeror" means, subject to section 430D,
the person making a takeover offer and "the company" means the company
whose shares are the subject of the offer.
429. RIGHT OF OFFEROR TO BUY OUT MINORITY SHAREHOLDERS
(1) If, in a case in which a takeover offer does not relate to shares of
different classes, the offeror has by virtue of acceptances of the
offer acquired or contracted to acquire not less than nine-tenths in
value of the shares to which the offer relates he may give notice to
the holder of any shares to which the offer relates which the offeror
has not acquired or contracted to acquire that he desires to acquire
those shares.
(2) If, in a case in which a takeover offer relates to shares of different
classes, the offeror has by virtue of acceptances of the offer
acquired or contracted to acquire not less than nine-tenths in value
of the shares of any class to which the offer relates, he may give
notice to the holder of any shares of that class which the offeror has
not acquired or contracted to acquire that he desires to acquire those
shares.
(3) No notice shall be given under subsection (1) or (2) unless the
offeror has acquired or contracted to acquire the shares necessary to
satisfy the minimum specified in that subsection before the end of the
period of four months beginning with the date of the offer; and no
such notice shall be given after the end of the period of two months
beginning with the date on which he has acquired or contracted to
acquire shares which satisfy that minimum.
(4) Any notice under this section shall be given in the prescribed manner;
and when the offeror gives the first notice in relation to an offer he
shall send a copy of it to the company together with a statutory
declaration by him in the prescribed form stating that the conditions
for the giving of the notice are satisfied.
(5) Where the offeror is a company (whether or not a company within the
meaning of this Act) the statutory declaration shall be signed by a
director.
(6) Any person who fails to send a copy of a notice or a statutory
declaration as required by subsection (4) or makes such a declaration
for the purposes of that subsection knowing it to be false or without
having reasonable grounds for believing it to be true
Annex IV-2
<PAGE>
shall be liable to imprisonment or a fine, or both, and for continued
failure to send the copy or declaration, to a daily default fine.
(7) If any person is charged with an offence for failing to send a copy of
a notice as required by subsection (4) it is a defense for him to
prove that he took reasonable steps for securing compliance with that
subsection.
(8) When during the period within which a takeover offer can be accepted
the offeror acquires or contracts to acquire any of the shares to
which the offer relates but otherwise than by virtue of acceptances of
the offer, then, if:
(a) the value of the consideration for which they are acquired or
contracted to be acquired ("the acquisition consideration") does
not at that time exceed the value of the consideration specified
in the terms of the offer; or
(b) those terms are subsequently revised so that when the revision is
announced the value of the acquisition consideration, at the time
mentioned in paragraph (a) above, no longer exceeds the value of
the consideration specified in those terms,
the offeror shall be treated for the purposes of this section as having acquired
or contracted to acquire those shares by virtue of acceptances of the offer; but
in any other case those shares shall be treated as excluded from those to which
the offer relates.
430. EFFECT OF NOTICE UNDER SECTION 429
(1) The following provisions shall, subject to section 430C, have effect
where a notice is given in respect of any shares under section 429.
(2) The offeror shall be entitled and bound to acquire those shares on the
terms of the offer.
(3) Where the terms of an offer are such as to give the holder of any
shares a choice of consideration the notice shall give particulars of
the choice and state:
(a) that the holder of the shares may within six weeks from the date
of the notice indicate his choice by a written communication sent
to the offeror at an address specified in the notice; and
(b) which consideration specified in the offer is to be taken as
applying in default of his indicating a choice as aforesaid; and
the terms of the offer mentioned in subsection (2) shall be
determined accordingly.
(4) Subsection (3) applies whether or not any time-limit or other
conditions applicable to the choice under the terms of the offer can
still be complied with; and if the consideration chosen by the holder
of the shares:
Annex IV-3
<PAGE>
(a) is not cash and the offeror is no longer able to provide it; or
(b) was to have been provided by a third party who is no longer bound
or able to provide it, the consideration shall be taken to
consist of an amount of cash payable by the offeror which at the
date of the notice is equivalent to the chosen consideration.
(5) At the end of six weeks from the date of the notice the offeror shall
forthwith:
(a) send a copy of the notice to the company; and
(b) pay or transfer to the company the consideration for the shares
to which the notice relates.
(6) If the shares to which the notice relates are registered the copy of
the notice sent to the company under subsection (5)(a) shall be
accompanied by an instrument of transfer executed on behalf of the
shareholder by a person appointed by the offeror; and on receipt of
that instrument the company shall register the offeror as the holder
of those shares.
(7) If the shares to which the notice relates are transferable by the
delivery of warrants or other instruments the copy of the notice sent
to the company under subsection (5)(a) shall be accompanied by a
statement to that effect; and the company shall on receipt of the
statement issue the offeror with warrants or other instruments in
respect of the shares and those already in issue in respect of the
shares shall become void.
(8) Where the consideration referred to in paragraph (b) of subsection (5)
consists of shares or securities to be allotted by the offeror the
reference in that paragraph to the transfer or the consideration shall
be construed as a reference to the allotment of the shares or
securities to the company.
(9) Any sum received by a company under paragraph (b) of subsection (5)
and any other consideration received under that paragraph shall be
held by the company on trust for the person entitled to the shares in
respect of which the sum or other consideration was received.
(10) Any sum received by a company under paragraph (b) of subsection (5),
and any dividend or other sum accruing from any other consideration
received by a company under that paragraph, shall be paid into a
separate bank account, being an account the balance on which bears
interest at an appropriate rate and can be withdrawn by such notice
(if any) as is appropriate.
(11) Where after reasonable enquiry made at such intervals as are
reasonable the person entitled to any consideration held on trust by
virtue of subsection (9) cannot be found and twelve years have elapsed
since the consideration was received or the company
Annex IV-4
<PAGE>
is wound up the consideration (together with any interest, dividend
or other benefit that has accrued from it) shall be paid into court.
(12) In relation to a company registered in Scotland, subsections (13) and
(14) shall apply in place of subsection (11).
(13) Where after reasonable enquiry made at such intervals as are
reasonable the person entitled to any consideration held on trust by
virtue of subsection (9) cannot be found and twelve years have
elapsed since the consideration was received or the company is wound
up:
(a) the trust shall terminate;
(b) the company or, as the case may be, the liquidator shall sell
any consideration other than cash and any benefit other than
cash that has accrued from the consideration; and
(c) a sum representing:
(i) the consideration so far as it is cash;
(ii) the proceeds of any sale under paragraph (b) above; and
(iii) any interest, dividend or other benefit that has accrued
from the consideration, shall be deposited in the name of
the Accountant of Court in a bank account such as is
referred to in subsection (10) and the receipt for the
deposit shall be transmitted to the Accountant of Court.
(14) Section 58 of the Bankruptcy (Scotland) Act 1985 (so far as
consistent with this Act) shall apply with any necessary
modifications to sums deposited under subsection (13) as that section
applies to sums deposited under section 57(1)(a) of that Act.
(15) The expenses of any such enquiry as is mentioned in subsection (11)
or(13) may be defrayed out of the money or other property held on
trust for the person or persons to whom the enquiry relates.
430A. RIGHT OF MINORITY SHAREHOLDER TO BE BOUGHT OUT BY OFFEROR
(1) If a takeover offer relates to all the shares in a company and at any
time before the end of the period within which the offer can be
accepted:
(a) the offeror has by virtue of acceptances of the offer acquired
or contracted to acquire some (but not all) of the shares to
which the offer relates; and
Annex IV-5
<PAGE>
(b) those shares, with or without any other shares in the company
which he has acquired or contracted to acquire, amount to not
less than nine-tenths in value of all the shares in the company,
the holder of any shares to which the offer relates who has not
accepted the offer may by a written communication addressed to
the offeror require him to acquire those shares.
(2) If a takeover offer relates to shares of any class or classes and at
any time before the end of the period within which the offer can be
accepted:
(a) the offeror has by virtue of acceptances of the offer acquired or
contracted to acquire some (but not all) of the shares of any
class to which the offer relates; and
(b) those shares, with or without any other shares of that class
which he has acquired or contracted to acquire, amount to not
less than nine-tenths in value of all the shares of that class,
the holder of any shares of that class who has not accepted the
offer may by a written communication addressed to the offeror
require him to acquire those shares.
(3) Within one month of the time specified in subsection (1) or, as the
case may be, subsection (2) the offeror shall give any shareholder who
has not accepted the offer notice in the prescribed manner of the
rights that are exercisable by him under that subsection; and if the
notice is given before the end of the period mentioned in that
subsection it shall state that the offer is still open for acceptance.
(4) A notice under subsection (3) may specify a period for the exercise of
the rights conferred by this section and in that event the rights
shall not be exercisable after the end of that period; but no such
period shall end less than three months after the end of the period
within which the offer can be accepted.
(5) Subsection (3) does not apply if the offeror has given the shareholder
a notice in respect of the shares in question under section 429.
(6) If the offeror fails to comply with subsection (3) he and, if the
offeror is a company, every officer of the company who is in default
or to whose neglect the failure is attributable, shall be liable to a
fine and for continued contravention, to a daily default fine.
(7) If an offeror other than a company is charged with an offence for
failing to comply with subsection (3) it is a defense for him to prove
that he took all reasonable steps for securing compliance with that
subsection.
Annex IV-6
<PAGE>
430B. EFFECT OF REQUIREMENT UNDER SECTION 430A
(1) The following provisions shall, subject to section 430C, have effect
where a shareholder exercises his rights in respect of any shares
under section 430A.
(2) The offeror shall be entitled and bound to acquire those shares on
the terms of the offer or on such other terms as may be agreed.
(3) Where the terms of an offer are such as to give the holder of shares
a choice of consideration the holder of the shares may indicate his
choice when requiring the offeror to acquire them and the notice
given to the holder under section 430A(3):
(a) shall give particulars of the choice and of the rights conferred
by this subsection; and
(b) may state which consideration specified in the offer is to be
taken as applying in default of his indicating a choice; and the
terms of the offer mentioned in subsection (2) shall be
determined accordingly.
(4) Subsection (3) applies whether or not any time-limit or other
conditions applicable to the choice under the terms of the offer can
still be complied with; and if the consideration chosen by the holder
of the shares:
(a) is not cash and the offeror is no longer able to provide it; or
(b) was to have been provided by a third party who is no longer
bound or able to provide it, the consideration shall be taken to
consist of an amount of cash payable by the offeror which at the
date when the holder of the shares requires the offeror to
acquire them is equivalent to the chosen consideration.
430C. APPLICATIONS TO THE COURT
(1) Where a notice is given under section 429 to the holder of any shares
the court may, on an application made by him within six weeks from
the date on which the notice was given:
(a) order that the offeror shall not be entitled and bound to
acquire the shares; or
(b) specify terms of acquisition different from those of the offer.
(2) If an application to the court under subsection (1) is pending at the
end of the period mentioned in subsection (5) of section 430 that
subsection shall not have effect until the application has been
disposed of.
Annex IV-7
<PAGE>
(3) Where the holder of any shares exercises his rights under section
430A the court may, on an application made by him or the offeror,
order that the terms on which the offeror is entitled and bound to
acquire the shares shall be such as the court thinks fit.
(4) No order for costs or expenses shall be made against a shareholder
making an application under subsection (1) or (3) unless the court
considers:
(a) that the application was unnecessary, improper or vexatious; or
(b) that there has been unreasonable delay in making the application
or unreasonable conduct on his part in conducting the
proceedings on the application.
(5) Where a takeover offer has not been accepted to the extent necessary
for entitling the offeror to give notices under subsection (1) or (2)
of section 429 the court may, on the application of the offeror, make
an order authorizing him to give notices under that subsection if
satisfied:
(a) that the offeror has after reasonable enquiry been unable to
trace one or more of the persons holding shares to which the
offer relates;
(b) that the shares which the offeror has acquired or contracted to
acquire by virtue of acceptances of the offer, together with the
shares held by the person or persons mentioned in paragraph (a),
amount to not less than the minimum specified in that
subsection; and
(c) that the consideration offered is fair and reasonable; but the
court shall not make an order under this subsection unless it
considers that it is just and equitable to do so having regard,
in particular, to the number of shareholders who have been
traced but who have not accepted the offer.
430D. JOINT OFFERS
(1) A takeover offer may be made by two or more persons jointly and in
that event this Part of this Act has effect with the following
modifications.
(2) The conditions for the exercise of the rights conferred by sections
429 and 430A shall be satisfied by the joint offerors acquiring or
contracting to acquire the necessary shares jointly (as respects
acquisitions by virtue of acceptances of the offer) and either
jointly or separately (in other cases); and, subject to the following
provisions, the rights and obligations of the offeror under those
sections and sections 430 and 430B shall be respectively joint rights
and joint and several obligations of the joint offerors.
(3) It shall be a sufficient compliance with any provisions of those
sections requiring or authorizing a notice or other document to be
given or sent by or to the joint offerors
Annex IV-8
<PAGE>
that it is given or sent by or to any of them; but the statutory
declaration required by section 429(4) shall be made by all of them
and, in the case of a joint offeror being a company, signed by a
director of that company.
(4) In sections 428, 430(8) and 430(E) references to the offeror shall be
construed as references to the joint offerors or any of them.
(5) In section 430(6) and (7) references to the offeror shall be
construed as references to the joint offerors or such of them as they
may determine.
(6) In sections 430(4)(a) and 430B(4)(a) references to the offeror being
no longer able to provide the relevant consideration shall be
construed as references to none of the joint offerors being able to
do so.
(7) In Section 430C references to the offeror shall be construed as
references to the joint offerors except that any application under
subsection (3) or (5) may be made by any of them and the reference in
subsection (5)(a) to the offeror having been unable to trace one or
more of the persons holding shares shall be construed as a reference
to none of the offerors having been able to do so.
430E. ASSOCIATES
(1) The requirement in section 428(1) that a takeover offer must extend
to all the shares, or all the shares of any class or classes, in a
company shall be regarded as satisfied notwithstanding that the offer
does not extend to shares which associates of the offeror hold or
have contracted to acquire; but, subject to subsection (2), shares
which any such associate holds or has contracted to acquire, whether
at the time when the offer is made or subsequently, shall be
disregarded for the purposes of any reference in this Part of this
Act to the shares to which takeover offer relates.
(2) Where during the period within which a takeover offer can be accepted
any associate of the offeror acquires or contracts to acquire any of
the shares to which the offer relates, then, if the condition
specified in subsection(8)(a) or (b) of section 429 is satisfied as
respects those shares they shall be treated for the purposes of that
section as shares to which the offer relates.
(3) In section 430A(1)(b) and (2)(b) the reference to shares which the
offeror has acquired or contracted to acquire shall include a
reference to shares which any associate of his has acquired or
contracted to acquire.
(4) In this section "associate", in relation to an offeror means:
(a) a nominee of the offeror;
(b) a holding company, subsidiary or fellow subsidiary of the
offeror or a nominee of such a holding company, subsidiary or
fellow subsidiary;
Annex IV-9
<PAGE>
(c) a body corporate in which the offeror is substantially
interested; or
(d) any person who is, or is a nominee of, a party to an agreement
with the offeror for the acquisition of, or of an interest in,
the shares which are the subject of the takeover offer, being an
agreement which includes provisions imposing obligations or
restrictions such as are mentioned in section 204(2)(a).
(5) For the purposes of subsection (4)(b) a company is a fellow
subsidiary of another body corporate if both are subsidiaries of the
same body corporate but neither is a subsidiary of the other.
(6) For the purposes of subsection (4)(c) an offeror has a substantial
interest in a body corporate if:
(a) that body or its directors are accustomed to act in accordance
with his directions or instructions; or
(b) he is entitled to exercise or control the exercise of one-third
or more of the voting power at general meetings of that body.
(7) Subsections (5) and (6) of section 204 shall apply to subsection
(4)(d) above as they apply to that section and subsections (3) and
(4) of section 203 shall apply for the purposes of subsection (6)
above as they apply for the purposes of subsection (2)(b) of that
section.
(8) Where the offeror is an individual his associates shall also include
his spouse and any minor child or step-child of his.
430F. CONVERTIBLE SECURITIES
(1) For the purposes of this Part of this Act securities of a company
shall be treated as shares in the company if they are convertible
into or entitle the holder to subscribe for such shares; and
references to the holder of shares or a shareholder shall be
construed accordingly.
(2) Subsection (1) shall not be construed as requiring any securities to
be treated:
(a) as shares of the same class as those into which they are
convertible or for which the holder is entitled to subscribe; or
(b) as shares of the same class as other securities by reason only
that the shares into which they are convertible or for which the
holder is entitled to subscribe are of the same class.
Annex IV-10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees, and agents in
connection with threatened, pending, or completed actions, suits, or
proceedings, whether civil, criminal, administrative, or investigative (other
than an action by or in right of the corporation), brought against them by
reason of the fact that they were or are such directors, officers, employees, or
agents, against expenses, judgments, fines, and amounts paid in settlement
actually and reasonably incurred in any such action, suit, or proceeding.
Article X of the Registrant's Restated Certificate of Incorporation together
with Section 39 of its By-Laws provide for indemnification of each person who is
or was made a party to any actual or threatened civil, criminal, administrative,
or investigative action, suit, or proceeding because such person is or was an
officer or director of the Registrant or is a person who is or was serving at
the request of the Registrant as a director, officer, employee, or agent of
another corporation or of a partnership, joint venture trust, or other
enterprise, including service relating to employee benefit plans, to the fullest
extent permitted by the DGCL as it existed at the time the indemnification
provisions of the Registrant's Restated Certificate of Incorporation and the By-
Laws were adopted or as may be thereafter amended. Section 39 of the
Registrant's By-Laws and Article X of its Restated Certificate of Incorporation
expressly provide that they are not the exclusive methods of indemnification.
Section 39 of the By-Laws provides that the Registrant may maintain
insurance, at its own expense, to protect itself and any director, officer,
employee, or agent of the Registrant or of another entity against any expense,
liability, or loss, regardless of whether the Registrant would have the power to
indemnify such person against such expense, liability, or loss under the DGCL.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. Article XV of the Registrant's Restated Certificate
of Incorporation contains such a provision.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
Exhibit
Number Description of Exhibits
- ------ -----------------------
1.1 Form of Warranty Agreement dated _________, 1999 between the
Registrant and certain directors and key employees of PES
(International) Limited.
1.2 Form of Irrevocable Undertakings dated ________, 1999.
1.3 Form of Service Agreement between a member of the PES Group and
certain directors of PES (International) Limited (U.K. form).
1.4+ Form of Service Agreement between a subsidiary of the Registrant and
certain directors of PES (International) Limited (U.S. form).
1.6+ PES Technology Transfer and Development Plan.
1.7+ Halliburton Stock Option Plan for PES Employees.
5.1 Opinion of Vinson & Elkins L.L.P. as to the legality of the securities
offered.
8.1+ Opinion of Cameron McKenna as to U.K. taxation matters.
8.2 Opinion of Vinson & Elkins L.L.P. as to U.S. taxation matters.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers (PES (International) Limited).
23.3 Consent of PricewaterhouseCoopers (Dresser Industries, Inc.)
23.4 Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1).
23.5+ Consent of Cameron McKenna (contained in Exhibit 8.1).
_______________
+ To be filed by amendment
Financial Statement Schedules:
The financial statement schedules have previously been filed as part of
Halliburton's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
Item 22. Undertakings
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 in 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;
(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;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic
II-2
<PAGE>
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference 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, 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 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;
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of the 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;
(6) 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), the issuer undertakes that 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;
(7) That every prospectus (i) that is filed pursuant to paragraph (6)
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; 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.
II-3
<PAGE>
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 provisions described
under Item 20 above, 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 Securities Act of 1933 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 Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 2nd day of June, 1999.
HALLIBURTON COMPANY
By: /s/ RICHARD B. CHENEY
------------------------------
Richard B. Cheney
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lester L. Coleman, Susan S. Keith and John M.
Allen, or any of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated:
Signature Title Date
/s/ RICHARD B. CHENEY Chief Executive Officer June 3, 1999
- ------------------------------ and Director ------
Richard B. Cheney
/s/ GARY V. MORRIS Executive Vice President June 3, 1999
- ------------------------------ and Chief Financial Officer ------
Gary V. Morris
/s/ R. CHARLES MUCHMORE, JR Vice President, Controller June 3, 1999
- ------------------------------ and Chief Accounting Officer ------
R. Charles Muchmore, Jr.
II-5
<PAGE>
/s/ ANNE L. ARMSTRONG Director June 3, 1999
- ------------------------------
Anne L. Armstrong
/s/ WILLIAM E. BRADFORD Chairman of the Board and June 3, 1999
- ------------------------------ Director ------
William E. Bradford
/s/ LORD CLITHEROE Director June 3, 1999
- ------------------------------ ------
Lord Clitheroe
/s/ ROBERT L. CRANDALL Director June 3, 1999
- ------------------------------ ------
Robert L. Crandall
/s/ CHARLES J. DIBONA Director June 3, 1999
- ------------------------------ ------
Charles J. DiBona
/s/ LAWRENCE S. EAGLEBURGER Director June 3, 1999
- ------------------------------ ------
Lawrence S. Eagleburger
/s/ Director
- ------------------------------ ------
W. R. Nowell
/s/ RAY L. HUNT Director June 3, 1999
- ------------------------------ ------
Ray L. Hunt
/s/ DELANO E. LEWIS Director June 3, 1999
- ------------------------------ ------
Delano E. Lewis
/s/ J. LANDIS MARTIN Director June 3, 1999
- ------------------------------ ------
J. Landis Martin
/s/ JAY A. PRECOURT Director June 3, 1999
- ------------------------------ ------
Jay A. Precourt
/s/ C. J. SILAS Director June 3, 1999
- ------------------------------ ------
C. J. Silas
II-6
<PAGE>
/s/ RICHARD J. STEGEMEIER Director June 3, 1999
- ------------------------------ ------
Richard J. Stegemeier
II-7
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibits
- ------ -----------------------
1.1 Warranty Agreement dated _________, 1999 between the Registrant and
certain directors and key employees of PES (International) Limited.
1.2 Form of Irrevocable Undertakings dated ________, 1999.
1.3 Form of Service Agreement between a member of the PES Group and
certain directors of PES (International) Limited (U.K. form).
1.4+ Form of Service Agreement between a subsidiary of the Registrant and
certain directors of PES (International) Limited (U.S. form).
1.6+ PES Technology Transfer and Development Plan.
1.7+ Halliburton Stock Option Plan for PES Employees.
5.1 Opinion of Vinson & Elkins L.L.P. as to the legality of the securities
offered.
8.1+ Opinion of Cameron McKenna as to U.K. taxation matters.
8.2 Opinion of Vinson & Elkins L.L.P. as to U.S. taxation matters.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers (PES (International) Limited).
23.3 Consent of PricewaterhouseCoopers (Dresser Industries, Inc.)
23.4 Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1).
23.5+ Consent of Cameron McKenna (contained in Exhibit 8.1).
_______________
+ To be filed by amendment
<PAGE>
Exhibit 1.1
Dated 1999
----------------------------------
(1) --------------- LIMITED
- and -
(2) ---------------------
SERVICE AGREEMENT
TYPE "A"
Cameron McKenna
Mitre House
160 Aldersgate Street
London EC1A 4DD
T +44(0)171 367 3000
F +44(0)171 367 2000
<PAGE>
THIS AGREEMENT is made BETWEEN:-
(A) The Company: [ ], a company incorporated in
Scotland and registered under number [ ]; and
(B) You: [ ]of [ ].
1. Employment
1.1 Conditional upon Completion, your employment under this Agreement will
commence on ___________ 1999 (the "Commencement Date") and will continue
(subject to earlier termination as provided in this Agreement) for a fixed
term of three years from the Commencement Date and continuing thereafter
until terminated by either side on three months' notice expiring on or
after the end of the fixed term.
1.2 Your previous employment with the Company, which began on _____________,
counts as part of your period of continuous employment with the Group.
1.3 At the date of this Agreement your job title is _______________, Your
duties are set out in more detail in the Schedule to this Agreement. It is
intended that these duties will continue throughout the period of this
Agreement, but the Company reserves the right to vary your job description
to meet its operational requirements (after giving you due notice of any
change) having due regard to your status as a senior employee.
1.4 You will (without further remuneration), if and for as long as the Company
requires, during this Agreement:
1.4.1 carry out duties for the benefit of or on behalf of any
Group Company; and/or
1.4.2 hold any office and/or other appointment in or on behalf of
the Group;
1.5 You will, at all times during the period of this Agreement:
1.5.1 devote the whole of your time, attention and ability during your
hours of work (as set out in Clause 1.6) to the duties of your
employment;
1.5.2 faithfully and diligently perform your duties and exercise only such
powers as are consistent with them;
1.5.3 obey all and any lawful and reasonable directions of the Board;
1.5.4 act only in accordance with the Memorandum and Articles of
Association of the Company or, where acting pursuant to Clause 1.4,
of the relevant Group Company;
1
<PAGE>
1.5.5 use your reasonable endeavours to promote the interests of the
Group; and
1.5.6 keep the Board or its designee promptly and fully informed (in
writing if so requested) of your conduct of the business or affairs
of the Group and provide such explanations as they may reasonably
require.
1.6 Your hours of work are the normal hours of business of the Company together
with such additional hours as may be necessary for you to perform your
duties properly. It is the understanding of both you and the Company that
you are employed as a managing executive and, accordingly, that Regulations
4(1) and (2), 6(1) (2) and (7), 10(1), 11(1) and (2) and 12(1) of the
Working Time Regulations 1998 do not apply in relation to your employment
under this Agreement.
1.7 Your normal place of work is the Company's office at _____________, You
will, if and for as long as required by the Company, make visit in the
ordinary course of your duties to such places anywhere in the world as it
may reasonably specify. Notwithstanding the foregoing, you shall not be
required to spend more than 45 working days in any period of 90 working
days (nor more than a total of 90 working days in any period of 365 days)
working, stationed, or travelling away from your normal place of work. It
is recognised that due to the nature of your work you may be asked to
exceed these limits from time to time and it is agreed that you will not
unreasonably withhold your consent to such requests, provided always that
you shall notify the Company as soon as reasonably practicable of any
period to be spent travelling away from your normal place of work and in
any event you shall give the Company Secretary two weeks' notice if any
proposed visit would result in you exceeding the limits specified in this
Clause 1.7. You agree that if you do not comply with these notification
provisions, any visit which results in you exceeding the limits set out in
this Clause 1.7 shall not be a breach of this Agreement.
2. Pay
2.1 During your employment, the Company will pay you a salary at the rate of
(pound)______ each year (or such higher rate as may be awarded to you
pursuant to Clause 2.2) which will accrue from day to day and be payable in
equal monthly instalments in arrears on or about the last working day of
each month (the "Salary"). The Salary is inclusive of all and any fees
receivable by you as the holder of offices or appointments within the Group
or on behalf of the Company or any Group Company.
2.2 On or about 1st April 2000 and each subsequent anniversary, your Salary
will be reviewed by the Board and the rate of Salary then payable may be
increased by the Company with effect from the date of such review by such
amount (if any) as the Board may decide.
2.3 The Company reserves the right at any time during, or in any event on
termination of your employment, to deduct from Salary any overpayment made
2
<PAGE>
and/or monies owed to the Company by you including but not limited to any
excess holiday, outstanding loans, advances of Salary or expenses, and the
cost of repairing any damage or loss to the Company's property and/or to
property leased by or on behalf of the Company which is caused by you other
than the cost of repairing normal wear and tear.
3. Fringe Benefits [NOTE - INDIVIDUAL ENTITLEMENTS TO BE CONFIRMED]
3.1 You are entitled to be and remain a member of the Company Pension Scheme
(the "Scheme") subject to the terms of its Deed and Rules from time to time
(details of which are available from the Personnel Department), for so long
as it continues in operation. A contracting-out certificate is not in force
for your employment
3.2 You will be covered by a group life assurance scheme, subject to the terms
of such scheme from time to time. You will receive life assurance cover of
four times your Salary (or, if less, four times the Inland Revenue
pensionable earnings cap for the time being applicable to you) payable in
the event of your death in service, subject always to the rules of the
relevant policy and if and to the extent that such cover is available on
normal terms.
3.3 You are entitled to participate in the Company's permanent health and
private medical expenses insurance schemes maintained from time to time for
the benefit of its employees, subject always to the rules of such schemes
and if and to the extent that such cover is available on normal terms.
Details of each scheme are available from the Personnel Department.
3.4 [DEPENDING ON CURRENT ENTITLEMENT]. [You will be eligible to receive a
Company car or a car allowance in accordance with the terms of the Car
Benefit Policy (as amended from time to time).]
3.5 [If you have a Company car, you must comply with all Group regulations
relating to Company cars, notify the Company immediately of any accident
involving your Company car and of any charge brought against you for a
motoring offence and, on the termination of your employment, return your
Company car to the Company at its offices.]
3.6 You are also eligible to be considered for participation in a bonus scheme
[TO BE CONFIRMED]
4. Expenses
4.1 The Company will reimburse you with your reasonable travelling, telephone,
hotel, entertainment and other business expenses incurred in the course of
your duties provided that you comply with Group regulations from time to
time in this respect and provide the Company with receipts or other proof
of payment as the Company may reasonably require.
3
<PAGE>
5. Holiday
5.1 In addition to 8 public holidays, you are entitled to holiday without loss
of pay in each holiday year (which runs from 1st January to 31st December)
to be taken at such time or times as may be authorised in advance by the
Board, as follows:
Year of Service Annual Holiday Entitlement per
--------------- -------------- ---------------
Entitlement Complete Month
----------- --------------
of Service
----------
In the holiday year on joining
the Company 20 days 1.67 days
In the holiday year in which 1
year's service is completed 21 days 1.75 days
In the holiday year in which 2
years service is completed 23 days 1.92 days
In the holiday year in which 3
years service is completed 24 days 2 days
In the holiday year in which 4
years service is completed and
all subsequent years 25 days 2.08 days
You may not, except with prior permission from the Board, carry forward any
unused part of your holiday entitlement to a subsequent holiday year.
5.2 In the first and final holiday years of your employment, your holiday
entitlement will be calculated at the rate indicated in Clause 5.1 above
for each complete calendar month of your employment by the Company during
that holiday year. You will be entitled on termination to pay in lieu of
any unused holiday entitlement. If you have taken holiday in excess of your
accrued entitlement, you will be required to repay any excess Salary you
have received for such holiday. The basis for payment and repayment is
1/260th of your Salary for each day.
6. Incapacity
6.1 If you are absent from work because of illness, mental disorder or injury
("Incapacity"), you must report that fact promptly to the Company and,
after seven continuous days' absence, provide medical practitioners'
certificate(s) of your Incapacity and its cause for Statutory Sick Pay
purposes covering the whole period of your absence. For Statutory Sick Pay
purposes, your qualifying days are your normal working days. Any
unauthorised absence must be properly explained and, in the case of an
absence of uncertain duration, you must keep the Company regularly informed
of your anticipated return to work.
4
<PAGE>
6.2 If you are absent from work due to Incapacity and have complied with the
provisions of Clause 6.1, you will continue to be paid full basic Salary
for the first 26 weeks' of absence and 50% of basic Salary for the next 26
weeks thereafter, in any period of 12 months. All other benefits to which
you are entitled under this Agreement (namely [pension, life assurance,
medical insurance and car benefits]) will continue in full force and effect
during such period of absence. Such payment will be deemed to include all
and any Statutory Sick Pay to which you are entitled and any Social
Security Sickness Benefit or other state benefits recoverable by you
(whether or not recovered) may be deducted from such payment. If your
absence exceeds 30 consecutive days, the Company will be entitled to
appoint a temporary replacement to cover your absence.
6.3 You will, whenever requested by the Board or the board of directors of PES
(International) Limited, submit to examination by an independent medical
practitioner selected and paid for by the Company. You hereby authorise
such medical practitioner to disclose to and discuss with the Board any
matters which, in his opinion, might hinder or prevent you (if during a
period of Incapacity) from returning to work for any period or (in other
circumstances) from properly performing your duties at any time. In the
event that you wish to resign on account of ill health or are forced to
resign as a consequence of illness, injury or mental disorder, you or your
personal representatives shall also be entitled to require the appointment
of such an independent medical practitioner to report on your condition and
the issue of whether you are fit to return to work.
6.4 Any report obtained from an independent medical practitioner under this
Clause 6 shall be made available by the Company to you or your
representative on request.
7. Confidentiality, Integrity and Share Dealing
7.1 During your employment under this Agreement, you will not:-
7.1.1 in connection with the business of the Group, directly or indirectly
receive or obtain any discount, rebate, commission or other
inducement (whether in cash or in kind) which is not authorised by
regulations or guidelines from time to time governing dealings by
employees on behalf of the Company, or, if you do, you will account
immediately to the Company for the amount so received;
7.1.2 directly or indirectly disclose or make use of any Confidential
Information for any purpose other than a legitimate purpose of the
Company;
7.1.3 (except in the proper course of your duties under this Agreement)
remove from Company premises or copy or allow others to copy the
contents of any document, computer disk, tape or other tangible item
5
<PAGE>
which contains any Confidential Information or which belongs to the
Company;
7.1.4 at any time make any untrue or misleading statement relating to the
Group.
7.2 In relation to dealings in shares, debentures or other securities of the
Company or any Group Company and unpublished price sensitive information
affecting the shares, debentures or other securities of any other company:-
7.2.1 you will comply where relevant with every rule of law, every
regulation of The London Stock Exchange Limited, the New York Stock
Exchange and every regulation of the Group from time to time in
force including compliance with the rules for the time being
applicable to the relevant stock exchange on which shares of the
Company or any Group Company are for the time being listed or
traded;
7.2.2 (in relation to overseas dealings) you will comply with all laws of
the state and all regulations of the stock exchange, market or
dealing system in which such dealings take place;
7.2.3 you will not (and will procure so far as you are able that your
spouse and children do not) deal or become or cease to be interested
(within the meaning of Part I of Schedule XIII to the Companies Act
1985) in any securities of the Company or any Group Company except
in accordance with any rules or guidelines from time to time
relating to securities transactions by employees of the Company or
any Group Company; and
7.2.4 [TO BE QUALIFIED FOR EMPLOYEES WITH OTHER BUSINESS INTERESTS] you
will not, without the prior written permission of the Board (which
shall not be unreasonably withheld), hold any public office or
directly or indirectly undertake any other work for or hold any
interest (except for up to 5 per cent of the issued ordinary shares
of any company whose shares are listed or traded on the London Stock
Exchange Limited, any other recognised stock exchange, EASDAQ or
NASDAQ) in any other company, firm or business.
8. Termination of Agreement
8.1 This Agreement will automatically terminate:
8.1.1 when you reach your 60th birthday; or
8.1.2 if you are prohibited by law from being a director.
6
<PAGE>
8.2 The Company will be entitled, with the prior approval of a resolution of
the board of directors of PES (International) Limited, by giving notice, to
terminate this Agreement with immediate effect if you:
8.2.1 commit any act of gross misconduct or repeat or continue any other
material breach of your obligations under this Agreement; or
8.2.2 engage in any conduct which, in the reasonable opinion of the board
of directors of PES (International) Limited, is likely to cause your
continued employment to be detrimental to the interests of the
Group; or
8.2.3 are convicted of any criminal offence which is punishable with 6
months or more imprisonment (save for any motoring offence for which
you are not sentenced to a term of immediate or suspended
imprisonment); or
8.2.4 commit any act of dishonesty, whether or not relating to your
employment; or
8.2.5 resign your office as a director of the Company or any Group Company
otherwise than at the request of the relevant Company or any Group
Company;
8.2.6 are, in the reasonable opinion of the board of directors of PES
(International) Limited, incompetent in the performance of your
duties (provided that the performance against any business plan will
not be the sole determinant when assessing your competency under
this Clause 8.2.6); or
8.2.7 commit any act which materially violates the "Halliburton Company
Code of Business Conduct" (as amended from time to time).
8.3 The Company will be entitled to terminate this Agreement notwithstanding
Clause 6.2 or your entitlement at that time to sick pay or benefits under
the Company's permanent health insurance scheme, by notice which is not
less than your then entitlement to statutory minimum notice plus a week
given at any time when you have been absent from work due to Incapacity for
a period or periods aggregating 26 weeks in the preceding 12 months
provided that the Company will withdraw any such notice if, before it
expires, you resume your duties full time and provide medical evidence
satisfactory to the Board that you are fully recovered and that no
recurrence of your Incapacity can reasonably be anticipated.
8.4 On serving or receiving notice to terminate this Agreement or at any time
thereafter during the currency of such notice the Company is, at its
discretion, entitled to pay you your Salary (at the rate then payable under
Clause 2.1 hereof) in lieu of notice.
7
<PAGE>
8.5 At any time after notice (including summary notice) to terminate this
Agreement has been served or received by the Company, the Company may elect
to suspend you from the performance of all or any of your duties under this
Agreement and, after doing so:-
8.5.1 require you to resign (without any claim for compensation) from any
offices and/or appointments which you hold as a director, nominee or
representative of the Company or any Group Company; and/or
8.5.2 require you to transfer, without payment, to the Company (or as the
Company may direct) any qualifying shares or nominee shareholdings
provided to you by or held by you in or on behalf of any Group
Company in which you have no beneficial interest; and/or
8.5.3 require you to return to the Company on request any documents,
computer disks and tapes and other tangible items in your possession
or under your control which belong to the Company or which contain
or refer to any Confidential Information; and/or
8.5.4 require you to delete all Confidential Information from any computer
disks, tapes or other re-usable material in your possession or under
your control and destroy all other documents and tangible items in
your possession or under your control which contain or refer to any
Confidential Information; and/or
8.5.5 appoint a replacement to hold the same or similar job title as you
and/or to carry out all or any of your duties instead of you; and/or
8.5.6 exclude you from all or any premises of the Group; and/or
8.5.7 require you not, without the prior consent of the Board, to engage
in any contact (whether or not at your own instance) with any
customer, supplier, employee, director, officer or agent of any
company in the Group which touches and concerns any of the business
affairs of the Group.
8.6 If you fail to comply with Clauses 8.5.1 and/or 8.5.2 within seven days of
being so required, the Company is hereby irrevocably authorised to appoint
some person in your name and on your behalf to sign any document or do any
thing necessary or requisite to effect such resignation(s) and/or
transfer(s) (without prejudice to any claims which you may have against the
Company arising out of this Agreement or its termination or such
registration or transfer).
8.7 The Company agrees that it will at all times act reasonably towards you in
respect of all aspects of this Agreement and your employment hereunder, and
that it will exercise all rights which it may have under this Agreement in
a reasonable manner, including its right to terminate your employment
hereunder. In the event that the Company wishes to terminate your
employment under Clause 8.2 or in the event that you resign in
circumstances where you are treating this Agreement as terminable without
notice by reason
8
<PAGE>
of the conduct of the Company, in either case where such termination or
resignation is to take effect within the period of three years from the
Commencement Date, you and the Company shall abide by the following
procedure:
8.7.1 if the Company wishes to terminate your employment under Clause 8.2,
the Company will within 7 days of its decision inform you by written
notice that your employment is or will be terminated under Clause
8.2. Such notice will also contain full details of the grounds on
which the Company intends to rely when terminating your employment;
8.7.2 if you resign in circumstances where you are treating this Agreement
as terminable without notice by reason of the conduct of the
Company, you will inform the Company by written notice of such fact
within 7 days of your resignation. Such notice will also contain
full details of the grounds on which you intend to rely in
connection with such resignation;
8.7.3 within a period of 7 days following the actual or deemed receipt of
such notice, you or the Company (as the case may be) may inform the
other that an Arbiter must be appointed whose role will be to decide
whether your employment has or is to be terminated lawfully in
accordance with Clause 8.2 (taking into account whether the Company
has acted reasonably as set out in Clause 8.7 above) or whether you
were entitled to resign without notice by reason of the conduct of
the Company (as the case may be);
8.7.4 if you or the Company do not so inform the other that an Arbiter
must be appointed, the grounds for dismissal or resignation (as the
case may be) as set out in the notice served pursuant to Clause
8.7.1 or Clause 8.7.2 will be deemed to be accepted and agreed
between the parties;
8.7.5 the Arbiter shall be an advocate being an employment law specialist
of at least 10 years call or a solicitor with current accreditation
from the Law Society of Scotland as an employment law specialist,
and shall be selected by agreement between you and the Company.
Failing agreement within 7 days, the President of the Law Society of
Scotland shall be requested to nominate a suitable Arbiter within 7
days or as soon as reasonably practicable;
8.7.6 the arbitration shall proceed in accordance with the Arbitration
Rules of the Chartered Institute of Arbitrators Scottish Branch
(1998) ("the Rules") save that you and the Company hereby agree that
the following Articles of the Rules shall not apply to arbitration
proceedings under this Clause 8.7: Article 4.1, Article 4.2(i),
Article 5.1 (v), (vi), (vii), (viii) and (x), Article 6, Article
7.2, Article 7.3, Article 14.4, Article 16 and Article 19;
9
<PAGE>
8.7.7 you and the Company hereby agree that each party will bear their own
costs (including legal costs) of the arbitration proceedings under
this Clause 8.7 save that the Company will pay the costs, fees and
expenses of the Arbiter;
8.7.8 the place and seat of the arbitration shall be Scotland and the
language of the arbitration shall be English;
8.7.9 to the extent that it is reasonably practicable, the Arbiter will be
required to inform the parties of his/her final decision within two
months of his/her appointment and you and the Company agree to
cooperate to ensure that this is achieved;
8.7.10 the decision of the Arbiter shall be final and binding on you and
the Company;
8.7.11 you and the Company expressly exclude all and any rights of appeal
from the decision of the Arbiter;
8.7.12 you and the Company agree that Section 3 of the Administration of
Justice (Scotland) Act 1972 shall not apply to proceedings under
this Clause 8.7;
8.7.13 for the avoidance of doubt, the Company shall be entitled to
terminate your employment notwithstanding that such termination is
the subject of arbitration proceedings under this Clause 8.7.
9. Intellectual Property
9.1 In relation to each and every improvement, invention or discovery which
relates either directly or indirectly to the business of the Company which
you (jointly or alone) make, conceive, or discover at any time during your
employment, you:
9.1.1 shall promptly submit and disclose full details of it to the
Intellectual Property Department of the Company, or to such other
person as the Company may direct, to enable the Company to determine
whether or not, applying the provisions of s.39 of the Patents Act
1977, it is the property of the Company (a "Company Invention");
this disclosure shall include a sketch of the improvement,
invention, or discovery, where possible of illustration, together
with a description thereof, and shall bear the signature of the
inventor and the date upon which he/she signed the sketch or
description and shall be witnessed by at least two Company employees
who shall also sign and date the same and to whom the invention must
have been fully disclosed. The Company shall keep all such details
of any such improvement, invention or discovery which is not the
property of the Company (applying the provisions of the said s.39)
strictly confidential.
10
<PAGE>
9.1.2 shall hold any Company Invention in trust for the Company and, at
its request and expense, do all things necessary or desirable to
enable the Company or its nominee to exploit the Company Invention
for commercial purposes and to secure patent or other appropriate
forms of protection for it anywhere in the world. Decisions as to
the patenting and exploitation of any Company Invention are at the
sole discretion of the Company.
9.1.3 shall assign, and for no further consideration do hereby assign, to
the Company, its successors and assigns, your entire right, title,
and interest in and to each Company Invention and all applications
for Letters Patent thereon which may be filed. You further
acknowledge that the assignment of your entire right, title and
interest in and to any and all such improvements, inventions, and
discoveries to the Company is deemed effective upon conception of
such invention.
9.1.4 agree that any application for Letters Patent made by you within one
year after the termination of your period of employment with the
Company, covering or relating to any matters of Company business,
shall be deemed to cover inventions conceived during the term of
your employment within the Company, and shall be subject to this
Agreement. You shall, without further consideration and upon request
by the Company, assist and cooperate with the Company by executing
any and all documents, and by performing any and all lawful acts,
necessary to document the assignment to the Company of your right,
title and interest in and to any and all such inventions.
9.1.5 agree that, whenever the Company shall request it, you shall,
without further consideration, apply for Letters Patent for any or
all Company Inventions in all countries desired by the Company, but
at the expense of the Company, and will sign any and all papers,
take all lawful oaths and do all lawful acts required in or
concerning such applications, and/or divisions, continuations or
renewals thereof and any application for the reissuance of patents
granted thereon or on such divisions, continuations or renewals of
such applications and will at the expense of the Company assist in
all proper ways, as by giving testimony in the conduct of any
interference proceeding or litigation in which the priority or
originality of any of said Company Inventions, or the validity or
the scope of patents granted thereon, shall be involved or
concerned.
9.2 In relation to each and every copyright work or design, including without
limitation any computer program or other work of authorship which relates
either directly or indirectly to the business of the Company excluding
works made wholly outside your normal working hours which are wholly
unconnected with your employment (a "Company Work") which you (jointly or
alone) originate, conceive, write or make at any time during the period of
your employment, you:-
11
<PAGE>
9.2.1 shall promptly disclose such Company Work to the Company;
9.2.2 shall assign, and for no further consideration do hereby assign to
the Company by way of future assignment all copyright, design right
and other proprietary rights (if any) throughout the world in such
Company Work;
9.2.3 hereby irrevocably and unconditionally waive in favour of the
Company any and all moral rights conferred on you by Chapter W of
Part I of the Copyright Designs and Patents Act 1988 in relation to
any such Company Works;
9.2.4 acknowledge that, for the purposes of the proviso to Section 2(1) of
the Registered Designs Act 1949 (as amended by the Copyright Designs
and Patents Act 1988), the covenants on the part of you and the
Company will be treated as good consideration and, for the purposes
of that Act, the Company will be the proprietor of any design which
forms part of the Company Works;
9.2.5 agree to assist the Company and its nominee (at the cost and expense
of the Company) at any time, in the protection of the Company's
worldwide right, title and interest in and to the Company Works and
all rights of copyright therein, including, but not limited to, the
execution of all formal assignment documents requested and prepared
by the Company or its nominee and the execution of all lawful oaths
and applications for registration of copyright in any country
designated by the Company.
9.3 You agree that (at the request and expense of the Company) you will do all
things necessary or desirable to substantiate the rights of the Company to
each and every Company Invention or Company Work and that you will permit
the Company (whom you hereby irrevocably appoint as your attorney for this
purpose) to execute documents, to use your name and to do all things which
may be necessary or desirable for the Company to obtain for itself or its
nominee the full benefit of each and every Company Invention or Company
Work. A certificate in writing signed by any Director or the Secretary of
the Company that any instrument or act falls within the authority hereby
conferred will be conclusive evidence to that effect so far as any third
party is concerned.
10. Restrictive Covenants
10.1 [TO BE CONFIRMED]. For the period of 12 months after the termination of
your employment under this Agreement, you will not directly or indirectly:-
10.1.1 be engaged or concerned or interested in any business carried on
within the Restricted Area wholly or partly in competition with any
Restricted Business (save for the holding as a passive investor only
of not more than 5% of the issued ordinary shares of any company of
a
12
<PAGE>
class which are listed or traded on the London Stock Exchange, any
other recognised stock exchange, EASDAQ or NASDAQ).
10.1.2 seek or accept, in any capacity whatsoever, any business, orders or
custom which is similar to or in competition with any Restricted
Business from any Customer.
10.1.3 induce or attempt to persuade any Employee to leave employment or
engagement by the Company or any Group Company or offer employment
or engagement to any Employee.
10.2 You will not at any time after the termination of your employment under
this Agreement, directly or indirectly:-
10.2.1 induce or seek to induce, by any means involving the disclosure or
use of Confidential Information, any Customer to cease dealing with
the Company or any Group Company or to restrict or vary the terms
upon which it deals with the Company or any Group Company;
10.2.2 disclose or make use of any Confidential Information; or
10.2.3 represent yourself or permit yourself to be held out as having any
connection with or interest in the Company or any Group Company.
10.3 Each restriction in Clause 10 (whether drafted separately or together with
another) is independent and severable from the other restrictions and
enforceable accordingly. If any restriction is unenforceable for any reason
but would be enforceable if part of the wording were deleted, it will apply
with such deletions as may be necessary to make it valid and enforceable.
10.4 The Company may transfer or assign its rights under this Clause 10 to its
successors in title. You may not transfer or assign any rights or
obligations under this Clause 10.
11. Interpretation
11.1 The headings to the clauses are for convenience only and shall not affect
the construction or interpretation of this Agreement.
11.2 Any reference in this Agreement to any Act or delegated legislation shall
include any statutory modification or re-enactment of it or of the
provision referred to.
11.3 In this Agreement:
"Board" means the board of directors of the Company and includes any
committee of such board duly authorised to act on its behalf.
13
<PAGE>
"Completion" means the date on which the Offer (as defined in the Agreement
made between L W Kinch & Others (1) and Halliburton Company (2) dated
______________________) becomes unconditional in all respects.
"Confidential Information" means all and any information (whether or not
recorded in documentary form or on computer disk or tape) of the Company,
any Group Company or any of its or their customers, suppliers or agents
which the Company or the relevant Group Company regards as confidential or
in respect of which it owes an obligation of confidentiality to a third
party which is not part of your own stock in trade and which is not readily
ascertainable to persons not connected with the Company either at all or
without a significant expenditure of labour, skill or money.
"Customer" means any person with whom you or anyone working under your
supervision or control deals personally who, at the termination of your
employment, is negotiating with the Company or any Group Company for
Restricted Business or with whom the Company or any Group Company has
conducted any Restricted Business at any time during the final two years of
your employment with the Group.
"Employee" means any person who is and was, at any time during the period
of two years prior to the termination of your employment, employed or
engaged by the Company or any Group Company in a management, operational,
technical or sales position and who, by reason of such position, possesses
any Confidential Information or is likely to be able to solicit the custom
of any Customer or to induce any Customer to cease dealing with the Company
or any Group Company, were he to accept employment or engagement in a
business which is similar to or in competition with any Restricted
Business.
"Group Company" means the holding company (as defined in section 736 of the
Companies Act 1985) of the Company or any group undertaking (as defined in
section 259(5) of the Companies Act 1985) of the Company or of its holding
company.
"Group" means the Company and each Group Company.
"Restricted Area" means England, Scotland, Wales, Northern Ireland, Norway,
Denmark, Italy, Nigeria, the Congo, Angola, Equatorial Guinea, the United
States of America, Venezuela, Columbia, Brazil, Australia and Brunei.
"Restricted Business" means the supply of well completion, intervention and
intelligent well products and services and all or any other commercial
activities carried on or to be carried on by the Company or any Group
Company in which you worked or about which you knew Confidential
Information to a material extent at any time during the final two years of
your employment with the Group.
14
<PAGE>
12. General
12.1 You are not subject to any particular disciplinary rules or procedures
other than those specified in the Halliburton Company Code of Business
Conduct (as amended from time to time) and you should conduct yourself in a
thoroughly professional manner at all times. In order to investigate a
complaint of breach of contract or misconduct against you, the Company is
entitled to suspend you on full Salary and benefits for so long as the
Board considers appropriate in all the circumstances to carry out a
disciplinary investigation and/or hearing.
12.2 If you have a grievance relating to your employment (other than one
relating to a disciplinary decision or one relating to Clause 8 of this
Agreement), you should refer that grievance to the Board whose decision
will be final and binding on you.
12.3 This Agreement is in substitution for any representations and warranties
made by or on behalf of the Company and any previous contracts of
employment or for services between you and the Company or any Group Company
(which are deemed to have been terminated by mutual consent).
12.4 The termination of this Agreement will not affect such of the provisions of
this Agreement as are expressed to operate or to have effect after
termination and will be without prejudice to any accrued rights or remedies
of the parties.
12.5 The validity, construction and performance of this Agreement (including
Clause 8.7) is governed by the law of Scotland.
12.6 All disputes, claims or proceedings between the parties relating to the
validity, construction or performance of this Agreement (save for any
disputes which are the subject of arbitration under Clause 8.7) are subject
to the exclusive jurisdiction of the courts of Scotland to which the
parties irrevocably submit. Each party irrevocably consents to the award or
grant of any relief in any such proceedings before the courts of Scotland
and either party is entitled to take proceedings in any other jurisdiction
to enforce a judgment or order of the courts of Scotland.
12.7 Any notice to be given by a party under this Agreement must be in writing
in the English language and must be delivered by hand or sent by first
class post or equivalent postal service, telex, facsimile transmission or
other means of telecommunication in permanent written form (provided that
the addressee has his or its own facilities for receiving such
transmissions) to the last known postal address or appropriate
telecommunication number of the other party and, in the case of the
Company, all notices must be addressed to the Company Secretary unless
otherwise agreed. Where notice is given by any of the prescribed means, it
is deemed to be received when, in the ordinary course of that means of
transmission, it would be received by the addressee. To prove the giving of
a notice, it is sufficient to show that it has been despatched. A notice
has effect from the sooner of its actual or deemed receipt by the
addressee.
15
<PAGE>
IN WITNESS WHEREOF THESE PRESENTS CONSISTING THIS AND THE PRECEDING [THIRTEEN]
PAGES TOGETHER WITH THE ATTACHED SCHEDULE ARE EXECUTED AT [ ] ON
[ ] 1999 BY THE PARTIES AS FOLLOWS:-
- --------------------------------------------------------------------------------
Executed by ______ Limited ) ___________________
acting by ________ (Director/secretary) )
and ______________ (Director) ) ___________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Executed by _____________________ ) ___________________
in the presence of: _____________
Occupation of witness ___________ )
- --------------------------------------------------------------------------------
16
<PAGE>
EXHIBIT 1.2
IRREVOCABLE UNDERTAKING OF L.W. KINCH
Halliburton Company ("the Offeror")
Lincoln Plaza
500 North Akard Street
Dallas
Texas 75201
United States
1. Subject to and in consideration of the Offeror agreeing to make an offer
(the "Offer") for the whole of the issued ordinary share capital of PES
(International) Limited (the "Company") not already owned by the Offeror
or its associates (as defined in section 430E of the Companies Act 1985)
on the terms and conditions set out or referred to in the offer document
(the "Offer Document") proposed to be dated [24th May] 1999, a copy of
which is attached hereto, I, the undersigned, hereby irrevocably undertake
that, provided that the Offer Document is despatched to the ordinary
shareholders of the Company not later than [28th May] 1999 (or such later
date as may be agreed between the Offeror and the Directors of the
Company) and subject to the provisions of Clause 6 below:
(i) being the beneficial owner and registered holder of 300,000 ordinary
shares of 10p each in the capital of the Company (which shares are
all those owned beneficially by me) (the "Shares") and having all
relevant authority to (and, upon the Offer being made) continuing to
have all relevant authority to accept or procure acceptances of the
Offer in respect of the Shares, I shall, within 7 days of receipt of
the Offer Document and in accordance with the instructions set out
therein, despatch or procure the despatch of duly executed forms of
acceptance of the Offer in respect of all of the Shares and will at
the same time forward the relevant share certificate(s) and/or other
documents of title in respect of the Shares and I shall from time to
time promptly complete, execute and deliver all other documents
which the Offeror may reasonably require to perfect its title to the
Shares;
<PAGE>
(ii) I shall not, prior to the closing or lapsing of the Offer or the
withdrawal of the Offer (whichever is the earlier), sell, transfer,
charge, pledge, encumber, grant any option over or otherwise dispose
of or permit the sale, transfer, charging, encumbering, granting of
any option over or other disposition of (save to the Offeror under
the Offer), or accept any other offer in respect of, all or any of
the Shares or enter into any agreement or arrangement with any other
person, whether conditionally or unconditionally, to do all or any
of the acts referred to in this paragraph;
(iii) the Shares shall be acquired pursuant to the Offer free from all
liens, charges and encumbrances and together with all rights
attached thereto including all rights to dividends or other
distributions hereafter declared, paid or made;
(iv) I will not, without your consent or as may be contemplated in the
Offer, prior to the Offer closing or lapsing or the withdrawal of
the Offer (whichever is the earlier) (in my capacity as a Director
of the Company, so far as not inconsistent with my duties or
obligations under the general law) convene or (in my capacity as a
shareholder) requisition any meeting of the members of the Company
or otherwise circulate any of the same;
(v) I will exercise the votes attached to the Shares in favour of the
resolutions set out in the notice to be sent with the Offer Document
to shareholders in the Company convening an extraordinary general
meeting of the Company on [21st June] 1999 and against any
resolution proposed to adjourn such meeting;
(vi) I will exercise the votes attached to the Shares or any of them in
accordance with the Offeror's instructions in respect of any
resolution which may be proposed at any general meeting of
shareholders of the Company, or of any class of such shareholders,
held during the period commencing with the date that the Offer
becomes or is declared unconditional and ending on the date on which
the relevant Shares are registered in the name of the Offeror or its
nominees following that offer having become or been declared
unconditional;
(vii) I will not, prior to the closing or lapsing of the Offer or the
withdrawal of the Offer (whichever is the earlier), solicit any
general offer for the issued share capital of the Company from any
third party or make any such offer nor in my capacity as a Director
of the Company (save insofar as it is not inconsistent with my
duties or obligations under the general law) take any step to
impede, prevent or delay the Offer becoming unconditional;
(viii) being a Director of the Company and subject to continuing to be so,
I will upon the Offer becoming unconditional in all respects take
such action (save in so far as it is not inconsistent with the terms
of the Company's articles of association or with my duties or
obligations under general law) as the
2
<PAGE>
Offeror may request and at the expense of the Offeror to ensure the
registration of the Offeror or its nominee as the holder of the
Shares or any of them, and without prejudice to the generality of
the foregoing, will, upon the Offer becoming unconditional in all
respects, if so required by the Offeror, convene (or join in
convening) and attend a meeting of the board of Directors of the
Company and (save in so far as it is not inconsistent with the terms
of the Company's articles of association or with my duties or
obligations under general law) vote in accordance with the Offeror's
instructions in respect of any resolution which may be proposed in
connection with the Offer [and resign from the respective Boards of
Directors of [the Company and] those of its subsidiaries of which I
am a Director].
2. Subject and in consideration as provided in Clause 1 above I, the
undersigned, being a Director of the Company shall so far as not
inconsistent with my duties or obligations under the general law, recommend
to all ordinary shareholders of the Company acceptance of the Offer.
3. I understand that, this undertaking will, if the Offer Document is
despatched to ordinary shareholders of the Company, be made available for
inspection while the Offer remains open for acceptance and that particulars
of it will be included in the Offer Document.
4. In this undertaking:-
(i) the expression the "Shares" shall include any other shares in the
Company attributable to or derived from the Shares and any shares
issued in respect of the Shares or into which the Shares may be
converted pursuant to any reorganisation of the share capital of the
Company; and
(ii) references to the "period of the Offer" are references to the period
commencing on the date of this undertaking and continuing thereafter
unless and until the Offer lapses without becoming unconditional or is
withdrawn.
5. In order to secure the performance of my undertaking in paragraph 1 above,
I hereby irrevocably appoint any other Director of the Company to be my
attorney in my name or otherwise and on my behalf to accept and approve the
Offer, to sign any form or forms of acceptance and/or transfer relating
thereto, to sign any other documents in relation to the Offer which require
my signature either as a shareholder in or as a Director of the Company and
generally to comply with the terms of the Offer Document and such
appointment shall be irrevocable in accordance with section 4 of the Powers
of Attorney Act 1971 until the expiry of the period of the Offer or the
withdrawal of my acceptance of the Offer pursuant to Clause 6 below.
3
<PAGE>
6. Nothing contained in this letter shall prevent or restrict me from
withdrawing my acceptance of the Offer should Halliburton determine to
modify the terms of the Offer (other than to agree that it will accept a
percentage less than 90% but more than 33% of the PES ordinary shares to
which the Offer relates). In the event of me so withdrawing my acceptance
of the Offer the undertakings contained in Clauses 1 and 2 above shall
lapse immediately notwithstanding that such undertakings may be expressed
to be irrevocable.
7. Time shall be of the essence as regards any time, date or period mentioned
in this undertaking or extended by mutual agreement.
8. The irrevocable undertaking contained in this letter shall be governed by
and construed in accordance with the laws of England and I hereby submit to
the non-exclusive jurisdiction of the English courts.
Dated: 1999
IN WITNESS of which the party has signed this instrument as a deed and has
delivered it upon dating it.
SIGNED as a DEED by )
LAURENCE WILLIAM KINCH )
in the presence of:- )
Signature of witness:
Name:
Address:
Occupation:
4
<PAGE>
EXHIBIT 1.2
IRREVOCABLE UNDERTAKING OF N. ARIZMENDI
Halliburton Company ("the Offeror")
Lincoln Plaza
500 North Akard Street
Dallas
Texas 75201
United States
1. Subject to and in consideration of the Offeror agreeing to make an offer
(the "Offer") for the whole of the issued ordinary share capital of PES
(International) Limited (the "Company") not already owned by the Offeror
or its associates (as defined in section 430E of the Companies Act 1985)
on the terms and conditions set out or referred to in the offer document
(the "Offer Document") proposed to be dated [24th May] 1999, a copy of
which is attached hereto, I, the undersigned, hereby irrevocably undertake
that, provided that the Offer Document is despatched to the ordinary
shareholders of the Company not later than [28th May] 1999 (or such later
date as may be agreed between the Offeror and the Directors of the
Company) and subject to the provisions of Clause 5 below:
(i) being the beneficial owner and registered holder of 13,150 ordinary
shares of 10p each in the capital of the Company (which shares are
all those owned beneficially by me) (the "Shares") and having all
relevant authority to (and, upon the Offer being made) continuing to
have all relevant authority to accept or procure acceptances of the
Offer in respect of the Shares, I shall, within 7 days of receipt of
the Offer Document and in accordance with the instructions set out
therein, despatch or procure the despatch of duly executed forms of
acceptance of the Offer in respect of all of the Shares and will at
the same time forward the relevant share certificate(s) and/or other
documents of title in respect of the Shares and I shall from time to
time promptly complete, execute and deliver all other documents
which the Offeror may reasonably require to perfect its title to the
Shares;
(ii) I shall not, prior to the closing or lapsing of the Offer or the
withdrawal of the Offer (whichever is the earlier), sell, transfer,
charge, pledge, encumber, grant any option over or otherwise dispose
of or permit the sale, transfer, charging, encumbering, granting of
any option over or other disposition of (save to the Offeror under
the Offer), or accept any other offer in respect of, all or any of
the Shares or enter into any agreement or arrangement with any other
person, whether conditionally or unconditionally, to do all or any
of the acts referred to in this paragraph;
1
<PAGE>
(iii) the Shares shall be acquired pursuant to the Offer free from all
liens, charges and encumbrances and together with all rights
attached thereto including all rights to dividends or other
distributions hereafter declared, paid or made;
(iv) I will not, without your consent, prior to the Offer closing or
lapsing or the withdrawal of the Offer (whichever is the earlier)
(in my capacity as a shareholder) requisition any meeting of the
members of the Company or otherwise circulate any of the same;
(v) I will exercise the votes attached to the Shares in favour of the
resolutions set out in the notice to be sent with the Offer Document
to shareholders in the Company convening an extraordinary general
meeting of the Company on [21st June] 1999 and against any
resolution proposed to adjourn such meeting;
(vi) I will exercise the votes attached to the Shares or any of them in
accordance with the Offeror's instructions in respect of any
resolution which may be proposed at any general meeting of
shareholders of the Company, or of any class of such shareholders,
held during the period commencing with the date that the Offer
becomes or is declared unconditional and ending on the date on which
the relevant Shares are registered in the name of the Offeror or its
nominees following that offer having become or been declared
unconditional;
(vii) I will not, prior to the closing or lapsing of the Offer or the
withdrawal of the Offer (whichever is the earlier), solicit any
general offer for the issued share capital of the Company from any
third party or make any such offer;
2. I understand that, this undertaking will, if the Offer Document is
despatched to ordinary shareholders of the Company, be made available for
inspection while the Offer remains open for acceptance and that
particulars of it will be included in the Offer Document.
3. In this undertaking:-
(i) the expression the "Shares" shall include any other shares in the
Company attributable to or derived from the Shares and any shares
issued in respect of the Shares or into which the Shares may be
converted pursuant to any reorganisation of the share capital of the
Company; and
(ii) references to the "period of the Offer" are references to the period
commencing on the date of this undertaking and continuing thereafter
unless and until the Offer lapses without becoming unconditional or
is withdrawn.
4. In order to secure the performance of my undertaking in paragraph 1 above,
I hereby irrevocably appoint any Director of the Company to be my attorney
in my name or
2
<PAGE>
otherwise and on my behalf to accept and approve the Offer, to sign any
form or forms of acceptance and/or transfer relating thereto, to sign any
other documents in relation to the Offer which require my signature as a
shareholder in the Company and generally to comply with the terms of the
Offer Document and such appointment shall be irrevocable in accordance
with section 4 of the Powers of Attorney Act 1971 until the expiry of the
period of the Offer or the withdrawal of my acceptance of the Offer
pursuant to Clause 5 below.
5. Nothing contained in this letter shall prevent or restrict me from
withdrawing my acceptance of the Offer should Halliburton determine to
modify the terms of the Offer (other than to agree that it will accept a
percentage less than 90% but more than 33% of the PES ordinary shares to
which the Offer relates). In the event of me so withdrawing my acceptance
of the Offer the undertakings contained in Clause 1 above shall lapse
immediately notwithstanding that such undertakings may be expressed to be
irrevocable.
6. Time shall be of the essence as regards any time, date or period mentioned
in this undertaking or extended by mutual agreement.
7. The irrevocable undertaking contained in this letter shall be governed by
and construed in accordance with the laws of England and I hereby submit
to the non-exclusive jurisdiction of the English courts.
Dated: 1999
IN WITNESS of which the party has signed this instrument as a deed and has
delivered it upon dating it.
SIGNED as a DEED by )
NAPOLEON ARIZMENDI )
in the presence of:- )
Signature of witness:
Name:
Address:
Occupation:
3
<PAGE>
IRREVOCABLE UNDERTAKING (FAMILIES)
Halliburton Company ("the Offeror")
Lincoln Plaza
500 North Akard Street
Dallas, Texas 75201
United States
1. Subject to and in consideration of the Offeror agreeing to make an offer
(the "Offer") for the whole of the issued ordinary share capital of PES
(International) Limited (the "Company") not already owned by the Offeror or its
associates (as defined in section 430E of the Companies Act 1985) on the terms
and conditions set out or referred to in the offer document (the "Offer
Document") proposed to be dated [24th May] 1999, a copy of which is attached
hereto, I, the undersigned, hereby irrevocably undertake that, provided that the
Offer Document is despatched to the ordinary shareholders of the Company not
later than [28th May] 1999 (or such later date as may be agreed between the
Offeror and the Directors of the Company) and subject to the provisions of
Clause 5 below:
(i) being the beneficial owner and registered holder of
Ordinary Shares of 10p each in the capital of the Company (which
shares are all those owned beneficially by me) (the "Shares") and
having all relevant authority to (and, upon the Offer being made)
continuing to have all relevant authority to accept or procure
acceptances of the Offer in respect of the Shares, I shall, within 7
days of receipt of the Offer Document and in accordance with the
instructions set out therein, despatch or procure the despatch of
duly executed forms of acceptance of the Offer in respect of all of
the Shares and will at the same time forward the relevant share
certificate(s) and/or other documents of title in respect of the
Shares and I shall from time to time promptly complete, execute and
deliver all other documents which the Offeror may reasonably require
to perfect its title to the Shares;
(ii) I shall not, prior to the closing or lapsing of the Offer or the
withdrawal of the Offer (whichever is the earlier), sell, transfer,
charge, pledge, encumber, grant any option over or otherwise dispose
of or permit the sale, transfer, charging, encumbering, granting of
any option over or other disposition of (save to the Offeror under
the Offer), or accept any other offer in respect of, all or any of
the Shares or enter into any agreement or arrangement with any other
person, whether conditionally or unconditionally, to do all or any
of the acts referred to in this paragraph;
1
<PAGE>
(iii) the Shares shall be acquired pursuant to the Offer free from all
liens, charges and encumbrances and together with all rights
attached thereto including all rights to dividends or other
distributions hereafter declared, paid or made;
(iv) I will not, without your consent, prior to the Offer closing or
lapsing or the withdrawal of the Offer (whichever is the earlier)
(in my capacity as a shareholder) requisition any meeting of the
members of the Company or otherwise circulate any of the same;
(v) I will exercise the votes attached to the Shares in favour of the
resolutions set out in the notice to be sent with the Offer Document
to shareholders in the Company convening an extraordinary general
meeting of the Company on [21st June] 1999 and against any
resolution proposed to adjourn such meeting;
(vi) I will exercise the votes attached to the Shares or any of them in
accordance with the Offeror's instructions in respect of any
resolution which may be proposed at any general meeting of
shareholders of the Company, or of any class of such shareholders,
held during the period commencing with the date the Offer becomes or
is declared unconditional and ending on the date on which the
relevant Shares are registered in the name of the Offeror or its
nominees following the Offer having become or been declared
unconditional;
2. I understand that, this undertaking will, if the Offer Document is
despatched to ordinary shareholders of the Company, be made available for
inspection while the Offer remains open for acceptance and that
particulars of it will be included in the Offer Document.
3. In this undertaking:
(i) the expression the "Shares" shall include any other shares in the
Company attributable to or derived from the Shares and any shares
issued in respect of the Shares or into which the Shares may be
converted pursuant to any reorganisation of the share capital of the
Company; and
(ii) references to the "period of the Offer" are references to the period
commencing on the date of this undertaking and continuing thereafter
unless and until the Offer lapses without becoming unconditional or is
withdrawn.
4. In order to secure the performance of my undertaking in paragraph 1 above,
I hereby irrevocably appoint any Director of the Company to be my attorney
in my name or otherwise and on my behalf to accept and approve the Offer,
to sign any form or forms of acceptance and/or transfer relating thereto,
to sign any other documents in relation to the Offer which require my
signature as a shareholder in the Company and generally to comply with the
terms of the Offer Document and such appointment shall be irrevocable in
accordance with
2
<PAGE>
section 4 of the Powers of Attorney Act 1971 until the expiry of the
period of the Offer or the withdrawal of my acceptance of the Offer
pursuant to Clause 5 below.
5. Nothing contained in this letter shall prevent or restrict me from
withdrawing my acceptance of the Offer should Halliburton determine to
modify the terms of the Offer (other than to agree that it will accept a
percentage less than 90% but more than 33% of the PES ordinary shares to
which the Offer relates). In the event of me so withdrawing my acceptance
of the Offer the undertakings contained in Clause 1 above shall lapse
immediately notwithstanding that such undertakings may be expressed to be
irrevocable.
6. Time shall be of the essence as regards any time, date or period mentioned
in this undertaking or extended by mutual agreement.
7. The irrevocable undertaking contained in this letter shall be governed by
and construed in accordance with the laws of England and I hereby submit
to the non-exclusive jurisdiction of the English courts.
Dated 1999
IN WITNESS of which the party has signed this instrument as a deed and has
delivered it upon dating it.
SIGNED as a DEED by )
)
in the presence of:- )
Signature of witness:
Name:
Address:
Occupation:
3
<PAGE>
IRREVOCABLE UNDERTAKING OF PES TRUSTEES LIMITED
Halliburton Company ("the Offeror")
Lincoln Plaza
500 North Akard Street
Dallas
Texas 75201
United States
1. Subject to and in consideration of the Offeror agreeing to make an offer
(the "Offer") for the whole of the issued ordinary share capital of PES
(International) Limited (the "Company") not already owned by the Offeror
or its associates (as defined in section 430E of the Companies Act 1985)
on the terms and conditions set out or referred to in the offer document
(the "Offer Document") proposed to be dated [24th May] 1999, a copy of
which is attached hereto, PES Trustees Limited ("PTL"), hereby irrevocably
undertakes that, provided that the Offer Document is despatched to the
ordinary shareholders of the Company not later than [28th May] 1999 (or
such later date as may be agreed between the Offeror and the Directors of
the Company) and subject to the provisions of Clause 5 below:
(i) being the registered holder of 141,130 ordinary shares of 10p each
in the capital of the Company ("the Shares") of which 135,964 Shares
are subject to share options issued to various employees of the
Company (the "Optionholders") and having all relevant authority to
(and, upon the Offer being made) continuing to have all relevant
authority to accept or procure acceptances of the Offer in respect
of those Shares which are not transferred or required for transfer
to Optionholders, PTL shall:
(a) within 7 days of receipt of the Offer Document and in accordance
with the instructions set out therein, despatch or procure the
despatch of a duly executed form of acceptance of the Offer in
respect of 64,996 of the Shares, being those Shares which are
unallocated or which are allocated to options which certain
Optionholders have given irrevocable undertakings not to
exercise;
(b) on receipt of notice from the Company or the Offeror that an
Optionholder has elected to surrender his options, despatch or
procure the despatch of a duly executed form of acceptance of
the Offer in respect of those of the Shares allocated to such
surrendered options, and shall at the same time forward the
relevant share certificate(s) and/or other documents of title in
respect of the relevant Shares and PTL shall from time to time
promptly complete, execute and deliver all other documents which
the Offeror may
<PAGE>
reasonably require to perfect its title to the Shares in
respect of which it has accepted the Offer;
(i) PTL shall not, prior to the closing or lapsing of the Offer or the
withdrawal of the Offer (whichever is the earlier), sell, transfer,
charge, pledge, encumber, grant any option over or otherwise dispose
of or permit the sale, transfer, charging, encumbering, granting of
any option over or other disposition of (save to the Offeror under
the Offer), or accept any other offer in respect of, all or any of
the Shares or enter into any agreement or arrangement with any other
person, whether conditionally or unconditionally, to do all or any
of the acts referred to in this paragraph;
(ii) those Shares in respect of which PTL accepts the Offer, shall be
acquired pursuant to the Offer free from all liens, charges and
encumbrances and together with all rights attached thereto including
all rights to dividends or other distributions hereafter declared,
paid or made;
(iii) PTL will not, without your consent, prior to the Offer closing or
lapsing or the withdrawal of the Offer (whichever is the earlier)
(in its capacity as a shareholder) requisition any meeting of the
members of the Company or otherwise circulate any of the same;
(iv) PTL will exercise the votes attached to the Shares in favour of the
resolutions set out in the notice to be sent with the Offer Document
to shareholders in the Company convening an extraordinary general
meeting of the Company on [21st June] 1999 and against any
resolution proposed to adjourn such meeting;
(v) PTL will exercise the votes attached to the Shares or any of them in
accordance with the Offeror's instructions in respect of any
resolution which may be proposed at any general meeting of
shareholders of the Company, or of any class of such shareholders,
held during the period commencing with the date the Offer becomes or
is declared unconditional and ending on the date on which the
relevant Shares are registered in the name of the Offeror or its
nominees following the Offer having become or been declared
unconditional;
2. PTL understands that, this undertaking will, if the Offer Document is
despatched to ordinary shareholders of the Company, be made available for
inspection while the Offer remains open for acceptance and that particulars
of it will be included in the Offer Document.
2
<PAGE>
3. In this undertaking:
(i) the expression the "Shares" shall include any other shares in the
Company attributable to or derived from the Shares and any shares
issued in respect of the Shares or into which the Shares may be
converted pursuant to any reorganisation of the share capital of the
Company; and
(ii) references to the "period of the Offer" are references to the period
commencing on the date of this undertaking and continuing thereafter
unless and until the Offer lapses without becoming unconditional or
is withdrawn.
4. In order to secure the performance of the undertaking in paragraph 1 above,
PTL hereby irrevocably appoints any Director of the Company to be its
attorney in its name or otherwise and on its behalf to accept and approve
the Offer, to sign any form or forms of acceptance and/or transfer relating
thereto, to sign any other documents in relation to the Offer which require
its execution as a shareholder in the Company and generally to comply with
the terms of the Offer Document and such appointment shall be irrevocable
in accordance with section 4 of the Powers of Attorney Act 1971 until the
expiry of the period of the Offer or the withdrawal of its acceptance of
the Offer pursuant to Clause 5 below.
5. Nothing contained in this letter shall prevent or restrict PTL from
withdrawing its acceptance of the Offer should Halliburton determine to
modify the terms of the Offer (other than to agree that it will accept a
percentage less than 90% but more than 33% of the PES ordinary shares to
which the Offer relates). In the event of PTL so withdrawing its acceptance
of the Offer the undertakings contained in Clause 1 above shall lapse
immediately notwithstanding that such undertakings may be expressed to be
irrevocable.
6. Time shall be of the essence as regards any time, date or period mentioned
in this undertaking or extended by mutual agreement.
7. The irrevocable undertaking contained in this letter shall be governed by
and construed in accordance with the laws of England and PTL hereby submits
to the non-exclusive jurisdiction of the English courts.
Dated 1999
3
<PAGE>
IN WITNESS of which the party has signed this instrument as a deed and has
delivered it upon dating it.
SIGNED as a DEED by )
PES TRUSTEES LIMITED )
acting by ) .....................................
and ) Director
.....................................
Director/Secretary
4
<PAGE>
Exhibit 1.3
DATED 1999
---------------------------------------------
(1) L W KINCH and OTHERS
(2) HALLIBURTON COMPANY
(3) M L BOWYER and OTHERS
_____________________________________________
AGREEMENT
relating to
PES (INTERNATIONAL) LIMITED
_____________________________________________
Cameron McKenna
Mitre House
160 Aldersgate Street
London EC1A 4DD
T +44(0)171 367 3000
F +44(0)171 367 2000
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1. Interpretation................................................................................2
2. Warranties....................................................................................7
3. Restrictive covenants.........................................................................8
4. Agreement to pay liquidated damages..........................................................10
5. Pre-completion matters.......................................................................15
6. Completion...................................................................................17
7. Information..................................................................................20
8. Termination of Shareholders Agreement........................................................20
9 General......................................................................................20
10. Costs........................................................................................21
11. Notices......................................................................................22
12. Agent for Service............................................................................23
Schedule............................................................................................25
1. This is the Schedule referred to in the foregoing Agreement..................................25
Part 1A......................................................................................25
The Executive Warrantors.....................................................................25
Part 1 B Maximum Liabilities under the Warranties..................................................27
Part 1 C The Covenantors...........................................................................28
Part 2A......................................................................................29
Corporate Structure..........................................................................29
Part 2B......................................................................................30
Part 2B......................................................................................31
Particulars concerning the Subsidiaries of the Company.......................................31
WARRANTIES..........................................................................................47
Part 3..............................................................................................47
1. Information..................................................................................47
2. Group structure..............................................................................47
3. Share capital................................................................................47
4. Financial position...........................................................................48
5. Events since the Accounts Date...............................................................48
6. Employment matters...........................................................................49
7. Authorities..................................................................................53
8. Litigation...................................................................................53
9. Applicable legislation.......................................................................54
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10. Records and documents........................................................................55
11. Company Agreements...........................................................................55
12. Loans and financial facilities...............................................................56
13. Liabilities to the Executive Warrantors......................................................59
14. Entry into this Agreement....................................................................60
15. Intellectual and industrial property.........................................................60
16. Insolvency...................................................................................61
17. Properties...................................................................................62
18. Environmental matters........................................................................63
19. Dormant Subsidiaries.........................................................................64
20. Minors.......................................................................................64
21. Taxation.....................................................................................64
Part 4..............................................................................................66
DETAILS OF PROPERTIES...............................................................................66
Part 5..............................................................................................69
Part 6..............................................................................................74
Details of Subsisting Options................................................................74
Part 7..............................................................................................79
Details of Shareholders as at the date hereof.......................................................79
</TABLE>
Agreed Form Documents
1. Forecasts and Projections
2. Offer Document
3. Service Agreements
4. Specified Intellectual Property
5. Board Minutes of the Company and the Existing Subsidiaries
6. Form of Directors' and Secretaries' Resignation
7. Form of Auditor's Resignation
8. Letters terminating Shareholders Agreement dated 22 April 1997 from
Halliburton Holdings Limited and PES (International) Limited
9. Optionholders Letter
11. Year 2000 Compliance Report
12. Halliburton Stock Option Plan
13. The Special Resolution proposed to be passed on [ ] June 1999
<PAGE>
AGREEMENT
BETWEEN:
(1) Those persons whose names and addresses are set out in Part 1A of the
schedule annexed and executed as relative hereto (the "Executive
Warrantors");
(2) HALLIBURTON COMPANY, a company incorporated in the State of Delaware, USA,
whose address for the purposes of this Agreement is 3600 Lincoln Plaza, 500
North Akard Street, Dallas, Texas 75201, United States ("Halliburton"
(which expression shall include any person who succeeds (in whole or in
part) to any of the rights of Halliburton hereunder in accordance with
clause 9.5)).
(3) Those persons whose names and addresses are set out in Part 1C of the
schedule annexed and executed as relative hereto (the "Covenantors").
RECITALS
(A) The Company is a private company limited by shares incorporated in Scotland
under the Companies Act 1985 further details of which are contained in Part
2A of the schedule annexed and executed as relative hereto.
(B) Immediately prior to signature of this Agreement, the authorised share
capital of the Company is (pound)150,000 divided into 1,500,000 Ordinary
Shares of which 1,266,540 have been allotted and issued and are fully paid
up and are held as set out in Part 2A of the schedule annexed and executed
as relative hereto.
(C) The Company is a holding company and is also the beneficial owner of the
number of shares in the issued share capital of each of the Existing
Subsidiaries (as hereinafter defined) as set out in Part 2B of the schedule
annexed and executed as relative hereto.
(D) The Existing Subsidiaries carry on the respective businesses as set out in
Part 2B of the schedule annexed and executed as relative hereto.
(E) In consideration of Halliburton agreeing to offer to acquire the entire
issued ordinary share capital of the Company (other than the Shares owned
by Halliburton Holdings Limited) on the terms set out in the Offer Document
the Executive Warrantors have entered into this Agreement.
NOW IT IS HEREBY AGREED as follows:
-1-
<PAGE>
1. Interpretation
1.1 In this Agreement (including the recitals), except where the context
otherwise requires, the following words and expressions shall have the
following meanings:
"Accounts" means the audited consolidated balance sheet and profit and loss
account of the Company and the Existing Subsidiaries as at and for the
period ended on the Accounts Date together with the notes thereto and the
directors' report and the auditors' report included therewith
"Accounts Date" means 31st March 1998
"Agreed Form" means a form agreed between the parties and for the purposes
of identification initialled by or on behalf of the parties
"Associate" means the same as in Articles 12.1(c)(i) to (iii) inclusive of
the Articles of Association of the Company
the "Board" means the board of directors of the Company as from time to
time constituted
the "Business" means the business of the design, manufacture, supply and
installation of Smartwell and Completion and Well Intervention Systems and
related products
"Business Day" means any day other than a Saturday, Sunday or day on which
clearing banks in Scotland or England are not open for business
"Call Options" means the option agreements whereby the Company may call for
the transfer to it of shares in Petroleum Engineering Services Asia Pty
Limited from the minority shareholders of such company, in exchange for the
issue to such minority shareholders of the maximum aggregate number of
5,480 Ordinary Shares
"Commercial Information" means all information (not limited to matters
which are confidential) at any time belonging to, or under the control of,
any Group Company which has at any time been used or intended to be used
for the purpose of the business of the Group (or any aspect of it)
"Company" means PES (International) Limited, a company registered in
Scotland under number 145181, whose registered office is at 34 Albyn Place,
Aberdeen AB10 1FW
"Completion" means the date upon which the Offer becomes unconditional in
all respects
"Disclosed" means fairly disclosed by the Disclosure Documents and the
Disclosure Letter (and "Disclosure" shall be construed accordingly)
-2-
<PAGE>
"Disclosure Documents" means the Disclosure Letter and the [two identical
bundles of documents collated by or on behalf of the Executive Warrantors,
the outside covers of which have been signed for identification for or on
behalf of the Executive Warrantors and Halliburton]
"Disclosure Letter" means the letter (in Agreed Form) of even date with
this Agreement containing disclosures to the Warranties from Stronachs
Solicitors, 34 Albyn Place, Aberdeen AB10 1FW ("Stronachs") on behalf of
the Executive Warrantors to, and accepted in writing by Halliburton
"Dormant Subsidiaries" means each of PES Netherlands Limited, PES Petroquip
Limited, PES Petroserv Limited, PES Petrospec Limited, PES Petroturn
Limited, Bluefoil Limited and PES Petroseal Limited, being seven of the
Existing Subsidiaries
"Encumbrance" means a standard security or other interest or equity of any
person (including any right to acquire, option or right of pre-emption or
conversion) or any mortgage, charge, pledge, lien, assignment,
hypothecation, security interest, title retention or any other security
agreement or arrangement, or any agreement to create any of the above
"ERA" means the Employment Rights Act 1996
"Existing Subsidiaries" means the companies the names of, and further
details relating to which, are set out in Part 2B of the schedule annexed
and executed as relative hereto
"Forecasts and Projections" means the forecasts and projections in Agreed
Form
"Group" means together the Company, the Existing Subsidiaries and every
other company which is at the date hereof a subsidiary or holding company
of the Company
"Group Company" means any company for the time being in the Group
"Halliburton Group" means Halliburton or any subsidiary company of
Halliburton (the expression "subsidiary company" having the same meaning as
in the Companies Act 1985 (as amended)) and "member of the Halliburton
Group" shall be construed accordingly
"Halliburton Options" means options to purchase Halliburton Shares granted
pursuant to the Halliburton Stock Option Plan
"Halliburton Shares" means common stock, par value US$2.50 per share, of
Halliburton
"Halliburton Stock Option Plan" means the stock option plan (in Agreed
Form) pursuant to which holders of Subsisting Options will be offered
options over Halliburton Shares
-3-
<PAGE>
"Hardware" means any and all computer, telecommunications and network
equipment owned or used by a Group Company
"IT Services" means any services relating to the IT Systems or to any other
aspect of a Group Company's data processing or data transfer requirements,
including facilities management, bureau services, hardware maintenance,
software development or support, consultancy, source code deposit, recovery
and network services
"IT Systems" means Hardware and/or Software owned or used by a Group
Company
"Management Accounts" means the unaudited consolidated management accounts
in respect of the Company and the Existing Subsidiaries as at 31st January
1999 and in respect of the 10 month period then ended in Agreed Form
"Offer" means the offer by Halliburton to acquire all the shares in the
Company not already owned by members of the Halliburton Group on the terms
and subject to the conditions set out in the Offer Document
"Offer Document" means the document making the Offer (in Agreed Form) to be
issued to the holders of Shares and for information only to the holders of
Subsisting Options
"Optionholders Letter" means the letter (in the Agreed Form) to be issued
by Halliburton to each of the holders of the Subsisting Options
simultaneously with the issue of the Offer Document to the holders of
Shares
"Ordinary Shares" means Ordinary Shares of 10 pence each in the capital of
the Company having rights and privileges as set out in the Articles of
Association of the Company
"Product" means any goods and includes a product which is comprised in
another product (whether by virtue of being a component part or raw
material or otherwise) which a Group Company has supplied or agreed to
supply to any person or intends to turn to account
the "Properties" means as defined in paragraph 17.1 of Part 3 of the
schedule annexed and executed as relative hereto
"SCRAMs Systems" means the surface controlled reservoir analysis and
management system developed by the Group
"Second Determination Date" shall have the same meaning as in the Offer
Document
"Service Agreements" means the service agreements (in Agreed Form) entered
into on the date hereof by each of the Executive Warrantors and Covenantors
and a Group Company or a member of the Halliburton Group
"Shares" means shares in the capital of the Company (of whatever class)
-4-
<PAGE>
"Shareholders" means collectively all (or, where the context requires,
some) of the holders of Shares from time to time
"Shareholders Agreement" means the share subscription agreement dated 22nd
April 1997 and made between inter alios the Executive Warrantors, the
Company and Halliburton Holdings Limited
"Software" means any and all computer programs in both source and object
code form, including all modules, routines and sub-routines such programs
and all source and other preparatory materials relating to them, including
user requirements, functional specifications and programming
specifications, ideas, principles, programming languages, algorithms, flow
charts, logic, logic diagrams, orthographic representations, file
structures, coding sheets, coding and any manuals or other documentation
relating to them and computer generated works
"SSAP" means a statement of standard accounting practice or financial
reporting standard in force at the date of the Agreement as issued by the
Consultative Committee of Accounting Bodies and adopted by the Accounting
Standards Board Limited
"Subsisting Options" means all options (other than the Call Options) by
which any person is entitled to acquire or call for the issue or transfer
of Shares (of whatever nature and upon whatever terms), full details of
which (as at the date of this Agreement) are set out at Part 6 of the
schedule annexed and executed as relative hereto
"Specified Intellectual Property" means as defined in paragraph 15.1 of
Part 3 of the Schedule annexed and executed as relative hereto
"Taxation" means all forms of taxation, duties, imposts, levies and rates
whenever created or imposed and whether of the United Kingdom or elsewhere
and all penalties and interest payable in respect thereof
"Taxes Act" means the Income and Corporation Taxes Act 1988
"Terminated for Cause" (or like expressions) has the meaning given to it in
Clause 4.6 below
"Trade Union" means as defined in section 1 TULRCA
"TULRCA" means the Trade Union and Labour Relations (Consolidation) Act
1992
"TUPE" means the Transfer of Undertakings (Protection of Employment)
Regulations 1981 (as amended)
"UK GAAP" means SSAPs, the legal principles set out in Schedules 4 and 4A
Companies Act 1985, rulings and abstracts of the Urgent Issues Task Force
of the Accounting Standards Board Limited and guidelines, conventions,
rules and
-5-
<PAGE>
procedures of accounting practice in the United Kingdom which are regarded
as permissible by the Accounting Standards Board Limited
"Voluntary Resignation" (in the context of the termination of employment of
any person) shall mean where that person terminates his employment with a
member of the Halliburton Group (other than by reason of his death) without
remaining employed by another member of the Halliburton Group for any
reason whatsoever other than (a) in circumstances where the relevant member
of the Halliburton Group has agreed his Service Agreement is terminable by
the Covenantor without notice by reason of the conduct of his employing
company or the arbiter appointed in accordance with his Service Agreement
has decided that the relevant Service Agreement is terminable by the
Covenantor without notice by reason of the conduct of his employing company
or (b) where such person resigns as a consequence of illness, mental
disorder or injury which prevents him from properly performing his duties
under his Service Agreement (as certified by the independent medical
practitioner appointed in accordance with his Service Agreement)
"Warranties" means the statements contained in Part 3 of the schedule
annexed and executed as relative hereto and each and any of them
"Year 2000 Compliance Report" means the report in Agreed Form detailing the
steps taken by the Group to ensure that the operation of the IT Systems and
the provision of the IT Services will be unaffected by the change in year
from 1999 to 2000
1.2 Where clauses or paragraphs in this Agreement and the schedule annexed and
executed as relative hereto contain the expression "to the best of the
knowledge, information and belief of......" or "so far as .......... is/are
aware" or phrases having a similar meaning or effect, except as otherwise
expressly qualified, they shall be deemed to be followed by the words
"having made due and careful enquiry" only of the Executive Warrantors, the
directors of the Existing Subsidiaries, PricewaterhouseCoopers Aberdeen,
Stronachs, Central Insurance Services Limited and the following employees
of the Group: Gary Paver and Susan Blease (and of no other person) in every
case.
1.3 Words and expressions defined in the Companies Act 1985 (as amended by the
Companies Act 1989) shall, unless the context otherwise requires, have the
same meanings where used in this Agreement.
1.4 Headings are used in this Agreement for convenience only and shall not
affect its construction or interpretation.
1.5 In this Agreement references to the schedule is to the schedule annexed and
executed as relative to this Agreement and references to clauses are to
clauses in this Agreement and, unless otherwise specified, references to
paragraphs are to paragraphs of the clause in which such reference appears
and references to annexures are to annexures to this Agreement.
-6-
<PAGE>
1.6 In this Agreement reference to a person includes any legal or natural
person, partnership, trust, company, government or local authority
department or other body (whether corporate or unincorporate).
1.7 In this Agreement, unless the context does not so admit, reference to an
individual or individuals shall include his or their respective executors
or personal representatives.
1.8 In this Agreement, unless the context does not so admit, reference to the
singular includes a reference to the plural and vice versa and reference to
the masculine includes a reference to the feminine and neuter.
1.9 References in this Agreement to any statute or statutory provision shall be
deemed to include reference to any statute, regulation or statutory
instrument that hereafter amends, extends, consolidates or replaces the
same (or shall have done so) except insofar as any such statute, regulation
or statutory instrument increases the liability of any of the parties
hereto after the date hereof and to any other regulation, statutory
instrument or other subordinate legislation made thereunder or pursuant
thereto, and to any former statutory provision replaced (with or without
modification) by the provision referred to, and shall also include
reference to all statutory instruments or other subordinate legislation
made pursuant to any such statutory provision, subject always to the
exception hereinbefore provided.
1.10 This Agreement shall be governed by and construed in accordance with the
law of Scotland and the parties submit to the jurisdiction of the courts of
Scotland.
2. Warranties
2.1 In consideration of Halliburton agreeing to make the Offer, and
conditionally upon Completion occurring, the Executive Warrantors hereby
jointly and severally (save in the case of Warranty 13 (Liabilities to the
Executive Warrantors) which is given severally by each Executive Warrantor
for himself and in respect of his Associates) represent and warrant to
Halliburton, subject to the provisions of this clause 2 in the terms of the
Warranties and acknowledge that Halliburton is entering into this Agreement
and agreeing to make the Offer in reliance upon such Warranties.
2.2 The Warranties, and those other obligations of the Executive Warrantors
under this Agreement that then remain to be performed shall survive
Completion and shall bind the personal representatives of the Executive
Warrantors.
2.3 Notwithstanding anything to the contrary set out in this Agreement,
Halliburton may at its discretion (and without reference to and/or the
Agreement of the other Executive Warrantors) agree with any one or more of
the Executive Warrantors:
2.3.1 to vary the terms of this Agreement and/or of any document entered
into in pursuance of the terms of this Agreement as between
Halliburton and that particular Executive Warrantor or Executive
-7-
<PAGE>
Warrantors or, as the case may be, the party to that particular
document; and/or
2.3.2 compromise, vary, release or fail to enforce (in each case in whole
or in part) its rights against any one or more of the Executive
Warrantors (and/or any party to any document entered into pursuant
to this Agreement),
and in each such case the rights of Halliburton against the remaining
Executive Warrantor or Executive Warrantors shall be unaffected provided
always that any such variation, release, compromise or failure to enforce
shall not affect the rights of the Executive Warrantors inter se.
2.4 The Executive Warrantors acknowledge that they are aware that Halliburton,
when agreeing to purchase Shares pursuant to the Offer Document, is or will
be relying on the Warranties (save only as disclosed in the Disclosure
Letter). The Warranties shall survive the dispatch of the Offer Document
and each purchase of Shares made by Halliburton.
2.5 The Warranties are given subject to the limitations set out in Part 5 of
the schedule.
2.6 Each Warranty that is set out in a separate paragraph, or that could be
treated as a separate Warranty, shall be construed independently of any
other to the intent that the rights of Halliburton under, and the meaning
given to, any one such Warranty shall not be restricted by reference to any
other Warranty.
2.7 No Executive Warrantor shall have any right of relief or contribution
against any other Executive Warrantor.
3. Restrictive covenants
3.1 As a separate and independent stipulation and in consideration of
Halliburton making the Offer and conditionally upon Completion occurring,
and with the intent of assuring to Halliburton the full benefit and value
of the goodwill and connections of the Group, each of the Executive
Warrantors hereby covenants with Halliburton (contracting for itself and on
behalf of each member of the Group) that during the course of his
employment with the Group or the Halliburton Group and for the longer of
(a) three years from Completion and (b) one year following the date upon
which he ceases (for any reason whatsoever) to be so employed he will not
and will procure that any body corporate of which he has for the time being
control (within the meaning of section 840 Taxes Act) and/or any
partnership and/or business in which he may be engaged will not either on
his or its own account or in conjunction with or on behalf of any person,
firm or company:
3.1.1 (subject to Clause 3.5) carry on, engage in or be concerned or
interested directly or indirectly in any business or activity
within those parts of the world in which the Group carries on
business as at Completion which competes directly or indirectly
with the Business,
-8-
<PAGE>
provided always that nothing in this sub-clause shall prevent him
from holding or being beneficially interested in any securities of
a company, if he neither holds nor is beneficially interested in
more than five per cent (or in the case of securities in
Halliburton, such higher percentage as he shall hold or be
interested in as a consequence of the arrangements contemplated
hereby) in value of all the securities of that company; or
3.1.2 employ or offer employment to, either directly or indirectly, any
director or employee of any Group Company and/or any member of the
Halliburton Group employed in the Business, whether or not the same
would involve any breach of contract by such director or employee;
or
3.1.3 solicit or entice, or endeavour to solicit or entice, away from any
Group Company and/or any member of the Halliburton Group or deal
with (in each case in connection with any business or activity
which competes with the Business) any person who, to his knowledge,
is now or has, during the two years preceding the date hereof, been
a client, customer, supplier or otherwise in the habit of dealing
with any Group Company; or
3.1.4 at any time after Completion use as a trade or business name or
mark or carry on a business under a title containing the word or
expression "PES" or any other words colourably resembling such
word; or
3.1.5 at any time after the execution of this Agreement disclose to any
person whatsoever or use to the detriment of the Company or any
Group Company or otherwise make use of, or through any failure to
exercise reasonable care and diligence cause any unauthorised
disclosure or use of, any Commercial Information which is
confidential or in respect of which the Company or any Group
Company is bound by an obligation of confidence to a third party or
which the Executive Warrantors are prohibited under clause 7.2 from
disclosing without Halliburton's consent.
Each undertaking contained in this sub-clause 3.1 shall be read and
construed independently of the other undertakings and as an entirely
separate and severable undertaking.
3.2 The restriction contained in sub-clause 3.1.5 shall not extend to any
confidential or secret information which may come into the public domain
otherwise than through the default of any of the Executive Warrantors or
which an Executive Warrantor is or becomes compelled by law to disclose (to
the extent so compelled).
3.3 Each of the Executive Warrantors acknowledges that, having taken
independent legal advice, he considers that the above restrictive covenants
and provisions to be necessary to protect the goodwill of the Business
carried on by the Group and a factor on which the consideration payable by
Halliburton pursuant to the Offer is based, but if any of such covenants or
provisions are
-9-
<PAGE>
held to be void or invalid but would not have been so held if part of the
wording were deleted or its extent reduced or modified, or if the period or
area of nature of any such restriction were reduced, then such restriction
or provision shall apply with such modification as may be necessary to make
the same valid and enforceable.
3.4 Each of the Executive Warrantors who is employed by any Group Company
hereby warrants and undertakes to Halliburton, but conditionally upon
Completion occurring, that:
3.4.1 he is free to continue such employment; and
3.4.2 he is not or will not as a result of entering into his Service
Agreement be in breach of any other contract of employment (whether
past or now subsisting) or be liable to any action relating to any
such contract; or
3.4.3 he is not in breach of any duty of confidence or any undertaking or
arrangement relating to any industrial or intellectual property
rights or liable to any action relating to any obligations under
any such contract, undertaking or arrangement; and
3.4.4 so far as he is aware any Group Company is free to continue to
provide employment to such Executive Warrantor without being liable
to any other person for so continuing such employment.
3.5 Nothing in Clause 3.1.1. shall prevent the following Executive Warrantors
from holding (directly or indirectly) the following interests or being
involved in the following businesses provided always that the relevant
business does not compete with the Business:-
3.5.1 The holding of shares in Venture Production Company Limited ("VPC")
(a Company registered in Scotland under number SC169182) by
Laurence William Kinch and the devotion by Mr Kinch of up to 25% of
his time and attention to the business of VPC;
3.5.2 The holding of shares in VPC by Michael John Fleming;
3.5.3 The holding of shares in W.B. Securities Limited (a Company
registered in Scotland under number SC87590) by Michael Lewis
Bowyer, Colin Smith and Richard P. Rubbo which itself in turn holds
shares in VPC
4. Agreement to pay liquidated damages
4.1 Subject to Clause 4.2, as a separate and independent stipulation and in
consideration of Halliburton agreeing to issue shares in Halliburton to the
Covenantors in terms of the Offer and conditionally upon Completion
occurring and with the intent of assuring to Halliburton the full benefit
and value of the goodwill and connections of the Group, each of the
Covenantors
-10-
<PAGE>
hereby agrees that if at any time in the period of 3 years after Completion
his employment with a member of the Halliburton Group is either (a)
Terminated for Cause or (b) terminated as a result of his Voluntary
Resignation then he shall pay to Halliburton by way of liquidated damages
and as an adjustment to the consideration payable to that Covenantor in
terms of the Offer (in the manner set out below) a sum equal to the amount
set opposite his name in Part 1C of the Schedule PROVIDED THAT the total
liability of each Covenantor pursuant to this clause 4 shall not exceed
US$(A x 38.50) - O - T.
Where
A equals the aggregate of
(i) the number of Halliburton Shares actually allotted to him
pursuant to the Offer;
(ii) the number of Halliburton Shares actually allotted to him
pursuant to the exercise by him of Halliburton Options; and
(iii) the number of Halliburton Shares which he would actually
acquire on the exercise of all his unexercised Halliburton
Options (after taking account of the cancellation of part
of those options upon the cessation of his employment with
the Halliburton Group under the rules of the Halliburton
Stock Option Plan);
O means the exercise price paid or payable by the relevant Covenantor
(in US$) on the exercise of his Halliburton Options (to the extent
they have not lapsed)
T means the liability of the relevant Covenantor to Taxation which arose
or would arise:
(b) as a result of the exercise of his Halliburton Options (on the
assumption, whether or not that be the case, that to the extent
not previously exercised they were exercised on the date his
liability under this clause 4 is agreed or finally determined by
the arbiter referred to above (the "Liability Date")) which have
not then lapsed; and
(c) on the sale by him of Halliburton Shares issued to him pursuant
to the Offer and upon exercise of his Halliburton Options which
have not then lapsed (on the assumption, whether or not that be
the case, that any Halliburton Shares previously sold were sold
at a price of US$38.50 per Halliburton Share and that to the
extent not previously sold
-11-
<PAGE>
such Halliburton Shares were sold on the Liability Date at a
price of US$38.50 per Halliburton Share)
(calculated in US$ if necessary by reference to the closing mid point
dollar spot rate published in The Financial Times newspaper on, in the
case of Halliburton Options and/or Halliburton Shares already
exercised or sold, the dates of exercise and/or sale (as appropriate)
of those Halliburton Options and/or Halliburton Shares and, in the
case of Halliburton Options yet to be exercised or Halliburton Shares
not yet sold, the Liability Date).
4.2 It is agreed that any liability of a Covenantor pursuant to clause 4.1
shall be satisfied (or deemed satisfied) as follows:
(a) firstly, by the non-allotment of so many of the Halliburton
Shares which fall to be issued to that Covenantor (after the
Liability Date) pursuant to the Offer as have a value (calculated
on the basis that each Halliburton Share has a value equal to
US$38.50) up to but not exceeding the liability of that
Covenantor pursuant to clause 4.1; and
(b) next, by the payment by that Covenantor on the Second
Determination Date in cash of his liability pursuant to clause
4.1 to the extent that it shall not have been previously
satisfied in accordance with clause 4.2(a).
Each Covenantor agrees that his rights against Halliburton pursuant to the
Offer Document shall be deemed not to have been breached by a set off
properly made in accordance with this clause 4.2 and Halliburton agrees
that the liability of a Covenantor pursuant to this clause 4 shall be
reduced by the value (calculated in accordance with clause 4.2(a)) of any
Halliburton Shares not allotted to him pursuant to clause 4.2(a).
4.3 Each of the Covenantors having taken or being advised to take legal advice
hereby agrees that the provisions of clause 4.1 fairly reflect the fact
that in agreeing to make the Offer Halliburton has relied on
representations made by each Covenantor that he would remain employed by
the Group or the Halliburton Group for a period of at least 3 years from
Completion and during that period would not do or omit to do anything such
that his employer would have grounds to terminate his employment and those
representations made by him led to Halliburton agreeing to make an offer to
acquire the Company on the terms (in particular as to price) contained in
the Offer Document. He further agrees that the number of shares and sum
specified in clause 4.1 represents a genuine pre-estimate of the loss that
Halliburton would suffer (by reference, inter alia, to the value of the
shares in the Company purchased by Halliburton from that Covenantor)if he
ceased to be employed by the Group or the Halliburton Group within such 3
year period having regard in particular to the reliance the Group places on
him. By way of non-exhaustive illustration, the Covenantor accepts and
acknowledges that such loss is likely to be caused in the following ways:-
-12-
<PAGE>
4.3.1 the loss of lucrative relationships established by him with
customers of the Group which may have a detrimental effect on the
Business;
4.3.2 the loss of good working relationships with other employees of the
Group;
4.3.3 the detrimental effect upon the morale of other employees of the
Group which may lead to them terminating their employment with the
Group;
4.3.4 the loss to the Group of the Covenantor's personal knowledge of the
Business and his knowledge of and participation in the formulation
of the product line strategies and business plans;
4.3.5 the loss to the Group of the Covenantor's knowledge of internal
Group systems, processes and procedures;
4.3.6 the creation of the opportunity for him to work for organisations
in competition with the Group and the creation of the opportunity
for him to entice business away from the Group using his
relationships with customers of the Business when he has discharged
his obligations under Clause 3 of this Agreement
4.3.7 the delay which the loss of the Covenantor's services to the Group
or the Halliburton Group may cause in the development by the Group
or the Halliburton Group of new products and services.
4.4 Each of the undertakings from the Covenantors containing clause 4.1 shall
be treated as a several and independent obligation.
4.5 Any payment by the Covenantors pursuant to this clause 4 shall be treated
by all parties, for tax purposes, as a reduction in the value of the
consideration paid to the Covenantors in respect of the sale and purchase
of their Shares under the Offer.
4.6 In this Agreement, "Terminated for Cause" (or like expressions) means:
4.6.1 in the case of the Covenantors other than Steven Cratus Owens,
termination of employment (either summarily or on notice) of a
person where the ground for such termination is that the relevant
person:-
(a) has committed any act of gross misconduct or repeated or
continued any other material breach of his obligations under
his Service Agreement; or
(b) has engaged in any conduct which, in the reasonable opinion
of the board of directors of the Company, is likely to cause
his continued employment to be detrimental to the interests
of the Halliburton Group; or
-13-
<PAGE>
(c) has been convicted of any criminal offence which is
punishable with six months or more imprisonment (save for
any motoring offence for which he has not been sentenced to
a term of immediate or suspended imprisonment); or
(d) has committed any act of dishonesty, whether or not relating
to his employment; or
(e) is, in the reasonable opinion of the board of directors of
the Company, incompetent in the performance of his duties;
or
(f) has committed any act which materially violates the
"Halliburton Company Code of Business Conduct" (as in force
at May 18, 1999)
PROVIDED ALWAYS that such termination shall have been agreed in
writing with the relevant Covenantor or approved in writing by an
arbiter appointed in accordance with his Service Agreement it being
agreed that the approval of such arbiter shall be conclusive and
binding that such Covenantor has been Terminated for Cause for the
purposes of this Agreement; and
4.6.2 in the case of Steven Cratus Owens only, termination of employment
(either summarily or on notice) of a person where the ground for
such termination is that the relevant person:
(a) has committed any act of gross misconduct or repeated or
continued any other material breach of his obligations under
his Service Agreement; or
(b) has engaged in any conduct which, in the reasonable opinion
of the board of directors of the Company, is causing his
continued employment to be detrimental to a material extent
to the interests of the Halliburton Group; or
(c) has been convicted of any criminal offence which is
punishable with six months or more imprisonment (save for
any motoring offence, unless that motoring offence has been
punished with a term of actual (not suspended)
imprisonment); or
(d) has committed any deliberate and material act of dishonesty,
whether or not relating to his employment which is
detrimental to a material extent to the interests of the
Halliburton Group; or
(e) is, in the reasonable opinion of the board of directors of
the Company, incompetent in the performance of his duties
(provided that failure to meet any business plan shall not,
of itself, be the sole determinant when assessing
competency); or
-14-
<PAGE>
(f) has committed any act (amounting to gross misconduct) which
materially violates the "Halliburton Company Code of
Business Conduct" (as in force at May 18, 1999);
PROVIDED ALWAYS that such termination shall have been agreed in
writing with Steven Cratus Owens or approved in writing as
constituting Termination for Cause in accordance with this
definition by an arbiter in accordance with his Service Agreement.
The agreement of Steven Cratus Owens or the approval of such an
arbiter appointed in accordance with such Service Agreement shall
be conclusive and binding on all persons that Steven Cratus Owens
has been Terminated for Cause for the purposes of this Agreement.
5. Pre-completion matters
5.1 In consideration of Halliburton agreeing to make the Offer, and
conditionally upon Halliburton issuing the Offer, each of the Executive
Warrantors undertakes to procure (so far as he is able so to procure by the
exercise of his powers as an officer, employee and/or director of the
Company and/or any Group Company and the rights attaching to his Shares)
that (between the date of this Agreement and Completion:
5.1.1 Halliburton is provided with copies of the monthly management
accounts and reports of all business unit manager meetings of the
Company in respect of that period, together with such other
information as Halliburton shall reasonably require from time to
time;
5.1.2 the business of each Group Company is carried on wholly in the
ordinary and usual course (as carried on as at the date hereof) and
with a view to profit; and
5.1.3 (save for the Special Resolution in the Agreed Form) the Company
shall not pass any shareholders' resolution, save as may be
required by this Agreement or the Offer Document.
5.2 Without prejudice to the generality of Clause 5.1 above, in consideration
of Halliburton agreeing to make the Offer, and conditionally upon
Halliburton issuing the Offer, each of the Executive Warrantors undertakes
to procure (so far as he is able so to procure by the exercise of his
powers as an officer, employee or director of the Company and/or any Group
Company and the rights attaching to his Shares) that, save with the prior
written consent of Halliburton, (between the date of this Agreement and
Completion) there shall be no:
5.2.1 sale or disposal or agreement for sale or disposal of any part of
the business or assets of any Group Company (save in the ordinary
course of trading of that company);
5.2.2 creation or issue or agreement to create or issue any mortgage or
charge (fixed or floating) upon any of the assets of any Group
-15-
<PAGE>
Company or the incurring by any Group Company of any indebtedness
(other than normal trade credit or indebtedness on overdraft to the
relevant Group Company's bankers within the existing limits of such
overdraft facilities Disclosed);
5.2.3 dismissal or change in the remuneration or terms of remuneration or
employment of any of the directors or senior employees of any Group
Company (including without limitation pension contributions,
bonuses, commission and benefits in kind);
5.2.4 material (in the context of the business of the Group as a whole)
litigation or arbitration proceedings commenced by any Group
Company regarding any of the assets or business of any Group
Company;
5.2.5 material amendment to the current insurance policies of any Group
Company and the Executive Warrantors shall procure insofar as they
are so able by the exercise of their powers and rights referred to
above, that such policies shall continue in full force and effect
pending Completion, and that nothing shall be done to render such
policies void or voidable;
5.2.6 communication unless required by law or any regulatory authority
regarding this Agreement made to any person not concerned directly
with the preparation and negotiation of this Agreement;
5.2.7 declaration or payment of any dividend or other distribution to the
shareholders of any Group Company;
5.2.8 incurring by any Group Company of any new capital expenditure
commitments (not set out in the Disclosure Letter) in excess of
(pound)50,000 for any purpose whatsoever;
5.2.9 (other than following exercise of a Call Option) any change in the
authorised or issued share capital of any Group Company or the
grant by any Group Company of any option or other rights to
subscribe for or purchase any share in its capital or any amendment
to any of the rules governing the Subsisting Options ; or
5.2.10 act, matter or thing which constitutes a breach of clause 6 of the
Shareholders Agreement.
5.3 The Executive Warrantors shall procure (insofar as they are able so to
procure by the exercise of their powers as officers, employees or directors
of the Company and/or any Group Company and the rights attaching to their
respective holdings of Shares) that neither they, nor any Group Company
shall knowingly do or procure any act or omission before Completion which
would constitute a breach of any of the Warranties if they were to be
repeated at Completion.
-16-
<PAGE>
5.4 If, at any time before Completion, any of the Executive Warrantors comes to
know of any fact, event or circumstance that:
5.4.1 shows that any Warranty is (or would be if repeated at Completion)
incorrect or misleading to a material extent, or that any
obligation of the Warrantors hereunder has not been or will not be
complied with to a material extent; or
5.4.2 is not generally known in the oil service industry in both the
United Kingdom and the United States of America and has occurred
since the date hereof that, individually or together with all other
similar facts, events or circumstances, could reasonably be
expected to constitute or cause a Material Adverse Effect on the
Company where "Material Adverse Effect" shall mean any change or
effect that would be material and adverse
(a) to the consolidated business, condition (financial or
otherwise), results of operations, properties or prospects
of the Group taken as a whole; or
(b) to the ability of any Executive Warrantor to perform his
obligations under this Agreement or resulting from his
acceptance of the Offer; or
5.4.3 suggests that any Group Company might be prevented from having
effective use and possession of or from disposing of any of its
material assets or carrying on its business because of any
industrial or other dispute or disputes;
then the Executive Warrantors shall immediately give to Halliburton full
details thereof by written notice.
5.5 Halliburton undertakes to the Executive Warrantors that Halliburton shall
issue the Offer Document to all holders of Shares (other than Halliburton
Holdings Limited) and the Optionholder's Letter to the holders of the
Subsisting Options within three Business Days following the date of this
Agreement.
5.6 Halliburton undertakes to the Executive Warrantors that Halliburton shall
procure that details of the level of acceptances of the Offer (including
the identity of every accepting Shareholder) and details of the responses
to the Optionholders Letter are provided to Stronachs Solicitors, 34 Albyn
Place, Aberdeen on behalf of the Executive Warrantors within 3 Business
Days following receipt by Halliburton (or Cameron McKenna on their behalf)
of such acceptances and responses.
6. Completion
6.1 In consideration of Halliburton agreeing to make the Offer, each Executive
Warrantor shall procure that on or before Completion all amounts (other
than
-17-
<PAGE>
normal course advances on expenses) owing to any Group Company at
Completion:
6.1.1 by that Executive Warrantor; and
6.1.2 by his Associates
shall be paid or repaid in full.
6.2 At or as soon as practicable following Completion the Executive Warrantors
shall (insofar as they are able to do so by the exercise of their powers as
officers, employees or directors of the Company and/or any Group Company
and the rights attaching to their respective holdings of Shares and as
individuals) deliver or procure the delivery to (or make available to the
satisfaction of) Halliburton:
6.2.1 the seal (if any), certificate of incorporation and statutory
books, duly written up to date, of each Group Company;
6.2.2 (insofar as not then in the possession of a Group Company, its
agents or bankers) all documents of title to the Properties and to
the Specified Intellectual Property and such other documents or
papers which relate in any way to the business of any Group Company
as Halliburton may reasonably request;
6.2.3 certificates from each of the banks at which a Group Company
maintains accounts of the amounts standing to the debit and credit
of such accounts at the close of business on the day preceding
Completion;
6.2.4 the written resignations in the agreed form of Drummond Wilkinson
Whiteford, Colin Smith, Richard Paul Rubbo and Steven Cratus Owens
as directors of the Company, such resignations to take effect from
Completion;
6.2.5 the written resignation of the auditors of the Company and of each
Group Company in the agreed form to take effect from Completion
containing the statements referred to in section 394(1) CA 1985
that they consider there are no such circumstances as are mentioned
in that section and confirming that they have deposited or shall
deposit that statement in accordance with section 394(2) CA 1985 at
the respective registered offices of the Company and of each Group
Company; and
6.2.6 the resignations in the appropriate form of such of the trustees of
the [insert details of pension fund] as Halliburton may require.
6.3 As soon as practicable following Completion the Executive Warrantors shall
procure that a meeting of the board of directors of the Company and each of
the Existing Subsidiaries (other than PES Netherlands Limited) is properly
convened and held and that at such meetings:
-18-
<PAGE>
6.3.1 in the case of the Company only, the transfers of the Shares will
be approved for registration (subject to their being duly
stamped, which shall be at the cost of Halliburton);
6.3.2 all resignations provided for above will be tendered and accepted
so as to take effect at the close of the meeting;
6.3.3 the execution of the Service Agreements by or on behalf of the
Company shall be approved and authorised;
6.3.4 Scott Willis, Jim Renfroe, Jerry Borges, Andy Lane and Jerry
Wauters will be appointed additional directors of the Company and
all persons nominated by Halliburton (subject to any maximum
number imposed by the relevant articles of association) will be
appointed additional directors of the Existing Subsidiaries and
all persons nominated by Halliburton will be appointed
secretaries;
6.3.5 all existing instructions and authorities to bankers will be
revoked and will be replaced with alternative instructions,
mandates and authorities in such form as Halliburton may require;
6.3.6 in the case of the Company and the Existing Subsidiaries
incorporated in the United Kingdom only the registered office
will be changed to Norfolk House, Pitmedden Industrial Estate,
Dyce, Aberdeen, AB21 0DP;
6.3.7 the accounting reference date will be changed to 31st December;
6.3.8 Messrs Arthur Andersen will be appointed auditors; and
6.3.9 in the case of the Existing Subsidiaries (other than PES
Netherlands Limited and PES Petroturn Limited) only, transfers
will be approved for registration (subject to them having been
duly stamped at the cost of the Company) and declarations of
trust in a form satisfactory to Halliburton will be executed in
respect of all shares in the Subsidiaries held by any person
other than the Company or another Subsidiary;
and that the chairman of such meeting shall sign the minutes thereof in the
Agreed Form.
6.4 If Completion has not taken place prior to midnight (UK time) on [ ]
1999, then the parties hereto shall treat this Agreement as terminated and
it shall lapse and cease to have effect save for any rights and liabilities
of the parties which have accrued prior to midnight on [ ] 1999 which
shall subsist.
-19-
<PAGE>
7. Information
7.1 Each of the Executive Warrantors shall, both before and after Completion,
give to Halliburton such information in his possession relating to the
Company and its affairs as Halliburton may reasonably require.
7.2 The Executive Warrantors shall not, at any time (for the avoidance of
doubt, whether or not Completion takes place), divulge to any person
(except in confidence to their professional advisers) any information
relating to this Agreement or the Offer without the prior written consent
of Halliburton. This provision shall not apply to the disclosure of any
information pursuant to legislation (including without limitation the
securities laws of the United States) or the requirements of any recognised
stock exchange.
8. Termination of Shareholders Agreement
8.1 Immediately upon but subject to Completion occurring as between the parties
hereto (save for Michael John Fleming, Colin Smith, Brett Wayne Bouldin and
Napolean Arizmendi) the Company and Halliburton Holdings Limited (but not
otherwise), the Shareholders Agreement shall cease to be of any further
force or effect and any claims and liabilities accruing, as at the time of
Completion, under the Shareholders Agreement by any of the parties hereto
against any other of the parties hereto shall be deemed to have been
waived.
8.2 At Completion, Halliburton shall deliver to the Executive Warrantors a
letter in the Agreed Form duly executed by Halliburton Holdings Limited and
the Executive Warrantors shall deliver to Halliburton a letter in the
Agreed Form duly executed by the Company in order to give effect to this
Clause 8.
8.3 For the avoidance of doubt the obligations of Sydney Joseph Littleford
contained in Part 3 of the Shareholders Agreement shall survive
notwithstanding the provisions of this Clause 8.
9. General
9.1 This Agreement represents the entire Agreement between the parties in
relation to the subject matter hereof and shall supersede any previous
Agreement or understanding between all or any of the parties in relation to
all or any such matters.
9.2 The provisions contained in each clause of this Agreement shall be
enforceable independently of the others and the invalidity of any one
provision shall not affect the validity of the others. The rights of
Halliburton under this Agreement are independent, cumulative and without
prejudice to all other rights available to it and the exercise or non-
exercise of any such rights shall not prejudice or constitute a waiver of
any other rights of Halliburton whether under this Agreement or otherwise.
-20-
<PAGE>
9.3 If there is any provision of this Agreement, or of any Agreement or
arrangement of which this Agreement forms part, which causes or would
cause this Agreement or that Agreement or arrangement to be subject to
registration under the Restrictive Trade Practices Act 1976, then that
provision shall not take effect until the day after particulars of this
Agreement or of that Agreement or arrangement (as the case may be) have
been furnished to the Director General of Fair Trading pursuant to section
24 of that Act. The parties agree that particulars of this Agreement or of
any Agreement or arrangement of which this Agreement forms part (as the
case may be) shall be duly furnished to the Director General of Fair
Trading pursuant to section 24 of that Act and the parties agree to do all
acts and things including, if necessary, executing documents, to ensure
that a valid and effective furnishing is made and that all restrictions in
this Agreement, and in any Agreement or arrangement of which this
Agreement forms part, are fully enforceable at law.
9.4 Subject to Clause 2.3, no variation of this Agreement shall be binding on
any party hereto unless and to the extent that the same is recorded in a
written document executed by all parties and attested.
9.5 If Halliburton transfers any Shares to any other member of the Halliburton
Group then Halliburton may assign to such member all or part of its rights
under this Agreement and following any such transfer as from the date of
such transfer, reference to "Halliburton" shall include reference to such
member. Any such Assignee shall be entitled to exercise rights under this
Agreement only for so long as it remains a member of the Halliburton
Group. Save as permitted by this Clause 9.5, none of the parties hereto
may assign any of its rights or obligations hereunder.
9.6 Save as required by law or pursuant to the requirements of any regulatory
body or in relation to information that is publicly available (other than
by reason of any wrongful disclosure of the same), none of the Executive
Warrantors shall, save with the prior written consent of Halliburton, make
any announcement concerning or otherwise disclose or divulge any
information concerning Halliburton's involvement with or interest in the
Company including (without limitation) any of the terms set forth in this
Agreement.
9.7 Nothing contained in this Agreement shall constitute or be deemed to
constitute a partnership between the parties hereto or any of them and no
party shall hold himself out as an agent for any other party save with the
prior consent of such other party.
10. Costs
10.1 Subject to Completion occurring, Halliburton shall at Completion make
payment of the professional, legal, accounting and other fees incurred by
the Executive Warrantors and/or the Company to the following parties,
provided always that the sum so payable to each of those parties does not
exceed the sum shown opposite the name of such party below:-
-21-
<PAGE>
-----------------------------------------------------------------------
Advisor Amount
-----------------------------------------------------------------------
Schroder & Co (pound)375,000 (plus VAT or
equivalent sales tax and outlays
of (pound)12,498.91)
-----------------------------------------------------------------------
PricewaterhouseCoopers (pound)160,000 (plus VAT)
-----------------------------------------------------------------------
Stronachs (pound)200,000 (plus VAT)
-----------------------------------------------------------------------
[Overseas Lawyers - TBA]
-----------------------------------------------------------------------
10.2 All invoices shall be addressed to "PES (International) Limited, payable
by Halliburton Company."
10.3 It is agreed that neither the Company nor any Group Company shall be
responsible for any fees of the transaction contemplated by this agreement
and save as is expressly set out in this agreement each party shall be
responsible for its own costs and expenses incurred in connection with
this agreement or the Offer.
11. Notices
11.1 Any notice or other written communication given under or in connection
with this agreement may be delivered personally or sent by prepaid
recorded delivery or registered post or by facsimile to the address and
for the attention of the relevant party set out in Clause 11.2 (or such
other address in England or Scotland as is otherwise notified from time to
time).
11.2 The addresses of the parties for the purpose of Clause 11.1 are as
follows:
Executive Warrantors: Stronachs Nominees Limited
34 Albyn Place
Aberdeen
Facsimile number: 01224 845800
For the attention of: David Sheach
Halliburton Halliburton Energy Services
4100 Clinton Drive
Houston
Texas 77020
USA
Facsimile number: 001 713 676 4414
For the attention of: Vice President and
Associate General Counsel
11.3 Any such notice or other written communication shall be deemed to have
been served:
11.3.1 if delivered personally, at the time of delivery;
-22-
<PAGE>
11.3.2 if posted, at the expiry of two Business Days after it was
posted;
11.3.3 if sent by facsimile message, at the time of transmission (if
sent during Business Hours) or (if not sent during Business
Hours) at the beginning of Business Hours next following the time
of transmission in the place to which the facsimile was sent.
11.4 In proving such service it shall be sufficient to prove that personal
delivery was made, or that such notice or other written communication was
properly addressed stamped and posted or in the case of a facsimile
message that an activity or other report from the sender's facsimile
machine can be produced in respect of the notice or other written
communication showing the recipient's facsimile number and the number of
pages transmitted.
12. Agent for Service
The Executive Warrantors shall at all times maintain an agent for service
of the process in Scotland. Such agent shall be Stronachs Nominees Limited
of 34 Albyn Place, Aberdeen. Any writ, judgment or other notice of legal
process shall be sufficiently served on the Executive Warrantors if
delivered to such agent at its address for the time being. The Executive
Warrantors undertake not to revoke the authority of such agent, and if for
any reason such agent no longer serves as agent of any of the Executive
Warrantors to receive service of process, such Executive Warrantors shall
promptly appoint another person as agent (with an address for service
within the jurisdiction of the Scottish courts) and notify the other
parties thereof.
IN WITNESS WHEREOF these presents consisting of this and the preceding [ ]
pages together with the schedule are executed at Aberdeen on [ ] 1999 by the
parties as follows:
For and on behalf of
HALLIBURTON COMPANY ....................
authorised signatory
....................................................
By LAURENCE WILLIAM KINCH ....................
....................................................
By MICHAEL LEWIS BOWYER ....................
....................................................
By MICHAEL JOHN FLEMING ....................
....................................................
-23-
<PAGE>
By DRUMMOND WILKINSON WHITEFORD ...................
....................................................
By RICHARD PAUL RUBBO ...................
....................................................
By STEVEN CRATUS OWENS ..................
....................................................
By COLIN SMITH ..................
....................................................
By BRETT WAYNE BOULDIN ..................
....................................................
By NAPOLEAN ARIZMENDI ..................
....................................................
All before the following witness:
.................................. Name
.................................. Address
..................................
..................................
.................................. Occupation
-24-
<PAGE>
Schedule
1. This is the Schedule referred to in the foregoing Agreement
Part 1A
The Executive Warrantors
(1) (2)
Name and address Number of Ordinary Shares owned
and held or under option before
the Date hereof
Laurence William Kinch 300,000
of Westfield Lodge
Milltimber
Aberdeen
Aberdeenshire
Scotland
Michael Lewis Bowyer 24,780
3 Earlswells Drive
Cults
Aberdeen
Grampian AB15 9NW
Drummond Wilkinson 131,620
Whiteford
Westfield Cottage
Contlaw Road
Milltimber
Aberdeen
Aberdeenshire AB13 OEX
Scotland
Richard Paul Rubbo 15,600
10 Maple Loft Place
The Woodlands
Texas 77381
USA
-25-
<PAGE>
Steven Cratus Owens 41,470
22 Pebble Hollow
The Woodlands
Texas 77386
USA
Michael John Fleming 2,500
2 Ballieswells Drive
Bieldside
Aberdeen
Scotland
Colin Smith 16,530
21 Coull Gardens
Kingswells
Aberdeen
Scotland
-26-
<PAGE>
Part 1 B
Maximum Liabilities under the Warranties
Executive Warrantor Maximum Liability under the Warranties
------------------- --------------------------------------
1. Laurence William Kinch (pound)4,635,804.53
2. Michael Lewis Bowyer (pound)384,099.44
3. Drummond Wilkinson Whiteford (pound)2,270,153.30
4. Richard Paul Rubbo US$2,342,550.38
5. Steven Cratus Owens US$1,018,891.26
6. Michael John Fleming US$37,295.54
7. Colin Smith (pound)289,870.00
-27-
<PAGE>
Part 1 C
The Covenantors
<TABLE>
<CAPTION>
Name and address Maximum Liability under clause 4
(US$)
<S> <C>
Michael Lewis Bowyer 296,975
3 Earlswell Drive
Cults
Aberdeen
Grampian AB15 9NW
Drummond Wilkinson Whiteford 1,000,000
Westfield Cottage
Contlaw Road
Milltimber
Aberdeen
Aberdeenshire
Scotland AB13 0EX
Steven Cratus Owens 1,000,000
22 Pebble Hollow Court
The Woodlands
Texas 77386
Colin Smith 326,217
21 Coull Gardens
Kingswells
Aberdeen
Aberdeenshire AB15 8TQ
Scotland
Brett Wayne Bouldin 713,196
707 Creek Forest Circle Spring
Texas 77380
USA
Napolean Arizmendi 499,389
11910 West Presley
Magnolia
Texas 77355
USA
</TABLE>
-28-
<PAGE>
Part 2A
Corporate Structure
<TABLE>
<S> <C>
Date of incorporation - 25th June 1993
Registered office - 34 Albyn Place
Aberdeen AB10 1FW
-
Share capital authorised (pound)150,000 divided into 1,500,000 ordinary
- shares of 10p each
Share capital issued - (pound)126,654
Shareholders As set out in Part 7 of the Schedule
Directors Laurence William Kinch
Michael Lewis Bowyer
Drummond Wilkinson Whiteford
Colin Smith
Richard Paul Rubbo
Michael John Fleming
Steven Cratus Owens
Ross Mark McCurley
James Bryon Renfroe
Secretary Stronachs
Accounting reference date 31st March
Auditors PricewaterhouseCoopers
Mortgages, debentures and Floating charge dated 18th November
other charges 1993 in favour of the Governor and
Company of the Bank of Scotland
</TABLE>
-29-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
<TABLE>
<S> <C>
Name - Petroleum Engineering Services Ltd
Country of Incorporation - Scotland
Date of Incorporation - 14th June 1985
Registered Office - 34 Albyn Place, Aberdeen AB10 1FW
Share capital authorised - 100(pound)1 ordinary shares
Share capital issued - 99(pound)1 ordinary shares
Shareholders No. of shares held
PES (International) Limited 100%
Directors - Laurence William Kinch, Michael Lewis Bowyer,
Drummond Wilkinson Whiteford, Colin Smith,
James Crabb
Secretary - Stronachs, 34 Albyn Place, Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - PricewaterhouseCoopers
Mortgages, debentures and - Bond and floating charge in favour of Bank of
other charges Scotland dated 17 May 1987 and registered
26th May 1987
Nature of business - Supply of oil and gas well subsurface
engineering
</TABLE>
-30-
<PAGE>
Part 2B
Particulars concerning the Subsidiaries of the Company
<TABLE>
<S> <C>
Name - PES Incorporated
Country of Incorporation - USA (Texas)
Date of Incorporation - 5th December 1994
Registered Office - 3300 Two Houston Center, Houston, Texas
77010
Share capital authorised - 100,000 Class A shares and 100,000 Class B
shares
Share capital issued - 100,000 Class A shares and 100,000 Class B
shares
Shareholders - No. of shares held
PES (International) Limited 100%
Directors - S Owens;
L W Kinch;
R P Rubbo
Secretary - David L Griffis
Accounting reference date - 31st March
Auditors - None
Mortgages, debentures and - None
other charges
Nature of business - Supply of oil and gas well subsurface
engineering
</TABLE>
-31-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
<TABLE>
<S> <C>
Name - Petroleum Engineering Services Asia Pty Ltd
Country of Incorporation - Australia
Date of Incorporation - 4th October 1995
Registered Office - Abbott & Associates Pty Ltd, 1st Floor, 3
Alvan Street, Mount Lawley, Western
Australia, 6050
Share capital authorised - AUS$1,000,000 divided into 1,000,000 shares
as follows:-
909,998 $1 ordinary shares
10,000 $1 "A" class shares
10,000 $1 "B" class shares
10,000 $1 "C" class shares
10,000 $1 "D" class shares
10,000 $1 "E" class shares
10,000 $1 "F" class shares
10,000 $1 "G" class shares
10,000 $1 "H" class shares
10,000 $1 "I" class shares
2 $1 subscriber shares
Share capital issued - 40 $1 ordinary shares
Shareholders - No. of shares held
PES (International) Limited 28
S J Littleford 6*
Andos Pty Limited 6*
*call option in place on shares to exchange
for a fixed number of PES (International)
Limited shares
Directors - S J Littleford
J Anderson
Secretary - Roberta C Littleford & Alison Anderson
</TABLE>
-32-
<PAGE>
<TABLE>
<S> <C>
Accounting reference date - 30th June
Auditors - None yet appointed
Mortgages, debentures and other charges - None
Nature of business - Supply of oil and gas well subsurface
engineering
</TABLE>
-33-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
<TABLE>
<S> <C>
Name - Petroleum Engineering Services
Norge AS
Country of Incorporation - Norway
Date of Incorporation - 18th March 1994
Registered Office - Bedriftsveien 19, 4300 Sandnes, Norway
Share capital authorised - 100 shares NKR 500 each
(comprising 80 A shares and 20 B shares)
Share capital issued - 100 shares NKR 500 each
(comprising 80 A shares and 20 B shares)
Shareholders - No. of shares held
PES (International) Limited 80 A
shares (constituting 80%)
L Vinje 20 B shares (call option on
shares in place to exchange for fixed
number of PES (International)
Limited shares)
Directors - L Vinje
L W Kinch
Secretary - Lars Vinje
Accounting reference date - 31st March
Auditors - PricewaterhouseCoopers
Mortgages, debentures and - None
other charges
Nature of business - Supply of oil and gas well subsurface
engineering
</TABLE>
-34-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
<TABLE>
<S> <C>
Name - PES France
Country of Incorporation - France
Date of Incorporation - 20th December 1995
Registered Office - 4 Avenue Pierre Angot, 64000 Pau, France
Share capital authorised - 2,500 ord shares FrFr100 each
Share capital issued - 2,500 ord shares FrFr100 each
Shareholders - No. of shares held
PES de France 2494 D
W Whiteford 1*
D Cosentino 1*
J M Lopez 1*
E Vidil 1* L
W Kinch 1*
M L Bowyer 1*
*call option in place on shares to exchange
for cash.
Directors - D Cosentino, L W Kinch
M L Bowyer, D W Whiteford
Secretary - Edouard Vidil
Accounting reference date - 31st March
Auditors - ACF Audit, 1 Rue Bonado,
64000 Pau
Mortgages, debentures and - None
other charges
Nature of business - Supply of oil and gas well subsurface
engineering
</TABLE>
-35-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
<TABLE>
<S> <C>
Name - PES de France
Country of Incorporation - France
Date of Incorporation - 21st December 1995
Registered Office - 4 Avenue Pierre Angot, 64000 Pau, France
Share capital authorised - 2,500 ord shares FrFr100 each
Share capital issued - 2,500 ord shares FrFr100 each
Shareholders - No. of shares held
PES (International) Limited 99.88% -
2,494 shares
L W Kinch 1 share*
M L Bowyer 1 share*
M D Cosentino 1 share*
J M Lopez 1 share*
M E Vidil 1 share*
Petroleum Engineering Services
Limited 1 share
*call option in place on shares to exchange
for cash.
Directors - D Cosentino, L W Kinch
M Bowyer, D Whiteford
Secretary - Edouard Vidil
Accounting reference date - 31st March
Auditors - ACF Audit, 1 Rue Bonado,
64000 Pau
Mortgages, debentures and - None
other charges
Nature of business - Intermediate holding company of PES
France
</TABLE>
-36-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
<TABLE>
<S> <C>
Name - PES Netherlands Limited
Country of Incorporation - Scotland
Date of Incorporation - 13th December 1993
Registered Office - 34 Albyn Place, Aberdeen AB10 1FW
Share capital authorised - 1,000 ordinary shares(pound)1 each
Share capital issued - 1,000 ordinary shares(pound)1 each
Shareholders - No. of shares held
PES (International) Limited 751
R Kemeling 249
Directors - Ruurd Kemeling, Sydney Joseph Littleford
Secretary - Stronachs, 34 Albyn Place, Aberdeen
Accounting reference date - 31st March
Auditors - PricewaterhouseCoopers
Mortgages, debentures and other charges - None
Nature of business - Non trading dormant company
</TABLE>
-37-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
<TABLE>
<S> <C>
Name - PES Trustees Limited
Country of Incorporation - Scotland
Date of Incorporation - 13th December 1993
Registered Office - 34 Albyn Place, Aberdeen AB10 1FW
Share capital authorised - 1,000 shares(pound)1 each
Share capital issued - 1 ordinary share(pound)1
Shareholders - No. of shares held
PES (International) Limited 100%
Directors - Laurence William Kinch, Drummond Wilkinson
Whiteford
Secretary - Stronachs, 34 Albyn Place, Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - PricewaterhouseCoopers
Mortgages, debentures and other charges - None
Nature of business - Acting as trustee for the ESOP
</TABLE>
-38-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
Name - P.E.S. Petroquip Limited
Country of Incorporation - Scotland
Date of Incorporation - 24th September 1985
Registered Office - 34 Albyn Place, Aberdeen AB10
1FW
Share capital authorised - 100 ordinary shares(pound)1 each
Share capital issued - 2 ordinary shares(pound)1 each
Shareholders - No. of shares held
PES Engineering Services Limited
100%
Directors - Laurence William Kinch, Drummond
Wilkinson Whiteford
Secretary - Stronachs, 34 Albyn Place,
Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - None (dormant company exemption)
Mortgages, debentures and other charges - None
Nature of business - Non trading dormant company
-39-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
Name - P.E.S. Petroserv Limited
Country of Incorporation - Scotland
Date of Incorporation - 2nd July 1985
Registered Office - 34 Albyn Place, Aberdeen AB10
1FW
Share capital authorised - 100 ordinary shares(pound)1 each
Share capital issued - 100 ordinary shares(pound)1 each
Shareholders - No. of shares held
Petroleum Engineering Services
Limited 100
Directors - Laurence William Kinch, Drummond
Wilkinson Whiteford
Secretary - Stronachs, 34 Albyn Place,
Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - None (dormant company exemption)
Mortgages, debentures and other charges - None
Nature of business - Non trading dormant company
-40-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
Name - P.E.S. Petrospec Limited
Country of Incorporation - Scotland
Date of Incorporation - 21st August 1985
Registered Office - 34 Albyn Place, Aberdeen AB10 1FW
Share capital authorised - 100 ordinary shares(pound)1 each
Share capital issued - 100 ordinary shares(pound)1 each
Shareholders - No. of shares held
Petroleum Engineering Services
Limited 100
Directors - Laurence William Kinch, Drummond
Wilkinson Whiteford
Secretary - Stronachs, 34 Albyn Place,
Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - None (dormant company exemption)
Mortgages, debentures and other charges - None
Nature of business - Non trading dormant company
-41-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
Name - Petroleum Manufacturing Services
Limited
Country of Incorporation - Scotland
Date of Incorporation - 23rd June 1988
Registered Office - 34 Albyn Place, Aberdeen AB10 1FW
Share capital authorised - 100,000 ordinary shares(pound)1
each
Share capital issued - 50,000 ordinary shares(pound)1
each
Shareholders - No. of shares held
Petroleum Engineering Services
Limited 50,000
Directors - Laurence William Kinch, Drummond
Wilkinson Whiteford, Michael
Lewis Bowyer
Secretary - Stronachs, 34 Albyn Place,
Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - PricewaterhouseCoopers
Mortgages, debentures and other charges - Bond and floating charge in
favour of Bank of Scotland
registered 21.11.96 Floating
Charge Debenture in favour of
Natwest Bank Plc registered on
24.1.90.
Nature of business - Manufacture and assembly of
oilfield well completion
equipment and related engineering
products
-42-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
Name - Petroleum Engineering Services
(Italia) srl
Country of Incorporation - Italy
Date of Incorporation - 27th December 1994
Registered Office - PES (Italia) Srl, So Umberto
410/3, 65016 Montesilvano,
Pescara, Italy
Share capital authorised - 20,000 ordinary shares of ITL
1,000 each
Share capital issued - 20,000 ordinary shares of ITL
1,000 each
Shareholders - No. of shares held
PES (International) Limited 100%
Directors - C Borra, S Tait,
Marcello Beneditti
Secretary - Lara Marilungo
Accounting reference date - 31st March
Auditors - None required
Mortgages, debentures and other charges - None
Nature of business - Supply of oil and gas well
subsurface engineering
-43-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
Name - P.E.S. Petroturn Limited
Country of Incorporation - Scotland
Date of Incorporation - 3rd September 1987
Registered Office - 34 Albyn Place, Aberdeen AB10 1FW
Share capital authorised - 100 ordinary shares(pound)1 each
Share capital issued - 100 ordinary shares(pound)1 each
Shareholders - No. of shares held
Petroleum Engineering Services
Limited 76 J G Robertson 24
Directors - Laurence William Kinch, Drummond
Wilkinson Whiteford
Secretary - Stronachs, 34 Albyn Place,
Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - None (dormant company exemption)
Mortgages, debentures and other charges - None
Nature of business - Non trading dormant company
-44-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
Name - P.E.S. Petroseal Limited
Country of Incorporation - Scotland
Date of Incorporation - 13th May 1987
Registered Office - 34 Albyn Place, Aberdeen AB10 1FW
Share capital authorised - 100 ordinary shares(pound)1 each
Share capital issued - 100 ordinary shares(pound)1 each
Shareholders - No. of shares held
Petroleum Engineering Services
Limited 100
Directors - Laurence William Kinch, Drummond
Wilkinson Whiteford
Secretary - Stronachs, 34 Albyn Place,
Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - None (dormant company exemption)
Mortgages, debentures and other charges - None
Nature of business - Non trading dormant company
-45-
<PAGE>
Part 2B
Particulars concerning the
Subsidiaries of the Company
Name - Bluefoil Limited
Country of Incorporation - Scotland
Date of Incorporation - 9th May 1989
Registered Office - 34 Albyn Place, Aberdeen AB10 1FW
Share capital authorised - ((pound)300,000 8% - cumulative
participating redeemable
Preference shares(pound)1 each
5690 - cumulative convertible
participating preference shares 1
each 26,820 - ordinary shares
(pound)1 each)
Share capital issued - 26,820 ordinary shares (pound)1
each
Shareholders - No. of shares held
PES (International) Limited 100%
Directors - Laurence William Kinch, Michael
Lewis Bowyer
Secretary - Stronachs, 34 Albyn Place,
Aberdeen AB10 1FW
Accounting reference date - 31st March
Auditors - PricewaterhouseCoopers
Mortgages, debentures and other charges - Floating charge in favour of Bank
of Scotland registered 22nd
September 1989
Nature of business - Design engineering, manufacture
and supply of equipment to the
oil and gas industry. The company
ceased trading on 1st August 1996
-46-
<PAGE>
WARRANTIES
Part 3
1. Information
1.1 The information set out in paragraphs (A) to (D) of the Recitals to this
Agreement and in Parts 2, 6 and 7 of the schedule is true and accurate.
1.2 The Forecasts and Projections were prepared in good faith and after careful
consideration and enquiry and on the basis of assumptions which the
Executive Warrantors honestly believe were and remain fair and reasonable
and none of the Executive Warrantors is aware (having made enquiry of the
directors of the Existing Subsidiaries and Gary Paver only) of any specific
fact or matter (not generally known and affecting businesses in the same
market sector as the Group to a similar extent or in the same way) which
causes the Executive Warrantors to question those assumptions or the
Forecasts and Projections.
PROVIDED THAT this Warranty 1.2 shall not be construed as a guarantee or
promise that the results anticipated in the Forecasts and Projections will
be achieved.
1.3 All information contained in the Offer Document relating to the Group or
its business and affairs is true and accurate in all material respects and
not misleading.
1.4 All information contained in that part of the Disclosure Letter headed
"Specific Disclosures" is true and accurate in all material respects.
2. Group structure
Save for the Existing Subsidiaries the Company does not have any subsidiary
companies and neither does it nor any other Group Company own any shares,
securities or other interest in any other person.
3. Share capital
3.1 There is no outstanding right to call for the issue of any share or loan
capital of any Group Company.
3.2 All of the Subsisting Options could, if exercised, be satisfied by the
transfer of the relevant number of Shares by the trustees of PES Employee
Benefit Trust being PES Trustees Limited one of the Existing Subsidiaries.
-47-
<PAGE>
3.3 Each of the Executive Warrantors is and will, subject only to this
Agreement, be beneficially entitled to and the registered holder of the
Shares set out opposite his name in column (2) of Part 1 of the schedule.
3.4 All dividends declared or otherwise due in respect of the Shares have been
paid.
3.5 There are no amounts unpaid on any of the Shares, each of which is fully
paid up (including as to any premium payable).
4. Financial position
4.1 The Accounts were prepared in accordance with UK GAAP, are consistent with
the practice adopted by the Company during the three financial periods
ended on the Accounts Date, comply with the requirements of the Companies
Act 1985 and give a true and fair view of the state of affairs of the Group
at the Accounts Date and of the results for the period then ended and, in
particular, but without prejudice to the generality of the foregoing, make
proper provision (where appropriate by way of note) for all liabilities,
contingent liabilities, bad and doubtful debts and depreciation and (save
as expressly disclosed therein) do not include any exceptional or
extraordinary item of income or expenditure (as defined by FRS 3).
4.2 The Management Accounts have been prepared on a basis consistent with
previous management accounts and fairly state levels of turnover, expenses
and liabilities as at 31st January 1999 and for the 10 month period then
ended.
4.3 The basis of valuation of stock in trade and work in progress has remained
in all material respects consistent with that adopted for the purpose of
the Company's audited accounts in respect of the beginning and end of each
of the accounting periods of the Company for the last three financial
years.
4.4 The Group's stock in trade (save for up to (pound)50,000 of such stock in
trade which may be obsolete or slow moving) is in good condition and is
capable of being sold by the relevant Group Company in the ordinary course
of business.
4.5 Rentals in excess of (pound)50,000 per item per annum payable by any Group
Company under any leasing, hire purchase or other similar agreement to
which it is a party have been Disclosed and have not been and, so far as
the Executive Warrantors are aware, are not subject to a rent review notice
or current proposal for increase.
5. Events since the Accounts Date
5.1 Since the Accounts Date no Group Company has entered into any transaction
or done any such act or thing as is referred to in clause 5.2 of this
Agreement save as expressly referred to or provided for in this Agreement
and in addition (but without prejudice to the generality of the foregoing)
each Group Company:
-48-
<PAGE>
5.1.1 has carried on its business as a going concern in, and only in, the
ordinary course;
5.1.2 has not entered into (whether in the ordinary course of its
business or not) any long term, substantial or unusual obligations
or transactions including (without limitation) any capital
commitment involving more than (pound)500,000;
5.1.3 other than for amounts of less than (pound)100,000 in aggregate,
has not written off, written down, waived or released (or agreed so
to do) any amounts which became owing to it before or after the
Accounts Date;
5.1.4 has not acquired or set up (or agreed so to do) any new business,
branch or subsidiary; and
5.1.5 save for leasing, hire purchase, sale on credit or like agreements
entered into in the ordinary course of business, has not borrowed
any monies except from its bankers in the ordinary course of
business and within the limits of the facilities available to it
from such bankers and disclosed to Halliburton.
5.2 Since the Accounts Date no part of the business of any Group Company has
been affected by the cancellation or loss of any order or contract which
would have had an invoice value, excluding VAT or like sales tax in excess
of (pound)150,000 or (so far as the Executive Warranties are aware) by the
loss of any customer or of any source of supply nor (so far as the
Executive Warrantors are aware) are there any specific circumstances likely
to lead thereto.
6. Employment matters
6.1 Other than contracts in which a longer period is implied by non-UK law,
there is not in existence any contract of employment with any employee of a
Group Company that cannot be terminated by three months' notice or less
without giving rise to any claim for damages or compensation (other than a
statutory redundancy payment or statutory compensation for unfair
dismissal).
6.2 There are no agreements or other arrangements (binding or otherwise) or
outstanding or anticipated claims or disputes between any Group Company and
any trade union or other body representing all or any of the employees of
such Group Company.
6.3 No Group Company owes any amounts to, or has any outstanding obligations in
respect of, any present or former directors, employees or shareholders of
such company other than one months accrued remuneration.
6.4 Save to the extent (if any) to which provision or allowance has been made
in the Accounts or the Management Accounts:
6.4.1 since the Accounts Date no liability has been incurred or is (so
far as the Executive Warrantors are aware) anticipated by any Group
-49-
<PAGE>
Company for breach of any contract of employment or for services
or for severance payments or for redundancy payments or
protective awards or for compensation for unfair dismissal or for
failure to comply with any order for the reinstatement or re-
engagement of any employee or for sex, disability or race
discrimination or for any other liability accruing from the
termination or variation of any contract of employment or for
services;
6.4.2 since the Accounts Date no gratuitous payment has been made or
promised by any Group Company in connection with the actual or
proposed termination, suspension or variation of any contract of
employment or for services of any present or former director,
officer or any dependant of any present or former director,
officer or employee of any Group Company; and
6.4.3 since the Accounts Date no Group Company has made or agreed to
make any payment to or provided or agreed to provide any benefit
for any present or former director, officer or employee of the
Company other than in respect of his normal contractual benefits.
6.5
6.5.1 So far as the Executive Warrantors are aware each Group Company
has in relation to each of its employees (and so far as relevant
to each of its former employees) complied in all material
respects with:
(a) all obligations imposed on it by all relevant statutes,
regulations and binding codes of conduct and practice
affecting its employment of any persons and all relevant
orders and awards made thereunder and has maintained
current, adequate and suitable records regarding the
service, terms and conditions of employment of each of its
employees; and
(b) all collective agreements, recognition agreements and
binding customs and practices for the time being affecting
its employees or their conditions of service.
6.5.2 So far as the Executive Warrantors are aware no Group Company is
in breach to any material extent of any of the following
provisions of the following Acts or of any regulations made under
any of such Acts:
sections 14, 59, 71 and 72 Shops Act 1950 section 155 Factories
Act 1961 section 33 Health and Safety at Work etc. Act 1974.
or the equivalent in any foreign jurisdiction
6.5.3 There is no liability or claim against any Group Company
outstanding or so far as the Executive Warrantors are aware
anticipated under the Equal Pay Act 1970, the Sex Discrimination
Acts 1975 and 1986,
-50-
<PAGE>
Disability Discrimination Act 1995 the Race Relations Act 1976,
the ERA, TUPE, the Social Security and Housing Benefits Act 1982,
the Social Security Contributions and Benefits Act 1992, TULRCA
or the Trade Union Reform and Employment Rights Act 1993 or the
equivalent in any foreign jurisdiction.
6.5.4 Within a period of one year preceding the date of this Agreement,
no Group Company has given notice of any redundancies to the
Secretary of State or started consultations with any independent
trade union under the provisions of Part IV TULRCA or under TUPE
nor has any Group Company failed to comply with any such
obligation under Part IV TULRCA.
6.6
6.6.1 No present director, officer or employee of any Group Company has
given or received notice terminating his employment and
Completion will not of itself entitle any employee to terminate
his employment or trigger any entitlement to a severance payment
or liquidated damages.
6.6.2 Each Group Company has complied with all specific written
recommendations made to it by the Advisory Conciliation and
Arbitration Service and with all specific written awards and
declarations made by the Central Arbitration Committee in respect
of its employees.
6.7 No Group Company has in existence, nor is proposing to introduce, and none
of its directors, officers or employees participates in (whether or not
established by a Group Company), any employee share trust, share incentive
scheme, share option scheme or profit sharing scheme for the benefit of all
or any of its present or former directors, officers or employees or the
dependants of any of such persons or any scheme under which any present or
former director, officer or employee of any Group Company is entitled to a
commission or remuneration of any other sort calculated by reference to the
whole or part of the turnover, profits or sales of any Group Company or any
other person, firm or company including any profit related pay scheme
established under Chapter III, Part V Taxes Act.
6.8
6.8.1 No dispute exists (nor, so far as the Executive Warrantors are
aware, are there any circumstances likely to cause a dispute)
between any Group Company and a material number or category of
its employees or any Trade Union(s) and so far as the Executive
Warrantors are aware , save for one months accrued entitlement to
remuneration, there are no wage or other claims outstanding
against any Group Company by any person who is now or has been a
director, officer or employee of any Group Company.
6.8.2 No Group Company has had during the last three years any strike,
work stoppages, slow-down or work-to-rule by its employees or
lock-
-51-
<PAGE>
out, nor, so far as the Executive Warrantors are aware, is any
anticipated, which has caused, or is likely to cause, any Group
Company to be materially incapable of carrying on its business in
the normal and ordinary course.
6.9 No Group Company has been a party to any relevant transfer as defined in
TUPE within the period of two years preceding the date of this Agreement
nor has any Group Company failed to comply with any duty to inform and
consult any Trade Union under the said regulations (or the equivalent in
any overseas jurisdiction) within the period of one year preceding the
date of this Agreement.
6.10 No Group Company is a party to any agreement or arrangement with or
commitment to any Trade Union or staff association nor are any of its
employees members of any Trades Union or staff association.
6.11 Other than the Petroleum Engineering Services Limited Group Personal
Pension Scheme, the Petroleum Engineering Services Limited Directors
Retirement Plan, the Petroleum Engineering Services Limited Staff
Retirement and Death Benefits Scheme, the "pensjon sforkering" pension
scheme operated by Petroleum Engineering Services Norge AS and the scheme
operated by Petroleum Engineering Services Asia Pty Limited (together the
"Pension Schemes"), there is no arrangement to which any Group Company
contributes or may become liable to contribute under which benefits of any
kind are payable to or in respect of any of the employees, directors or
officers or any former employee or former director or former officer of
any Group Company (or to any spouse or dependant of any of them) on
retirement, on death or in the event of disability or sickness or in other
similar circumstances nor has any Group Company provided or promised to
provide any ex-gratia pensions, lump sums or like benefits for any current
or former employee director or officer of a Group Company.
6.12 The Pension Schemes provide only money purchase benefits and each Group
Company has paid all contributions which are due to or in respect of the
Pension Schemes by the due date for payment. In respect of any employee,
director or officer of any Group Company who is covered by lump sum death
benefits those benefits are fully insured with an insurance company on
normal terms and all premiums have been paid.
6.13 Full particulars of the Pension Schemes have been disclosed, such
particulars being true, complete and not misleading in any way. The
particulars include a copy of the trust deed and rules or other governing
documentation, booklets and any subsequent announcements to scheme
members, details of members including contributions payable by members and
their employer, details of current investments, latest scheme accounts
and, where appropriate, the schedule of payments complying with Section 87
of the Pensions Act 1995.
6.14 The Pension Schemes are approved by the Board of Inland Revenue for the
purposes of Chapter I or Chapter IV of Part XIV of the Taxes Act or are
approved by any other appropriate regulatory body and so far as the
Executive
-52-
<PAGE>
Warrantors are aware have at all times and in all material respects
complied with the provisions of all relevant statutes, regulations and
requirements.
6.15 There are no claims or actions in progress or pending, nor so far as
the Executive Warrantors are aware any reason for such claims or
actions, in respect of any pension arrangement. There are no
unresolved disputes under any of the Pension Schemes' internal dispute
resolution procedures.
7. Authorities
To the best of the knowledge, information and belief of the Executive
Warrantors, each Group Company has obtained and complied in all
material respects with all permits, authorities, licences and consents
(whether granted by public or private authority) necessary or used to
carry on its business effectively and without hindrance in the manner
and in the places in which its business is now carried on, and, to the
best of the knowledge and belief of the Executive Warrantors (but
without any enquiry having been made other than of the directors and
senior employees of each Group Company), there are no circumstances
that might lead to the suspension, alteration or cancellation of any
such permits, authorities, licences or consents, nor is it party to
any agreement that materially restricts the fields within which it may
carry on its business.
8. Litigation
8.1 Save for proceeding to collect trade debts not exceeding
(pound)100,000 in aggregate due to a Group Company no Group Company is
engaged in, nor (to the best of the knowledge and belief of the
Executive Warrantors) is any officer or senior or key employee of any
Group Company, engaged in, any legal proceedings relating to the
affairs of a Group Company. To the best of the knowledge and belief of
the Executive Warrantors, there are no such proceedings threatened,
and, to the best of the knowledge and belief of the Executive
Warrantors there has been no act, omission or other occurrence that
will or is likely to give rise to any such proceedings.
8.2 There is no judgment or order of any court, tribunal or official body
against any Group Company or to the best of the knowledge, information
and belief of the Executive Warrantors any officer or senior or key
employee that has not been fully satisfied or discharged on terms that
have been disclosed to Halliburton.
8.3 No Group Company and no officer of any Group Company has been
prosecuted for any criminal, illegal or unlawful act connected with
the Group.
8.4 So far as the Executive Warrantors are aware no officer or employee of
any Group Company has made or received any Sensitive Payment in
connection with the business of the Group. For the purposes of this
clause the expression "Sensitive Payments" (whether or not illegal)
shall include (i) bribes or kickbacks paid to any person, firm or
company including central or local government officials or employees
or (ii) amounts received with an
-53-
<PAGE>
understanding that rebates or refunds will be made in contravention of
the laws of any jurisdiction either directly or through a third party
or (iii) political contributions or (iv) payments or commitments
(whether made in the form of commissions, payments or fees for goods
received or otherwise) made with the understanding or under
circumstances that would indicate that all or part of the payment is
to be paid by the recipient to central or local government officials
or as a commercial bribe, influence payment or kickback.
9. Applicable legislation
9.1 No notice or intimation has been received that any Group Company is in
breach of any legislation or regulations nor, so far as the Executive
Warrantors are aware (but without any enquiry having been made other
than of the directors and senior employees of each Group Company), is
any Group Company in material breach of any such legislation or
regulations.
9.2 Without prejudice to the generality of paragraph 9.1 above so far as
the Executive Warrantors are aware, no Group Company has been or is a
party to any arrangement or practice that infringes or requires or
required registration under or is liable to be referred under any of
the provisions of the Restrictive Trade Practices Acts 1956 to 1976,
the Fair Trading Act 1973, the Resale Prices Act 1976, the Competition
Act 1980, Articles 85 and 86 of the Treaty of Rome (or any regulation
or directive issued thereunder) or any other law or treaty relating to
monopolies, restrictive trade practices, fair trading or resale price
maintenance.
9.3 The business of the Group has so far as the Executive Warrantors are
aware at all times been conducted in compliance in all material
respects with all applicable legislation concerning health and safety
matters and all and any regulations or orders made or issued under any
such legislation and any relevant-binding codes of practice, guidance
notes and the like issued by government agencies (the "Health and
Safety Legislation").
9.4 To the best of the knowledge and belief of the Executive Warrantors no
works, repairs, construction, remedial action or expenditure is or is
likely to be required in relation to the Health and Safety Legislation
in order to carry on lawfully the business of the Group at the
Properties.
9.5 The Executive Warrantors have no knowledge of any outstanding notice,
claim or other communication alleging any contravention of or actual
or potential liability under the Health and Safety Legislation.
9.6 No Group Company carries on, nor does it purport to carry on, nor has
it at any time since 28th April, 1988 carried on, or purported to
carry on, investment business in the United Kingdom within the meaning
of section 3 Financial Services Act 1986 nor has it contravened any
provision of that Act.
9.7 There are no outstanding claims for compensation for inaccuracy, loss
or unauthorised disclosure of personal data nor, so far as the
Executive Warrantors are aware are there any circumstances likely to
lead thereto.
-54-
<PAGE>
10. Records and documents
10.1 The register of members of each Group Company is correct there has
been no notice of any proceedings to rectify the register and to the
best of the knowledge and belief of the Executive Warrantors there are
no circumstances that might lead to any application for rectification
of the register.
10.2 Each Group Company has kept duly made up all requisite books of
account (reflecting all assets, liabilities, financial transactions
and contracts), minute books, registers and records, and these and, to
the best of the knowledge and belief of the Executive Warrantors, all
other documents (properly stamped where necessary) belonging to or
which ought to be in the possession of each Group Company are in its
possession or in the possession of its bankers or agents.
10.3 All material documents requiring to be filed with the Registrar of
Companies (or the equivalent in any jurisdiction outside the United
Kingdom) by each Group Company have been properly made up and filed.
11. Company Agreements
11.1 No Group Company is a party to any agency, distributorship, marketing,
purchasing, service, licensing or like agreement that cannot be
terminated by it on less than three months' notice without payment of
compensation.
11.2 No Group Company:
11.2.1 is a member of any partnership or unincorporated association
(other than a recognised trade association);
11.2.2 is a party to any joint venture or consortium or agency or
distribution agreement; or
11.2.3 holds any shares or securities of or interest in any
corporation incorporated without limited liability or in
which liability is not limited.
11.3 All contracts to which a Group Company is a party with an invoice
value in excess of (pound)500,000 which have been entered into in the
last 5 years and in respect of which a Group Company has or could have
any actual or contingent liability in excess of (pound)50,000 have
been Disclosed. No Group Company is a party to or subject to any
agreement, transaction, obligation, commitment, understanding,
arrangement or liability which:
11.3.1 (other than call-off arrangements) is incapable of complete
performance in accordance with its terms within twenty-four
months after the date on which it was entered into or
undertaken;
11.3.2 (so far as the Executive Warrantors are aware) is likely to
result in a loss to the relevant Group Company on completion
of performance;
-55-
<PAGE>
11.3.3 cannot (so far as the Executive Warrantors are aware)
readily be fulfilled or performed by the relevant Group
Company on time and without undue or unusual expenditure of
money and effort;
11.3.4 involves or is likely to involve obligations, restrictions,
expenditure or receipts of an unusual, onerous or
exceptional nature and not in the ordinary course of
business;
11.3.5 requires an aggregate consideration payable by the relevant
Group Company in excess of (pound)100,000.
11.3.6 involves or is likely to involve the supply of goods by or
to the relevant Group Company the aggregate sales value of
which will represent in excess of five per cent of the
turnover of the relevant Group Company for the year ended on
the Accounts Date or if higher, (pound)500,000;
11.3.7 requires the relevant Group Company to pay any commission,
finder's fee, royalty or the like.
11.4 So far as the Executive Warrantors are aware the terms of all
contracts of each Group Company have been complied with by that Group
Company and (so far as the Executive Warrantors are aware) by the
other parties to the contracts in all material respects and there are
no circumstances likely to give rise to a default by any Group Company
or (so far as the Executive Warrantors are aware) by the other parties
under any such contract which in either such case would lead to a
liability exceeding (pound)50,000.
11.4.1 There are no outstanding claims, separately or in the
aggregate, of amounts exceeding (pound)50,000, against any
Group Company on the part of customers or other persons in
respect of defects in quality or delays in delivery or
completion of contracts or deficiencies of design or
performance or otherwise relating to liability for goods or
services sold or supplied by any Group Company and no such
claims are threatened and so far as the Executive Warrantors
are aware there is no matter or fact in existence in
relation to goods or services currently sold or supplied by
any Group Company which is likely to give rise to any such
claim.
11.4.2 The Executive Warrantors have no knowledge of the invalidity
of or grounds for rescission, avoidance or repudiation of
any agreement or other transaction to which any Group
Company is a party and neither they nor any Group Company
have received any notice of any intention to terminate,
repudiate or disclaim any such agreement or other
transaction.
12. Loans and financial facilities
12.1 No financial facilities available to a Group Company are guaranteed or
secured by any third party (other than any other Group Company), nor
is there anything
-56-
<PAGE>
known to the Company or the Executive Warrantors that would suggest
that any financial facilities available to a Group Company may be
withdrawn or will become repayable before their stated maturity.
12.2 Save as set out in Part 2 of this schedule, no Group Company has any
loan capital or debenture or any mortgage, charge or Standard Security
over any of its assets.
12.3 Other than in respect of any other Group Company or pursuant to the
standard terms of trade of a Group Company as disclosed in the
Disclosure Letter, no Group Company has:
12.3.1 any liability (present, future, ascertained or contingent)
under any guarantee, surety, indemnity, bond or similar
obligation;
12.3.2 any liability (present, future, ascertained or contingent)
under any Agreement for the hire, rent, hire purchase or
purchase on deferred terms of any asset (where the annual
payments in respect of a single asset exceed (pound)50,000);
or
12.3.3 so far as the Executive Warrantors are aware any due or
presently disputed liability under any warranty or
representation, (except a warranty or representation implied
by law in respect of a transaction entered into by such
Group Company in the ordinary course of its trading)
exceeding (pound)50,000
12.4 Particulars of all money borrowed by each Group Company have been
Disclosed. The total amount borrowed by the Company and the Existing
Subsidiaries from any source does not exceed any limitation on its
borrowing contained in its articles of association (or equivalent
documents) or in any debenture or loan stock trust deed or instrument
or any other document binding on a Group Company and the amount
borrowed by each Group Company from each of its bankers does not
exceed the overdraft facility agreed with such banker. No Group
Company has any outstanding loan capital.
12.5 So far as the Executive Warrantors are aware, all debts owed to each
Group Company are collectable in the ordinary course of business and
so far as the Executive Warrantors are aware each such debt will
realise in full its face value within nine months of its due date for
payment. No Group Company owns the benefit of any debt (whether
present or future) other than debts which have accrued to it in the
ordinary course of business.
12.6
12.6.1 Particulars of the balances on all the Group's bank accounts
as at the date falling 2 Business Days prior to the date
hereof have been Disclosed and the Group has no other bank
accounts. Since the date of such particulars there have been
no payments out of any such bank accounts except for
payments in the ordinary course of business.
-57-
<PAGE>
12.6.2 All unpresented cheques in amounts exceeding (pound)10,000
drawn by a Group Company have been Disclosed and there are
no such unpresented cheques drawn otherwise than in the
normal course of business.
12.7 The Executive Warrantors have Disclosed full details and true and
correct copies of all documents relating to all debentures, acceptance
lines, overdrafts, loans or other financial facilities outstanding or
available to the Company and all charges to which any asset of a Group
Company is subject. Neither the Executive Warrantors nor any Group
Company have done anything whereby the continuance of any such
facility or Encumbrance in full force and effect might be affected or
prejudiced.
12.8 Full details of all grants made to each Group Company in the last six
years, and all outstanding applications for any such grant, have been
Disclosed. No act or transaction which has occurred or Completion will
result in a Group Company being held liable to refund (in whole or in
part) any such grant or any loan received by virtue of any statute, or
in consequence of which any such grant or loan for which application
has been made by it will not or may not be paid or will or may be
reduced.
12.9 No Group Company is presently delaying the payment of any material
obligation due for payment.
12.10 No offer, tender or the like is outstanding (the turnover value of
which to any Group Company could exceed (pound)300,000 in any year)
which is capable of being converted into an obligation of any Group
Company by an acceptance or other unilateral act of some other person.
12.11 There are in force no powers of attorney given by any Group Company
other than to the holder of a charge solely to facilitate its
enforcement nor any other authority (express, implied or ostensible)
given by any Group Company to any person to enter into any contract or
commitment or do anything on its behalf other than any authority of
employees to enter into routine trading contracts in the normal course
of their duties.
12.12 The acquisition of the Shares by Halliburton and compliance with the
terms of this Agreement will not of itself:
12.12.1 (so far as the Executive Warrantors are aware) cause any
Group Company to lose the benefit of any right or privilege
it presently enjoys or cause any person who normally does
business with any Group Company not to continue to do so on
the same basis as previously;
12.12.2 (so far as the Executive Warrantors are aware) relieve any
person of any obligation to any Group Company (whether
contractual or otherwise) or legally entitle any person to
determine any such obligation or any right or benefit
enjoyed by any Group Company or to exercise any right
whether under an agreement with or otherwise in respect of
any Group Company;
-58-
<PAGE>
12.12.3 (so far as the Executive Warrantors are aware) conflict with
or result in the breach of or constitute a default under on
the part of any Group Company or any Executive Warrantor (i)
under any of the terms, conditions or provisions of any
agreement or instrument to which it is now a party; or any
loan or Encumbrance created by it; or (ii) of its memorandum
or articles of association;
12.12.4 result in any present or future indebtedness of any Group
Company becoming due and payable or capable of being
declared due and payable prior to its stated maturity;
12.12.5 (so far as the Executive Warrantors are aware) cause any
director, officer or senior employee of any Group Company to
leave employment; or
12.12.6 (so far as the Executive Warrantors are aware) conflict
with, violate or result in a breach of any law, regulation,
order, decree or writ applicable to any Group Company, the
Executive Warrantors or any of them, or entitle any person
to receive from any Group Company any finder's fee,
brokerage or other commission,
and, so far as the Executive Warrantors are aware, will not
prejudicially affect the attitude or actions of clients, customers and
suppliers with regard to any Group Company or cause any of them to
materially alter the terms on which they do business with the Group.
12.13
12.13.1 So far as the Executive Warrantors are aware no Group
Company has manufactured, marketed or supplied any Product
which was at the material times not fully compliant in all
material respects with the requirements of all applicable
European laws and the laws of any territory in which such
Product has been placed on the market.
12.13.2 At no time has any Group Company had knowledge of or
received any governmental enforcement action alleging any
defect in any Product or any contravention of any applicable
law or standard relating to the Products.
13. Liabilities to the Executive Warrantors
13.1 No Group Company has any liability to:
13.1.1 the Executive Warrantor giving this Warranty apart from (a)
under the Subsisting Options, and (b) one month's accrued
remuneration;
13.1.2 any Associates of the Executive Warrantor giving this
Warranty; or
-59-
<PAGE>
13.1.3 any company of which five per cent or more of the equity
share capital is owned or controlled directly or indirectly
by the Executive Warrantor giving this Warranty and/or his
Associates.
13.2 The Executive Warrantor giving this Warranty does not have nor (so far
as he is aware) do his Associates have any interest in any other
person which has or has had a material or close trading relationship
with or is or may be in competition with any Group Company.
14. Entry into this Agreement
The execution and performance of this Agreement by the Executive
Warrantors has been authorised by all necessary acts and does not, and
will not, violate any trust agreement, instrument, agreement or other
arrangement to which any Group Company or any of the Executive
Warrantors is party.
15. Intellectual and industrial property
15.1 The Company or the relevant Group Company is the sole legal and
beneficial owner and registered proprietor free from encumbrance or
licence of the inventions, trade secrets, letters patent, trade marks,
registered designs and applications for letters patent, trade marks
and registered designs, specified in the attached bundle of
documentation (in Agreed Form) (the "Specified Intellectual Property")
and so far as the Executive Warrantors are aware all the same are
valid and in force.
15.2 No right or licence has been granted to any person by any Group
Company to use in any manner or to do anything that would or might
otherwise infringe any of the Specified Intellectual Property and so
far as the Executive Warrantors are aware no act has been done or
omitted to be done by any Group Company that will result in any of the
Specified Intellectual Property ceasing to be valid and in force.
15.3 To the best of the knowledge and belief of the Executive Warrantors,
in carrying on its business no Group Company infringes, or uses
without authority, any third party's know-how, trade secrets, patents,
trademarks, service marks, registered designs, applications for any of
the foregoing, trade or business names, or copyrights. No claims have
been made or threatened by any third party against a Group Company in
respect of any infringement of any such industrial property or
intellectual property rights owned by such third party. No claims have
been made or threatened by any third party against a Group Company
that challenges a Group Company's rights of ownership or use of any
Group Company's industrial property or intellectual property. No
claims have been made or threatened by any third party against a Group
Company that challenges the validity of any industrial property or
intellectual property owned by any Group Company.
-60-
<PAGE>
15.4 No Group Company is a party to any secrecy, confidentiality or other
agreement that may restrict the use or disclosure by such Group
Company of any confidential information.
15.5 The operation of the SCRAMs Systems and the provision of the SCRAMs
Services will be unaffected by the change in year from 1999 to 2000
or by any related change in the field configurations containing date
information within the SCRAMs Systems. In particular:
15.5.1 there will be no error, malfunction or change in the
operation, functionality or performance of the SCRAMs
Systems or the provision of the SCRAMs Services;
15.5.2 no value for current date will cause any interruption in
the operation of the SCRAMs Systems or the provision of the
SCRAMs Services;
15.5.3 all manipulations of time-related data will produce the
desired results for all valid date values within the
applicable domain;
15.5.4 date-based functionality will behave consistently for dates
prior to, during and after the year 2000;
15.5.5 date elements in interfaces and data storage will permit
specifying the century to eliminate date ambiguity without
human intervention, including leap year calculations; and
15.5.6 where any date element is represented without a century,
the correct century shall be unambiguous for all
manipulations involving the element and in all interfaces
and data storage, the century in any date shall be
specified either explicitly or by unambiguous algorithms or
inferencing rules.
15.6 All IT Systems can be operated, and all IT Services can be provided,
in all respects using, recording, converting and accounting for
(including without limitation rounding up and down and calculating,
accounting for and recording compensatory payments) monetary or
currency values denominated in the euro in the same manner as it does
for any European currency existing as at the date of this Agreement
and in all respects in accordance with any applicable legislation,
laws, directives, regulations, directions or rules (including the
rules on conversion and rounding set out in Council Regulation
1103/97/EC).
15.7 The Year 2000 Compliance Report is true and accurate in all material
respects.
16. Insolvency
16.1 No Group Company is insolvent as defined by section 123 Insolvency
Act 1986 or has entered into any scheme of arrangement or voluntary
or other statutory arrangement with any of its creditors.
-61-
<PAGE>
16.2 No order has been made or resolution passed for the winding up of any
Group Company and there is not outstanding any petition for the
winding up of a Group Company or any petition applying for an
administration order to be made in relation to a Group Company or any
receivership of the whole or any part of the undertaking or assets of
a Group Company or the equivalent in any jurisdiction outside the
United Kingdom.
16.3 To the best of the knowledge and belief of the Executive Warrantors
there are no circumstances that would entitle any person to present a
petition for the winding up of a Group Company or to appoint a
receiver of the whole or any part of its undertaking or assets.
17. Properties
17.1 The properties set out in Part 4 of the schedule (the "Properties")
comprise all the heritable property owned, occupied, leased or
otherwise used by any Group Company, each of which has a good and
marketable title in its own name to the Property that it occupies.
The Properties are free from all sub-leases, Standard Securities,
charges (other than a floating charge by the Company dated 18th
November 1993 in favour of the Bank of Scotland (the "Charge")) or
other adverse interests and the relevant Group Company is in actual
exclusive occupation thereof, and has not granted or agreed to grant
any right or interest therein to any third party. So far as the
Executive Warrantors are aware there are no restrictions of access or
similar restrictions that would in any way affect the present use and
enjoyment of the Properties.
17.2 So far as the Executive Warrantors are aware the relevant Group
Company has complied in all material respects with and is not in
breach of its obligations including statutory obligations relating to
the Properties and no notice of any breach of any such obligations
has been received by a Group Company.
17.3 Other than the Charge, there are no subsisting material entries
registered against the Properties or any Group Company or in the
General Register of Sasines or under the relevant Land Certificate at
the Land Register of Scotland or other equivalent in any jurisdiction
furth of Scotland or elsewhere affecting the Properties or any Group
Company.
17.4 The particulars of the Properties set forth in Part 4 of the schedule
are true and correct and no Group Company has any other interest in
land.
17.5 There are no notices, complaints or requirements issued by or
agreements with any local, planning or other authority (including the
landlords or proprietors) or any burdens, servitudes, exceptions,
restrictions or reservations that would materially and detrimentally
affect the current use of the Properties and there are no
circumstances known to the Executive Warrantors, that are likely to
result in any such notice, charge, restriction requirements or other
being given or made.
17.6 There have not been served on any Group Company any schedules of
dilapidations or other notices concerning the state of the premises
and so far as
-62-
<PAGE>
the Executive Warrantors are aware all buildings and structures on
the Properties are in a reasonable state of repair and condition and
it is not now expected that any schedule of dilapidations requiring
works costing more than (pound)50,000 will be served upon any Group
Company within the next 12 months. No major repairs to the Properties
have been contracted for or are proposed by any Group Company or, (to
the best of the knowledge and belief of each of the Executive
Warrantors), the landlords, to be effected.
17.7 With regard to the Properties:
17.7.1 each lease is valid and subsisting, there is no dispute or
claim outstanding thereunder, or to the best of the
knowledge and belief of the Executive Warrantors, any
circumstances likely to give rise thereto and there is not
in existence any commitment, agreement or obligation to
vary any such lease;
17.7.2 the Group Companies have paid the rent and observed and
performed all the material obligations and liabilities on
the part of the tenant and the conditions contained in each
such lease and to the best of the Executive Warrantors'
knowledge and belief, there exists no ground(s) upon which
the landlord could terminate any such lease;
17.7.3 there are no rent reviews currently in progress under any
such lease;
17.7.4 the Properties are not subject to any sub-tenancy agreement
(which expression includes any informal sharing of
possession).
18. Environmental matters
18.1 For the purposes of this Warranty, "Environmental Laws" shall mean
and include all and any existing United Kingdom, European Community
or other legislation having application to the operations of any
Group Company and the Properties including without limitation,
statutes or other laws or legislation, Directives and regulations
relating to the environment.
18.2 To the best of the knowledge and belief of the Executive Warrantors,
each Group Company and the Executive Warrantors are and always have
been in material compliance with all Environmental Laws and in
particular have obtained and complied with all material terms and
conditions of all necessary permits, licences and other
authorisations in relation to the operations of each Group Company
and the Executive Warrantors and the use of the Properties and have
filed all necessary notifications, applications and notices that may
be so required.
18.3 To the best of the knowledge and belief of the Executive Warrantors,
there are in relation to each Group Company and the Executive
Warrantors and the Properties no past or present events, conditions,
circumstances, activities, practices or incidents that may or do
interfere with or prevent compliance with any Environmental Law or
that may or do give rise to any common law or legal liability or
otherwise form the basis of any claim, action, suit, proceeding,
-63-
<PAGE>
hearing or investigation relating to harm to human health or to the
environment or to property or breach of Environmental Laws.
18.4 To the best of the knowledge and belief of the Executive Warrantors,
there is not currently and there has not been in, on or under any of
the Properties any waste, pollutants, contaminants or other
substances or materials that may either individually or in
combination with other substances or materials be harmful to human
health or to the environment or to property.
18.5 To the best of the knowledge and belief of the Executive Warrantors,
there are no facts or circumstances in relation to any Group Company
or the Executive Warrantors or any of the Properties that may inhibit
or restrict or make more costly any operation of the business of any
Group Company or the occupation of or the redevelopment of any of the
Properties or any part thereof by reason of contamination.
18.6 Neither the business of any Group Company nor any property owned or
leased by any Group Company has been the subject of any environmental
audit or investigation other than such as have been disclosed in
writing to Halliburton.
19. Dormant Subsidiaries
Each of the Dormant Subsidiaries is dormant and, save for share
capital, none of the Dormant Subsidiaries has any assets or
liabilities of whatsoever nature.
20. Minors
None of the persons selling shares to Halliburton under the Offer who
is an individual is under 16 years of age.
21. Taxation
21.1 Save to the extent that specific provision or disclosure has been
made in the Accounts for any liability or contingent liability to
Taxation and save for any liability to Taxation arising in the
ordinary course of the Group's normal trading since the Accounts
Date, no Group Company has any liability or contingent liability in
respect of any form of Taxation (the deprivation or nullifying of any
relief or advantage (including the right to set past losses against
future profits) or the requirement to make any payment or the loss of
the right to any repayment by or to the Inland Revenue or any other
authority being deemed to be a liability in respect of Taxation for
the purposes of this paragraph).
21.2 Each Group Company has complied in all material respects with its
obligations to account to the Inland Revenue and all other relevant
authorities for all amounts for which it is accountable in respect of
Taxation (including, for the avoidance of doubt, any interest,
penalties fines or surcharges that may be associated therewith) any
amount payable under the PAYE system or amounts payable under social
security legislation.
-64-
<PAGE>
21.3 All returns and computations in connection with Taxation that should
have been made by each Group Company have been made correctly and on
a proper basis; no such return or computation has been disputed and,
so far as the Executive Warrantors or the Company are aware having
made reasonable enquiry, there are no facts which may give rise to
any such dispute or to any claim for any Taxation or to the
deprivation of any relief from Taxation or advantage that might have
been available.
[PES to advise whether it is VAT grouped or not
21.4 Each Group Company is duly registered for VAT or other sales tax
purposes and has in all other respects complied with all legislation
and other enactments relating to VAT or other sales tax and all
orders, regulations, directions or conditions made or imposed
thereunder and has maintained in all material respects correct and
up- to-date records, invoices and other documents appropriate or
necessary for the purposes of such legislation and is not in arrear
with any payment or returns thereunder or, to the best of the
knowledge, information and belief of the Executive Warrantors, liable
to any abnormal or non-routine payment or any forfeiture or penalty
or to the operation of any penal provision. Each Group Company is a
taxable person for the purposes of such legislation except in respect
of UK members of the Group in relation to VAT and is not treated and
has not at any time been treated as a member of any group for the
purpose thereof nor has any application for it to be so treated at
any time been made.]
21.5 No Group Company has made or agreed to make any payment to or
provided or agreed to provide any benefit for any Director or former
director, officer or employee of the Company, whether as compensation
for loss of office, termination of employment or otherwise, which is
not allowable as a deduction in calculating the profits of the
Company for Taxation purposes whether up to or after the Accounts D
ate.
21.6 No Group Company is a party to any transaction or arrangement under
which it may be required to pay for any asset or any services or
facilities of any kind an amount which is in excess of the market
value of that asset or those services or facilities nor will any
Group Company receive any payment for an asset or any services or
facilities of any kind that it has supplied or provided or is liable
to supply or provide which is less than the market value of that
asset or those services or facilities.
21.7 No Group Company has disposed of or acquired any asset otherwise than
at arm's length or from another Group Company.
21.8 No Group Company has made a claim under any of the following: section
280, TCGA (tax on chargeable gains payable by instalments), section
24(2), TCGA (assets of negligible value), section 242(2), TCGA (small
part disposals of land) or section 139, Finance Act 1993 (deferral of
unrealised exchange gains).
-65-
<PAGE>
21.9 No scheme registered under Chapter III of Part V, TA 88 applies to
any Group Company or any of its employees and no application for
registration of a scheme so applying has been made.
21.10 All interests, discounts and premiums payable by each Group Company
in respect of its loan relationships (within the meaning of section
81, Finance Act 1996) are eligible to be brought into account by the
Company as a debit for the purposes of Chapter II of Part IV, Finance
Act 1996 at the time and to the extent that such debits are
recognised in the statutory accounts of the Company concerned and no
Group Company has been a party to a loan relationship which had an
unallowable purpose (within the meaning of paragraph 13 of Schedule
9, Finance Act 1996).
21.11 All stampable documents wheresoever executed (other than those which
have ceased to have any legal effect) to which a Group Company is a
party have been duly stamped or stamped with a particular stamp
denoting that no stamp duty is chargeable. Since the Accounts Date
there have been and are no circumstances or transactions to which any
Group Company is or has been a party such that a liability to stamp
duty or any penalty in respect of such duty will arise on a Group
Company.
21.12 Since the Balance Sheet Date no Group Company has incurred any
liability to or been accountable for any stamp duty reserve tax and
there has been no agreement within section 87(1), Finance Act 1986
which could lead to a Group Company incurring such a liability or
becoming so accountable.
-66-
<PAGE>
Part 4
<TABLE>
<CAPTION>
DETAILS OF PROPERTIES
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
TENANT LANDLORD PROPERTY RENTAL TERM
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Petroleum Engineering Services Aberdeen City Council Phase 1, Howe Moss (pound)14,600 99 years
Limited (formerly The Grampian Avenue, Dyce, Aberdeen per annum
Regional Council)
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
Petroleum Engineering Services Aberdeen City Council Phases II and III, Howe (pound)249,900 25 years
Limited (formerly The Grampian Moss Avenue, Dyce, per annum
Regional Council) Aberdeen
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
Petroleum Engineering Services Aberdeen City Council Phase IV Howe Moss (pound)68,450 92 years 11
Limited Avenue, Dyce, Aberdeen per annum months
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
Petroleum Manufacturing Medlaw Properties 9 Hill Todd Square, Livingston (pound)126,500 25 years
Services Limited Street Edinburgh per annum
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
Petroleum Engineering Services Guthrie Brothers Northmost half of (pound)500 per month to
Limited (Craigo) Limited, Motor Victoria Engineering month month
Engineers, Craigo, by Works, Northesk Road,
Montrose Montrose
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
<CAPTION>
- --------------------------------- ------------------------------ ------------- --------------------
TENANT COMMENCEMENT RENT REVIEW COMMENTS
DATE
- --------------------------------- ------------------------------ ------------- --------------------
<S> <C> <C> <C>
Petroleum Engineering Services 1 March 1992 5 yearly
Limited
- --------------------------------- ------------------------------ ------------- --------------------
Petroleum Engineering Services 24 September 1993 5 yearly Review due on
Limited 24.09.98 has not
yet taken place
- --------------------------------- ------------------------------ ------------- --------------------
Petroleum Engineering Services 1 April 1998
Limited
- --------------------------------- ------------------------------ ------------- --------------------
Petroleum Manufacturing May 1997 5 yearly Lease not executed
Services Limited
- --------------------------------- ------------------------------ ------------- --------------------
Petroleum Engineering Services 16 February 1990 None This property has
Limited been sub-let
- --------------------------------- ------------------------------ ------------- --------------------
</TABLE>
-67-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
TENANT LANDLORD PROPERTY RENTAL TERM
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
<S> <C> <C> <C> <C>
PES Inc Genosys, 1442 Lake Front 1442 Lake Front Circle, $4,223 per 18 months
Circle, Suite 185, The Suite 150, month remaining
Woodlands, Texas 77380 The Woodlands, Texas
77380
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
Petroleum Engineering Services Sandnes Tak AS, Bedriftsveien 19, NOK 25,168 5 years with
Norge AS Bedriftsveien 19, 4300 Sandnes, Norway per month option for
4300 Sandnes further 3 years
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
Petroleum Engineering Services Westgate Business Ground Floor Aus$2,262 per 12 months
Asia Pty Ltd Centre, Legal Aid Gernal Legal Aid General month
Building, 257 St Georges Building, 267 St
Terrace, Perth, WS Georges Terrace, Perth
WA
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
Petroleum Engineering Services Castellano Dionino Coso Umberto 1, No 663,8000 lira 12 months with
(Italia) Srl C.SO Umberto 390 410/3, 65016 per month option of
Montesilvano Montesilvano, Pescara, further 12
Italy Italy months
- --------------------------------- -------------------------- ------------------------- --------------- ----------------
<CAPTION>
- --------------------------------- ------------------------------ ------------- -------------------
TENANT COMMENCEMENT RENT COMMENT
DATE REVIEW
- --------------------------------- ------------------------------ ------------- --------------------
<S> <C> <C> <C>
PES Inc Lease to be
terminated shortly
- ---------------------------------- ---------------------------- ------------- --------------------
Petroleum Engineering Services 1 September 1997 Annually
Norge AS 1st June
- ---------------------------------- ---------------------------- ------------- --------------------
Petroleum Engineering Services 14 June 1998
Asia Pty Ltd
- ---------------------------------- ---------------------------- ------------- --------------------
Petroleum Engineering Services 1 June 1996 Annually,
(Italia) Srl increases
with
inflation.
- ---------------------------------- ---------------------------- ------------- --------------------
</TABLE>
* Rent review due on 24 September 1998 has not yet taken place.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------ ---------------------------- --------------------------- --------------- ----------------
TENANT LANDLORD PROPERTY RENTAL TERM
- ------------------------ ---------------------------- --------------------------- --------------- ----------------
<S> <C> <C> <C> <C>
PES France SUD OUEST BAIL 1, Avenue P 144, Avenue Alfred NOBEL FRF 78,459 12 years
Becquerel 33688 MERIGNAC 64000-PAU France per quarter
for the first
12 years &
FRF 31,925
per quarter
for the first
10 years
- ------------------------ ---------------------------- --------------------------- --------------- ----------------
FRF 4,065 per
quarter for
the 3
quarters
commencing 23
October 1998
FRF 8,795 per
quarter for
10 years
commencing
October 1999
- ------------------------ ---------------------------- --------------------------- --------------- ----------------
<CAPTION>
- ------------------------ ---------------------------- -------------------- --------------------
COMMENCEMENT
TENANT DATE RENT REVIEW COMMENTS
- ------------------------ ---------------------------- -------------------- --------------------
<S> <C> <C> <C>
PES France 23 June 1997 PIBOR Bank rate
N/A
23 June 1997
- ------------------------ ---------------------------- -------------------- --------------------
23 October 1998 N/A Building
improvements
23 July 1999 N/A
- ------------------------ ---------------------------- -------------------- --------------------
</TABLE>
-68-
<PAGE>
Part 5
Warranty Limitations
1. The liability of the Executive Warrantors in respect of the
Warranties shall be limited as provided in this Part of the schedule.
2. Save in the case of fraud the liability of the Executive Warrantors
under, arising out of, or in connection with the Warranties shall be
restricted in each of the following respects:
(a) the liability of the Executive Warrantors in respect of
the Warranties shall cease
(i) in the case of any claim other than a claim
relating to Taxation on the date falling three
months after that upon which the audited
consolidated accounts of the Company and its
subsidiary undertakings for the year ending 31st
December 2000 are received by Halliburton or, if
earlier, the second anniversary of the date of
this Agreement;
(ii) in the case of any claim relating to Taxation,
on the date which is six years after the date
hereof.
except in either case in respect of any bona fide claim
intimated in writing (together with reasonable details of
the facts and circumstances giving rise to such claim and
Halliburton's reasonable estimate of the liability of the
Executive Warrantors in respect of such claim in both cases
as are then known to Halliburton) by Halliburton to the
Executive Warrantors on or before the relevant date
provided always that legal proceedings in respect of such
claim (in the absence of settlement or discharge of such
claim) shall have commenced within six months after either
written notice is first so served on the Executive
Warrantors or, if the claim so notified is in respect of a
contingent liability, within 6 months of such liability
becoming an actual liability;
(b) no claim shall be made against any of the Executive
Warrantors under the Warranties unless and until the amount
thereof or the aggregate amount thereof exceeds
(pound)50,000 (excluding interest and costs) provided that,
in each case, the full amount of the claim may be made and
recovered and not just the excess;
(c) the aggregate liability of the Executive Warrantors for
damages for breach of the Warranties shall be limited
to(pound)10,000,000;
(d) the liability of each of the Executive Warrantors in
respect of any claim under the Warranties and pursuant to
Clause 2.1.2 and the Tax
-69-
<PAGE>
Agreement shall not exceed the amount set opposite his name
in Part 1B of the Schedule;
(e) to the extent that the subject matter of a claim under any
of the Warranties is capable of remedy by the Executive
Warrantors Halliburton shall, at the Executive Warrantors'
request and expense, afford to the Executive Warrantors
such reasonable opportunities (for a period of no more than
30 days following the date the Executive Warrantors are
notified of the claim) as are requested by the Executive
Warrantors or any of them to remedy the subject matter of
the claim;
(f) the Executive Warrantors shall not be liable under the
Warranties:
(i) in respect of any matter or liability to the
extent that specific provision (including, for
the avoidance of doubt, provision for specific
matters contained in any deferred tax provision
and any obsolete stock provision), accrual,
reserve or note in respect thereof was made in
the Accounts or the Management Accounts;
(ii) to the extent that any provisions, accrual,
reserve or note made as aforesaid proves
insufficient only by reason of any increase in
rates of Taxation or reduction of allowances or
reliefs made with retrospective effect after the
date of this Agreement;
(iii) to the extent that such liability would not have
arisen but for any alteration or enactment made
after the date of this Agreement of any Act of
Parliament or statutory instrument or any non-UK
equivalent or any change in established
interpretation of any law following the date
hereof or any change in administrative practice
of any government, governmental department,
agency or regulatory body or alteration in
methods of applying or calculating Taxation not
in effect at the date of this Agreement;
(iv) in respect of any matter in relation to which
Halliburton shall expressly have waived in
writing its rights;
(v) to the extent that such liability would not have
arisen but for
(A) a voluntary act or failure to act,
omission or transaction on the part of
Halliburton occurring after the date
hereof where Halliburton was aware (or
could reasonably have been expected to
be aware) of the consequences thereof;
or
(B) an event occurring at the instance or
with the written consent of
Halliburton prior to the date hereof
where Halliburton was aware (or could
-70-
<PAGE>
reasonably have been expected to be
aware) of the consequences thereof;
(vi) in respect of any liability which is contingent
only, unless and until such liability becomes an
actual liability and becomes due and payable
provided that the notification of a contingent
liability shall be sufficient notification of
the relevant liability for the purposes of
paragraph 2(a) above;
(vii) in respect of any matter disclosed in this
Agreement or fairly disclosed in the Disclosure
Letter.
3. Without prejudice to Halliburton's obligations under paragraph 5
below, Halliburton shall (to the extent practical) consult with the
Executive Warrantors and consider (to the extent practical) any
representations of the Executive Warrantors following such
consultation prior to any admission of liability, compromise or
settlement by Halliburton or any Group Company in respect of any
matter that has given or may give rise to a claim under the
Warranties.
4. Halliburton shall notify the Executive Warrantors of any matter in
respect of which a claim lies or may lie against the Executive
Warrantors under the Warranties as soon as practicable after becoming
aware of such matter and thereafter Halliburton shall keep the
Executive Warrantors reasonably and properly informed regarding such
matter PROVIDED THAT such notification shall not be a condition
precedent to the Executive Warrantors' liability in respect thereof.
5. Halliburton shall take all reasonable steps (and so far as within its
power shall procure that such steps are taken) to mitigate any loss
or liability that might give rise to a claim against the Executive
Warrantors under this Agreement and, without prejudice to the
generality of the foregoing, procure that, before pursuing any claim
hereunder against the Executive Warrantors (other than intimation
thereof under paragraphs 2(a) and 4 above) and subject to it first
being indemnified to its reasonable satisfaction by the Executive
Warrantors in relation thereto, all reasonable endeavours are used to
recover any amounts due from third parties where, in relation to any
matter that may give rise to a claim under this Agreement,
Halliburton has or may have a claim against such third parties,
PROVIDED ALWAYS that in such circumstances the requirement to
commence legal proceedings within six months (as set out at paragraph
2(a) above) shall not apply.
6. If the Executive Warrantors have made a payment (the "claim payment")
pursuant to a claim under the Warranties and Halliburton shall
receive from any source a refund or payment in respect of the matter
of which such claim was made, Halliburton shall forthwith repay to
the relevant Executive Warrantors by whom the claim payment was made
(in proportion to the amount of the claim payment made by such
Executive Warrantor) a sum corresponding to the lesser of
(a) the amount of such refund or payment; and
-71-
<PAGE>
(b) the amount of the claim payment made by the relevant Warrantor;
in either case net of any Taxation and expenses.
7. A reference in this Part of the Schedule to "the Executive Warrantors"
shall be construed as including a reference to any of the Executive
Warrantors.
8. The Executive Warrantors shall. have no liability under the Warranties
unless Completion shall occur.
9. Where any Warranty is given in terms such that circumstances are said to be
correct in all "material" respects or in terms that compliance has been
made to a "material" extent, this shall be taken to mean material in the
context of the Group Companies.
10. Any payment by the Executive Warrantors in respect of the Warranties shall
be treated by all parties, for tax purposes, as a reduction in the value of
the consideration paid to the Executive Warrantors in respect of the sale
and purchase of their Shares under the Offer.
11. No claim shall be competent under the warranties set out in paragraph 21
(Taxation) of Part 3 of the Schedule:-
11.1 if and to the extent that the claim results in whole or in part from
any voluntary act or omission by any Group Company following
Completion (including without prejudice to the generality of the
foregoing, the making of any tax election, with or without
retroactive respect) otherwise than in the ordinary course of
business or otherwise than pursuant to a legally binding obligation
created on or before Completion;
11.2 if and to the extent that the claim results from the change in
control of the Group Companies or any of them to occur on Completion;
11.3 if and to the extent that the claim results from any change in the
nature of conduct of any trade carried on by the Group Companies or
any of them after Completion;
11.4 if and to the extent that the claim relates to a liability to
Taxation which gives rise to a corresponding tax saving by the
affected Group Company or any other Group Company provided that
nothing in this paragraph 11.4 shall be taken to prevent a claim
being made which relates to any financing costs that may be incurred,
or loss of return on capital resulting from a payment made in respect
of such liability to Taxation from the date of such payment to the
date that such corresponding tax saving is actually received;
11.5 unless and to the extent that the subject matter of the claim results
in an actual payment of cash to the Inland Revenue or other Taxation
authority which cannot be reduced or eliminated by the utilisation of
any relief, deductions or allowances ("Relief") available to a Group
-72-
<PAGE>
Company, where such Relief was available to a Group Company at the
time of Completion or, as a result of the subject matter of the
claim, becomes available to a Group Company at any time after
Completion.
-73-
<PAGE>
Part 6
Details of Subsisting Options
<TABLE>
<CAPTION>
Name and address Number of Ordinary Shares
under Option
<S> <C>
Brett Wayne Bouldin 1000
707 Creek Forest Circle Spring
Texas, 77380
U.S.A.
Michael Lewis Bowyer 21,610
3 Earlswells Drive
Cults
Aberdeen
Aberdeenshire AB15 9NW
Maurice Scott Boyle 5000
22 Earlspark Crescent
Bieldside
Aberdeen
Aberdeenshire
SCOTLAND
James Crabb 1200
Lodge House
Little Banchory
Banchory-Devenick, AB12 5XS
Scotland
Paul Michael Day 5900
63 Beaconsfield Place
Aberdeen, AB15 4AD
Scotland
Steven Cratus Owens 3900
22 Pebble Hollow Court
The Woodlands
Texas 77386
U.S.A.
Gerald Francis Rideout 6900
103 Macaulay Drive
Craigiebuckler
Aberdeen AB15 8FL
Scotland
</TABLE>
-74-
<PAGE>
<TABLE>
<CAPTION>
Name and address Number of Ordinary Shares
under Option
<S> <C>
Henry Peter Simpson 1250
Abersnithack Lodge
Monymusk
Inverurie
Grampian AB51 7JB
Scotland
Colin Smith 15,220
21 Coull Gardens
Kingswells
Aberdeen
Aberdeenshire AB15 8TQ,
Scotland
Gary Henry Smith 1000
Mounie Castle Lodge
Oldmeldrum
Inverurie
Grampian AB51 0ED
Scotland
William Tulloch 6000
Woodlands
Tocher Lane
Banchory AB31 5RZ
Scotland
Allan Robert Watt 1000
13 Lochside Drive
Denmore Park
Bridge of Don
Aberdeen
Aberdeenshire AB23 8EH
Scotland
Colin Alexander Black 512
11 Strathburn Gardens
Inverurie
Aberdeenshire
Susan Blease 512
13 Binghill Road West
Milltimber
Aberdeenshire
</TABLE>
-75-
<PAGE>
<TABLE>
<CAPTION>
Name and address Number of Ordinary Shares
under Option
<S> <C>
Martin Balasteros 512
8 Jonesview Drive
Huntsville
Texas 77340
U.S.A.
Irvine Cardno Brown 3000
15 Kirk Crescent North
Cults
Aberdeen AB15 9RP
Eric Boeke 1024
75 Dragonwood
The Woodlands
Texas 77381
U.S.A.
Kevin Charles Davis 6000
50 Hammerfield Avenue
Aberdeen AB10 7FJ
Jeremy Earl 1024
Ironside Croft
New Deer
Turriff
Aberdeenshire
Michael John Fleming 2500
2 Ballieswells Drive
Bieldside
Aberdeen
Bruce John Gavin 1000
46 Dubford Place
Bridge of Don
Aberdeen
Robert Gissler 2048
3607 Cedar Glen Lane
Spring
Texas 77388
U.S.A.
</TABLE>
-76-
<PAGE>
<TABLE>
<CAPTION>
Name and address Number of Ordinary Shares
under Option
<S> <C>
Ian Gordon 1536
5 Redlands Court
East Whitburn
West Lothian EH47 0LJ
John Leitch 1536
12 Sawmill Grove
The Woodlands
Texas 77380
U.S.A.
Bruce McLeod 1024
10 Woodside Crescent
Mintlaw
Peterhead AB42 5TD
Iain McLeod 1024
11 Reisque Avenue
Newmachar
Aberdeenshire AB21 0PP
Lee Alexander Mercer 1000
34 Fairview Avenue
Inverurie
Aberdeenshire AB51 3WY
Christophe Morand 1024
22 Rue Mozart
Residence Arrayou, 64000 PAU
France
William. Morrison 1024
17 Hammerfield Avenue
Aberdeen
Clifford. Mueller 1024
9521 Carlow
La Porte
Texas 77571
U.S.A.
Ian O'Brien 1024
Sevenum, Logie Road
Tipperty
Aberdeenshire AB41 8LT
</TABLE>
-77-
<PAGE>
<TABLE>
<CAPTION>
Name and address Number of Ordinary Shares
under Option
<S> <C>
Gary Neil Paver 1000
Vygeboom
Hillheap of Durno
Pitcaple AB51 9ER
Daniel Purkiss 1536
10 Whinnyfold
Cruden Bay
Aberdeenshire AB42 0QH
Stephen Reid 3000
40 Lochside Drive
Bridge of Don
Aberdeen
Richard Paul Rubbo 15,600
10 Maple Loft Place
The Woodlands
Texas 77381
U.S.A.
David Michael Shand 10,000
Beatties Cottage
Drum Castle
Aberdeen AB31 3AH
Andrew Reid Skinner 1000
5 Oldfield Park
Milltimber
Aberdeen AB23 8FW
Ronald George Taylor 500
28 Slains Circle
Bridge of Don
Aberdeen AB2 8JW
Ian Thow 5000
224 Springfield Road
Aberdeen AB15 6AU
</TABLE>
-78-
<PAGE>
Part 7
Details of Shareholders as at the date hereof
<TABLE>
<CAPTION>
Name and Address Number of shares held
<S> <C>
3i Group plc 50,320
91 Waterloo Road
London SE1 8XP
James Anderson 1,260
4 Douglas Court
Duncraig
Perth
Western Australia 6023
Australia
Napoleon Arizmendi 13,150
11910 West Presley
Magnolia
Texas 77355
U.S.A.
Alison Louise Black 160
11 Strathburn Gardens
Inverurie
Aberdeenshire AB51 4RY
SCOTLAND
John Alexander Black 160
11 Strathburn Gardens
Inverurie
Aberdeenshire AB51 4RY
SCOTLAND
Rachel Louise Black 60
11 Strathburn Gardens
Inverurie
Aberdeenshire AB51 4RY
SCOTLAND
Colin Alexander Black 170
11 Strathburn Gardens
Inverurie
Aberdeenshire AB51 4RY
SCOTLAND
</TABLE>
-79-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of shares held
<S> <C>
Carlo Borra 5,810
Contrada Da Macchiano 20,
65015 Montesilvano Pescara
ITALY
Brett Wayne Bouldin 18,780
707 Creek Forest Circle Spring
Texas 77380
U.S.A.
Frances Adele Bowyer 2,290
3 Earlswells Drive
Cults
Aberdeen
Aberdeenshire AB15 9NW
Michael Lewis Bowyer 3,170
3 Earlswells Drive
Cults
Aberdeen
Aberdeenshire AB15 9NW
Peter David Bowyer 1,180
3 Earlswells Drive
Cults
Aberdeen
Aberdeenshire AB15 9NW
Susan Elizabeth Bowyer 1,180
3 Earlswells Drive
Cults
Aberdeen
Aberdeenshire AB15 9NW
Angela Boyle 520
22 Earlspark Crescent
Bieldside
Aberdeen
Aberdeenshire, SCOTLAND
Kate Scott Boyle 520
22 Earlspark Crescent
Bieldside
Aberdeen
Aberdeenshire
SCOTLAND
</TABLE>
-80-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of shares held
<S> <C>
Louise Boyle 520
22 Earlspark Crescent
Bieldside
Aberdeen
Aberdeenshire
SCOTLAND
Maurice Scott Boyle 1,040
22 Earlspark Crescent
Bieldside
Aberdeen
Aberdeenshire
SCOTLAND
Dominique Cosentino 6,970
4 Rue De La Rouvieres
64160 Morlaas
France
James Crabb 2,500
Lodge House
Little Banchory
Banchory-Devenick AB12 5XS
Scotland
June Alison Crabb 2700
Lodge House
Little Banchory
Banchory-Devenick AB12 5XS
Scotland
Louise Alison Crabb 2,400
Lodge House
Little Banchory
Banchory-Devenick AB12 5XS
Scotland
Melanie June Crabb 2,400
Lodge House
Little Banchory
Banchory-Devenick AB12 5XS
Scotland
</TABLE>
-81-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of shares held
<S> <C>
Kenneth O'Neal Daves 3,760
20910 Timberridge Drive
Magnolia
Texas 77355
U.S.A.
John Day 270
Rohallion
Brae Road
Gourdon
Scotland
Paul Michael Day 1,170
63 Beaconsfield Place
Aberdeen AB15 4AD
Scotland
Ronnie Joe Gilbert 3,760
24150 Valerie
Porter
Texas 77365
U.S.A.
Halliburton Holdings Limited 334,360
150 The Broadway
Wimbledon
London SW19 1RX
England
Laurence William Kinch 300,000
Westfield Lodge
Milltimber
Aberdeen
Aberdeenshire
Scotland
Sydney Joseph Littleford 28,000
36 Caspian Way
Brigadoon
Western Australia 6069
Australia
Jean-Marc Lopez 1,160
5 Lotissement Les Magnolias 64320 - Sendets France
</TABLE>
-82-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of shares held
<S> <C>
Steven Cratus Owens 37,570
22 Pebble Hollow Court
The Woodlands
Texas 77386
U.S.A.
PES Trustees Limited 141,130
34 Albyn Place
Aberdeen
Aberdeenshire AB10 1FW
Scotland
Michael Adam Reid 11,460
23 Cromar Gardens
Kingswells
Aberdeen AB15 8TF
Scotland
Gerald Francis Rideout 1,810
103 Macaulay Drive
Craigiebuckler
Aberdeen AB15 8FL
Scotland
Louise Victoria Rideout 300
103 Macaulay Drive
Craigiebuckler
Aberdeen AB15 8FL
Scotland
Nicola Jane Rideout 300
103 Macaulay Drive
Craigiebuckler
Aberdeen AB15 8FL
Scotland
Jean Marie Rubbo 100,750
10 Maple Loft Place
The Woodlands
Texas 77381
U.S.A.
</TABLE>
-83-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of shares held
<S> <C>
Henry Peter Simpson 1,740
Abersnithack Lodge
Monymusk
Inverurie Aberdeenshire
AB51 7JB
Scotland
James Henry Simpson 1,600
Abersnithack Lodge
Monymusk
Inverurie
Aberdeenshire AB51 7JB
Scotland
Ruth Elizabeth Simpson 1,650
Abersnithack Lodge
Monymusk
Inverurie
Aberdeenshire AB51 7JB
Scotland
Stuart Matthew Simpson 1,600
Abersnithack Lodge
Monymusk
Inverurie
Aberdeenshire AB51 7JB
Scotland
Anna Smith 1,820
21 Coull Gardens
Kingswells
Aberdeen
Aberdeenshire AB15 8TQ
Scotland
Anne Alexander Smith 1,820
21 Coull Gardens
Kingswells
Aberdeen
Aberdeenshire AB15 8TQ
Scotland
</TABLE>
-84-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of shares held
<S> <C>
Colin Smith 1,310
21 Coull Gardens
Kingswells
Aberdeen
Aberdeenshire AB15 8TQ
Scotland
Gary Henry Smith 7,650
Mounie Castle Lodge
Oldmeldrum
Inverurie
Aberdeenshire AB51 0ED
Scotland
Grant Alexander Smith 1,820
21 Coull Gardens
Kingswells
Aberdeen
Aberdeenshire AB15 8TQ
Scotland
Matthew Richard Smith 1,820
21 Coull Gardens
Kingswells
Aberdeen
Aberdeenshire AB15 8TQ
Scotland
Timothy Ratner Tips 7,510
4002 Juniper Lane
Spring
Texas 77389
U.S.A.
William Tulloch 710
Woodlands
Tocher Lane
Banchory AB31 5R2
Scotland
Allan Robert Watt 1,380
13 Lochside Drive
Denmore Park
Bridge of Don
Aberdeen
Aberdeenshire AB23 8EH
Scotland
</TABLE>
-85-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of shares held
<S> <C>
Denise Watt 1,380
13 Lochside Drive
Denmore Park
Bridge of Don
Aberdeen
Aberdeenshire AB23 8EH
Scotland
Jodie Watt 1,380
13 Lochside Drive
Denmore Park
Bridge of Don
Aberdeen
Aberdeenshire AB23 8EH
Scotland
Jonathan Watt 1,380
13 Lochside Drive
Denmore Park
Bridge of Don
Aberdeen
Aberdeenshire AB23 8EH
Scotland
Drummond Wilkinson Whiteford 131,620
Westfield Cottage
Contlaw Road
Milltimber
Aberdeen
Aberdeenshire AB13 0EX
Scotland
June Whiteford 15,290
Westfield Cottage
Contlaw Road
Milltimber
Aberdeen
Aberdeenshire AB13 0EX
Scotland
_________
1,266,540
</TABLE>
-86-
<PAGE>
EXHIBIT 5.1
[VINSON & ELKINS LETTERHEAD APPEARS HERE]
June 3, 1999
Halliburton Company
3600 Lincoln Plaza
500 North Akard Street
Dallas, Texas 75201-3391
Ladies and Gentlemen:
We acted as counsel for Halliburton Company, a Delaware corporation
("Halliburton"), in connection with Halliburton's registration statement on Form
S-4 (the "Registration Statement") relating to the offering, sale and delivery
of shares (the "Shares") of Halliburton's common stock, par value $2.50 per
share, pursuant to the proposed offer of Halliburton to acquire all the issued
ordinary share capital of PES (International) Limited, a corporation organized
under the laws of Scotland ("PES"), other than those shares now owned indirectly
by Halliburton. Capitalized terms used but not defined in this opinion are
defined in the Registration Statement and are use herein with the same meanings
as ascribed to them therein.
Before rendering our opinion, we examined certain of the corporate records
of Halliburton, including its Restated Certificate of Incorporation, certain
resolutions of the Board of Directors of Halliburton, the Registration Statement
and the exhibits thereto and such certificates of corporate officers of
Halliburton and governmental officials as we deemed necessary for the purposes
of this opinion. As to matters of fact relevant to the opinions expressed
herein, and as to factual matters arising in connection with our examination of
the above described documents, we relied upon certificates and other
communications of corporate officers of Halliburton and governmental officials
without further investigation as to the facts set forth therein.
Based upon the foregoing, we are of the opinion that the Shares have been
validly authorized for issuance and, upon issuance as described in the
Registration Statement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement. By giving such consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission issued thereunder. For purposes of the
foregoing opinions,
<PAGE>
Halliburton Company
Page 2
_______, 1997
we assumed that the Shares will be offered, issued and sold in compliance with
all applicable state securities or Blue Sky laws.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
VINSON & ELKINS L.L.P.
<PAGE>
EXHIBIT 8.2
[VINSON & ELKINS LETTERHEAD APPEARS HERE]
June 2, 1999
Halliburton Company
3600 Lincoln Plaza
500 North Akard Street
Dallas, Texas 75201-3391
Subject: PES (International) Limited
------------------------------------
Gentlemen:
We participated in the preparation of the Registration Statement on Form S-
4 with respect to the Recommended Offer by Halliburton Company for the Ordinary
Share Capital of PES (International) Limited, including the discussion set forth
in the Registration Statement under the heading "United States Federal Tax
Consequences". The discussion and the legal conclusions with respect to United
States federal tax matters set forth therein reflect our opinion, and we believe
they are accurate and complete in all material respects.
We hereby consent to the use of our name in the Registration Statement and
to the filing of this opinion as part of the Registration Statement.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
VINSON & ELKINS L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this registration statement of our report dated January 25, 1999 included in
Halliburton Company's Form 10-K for the year ended December 31, 1998 and to all
references to our Firm included in this registration statement. In said report,
Arthur Andersen LLP states that with respect to Dresser Industries, Inc., for
each of the two years in the period ended December 31, 1997, its opinion is
based on the reports of other independent public accountants, namely
PricewaterhouseCoopers whose report thereon appears herein. The financial
statements referred to above have been included herein in reliance on the report
of such independent accountants given on the authority of PricewaterhouseCoopers
as experts in auditing and accounting.
Arthur Andersen LLP
Dallas, Texas
June 2, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Halliburton
Company on Form S-4 (File No. 333-_____) of our reports on our audits of the
consolidated financial statements of PES (International) Limited in respect of
each of the two years ended March 31, 1997 and 1998 and our report on the
reconciliation of significant differences between U.S. and U.K. Generally
Accepted Accounting Principles. We also consent to the references to our firm
under the captions "Experts" and "Selected Historical Consolidated Financial
Data".
/s/ PRICEWATERHOUSECOOPERS
_________________________________________
PricewaterhouseCoopers
Aberdeen, Scotland
June 2, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-4 of
Halliburton Company of our report dated November 26, 1997 relating to the
financial statements of Dresser Industries, Inc. and its subsidiaries (not
presented separately herein), which appears in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
June 2, 1999
